Another Quarter, Another Downgrade; Placing a2 Milk Under Review

In what has become a dreadful recurring theme for narrow-moat a2 Milk, management again significantly reduced its near-term guidance--the fourth time since September 2020. The expected rebound in English-label formula is proving much slower than we or the firm had previously anticipated, which will likely impact not only fiscal 2021 results but also our forecast for fiscal 2022 and beyond. While there was some (though limited) room for optimism in the fiscal third quarter, including Chinese-language labelled infant formula seeing continued growth versus the prior comparable period despite COVID-19 pantry-stocking a year ago, we put our coverage under review as we examine the medium- and long-term implications for a2's excess channel inventory, lack of traction in reigniting daigou growth, and transfer of coverage to a new analyst. We anticipate lowering our fair value estimate to account for these concerns.