Shanghai Jahwa's Q3 Net Profit Slumped by 40% YoY, Hits Five-Quarter Low

In the evening of 25 October, Shanghai Jahwa (600315.SH) disclosed the financial report for the third quarter, presenting a less satisfactory performance. In the context of slowing economic development and shrinking personal consumption expenditures, the performance of Jahwa once again stalled. The release of the third-quarter financial report directly triggered the fall of stock price by over 5%, far worse than the industry average.

Jahwa is one of the oldest domestic beauty and daily care enterprises, mainly engaged in research and development, design, production, sales and service of cosmetics, personal care and home care products. Its skincare brands include Herborist (Chinese: 佰草集), Yuzhe (Chinese: 玉泽), Diancui (Chinese: 典萃), Gaofu (Chinese: 高夫), Shuangmei (Chinese: 双妹) and Meijiajie  (Chinese: 美加净); its personal care and home cleanliness brands include Lukshen (Chinese: 六神) and Jia'an (Chinese: 家安); its mother and baby brands include Qichu  (Chinese: 启初) and Tang Meixing (Chinese: 汤美星); and its cooperative brands include Pientzehuang (Chinese: 片仔癀), Aihaimei (Chinese: 艾禾美), Bitizen (Chinese: 碧缇丝) and Fangxin (Chinese: 芳芯).

Nevertheless, Jahwa's latest financial performance can be disappointing. The third-quarter financial report demonstrated that during the first three quarters, the total operating income was CNY 5.091 billion, net profit was CNY 394 million with a year-on-year increase of 25.83%; the net profit deducted non-recurring gains and losses was CNY 298 million with a year-on-year decrease of 19.07%.

Contrary to the trend of steady growth in the first half of the year, Jahwa's revenue and net profit in the third quarter fell simultaneously. Specifically, the operating income for the third quarter was CNY 1.462 billion, declined by 10.82% year-on-year; the net profit was CNY 93.1344 million, down 40.12% year-on-year; non-deductible net profit of CNY 35.778 million, descending remarkably by 78.67% year-on-year. The latest performance growth rate hit the lowest in the past five quarters.

Considering the decline in net profit, Jahwa illustrated that due to a year-on-year decrease in revenue from the domestic business in the third quarter, as well as an increase in brand promotion costs, net profit presented a yearly slump. Meanwhile, foreign business was affected by inflation and squeezing consumer confidence, giving rise to the decreasing net profit. In terms of non-recurring gains and losses, the yearly increase was mainly caused by the changes in the fair value of the corporate investments in funds and shares and an increase in investment income.

Based on the data from Wind database, the selling expense of Jahwa surged significantly in the third quarter, up 22.28% year-on-year; selling expenses accounted for 43.16% of overall revenue, up 11.7% year-on-year. In order to rapidly expand online channels, Jahwa continued to invest in brand image promotion, resulting in a significant increase in the sales expense ratio.

Regarding the layout of overseas market, in accordance with the institutional investigation of Jahwa in August, the overseas market is mainly in the United Kingdom, while there is also a business layout in Europe, the United States, and Australia. Given the overseas high inflation rate along with the impact of special circumstances, overseas retailers de-stocking, as well as the company's internal sales de-stocking, posing detrimental effects on the overseas performance of the first half of the year. "The decline in overseas markets in Q3 and Q4 is expected to be narrowed," stated Jahwa.

The third-quarter operating data released on the same day indicated that the selling prices of the company's major products increased to varying degrees from January to September 2023 compared with the same period last year, with skincare selling prices increasing by 36.8%, personal care and household cleanliness by 8.81%, maternal and childcare by 9.04%, and co-branded products by 23.68%. However, revenues did not grow in tandem with the price increases. Compared with the same period in 2022, the production and sales of Jahwa's major commodities both fell in the third quarter of this year. Among them, the sales of skincare products declined the most dramatically, by 33.15% year-on-year. It is worth mentioning that skincare revenue reduced by 8.4% year-on-year, the lowest degree of plunge in the four major categories, while the personal care home cleaning category with least obvious price increase has presented the steepest fall in the revenue of the third quarter.

As of press time, Jahwa closed at CNY 22.79 apiece, with a market capitalization of CNY 15.4 billion.