China Consumer

Wrinkles on display

Investors underwhelmed by beauty firm Shanghai Jahwa’s lost decade


Jahwa: China’s oldest, and still one of its biggest, cosmetics firms

Formerly known as Kwong Sang Hang, Shanghai Jahwa was founded as a company in 1898 and is hailed as the oldest cosmetics maker in China. When Ronald Reagan, the former US president, visited Fudan University in 1984, the Shanghai government presented his wife with a set of Jahwa cosmetics as a gift, although the firm is probably best known historically for its Six God Floral Water, a signature product that claims to repel mosquitoes, reduce redness and even improve one’s mood with its fragrance.

“Apparently unaware of [its] mosquito-repelling function, foreigners use it in many different mind-boggling ways, including for headache or muscle pain relief, as perfume or aftershave, as a laundry sanitizer or even as a floor cleaner,” the Global Times once marvelled of the spray’s many benefits.

A formerly state-owned firm, Shanghai Jahwa was acquired by a subsidiary of Ping An Insurance in 2011 for Rmb5.5 billion ($755 million). Other bidders were rumoured to include HNA Group and private equity firm Hony Capital but Ping An won the day with a restructuring plan that promised heavy investment. The takeover quickly turned acrimonious, however. Two years later, former chairman and chief executive Ge Wenyao, who had been credited with turning Shanghai Jahwa into a consumer goods giant, was ousted over “a disagreement on business philosophy” (although there was speculation that Ge was actually fired for allegedly pocketing illicit cash, the South China Morning Post reported at the time).

Since then Ping An has hired external candidates for senior roles, albeit with disappointing results. Over the last decade, the beauty company has been through four changes of chairman, for instance, with none lasting more than three years in the role.

Last week Shanghai Jahwa announced its third-quarter earnings, which saw revenues rise a meagre 1.2% year-on-year, to Rmb1.6 billion. Net profits did better, reaching Rmb156 million, an increase of 15.6% from a year ago. The better-than-expected result was celebrated, with Shanghai Jahwa declaring that brighter days lie ahead. “The company has begun to overcome the impact of the pandemic and gradually resumed growth,” it said at its quarterly meeting.

Investors were less certain. Following the earnings announcement, the company’s shares trended downwards to below Rmb28 this week. That was a sharp reversal from June 2021, when the share price hit Rmb63.08 at one point.

“Shanghai Jahwa’s net profit has hardly improved from 10 years ago, going from Rmb635 million in 2012 to Rmb649 million in 2021. Its share price, too, has fallen back to the same level of a decade ago,” TMT Post remarked. “Once the country’s biggest consumer stock by market cap, it has now been left in the dust by rivals Botanee and Proya.”

Shanghai Jahwa argues that it has been coping with difficult commerical conditions, not least the draconian lockdowns in Shanghai earlier this year, which disrupted its supply chain. It has also blamed the sudden disappearance of e-commerce livestreamer Li Jiaqi – a major promoter of its products online – for disappointing sales in its skincare range. Revenues from its main skincare brands, such as Herborist and Dr. Yu, fell about 30% year-on-year in the first half of 2022.

Compared with other domestic beauty brands like Proya, Shanghai Jahwa relies more heavily on sales from shops, rather than online distribution. In the third quarter, e-commerce contributed just 24% of its revenues, much lower than the nearly 90% for Proya, for instance. Even though it has been closing underperforming stores and trying to shift more of its business online, the overheads for its physical stores are a “burden” on its bottom line, says Blue Whale Media.

Others argue that the bigger problem is that the company’s products are simply not competitive enough and that Shanghai Jahwa spends too little in R&D.

Even among the domestic cosmetic brands, which typically allocate less capital for product development, Shanghai Jahwa’s spending is some of the lowest in the industry at around 2.1% of sales. In the first half of 2022 that dropped to an all-time low of 1.8%. During the same period, rivals Botanee and Marubi invested 4% and 3% respectively.

“The core competitiveness of a brand is still in its research and development,” a consumer products expert told TMT Post. “If Shanghai Jahwa wants to win the market, it needs to churn out more competitive star products.”

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