a2 Milk: Citi sees rising competition in China as domestic entrants increase

China Feihe

12/11/2020 22:52

** Citi says competition for a2 Milk  A2M.AX  will increase
in the long run in China's infant milk formula market (IMF) as
new entrants try to make inroads
    ** Says recent entry of China Feihe Ltd  6186.HK  into the
A2-protein IMF category with a new product suggests that
competition within the Chinese IMF market will continue to
increase for a2
    ** China, the world's biggest market for formula milk, is a
key driver of earnings for Auckland-based a2
    ** While the impact of new entrants into the A2 category on
a2 is likely to be limited in the short term, given its strong
brand and dominant category position, we see risks emerging
longer-term - Citi
    ** In the long-term, sees increased competition for a2 in
lower-tier cities, particularly from the large domestic brands
such as Feihe, and brand equity erosion
    ** Adds that Feihe's entry, with a market share of ~17%,
also raises concerns about a2's potential future growth avenues
    ** Three of 9 analysts rate a2 stock "buy" or higher, 2
"hold" and 4 "sell" or lower; their median PT is A$16.18–
Refinitiv data
    ** Stock has risen 4.2% this year, as of last close

 (Reporting by Savyata Mishra and Shruti Sonal in Bengaluru)
 ((Savyata.mishra@thomsonreuters.com))