New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

The a2 Milk Company Proprietary Channel Checking in China

NEUTRAL
Our latest&nbsp;proprietary online Chinese consumer survey, with 100 responses, saw The a2 Milk Company (ATM) rank well (#4 for brand choice, #6 for quality) as did Infant Formula (IF) from New Zealand, which ranked the highest for quality by a large margin.&nbsp;However, it did provide another reminder of the need for ATM to lift marketing spend and the challenging backdrop it is navigating.&nbsp;Despite a noisy and volatile backdrop in recent months, our survey results were broadly consistent with our prior survey in February 2021. ATM has a number of redeeming features (well regarded brand, net cash position, attractive returns/free&nbsp;cashflow), however, heightened risks/uncertainty cloud the near-term picture. Retain NEUTRAL.


Key takeaways from our proprietary consumer survey



a2 ranked #4 for brand choice and #6 for quality perception.&nbsp;This compares to #4 and #3 respectively in our February 2021 survey. A solid outcome in an increasingly competitive market. We are cautious to extrapolate too far given the limitations of a small sample in such a large and complex market, and skew towards Tier 1 cities (77% of our sample) where a2 should over-index. Encouragingly, we also observed no material change in brand perception of a2 in recent months
Awareness&nbsp;of a2 remains low:&nbsp;Only ~30% of our survey respondents were aware of a2 and ~10%&nbsp;had heard or seen&nbsp;advertising from a2 in recent months. The low marketing/awareness aligns with our prior surveys and channel checking. This is both a positive (opportunity) and negative (reaffirming our view ATM needs to continue to accelerate investment in marketing). The latter aligns with company intentions and&nbsp;our forecasts incorporate marketing spend&nbsp;meaningfully above historical levels
No notable change in preference or&nbsp;perception of foreign product, with NZ continuing&nbsp;to rank highly for quality:&nbsp;We expect this may be influenced by our sample skew towards Tier 1 cities, albeit is encouraging nonetheless. This will continue to be important to monitor, particularly as domestic brands lift their focus on higher tier cities (Feihe&nbsp;has recently stated plans to do so) and in the face of heightened concerns/investor questions around geopolitical risk.&nbsp;NZ still tops the list&nbsp;with respect to quality perception (by a wide margin)&nbsp;&nbsp;— an important driver of purchase choice for Infant Formula (IF)
Consumer view on the&nbsp;daigou&nbsp;channel aligns to ours —&nbsp;that it&nbsp;will recover, but unlikely to pre COVID-19 levels:&nbsp;Only 5% of respondents were of the view the channel never recovers. Our ATM forecasts assume a gradual recovery in the&nbsp;daigou&nbsp;channel to ~70% of pre COVID-19 levels by FY24E (versus ~50% in FY21E).&nbsp;The&nbsp;timeline&nbsp;and extent of the recovery remains open to debate (and reliant on Australian borders re-opening to Chinese tourists and/or students), albeit risk is likely downside skewed
​​​​​Views around birth rates reinforce multiple policy initiatives will likely&nbsp;be needed to have any enduring positive impact: Only 7% of respondents indicated a personal impact of the relaxing of China's two child policy, with an additional 13% expecting it to impact friends/colleagues —&nbsp;a step in the right direction. However, costs were noted as the key barrier to having a child —&nbsp;with financial reasons stated by 52% of respondents, particularly housing/living costs (45%) and education (43%).




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





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



The A2 Milk Company: Proprietary Channel Checking in China

A2 Milk Co Ltd

The A2 Milk Company: Proprietary Channel Checking in China