HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Capital Markets

<ul>
<li>Given that leading luxury groups are inclined to abandon agency and "get involved directly" in the beauty/fragrance category, such trend implies the risk of losing key suppliers in the future</li>
<li>Although there're "reusable aspects" in management, expenses spent on brand channel are big, which makes it impossible for profits to benefit from "scale effect".So, low profit margin is the norm.</li>
<li>Considering the risk of economic recession/sluggish consumption, Eternal Beauty's net profit may experience negative growth in FY2025. It would gradually recover in FY2026-2027. Valuation could be lower than peers.</li>
</ul>


Given that leading luxury groups are inclined to abandon agency and "get involved directly" in the beauty/fragrance category, such trend implies the risk of losing key suppliers in the future
Although there're "reusable aspects" in management, expenses spent on brand channel are big, which makes it impossible for profits to benefit from "scale effect".So, low profit margin is the norm.
Considering the risk of economic recession/sluggish consumption, Eternal Beauty's net profit may experience negative growth in FY2025. It would gradually recover in FY2026-2027. Valuation could be lower than peers.


Pre-IPO Eternal Beauty Holdings (PHIP Updates) - The Outlook Has Changed

<ul>
<li>The essence of Eternal Beauty’s business model is to earn a “price difference” of the brand and product portfolios, but this business model is difficult to generate high profit margins.</li>
<li>The situation and prospects of China's perfume market are facing major changes. It‘s uncertain whether the perfume sales in the China market can maintain double-digit growth in the long term.</li>
<li>Eternal Beauty’s financial performance would face challenges due to changes in consumer preferences, shifts in China's domestic policies, international trade disputes, geopolitical conflicts, etc. Valuation could be lower than peers.</li>
</ul>


The essence of Eternal Beauty’s business model is to earn a “price difference” of the brand and product portfolios, but this business model is difficult to generate high profit margins.
The situation and prospects of China's perfume market are facing major changes. It‘s uncertain whether the perfume sales in the China market can maintain double-digit growth in the long term.
Eternal Beauty’s financial performance would face challenges due to changes in consumer preferences, shifts in China's domestic policies, international trade disputes, geopolitical conflicts, etc. Valuation could be lower than peers.


Pre-IPO Eternal Beauty Holdings - The Perfume Business in China May Not Be as Good as Expected

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Masked by a high base, 4Q FY24 sales of <a href="https://www.smartkarma.com/entities/sa-sa-international-hldgs" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa International Hldgs (178 HK)</a> edged down by 4.1% YoY. However, sales for mainland China have increased by 18.2%.</li>
<li>Overall sales for FY24 are in line with market projections and there is potential for further margin expansion. Its 6.7x and 5.9x PERs for FY25F and FY26F are inexpensive.</li>
<li>The addition of more mainland cities to the Hong Kong individual visit scheme, promotion of Hong Kong tourism, and weaker USD in the medium term are all positive factors.</li>
</ul>


Masked by a high base, 4Q FY24 sales of Sa Sa International Hldgs (178 HK) edged down by 4.1% YoY. However, sales for mainland China have increased by 18.2%.
Overall sales for FY24 are in line with market projections and there is potential for further margin expansion. Its 6.7x and 5.9x PERs for FY25F and FY26F are inexpensive.
The addition of more mainland cities to the Hong Kong individual visit scheme, promotion of Hong Kong tourism, and weaker USD in the medium term are all positive factors.


Sa Sa Intl (178 HK): Steady Recovery, but Biased by High Base

<ul>
<li>3Q FY24 sales of <a href="https://www.smartkarma.com/entities/sa-sa-international-hldgs" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa International Hldgs (178 HK)</a> have recovered to 49% of the FY19 level. Although this is slower than market expectations, the improving trend remains intact.</li>
<li>Stronger Rmb, more attractions in Hong Kong, resumption of “multiple-entry permits" for Shenzhen residents, and more new stores at Sa Sa will drive the rest of this year. </li>
<li>Consensus forecasts are conservative, expecting FY24 earnings just 46% of FY19. With current share price down from HK$1.00-1.50 range during 2020, Sa Sa's valuations are too depressed.</li>
</ul>


3Q FY24 sales of Sa Sa International Hldgs (178 HK) have recovered to 49% of the FY19 level. Although this is slower than market expectations, the improving trend remains intact.
Stronger Rmb, more attractions in Hong Kong, resumption of “multiple-entry permits" for Shenzhen residents, and more new stores at Sa Sa will drive the rest of this year. 
Consensus forecasts are conservative, expecting FY24 earnings just 46% of FY19. With current share price down from HK$1.00-1.50 range during 2020, Sa Sa's valuations are too depressed.


Sa Sa Intl (178 HK): A Slow Recovery But......

<ul>
<li>Besides turnaround in the bottom line, <a href="https://www.smartkarma.com/entities/sa-sa-international-hldgs" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa International (178 HK)</a> achieved good store efficiency improvement and enviable cost control. It will enjoy further operating leverage.</li>
<li>The 5.3pp sequential increase in sales contribution from tourists highlights its position to benefit from revival of tourist arrivals. Three to-be-opened stores will boost sales momentum. </li>
<li>Initial sales figures for 3QFY24 point to 27% overall sales growth, which is encouraging. Sa Sa stays in a very solid financial position with HK$196m of net cash.</li>
</ul>


Besides turnaround in the bottom line, Sa Sa International (178 HK) achieved good store efficiency improvement and enviable cost control. It will enjoy further operating leverage.
The 5.3pp sequential increase in sales contribution from tourists highlights its position to benefit from revival of tourist arrivals. Three to-be-opened stores will boost sales momentum. 
Initial sales figures for 3QFY24 point to 27% overall sales growth, which is encouraging. Sa Sa stays in a very solid financial position with HK$196m of net cash.


Sa Sa Intl (178 HK): Many Bright Spots in 1HFY24 Result

Hong Kong

Sa Sa International Holdings Limited is a leading beauty product retailing group in Asia, engaged in the retail and wholesale of cosmetic products. The company offers a wide range of skincare, fragrance, make-up, body care, hair care, inner beauty, personal care, health and fitness products, and beauty equipment through its retail stores and e-commerce platforms. Sa Sa was founded in 1978 and is headquartered in Chai Wan, Hong Kong.

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Sa Sa (178 HK)

Pre-IPO Eternal Beauty Holdings (PHIP Updates) - The Outlook Has Changed

Luxury groups' direct involvement in beauty/fragrance management is the trend, leading to the loss of suppliers of Eternal Beauty.Low profit...

Xinyao (Criss) Wang

Pre-IPO Eternal Beauty Holdings - The Perfume Business in China May Not Be as Good as Expected

Eternal Beauty's business model struggles to generate high profits in a changing China perfume market, facing challenges from the shifts of...

Xinyao (Criss) Wang

Sa Sa Intl (178 HK): Steady Recovery, but Biased by High Base

Eight more cities in China will be added to the individual visit scheme to Hong Kong starting on 27 May. They are Taiyuan, Hohhot, Harbin, Lhasa,...

Osbert Tang, CFA

Sa Sa Intl (178 HK): A Slow Recovery But......

With more cities in mainland China to be opened for individual travels to Hong Kong and the relaxation of the travel permits of mainland visitors,...

Osbert Tang, CFA

Sa Sa Intl (178 HK): Many Bright Spots in 1HFY24 Result

Sa Sa improved its store efficiency and cost control, benefiting from tourist arrival and sales revivals. 3QFY24 sales grew 27% initially and it...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Pre-IPO Eternal Beauty Holdings (PHIP Updates) - The Outlook Has Changed

​Luxury groups' direct involvement in beauty/fragrance management is the trend, leading to the loss of suppliers of Eternal Beauty.Low profit...

Xinyao (Criss) Wang

Pre-IPO Eternal Beauty Holdings - The Perfume Business in China May Not Be as Good as Expected

​Eternal Beauty's business model struggles to generate high profits in a changing China perfume market, facing challenges from the shifts of...

Xinyao (Criss) Wang

Sa Sa Intl (178 HK): Steady Recovery, but Biased by High Base

Eight more cities in China will be added to the individual visit scheme to Hong Kong starting on 27 May. They are Taiyuan, Hohhot, Harbin, Lhasa,...

Osbert Tang, CFA

Sa Sa Intl (178 HK): A Slow Recovery But......

With more cities in mainland China to be opened for individual travels to Hong Kong and the relaxation of the travel permits of mainland visitors,...

Osbert Tang, CFA

Sa Sa Intl (178 HK): Many Bright Spots in 1HFY24 Result

​Sa Sa improved its store efficiency and cost control, benefiting from tourist arrival and sales revivals. 3QFY24 sales grew 27% initially and it...

Osbert Tang, CFA

Luxury groups' direct involvement in beauty/fragrance management is the trend, leading to the loss of suppliers of Eternal Beauty.Low profit...

Eternal Beauty's business model struggles to generate high profits in a changing China perfume market, facing challenges from the shifts of...

Sa Sa improved its store efficiency and cost control, benefiting from tourist arrival and sales revivals. 3QFY24 sales grew 27% initially and it...