WITH each day that passes, China becomes a little bit more like the West: new hypermarkets open for business, hundreds of new broadband connections go live and Manchester United sells another box of replica shirts. Chinese dietary habits are also bei
ng westernised, with millions of consumers adopting protein-rich diets.
The impact of that shift is already being felt. At supermarket checkouts, British consumers are receiving an education in the workings of demand-pull inflation. But, short of acquiring a herd of Aberdeen Angus, how can investors benefit from China's appetite for a more western diet? By identifying the companies best-placed to exploit that appetite. Enter China Mengniu Dairy.
Demand for dairy products in China is growing at 20 per cent per annum, and China Mengniu Dairy already controls a one-third share of the milk market. Per capita, however, milk consumption is still just one-fifth of the international average, leaving plenty of room for growth. That makes this an attractive market. But Mengniu's place is secure: western food brands such as Kraft and Parmalat have already tried to crack the Chinese market. Both failed.
The company's core Mengniu brand, under which it sells ultra-heat treated milk, milk-based drinks, yoghurt and ice-cream, is very strong. As a result, while rising costs have squeezed the margins of most manufacturers, Mengniu has passed those costs on to its customers.
China's appetite for dairy products is such that we believe China Mengniu Dairy will achieve 30 per cent sales growth and 15 per cent net profit growth this year. That tastes good to me.
• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.
The full article contains 317 words and appears in The Scotsman newspaper.
