China Mengniu fell 7% after stake sale to COFCO, Hopu

Jul. 9, 2009 (China Knowledge) - The share price of China Mengniu Dairy Co<2319>, the nation's biggest dairy maker, fell 7.14% to close at HK$17.94 on Wednesday, and the turnover shrank to HK$429 million from HK$831 on Tuesday, the Shanghai Securities News reported.

However, many investors still hold a positive view of the future share performance of the dairy maker, since it recently introduced two strategic investors, China National Cereals, Oils & Foodstuffs Import and Export Corp (COFCO Group) and private equity (PE) fund Hopu Investment Management Co China.

Morgan Stanley raised its target price for China Mengniu to HK$22 in its latest research report, explaining that the share sale of China Mengniu may lead to possible M&A opportunities for the dairy maker. Meanwhile, COFCO Group will benefit from an enlarged food and beverage product portfolio.

Similarly, Merrill Lynch & Co raised its target price for the dairy maker to HK$23 from the previous HK$16, saying the new strategic investors will help China Mengniu build its brand and consolidate the industry.

Earlier this week, COFCO and Hopu spent HK$6.1 billion to buy a stake of about 20% in China Mengniu at an average price of HK$17.6 per share. A person familiar with the situation said the two investors were likely to split the investment, and that COFCO will hold a larger portion.

China Mengniu's revenue was about RMB 23.87 billion in 2008, up 11.9% year on year, but it recorded a net loss of RMB 948.6 million during the period.