Sa Sa International:Dead of winter

Chilly December further widened HK/MacauSSSg decline to 12.2% in3QFY16. Given that HK/Macau recorded a SSSg decline of 10% during 1 Octto 22 Nov 2015, this implies that the decline deteriorated in Dec with no signsof holiday effects. Overall group revenue decreased 14.2% YoY toHK$2,141m while HK/Macau registered a 15.8% YoY decline in 3QFY16.

Meanwhile, Sa Sa saw a moderate revenue decline in other markets (i.e.

China, Singapore, Malaysia, Taiwan and sasa.com) at -6.7% YoY.

Management highlighted 1) strong HKD and 2) same day visitor arrivaldeclines on the back of the “one-trip-per-week” policy ( Hong Kongretail sales - No sign of recovery) as the main reasons behind the weakconsumer sentiment in HK and Macau. We now expect 2HFY16 HK/MacauSSSg to decline 13.1% vs 6.5% previously.

Average ticket size and total transaction volume both trending down. In3QFY16, average ticket size fell 9.1% YoY to HK$366 in HK/Macau. Likewise,the total number of transactions in the same region also declined 7.0% YoY to4.7m. We are alarmed by the rate of decline for both ticket size andtransaction volume since this indicates challenging top-line momentum andfaster-than-expected operating deleverage. Evidently, same day mainlandChinese tourist arrivals took a further negative turn from -8.7% in Oct to-19.6% in Nov. Similarly, mainland Chinese individual visitor scheme touristarrival declines also worsened from -15.0% in Oct to -26.2% in Nov. With thisin mind, we expect Sa Sa will continue to weather tough times going aheadagainst a backdrop of falling mainland Chinese tourist arrivals.

E-commerce still in incubation stage. Whilst Sa Sa has launchednumerous e-commerce initiatives including O2O in order to capture the rapidlygrowing e-commerce market, we believe it’s still too early to tell if its own ecommerceplatform is successful or not given the segment saw a 1.4% YoYrevenue decline and generated a net loss of HK$11.2m in 1HFY16.