Synlait hikes annual profit forecast on value-add earnings growth, unsure on Chinese sales target

Synlait Milk 12-month price history (NZX.com)

Synlait Milk [NZX: SML], the milk processor which counts China's Bright Dairy Food as a cornerstone shareholder, will beat its annual profit forecast by as much as 77 percent on earnings growth, though might miss its sales target for infant formula into China due to stricter regulations.

The Rangiora-based company anticipates net profit of between $30 million and $35 million in the year ending July 31, up from the $19.67 million forecast in the company's prospectus when it listed in July, it said in a statement.

Synlait lifted its forecast milk payout to between $8.30 per kilogram of milk solids and $8.40/kgMS from $8/kgMS previously as global dairy prices climbed, but is reaping earnings growth from its value-add products and a favourable product mix, chairman Graeme Milne said.

Chief executive John Penno warned the company might fall short of its forecast target of selling 10,000 metric tonnes of infant formula and nutritional products into China due to stricter regulations, which have caused "considerable disruption to the Chinese market."

"However, we remain confident that these changes will validate the strategy of our business over time and will underpin our ability to meet our long-term targets through expected volume growth from our key customers in this market," Penno said.

In December, Synlait Milk said it expected to see faster growth in 2014, with international demand favouring the company's milk powder and anhydrous milk fat products.

Penno said the company expects to start production of milk powders for infant formula for two tier one multi-national companies in the second half of the year, without naming them. Commercial production at its lactoferrin plant is likely to begin commercial production in early March, and is expected to exceed its forecast two metric tonnes of lactoferrin sales in the financial year.

The shares fell 1.3 percent to $3.95 yesterday, and are almost 80 percent higher than the $2.20 offer price.

(BusinessDesk)

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