Formula milk firm hit by new Beijing rules

SYDNEY: Infant formula maker Bellamy’s Australia Ltd. warned new import rules in China had created a supply glut that was hurting sales, sending its shares plunging more than 40 percent and sparking a broader sector sell-off.
China said in April that companies exporting infant milk formula imports through international websites would need to be officially registered by 2018 — a change that was not expected to affect major manufacturers.
But on Friday, Bellamy’s said it now expects sales to fall about 2 percent in the current financial year to end-June as formula exporters which don’t expect to get registration dump stock at heavy discounts.
The new level of uncertainty hit shares in the sector hard as firms that export milk products from Australia and New Zealand tend to enjoy high valuations on hopes of hot demand from China, making them susceptible to sell-offs on negative news.
“Until we’ve got clarity on that position, it would be difficult to put a line in the sand,” Bellamy’s CEO Laura McBain told analysts on a conference call.
“We can continue to build in China (but) it’s been disrupted over the last six months.”
Bellamy’s shares fell by as much as 44 percent on Friday, their biggest drop since listing in 2014 and hitting their lowest intraday level in a year.
But even after that plunge, the stock was trading at a trailing price-earnings ratio of 30, about double the benchmark S&P/ASX 200 index. The company is backed by high profile investors including Crown Resorts Ltd. billionaire majority owner James Packer, who has a 5 percent holding.
New Zealand rival a2 Milk Company Ltd. saw its shares fall 12 percent. A spokesman for the company said it believed it was well placed to manage the regulatory change. A2 trades at 60 times earnings, four times the benchmark.
Sydney-listed dairy producer Bega Cheese Ltd, which runs a venture exporting formula to China with vitamin maker Blackmores Ltd, fell 5 percent. Blackmores dropped 3 percent.
Last month, Bega warned the venture’s early sales were below expectations due to regulatory changes and soft demand, sending shares of both companies sharply lower.
Bega shares trade at 26 times earnings while Blackmore trades at 20 times.