New share prospects | Four-pronged approach to meet the "Red Sea" competition, has Subao International shaken off growth anxiety?

Relying on domestic sales and exports as its two main sources of revenue, Shubao International, headquartered in Jinjiang, Quanzhou, has carved out a niche in the highly competitive disposable sanitary products market. Recently, Shubao International once again submitted its listing application to the main board of the Hong Kong Stock Exchange. As a company engaged in the development, production, and sales of personal disposable sanitary products in China, it has made significant progress in the past few years by expanding into emerging markets in Eurasia. The prospectus shows that from 2021 to 2023, Shubao International's revenue increased from 263 million yuan to 655 million yuan, with a compound annual growth rate of 57.7% during that period. At the same time, the company's net profit increased from 10.02 million yuan to 57.689 million yuan, also maintaining a high growth rate. In the first five months of this year, Shubao International's revenue and net profit were 281 million yuan and 19.209 million yuan respectively, representing an increase of 16.6% and a decrease of 37.5% compared to the same period last year, respectively. It is understood that the decrease in net profit during this period was mainly due to increased non-recurring expenses, but even after excluding this impact, Shubao International's net profit saw a slight decline compared to the same period last year. It is clear that there are signs of a slowdown in Shubao International's performance growth after entering 2024. Is this a temporary fluctuation or a long-term impact? How should the potential investment value of Shubao International be evaluated behind its insistence on listing on the Hong Kong Stock Exchange? Expanding with a "four-pronged approach"? Shubao International's history can be traced back to 2010, and after more than ten years of development, it has grown into a influential company in the field of personal disposable sanitary products. According to a Frost & Sullivan report based on export value in 2023, Shubao International is the second largest exporter of disposable infant and child care products to Russia from China, with a market share of approximately 3.7% based on that year's total exports of infant and child care products from China. In terms of business model, Shubao International's business activities mainly include contract manufacturing and branded product business. The former refers to the production and sale of infant and child care products for enterprise customers as ODM, while the latter involves the production, sale of all categories of products under its own brand, and direct sales to end consumers. It is worth noting that Shubao International's own brands include "Yingshubao" for infant and child care products, "Wuyue Siyu" for female care products, and "Kangshubao" for adult incontinence products. In terms of revenue contribution breakdown, contract manufacturing is Shubao International's main source of income. From 2021 to 2023, this business model accounted for over 60% of the revenue, but this proportion fell to 55.9% in the first five months of this year. During the same period, the revenue contribution breakdown for Shubao International's branded product business fluctuated significantly, accounting for 34.4%, 18%, 23.5%, and 31.5% in the first five months of 2021 to 2024. In addition, the company also has some revenue from non-woven fabrics and other products, which accounted for 12.6% of the revenue in the first five months of this year. In terms of product categories, infant and child care products are the main revenue pillar for Shubao International, accounting for nearly 90% of the total revenue in 2021. However, by this year, the revenue share of infant and child care products had shrunk to 55.7% in the first five months, with a scale of approximately 157 million yuan. During the same period, the importance of female care products in Shubao International's business has been increasing year by year, with the revenue share increasing from 0.4% in 2021 to 17.4% in 2023, and further rising to 28.1% in the first five months of this year. In comparison, the revenue scale of adult incontinence products and other products from the company were relatively small. In terms of regions, China and Russia are the two most important markets for Shubao International. Regarding the Russian market, in 2023, Shubao International generated nearly 57.7% of its revenue from that country, with revenues of about 111 million yuan coming from Russia in the first five months of this year, accounting for 39.6%. As for the domestic market, revenue from the domestic market has been increasing year by year during the reporting period, rising from less than 100 million yuan in 2021 to 206 million yuan in 2023. In the first five months of this year, the company's domestic market revenue was 135 million yuan, accounting for 48.1% of the total revenue and taking a dominant position. Additionally, Shubao International also has some revenue from Southeast Asia, Kazakhstan, and other countries or regions. As revenue expands, Shubao International's profitability has also improved. Data shows that the company's comprehensive gross profit margin reached 30.5% in the first five months of this year, compared to 21.6% in 2021. However, in terms of net profit margin, Shubao International's performance is relatively weak, with a net profit margin of 6.8% in the first five months of this year, down from a high of 10.3% in 2022. Is there still an opportunity in the low-growth red sea market? Looking back at Shubao International's operational performance in recent years, it is clear that the company's rapid growth is related to its continuous expansion into new businesses, such as significantly increasing the scale of female care products outside its traditional strength in infant and child care products; and benefiting from its ongoing development of new markets and customers, especially with revenue from the two main markets of China and Russia experiencing rapid growth. Although its past performance confirms Shubao International's outstanding growth in the past, in a capital market that pays special attention to future expectations, it may not be easy for Shubao International to impress investors. In terms of competitive analysis within its industry, the main business areas of Shubao International are considered to be a "red sea." Take disposable infant and child care products as an example, the competition in the Eurasian market has always been at a high level. For example, in the domestic market, a number of internationally renowned brands dominate the luxurious high-end market, while the remaining market, which focuses on affordability and cost-effectiveness, is filled with as many as 500 companies. Perhaps what is even more frustrating for Shubao International is the slowing growth in its main target markets. According to the Frost & Sullivan report, Russia's birth rate dropped to 9.6 in 2021, reaching a low point in the past decade; while China's birth rate in 2023 was 6.4, and institutions predict it will further decline to 5.0 by 2027. In conclusion, as Shubao International rapidly expands its scale, the company's performance growth in the future is facing challenges in increasingly competitive markets and slower growth in its main target markets.The trend of the slope from steep to flat may be difficult to avoid. After all, the intensity of competition in the industry where Future Shubao International's main business is located is expected to remain high, and the growth rate of the main markets will also maintain low growth. Under multiple external pressures, if Shubao International wants to continue to achieve growth above the industry average growth rate, it undoubtedly tests the company's business decision-making and comprehensive competitiveness. However, for Shubao International, which aims to list on the Hong Kong stock market, proving the sustainability of its high growth in order to win the favor of potential investors is essential."Bonjour, comment a va?"