August 29, 2018 / 12:04 AM / a year ago

UPDATE 2-China sales approval delay hits Australia infant formula firm Bellamy's outlook

* Bellamy’s swings to profit, as expected

* Faces delay securing crucial China sales permit

* Shares tumble, then recover to trade higher (Recasts on China slowdown, adds share move, analyst and management quotes)

By Tom Westbrook

SYDNEY, Aug 29 (Reuters) - Infant formula maker Bellamy’s Australia Ltd warned that a delay in securing a permit to sell directly in Chinese shops would slow revenue growth for as long as two years, denting a dramatic turnaround at the one-time market darling.

The Tasmanian company regards China as its top growth market but has been unable to stock its organic milk powders and formulas in shops there this year because it is still awaiting regulatory approval after applying for it in December.

A “longer than anticipated delay” in receiving it made the outlook too cloudy to offer any prediction for China sales in 2019, Bellamy’s said on Wednesday, leaving it reliant on slower domestic revenue growth and sending shares sharply lower in early trade.

“This is a high-growth stock so if you don’t give guidance it’s like throwing a grenade, and that’s probably what spooked the market,” said Mathan Somasundaram, Market Portfolio Strategist at stockbroker Blue Ocean Equities, referring to the absence of a forecast for China revenues.

“But it’s a phenomenally much better business than it was before, and the macro picture is still positive - unless they get hit by a black swan event they are pretty well positioned.”

Bellamy’s shares, which had halved since March on concern at the approval delay, slid nearly 9 percent just after the open, but recovered to trade 5 percent higher at lunchtime as bargain-hunters swooped on the stock, while the broader market rose by 0.3 percent.

The shares had soared 750 percent in 2015, as Chinese demand seemed insatiable, before new import rules roiled its indirect sales, the stock price collapsed and the company slumped to a loss.

For the year to June 30, Bellamy’s returned to profit and, until recently, its shares traded above their 2015 peak.

Net profit was A$43.3 million ($31.7 million) for the year ended June 2018, as sales booked in Australia jumped by a quarter, a little ahead of analyst forecasts. Annual revenue grew 37 percent to A$328.7 million.

But without China sales, and with competition intensifying, the company does not expect to sustain that kind of growth, offering guidance for a 10 percent lift in domestic revenue in 2019 as it launches some new products.

“You can confidently say that China-label sales in the first half will be zero,” Bellamy’s Chief Executive Officer Andrew Cohen told investors on a conference call, adding he expects China sales to be a “meaningful revenue stream” only by 2020.

He said the company was already preparing a network of stockists to carry its products as soon as approval from China’s State Administration for Market Regulation is received.

“We expect it’s just a matter of time ... my hope is that I would get (approval) within this calendar year,” Cohen said. ($1 = 1.3669 Australian dollars) (Reporting by Tom Westbrook in SYDNEY. Additional reporting by Aby Jose Koilparambil in BENGALURU; Editing by Stephen Coates and Muralikumar Anantharaman)

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