Like battery metals or medicinal marijuana, dairy formula, and more specifically infant formula, has been a hot theme in ASX small cap land for some time.

There have been several examples of companies jumping into a sector seemingly just because it’s popular — mouthguard maker Impression Healthcare (ASX:IHL) is trying to sell pot chewing gum and potato monitor CropLogic (ASX:CLI) wants to start growing hemp in Oregon.

So it is no surprise that the ASX has a burgeoning dairy formula sector, as Australian companies producing the stuff have been popular in China ever since a scandal in 2008 that saw domestic products being contaminated with melamine cause six deaths and more than 54,000 hospitalisations.

But who is who, what are they doing, and are they active in China? Let’s take a look at the companies that have had some form of exposure to the sector in the last couple of years.

How to do it

Regulatory changes have played a huge part in the export of formula products to China for Australian companies.

In September last year, stocks in the sector had, on average, doubled in value, with more stringent Chinese regulation helping to diminish the wheat from the chaff.

But those same stocks have experienced a downturn in fortunes of late, losing on average 3 per cent of their value as China put the brakes on international tinners after pressure from domestic companies, slowing down its approval of applications to export.

Exports of Australian infant formula to China requires approval of the export production establishment from the General Administration of Customs of the People’s Republic of China (GACC).

Approval of the formulation and brand of the infant formula product is also required from the State Administration for Market Regulation (SAMR).

However, one can sell products into China via e-commerce channels without SAMR approval, although that approval would open the floodgates for a company as it would allow sale of products through offline channels as well.

A spokesperson for the Department of Agriculture and Water Resources recently told Stockhead that it was working with Chinese authorities.

“We continue to work closely with GACC and SAMR to progress approvals for Australian infant formula establishments to export to China,” they said.

“The department’s role is to ensure exports occur safely and in accordance with the Export Control Act 1982 and importing country requirements.  Under the Act, all exports of Australian dairy products over 10kg require an export permit and health certificate.”

Most companies have applied for and are awaiting SAMR approval, though they or their manufacturers have GACC approval, allowing them to sell via e-commerce channels.

Active and loving it

For several companies, infant formula is big business. Bubs Australia (ASX:BUB) recently reported half-year gross revenue of $21 million, exceeding the $17 million it banked for all of 2018.

The big driver was Chinese sales: up 2,281 per cent compared with Q2 2018 and up 121 per cent on the September quarter.

Wattle Health (ASX:WHA) recently acquired a majority stake in Blend & Pack, which is the manufacturer of Wattle Health products that are exported to China via e-commerce channels.

Blend & Pack recently renewed its GACC approval, but Wattle is still waiting on SAMR approval.

AuMake International (ASX:AU8), which is focused on Chinese tourists who buy products and take them back to China, doesn’t sell its own brand, preferring to distributes others.

Clover Corp (ASX:CLV) makes nutrient-rich additives that can be added to milk powder, and demand for those from China was a big reason it doubled profit in 2018.

Keytone Dairy (ASX:KTD) does dairy powders, but not of the infant variety.

And it won’t debut on the ASX until April, but Australian Nutrition & Sports, which hopes to list under the code AN1, markets milk formula for kids aged 12 months and under and adults over 50, as well as a range of protein products including powder, shakes, bars and something called “rapid energy gels”.

Maybe, thinking about it, trying to

Jatenergy (ASX:JAT), a former energy company, is trying to muscle in on the sector via companies it has acquired and is looking into making its own brands.

Australian Dairy Nutritional (ASX:AHF) moved into the sector with an acquisition of Flahey’s Nutritionals, which makes an organic infant formula.

Neither Beston Global Food (ASX:BFC) nor Bioxyne (ASX:BXN) make or sell infant formula into China, but both have an eye on it: the former makes powdered lactoferrin, a key ingredient in infant formula, and the latter sells a skim milk powder for all ages that contains colostrum, the first milk produced by all mammals after giving birth that is rich in antibodies, and honey.

Former oil and gas explorer Longreach Oil (ASX:LGO) might move into infant formula, but they might not. Almost a year ago they acquired a fledgling New Zealand dairy company called Happy Valley Milk, but nothing has materialised from that yet and the company remains in trading suspension.

The big end of town

Then there’s the big three – A2 Milk (ASX:A2M)Synlait Milk (ASX:SM1) and Bellamy’s Australia (ASX:BAL).

A2 Milk has a market cap of over $10 billion and is the one you will be most familiar with – A2 litre milks sell across most supermarkets around the country.

It also sells milk products and infant formula for Chinese consumers, who can purchase through e-commerce platforms. The products are made by Synlait Milk.

Bellamy’s is waiting on SAMR approval but the company that makes its products, Camperdown Powder, recently renewed its General Administration of Customs China (GACC) approval.

ASX code Company Sells infant formula to China? 2019 HY revenue Market cap
A2M A2 Milk Yes, working with Synlait Milk $613m $10.3b
AHF Australian Dairy Nutritionals Not yet, but it wants to $10.6m $34.8m
AU8 AuMake International Yes, via daigou, not its own brands $21.9m $58.4m
BAL Bellamy's Australia Yes, via e-commerce $130m $1.1b
BFC Beston Global Food Company No, but it does make powdered lactoferrin for export $43.7m $55.6m
BUB Bubs Australia Yes, via e-commerce $19.6m $276m
BXN Bioxyne No, but it wants to sell a honey dairy formula $1.4m $14.7m
CLV Clover Corp No, but it makes additives for formula $34.3m $297m
JAT Jatenergy Yes, via an acquisition, and is trying to do own brands $30.5m $46.3m
KTD Keytone Dairy Yes, but not infant formula $1.4m $57m
LGO Longreach Oil No, but acquired an NZ company that plans to $853 $9.7m
SM1 Synlait Milk Yes, working with A2 Milk $471m $1.8b
WHA Wattle Health Yes, via e-commerce $363k $171m
AN1 Australian Nutrition & Sports* Yes, via e-commerce $419k n/a
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* AN1 has a targeted listing date of April 3.

** FY18 revenue; yet to report HY19 revenue.