Bellamys shares plunge by 44 per cent as the baby formula producer flags weaker sales in china

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ORGANIC baby formula maker Bellamy’s share price has plummeted after the company reported weaker sales in China.

As much as 43.9 per cent was wiped from the shares this morning after Bellamys released an investor update flagging softer revenue this year.

Sales on November 11s Singles Day Chinas biggest online shopping event failed to meet expectations, as have sales in China since then, the company said.

We more than doubled revenue growth on Singles Day across all e-commerce platforms compared to last year, chief executive Laura McBain said in a statement. The growth however fell short of our expectations.

Bellamys blamed a regulatory crackdown by the Chinese government, which had triggered discounting by a rival company that were selling off stock in anticipation of losing their export licenses, temporarily eating into its sales.

Chinese authorities tightened regulations of baby formula imports in October, in a bid to increase safety standards and minimise the risk of contamination.

Just nine importers will be accredited under the new system, which will give local brands a stronger position in the market.

The Tasmanian-based company has been a market darling, with its share price rising more than tenfold from $1.60 to a peak of more than $15 last year as it capitalised on the booming Chinese appetite for the clean and green product.

Worth $165 million at the end of 2014, it reached a share market capitalisation of $1.2 billion in the middle of 2016.

But, while the company seemed to be scaling heights, its chairman Robert Woolley and Ms McBain were quietly selling off hundreds of thousands of shares, fuelling scepticism in some corners.

Some analysts questioned the assumption that Chinese demand for Australian-made baby formula would continue at the same levels, while others critiqued the companys mastery of its supply chain.

We believe Bellamys is a well-run company affected by a demand spill-over from China following several food scandals, which has distorted demand for infant milk formula within Australia, Lloyd Moffatt of Religare Institutional Research told Fairfax Media.

We thus believe that the companys revenue growth rate is unlikely to sustain, going forward.

Other baby formula producers were affected by the Bellamys announcement, with Blackmores down nearly 6 per cent this morning, while Bega Cheese and A2 Milk fell 13 per cent.

Bellamys revenue for the first half of the 2016/17 year is expected to be about $120 million and the company said revenue in the second half of the year would be similar if current conditions continue. That forecast would fall short of the previous years annual revenue of $244.6 million.

Bellamys shares were down $4.49, or 37 per cent, at $7.64 at midday (AEDT) on Friday, with more than 12 million shares traded.

With AAP

The ASX 200 finished down 1.0% on Friday to slip 1.1% over the week. Bellamy's Australia (BAL) shares dropped 43.5% after warning of weaker-than-expected sales of its infant formula in China.