Zooming Lens on ASX 200 listed Infant Formula player Bubs Share price
Aug 25, 2020 AEST
Team Kalkine
Summary
Bubs and Joint Venture partner Beingmate entered a Memorandum of Understanding to produce Bubs® China label Goat Infant Formula locally in China.
Bubs® China label Goat Infant formula will be made from 100% Bubs Australian Goat Milk, at one of Beingmate’s registered facilities in China.
With the agreement, Bubs gained a quicker, more specific route-to-market and full entry to China’s General Trade Channel, comprising Beingmate’s current distribution network throughout 30k Mother and Baby stores.
On 25 August S&P/ASX 200 Index (ASX:XJO) was trading upwards by 0.31% to 6,148.6 points (at 2:00 PM). One of the small caps ASX stocks from the Australian dairy sector, Bubs Australia Limited (ASX:BUB) was trading at AU$0.952, down by 1.856% (at AEST 1:58 PM), on 25 August. Recently, Bubs released an update on entering a Memorandum of Understanding (MoU) with JV partner Beingmate to produce Bubs® China label Goat Infant formula locally in China.
Bubs, formerly known as Hillcrest Litigation Services Limited produces Australian-made infant formula, organic baby food and cereals products. The Company sells its products in Australia, China, South East Asia, and the Middle East. Investors are showing keen interest in buying Bubs shares after the announcement of signing MoU with joint venture partner Beingmate.
The announcement in detail:
On August 24, Bubs announced entering in an agreement with Beingmate Co., Ltd as per which:
MoU will allow Bubs to acquire an ownership stake in one of Beingmate's Infant Formula manufacturing facilities in Beihai in China.
Bubs will get Beingmate's backing in obtaining a State Administration for Market Regulation (SAMR) brand slot.
The MoU has occurred intending to produce Bubs® China label Goat Milk Infant Formula, with the use of 100 per cent Bubs Australian goat milk. A China labelled product called SAMR is customised for the Chinese market and will be sold by Bubs to Beingmate JV company - Bubs Brand Management Shanghai Co. Ltd. Bubs own a 49% stake in the JV company. Bubs® China label product will be distributed under the Bubs Brand Management Shanghai into China's General Trade Channel. The distribution will take place under the terms of the existing agreement, which was executed in May 2019.
Bubs Founder and CEO, Kristy Carr mentioned in the statement released for the media that the Company is highly confident on this move of partnership with Beingmate. Beingmate is one of the biggest Chinese owned enterprises in the Infant Nutrition industry. Now with this partnership, Bubs will receive invaluable support in securing SAMR brand registration. This Joint Venture will ultimately provide Bubs with a faster route-to-market along with full access into China's Mother and Baby stores.
About 92 product applications have successfully gained SAMR registration since April 2019, out of which, 77 are manufactured in China. Nine products are Chinese owned brands made in France out of the 15 products that are manufactured outside of China. 6 products manufactured in Singapore were from Wyeth- the only global brand to attain certification during this time.
Beingmate is one of the largest Chinese owned organisations making infant nutrition products and is also listed on the Shenzhen Stock Exchange. It is the first Infant Formula company in the infant nutrition industry to secure the certification after China's new registration system was introduced. Presently, it has 51 Infant Formula products under various brands that are successfully registered by SAMR. The products are sold nationally in China.
Tapping international markets:
Another ASX listed player, The a2 Milk Company Limited (ASX:A2M) has shown how entering the global market can turn a consumer business into a potential larger enterprise. a2 Milk grew exponentially after expanding its footprints in the Asian and the US markets.
China is currently the world's largest and fastest-growing Infant Formula market with an approximate value of AU$55 billion. Under the localisation strategy for a 'Created by Bubs®' will be generated and packed in China, exclusively from Bub's own Australian premium goat milk. Given the current geopolitical situation and the regulatory risk, Bubs believe this strategy will mitigate critical risk.
Bubs also plans to scrap the existing SAMR brand applications earlier made by Deloraine. The Company will submit different super-premium Infant Formulas to aim for consumers in tier-one cities. The new applications will abide by any amendments under the China GB-national food guidelines anticipated to be issued shortly. The infant formulas would be manufactured at its Deloraine CNCA certified production facility. Bubs also announced that there would be no change to the English label product currently being produced at Deloraine facility and sold directly into China through the Cross-border eCommerce Channel.
New strategy amid COVID-19 health crisis:
Bubs Executive Chairman, Dennis Lin said that this approach would provide the cornerstone for Bub's future global expansion plans, giving investors the Company's outlook towards the near future. Lin noted that during the volatile periods when many businesses are operating under strong macroeconomic forces, Bubs intends to reflect agility, and would implement strategies in response to ever-evolving market dynamics and changing consumer behaviour, which is brought upon by the coronavirus pandemic.
Three years back, Bubs had acquired NuLac Foods, Australia's largest goat milk products, producer. The acquisition also includes CapriLac®, a leader in goat milk, powder and yoghurt, and a premium range of Jersey milk products by Coach House Dairy®. This acquisition guaranteed Bubs exclusively supplying locally sourced fresh goat milk from Australia's biggest herd of milking goats.
Let us have a look at how Bubs Australia Limited (ASX:BUB) shares performance is:
Consumer staples sector entity Bubs’ share price, on August 25 was trading at AU$0.952, decreasing by 1.856% (at AEST 1:58 PM), with a market capitalisation of AU$555.47 million. Bubs stock has given a positive return of 27.63% in the last six months period.
On 27 July, the infant formula manufacturer unveiled its Q4 FY20 activities report for the period ended June 30 June. It reported full year financial year 2020 gross revenue, rising by 32% to stand at $62 million; however, Bubs’ Q4 gross revenue dwindled 5% due to the previous quarter’s pull-forward strong demand.
During Q4 period, Bubs® Infant formula sales grew by 20% (pcp), which represents 71% of the Company's quarterly gross revenue. The Company also bolstered the balance sheet, with cash reserves of AU$26million.
Also, Bubs recently appointed Australian model and television presenter Jennifer Hawkins as its global brand ambassador.
BUB Price at posting:
95.0¢ Sentiment: Buy Disclosure: Held
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