Analyst Note| Jennifer Song |
After transferring coverage of China Mengniu Dairy to a new analyst, we maintain our no-moat rating but raise our fair value estimate to HKD 36 per share from HKD 24, on a more upbeat view of the company's long-term growth outlook, following its reforms on sales channels and marketing strategy, as well as product innovation and optimization. We think growing per capita dairy consumption, the recent introduction of the three-child policy, and other favorable policy tailwinds, will bolster the China dairy product industry’s long-term healthy growth. And Mengniu is on the right track to restore its competitiveness, with market share gains and margin improvement over the next five years. Our fair value estimate of HKD 36 implies fiscal-year price/earnings of 25 times, and an enterprise value/EBITDA multiple of 17 times, a free cash flow yield of 2.3% and a dividend yield of 0.9%. These valuation multiples are consistent with the company’s recent historical valuation range between 2017 and 2019. We think the shares are slightly overvalued presently.