Reporting Season

A2 Milk shares soar on earnings beat, Citi reaffirms 'Buy' rating

Mon 19 Feb 24, 10:20am (AEST)
Scooping infant formula into baby bottle
Source: iStock

Key Points

  • A2 Milk exceeded expectations in first-half FY24, with revenue, EBITDA, and net profit after tax surpassing consensus estimates by 3.6%, 10.2%, and 19% respectively
  • Strong growth in China drove performance, with revenue and EBITDA up 16.5% and 21.9% respectively, making A2 Milk a top 5 infant formula brand in China
  • ANZ segment struggled, with revenue and EBITDA down, while the US segment improved, with EBITDA losses decreasing from the previous period

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.

First-half FY24 – Key numbers

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.

Key takeaways

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.

Citi's first take

"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)

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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