New Zealand's a2 Milk on Thursday forecast full-year revenue at the lower end of its guidance range as the COVID-19 pandemic disrupted sales in its key Chinese market, sending its shares down nearly 18% to a more than two-year low.
The dairy producer also posted a 35% fall in first-half profit, and said it expects a lower EBITDA margin range of 24% to 26% for FY 2021 as a consequence of lower revenue.
The company's woes are mainly due to disruptions in its "daigou" channel, where people outside China buy products for Chinese consumers and import them informally. The channel accounts for a significant portion of a2's revenue.
"While there was some improvement in the channel towards the end of the period, the recovery was not as strong as had previously been expected," a2 said in a statement.
The company's heavy dependence on the Chinese daigous has come under scrutiny in the wake of the pandemic, as it was forced to issue a series of earnings downgrades in 2020, admitting that the hit to the channel was worse than initially expected.
"The weaker than expected outlook is likely to disappoint and the lack of capital management may increase investor doubts around whether a2 will have to downgrade its guidance again," Citi Research said in a note.
The current outlook assumes that the daigou channel would improve significantly in the later half of this year, which may be challenging without the return of students and tourists and the ongoing resurgence in Chinese domestic brands, Citi said.
a2's net profit after tax for six months ended Dec. 31 came at NZ$120 million ($88.85 million), compared to NZ$184.9 million reported a year ago.
a2 now expects FY 2021 revenue of NZ$1.40 billion, at the lower end of its previous guidance range of NZ$1.40 billion to NZ$1.55 billion.
(Reporting by Arundhati Dutta in Bengaluru; Editing by Shailesh Kuber)
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