Date
24 May 2017
Mainland tourists rushed to buy Bellamy’s products in Australia over the Christmas holidays, cleaning out supermarket shelves. Photo: Reuters
Mainland tourists rushed to buy Bellamy’s products in Australia over the Christmas holidays, cleaning out supermarket shelves. Photo: Reuters

Australian dairy stock rides wave of China’s second-child policy

I believe keeping healthy, to have a longer life, is a decisive factor in investing.

As we all know, compound interest is powerful.

If you invested HK$100 30 years ago, assuming the annualized return is 8 percent, in the 33rd year, your principal will increase to HK$1,369.01.

Besides, it is only if you have a healthy body that you can enjoy the wealth you have. If not, money is meaningless.

So we should eat healthily and work out more.

Talking about health, I was optimizing the quantitative stock-picking model last week.

I was trying to run the tests in different markets, including Australia, a market I ignored before.

Surprisingly, the computer program picked an Australian milk powder stock, Bellamy’s Australia Ltd. Its price rose sevenfold in 2015.

A feature of Bellamy’s products is that they are “100 percent made in Australia”.

The company said it’s the first organic baby formula producer in Australia and topped the sales in this category in the country.

On China’s Singles Day shopping festival, Nov. 11, mainland Chinese consumers rushed to buy Bellamy’s products online and in Australia, leaving sold-out tags in Australian stores for a period of time.

Bellamy’s had to apologize to its domestic consumers for the shortages.

The firm’s market cap is still not big, at about HK$1.35 billion (US$170 million).

As of June, sales were A$131 million (US$95.7 million) up 158 percent from a year earlier, and profit jumped seven times year on year to A$9.3 million.

It’s clearly a growth stock with low market cap and worth investors’ attention.

Its share price is now high, and the projected price-to-earnings ratio is nearly 40 times.

I wouldn’t dare to buy it at present.

But on Tuesday, the share price corrected sharply.

Previously, Bellamy’s announced it would cooperate with New Zealand’s Fonterra Co-operative Group Ltd. to increase output to fulfill the demand from China, leading to an increase in Bellamy’s share price from A$11 to A$16 in a short period.

The correction has just started. For those investing in the Australian stock market, if the price falls to A$11, it may be a good chance to buy the stock.

In Hong Kong, there’s not much room for speculation around the second-child policy in China.

Valuations are low and earnings are disappointing.

But the world is big. If we look deep enough, we may discover good companies to buy.

This article appeared in the Hong Kong Economic Journal on Dec. 31.

Translation by Myssie You

[Chinese version中文版]

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MY/JP/FL

HKEJ contributor

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