Mengniu Dairy looks to yoghurt beverages, acquisitions and a growing Chinese consumer appetite

Potential mergers and acquisitions along with new product development may help China Mengniu Dairy, the second largest player in the country’s dairy market, to generate better profit and income this year after a drop in 2016, according to one analyst.

Mengniu’s share price tumbled 6.5 per cent in April after the company reported a 2016 net loss of 751 million yuan (US$109 million), a dramatic U-turn from the 2.4 billion yuan net profit a year earlier.

China International Capital Corporation analyst Paul Yuan Feiyang is expecting a 2.7 billion yuan profit this year despite a generally negative outlook from other brokers.

“It’s still too early to adjust estimates,” he said in a report, acknowledging that the company’s two acquired entities China Modern Dairy and Yashili will not be very profitable this year. “We believe [the] core earnings outlook remains healthy under both internal reform and expansionary efforts.”

Mengniu, which accounts for 17.3 per cent of China’s dairy products by retail sales, has been in heated competition with industry leader Inner Mongolia Yili Industrial Group, which has a 22.3 per cent share, according to Euromonitor International.

Meanwhile, foreign dairy brands, which have a 50 per cent market share, became popular after some domestically-produced milk and infant formula products were found to be adulterated with melamine in 2008. Six infants died and thousands of others were sent to hospital as a result of the food safety incident, prompting at least 11 nations to halt all imports of Chinese dairy products.