Yashili Shares Jump on China Mengniu's Plans to Buy Out Danone
May 09 2022 - 11:47PM
Dow Jones News
By Ben Otto
Yashili International Holdings Ltd. shares are sharply higher on
news that controlling shareholder China Mengniu Dairy Co. intends
to raise its stake by acquiring shares held by Danone S.A.
Shares of Yashili, a maker of dairy and nourishment products
based in Guangzhou, rose as much as 22% in early trading on Tuesday
before paring their gains to 15%, at 1.06 Hong Kong dollars (13
U.S. cents), by mid-morning. Shares have now more than doubled this
year.
China Mengniu shares are 0.1% higher at HK$38.65, having
recovered from a 7.6% drop at the market's open. The Hang Seng
Index is 2.5% lower in mid-morning trade.
Tuesday is the first day the stock is trading in Hong Kong since
China Mengniu said it would raise its stake in Yashili to 76% from
51% by buying Danone's interest in the company. It said it would
also make an offer to buy remaining Yashili shares for HK$1.20
each.
As part of an ongoing unwinding of its relationship with Danone,
China Mengniu also plans to sell Yashili's Dumex brand to Danone
and buy the French company out of a separate loss-making joint
venture.
Citi maintained a buy rating on Mengniu's shares with a HK$57.30
price target, saying in a research note that the unwinding of deals
with Danone "do not surprise" given the Paris-listed company's exit
of its Mengniu investment last year. Citi added that Mengniu
remains its top pick in the China staples space and said it doesn't
expect the end of the relationship with Danone to significantly
impact Mengniu's fundamentals.
"In our view, Mengniu's sustainably strong top-line growth (at
low-teens rates) and better margin visibility in 2022-24 offer
investors unique access to high-quality China consumption growth
without regulatory concerns," Citi said.
Jefferies said in a note that it expects the unwinding to have
limited impact on Mengniu's business operations given that "after
years of cooperation, we believe Mengniu has acquired know-how from
Danone, and leads the co-operated business."
Jefferies added that it expects all of the transactions
together, including interest expense, to drag down Mengniu's net
profit this year by 1.8%. But over the mid-long-term, it expects
Mengniu to improve its operating efficiency, leading to a better
profit margins. The bank has a buy rating on Mengniu with a
HK$54.00 target price.
Daiwa Capital Markets keeps a buy rating and a HK$60 target
price on Mengniu, saying that taking full control of the units in
the deals will "help it develop a business strategy and products
that are more suitable for the local market."
Write to Ben Otto at ben.otto@wsj.com
(END) Dow Jones Newswires
May 09, 2022 23:32 ET (03:32 GMT)
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