Hedgeye Consumables | Oatly’s China Expansion Begins

03/31/21 08:57AM EDT

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Hedgeye Consumables | Oatly’s China Expansion Begins  - 3 31 2021 8 51 50 AM

Yeo Hiap Seng, a Singapore-based company, has entered into a JV with Oatly. Commonly known as Yeo’s, it is a leader in the region’s soy milk sector.

As part of the JV, both companies will produce 60M liters of Oatly’s enzyme-treated oat milk at Yeo’s manufacturing site (in comparison, the new U.K. plant is expected to produce 300M liters initially).

Production will begin in the second half of the year to supply China and the rest of Asia.

The oats will be supplied from Sweden. Yeo boasts that it was the first in the world to package Asian drinks in Tetra Brik aseptic cartons.

That gives Oatly a skilled manufacturing partner in a new market while encountering challenges amidst a significant expansion in the U.S. and U.K.

Oatly has been looking to enter the Asian market because of the size of the market and because part of its mission is to improve the environment by reducing dairy milk production.

The Asian market brings different challenges to Oatly because dairy milk is a relatively new product category.

According to Yeo’s, 40x more people are lactose intolerant in Asia compared to Europe. Consumers in Asia are more accustomed to dairy milk alternatives, so the marketing of “Wow no cow” does not have the same messaging in Western countries.

Oatly is expected to IPO in the coming months. Oatly has tremendous growth potential ahead of it, but its manufacturing capacity challenges it. The company is adeptly setting up its growth and expansion plans on three continents ahead of the IPO. We are excited about the IPO, but the rumored valuation is ~$10B. SunOpta is the best way to invest in the secular growth of plant-based milk.

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