Mengniu Surges as Profit Tops Estimates on Prices, New Products

China Mengniu Dairy Co. surged to a seven-month high in Hong Kong trading after China’s second-largest dairy producer posted full-year profit that beat analyst estimates.

The stock rose 7.1 percent to HK$37.75 as of 9.59 a.m., the highest intraday level since Aug. 28., extending this year’s gain to 18 percent. The benchmark Hang Seng Index dropped 0.1 percent today.

Net income rose to 2.35 billion yuan ($378 million) from 1.63 billion yuan in 2013 as lower raw material prices, new products and marketing campaigns featuring famous faces including SpongeBob SquarePants lifted milk sales. That compared with the 2.11 billion yuan average of 26 analyst estimates compiled by Bloomberg.

Mengniu, which makes milk, yogurt and infant formula, boosted sales in the second half of last year by rolling out new products and repackaging existing ones with endorsements from celebrities such as Taiwanese entertainer Dee Hsu. Raw milk prices finished 2014 about 12 percent lower than their February peak, due to a domestic oversupply of the liquid, according to Rabobank Shanghai-based analyst Sandy Chen.

“Mengniu will also speed up its expansion in the ultra-high temperature milk, chilled products and milk formula businesses,” Chief Executive Officer Sun Yiping said in the earnings filing.

Mengniu’s sales rose 15 percent to 50 billion yuan, compared with the 50.6 billion yuan average of 28 analyst estimates compiled by Bloomberg.

Danone-Yashili

Mengniu, based in Hohhot in northern China’s Inner Mongolia region, is tied with Inner Mongolia Yili Industrial Group Co. as China’s largest dairy company by market share, with the two companies each holding 21.7 percent last year, according to Euromonitor International.

The company has cut deals with France’s Danone and Denmark’s Arla Foods to build consumer confidence in an industry still struggling to overcome a tainted-milk scandal seven years ago.

Chinese consumers have shunned local milk products since infant formula, contaminated with chemical melamine, was blamed for the deaths of at least six infants in 2008, one of several high-profile food safety scandals. The country’s demand for foreign baby milk brands has caused Hong Kong to limit purchases and stressed postal services as far away as the Netherlands.

Danone agreed in October to pay HK$4.39 billion for a 25 percent stake in Mengniu formula unit Yashili International Holdings Ltd. Mengniu’s stake fell to 51 percent on completion.

Yashili’s net income fell 43 percent to 248.8 million yuan last year as sales dropped 28 percent to 2.82 billion yuan, according to a Hong Kong stock exchange filing on Wednesday.

— With assistance by Liza Lin

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