(Bloomberg)—Booming Chinese demand for foreign-produced vitamins and supplements has helped one Australian company triple its share price in the past year and prompted another to explore a possible sale.
Goldman Sachs Group Inc. has recommended investors buy the stock of Sydney-based Blackmores Ltd., which it says will be spurred by online sales in China. Closely held producer Swisse Wellness Group Pty has engaged Goldman Sachs to examine a possible sale that may fetch as much as A$1 billion (USD$693 million), according to people with knowledge of the matter, who asked not to be identified as the information is private.
Vitamin and dietary supplement sales almost doubled in the past five years in China, jumping 12% to 100.1 billion yuan (USD$15.7 billion) in 2014, according to market researcher Euromonitor International. Blackmores said sales to Chinese and other Asian buyers accounted for A$150 million, or almost a third of annual revenue, in the year ended June 30.
“Rising incomes and increasing consumption of health products in China are key structural drivers behind this growth,” Andrea Chong, an equities analyst at Goldman Sachs in Melbourne, wrote in a Sept. 6 report. She predicts the stock may reach A$143 in the next year, helped by “the rise of cross-border e-commerce in China breaking down traditional trade barriers” and the popularity of “brand Australia.”
‘Savvy consumers’
“There has never been a better time to be an Australian health products company,” CEO Christine Holgate said in a telephone interview earlier this month. “The Chinese grew up in an environment where natural medicine was always part of their way of life, but they are also very savvy consumers and they want the best product, made to the highest quality standards.”
Melbourne-based Swisse, which is controlled by the family of founder Kevin Ring and management, sees an “enormous” opportunity in China, CEO Radek Sali said. “There is growing wealth and increasing awareness of health, and an appetite for high-quality products,” Sali said in an emailed response to questions.
While the company doesn’t sell directly into China, its products are sold there via online sites such as Tmall and Taobao, Sali said.
Online dominance
“China’s online retail channel is growing faster than any other channel, and this is where we are,” he said.
A Swisse spokeswoman declined to comment on the sale process as did a Goldman Sachs spokeswoman.
Swisse, whose chairman is former Foster’s Group CEO Trevor O’Hoy, overtook Blackmores and Sanofi- Aventis Healthcare last year to become the biggest player in Australian market with about a 15% market share by value, according to Euromonitor.
“China has the potential to overtake Australia as the largest consumer market for Blackmores,” Goldman Sachs’s Chong said.
Blackmores last month reported an 83% jump in net profit for the year to June 30 as sales rose 36% to A$471.6 million. It added about 100 staff at its head office in Warrieward, on the outskirts of Sydney, Holgate said.
Free trade
About A$80 million of Blackmores’ sales were to China, with the bulk of those being sold either to Chinese consumers in Australia or through the Free Trade Zone that China established in November, Holgate said. Product from warehouses within the zone can then be sold through e-commerce platforms such as Alibaba without attracting the current 35% import duty, she said.
“The development of the Free Trade Zones and the falling Australian dollar has helped catapult the demand for Australian products,” Holgate said. “It has made them more accessible and affordable. And that’s on top their already very strong reputation for being clean and green and made to the highest quality standards.”
Foreign companies are perceived to offer superior quality—an important advantage following Chinese product safety scandals such as the 2008 finding of toxic melamine in infant formula, said Chris Schmidt, a senior consumer health analyst at Euromonitor.
“Chinese consumers, especially the more sophisticated vitamins and dietary supplements consumers in the largest cities, still view locally manufactured products with skepticism,” Schmidt said. “Swisse seems to have taken on something of an aspirational brand positioning in China. That’s very important in the health and wellness and supplement spaces.”
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