DFZQ has released a research report initiating coverage on SOFTCARE (02698), assigning a "Buy" rating. The report forecasts EPS for 2026-2028 to be $0.23/$0.27/$0.32, respectively. Based on comparable company valuations, a 2026 P/E multiple of 20x is applied, resulting in a target price of HK$36.05 (1 USD ≈ 7.8363 HKD).
The key points from the report are as follows:
**Over a Decade of Focus Establishes Leadership in African Hygiene Products** 1) The company originated as an internal business division of Senda Group, launching its baby diaper brand Softcare in Africa in 2009. It began independent operations in 2022 and has accelerated its global expansion since 2024. 2) Its core business is baby care (diapers and training pants), which it has expanded to include feminine care (sanitary napkins) and home care (wipes). Revenue contributions for these segments in 2025 are projected to be 78.6%, 17.5%, and 3.9%, respectively. 3) The founders have deep expertise in operating within the African market. In 2025, East Africa and West Africa are expected to be the core regions, contributing 45.1% and 40.7% of revenue, respectively, with contributions from Latin America and Central Asia steadily increasing. 4) From 2022 to 2025, the company's revenue is projected to grow from $320 million to $600 million, representing a CAGR of 21.1%. Adjusted net profit is forecast to surge from $18 million to $122 million, a CAGR of 88.1%. Gross margin improved from 23% to 35.9%, and net margin rose from 5.7% to 21.6%, indicating sustained enhancement in profitability.
**Broad Opportunities in Emerging Market Hygiene Products, Leading Companies Poised for Market Share Gains** 1) According to the company's prospectus, driven by demographic dividends, consumption upgrades, and increased penetration and usage frequency, the African hygiene products market is expected to grow from $3.8 billion in 2024 to $5.6 billion in 2029, a CAGR of 7.9%, outperforming the 0.5-2% growth in mature markets. 2) The African markets for baby diapers, training pants, and sanitary napkins are projected to reach $3.63 billion, $560 million, and $1.41 billion, respectively, by 2029, with CAGRs of 7%, 7.6%, and 10.7% from 2024 to 2029. 3) The competitive landscape for hygiene products remains relatively fragmented. The company employs an omnichannel coverage strategy to achieve leading market share. In the African market in 2024, based on baby diaper sales volume, the company held a 20.3% market share, ranking first, with the top five players accounting for 61.2%. Based on sanitary napkin sales volume, its market share was 15.6%, also ranking first, with the top five holding 39.8%.
**Multi-Category Brand Portfolio, Value-for-Money (Local Manufacturing + Global Sourcing), and Deep Channel Penetration Form Core Strengths** 1) The company has established a well-structured, comprehensive brand matrix, strengthening brand promotion to capture consumer mindshare. Its core brand Softcare ranks high in regional market search indices. 2) The company has enhanced its local manufacturing and global sourcing capabilities. By the end of 2025, it operated 9 factories (8 in Africa, 1 in Latin America) with 66 production lines. It plans to invest HK$738 million to expand capacity, which, according to the report's estimates, would increase total designed capacity by 81% compared to 2025. Coupled with a local employee rate of nearly 90% and synergies in logistics, the company's main products are priced approximately 50% lower than leading international brands. 3) Leveraging the channel advantages of the Senda Group and tailored to Africa's grid-like market characteristics, the company has built a deeply penetrated distribution network primarily based on wholesale, combined with distribution and retail. This successful model is expected to be replicated in more emerging markets.
**Risk Factors:** Risks related to the complexity of cross-border operations and management, intensifying market competition, supply chain disruptions and raw material price volatility, and foreign exchange fluctuations and conversion losses.
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