Highlights

• Mengniu’s 1H26 results beat on both top-line and bottom line. Excluding the tax adjustment impact, net profit would have increased by around 30%.
   
• 3Q-to-date, all business segments sustained solid growth momentum, leading management to raise its full-year revenue growth target to high single-digits from mid-single-digits. Regarding profitability, while the rising raw material prices may continue to weigh on gross margin, the company’s strengthened expense control could support operating margin expansion in 2H26. Therefore, for the full year, the company still targets to achieve at least a yoy flat operating margin.
   
• Regarding the income tax adjustment, management expects an additional tax amount of Rmb500m this year. Going forward, an annual increase of Rmb200m is expected under the new taxation criteria.
   

• Maintain BUY and raise target price by 5% to HK$24.40.
   

  

Analysis

• 1H26 results beat; net profit should have increased 30% excluding tax adjustment impact. China Mengniu Dairy (Mengniu) reported revenue of Rmb44,795m (+8% yoy), beating VA consensus by 4%. Gross profit was Rmb18,258m (+5% yoy), with gross margin at 40.8% (-1.0ppt yoy). The decline in gross margin can be attributed to: a) price adjustments made for certain basic products in 2H25 to cope with market competition, and b) a significant increase in the costs of raw and auxiliary materials. Operating profit was Rmb3,676m (+4% yoy), with operating margin at 8.2% (-0.3ppt yoy). The decline in operating margin was primarily due to gross margin contraction, partially offset by a 0.7ppt SG&A expense savings. Net profit was Rmb2,371m (+16% yoy), beating VA consensus by 4%, with net margin at 5.3% (+0.4ppt yoy). During the period, the company made an income tax adjustment payment amounting to Rmb320m, bringing the effective tax rate to 31.5% from 24.1% in 1H25. Excluding the tax adjustment impact, net would have increased by around 30%.