CLSA believes that the 12% YoY drop in the price of raw milk in China in 2024 YTD reflects unbalanced supply and demand due to a slower-than-expected overcapacity reduction process. The broker's channel checks indicate softer demand for liquid milk, with a double-digit YoY decrease in sales in May and June. Seeing the current discount as more of a passive reaction to soft demand, the broker expects product prices to return to normal levels when demand picks up and destocking ends.
CLSA prefers MENGNIU DAIRY (02319.HK) -0.700 (-4.605%) Short selling $67.50M; Ratio 34.687% on its undemanding valuation, unchanged leading position, and potential to improve shareholder returns. It believes MENGNIU DAIRY's share price has already reflected the challenges it is facing. CLSA lowered its net profit forecast for MENGNIU DAIRY from 2024 to 2026 by 10%-14% and its target price to $22, while maintaining its Outperform rating.
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-19 12:25.)
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