[ET Net News Agency, 13 January 2021] Daiwa Research raised its target price for China
Mengniu Dairy (02319) to HK$58 from HK$45 and maintained its "buy" rating.
The research house said Mengniu remains Daiwa's top pick for 2021 in the China dairy
sector, on the back of (1) continual operating margin expansion from product mix upgrades
and operating leverage on the efficient use of selling expenses, (2) its dairy farm
investment over the past 10 years enabling it to achieve a lower production cost versus
peers in facing a raw milk upcycle in 2021, and (3) anticipation of more value-accretive
M&As.
Daiwa noted that raw milk cost in the spot market increased by more than 10% QoQ in 4Q
2020, due to seasonality and scarcity of quality raw milk. It expects Mengniu's upstream
sourcing capability enables it to launch premium products like pasteurised milk quicker
than peers and to enjoy a lower unit raw milk cost. (KL)