Milk producer China Mengniu Dairy Co said on Tuesday first half profit grew 14 percent despite a fall in sales revenue, indicating that it has recovered from most of the problems associated with last year's melamine scandal.

Analysts said the company is now on track to post solid profits in the second half as the dairy market in the country has started to gather momentum.

Mengniu's net profit during the first half of the year stood at 661.9 million yuan, or 0.424 yuan per share, compared with 582.9 million yuan, or 0.409 yuan per share, from a year earlier. Sales revenue for the period fell by 11.7 percent to 12.1 billion.

In the aftermath of the melamine scandal, Mengniu had reported losses of 949 million yuan for the whole of 2008.

"The dairy market returned to normalcy by the end of the first quarter, and has now recovered fully," said Wen Xian, food and beverage analyst from Ping'an Securities.

Wen said the industry would soon be back in the 10 percent growth range, something the sector had witnessed prior to the melamine scandal.

Last September, about 22 dairy firms including Mengniu and Inner Mongolia Yili Industrial Group were found to have sold dairy products containing melamine, which in high doses lead to kidney stone formation. The scandal caused deaths of at least six children and sickened 300,000 in China.

Except for Sanyuan, all other listed dairy companies including Mengniu, Yili and Bright Dairy slipped into the red in 2008.

But this year most of the firms have bounced back by reporting healthy first half earnings numbers.

Mengniu has also managed to outperform its peer Yili with higher profits. Yili reported a 118 percent increase in first-half profit at 254 million yuan.

"Mengniu has an advantage over Yili in cost control, marketing and corporate structure. Therefore it would take some time before anyone catches up with Mengniu," said Wen.

According to AC Nielsen statistics, Mengniu leads the Chinese liquid milk market, although it lags behind Yili as the second largest dairy producer by sales volume.

The company's sales revenue from liquid milk, which accounts for 85 percent of the total revenue, however, fell 13 percent to 10.3 billion yuan.

In July, Mengniu said it plans to raise funds worth HK$6.12 billion from COFCO and Hopu Investment Management Co.

Mengniu shares rose 3.84 percent to close at HK$19.48 yesterday.

(China Daily September 9, 2009)