Mengniu Dairy posts 39pc jump in earnings

China Mengniu Dairy, the mainland's largest liquid milk producer, posted a better than expected 39 per cent jump in first-half earnings, thanks to increased sales, especially of higher-margin products, more than compensating for rising raw material costs.

The Hohhot, Inner Mongolia-based producer's net profit rose to 343.43 million yuan or 25 fen a share for the six months to June, up from 246.53 million yuan or 22 fen a share a year earlier, on a 58.7 per cent rise in revenue to 7.55 billion yuan, the company said yesterday.

The net profit surpassed the 307 million to 316 million yuan forecast by Goldman Sachs, BNP Paribas and Deutsche Bank.

The company's shares jumped 8.16 per cent to close at HK$11.14, after the results were announced during the noon break.

'Top-line growth remained strong,'' Goldman Sachs analysts Yifan Deng and Jenny Zhen wrote in a report.

Revenue from liquid milk, accounting for 85 per cent of the company's income, soared 62.8 per cent to 6.4 billion yuan as it took customers from rivals and sold more high value-added milk products, such as long-life milk.

Mengniu chief financial officer Yao Tongshan credited the company's strategy of focusing on these products while discontinuing lower-value items for helping widen the company's gross profit margin to 23.3 per cent in the first half from 22.4 per cent in the same period last year.

The increase was accomplished even as the costs of key ingredients soared. Raw milk jumped 3 per cent and sugar surged 42 per cent to 4.70 yuan per kilogram in June.

Mengniu's market share in the mainland liquid milk market by volume, excluding milk beverages and yogurt, rose 3.1 percentage points to 31.7 per cent over the six months to June, according to an ACNielsen survey.

The liquid milk market grew 27 per cent, according to a Goldman report.