Infant formula-maker Bubs enters the USA and shareholders approve

Bubs (ASX:BUB) was one of the ASX’s biggest winners after entering the US market.

The infant formula stock will range its products Walmart.com from September as well as on Amazon into a market it says is worth US$5.1 billion ($6.75 billion) annually.

Bubs says it has supply chain infrastructure in place in the USA including warehousing and distribution models. It also claims it will be selling the only Australian goat milk formula product on the US market.

Shares in Bubs rose by as much as 23 per cent at market open this morning.

Bubs Australia (ASX:BUB) share price chart

So now Bubs is targeting the USA, what about Asia?

Bubs’ foray into the USA comes at a challenging time for the infant formula industry.

It has long been focused on Asia, particularly China with companies lured by the promise of a fast-growing middle class population that would turn to Australian brands ahead of local products.

While COVID-19 has not changed demographics, a variety of factors have caused difficulties for companies.

These include diplomatic spats between Australia and China, and disruptions in the daigou trade channels have led to several stocks seeing falling revenues and share prices dropping accordingly.

Some companies, including Bubs, have tried to pivot into nearby markets and while they lack diplomatic tensions that exist with China, they also lack the population of China.

The biggest stock in this ASX sector, A2 Milk (ASX:A2M), peaked at over $19 last July but is just over $6 now thanks to declining revenues and earnings.

Bubs has seen a similar fall too. After peaking at $1.42 in mid-2019 it fell when COVID-19 first broke out then recovered to over $1 by May. It now sits below 50 cents.

Nevertheless, it is still well ahead of the price of its January 2017 IPO of 10 cents.

Bubs executive chairman Dennis Lin said the USA launch was important but the company was not abandoning its Asia-Pacific dreams generally, although China was not mentioned.

“The launch of Aussie Bubs into the USA market is a key next pillar of our global market diversification and expansion, providing continued momentum for our export sales growth contribution from South East Asia as we build on our existing business in Malaysia, Vietnam, Hong Kong, Macau and Singapore,” he said.