Bubs strengthens Chinese ties in equity tie-up with Hong Kong’s Alpha Group

The infant milk producer will issue almost 5 per cent of its shares to Hong Kong’s Alpha Group under a plan to generate up to $180m in sales by next financial year.

Bubs founder and CEO Kristy Carr says the deal with Alpha will allow the group to get closer to its customers in China. Picture: John Feder

Bubs will issue more than 4.8 per cent of its shares to its biggest Chinese corporate daigou distributor under a plan to generate sales of up to $180m by next year, accelerating the infant milk producer’s recovery from the Covid-19 pandemic.

The move is part of Bubs strategy to gain more oversight of the daigou, or reseller market in China, which traditionally has been opaque with tourists and students buying products in Australia and sending them to Asia.

It was a model that collapsed at the onset of Covid from pandemic travel bans, forcing Bubs to revise its China strategy, which has incorporated more conventional and costlier distribution. The company now sends products to China to be distributed among corporate daigous, lessening its reliance on tourists and students.

To this end, Bubs will issue 29.5 million of its shares to Willis Trading, its lead daigou distributor and a subsidiary of Hong Kong-listed Alpha Professional Holdings.

The deal is conditional on Alpha buying at least $50m worth of Bubs’ products this financial year and $80m-$120m in the 2023 financial year.

Bubs founder and CEO Kristy Carr said the Alpha deal would allow the company to get closer to its end customers in China.

She said one of the principal businesses of the Alpha group was the trading of milk powder and infant nutrition to China, including Bubs and CapriLac products.

“We have worked with Willis Trading over several years as our lead distribution partner for the corporate daigou channel. We have successfully returned Bubs daigou sales to high growth, delivering record revenues in the first half of FY22, increasing 276 per cent on the prior year, now exceeding pre-Covid levels,” Ms Carr said.

“The next phase of our partnership is an exceptional and innovative opportunity to deepen our engagement with the daigou channel and get closer to our end consumers in China.

“This alliance between Bubs brand power and the channel’s deep understanding of Chinese consumers provides more direct identification of our target consumers and their product needs. Word of mouth and peer endorsement is critical in our category, and we view the daigou channel as expert community builders. Through one person, we can reach hundreds of consumers.”

It comes as Bubs slashed its loss from $12.9m to $602,000 over the six months to December 31. Revenue soared 84 per cent to $33.6m, thanks to a recovery in the corporate daigou trade.

Bubs chairman Dennis Lin – who is in California working on the company’s US launch – said daigous had been critical in raising the profile and value of Australian brands in China.

“We have witnessed the daigou channel evolve from a fragmented network in the past to become a genuine corporatised channel,” he said.

“Daigous play an integral role in assisting Australian brands in understanding and reaching Chinese consumers, while simultaneously enhancing brand equity.

“This new strategic alliance is a further step in realising the synergy that can be achieved when a channel and brand work as partners hand-in-hand. We expect this partnership will provide the underpinning for creating shareholder value in the coming years.”

Bubs shares were steady at 44c.