Key takeaway

The synergy between MILKGROUND and MENGNIU DAIRY is emerging, driving rapid growth through combined efforts in the B2B and household segments. The C-end snack products and channel optimization are gradually stabilizing and recovering. This drove the company's revenue growth in 2025 and 1Q26 to 16.29% and 31.81%, respectively. The core cheese business is expected to show even stronger sales performance. Profit growth slowed in 2025 due to impairment impacts, and 1Q26 profit was also affected by share-based payment expenses. Looking ahead to 2026, MILKGROUND will continue to focus on B2B scenarios, expand its customer base, and promote the import substitution of dairy products in the B2B segment. It has already built strong momentum. The cheese business is expected to maintain a high growth trend for the full year.

Event

The company released 2025 earnings results.

In 2025, the company achieved total operating revenue of RMB5.633bn (+16.29%). It achieved net profit attributable to shareholders of the parent company of RMB118mn (+4.29%). It achieved net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses of RMB158mn (+235.94%). In 4Q25, it achieved total operating revenue of RMB1.676bn (+34.13%). It achieved net profit attributable to shareholders of the parent company of -RMB57mn (compared to +RMB29mn in the same period last year). It achieved net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses of RMB38mn (compared to -RMB15mn in the same period last year).

The company releases 1Q26 preliminary result update.

In the first quarter of 2026, the company achieved total operating revenue of RMB1.626bn (+31.81%). It achieved net profit attributable to shareholders of the parent company of RMB76mn (-8.30%). It achieved net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses of RMB64mn (-1.48%).

Quick Take

B2B and B2C efforts drive cheese business growth acceleration, 4Q25 and 1Q26 performance beat expectations

By product category, in 2025, revenue from cheese, trade and liquid milk was RMB4.615bn, RMB623mn, and RMB365mn, representing YoY growth of 22.8%, 17.4%, and -9.1%, respectively. The proportion of the main cheese business further increased by 2.25 pcts to 82.37%. By quarter, cheese business revenue in 4Q25 was RMB1.313bn, up 39.0% YoY, showing strong performance.

In 2025, the B2B segment saw synergy between MILKGROUND and Arla Foods, providing one-stop cheese solutions. It launched domestically produced high-end natural mozzarella and focused on channels such as Western restaurants, bakery, tea/coffee shops, industrial products, and Chinese cuisine. This is expected to lead the overall growth rate. For the C-end household segment, the company refined its product matrix to better fit home consumption scenarios and expanded market coverage. Demand for products like Mozzarella cheese, cheese slices, and domestically produced mild butter increased. For the C-end snack category, the company continued to optimize its consumer age structure. After two years of market adjustment, it is expected to return to positive growth in 4Q25.

In 1Q26, both the C-end and B-end businesses achieved YoY growth exceeding 20%. Specifically, the C-end ambient, chilled, and e-commerce segments all posted solid YoY growth, while B-end growth was primarily driven by the foodservice and key account channels.

By channel, 2025 revenue from distribution, direct sales, and trading was RMB3.445bn, RMB1.035bn, and RMB623mn respectively, representing YoY growth of 7.4%, 113.3%, and 17.4%. The high growth in the direct sales channel is primarily attributed to the consolidation of Arla Foods' B-end direct sales clients and the continued deepening of relationships with existing enterprise customers. Trading and liquid milk segments lifted overall gross margin, while expense optimization further enh anced profitability

In 2025, the company's gross margin was28.95%, up0.66 pcts YoY. The net profit margin attributable to shareholders of the parent company was2.1%, down0.24 pcts YoY. The adjusted net profit margin attributable to shareholders of the parent company was 2.8%, up 1.83 pcts YoY. In 4Q25, the gross margin was26.76%, up0.31 pcts YoY. The net profit margin attributable to shareholders of the parent company was-3.43%, down5.72 pcts YoY. In 1Q26, the net profit margin attributable to shareholders of the parent company was4.65%, down2.03 pcts YoY. The adjusted net profit margin attributable to shareholders of the parent company was3.94%, down1.33 pcts YoY.

In terms of gross margin, the 2025 gross margins for cheese, trade, and liquid milk were 33.81%, 4.06%, and 8.34% respectively, representing changes of -1.23 pcts, +1.30 pcts, and +1.31 pcts YoY. Liquid milk benefited from low domestic milk prices. The decline in cheese gross margin is likely due to rising imported dairy product prices and an increased proportion of B-end business.

On the expense side, the 2025 selling expense ratio was17.76%, down1.27 pcts YoY. The administrative expense ratio was5.15%, down0.4 pcts YoY. In 4Q25, the selling expense ratio was18.59%, down0.05 pcts YoY. The administrative expense ratio was3.26%, down2.85 pcts YoY. The company optimized its expense efficiency ratio and stabilized advertising and promotional expenses.

The primary reason for the profit decline in 4Q25 was an impairment provision related to the joint establishment of a merger and acquisition fund, resulting in a related fair value change loss of RMB162mn. Earnings forecast:The company is projected to achieve revenue ofRMB6.551bn in 2026, RMB7.678bn in 2027, and RMB9.021bn in 2028. Net profit attributable to shareholders of the parent company is forecasted at RMB320mn, RMB477mn, and RMB620mn respectively. This corresponds to aPE multiples of 30.53x, 20.49x, and 15.76x. The "Overweight" rating is maintained.

Risks:

1. Risk of intensified competition in the cheese industry: With the rapid development of the cheese industry, new entrants including large dairy companies are continuously entering the market. The intensifying competition may hinder the company's efforts to increase its market share and impact the growth of its product sales.

2. Risk of rising selling expense ratio: Changes in the company's sales strategy due to factors such as market competition may lead to an increase in the company's expense investment, impacting its profitability level.

3. Slow demand recovery leading to the company's net profit falling short of expectations: Cheese consumption, being highly discretionary, is still in a phase of slow recovery. If the demand recovery continues to be slow, the company's net profit may fall short of expectations.