Relying on the “two legs” approach of domestic sales and exports, Shubao International, headquartered in Jinjiang, Quanzhou, has broken into a world in the fiercely competitive disposable hygiene products market.

Recently, Shu Bao International once again submitted a listing application to the main board of the Hong Kong Stock Exchange. This company, which develops, produces and sells personal disposable hygiene products in China, has made great strides in the past few years by developing emerging markets in Eurasia. According to the prospectus, in 2021-2023, Shubao International's revenue increased from 0.263 billion yuan (RMB, same below) to 0.655 billion yuan, with a compound annual growth rate of 57.7% during the corresponding period; at the same time, the company's net profit increased from 10.002 million yuan to 57.689 million yuan, which also maintained rapid growth.

In the first five months of this year, Shubao International's revenue and net profit were 0.281 billion yuan and 19.209 million yuan, respectively, up 16.6% and -37.5% year-on-year respectively. According to information, the year-on-year decline in the company's net profit during this period was mainly due to disturbances caused by increased non-recurring expenses, but even after excluding this impact, Shubao International's net profit declined slightly compared to the same period last year.

It is easy to see that Shubao International's performance growth trend seems to be slowing down after entering 2024. Is this a temporary fluctuation or a long-term impact? Behind the insistence on listing on the Hong Kong Stock Exchange, how should the potential investment value of Shu Bao International be judged?

Using “Attack everywhere” to make a big deal?

The history of Shubao International can be traced back to 2010. After more than ten years of development, it has grown into an influential enterprise in the field of personal disposable hygiene products. According to the Frost & Sullivan report, based on the 2023 export value, Shubao International is the second-largest exporter of disposable baby care products exported from China to Russia. Based on the export value of disposable hygiene products for infant care in China in that year, the company's market share was about 3.7%.

As far as the business model is concerned, Shu Bao International's business activities mainly include contract production and branded product business. The former refers to the production and sale of baby care products for enterprise customers as an ODM, while the latter produces and sells all categories of products under its own brand and directly targets end consumers. According to information, Shu Bao International's own brands include “Baby Shubao,” which specializes in baby care products, “May Whisper,” which specializes in women's care products, and “Kang Shubao,” which specializes in adult incontinence products.

Looking at the split structure, contract production is the main source of revenue for Shu Bao International. From 2021 to 2023, this business model contributed more than 60% of revenue, but in the first 5 months of this year, this percentage fell to 55.9%. In the same period, the revenue share of Shubao's international brand product business fluctuated relatively greatly, with 34.4%, 18%, 23.5%, and 31.5% respectively in the first 5 months of 2021-2024. In addition, part of the company's revenue comes from non-woven fabrics and other products. The business contributed 12.6% of revenue in the first 5 months of this year.

Also, in terms of product categories, products related to infant care can be said to be the backbone of Shubao International's revenue. In 2021, this product accounted for nearly 90% of the company's total revenue. However, by this year, the product's revenue share had shrunk to 55.7% in the first 5 months, and the scale was about 0.157 billion yuan. Over the same period, the importance of women's care products in Shu Bao's international business increased year by year. The revenue share rapidly increased from 0.4% in 2021 to 17.4% in 2023, while this figure further rose to 28.1% in the first 5 months of this year. In contrast, the company's revenue scale for adult incontinence products and other products is smaller.

By region, China and Russia are the two most important markets for Shubao International. As far as the Russian market is concerned, nearly 57.7% of Shubao International's revenue in 2023 came from the country. In the first 5 months of this year, the company achieved revenue of about 0.111 billion yuan through Russia, accounting for 39.6%. In terms of the domestic market, during the reporting period, Shubao International's revenue from the domestic market increased year by year, from less than 0.1 billion yuan in 2021 to 0.206 billion yuan in 2023. In the first 5 months of this year, the company's domestic market revenue was 0.135 billion yuan, accounting for 48.1%, which already accounts for half of the country. In addition, some of Shubao International's revenue comes from Southeast Asia, Kazakhstan, and other countries or regions.

In the process of revenue expansion, Shubao International's profitability has also increased. The data shows that in the first 5 months of this year, the company's comprehensive gross margin reached 30.5%, while in 2021 this figure was only 21.6%. However, in terms of net interest rate indicators, Shu Bao International's performance was relatively unsatisfactory. In the first 5 months of this year, the company's net interest rate was 6.8%, while at the peak of 2022, this figure was 10.3%.

Is there still a chance in the low-growing Red Sea market?

Looking back at the business performance of Shubao International in recent years, it is easy to see that the company's rapid growth is not only related to its continuous expansion of new businesses, such as increasing the scale of women's care products several times beyond the traditional advantage of baby care products; it is also due to its continuous development of new markets and new customers. In particular, the company's revenue from both the Chinese and Russian markets grew rapidly during the period.

Although the track record confirms that Shu Bao International has grown excellently in the past, it is probably not easy for Shu Bao International to impress investors in a capital market that places particular emphasis on future expectations.

Based on the analysis of the track where it is located, the industries corresponding to Shubao International's main business can all be considered a “red sea”. In the case of disposable hygiene products for infant care, competition in the Eurasian market has always remained at a high level. For example, in the domestic market, a number of internationally renowned brands dominate the luxury high-end market, while the remaining market, which focuses on affordability and cost performance, is filled with as many as 500 companies.

What is more disgusting than internal affairs may be due to the slowdown in growth in the company's main target market. According to the Frost & Sullivan report, Russia's population birth rate in 2021 has fallen to 9.6 per 1,000, which is the lowest in the past ten years; while in 2023, China's birth rate is 6.4 per 1,000, and the agency predicts that it will drop further to 5.0 per 1,000 by 2027.

According to the Zhitong Finance App, with the rapid expansion of the scale of Shubao International, the trend of the “slope” of the company's performance growth from steep to moderate is probably difficult to avoid. After all, the intensity of competition in the industry where Shu Bao International's main business is expected to remain high in the future, and at the same time, the growth rate of major markets will also maintain a slow growth rate. Under multiple external pressures, Shubao International wants to continue to achieve growth above the average growth rate of the industry. This will undoubtedly test the company's commercial decisions and overall competitiveness. But having to say that, for Shu Bao International, which aims to enter the Hong Kong stock market, if it wants to win the favor of potential investors and prove that its high growth is sustainable, it is “appropriate to do it.”