Key takeaway

Rapid growth was driven by synergies between the B2B and household segments, while B2C snack products and channel optimization gradually stabilized and recovered. Both B2B and B2C segments grew by more than 20%, driving 28.95% YoY growth in the cheese business in 1H26. The cheese business's gross margin declined in the short term due to higher raw material prices and an increased revenue contribution from the B2B segment. First interim dividend underscores the focus on shareholder returns. 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 its 1H26 report.

In 1H26, the company recorded total operating revenue of RMB3.304bn (+28.71% YoY), net profit attributable to shareholders of the parent company of RMB151mn (+13.74% YoY), and net profit excluding non-recurring items of RMB121mn (+17.87% YoY).

In 2Q26, the company recorded total operating revenue of RMB1.678bn (+25.84% YoY), net profit attributable to shareholders of the parent company of RMB76mn (+49.64% YoY), and net profit excluding non-recurring items of RMB57mn (+51.38% YoY).

Quick Take

Sustained momentum across B2B and B2C segments drives strong growth in the cheese business

By product category: In 1H26, revenue from cheese, liquid milk, and other products was RMB2.887bn, RMB160mn, and RMB232mn, respectively, representing YoY changes of +28.95%, -16.72%, and +89.96%. The core cheese business further increased its revenue contribution. In 1H26, the company's cheese business gained momentum across both B2B and B2C segments, with each expected to grow by more than 20% and the B2B segment growing faster. In the B2C segment, the company continued to expand its product portfolio for all age groups. It upgraded existing products while developing new offerings and actively expanded into high-potential channels and customized products. In the household dining market, the company continued to broaden its consumer base, usage scenarios, and channels. In the B2B segment, the company launched domestically produced natural mozzarella cheese and Arla whipping cream compliant with the new national standard as key new products. It achieved product breakthroughs, acquired new customers, and continued to advance import substitution.

By channel, revenue from distribution, direct sales, supply chain operations, and foreign trade was RMB2.146bn, RMB750mn, and RMB382mn, respectively, in 1H26. B2B customer acquisition delivered tangible results, while customized and other B2C product categories contributed incremental revenue. Growth in both distribution and direct sales accelerated.

Higher imported raw material prices weigh on gross margin, while expense optimization improves profitability in 2Q26

In 1H26, the company's gross margin was 30.13%, down 0.68 pcts YoY, while its net margin attributable to shareholders of the parent company was 4.58%, down 0.6 pcts YoY. In 2Q26, gross margin was 30.44%, up 0.26 pcts YoY, while net margin attributable to shareholders of the parent company was 4.51%, up 0.72 pcts YoY.

Gross margin: In 1H26, gross margins for cheese, liquid milk, and other products were 33.24%, 7.13%, and 4.48%, respectively, representing YoY changes of -0.92 pcts, -1.55 pcts, and +0.81 pcts. The decline in cheese gross margin was likely due to higher prices for imported dairy products and a larger share of B2B sales.

Expenses: In 1H26, the selling expense ratio was 19.29%, up 1.92 pcts YoY, while the administrative expense ratio was 4.12%, down 1.54 pcts YoY; in 2Q26, the selling expense ratio was 19.69%, up 1.8 pcts YoY, while the administrative expense ratio was 4.01%, down 2.28 pcts YoY. The company continued to increase its marketing investment and improve spending efficiency, with the higher selling expense ratio driving significant revenue growth.

The company is gradually entering a phase of profit realization, prioritizing shareholder returns and declaring its first interim dividend. MILKGROUND (600882.SH) recorded rapid growth in operating results, driven by both B2B and B2C channels, while its profitability improved steadily. Major capital expenditure projects are nearing completion, and the company has begun to share the benefits of growth with shareholders. In 2026, the company declared an interim dividend for the first time, proposing a cash dividend of RMB0.20 per share, tax inclusive, for a total proposed cash dividend of RMB102mn, representing 67.24% of its net profit attributable to shareholders of the parent company in 1H26.

Earnings forecast: We forecast that the company will generate revenue of RMB6.809bn, RMB7.992bn, and RMB9.401bn in 2026–2028, respectively, and net profit attributable to shareholders of the parent company of RMB343mn, RMB459mn, and RMB622mn, corresponding to P/E ratios of 29.43x, 21.99x, and 16.20x.

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.