China Mengniu Dairy Co Ltd , the country's top dairy product maker in which China private equity firm Hopu Investment Management owns a stake, on Tuesday posted a 27.6 percent rise in first-half net profit on solid sales growth, pledging to ensure product quality after a series of scandals tainted the industry's reputation.

 

China Mengniu was confident that its profit margin in the second half would be in line with the first half, Chief Financial Officer Wu Jingshui told reporters.

Gross profit margin for the period was 26 percent, almost unchanged from 26.2 percent a year earlier, despite higher prices for raw milk and other raw materials, while net profit margin remained unchanged at 4.3 percent, the company said.

We are confident we can at least maintain (first-half) margin levels in the second half, Wu said, adding that the company might raise product prices and adjust its product mix to offset an estimated 3-5 percent rise in raw milk costs in 2011.

Market expansion and stricter government safety controls had created a healthy environment to nurture the future development of the dairy industry in China, Chief Executive Yang Wenjun said in a statement.

Mengniu would continue to develop small to mid-size ranches to boost the proportion of raw milk from ranches and ensure product quality, Yang said.

Product contamination scandals last year hurt the dairy industry and major players including China Mengniu Dairy, Bright Dairy & Food Co Ltd and Inner Mongolia Yili Industrial Group Co Ltd .

The authorities seized more than 100 tonnes of melamine-tainted milk powder, the latest case after similarly contaminated milk powder was blamed for causing the deaths of at least six children and poisoning about 300,000 in 2008.

China Mengniu said net profit for the first half totalled 789.75 million yuan ($123.7 million), up from 618.82 million yuan a year earlier. That was in line with an average forecast of 775.5 million yuan from three analysts polled by Reuters.

Turnover for the period rose 28.7 percent to 18.58 billion yuan from 14.43 billion yuan a year earlier.

Revenue from the liquid milk segment increased 30.8 percent to 16.29 billion yuan, accounting for 87.7 percent of total revenue, the company said.

Wu said he expected slower growth in sales volume in the remainder of the year compared with the first half because of a relatively high base in second half of last year.

Shares of Mengniu ended up 4.9 percent up on Tuesday, outpacing a 1.7 percent rise in the benchmark Hang Seng Index . ($1 = 6.381 yuan)