UPDATE 1-Mengniu shares plunge 66 pct on China milk scandal
(Adds details and broker comments)
HONG KONG, Sept 23 (Reuters) - Shares in Mengniu Dairy (2319.HK) plunged nearly two-thirds to a 33-month low on Tuesday after brokers downgraded the stock on concerns that the tainted dairy product scandal in China will dent industry growth.
The stock opened down 65.75 percent at HK$6.85, resuming trade after a suspension since Sept. 17, when news first emerged that Mengniu -- one of China's biggest dairies and best known brands -- was among several firms found to have produced milk contaminated with the chemical compound melamine.
"Food contamination happened before in other international brands and the selling in Mengniu today is a bit overdone," said Andrew To, a sales director at Tai Fook Securities.
"Some speculators are coming in to buy now, on hopes for a rebound," he added.
The stock recovered slightly to HK$9.4, down 53 percent at 0218 GMT.
The Chinese government found melamine in nearly 10 percent of milk samples from major diary companies, including Mengniu and the Inner Mongolia Yili Industrial Group (600887.SS) and the Bright Dairy group (600597.SS) [ID:nPEK80229]. Shares in Yili were down 10 percent and Bright Dairy lost 8.5 percent.
Mengniu has apologised and said the tainted products came from a tiny number of its smaller suppliers.
Four deaths have been blamed on toxic milk powder and nearly 13,000 Chinese infants were hospitalised after drinking it. The contaminated product causes kidney stones and agonising complications.
Goldman Sachs, Deutsche Bank and UBS downgraded Mengniu to sell from buy and revised down their price targets by between 30 percent and 62 percent, to HK$11.55 and HK$14. Goldman also cut Yili to sell from neutral.
UBS said the melamine issue will heavily impact Mengniu's sales in the last few months of 2008 and also the whole of 2009.
"We believe Mengniu's sale will recover in 2010," it said in a research note.
Shares in Mengniu, which last week reported a 20 percent rise in first half net profit to 582.9 million yuan ($85.34 million), had slid about 9 precent in the month to Sept. 16. ($1=6.830 Yuan) (Reporting by Alison Leung; Editing by Keiron Henderson)
