Baby formula boom off the boil in China
The Australian
China’s infant formula boom, which has created overnight millionaires in Australia and put a rocket under the share prices of local producers like Bellamy’s and A2 Milk, could be heading for a messy and painful slowdown after one of China’s biggest baby milk powder makers warned of diving sales and intensifying competition ahead of tighter regulations.
There were also early signs the roaring vitamin trade into China might also have peaked as Swisse Wellness — one of the fastest-growing players in the Chinese vitamins market — reported fading sales in the two months to June 30.
Biostime International, which last year paid $1.67 billion for Swisse Wellness and is the third-biggest player in the Chinese infant formula market, presented a bearish assessment of both health products markets, raising fears the twin bubbles may be deflating.
Swisse has been hurt over May and June by the new Chinese government clampdown on e-commerce sales of healthcare products.
Some of the best-performing stocks on the Australian market over the past year have ridden a surging wave of Chinese demand for locally produced milk powders and vitamins, with companies such as Bellamy’s up more than 150 per cent, a2 Milk rallying over 200 per cent and vitamins group Blackmores 50 per cent higher.
The booms have created new industries, such as personal shoppers stripping Australian supermarket shelves to fill suitcases with infant formula and vitamins to send back to China, and sucked in large licks of capital as investors pounced on the sector to cash in on the bubbles.
But Biostime, which is listed on the Hong Kong stock exchange, has seen its sales of baby infant formula into China come under attack over the June half, with sales of its ADiMIL brand collapsing by 65.7 per cent as cutthroat competition among branded players punctured its earnings.
Biostime said its revenue from infant formulas had dropped 14 per cent in the six months to June 30, driven primarily by the two-third dive in sales for ADiMIL. Sales for its range of Biostime-branded infant milk formulas slid 5.4 per cent as a result of Chinese distributors reducing their inventory levels amid uncertainty over regulatory changes, which are expected to reduce the number of products on the market.
The prime suspect for plummeting sales has been the planned introduction of new infant formula registration rules by the Chinese government. Earlier this year the China Food and Drug Administration announced details of new regulations aimed at reducing the number of infant formula brands sold across the country, sending shock waves through the sector that stripped hundreds of millions of dollars from the value of Australian listed companies.
“Due to the tightening effect caused by new infant milk formula (IMF) recipes registration rules, the market remained fiercely competitive,’’ Biostime chairman Luo Fei warned in his latest update to investors.
“The significant de-stocking of IMF products and aggressive price competition led to a decrease in industry sales volume. Consequently, revenues from the baby nutrition and care products segment decreased by approximately 12.2 per cent as compared to the corresponding period in 2015.”
Biostime is estimated to have just under 6 per cent of the Chinese baby powder market.
Analysts noted that souring Chinese sales for Biostime had been mirrored by lacklustre results recently for other companies playing in the infant formula space, such as Synutra, Nestle and Danone.
So far that slowdown has not appeared on the books of Australian producers, with Bellamy’s revealing that its sales to China and Hong Kong leapt by 331 per cent to $62.1m for fiscal 2016.
Meanwhile, Biostime warned that growth at its newly acquired Swisse vitamins business had also slowed, and, like infant milk formula. “Although Swisse sales growth remained strong over the first half of this year, we have observed some downward pressure in the later part of the period. As a result of the uncertainties from the recently announced cross-border e-commerce regulations related to health food products, passive sales have weakened, primarily due to destocking from distributors in Australia.
Swisse’s revenue rose by 34.9 per cent to $267.6m in the June half, from $198.3m for the six months ended June 30, 2015.
http://www.theaustralian.com.au/bus...a/news-story/e2e3492b2c1c1ebffa080e5fa3240d38
