Focusing on High-Quality Growth, Shanghai Jahwa Achieved Double-Digit Net Profit Growth in The First Quarter

Evening April 25: Shanghai Jahwa (600315.SH) disclosed its performance report for first quarter 2023 and the annual report for 2022. In the first quarter of 2023, the company achieved RMB 1980 million operating revenue, RMB 230 million net profit, or 15.59% year-on-year growth, and 7.08% growth in net profit after the deduction of non-recurring profit and loss. The net profit was the highest over the last sixteen quarters. The company also released its 2022 annual report. Annual operating revenue was RMB 7106 million, net profit RMB 472 million, and net profit after deduction of non-recurring profit and loss RMB 541 million.

In first quarter of 2023, the company adhered to the 123 Operation Principle, fostered brand channel evolution with key projects, demonstrated steady R&D results, and continuously optimized livestreaming, special-channel approaches, and marketing expense efficiency. In 2022, due to unsteady external circumstances, the company reduced marketing expenses. Inadequate brand marketing expenses led to online and offline skincare performances falling below expectations. From April 2023, the company has increased marketing expenses and implemented brand campaigns. Compared to the same period last year, through controlling sales expense rate and G&A expense rate, the company has driven profit growth and achieved cost reduction and efficiency gain. The company is constantly making up for its development shortcomings, developing its growth advantages and improving its development quality. In the future, the company will increase marketing expenses and return business growth to a normal level to achieve annual performance targets.

Research Market Demand; Brand Premiumization and Expertise

Shanghai Jahwa has been adhering to the principle of integrity, innovation, and high quality, constantly targeting consumer needs precisely, innovating, achieving breakthroughs in all categories, and gaining market acceptance. In 2023, the company will create more hero products through livestreamer matrix, multi-level seeding, integrated platform cooperation, private domain, brand spokesman, and IP marketing.

On skincare: the company will continue to focus on the upgrading of its leading brands: Herborist, Dr. Yu and GF. Herborist has fixed the problem of product series fragmentation and now concentrates on four series through continuous streamlining and focus. New Taichi has launched hero products, with Bubble Water recording sales of over 100 million as of today. Xin Qibai and Double Dendrobium moisturizer series recruit more young consumers who look for whitening and moisturizing effects. On premiumization: the brand launched the Yu series in quarter one. Revenue from the e-commerce channel grew by over 35% for two consecutive seasons. Dr. Yu continues with co-innovation with medical authorities and the differentiated positioning of “skin barrier recovery.” Last year, the original and new large-molecule sunscreen products saw explosive sales with Tmall small black box. During that period, it ranked Top 1 in the sunscreen category. The new oil-sensitive cream is expected to be another hero product. On Dr. Yu Tmall BigDay (April 3, it was Top 1 in the beauty category. GF sticks to premiumization and focuses on high-end blue-series top products to drive the brand with products. Maxam continues to launch new products and core series such as ferment rice against early ageing, whitening, and facial masks to drive gradual brand premiumization.

On personal care: Liu Shen is creating multiple usage occasions for floral water. Penetration is increasing in mosquito repelling, cooling, itch relief, at-home and outdoor occasions. The increase in young users is making the brand younger. On the other hand, aided by brand spokesman and the first Liu Shen IP cooling festival, Liu Shen is constantly achieving breakthroughs in marketing innovation, making the Herbal Selection the No.1 selection at Tmall flagship store. In the first quarter of 2023, with insight into new consumer needs, Liu Shen launched its mosquito-repelling Liu Shen floral water egg. The convenient pack satisfies consumer needs for more lifestyle occasions. The product’s appearance is also more fashionable, catering to the taste of young consumers. In less than one month after launch, sales at The Tmall flagship store exceeded 9,000.

HomeAegis focuses on food-grade tableware and innerwear cleaning and has entered the high-growth, premium, and highly segmented personal-care category on a full scale. It has achieved double-digit growth for two consecutive months.

On M&B: last year, Giving collaborated with Xiao Liu Ya IP to launch summer sunscreen marketing. Giving sunscreen became the top summer SKU and ranked Top 2 in the Tmall baby sunscreen category. In quarter one of 2023, Shanghai Jahwa led the initiative to release the first national group standards on artemisia apiacea extract. Before that, Giving had worked with the team of Director Ma Lin from Beijing Children’s Hospital, a subsidiary of Capital Medical University and launched Duowei soothing collection with Artemisia extract, which has effectively driven the increase of average price per transaction. In 2023, Giving will engage in deeper cooperation with well-known children’s hospitals, authoritative doctors, and expert influencers to increase the professionalism of consumer word of mouth.

Constant Efforts in Interest E-Commerce; Online and Offline Resonance

Online promotion: Shanghai Jahwa will ensure that resources are put into both new innovative marketing experiences and online interest in e-commerce marketing. The company focuses on creating key hero products, leads new and innovative marketing trends, reaches target consumer groups efficiently, establishes a more authoritative expertise image, and enhances user word of mouth. The company will drive interest e-commerce marketing via short videos, self-streaming, and livestreamer matrix. The annual report shows that by the end of 2022, year-on-year growth in e-commerce revenue was over 200% and maintained growth of over 130% in quarter one of 2023. In addition, under the pressure of life-insurance business reforms in the second half of 2021, the special channel was adjusted by pushing actively for retail business. From the second half of 2022, sales have gradually become steady and grew year-on-year in the first quarter of 2023.

Due to rapid changes in the market environment, online business has followed the strategy of multiple platforms coordinated development and refined operations. Business growth on JD, Pinduoduo, Kuaishou, and Douyin platforms hits target. Tmall business development is also healthier and more sustainable. Interest e-commerce livestreaming business is growing rapidly and realizing breakthroughs; the construction of livestreamer matrix has been completed. On business model, livestreaming, self-streaming, store sales, and events work together in force. On product assortment, maintenance products, leading products, potential products, and trending products are driven forward in parallel. On users, new consumer recruitment and repeat purchase promotions are conducted together. The company is organizing and optimizing its e-commerce business comprehensively, laying a solid foundation for the long-term, steady development of its business. In 2023, the company will continue to work closely with major platforms, and jointly create more innovative marketing IP. With ingenuity spirit/craftsmanship, the company aims to realize increases in both new consumer recruitment and repeat purchase. The company will continue to refine the private domain and consolidate user assets, drive brand cross sales, enhance overall user stickiness, increase repeat purchase and whole product lifecycle value, and realize the double increase in brand value and product sales.

Offline promotion: the company continues to drive offline business online and implements an integrated channel strategy. Firstly, the company will look for effective breakthroughs in new retail growth. In 2022, offline new retail business accounted for over 20%. Supermarket new retail to home business and community group buy grew rapidly. The share of Watson’s online business exceeded 30%. Secondly, the company optimizes channel efficiency and improves operating efficiency in the department store channel. The company continues with strategic closure and reduction of stores. The Four Season Spa project private domain has been initially completed, with a gradual increase in purchasing membership and value.

Strengthen R&D to Lead the industry; Accumulate Expertise for Momentum

In the first quarter, the company increased its R&D expense by 3.39%. Regarding product innovation, the company continues to explore digitization empowerment to grasp consumer insight. Building on end-to-end project management and chain R&D model, the company realizes technology empowerment from three dimensions: basic research, application innovation, and product value. The company is dedicated to beauty in products and services. By 2022, Shanghai Jahwa had obtained 427 effective and authorized patents, among which 96 are national invention patents and 22 are international, expanding its global leading technology footprint. Patent applications in 2022 doubled those in 2019 and 2020. Furthermore, the company participated in 95 national/industry/regional/group standards, demonstrating its professional image as a national champion, and maintaining its influence in regulations and standards.

Shanghai Jahwa is building up technology barriers centering on eight fundamental platforms, accelerating the transformation of technology through the opening of the collaborative model by firms, universities, research institutes and medical authorities, and strengthening whole-loop basic research and conversion. At the same time, the company engages in research into beauty technology. The company has been adhering to the product design principle of “balancing efficacy and safety,” integrating function and safety in a scientific and organic way. Product design originates from holistic insight into consumers and cutting-edge technology development. On applications, through new product development empowered by technology and the advantages of upstream and downstream industry value chains, the company incorporates modern scientific and technological methods to innovate in ingredients, formula, process, and packaging. On skin tests, the company has joined hands with a giant in the AI industry. Over nearly two years, an AI skin test program based on tens of millions of human facial data has been developed jointly. The program can provide richer testing dimensions and more precise testing parameters for Chinese people. Exploring frontier and basic research, the company continues to strengthen both internal independent research and the opening-up of innovation network to deepen frontier research, accelerate innovation transformation, and ensure industry leadership. In infant skin care, the company has found the artemisia extract of the same origin as the Nobel-prize awarded one. Due to this discovery, the company has led the initiative in drawing up the group standards on Artemisia Extract for Beauty Products. This accelerates the high-quality development of herbal applications with Chinese characteristics in the beauty industry.

Furthermore, the company has constantly been driving forward digital transformation and is dedicated to creating highly efficient and intelligent systems and processes. The company has implemented a contract rebate system and an expense control system and further regulated processes and improved financial reporting automation. Through Feiyue 2.0 project, the company makes efforts in building a smart supply chain and realizes automation and intelligent operation of its demand planning and replenishment planning; various digital systems have come onstream to empower channel operation. On digital empowerment, the company optimizes and drives data sharing and visualization, and constructs skin test application programs; through omnichannel CRM, membership operation across all brands and omnichannel has been empowered, aiding operation and management decision-making and improving operation efficiency.

Shanghai Jahwa has witnessed the changes in times and trends over 125 years. The journey in 2022 makes high-quality development a clear imperative. As a representative of the Chinese beauty industry, Shanghai Jahwa actively assumes the responsibility given by the times to a private enterprise. In 2023, the company will leverage the following projects: innovative hero products 3.0, interest e-commerce, RTM, Herborist revitalization, supply chain decision information automation, end-to-end CRM, talent ladder, consumer service experience improvement, sales expense % ROI, main data governance, organization structure and process reengineering, Feiyue 3.0, remote office e-business, etc. Jahwa adheres to long-term core strategies, leverages its solid science and research advantages and strengths fully as a Chinese enterprise, and gradually realizes high-quality and resilient development. In addition, driven by brand innovation and upgrading, the company will provide the best beauty products and services to consumers, maximize value for consumers, employees, shareholders, and the entire society, and continue to present Chinese beauty to the world.