Overcoming Pandemic Impact, Shanghai Jahwa Achieved Double-Digit Net Profit Growth in the Third Quarter

Shanghai Jahwa (600315.SH) disclosed its third quarter report of 2022 on the evening of October 25. According to the report, Shanghai Jahwa achieved operating revenue of 1.639 billion yuan in the third quarter, an increase of 1.17% year on year; net profit went up by 15.55% year on year to 156 million yuan, and net profit after deduction of non-recurring profit and loss saw a year-on-year rise of 17.91%, reaching 168 million yuan. During the third quarter reporting period, excluding the impact of exchange rate, the overall revenue increased by 3.5%, of which domestic business increased by 4% and overseas business increased by 2%. These numbers indicate that Shanghai Jahwa has overcome the impact of the COVID-19 pandemic and has been gradually resuming growth. Selling expense and G&A expense decreased by 9.3% and 13.7% year-on-year respectively, reflecting that the company's operation management and control was effective, and the operation quality continued to improve. In the fourth quarter, Shanghai Jahwa will continue to implement the "123 operation principle". Despite the increasingly uncertain international environment, the company will strive for a faster growth of domestic business, in order to achieve a double-digit revenue growth in the second half of the year; meanwhile, the company will try to maintain the positive growth trend of overseas business excluding the impact of exchange rates. The company will continue to optimize operations of all its brands across all channels, striving to achieve its business performance goals.

Excellent Performance in Personal Care and Household Cleaning Category, 

Self-Owned and Newly-Invested Brands Both Booming

The company adheres to brand innovation and high-quality standards. Based on accurate insights of consumer needs, its brands have constantly launched innovations that have received wide recognition of the market.

        During the reporting period, the company's personal care and household cleaning category has delivered outstanding performance, of which Liushen was the most eye-catching brand with more than 30% growth rate: the Floral Water category has attracted more young users through multi-scenario consumer education; the shower gel category has made major breakthroughs in premiumization, brand rejuvenation and all-season portfolio, and has made many new attempts in marketing, including signing well-known celebrity as brand spokesman, launching Liushen IP Big Brand Day and the first Liushen IP Refreshing Festival. In addition to the core product line of Refreshing Shower Gel, the Herbal selection, newly launched at the end of last year, has now become the Top 1 selling shower gel line in the brand’s Tmall flagship store, and has helped Liushen shower gel category achieve a sales growth of nearly 40% in the Tmall flagship store from January to September 2022. Next, the brand will launch the new Scrub Shower Gel and Acne Treatment Shower Gel later this year to further boost sales.

      HomeAegis has entered high-growth segments with underwear detergent products and food-grade dish-washing products certified by China Health & Safety Certification Center. Successful social seeding of these new products has effectively driven sales conversion at retail end. Thanks to the 100% sales growth in B2C e-commerce channels in the third quarter, which has offset the pressure from its traditional main sales channel - special channel, the brand still achieved high single-digit growth.

      During the reporting period, many beauty and skin care brands saw excellent performances: Herborist has expanded rapidly on JD platform, achieving a year-on-year growth of 57%. Sales on Douyin platform have even surged by more than 1,000%, significantly contributing to the brand’s overall positive growth in e-Commerce. The brand has upgraded its 4 major efficacy product lines as planned. In the third quarter, the New T’ai Chi Regenerating Repair selection has expanded its product portfolio, and the New Seven White series has upgraded the whitening product line and newly launched Dual Dendrobium Reviving & Moisturizing line. In the fourth quarter, the brand will upgrade its Anti-aging Extra Control Concentration series. The New T’ai Chi series has achieved a 75% new recruitment rate and higher repeat purchase rate due to the products’ high-quality and effective marketing efforts including social seeding and IP cross-over cooperation; since its launch in September, the Dual Dendrobium series has gone up rapidly in Tmall search ranking result and its newly recruited consumers accounted for as high as 70% of all its consumers.

      Dr.Yu has further increased the repeat purchase rate and its moisturizing cream’s average sales on Tmall have recently exceeded 30,000 pieces per month. With new products and the core product line of Lasting Moisturizing, GF’s market share has grown to the third place in the men's skin care segment on Douyin. Maxam has continued to recruit new users on platforms including Kuaishou and Pinduoduo. At the same time, Maxam has further improved its core products’ offline penetration and distribution. Driven by the newly launched Ferment Rice Revitalizing & Moisturizing series and Ferment Rice Light-Perfecting & Brightening series, Maxam achieved positive sales growth in the third quarter.

       In the M&B category, in addition to the Rice Embryo baby cream, Giving has further upgraded its portfolio for babies under 1 year old. Giving has newly launched Artemisia Apiacea Soothing series and promoted it by in-depth cooperation with a number of professional and authoritative KOLs in the field of children's skin care such as Dr. Ma Lin and Daddylab. During the reporting period, through a massive social seeding, the brand achieved a significant increase in the number of visitors and units per transaction on Tmall, and the repeat purchase rate of new products was 3 times that of existing products. Currently, Giving has become the Top 2 brand in the baby skin care category on Pinduoduo.

Offline Sales Rebounded, Online Business Expanded Operation Models

      During the reporting period, the company's sales revenue of offline channels increased by more than 7% year-on-year, higher than the growth rate of the overall offline market. On the basis of a strong and high-quality offline channel distribution, Shanghai Jahwa has continued to develop new retail business, which has contributed more than 16% of offline sales, and further optimized operation efficiency. As a result, the company achieved channel upgrade and realized the synergy between supermarkets, department stores, CS and other channels. In the supermarket channel, home delivery platforms and community group buying have developed rapidly, and the net contribution rate has kept rising. Meanwhile, by upgrading retail-end operation and in-store promoter management, the retail-end efficiency has greatly improved; in the department store channel, the company focused on expanding distribution in new stores within commercial groups, optimizing customer acquisition costs and promoting private domain operation projects, so as to drive new user recruitment and repeat purchase rate; in traditional CS channels, the company put focused efforts on gathering resources to create best-selling products for brands. Moreover, the company helped distributors grow retail business performances by optimizing inventory management, applying digital sales management tools, and improving sales management efficiency. 

In online channels, Shanghai Jahwa continued to implement the strategies of multi-platform layout, KOL matrix development, refining operation and product differentiation. Through deeper cooperation with major e-Commerce platforms, the company’s domestic e-Commerce revenue in the third quarter has increased by nearly 9% year-on-year excluding the factor of top livestreamers, showing a clear rebound momentum. Among TMIC projects in cooperation with Tmall, Dr.Yu Macro-molecule Sunscreen has won the "2022 Tmall TMIC New Product Innovation Award". In the context of JD platform advancing POP operations on the basis of self-operation model and increasing investment in self-livestreaming business, the company was granted the "2022 Excellent Brand Award” by JD in September and will continue to try more business models on JD in the future; on Pinduoduo platform, Shanghai Jahwa has renewed Superstar program to strengthen differentiation through customization and achieve sustainable sales growth. In interest e-Commerce channels, Shanghai Jahwa has started running self-broadcasting for Giving and Herborist Derma from September. Driven by celebrity and KOL recommendations, cooperation with other livestreamers (called Dabo in Chinese) and celebrity on-site livestreaming, the brands have successfully gained consumers’ attention in a short period of time and are currently accelerating the transition from soft launch period to regular operation; at the same time, the company has maintained close cooperation with a number of leading MCNs and KOLs, and will accelerate the Dabo business in the fourth quarter, striving to scale it up to a new level.

It is noteworthy that Shanghai Jahwa's omni-channel CRM system was launched in September and has successfully passed multi-scenario testing, which will help accurately drive traffic to offline department store channels during the National Day Golden Week and better carry out multi-scenario planning for Double 11. The system will also improve the efficiency of single-brand consumer asset operation, facilitate brand consumption upgrade, and realize cross-category new-user recruitment among beauty and skin care, mother and baby, and personal care and household cleaning brands. During Double 11 Festival, the company will focus on creating bundle packs and joint-promotion between top-selling products; keep building KOL matrix and carry out cooperation with various types of influencers on multiple platforms; and increase marketing investment to provide consumers better experience through a combination of marketing tactics including discounts, extra benefits, platform activities.

Innovation Driven by R&D Technologies, Leading the Way for the Industry

During the reporting period, the company's R&D expenses increased by 46%. As of the end of September, the total number of patents of the company reached 397, ranking top-tier among domestic beauty companies. Among all the patents, there are 96 invention patents authorized by the state and 22 PCT authorized patents worldwide, expanding its leading edge in global technology strength. In September, Shanghai Jahwa Scientific Research Testing Center was awarded the "CNAS Laboratory Accreditation Certificate". The company's R&D technology and system has once again received recognition from authoritative organization. At the first World Design Cities Conference, Shanghai Jahwa demonstrated frontier technologies in popular areas such as AI digital empowerment and metaverse. Among them, the AI intelligent skin monitoring system is a skin detection APP jointly developed by Shanghai Jahwa with a domestic artificial intelligence giant. Taking nearly 2 years, the APP is empowered by big data from over tens of millions of faces. It is the first time that China’s top AI algorithm capabilities integrated with the R&D concept that particularly focuses on Chinese consumers’ skin condition. The 3D skin tomography scanner, jointly developed by Shanghai Jahwa with Tsinghua University, has successfully extended proven technology from the medical field to the territory of skin detection. What’s more, smart beauty technology products including AGEs fluorescence scanning probes, microfluidic control, capsule frequency emitter, supercomputer and sensory fragrance all fully demonstrate the company's research and development strength in cutting-edge technologies

     Shanghai Jahwa has always been leading the industry in terms of scientific research and development by leveraging its cutting-edge R&D strength and forward-looking R&D concepts to develop high-quality beauty products and services. The company's R&D center has spent more than a year to study dozens of traditional Chinese plants through 3-5 rounds of screening and tests. Finally, the company chose Artemisia Apiacea, known as the "oriental sacred herbal” and researched 8 different extraction processes for it. After more than 20 extraction trails, the company has successfully obtained the patented ingredient Artemisia Apiacea Extract, which can soothe itches and repair skin. At present, Artemisia Apiacea Extract has applied for 4 related patents, and has been successfully used in Giving Multi-effect Soothing Series and Herborist Dual Dendrobium Reviving & Moisturizing Series.

Dedicated to Beauty. In the future, Shanghai Jahwa will continue to pursue the best health and beauty products and services following the "123 operation principle". Shanghai Jahwa is committed to maximizing the value for our consumers, employees, shareholders, and entire society, and to leading Chinese beauty and personal care industry to present Chinese beauty to the world.