Why did Goldman Sachs cut its earnings forecasts after Joyoung’s share price doubled?
Joyoung’s third-quarter revenue and net profit beat Goldman Sachs’ expectations, but its gross margin fell more sharply, and profit has declined year on year for ten consecutive quarters. Goldman cut its 2026–2028 earnings-per-share forecasts by approximately 8%–11%, maintained its Sell rating and lowered its price target to 3.8 yuan.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Joyoung’s revenue beat Goldman Sachs’ expectations, but gross margin pressure prompted the bank to cut its earnings forecasts. With the share price having risen sharply and fundamentals showing no clear improvement, Goldman sees insufficient support for the valuation.
Why were third-quarter results considered weak despite beating Goldman Sachs’ expectations?
Joyoung’s revenue in the third quarter of 2026 was 1.563 billion yuan, down 2% year on year but better than the 8% decline Goldman Sachs had forecast. Net profit fell 75% year on year and rounded to nearly zero in the report’s millions-of-yuan presentation, also better than the bank’s forecast loss of 10 million yuan.
The beat mainly reflected a smaller revenue decline and a net profit result that did not reach the scale of loss forecast by the bank. The earnings trend did not reverse: since the second quarter of 2024, Joyoung’s net profit has fallen year on year for ten consecutive quarters.
More consequential for the outlook was gross margin, which fell 2.39 percentage points year on year in the third quarter, substantially more than the 0.93 percentage points Goldman Sachs had expected. Revenue beat expectations while gross margin fell short, meaning that looking at revenue alone could overstate the improvement in operations.
Why were earnings forecasts cut even as revenue forecasts rose?
Goldman Sachs believes rising costs and intense competition in China’s traditional small-home-appliance market may have weighed on gross margin during the quarter. Its longer-term concern is that demand is weak for small appliances, which have a strong discretionary-consumption component, while the risk of consumers shifting to lower-priced products and competitive pressure together squeeze profits. Slower overseas revenue growth also constrains growth.
After updating its model, Goldman Sachs raised each of its 2026–2028 revenue forecasts by approximately 0.5%, but lowered its gross margin forecasts by 0.3, 0.4 and 0.4 percentage points, respectively, resulting in cuts of approximately 8%–11% to its earnings-per-share forecasts. The revisions focus on profitability rather than a further deterioration in sales.
After the revisions, revenue for 2026 is forecast at 7.616 billion yuan, down 7.2% year on year, while net profit attributable to the parent is forecast at 82 million yuan, down 30.1%. Full-year gross margin is expected to fall from 26.8% in 2025 to 25.3%, reflecting greater pressure on profit than on revenue.
What operational improvements are needed for the earnings recovery in the model?
Goldman Sachs still expects Joyoung’s revenue to grow by 4.9% and 3.8% in 2027 and 2028, respectively, and net profit attributable to the parent to recover to 167 million yuan and 216 million yuan. The recovery in the model depends on both a sales rebound and margin repair, rather than revenue growth alone.
Specifically, gross margin needs to rise from 25.3% in 2026 to 26.3% in 2028, while selling and administrative expenses as a share of revenue need to fall from 25.1% to 24.7%. Even if these assumptions hold, the operating margin in 2028 would be only 0.8%, leaving a thin profit cushion.
Factors that could improve this trajectory include stronger-than-expected demand, better pricing from a shift toward higher-end products or changes in competition, and better-than-expected related-party exports, supply-chain management and new-product performance. These are also the upside risks to Goldman Sachs’ Sell call listed by the bank.
Where is the valuation gap between the share price rally and the earnings trajectory?
From 28 September 2026 to the report date, Joyoung’s share price rose more than 100%, while the CSI 300 Index fell 5% over the same period. Goldman Sachs believes fundamentals have not changed materially; in three announcements since 30 September, the company also said its fundamentals were stable and that it had found no material information affecting the share price that should be disclosed.
Goldman Sachs’ revenue growth and margin assumptions are more conservative than the Wind consensus, so it believes the current valuation is out of line with net profit growth and expects the share price to converge with the weaker fundamentals.
The bank maintained its Sell rating and lowered its 12-month price target from 4.0 yuan to 3.8 yuan. It applies a 15 times price-to-earnings multiple to its 2028 earnings-per-share forecast, then discounts the result to 2027 at a cost of equity of 9.5%. The valuation method is unchanged; the lower target reflects the cut to earnings forecasts.
