Soft International files for Hong Kong IPO

The disposable diaper maker exports a majority of its products, selling more to Russia than it does in its home China market

Key Takeaways:

  • Soft International has filed for a Hong Kong IPO, classifying its core line of diaper products as ‘humanitarian’ to skirt Western sanctions on trade with Russia
  • The company’s sales to Russia accounted for 58% of its revenue in 2023, up from 50% in 2022


By Edith Terry

An IPO listing document filed last week by Fujian-based Soft International Group Ltd. may be a first of its kind: a company that’s found a way to mix mention of international sanctions in connection with diapers, its core product line.

The maker of disposable diapers, as well as women’s hygiene and adult incontinence products, has been on a growth spurt lately, with its revenue and gross profit up by annual averages of 58% and 86%, respectively, between 2021 and 2023. The actual numbers aren’t exactly sky-high, with revenue last year reaching 655 million yuan ($97.1 million) and gross profit at 197 million yuan. But the growth rates could be impressive enough to wow investors, and so could its 58.9 million yuan profit last year, which was five times the figure in 2021.

So, where’s the magic in this company? Given China’s declining birth rates and Soft International’s dependence on diapers for 71.4% of its revenues in 2023, the company’s story could easily be one of contraction rather than such strong growth. According to research in the company’s listing document, total baby diaper sales in China were flat or falling between 2021 and 2023, with an estimated 50.5 billion yuan in sales last year.

The difference is Russia. While China is the world’s largest exporter of diapers, Russia was not historically among the product’s top destination markets. Until last year, that is, when China’s exports of hygienic disposables suddenly more than doubled to 1.4 billion yuan. Research in the listing document shows that diaper exports from China to Russia grew 36.8% annually between 2018 and 2022. A big piece of that was driven by Soft International, which entered Russia in 2015 and was the second largest Chinese exporter of baby disposable hygienic products to the country in 2022, mostly based on the sale of its diapers.

In a quirk of global geopolitics, Soft International’s Russian surge has been fueled in no small part by Western sanctions against the country related to its war with Ukraine. Those sanctions have sent many international diaper brands scurrying from the market, leaving a dry spot that Soft International and its Chinese peers have rushed in to fill.

For Soft International, that has translated into a major business opportunity. A single Russian customer accounted for 11.8% of its revenue in 2021. But the figure swelled last year to 48.7% of the total, or 318 million yuan, making it Soft’s single largest customer. That’s good for business now, though it could become a vulnerability later if Western sanctions are eventually lifted and the customer can find other non-Chinese suppliers.

As the largest children’s goods retailer in Russia, Soft’s top customer operates over 1,100 stores in Russia and Kazakhstan and had annual revenue of $1.8 billion in 2021, according to the listing document. Soft supplies the customer as a contract manufacturer, providing diapers for the customer’s Japanese-inspired label via a contract running through 2030. That relationship accounted for 84% of Soft’s total sales to Russia in 2023.

“Humanitarian” products

Soft classifies its products as “humanitarian,” which apparently exempts them from Western sanctions. That classification may work well now, but could also be problematic in the future if Western leaders disagree, especially if Soft wants to boost its sales in Western markets.

“Consistent with the humanitarian nature of our products, we have seized opportunities from the surging demand for private labels in Russia by expanding our contract manufacturing solutions to leading Russian retailers,” Soft said. The company’s contract manufacturing for private labels business grew by an annual average of 62% between 2021 and 2023, totaling 448.4 million yuan last year, or about two-thirds of its total revenue. Most of that went to Russia.

Soft’s domestic sales, meanwhile, including feminine hygiene and adult incontinence products, totaled just 205.8 million yuan last year, or 30.1% of its total. Other major markets include Southeast Asia, accounting for 5.3% of sales last year, and Kazakhstan, at 1%.

So, who is Soft? Better known in China as Ying Shubao, it has three main brands – inSoftb for baby diapers, Misecr for feminine hygiene products and CoSoftb for adult incontinence. Its baby diaper line has six different categories, from diapers to wipes, with 140 different products. It had 20 feminine hygiene products and 15 for adult incontinence.

Its baby care production facilities have been running at 16% below capacity, meaning it has room for growth in that area if demand from Russia or other markets keeps climbing. Demand has been strong for its feminine care products, with production running at 138.3% of capacity in 2023. Adult incontinence products are its weak spot, with production running at only 14.7% of capacity.

Soft International plans to use proceeds from the IPO to expand its factory by adding 320 million units of baby care products in new annual capacity, together with a new feminine care production line with annual output of 80 million units. It manufactures in Jinjiang, a coastal city in South China’s Fujian province, with a total capacity of 1 billion units per year at the end of 2023, with 16 production lines.

True to its nature of providing family-oriented products, Soft International is quite the typical family business. Founder and Chairman Ngan Piu Kuan owns 90% of the company’s stock, and his daughter, Yan Jiawei, is his personal assistant and vice president. Production director Zhou Jiahao is Ngan’s son-in-law, while procurement director Gao Yue is Ngan’s nephew.

So, what should investors think about this company? The last diaper maker to apply for a Hong Kong listing in February, Lantian Group, had similar growth metrics but has yet to be approved for its IPO. The sole sponsor for Soft’s listing is another family company, Sunny Fortune Capital, previously known as TD Capital. Such family control and heavy reliance on geopolitics and a single customer both look like potential turn-offs for investors due to the concentration risk and weak governance. But on the plus side, there’s nothing like the kind of growth Soft International is soaking up these days.

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