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Bubs Australia Ltd (ASX:BUB) announces mega China deal to double revenue

Bubs Australia Ltd (ASX: BUB), the vertically integrated producer of goat milk infant formula and the largest producer of goat dairy products in Australia, has announced a mega long term supply agreement with a China-based company called New Times Asia. New Times Asia is a supply chain and service provider.

Under the agreement, New Times Asia has committed to purchasing minimum volumes of Bubs and CapriLac products with a $17 million sales commitment for FY 19. This represents at least a 100% increase to total business sales revenue for Bubs Australia.

The long term supply agreement will open up a new channel for Bubs Australia to supply Bubs and CapriLac products to up to 20 e-commerce platforms in China as well as enhance existing supply agreements with JD.com, Kaola.com, VIP.com, and RED.

Confirming that the company’s focus on China was starting to pay off, Mrs Kristy Carr, Founder and Managing Director of Bubs Australia said, “The agreement with New Times Asia is a major step forward in our China expansion strategy, and shows the investment we have been making and continue to make in building our China presence is bearing fruit.”

Shares in Bubs Australia were up over 10% in early morning trade following the announcement.

The Kids Are Alright

If you have kids (or even if you don’t), you will know how your baby’s nutrition comes first. When you add in the health benefits of goat’s milk that Bubs offers then this gives it a strong platform to compete with top companies such as A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

When you then consider the popularity of Australian made healthy food products in China as demonstrated by this agreement, then you have a potentially exciting growth story.

Risks

Whilst the story of Australian exports to China is mostly exciting, there are potential risks with changes in regulation or trade wars that could complicate such supply agreements. Investors should carefully consider the experience that Blackmores Limited (ASX: BKL) went through.

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Motley Fool contributor Kevin Gandiya owns shares of JD.com. He has no position in any of the other stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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