SaSa's sales jumped 20.1% to HKD1.9b

Thanks to these two key markets.

According to Maybank Kim Eng, after market close yesterday, SaSa announced that its total 1QFY3/14 sales was up by 20.1% YoY to HKD1.9b, driven by strong SSSG of 17% in HK and Macau.

Here's more:

SaSa had a net increase of four stores across all its markets, lifting its total store count for the period to 264. However, we reiterate our contrarian SELL rating on SaSa due to its unattractive risk-reward profile, with demanding valuations, decelerating SSSG prospects and its struggling China business the major nearterm negative catalysts. Our TP of HKD6.11 is based on an FY3/14F PER of 18X.

The strong 1Q SSSG numbers were primarily due to a low base and will normalise in upcoming quarters, in our view.

Management admitted that growth in 2QFY3/14F would be more challenging given a higher comparison base, while a depreciating Yen is attracting more visitors to shop for skincare/cosmetic products in Japan.

We therefore keep our FY3/14F SSSG assumptions intact at 10%, at the high end of management’s 8-10% guidance given earlier in the year.

We reckon that SSSG in HK and Macau was 9% in the first week of July, while total sales rose 15% YoY in HK & Macau. However, we were told that the typhoons did negatively impact the numbers. PRC visitors remain the major growth driver, making up 70% of domestic sales.

The sales contribution of high-margin in-house brands is continuing to rise and thus GPM was up by around 1ppt YoY. This was largely in line with our full-year expectation.

With regard to major OPEX items, landlords seem to be less aggressive in negotiating lease terms than previously; nonetheless, management indicated that the renewal of shop rentals remains challenging.

Overall, we project a 60bps YoY increment to our SG&A-to-sales ratio in FY3/14F, against a 1.4ppt rise last year.