[ET Net News Agency, 9 January 2018] Citi Research lifted its target price for China
Mengniu Dairy (02319) to HK$27.03 from HK$21.9, and maintained its "buy" rating.
The research house believes the China dairy industry's recovery is structural, driven by
innovations (in both categories & products) & featuring sales mix trade-up, which will
continue to drive the industry's sales growth and GP margin expansion in 2018.
With stabilized domestic raw milk spot price, Citi believes raw milk over-supply in
China and hence competition in downstream dairy was greatly eased in 2017.
It expects Mengniu to continue to focus on flagship SKUs and Star Products (with high
ASP and GP margins), rather than pursuing low-quality top-line growth at the expense of
margins in 2018 onwards. Citi forecast its GP margin to expand 50bps in each of 2018 and
2019. (KL)