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Synlait shares soar on a2’s China approval news

Synlait Milk (ASX:SM1), a2 Milk Company’s (ASX:A2M) Kiwi manufacturing partner, has had some good news – Chinese regulators have approved a2’s China label baby formula.

Synlait told the ASX and NZX on Tuesday that China’s State Administration for Market Regulation (SAMR) had given its approval for a2 Milk’s formula stages 1, 2 and 3, which is made in line with China’s new quality standards.

This decision will allow Synlait to manufacture the products for a2 Milk until September 2027 at its Dunsandel facility in NZ’s South Island.

As the exclusive manufacturer of the range, Synlait holds the SMAR registration, which is attached to the Canterbury facility.

And that would make Synlait the biggest beneficiary of the approval, which investors were quick to work out.

Synlait shares jumped nearly 15% in yesterday’s big sell off to close at $A1.71 while a2 Milk shares edged up 1.8% to $A5.44.

Synlait CEO Grant Watson said the registration was “pivotal” to the manufacturing and supply agreement between the companies and the long-term success of Synlait’s advanced nutrition business.

“Synlait and the a2 Milk Company have a long-standing and complementary partnership, and we look forward to continuing to support their China growth ambitions.

“The re-registration is a very important milestone and we have worked hard together to ensure its success. We thank SAMR and the Ministry for Primary Industries, for their support during this process,” Watson said.

China is the world’s largest infant formula market and makes up the bulk of a2 Milk’s sales (and therefore much of Synlait’s revenue and earnings).

a2 Milk Company CEO David Bortolussi said in a statement on Tuesday that “We look forward to making our upgraded new China label IMF product available to parents and their infants and young children in China, building on the strong brand loyalty we have developed with Chinese families over the past decade as the pioneer and leader of the A2 protein category.

“The approval provides a2MC with continued access to China’s substantial registered domestic infant milk formula market which remains the key focus of our refreshed growth strategy.”