A2 Milk Still Riding High on Chinese Demand

A2 Milk Co [ASX:A2M] seem to be China’s preferred supplier of Milk. A2M’s share price shot up on last Friday. And it has done the same this morning. Over the two trading days, A2M shares have rocketed up 58.45%.

Going into 2016 this may be a Chinese sector Australia can dominate in.

A2 Milk

Source: Yahoo Finance

China prefers Australian over any other

A2M told shareholders revenue for FY16 would to grow to $285 million in their Annual General Meeting. Revenue growth of 83.87% from last year is definitely market moving. But guess what? The good new keeps on coming.

On Friday A2M announced that revenues would grow further to $300–$315 million. This is a direct result of increased November sales. And December sales could continue this trend.

A2M is set to release their first half trading results in February next year. The Company’s CEO, Geoffery Babidge said,

The infant formula market in Australia is rapidly evolving and experiencing significant growth. The company has recently increase the supply of a2 Platinum infant formula to our customers however we continue to experience a level of out of stock on shelf.

But why is A2M experiencing so much demand?

It’s all due to Chinese demand. Chinese families experienced a terrifying scandal in 2008. Some Chinese baby formula contained a toxic compound called melamine. It affected an estimated 300,000 babies in China. Six infants died. The Chinese formula industry has not recovered.

Consumers immediately viewed Chinese dairy products as harmful and low quality. They decided to look abroad and they saw Australia.

Australian dairy products are reliable and of the highest quality. This has meant huge demand for Australian produce from China. Consumers have been buying bulk, leaving nothing on the selves.

Is it the right time to buy A2 Milk shares?

A2M has had an outstanding year. Shares have continued to rise through 2015. A2M shares even stood fast in the midst of the Chinese stock market crash from August to September. The Australian dairy industry could be the new growth sector to power our economy.

Why? Because China has transformed from an industrialised nation to a consumerist nation. Australia can benefit from this. But only if we move on from traditional commodities and take this opportunity.

Regardless, A2M could continue to enjoy high demand for their goods. And this may continue to create value for shareholders.

Härje Ronngard,

Junior Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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