A2 Milk (ASX: A2M) reported a clean sweep of better-than-expected numbers in its half-year results, buoyed by strong growth in China. The stock rallied 8.5% as the market opened on Monday.
Note: All figures are in New Zealand Dollars.
Revenue +3.7% to $812.1 million
EBITDA +5.0% to $113.2 million
Gross margin up 0.2% to 46.7%
Net profit after tax +15.6% to $85.3 million
Net cash +12.0% to $792.1 million
Revenue, EBITDA and net profit after tax all topped consensus expectations by 3.6%, 10.2%, and 19% respectively.
Full-year guidance revised upward towards low-to-mid single digit percentage year-on-year revenue growth versus prior guidance of low single-digit growth
Gross margin (% of revenue) to be similar to FY23
EBITDA margin (% of revenue) to be broadly in-line with FY23
Capital expenditure to increase to $30 million from $26 million
A2 Milk said its medium-term revenue ambition of $2 billion by FY26 would require an additional $380 million in revenue growth on 2023 over the next two-and-a-half years. At this point in time, the goal appears a little stretched and likely achieved by FY27 or later.
Strong China performance: The combination of increased investment and higher impact marketing campaigns underpinned improvements in key brand health metrics and market share for the China & Other Asia segment. This resulted in A2 Milk China becoming a top 5 infant formula brand in the overall China market. and brand awareness increasing to 68% from 63%. Revenue and EBITDA for this segment was up 16.5% and 21.9% respectively.
ANZ weakness: Revenue and EBITDA for the ANZ segment was down 21.1% and 43.9% respectively, reflecting lower infant formula sales to the Daigou channel. This was partially offset by a 1.5% rise in Australian liquid milk sales.
US inches towards profitability: In the first half of FY24, the US segment posted an EBITDA loss of $8.3 million from a $12.2 million loss in the first-half of FY23.
"The combination of a better-than-expected result, FY24 guidance upgrade and new product development is likely to trigger investors who have been underweight the stock to revisit it, which should mean the recent strong share price performance is likely sustainable," Citi analysts said in a note this morning.
A2's China EBITDA performance was 3% ahead of Citi's expectations, which was a "strong result given the significant number of Mother and Baby Store closures"
US losses "were $8 million, better than the $11 million estimates and $12 million in the prior corresponding period, this is pleasing in light of the higher costs with respect to longer-term FDA approval."
Citi retained a BUY rating with a $4.81 target price (which is 4.8% lower than Friday's closing share price of $5.05)
Don't miss an ASX announcement this reporting season, set up and receive announcements directly to your inbox on Market Index: Create Alert Now
Get the latest news and insights direct to your inbox