China Mengniu Dairy 2319

[winston]

DJ MARKET TALK: Sell Mengniu On Unclear Outlook; TF Eyes HK$8.00

1608 [Dow Jones] STOCK CALL: Taifook says consumer confidence in China dairy industry remains weak, still reeling from China Mengniu's (2319.HK) violation of Chinese food regulations by adding additive osteoblast milk protein to its high-end milk product Milk Deluxe, which previously contributed about 2%-3% of CMD's total revenue. "The outlook for 2009 remains unclear given the battered sales demand and the potential claims for damages from melamine-tainted milk consumers that have yet to be quantified," says Taifook. Rates stock at Sell, targets HK$8.00 based on 15.4X 2009 P/E. Stock down 2.2% at HK$9.61

[winston]

DJ MARKET TALK: Mengniu May Fall Before Results;Fresh Cues Key-CS

0858 [Dow Jones] China Mengniu (2319.HK) may fall on profit-taking after stock's 3-session, 24.3% rally and before release of FY08 results today. Credit Suisse says while CNY900 million loss for FY08 had been guided (house tips FY08 net loss at CNY889.9 million), pressure is on for management to provide new, positive guidance on 2009 operational outlook for stock to post further upside near-term.

"If this does come through and is subsequently found to be valid, it could lead to upside risks to our forecasts and assumptions," says Credit Suisse. Expects Mengniu's sales volume in 2009 to reach 95% of 2007 levels, but adds volume recovery could come at expense of margins; says earnings uncertainty makes current

valuations' risk-reward profile less compelling. Keeps at Underperform, target HK$9.10. Mengniu ended flat at HK$13.16 Wednesday; 10-day moving average of HK$11.40 likely strong support near-term

[winston]

Mengniu marks loss by Alfred Liu, The Standard HK

Last year's tainted mainland milk scandal hit the bottom line of China Mengniu Dairy (2319) which has posted its first full-year loss since its Hong Kong listing in 2004.

The Inner Mongolia-based dairy reported a net loss of 948.6 million yu an (HK$1.07 billion) in 2008, compared to a profit of 935.8 million yuan the previous year.

The loss per share was 63.9 fen. No final dividend was proposed. The dairy said it will recover quickly this year.

"Sales of each of our products have now recovered to levels of more than 80 percent at the time before the recall of melamine-contaminated products," said vice president Yang Wenjun. "Our results for this year should be promising."

Due to rising raw milk prices and the scandal's impact, Mengniu's gross profit margin last year fell to 19.6 percent from 22.5 percent in 2007.

Chief financial officer Yao Tongshan expects gross profit to stay at a similar level this year.

"The impact on the profit margin could be offset by our cost management," he said. Yao also said Mengniu has no fundraising pressure, even as its debt to equity ratio surged to 36.5 percent at the end of last year from 4.5 percent in 2007.

"Our financial status remains sound and the gearing level is still reasonable," he said.

Following the writeoff for the recall of tainted products and extra costs incurred to get rid of raw milk and embark on a promotional campaign, administrative and other operating expenses last year surged 210 percent to 1.498 billion yuan.

Total revenue jumped 11.9 percent to 23.9 billion from 2007. Revenue from the liquid milk segment totaled 21.1 billion yuan accounting for 88.3 percent of total revenue.

Yang said the company is confident about China's economy in the long term, despite a slower growth pace in the near term. Chief executive Niu Gensheng said: "The group will strive to rebuild customer confidence with sincerity and strengthen its brand by improving quality."

Mengniu shares fell 5.62 percent to HK$12.42 yesterday.

[winston]

DJ MARKET TALK: Mengniu's Premium Valuation Unjustified - Nomura

0839 [Dow Jones] STOCK CALL: Nomura raises Mengniu Dairy (2319.HK) target price to HK$8.30 from HK$5.60 on higher target P/E due to sector re-rating, but keeps Reduce call. Says stocks' recent rally driven by recovering sales, lower milk prices, but Mengniu losing market share (albeit in recovering market), raw milk prices likely to rebound.

"We don't think the premium valuation is warranted amid supply chain risk and weakened leadership." Adds, Mengniu enjoyed premium valuation mainly because investors focusing more on recovery story for Mengniu, looking for stronger earnings growth, but milk scandal has weakened Mengniu's leadership for long term, it has become harder for Mengniu to increase penetration further given increasing competition from second-tier premium plays. Mengniu ended +4.8% at HK$13.02 Friday

[winston]

DJ MARKET TALK: ML Ups Mengniu Dairy To Neutral, Ups Target 67.4%

1424 [Dow Jones] STOCK CALL: Merill Lynch upgrades Mengniu Dairy (2319.HK) to Neutral from Underperform, raises target to HK$16 from HK$9.56 after increasing 2009-11 net profit estimates by 4%-7% on better margin outlook.

Notes raw milk prices have fallen for 13 consecutive months, while retail milk price has been firm, implying gross margin improvement for dairies.

Expects flat revenue growth in 2009, but 13%-15% growth in 2010-11 as industry fully recovers from contamination scandal, end-demand picks up. Expects margin to expand further given lower raw milk price, continued product-mix improvement, lower marketing expenses. Stock +2.7% at HK$15.92.

[winston]

Not vested.

DJ MARKET TALK: Mengniu's Profit Tip Unlikely To Boost Stock Much

1346 [Dow Jones] Mengniu Dairy (2319.HK) +0.6% at HK$18.02 midday, slightly off intraday low of HK$17.82, getting small boost from news Vice President Liu Weixing expects company to return to net profit of CNY700 million-CNY800 million this year vs FY08 net loss of CNY949 million on fast-recovering sales, estimating Mengniu sales "back to around 70% of the level seen before the tainted milk crisis."

Still, this unlikely to surprise too much, with Thomson Reuters poll of 22 analysts tipping FY09 earnings at CNY698.7 billion. Assuming company were to achieve that target, market cap of HK$28.14 billion puts stock at 35X forward P/E, likely to have more than priced in earnings recovery

[winston]

Stock still ripe for milking by Dr. Check, The Standard HK

Dr Check is sometimes frustrated with the research notes issued by US and European investment banks and brokerages.

( Ha Ha ... so am I and many other people )

Take the case of Mengniu Dairy (2319).

The management has just said that sales had speedily recovered following the contaminated milk scandal in the mainland.

Mengniu expects to return to a net profit of 700 million yuan (HK$793 million) to 800 million yuan for this year. The scandal last September saw the dairy lose 949 million yuan.

Recently, Mengniu's target price was raised after it rose from a low of HK$6 in October to yesterday's close of HK$18.08. Merrill Lynch targets HK$16, Morgan Stanley HK$22 and Goldman Sachs HK$19.20.

Some of their reasons are: Mengniu's cash flow has improved, demand for milk has recovered, and raw material costs have fallen.

Last September, when Mengniu fell 60 percent to HK$7.95, brokers set the following target prices: DBS HK$8.10, JPMorgan HK$3.80, UBS HK$11.55, BOCI HK$10.80, Goldman Sachs HK$14, Deutsche Bank HK$14, and Morgan Stanley HK$13.50.

Some said it would take Mengniu two years to recover.

Only Kenny Tan of Tung Tai Securities recommended buying the stock at HK$6 to HK$7.

From September to January, this column advised buying Mengniu on three occasions.

As milk consumption continues to rise in China, expect Mengniu profits to hit a record in 2010, topping the 936 million yuan it earned in 2007.

[winston]

What is their exposure to the medical expenses of the affected children and are there any ongoing lawsuits ?

Mengniu insists milk scandal impact `basically over' even as sales slide

China Mengniu Dairy (2319), one of the firms found to have sold tainted milk products last year, said yesterday that its sales were 20 percent lower than normal in the first five months of this year.

But people are returning to more typical buying patterns for dairy products and the impact of the scandal is "basically over," the chief executive officer of China's top milk producer said on the sidelines of the company's annual meeting in Hong Kong.

"The [negative] impact is basically over," Yang Wenjun said. "Our products are 100 percent safe to consume."

Mengniu was among several firms in China found to have sold milk contaminated with melamine last year. At least six babies died from drinking infant formula contaminated with the toxic compound that can falsely raise the results on protein level tests. Yang also said he expects Mengniu's prices to remain stable for the rest of the year.

Mengniu posted a 948.6 million yuan (HK$1.07 billion) loss last year versus a 935.8 million yuan profit in 2007. The stock jumped 4.38 percent to HK$19.56 yesterday. REUTERS

[winston]

DJ MARKET TALK: Mengniu Off 0.2% Pre-Mkt;UOB Ups Fair Price 59.6%

0949 [Dow Jones] Mengniu (2319.HK) down 0.2% at HK$19.52 at pre-open, not moving much despite China Daily report citing CEO Yang Wenjun as saying January-May sales have recovered to 80% of pre-melamine scandal level last year, As stock outperforming recently, +19.4% month-to-date vs HSI +3.4% during same period.

UOB KayHian keeps Sell as stock trading at 31X FY09 P/E, much higher than HK peers' average of 20.5X, implies stock "overvalued." Adds, highly likely Mengniu will not propose any dividends in FY09-FY11 due to lack of cash. Raises fair price to HK$14.19 (equal to 23.7X FY10 P/E) vs HK$8.89 after raising FY09-FY11 EPS forecasts by 2%-9% on back of sales recovery and falling raw prices.

[winston]

Hopu to buy 20 pct of China Mengniu dairy

HONG KONG, July 6 (Reuters) - Chinese private equity fund Hopu Investment Management is expected to buy around 20 percent of China Mengniu Dairy, in a deal worth roughly $800 million, according to a source familiar with the matter.

Hopu is a fund founded by Fang Fenglei, chairman of Goldman Sachs' China joint venture. Mengniu was one of the Chinese dairies hit by the tained milk scandal last year.