New stock interpretation | Le Shushi: How does the double champion of African sanitary products dismantle the currency minefield?

Hong Kong stock emerging market consumer themes are about to welcome another major player. Recently, the leading African health product market JoyComfort Limited (referred to as JoyComfort) passed the Hong Kong Stock Exchange Main Board listing hearing, with CICC, CITIC SEC, and GF SEC (Hong Kong) as its joint sponsors. According to Frost & Sullivan data, JoyComfort is the health product company with the most local factory layout in Africa, ranked first in the African baby diapers market and sanitary napkins market by production volume in 2024. Accurate position in high-potential incremental markets Dual champion of African health products The prospectus shows that JoyComfort is a multinational health products company focused on rapidly developing emerging markets in Africa, Latin America, and Central Asia, mainly engaged in the development, manufacturing, and sales of baby diapers, baby pull-up pants, sanitary napkins, and wet wipes for babies and women. It is worth noting that African and Latin American markets generally have a young population structure and high fertility rates, providing a continuously expanding customer base for baby health products. At the same time, the awakening of female health awareness and urbanization process have driven the consumption upgrade of sanitary napkins and other products from non-existence to excellence. This is a huge incremental market that has not been fully satisfied. According to Frost & Sullivan data, based on sales volume in 2024, JoyComfort ranks first in both the African baby diapers and sanitary napkins markets, with market shares of 20.3% and 15.6%, respectively; and based on revenue in 2024, JoyComfort ranks second in both the African baby diapers and sanitary napkins markets, with market shares of 17.2% and 11.9%, respectively. This market position is attributed to the company's over 15 years of multinational operation accumulation. JoyComfort mainly engages in the development, manufacturing, and sales of baby diapers, baby pull-up pants, sanitary napkins, and wet wipes for babies and women, with operations covering over 30 countries in Africa, Latin America, and Central Asia. As of April 30, 2025, the company has established 18 sales branches in 12 countries, building a wide sales network covering over 2,800 wholesalers, distributors, supermarkets, and other retailers. "This sales network is one of our core advantages that sets us apart from competitors," the company emphasized in its prospectus. This network advantage is directly reflected in sales data: in 2024, the company's sales volume of baby diapers and sanitary napkins reached 4.122 billion pieces and 1.634 billion pieces, respectively, rapidly growing at compound annual growth rates of 17.3% and 30.6% since 2022. Financial data shows that JoyComfort has achieved stable growth during the performance period, with continuously improving profitability. The company's revenue increased from $320 million in 2022 to $454 million in 2024, with a compound annual growth rate of 19.2%. This growth momentum has continued in the latest data: for the four months ending April 30, 2025, the company's revenue increased by 15.5% from $140 million in the same period last year to $161 million. Net profit for the same period soared from $18.39 million in 2022 to $95.11 million in 2024, a 4.2-fold increase in two years, far exceeding the revenue growth rate, indicating that the company is not only expanding its business but also efficiently harvesting profits. However, despite the impressive performance, the financial reports also revealed several risks that cannot be ignored. Firstly, the huge volatility of foreign exchange risks. The company suffered a significant foreign exchange net loss of $13.75 million in 2023 and $4.36 million in 2022. Although the situation improved in the first four months of 2024 and 2025 (even generating profits), this exposed the currency fluctuation risks faced by the company operating in multiple emerging markets. As indicated in the prospectus, the mismatch between revenue (local currency) and costs (USD, RMB) may lead to major exchange losses in the future. Secondly, potential pressure in the first four months of 2025. While revenue and profits are still growing in absolute terms, some ratio indicators show short-term pressure. For example, the gross profit margin decreased from 34.9% in the same period last year to 33.6%; the net profit margin decreased from 19.8% to 19.3%, indicating that the impact of intensified market competition is beginning to reflect on overall profitability. From a product perspective, baby diapers are the company's absolute core business, with revenue accounting for about 75% on a yearly basis, serving as the cornerstone of the company's revenue and profits. In terms of volume and price analysis, the sales volume of this product increased from 29.95 billion pieces in the 2022 fiscal year to 41.23 billion pieces in the 2024 fiscal year, a 37.7% increase, which is the main driver of revenue growth. However, the average selling price has been declining, from $8.37 per piece in the 2022 fiscal year to $8.29 per piece in the 2024 fiscal year, maintaining at $8.29 per piece in the first four months of the 2025 fiscal year. The decline in the average selling price of baby diapers may reflect increased competition in the African market, where the company may have adopted a strategy of trading price for volume to maintain market share, putting pressure on gross profit margin. Sanitary napkins are the growth engine for JoyComfort. The share of this product's revenue increased steadily from 13.5% in the 2022 fiscal year to 18.5% in the first four months of the 2025 fiscal year, highlighting its growing importance. Sales of sanitary napkins increased from 9.58 billion pieces in the 2022 fiscal year to 16.34 billion pieces in the 2024 fiscal year, a 70.6% increase. The average selling price also steadily increased from $4.50 per piece in the 2022 fiscal year to $4.74 per piece in the 2024 fiscal year, reaching $4.87 per piece in the first four months of the 2025 fiscal year. The simultaneous increase in volume and price indicates huge growth potential in the sanitary napkins business. Although the wet wipes business currently has a small share, with a gross profit margin of over 50%, it shows significant profit potential. The company is adopting a strategy of actively reducing prices and strategically investing to cultivate this future growth engine. In summary, the "profit margin trap" of core business cannot be ignored. The high proportion of revenue from baby diapers but the margin pressure is currently the biggest risk. If the downward trend in gross margin continues, it will severely drag down the company's overall performance. In addition, the dual pressure of costs and exchange rates still exists. While some products face price pressure, if raw material, logistics, and other costs rise, or emerging market currencies devalue, the company's gross margin will be squeezed from both the "income side" and the "cost side". Risks hidden under rapid growth Firstly, the "Damocles sword" of currency fluctuation. This is an inherent and most fatal systemic risk in JoyComfort's business model. The erosion effect of currency mismatch mainly manifests where the company's sales revenue is mainly denominated in the local currencies of the countries where it operates (such as various African currencies), while the costs of purchasing raw materials (such as non-woven fabric, polymer, etc.) are mainly denominated in USD and CNY. This structural mismatch means that when emerging market currencies depreciate against the USD (which often happens), the company will face a double blow: the localized currency revenue converted into USD for reporting will shrink, and the costs denominated in USD will rise relative to directly squeezing the gross margin. In 2023, the company recorded a significant $13.75 million foreign exchange loss, although there was some improvement recently, its volatility is significant, like a "performance mine" that could explode at any time, making it difficult for investors to accurately predict its long-term profitability level. Secondly, the moat is facing erosion, and the growth of core business is weak. The company's cornerstone - the baby diaper business, has shown signs of fatigue. Although sales volume is still growing, the downward trend in the average selling price has directly led to a year-on-year decline in gross margin for this business in the first four months of 2025. This is a strong danger signal, indicating that market competition has become intense, and the company may be forced to adopt price promotions to maintain market share, challenging its pricing power. As the potential of emerging markets is widely recognized, investments from international giants (such as P&G, Kimberly-Clark) are bound to increase. At the same time, local competitors are also learning and growing. Whether JoyComfort can continue to lead in brand strength and product quality, defend and expand its market share, will face increasing challenges. Additionally, in the first four months of 2025, the company's sales, administrative, and R&D expenses grew faster than revenue growth. If this trend solidifies, it indicates that the company needs to invest more resources to sustain growth, as operational efficiency is declining, directly eroding the hard-won net profit margin. The company's comprehensive gross profit margin reached a high point of 35.2% in 2024, but dropped to 33.6% in the first four months of 2025. Is this a short-term fluctuation, or does it mean that under the dual pressure of rising raw material costs and core product price reductions, the gross margin has touched the ceiling? This is the core issue that investors need to closely monitor.