The main competitive advantage of Biostime is their Mama100 membership program, which offers customer service, information sharing, magazine, web portal and points accumulation. This allows the company to get high quality data from customers and market their products directly with high efficiency. Active members of Mama100 contribute 85% of revenue (!), their numbers have grown to almost 1.5 million now from 820 000 in 2011. It means they have a huge retention rate and customer satisfaction. The majority of sales comes from infant formulas (around 80%), where they gained a no. 1 position with a 44% market share (supreme tier) and a 7.4% share in the higher tier (Mead Johnson being the leader here with 14% share). They are a recognized leader in the child probiotic market with a 85% share in terms of retail sales, although this segment represents only 11% of total group revenues.
There have been several scandals concerning the infant formula market, including the 2008 Melamine scandal (Biostime was unscathed, because it imports it's raw materials from Denmark and France) and 2013 price fixing fines. The companies involved have been working hard to restore their reputation, despite the government's regulations regarding marketing materials and cooperation with hospitals. Biostime was one of the companies implicated in price-fixing, paying 27 million USD in fines, other companies on the list include Danone, Mead Johnson, Fonterra and Abbott Laboratories. As a result of the investigation most companies lowered their prices in a range of 5-15%, impacting their financial results. The largest Japanese dairy producer Meiji has already announced withdrawal from the Chinese market, which is projected to double from the current 12.5 billion USD in the next 4 years.
I believe in the long-term potential of this stock, their sales have more than tripled in the past 3 years, and the Mama100 program offers a sustainable competitive advantage and acts as a direct channel for any future products. On top of it, the infant formula industry in China is booming, and the company's brand is very well recognized on the market. I'm adding this to my portfolio as it's one of the best Chinese stocks to buy right now.