China boosts a2 Milk’s forecast annual sales to $525 million

THE a2 Milk company has emerged triumphant in the battle for the Chinese market.

THE a2 Milk company’s third-quarter sales have beaten expectations as Chinese and Australian demand outstripped the milk marketer’s projections.

The Auckland-based, Sydney-headquartered company forecasts revenue of $525 million in the year ending June 30, up 49 per cent from $352.8 million a year earlier, it said in a statement.

a2 generated sales of $388 million in the nine months ended March 31, with third-quarter infant formula sales exceeding expectations.

“Demand has been particularly strong in Australia, but also through the cross- border e-commerce channel into China,” managing director Geoff Babidge said.

“On the assumption of continuing strong demand for a2 Platinum infant formula and production deliveries achieved consistent with the revised production schedule, the company is now expecting infant formula sales for the second half [of 2017] to exceed sales achieved in first half.”

In February, a2 scaled back its expected growth for infant formula sales as Chinese regulators looked to tighten laws for sales through online grey market channels.

While that has weighed on rivals such as ASX-listed Bellamy’s, a2 has managed to navigate the changes with little impact on sales so far.

The company said it’s working with infant formula manufacturing partner Synlait Milk to increase supply for the rest of the financial year to meet the strong demand.

Last month, a2 bought an 8.2 per cent stake in Synlait, deepening the relationship between the companies.

They signed a supply agreement in 2012 and last year inked a new deal allowing for an increase in production if demand warranted.

A2 shares last traded at $3.20 and have jumped 50 per cent so far this year, outpacing a 5 per cent increase in the benchmark S&P/NZX 50 index over the same period.

The stock is rated an average ‘buy’ based on five analyst recommendations compiled by Reuters with a median price target of $2.90.