China’s two largest dairy companies have reported record profits this year but are seeking to increase sales in south-east Asia through investment in production facilities, as growth slows in their domestic market.
China Mengniu Dairy, which said on Thursday that its 2018 net profit jumped 49 per cent to Rmb3.04bn ($452m) on revenues of Rmb69bn, opened a $50m factory in Indonesia in November to produce yoghurt.
“Internationalisation is one of our core strategies,” Shi Yudong, a manager at Mengniu’s research and development department, said in an interview. “South-east Asia has a large population and a huge consumption potential.”
Yili, Asia’s largest dairy company, in November announced the acquisition of Chomthana, Thailand’s biggest ice cream manufacturer, for $81m.
Mengniu and Yili together control almost half of China’s dairy market, according to Euromonitor, a data company. Both companies are based in Hohhot, Inner Mongolia.
Yili, which saw a 7 per cent rise in net profit in 2018 to Rmb6.4bn, last month agreed to purchase New Zealand’s second-largest dairy co-operative, Westland, for $404m including debt. That deal is awaiting regulatory approval.
The companies’ domestic market faces headwinds, according to Goldman Sachs.
Consolidation of the market in recent years has driven their profits, according to independent industry analyst Song Liang, but domestic growth is now slowing. “Now the fastest growing dairy market globally is south-east Asia,” he added.
Both companies have compensated for weaker formula demand by increasing sales of yoghurt. Chinese yoghurt sales reached Rmb122bn in 2017, overtaking those of fresh milk, according to Euromonitor.
Mengniu, which is backed by France’s Danone, aims to be the number one Indonesian yoghurt brand within five years. The company says its yoghurts, which are designed to be kept at room temperature, will suit south-east Asia where cold chains are less developed.
“We hope to lay a solid foundation for the internationalisation of our industrial chain, and at the same time to attract global talent,” said Mengniu’s Mr Shi.
Source:ft.com
