We saw this dairy business endure a substantial hit to its earnings in 2020 as COVID caused an end to international travel which closed off its daigou Chinese sales channel. With Beijing now reopening its economy in earnest, following its failed COVID zero policy, and students being almost forced back to overseas study we look set to see a reopening of this daigou channel.
- The company is starting to turn the corner operationally enjoying strong infant formula sales growth across both English-label and China-label markets i.e. China already showing decent signs of a pick up on the ground as the economy reopens.
- W- e believe investors remain cautious towards A2M following months of pain and its valuation suggests no significant recovery is priced into the stock i.e. we see surprise risks on the upside to market consensus earnings.
Overall we aren’t fans of the daigou channel dictating a significant portion of the company’s earnings but as an aggressive investment, we like the risk/reward towards A2M for investors with a large risk appetite. However, on balance, we prefer TWE to gain exposure to both the reopening and strengthening Chinese economy.
MM is neutral to bullish A2M under $6
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