Inner Mongolia Yili Industrial Group Co., Ltd. Releases Performance Update Announcement: Optimizing Asset Quality, Building Momentum for Growth

On March 6, Mengniu Dairy (2319.HK) released an earnings update. Despite adverse impacts from changing consumer demand, channel scenarios, and competitive environment, the company remains committed to its “One Body, Two Wings” strategy, increasing R&D innovation,坚持品牌引领, deepening channel upgrades, and strengthening digital and intelligent transformation. It continues to enhance core competitiveness and operational efficiency, expecting stable operating profit margins for 2025, estimated between 7.9% and 8.1%, with steady year-over-year operating cash flow.

At the same time, the company anticipates recognizing impairment provisions of approximately RMB 2.2 billion to 2.4 billion for some idle production facilities, accounts receivable, and entrusted loans. Market analysts note that this adjustment is a non-recurring gain or loss and does not reflect or affect the company’s current or future main business operations. The company is expected to adopt a leaner, healthier asset structure to prepare for growth.

Proactive Adjustment During Downturn to Optimize Asset Quality

The announcement states that Mengniu’s impairment is based on prudent accounting principles and international financial reporting standards. As a result, it is expected that net profit attributable to shareholders in 2025 will be around RMB 1.4 billion to 1.6 billion.

Industry insiders point out that this impairment is an important measure for Mengniu to proactively identify credit risks of partners, optimize resource allocation, and solidify asset quality amid the industry downturn. It aims to ensure that financial statements accurately reflect asset values through solid accounting, fully preparing for the upcoming industry recovery cycle.

This decision reflects the company’s independent and professional judgment, maintaining stable profit margins in core operations, and thoroughly clearing historical risks within a limited scope. It is a risk management action to prevent potential issues. The impairment strictly follows accounting standards, demonstrating effective corporate governance and internal control systems. Moreover, these impairments are specific cases related to historical or non-core businesses, representing a concentrated cleanup of “atypical risks.”

Milk Price Stabilization and Industry Recovery Boost Performance Flexibility

Currently, China’s dairy industry is at a critical turning point. Over the past few years, upstream raw milk prices have experienced a record decline, with fresh milk prices continuously falling from highs. Low-priced raw milk has provided regional dairy companies and small brands with temporary cost advantages, disrupting terminal market pricing order and causing price band chaos. Now, as dairy cow inventory decreases and supply-demand balance improves, raw milk prices are showing signs of stabilization.

Analysts expect the industry to experience a cyclical rebound by 2026, which will benefit leading dairy companies like Mengniu. Stabilized raw milk prices will effectively reduce low-price competition, restore terminal pricing order, and help leading companies leverage product innovation, branding, and channel strength to increase market share. Citibank’s latest research report also highlights that Mengniu’s revenue exposure to liquid milk exceeds that of peers. As the most frequently consumed and highly brand-loyal category, liquid milk will demonstrate stronger profit elasticity during cyclical recovery.

Facing industry changes, Mengniu remains committed to its “One Body, Two Wings” development strategy, actively responding to external market shifts, continuously strengthening brand foundation, maintaining market share, and innovating product offerings to enhance core competitiveness. The goal is to ensure every consumer “drinks good milk, drinks the right milk.” The company also states that as raw milk prices stabilize month-over-month and demand continues to improve, liquid milk revenue has remained steady since the second half of 2025, achieving stabilization and rebound. Additionally, categories like fresh milk, milk powder, and cheese have all achieved double-digit growth throughout the year, maintaining a strong growth momentum, indicating a diversified business structure.

Market data shows that Mengniu’s flagship brand “Telunsu” remains a leader in the high-end market; Mengniu’s fresh milk has shown strong growth, with double-digit increases in the first nine months of 2025; Mengniu’s milk powder revenue growth in Q3 improved compared to H1, with brands like Ruipuen and Bellamy growing over 30% in H1; Mengniu’s ice cream business grew 15% year-over-year in the first half of 2025, with revenue share rising from 7.5% to 9.3%; Mengniu’s cheese maintains its industry-leading market share. These strong performances across segments provide solid support for the company’s positive cycle outlook.

2026 “Kickoff” and Investment Banks’ Positive Outlook

Entering 2026, Mengniu has taken the lead with a combination of “Winter Olympics marketing + Lunar New Year (CNY) scenarios + refined operations,” effectively boosting sales and achieving a strong start. Several international investment banks have issued positive evaluations. Citibank raised its target price to HKD 21.10. Goldman Sachs expects that benefiting from the late Chinese New Year calendar effect and Mengniu’s Winter Olympics marketing, January’s ambient milk sales will achieve high single-digit to double-digit growth.

Analysts see the New Year’s “good start” as a direct result of Mengniu deeply integrating the Lunar New Year and Milan Winter Olympics marketing hotspots, achieving “brand and effect unity”: Winter Olympics IP elevates brand stature, CNY scenarios drive sales conversion, and the “must-strong” spirit resonates emotionally. Data from MiaoZhen Marketing Academy shows Mengniu topped the 2026 Milan Winter Olympics brand digital asset rankings, leading in social buzz, engagement, and brand reputation.

Citibank emphasizes that Mengniu’s marketing efficiency surpasses industry averages, supporting a stronger cyclical profit recovery in 2026 compared to competitors. The firm expects that as raw milk prices stabilize, positive operating leverage, and low base effects come into play, Mengniu’s operating profit margin will re-enter an expansion phase, accelerating net profit growth. By proactively initiating the 2026 “good start,” Mengniu sends a clear signal to the market: the cyclical recovery of the dairy industry is shifting from expectations in investment bank reports to tangible operational data and brand assets.

As market analysis points out, the recent one-time “book profit” adjustment by Mengniu is aimed at securing sustainable “real profits” in the future. The company is leveraging stronger governance, better asset quality, and clearer strategic focus to drive industry recovery, unlocking greater long-term value for shareholders.