Zerohedge is reporting on the large market scope for adult diapers. One-fifth of the world’s population will be of retirement age by 2070. The beauty for the diaper manufacturers is that adult diapers have 4x the margins of infant diapers despite exactly the same ingredients and production techniques. Asia is ageing fast, especially China and Japan. Incontinence affects 40% of people over 65yo so the market dynamics have rock solid foundations, even if wearers don’t.
Unicharm and P&G are two monsters in the diaper game. But who makes the equipment that makes them?
In a former life as an equity analyst, CM covered a business called Zuiko Corp (6279 JP) which made the machines that make the diapers. It is a captive business. All machines are built to spec. 50 metres long and weighing 20 tonnes. 850 diapers per minute.
The company has the largest share of the market in Asia. It used to be around 80% when CM covered the company and supply chains are very sticky. Zuiko is owned c.10% by Unicharm in Japan.
Zuiko has had quite patchy performance, despite the wonderful structural backdrop. Private equity must look to a buyout. The company has pretty poor investor relations and shareholder communications. The shares are in the dumps, at 7-year lows. It is quite hard to find a business that has such favourable, defensive growth characteristics which is in need of proper leadership.
Zuiko has effectively no debt, ¥10bn (c. US$90million) in cash which represents around 48% of its market cap. Looks like one for the SMSF.