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A2 Milk profit lifts 50pc on China growth

Lex Hall with AAP  |  20 Feb 2019Text size  Decrease  Increase  |  
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Dual-lister A2 Milk has reported a more than 50 per cent jump in half-year net profit, as the company expanded market share in China despite slowing demand there.

The dairy producer has weathered a slowdown in consumer spending in its largest market, China, which has seen domestic demand falter amid a trade dispute with the United States.

Net profit was NZ$152.7 million for the six months to 31 December, the first half of the company's financial year, compared with NZ$98.5 million in the same period a year earlier, the company said in a statement.

Bottle of A2Milk in a supermarket fridge

'Frankly competition doesn't seem to slowing A2 down': Morningstar's Adam Fleck

The company lifted its market share in China by pushing into smaller cities.
It said it would reinvest the benefits of scale into increased marketing activities in the second half.

Chinese parents have embraced the company's infant milk powder that is marketed as easier to digest than conventional milk because it lacks the A1 caesin protein.

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But competition has increased as others such as Nestle SA launch A1-free infant formulas in China.

The company said total revenue for the half year jumped 41 per cent to NZ$613.1 million, while revenue from China and other Asia markets grew about 50 per cent.
Revenue growth in the second half is expected to be broadly in line with the first half, the company said in a statement.

The company's shares gained 38 per cent in 2018, outperforming a 4.9 per cent rise in the benchmark S&P/NZX 50 index.

Morningstar analyst Adam Fleck applauded the result, saying the company had exceeded expectations. The company currently carries a fair value estimate of $12.90.

"They're already at 5.7 per cent of market share in China - we anticipated they would have finished the year at 5.9 per cent. So they are ahead of schedule," Fleck said.

"Infant formula is 80 per cent of revenue - and sales are up 45 per cent. They're gaining share in China in infant formula faster than the market would have expected.

"We expect them to go from 5 to 15 per cent in the next 10 years, but the trajectory has taken off faster than expected.

"Their new ecommerce business is being well managed. They’re expanding distribution into mother and baby stores in China. They’ve gone from 10,000 to 12,500 stores, and they’ve done a good job at navigating the new regulatory challenges - frankly, competition doesn’t seem to be slowing them down."

China sales boost A2 Milk profit: 

  • Net profit up 55pc to NZ$152.7m
  • Revenue up 41pc to NZ$613.1m
  • No interim dividend

 

. Lex Hall is content editor with Morningstar Australia

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