Steady momentum amidst volatility

Investment Thesis

Product premiumisation trend. We expect China Mengniu’s product upgrades (Milk Deluxe 3.0 DreamCap) and organic milk to support its premiumisation strategy and enable it to maintain market share and expand margins. We forecast liquid milk sales to deliver a CAGR of 10% in FY20-22F.

Leveraging recent acquisition of Shanghai Milkground. We forecast the cheese category to be a strong growth contender within the dairy sector. We forecast sales to reach close to Rmb10bn by FY22E, helped by a controlling stake of Shanghai Milkground.

Low-temperature pasteurised milk development. China Mengniu has increased its investment in dairy farms in recent years to prepare for increasing popularity of low-temperature products. In 1H21, pasteurised milk sales grew 120%, thanks to positive reception of low-temperature products and channel development (fresh delivery).