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Investors downgrade Mengniu stock on scandal

Shanghai Daily, December 29, 2011

• Major investment banks have put "Hold" or "Neutral" ratings on Mengniu Dairy Co amid concerns that China's leading milk producer's quality scandal may impact sales.

  The General Administration of Quality Supervision, Inspection and Quarantine confirmed over the weekend that a batch of Mengniu's milk was found to contain an excessive level of cancer-causing aflatoxin M1.

  Deutsche Bank downgraded Mengniu from "Buy" to "Hold," citing earnings growth momentum is likely to be affected by the disclosure. The bank also cut the target price from HK$31.5 to HK$22.6.

  "Dwindling consumer confidence in Mengniu's products is likely to have an impact on near-term sales," DB analyst Feng Chen and Mable Wong wrote in the report.

  "Risks for Mengniu include reputational damage, falling sales, higher promotional costs, and impairment charges," Goldman Sachs said in its December 27 report.

  Goldman Sachs maintained "Neutral" recommendation on the stock, saying the bad news will affect its share price.

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