October 23, 2018 / 10:36 PM / a year ago

UPDATE 2-Australian formula maker Bellamy's hit by China setbacks

* Bellamy’s sees FY2019 pct sales growth in low single digits

* Sales hit by slowing Chinese birth rate, competition

* Shares down up to 10 pct (Recasts with shares, adds analyst comment)

By Byron Kaye

SYDNEY, Oct 24 (Reuters) - Infant formula maker Bellamy’s Australia Ltd issued a sales downgrade on Wednesday, sending its shares down sharply, as a host of setbacks in China left investors questioning its strategy of relying on exports to the mainland for growth.

The former favourite of Australian stock analysts warned it may experience no annual sales growth, from a forecast of up to 10 percent growth just two months earlier, due to Chinese factors including a slowing birth rate, fierce competition and regulatory delays.

That is a challenge for a strategy that relies almost entirely on Chinese sales via Chinese shoppers in Australia who re-sell products at home, while getting Beijing’s approval to export through formal channels.

“The team remains highly conscious of the continued risks and challenges that face our business, but ... we retain confidence in our medium and long-term growth outlook,” CEO Andrew Cohen told shareholders at the company’s annual meeting.

Bellamy’s shares fell as much as 10 percent in a slightly weaker market, before recovering slightly to be down 8 percent at A$7.78 by mid-session. The stock has taken investors on a wild ride since listing at A$1 four years ago, hitting a peak of A$23.07 in March before the scale of the China setbacks became clear.

“It is fair to say that the trading update is a lot weaker than expected and the underlying business is going backwards,” said Belinda Moore, an analyst at Morgans Financial Ltd, in a client note.

CEO Cohen said the company did “not yet have transparency of timing for approval” to export to China, a year after it first raised the issue.

Sales were being hit by lower birth rates in big Chinese cities so Bellamy’s was trying to boost sales in smaller cities while overhauling its product line to take on competition, he said.

The company planned to run down its existing inventory at lower prices, dragging down Australian sales by up to 15 percent in the six months to Dec. 31.

A pick-up in the second half would see annual sales recover to be at the “low end” of its previous guidance range of between zero and 10 percent.

$1 = 1.4116 Australian dollars Reporting by Byron Kaye in SYDNEY Nikhil Kurian Nainan in BENGALURU; Editing by Stephen Coates

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