Closing price above $1.82 is crucial, page-386

• News
• Opinion
• Business Review
• National Affairs
• Sport
• Life
• Tech
• Arts
• Travel
• Higher Ed
• Media
• Property

China opportunities open for vitamin-maker Blackmores: analysts

• The Australian
• 12:00AM July 14, 2016
• Save
• Print
• Sarah-Jane Tasker
  
  Reporter
  Sydney
  https://plus.google.com/109975179297660562731
  

Blackmores chief executive Christine Holgate. Photo: John Feder
Blackmores could boost its Chinese sales by 80 per cent, according to analysts, who say a market selldown of the company on fears of new regulations was overdone and that the vitamins giant is a stock worth buying.
Credit Suisse analyst Ben Levin said yesterday there was a new opportunity emerging in what the investment bank expected to be a $US10 billion ($13.2bn) China vitamins and dietary supplements market through the bricks and mortar retail channel by 2020.
“We believe Blackmores could capture $US150 million, adding 80 per cent to its existing China sales base as new regulations assist Blackmores in tapping this large market,” he wrote in a client note.
Credit Suisse initiated coverage of Australia-listed Blackmores, which is headed by chief executive Christine Holgate, with a $175 price target that added support to the stock yesterday as it closed 7.4 per cent higher at $146. The share price boost was the company’s best day on the market in nine months.
Mr Levin outlined that Blackmores’ exports to China should continue to grow despite concerns about tightening regulation around imports via the cross-border e-commerce channel.
In April, the Chinese regulators released a “positive list” of commodities that could be imported through the cross-border, e-commerce channel, which created confusion and investor fear about the affect it would have on Blackmores’ Chinese sales.
Credit Suisse said the hit to Blackmores’ share price following news of the “positive list” was overdone and that the impact on Blackmores was not as great as the share price move suggested.
“We estimate only 25 per cent of Blackmores’ China sales are via cross-border e-commerce,” Mr Levin said. “Blackmores’ daigou channel — Australian-based selling agents using China personal post — accounts for 70 per cent of Blackmores’ China revenue.
“ We observe through industry contacts that this channel has been far less affected and not explicitly covered by the new China regulatory announcement.”
Credit Suisse added that the 33 per cent share price correction since April presented an attractive buying opportunity.
The investment bank also highlighted that Blackmores could generate the highest return on equity, of about 60 per cent, among companies in the ASX 200.
“By our calculation, Blackmores’ share price is implying either no further growth in the e-commerce and daigou channels or no material development of the China retail business.
“However, we believe all channels will remain growth avenues for Blackmores,” Mr Levin said.
The analyst said during a recent trip to China, industry participants widely acknowledged Blackmores’ potential to succeed, citing high brand awareness and a perception of high quality.
“Blackmores is adding resources to exploit the China retail market faster than many of its peers. It has established a local, wholly-owned subsidiary, secured a few key distribution relationships, and may double its local headcount from 30 to 60 people,” he said.