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There are two major dairy companies in Mainland China, namely China Mengniu Dairy Company Limited (SEHK: 2319) and Inner Mongolia Yili Industrial Group Co (SHA: 600887).
Both companies operate their businesses mainly in Mainland China. The former is listed on the Hong Kong Stock Exchange while the latter is on the Shanghai Stock Exchange but is accessible via the Stock Connect in Hong Kong.
For investors who are looking to invest in this industry, they might want to know which of the two companies they should consider now. Unfortunately, there is no easy answer. As such, I’d like to put both companies side by side for a direct comparison.
To start with, we want to know which company did better in their recent financial results. I’ll start with Mengniu Dairy.
For the first half ended 30 June 2019, Mengniu Dairy reported that sales improved by 15.6% from a year ago to RMB 39.9 billion (US$5.7 billion). Gross profit also grew by 15.2% year-on-year. Consequently, profit attributable to shareholders jumped 33.0% year-on-year to RMB 2.1 billion. Overall, it was a strong performance for Mengniu.
And now let’s look at Yili’s performance. For the same period, Yili reported that sales grew by 12.8% from a year ago to RMB 45.1 billion. Similarly, gross profit was up 13.2% year-on-year to RMB 17.3 billion. As a result, net profit attributable to shareholders came in stronger by 9.7% year-on-year to RMB 3.8 billion.
In sum, a solid performance for Yili with stronger metrics across the board yet with stronger overall growth from Mengniu Dairy.
Winner: Mengniu Dairy
The next thing we will consider here is the valuation of both companies. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
To begin with, Mengniu and Yili have PB ratios of 3.9 and 6.5, respectively. The low PB ratio for Mengniu suggests that it has a lower valuation based on its PB ratio.
Next, Mengniu and Yili have PE ratios of 34.0 and 24.5, respectively. Here, Yili appears to have a lower valuation based on its low PE ratio.
Last but not least, the respective dividend yields for Mengniu and Yili are 0.7% and 2.5%. The higher a stock’s yield is, the lower is its valuation. In this case, we can see that Yili is a cheaper company.
Winner: Inner Mongolia Yili
Overall, there is no clear winner here. On one hand, Mengniu performed better in the latest financial results. Yet, Yili seems to be priced at a lower valuation.
Thus, investors should look into other factors (such as future prospects) when deciding which company to invest in now.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.