Goldman Sachs has lost its taste for China’s cheese lollipops

Goldman Sachs analysts have taken a U-turn regarding China’s appetites for cheese and its snacking habits among children in their latest assessment of how the country’s tastes are changing.

Goldman’s pivot is centred on a recommendation for the Shanghai-listed Milkground. This is China’s leading company in the culinary world of the cheese lollipops — a treat that combines sweet flavors such as banana and chocolate with cheese. It is targeted at children under 12 and is claimed to be nutritionally sound.

Goldman began analyst coverage of Milkground in June 2022 with a strong “buy” recommendation. They also provided a 12-month price target, and a 40 page thesis that outlined the lucrative trajectory of per capita consumption cheese in the second-largest economy. The “multiyear growth of the cheese market” was predicted to be driven by children’s snacks.

Goldman is less bullish today than it was a year ago.

The bank’s note this week, which reduced its recommendation for Milkground from “buy” to “sell”, said that investors “underestimate the pace and magnitude deceleration of cheese penetration”.

Analysts blamed the weak macro-background and fluctuating spending power. The tightening purse strings of families affected sales of cheese lollipops in particular.

As markets struggle to gauge the future of China’s economy, following zero-Covid curbs ending last year, the bank’s statement is timely. Despite the fact that first-quarter growth was higher than expected, investors have sold Chinese stocks due to signs of low consumer confidence.Goldman analysts were initially optimistic because they estimated that by 2030 mainland China’s cheese consumption per capita would increase from 0.18kg to 0.5kg, or about where Taiwan is now. This still represents a small portion of the 17.3kg cheese market in France.

Analysts estimated that the market for cheese in China would double in size from $3.6bn to $7.3bn by 2026, thanks to the general change in diet.

A foreign brand introduced the concept of cheese lollipops to China in 2004, and since then, many variations have been developed. Milkground (formerly Guangze Dairy) listed in 2016 introduced its version of lollipop, and rose to the top against competitors Yili Milkana, and Dr Cheese.

Goldman has now set a 12-month target share price of Rmb17.4, which is 64 per cent lower than what the firm told investors last year when it wrote about Milkground. Milkground closed Thursday’s trading at Rmb26.11.

Refinitiv data shows that Goldman’s Securities is the only research house to recommend a “sell” on Milkground. The stock received five “strong-buy” recommendations and eight “buys” from other research firms.

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