HONG KONG: China Mengniu Dairy, the largest liquid milk producer on the mainland, said sales during the first five months of this year have bounced back to 80 percent of the level before the company was hit by the tainted-milk scandal on the mainland last September.

"The adverse impact of the melamine contamination incident has now been resolved," executive director, vice president and chief executive officer Yang Wenjun said at a press briefing in Hong Kong yesterday.

"After the melamine incident, Mengniu has implemented all-round quality control measures to ensure our products are good and 100 percent safe," he said.

Yang said the company has not raised selling prices of its products in the last five months to improve sales.

Severely hit by the milk scandal, earnings of the mainland top milk producer have plunged into red since it listed in Hong Kong in 2004.

Last year, the company suffered a 948.6 million yuan loss, a sharp reversal from a 935.8 million yuan net profits in 2007.

Despite the 1.4 percent drop in China's consumer price index in May, Yang said sales of milk products have maintained its firmness during the first five months of this year,

"Milk products are one of the daily necessities," he said, "Many consumers rely on this type of product in their everyday life."

Board chairman and non-executive director Jiao Shuge said consumers are now more aware of the quality and branding of milk products, and this may favor the company's long-term development.

"Even though the global financial crisis has taken a heavy toll on different industries around the world, it may have the least impact on the food and beverage sector," Jiao added.

Lawrence Chor, a food and beverage analyst at Taifook Securities, expects the company's sales to further improve the rest of the year, while the central government's quality control measures may act as a positive catalyst to boost sales.

"The sales of milk products now depend very much on consumers' confidence," Chor said, "The quality control measures may help boost confidence."

Chor, however, added that the mainland market would be a major revenue driver to Mengniu, as the company's overall exports has showed a year-on-year decline.

"The company's earnings may reach 600 million yuan this year," he said, "Yet the growth momentum may not be significant, because of deteriorated export orders."

Moving in line with the 4.03 percent jump in the benchmark Hang Seng Index yesterday, shares in Mengniu surged 4.38 percent, or HK$0.82, to close at HK$19.56.

(HK Edition 06/11/2009 page4)