Sa Sa International Holdings
Not a thing to worry about
Sa Sa’s 15.8% SSSG in 3QFY3/14 was not a surprise. Sales growth in Dec was slower than in Oct-Nov as more Chinese tourists travel abroad during festive seasons. We are confident about our FY14-15 SSSG forecast of 15%as we have seen increasing contribution from day trippers and domestic consumers after the holidays in 2013. Sales growth was 17.9% for 1-8 Jan, aided by 14% SSSG. For 2H14, we expect sales growth of20% yoy, on 16% SSSG (16-17% in 4Q14) and 20% earnings growth. We keep our FY14-16 EPS and target price of HK$11.oo, based on 25x CY14 P/E, the average of the staples basket. Sa Sa remains our sector top pick and an Add, with market share gains as a catalyst.
Strong 3Q14 sales, as expected.3QFY14 revenue rose14.8% yoy to HK$2,517m. At28% of our FY14 forecast, it is largely in line with the historical trend (3Q13 run rate = 28%).Retail & wholesale (W/S) revenue for HK & Macau improved17.4% yoy to HK$2,077m.SSSG was 15.8% for the HK & Macau market, which was not a surprise because we have already seen a rebound in this market’s SSSG to 21% after the Golden Week and 18% for 1 Oct-14 Nov(vs. 6% during Golden Week holiday). Average transaction value went up 3.1% to HK$430, indicating a higher contribution from local consumers who shop at Sa Sa at several times the frequency of tourists. Transaction volume increased 15.4% to 4.8m.
What We Think
We observe a trend of declining holiday sales growth that is more than offset by non-holiday sales growth. We are confident about our forecast of 16% revenue growth and 21% earnings growth, on 15% SSSG in FY14.We believe Sa Sa will continue to enjoy a re-rating as IVS tourists and day trippers increase and non-holiday sales grow ever stronger.
What You Should Do
Reiterate Addrating.Sa Sa is trading at 23x 2014P/E.We believe there is potential upside to our FY14-15 EPS forecasts on the back of the increasing number of day trippers and IVS visitors. Historical statistics showed that almost one in four IVS visitors buy at Sa Sa. The rising popularity of free-and-easy trips to HK to slake higher shopping, dining and entertainment demands should also raise IVS tourist numbers. Mainland tourists contribute over 60% of Sa Sa’s total revenue.