The A2 Milk Company Ltd (ASX: A2M) share price has climbed 4% after the infant formula business gave a FY24 update.
FY24 update
A2 Milk has been focused on driving its Chinese brand health and market share increase.
In FY21, its mother and baby store (MBS) infant formula value share was 2.2%, it grew to 3% in FY22 and reached 3.4% in FY23. The cross-border e-commerce value share in China was 22.6% in FY23, up from 21.1% in FY21.
A2 Milk said that the Chinese labelled infant formula market has been “very challenging recently driven by cumulative impact of fewer newborns and market-wide new GB transition.”
The company said that the Chinese label infant formula market is seeing declines in stores and online, and infant formula market prices are under more pressure during the GB (registration) transition.
Not only that, but the English labelled infant formula market has been impacted by a sharp decline in the daigou channel.
Outlook for the A2 Milk share price
The infant formula company said that continued growth is expected in FY24 in a “very challenging market.”
It’s expecting low single-digit revenue growth in FY24, with an EBITDA (EBITDA explained) margin in percentage terms to be broadly in line with FY23. The operational cash conversion is expected to be higher in FY24.
The launch of its new Chinese label product is “progressing well”, including inventory transition, marketing activities and consumer reaction. Management said that the Double 11 sales event performance was, overall, “in line with plan”. The company also said that it’s accelerating Mataura Valley Milk’s path to profitability by FY26 or earlier. A2 Milk is exploring acquisition, joint venture and alliance opportunities.
A2 Milk said that it’s on track to achieve its ambition to grow sales to $2 billion and improve EBITDA margins “in the teens” over the medium-term. It’s aiming for year on year improvements for the EBITDA margin.
I’ll applaud A2 Milk for achieving success in difficult conditions. It’s certainly not the booming market of several years ago. Will there be more babies in China? I really don’t know, but I don’t think the outlook is strong for A2 Milk. There are other ASX growth shares I’d rather invest in.
