A2 Milk (ASX:A2M) share price lifts on China child policy change

An increase from two to three in China’s child policy pushed infant formula shares higher today.

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It’s shaping up to be a positive day for the A2 Milk Company Ltd (ASX: A2M) share price following a shift in China’s child policy.

At the time of writing, the milk and infant formula company’s shares are trading 2.54% higher to $5.66.

China upgrades the infant formula market potential

The A2 Milk share price is not alone in today’s rejuvenated optimism. Other infant formula makers are enjoying some green on the back of China’s government revising its policy limiting couples to two children.

China will now support couples to have a third child, according to a meeting of the Political Bureau held on Monday. The policy change is in response to China’s aging population, with people aged over 60 accounting for 18.7% of the country’s population in 2020.

Obviously, an increase in the fertility rate for what was already considered to be the biggest growth engine for infant formula producers pre-COVID bodes well for associated companies.

Today’s reaction is a little déjà vu. Back in late 2015, China increased its child policy from one to two. Shares in publicly traded infant formula companies received a boost following the change.

Interestingly, smaller players like Bubs Australia Ltd (ASX: BUB) have done particularly well out of the news. The Bubs share price surged over 20% following the development.

Doesn’t break the A2 Milk share price drought

Much like one good downpour of rain, the gains from today doesn’t dispel the months of losses.

COVID-induced demand waning has forced A2 Milk and others to downgrade its FY21 guidance. The last month was no exception, with the A2 Milk share price souring by 23%.

Unfortunately for shareholders, the company’s full-year revenue estimate is now NZ$1.2 billion to NZ$1.25 billion. Earnings before interest, tax, depreciation, and amortisation (EBITDA) suffered the same fate – lowered to between NZ$132 million to NZ$150 million.

Even with today’s gain, the A2 Milk share price 71.7% down from its all-time high of $20.05 a share. As they say, “When it rains it pours” – shareholders would be hoping the same applies for positive news.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk and BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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