Analysts at Goldman Sachs have made a sharp U-turn on China’s appetite for cheese — and the snacking habits of its children — in the latest reassessment of the way the country’s consumer tastes are changing.
At the centre of Goldman’s volte face is a stock recommendation on Shanghai-listed Milkground, China’s leader in the competitive culinary realm of the cheese lollipop — a delight that combines cheese with sweet flavours such as chocolate and banana, is aimed at the under-12s and claims to have solid nutritional value.
In June 2022, Goldman initiated analyst coverage on Milkground with a resounding “buy” recommendation, a punchy 12-month price target and a 40-page thesis on the lucrative trajectory for per capita cheese consumption in the world’s second-biggest economy. Children’s snacking was expected to be the pre-eminent driver of “multiyear cheese market growth”.
Less than a year later Goldman has become less bullish.
Investors are “underestimating the pace and magnitude of deceleration in cheese penetration”, the bank said this week in a note that cut its recommendation on Milkground to a “sell”.
Its analysts blamed the softer macro backdrop and volatile spending power. Sales of cheese lollipops, in particular, were hit by the tightening of family purse-strings.
The bank’s call comes as markets are struggling to assess the prospects for China’s economy after zero-Covid curbs ended last year. While first-quarter economic growth was better than expected, investors have dumped Chinese stocks on signs that consumer confidence remains weak.
Underpinning Goldman analysts’ original optimism was an estimate that, by 2030, mainland China’s per capita cheese consumption would move from 0.18kg per year towards 0.5kg per year, or roughly where Taiwan’s is today — still just a slice of the 17.3kg per year in the French cheese market.
With the tailwind of general dietary change, the analysts estimated that China’s cheese market would double from $3.6bn in 2022 to $7.3bn in 2026.
The cheese lollipop concept was introduced to China in 2004 by a foreign brand and many variants have followed. Milkground, which was formerly known as Guangze Dairy and listed in 2016, introduced its version of the lollipop and soared to the leading position against rivals Yili, Milkana and Dr Cheese.
Goldman now sets a 12-month share price target for Milkground of Rmb17.4, some 64 per cent below what it told investors to expect when it wrote about the company last year. Milkground shares closed on Thursday at Rmb26.11.
According to data from Refinitiv, Goldman’s is the only “sell” recommendation on Milkground, whose stock has five “strong buy” and eight “buy” calls from different research houses.
