[ET Net News Agency, 12 March 2020] Daiwa Research lowered its target price for China
Mengniu Dairy (02319) to HK$32.6 from HK$35.5 and maintained its "buy" rating.
The research house said dairy product retailers' sales volumes were affected in February
due to the COVID-19 outbreak, resulting in a high level of inventory yet to be digested.
Mengniu and downstream players have kept purchasing raw milk from their suppliers as
contracted and stored it as low-value-add milk powder. Daiwa estimated that such a move
will lead to a 2pp contraction in its 1H gross margin.
On the positive side, Daiwa believes those challenges will speed up the consolidation of
dairy farms and processors, and hence Mengniu's market-share gains. It cut its 2020-21 EPS
forecasts by 3-15% due to the short-term challenges. (KL)