UPDATE 1-China Mengniu Dairy 2013 profit jumps on high-margin product sales, shares surge

Wed Mar 26, 2014 3:57am EDT

Related Topics

* Net profit up 25 pct to $263 mln, beats forecast

* Shares up more than 10 pct, best day in 10 months

* Sees less impact from raw milk supply shortage in 2014 (Adds management comment, updates stock price)

By Donny Kwok

HONG KONG, March 26 (Reuters) - China Mengniu Dairy Co Ltd said new, higher margin products helped its 2013 profit beat estimates, sending shares in the country's biggest dairy produce supplier more than 10 percent higher.

Mengniu said 2013 net profit grew 25 percent to 1.63 billion yuan ($263 million), up from a 1.30 billion yuan a year earlier, restated due to revised accounting requirements for International Financial Reporting Standards. The 2013 profit beat a forecast of 1.51 billion yuan from Thomson Reuters' Starmine SmartEstimate.

The company's gross profit margin rose 1.2 percentage points from a year ago to 26.1 percent in 2013 as it added higher margin goods to its product portfolio. Chief financial officer Wu Wennan expects to see its gross profit margin increase at least 0.5 percentage point this year.

The company has benefited from closer government scrutiny of China's dairy industry, designed to boost consumer confidence after a series of food safety scares. Bejing has set higher entry barriers for new entrants to a growing market, and investigated monopoly practices on imported milk formula products as it relaxed the country's one-child-per-family policy, the company said.

Mengniu shares climbed as much as 10.1 percent in their biggest daily gain since May 2013. The stock steadied at HK$38.65 as at 0754 GMT, still up 8.7 percent, compared with a 0.7 percent gain in the benchmark Hang Seng Index.

"In light of the determination of the Chinese government to restore consumers' confidence in domestic dairy products, we envisage wider policies to further regulate the domestic dairy product market," chief executive Sun Yiping said in a statement.

MILK SUPPLY

It posted a profit of 881.4 million yuan in the second half of 2013, up 34 percent from 658.4 million in a year ago period, according to Reuters' own calculation. Revenue for the full year rose 20.4 percent year on year to 43.36 billion yuan.

Mengniu's 2013 earnings jump came despite a shortage in the supply of raw milk, with an impact on costs. That situation will persist this year, it said, though with a lessening impact.

The company said falling inventory of dairy cows and restricted imports of international milk formula brought about hikes in raw milk prices in China last year, posing a challenge to mainland dairy enterprises.

"The raw milk shortage situation will continue this year," senior vice president Bai Ying told a news conference.

"It may still have an impact to the company (this year) but to a lesser extent as we continue to build our own milk sources," Bai said. The official said it may take about two years to resolve the imbalance situation.

As the liquid milk market in China has become more mature, Mengniu will step up development of its yogurt and milk formula businesses, and will work with Danone Group to optimise its brand and product mix, CEO Sun said.

Mengniu has commenced online sales across a wide range of major e-commerce platforms including Tmall.com, as it aimed to expand customer base and attract young consumers through the online sales channel. ($1 = 6.2024 Chinese Yuan) (Reporting by Donny Kwok; Editing by Kenneth Maxwell)

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