A2 Milk posts third-quarter sales that beat its projection, lifts annual guidance

A2 has managed to navigate the Chinese regulation changes with little impact on sales so far.

A2 Milk Co's third-quarter sales beat expectations as Chinese and Australian demand outstripped the milk marketer's projections and the company sees annual revenue jumping by almost 49 percent.

The Auckland-based, Sydney-headquartered company forecasts revenue of $525 million in the year ending June 30, up from $352.8 million a year earlier, it said in a statement. A2 generated sales of $388.1 million in the nine months ended March 31, with the third quarter infant formula sales exceeding expectations.

"Demand has been particularly strong in Australia, but also through the cross-border e-commerce channel into China," managing director Geoff Babidge said. "On the assumption of continuing strong demand for a2 Platinum infant formula and production deliveries achieved consistent with the revised production schedule, the company is now expecting infant formula sales for the second half FY17 to exceed sales achieved in first half FY17."

In February, a2 scaled back its expected growth for infant formula sales as Chinese regulators looked to tighten regulations for sales through online grey market channels. While that weighed on rivals such as ASX-listed Bellamy's, a2 has managed to navigate the changes with little impact on sales so far.

The company said it's working with infant formula manufacturing partner Synlait Milk to increase supply for the rest of the financial year to meet the strong demand.

Last month, a2 bought an 8.2 percent stake in Synlait, deepening the relationship between the companies. They signed a supply agreement in 2012 and last year inked a new deal allowing for an increase in production if demand warranted.

A2 shares last traded at $3.20 and have jumped 50 percent so far this year, outpacing a 5 percent increase in the benchmark S&P/NZX 50 index over the same period. The stock is rated an average 'buy' based on five analyst recommendations compiled by Reuters with a median price target of $2.90.

(BusinessDesk)