In any industry, there is more than one way to get ahead. One, of course, is doing your job and doing it better than anyone else. Another is destroying the competitors’ image so you are the only reliable option left standing. The latter is the approach Australia-Asia food trade specialist JATCorp (ASX: JAT)’s Chinese competitor Guangzhou Aotea Biotechnology took when striking JATCorp’s subsidiary Sunnya and its milk powder product Neurio.
As the Company fights back and deals with the resulting legal proceedings, its Q1 FY24 results paint a supportive picture. Its total unaudited revenue for the September quarter was $20.9 million, up 186% on Q1 FY23’s $7.31 million. This was thanks to the increase in international trading and self-branded product sales. JATCorp’s gross profit for the September quarter was $3.5 million, up from PCP’s $2.31 million, and its net profit increased by 119%, going from a loss of $1 million in Q1 FY23 to a profit of $190k.
Managing Director Jack Wang commented, “Q1 F24 is a good start. As we have previously advised the market, our strategy to concentrate on our key brand marketing and day-to-day operations, as well as developing new market in Asia Pacific, is seeing promising developments.”
Wang added, “The legal proceeding against Sunnya’s prior directors continues, and the final hearing is expected in late November. Our newly launched brand, Moroka, is among the top-selling products in our targeted lactoferrin nutrient market in September.”
Guangzhou was called out for publicly calling Sunnya products “fakes” and “counterfeits” and claiming that Neurio was trading illegally. Plus, Guangzhou registered trademarks of the Chinese iteration of “Neurio”, making the Company’s brand redundant.
As a result, the Company transferred its “Moroka” trademark, along with its corresponding Chinese name “Mo-Lan-Ka”, to Sunnya. This trademark is owned and registered by one of JATCorp’s wholly-owned subsidiaries in Australia and China. Sunnya will temporarily halt the distribution of its Neurio branded products in the Chinese market and intends to shift its sales strategy in China to utilise the “Moroka” brand instead.
These legal proceedings are pretty costly for JATCorp, increasing admin costs to over $1 million. Plus, the Company noted that the resulting lost sales, not accounting for the increased sales under Moroka, may amount to between $7 million and $9 million.
In some positive developments, during the quarter, JAT successfully fulfilled all production orders for BTNature under the $28 million 12-month contract that commenced in October 2022. This contract is set to be renewed for another year, with a target of $30 million in production orders over the next year. Secondly, the Moroka product has steadily gained traction since its launch on the China Tmall flagship store in June 2023. By the end of the September quarter, Moroka had achieved the third-highest sales value in the lactoferrin supplement category across the entire Tmall platform. Finally, the Company will continue to market its Neurio brand in Vietnam, having received over 20,000 orders twice.
The net operating cash outflow for the quarter was $134k, including a one-time legal cost of $859k, compared to $1.6 million in the previous year.
The Company is banking on improvements in Australia-China trade relations to enhance bilateral business activities, including its own. It hopes that the upcoming visit of the Australian Prime Minister to China and ongoing improvements in trade relations will help eliminate trading barriers between the two countries and bring benefits to JATCorp.
Alinda is a Business Reporter for The Sentiment
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