Profiting from Problems: American Dairy Inc., (NYSE:ADY)

In a crisis, someone always benefits; check out Chinese dairy producer American Dairy Inc., (NYSE:ADY).

American Dairy Inc., (NYSE:ADY) is based in Beijing, China and trades around the $11 range. ADY has approximately 40 administrative employees, 800 production staff personnel, and 150 sales personnel.

I like this company because they seized an opportunity when it presented itself.

In China, there has been a flight towards quality by consumers nationwide since the Chinese government's announcement on September 16, 2008 that 22 dairy enterprises had products containing melamine. Not so with ADY and as a result, ADY’s Feihe branded products were being sold out in many areas.

ADY responded by increasing production and is still running at full capacity 24 hours a day to keep up with demand.

ADY jumped on it: the Company increased its marketing and sales team as demand continued to rise. In addition, to step up its marketing efforts, the Company has launched a nationwide marketing campaign, with television commercials running on Chinese Central Television Channels (CCTV) 1, 2, 3, 8 and provincial stations all across China.

ADY has also been featured in more than 40 news segments and news articles for its commitment to quality production nationwide. Despite the rising demand, the Company has ‘not’ raised prices at this time.

American Dairy, Inc., through its subsidiaries, manufactures and distributes dairy products under the Feihe trademark. Its products include milk powder; soybean powder; walnut powder, walnut dew, and walnut oil; and rice powder/rice cereals.

The ADY wholly owned subsidiary, Feihe Dairy (“Feihe” literally means “the flying crane” - in the Chinese culture, the crane symbolizes longevity.) was founded in 1962. Feihe Dairy is also one of the leading producers and distributors of premium infant formula. Feihe has processing and distribution facilities in Kedong, Qiqihaer, Baiquan, Gannan, Shanxi, and Langfang.

In July, 2005, the Chinese National Industry and Commerce Trademark Bureau named the "Feihe" brand one of China's most identifiable brands. ADY uses the brand names Feihe, Yinhe, Jinhe, Xinghua and XinHua. With four decades of expertise in milk product development, Feihe Dairy produces a widely diversified menu of nutritious products in addition to standard fresh milk production. ADY possesses four brand trademarks, eight product series, and over 50 product variations.

One thing I like about ADY is that they are on a growth trajectory in highly concentrated populations and they are entering other markets through joint ventures. To meet there expansion they have redesigned the non-fluid products to promote a premium quality image and they have redesigned the Company’s trade materials to further distinguish there products from other dairy products.

As a matter of fact, ADY is the first and only infant formula producer to build its own organic dairy farms that meet international standards and ADY can accommodate approximately 10,000 cows at each farm.

The two large-scale dairy farms, located in the Gannan and Kedong counties of Heilongjiang province, currently have over 6,000 Holstein cows which were imported directly from Australia during the first half of 2008. Management at ADY expects that each farm will provide approximately 60,000 to 70,000 tons of organic milk to be used mainly in the Company's branded products.

Also on a positive note, ADY hired Grant Thornton, the Hong Kong member firm of Grant Thornton International, as its independent registered public accounting firm earlier in 2008 and proactively initiated voluntary reaudits of the Company's financial statements for certain prior years (thus a recent filing for a 10k extension.

Got milk? Got ADY?