SML - Synlait Milk Ltd

[BlackPeter]

The company choose an interesting title for a report announcing a nearly $7M half year loss. Even if we discount for the foreign currency losses (US$ loan secured against US$ commitments - i.e. should cancel each other out when paid back) - hardly no underlying profit this half-year and predicting (based on some optimistic assumptions) a smaller NPAT for the full year than in 2014.

They call themselves a "growth" company - and I guess this is where the problem might lie. They invested a huge amount of money in building overcapacity (be it canning or drying). If their gamble works out at the end and they manage to fill up their capacity, than they are probably fine, but what if it doesn't?

At this stage I am not quite sure, where the additional supply is supposed to come from: The Canterbury plains are already suffering from the effects of too much dairy industry: Irrigation water overcommitted and nitrate leaking into the aquifers - i.e. any realistic supply growth would likely come from pinching suppliers from Fonterra (who just built a new factory near Darfield - i.e. they have lots of spare capacity as well and might not be an easy target) vs increasing dairy supply.

The other thing they need is increased consumption. I guess the theory is that Chinese appetite for milk powder is insatiable, but is this true? The Chinese have been happy before to throw spanners into their milk powder import ... so maybe, their consumption is increasing, but maybe not.

I do see this company currently as a high risk proposition - and not enough reward potential to compensate for those risks.

Discl: Sold out some months ago, and glad that I did ...

[GTM 3442]

The supply, capacity, and demand issue invites some troubling comparisons with the meat industry. It seems that New Zealand is very good at "growing stuff", but less good at developing sensible, sustainable industry structures to take full advantage of the stuff that it grows.

The meat industry may well be too far gone to save.

Perhaps the answer is to rip out a lot of that new dairy grass, and replace it with kiwifruit and grape vines.

[percy]

I drove past SML's factory this morning.
As always more building going on.
Appears they are duplicating the existing factory with another one.

[Citizen Erased]

New milk powder product in production to 'leverage melatonin in its natural form'. But not available to New Zealand consumers.

[macduffy]

The name "Synlait" puzzles me. The "lait" is obviously "milk" but the "Syn" conjures up "Synthetic" - to me, at least. So what is the "Syn" meant to mean?

[MAC]

Hello all,

Perhaps an experienced SML researcher can assist us with this one;

At the ATM half year they announced that sales of a2 Platinum in NZ and Australia were $16.07M, representing an enormously dramatic rise in sales.

Noting that it was a result during a period when sales to China were still disrupted due to regulatory issues. China is now open for business again and ATM have also improved their distribution arrangements over there.

Facebook interest in a2 Platinum is up, there are punters on Alibaba and other internet sites exporting a2 Platinum, ex Australian supermarket sales, to China with minimum shipping container order sizes, and the "a2-platimum-o-meter" is looking a bit exponential also.

http://www.google.com/trends/explore...m&cmpt=date&tz=

These sort of anecdotal comments also need to be treated with NaCl, but there may be something to them;

"I am a pharmacy owner and I can report that my pharmacies can't get enough stock of the baby formula ! Demand is insane , we move several thousand a week ! However they need to increase production asap. We have massive back orders pending stock"

My question is, can anyone point us to Synlait production data which is product specific, I suspect they may be ramping a2 production really quite heavily at present ?

kind regards, Mac

[Ginger_steps_]

Hello all,

Perhaps an experienced SML researcher can assist us with this one;

At the ATM half year they announced that sales of a2 Platinum in NZ and Australia were $16.07M, representing an enormously dramatic rise in sales.

Noting that it was a result during a period when sales to China were still disrupted due to regulatory issues. China is now open for business again and ATM have also improved their distribution arrangements over there.

Facebook interest in a2 Platinum is up, there are punters on Alibaba and other internet sites exporting a2 Platinum, ex Australian supermarket sales, to China with minimum shipping container order sizes, and the "a2-platimum-o-meter" is looking a bit exponential also.

http://www.google.com/trends/explore...m&cmpt=date&tz=

These sort of anecdotal comments also need to be treated with NaCl, but there may be something to them;

"I am a pharmacy owner and I can report that my pharmacies can't get enough stock of the baby formula ! Demand is insane , we move several thousand a week ! However they need to increase production asap. We have massive back orders pending stock"

My question is, can anyone point us to Synlait production data which is product specific, I suspect they may be ramping a2 production really quite heavily at present ?

kind regards, Mac

Perhaps the wrong thread for my reply, but for the sake of continuity...

Interesting MAC. If you change the search phrase to "a2 formula" it levels the graph out a fair bit (maybe a more likely search phrase?), however still a big spike in April this year. Also, it shows the regional interest as 100% australia - do you think the April spike could be as a result of the "The Checkout" segment on it? - ( Ihaven't checked what date the checkout ran that segment).
Assuming that was the catalyst, it may have caused lots of people to go do the research themselves to form an opinion, or adversely, it may have got the loyal consumers feathers in a ruffle and caused them to do further research..... Im hoping for the former! Hopefully the saying rings true in this case - "any publicity is good publicity".

[MAC]

Think so Ginger, the debate and resulting new awareness that comes from it is worth everything when you have 10% market share so far, but yet 90% more to gain from.

The power of the message for a2 infant formula, being the closest possible thing that one can buy to 100% a2 human milk, is pretty damn powerful marketing and psychology to mums who must select one manufactured product from many, every other one of which is a1/a2, esp so in China with the one child policy focus on providing the best.

Wouldn't be surprised to hear that the Synlait plant is sucking every possible skerrick of a2 milk out of Canterbury at present.

On a global basis I would not be surprised also, looking back in a few years, to see a2 infant formula revenues having overtaken a2 fresh milk rev actually.

[BlackPeter]

interesting: nearly 530.000 shares just changed owners - for $2.60 each. Could be the start of the sales season - or could be an indication for the bottom. Time will tell.

[tzbang]

Synlait has announced a new partnership with US baby products manufacturer, Munchkin Inc, that could offer its 161 farmer suppliers a chance to earn well above the normal payout.
Munchkin, a privately-held Californian company known for designing, manufacturing, and distributing innovative infant and toddler products, is planning to launch a new Grass Fed branded retail-ready infant formula into the United States and China that will be manufactured exclusively by Synlait. Synlait managing director John Penno said the partnership would help the dairy processor reduce its exposure to China.
https://nz.finance.yahoo.com/news/synlait-milk-offers-suppliers-chance-212200619.html