Chinese appetite driving demand for takeovers of Australian vitamin companies
8th July 2016
With a strong Chinese appetite driving demand for Australian branded vitamins, Chinese companies are now going a step further and looking for takeover targets.
CSPC is one of China’s leading pharmaceutical companies, listed on the Hong Kong stock exchange with a market capitalisation of $US5.3 billion, and general manager Chen Haixiang has been in Australia hunting for buying opportunities.
“There are different ways we are interested in buying brands, for example, capital connections, buying 100 per cent shares, as well as to learn the technology and company in Australia,” he said via a translator.
Fellow Chinese health companies Beijing Scrianen and Ningbo Nuscan are also on the lookout for pharmaceutical, health and pharmacy chains to buy.
“After the free trade agreement with China and Australia the economic relationship is getting a lot closer than before, and a lot of Chinese consumers are really interested in Australian quality health products, so that’s why we’re interested in buying these Australian brands,” said Mr Haixiang.
One company in their sights is Nature’s Care, a Sydney-based supplement provider, up for sale for $1 billion.
The opportunity came after its rival Swisse was sold to another Hong Kong vitamins firm, Biostime, last year for $1.7 billion.
“What’s changed for us have been all really positive things. We’ve turned into an organisation that can now take on a global opportunity,” Swisse chief executive Radek Sali told the ABC.
For a while there it was three guys based here out of Melbourne betting the house anytime we did any sort of campaign to drive sales.
Mr Sali said the Swisse team had doubled in size along with its profits, and the company has opened offices in London, Guangzhou, Hong Kong and San Diego.
Swisse is now one of the best known health brands in China and claims to be the market leader both there and at home.
“In Australia we have about an 18 to 19 per cent market share – the Australian numbers are somewhat influenced by Chinese local consumers who are purchasing for families and sending product back,” said Mr Sali.
Grey market sales
A third of Swisse’s sales are through the grey market, where product is bought in Australia and posted to China undeclared.
The Chinese Government launched a crackdown on grey market sales earlier this year, doing more spot checks, while also introducing regulatory changes including a 12 per cent tax on foreign goods purchased via the internet.
“There’s probably about ten different ways that product gets into China and what the Government is trying to do is put some regulation around and some controls around what they’re referring to as some of those grey channels,” said Morgans analyst Scott Power.
For listed company Blackmores, uncertainty about the regulations has contributed to a 40 per cent drop in its share price after hitting highs of $220 a share in January.
“When you look at Blackmores, the majority of their growth has really come from China. They’ve seen their profits surge about 80 per cent in the last full-year results,” said Andrew Page, an equities analyst at the Motley Fool.
“A big part of that has been driven by China. China now accounts or China related sales now account for around 40 per cent of their sales.”
However, Morgans analyst Scott Power said there are wider issues at play, including a general re-rating of high price-to-earnings stocks.
“Eighteen months ago the share price was under $100,” he said.
“Given the fairly tight nature of the register, when it was clear sales and profits were growing well above historical levels the market really pushed the share price up perhaps to extended levels.
“We felt when the stock was above $200 we were struggling with the valuation of fundamental metrics so we felt that it was due a pullback,” he said.
While some Chinese companies may have considered Blackmores as a potential takeover target, analysts said that it is most likely still too expensive.