I think the margin erosion you are counting on to potentially rerate the company will not be in the short or medium term. The margin erosion will not come on the input supply side as currently only a 10% premium is paid to farmers and the A2 milk solids component of the IF is relatively small cost vs the the retail price. Look at how Coles can sell their 1kg of WMP for around $4.5 while at the same time A2M is selling for $14. Look at the cheapest IF tin prices, they are around $13 per tin. A2 Platinum sells for $30+. The milk and ingredients are negligible for premium IF and a2 milk. A recent price rise from Platinum would have well and truly wiped any future increases in input costs. You should ask yourself also, why do they have this kind of pricing power if they believe strong competition is just around the corner? Additionally, as the volumes increase, efficiencies will increase and should offset higher input costs.
So if margins are eroded, it will mainly be at risk from lower ASP. How and why will this occur:
1) Drop in demand. Will demand for Platinum drop if competitors try to sell A2 Protein IF? Are Chinese consumers actually purchasing A2 Platinum because of the A2 protein, NZ clean/green message or the fact that it is the premium IF in an expert, trusted dairy nation? Are they going to purchase another a "me too" product made 'especially for them' ahead of the original from a Western dairy nation? This is not the Chinese mentality. The Chinese consumer is a unique beast. I think this is a key component to understand before assumptions are made on drop in demand to drive a lower ASP. Most of the expert analyst commentary (and the company) are suggesting the increasing awareness of the A2 proposition will drive A2 Platinum demand. Especially so once you consider most of A2M's battle has been trying to convince consumers to pay very high premiums for products which do not appear to have 'proper' scientific evidence of efficacy. Consumers were only told by A2M that the product "made a difference". Now they have a huge multinational competitor promoting there is a difference. This now effectively validates in the consumer eyes the scientific claims of A2M, but also the very scary claims from others of SIDS, developmental issues, autism etc which correlative studies have linked to A1 protein. A2M is the best positioned to take advantage of this paradigm shift.
2) Marketing increase relative to sales. Due to the increase in A1/A2 awareness as mentioned above, I don't believe we will see any impact for some time yet. Lots of 'free kicks' to come first from the competitors. A2M has only really started to make major marketing budget allowances now that they have strong brick'n'mortar coverage and increases in supply, to be effective in China. This new campaign should see a large uptick in high margin direct China sales. Also, the daigou should never be discounted for their free marketing. This has been 90% of the driver of A2 Platinum's China growth. To replicate this marketing/growth engine, their competitor's will first need to introduce an expensive, premium A2 protein IF product in a major Western Nation. Then they will need make sure it is popular so as convince the diagou customer's to buy. A highly successful execution of such a high risk strategy will take more than 3 years, imo.
Supply has always been the issue for A2M and with Fonterra tied in, they will be in a position to match up to the A2 category growth to come at which time any drops in margins will be more than offset by increased volume, imo.
Whilst I understand why you think there is shorting opportunity, the forward indicator catalysts you are waiting on are not likely in the short to medium term, imo. In the meantime, you will see another stock rerate as analysts continue to be conservative with their FY18 forecasts.
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