Any company relying on China has seen a tough 2020. While markets only really started an all-out panic in the last fortnight, companies have been feeling the pinch for longer as travel bans and factory closures took hold.

Australia’s infant formula sector has quite a large exposure to China because just about all of the ASX-listed players export to China.

Some small caps are saying they won’t be affected. Bubs Australia (ASX:BUB) commented on the situation last week saying infant formula is an essential pantry item.

The company pointed to a Chinese government nutritional intake guideline issued on February 8 recommending 300g of dairy consumption per day.

Bubs admitted logistics were challenging but that it had witnessed increased buying from the daigou (which means to buy on behalf of) channel due to the global uncertainty.

Investors, however, sent Bubs down 20 per cent in February along with all but two other stocks.

Code Name Price (3-March) 1Y % Return 1M % Return Market Cap
A2M A2 MILK CO LTD 15.56 12 7 $11.4B
HRL HRL HOLDINGS LTD 0.13 46 4 $69.1M
CLV CLOVER CORP LTD 2.45 37 -8 $429.1M
JAT JATENERGY LTD 0.046 -22 -8 $44.9M
LON LONGTABLE GROUP LTD 0.145 -56 -9 $31.1M
BFC BESTON GLOBAL FOOD CO LTD 0.073 -44 -18 $34.4M
NUC NUCHEV LTD 2.82 12 -19 $126.0M
BUB BUBS AUSTRALIA LTD 0.645 15 -20 $367.0M
KTD KEYTONE DAIRY CORP LTD 0.305 -18 -23 $67.8M
BXN BIOXYNE LTD 0.012 -48 -29 $8.3M
SM1 SYNLAIT MILK LTD 5.34 -47 -37 $1.0B
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The winners and losers

Topping the list was the biggest stock, A2 Milk (ASX:A2M), which reported a half-year profit of $NZ184.9m, beating analyst estimates.

The company actually saw a positive revenue impact beginning in this half. While there were some supply chain bottle necks, A2 Milk said it was able to deliver via air freight to infant formula retailers in China.

A2 Milk said it couldn’t determine if this was a pull-forward in demand due to panic buying nor could it predict what would happen in the next four months.

JP Morgan rated the stock underweight noting external challenges beyond the coronavirus.

“Given the challenged external backdrop in China infant formula, notably lower birth rates, we suggest competition will intensify from local and international peers, requiring a greater level of investment or a lower rate of revenue growth achieved for A2M,” JP Morgan said.

The only other winner in February was HRL Holdings (ASX:HRL), which isn’t a pure infant formula play. Rather it is aiming to start an analytical testing service for the New Zealand dairy industry.

Overall the sector lost 16 per cent in the month of February.

But on a yearly basis the picture looks slightly rosier, with five stocks in the green including Bubs, A2 Milk and HRL. They were joined by Clover Corp (ASX:CLV) and Nuchev (ASX:NUC) despite both witnessing a share price drop in February.