Mengniu Dairy 2018 profit surges 49 per cent, lifted by strong sales, new premium product mix
- The mainland’s second-largest dairy producer reported 2018 profit of 3.04 billion yuan
- Revenue jumped 14.7 per cent to 68.98 billion yuan
China Mengniu Dairy, the mainland’s second largest dairy producer, reported a 49 per cent rise in 2018 net profit, bolstered by rising sales and the introduction of premium products.
Net profit was up 48.6 per cent to a record 3.04 billion yuan (US$452 million) for the year ended December 31, while revenue jumped 14.7 per cent to 68.98 billion yuan.
The company declared a final dividend of 0.181 yuan per share, up 50.8 per cent year on year.
Shares in Mengniu jumped 5.5 per cent to close at HK$27.95 in Hong Kong on Thursday, following the year-end results’ announcement on Wednesday night.
Analysts said Mengniu was facing stiff competition from rival dairy producer Yili Group.
“We expect escalated rivalry in the dairy market in 2019 to 2020. According to the management, Yili added 2.9 percentage point of market share in liquid milk in January to February this year, extending its leading position over Mengniu,” said Summer Wang, an equity analyst at Jefferies.
Mengniu is expected to achieve 77 billion yuan in sales this year, in comparison with Yili’s 90 billion yuan target, according to Jefferies.
Analysts said Yili had benefited from stronger promotional campaigns and retail reach.
“Yili had the best marketing and stocking in supermarkets and greater discounts, though Mengniu offered more gifts,” said Li Qiang, an analyst at Northeast Securities in China.
“The most important thing for listed companies is sustained profitability, instead of making the competitor collapse. What is important is to manage our internals well,” said Lu Minfang, chief executive of Mengniu during the results briefing on Thursday.
Lu said he would focus on branding and innovation, in contrast to Yili’s strategy of offering large discounts.
“Even at bad times, we were not defeated,” said Lu. “Do not worry, we’ll achieve what we pledged [about growth].”
Notably, Mengniu’s subsidiary Yashili International Holdings turned in a profit of 52.3 million yuan after two years of losses thanks to effective cost-cutting and improved consumer confidence in its brands.
Mengniu said that liquid milk sales in China continued to register strong growth thanks to the introduction of new products and active marketing.
“The keen interest of consumers in healthy products have translated into demand for room temperature yogurt, high-end pure milk and chilled fresh milk products, turning them into growth engines of the industry,” the company said in the industry review section of its results announcement.
Mengniu said Beijing had approved 1,195 infant milk products as of the end of December under the government’s infant milk formula registration policy.
It noted industry consolidation had helped to weed out weak producers and contributed to improvement in the quality and safety of domestic dairy products.
“The quality of domestic milk formula continues to improve, both foreign and domestic infant milk formula brands have been developing in equally strong strides in the China market,” Mengniu said.
It noted that consumers were seeking out premium products and that organic infant milk formula and goat milk powder were among the products driving sales growth.
