In­vestors sour onMeng­niu af­ter H1 re­port

China Daily (Canada) - - BUSINESS - By EMMADAI in Hong Kong andWANG ZHUOQIIONG in Bei­jing

Meng­niu Dairy saw the big­gest fall in its share price for more than two years on Thurs­day, in Hong Kong trad­ing, over con­cerns about soar­ing mar­ket­ing costs and leaner prof­its due to fierce com­pe­ti­tion.

Stock in China Meng­niu Dairy Co Ltd, the sec­ond-largest dairy pro­ducer in the coun­try, at one point fell by 8.16 per­cent be­fore clos­ing at HK$35.45 ($4.57), down 6.71 per­cent, the big­gest sin­gle-day loss since De­cem­ber 2011.

It was the worst per­former in the bench­mark Hang Seng In­dex, which dropped 0.7 per­cent.

The dairy pro­ducer’s in­terim re­sults posted on Thurs­day showed 25 per­cent year-on-year rev­enue growth to 25.84 bil­lion yuan ($4.2 bil­lion) in the six months end­ing June 30. In the same pe­riod, net profit soared 39.9 per­cent to 1.05 bil­lion yuan.

No in­terim div­i­dend was pro­posed.

The com­pany’s mar­ket­ing ex­pense more than dou­bled in the first half. Sell­ing and dis­tri­bu­tion cost rock­eted 54.91 per­cent to 5.9 bil­lion yuan from 3.81 bil­lion yuan in the same pe­riod last year, high­light­ing the in­ten­si­fy­ing com­pe­ti­tion in the sec­tor.

“Chi­nese dairy com­pa­nies are largely uni­form and that leads to fierce com­pe­ti­tion. New prod­uct pro­mo­tion, in par­tic­u­lar, con­sumes huge amounts of mar­ket­ing funds. Meng­niu is not the only listed com­pany re­port­ing enor­mous mar­ket­ing ex­pense in the first half. Bright Dairy also re­ported an in­crease in sales costs,” said Jian Ai­hua, food in­dus­try an­a­lyst of CICon­sult­ing.

Song Liang, an in­dus­trial an­a­lyst, said: “The fact that Meng­niu’s shares slid de­spite the im­prov­ing fi­nan­cial re­sults re­flects in­vestors’ doubts over China’s dairy in­dus­try. Lack of con­fi­dence in the dairy prod­uct con­cept, rel­a­tively high prices for raw milk and the po­ten­tial threat from im­ported milk and dairy prod­ucts have been hold­ing in­vestors up.”

How­ever, the com­pany said mar­ket­ing ex­pense was mainly boosted by an abun­dant sup­ply of rawmilk.

“In the first half, the in­dus­try faced an over­sup­ply of raw milk,” said Bai Ying, ex­ec­u­tive direc­tor and chief op­er­a­tion of­fi­cer of Meng­niu. Con­tact the writer at emmadai@chi­nadai­lyhk.

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