A2 Milk estimates China infant-formula market valued around US$20bn

A2 Milk estimates China infant-formula market valued around US$20bn

A2 Milk Co. has set out why it believes it can prosper in China amid rising competition in the country for consumers looking for dairy and infant formula without the A1-type protein.

Shares in A2 Milk, which have risen sharply in recent quarters to at one stage make the business New Zealand's largest by market value, tumbled last week in the wake of Nestle launching its latest infant formula in China.

Nestle has rolled out an A2 baby formula in China under its Illuma brand, potentially posing a direct challenge to A2 Milk in one of its most significant markets.

A key factor in A2 Milk's expansion has been the success it has had selling its infant formula in China. A2 Milk's products are sourced from cows that only produce the A2-protein variant, while regular cow's milk only contains the A1-type protein, which is said to cause discomfort for some consumers.

Nestle said the launch of the Illuma Atwo Stage 3 formula in China was in response to a "rapidly growing and constantly changing consumer market".

However, in a stock-exchange announcement yesterday (3 April), A2 Milk said: "The A2 Milk Company considers it is uniquely positioned to benefit from expansion of the category over time."

And the company went further to explain its standing: "The A2 Milk Company is the only company engaged in the sourcing, processing and marketing of solely A1 protein-free dairy and nutritional products in global markets.

"This core principle contrasts significantly with likely new entrants who will need to consider how to communicate internally and externally the benefits of a new A1 protein-free variant whilst their traditional range of products continues to include A1."

Markets reacted positively to the announcement, with A2 Milk's shares rallying today to close 3.6% higher at NZD12.92 (US$9.42). The stock dropped 6.5% in New Zealand last Wednesday after news of Nestle's launched emerged, and then fell a further 4.2% the following day.

Nevertheless, A2 Milk's shares are still way up from NZD8.20 at the start of 2018 and NZD2.98 a year ago on the back of a surge in revenues and profits.

In the year to 31 December, the company's revenues rose 70% to more than NZD434m, while its profits after tax climbed more than 100% to NZD98.5m.  

A2 Milk added in yesterday's statement the infant-formula market in China is ''vast'' and is estimated to be around US$20bn in terms of retail value.

"There is a multitude of brands and recent experience of other businesses has demonstrated how challenging it is to establish new products in the absence of a strong and unique consumer proposition.

"The company continues to perform strongly in each of its keys markets and in particular has not seen any change in the growth of its China business."