a2 Milk’s revenue might be better than expected at its upcoming...

a2 Milk’s revenue might be better than expected at its upcoming first-half result on Feb 19, Forsyth Barr analysts said.

"[The] mosaic of data points are constructive and potentially indicative of 1H24 revenue upside versus consensus,” Forsyth Barr's Matt Montgomerie and Benjamin Crozier said.

The consensus is for revenue of $790.6 million and a reported profit of $69.2m, according to Forsyth Barr.

The consensus underlying profit forecast is for $73.6m.

Upside risk

A year earlier, revenue was $783.3m and reported profit was $68.4m. The underlying profit was $73.7m.

a2 Milk has flagged that its 1H result will be weak, with growth skewed toward the second half.

The so-called mosaic includes Kantar data that suggests upside risk to consensus infant formula revenue forecasts.

“December was another solid month for ATM [a2 Milk] with market share and growth robust (albeit below the last three strong months),” the Forsyth Barr analysts said.

This period rounds out a strong 2Q24 for ATM – market share of 7.3% (highest on record) and growth of +19%, they said.

They also noted the company’s Alibaba market share is at a record high and on a three-month rolling basis, exports to Australia from Lyttelton are at their highest level since early 2022.

“Furthermore, brand health metrics remain robust with ATM's follower growth on Tmall and Douyin continuing to outpace peers while WeChat searches are broadly consistent with peers,” Montgomerie and Crozier said.

A solid forward indicator

According to the analysts, Douyin – China’s version of TikTok – is a strong emerging platform and, given its relative infancy, is likely a solid forward indicator for early-stage mother capture.

They also note the first half is likely to show another period of soft “daigou” activity.

"While disappointing from a margin upside perspective, we think the market has sufficiently rebased its medium-term margin expectations”.

Forsyth Barr retained an outperform rating and now has a target price of $5.85 from $5.20.

The shares last traded at $5.55.

“We retain our longstanding view that material margin expansion is unlikely given the changed mix in ATM's business, but now believe this is more appropriately reflected in the share price and consensus expectations.”

Looking ahead, they expect no material change to the FY24 outlook.

They are expecting the company to report full-year revenue of $1.6 billion and an underlying profit of $163m. The underlying profit was $155.5m in FY23.