We initiate coverage of a2 Milk with an Underweight rating and $8.00 target price. a2 Milk has shown a strong recovery in sales and profit margins following COVID-19 disruptions. The prospect for growth remains good over the next three years but it will increasingly be focused on China label infant formula, despite a soft industry backdrop. a2 Milk’s acquisition of the Pokeno facility and divestment of Mataura Valley Milk (MVM) will boost EBITDA margins with a 220bp uptick from the divestment of MVM and a further 130bp through the internalisation of production at Pokeno. We see EBITDA margins reaching 20% by FY30e. a2 Milk has good growth prospects, but the growth is narrowly focused on China infant formula sales, which has some risk.