The Launceston-based company’s share price fell 43.5 per cent on Friday on the back of its announcement that its 2017 revenue would be $240 million, well down on the market’s consensus of $368m.
The Chinese government has ordered that international milk powder producers must register their products before being allowed to sell on the mainland in a bid to crack down on illegal brands entering the market.
Exporting companies to China also have to provide Mandarin-language labelling and identify the origin of the milk.
Analysts say the increased regulation is designed to slow the growth of international brands.
Chinese consumers are increasingly buying foreign-produced infant powder after the 2008 melamine scandal that killed six babies and hospitalised hundreds of thousands who drank Chinese-made milk.
The Chinese baby formula market is worth about $US20 billion ($27bn) and is dominated by Australian, New Zealand and European manufacturers.
A Citigroup report said Bellamy’s decision to cut pricing during the recent Singles Day sales — the busiest day for retailing in China — had hurt the company’s reputation. Its products are an estimated 50 to 63 per cent cheaper than rival a2 Milk.
“We are concerned the cheaper pricing is creating a consumer perception of inferior quality,” Citi analyst Sam Teeger said. “We prefer to see Bellamy’s holding or increasing pricing, and investing in below-the-line marketing or a brand ambassador as opposed to discounting its product.”
Citi already has a “sell” call on Bellamy’s and said the company needed to restore confidence before it would consider changing the recommendation.
“We need to see an improvement in Bellamy’s brand momentum and Chinese industry conditions before we can turn more positive,” Mr Teeger. “Increased disclosure surrounding sales volumes, market share and supply costs are required to rebuild investor confidence.”
Source: TheAustralian
Link: http://www.theaustralian.com.au/business/companies/citi-pans-bellamys-for-discounting-infant-milk-in-china/news-story/98437a81624348190645a0de4d1c85e3