Mengniu Dairy (02319), which is committed to implementing the &#34;Create a New Mengniu&#34; five-year plan, has released a comprehensive and high-quality mid-term performance report for 2023.
According to the earnings report, in the first half of this year, Mengniu's revenue grew against the trend by 7.1%, reaching 51.12 billion yuan (RMB, the same below); operating profit was 3.27 billion yuan, a year-on-year increase of 29.9%; the operating profit margin continued to improve to 6.4%, an increase of 1.1 percentage points; the net cash inflow generated by operating activities reached 3.451 billion yuan, a year-on-year increase of 96.7%. The financial data indicates that Mengniu is steadily moving towards its established development goals. At the same time, the company's investment value is also further highlighted.
The Zhitong Finance APP noticed that recently, Mengniu's dynamic PE ratio once dropped to 15 times, a discount of more than 30% compared to the average PE ratio since 2017 of 23 times. In addition to the company's continued share buybacks this year and the significant improvement in cash flow, there may be more measures to increase shareholder returns, such as increasing the dividend payout ratio, to provide shareholders with more certain returns.
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The &#34;value signal&#34; released by Mengniu has been captured by the market. On the day after Mengniu's mid-term report was announced, the stock price opened high and rose by more than 7%, with a consecutive two-day increase of nearly 9%. The gap in market value between Mengniu and Yili has narrowed from 100 billion yuan to 62 billion yuan.
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Data from the Zhitong Finance APP shows that in the nearly 60 trading days ending on September 7th, Mengniu received a net inflow of HKD 1.228 billion in funds. Southbound funds have been continuously increasing their holdings of Mengniu stocks since early July, with the number of shares held increasing from 111 million shares on July 5th to 130 million shares on September 8th, an increase of 17.1%. This demonstrates investors' recognition of Mengniu's mid-term performance and long-term development prospects.
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&#34;Tech-driven Dairy Company&#34; Solidifies Internal Growth Momentum
Investors are optimistic about the future of Mengniu and have placed their bets on the company for an important reason: the visibility of achieving the strategic goal of &#34;creating another new Mengniu&#34; has become increasingly clear.
As a benchmark enterprise in the Chinese food and beverage industry, Mengniu creates value for investors by creating value for consumers. This is the fundamental principle for Mengniu to achieve the strategic goal of &#34;creating another new Mengniu&#34; and the original intention behind the slogan &#34;Consumer First, First, First&#34;.
As consumers, our core demands for dairy products are high quality and safety. In addition, in the current era where the concept of sustainable development is deeply rooted, whether a company can provide high-quality products while practicing a green and sustainable path is also an important factor for consumers to place their trust.
Therefore, while meeting the basic needs of consumers, Mengniu continues to focus on the three dimensions of &#34;green, nutrition, and intelligence&#34;, achieving comprehensive leadership in innovation, branding, data intelligence, and sustainable development.
In terms of product quality, Mengniu develops and provides consumers with diversified dairy products and nutritional supplements that cover the entire lifecycle, exploring new paths in the dairy and nutrition health fields. To ensure product safety, Mengniu has built an end-to-end information platform that covers the entire chain from &#34;breeding-research-procurement-production-storage-transportation-sales-end&#34;, establishing a comprehensive quality management process from the farm to the table.
To practice the concept of sustainable development, Mengniu continues to promote the &#34;GREEN&#34; strategy and the &#34;Dual Carbon&#34; strategy goals announced in 2022, as well as the commitment to &#34;peak carbon emissions by 2030 and achieve carbon neutrality by 2050&#34;. It continues to implement 15 major measures to reduce carbon emissions in the six major links of the entire industry chain, and build a leading strategy that drives the green transformation of the dairy industry.
According to observations from the Zhitong Finance APP, technology plays a crucial role in the construction of the &#34;green, nutrition, and intelligence&#34; development framework for Mengniu.
For example, in terms of product research and development, Mengniu's independently developed rare nutritional ingredient HMO will move towards industrialization in the future. In February of this year, Mengniu launched China's first liquid protein nutritional supplement, Mai Sheng Sports Protein Drink, officially entering the sports nutrition field.
On the supply side, the world's first fully intelligent factory, the &#34;Mengniu Ningxia Factory&#34;, will be officially completed and put into operation in May 2023. The factory has achieved 100 employees, 1 million tons of annual production capacity, and 10 billion yuan of annual output value. The per capita efficiency is 20 times higher than that of traditional factories, creating the highest annual labor efficiency in the global dairy industry, and will bring long-term supply chain manufacturing cost advantages to Mengniu.
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On the consumer side, in April, Mengniu launched the &#34;WOW Health+&#34; digital platform, which provides comprehensive personalized services to help consumers lead healthier and more vibrant lifestyles, achieving &#34;emotional interaction&#34; and &#34;digital connection&#34; with consumers. In addition, Mengniu has also released the world's first model in the field of nutrition and health - MENGNIU.GPT. The &#34;AI Nutritionist Mengmeng&#34; based on this model aims to provide Chinese families with all-weather, high-quality, and personalized nutrition and health services, further consolidating Mengniu's leading position in the field of nutrition and health.
Mengniu, the world's Mengniu, is &#34;blooming&#34; in progress.
&#34;Strive for improvement, let go of outcomes.&#34; By doing the right things repeatedly, Mengniu will gradually raise the industry's competitive barriers, broaden its moat, and demonstrate the synergetic effect of Chinese national brands in the global dairy industry competition. This also indicates that &#34;creating another new Mengniu&#34; is not the end of Mengniu's investment value, but the starting point of a new growth path.
In the view of Zhitong Finance APP, Mengniu's long-term growth potential can be grasped from multiple dimensions. First is the natural growth potential of the industry. According to industry data, in terms of liquid milk equivalent, the per capita consumption of dairy products in China in 2020 was 42.1 kilograms, only 17% of the European Union and 18.5% of the United States. It is expected that the per capita consumption of dairy products in China will continue to grow rapidly due to factors such as increased disposable income and consumption upgrades. It is estimated that by 2025, the retail value of China's dairy industry will reach 738.5 billion yuan.
China's huge dairy consumption market provides a broad growth soil for Mengniu's &#34;multi-category&#34; layout. In recent years, Mengniu has made forward-looking layouts in multiple emerging tracks, such as high-end ambient temperature milk &#34;Yili Special&#34;, high-end fresh milk &#34;Everyday Fresh Language&#34;, and cheese products, grasping the market opportunities of structural upgrades from &#34;drinking milk&#34; to pursuing fresher and higher nutritional value dairy products and transitioning to a &#34;quality-oriented&#34; market.
Mengniu's 2023 interim report shows that Yili Special and Mengniu's flagship brand pure milk lead industry growth, Yili Special expands its market share in the high-end milk market with a leading advantage; low-temperature products adhere to category value, leading the return of low-temperature yogurt growth, and have maintained the first market share for nineteen consecutive years; fresh milk growth outperforms the industry, Everyday Fresh Language continues to increase its market share, and remains the number one brand in the high-end fresh milk market; ice cream promotes innovation breakthroughs comprehensively, achieving double-digit growth for three consecutive years.
Benefiting from continuous improvement in category structure and product structure, Mengniu achieved a gross profit margin of 38.4% in the first half of 2023, an increase of 1.8 percentage points year-on-year.
It should be noted that Mengniu continues to strengthen and deepen its channel foundation, which is an important driving force for Mengniu's leading position in the liquid milk industry and the simultaneous development of multi-category businesses.
Mengniu is firmly committed to RTM transformation, strengthening its control capabilities across all channels, and continuously enhancing its distribution capabilities for a wide range of products. In terms of distribution models, Mengniu has been promoting a distributor-led model with benchmarking through its subsidiary companies. It has also been implementing vertical pilot projects to strengthen sales and operational effectiveness with key retail customers. By adopting an integrated warehousing and store model, Mengniu aims to improve the distribution of products in urban grocery stores.
In the area of market expansion, Mengniu utilizes intelligent methods to empower rural markets, enhancing its control and efficiency in terminal distribution. While focusing on increasing the coverage of rural market sales points, Mengniu also emphasizes the activation of these sales points. Currently, the intelligent network system covers approximately 800,000 active sales points in towns and villages, leading to continuous growth in market expansion and market share. In terms of online channels, Mengniu focuses on opportunities in new retail channels and scenarios such as O2O, community platforms, and live streaming. Its home delivery business has consistently ranked first in market share for three consecutive years, and the efficiency and fulfillment capabilities of its online channels have significantly improved.
Mengniu has undergone comprehensive upgrades in its capabilities, not only solidifying its position in the Chinese dairy industry but also enhancing its potential for success on the global stage.
It is understood that Mengniu's entry into the international market is driven by a strong brand leadership and a commitment to long-term brand philosophy. Mengniu has firmly grasped top-tier IP resources such as the FIFA World Cup and China's aerospace industry, establishing an absolute leading position in terms of brand strength. To date, Mengniu has supported China's aerospace industry for 20 years, becoming a gold partner and embarking on a new strategic cooperation phase for the next 10 years starting in April 2023. Additionally, Mengniu has partnered with FIFA for the fourth time, becoming a global official sponsor for the FIFA World Cup in 2026 and 2030, as well as the FIFA Women's World Cup in 2027. Through continuous collaboration with top-tier global sporting events, Mengniu aims to bring health and happiness to consumers worldwide.
While Mengniu's brand strength has increased, its sales expense ratio has not risen but has instead decreased year by year. The company's sales expense ratio has decreased from 28.3% in 2020 to 24.1% in 2022. In recent years, Mengniu has emphasized the use of intelligent management and precise cost allocation to improve the efficiency of sales expenses. There is further room for the overall sales expense ratio to decrease, providing greater flexibility for operating profit margins.
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Mengniu's effective approach not only creates value for consumers, enhances consumer loyalty, but also expands its brand influence. In the process of operation, Mengniu has significantly improved its own operational efficiency. The increased profits resulting from efficiency upgrades can be reinvested in future business expansion, creating a virtuous cycle.
Based on this, the long-term development path of Mengniu Dairy has become very clear. The company closely follows the changes in the market and consumer demands, solidifying the entire chain's capacity building from &#34;a blade of grass to a glass of milk.&#34; This lays a solid foundation for the company's high-quality development and long-term sustainable growth. While consolidating its leading market position, Mengniu continues to lead the future development of the entire dairy industry. In the market environment where the dairy industry is fiercely competitive, Mengniu will have ample room for integration and embark on a &#34;metamorphosis&#34; journey towards global expansion.

02319

Mengniu Dairy has delivered comprehensive and high-quality mid-term performance, and the strategic goal of "Creating a New Mengniu" is becoming increasingly clear.

Handing in a high-quality and robust midterm report, Mengniu Dairy ushers in a new transformation.