Producer of infant nutrition products, Bubs Australia Limited (ASX: BUB) has made a significant step in expanding its operations in China by entering into a partnership with a leading domestic infant nutritional company, Beingmate Baby & Child Food Co., Ltd (Beingmate).
In an announcement made on 6 February 2019, Bubs Australia has confirmed that Beingmate has entered a non-binding Memorandum of Understanding (MoU) with Bubs with the intention of forming an eventual Joint Venture in Shanghai to distribute and promote Bubs® infant formula and organic baby food products in China.
Following the release of this news, the share price of the company increased by 24.167% in the intraday trade as on 6 March 2019.
In an announcement made on Shenzhen Stock Exchange on 5 March 2019, Beingmate has confirmed that its Board has passed a resolution with 9 votes in favour, 0 votes against, and 0 votes abstentions, to enter the proposed strategic cooperation of establishing a subsidiary corporation with Bubs Australia Limited. As per the announcement, Beingmate is planning to establish a wholly-owned enterprise in Shanghai, and subsequently establish a Joint Venture subsidiary with Bubs Australia Limited.
Beingmate Board has already delegated authorization to management to complete the establishment of the subsidiaries and other related matters with associated costs of up to RMB 10 Mn.
Beingmate Baby & Child Food Co., Ltd is a leading infant nutritional company which is having a large distribution network, covering 30,000 Mother and Baby stores throughout China. For CY 2018, Beingmate reported sales of RMB 2.476 Bn (~A$520 Mn) and reported a profit of RMB 81 Mn (~A$17 Mn).
This Joint venture will provide a significant opportunity to Bubs to accelerate the expansion of its China operations via Beingmate’s existing distribution network covering 30,000 Mother and Baby stores serviced by 2,200 employees
Both the companies will finalize a sale and marketing plan to cover both Bubs Organic® baby food range which is already sold in around 500 stores in China, and Bubs® infant formula which is currently sold into China via various cross-border e-Commerce and O2O (Online-to-Offline) platforms.
While commenting on the proposed Joint venture, Bubs’ Chief Operating Officer for China, Charles Li told that a Joint Venture with Beingmate will present Bubs with a special opportunity to fast-track its development of the China market and to become a leading player in its segments.
In the first half of 2019, Bubs Australia reported record gross revenue of $21.03 million which was exceeding the total FY18 full-year revenue. The revenues were driven by strong domestic growth and increased sales to China. During the first half of FY19, the sales in China increased by more than ten times as compared to the previous corresponding period. In H1 FY19, the total group gross margin increased to 19% compared to 12% in 2HFY18.
Meanwhile, in the last six months, the share price of Bubs Australia decreased by 9.77% as on 5 March 2019. BUB’s shares traded at $0.750 with a market capitalization of circa $266.9 million as on 6 March 2019.
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