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Bloomberg
A decade after Chinese dairy companies were roiled by a scandal that poisoned thousands of children, investors are seeing the biggest players as safe bets. Inner Mongolia Yili Industrial Group Co. and China Mengniu Dairy Co. have soared to all-time highs as the companies hunt aggressively to build up their milk supply chains through foreign acquisition. Also underpinning the bullishness is the virtual duopoly’s rosy earnings prospects amid a shift to more profitable segments like premium yogurt and infant formula.
With China’s dairy demand forecast to grow 37 percent
to $76 billion in five years—overtaking the US to become the world’s biggest dairy market—the bull run may have further to go.
“These stocks have actually become safe harbor blue chips, and their growth will have sustained momentum given government support and their ambitious acquisition strategy,†said Meng Shen, Beijing-based director of the boutique investment fund Chanson & Co.
Mengniu’s stock was raised to a buy by Daiwa Capital Markets Securities analyst Anson Chan. The shares increased 1.4 percent as of 10:04 am in Hong Kong on Monday. Yili gained 1.3 percent in Shanghai trading.
The effort to gobble up smaller rivals at home and secure upstream supply on foreign turf has played a pivotal role in allowing Yili and Mengniu to tighten their grip on a sector that took a decade to recover after a deadly scandal in 2008. The two have a combined 44 percent of the dairy-products market in China, according to data from Euromonitor International. Shanghai-based Bright Food Group Co. is a distant third with a 4.8 percent market share.