At time of writing, the share price of Bubs Australia Ltd [ASX:BUB] is up a significant 20.83%, trading at 72 cents.
The share price movement has seen it claw back some of the gains it gave up in the last six months:
The latest news out of Bubs is that it has entered a non-binding memorandum of understanding (MoU) with Chinese company Beingmate to distribute and promote its products.
Bubs share price responds to joint venture MoU
Beingmate is a significant player in the infant and maternal nutrition industry in China and the proposed joint venture has the potential to drive sales of Bubs in the country.
Beingmate has a distribution network of 30,000 stores and access to these stores marks a major increase on the 500 stores in China where Bubs is currently sold.
Kristy Carr, the founder and CEO of Bubs, pointed out that the agreement will allow the company to expand its presence in China’s smaller cities:
‘Beingmate is particularly strong in driving distribution via China’s lower tier cities which are benefiting from China’s new multi-child family policy, and so there are higher expectations for addressable market growth than in the Tier 1 cities where the costs to entry are high.’
Meanwhile, Beingmate CEO Bao Xiufei underlined how the agreement would benefit his company:
‘We believe there is a terrific opportunity for Bubs to capture a material share of the super-premium infant formula and organic infant food sectors, both of which are experiencing rapid growth in China. In particular, Chinese parents are attracted to ‘clean and green’ infant nutrition products for which Australia has an enviable reputation.’
Sales of Australian infant formula have been taking off in China, with A2 Milk Company Ltd [ASX:A2M] recently revealing an 83% growth in sales of its Chinese-labelled infant formula.
What’s the outlook for Bubs?
The infant formula field in China is becoming increasingly competitive and this most recent step for Bubs is an important one.
Compared to A2 Milk, Bubs is a minnow and will need to move quickly to assert itself in the market.
Gross revenue for 1H 2019 was $21.03 million, but its market cap stands at $266.9 million, indicating that investors may already be factoring in much of its growth.
Potential hurdles include changes to Chinese regulations regarding cross-border e-Commerce, something Bubs will be hoping Beingmate can help them with.
China is set to have a booming middle class, which could play into Bubs’ hands as it positions itself as a premium infant formula company in the country.
For Money Morning
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