Mengniu slips on melamine scandal

Updated: 2008-09-24 07:37

By Cheung Sim-mok(HK Edition)

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 Mengniu slips on melamine scandal

Mengniu sales will be affected by the tainted milk scandal in the next few months. Shares of the dairy producer dropped HK$12.05 after trading resumed yesterday. AFP

Shares in Mengniu Dairy tanked nearly 66 percent to a 33-month low yesterday as panicky investors made a dash to dump its shares amid the ongoing tainted-milk crisis.

Shares of China's largest dairy producer opened down 65.75 percent to a 33-month low of HK$6.85, resuming trade after it was suspended since Sept 17, when news first emerged that Mengniu was among several firms found to have produced milk contaminated with melamine, a chemical for making plastics.

Bargain hunting in the afternoon helped buoy the shares to end the day at HK$7.95, a 60.25 percent drop from its closing price of HK$20 on Sept 16, when its shares were last traded.

Nearly 520 million Mengniu shares were traded yesterday, more than 75 times of the average daily volume in the past 30 days, showing "investors desperately fled from the stock," Conita Hung Lai-Ping, head of research at Delta Asia Securities, said.

"The confidence (in the stock) is no longer there," she said. "We see a recovery only after the whole scandal is over."

However, another analyst said the panic selling yesterday has gone too far.

"There were cases of food contamination before in other international brands and the selling in Mengniu today is a bit overdone," said Andrew To, a sales director at Taifook Securities. "Some speculators are coming in to buy now, on hopes for a rebound," he added.

Meanwhile, a series of investment banks had already downgraded the Mengniu stock before its shares resumed trading.

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.

UBS said the tainted milk issue will heavily impact Mengniu's sales in the coming months and also the whole of 2009. "We believe Mengniu's sales will recover in 2010," it said in a research note.

The mainland authorities found melamine in nearly 10 percent of milk samples from major diary companies, including Mengniu, the Inner Mongolia-based Yili Industrial Group and the Bright Dairy Group.

Mengniu has tendered apology, saying that the tainted products had come from a tiny number of its smaller suppliers.

Reuters contributed to the story

(HK Edition 09/24/2008 page2)