Shares of China Mengniu Dairy gained more than 4 per cent after the leading dairy firm said first-quarter sales picked up following a decline last year.
The Inner Mongolia-based company said in an analysts conference yesterday that its revenue had grown year on year since January this year. Gross profit margin is also expected to improve thanks to the launch of new products, better cost control and a rise in retail prices.
Mengniu shares rose 4.02 per cent to HK$22 yesterday, against a 0.7 per cent rise in the benchmark Hang Seng Index.
BNP Paribas analyst Charlie Chen said: "Last year was a transition period for Mengniu and it's no surprise to see its impact on its business performance. Yet we expect it will outpace average industry growth this year."
The mainland dairy industry was forecast to grow 12 per cent in 2013, he added.
Mengniu reported that revenue for the year to December dropped 3.5 per cent to 36.1 billion yuan (HK$45.1 billion) as changes to product mix led to a drop in sales volume.
Net profit slumped 20.9 per cent to 1.26 billion yuan due to the turnover decline, the rising cost of raw milk production, hiring of quality inspection staff and use of more inspection equipment. Annual production capacity rose by 0.53 million tonnes to 7.58 million tonnes by December, the company said
Mengniu chief executive Sun Yiping said the company had a five-year strategic plan to strengthen milk sources and quality control, rationalise brand structure, adjust product portfolio and improve management.
Mengniu, a rival of local dairy firms like Yili and Bright Dairy, is striving to improve product quality after its involvement in a series of food safety scandals over the past few years.
The latest indent was in December 2011 when the authorities discovered excessive cancer-causing aflatoxin M1 in some milk products made by Mengniu's Sichuan factory.
To better control the raw milk quality, Mengniu has raised the proportion of milk sources supplied by self-managed and large-scale farms to 93 per cent from 85 per cent a year ago.
Last June, Mengniu introduced Arla Foods, a European dairy giant headquartered in Denmark, as its second-largest strategic shareholder and jointly established a mainland research centre.
It proposed a final dividend of 16 fen per share for the period.