I think the assumption is not sound because there has been zero transparency on what % of SML capacity A2M occupy and what % has been reserved for them anticipating future growth, two questions we need the answer too before determining that SML cannot service FY17 expected uplift.
I hardly saw a mention of any customer other than A2M in the presentation, and my understanding based on the presentation is that A2M is the profit driver in terms of volume and margin (seems likely given sell price of products like Akarola being so low - waste of capacity).
If you are right about SML capacity, then we have a real problem because based on my understanding of the new chinese regulations manufacturers can only be licensed for three brands to import into China, and the available spots at manufacturers are being taken up, giving A2M not much time to find an option - even if the market could stomach a gap in growth (Might be wrong here about the regulation - not a lawyer - happy to learn more).
For time being until there is clarity I'll have to be content with CEO's experience and management team record indicating they would A - either have a solution for this or B - tell us clearly that production capacity was a constraint despite having enough milk.
Certainly the milk question seems to be less of an issue as previously thought. It takes about 3 years to convert a farm to organic. But supplying A2 milk from an existing herd seems to require some genetic testing to seperate the cows and you are good to go and most herds have a good portion that are A2 already. (Could be wrong here - happy to learn more about this if anyone can give insight).
A2M Price at posting:
$1.72 Sentiment: Buy Disclosure: Held
(20min delay)