CMSC released a research report, initiating coverage on SOFTCARE (02698) with a "Strongly Recommended" investment rating. The company has achieved sustained high growth and enhanced profitability through its deeply localized production and channel presence in emerging markets like Africa. From 2022 to 2024, its revenue and adjusted net profit recorded CAGRs of 19% and 130%, respectively, underscoring its robust growth capabilities. With a distinct competitive edge in its core product categories and an increasingly strong brand, the report is optimistic about the company's long-term value potential in high-growth emerging markets. Net profit attributable to shareholders for 2025-2027 is forecasted at USD 113 million, USD 134 million, and USD 159 million, corresponding to PE valuations of 23.4x, 19.7x, and 16.7x. The main viewpoints of CMSC are as follows:
The company is a leading exporter of hygiene product brands rooted in emerging markets. It operates as a multinational hygiene products platform focused on emerging markets, with its primary products being baby diapers and sanitary napkins, in which it holds the top sales position in Africa. The founding couple maintains concentrated control, and the core management team possesses extensive experience in emerging markets and fast-moving consumer goods operations. Management and employee shareholding platforms collectively hold approximately 27.79% of shares. The company has evolved from an initial trading model to localized supply, manufacturing, and deep distribution, now establishing an integrated competitive advantage spanning production, supply, and sales.
The company's development is characterized by simultaneous high growth and high profitability. 1) Revenue has maintained stable, high growth, while profit growth has gradually synchronized with revenue growth. The company achieved revenues of USD 320 million, USD 411 million, and USD 454 million from 2022 to 2024, with year-on-year growth rates of 28.59% and 10.46%, respectively. For the first four months of 2025, revenue reached USD 161 million, a 15.53% increase year-on-year. Adjusted net profit grew rapidly from 2022 to 2024, with year-on-year growth rates of 251.71% and 51.00% in 2023 and 2024, respectively, and 13.30% for Jan-Apr 2025, indicating a convergence of profit and revenue growth trends. 2) The product mix is centered on baby diapers, with sanitary napkins showing high growth, while training pants and wet wipes are in the cultivation stage. From Jan-Apr 2025, baby diapers constituted 71.8% of sales, with sanitary napkins and training pants rising to 18.6% and 5.8%, respectively. Geographically, revenue is currently concentrated in West and East Africa but holds potential for diversified expansion across multiple emerging markets. African sales accounted for 98% of total revenue in 2024 and 94.6% from Jan-May 2025. 3) The gross profit margin improved steadily from 2022 to 2024, influenced by raw material costs and the company's pricing power. The comprehensive gross margin increased by 12.2 percentage points from 23.0% to 35.2% over this period, primarily driven by lower raw material prices and a higher sales proportion of products with better margins, such as sanitary napkins and wet wipes. 4) The net profit margin continued to rise, reaching 20.15% for Jan-Apr 2025, benefiting from the improved gross margin, optimized expense ratios, and narrowed foreign exchange losses. Leveraging the scale advantages of the Senda Group, ocean freight costs represent a relatively small proportion of revenue.
The company's growth rides on the expansion of emerging markets, with localized supply, production, and sales building a defensive moat. 1) Its development is anchored in emerging economies across Africa, Latin America, and Central Asia. These markets are driven by multiple factors, including high birth rates, a youthful demographic dividend, low product category penetration, and rising regional economic development, leading to an expanding hygiene products market. Africa, for instance, is projected to see its hygiene market grow at a CAGR of approximately 8% from 2025 to 2028, fueled by high birth rates and low penetration. 2) The company's competitive advantage lies in its deep localized operations, which create a strong moat. While emerging markets like Africa and Latin America offer vast potential, they present barriers such as the need for local production, supply chain integration, and fragmented, complex sales channels. The company has established a first-mover advantage by building an integrated production, supply, and sales system within these markets. Currently, it leverages 51 local production lines across 8 countries, a deep distribution network covering 80% of the local population, and a workforce that is nearly 90% local, achieving the number one sales position for baby diapers and sanitary napkins in Africa. This forms a systemic moat comprising localized manufacturing, extensive channel penetration, and value-for-money products.
Risk factors include geopolitical risks, unexpected fluctuations in raw material prices, foreign exchange risks, and potential underperformance in channel penetration and expansion.
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