Meeting Takeaways: 3Q FY22 operating data in line; near-term hiccups from tightening amid Omicron cases

  • Sa Sa scored 4.7% y-o-y growth in group revenue for 3Q FY22 (i.e. Oct-Dec 2021) to HK$982m; latest sales in HK/Macau also sustained single-digit y-o-y growth in 1-12 Jan 2022
  • While 3Q FY22 revenue was 53.7% lower than pre-COVID level in 3Q FY19, this signals ample room for sales rebound once HK reopens its borders
  • Latest 5th COVID-19 wave in HK amid local cases of Omicron variant might affect performance in the next few weeks given stricter distancing policies; yet the company stays confident for a turnaround into the black soon given its slight profit in Dec 2021. Maintain BUY on a 12-month investment horizon. Estimates under review

Sa Sa released 3Q FY22 operating data for the 3 months ended Dec 2021 and held an investors’ call. Key takeaways as follows. 

  • Group revenue went up by 4.7% y-o-y to HK$982m in 3Q FY22, comprising HK$619m from HK/Macau (+1.5% y-o-y), HK$210m from online business (+19.9%), HK$86m from Mainland China (-5.1%), and HK$68m from Malaysia (+4.4%). HK alone saw 14.3% growth along with the 2nd phase of Government Consumption Voucher Scheme, new product launches and its large-scale promotional campaigns, while Macau saw a 13.7% sales decline amid COVID outbreak that affected foot traffic. Its online sales growth was mainly driven by HK-based shopping website that was revamped in FY21.
  • 3Q FY22 same-store sales performance: HK/Macau achieved 7.8% y-o-y growth (including +3.8% average ticket size and -0.2% total transaction number) with HK alone seeing 22.9% growth; Mainland China saw a 22.2% decline due to slower consumer sentiment from COVID-19 resurgence
  • Total store number stood at 238 by Dec 2021, including 87 stores in HK/Macau (Sep 2021: 91); 77 stores in Mainland China (Sep 2021: 69); and 74 stores in Malaysia (Sep 2021: 73)
  • As of Dec 2021, net cash reached HK$313m (Sep 2021: HK$268m) along with narrowed losses in 3Q FY22 and effective stock management
  • Gross margin ran on track and reached nearly 40% in 3Q FY22. The company still targets at c.40% gross margin for 4Q FY22
  • Sales sustained an uptrend of 8-10% y-o-y growth in HK and 3% y-o-y growth in Macau during 1-12 Jan 2022. Online sales in HK also grew c.10% y-o-y during the period. Yet, latest tightening of social distancing measures in HK as well as the China-Macau borders did affect performance, seeing sales falling w-o-w during the 2nd week of Jan 2022 by 16% in HK and by 32% in Macau. While the situation is currently expected to be short-lived, Sa Sa will closely monitor market conditions to react swiftly and minimise the impacts
  • Sa Sa achieved over 40% average rental reduction for its renewal of 3-year leases, or a 60-70% rental cut for leases that it only renewed for 1 year. The company stays on track to further reduce total monthly rent in local market to HK$36m by Mar/Apr 2022, and HK$33 by Mar 2023. Other operating costs that see room to further optimise could include staff costs (through increased automation and cost centralisation) and reinstatement costs
  • Given the 5th wave of COVID-19 in HK, the company stays prudent and only expects flattish revenue for 1H FY23 at the moment, assuming HK borders to remain closed
  • Sa Sa’s online portal in HK might also see huge room to expand sales ahead, given merely a mid single-digit contribution to its local sales, as compared to a double-digit proportionate sales from e-commerce for the overall HK retail market, hence management stays very positive for its local online business. The division, together with its store network, should altogether sustain its market share gains, especially in the cosmetics & skin-care segments, as the company becomes more customer centric and leverage on big data to better cater for consumer needs