After mopping up in Africa, Softcare aims to soak up investor dollars with IPO

The top seller of diapers and sanitary pads in Africa and has filed to list in Hong Kong, fueling its growth by targeting countries with high birth rates and growing economies

Key Takeaways:

• Softcare has filed to list in Hong Kong, reporting its profit grew 54% year-on-year in the first three quarters of last year on growing sales for its core diaper products
• The company is Africa’s leading diaper seller, and stands to benefit from population and economic growth on the continent

By Lau Chi Hang

A sluggish economy at home and growing restrictions in Europe and the U.S. are leading a growing number of Chinese companies to cultivate opportunities in Africa and the Middle East, producing some notable success stories. Transsion (688036.SH) has become Africa’s top smartphone seller, and Newborn Town Inc. (9911.HK) has taken the Middle East by storm with its social media apps. Now, Softcare Ltd. is telling the world about its own rise to glory as Africa’s top diaper seller, in its application for a Hong Kong IPO filed late last month.

Founded in 2000 in the southern city of Guangzhou as a subsidiary of Sunda International Group., Softcare was one of the earliest Chinese companies to enter Africa and has been active overseas for 15 years. It mainly engages in international trade, industrial manufacturing and industrial investment, and its R&D and manufacturing cover a wide range of products such as hygiene and personal care products, as well as home appliances and hardware goods and ceramics. The company makes those goods at over 20 production bases across the globe, from its home base in China to other continents like Africa and South America.

Africa sales leader

Among its many products, baby diapers, baby pants, sanitary pads and wet wipes lie at the core of Softcare’s business, according to its listing document. The company ranked first in both the baby diaper and sanitary pad markets in Africa in 2023 in terms of sales, with market share of 20% and 14%, respectively. Its baby product brands include Softcare, Maya and Cuettie, while its sanitary pad brands include Softcare, Veesper and Clincleer.

The company sells in more than 30 countries in Africa, Latin America and Central Asia, with 18 sales branches in 12 countries at the end of last September. It sells its wares up and down the retailing chain through a network that covers wholesalers, distributors, supermarkets and retailers, with a total of over 2,500 entities altogether. It sold a staggering 3.04 billion baby diapers and 1.23 billion sanitary pads during the nearly three years from 2022 through September last year, up by 9.4% and 24% year-on-year, respectively.

The company has been growing in step with both the populations and economic muscle of the developing countries where it’s active. Its revenue rose by 28.7% from $320 million in 2022 to $410 million in 2023, while its profit more than tripled from $18.4 million to $64.7 million over that time. The growth slowed sharply last year, with revenue rising just 7.2% in the first nine months of 2024 to $334 million, while its profit increased by 54% to $72.3 million.

Softcare is one of a steady stream of diaper maker makers flowing to Hong Kong lately in search of new funds. Lantian Group, maker of the Qisezhu diaper brand, and Soft International Group, were among others from the field to submit similar applications. But their efforts have yet to bear fruit, stymied perhaps by lack of investor interest in companies focused on countries with declining birth rates, including China in Lantian’s case, and China and Russia in Soft International’s. But Softcare’s focus on Africa and the Middle East distinguishes it from those rivals, with a different story to sell.

Two of the most important gauges on prospects for baby diaper sellers are birth rate and local economic outlook in the markets they enter. Positive trends for one, or especially both, can boost chances of success for companies that enter those markets. And such factors are now playing to Softcare’s advantage.

High birth rates

New births grew at an annual rate of 1.5% in Africa between 2019 and 2023, the highest among all continents, according to third-party data in Softcare’s listing document. As a result of such growth, more than half the continent’s population was below the age of 20. New births in Africa, Latin America and Central Asia in 2023 totaled 47 million, 10.1 million and 1.9 million, respectively, accounting for 57.1%, 12.3% and 2.3% of the world’s total that year.

According to UN estimates, only eight countries will account for more than half of the world’s new births by 2050, five of them in Africa. And projections from the Global Cities Institute of the University of Toronto suggest that the world’s three most populous cities by 2100 will all be in Africa, namely Lagos of Nigeria, Kinshasa of the Democratic Republic of Congo and Dares Salaam of Tanzania.

Such strong population growth should provide equally strong demand for diapers. At the same time, the broader population must have strong enough consumption power to make such purchases, which hinges on a country’s economic outlook.

Strong economic potential

According to the International Monetary Fund’s (IMF) Global Economic Outlook Report, Africa is forecast to post solid economic growth this year, with the Sub-Saharan part of the continent expected to grow at 4.2%, above the global average.

Following various reforms adopted by many African countries, the continent’s economy is also diversifying beyond its traditional role as a supplier of natural resources. Many countries have not only improved their industrial structure but have also built out infrastructure and made headway in technologies. Such efforts are expected to enhance the continent’s global competitiveness and spur greater economic growth.

But certain risks still remain. Chief among those is political instability, which can jeopardize both companies doing business in the market and their investors. Another is large debt loads carried by many such countries, which could plunge them into fiscal crisis at any time.

That said, the African market still looks promising overall. Softcare parent, Sunda International, has accumulated abundant experience through its longstanding presences in Africa and the Middle East. That experience could provide another important resource for Softcare, in addition to the benefits it receives from the population dividend and solid local economic outlook.

Such strong positioning echoes famous words spoken by Lei Jun, the founder of Xiaomi, which has also found big success peddling its core smartphones in populous developing markets like India. “When the air blows in the right direction, even pigs can fly,” Lei once said.

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