Stamp of approval
SAMR APPROVES CHINA LABEL IMF
Need To Know
- As largely expected, the SAMR has approved Synlait Milk for the re-registration of its China Label infant milk formula product
- The approval significantly de-risks the outlook and growth in China
- Whilst the market was largely expecting this and we don’t anticipate earnings upgrades, the actual news should improve sentiment
China’s State Administration for Market Regulation (SAMR) has approved Synlait Milk to produce A2M’s China Label infant milk formula in-line with China’s new GB standards until September 2027. Production is expected to commence later this month, with the product transitioning through 1H24. China is clearly a key market for A2M’s strategy, and the official stamp of approval should lift market sentiment.
Investment View
We believe that the downgrade cycle for A2M is largely complete, with market share gains in China likely to provide strong tailwinds for growth and margins should improve as cost headwinds subside and from cycling inventory write-downs and a more targeted marketing spend, delivering higher returns on capital. Net cash of NZ$707m on the balance sheet equates to~A$0.88-0.90 of the valuation. We retain our Buy recommendation.
Stock Overview
Share Price
Company Overview
The A2 Milk Company is a dairy nutritional company with products and trading activities in New Zealand, Australia, Greater China, North America, and a selection of emerging markets.
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