China
It was reported yesterday there were 15.23 million live births in 2018, a drop of two million from the year before.
Thats a lot of infant formula required.
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China
It was reported yesterday there were 15.23 million live births in 2018, a drop of two million from the year before.
Thats a lot of infant formula required.
So - how is a 12% drop in the birthrate good news for A2? Why would you think that the percentage of parents using A2 formula in economically challenging times would be increasing? Average Chinese per head disposable income in China is less than NZ$5000 per year (roughly 22.000 yuan) - makes you wonder how many A2 tins per month at roughly NZ$50 per pop they can afford. Don't forget - feeding babies with milk formula from the other side of the world is a luxury, not a necessity.
edit: I used originally in this post the Chinese per head GDP (roughly US$1000 per head per month). Relevant in this context is however not he GDP but the disposable household income - which is obviously much lower.
Ref: https://www.stlouisfed.org/on-the-ec...tandards-china
I found this interesting, particularly the bit about only a quarter of Chinese mothers breast feeding. Must be a cultural thing:
https://finance.yahoo.com/news/china...160000130.html
Besides birth rates and number of births, there are two other key factors driving premium A2M infant formula consumption in China besides birth rates :
1. Rise in real disposal incomes - the middle classes are getting wealthier and spending more on quality products and services;
2. The perceived benefits of A2 milk for their one child (supported by 6 adults).
I suspect you will find that the Chinese do not perceive feeding their little emperors and little empresses with the best infant formula as a luxury - just as they do not see spending a huge chunk of their incomes on education.
Gotto take off the Western blinkers when assessing China.
time to be a bear again
Sigh - irony is difficult to convey ...
I am suggesting that it feels that some punters here might have got a bit carried away ...
While the A2 ship has been for some time on growth course and still has some momentum left despite recently replacing a capable and committed captain with a in my view less capable and clearly less committed captain, there will be limits to its future market growth. The shrinking of its biggest market (China) clearly won't help. They would need to increase their market share by 12% to only keep selling the same number of tins they sold last year. The economic woes of the Chinese market (Trumps war) clearly won't help either. And despite all the hype - at the end they only sell a commodity which can't be protected. Give it a handful more years and every competitor will offer the same product.
Even the New Zealand brand is not that flash if you consider that our own proudly NZ owned Fonterra was quite involved in the largest Chinese milk safety scandal being the big cornerstone shareholder of the very company killing Chinese babies with blending milk formula with melanine. Not clean and green.
While I see no reason for A2 in the near term to stop growing and stop making money, I think they well might have reached peak growth by now. Is a forward PE of 31 in this situation really cheap? I don't know.
I agree with you, effectively you're paying upfront for all the growth that might or might not occur. It would be a good buy if there was some reasonable discount factoring in the innate uncertainty of the future.
Not quite as nutty as Netflix being valued on one day owning X% of the market and being able to make a profit then. But both classic late cycle behaviour.
A2 milk will be a great buy at around 5-7 bucks in the coming bear market.