Shanghai Jahwa Alert:Key highlights from response of SH exchange queries

Shanghai Jahwa announced its response to the queries they received fromShanghai Exchange dated back to 23 Mar 2016The slowdown of the Jahwa’s three major business segment i.e. cosmetics,personal care and household care products is the key focus.

    Cosmetics products mainly include Maxam, Giving, Herborist, GF. Theslowdown (sales up 3% vs 20% up in 2014) is mainly due to structuralchanges on channels and brands. For channel, HBC products sold thoughDepartment stores saw 1.5% growth in 2015, among which skin care sawflattish growth. This change hurt Jahwa as department store remains itsmajor channel for Herborist. In terms of brand, local brands and overseabrands emerged and further intensified the competition.

    Personal care segment is seeing industry-wide slowdown resulting fromASP plunge as well as volume down, according to mgmt. Jahwa believesthat the market will be more fragmented. Jahwa’s personal care was up15% in 2015 (20% up in 2014), mainly including Liushen, Maxam, Giving,GF, Kao, etc.

    Household care (10% down vs 11% up in 2014) is mainly aboutHomeAegis. While Jahwa believes this segment still has growth potential.

    Other highlights as below:

    Overall GPM eroded in 2015 as products mix shifted more personal caresegment that includes Kao with a low margin. The GPM in Shanghai wasdown 16.05ppt mainly due to accounting techniques.

    Kao contributed 8%-25% of total sales for Jahwa from 2012-2015. Jahwabelieves the termination of Kao’s distribution will impact its sales butminor impact on its net profit. The company will disclose more informationon Kao’s business when the cooperation officially cease.

    Ecommerce’s contribution to sales increased from 7.7% in 2014 to 9.5%which is in line with the company’s target.

    Inventory increase particularly in 4Q is mainly due to that the companyprepared inventories for traditional peak season in 4Q while the terminalsales fell behind the sales target. They denied there is channel stuffing. ARdays increase has been also impacted by sluggish sales together with selfoperatedpercentage increase which needs a longer AR days.