Morgan Stanley lowers target price for Mengniu Dairy to HKD 23, offsetting the adverse effects of market competition with a significant drop in raw milk prices.

According to a research report published by Morgan Stanley on July 31, due to weak milk demand and intense market competition, it is predicted that Mengniu Dairy (02319.HK) will have a weak performance in the first half of the year, with expected revenue and net profit declining by 6% and 24% year-on-year. However, considering the further decline in raw milk prices in the first half of this year, Morgan Stanley believes that the decrease in raw material prices is sufficient to offset the negative impact of market competition. It is expected that Mengniu's core operating profit margin in the first half of the year will increase by 0.3 percentage points, in line with the guidance of a 0.3 to 0.5 percentage point increase in the group's operating profit margin. Morgan Stanley expects Mengniu to control capital expenditures and strengthen shareholder returns under weak industry demand, with an expected dividend yield of 3.8% for the whole year. Accordingly, the target price is lowered from HKD 32 to HKD 23, and the rating remains outperform.