China Mengniu Dairy saw its share price tumble today (28 August), despite posting a jump in first-half sales and profits.
Mengniu said first-half profit attributable to owners of the company totalled CNY1.04bn (US$871.4m), up 39.9% on the year. Operating profit rose 36.5% to CNY1.22bn, up from CNY894m in the year ago period.
The bottom line was boosted by the contribution from higher margin joint ventures, notably its majority stake in local infant formula group Yashili International Holdings.
Mengniu is pursuing a strategy to grow through partnerships and the Chinese dairy major formed alliances with international dairy groups including Danone, Arla Foods and WhiteWave in the last year.
Partnerships, together with increased revenues from Mengniu’s core business, also contributed to sales gains in the period. In the six months to 30 July sales were up 25% to CNY25.84bn, the company revealed.
However, shares in the group fell 6.7% in trading on the Hong Kong stock exchange, dropping to HK$34.45.
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The decline reflects concern over profit margins in Mengniu’s core business. The group has worked to improve product mix by reducing SKUs and focusing on brands and categories generating the highest returns. However, management indicated today that it expects to see marketing costs increase as it puts more money into digital marketing platforms.
Click here to view the full announcement on the Hong Kong stock exchange.