Bank of America Securities has released a research report stating that the recent share price decline of MENGNIU DAIRY (02319) represents an unjustified sell-off, primarily driven by misinformation and misunderstandings, which has created a particularly attractive buying opportunity.

The firm's channel checks indicate that Mengniu's sales recorded positive growth in May, countering widespread market rumors suggesting a potential downturn.

Furthermore, as April and May are typically off-season periods, market focus has been on channel inventory, making it difficult to discern underlying trends.

Bank of America Securities expects Mengniu's dividend yield to reach 4.5% by 2026.

The firm has reiterated its "Buy" rating on Mengniu, maintaining its target price at HK$21.

The report notes that the company's operational performance year-to-date is also above the median of its guidance range for mid-to-high single-digit sales growth in the 2026 fiscal year.

This is coupled with a lower base in the second half of 2025 and the expected benefit from the earlier timing of the 2027 Lunar New Year.

Following a reduction in raw milk production capacity by approximately 10% since 2024, China's contract milk prices have stabilized at around RMB 3 per kilogram since mid-2025.

Concurrently, non-contract milk prices for smaller peers are converging with contract price levels, with the discount rate narrowing from a peak of over 50% to less than 10% currently.

This has leveled the competitive playing field, contributing to a recovery in Mengniu's market share.

The firm anticipates that the capacity reduction process will resume, supporting an eventual supply-demand balance and leading to a moderate recovery in milk prices.

It is expected that leading companies like Mengniu will benefit from procurement costs lower than their peers, allowing for further market share recovery and an improvement in average selling prices.