Media Updates, page-14755

Posting some excerpts from article in the NZ Herald


Eye on a2 Milk and Key case advances

Could a purchase of some of China’s New Zealand dairy assets be on the cards for a2 milk?

Forsyth Barr analyst Matt Montgomerie said the most obvious options in New Zealand were assets currently operated by China’s Yashili NZ and Oceania Dairy.

Montgomerie noted that a2 Milk had in the past mentioned New Zealand processing, blending and canning as possibilities.

“We have assessed the range of options in New Zealand, and conclude that the likely options are Yashili NZ or Oceania Dairy (albeit we are unsure if either are willing sellers),” Montgomerie said.

“The key risks are a2 Milk’s limited manufacturing experience, and access to milk supply [particularly in the case of Yashili]. Overall, we think if a transaction is made at a reasonable price, it would be a positive outcome: (1) reducing supply chain risks (mainly regulatory), (2) capture manufacturing margin over the long-term, (3) possibly improve near-term earnings (while interest income would decline, if a good acquisition is made, ATM will have significant manufacturing capacity), and (4) open up capital return opportunities.

“A2 Milk has flagged China, and blending and canning, investment only in the past, but we think a fully integrated site acquisition in NZ would be preferred.”

If a successful acquisition was made, it would open up other options for a2 Milk. “A transaction would: (1) open the path to capital returns over the medium term, (2) capture manufacturing margin (English and new Chinese label products), and (3) improve a2 Milk’s market share capture ability through new products,” he said.

Yashili — which has had a presence in New Zealand since 2012 — has facilities at Pokeno, close to Synlait’s factory.

Oceania Dairy has plant at Glenavy, in South Canterbury, and is a wholly owned subsidiary of Inner Mongolia Yili Industrial Group (Yili) — China’s largest dairy producer.

The state-of-the-art Glenavy processing plant produces milk powder for export to China, where it is used by Yili to make infant formula.