Starting this week, Stockhead is introducing regular weekly and fortnightly wraps of news from the hottest ASX small cap themes. China-focused infant formula exporters have been one of the best performing groups over the past year. Here’s a quick look at what’s happening in the sector:

The key news in the sector was an announcement at the end of August that Chinese authorities were introducing a new legal framework governing consumer rights in e-commerce transactions.

Most ASX-listed baby formula stocks sell products via websites.

That news put a dampener on the sector, though popular stock Jatenergy said it “welcomed” the new law.

“The new law is good news for businesses like JAT which seek to provide Australian levels of product quality and consumer protections,” Jat director Wilton Yao said.

“Chinese infant formula sales totalled over $17 billion in 2017 and over 30 per cent of that was via ecommerce channels, so from the point of view of an Australian supplier, it is vital for regulators in China to weed out the counterfeiters and less scrupulous market participants, and ensure the integrity of the market.”

Measured by share price performance, Keytone Dairy (ASX:KTD) has been the standout infant formula stock over the past few weeks.

The newly listed stock jumped nearly 110 per cent over the past two weeks, hitting a high of 75.5c yesterday compared to its 20c issue price in July. It’s been issued a speeding ticket by the ASX — but has had no news this month.

The rest of the group have been fairly quiet, with little news flow meaning average share price change was just 1.6 per cent.

>> Scroll down for a list of ASX infant formula stocks and their recent performance

Year-on-year growth remains healthy for the group (see table below), sitting at an average of 82 per cent. Though there are signs of a downward trend after triple-figure percentage growth returns when Stockhead last checked in.

We have reported twice this year on the infant formula crew’s successes, most recently finding their value had doubled as the 2019 financial year got rolling, mostly thanks to more efficient regulation from the Chinese authorities.

In late July, that figure was sitting at 170 per cent growth year-on-year.

But recent valuations of the sector’s bellwether stocks, Bellamy’s (ASX:BAL) and A2 Milk (ASX:A2M), suggest there is no reason for alarm. Goldman Sachs has both at a buy, forecasting growth of 9pc CAGR over the next two years for the infant milk formula sector in a recent report on Chinese consumer habits.

“We expect that the incremental industry growth [of infant formula] will predominantly be driven by growing demand from lower tier cities as a result of comparatively higher birth rates, along with increasing demand for foreign brands and premium products,” the report said.

Earlier this month, Paul Jensz, executive director of research at PAC Partners, told Stockhead that greater regulatory certainty was helping foreign brands capitalise on the Chinese market.

“That stability in the last 12 months has allowed Australian listed companies to plan ahead and seek partnerships and distribution in China,” he said.

Besides Keytone, AuMake (ASX:AU8) has enjoyed a positive fortnight, with its stock rising 4 per cent – it hit a high yesterday of 28.5c.

The $76 million company announced a big deal on the 3rd of September, signing an exclusive agreement with 24-hour Chinese shopping channel Anhui Tiantong Renhe Culture Communication.

AuMake told investors it gave them “the ability to broaden AuMake’s brand presence directly with Chinese households”, thanks to the channel’s viewership of approximately 385 million people.

More than half of the infant formula stocks are down in the past two weeks however. Several have addressed the new Chinese e-commerce rules, which will come into effect in January next year.

a2 Milk said the new law provided a framework for e-commerce. “This framework is broad in scope and will apply in respect of all e-commerce activities, both domestic and cross border (CBEC),” it said in a statement to the ASX.

Elsewhere, Jatenergy (ASX:JAT) got a mention in Commsec’s quarterly report on self-managed super funds yesterday.

Commsec noted its popularity among non-SMSF investors who show “an obvious bias toward smaller, more volatile stocks like JATenergy and [vanadium play] King River Copper.

“Trading values in JAT jumped from just under $1 million in the second half of 2017 to $136 million within the first half of 2018,” Commsec noted.

The stock is up 317 per cent year-on-year but it’s suffered in the past fortnight, down 26 per cent.

Bubs (ASX:BUB) recently appointed its founder, Kristy Carr as its CEO, after it was forced to confirm that Nicholas Simms was stepping down from the role.

Bubs is down nine per cent in the past fortnight, hitting 67c yesterday afternoon. However, the $302 million company, which has recently become one of the ASX Top 500 All Ordinary companies, is up 28 per cent year-on-year.

Here’s a list of ASX infant formula stocks and their recent performance:

Ticker Short Name Two-week price change one-year price change Last Px Price:20180827 Price:20170911 Market Cap
LGO LONGREACH OIL (suspended) -- -- -- -- -- --
KTD KEYTONE DAIRY CO 109.7 -- 75.5c 36c -- 99.0M
SM1 SYNLAIT MILK 8.6 169.4 $11.96 $11.01 $4.44 2.1B
AU8 AUMAKE INTERNATI 3.6 -- 28.5c 27.5c -- 76.0M
AHF AUSTRALIA DAIRY 3.3 24.0 15.5c 15c 12.5c 39.3M
BXN BIOXYNE 3.2 39.1 3.2c 3.1c 2.3c 19.2M
BKL BLACKMORES 0.6 27.1 $146.11 $145.25 $114.97 2.5B
A2M A2 MILK CO -1.4 99.3 $11.02 $11.18 $5.53 7.8B
HRL HRL HOLDINGS -2.9 120.8 17c 17.5c 7.7c 81.4M
BAL BELLAMY'S AUSTRA -5.7 31.7 $9.72 $10.31 $7.38 1.1B
BFC BESTON GLOBAL FO -7.5 -7.5 18.5c 20c 20c 79.8M
BUB BUBS AUSTRALIA L -9.5 27.6 67c 74c 52.5c 302.4M
CLV CLOVER CORP -13.6 231.4 $1.43 $1.65 43c 244.5M
WHA WATTLE HEALTH AU -15.8 27.4 $1.12 $1.33 87.9c 210.1M
LON LONGTABLE GROUP -21.9 -40.7 44.5c 57c 75c 55.8M
JAT JATENERGY -26.5 316.7 5c 6.8c 1.2c 32.8M
Wordpress Table Plugin

Featured Companies

You might be interested in