The Wattle Health Australia Ltd (ASX: WHA) share price has shot higher this morning by 7% on some Chinese news.
Wattle Health has signed a 'term sheet' with International Supplies and Distribution Company Pty Ltd (ISDC) for supplying the China market.
The infant formula company said that ISDC has guaranteed minimum annual volumes to supply the Chinese market, it has committed a bank guarantee to secure Wattle Health's supply.
Wattle Health said that finalisation of the distribution arrangement is subject to finalisation of CFDA accreditation and finalisation of the formal supply agreement. In other words, it isn't 100% confirmed yet.
Under the agreement ISDC has guaranteed to purchase a minimum of 1.5 million units in the first 18 months, then a further 1.5 million units in the next 12 months and then 2.2 million units in the following 12 months.
After the above three and a half years Wattle Health and ISDC will set new volumes for future 12 month periods.
ISDC has agreed to provide Wattle Health a bank guarantee of an amount equivalent to 25% of the production cost. The minimum value targets with ISDC are in addition to Wattle Health's arrangements with existing customers.
Wattle Health's Executive Chairman, Lazarus Karasavvidis, said "This agreement with ISDC is an important milestone for Wattle Health Australia which enables us to grow our footprint in Mainland China.
"Further, this Agreement provides Wattle Health Australia minimum volume levels, which enable the Company to forward plan with confidence as we look to expand our product offerings not just in China but globally. Wattle Health Australia welcomes ISDC to the Wattle Health Family and we look forward to a long term mutually beneficial relationship."
Foolish takeaway
Guaranteed volume sales is obviously a good thing for Wattle Health, although it depends what price Wattle Health is able to get for its products.
There is a lot of excitement and expectation built into Wattle Health's share price, so this would go some distance to justify the value. However, I wouldn't buy at today's price until the company has reported sustainable profit growth.
