"Made in China" still a sure bet at home

By Joseph Chaney and Samuel Shen - Analysis

HONG KONG/SHANGHAI (Reuters) - The "Made in China" label has been tarnished by scandals from tainted toothpaste to toxic toys, but China's top brands are building a name for quality among the country's increasingly well-heeled consumers.

China's leading homegrown consumer companies are also providing investors long-term value, analysts say, as China's crowded consumer goods sector consolidates.

But their shares aren't cheap, with leading dairy firm China Mengniu Dairy (2319.HK: Quote, Profile, Research, Stock Buzz) trading at more than 41 times forecast earnings.

Still, analysts on average rate the stock "outperform", according to Reuters Estimates. Mengniu's shares have more than doubled over the past 12 months.

"China is creating a lot of demand in terms of eating, wearing, dwelling and traveling," said Ji Yue, director of private equity firm Sequoia Capital China.

"A good investment goes to leading companies that provide badly needed products and services in a market that has huge potential to grow."

Annual economic growth of more than 10 percent has created 345,000 Chinese millionaires as of the end of last year. And urban disposable incomes have risen 87 percent since 2000, to 11,759 yuan (US$1,559) per person last year.

F&B BOOM

In addition to Mengniu, a number of Chinese food and beverage companies are leading the charge to both higher quality products and healthier lifestyles.

Both mainland and Hong Kong-listed firms -- from wine maker Yantai Changyu (000869.SZ: Quote, Profile, Research, Stock Buzz) (200869.SZ: Quote, Profile, Research, Stock Buzz) to pork producer China Yurun (1068.HK: Quote, Profile, Research, Stock Buzz) -- are thriving with loyal customers and solid growth outlooks.

Last week, Yurun -- which translates roughly as "raining wealth and health"-- posted a near-50 percent rise in first-half net profit despite hog price increases due to blue ear disease.

"Because of our brand recognition, we can pass most of our cost increases to consumers and protect our margins," Chairman Zhu Yicai, China's 24th-richest businessman in 2006 according to Forbes, told the Reuters China Century Summit.

The consensus analyst recommendation on Yurun's stock, which trades at 21.7 times forecast earnings, is "outperform", with 11 "buys" from a total of 16 ratings, Reuters Estimates show.

And shares in China's top maker of pure juice drinks, Huiyuan Juice (1886.HK: Quote, Profile, Research, Stock Buzz) -- trading at 36 times forecast earnings -- soared 66 percent on their Hong Kong debut in February and have gained 28 percent in the past three months. JP Morgan has an "overweight" rating on the stock.

Huiyuan expects its revenue to grow five-fold in the next 3-5 years to 10 billion yuan, Vice President Matthew Gene Mouw said at the summit, held at Reuters offices in Shanghai.  Continued...