＜Research＞JPM Downgrades MENGNIU DAIRY (02319.HK) to Neutral, Chops Target Price 57% to $13

　　MENGNIU DAIRY (02319.HK) -0.840 (-6.222%) Short selling $36.73M; Ratio 19.615% shares came under pressure this morning (30 July). It last printed at $12.82, plummeting 5% and becoming the biggest blue-chip loser.

　　JPMorgan forecasted in a report that MENGNIU will continue to face challenges next year, and decided to downgrade its investment rating from Overweight to Neutral. The broker slashed its target price by 57%, from $30 to $13, which is equivalent to 10x 2025 P/E ratio, compared with 15x for peer YILI (600887.SH) -0.430 (-1.738%) .

　　The broker attributed the downgrade of MENGNIU to several factors. Raw milk costs may fall further due to weak demand, leading to increased discounts and provisions for bulk milk powder, which will weigh on the company's sales and profit margins. The company lacked new strong products to drive sales, while its execution flexibility was relatively weak during Mainland's economic downturn. Finally, the broker believed MENGNIU's dividend payout ratio is unlikely to increase rapidly from the current 40% to YILI's 73%.

　　JPM projected MENGNIU's sales and earnings this year to decline by 1% and 10.5% respectively, with sales and net profit growing at a compound annual growth rate of 3% and 8% from 2024 to 2026. The broker's 2024 EPS forecast for MENGNIU is 21% lower than the market consensus.

　　JPM estimated that MENGNIU's sales in 1H24 will decline 5.6% YoY, a decline worse than the 3.6% logged by YILI. MENGNIU's liquid milk sales are also predicted to fall 8% YoY, while formula sales will reduce 3.5% YoY. The broker forecasted MENGNIU's 1H24 earnings to plummet 19.4% YoY, compared to the slight 0.9% YoY dip for YILI.

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-29 16:25.) (A Shares quote is delayed for at least 15 mins.)

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