China's Sanyuan Foods' H1 net profit jump 138 percent 

Beijing Sanyuan Foods, the only listed dairy producer that was not implicated in China's milk contamination scandal, posted an on-year increase of 138 percent in net profit to RMB36.73 million (US$5.37 million) in the first half of this year, according to the company's interim report released on Tuesday (Aug 25).  

 

Niu Liping, general manager of Beijing Sanyuan Foods, attributed the profit hike to the company's timely shift towards improving its sales network especially beyond Beijing and injecting more funds to develop more profitable high-end products such as top-quality yoghurts, liquid milk, milk powder and cheeses.

 

Niu said he was upbeat about the performance of the business over the rest of the year and he predicted the growth rate for the second half will be sustained or probably higher.

 

This is the first interim report released by the dairy industry. It will be followed by Bright Dairy and Yili Industrial Group later this week and Mengniu Dairy Group in September.

 

Despite increasing advertising and improving their brand images, analysts are not anticipating profits at Mengniu and Yili as they believe Chinese consumers have not recovered their confidence in the companies.

 

Due to last year's scandal, Yili and Mengniu incurred a loss of RMB1.68 billion and RMB950 million respectively.

 

During the first half of this year, Sanyuan expanded its sales network by 20 percent in its Beijing base as well as extending its reach into second-tier cities, especially in central and eastern regions in the provinces of Shandong, Shanxi, Hebei, Henan and Fujian.

 

The company also doubled the distributors outside Beijing to more than 1,500, which helped to push up profits in markets beyond the capital by 107 percent, the first time that regions outside Beijing outperformed what was the best performing market.

 

While the major competitors are trying to recover their market shares, Sanyuan developed and launched a series of high-end sector products, which it had previously ignored, to gain more brand awareness. According to Niu, these products contributed 20 percent of profits.

 

Following the acquisition of Sanlu's core assets, about 30 percent of the bankrupt dairy's former factories are left redundant and expenditure is needed to standardise the two operations, factors which will reduce Sanyuan's profits over the next two to three years, said Huang Mao, a beverage analyst at Guosen Securities.

 

US$1=RMB6.835 (Aug 27)