(CN) Chinese Milk Production

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South China Morning Post

http://biz.scmp.com/bizmain/ZZZPNKW3PTE.html

Friday, October 27, 2006

 

Yili seeks to raise US$200m in HK

Secondary listing to fund plants in central, western regions

by TIM LEEMASTER

 

Inner Mongolia Yili Industrial Group, the mainland's largest dairy

products maker, plans to raise about US$200 million from a secondary

listing in Hong Kong next year, market sources said.

 

The company's shares trade on the Shanghai Stock Exchange and have

risen 79 per cent this year to close at 19.96 yuan yesterday. The

Shanghai Composite Index has risen 60 per cent over the same period.

 

Rival China Mengniu Dairy, which with Yili control 60 per cent of

China's dairy market, raised about US$200 million in Hong Kong in

2004.

 

Mengniu shares, which trade at 34 times forecast earnings for next

year, have doubled in value to close at HK$13.38 yesterday. The Hang

Seng Index is up 23 per cent this year.

 

Yili shares trade at 35 times forecast earnings for this year. The

company listed in Shanghai in March 1996 when it offered investors

shares at 5.95 yuan each.

 

The China Securities Regulatory Commission last month approved Yili's

request to raise US$152 million by selling warrants in the domestic

market.

 

Yili in April said it would sell 155 million call warrants, giving

holders the right to buy one share for eight yuan. Proceeds would go

towards increasing dairy production.

 

" The main problem with Yili is the low gross margin, about 2 per

cent, and it has no high gross margin products, " said Adam Zhou, an

analyst at KGI Securities.

 

The company, which is based in the Inner Mongolian capital Hohhot,

plans to spend about US$145 million by early 2008 on dairy facilities

in western and central China.

 

In Xinjiang province, Yili will spend US$26 million to set up a milk

powder plant with an annual capacity of 250,000 tonnes.

 

In Sichuan, the company will spend US$47 million on a facility that

will produce 430 tonnes of milk, 260 tonnes of ice cream and 150

tonnes of yoghurt a day

 

Yili plans to spend a further US$72 million on similar multi-

production facilities in Hubei province. The largest one will churn

out 1,110 tonnes of milk a day.

 

Net income rose 18.2 per cent to 202 million yuan on sales that rose

40 per cent to 7.9 billion yuan in the first half of this year.

 

Demand for dairy products in China is expected to grow 12.8 per cent

a year to reach 40 million tonnes by 2010, say analysts at

Netherlands-based Rabobank, which specialises in the agricultural

sector. That makes China the fastest growing dairy market in the

world.

 

China's 1,500 dairy companies were worth a combined US$11 billion

last year, the bank said.

 

" Strong cash flow will enable industry leaders such as Mengniu and

Yili to speed up their acquisition moves, " Rabobank said.