Analysis China Mengniu Dairy sees change in fortunes

China Mengniu Dairy has long attracted its fair share of headlines - mostly of the kind that the management and shareholders would rather wish away. But events of the past week have underscored a change in fortunes for the former industry leader on the mainland that some market watchers think may gain momentum.

Last week, Mengniu received a vote of confidence when French food giant Danone spent HK$5.15 billion to raise its stake in the company. The icing on the cake came the same day it was named as a new constituent stock of the Hang Seng Index.

Danone's top-up of its Mengniu holding will inject a much-needed dose of optimism in a sector - valued by Mengniu at US$40.6 billion last year - that has grappled with safety scandals and punishing competition over the past five years.

Investors rushed to give their appraisal on the Danone deal, pushing its shares to fresh highs at HK$39.50, while some analysts upgraded their target prices for the stock.

Still, the jury is out on whether Mengniu can recoup its lost ground as the mainland's No1 dairy firm by revenue after ceding the title to Shanghai-listed Inner Mongolia Yili in 2011.