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Here’s why the Bellamy’s Australia Ltd share price is shooting the lights out

The Bellamy’s Australia Ltd (ASX: BAL) share price has rocketed 8% higher following a backdown by Chinese regulators on import rules.

Today’s boost will be a welcome relief for the company because over the past year it’s been anything but smooth sailing for the Tasmanian infant formula producer.

Bellamy’s Share Price

Source: Google Finance

Source: Google Finance

Over the past six months, the Bellamy’s share price is down 65% while the a2 Milk Company Ltd (Australia) (ASX: A2M) share price is up 42%.

What happened today?

About one year ago, the Chinese government sought to implement tough new changes to the way foreign goods were imported. The government wanted to cut out the use of cross-border trade on e-commerce giants like Alibaba and JD.com.

For Bellamy’s and other companies targeting China, the changes meant that the suppliers of their ingredients would have to be certified, the companies would directly export their product to mainland China and shipments would be checked by customs.

Bellamy’s used a daigou strategy to get its infant formula to China, whereby individuals would buy the product locally and take it to China to sell to parents. The tougher regulations all but cut out this channel — until now.

Ahead of Chinese premier Li Keqiang’s trip to Australia this week to promote trade, the Chinese government has backed down on the import rules indefinitely.

Should you buy Bellamy’s shares?

In my opinion, it may be too early to buy shares of Bellamy’s Australia. While the changes are undoubtedly good news, it remains a high-risk investment given its balance sheet and the recent management uncertainty. While it undoubtedly has potential, I believe a2 Milk would make a better long-term investment.

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Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia owns shares of A2 Milk. 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.

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