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Dairy firms may suffer losses in Q3

By Zhou Yan (China Daily)
Updated: 2008-10-15 09:57

Milk products from Yili Group in a supermarket in this photo taken on February 12, 2008 in Yichang, Hubei province. Yili and Bright Dairy said that they expected a loss in the third quarter due to the milk scandal. [Asianewsphoto]

Inner Mongolia Yili Industrial Group and Shanghai-based Bright Dairy, the two dairy companies implicated in an ongoing tainted milk scandal, said yesterday that they expected a loss in the third quarter but refuted earlier media reports that the combined losses of the industry could reach 200 million yuan ($29.27 million).

In separate statements to the Shanghai Stock Exchange, the two dairies said they had not discussed with reporters the rumored loss for the industry, which caused their shares to be suspended from trading on Monday.

Bright Dairy said in the announcement that it is expecting a net loss in the third quarter as a result of its recall of contaminated products.

Yili said in its statement that it is currently estimating its loss from the contaminated milk.

Full third-quarter reports for these two companies will be released late this month.

"It's hard to estimate the two companies' losses from the tainted milk scandal, but expenses on brand-rebuilding promotions, inventory, and victims' compensations would be huge," said Ding Ping, an analyst at Haitong Securities.

Bright Dairy posted a net profit of 141 million yuan in the first half, up 38.3 percent year-on-year, while Yili said its net profit for the first half of 2008 rose to 117 million yuan from a 2.94 million yuan loss a year earlier.

Batches of milk products of the two companies were found to contain the chemical melamine last month, during tests on the products.

A number of leading domestic dairy brands, including Yili, will be temporarily forced out of the baby formula market for about 3-6 months because of the scandal, said Francisco Redruello, an analyst from London-based market research firm Euromonitor International.

"All domestic dairy producers have experienced severe sales slumps caused by this crisis," Ding said, adding that the almost saturated demand for dairy products would add extra burden on the battered milk industry.

According to a recent survey released by Synovate, a British market research firm, dairy products received a higher than average level of concern for safety than other everyday items among consumers, with 86 percent of respondents now said to be more cautious with food labels when purchasing food products.

The government-led revamp of the dairy industry has created a new business environment that could provide growth opportunities for both domestic and international manufacturers in the medium term, Redruello said.

Shares of both companies soared to daily limits after the release of the latest statement. Bright Dairy was up 10.08 percent to 4.37 yuan, while Yili climbed 10 percent to close at 7.92 yuan.