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Bellamy's shares dived more than 43 per cent on Friday. Getty Images
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Shares in Bellamy's Australia have plunged more than 40 per cent after it warned it had been hit by a build up of baby formula caused by changes to Chinese import regulations and lower sales during China's Singles Day shopping event.
The Tasmanian-based company, which produces organic baby foods and formula, said unaudited revenue was up 24 per cent to $93 million for the period from July 1 to November 20. However, it said th stock build up in China meant earnings margins will contract to below 20 per cent in the first half of fiscal 2017.
It is now also tipping revenue to be about $240 million for the full year, roughly 40 per cent below consensus estimates.
The stock tumbled 43 per cent to $6.99 in afternoon trade, after earlier touching a low of $6.80. Bellamy's hit a high of $16.50 earlier this this year.
One fund manager expressed concern about the company's visibility, given one month ago Bellamy's told investors that there was no stock issue. Related Quotes
Dec15GMT+1000 (AUS Eastern Standard Time)Aug14Nov165101.35513.583
Last updated: Fri Dec 02 2016 - 下午5:24:49 View full quote Company Profile
Producer and distributor of branded food product. www.bellamysorganic.com.au
Food Products (302020)
ASIC NULL
"I don't have any issue with the strategy and expansion into China and other South East Asian countries. But management credibility is a bit dented because they presented at the UBS conference last month, and said that it was fine. Now they have issued a 40 per cent profit warning."
The fund manager added that he was surprised China's regulatory changes were affecting premium formula players such as Bellamy's and rival A2 Milk.
"I thought that the market was segmented enough, that it was fair to consider them separately," he said.
China's regulatory changes aim to reduce the number of baby formula brands sold.
Bellamy's did not disclose its market share in China, leaving some market watchers to estimate it has lost share to A2 Milk.
Bellamy's exports its certified organic food to customers in China, Hong Kong, Taiwan, Singapore, Malaysia, Vietnam, and New Zealand, as well as supplies to grocery stores in Australia.
It has posted incredible growth in recent years, but earnings are highly reliant on the Chinese sales. According to Citi, sales from China will represent half of group sales this fiscal year.
Bellamy's generated $62 million in direct China sales in the 2016 financial year, and Citi estimates that will rise to $371 million over the next three years.
Last year during the Singles Day sales event - the largest online shopping event in the world - Bellamy's was caught short of product, and this year it suffered from slower sales.
Chief executive Laura McBain said that Bellamy's Singles Day sales were up on last year's but below the company's expectations.
"The expected uplift in China Market sales in the period following Singles Day have also been softer than anticipated," she added.
She said the long term outlook is positive and Bellamy's continues to build a sustainable long term business, focused on increasing distribution across Australia and Asia.
However, momentum had been tempered by "temporary volume dislocation in China due to regulatory changeover and the flow-on effects of restructuring the route-to-market in China impacting from late first quarter, as well as by strategic investment in promotions."
Chinese middle-class consumers have paid top dollar for products seen as being made in "clean" countries, but questions remain about a slowdown in consumption, in addition to the regulatory changes.
Ms McBain said Bellamy's opportunities in China remains vast.
"Bellamy's is currently stocked in less than 5 per cent of the potential distribution points in China," she said.
"The company's team is extending its online presence as well as broadening its offline, bricks and mortar presence. As a premium brand with a high quality product offering, Bellamy's anticipates that the upcoming regulatory changes should have a positive effect in both online and offline channels."
Ms McBain added Bellamy's continues to perform well in South East Asia, flagging Bellamy's as the fastest growing retail formula brand in Singapore, having grown more than 45 per cent over the past four months.
Another fund manager said the long term strategy is not tarnished, and calling for management change is not in investors' interest.
"But after today they won't be the darling of the investment community," he said.
A2M Price at posting:
$2.21 Sentiment: Buy Disclosure: Held
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