A2 Milk Earnings: Troubled Near-Term Outlook Overshadows Improving Fundamentals

The precipitous slide in a2 Milk shares following the release of fiscal 2023 earnings belies the company's solid and improving position in Chinese infant formula. We think the market is preoccupied by the troubled near-term outlook. The new registration process is proving highly disruptive, and births remain below trend. Fiscal 2023 EBITDA rose 12% to NZD 219 million, about 6% below our forecast. While we make some reductions to our near-term earnings estimates, our long-term thesis for a2 Milk is intact. We expect a2 Milk to continue to capture share in a declining market as increasing premiumisation partially offsets falling births in China. Reductions to our near-term forecasts are broadly offset by time value of money, and we make no changes to our NZD 8/AUD 7.20 fair value estimate.