Globally, there is uncertainty around the potential impact to supply chains and consumer demand in China resulting from COVID-19 or Coronavirus. However, due to the essential nature of staple food products like milk and infant nutrition powder, the demand for these products is currently high in China. In order to tackle the problem of coronavirus, the Chinese government recently issued a notice regarding the ‘Nutrition Intake Guideline of Prevention and Treatment of Coronavirus,’ recommending consuming 300g of dairy per day. Consequently, many nutrition companies started to receive in-bound interest in immunity style nutritional based products for the Chinese markets.
Infant formula is perceived as an essential pantry item as it is a key food source for babies. Many infant formula stocks have recently provided an update on the impact of coronavirus. Let’s take a look at these stocks and their updates.
Keytone Dairy Corporation Limited (ASX: KTD)
Dairy products supplier, Keytone Dairy Corporation Limited recently confirmed that the sales of staple food products in China have been reported to have experienced substantial increases. Further, one of the leading Chinese online retailers, JD.com has reported a substantial increase in food and health-related product sales, including products such as the New Zealand and Australian made products manufactured by Keytone.
Due to the outbreak of coronavirus, Keytone has received in-bound interest in immunity style nutritional based products for Chinese markets. Due to this, the company is now working on a roll-out of immunity boosting nutritional SKUs, to satisfy the inbound wholesale customer requirements for Chinese market. The company believes that it is in a unique position to respond to these changing customer demands through its experienced in-house product development team.
Although shipping and general supply chain logistics to and from China have been disrupted globally and have resulted in the postponement of a small number of Chinese orders received by Keytone, this is not expected to have a material impact on Keytone’s financial performance, rather Keytone expects a strong current quarter and run rate leading into its new financial year commencing on 1 April 2020.
By AEDT 3:09 PM, KTD stock was trading at a price of $0.280, close to its 52 weeks low price.
Bubs Australia Limited (ASX: BUB)
Infant nutrition company, Bubs Australia Limited recently reported strong sales growth momentum across its core product segments in the regions in which it operates. The company expects this trajectory to continue in the second half also. As a trusted premium international brand with transparent supply chain visibility, Bubs® is well placed to appease Chinese parents’ heightened focus on food security and their children’s health and immunity.
Bubs sources goat milk and packaging materials for infant formula and adult dairy products from Australia/NZ. This is a reason why supply chain for manufacturing has not been impacted yet. However, Bubs is still facing challenges delivering finished goods to end consumers , particularly in relation to international flights and last-mile deliveries between provinces.
Currently, Bubs holds a sustainable market leadership position in vertical supply chain with exclusive access to Australia’s largest goat milk pool. This places it in the unique position of being the world’s only producer of goat infant formula made from Australian goat milk, further strengthening the premium provenance story with traceability back to farm gate.
In the first half of FY20, the sales of Bubs® branded products grew by 67% on same period last year while infant formula sales were up by 77% on pcp, representing 45% of 1H group gross revenue. For the same period, the organic Baby Food sales were up by 23% on pcp, representing 8% of 1H group gross revenue.
Bubs Half yearly result (Source: Company’s Report)
By AEDT 3:09 PM, BUB stock was trading at a price of $0.575, near to its 52 weeks low price.
The A2 Milk Company Limited (ASX: A2M)
The A2 Milk Company Limited witnessed substantial improvement in its revenue, EBITDA and Net profit of 1HFY20, as compared to the previous corresponding period. The company reported revenue of $806.7 million, EBITDA of $263.2 million and Net profit of $184.9 million in 1HFY20. Over the period, the company’s USA milk revenue more than doubled and distribution expanded to 17,500 stores.
During the period, the company saw significant growth in its infant nutrition segment with sales totalling $659.2 million for the period – an increase of 33.1% on the prior corresponding period. The company also witnessed strong growth in China label infant nutrition products with sales of $146.7 million, an increase of 100%.
For FY20, the company anticipates continued strong revenue growth across its key regions supported by increased marketing investment in China and the USA.
Due to the outbreak of Coronavirus, the demand for the company’s product is currently strong, particularly through online and reseller channels, with revenue for the first two months of 2H20 above expectations.
A2M has not accessed the impact of coronavirus, either positively or negatively, for the full year. However, the full year EBITDA margin is still anticipated to be in the range of 29-30%. 2H20 EBITDA margin is therefore expected to be lower than 1H20.
In the past six months, A2M stock price has increased by 13.82% on ASX. BY AEDT 3:09 PM, A2M Stock was trading at a price of $15.730.
Synlait Milk Limited (ASX: SM1)
Global provider of nutritional milk products, Synlait Milk Limited recently confirmed there has been no material short-term impact on its financial performance in connection with the Coronavirus outbreak. The company is carefully monitoring the spread of Coronavirus, and the risk it poses to Synlait’s business.
The company expects its FY20 earnings to be in between $70 million and $85 million and anticipates strong growth in consumer-packaged infant formula sales volumes over the full year. The company expects its FY20 profits to grow, with the rate of profitability increasing at least at a similar rate to that of FY19 over FY18.
At AEDT 3:09 PM, SM1 stock is trading at a price of $5.060, down by 7.6% intraday.
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