The Bubs Australia Ltd (ASX: BUB) share price has surged 2.78% higher in early trade after signing a new strategic agreement in China.
What did Bubs announce this morning?
Bubs has entered a strategic agreement with Alibaba CIP to capitalise on the growth of China’s goat dairy market. The company’s new ‘Deloraine’ brand will launch in the RMB10 billion (A$2 billion) sector to be produced by Bubs in Victoria.
Under the agreement, Bubs and Alibaba CIP expect to ship adult goat dairy product worth A$10 million in Year 1.
The dairy company also signed a master distribution agreement with Alibaba CIP in a Shanghai ceremony. The agreement will see Alibaba promote and distribute Bubs’ adult dairy range across its “ecosystem”.
Bubs is also signing a memorandum of understanding with the largest Chinese Inspection Institute authorised by the CNCA.
Bubs CEO Kristy Carr hailed the deal as “very meaningful” and an “exciting development” for the company. The company is hoping to build on its Caprilac product success with the launch of Deloraine.
Why is the Bubs share price charging higher?
The Bubs share price has surged higher in early trade with investors anticipating an increase in earnings.
The Chinese adult nutrition market has 700 million active users, which represents a huge opportunity for Bubs.
Alibaba is one of the largest retailers in China, which could provide a great foundation for Bubs to capture further market share and increase sales as we enter 2020.
The Bubs share price opened at $1.15 per share, having closed 5.50% lower at $1.09 yesterday. It has since pulled back slightly to be trading for $1.11 per share at time of writing.
The Bubs share price jumped higher to start the day as investors were quick to buy the Aussie stock after a strong year of trade in 2019.
Fellow ASX-listed dairy company A2 Milk Company Ltd (ASX: A2M) has seen its share price under pressure in early trade.
A2 Milk is facing increasing competition in China as more Australian producers gain regulatory approval and form strong strategic partnerships.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended BUBS AUST FPO. 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.