China Mengniu Dairy (2319), China's biggest milk seller, dropped 24 per cent on Wednesday after the company revealed that its milk contained flavacin M1, a toxin known to cause severe liver damage, even cancer. The news pressed the hot-button issue of food safety on the mainland for a sensitive consumable: milk.
In 2008, Mengniu was among the major dairies found to be distributing melamine-tainted milk.
The company said the contamination was caused by cows eating mouldy feed at a farm run by one of its suppliers.
Analysts took the news in their stride. The event triggered only two downgrades (by Deutsche Bank and Bank of America) with the rest tending toward the view that the problem was a one-off for Mengniu.
Yixin Luo (Jefferies) says the declines were overdone. A Jefferies report on Wednesday reiterated a buy rating on Mengniu and described the price drop as a buying opportunity.
Luo was encouraged by a speedy company response to the crisis, which compared favourably with its slow, defensive handling of the melamine poisoning in 2008.
Mainland authorities on December 24 said that Mengniu milk made in a Sichuan factory was tainted by flavacin M1. The firm posted an apology on its website on December 25. On Wednesday morning before the start of trading, it posted a statement on the Hong Kong stock exchange website confirming the test result.
