The stock value of Synlait Milk Ltd [NZX:SML] fell by 10.72% today.
Synlait Milk holds the exclusive rights as the manufacturer of the popular dairy product for The a2 Milk Company [NZX:ATM]. Both companies cooperate heavily on exports to China.
At the time of writing, Synlait has a market capitalisation of $1.8 billion. and the share price is at $9.70.
Why has the [NZX:SML] share price decreased today?
Synlait Milk has just announced a disappointing decline in first-half net profits — a 9.7% dip in performance compared to 2019. This comes on the back of lower-than-expected margins for export sales to China.
This is a direct result of new food safety regulations that are currently coming into force. Synlait will have to jump through more bureaucratic hoops in order to register its brand with the China Food and Drug Administration.
So where could the Synlait Milk share price go from here?
Despite investor jitters, Synlait’s projected outlook for the future remains strong.
A new manufacturing plant in Pokeno will be commissioned in time for the 2019-2020 milk season. Another packaging facility in Dunsandel is also on schedule for unveiling soon.
In addition, Synlait’s diversification into the cheese industry with Talbot Forest Cheese also bodes well for future growth.
Finally, once the mood normalises and Kiwi exporters come to grips with the new Chinese regulatory environment, the share price for Synlait could recover and maintain its upward trajectory.
For more information, please read our recent issues regarding a2 Milk and Synlait:
- Milking China: A Kiwi Conundrum
- A2 Milk: Cash Cow or Spoilt Milk?
Editor, Money Morning New Zealand