Media Updates, page-12759

Despite China challenge, A2 Milk’s share price could lift

BCP also has a big target on A2 Milk (ASX:A2M) at $8.01, versus the current price of $5.40.

In the first half, A2M delivered revenue of $783.3m, up 18.6% from the prior corresponding period (pcp). The company also reported bottom line NPAT of $68.5m, up 22.1% on pcp.

BCP believes A2M has effectively executed its China growth strategy, growing its infant milk formula (IMF) sales by 18% in the country during the half when the market was down 12.5%.

A2M has acknowledged that the increasingly challenging China IMF market dynamics will continue due to fewer births in 2022.

However, the company expects full year FY23 gross margin percentage to be slightly higher than FY22 – with cost of goods sold being offset by price increases.

A2M CEO David Bortolussi said: ”We are in good shape heading into an increasingly challenging period with the rolling impact of the decline in the birth rate, and a market-wide transition of China label product to the new GB standard.”

BPC says it expects A2M to deliver positive earnings revisions of 3% for FY23 and future periods.

“We are updating our price target from $5.79 to $8.01, and retaining our HOLD recommendation,” the broker said.