Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

'Very strong' Chinese demand sends A2 shares to record high

Twitter Linkedin eCard

Shares in a2 Milk soared to a record high after the infant formula group unveiled a fillip from the important Chinese milk formula market, which is providing a boost to dairy processor Synlait Milk too.

A2 shares closed up 7.8% at an all-time high of NZ$3.45 in Auckland, taking gains for 2017 so far to 62%.

The latest gain followed the company's announcement that infant formula sales would not after all drop in the January-to-June period, compared with the July-to-December period of 2016, as the group had forecast two months ago.

The improvement reflected largely a better-than-expected performance in China, a huge infant formula market, swollen by demographic factors such as increasing numbers of working mothers, but one which many producers have found challenging thanks to increased regulation and, until recently, large inventories.

'Particularly strong demand'

"Since the update provided on February 15, demand for a2 Platinum infant formula has exceeded a2MC's expectations," the group said.

Demand had been "particularly strong" in both Australia and "through the cross border e-commerce [CBEC] channel into China".

The group forecast revenues for the year to the end of June reaching NZ$525m, implying a figure of NZ$269m for the January-to-June period, some NZ$13m higher than in the first half of the financial year.

Analysts had pencilled in full-year revenues of NZ$520.7m.

And, flagging "this continuing very strong demand, the company said it had also "been working closely" with New Zealand dairy processor Synlait Milk, which provides milk materials to a2, "to uplift the production schedule for the remainder" of the financial year.

'Fluid regulatory environment'

The upbeat outlook contrast with more negative comments from some rivals on the Chinese infant formula market, in the face of rules requiring registration of providers, following a series of sector quality scandals.

In February, Murray Goulburn, Australia's largest milk processor - unveiling a loss of Aus$31.9m for the last six months of 2016, down from earnings of Aus$10m a year before - cautioned that it had put on hold plans for expanding into China's infant formula market, because of uncertainty over the regulation.

"The regulatory environment in China for infant formula remains fluid as further details of potential regulatory impacts continue to emerge," Murray Goulburn said.

"Capital will not be expended until the opportunity is clearer."

Danone 'volatility'

Meanwhile, last week, Danone cautioned investors to inspect "volatility" in its sales of infant formula in China, as it shifts from a model based on distribution through wholesalers to a direct selling model, through the likes of specialist stores and e-commerce.

Danone said that its indirect sales had "continued to decrease" in the first three months of 2017, as wholesalers focus on shifting inventories.

"The traders are continuing to adopt the model before the full implementation of the new regulation through destocking, which is impacting our sell-in," Danone finance director Cecile Cabanis told investors.

"We continue to be really focused on the other part of the business, which is our direct Chinese model, which is growing strongly."

Import surge ahead?

The run down of inventories reflects a broader destocking trend highlighted earlier this month by Rabobank, which said that China began 2017 "with below-2017 inventory levels".

The bank forecast stocks of infant formula remaining low until at least June, with distributors operating hand-to-mouth "to avoid risks of overstocking products which may not get registered" when licencing requirements become mandatory at the end of this year.

Still, with China's milk output growth remaining weak, pegged at 1.7% this year, the country would need strong growth in broader dairy imports to meet demand.

"A 20% growth in imports in 2017 would barely restore the Chinese inventory level to the recent years' average at year-end 2017," the bank said.

By Mike Verdin

Twitter Linkedin eCard
Related Stories

Evening markets: Soybean futures gain, cotton prices jump on US data

Initial USDA forecasts for crop supply and demand for 2018-19 lift soy and cotton prices, but are not so well received in the cotton market

Will protein prices fight back against fat in dairy markets?

Prices of fats remain elevated against protein values in dairy - at a time when the opposite is true in markets for oilseed products

Morning round-up, Friday February 23

French crop ratings... Russia bans imports of Belarus milk... clampdown on foreign purchases of French farmland...

Evening markets: Argentine moisture slips up soymeal rally. But weather revives wheat

Meal futures dip, a little, for the first time in 12 sessions. But wheat futures gain, as drought spreads in Kansas, and cold reaches Europe
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069