SHARES of China Mengniu Dairy Co have shed the most in over three years amid a scandal, prompting investment banks to lower their rating on the stock on concerns this food safety incident may hurt its sales.

Hong Kong-listed Mengniu plunged 24 percent to close at HK$19.98 (US$2.57) yesterday after it said tainted feed given to cows were to blame for the excessive levels of a toxin found in its milk.

The General Administration of Quality Supervision, Inspection and Quarantine said over the weekend that a sample of Mengniu's dairy products was found to contain excessive level of the cancer-causing aflatoxin M1.

Mengniu said in a statement to the Hong Kong stock exchange on Tuesday that all its products in markets within and outside China, including Hong Kong, have passed relevant standards.

But that statement didn't soothe the concerns of investment banks as some of them have put "hold" or "neutral" ratings on Mengniu as they feared that sales may be eroded by the dairy company's latest quality incident.

Deutsche Bank downgraded Mengniu from "buy" to "hold," citing that its earnings growth is likely to be affected by the scandal. 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," Deutsche Bank's analysts Feng Chen and Mable Wong wrote in a report.

In a report dated Tuesday Goldman Sachs highlighted: "Risks for Mengniu include damage to reputation leading to lower sales and higher promotional spending and impairment charges." The US bank kept a ''neutral'' recommendation on the stock.

Mengniu's problems also affected the share prices of other domestic-listed dairy companies.

Beijing Sanyuan Foods Co lost 2.5 percent to end at 5.10 yuan (US$0.81) and Guangxi Royal Dairy Co slid 3.9 percent to close at 13.39 yuan.

 

Source:www.shanghaidaily.com