Shares in baby formula business Bellamy’s Australia Ltd (ASX: BAL) climbed 7 per cent to $14.28 in morning trade after the company revealed a net profit of $38.3 million on revenues of $244.6 million for the full year ending June 30 2016. The net profit more than quadrupled over the prior year, with revenue almost doubling as gross profit margins climbed largely on price increases across its core Australian market and tight cost controls.

For the year the company paid dividends totaling 11.9 cents per share on earnings of 39.8 cents per share, which places it on payout ratio around 30% and trailing yield less than 1%.

The highlight of the result was the 331% sales growth logged in China and Hong Kong in a sign that the ‘Bellamy’s Organic’ brand power continues to drive sales thanks to the impression it creates in consumers’ minds.

The company started selling the brand directly into China in financial year 2016 and is aiming to crank sales through the competitive online channel across popular Chinese e-commerce sites like Tmall, Taobao and Alibaba. While off-the-shelf retail sales through multi-channel distributors in mainland China are also growing alongside sales into other South East Asian countries.

Bellamy’s and other China-focused baby formula stocks like Blackmores Limited (ASX: BKL) and a2 Milk Company Ltd (ASX: A2M) wobbled in price earlier in 2016 after Chinese authorities revealed plans to tighten the regulation of e-commerce import markets and potentially raise taxes on the sale of certain foodstuffs.

ANZ

Australian parents remain equally enamoured by the organic formula brand with the products now distributed across more than 4,400 outlets and local revenues growing 67% over the prior year to hit $178.7 million. In December 2015 management made the decision to lift pricing which contributed to the gross profit margin uplift and the willingness of consumers to swallow the price increases amidst a competitive market proves the brand power.

Outlook

The rocketing sales growth means one of Bellamy’s main challenges has been servicing demand with the product reportedly flying off supermarkets’ shelves over the past year, as such the company flagged that financial year 2017 will be one of increased investment in terms of staff, infrastructure capacity and marketing.

Management declined to provide a sales forecast for the full year ahead, although given the stock is up more than 7 per cent in morning trade expectations are for another year of big growth. Bellamy’s trades on a trailing price to earnings ratio around 36x, which would be a reasonable entry point for long-term investors as long as it can maintain a sufficiently strong growth trajectory. The primary risks remain cut-price competition, or a sales slowdown in Asia that could materialise for any number of reasons.

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Motley Fool contributor Tom Richardson owns shares of Bellamy's Australia and Blackmores. The Motley Fool Australia owns shares of Bellamy's Australia and a2 Milk.

You can find Tom on Twitter @tommyr345

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.