HONG KONG: For the January/February 2015 combined period, Sa Sa International announced sales for its core Hong Kong/Macau segment were up three percent y/y, and SSS was up seven percent y/y.
According to a research note from Barclays, this is in line with its estimates that look for 2.7 percent y/y sales growth in 4QFY15 (January-March period).
The sales attributable to Mainland customers grew by 6% y/y, driven by the 23% increase in the number of transactions, while dragged by a 14% decrease in the average sales per transaction.
The company commented that the late timing of Chinese New Year this year extended the festive shopping season, which benefited the retail performance in Jan/Feb.
Chinese New Year weak: The company also reported that during the Chinese New Year period (19 to 25 Feb 2015), its Hong Kong/Macau retail sales were down 10% y/y; Sa Sa said it fell short of the company’s expectation. The SSS for the same period was down 7% y/y. The sales attributable to Mainland customers were down 11% y/y.
The company said the weaker-than-expected result was mainly due to the 15% decrease in average sales per transaction attributable to mainland visitors, while the number of transactions grew by 5% during this period despite the decreasing number of mainland visitor arrivals reported by Hong Kong Immigration Department.
Our PT of HK$5.00 (implying 15% upside) is based on 15x P/E applied to our EPS estimates for CY15E. We forecast 6% group revenue growth and 9% group earnings growth in FY16, on recovery from a low base (particularly in 2hfy16). However, we believe these assumptions have policy-related risks such as whether the government puts restrictions on visitor arrivals. We remain Equal Weight on Sa Sa.
In our recent note (Hong Kong Consumer: Slow growth in 2015 too, 13 Feb 2015), we noted that Hong Kong retail will likely see another year of slow growth due to divergence of mainland visitors to other places, which is due to 1) price attractiveness on Hong Kong products is lacking, especially due to strength of the USD against other currencies; 2) general mainland tourist demand for other new travel destinations.
We believe these could drag on Hong Kong retail growth this year too. Furthermore, there has been news that the Hong Kong Chief executive is looking to speak to Beijing government on the possibility of limiting mainland visitor arrivals to Hong Kong (Source: SCMP, 24 February 2015); we believe these also offer potential headwinds to Hong Kong retailers.
