UBS has issued a research note reiterating its "Buy" rating on Mengniu Dairy (02319), with the target price nudged up to HK$22 from HK$21.2. The adjustment comes as the brokerage raised its revenue forecasts for fiscal years 2026 through 2028, reflecting stronger-than-anticipated sales momentum and an upgraded performance outlook provided by management.
Management has pointed to margin expansion in the second half of the year, driven by a favorable low comparison base, tighter cost controls, and enhanced operational efficiency. Consequently, UBS projects the core operating margin to hold steady at around 8% for 2026, with potential upside stemming from improved operating leverage.
During the earnings call, management struck a more upbeat tone, highlighting positive growth across all major product categories in the first half, with mid-single-digit revenue growth exceeding expectations. Mengniu Dairy's core operating profit hit a record high in the first half, buoyed by robust sales performance and disciplined cost management. Sales momentum in July and August has largely mirrored the overall trend from the first half, lending support to management's decision to raise the fiscal 2026 revenue growth target from mid-single-digit to high-single-digit.
Segment-wise, UBS noted that liquid milk revenue posted mid-single-digit growth in the first half of 2026, underpinned by solid sales volumes. Management anticipates that improving raw milk supply-demand dynamics will bolster both sales growth and a gradual recovery in average selling prices during the second half. The company has also reaffirmed its medium-term objective of expanding operating margins by 30 to 50 basis points annually, driven by market share gains, product mix upgrades, and productivity enhancements. Additionally, a rebound in raw milk prices is expected to foster a healthier industry environment and support average selling price recovery, with capital expenditure for fiscal 2026 projected to remain below RMB 2 billion.
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