A2, Synlait boosted by China export registration

A2 Milk's shares hit a record after the company got a green light to increase its exports into China. Photo: Peter McIntosh
A2 Milk's shares hit a record after the company got a green light to increase its exports into China. Photo: Peter McIntosh

The A2 Milk company is set for continued expansion into its crucial Chinese market, after gaining export registration from the powerful China Food and Drug Administration (CFDA) to allow more exports of its China label infant formula.

A2 Milk's shares hit a new high on the news, rising 6.5% to $6.95 following the confirmation on Thursday. Synlait jumped 7.3% to $6.29, having gained 88% this year.

All infant formula manufacturers have to register brands and recipes with the CFDA to import products into China after January 1 next year, or face not exporting there.

A2 Milk's entry into China has already underpinned a trebling of profit to more than $90million, which resulted in the dual-listed alternative dairy company's shares hitting a record high in late August.

A2 Milk has been the NZX50's top performer so far this year and its share price is up more than 140% in the past year.

Forsyth Barr broker Damian Foster said the registration provided surety for A2 Milk's future direct sales into China; previously "a level of uncertainty existed".

"We'd now expect A2 Milk to focus more intently on increasing its proportion of sales through this channel to dilute any [future] risk with e-commerce regulatory changes," he said.

For its year to June, A2 Milk's total revenue rose 48% to $439.3million; reported earnings before interest, tax, depreciation and amortisation were up 159% at $141.2 million and after-tax profit was up 198% at $90.6million, from $30.4million last year.

A2 Milk has an 8.2% stake in Canterbury dairy producer Synlait. They began

their commercial relationship in 2010 to manufacture the world's first infant formula made from milk containing only the A2 beta-casein protein type, free from the A1 protein type.

Synlait applied to the CFDA for registration of A2 Milk's infant formula in May last year.

A2 Milk chief executive Geoffrey Babidge said the company had flexible multichannel infant formula strategies in both China label products offline and online, and cross-border English label products online, which positioned A2 well under current regulatory requirements.

"We look forward to the continued expansion of our business in China following this announcement," he e said in a statement.

Following the rapid growth and success of A2's infant formula in the Asia Pacific region, Synlait and A2 last August announced a new supply agreement for a minimum of five years.

simon.hartley@odt.co.nz

- Otago Daily Times

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