Worst not yet over for Sa Sa amid challenging outlook for 2HFY16

Obstacles loom in Hong Kong and Macau.

Post its disappointing results for 1H (net profit fell 55%), Sa Sa has been downgraded by Barclays to underweight and cut its price target by 42% to HK$2.30 given the challenging outlook for 2H FY16.

According to a research note from Barclays, it believes the worst is not over for the company. Barclays has been EW on the name but now it turns more bearish.

This is because it thinks its 167% div payout (1H) is not sustainable and Barclays is concerned about the delay in its China FTZ warehouse operations.

Here's more from Barclays:

Our key concerns are the outlook for its core Hong Kong/Macau business (81% of revenue) amid weaker visitor arrivals.

Also, its e-commerce efforts, which are taking time to generate results as the landscape remains competitive.

Further, its passive position as its top line is dependent on Chinese tourist arrivals (70% of its Hong Kong/Macau business), which in turn depends on government policies and forex, and its rental costs, which depend on the property market.

Lastly, its rich valuations (P/Es of 18x for FY16 and 16x for FY17 as we trim our estimates by 39% and 37%, respectively).

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