CICC has upheld its earnings forecast for SOFTCARE (02698), noting the current share price corresponds to a price-to-earnings ratio of 18 times for 2026 and 16 times for 2027. The firm reaffirmed its Outperform rating and HK$40.00 target price, which implies P/E multiples of 23 times for 2026 and 20 times for 2027, suggesting a 26% upside from the current share price.

Near-term increases in raw material costs are expected to have a limited impact on the company, while long-term growth prospects remain solid. Rising industry penetration is strengthening the foundation for steady growth, and advantages in manufacturing and distribution are reinforcing market share gains. Expansion into new regions and product categories is raising the growth ceiling, and potential mergers and acquisitions could contribute additional earnings.

Key views from CICC are as follows:

Short-term cost increases are relatively manageable. Hygiene product costs primarily include non-woven fabric, superabsorbent polymer (SAP), fluff pulp, and shipping expenses. Recent rises in crude oil prices have led to higher costs for SAP and fluff pulp, but the impact is expected to be limited in the short term. First, the company maintains sufficient raw material inventory and has a robust supply chain management system in place, which should help mitigate near-term cost pressures. Second, the overall increase in costs is modest; based on industry cost structures and current raw material price hikes, upstream costs are estimated to have risen by approximately 0.5% year-on-year, with full-year procurement costs expected to increase by 0.6%. Third, under supply chain pressure, the company’s market share may accelerate as smaller upstream suppliers prioritize reliable buyers like SOFTCARE. Additionally, the company’s localized manufacturing model gives it a cost advantage over imported brands, supporting further share gains.

Long-term growth trends remain well-supported. The African hygiene products industry is expected to maintain strong growth driven by population increases and rising penetration rates. The company’s local manufacturing capabilities create cost advantages, while its extensive and deep distribution network captures consumer demand through competitive pricing. High margins and turnover attract channel partners, supporting steady market share expansion on both the supply and demand sides. Expansion into Latin America may replicate the success seen in Africa, with differentiated products and local production driving volume growth. Products such as training pants and wet wipes also show clear synergies with existing categories. Potential mergers and acquisitions within the group’s portfolio of consumer goods assets or external brands could provide additional earnings contributions.

Risks include fluctuations in raw material prices, changes in exchange rates and international trade policies, and intensifying industry competition.