The company's milk production, based in Inner Mongolia, will return 450 million yuan in four or five years, after starting to make a profit in 2007, said chairman Kwok Ho when announcing the company's annual results in Hong Kong Friday. Chaoda Modern has already brought more than 600 dairy cows, each worth 15,000 to 20,000 yuan, from Australia and New Zealand, and expects to buy a total of 3,000 cows by next June, he said.

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"There are no big companies in China specializing in breeding cows, and the average production per animal is low," Ho said.

Chaoda Modern said full-year profit rose 30 percent from a year earlier to 1.3 billion yuan, with a 150 million yuan gain from revaluing livestock, trees and vegetables. Revenue increased 22 percent to 2.2 billion yuan from 1.8 billion a year earlier.

Consumption of dairy products in China is still paltry compared with the rest of the world. At present about 13 kilograms per year per person in 2004, compared with a world average of 100kg, consumption will hit 17.8 kg per person by 2015. according to the country's milk industry association.

The Fujian-based Chaoda Modern, which listed in Hong Kong in 2000, will have 10,000 cows in Duolun, Inner Mongolia, in 2007, each producing five to seven tonnes of milk per year. The number will grow by 10,000 per year by 2009.

Leading dairy companies such as Hong Kong-listed China Mengniu Dairy and Shanghai-listed Inner Mongolia Yili depend for milk on farmers and their small factories, which have low average production and irregular production, a China Dairy Product Association report said in September. About five million cows are raised in China by farmers, and these can each produce only one to two tonnes of milk per year, compared with five to seven tonnes from high-quality cows raised by professional factories, Ho said.

Chaoda Modern also plans to expand its vegetable supply to supermarkets in the mainland, such as Wal- Mart and Lotus. The business contributed 6 percent of total revenue in the 12 months to June 30, compared with 4 percent a year earlier. The gross profit margin for products selling to supermarkets is between 70 percent and 75 percent, compared with about 65 percent for wholesale business with small shops.

The wholesale market makes up more than 60 percent of the company's vegetable sales, while higher-quality products - or about 30 percent - are sold overseas, according to the company's annual statement.

Chaoda Modern, which sold bonds worth US$200 million (HK$1.56 billion) this year, said the ratio of debt to equity rose to 33 percent, compared with 1 percent a year earlier. The ratio will stay between 30 percent and 35 percent, said chief financial officer Andy Chan.