Mengniu Dairy: Demand Bottoming and New Channels Drive Recovery in 2026, Goldman Sachs Maintains Buy

Overview

This report is based on Goldman Sachs’ discussion with Mengniu management during China consumption research on May 8. Its core view is that dairy demand hit a bottom and is recovering in 2026. Management reiterated a mid-single-digit growth target for 2026 revenue, and 1Q26 has already delivered high-quality high single-digit growth, mainly from liquid milk returning to positive growth, IMF and cheese both growing more than double digits, new product launches, and expansion of emerging channels.

Core views

Goldman Sachs maintains a Buy rating on Mengniu, viewing demand stabilization, price competition easing versus 2025, and raw milk prices broadly bottoming as supports for recovery in the dairy sector in 2026. In liquid milk, UHT milk, Telsun Su, fresh milk, and chilled yogurt all returned to or maintained growth in 1Q26; IMF, adult nutrition, and cheese grew faster with improving profitability. The company faces cost-side risks from raw milk price rebounds and oil-driven logistics costs, but plans to maintain stable core operating margins through tighter control of selling expenses.

Analysis framework

The report combines company interviews, management guidance, category growth tracking, channel structure observation, and valuation methods to assess Mengniu’s 2026 revenue rebound, margin resilience, cost pressure, shareholder returns, and the reasonableness of the target price.

Methodology notes

• Valuation methodsP/E valuation discounting method

  12-month target price of HK$21.4

  Goldman Sachs’ target price is based on a 15.1x 2027E P/E multiple and discounted at a 9.6% cost of equity to year-end 2026.

• Factor analysisGS Factor Profile

  Growth, financial return, valuation multiples, and composite score

  Goldman’s factor framework compares forward revenue, EBITDA, and EPS growth; ROE, ROCE, CROCI; and valuation metrics including P/E, P/B, dividend yield, EV/EBITDA, and EV/FCF on a percentile basis versus the market and industry peers.

• M&A scenarioM&A Rank

  Potential take-private/takeover likelihood grading

  Goldman scores M&A likelihood for covered companies on a 1-to-3 scale, where 1 is high, 2 is medium, and 3 is low; if the rating is 1 or 2, M&A risk may be incorporated into the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Mengniu Dairy (2319.HK)

  Core covered name

  Strengths

  Liquid milk has returned to growth, IMF and cheese are growing faster, new-channel share is rising, and net cash plus free cash flow supports dividend growth.

  Weaknesses

  Some new businesses remain loss-making or still in profitability improvement phases, and gross margin may be pressured by raw milk price rebounds.

  Comparison

  The company’s rating is considered against Goldman Sachs’ food and beverage coverage universe, including China Feihe, Yili Industrial, Nongfu Spring, Tingyi, China Resources Beer, and peers.

  Risks

  Premium demand recovers slower than expected, overall dairy demand recovery is slower than expected, industry competition intensifies, and losses in new categories expand.

• Dairy sector

  Industry recovery theme

  Strengths

  Demand appears to have bottomed, price competition is easing, and raw milk prices broadly appear to have bottomed, signaling sector recovery.

  Weaknesses

  Seasonality may cause 2Q growth to slow versus 1Q, and cost pressure remains linked to raw milk and oil prices.

  Comparison

  Mengniu’s 1Q26 performance may still outpace the industry.

  Risks

  Supply-demand rebalancing could lift upstream feed costs and re-intensify price competition.

Key data

• 2026 Revenue Growth TargetLow to mid-single-digit percentageManagement reiterated this target during the interview.
• 1Q26 Overall GrowthHigh single-digit percentageThe report states high-quality growth in the first quarter.
• Liquid Milk 1Q26 GrowthReturned to positive growthUHT milk grew in the low to high single digits, Telsun Su grew double digits, fresh milk grew over 20%, and chilled yogurt grew in low single digits.
• 2025 Fresh Milk RevenueOver RMB 40 billionEven amid intensified competition, revenue still grew by over 10% in 2025.
• 2025 Chilled Yogurt SalesRMB 60-70 billionMarket share remained stable and rose slightly.
• 2025 Ambient Yogurt SalesRMB 30-40 billionReturned to modest positive growth in 1Q26, near the bottom.
• IMF 1Q26 GrowthAbove double digitsDriven by a more focused channel strategy and key SKU strategy.
• Yashili + Adult Nutrition 1Q26 Growthabout 30%Part of IMF and adult nutrition related businesses.
• Bellamy's 1Q26 Growth60%-70%Driven by cross-border e-commerce and Southeast Asia expansion; 2025 sales were close to RMB 1 billion.
• New Channel Sales ShareAbove 20%Includes e-commerce, club stores, discount retail, O2O, and B2B.
• Packaging Material Cost ShareHigh double-digit percentageMainly composed of Tetra Pak; management believes the overall impact is controllable.
• Logistics Expense-to-Sales RatioMid to high single-digit percentageLikely to reflect oil-price changes quickly.
• 2025 Infant Formula ImpairmentBelow RMB 5 billionManagement expects impairment to be minimal in 2026.
• Free Cash FlowAbout RMB 60 billionSupports gradual dividend increases and higher dividend per share.

Impact & implications

If dairy demand recovery, easing price competition, and new-channel penetration continue, Mengniu’s 2026 revenue and earnings quality are likely to improve, and improved shareholder returns could enhance investment appeal. However, if premium demand recovers slowly, industry competition worsens, or losses in new businesses expand, the pace of target-price and earnings recovery may come under pressure.

Risks

• Premium demand recovers more slowly than expected.
• Overall dairy demand recovery is slower than expected.
• Competition in the dairy industry becomes more intense.
• Losses in new categories expand.
• Rising raw milk prices compress gross margin.
• Oil price fluctuations increase logistics costs.

What to watch

• Whether 2Q26 liquid milk remains in positive growth after seasonal deceleration.
• The recovery pace of UHT milk, Telsun Su, fresh milk, and chilled yogurt categories.
• Growth and margin improvement in IMF, adult nutrition, Bellamy's, and cheese.
• Whether improved new-channel mix above current share levels can be maintained with reasonable margins.
• Whether tighter control of selling expenses can offset margin pressure.
• The pace of dividend increases and the realization of free cash flow in 2026.