A2 Milk share price: what’s the outlook as a new competitor emerges?

Citibank has maintained their bearish outlook for a2 Milk – as competition for the A2 throne in China looks to be heating up.

When Bellamys received a $1.5bn takeover bid from Chinese dairy giant Mengniu – questions of increased and condensed competition in China invariably came up for the likes of a2 Milk.

Such competitive concerns have also been apparent in the bearish price action of a2 Milk’s (ASX: A2M) share price in recent times. Specifically, since reporting its FY19 results – which saw EBITDA figures come in below analyst expectations and the revelation of an aggressive top-line growth plan – the A2M share price has fallen significantly.

At its July peak, a2 Milk traded hands at just above $17 per share.

Comparatively, a2 Milk’s share price currently trades at $11.31 per share dropping 4.07% today alonelikely off the back of news that a Chinese-based infant formula producer – Junlebao – is set to enter the A2 infant formula space in China.

Such news is relevant to a2 Milk, given that a key aspect of the company’s unique sales proposition comes from the fact that its milk products do not contain the A1 protein. Forming part of the company’s competitive advantage and according to a2 Milk’s own website:

‘Many consumers and healthcare professionals report that certain people who experience challenges drinking conventional cows’ milk may experience benefits when they switch to a2 Milk.’

It should be noted that the scientific research backing up such claims appears scarce. Yet with a2 Milk’s revenue recently hitting NZ$1.3bn, it would seem that consumers care little for the lack of codified scientific evidence.

It certainly doesn't seem to be influencing their decisions, as A2M's growing revenues would suggest.

A2 Milk share price: the outlook

Enter Junlebao – a potential competitor to a2 Milk’s A2 Chinese throne. In a research report recently published by Citibank, the investment bank noted that Junlebao is set to launch an A2-based infant formula of its very own.

In saying that, as it stands Junlebao’s infant formula is only available for pre-order through online outlets.

Even so, Citibank further notes that to their knowledge, Junlebao is the only competing A2 formula in China that has the all-important SAMR approval. Vitally, it is this regulatory gold-stamp that allows company’s involved in the infant formula business to sell their products directly in China’s retail stores. This regulatory approval for example has proven elusive to the likes of Australian-based Bellamys.

Off the back of this news investors may potentially have begun to question: could Junlebao’s A2-based product disrupt a2 Milk’s significant growth plans?

A2 Milk’s more-than 4% share price decline today could suggest that investors are concerned by such a possibility, at the very least.

With all this in mind, Citibank maintained their sell recommendation on a2 Milk (ASX: A2M) and a share price target of A$12.20 – citing increased competition as a key driver for this bearish outlook.

Practise trading Australian stocks like a2 Milk with an IG demo account now

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.