Shares of milk processor Synlait Milk and its infant formula partner a2 Milk rose to record highs today on confirmation that their brands and recipes have gained registration in China, removing an obstacle in a market with soaring sales.
Synlait rose 7.3 per cent to $6.29 on the NZX and has gained 88 per cent this year. A2 rose 4.1 per cent to $6.80 and has surged 207 per cent in 2017, the best performer on the NZX 50 Index, followed by Synlait.
Synlait said today it had gained manufacturer registration for a2 Milk's Chinese label infant formula, meaning the products will continue to have market access in 2018 when China tightens its rules. From January 1, 2018, all manufacturers of infant formula are required to register brands and recipes with the China Food and Drug Administration (CFDA) to sell into the Chinese market through traditional channels. The registration is part of broader efforts by China to lift food safety standards after a number of scares including the death of infants from ingesting infant formula laced with melamine in 2008.
In the 12 months ended June 30, a2's sales from China and other Asian markets jumped to $88.9 million from $38.2m, while earnings before interest, tax, depreciation and amortisation in those markets rose 255 per cent to $32.7m. Its overall revenue gained 56 per cent while profit tripled to $90.6m. Synlait's July year profit rose 11 per cent to $38m as sales rose 39 per cent to $759m and the company predicted "a strong increase in profit" this year.
"CFDA registration is a major step in getting a license to operate through formal China label channels and helps de-risk the future beyond 1 Jan 2018," said Oyvinn Rimer, a director and research analyst at Harbour Asset Management. "Because it is China regulation and the outcome is binary, the market will appreciate that this is no longer an overhanging uncertainty."