Zhongtai Securities has initiated coverage on SOFTCARE (02698) with a "Buy" rating, expressing the view that the company has the long-term potential to evolve from a leading African hygiene products manufacturer into an international fast-moving consumer goods group deeply rooted in emerging markets, thereby continuously benefiting from emerging market dividends. The firm forecasts SOFTCARE's revenue for 2025-2027 to reach $545 million, $642 million, and $745 million, representing year-on-year growth of 20%, 18%, and 16%, respectively, with net profit attributable to shareholders reaching $114 million, $134 million, and $155 million, up 20%, 17%, and 16% year-on-year, and EPS of $0.18, $0.22, and $0.25. Zhongtai Securities' key viewpoints are as follows: The company has the long-term potential to grow into an international fast-moving consumer goods group rooted in emerging markets. ① The company has established high competitive barriers in Africa (supply chain & cost advantages + deep localization + cross-regional operating system within a fragmented market) and will continue to enjoy emerging market红利 (dividends). ② Capability replication, along with vast market and category potential, supports promising long-term growth prospects; the sanitary napkin business is entering a period of rapid growth, while geographically, the company is deepening its presence in West Africa, expanding into East Africa, and establishing a foothold in South America, preliminarily validating its experience in developing emerging markets and the logic of capability replication, with a new plant in South America scheduled for the second half of 2025 opening a new market. Africa is the world's most promising hygiene products market, characterized by a prominent "fragmented" structure, with growth buoyed by its emerging market status. Unlike China and the US, Africa is a "fragmented" market with diverse population distributions, cultures, currencies, and business environments, featuring fast growth but limited individual market size, which creates high barriers for cross-regional operations and scale. In 2024, the African market size for baby diapers/sanitary napkins was $2.59 billion/$870 million, respectively, with diaper/sanitary napkin penetration rates of only 20%/30% (compared to over 80% in mature markets); benefiting from increasing birth rates, urbanization, and rising penetration, it represents the world's most promising hygiene products market. In terms of market structure, the CR5 for diapers/sanitary napkins in 2024 was 61%/41.3% (by revenue), with market share divided between foreign brands and localized Chinese brands, creating a landscape of differentiated competition across products, markets, and channels. As a leader in the emerging market hygiene products industry, SOFTCARE is seeing sanitary napkins drive growth, while Latin America represents a venture from scratch. The company reported 2024 revenue of $450 million (+10.5%) and profit of $95 million (+47%), with gross/net profit margins of 35.2% and 20.9%, making it the top-selling hygiene products leader in Africa. By product: Baby diapers are the core product, with significant focus on the sanitary napkin business, whose proportion is increasing. By region: Revenue primarily comes from West & East African countries, with East Africa showing high growth, and the Latin American market starting from zero. The company maintains high growth while achieving high net profit and high ROA, significantly outperforming leading global/domestic industry peers. This high profitability is attributed to the growth potential of emerging markets and the high competitive barriers built through over a decade of deep localization and cross-regional channel operations. First-mover advantage, deep localization, and channel penetration have built a moat for cross-regional operations within a fragmented market; channel and capability replication unlock further potential. 1) First-mover advantage with deeply ingrained brand recognition. The company has been deeply localized in Africa for over 15 years, currently operating 51 production lines across 8 African countries. Leveraging domestic industrial advantages and refined management, it holds significant cost advantages versus foreign competitors. 2) Deep localization & channel penetration build a moat for cross-regional operations in a fragmented market. By integrating upstream supply chains and downstream channels, the company has established a deeply penetrated, mature, and stable sales network primarily through a wholesale model, reaching over 80% of the local population in its core operating countries, creating a moat for cross-regional operations. 3) Channel and capability replication unlock potential. The company's expansion from deep presence in West Africa to scaling up in East Africa validates its emerging market development capabilities, with the South American market expected to replicate this success; category extension from diapers to sanitary napkins further opens up growth space. The firm estimates the total output value of the company's planned new capacity additions reaches $890 million, with planned capacity in Central Asia/Latin America corresponding to an output value of $510 million. Risk warnings include significant fluctuations in raw material prices, intensified market competition, slower-than-expected channel expansion, exchange rate volatility, geopolitical and macroeconomic fluctuations, and potential inaccuracies or delays in third-party data.
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