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Bubs Australia Ltd (ASX:BUB) shares climb higher on China deal

After a slow start to the day, in afternoon trade the Bubs Australia Ltd (ASX: BUB) share price has pushed higher.

At the time of writing the goats milk infant formula company’s shares are up 3.5% to 73.5 cents.

Why are Bubs Australia’s shares pushing higher today?

This afternoon Bubs Australia announced that it has entered into an agreement with Hipac to supply Bubs infant formula and organic baby food products to its distribution network of 83,000 stores throughout China.

Hipac is China’s leading supplier to Mother and Baby stores via the online-to-offline (O2O) channel. Its average monthly gross sales are RMB 600 million (~A$120 million), with approximately 70% of total sales generated from infant formula.

What is O2O shopping?

According to the release, O2O shopping has become commonplace in China’s emerging retail landscape. Parents are able to view products displayed in-store, order online from an in-store shopping terminal, and then have the product delivered to their home.

The benefit of this approach is that international products are dispatched from Hipac’s cross-border warehouse in the free trade zone, meaning SAMR (CFDA) registration for infant formula is not required.

Bubs Australia and Hipac have agreed on a sales and marketing strategy to deliver at least RMB 12 million (~A$2.4 million) in the next 12 months.

Bubs Founder and CEO, Kristy Carr, appears to be pleased with the agreement. She stated that: “Hipac has pioneered China’s O2O channel in the baby category with their expertise in real time data visibility and advanced supply chain logistics. We consider this new partnership an important milestone in expanding our brand presence and distribution coverage in the Mother and Baby store channel.”

Should you invest?

I think this is a positive development for Bubs and I’m not surprised to see its shares push higher this afternoon.

While Bubs Australia is still a long way from being the next A2 Milk Company Ltd (ASX: A2M) or Bellamy’s Australia Ltd (ASX: BAL), it is making a lot of progress.

It’s still a little soon to invest in my opinion, but I would suggest investors keep it on their watchlist and monitor its sales growth over the next 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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