New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>The a2 Milk Company</h2>
Kantar Data Check
Kantar market share provides an indicator of brand strength for The a2 Milk Company (ATM) and its key competitors in the infant formula (IF) segment, capturing purchasing habits for a sample of consumers across Urban China (Tier 1 and Key A–D cities). The latest market share of ATM is 6.4% — a lift on recent months, broadly stable vs. ATM’s disclosure in June 2019 and ahead of the prior year. The brand remains strong in China; particularly given Kantar data likely understates consumption trends, given ATM’s growing sales in later stage products (i.e. Stage 4 / Smart Nutrition).
Key data points / trends
<ul>
<li>ATM Kantar market share of 6.4% (by value) for the four weeks ended 5 November 2019.</li>
</ul>
o&nbsp;&nbsp;This compares to 6.0% in the prior four week period, 3m rolling ~6.0% and 12m rolling ~6.4%.
o&nbsp;&nbsp;The data is volatile from month to month, albeit is broadly stable vs. ATM’s disclosure of 6.4% as at June 2019 (rolling 12m), although recent months have been slightly weaker.
<ul>
<li>Feihe has taken significant market share over the past six months, with meaningful declines evident in Aptamil and Mead Johnson (Figure 1).</li>
<li>Our analysis suggests Kantar’s China Baby Panel covers a market of ~US$10bn versus the Chinese IF market of ~US$25bn.</li>
</ul>
Figure 1. Kantar – rolling 3m market share for key infant formula brands&nbsp;
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.0.1&amp;permmsgid=msg-f:1651848340371976720&amp;th=16ec8b504eb0b210&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-lgOsDIqswRB2zWk5qnn7qDgSj7SfxvKIw7TALXNM4idPE2FoJDSOby9FRr9of73N_Q2C0-VIOx3gEo08sHh5t4pXrGVV3s1rj2dW7cZFCPfc3G6_mLY94gKA&amp;disp=emb" width="401" height="294" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr analysis, Kantar China Baby Panel&nbsp;
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Investment View
We are attracted to the opportunity for ATM in existing markets in addition to new markets and products — with ATM currently only scratching the surface of a material market opportunity. Valuation outcomes are wide, but in our view current valuation metrics offer a favourable risk/reward, particularly when adjusted for loss-making markets. OUTPERFORM.&nbsp;
</div>
Chelsea Leadbetter, CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262

The a2 Milk Company
Kantar Data Check
Kantar market share provides an indicator of brand strength for The a2 Milk Company (ATM) and its key competitors in the infant formula (IF) segment, capturing purchasing habits for a sample of consumers across Urban China (Tier 1 and Key A–D cities). The latest market share of ATM is 6.4% — a lift on recent months, broadly stable vs. ATM’s disclosure in June 2019 and ahead of the prior year. The brand remains strong in China; particularly given Kantar data likely understates consumption trends, given ATM’s growing sales in later stage products (i.e. Stage 4 / Smart Nutrition).
Key data points / trends

ATM Kantar market share of 6.4% (by value) for the four weeks ended 5 November 2019.

o&nbsp;&nbsp;This compares to 6.0% in the prior four week period, 3m rolling ~6.0% and 12m rolling ~6.4%.
o&nbsp;&nbsp;The data is volatile from month to month, albeit is broadly stable vs. ATM’s disclosure of 6.4% as at June 2019 (rolling 12m), although recent months have been slightly weaker.

Feihe has taken significant market share over the past six months, with meaningful declines evident in Aptamil and Mead Johnson (Figure 1).
Our analysis suggests Kantar’s China Baby Panel covers a market of ~US$10bn versus the Chinese IF market of ~US$25bn.

Figure 1. Kantar – rolling 3m market share for key infant formula brands&nbsp;

Source: Forsyth Barr analysis, Kantar China Baby Panel&nbsp;

Investment View
We are attracted to the opportunity for ATM in existing markets in addition to new markets and products — with ATM currently only scratching the surface of a material market opportunity. Valuation outcomes are wide, but in our view current valuation metrics offer a favourable risk/reward, particularly when adjusted for loss-making markets. OUTPERFORM.&nbsp;

Chelsea Leadbetter, CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262

A2 Milk Co Ltd

The A2 Milk Company: Kantar Data Check