A2 milk shares soar on China's frenzy for clean infant formula

A child plays in watermelon flesh during a watermelon war activity at Crazy Appleland in Hangzhou, China. ChinaFotoPress/ChinaFotoPress via Getty Images

The frenzy in China about guaranteed clean infant baby formula is flowing into the profits of milk companies.

A2 Milk has upped its full year profit guidance on strong sales of its infant formula.

A short time ago, its shares were up 7.7% to $0.90.

In an outlook delivered to the New Zealand company’s AGM, CEO Geoffrey Babidge said the first four months trading performance for the infant formula was well ahead of plan.

Based on current trading trends, the company revised its full year outlook to revenue of $NZ285 million, up from the $NZ267 million previously forecast.

And group EBITDA (earnings before interest, tax, depreciation and amortisation) is now forecast to be $NZ22 million, up from the previous forecast of $NZ12 million.

Demand for Australian-made infant formula is booming as Chinese consumers seek a safe and clean product. A2 milk is one of those brands which quickly go off the shelves.

Blackmores, the Australian vitamin maker, is also doing bid trade in Chin and also has a partnership with Bega, the dairy company, to develop a high quality infant formula.

A2 Milk is now selling and distributing its a2 Platinum infant formula in China directly with a local sales team in Shanghai. At the end of Augusst, the company also had 25 local distributors.

The company has a multi-channel retailer approach with strong emphasis on e-commerce. It is also stocked in 1300 mother and baby stores.

Revenue for infant formula was $NZ38 million for the four months to October compared to $NZ41.7 million for all of the 2015 financial year. Infant formula is expected to be 47% of total revenue in 2016.

A2 Milk, which only sells milk with the A2 type of protein from specially selected cows, last month completed a $NZ40 million capital raising to help expand the infant formula brand into Asia and the UK.

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