Shares of Bellamy's Australia Ltd (ASX: BAL) are on the rocks with investors again today after new reports of regulatory uncertainty yesterday. The shares have fallen 3.9% to $10.94 after losing 2.7% on Tuesday.
Indeed, the latest bout of uncertainty appears to have been sparked by a report from The Australian Financial Review yesterday. It said that regulatory uncertainty in China, which is Bellamy's key growth market, had caused a courier company to notify customers of an "indefinite suspension" of Australian infant formula deliveries.
The deliveries have been halted due to uncertainty about whether customs will clear the packages while systems are being upgraded to accommodate new import taxes, which is just one of the new regulatory measures set in place by Chinese policymakers recently.
Bellamy's shares have been hit hard by the regulatory uncertainties so far in 2016, with other businesses such as a2 Milk Company Ltd (Australia) (ASX: A2M) and Blackmores Limited (ASX: BKL) also impacted.
However, it's been business as usual for Bellamy's which provided an update to the market on Tuesday. Encouragingly, it confirmed that it is "well positioned for potential regulatory changes in China" while it also reiterated its revenue forecast of $240 million to $260 million for the year. Margins are also expected to be in line with the first-half of financial year 2016.
Part of the reason why Bellamy's products have done so well in China is the company's sole focus on 'organic' goods. To begin with, China has a strong understanding of good nutrition and health while there have also been many health and safety scares regarding food produced in China in the past. As such, many parents would prefer to buy products they can rely on.
What's more, many are also willing to pay more for that peace of mind. That means that Bellamy's can make more on the products it sells in China, which is great considering the sheer size of that market (especially now that the country's controversial one-child policy has been lifted).
According to notes from the business, China is the largest infant milk formula (IMF) market in the world with over US$20 billion ($27.4 billion) in revenue, whereby more than 70% of mothers formula feed in the first six months. As more individuals shop online and hopefully purchase Bellamy's products directly, that should be a boon for the business.
Indeed, regulation is a risk facing Bellamy's, just as it is a risk facing any company doing business in China (or anywhere, for that matter). But investors appear to be fixated on those risks and forgetting the strength of Bellamy's brand and its potential in the long-run.
Shares may remain volatile in the near-term as investors adjust their exposure, but long-term investors should also take note. This could be an excellent time to do some more research into the business and determine if now is the time to add it to your portfolio.
