SHANGHAI JAHWA(600315)：3Q REV/NP-11%/40%; A SIGNIFICANT MISS

　　3Q revenue/net profits came in at RMB1.5bn/93.1mn, down 11%/40% YoY. In our view, the mediocre result was an expected extension of 2Q, in which overseas business remained a lingering drag as a result of a persistently high inflation environment that eroded consumption power. Other than this, the growth of domestic business also showed a sign of tapering in the absence of a favourable base comp. By channel, sales on online platforms grew by low-teen, but such was not able to fully mitigate the challenging offline business. By segment, skincare and HPC sales decreased by 8.5%/18.3% YoY, tumbling from positive growth of 26.5%/4.5% in 2Q. The only positive of the result was a mild uptick in GPM, thanks to input cost savings and brand mix upgrade. Considering also a relatively soft pre-sales momentum of the Double 11 this year, in our view, Jahwa looks unlikely to flip the downtrend in the remainder of the year. Maintain HOLD.
　　Conference call takeaway. 1) Jahwa announced its restructuring plan along with 3Q results, merging the skincare BU with the mother-care BU, and setting up an overseas BU. This adjustment aims to enhance the online presence of the segments and streamline decision-making processes across products teams; 2) 3Q opex surged mainly on operation deleverage, and the company continued its investment in brand to boost future growth. Some ongoing tactics include consumer acquisition through targeted and pop-up marketing events. Other notable marketing events, such as Yuze Douyin Day and Bai Cao Ji Member Day etc, 3) key numbers for the quarter include, domestic/overseas 9M sales fell 3.6%/9.3% YoY respectively; and 9M/3Q online sales growth reached 6%/7%. Domestic online/offline sales +14%/-9% YoY, of which department stores saw -30% YoY. GMP edged up 3.5 pct. YoY to 57.7% in 3Q as skincare products sales growth resulted in structural mix effect. According to management, overseas inventory level decreased significantly thanks to normalized production cycles.
　　Double 11 pre-sales. Anecdotal observation from the livestreaming of leading KOL pointed to a relatively soft start for the event. Domestic brands performance diverged on the first day. Proya tops the GMV league with double-digit growth with 16 participating SKUs (a double of 2022), while that of Botanee halved (with unchanged 8 SKUs); while that of Jahwa looked immaterial.
　　Earnings change. We cut our 2023E revenue by 13.7% to factor in the 3Q result. Our GPM estimate is largely unchanged, but with a ~3.0pp increase in opex ratio upon an operation deleverage, our net income is 37.9% lower.
　　Valuation. Our revised TP is based on 29.0x end-23E P/E which still represents - 1sd below average since 2019. Our target multiple is set lower than that of Proya (at long-term average) to reflect the difference in growth outlook, strategy execution and our preference.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。