China Dairy Modern Dairy positive profit alert plus controlling stake on Shengmu

Equity Research 25 July 2026 | 3:07PM HKT

China Dairy: Modern Dairy positive profit alert plus controlling stake on Shengmu; positive read across to Mengniu

What’s new: Leaf Liu | Goldman Sachs (Asia) L.L.C. n Modern Dairy (not covered) issued a positive profit alert, guiding for 1H26 net Christina Liu profit of no less than Rmb43mn (vs. a Rmb972mn loss in 1H25), and this | Goldman Sachs (Asia) L.L.C. turnaround was mainly driven by i) lower fair value losses on dairy cows due to a Valerie Zhou decline in the number of culled cattle and an increase in the selling price of culled | Goldman Sachs (Asia) L.L.C. cattle, ii) stable raw milk gross margin with higher gross profit value, and iii) continued cost reduction and operating efficiency improvements. The Rmb43mn+ NP guided by Modern Dairy for 1H26 may imply a c.Rmb21mn associate income for Mengniu in 1H26 (based on its c.49% stake in Modern Dairy), already close to GSE’s 2026 full year estimates at Rmb25mn (GSE of associate loss in 1H26 at -Rmb169mn). n The company also announced that its mandatory cash offer for China Shengmu (China leading organic dairy company owning 34 farms and 144k dairy cows with c.2,169 tonnes of daily fresh milk production, per its 2025 annual report) has become unconditional in all respects on 20 July and the offer will remain open until Aug 3rd. Following the closing date on 21 July, Modern Dairy held c.81.17% of China Shengmu shares with 1) c.49.9% of all issued shares accepted until 21 Jul, 2) plus 29.99% shares holding pre-acquisition by Mengniu and additional c.1.28% shares acquired on Oct 2025. Once the deal is completed with all free float accepted, Mengniu’s associate income from Shengmu will potentially increase through its c.49% stake in Modern Dairy.

We view the pending acquisition as offering potential positive read-across to Mengniu (it owns c.49% of Modern Dairy equity interest as of Jun 2026), due to the potential for operating synergies for Modern Dairy and foreseeable higher direct exposure of Mengniu to a larger premium raw milk resources base in the near future.

The authors would like to thank Lily Qi for her contribution to this report.

Price Target Risks and Methodology - Mengniu Dairy

Valuation methodology: We are Buy rated on Mengniu. Our 12-month TP of HK$24.0 is based on a 15.1x 2027E P/E discounted back to mid-2027 with a 9.6% COE.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Key downside risks:1) Slower-than-expected premium demand; 2) Slower-than-expected dairy demand recovery; 3) More intense dairy industry competition; 4) Wider losses in new categories.