In my opinion,1H 17 report maybe is the time which show strong growth for baby formula.At 2h 2017 or 1h 2018 we will see the weakness growth.My forcast,the revenue of baby formula will be 350M-400M at the FY17,And FY 18 maybe will the same level with FY17.
Here are the reason.
1. the birthrate of second child policy lower than expected
At 2016,the new born population in China are 17.86M,just 1.3M more than last year.Consider 2016 is monkey year.there should more monkey baby.
when china cancel one child policy,everybody think there will be baby boom.Some researcher think at least 2-3M more baby than last year.Monkey baby+second child = 8% growth of birth rate.
In the next 2-3years ,the growth of birthrate will still lower unless China cancel the policy of family planning or the government provide more welfare to the newborn baby to encourage people make baby.
2.Registration for China label infant formula products
I have no doubt of A2 can get the registration at last.But when can can get Registration is the important thing.
If cant get the registration,that means the sell the formula is illegal in China.If cant get registration in time,there is also a big problem.That means the distributor will not order the formula before get the registration.
Some news from China Media showed,the first registration baby formula brand list will be publishe at the end of second quarter or first of Third quarter. China Food and Drug Administration prefer let some China's local brand get the first registration.
Although every company can registrate 3 brand,but the China Food and Drug Administration let the company register one after another,it dont let register 3 brand at the same time.
If A2 cant come to the first registration baby formula brand list or will registrate at November or December.There will be a big influnce for the sales.In the second half of this year,before get the registration,the e-commerce channel like Tmll,JD.com Vip.com will reduce the order or stop the order beforeA2 get the registration.if the registration time late,A2 maybe will lost the single day event.
Although Infant formula registration can reduce the formula brand from more than 2000 to just 500brands.There will be more market share for the Surviving brands.But thats means Surviving brand is better and stronger than before.They have more ability for formula research and development,more professional marketing,some brands have theri own manufacture ,China's local brand will get more support from China'sgovernment.A2 will face more powerful company and the slaes of babyformula will be more and more difficult
3.CBEC grace period will expire at the end of this year
Here are two different A2baby formula.One is Chine label another is English label.
Chinese label formula is the legal product which can sell both e-commerce channel and Mother & Baby store.And the formula meet the China's requirement and it is better for China‘s Baby. the cost of Chine label is 10% higer than English label.But the retail price is double than English label .
Now the sales of more than 95% baby formula from English label.Under the new e-commerce policy,form 1st Jan 2018,all the e-commerce channel cant sell the English label products in China(I hear some news that big e-commerce company is trying to persuade China's Custom cancel or change the new policy,but until now,the new policy is still the same).
If after 1st Jan 2018, Cross border e-commerce platforms channel can only sell Chine label,the high retail price will reduce the A2's competitivense.
The Daigou channel dont have influnce from the policy change.But for the top 1o formulabrand (both e-commerce and Mother & Baby store),there are n't any one depend on the grey market.If A2's future controled by Daigou,trust me that will be a big disaster.
4.Legal action with the Lion Group
Although A2milk have confident for this position.But the result is indefinite.If A2 win the lawsuit, A2 will have great promotion in future.But if A2 lost the lawsuit,there will be disaster for all A2products.
As a longterm investor,I have hold a2m from July 2015.In my opinion,if you also as a longterm investor and if you have find another opportunity Maybe it is time to pick up ripe fruit.But if you want to still hold it,it is not a bad idea.
(20min delay)