Shanghai Jahwa Alert:1Q17results first take
Like-for-like Sales/NP saw improvement in1Q17
Jahwa’s NPAT in 1Q17 was down 15% to RMB108m on sales decline by 13% to RMB1.3bn. Excluding the absence of Kao, NP grew 1.79% to RMB108m on sales up 14.54%. 1Q17 gross sales and NP accounted for 27.8%/22% of our 2017 sales/core NP forecast. For reference, in 2015/2016, 1Q sales accounted for 27.3% /29% of annual sales. 1Q net profit accounted for 25.8% and 27.8% of total NP in 2015 and 2016 respectively.
GPM margin expanded to 71.21% from 58.98% in 1Q16 due mainly to Kao’s absence. S&D cost as of % sales up 11.7ppt to 52.73% as major marketing investment have been allocated in 1Q. To recap, the company hired new band endorsers Mr Hua Chenyu for Liushen and Ms Liu Tao for Herborist in 1Q. G&A cost ratio was up 0.68ppt to 9.87% mainly attributed to higher depreciation expense resulting from the new office that they moved in since 3Q16.
Operating cash flow increased 80.33% thanks to self-brand sales growth and no more advanced sourcing for Kao. Ex Kao, Inventory days declined 27 days yoy to 153 days. AR/AP days also declined 13/2days to 41/98 days respectively.
By segment, cosmetics recovered via all channels according to mgmt. Herborist new Yu wu xing series have been well received. Herborist’s growth in lower tier cities remains solid. In Tier 1 cities, it still faces intense competition from international companies. It closed four stores in Tier 1 cities in 1Q and currently has 1500 POS. The company will focus on sales per store rather than new store opening going forward, particularly in department stores. Personal care segment was affected by Kao’s termination but Liushen maintained a steady growth. It will continue its brand driven strategy rather than channel driven as before. Its new distributed brand Tommee Tippee is now under costume’s clearance and will expand its coverage in channels during the next 2 quarters. Pientzehuang as an emerging brand remains loss making. Mgmt targets to break even in three years.
Channel. CS is the focus for this year. Different from last year, in which most growth came from online, mgmt will seek a more balanced and healthy growth for both online and offline. Ping An, as a special channel, expects to see growth acceleration this year.
Products. Its new product pipeline for 2017/ 2018 has been outlined. In 2018, it will move to the newly built factory and transfer most of OEM products to self-manufacturing to secure a better and more stable quality. It will focus on driving sales in 2018 to offset the fixed cost.
Outlook. Mgmt believes that industry recovery trend is on track and Jahwa will benefit in a long run. Management commented that the target for achieving double digit sales growth (ex Kao) in 2017 remains intact.