The explosion increased by more than 10 times! Mengniu's one-time "slimming down" by 2.4 billion actually made it more profitable?

Listing | China Visitor Network

Review | Li Xiaoyan

On March 6, Mengniu Dairy (2319.HK) released an update on its 2025 performance, delivering a report card showing significant profit rebound, resilience in core business, and proactive risk clearing amid industry deep adjustments. The announcement indicates the company expects a net profit attributable to shareholders of approximately 1.4 to 1.6 billion yuan in 2025, a substantial increase from the adjusted 104.5 million yuan in 2024; operating profit margin remains steady at 7.9%-8.1%, and operating cash flow remains robust. Despite macro pressures and intensified industry competition, Mengniu has undertaken a proactive “cutting away the diseased” asset optimization, combined with the approaching turning point of the cycle and category structure upgrades, turning the recovery of the dairy industry leader from institutional expectations into real operational results.

The most market-focused aspect of this performance announcement is Mengniu’s forecasted provision for impairment losses of 2.2 to 2.4 billion yuan, mainly covering idle production facilities, accounts receivable with uncertain recoverability, and entrusted loans. The market initially worried about the impact of impairments on profits, but from a financial logic and strategic perspective, this is not a sign of operational deterioration but rather a cautious choice and proactive action by a leading enterprise at the cycle bottom.

This impairment strictly follows International Financial Reporting Standards, classified as non-recurring gains and losses, and does not affect the core business’s ability to generate profits. Data shows that Mengniu’s operating profit margin in 2025, though slightly lower than 8.2% in 2024, remains above pre-2024 levels; operating cash flow is steady year-over-year, indicating normal core operations and solid profitability quality. Industry insiders point out that this is Mengniu’s concentrated clearance of historically inefficient assets and credit risks, consolidating the balance sheet through a one-time “slimming down,” shedding burdens and preparing for the next growth phase.

Of course, behind the impairments also reflect industry-wide challenges: some capacity expansion from earlier periods does not match current demand, and downstream channel and partner funding pressures transmit receivables risks—common tests faced during a consumption downturn cycle. However, Mengniu’s choice to proactively expose and thoroughly resolve these issues during stable core operations demonstrates stronger risk management awareness and governance, offering greater long-term security compared to passive risk exposure.

In the industry’s winter, Mengniu’s fundamentals show resilience through cycles, with the “steady core + explosive new growth points” structural advantage gradually emerging. As raw milk prices stabilize month-over-month and terminal demand continues to improve, liquid milk revenue in the second half of 2025 is expected to recover steadily, with ambient temperature milk as a fundamental product bottoming out and warming up.

The company is firmly advancing its “One Body, Two Wings” strategy, transforming from a single liquid milk business to a diversified integrated dairy group. Emerging categories such as fresh milk, milk powder, and cheese maintained double-digit growth throughout the year, becoming key growth drivers: premium benchmark Telunsu remains a market leader; fresh milk grew double digits in the first nine months; milk powder sales increased quarter by quarter, with Ruipuen and Bellamy both exceeding 30% growth in the first half; ice cream revenue increased from 7.5% to 9.3%; cheese market share leads the industry. Balanced development across multiple categories effectively hedges against volatility in any single segment, building a broader performance moat.

From an industry perspective, China’s dairy industry is at a critical turning point in its cycle. Over the past few years, raw milk prices have continued to decline, and low-price competition has disrupted market order; as upstream herd reduction accelerates and supply-demand balance approaches, clear signals of stabilization in raw milk prices have emerged. Institutions generally predict a cyclical rebound in the industry in 2026. For Mengniu, easing cost pressures will restore terminal pricing order, and combined with scale, brand, and channel advantages, market share and profit elasticity will be prioritized. Citigroup research reports indicate that Mengniu’s liquid milk revenue exposure is higher than peers, and with high repurchase rates and strong brand loyalty, profit elasticity will be more prominent during the cycle recovery.

Entering 2026, Mengniu aims for a strong start with Winter Olympics marketing, Spring Festival scenarios, and refined operations, with recovery signals validated by data. According to MiaoZhen Marketing Academy, Mengniu topped the 2026 Milan Winter Olympics brand digital asset rankings, leading in social volume, engagement, and reputation; Goldman Sachs expects, driven by the delayed Spring Festival sales and Winter Olympics promotions, that sales of ambient temperature milk in January will achieve high single-digit to double-digit growth.

International investment banks are raising ratings and target prices. Citigroup raised its target price to HKD 21.10, judging that Mengniu’s 2026 operating profit margin will return to an expansion trajectory, with cyclical profit recovery outperforming the industry. The logical basis for institutional optimism is clear: stabilized raw milk prices bring cost benefits, operating leverage is positively released, and combined with low base effects, profit growth is expected to outpace revenue growth. Mengniu enhances brand elevation through Winter Olympics IP, leverages Spring Festival scenarios for sales conversion, and combines marketing and channel execution to drive terminal sales, demonstrating industry-leading marketing efficiency and channel implementation.

From performance forecasts to the “opening red” data, Mengniu is completing a key transformation: recovery shifting from analyst expectations to tangible operational reality. The proactive impairment in 2025 is essentially “trading short-term accounting profits for long-term high-quality growth,” and the cyclical upward trend in 2026 provides the best window for Mengniu to accelerate.

At this point, Mengniu’s performance offers three key insights: First, industry leaders rely on resilience to cycle through downturns—despite short-term revenue pressures, profit margins and cash flows remain stable, and core competitiveness remains intact; second, proactive adjustments are better than passive responses—early risk clearing is more beneficial for long-term development than hiding burdens; third, structural optimization determines growth quality—multi-category, high-end, and diversified layouts enhance the company’s resilience amid cyclical fluctuations.

In the short term, industry demand recovery still requires time, with ongoing pressures from basic white milk competition and channel inventory digestion, making the pace of revenue recovery uncertain. However, in the medium to long term, three major trends are clear: the bottoming of the raw milk cycle, consumption structure upgrades, and increasing industry concentration—leading to sustained advantages for leading companies.

2025 will be a “deepening of reserves” year for Mengniu; 2026 is expected to be a “leap to growth” year. With asset clearance, core business momentum recovery, and cycle dividends releasing, this dairy giant, having weathered multiple industry fluctuations, is now approaching the industry spring with lighter assets, healthier structures, and stronger momentum. For the market, Mengniu’s recovery path is also a microcosm of China’s dairy industry moving from cycle lows to steady growth.