China Mengniu Dairy 2319

[winston]

DJ MARKET TALK: KE Starts China Mengniu At Sell; Target HK$7.56

1132 [Dow Jones] STOCK CALL: Kim Eng starts China Mengniu Dairy (2319.HK) at Sell, target HK$7.56 on view too early to call recovery. Notes Mengniu has minority stakes in 7 modern farms, providing 8%-12% of its raw milk supply, with management planning to take minority stakes in another 20-25 modern farms in upcoming 3-5 years to meet new NDRC requirement of dairy processors to increase self-supply of raw milk to 70% by October 2011.

Kim Eng expects upstream investments will drag ROE to about 10% in FY09 onwards from around 20%. Adds, owning minority stakes in modern farms offers little guarantee of quality control, daily involvement in operations will be low. Says market too optimistic on outlook for company. Stock flat at HK$9.90; HSI flat.

[winston]

BROKER CALL - China Mengniu Dairy target cut to 9.1 hkd - Credit Suisse

BEIJING (XFN-ASIA) - Credit Suisse said it is reducing its target price on China Mengniu Dairy to 9.1 hkd from 11.0. "Mengniu recently announced that it would post an estimated loss of 900 mln yuan for 2008 due to the melamine contamination scandal, ending months of speculation about the extent of losses," Credit Suisse said in a note. Credit Suisse has an "underperform" rating on the stock. Hong Kong-listed Mengniu closed up 3.27 pct at 10.12 hkd yesterday.

[winston]

BROKER CALL - Mengniu Dairy 'underperform' on lower margins - Credit Suisse

BEIJING (XFN-ASIA) - Credit Suisse has maintained its "underperform" rating on Hong Kong-listed Mengniu Dairy, saying that a recovery in sales in 2009 is likely to come at the expense of lower margins. The sales of Chinese dairy processors have now recovered by up to 85 pct, and Mengniu's 2009 sales could return to 2007 levels following the melamine contamination scandal that hit the industry in 2008. However, it will face higher production costs and lower prices.

Meanwhile, the impact of the melamine scandal is likely to be "more evident" in 2009 and could affect Mengniu's ability to meet its short-term obligations, Credit Suisse said. "One of our key concerns for Mengniu stems from the view that it will require further financing in 2009 that will put the company in a net geared position," it said. Furthermore, litigation costs arising from the melamine scandal could be higher than expected, Credit Suisse added. Its target price for Mengniu is 9.10 hkd. The company's shares closed this morning at 10.36 hkd

[winston]

DJ MARKET TALK: Guoco Upgrades Mengniu Dairy To Buy From Hold

1232 [Dow Jones] STOCK CALL: Guoco Capital notes Mengniu Dairy (2319.HK) management says sales volume in January so far has recovered to 80% of pre-melamine scandal level without extra efforts in advertising and promotion.

"The pace of recovery is faster than expected and we are confident that sales revenue in 2009 will restore to the level in 2007," says Guoco Capital. Keeps 2008 EPS forecast unchanged at 72 HK cents, but ups 2009, 2010 EPS forecasts to 56 HK cents, 74 HK cents, respectively; previous not provided.

Upgrades stock to Buy from Hold; sets target at HK$11.24 based on 20X 2009 P/E. Stock +1.2% at HK$10.12.

[winston]

I'm still concerned about the lawsuits etc. but I've it on my watchlist ..

DJ MARKET TALK: Goldman Upgrades Mengniu To Buy; Ups Target 29.1%

0932 [Dow Jones] STOCK CALL: Goldman Sachs upgrades China Mengniu Dairy (2319.HK) to Buy from Neutral, as milk demand recovery on track, with consumers now more willing to pay for premium products. "We expect a better product mix and softening raw milk price to increase visibility on 2009 earnings, which may help rebuild investor confidence and drive a re-rating on Mengniu," says Goldman. Raises target price to HK$11.70 from HK$8.30, after increasing 2010 EPS forecast to 52 fen from 49 fen; tips loss per share at 61 fen for 2009. Stock ended flat at HK$10.40 Friday.

[winston]

DJ MARKET TALK:Mengniu Sales Recovery Visibility Remains Murky-CS

1608 [Dow Jones] STOCK CALL: Credit Suisse says Mengniu's (2319.HK) sales recovery visibility remains murky; notes January sales rebound more due to Chinese New Year effect, but not reflective of full year. Keeps view sales recovery could come at expense of profit at this stage of rebound.

"The downside risks could arise from higher-than-expected litigation costs to victims, apart from the emergence of another food safety issue pertaining to dairy products from China," says Credit Suisse. Keeps at Underperform, target at HK$9.10. Stock +5.7% at HK$12.24.

[winston]

DJ MARKET TALK: Mengniu Off 3.3%; Consumer Confidence Hit -CIMB

1046 [Dow Jones] Mengniu Dairy (2319.HK) down 3.3% at HK$9.77, adding to 12.5% fall yesterday, on product quality concerns; company says today it's seeking clarification from China's food safety regulators following media report it was ordered to stop adding osteoblast milk protein to its milk products until regulatory approval obtained.

While outcome uncertain, news hurts consumer confidence, says CIMB; trims FY09-10 sales forecasts by 5%-7%, while maintaining gross margin forecast at 22%; also expects company to rack up higher operating expenses as sales revival will have to come with heavy promotion, while additional costs will be incurred as more quality checks put in place; lowers FY09-10 EPS forecasts by 19.6%-24.7%.

Keeps Underperform call, with HK$6.20 target pegged on 12X FY10 P/E. Volume tapers off slightly vs yesterday at HK$111.1 million; HK$9.00 low hit yesterday likely to support.

[winston]

The food and beverage industry may be worth a glance.

In China , authorities are probing an additive called OMP - a milk protein added by Mengniu Dairy (2319) to its Telunsu line.

Many brokers have downgraded the stock.

Dr Check recommended buying Mengniu on weakness when it was trading between HK$6 and HK$9 just after the melamine scandal broke. I believe the OMP worries present another golden opportunity to pick up the stock as a medium- term investment.

Mainlanders will drink more milk as living standards rise and will resume buying Mengniu dairy products after its quality-control issues are settled.

[winston]

TOL - If it was safe, why were they asked to stop adding the additive. And why the need to add additive ?

Mengniu in clear over use of additive

China Mengniu Dairy says mainland authorities have concluded that an additive in its milk products was safe to consume.

China Mengniu said on Thursday it was liaising with mainland authorities on the use of an additive, osteoblast milk protein, and awaiting a reply after the national quality watchdog said it was investigating Mengniu's use of OMP in its premium milk brands.

''After considering the source, production and application quantity of OMP ... the experts confirmed that consumption of Milk Deluxe (OMP) currently available in the market is not hazardous to health,'' the company said.

REUTERS

[winston]

DJ MARKET TALK: ICEA Keeps Mengniu At Sell;Sales Recovery Clouded

1554 [Dow Jones] STOCK CALL: ICEA keeps Sell on Mengniu (2319.HK) on concern company may face possible punishment as it has violated current food safety law by using milk additive (OMP), which is not yet listed as legal food material.

"The group has to stop adding OMP until it goes through the reporting and approval processes with the Ministry of Health," says ICEA. Adds, this clouds outlook on magnitude of sales recovery in 2009 and long-term brand damage. Stock +0.8% at HK$10.22.