This information has been produced by myself. It is free to distribute. It is my own opinion, not financial advice.
If investors aren't already familiar with Wilton Yao, JAT's MD get on Linkedin and give him a follow.
ANMA FACILITY UPDATE3 days ago Wilton posted that JAT's ANMA factory was inspected and passed a full audit. It looks close to completion. Production from ANMA is going to double which will greatly reduce JAT's production costs and allow for expansion of revenues. Sunnya sold out of all product JAT could produce last year and confirmed they had far higher demand. Quite a large % of the new production would already be earmarked for sale.
EARNINGS POTENTIAL China births over 17m babies a year. The infant milk formula you see the Daigou buying in hoards in Australia lands in China at 300% the price and the people are happy to pay for it. The earnings potential of JAT's retail plan in China therefore is enormous. A2M, BUB and others rely on Daigou resellers into China, none have local retail outlets.
JAT is opening the first of multiple retail outlets in Shanghai, China and not only that will sell Abbeyard A2 to compete with A2M. That will make JAT the only ASX listed company to have a retail outlet in China for infant milk. The market does not yet appreciate the potential here. JAT does not have to go through Daigou channels when they own the manufacturing, distribution and local retail. JAT would be the first vertically integrated infant milk formula company. From manufacturing to point of retail sale.
PRICE COMPARISON
Below is the A2 Platinum formula which retails at Chemist warehouse in Australia for A$36. A2 report margins of 27%. They may sell these to the distributor at A$20, margin A$5.40 a tin, cost A$14.60. That's a rough estimate.
Below is a post form Wilton Yao 2 days ago showing product for sale in Shanghai and their converted prices to A$. Compare to the pricing JAT receive in China at A$100 a tin for their Moroka. They are yet to launch their Abbeyard A2 formula which is a premium product and will sell at higher prices. It is likely the Abbeyard A2 protein formula will sell for A$150 a tin.
JAT will not have to pay distributors, Daigous and others when they are selling direct from their Shanghai retail shop or online store. JAT were already making a gross margin of 32.5% when they were relying on Daigous and others. Essentially they will now manufacture it, ship it to their store and sell it at almost 300% the price it sells in Australia whilst cutting out the middlemen.
UP TO 80% MARGINS IN CHINAIf JAT sells a tin in Australia to distributors for A$20 and makes 32.5% margin as reported, that's a margin per tin of A$6.50 and costs of A$13.50. Again a rough estimate.
A tin that cost JAT A$13.50 to produce in Australia you could add maybe A$6.50 (high estimate) for shipping, tax and other costs to Shanghai. Bringing their all in cost to A$20 a tin. JAT are selling them now for A$100 which would imply an 80% gross profit margin from their retail operations in Shanghai. It will be even higher if they sell the Abbeyard A2 formula for A$150 as anticipated.
EARNINGS FORECAST
Revenue for FY2020 was A$60m with a gross margin of 32.5%. This was during the worst economic downturn of covid19 and the company still increased gross margins. Since the end of FY 2020 sales rebounded up 111%. JAT has also said to expect lower costs from doubled production at ANMA and increased revenues from China operations.
We expect that JAT will sell out of all product they can supply their Shanghai store(s). The company mentioned revenues could be upwards of A$1m per store per year. In year 1 we have assumed JAT will open 1 retail store (A$1m sales) and operate the online store (A$4m sales).
THE NUMBERSDespite the 111% growth last quarter we have kept revenues flat at 2020 levels to be conservative.
FY 2020 revenues A$60m + Sunnya deal A$32m = $A92m in revenues (minimum). Attribute previous gross profit margin of 32.5% = A$29.9m gross profit.
We've assumed an additional A$5m in sales to come from Shanghai retail + Online store in Year 1 at gross profit margin of 70% = A$3.5m gross profit.
That would give a conservative estimate for FY2021 of A$97m in sales with gross profit of A$33.4m.
OUTLOOK
Infant milk sales in China have grown 94% the last year. It is now a multi $Bln industry. No other ASX listed company has retail outlets in China. JAT already have a local foothold and the 1st retail store opening this month. A 50sqm store that is expected to turnover up to A$1m a year at up to 80% margins. This is a trial run by JAT. Once the logistics of the supply and sale are ironed out JAT can have 50 of these stores across China at double the size and capacity.
If you assume 50 stores selling A$2m worth of product a year that is an additional A$100m in annual revenue. Use a discounted 50% gross profit margin on these sales channels that's another A$50m of gross profit to the bottom line. Coupled with the other sales channels that would have JAT looking at a gross profit potential of A$83.4m for FY 2022.
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