Why infant formula hopeful Jatenergy Ltd (ASX:JAT) surged higher today

The Jatenergy Ltd (ASX:JAT) share price exploded higher today. But should it have sunk lower instead?

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One of the best performers on the market on Friday has been the Jatenergy Ltd (ASX: JAT) share price.

At one stage the infant formula hopeful's shares were up as much as 10% to 4.5 cents.

Its shares have since given back a good portion of these gains and sit 5% higher at 4.3 cents ahead of the market close.

Why did Jatenergy's shares rocket higher today?

This afternoon the company announced that its 51% owned subsidiary, Golden Koala Group, has completed the manufacture of a container load of newly formulated English label infant, follow-on, and toddler formula.

According to the release, these products are now on sale in Australia through local supermarket and pharmacies, and to Chinese families through daigou groups and cross-border and online-to-offline sales channels.

While this doesn't seem like much to get excited about, it is worth noting that there had been concerns that there may be production problems after its manufacturer Nutritional Choice Australia fell into administration. So, seeing a container load of product will no doubt be quite a relief for shareholders.

But it isn't all positive. Strangely, the market appears to have overlooked the second part of today's announcement.

Management has advised that the company and AustAgri Pty Limited have mutually agreed to terminate the supply agreement they entered into in August.

That five-year supply agreement was to allow AustAgri to sell the Golden Koala infant formula product in mainland China, Hong Kong, Macau, and Taiwan, as well as through e-commerce platforms upon receipt of its CFDA accreditation.

The company advised that over the five-year period AustAgri must order a minimum amount of its 900g tins equating to sales of approximately $98 million.

At the time I questioned the viability of the deal given the limited track record of AustAgri, which had only been on the Australian Business Register since March of this year. It appears I was right to be doubtful.

Though, it is worth noting that the two parties have agreed to hold discussions regarding a possible replacement arrangement.

What now?

While I can't blame investors for trying to find the next A2 Milk Company Ltd (ASX: A2M) or Bellamy's Australia Ltd (ASX: BAL), I wouldn't count on it being Jatenergy unfortunately.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.

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