A2M (ASX) One of your favorite A2M posters has upgraded the stock to BUY

Originally posted by jzhuang ↑

Breaking news. One of yourfavourite A2M posters has personally upgraded the stock to buy BUT

DYOR

Be accountable for your own money

I'm not f licensed to give financial advice

So the purpose of thispost is trying to forecast near term A2M performance through to 4M20 and SP target based on mostly evidences and a little bit speculations.

China online sales

The most obviousobservations since beginning of FY20 have been tremendous growth of Chinaonline sales, mostly over JD.com and Alibaba Tmall. The sales is literally overthe roof.

Below is the latestcustomer reviews data from A2's flagship online store owned by JD.com (https://mall.jd.hk/view_page-83949296.html). Looking at second table below which means, in the past approx. 80 days, thedaily average reviews added are 2127, compared with 1280 of almost the sameperiod last year, which implies 66% increase.

So what does thisnumber could possibly mean? Let's go back and have a look at another table below,which roughly demonstrate FY19 to FY18 comparison of 220 days or so for thesame JD store, and the growth was "ONLY" 55% for the period, increased from 961 to1492 reviews per day.

This means, thissales growth is very like to be even HIGHER than last FY for this particularonline store on JD. This is truly amazing considering overall moderated salesgrowth moving forward. Btw my estimated turnover for this online store isroughly A$130k-150k per day circa A$ 47M to 55M for this FY so it's a big one.

2. MBS sales - China label IF
I think this part ofestimation can be derived from the growth of the number of MBS stores. Theobservation is since FY17 the China Label sales growth is proportional to thegrowth of MBS stores. For 4M20 estimation, I'm expecting we have around 17.5kMBS stores at the end of Oct vs. estimated 11.5k for Oct 2018, which is 52%increase, so I'd forecast china label IF sales will be 90% up for 4M20 period(even though this might not be disclosed separately)

3. ANZ IF growth
This part is a bitdifficult to estimate, but the observation is we have way, way better supplychain management this year than last year. We don't have serious shortage issuein Aussie Supermarkets, while stocks are still flowing fast, so I am pretty surewe are capable of maintaining certain level of natural growth and furthergrowth of Aussie market share. See below table, are we going to see decentnumbers compared to PCP for September and October cells? I think it's highlypossible.

A friend of mine hasbeen running a decent size daigou shop over last few years, who had recentlyreceived HUGE purchase orders from a major CBEC distributor in China. As aresult he and his employees had to work overtime for entire fortnight to fulfilthe orders, and[hidden] pallets of A2IF every day for the entire two weeks had been shipped to China, that was[hidden] cans in total. This was biggest ever A2 purchase order he fulfilledsince he started his business. (I don't want to disclose specific numbers butthose were big numbers considering the size of the business he was running)

4. Lyttelton export data
This export datamight arguably become less indicative than it was, as it's believed some ofEnglish labels are exported out of Auckland port. However, I believe it willstill be worth watching for obvious reasons. I'm almost confident Septemberdata will be at least 50%+ growth given last September's poor data. BUT, it'sstill very important that by 23rd Oct when September data is published, the general marketwill gain much more confidence about 4M20 results and SP started to turn aroundby then if not earlier, then leading into an inevitable leg up in November.

5. Hrdlicka Sales
This part is PURESPECULATIVE THOUGHTS without any evidence.
I believe Jayne(probably with other insiders as well) is still planning to sell her shares tomeet whatever tax obligations. Insiders sales just happen EVERY YEARregularly for A2M like sun rises from the east every morning. However, why we stillhaven't seen the change of director interest ANN? I'm guessing that as theinsider Jayne would know that currently the sp seriously undervalued, while shecan easily sell her shares above $15 after 4m20 results released. It's justless than 6 weeks away and sharp recovery of sp is highly definitive, so whythe sales at 20% discount now?
Again I hatespeculation and I might be COMPLETELY WRONG and I will be pissed off if I seethe sales notice before 4M20 results, but until shxt happens I'm standing withthis speculation.

6. Marketing expenditure
With the evidencesof China online sales booming I believe marketing expense is paying off and itis rewarding from long term perspective, especially in China market, eventhough we have to bear with lower EBITDA margin for the time being. I'm notspecialist in this domain though but my intuition tells me A2's management isdoing the right things with their working capital. For US market with all theseinvestments I hope revenue could hit NZ$100M and starts tobreak even by the end of FY21 but it's stilltoo early to say at this stage.

7. 4M20 forecast
Current Brokerconsensus for FY20 is (in NZD)

Revenue growth 32% - 1722M

EBITDA growth 18% - 486M

NPAT growth 18% - 340M

My forecast for 4M19results is based on the assumption that A2M could possibly be able to maintainthe same level of sales growth we saw last FY

Revenue Growth 40% - 515M

EBITDA growth 25% - 155M

NPAT growth 26% - 108M

My SP target by the endof 2019: A$15.80.

Expand

Great post and restores my faith in why I read HC... thanks.

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(20min delay)
Last $6.92		Change 0.035(0.51%)		Mkt cap ! $5.028B

Open	High	Low	Value	Volume
$6.93	$6.98	$6.91	$3.629M	522.3K

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