Consumer China

Dairy recovers from scandal

  • Published 26 Nov 2009

A tainted milk scandal that killed six infants last year clobbered companies associated with it. As trust slowly returns, investors are focusing again on the sector's structural attractions.

China's dairy industry is bouncing back from last year's contaminated milk scandal. Major dairy players such as China Mengniu Dairy (2319:HKG), saw net profit growth of 14% in 1H to reach Rmb 662m ($96.9m, €64.8m, £58.6m), while another, Yili Industrial Group Co (600887:SHA), saw net profits surge 118% to reach Rmb 254m over the period. This marked a turnaround from last year when Mengniu and Yili, as well as Bright Dairy & Food Co (600597:SHA), made combined losses of $430m when melamine, a toxic product used to make plastics that has the effect of making the protein level of milk appear higher, was found in their dairy products in September last year. Sanlu Group, a major milk powder producer, went bankrupt for its involvement in the scam. Recovering domestic demand and lower raw milk costs earlier this year mean sales at scandal-tainted dairy firms are expected to recover to 90% of pre-scandal levels by the end of the year. For those such as American Dairy (ADY:NYSE) that escaped untainted, strong growth continues with revenues up 100% in the first nine months to $227.1m (Rmb 1.55bn, €151.9m, £137.4m).

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