Friday, May 15, 2009

American Dairy Soars as Sales Triple on Milk Scare

American Dairy Inc., a Chinese producer of infant formula and milk powder, rose the most in five years in New York trading as sales almost tripled following a contaminated-milk scandal that killed at least six babies and sent one of the company’s competitors bankrupt.

American Dairy soared 55 percent to $28.48, the most since December 2003. The shares more than doubled over the past year.

“This company just beat my whole year estimate in one quarter,” Hao Hong, a New York-based analyst with Brean Murray Carret & Co., said in a telephone interview. “Growth rates are going to be stellar.”

The Beijing-based company reported profit of $1.55 a share, compared with Roth Capital Partners LLC’s estimate of 40 cents a share. First-quarter sales jumped to $113.8 million from $39.1 million last year, the company said in a statement yesterday after the market closed.

Brean Murray’s Hong, who has a “buy” rating on the stock, boosted his full-year earnings forecast to $2.95 a share from the previous estimate of $1.65.

Leng You-Bin, chief executive officer for American Dairy, said gross margins jumped to 64 percent from 37 percent in the year-earlier period, on increased sales of infant formula. Milk powder sales rose more than threefold in the quarter.

“Our first quarter 2009 sales reflect consumers’ flight to quality at the height of the melamine crisis in China,” he said in a statement.


Melamine, used to make plastics and tan leather, was found in dairy products in China last year and was blamed for the deaths of at least six babies. The industrial chemical makes the protein level of milk appear higher.

American Dairy “has successfully capitalized on increased consumer demand for high quality milk powder products under the backdrop of a dairy industry shakeup due to the melamine crisis,” Roth analyst Howard Zhou wrote today in a report. He has a “buy” rating on the stock.