On Wednesday Bellamy’s Australia Ltd (ASX: BAL) announced significant news out of China and ASX investors could expect this to affect The a2 Milk Company Ltd (ASX: A2M) share price.
About a2 Milk and Bellamy’s
The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein-based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
Bellamy’s is an ASX-listed organic infant formula and organic food company that was founded in 2004 in Launceston, Tasmania. It was the first company to offer an organic infant milk formula range to Australian mothers. It is now becoming a growing presence in the large Chinese market.
What Did Bellamy’s Announce?
Bellamy’s announced earlier this week that they have received State Administration for Market Regulation (SAMR) approval for their new branded formula series.
However, the SAMR application to produce their organic series at Camperdown Powder is still ongoing.
Bellamy’s CEO Andrew Cohen said: “This is the first step in recommencing sales in the China offline channel and executing a multi-tier product strategy. It will position us well to compete in the critical battleground of Tier 3 and 4 cities.”
What Does This Mean For a2 Milk?
The a2 Milk company generates a significant amount of revenue in China from their infant formula. About 28% of their revenue came from China and other parts of Asia in 1H19.
Approval for Bellamy’s product will likely create further competition in China. However, while Bellamy’s waits for approval for their main organic product from Camperdown Powder, I think the risk to a2 Milk will be small. Even in the event that Bellamy’s gains approval, the demand for infant formula is so strong in China that a2 Milk will likely still be able to maintain a high level of sales.
The a2 Milk company also showed in their 2019 half-year financial report that they are seeing significant growth in the Australian and New Zealand markets.
To sum up, I’m not worried about a2 Milk. They have consistently demonstrated their ability to grow and generate high returns for investors. For Bellamy’s, they are clearly making progress towards sales growth in China, and the next step will be full approval for the remainder of their products.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
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