June 10, 2020


China Mengniu Dairy reports sales recovery



China Mengniu Dairy's sales recovered to double-digit growth in April and May compared to the same period last year, after COVID-19 brought losses, sending its shares soaring in Hong Kong on Tuesday, reported South China Morning Post.


China's second-largest producer of everything from milk to ice cream and yogurt warned that its first-half net profit fell between 45% to 60%, according to a stock exchange filing posted before the market opened. That was less than a forecast of an 80% drop by Citigroup.


The virus disrupted supply chains, transportation and production, the company said in a stock filing in late March. In addition to the first-half loss being less than expected, the unspecified "double digit" sales growth in April and May excited investors.


The stock soared as much as 8.6% before closing with a gain of 5.5%, leaving it at HKD30.80, its highest share price since February 7.


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The virus was costly, but the company pointed to a silver lining: consumers are increasingly focused on improving their health, and that is boosting sales of its products.


"Despite the impact of the outbreak on the dairy industry, the epidemic has led to growing consumer desire to focus on health and in particular, boosting the immune system," it said in the filing. "In light of the continuing focus by consumers on health and nutrition, the board expects an increasing demand for high quality dairy products, which the board believes will benefit the development of China's dairy industry and the Group's business."


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Jefferies reiterated its "buy" rating on the stock due to the better-than-expected sales growth over the last two months and kept the company's price target at HKD36.


"We expect sales growth to continue to recover, helped by increasing industry demand and its fast reaction to market changes," stated Jefferies analysts Mark Yuan and Kerith Chen.


Since the outbreak, the company has taken measures to recover. These include increasing promotional efforts to reduce inventories at distribution channels, and accelerating resumption of normal sales through e-commerce, online-to-offline home delivery and close cooperation with fresh food e-commerce platforms, it said in its filing.


"These measures had been effective, and the overall business operations of the Group had recovered in April and May 2020," the company said, adding that all production bases "have resumed normal operation and production".


The double-digit growth compared to the same period last year excludes the impact of the company's selling of its stake in Shijiazhuang Junlebao Dairy and acquisition of Bellamy's Australia Limited, which both took place in 2019, it said.

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