Growth Momentum Remains Strong, but Selling Expenses and Valuation Limit Upside; Goldman Sachs Downgrades Shanghai Jahwa to Neutral

Overview

The report reviews Shanghai Jahwa's 2Q26 results and management briefing, focusing on the online growth, new-product plans, channel efficiency, and margin trajectory of brands including Liushen, Dr.Yu, and Herborist. Goldman Sachs views the direction of revenue and gross-margin improvement positively, but believes intensifying marketing competition in the industry will delay earnings delivery, prompting it to lower its earnings forecasts, target price, and rating.

Core views

Shanghai Jahwa announced its 2Q26 results after the market close on August 19. Revenue, net profit, and net profit excluding non-recurring items increased 12%, 227%, and 196% YoY, respectively. Adjusted net profit was broadly in line with Goldman Sachs' expectations, but high investment income masked pressure at the operating level: operating profit was 17% below expectations, mainly because the selling expense ratio increased 4.7 percentage points YoY. Meanwhile, strong cosmetics sales, a better product mix, and improved supply-chain and operating efficiency drove a 3.4-percentage-point YoY increase in gross margin, resulting in a performance mix of improving revenue and gross margin but selling expenses eroding operating profit. Based on a more conservative margin-expansion trajectory, Goldman Sachs lowered its 2026–2028 net profit forecasts by 5%–10%, including a 7% reduction for 2027. Goldman Sachs now forecasts 2027 revenue growth of 10% YoY and a net margin of 7.4%, versus 10% and 7.9%, respectively, previously. Its revised revenue forecasts are RMB6.9806 billion for 2026, RMB7.6656 billion for 2027, and RMB8.3946 billion for 2028, versus RMB7.0191 billion, RMB7.7089 billion, and RMB8.4449 billion previously; the corresponding EPS forecasts were lowered from RMB0.46, RMB0.91, and RMB1.32 to RMB0.42, RMB0.85, and RMB1.25. Despite the lower earnings forecasts, Goldman Sachs still expects revenue and margins to recover gradually: total revenue growth is forecast at 10.5% in 2026, 9.8% in 2027, and 9.5% in 2028, while net margin is expected to rise from 4.0% in 2026 to 7.4% in 2027 and 10.1% in 2028. Goldman Sachs remains constructive on growth and forecasts 2H26 revenue growth of 12% YoY. Management expressed confidence in achieving its FY26 operating targets, with growth expected to come from continued expansion at Dr.Yu and Herborist, cultivation of hero products, and the ramp-up of new products. Goldman Sachs forecasts skincare growth of 33% in 2026 and 26% in 2027, and estimates that personal-care net margin could reach the mid-teens and cosmetics net margin the mid-single digits. Therefore, a continued shift in the brand mix toward skincare and cosmetics is an important foundation for margin improvement in 2027. Liushen is the core driver of personal-care growth. Its online revenue increased 69% YoY in 1H26 and nearly 70% in 2Q26, while Douyin sales more than doubled. Online revenue accounted for approximately 30% of 1H26 sales, up around 10 percentage points YoY, while the offline business, which still accounted for more than 70%, grew by low single digits in 1H26 and was broadly flat in 2Q26. Management expects FY26 offline revenue to remain broadly flat, with low-single-digit growth possible under an ideal scenario. Mosquito Repellent Egg 3.0 grew by more than 150% YoY in 1H26, with GMV reaching RMB120 million as of June 2026, already exceeding the full-year FY24 level of approximately RMB100 million. Fresh Fragrance Shower Gel is progressing toward becoming a RMB100 million online hero product, while Little Liushen is planned to become the next RMB100 million online hero product in 2027. The company has also improved offline display, anti-counterfeiting, and fulfillment speed through upgraded classic glass-bottle packaging, anti-counterfeiting technology, and a direct-to-consumer e-commerce warehouse launched in March. Dr.Yu and Herborist are responsible for driving skincare growth. Dr.Yu's core face cream grew 34% online in 1H26, while combined online and offline sales of its creams for dry-sensitive skin, oily-sensitive skin, and moisturizing care increased by more than 80%, 60%, and 40% YoY, respectively. Management targets growth in the high teens for 2H26 and RMB1 billion in FY26 sales. Brand awareness remains lower than that of competitors, so the company will increase investment in celebrity endorsements and dermatology conferences and plans to launch an Artemisia annua single-dose serum, which management believes has RMB100 million sales potential. The company has also established an Artemisia annua raw-material demonstration base and a joint laboratory to strengthen ingredient differentiation. Management expects margins to rise through improved cost absorption and marketing efficiency for existing products once the brand exceeds RMB1 billion in scale. Herborist's online revenue increased 81% YoY in 1H26, mainly driven by Big White Mud, whose combined online and offline sales grew by more than 120%, ranking first in the brightening mud-mask category. Management plans to place Big White Mud among the top three in the broader mud-mask market and achieve more than RMB300 million in GMV in FY26. In 2H26, the company will also increase investment in anti-aging products Immortal Grass Oil and Immortal Grass Mud Mask, with an FY26 sales target of more than RMB100 million for Immortal Grass Oil. Management expects Herborist to reach RMB1 billion in FY26 sales, followed by phased YoY improvements in profitability as the return on investment for hero products improves. In 2H26, Shanghai Vive will focus on product upgrades, brand rejuvenation, and offline experiences. The upgraded Jade Face Cream is scheduled for launch from August to September with a moderate price increase, while the Shanghai Vive Mansion on North Shaanxi Road is scheduled to officially open on September 5. By channel, domestic online revenue grew by more than 40% YoY in 1H26, with Douyin growing by more than 80%, Tmall and Taobao achieving low-single-digit growth, and JD.com, Vipshop, Pinduoduo, and other e-commerce B2B channels collectively growing by more than 40%. The company operates 16 livestreaming studios. Approximately 60% of Douyin sales come from self-operated livestreaming and less than 40% from influencer livestreaming. More than 90% of Liushen's Douyin sales come from self-operated livestreaming, which is also the primary format for Dr.Yu, while Herborist is the only core brand for which influencer livestreaming contributes more than half. Overall livestreaming ROI is approximately 2x, exceeds 2x for stronger brands, and reaches 2.7x for Big White Mud. Goldman Sachs believes online growth reflects improvements in content production, traffic acquisition, livestream conversion, and supply-chain capabilities, but a higher Douyin mix will also increase channel expenses. Facing competition during Double 11, the company will front-load marketing to capture traffic before traffic costs rise in August and September. Management requires the three core brands—Liushen, Dr.Yu, and Herborist—to achieve at least high-teens YoY growth, while emphasizing that channel efficiency and profitability remain priorities. Offline channels will continue to expand distributor coverage, adjust merchandise mix, promote multi-brand and multi-category operations for key accounts, and refocus the department-store business on shopping malls. Goldman Sachs believes intensifying industry competition will raise marketing investment and customer-acquisition costs and continue to pressure margins. Juzi Biotech in 1H26 and Estée Lauder's mainland China business in CY2Q26 also reported expenses or profitability below expectations, indicating that the pressure is not unique to the company. Margin improvement mainly depends on product mix, new-product pricing, procurement, and operating efficiency. The 1H26 gross margin benefited from a higher beauty-business mix, high-margin new products, and procurement improvements. Although overseas tax rebates made a positive contribution, they represented one-off historical compensation rather than a core operating driver. The higher selling expense ratio reflected front-loaded investment in brand marketing, new products, channel capabilities, celebrity endorsements, elevator advertising, and large-scale offline events. Marketing ROI for existing hero products has improved, while the decline in overall ROI mainly resulted from investment in new products. The company is building a portfolio of RMB100 million products under a strategy of 'launch one, cultivate one, and reserve one.' It believes channel expenses are controllable and future profitability can improve sustainably, but Goldman Sachs has consequently adopted a slower margin-recovery assumption than before. On valuation, Goldman Sachs downgraded the rating from Buy to Neutral and lowered its 12-month target price by 5%, from RMB21 to RMB20, implying 8.7% upside from the current price of RMB18.40, rounded to approximately 9% in the main text. The target price remains based on a 24x 2027 P/E, discounted to mid-2027 using an 8.9% cost of equity. The 24x exit multiple represents a 20% premium to the industry's 20x base multiple, reflecting expected improvements in the company's sales and net profit in 2027. Shanghai Jahwa currently implies a 2027 reported net profit P/E of approximately 23x, above the 14x and 18x of A-share peers Proya and Botanee, respectively, leading Goldman Sachs to view the valuation as broadly fair. Its 2027 revenue forecast is 3% above Visible Alpha consensus, its gross-margin forecast is 2.7 percentage points higher, and its net profit forecast is 32% higher, reflecting Goldman Sachs' continued optimism regarding cosmetics growth and gross-margin expansion. However, since the company was added to the Buy list on April 10, 2025, its share price has declined 8%, while the CSI 300 has risen 23% over the same period, indicating that reduced earnings visibility and intensifying competition have already affected market performance.

Analysis framework

Goldman Sachs first compared 2Q26 revenue, net profit, adjusted net profit, and operating profit with its own expectations to identify the differing effects of investment income, gross margin, and the selling expense ratio on earnings. It then broke down management's 2H26 plans by brand, product, and online versus offline channel, using livestreaming ROI, hero-product GMV, and brand sales targets to assess growth quality. Finally, Goldman Sachs adjusted its 2026–2028 earnings forecasts accordingly and determined the target price and rating based on peer P/E multiples, differences from consensus expectations, and a discounted 2027 P/E.

Methodology notes

• Valuation MethodologyP/E and PEG Valuation

  Target-price valuation based on 2027 P/E

  The report calculates the target value using a 24x 2027 P/E and then discounts it to mid-2027 at an 8.9% cost of equity. The 24x multiple represents a 20% premium to the industry's 20x base multiple, reflecting improvements in the company's sales and net profit.

• Corporate Fundamentals and Financial FrameworkEarnings Quality Analysis

  Distinguishing operating profit, investment income, and adjusted net profit

  The report notes that although adjusted net profit met expectations, high investment income offset a 17% operating profit shortfall; therefore, core operating performance cannot be assessed solely from headline net profit growth.

• Event-Driven Analysis and Behavioral FinanceExpectation Gap/Expectation Management

  Comparison of actual results with Goldman Sachs and market consensus expectations

  The report compares operating profit with Goldman Sachs' expectations and benchmarks its 2027 revenue, gross-margin, and net profit forecasts against Visible Alpha consensus, illustrating that its growth view is more optimistic while its expense assumptions are more conservative.

• Corporate Fundamentals and Financial Framework

  Revenue–gross margin–expense ratio–net profit decomposition

  The report explains the formation of net profit and future margins through brand and channel revenue, gross-margin changes driven by product mix and procurement efficiency, and expense-ratio changes caused by marketing investment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shanghai Jahwa United (600315.SS)

  The A-share company directly covered by the report. Online channels and the Liushen, Dr.Yu, and Herborist brands are sources of growth, while selling expense pressure limits margins and valuation upside.

  Strengths

  Core brands are achieving relatively rapid online growth, with stronger Douyin and self-operated livestreaming capabilities. A higher cosmetics mix, high-margin new products, procurement, and operating efficiency are driving gross-margin improvement. Multiple products have the potential to achieve RMB100 million in sales.

  Weaknesses

  Higher marketing and channel investment caused operating profit to miss expectations. Dr.Yu's brand awareness remains below that of competitors, Liushen's offline growth is limited, and visibility into the earnings recovery has declined.

  Comparison

  The company's implied 2027 P/E is approximately 23x, above Proya's 14x and Botanee's 18x. Goldman Sachs' 2027 revenue, gross-margin, and net profit forecasts are 3%, 2.7 percentage points, and 32% above Visible Alpha consensus, respectively.

  Risks

  The overseas business may face further impairment, Dr.Yu and Herborist sales may deviate from expectations, and changes in online competition, promotions, traffic costs, and content-marketing efficiency could materially affect performance.

Key data

• 2Q26 Revenue GrowthYoY +12%Driven by growth in cosmetics and online channels
• 2Q26 Net Profit GrowthYoY +227%Includes the impact of high investment income
• 2Q26 Adjusted Net Profit GrowthYoY +196%Broadly in line with Goldman Sachs' expectations
• 2Q26 Operating Profit Variance17% below expectationsThe higher selling expense ratio was the primary reason
• Change in 2Q26 Selling Expense RatioYoY +4.7 percentage pointsReflects front-loaded marketing, new-product, and channel investment
• Change in 2Q26 Gross MarginYoY +3.4 percentage pointsDriven by improvements in product mix, supply chain, and operating efficiency
• 1H26 Domestic Online RevenueYoY growth of more than 40%Douyin grew by more than 80%
• Liushen 1H26 Online RevenueYoY +69%Growth approached 70% in 2Q26, while Douyin sales more than doubled
• Mosquito Repellent Egg 3.0 GMVRMB120 million as of June 2026Grew by more than 150% YoY in 1H26
• Dr.Yu FY26 Sales TargetRMB1 billionManagement target, with high-teens growth planned for 2H26
• Herborist FY26 Sales TargetRMB1 billionFY26 GMV target for Big White Mud exceeds RMB300 million
• Livestreaming Return on InvestmentApproximately 2x overallMore than 2x for stronger brands and 2.7x for Big White Mud
• Earnings Forecast Revision2026–2028 net profit lowered by 5%–10%2027 earnings forecast lowered by 7%
• 2027 Revenue and Net Margin ForecastRevenue YoY +10%, net margin 7.4%Previous net-margin forecast was 7.9%
• 2027 ValuationApproximately 23x P/EProya and Botanee are approximately 14x and 18x, respectively
• 12-Month Target PriceRMB20.00Previously RMB21.00; current price RMB18.40; potential upside 8.7%

Impact & implications

The report believes that core brands, new products, and self-operated livestreaming capabilities can continue to support revenue growth in 2H26 and 2027, while product mix and supply-chain efficiency should also improve gross margin. However, intensifying competition ahead of Double 11, rising customer-acquisition costs, and front-loaded investment in new products mean that margin recovery will be slower than previously expected. Lower earnings forecasts and a current valuation above those of major A-share peers mean that improving growth is insufficient to continue supporting a Buy rating.

Risks

• The overseas business faces weak demand, intensifying competition, and a slower-than-expected recovery in key markets. Continued poor operations could trigger further asset impairment and delay the overall earnings recovery.
• Dr.Yu and Herborist are the main growth drivers; the effectiveness of customer acquisition, product innovation, and channel expansion could cause their sales growth to exceed or fall below expectations.
• Changes in online-channel competition, pricing pressure, promotional activities, traffic costs, and content-marketing effectiveness could materially affect brand performance and margins.

What to watch

• Monitor whether the company can achieve 12% YoY revenue growth in 2H26 and its FY26 operating targets.
• Track whether the three core brands can achieve at least high-teens YoY growth during Double 11 while maintaining channel efficiency and profitability.
• Observe whether the selling expense ratio, customer-acquisition costs, and livestreaming ROI improve after the front-loaded marketing investment.
• Track whether Dr.Yu and Herborist can each reach RMB1 billion in FY26 sales, as well as the product-level targets for Big White Mud, Immortal Grass Oil, and Artemisia annua single-dose serum.
• Monitor whether Liushen's offline revenue remains stable and whether Mosquito Repellent Egg 3.0, Fresh Fragrance Shower Gel, and Little Liushen continue to contribute incremental growth.
• Observe the operating performance of the overseas business and whether further asset impairment occurs.