A2 Milk’s [ASX:A2M] share price has risen by 8.66% today following upgraded revenue forecasts.
What caused the ASX:A2M Share Price to rise?
A2’s increased sales is due to demand for its baby formula product in China. This led the company to forecast an increase of NZ$20 million in income, putting annual revenue at a total of NZ$545 million.
The demand stems from the partnership with Synlait Milk, a New Zealand-based company of which a2 purchased an 8.2% stake in earlier this year. a2 stated the two companies were working closely to boost the production schedule in order to meet growing demand from China.
This also coupled with an evaluation of the company’s marketing costs, particularly in China. Previously, a2 expected to up costs by NZ$15 million in the second half of 2017 FY, but has since revised this to only a NZ$10 million increase. This was attributed to changes in the phasing of the marketing investment.
What now for a2?
Following a strong full year earnings report, a2 will be looking to bolster its success into the 2018 period. It has already been an over-performing stock this year, and will no doubt want to continue to capitalise on opportunities moving forward.
Currently, the company relies on the ‘daigou’ supply channel, which roughly translates to ‘buying on behalf of’. This is a system whereby individuals purchase goods locally (in Australia or New Zealand) and then ship them to buyers in China. a2 is also trying to penetrate traditional supply channels though, pushing for e-commerce and retail store affiliates.
Junior Analyst, Money Morning
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