The Bubs Australia Ltd (ASX: BUB) share price is pushing higher on Monday after the release of an update.
At the time of writing the infant formula and baby food company's shares are up almost 4% to 96 cents.
What did Bubs announce?
Investors have been buying Bubs shares this morning after it announced a memorandum of understanding (MOU) with joint venture partner Beingmate.
According to the release, the MOU gives Bubs the opportunity to acquire an ownership interest in one of Beingmate's infant formula manufacturing facilities in Beihai China and obtain Beingmate's support in securing a State Administration for Market Regulation (SAMR) brand slot.
The ultimate objective of this will be producing Bubs China label goat milk infant formula at one of Beingmate's registered facilities with 100% Bubs Australian goat milk.
The company advised that a finished SAMR approved China label product, tailored to the Chinese market, will be sold by Bubs to the Beingmate joint venture company – Bubs Brand Management Shanghai.
The joint venture company, of which Bubs owns a 49% interest, will continue to distribute the Bubs China label product into China's general trade channel, under the terms of the existing agreement.
SAMR difficulties.
The company appears to believe this is the best chance that it will have of joining A2 Milk Company Ltd (ASX: A2M) in the China market.
It notes that since April 2019, 92 product applications have been successful in obtaining SAMR registration. Of these, 77 are manufactured in China.
The remaining 15 products that are manufactured outside of China, 9 are Chinese owned brands manufactured in France. The only international brand to achieve certification during this period was Wyeth for 6 products that are manufactured in Singapore.
Beingmate currently has 51 infant formula products under 17 brands successfully registered by SAMR and being sold nationwide in China.
In light of this, Bubs intends to withdraw its existing SAMR brand applications previously made by Deloraine, and resubmit differentiated super-premium formulations targeting consumers in tier-one cities.
Invaluable support.
Bubs Founder and CEO, Kristy Carr, commented: "We are highly confident this step up in our collaboration with Beingmate, one of the largest Chinese owned enterprises in China's Infant Nutrition industry, who is also our Joint Venture distribution partner, coupled with their extensive capability to manufacture locally in China, will provide invaluable support in securing our SAMR brand registration.This will ultimately provide Bubs with a faster route-to-market and full access into China's Mother and Baby stores."
"Given the current geo-political landscape and regulatory risks, this breakthrough localisation strategy for a 'Created by Bubs' product to be packed in China exclusively from our own Australian premium goat milk mitigates key risks and provides a secure pathway to gaining full access to the world's largest and fastest growing Infant Formula market, valued at A$55 billion," she added.
