China Mengniu Dairy Co, one of the country’s largest dairy producers, reported a 19.03 percent year-on-year slump in profits attributable to equity shareholders to 2.45 billion yuan ($345 million) for the first half of the year, citing supply chain imbalances and weak consumption.

At a press conference on Thursday, Zhang Ping, chief financial officer of Mengniu, provided a cautious outlook for the remainder of 2024 and into 2025.

“First-quarter sales performance was relatively strong due to pre-Chinese New Year stocking, but the second quarter saw a big slide as the market digested inventories more slowly than anticipated,” Zhang said.

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As the industry continues to grapple with raw milk oversupply issues along with tepid consumer demand, Zhang said he expects these headwinds to “persist for some time”.

However, he said he expects that second-half revenue will be flat or slightly higher year-on-year, benefiting from a lower base in the second half of 2023.

Looking ahead, Zhang said he expects the raw milk glut issue to continue into the first half of 2025, with a potential return to balance by mid-2025. “We are gradually controlling and reducing upstream production, but it will take time for the market to fully rebalance,” he said.

Its revenue declined 12.6 percent year-on-year to 44.7 billion yuan in the first six months to June 30, according to its mid-year interim earnings results released on Wednesday.

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The financial statement said, “The Chinese dairy industry as a whole has experienced a decline in consumption.”

Despite the plunge in profits and revenue, Mengniu’s operating profit margin rose to 7 percent in the first half of the year, up 0.6 percentage points from the same period last year. Its operating profit stood at 3.12 billion yuan.

Its gross profit margin climbed by 1.9 percentage points to 40.3 percent in the first six months.

The Chinese dairy giant posted basic earnings per share of 0.623 yuan and said it would not pay an interim dividend.

To bolster shareholder confidence, Mengniu announced plans for a share buyback program of up to HK$2 billion ($256 million) over the next 12 months.

Its Hong Kong-listed share had rallied 9.82 percent to HK$13.2 by the noon break on Thursday.

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GF Securities Co struck an upbeat tone on China’s dairy industry prospects despite the slowdown in growth it has seen in recent years. The brokerage’s report noted that major players in the dairy sector, such as Mengniu and Yili, maintain significant bargaining power with both upstream and downstream partners, contributing to their ability to generate a free cash flow over the long term.

Contact the writer at tianyuanzhang@chinadailyhk.com