Shanghai Jahwa:New products and effective marketing beefing up brand equity

The company’s recovery is on track, along with the new managementteam’s restructuring initiatives. All of its brands in all channels realizedpositive growth, e.g. Herborist and GF have seen double-digit growth;Maxam and Liushen have seen single-digit growth. Herborist saw highsingle-digit SSSg in the department store channel, despite a trafficdecline in this channel.

    New product launch is one of the major sales drivers, particularly forHerborist. Herborist Yu Series, Ning Series and Tai chi cream all recordedbetter-than-expected performance. It also has a solid new productpipeline for 4Q17 and 2018. New products as a whole contributed 14%of total revenue ytd vs. no more than 10% in 2015/2016 respectively.

    Ecommerce saw 40% growth in 3Q after the business model transitioncompleted in 2Q. We believe the high growth momentum from onlinewill continue in 4Q. It aims to achieve meaningful yoy sales growth withless marketing spending for the upcoming Singles Day shopping festival,which will be mainly driven by improved product offerings and reducedpromotion.

    GPM improved 8.36ppt to 68.42%, partially due to the absence of Kao.

    This is also helped by Herborist’s product portfolio enhancement. GPMfor other brands remains largely stable.

    Selling expense and G&A as a % of sales increased 5.3/1.3ppt to47%/14% in 3Q. Management commented that this is in line with whatthey budgeted at the beginning of the year. For 2018, it targets to reducethe SG&A ratio, mainly by accelerating sales growth.

    Cash flow from operating activities increased 39% for 9M17. Inventory/AR turnover days also declined by 30/12 days vs. one year ago, whichindicates a substantial improvement in operating quality.