Bank of America Securities has issued a research report stating that the recent share price of Mengniu Dairy (02319) has been subjected to irrational selling, primarily driven by misinformation and misunderstanding, thus creating a particularly attractive buying opportunity. The bank's channel checks indicate that Mengniu's sales in May recorded positive growth, in contrast to widespread market rumors of a potential decline. Furthermore, April and May are typically off-peak seasons, with market focus on channel inventory, making it difficult to predict underlying trends. Bank of America Securities expects Mengniu's dividend yield to reach 4.5% in 2026. The firm reiterates its 'Buy' rating on Mengniu, maintaining an unchanged target price of HK$21.

Bank of America Securities notes that the company's operational performance year-to-date has also exceeded the median of its guidance for mid-to-high single-digit sales growth in fiscal 2026. This is coupled with a lower base in the second half of 2025 (with sales declining 7.6% in H2 2025 and 6.9% in H1 2025, respectively) and expected benefits from the earlier timing of the Lunar New Year in 2027. Following a reduction in raw milk production capacity of approximately 10% since 2024 (from 6.5 million heads to 5.84 million), China's contract milk price has stabilized at RMB 3 per kilogram since mid-2025. Concurrently, the non-contract milk prices of smaller peers have converged with contract price levels, with the discount rate narrowing from over 50% at its peak to less than 10% currently. This levels the competitive playing field, driving a recovery in Mengniu's market share. The bank anticipates that the capacity reduction process will resume, supporting an eventual supply-demand balance and leading to a moderate recovery in milk prices. It expects leading companies like Mengniu to enjoy lower procurement costs than their peers, enabling further market share recovery and improvement in average selling prices.