Major Shareholder:

• Jinniu ¡V 15.80% interest
• Yinniu ¡V 33.60% interest
• Mr. Niu Gensheng ¡V 4.60% interest
• MS Dairy ¡V 7.40% interest

The Group is one of the leading dairy product manufacturers in China. our principal product categories are liquid milk (comprising UHT milk, milk beverages and yogurt), ice cream an other dairy products, such as milk powder, milk tea powder and milk tablets. According to China General Chamber of commence and China National Commerce Information Center joint survey of large retailers, the Group was the top liquid milk producer in China by sales volume in regions and directly administered municipalities, for the month ended 31 January 2004, the Group had a 20.6% share by sales value of the liquid milk market, excluding yogurt and milk beverages, making us one of the leading producers of liquid milk in China.

The revenue of the Mengniu Group grew to RMB4,071.5 million at a compound annual growth rate of 137.1% in the three year period ended 31 December 2003. The Group markets the majority of the products under the primary MENGNIU trademark that has obtained recognition as a ¡§PRC Famous Trademark¡¨. The Group sells the products in China and also export the products to Hong Kong and Macau. In 2003, the Group sold approximately 804,000 tons of liquid milk products, 79000 tons of ice cream and 5,000 tons of other dairy products.

The Group currently processes the majority of the products at the eight production bases. Based on the production capacity as of 31 December 2003, the Group is able to produce approximately 1.26 million tons of dairy products annually.

The Directors believe that the Group has the following competitive advantages:

• Highly experience and incentivized management with proven ability to deliver strong performance;
• Strong brand name recognition and leading market position combined with effective sales and distribution network;
• Ability to obtain a steady supply of high quality raw milk;
• Strong market oriented research and development capabilities;
• Stringent quality control standards; and
• World class production facilities.

• The Group depend on supplies of raw milk and other major raw materials, a shortage of which could result in reduced production and sales revenues for us.
• The Group may be unable to manage future rapid growth
• The normal operations are largely dependent on Mr. Niu and other key personnel
• Increases in raw material prices that the Group is not able to pass on the customer would reduce on the profit margins and profitability.
• The expansion strategy may not proven successful
• The development of secondary trademarks may not be successful which may lead to loss of development, production and marketing costs and the being unable to increase the revenues

The sales and marketing efforts are currently targeted towards Mainland China, While the Group will continue to view this is the key market, the Group intends to increase sales of the products to other markets including Hong Kong and Macau. Wellcom, a leading supermarket chain in Hong Kong, recognized the UHT milk as one of the best performing new products in its Hong Kong supermarkets in 2003. The Group also intend to continue to explore opportunities for sales growth in neighboring regional markets in which the Group believe the products can be competitive.

In additional to traditional supply models of sourcing milk form dairy farmers supply milk through milk collection center, the Group also contemplates adopting other supply models. For instance, the Group also constantly seeks to improve the quality of the raw milk by providing guidance in the modern animal husbandry and feeding techniques to daily farmers.

The Group plan to develop a comprehensive portfolio of dairy products to target different consumer groups and increase opportunities for profit growth. As china¡¦s consumers enjoy higher levels of disposable income, their tastes and preferences for dairy products will continue to evolve. While retaining the leading position in the liquid milk product segment, the Group intend to be a market leader in China by developing different product lines, such as flavored and functional milk products, premium yogurt, and other dairy products. In addition to undertaking regular market research activities in china, the Group also closely monitor product development in more mature overseas markets, and use the information gained from such markets to supplement the own information and guide the direction of the new product introduction.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$824 million (based on the offer price HK$3.525 per share). The Group at present intends to apply the net proceeds as follows: