China’s falling birth rate and sluggish economic recovery are expected to cause a double-digit decline in the country’s infant formula market this fiscal year, according to a2 Milk Co.
Despite this, the company expects to capture a larger share of the infant milk formula market, which accounts for nearly 70% of its sales, by 2024, according to its full-year earnings statement.
A2 Milk shares fell 9% in early Wellington trading, hitting their lowest price since July 2022 after the company’s full-year earnings matched analyst expectations.
Chief Executive Officer David Bortolussi stated in an interview that the China market is currently “challenging” but is anticipated to level off in the long run. “Even if it [the Chinese market] does decline more in the future, then it will eventually stabilize,” he said.
“It’s not going to continue to decline at the rates that it is at the moment. We still have an enormous market opportunity for us and share gain opportunity going forward.”
The number of babies born in China fell 10% to 9.6 million in 2022 and is expected to fall further this year due to the lag effect of COVID-19, challenging macroeconomic conditions, and youth unemployment rates, according to a2’s full-year results statement, with an increase in births expected next year.
The Chinese market is also becoming more competitive, it stated.
A2’s total revenue in Asia increased by 38%, while the value of China’s overall formula market declined by approximately 14%.
China’s economic recovery has been sluggish since the end of the nation’s COVID Zero policy late last year. Bloomberg Intelligence reported that Chinese parents are increasingly favoring local baby formula brands before a2’s earnings report.
The company reported earnings before interest and taxes of NZ$219.3 million ($129.9 million), meeting analyst estimates. In addition, net income exceeded estimates by 26%, reaching NZ$144.8 million.
Regulatory Approval and Future Projection
China granted a2 regulatory approval this year to keep selling its baby formula until September 2027. The company’s products are derived from cows that produce only the A2 type of beta-casein protein, which, according to a2, makes them easier to digest.
According to a Bloomberg Intelligence report earlier this year, China’s infant formula milk market could shrink by nearly a third by 2025 if the country’s birth rate continues to fall at its current rate.
Source: Yahoo! Finance