Why opening borders might not be the good news A2 Milk (ASX:A2M) shareholders have been hoping for

Where is the infant formula company's head at as borders reopen?

| More on:
sad milk drinker, infant formula share price drop, fall, decrease

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The A2 Milk share price finished lower today
  • Daigou sales are not being heralded as the saviour for the company as borders reopen
  • A strong focus on building A2 Milk's local China label will be a major focus

The A2 Milk Company Ltd (ASX: A2M) share price finished 1% lower on Thursday.

In a little more than a week, shareholders will be getting a look at the milk company's performance for the first half. Estimates place A2 Milk's earnings at NZ$60 million. If analysts are right, that would represent a 50% decrease on 1H21 earnings, which were down 35% from the prior year also.

A major influence on the disappointing performance throughout the pandemic has been the impact on the daigou sales channel. This channel involves purchasing by shoppers in Australia, before travelling back to China with the product.

So, with international travel expected to resume from 21 February — will it bring back A2 Milk sales with it? Maybe not, and here's a look at why.

Daigou or dai-gone?

While A2 Milk has highlighted in previous ASX announcements that it will remain focused on China, it might not be quite the same.

The destruction caused to the daigou channel by COVID-19 has been vast. In 2019, the industry had reached revenues of $40 billion. Suddenly, it almost ceased to exist with international borders being locked down.

Industry experts have estimated that around 30% of the daigou speciality stores have either temporarily or permanently shut down. Although A2 Milk chair David Hearn has shared his belief that Daigou will not disappear, he also believes it won't be the same.

In response, the infant formula company is not putting its eggs in the 'daigou bounceback' basket and waiting for them to hatch. This is despite indications that the daigou channel has been returning.

The once adored market darling of the ASX, A2 Milk, is taking a different approach. A2 Milk will be opting for a more localised strategy in China. This means building upon its China label brand with increased marketing and improving online sale capabilities.

The decision follows promising metrics displayed to shareholders in the annual general meeting back in November 2021. Namely, sales of A2's China label were up 15.4% to $389.9 million. Comparatively, sales of the company's English label were down 52.1%.

How has A2 Milk been doing on the ASX?

The A2 Milk share price has been a catastrophe for shareholders over the last year. In a devastating display of value destruction, A2 Milk has fallen 46% on the ASX during this time period. For context, the S&P/ASX 200 Index (ASX: XJO) has managed to provide a positive return of 6.4%.

Long-term shareholders will be hoping to see a glimmer of the once-booming company in the A2's results this reporting season.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 3 April 2025

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Consumer Staples & Discretionary Shares

A person in the dark background of a casino gambling room places his hands either side of a large pile of casino chips.
Consumer Staples & Discretionary Shares

How will the latest news from Star Entertainment affect your ASX shares?

The casino operator's biggest shareholder will subscribe for a third of Bally's $300 million takeover offer.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Consumer Staples & Discretionary Shares

Why Macquarie forecasts a 92% upside for this beaten down ASX 200 stock

Macquarie expects a BIG turnaround for this ASX 200 stock in the months ahead.

Read more »

A photo of a young couple who are purchasing fruits and vegetables at a market shop.
Consumer Staples & Discretionary Shares

Should I buy Coles shares today amid the Trump tariff market tantrum?

Coles shares have smashed the benchmark returns over the past year. Can this continue?

Read more »

A gambler at a casino bets a pile of chips on one number
Consumer Staples & Discretionary Shares

Own Star Entertainment shares? Here are the takeover details and when you'll get to vote

Star Entertainment has released details of the takeover deal with US casino giant Bally's.

Read more »

A happy investor sits at his desk in front of his laptop and does the mexican wave with his arms to celebrate the returns from his ASX dividend shares
Consumer Staples & Discretionary Shares

Guzman Y Gomez shares storm higher on very big news

Some big news has been released by this fast food company today.

Read more »

tick, approval, business person with device and tick of approval in background
Opinions

The Warren Buffett seal of approval: If the stock market closed for 10 years, I'd happily own this quality ASX 200 stock

I’d be happy to hold this ASX 200 stock for 10-plus years, in line with Warren Buffett’s advice.

Read more »

businesswoman holds hand out to shake
Consumer Staples & Discretionary Shares

Star Casino accepts $250 million takeover from new US owner

What does this mean for the casino operator?

Read more »

A man in a supermarket strikes an unlikely pose while pushing a trolley, lifting both legs sideways off the ground and looking mildly rattled with a wide-mouthed expression.
Consumer Staples & Discretionary Shares

Supermarket resilience: why were Coles and Woolworths shares up last week?

Not even a market selloff could stop these shares from charging higher.

Read more »