Morgan Stanley: China Mengniu Dairy (2319.HK) Sustains Positive Sales Trend
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Morgan Stanley maintains an Overweight rating on China Mengniu Dairy (2319.HK), with a target price implying a 14% upside based on DCF valuation. The bank's positive stance follows confirmation that Mengniu sustained high-single-digit sales growth during the first five months of 2026. If June sales meet expectations, the company is on track to achieve mid-to-high single-digit growth for the entire first half.
Mengniu's 2026 full-year targets remain unchanged: mid-single-digit revenue growth, low-single-digit liquid milk growth, and stable operating margins year-on-year. Raw milk prices have stabilized sequentially, contributing to a more rational competitive landscape.
Performance across categories is mixed but constructive. UHT milk returned to positive year-on-year growth, driven primarily by volume, although growth slightly moderated in the second quarter due to high base effects from the Lunar New Year. Fresh milk is accelerating, with first-half growth reaching 25–30%. The overall milk powder business is expected to grow over 30% in the first half, fueled by robust cross-border sales of Bellamy's and continued penetration in Southeast Asia.
Management anticipates steady dividend increases, supported by healthy cash flow and declining capital expenditures. Regarding potential industry tax adjustments—depending on the regulatory classification of fresh milk—Morgan Stanley believes the impact on Mengniu will be minimal. Fresh milk accounts for only a mid-single-digit percentage of total sales, limiting any adverse effects relative to regional peers.