Increasing profits without increasing revenue, does Mengniu need to find the next growth engine at the liquid milk level?

Source: Kingfisher Capital

| Kingfisher Capital

Revenue of 82.2 billion, down 6.4 billion; profit of 1.5 billion, up 14 times.

The 2025 financials of Mengniu Dairy (2319.HK) are like a carefully trimmed bonsai—lush on the surface, but its roots are actually shrinking.

Liquid milk shrank by 8 billion in 1 year

Mengniu’s core business is liquid milk. It sold 73.0 billion in 2024, falling to 64.9 billion in 2025. That’s 8.1 billion less in one year—equivalent to 22 million evaporating every day.

Although the company’s position as industry No. 2 is still there, the chill has already seeped in.

Demand for ambient-temperature milk is growing weaker day by day, and channel changes are hitting hard—Mengniu has not managed to stay immune either. The explanation in the financial report sounds very official; translated into plain human language, it means: consumers don’t buy ambient-temperature milk anymore, and the shelf space in supermarkets has been taken over by new players.

The low-temperature segment “has ranked No. 1 in market share for 21 consecutive years,” fresh milk has “double-digit growth,” and Daily Fresh has “high double-digit growth.”

The numbers are very eye-catching, but they can’t overcome the fact that the scale is too small. Low-temperature + fresh milk combined still can’t fill the gap left by ambient-temperature milk.

Fresh milk is No. 1 in big-box retailers, O2O, and e-commerce platforms, but these channels themselves are already shrinking. Big-box retailers see falling foot traffic, O2O subsidies are cut back, and e-commerce is engaged in price wars.

Daily Fresh has opened 1,000 stores in Hong Kong and Macau. It sounds like a lot, but how big is the market in Hong Kong and Macau? 7 million people—about the size of a third-tier city on the mainland. The opening of an internationalization story often turns out to be a regional cover-up.

Three main characters in the new story:

Ice cream, milk powder, cheese

With liquid milk shrinking, Mengniu urgently needs a new pillar.

Ice cream sold 5.4 billion, up 4%.

Domestic “double-digit growth,” but the growth of Aisxue overseas doesn’t state specific numbers.

There are lots of new products such as Suibian, Green Mood, and Tilan Saint Snow, but the ice cream ceiling is clearly visible to the naked eye. China’s per-capita ice cream consumption is less than 4 kilograms, while developed countries are above 10 kilograms. But this category is constrained by health anxiety. Because it is high in sugar and fat, more and more parents are not letting their children eat it.

Mengniu’s response is “expanding B-end channel customization and fresh-made operations.” Put it another way: if the C-end can’t sell, switch to becoming a supplier for milk tea shops. How far this path can go depends on the mood of Heytea and Nayuki.

Milk powder: 3.6 billion, up 10%.

Ruipuen, Yourui, Bellamy—its brand matrix is complete. But the infant formula market is collapsing. The number of births dropped from 17.86 million in 2016 to 9.02 million in 2023. Mengniu says it has “performance growth outpacing the industry,” but being far ahead in a shrinking market isn’t really something to brag about.

Adult milk powder is a growth point worth noting. Yourui “ranks first in full-channel market share.” But the average ticket size and repurchase rate for adult milk powder are far lower than for infant formula. For elderly consumers, buying milk powder is functional consumption, not emotional consumption. Brand loyalty? It doesn’t exist—whoever is cheaper gets the sale.

Cheese: 5.3 billion, surging 22%.

Miaoke Lando “stays No. 1 in the industry.” Driven by both B-end and C-end on two wheels. This is Mengniu’s most eye-catching segment in 2025, but cheese penetration in Chinese households is still very low. People in China who grew up eating cheese, and people in China who grew up eating tofu—are two different species. Miaoke Lando’s task isn’t to beat competitors, but to change people’s eating habits. Yili and Mengniu have done this for 20 years, raising China’s per-capita milk consumption from 6 kilograms to 40 kilograms. To cultivate a cheese-eating habit among Chinese people, it may require another 500 years.

Profit extracted out?

Profit of 1.5 billion, up 1,378%. But this is not due to operational improvement—more like accounting magic.

First move: asset impairment provisions are cut significantly.

In 2024, 4.0 billion was booked; in 2025, only 2.2–2.4 billion is booked. Reducing by 1.6–1.8 billion directly turns into profit. But that money doesn’t disappear—it’s just deferred.

Second move: raw milk price cuts.

In 2025, raw milk prices continue to fall. Mengniu’s gross margin improves by 0.3 percentage points to 39.9%. This is extracting profit from upstream breeding households—but raw milk prices won’t keep falling forever. When farmers lose money and exit, supply shrinks, and price rebounds is only a matter of time. Then what will Mengniu’s gross margin do?

Third move: headcount reduction.

41,000 people in April 2024, 38,000 people in 2025—down 3,000. Employee costs drop from 8.1 billion to 7.7 billion, saving 0.4 billion. But there is limited room for further cuts; cutting more would hurt the company’s bones and muscles. Moreover, ongoing investment in R&D and digitalization requires people. Laying off staff while hiring technical talent—the pain of structural adjustment—is still ahead.

Fourth move: expense control.

Selling expenses decreased by 6.4%, and administrative expenses and taxes are also decreasing. But marketing expenses increased by 4.2%, accounting for 9% of revenue. What does that show? What’s saved is channel costs and personnel wages; what’s burned is brand advertising.

Mengniu knows that marketing absolutely cannot stop. Once marketing stops, market share will be lost even faster. It’s a dose that stops pain by drinking poison—but they have no choice but to swallow it.

Mengniu’s financial report is an example of “shrinking-growth.”

Revenue declines, profit grows—driven by accounting adjustments, cost compression, and raw milk dividend effects. None of these are sustainable competitive strengths. The real challenges—liquid milk demand transitioning, new consumption-brand impact, and channel fragmentation—none have been solved.

Revenue of 82.2 billion, profit of 1.5 billion, profit margin of 1.9%. Excluding impairment effects, the operating profit margin is around 8%. What level is this? In 2024, Yili’s profit margin is above 9%, and Nestlé and Danone have been consistently above 10%. Mengniu is still struggling below the industry average line.

A deeper problem is strategic resolve.

The financial report says “adhere to strategic focus and increase investment in R&D and digitalization,” but what has been invested? What has been produced? The new stories of low-temperature milk, fresh milk, and cheese have already been told for too many years, yet the scale is still too small. Internationalization? Southeast Asia, Australia-New Zealand, Hong Kong and Macau—efforts are scattered and not concentrated in a flagship market.

What Mengniu needs is not “financial techniques that boost profit without boosting revenue,” but to find the next growth engine at the level of liquid milk. Where is this engine? Milk powder? Cheese? Plant-based products? Functional dairy? Every track has opportunities, and every track has a giant.

Mengniu’s profit growth in 2025 is its breathing space—not a recovery. The room for headcount reduction will be used up, the window for impairment write-downs will close, and raw milk prices will rebound.

By then, if the new engine hasn’t been ignited, Mengniu may face a reverse dilemma—revenue continues to decline, costs remain rigidly high, and profit? That’s hard to say.

Lu Minfang said “enhance quality and efficiency,” but has quality truly improved? Has efficiency increased? The numbers in the financial report can’t answer this. Consumer choices and distributors’ loyalty are the key.

※ This article is an original work by Kingfisher Capital. Unauthorized republication is not allowed.

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