A2 VS BAL,which one is better ?(part1)

I have write a article at this September compare with A2 and BAL in Wechat.Thanks very much for Vivian Portz translated major part in English. Now i post in here.
   
A2M is composed by A2 baby formula and other dairy products. According to the FY 16 report, A2 revenu was N$350million ( around A$335) with baby formula revenu of N$214m (about A$200m) which occupies 60% of the total revenue of the company. Here we are comparing baby formula between the two companies.One is A2 formula
This is the A2 baby formula's gross revenue of year 2015 and year 2016


This is Bellamy’s gross revenue of the last three years

Copare with this two chart,we can see,just the baby formula

At 1H2015, A2 formulas’ revenue equals 28% of bellamy’s. Second half FY 2015, A2 revenue raised to be 40% of Bellamy’s. In FY 2016, A2 ‘s revenue sped up significantly to 70% of bellamy’s. Second half of year 2016, both companies revenue reached ratio of 1:1.
Although A2 and Bellamy grow fast in the formula market, A2 performed significantly higher than bellamy. We also need to consider that 10% of Bellamy’s Revenue is from baby food and also, bellamy raised 30% of their retailing price. As we can see the quantities of A2 sold is actually way more than bellamy’s and the gap between the two are getting bigger.
I got big Data from Alibaba also shown  the difference for A2 and Bellamy

From the baby formula revenue of the two companies we could see that the market capital of the two should be close to each other or same regardless of A2’s other dairy products.
During the end of year 2015, the shortage of baby formula supply caused concern about the production capacity, and whether Chinese formula demand could be satisfied. Let’s look further to see the two companies resource to supply. Both A2 and Bellamy has similar resource production cost of 20%- 30% of the retailing price.

1.
Resources comparison Technically, 1 of 3 normal milk cows could be an A2 cow to produce A2 milk with a2 protein only. This means supply is readily available however not many numbers could be used because the rigorous process to certify by the A2 genetic test. A2 formula processing is carried outl by Synlait Milk. This requires that all A2 milk cows be locally selected near Synlait factory in new Zealand. The milk can not be imported from Australia. There are 16 farms that supply to Synlait milk now with the volume of 200 million Liters per year. 100million liters of a2 milk could produce 10,000 tone baby formula which could fetch A$250million.
Bellamy’s resources supply is a little bit complicated. The amount of organic milk in Australia produced is too low to satisfy its demand. Australia produces only 40 million liters of organic milk per year meanwhile the whole global volume of the organic milk is 4.5billion liters. Bellamy’s resources depend on imports from Europe and New Zealand. Bellamy also uses a drying process method (unlike A2) so it has no problem long distance shipping from abroad.

2.
Supply price of A2 and organic milk

Due to milk oversupply, normal milk price keeps going down, however, organic milk price remains steady which causes the different cost of the two companies. It also explains why Bellamy raised its retail price by 30% which is reasonable for its higher cost.

A2 works on a different cost pricing in New Zealand and Australia. A2 pays 30% more than the normal milk price to farms in Australia, meanwhile, it pays only 10% more than the normal milk price to farms in New Zealand. Fortunately, A2 baby formula is produced in New Zealand only.
A2 is the only customer for the A2 milk farmers in New Zealand. Bellamy has to pay a higher price in oversea markets to obtain organic milk powder in order to maintain supply. In this case, A2 has the upper hand in terms of the supply and cost.
3.Comparison of the Producing Capacity
According to Chinese government regulation, to sell baby formula in mainland China all of the baby formula has to meet the regulations of the Certification and Accreditation Administration of China (CAAC) . Eight formula processing factories obtained the certificate including Tatura which is the Bellamy’s processing factory. It is a branch company of Bega Cheese

There are 13 formula processing factories in New Zealand that have obtained the certificate including Synlait Milk, (A2 formula producer )


   Let's have a look at Tatura. Tatura, under Bega Cheese, is the only certified organic baby formula factory to meet the regulation of the Certification and Accreditation Administration of China. The annual formula producing capacity of Tatura is 35,000 tons. its biggest client is from Meadjonson USA taking 15,000 ton. Bellamy is the second largest take with 10,000 to 12,000 ton. Beside these two brands, Tatura also produce baby formula for Blackmore, Oz Care and some other small brands. There is no more producing capacity to satisfy the higher demanding of the market.
   
   To solve this problem, Bellamy signed another producing agreement with Fonterra in December 2015. Darnum, as the branch company of Fonterra, helps Bellamy to produce baby formula. ( Darnum is controlled by a Chinese company called Beienmei. It occupies 51% and Fonterra occupies 49%) Until now, Darnum  was not  certified under the Certification and Accreditation Administration of China. One of the regulations of the baby formula in the certificate states that every factory can only produce no more than 3 different brands and 9 kinds of baby formula. Bellamy is currently working with two different production factories. if Bellamy’s producing volume could not stand at the top 3 clients of Darnum their agreement will be hard to continue. Synlait Milk’s (A2 producing factory) annual producing capacity is about 30,000tons. According to the FY2016 of Synlait Milk, it only produced 16,000tons which means there is another 14,000tons capacity has not been used.

Among the 16,000 tons producing, 10,000tons is from A2. A2 as the biggest client of Synlait Milk plays the most important role of its future development. The 14,000 tons production capacity will be ready and available for the higher market demands of A2 in years to come.
Synlait Milk has announced launch in ASX in September 2016 to fund 300 million New Zealand dollars to increase its formula producing capacity. It is expected to reach 80,000 tons production capacity per year by the year of 2019 and become the biggest baby formula producer in New Zealand. In August 2016, A2 and Synlait Milk signed a new agreement to continue their partner cooperation to 2021.
These two company will face the same opportunity and risk in China's market.
(This is first part,I will post second part lately depond on my friend Vivian Portz's work )
  Thansk again for Vivian Port