Mengniu to expand milk beverages production

China Mengniu Dairy Co Ltd, said on Aug 22 that it will expand its milk beverages output, in a move to further improve its competitiveness and profit margin.

Mengniu, the country's largest dairy producer, opened two factories in Hebei on Aug 22 to produce milk and milk beverages. The total investment for the two plants was 2.4 billion yuan ($380 million). The new products will be distributed to Beijing, Tianjin and areas in North China.

"Mengniu will build high-quality product lines and push forward its branding and optimization of product structure," said the newly appointed chief executive director Sun Yiping on Aug 22 in Hebei.

"The product line enhancement is in line with the strategy of COFCO Corp, Mengniu's largest shareholder, which aims to complete the whole industry chain," said Gong Bo, an industry analyst with Beijing United Innovation Capital Ltd. "The move will also benefit Mengniu's market competitiveness and profit margin via producing milk powder to other higher-value dairy products, such as beverages. "

The Hong Kong-listed company said earlier that it will spend 3.5 billion yuan to set up eight to 12 dairies by 2015 to have 100 percent control over its raw milk supply.

The decision came after the dairy giant's announcement that Yang Wenjun resigned as chief executive director of the company and was replaced by Sun Yiping.

Sun was deputy general manager of Shenzhen-listed COFCO Property (Group) Co, a unit of COFCO Corp.

Industry experts said that since Yang was the last of the Mengniu founders still in the company, his departure is the beginning of a new era, in which the company will likely be controlled by COFCO.

Media reported that State-owned COFCO holds 20 percent of Mengniu, while Denmark's Arla Foods has an about 6 percent stake.

Last week, Bloomberg reported that Mengniu has held talks to acquire raw milk supplier China Modern Dairy Holdings Ltd.

The two companies' largest shareholders, COFCO Corp and KKR & Co, have been involved in the discussions. New York-based private-equity firm KKR owns 24 percent of Modern Dairy.

Buying Modern Dairy, China's largest raw milk producer, would give Mengniu more control over its milk supply as concerns about safety in the nation's dairy industry linger. Ma'anshan-based Modern Dairy generated almost all of its 735.6 million yuan of revenue for the six months through December from supplying Mengniu with unpasteurized milk, according to Bloomberg.

Last year, Mengniu's revenue grew 23.5 percent to 37.4 billion yuan, and profit attributable to owners of the company rose 28.4 percent to 1.59 billion yuan.