The A2 Milk Company Ltd (A2M.AX): H&H quarterly supports a2's strategy

We view H&H's quarterly update today as positive for a2 Milk, as it further validates the latter's strategy of increasing its focus on HMOs. However, H&H's infant formula business is currently growing well ahead of both the broader market and a2, driven by strong uptake of its upgraded HMO products, continued market share gains and robust demand in Stage 1 and Stage 2 infant formula. That said, the H&H update reinforces our view that premium foreign brands (such as a2) can take share in China despite an overall category in decline, highlighting that success remains driven more by market share gains than birth rates alone. Over the tenure of the current management team, a2 has consistently grown market share, aside from a recent supply disruption, which we believe is normalising faster than expected. We are Buy-rated on a2 Milk and the next catalyst is the AGM on 19 November. H&H's infant formula sales grew 53.5% for 9M26, with China infant formula sales up 54.5%, materially above the C