New Stock Preview | Shubao International: Performance growth slows down Can the shift from "infants and children" to "women" break through?

On February 20th, the China Securities Regulatory Commission issued a notice regarding Soft International Group Ltd (hereinafter referred to as Shubao International) foreign issuance and listing filing. Shubao International plans to issue no more than 937.5 million shares of overseas listed common stock and list on the Hong Kong Stock Exchange. Looking back on Shubao International's journey to go public in Hong Kong, on May 10, 2024, Shubao International first submitted its listing application to the Hong Kong Stock Exchange. On November 10 of the same year, the initial prospectus submitted by Shubao International became invalid. However, the failure of the listing documents does not mean the listing failed. Subsequently, Shubao International quickly updated its prospectus with the Hong Kong Stock Exchange and started its second attempt at the Hong Kong IPO, continuing to progress towards listing. After a series of advancement work, on February 20, 2025, Shubao International finally achieved an important development in its IPO to Hong Kong, receiving a notice from the China Securities Regulatory Commission regarding the foreign issuance and listing filing. This means that Shubao International is one step closer to listing on the Hong Kong Stock Exchange. Slowing revenue growth, first negative cash flow The prospectus shows that Shubao International is mainly engaged in the development, production, and sales of disposable personal hygiene products in China, focusing on infant and child care products in emerging markets in Eurasia. According to a Frost & Sullivan report, based on the export value in 2023, Shubao International is the second largest exporter of infant and child care disposable hygiene products from China to Russia, with a market share of approximately 3.7% by 2023 in terms of export value of Chinese infant and child care disposable hygiene products. Public information shows that Shubao International was established in 2010, headquartered in Jinjiang, Fujian, with its core business in research, production, and sales of disposable hygiene products, covering infant and child care, women's care, and adult incontinence. Its business model is mainly OEM (original equipment manufacturer), with its own brands as supplementary, including the main brands "Yingshubao" for infant and child care products, "May Secrets" for women's care products, and "Kangshubao" for adult incontinence products. During the historical period, Shubao International mainly relied on contract manufacturing to market and sell infant and child care products overseas, exporting its core infant and child care products to foreign brand manufacturers, bringing their respective brands to emerging markets in Eurasia, such as Russia and Southeast Asia. According to financial reports, in 2021-2023, the contribution of the contract manufacturing business model to Shubao International's revenue exceeded 60%. Despite the combination of domestic and export sales, the company's financial performance has been facing a slowdown. 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 57.69 million yuan, maintaining a high-speed growth. In the first five months of 2024, Shubao International's revenue and net profit were 281 million yuan and 19.209 million yuan respectively, an increase of 16.6% and a decrease of 37.5% year-on-year by the same measure. It is understood that the decrease in net profit year-on-year during this period was mainly due to increased non-recurring expenses. However, even excluding this impact, Shubao International's net profit still saw a slight decline compared to the same period in the previous year. While net profit significantly decreased, this was closely related to the increase in expenses during this period. In the reporting period, the company's sales and distribution expenses were 32.25 million yuan, 40.669 million yuan, 91.136 million yuan, and 37.434 million yuan respectively, with sales expense ratios of about 1.9%, 1.9%, 3.6%, and 3.2% respectively. Among them, online sales and promotion expenses were 20.13 million yuan, 22.46 million yuan, 53.325 million yuan, and 24.247 million yuan. At the same time, Shubao International's research and development expenses were 9.812 million yuan, 12.895 million yuan, 20.638 million yuan, and 10.437 million yuan respectively during this period. While expenses increased, the net cash flow from operating activities of the company recorded a negative value for the first time in the first five months of 2024. During the reporting period, Shubao International's net cash flow from operating activities was 30.644 million yuan, 5.043 million yuan, 156 million yuan, and -46.147 million yuan respectively. Cash and cash equivalents at the end of the year/period were 20.58 million yuan, 6.464 million yuan, 63 million yuan, and 9.758 million yuan respectively. In terms of product categories, infant and child care-related products can be said to be the revenue pillar of Shubao International, with this product accounting for nearly 90% of the total revenue in 2021. However, by 2024, the revenue share of this product had shrunk to 55.7% in the first five months of the year, with a scale of approximately 157 million yuan. However, during the same period, the revenue from women's care products grew rapidly, increasing from 10.57 million yuan to 114 million yuan, with its revenue share increasing from 0.4% to 17.4%. In the first five months of 2024, the revenue from infant and child care products and women's care products was 157 million yuan and 78.971 million yuan, with revenue shares of 55.7% and 28.1% respectively, compared to 81.4% and 5.6% in the same period the previous year. It seems that Shubao International's main business structure is undergoing a transformation, with women's care products already becoming the second growth engine for the company. In terms of regions, China and Russia are the two most important markets for Shubao International. In terms of the Russian market, in 2023, Shubao International received nearly 57.7% of its revenue from that country, and in the first five months of last year, the company generated approximately 111 million yuan in revenue from Russia, accounting for 39.6%. On the domestic market side, during the reporting period, revenue from the domestic market has been increasing year by year, 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%, already occupying a significant portion. In addition, Shubao International also has some revenue from Southeast Asia, Kazakhstan, and other countries or regions. It is worth noting that Shubao International still has a situation of excessive reliance on the top five customers for revenue. From 2021 to 2023, sales to the top five customers accounted for 45.6%, 54.1%, and 64.1% of total revenue, respectively."Russia's top retailer" is Shubao International's largest customer, contributing approximately 11.8%, 31.5%, and 48.7% of the company's total revenue.According to the understanding, Shubao International's products sold to Russia are mainly achieved through OEM production, which Shubao International refers to as contract manufacturing. As the ODM (Original Design Manufacturer) party, the company produces and sells baby care products for business customers, who are mainly independent retailers and diaper brands. In Russia, Shubao International's customers are the largest children's product retailers, operating about 1,100 stores in Russia and Kazakhstan. In 2021, it contributed 31.56 million yuan in revenue to Shubao International, which surged to 320 million yuan in 2023. From accounting for just over 10% of the company's revenue, it increased to 48.7%, close to half. However, the good times did not last. After 2024, Shubao International's revenue from Russia dropped to 110 million yuan, a steep 31.9% decrease compared to the previous year. Relying on rapid growth in domestic revenue, the company achieved a 16.6% revenue growth. However, compared to previous high-speed growth, the overall revenue growth has slowed down. As to why the revenue from Russia decreased rapidly, Shubao International did not provide a clear explanation in the prospectus. From "baby" to "female" What are the odds? As seen above, the company's focus has shifted from the "baby" market to the "female" market. This shift, combined with macro factors, is related to the saturation of the baby care market. Taking disposable hygiene products for babies as an example, the competition intensity in the Eurasian market has always remained at a high level. For instance, in the domestic market, many international renowned brands dominate the luxury high-end market, while the rest filled with up to 500 companies focus on affordability and value-for-money. In terms of production capacity utilization rate, it seems to confirm the company's shift in focus. Currently, Shubao International's production base is located in Jinjiang City, Fujian Province, with 17 production lines producing the company's core products. The average utilization rates of baby care products were about 51.0%, 68.9%, 84.1%, and 56.4% in 2021-2023 and the first five months of 2024, while that of female care products were about 1.5%, 34.9%, 138.3%, and 113.5%. Since 2023, the average utilization rate of the female care products production lines has far exceeded that of the baby care products. Looking at the growth prospects, the female care products market is a billion-dollar race. Public data shows that the global female hygiene products market is expected to reach approximately $89.29 billion by 2033, with a compound annual growth rate of about 7.8% from 2024 to 2033. The Asia-Pacific market holds the largest market share, with North America showing the fastest growth. As for specific categories, the global sanitary napkin market was about $28 billion in 2024, dominating the market. However, due to the low entry barriers in the sanitary napkin industry, there are numerous competitors. Product manufacturers are divided into manufacturers who sell their own brands and ODM/OEM contract manufacturers, including international daily consumer goods giants such as UNICHARM, Kao, Daio Paper, P&G, and Kimberly-Clark, as well as domestic brands like HENGAN INT'L, Jingxing health care, Silkbaby Group, Guilin Jieling, and Hangzhou Haoyue Personal Care. To establish a long-term foothold in this market, Shubao International still needs to strengthen its internal capabilities. However, in the long run, what may be more upsetting to Shubao International is the slowdown in the growth of its primary target market. According to a Frost & Sullivan report, in 2021, Russia's birth rate dropped to 9.6, hitting a decade-low, while in 2023, China's birth rate was 6.4, and institutions predict it will further decline to 5.0 by 2027. It seems that as Shubao International rapidly expands, it may be difficult to avoid the trend of the company's performance growth transitioning from fast and sharp to slow. In conclusion, although Shubao International's past performance confirms its outstanding growth, in a capital market that particularly emphasizes future prospects, convincing investors may not be an easy task for Shubao International.