Shanghai Jahwa’s third-quarter profit beats expectations as administrative expenses fall, but non-beauty businesses weigh on revenue
Beauty revenue grew 37%, but still did not offset declines in personal care, innovation and overseas businesses. Goldman Sachs believes the full-year growth target is achievable, although intense competition could slow margin recovery.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Shanghai Jahwa’s recurring net profit exceeded Goldman Sachs’ expectations in the third quarter because of lower administrative expenses, but revenue fell short of expectations. Promotional spending, seasonality and competition continue to constrain fourth-quarter growth and profit.
Why did revenue growth still fall short of expectations?
Revenue in the third quarter of 2026 was 1.57 billion yuan, up 5.9% year over year but 6% below Goldman Sachs’ estimate. Beauty revenue grew 37% to 486 million yuan, but was still 2% below the bank’s estimate.
Other businesses collectively weighed on overall performance: personal care revenue was 587 million yuan, down 3% year over year; innovation revenue was 148 million yuan, down 7%; and overseas revenue was 349 million yuan, down 4%. The three were 8%, 7% and 9% below Goldman Sachs’ estimates, respectively.
What drove the profit beat?
Third-quarter operating profit was approximately 1 million yuan, above the operating loss of 40 million yuan previously forecast by Goldman Sachs. Recurring net profit was 25 million yuan, above the bank’s forecast loss of 38 million yuan, mainly benefiting from lower-than-expected expenses.
The administrative expense ratio fell to 7.6%, down 2.7 percentage points year over year and 2.5 percentage points below Goldman Sachs’ estimate. Management attributed the decline to economies of scale and organizational, staffing and back-office optimization.
Net profit attributable to shareholders reached 425 million yuan, up 205% year over year. This included non-operating gains of 491 million yuan, mainly from the sale of equity interests in Sephora Shanghai and Beijing. Goldman Sachs therefore raised its net profit forecast for 2026, while leaving its earnings forecasts for 2027 to 2028 broadly unchanged.
How quickly can beauty growth translate into profit?
The third-quarter gross margin rose 1.3 percentage points year over year to 62.8%, but the selling expense ratio also rose 1.2 percentage points to 51.1%. The gap between the two widened by only 0.2 percentage points year over year. Management said the increase in the selling expense ratio in the first nine months mainly reflected brand marketing investment and a higher online share.
Management expects both Dr. Yu and Herborist to reach sales of 1 billion yuan this year. Dr. Yu is already profitable; Herborist remains constrained by product costs and a lower gross margin and aims to become profitable in 2027 through expense control.
Online sales are the main growth engine, and the company is gradually bringing content operations on Douyin and Xiaohongshu in-house. Goldman Sachs believes, however, that intensifying competition in cosmetics could make margin recovery slower than expected.
How do the full-year target and fourth-quarter pressures coexist?
Management said progress toward the 2026 domestic business growth target is on track, driven mainly by faster online growth. Goldman Sachs also expects the company to be on course to achieve its full-year sales target.
Management expects fourth-quarter growth to slow from the first nine months, partly because sales and celebrity marketing campaigns were brought forward to the third quarter. Liushen’s seasonality, Double Eleven marketing and investment in brands and new products for next year will also affect fourth-quarter profit.
Goldman Sachs maintained its neutral rating and its 12-month price target of 20 yuan. The bank believes the company should currently prioritize building market share and brands while monitoring the impact of competition on margin recovery.
