Latest / The SME Stream / Matt Montgomerie: Forsyth Barr analyst on A2 Milk's shares dropping following declining China birth rate

Transcript

Matt Montgomerie: Forsyth Barr analyst on A2 Milk's shares dropping following declining China birth rate · The SME Stream

• 0:00
  Speaker 1: First, China's birth rate has slowed to a crawl. Basically,
• 0:03
  Speaker 1: it's bad news for A two milk. Why because A
• 0:07
  Speaker 1: two milk does a lot of business in China. When
• 0:09
  Speaker 1: the news came out that their birth rate was now
• 0:11
  Speaker 1: only six point six three per one thousand people, A
• 0:15
  Speaker 1: two's share price plummeted. In fact, the share price fall
• 0:19
  Speaker 1: was so bad, so sudden, that the ACX actually paused
• 0:22
  Speaker 1: trading for a bit and asked A two for a
• 0:25
  Speaker 1: please explain? Is everything okay? Is there anything more you
• 0:28
  Speaker 1: need to tell us? Matt Montgomery is a full size
• 0:31
  Speaker 1: bar senior and listener's with me now, Matt, good evening,
• 0:34
  Speaker 1: Good evening, ryng, thanks having me, Good to have you.
• 0:36
  Speaker 2: Why is this so bad for A two?
• 0:39
  Speaker 3: Yeah? So, I mean, I wouldn't go as far to
• 0:42
  Speaker 3: say so bad. But if you think about the context
• 0:45
  Speaker 3: of A two, about two thirds of their revenue was
• 0:48
  Speaker 3: Chinese in formula, and it's the majority of their earnings. So,
• 0:52
  Speaker 3: as you mentioned birth, Chinese birth rates were out yesterday afternoon.
• 0:57
  Speaker 3: They were down seventeen percent year on year, about ten
• 1:00
  Speaker 3: percent below what we had expected and a similar magnitude
• 1:05
  Speaker 3: relative to what A two had expected. So it's the
• 1:08
  Speaker 3: key value driver for the business. But what I would
• 1:12
  Speaker 3: emphasize is that you know, this has been a trend
• 1:14
  Speaker 3: for some time in China, the declining birth rates, and
• 1:17
  Speaker 3: that hasn't precluded A two from growing. So they've been
• 1:21
  Speaker 3: able to take market share and clearly looking forward for
• 1:24
  Speaker 3: them to grow, they're going to have to continue to
• 1:27
  Speaker 3: take market share in light of these trends.
• 1:30
  Speaker 1: Yeah, it might be fewer babies, but they're still a
• 1:32
  Speaker 1: hall of a lot of them, right.
• 1:34
  Speaker 3: Yeah, So seven point nine two million was the number yesterday.
• 1:37
  Speaker 3: That was down from nine point five to four million
• 1:41
  Speaker 3: in the year prior. It's quite a skip change when
• 1:43
  Speaker 3: you think about your twenty sixteen twenty seventeen berths was
• 1:47
  Speaker 3: sort of sixteen seventeen eighteen million a year, so it's
• 1:51
  Speaker 3: been quite a sharp reduction versus less than a decade ago.
• 1:56
  Speaker 3: But as you point out, it's still quite a big number.
• 2:00
  Speaker 2: Price doing now, is it recovered?
• 2:02
  Speaker 3: Yeah, so share price fell about eleven percent yesterday on
• 2:05
  Speaker 3: the insiet X. It fell a further one percent today,
• 2:08
  Speaker 3: so you know, meaningfully more muted reaction and as you mentioned,
• 2:13
  Speaker 3: it got put into holt on the Australian Stock Exchange
• 2:16
  Speaker 3: yesterday as part of a regulation over there, when a
• 2:20
  Speaker 3: stock falls by more than ten percent without an announcement
• 2:23
  Speaker 3: by the company, it automatically goes into a halt.
• 2:27
  Speaker 2: Where else are they looking to do business? Man? Well,
• 2:30
  Speaker 2: I mean obviously they're not just doing business in China,
• 2:32
  Speaker 2: But where are the growth opportunities?
• 2:35
  Speaker 3: Yeah? So you know two, as I mentioned, two thirds
• 2:37
  Speaker 3: of the revenue as in formula in China, that still
• 2:41
  Speaker 3: remains an area of growth for them, as I mentioned,
• 2:44
  Speaker 3: because they are taking market shares. Outside of that, You've
• 2:49
  Speaker 3: got value drivers through the liquid milk business in Australia
• 2:52
  Speaker 3: and the US. And actually, I think more interestingly than
• 2:56
  Speaker 3: both of those is that they're starting to expand into
• 2:58
  Speaker 3: the Vietnamese market from a formula perspective, and they are
• 3:03
  Speaker 3: expanding the product range within China, so going into the
• 3:06
  Speaker 3: adults and senior powders market in China, which is growing
• 3:09
  Speaker 3: sort of twenty to thirty percent parandom for them, and
• 3:13
  Speaker 3: they have been launching sort of kids powders within China
• 3:16
  Speaker 3: to try sort of prolonged the life cycle of their
• 3:20
  Speaker 3: consumer base, transitioning from formula then into kids powder. So yes,
• 3:26
  Speaker 3: the headline numbers week, but they are diversifying the business
• 3:30
  Speaker 3: and having success and growing share, but also that diversification.
• 3:35
  Speaker 2: Hey have you done your big race yet?
• 3:37
  Speaker 3: Matt? Yeah, I did. I did a decent round a
• 3:42
  Speaker 3: month until ago.
• 3:43
  Speaker 2: So what was it again? Remind me?
• 3:47
  Speaker 3: I was the Kefler Challenge down on the Kiffler track
• 3:50
  Speaker 3: around Melford there, so yeah, one of four point fifties.
• 3:54
  Speaker 3: I wasn't alone, but I wasn't exactly breaking course records
• 3:58
  Speaker 3: like like some people.
• 3:59
  Speaker 2: Where do you place?
• 4:01
  Speaker 3: Ah was sort of top top Quartalle'd say.
• 4:08
  Speaker 2: And was it sixty k's Have I got that?
• 4:11
  Speaker 3: Yeah? It was?
• 4:11
  Speaker 2: Oh, good on you. You haven't broken yourself. Well done
• 4:16
  Speaker 2: top quart ale, he says, Matt, thank you. Met Montgomery
• 4:19
  Speaker 2: for scythe Bass Senior Analyst.
• 4:21
  Speaker 1: For more from Hither Duplessy Allen Drive, listen live to
• 4:24
  Speaker 1: news talks it'd be from four pm weekdays, or follow
• 4:27
  Speaker 1: the podcast on iHeartRadio.