Edgware Insights Pty Ltd

Wayne Murray

Equity Bottom-Up

<p>Edgware remains confident in the strong operating leverage and high gross margins of A2M, despite the dampening of the milk powder opportunity. The increasing demand from China for quality food, sourced globally is a permanent shift not a short-term phenomenon. Groups like A2M have a simple and powerful brand to meet this need across multiple dairy categories. The differentiated a2 product resonates with Chinese consumers.  Much of the earnings in three and five years will be driven by products not sold today, but which will be familiar and have limited commercial risk.</p><p>We have been focused on a few obscure negatives around milk powder which initially distracted us from the hugely positive infant formula clarity. The regulatory changes to date are far more supportive than we had modeled in our infant formula earnings. We will not change our infant formula forecasts until will see the final AQSIQ food safety and labeling regulations, but expect a positive bias which could offset more than half of the milk powder lost earnings. We reduce our A2M milk powder revenue significantly as we feel regulations disadvantage commodity products repackaged for consumers.</p>

Edgware remains confident in the strong operating leverage and high gross margins of A2M, despite the dampening of the milk powder opportunity. The increasing demand from China for quality food, sourced globally is a permanent shift not a short-term phenomenon. Groups like A2M have a simple and powerful brand to meet this need across multiple dairy categories. The differentiated a2 product resonates with Chinese consumers.  Much of the earnings in three and five years will be driven by products not sold today, but which will be familiar and have limited commercial risk.We have been focused on a few obscure negatives around milk powder which initially distracted us from the hugely positive infant formula clarity. The regulatory changes to date are far more supportive than we had modeled in our infant formula earnings. We will not change our infant formula forecasts until will see the final AQSIQ food safety and labeling regulations, but expect a positive bias which could offset more than half of the milk powder lost earnings. We reduce our A2M milk powder revenue significantly as we feel regulations disadvantage commodity products repackaged for consumers.

Dairy: Infant Formula Regulatory Clouds Clearing (Shame About Milk Powder).

A2 Milk Co Ltd

Dairy: Infant Formula Regulatory Clouds Clearing (Shame About Milk Powder).