Oddly named American Dairy – based in Beijing – derives nearly all of its revenue from the manufacture and sale of baby formula in China. Publicly traded in the US since 2003, its stock has increased sharply in value since last year, when the company emerged unscathed from the Chinese baby formula contamination outbreak that killed six infants and bankrupted a rival.
As a result, American Dairy took market share and posted revenue growth on the order of 190% year over year. Its stock ballooned from a 52-week low of $6.40 last September to a peak of $44 as recently as last month, as retail investors hoping for continued skyrocketing sales piled into the stock.
But on 13 July, American Dairy issued its reduced guidance, saying second-quarter revenue would increase by just 10% from the year earlier period.
Slated to release official results later in the month, the company said quarterly revenue would likely come in at $41m, up from $37m a year ago, but well below the nearly $80m it posted in the fourth quarter of 2008.
The reason for the stalled growth? In its press release, the company cited stiffer Chinese regulations in the wake of the contamination scandal, which require new labels with more information disclosed on them.
But some feel that the effects of those tighter regulations remain difficult to quantify in dollar figures. Because of that obscurity, other problems may be curtailing the company’s expansion.
“Without some numbers, it’s difficult to say what the main reason is behind the slowdown,” said Hao Hong, an analyst with Brean Murray Carret, a small investment bank that specialises in Chinese small-cap companies. “People are getting a little concerned here, and I don’t blame them.”
Source: The Street/American Dairy
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