The Wattle Health Australia Ltd (ASX: WHA) share price has risen 13% today — will it be the next Bellamy's Australia Ltd (ASX: BAL) or a2 Milk Company Ltd (Australia) (ASX: A2M)?
Who is Wattle Health Australia?
Wattle Health Australia is a tiny company producing infant formula products targeting the enormous Chinese market. The company is tiny, having sought to raise just $8 million from its initial public offering (IPO) on the sharemarket earlier this week.
In its prospectus, the company said it was unable to make any financial forecasts because it is an "early stage" business.
"WHA believes that revenue forecasts relating to early stage businesses are uncertain and there are a number of significant matters outside its control relating to the Company's future performance," the prospectus read. "Potential investors should take into account this uncertainty and lack of financial forecast in considering the risks in investing in the Company's Shares."
Looking ahead
The company's IPO comes at a time when markets have been left wondering how the Chinese infant formula growth story will take shape.
Wattle Health is targeting the Asian markets, particularly China, but it also wants to develop its reputation locally. The company has obtained Chinese approval to sell its products, which is a positive step forward, but there are concerns that the fickle regulatory stance of Chinese authorities could turn at any moment.
Bellamy's Australia shareholders have felt the wrath of the imposition of Chinese regulation. Wattle Health is pursuing a similar low-cost strategy to Bellamy's, outsourcing a lot of the work to third parties, like its Chinese distribution and manufacturing.
Bellamy's shares are down 63% in 12 months.
On the other side of the infant formula market, we have a2 Milk, which manufactures 'good for you' dairy products and infant formula containing only the a2 protein. It has pursued a different strategy to Bellamy's with greater success. Shares in the $1.8 billion company are up 46% year over year.
Foolish Takeaway
In my opinion, it's far too early to tell if Wattle Health will be a hit with Chinese consumers and whether or not it'll make a decent investment. I'll be erring on the side of caution with this one, watching from the sidelines.
