With intense competition in the Chinese market, are there more opportunities overseas?

On January 27, Softcare Limited ("Softcare") filed its IPO prospectus, aiming for a main board listing in Hong Kong. Softcare's main business is baby diapers, baby pull-up pants, sanitary napkins, and wet wipes, with brands including Softcare, Veesper, Maya, Cuettie, and Clincleer. Although it is a Chinese-funded enterprise, Chinese consumers are unfamiliar with it because Softcare primarily targets emerging markets in Africa, Latin America, and Central Asia, and has set its headquarters in the Dubai Airport Freezone. Softcare's parent company, Senda Group, was established in Guangzhou in 2004. Initially a typical foreign trade company, it set up a subsidiary in Ghana in its founding year, later expanding to Côte d'Ivoire, Peru, and Kenya. After years of accumulation in the foreign trade market, Senda Group upgraded to an "industry-trade integration" model, deepening its overseas layout by investing in and building washing powder factories, hardware factories, and ceramic factories in Ghana, Uganda, and Senegal, replicating China's mature light industry daily necessities in the African market. At the same time, it created consumer brands. In the baby care segment, in 2009, Softcare started as an internal business division of Senda Group, launching Softcare baby diapers in Ghana to enter the West African market; the following year, it expanded into Kenya and Tanzania with baby diapers and sanitary napkins, entering East Africa, and registered the Clincleer and Maya brands; in 2011, it launched the Veesper and Cuettie brands. Softcare, as the core brand, is positioned in the mid-to-high-end, with Veesper next, both covering full product categories; Maya is a mid-range baby diaper brand; Cuettie and Clincleer are mass-market brands, with Cuettie offering diapers and pull-up pants, and Clincleer being a sanitary napkin brand. Behind this comprehensive brand matrix is Softcare's deep production capacity layout in the African market. As of now, the company has 8 factories and 44 production lines in Africa, with a total annual design capacity of 5.5784 billion baby diapers, 352.1 million baby pull-up pants, 2.5686 billion sanitary napkins, and 6.227 billion wet wipes. The company has established 18 sales branches in 12 countries across Africa, Latin America, and Central Asia, covering a broad sales network of over 2,500 wholesalers, distributors, supermarkets, and other retailers. Currently, the baby and female care markets in China and Europe and the United States are in an era of stock competition, but emerging markets such as Africa remain blue ocean markets with the largest incremental space. Data shows that from 2019 to 2023, the compound annual growth rate of newborns in Africa was 1.5%, ranking first among all continents, with over 50% of the population under 20; in 2023, the number of births in Africa reached 47 million, accounting for 57.1% of the global total. In 2023, the market penetration rate of baby diapers and pull-up pants in Africa was only 22.7%, while in Europe, North America, and China it ranged from 70% to 86%; during the same period, the penetration rate of the sanitary napkin market in Africa was only 30.8%, also lower than the 35%-80% penetration in Europe, North America, and China (where women in Europe and the Americas use more tampons). Facing huge market growth space, Softcare has achieved remarkable business growth through its in-depth industrial layout. In 2023, its sales of baby diapers and sanitary napkins reached 3.7136 billion and 1.3325 billion pieces, respectively, up 24.0% and 39.1% year-on-year; in the first three quarters of 2024, sales of baby diapers and sanitary napkins were 3.0362 billion and 1.2304 billion pieces, respectively, up 9.4% and 24.0% year-on-year. After 15 years of development, Softcare has become the leader in the African baby and female care market. According to a Frost & Sullivan report, by 2023 sales volume, the company ranked first in both the baby diaper and sanitary napkin markets in Africa, with market shares of 20.0% and 14.0%, respectively. However, it is worth noting that by sales value, Softcare ranks second in both the African baby diaper and sanitary napkin markets. This indicates that there is still a certain gap in brand value compared with multinational giants such as Procter & Gamble. From 2022 to 2023, the company's revenue was $320 million and $411 million, with net profits of $18.39 million and $64.68 million, respectively. In the first three quarters of 2024, revenue and net profit were $334 million and $72.282 million, respectively, up 7.24% and 54.1% year-on-year. In recent years, the company's profitability has steadily improved, mainly because the price of core raw material pulp has fallen from its 2022 peak. In the next few years, pulp prices are expected to remain stable with a downward trend, which is conducive to the company's market expansion and profitability improvement. Softcare sells diapers and sanitary napkins in Africa with a net profit margin exceeding 20%, and its growth and profitability surpass those of Chinese peers such as Hengan International (01044.HK) and Baiya Shares (003006.SZ). This is a typical story of Chinese industry going global. From early foreign trade going global, to mid-stage "industry-trade integration" going global, and now to brand supply chain going global. Softcare's rise in the African baby and female care market is reminiscent of Transsion Holdings (688036.SH) in the mobile phone market. Perhaps there can only be one TikTok, Temu, SHEIN, or Transsion. However, in various niche segments, there can be countless Softcares. When Chinese brands, relying on their industrial strength, begin to operate global consumers' daily necessities worldwide, that will be the true globalization of the Chinese economy. If today's markets in Africa, South America, and Central Asia are equivalent to the Chinese market of 30 to 40 years ago, then most niche consumer scenarios have the potential to be redone. Under Senda Group alone, production capacity and brands already span home decoration materials, FMCG, hardware and general merchandise, and other fields. Going global is definitely not simply copying existing business from the Chinese market overseas, but requires more localized industrial improvements. Therefore, the spin-off of Softcare is actually just the first step in Senda Group's overseas ambitions.

[New Order · Symbiosis]

The 10th China FMCG Innovation Conference

Time: March 17-19, 2025

Location: Chengdu, China