The A2 Milk Company Ltd (ASX: A2M) share price has started the week in a very positive fashion.
In morning trade, the infant formula company’s shares are up almost 6% to $5.88.
This compares favourably to the 1% gain that the ASX 200 index has recorded in early trade.
Why is the A2 Milk share price racing higher?
Investors have been bidding the A2 Milk share price higher on Monday after the company and its dairy processing partner received some good news from China.
This morning Synlait Milk Ltd (ASX: SM1) revealed that it has received notification from China’s State Administration for Market Regulation (SAMR) that its current registration has been renewed until late February. This means that Synlait can continue to manufacture A2 Milk’s Chinese labelled infant formula under the previous food safety standard.
As its registration was due to expire this month, this development has removed a major short term risk that was weighing on the A2 Milk share price.
Though, it is worth noting that the company is not out of the woods just yet. Before this current registration expires, A2 Milk will need to be granted a registration for SAMR’s new safety standards when they come into place.
Both A2 Milk and Synlait are now busy working towards gaining this registration. And while dealing with Chinese authorities has not been easy for infant formula companies in the past (just ask Bellamy’s), management was quick to highlight that the Ministry for Primary Industries has co-operation arrangements in place with SAMR. It believes this positions New Zealand companies well in relation to China registration processes.
Overall, A2 Milk’s CEO, David Bortolussi, appears optimistic on the company’s future in China. He said:
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.
Following today’s gain, the A2 Milk share price is now up 19% since this time last month. (Source: fool.com.au)