The A2 Milk Company Ltd (ASX: A2M) share price is on watch this morning after news of an approved Chinese registration for Synlait Milk Ltd (ASX: SM1).
As readers may well be aware, A2 Milk is one of ANZ’s largest infant formula manufacturers. But, its products require approval from the State Administration for Market Regulation (SAMR) to be sold in China. Synlait is the manufacturer of a lot of A2 Milk’s infant formula products.
A2 Milk’s Chinese registration
A2 Milk’s current Chinese label infant formula product registration was due to expire in late September 2022.
As A2 Milk expected, Synlait has received notification from SAMR that the current registration has been renewed. This means that Synlait will be allowed to manufacture A2 Milk’s current registered China label product until 21 February 2023 when the transition to the new infant formula/GB standard is required.
Product manufactured up until this date is allowed to be sold in the market after that date. This is a good boost for the A2 Milk share price and removes some of the shorter-term uncertainty.
New GB registration process
A2 Milk and Sylait are working closely together in relation to the registration of A2 Milk’s China label infant formula products, formulated in line with China’s new GB (infant formula) standards. While this is also progressing, “timing is uncertain and remains subject to SAMR approval”.
The company noted that the Ministry for Primary Industries (MPI) has co-operation arrangements in place with SAMR which, amongst other things, “positions New Zealand well” in relation to China’s registration processes.
Getting this approval will be an important step for the A2 Milk share price.
Management comments
The A2 Milk Managing Director and CEO David Bortolussi said:
We are pleased that our current product registration has been renewed, effectively to late February 2023, and we will continue to work collaboratively with Synlait and SAMR in relation to registration of our China label infant formula product formulated in line with China’s new GB standards.
We remain focused on the China market and are looking forward to the opportunity to make our newly formulated infant milk product available to parents and infants in China.
In all circumstances, The a2 Milk Company fully respects SAMR’s governance and timing of this important registration process.
Final thoughts on the A2 Milk share price
I’m sure when, or if, A2 Milk will ever get back to its former heights. The company has seen its profit margin fall compared to the glory days, and Asian demand for its product (including through daigou) has dropped.
Perhaps it will be able to recapture some of that spark, but it’s heavily reliant on the Chinese market for the recovery. I wish A2 Milk well, but I prefer Bubs Australia Ltd (ASX: BUB) shares and indeed other ASX growth shares at this price.
