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Date : 10/05/2021

A2 Milk (ASX:A2M) share price crashed by 13% in ASX today

The a2 Milk Company is a producer of milk containing just the A2 protein by using cows that naturally produce just the said protein. The a2 Milk brand was expanding very quickly across ANZ and parts of SouthEast Asia. Their entry into China proved to be very successful and A2M were growing at over 60% year-on-year.

In order to sell in China, A2M relied heavily on the Daigou channel and given that travel has been non-existent between the two countries and with no resumption not in sight, shares began to plunge in early December as soon as the company downgraded its outlook for the financial year once again. The stock has continued to fall in 2021 as things haven’t really got better for the Daihou channel.

Why A2 Milk Share Price Crashed Today on the ASX ?

This morning, on the back of another downgrade, A2M shares slipped again – up to 13% and they now trade at $6.10 a share.

The trading dynamics in the China infant nutrition market have been and continue to be challenging for a2MC and many international competitors. While A2M’s 3Q21 trading was broadly in line with plan, it is clear that the actions taken to address challenges in the daigou/reseller and CBEC channels will not result in sufficient improvement on 3Q21in pricing, sales and inventory levels to meet the previous guidance based on April sales being well below plan.

A2 Milk is now targeting revenue for FY21 in the order of $1.20 billion to $1.25 billion.The significant decline from the outlook provided in February reflects the impact of the lower than expected sales in 4Q21 versus prior plan and the further actions being taken to rebalance the channels by actively reducing sales in May/June. It will take some time to rebalance inventory levels and restore channel health. An immediate recovery is not expected and a further update for FY22 will be provided at the Company’s results in August.

Chinese sales are not easy to replace given the high consumer demand and high growth rates the region is associated with. Without the smooth functioning of the Daigou channel, it looks like a2m will be a shadow of the company that it once was.

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