We continue to favour Mengniu (2319HK) in view of accelerating dairy demand growth in China, as well as being well-geared in the relatively defensive staple sector. Further, with its stringent sales and product upgrade strategy underpinned by proven execution, we believe Mengniu's brand competitiveness is set to enhance, brightening its sales and margin outlook. This coupled with bottoming out of Yashili (1230HK), we expect Mengniu earnings recovery path continues to be well on track. Coupled with undemanding valuation (2018 EV/EBITDA of 12.2x and PE of 20.9x), we recommend investors to accumulate the shares on weakness.

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