Sa Sa Initiation

8/13/2019 Sa Sa Initiation

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RetailHONG KONGMay 8, 2013

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.Designed by Eight, Powered by EFA

A quality staple; resilient growthSa Sa is the largest cosmetics retailer in Asia in sales terms. We haveseen resilient sales growth, market share gains and margin expansionin 2007-12 and believe these will continue. Growth in mainland daytrippers and changes in the tourist profile are earnings drivers.

Sa Sa delivered mid-teens salesgrowth and mid-single-digit SSSG,

even in 2008-09. For FY13 and FY14,we forecast 15% SSSG p.a. and 20%earnings growth p.a. (20% FY12-16CAGR). It is smaller than globalpeers but its forecast FY13-1547-50% ROE beats the high-teensglobal average. Initiate withOutperform and target price ofHK$9.50, pegged to 23x CY14 P/E,staple companies average.

Tourist profile change drivessales furtherWe think Sa Sa will benefit from therise in visitors from non-tier 1 cities(65% of the total) and day-trippers,who have lower shopping budgets (athird of that for overnight visitors)and shop for daily necessities,including skincare and personal careproducts. Sa Sa has a much lowersales ticket size than the luxurynames (~HK$600 in 1HFY13).Cosmetics and skincare rankedsecond on the shopping lists ofmainland tourists in 2011.

Three re-rating factors:1) Operating leverage and long-termprofitability should improve as Sa Sa

beefs up its scale in China, 2) there ismore room for expansion given POS

additions and an enlargedmerchandise portfolio, even for HK,and 3) another 200m+ tourists haveyet to visit HK while the number ofday trippers is growing. Sa Sa hasbeen gaining market share in HongKong, from 15% in 2002 to 38% in2011 vs. 18% for its closest peer,Bonjour. We expect its gross marginto expand from 45.2% in FY12 to46.6% in FY15 due to higher housebrand sales. The shift in saleschannel from department stores to

specialty stores in China will benefitSa Sa.

Growth is not cheapSa Sas average forward P/E for2005-10 was just 12x while that for2010 until now stands at 20x. In2010, Sa Sa expanded its China salesnetwork from just a handful of POSto 17. We think re-rating shouldcontinue as it aims to add 20 or sonew stores p.a., in addition to theabove catalysts. Sa Sas share price

rose 16% in the past three months,outperforming the HSI by 16%.

Notes from the Field

Katherine CHANT(852) 2539 [email protected]

Chris WONG

T (852) 2532 1128E [email protected]

Company Visit Expert Opinion

Channel Check Customer Views

By building on ourstrengths, leveraging ourbrand reputation andgrowing our brandrecognition, we willcontinue to add chapterafter chapter to ourgrowth story

Dr. Simon Kwok, JP,

Chairman and CEO

Sa Sa International Holdings COMPANY NOTE178 HK / 0178.HK

Current HK$8.40 SHORT TERM(3 MTH) LONG TERM

Market Cap AvgDaily Turnover Free Float Target HK$9.50

US$3,059m US$4.98m 35.0% Previous Target N/AHK$23,746m HK$38.49m 2,809 m shares Up/downside 13.1%

Conviction| |

SOURCES: CIMB, COMPANY REPORTS

83

98

113

128

143

158

173

3.5

4.5

5.5

6.5

7.5

8.5

9.5

Price Close Relative to HSI (RHS)

Source: Bloomberg

510152025

May-12 Aug-12 Nov-12 Feb-13

Volm

Financial Summary

Mar-11A Mar-12A Mar-13F Mar-14F Mar-15F

Revenue (HK$m) 4,901 6,405 7,723 9,369 11,071

Operating EBITDA (HK$m) 676 945 1,143 1,382 1,666

Net Profit (HK$m) 509 690 821 984 1,189

Core EPS (HK$) 0.18 0.24 0.29 0.35 0.42

Core EPS Growth (0.7%) 34.5% 18.7% 19.6% 20.5%

FD Core P/E (x) 46.18 34.33 28.91 24.17 20.06

DPS (HK$) 0.14 0.18 0.20 0.24 0.29

Dividend Yield 1.67% 2.08% 2.42% 2.89% 3.48%

EV/EBITDA (x) 33.86 24.41 20.25 16.75 13.87

P/FCFE (x) 49.17 51.77 42.55 32.95 25.66Net Gearing (45.7%) (36.7%) (31.4%) (29.0%) (29.0%)

P/BV (x) 17.47 14.55 12.58 10.86 9.33

Recurring ROE 40.1% 46.2% 46.7% 48.2% 50.0%

% Change In Core EPS Estimates

CIMB/consensus EPS (x) 1.00 0.97 0.98

8.40

9.50

4.04 8.69

Target

52-week share price range

Current


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Sa Sa International HoldingsMay 8, 2013

2

PEER COMPARISON


Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

Research Coverage

Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside

Dairy Farm Int'l DFI SP SG OUTPERFORM 17,171 12.70 13.62 7.2%

Hengan Intl Group 1044 HK HK OUTPERFORM 12,779 80.6 84.4 4.8%

Sa Sa International Holdings 178 HK HK OUTPERFORM 3,059 8.40 9.50 13.1%

Tingyi (Cayman Islands) 322 HK HK NEUTRAL 14,450 20.05 21.70 8.2%

Want Want China 151 HK HK OUTPERFORM 20,587 12.08 12.70 5.1%

0

5

10

15

20

25

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Rolling P/BV (x)

Dairy Farm Int'l Hengan Intl Group

Sa Sa International Holdings Tingyi (Cayman Islands)

Want Want China

0

5

10

15

20

25

3035

40

45

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Rolling FD P/E (x)

Dairy Farm Int'l Hengan Intl Group

Sa Sa International Holdings Tingyi (Cayman Islands)

Want Want China

0%

8%

17%

25%

33%

42%

50%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Peer Aggregate: P/BV vs Recurring ROE

Rolling P/BV (x) (lhs) Recurring ROE (rhs)

0%

6%

11%

17%

23%

29%

34%

40%

0

5

10

15

20

25

30

35


Peer Aggregate: FD P/E vs FD EPS Growth

Rolling FD P/E (x) (lhs) Fully Diluted EPS Growth (rhs)

ValuationP/E (FD) (x) P/BV (x) EV/EBITDA (x)

Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14

Dairy Farm Int'l 38.09 30.88 26.63 14.38 12.15 10.32 24.18 20.00 17.17

Hengan Intl Group 28.13 24.11 19.47 7.03 6.15 5.29 19.37 16.55 13.52

Sa Sa International Holdings 30.03 25.19 20.94 13.02 11.24 9.67 21.10 17.49 14.48

Tingyi (Cayman Islands) 31.85 28.00 23.21 5.66 5.00 4.37 15.81 11.00 9.24

Want Want China 37.17 29.00 23.90 12.83 10.63 8.89 25.71 20.25 16.41

Growth and Returns

Fully Diluted EPS Growth Recurring ROE Dividend Yield

Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14

Dairy Farm Int'l -7.1% 23.3% 16.0% 42.3% 42.6% 41.9% 1.81% 2.20% 2.52%

Hengan Intl Group 32.8% 16.7% 23.8% 26.6% 27.2% 29.2% 2.11% 2.49% 3.08%

Sa Sa International Holdings 22.3% 19.2% 20.3% 46.7% 47.9% 49.6% 2.34% 2.78% 3.34%Tingyi (Cayman Islands) 8.5% 13.7% 20.6% 15.5% 19.0% 20.1% 1.25% 1.41% 1.70%

Want Want China 32.0% 28.2% 21.3% 37.6% 40.1% 40.5% 1.82% 2.33% 2.82%


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Gross margin continued toimprove from a better productmix. The breakeven of itsChina business should raiseprofitability too.

A dividend payout of 70%should be sustainable, on theback of strong operatingcashflow.

Share price infoShare pxperf. (%) 1M 3M 12M

Relative 10.3 16.2 60.8

Absolute 17.3 16.3 74.3

Major shareholders % held

Dr Kwok (chairman) and wife (vicechairman)

65.0

William Blair & Co 3.0

Invesco 1.5

BY THE NUMBERS


0%

9%

17%

26%

34%

43%

51%

60%

0

2

4

6

8

10

12

14


P/BV vs Recurring ROE

Rolling P/BV (x) (lhs) Recurring ROE (rhs)

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

5

10

15

20

25

30

35


FD Core P/E vs FD Core EPS Growth

Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs)

Profit & Loss

(HK$m) Mar-11A Mar-12A Mar-13F Mar-14F Mar-15F

Total Net Revenues 4,901 6,405 7,723 9,369 11,071

Gross Profit 2,212 2,897 3,545 4,338 5,159

Operating EBITDA 676 945 1,143 1,382 1,666

Depreciation And Amortisation (79) (117) (147) (187) (221)

Operating EBIT 597 828 996 1,195 1,445

Total Financial Income/(Expense) 5 6 5 5 5

Total Pretax Income/(Loss) from Assoc. 0 0 0 0 0

Total Non-Operating Income/(Expense) 11 0 0 0 0

Profit Before Tax (pre-EI) 614 835 1,001 1,200 1,450

Exceptional Items

Pre-tax Profit 614 835 1,001 1,200 1,450

Taxation (104) (145) (180) (216) (261)

Exceptional Income - post-tax 0 0 0 0 0

Profit After Tax 509 690 821 984 1,189

Minority InterestsPreferred Dividends

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Net Profit 509 690 821 984 1,189

Recurring Net Profit 509 690 821 984 1,189

Fully Diluted Recurring Net Profit 509 690 821 984 1,189

Cash Flow


EBITDA 676 945 1,143 1,382 1,666

Cash Flow from Invt. & Assoc.Change In Working Capital (156) (190) (144) (180) (186)

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense 10 8 0 0 0

Other Operating Cashflow

Net Interest (Paid)/Received 0 0 0 0 0

Tax Paid (92) (124) (180) (216) (261)

Cashflow From Operations 438 639 819 986 1,219

Capex (137) (247) (266) (270) (295)

Disposals Of FAs/subsidiaries 1 2 0 0 0

Acq. Of Subsidiaries/investments 12 0 0 0 0

Other Investing Cashflow 163 63 5 5 5

Cash Flow From Investing 40 (182) (261) (265) (290)

Debt Raised/(repaid)

Proceeds From Issue Of Shares

Shares Repurchased 28 14 10 10 10

Dividends Paid (391) (436) (575) (689) (832)

Preferred Dividends

Other Financing Cashflow

Cash Flow From Financing (363) (422) (565) (679) (822)


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Sa Sa has been operatingconsistently with zero debtand a net cash position.

BY THE NUMBERS


Balance Sheet


Total Cash And Equivalents 618 599 592 635 742

Total Debtors 140 206 248 301 356

Inventories 802 1,191 1,436 1,742 2,059

Total Other Current Assets 0 0 0 0 0

Total Current Assets 1,560 1,996 2,276 2,679 3,157

Fixed Assets 205 333 452 534 608

Total Investments 0 0 0 0 0

Intangible Assets 0 0 0 0 0

Total Other Non-Current Assets 111 138 166 202 238

Total Non-current Assets 316 471 618 736 846

Short-term Debt

Current Portion of Long-Term Debt

Total Creditors 455 740 892 1,082 1,279

Other Current Liabilities 51 68 82 99 117

Total Current Liabilities 506 808 974 1,182 1,396

Total Long-term Debt

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 14 21 25 30 35

Total Non-current Liabilities 14 21 25 30 35

Total Provisions 4 7 9 11 13

Total Liabilities 524 836 1,008 1,222 1,444

Shareholders' Equity 1,353 1,631 1,887 2,192 2,559

Minority Interests

Total Equity 1,353 1,631 1,887 2,192 2,559

Key Drivers


ASP (% chg, main prod./serv.) N/A N/A N/A N/A N/A

Unit sales grth (%, main prod./serv.) N/A N/A N/A N/A N/A

No. of POS (main prod/serv) 78 87 104 114 124

SSS grth (%, main prod/serv) 9.3% 22.2% 15.0% 15.0% 14.0%

ASP (% chg, 2ndary prod./serv.) N/A N/A N/A N/A N/A

Unit sales grth (%,2ndary prod/serv) N/A N/A N/A N/A N/A

No. of POS (2ndary prod/serv) 26 48 68 88 108

SSS grth (%, 2ndary prrod/serv) -1.7% 0.5% 1.5% 3.0% 5.0%

Key Ratios


Revenue Growth 19.2% 30.7% 20.6% 21.3% 18.2%

Operating EBITDA Growth 29.2% 39.8% 20.9% 20.9% 20.6%

Operating EBITDA Margin 13.8% 14.8% 14.8% 14.8% 15.1%

Net Cash Per Share (HK$) 0.22 0.21 0.21 0.22 0.26

BVPS (HK$) 0.48 0.58 0.67 0.77 0.90

Gross Interest Cover N/A N/A N/A N/A N/A

Effective Tax Rate 17.0% 17.4% 18.0% 18.0% 18.0%

Net Dividend Payout Ratio 76.8% 71.3% 69.8% 69.9% 69.9%

Accounts Receivables Days 3.23 3.39 3.67 3.66 3.71

Inventory Days 92.6 104.0 114.8 115.3 117.3

Accounts Payables Days 29.20 36.78 43.42 43.62 44.40

ROIC (%) 89.8% 91.9% 78.5% 75.0% 75.5%

ROCE (%) 47.3% 55.7% 56.7% 58.5% 60.7%


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A quality staple name

1. BACKGROUND

1.1 Investment thesisWe initiate coverage on Sa Sa with an Outperform rating and target price ofHK$9.50, pegged at 23x CY14 P/E which is in line with the global peer average(Figure 47). While Sa Sas scaleis smaller than its global peers, its solid ROE of47-50% forecasted for FY13-15 beat the global average ROE that is in the highteens. We think Sa Sa is a staple play. Its growth profile for the past 5-10 yearshas been very resilient amid a turbulent macroeconomic environment. Sa Sawas still enjoying low- to mid-teens sales growth and mid-single digit SSSG inthe post-GFC year of 2009 when a lot of other retailers saw their sales decline.

We believe there are three re-rating factors:

(i) Improving operating leverage and long-term profitability.As Sa Sabeefs up its scale in China, negotiating with brand owners for expansion willbecome easier. While its China business is still loss-making, the magnitude oflosses seems manageable at HK$30m-40m a year (below 5% earnings). Sa Satargets to break even by end-FY15 (Mar 2015). Sa Sa has undergone are-rating considering that its average forward P/E multiple from 2005-2010was just 11.8x, while that from 2010 until now stands at 19.7x. In 2010, Sa Saexpanded its sales network in China from just a handful to 17. We think that there-rating has legs as it aims to add 20 or so new stores p.a. It has 53 stores in 28cities currently.

(ii) More room for expansion from POS additions and enlargedmerchandise portfolio, even for Hong Kong.Sa Sa currently has about

100 stores in Hong Kong and Macau. We think that there is still room toexpand if we benchmark it to Watsons and Mannings that have 200 and 300point-of-sales (POS), respectively, in Hong Kong. Sa Sa generates 10-15% of itssales from non-cosmetics/skincare categories, covering baby, personal care andhealth care products (medicines, supplements, equipment), etc. We think thatfuture revenue drivers could come from expanding its non-skincare products.

(iii) Another 200m+ mainland tourists have yet to visit HK and weexpect the number of day trippers to grow.The individual visit scheme(IVS) covers 49 Chinese cities with a total population of about 351m. Since thelaunch of the IVS in 2003, only about 100m mainland tourists have visitedHong Kong. We think that the increasing number of IVS tourists will remain anearnings driver for Sa Sa. The increasing number of day trippers that havelower spending power should also benefit Sa Sa, which has a lower sales ticket

size of ~HK$600 in 1HFY13 for Hong Kong and Macau. Cosmetics and skincareproducts ranked second on the shopping list of both day trippers and overnighttourists in 2011, according to the Hong Kong Tourism Board.

What is good about SaSa?

(i) Sa Sais currently the largest cosmetics retail chain in Asia in sales terms.

(ii) Sa Sa has been gaining market share consistently in the Hong Kongcosmetics market. Euromonitor estimated that Sa Sas market share inHong Kong increased from 15% in 2002 to 38% in 2011, more than doublethat of its closest peer Bonjour with 18%.

(iii) The increasing number of day trippers and tourists from lower tier citiesshould benefit Sa Sa in view of their smaller shopping budget.

(iv) Continuous margin expansion from rising house bands sales.

(v) The shift in sales channel from department stores to specialty stores inChina will likely benefit Sa Sa.

(vi) Cosmetics sales seem more resilient and less volatile.

Table of Contents1. BACKGROUND p.5

2. OUTLOOK p.6

3. RISKS p.18

4. FINANCIALS p.19

5. VALUATION AND RECOMMENDATION p.25

6. APPENDIX p.27


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2. OUTLOOK

2.1 The largest cosmetic retailer in AsiaSa Sa is currently the largest cosmetics retail chain in Asia in terms of revenue,with emphasis on cosmetics retail and brand management. It has over 260

retail outlets in Hong Kong, Macau, China, Taiwan, Singapore and Malaysia,selling over 600 brands that cover skincare, fragrance, make-up, personal careas well as health and beauty supplements (including own-brands and exclusiveproducts).

Hong Kong and Macau represent about 80% of the total revenue and profit ofSa Sa (Figure 1) but mainland Chinese visitors travelling to Hong Kong havebeen the key earnings driver for the company with 65% of its current sales inHong Kong and Macau coming from mainlanders, compared to 31% from localHong Kong residents (Figure 2). Sa Sa stores have become a must-see formainland shoppers in Hong Kong, given its strong reputation for price discount,product quality (even for parallel imports), large product and brand assortment,and having knowledgeable salespeople.

It was founded in 1978 by Chairman and CEO, Dr. Simon Kwok, and his wife(Vice Chairman Dr. Eleanor Kwok). It was subsequently listed on the StockExchange of Hong Kong in 1997.

Figure 1: Breakdown of Sa Sa's essential numbers, 1HFY13


Figure 2: Breakdown of Sa Sas retail sales in HK and Macau,1HFY13

Figure 3: Breakdown by transactions in HK and Macau, 1HFY13

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

2.2 Continuous market share gainSa Sa has been consistently gaining share in Hong Kongs cosmetics market(seeFigure 4), and we think that it will continue to outgrow the market over thenext two to three years, driven by a strong flow of same-day visitors from China

who budget more for smaller ticket daily necessity items including skincare,cosmetics and personal care products and groceries, compared to the past 5-10years. According to Euromonitor, the Hong Kong beauty and personal caremarkets total retail valuewas HK$12bn as at the end of 2011. Sa Sa accountedfor 38% of the market share for the same period, more than twice its closest

HK$m Turnover % total Profit % total Net margin

HK & Macau 2,630 78% 283 100% 11%

Mainland China 168 5% -20 -7% -12%

Singapore, Malays ia, Taiwan 396 12% 13 5% 3%

sasa.com 183 5% 6 2% 3%

Total 3,378 100% 282 100% 8%

PRC Tourists,65%

Local residents,31%

Asia tourists, 2% Other tourists, 2%

PRC Tourists,38%

Local residents,59%

Asia tourists, 2% Other tourists, 2%


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peer, Bonjour, with 18%. Sa Sas market share increased from 15% in 2002 to38% in 2011, representing a CAGR of 11% for the period.

Figure 4: HK cosmetics and medicines annual sales vs.

Sa SasHK/Macau sales

Figure 5: HK cosmetics and medicines monthly sales

SOURCES: CIMB, HONG KONG CENSUS AND STATISTICS DEPARTMENT SOURCES: CIMB, HONG KONG CENSUS AND STATISTICS DEPARTMENT

2.3 Mainland visitors will continue to drive earningsSa Sa has been a beneficiary of tourist flows from Mainland China since 2003when the individual visit scheme (IVS) started, allowing mainland tourists tovisit Hong Kong individually instead of in groups. Sales growth picked upnoticeably from flattish growth before FY03 to double digits thereafter, asmainland shoppers have been loading up their cosmetics purchases in HongKong given (i) quality assurances, (ii) the wide selection, (iii) availability of thelatest products, and (iv) lower prices compared to those in China due to lowerimport and consumption duties and a stronger Rmb.

Sa Sa has a strong reputation in Hong Kong and China because of itscompetitive prices (especially branded products that may be sold at lowerprices overseas which are then imported by Sa Sa into Hong Kong), wide brandand product varieties of (prices range from mass market to premium, brandsrange from premium, mass, professional salon, cosmeceutical, natural to spabrands), and open-shelves store format and contemporary store image.

Figure 6: Cosmetics / fragrances sold at 30-70% premium in mainland vs. Hong Kong

SOURCE: CIMB

The IVS covers 49 cities with a total population of about 351m mainlandChinese, representing only about 20% of Chinas total population. Since thelaunch of the scheme in 2003, only about 100m mainland tourists have visitedHong Kong. Given that a large number of tourists have yet to visit Hong Kong,we think the increasing number of Chinese tourists will remain the earningsdriver for Sa Sa, as long as Hong Kong has the capacity to cater to thosetourists.


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Figure 7: Individual visit scheme for Hong Kong

Note: Population for Shenyang, Dalian, and Zhengzhou are 2010 figures SOURCES: CIMB, COMPANY REPORTS, CEIC

Date City Population in 2011 (m)

Jul-03 Dongguan 8.3

Jiangmen 4.5

Foshan 7.2

Zhongshan 3.1

Aug-03 Guangzhou 12.8

Shenzhen 10.5

Zhuhai 1.6

Huizhou 4.6

Sep-03 Beijing (permanent) 20.2

Shanghai (permanent) 23.5

Jan-04 Shantou 5.4

Chaozhou 2.7

Qingyuan 3.7

Meizhou 4.3

Zhaoqing 4.0

Yunfu 2.4

May-04 Shaoguan 2.9Heyuan 3.0

Shanwei 3.0

Yangjiang 2.4

Zhanjiang 7.1

Maoming 5.9

Jieyang 5.9

Jul-04 Nanjing 6.4

Wuxi 4.7

Suzhou 6.4

Hangzhou 7.0

Ningbo 5.8

Taizhou 5.9

Fuzhou 6.5

Quanzhou 6.9

Xiamen 1.9

Mar-05 Tianjin (permanent) 13.5

Chongqing (permanent) 29.2

Nov-05 Jinan 6.1

Chengdu 14.1

Dalian 5.9

Shenyang 7.2

May-06 Nanning 6.9

Haikou 1.6

Kunming 6.5

Guiyang 4.4

Changsha 7.1

Nanchang 5.1Jan-07 Wuhan 10.0

Shijiazhuang 10.3

Zhengzhou 9.6

Hefei 5.5

Changchun 7.6

Total 350.6


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Figure 8: Sa Sas revenue and growth Figure 9: PRC tourist arrivals to Hong Kong & Sa Sas SSSG arecorrelating

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS, HONG KONG TOURISM BOARD

2.4 Change in tourist profile drives sales furtherSa Sa is also a beneficiary of the growing trend of lower-spending visitors fromthe mainland. Before 2009, the IVS was only open to permanent residents (PRs)in different Chinese cities. Since 2009, it has been broadened tonon-permanent residents in a few major Chinese cities, namely Shenzhen,Beijing, Shanghai, Tianjin, Chongqing and Guangzhou. As many of the non-PRsare actually rural residents working in the cities, the mix of lower incomespenders has increased. They shop for mass/middle-class market products (asopposed to high-end/luxury ones) including cosmetics and skincare. More so,the mix of visitors from the non-tier-1 cities has also increased, as a Nielsenstudy found that they made up 65% of overnight mainland visitors, and theygrew 43% yoy in 2011 outpacing 24% growth in the number of overnightmainland visitors. The average spending per trip of the visitors from non-tier-1cities is estimated at HK$22,000 or just about 60% of those from tier-1 cities.These trends are reflected in the declining growth in mainlanders per capitaspending compared with that in their arrivals (Figure 10).

Figure 10: Mainland tourist arrivals vs. per capita spending

SOURCES: CIMB, HONG KONG TOURISM BOARD

-10%

0%

10%

20%

30%

40%

50%

0

5

10

15

20

25

30

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

millions

Visitor Arrivals yoy growth SSSG

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2003 2004 2005 2006 2007 2008 2009 2010 2011

yoychg

Mainland tourist arrivals Mainland tourist per capita spending


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2.5 Growth of day trippers has positive impact on Sa SaA related phenomenon is the growth in day trippers from China (Figure 13),who would buy daily necessities in Hong Kong, including cosmetics andskincare products. Day trippers have lower spending budgets, about a third ofthat for overnight visitors. The increasing number of day trippers has draggedluxury sales growth, but should have benefitted Sa Sa which has a much lowersales ticket size than the luxury names (about HK$600 in 1HFY13 for HongKong and Macau). Cosmetics and skincare ranked second on the shopping listsof both day and overnight tourists in 2011, according to the Hong KongTourism Board.

Figure 11: Ticket size comparison, 1HFY13


Figure 12: Ranking of mainlanders' shopping lists 2011

SOURCES:COMPANY REPORTS, HONG KONG TOURISM BOARD

Figure 13: Day trippers arriving in HK per month, 2011-12 Figure 14: Overnight visitors to HK per month, 2011-12

SOURCES: CIMB, Hong Kong Tourism Board SOURCES: CIMB, CEIC, Hong Kong Tourism Board

Tourist category Amount (HK$)

Mainland tourists 603

EU and US tourists 330

Southeast Asian tourists 290

Local residents 186

Rank Shopping items Bought % Rank Shopping items Bought %

1 Cosmetics & Skin Care / Perfume 44% 1 Foodstuff, Alcohol and Tabacco 44%

2 Garments / Fabrics 44% 2 Cosmetics & Skin Care / Perfume 25%

3 Foodstuff, Alcohol and Tabacco 36% 3 Personal Care (Shampoo, diapers etc.) 23%

4 Misc. Consumer Goods 29% 4 Misc. Consumer Goods 20%

5 Leather / Synthetic Goods 28% 5 Garments / Fabrics 19%

Overnight Mainland Tourists Same Day Mainland Tourists


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Figure 15: Number of day trippers, 2002-12 Figure 16: Number of overnight visitors, 2002-12

SOURCES: CIMB, HONG KONG TOURISM BOARD SOURCES: CIMB, HONG KONG TOURISM BOARD

2.6 House brands lift gross marginsSa Sa positions itself as a one-stop cosmetics specialty store and offers over 600brands from around the world, including more than 100 exclusive brands.Whereas historically the company was known for its discounted, parallelimported products, gross margins have been increasing because of the risingshare of higher-margin exclusive brands, which could be either private label orhouse brands. For example, Suisse Programme, Mthode Swiss, sasatinnie,Cyber Colors, or brands for which Sa Sa has exclusive distribution rights, suchas Elizabeth Arden, La Colline, Caudale and Cellex C. Distribution licenceshave a three-year term in general and most of the existing distribution brandshave long established relationships with Sa Sa. For instance, Elizabeth Arden

started its partnership with Sa Sa in 2002.House brands contribute about 42.5% of the total revenue at present. Thecompany hopes to raise this to 50% eventually. We project contributions fromhouse brands to increase 60-80bp p.a. to 44.9% in FY16. We look for grossmargin expansion to continue at a rate of 20-70bp each year till FY17 asexclusive brands continue to lead overall sales growth.

Figure 17: Gross margins by product category, FY12 Figure 18: Gross margin and % share of house brandsFY06-FY16F

SOURCE: CIMB SOURCES: CIMB, COMPANY REPORTS

30%

32%

34%

36%

38%

40%

42%

44%

46%

48%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F

GM % share of house brands


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2.7 Chinaturned the cornerSa Sa entered China in 2005, opening its first store in Shanghai. Networkexpansion was conservative until FY11 when the pace picked up and thecompany increased the number of Sa Sa stores from 17 in FY10 to 53 at theend of Sep 2012, increasing the number of cities it was in from four in 2007 to28. The China business is still loss-making with an immaterial amount ofHK$30m-40m in losses a year since 2009, representing less than 5% of thetotal earnings. But, on a store-basis (i.e., before the corporate overhead), itsmulti-brand Sa Sa stores turned around in 1HFY13 (Rmb1.6m profit vs.Rmb3.6m loss in 1HFY12) and SSSG went from a decline of 3.0% to an increaseof 5.9%. Management targets breakeven by the end of FY15. The loss seemedmanageable at around HK$20m in 1HFY13.

The company is trying to open smaller stores in tier-3 cities and below as thesize of the brand portfolio in China stores is much smaller than those in HongKong. Sa Sa has started to control discounting to protect margins and carrymore house brands in China and, as a result, retail sales growth in China for3MCY13 was down double digits.

Figure 19: Mainland China network

Note: Estimated number for Mar-13 SOURCES: CIMB, COMPANY REPORTS

We agree with management that continuous expansion in China to reach acritical mass is vital to attract more global brand partnerships for expansion,therefore improving longer term profitability in the country. The Singapore andMalaysia markets were set as benchmarks where Estee Lauder startedsupplying products to Sa Sa as its scale expanded. Euromonitor estimated thatChinas cosmetics market was 18x larger than Hong Kongs in terms of retail

sales. Personal care and beauty product sales in China have been resilient,achieving CAGR growth of 11.8% for 2001-11. We expect this strong trend tocontinue as Chinas per capita spending on personal and beauty product s is stilllow compared to other countries.

1 25 4

1017

26

4853

62

6

12

23

18

21

20 13

10

0

10

20

30

40

50

60

70

80

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Sep-12 Mar-13

Multi-brand Sasa Stores Single-brand counters


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Figure 20: Per capita spending on beauty and personal care products in 2011

SOURCES: CIMB, COMPANY REPORTS, CEIC, WORLD BANK, BLOOMBERG

Some of the drivers for the turnaround include:

(i) a faster pace of network expansion which has attracted more brandpartnerships (e.g., LOreal, Maybelline);

(ii) launching more made for China products that would not requireimport licences and that can be brought to the market quickly (in a fewmonths vs. 9-12 months for imported products). Sa Sas focus here is ondomestically-made but exclusive brands that have lower price points tocater to the mass market;

(iii) clustering of stores in nearby cities to leverage regional administrativeresources. The companys stores are currently grouped in four clusters(Northern, covering 25 stores in 10 cities aroundBeijing/Tianjin/Shenyang; Eastern, covering 15 stores in 10 cities aroundShanghai; Central, with eight stores in four cities around Wuhan; andSouthern, with stores in four cities around Guangzhou), each with anoperating manager and a handful of district managers;

(iv) improving the training and development of front-line sales staff, whichhelped raise sales productivity by 30% in 1HFY13.

Operating in China has been an uphill battle because:

(i) China does not allow parallel imports, thus limiting the availability ofdiscounted products at a brand best known among its mainland

customers for its bargain prices and wide product selection;

(ii) obtaining import licences in China is a time-consuming and difficultprocess, thus slowing product introductions and further limiting productselection that is key to Sa Sas success in Hong Kong;

(iii) brand partnerships have been difficult to come by as Sa Sa had beenoperating in China without a sizable national network;

(iv) staff productivity it takes a year to get a new salesperson up to fullspeed so for the first few years, Sa Sa suffered from a lack of experiencedstaff to build its business.

2.8 A beneficiary of continuous shift in sales channelOver the past few years, Chinese department stores had lost revenue share tohealth/beauty specialists and online retailers while hypermarkets andsupermarkets seemed to have maintained their shares (Figure 21). We think thesales-channel shift will likely continue, mirroring the case of the South Koreanmarket (over 20% sales from specialty shops in 2011). We believe Sa Sa would

368.1

219.9202.6 202.5

166.6156.1

23.3

0

50

100

150

200

250

300

350

400

Japan Hong Kong Singapore USA South Korea Taiwan China

US$


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be a beneficiary of this continuous channel shift while its presence ine-commerce should position it for future gains in that channel.

Sephora and Watsons are the current leaders of the Chinese beauty-productspecialty segment with over 100 and 1,000 stores in China, respectively. Sa Sais much less penetrated, with less than 60 stores as at end-Mar 13, implyingmore room for growth.

Figure 21: Beauty and personal care products retail sales by channel in China

SOURCES: CIMB, EUROMONITOR

2.9 Cushioning rental pressure in three main waysRental pressure will likely cap its margins. Hong Kong has the worlds mostexpensive prime retail market (according to a CBRE survey), beating even NewYork, the second most expensive, by almost 48% per sf p.a., after its rentssurged 48% in 2011 and another 27% yoy in 3Q12. About 20 of Sa Sas leaserenewals were signed in FY03/13 with an average rental increment of over 30%.

Sa Sa cushions its rental pressure in Hong Kong in three ways:

(i) Higher contributions from more profitable house brands, from 42% oftotal revenue to 50% ultimately (42% in FY12 to 45% in FY16);

(ii) improving profitability for its China business on the back of economies ofscale and enhanced operating leverage which make negotiation withbrand owners for expansion easier; and

(iii) the opening of more stores in non-touristy areas in Hong Kong, whererents are lower but retail footfall is acceptable.

More stores in New Territories to tap the influx of day trippers

Sa Sa previously focused more on touristy areas such as Causeway Bay andTsim Sha Tsui. Since 2009, it has been feeling the pinch of increasing rentalpressure in touristy areas while simultaneously noticing that more localresidents are moving to the New Territories. As a result, it started to open morestores in the New Territories, along MTR lines. That move coincided with agrowing flux of same-day visitors from the mainland to Hong Kong to buy

foodstuffs, and skin-care and personal-care products. Sa Sa has been steppingup its New Territories stores in the past 18 months, recharging the SSSG of itsHong Kong stores.

At present, over 50% of the population in Hong Kong resides in the NewTerritories (source: The Census Department). Although the average size ofpurchases is smaller there, the total number of sales transactions by localresidents in Hong Kong and Macau accounted for 59% of its total in 1H13. Assuch, local residents form a clientele that Sa Sa cannot afford to ignore.

Plenty of room for expansion in New Territories

There are now 29 Sa Sa stores in the New Territories, against 151 for Manningsand 72 for Watsons. Although they do not carry identical merchandise portfolio,they have personal-care and skin-care products that overlap. We thereforethink that there is still room for Sa Sa to add more stores.

2006 2007 2008 2009 2010 2011 5-yr chg

Hypermkts/supermkts 35.0% 35.6% 35.5% 35.7% 35.3% 34.0% -1.0%

Dept stores 33.1% 33.2% 33.1% 32.8% 30.3% 28.7% -4.4%

Direct selling/home shopping 14.4% 13.9% 13.6% 13.5% 13.9% 14.7% 0.3%

Health and beauty stores/pharmacies 11.5% 14.6% 12.6% 12.9% 13.5% 14.0% 2.5%

Internet retailing 0.7% 0.8% 0.8% 0.9% 3.1% 5.0% 4.3%

Smaller grocers 3.3% 2.8% 2.5% 2.3% 2.1% 1.9% -1.4%

Convenience stores 1.8% 1.7% 1.7% 1.7% 1.6% 1.7% -0.1%


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Lease terms and renewals in Hong Kong and China

Leases in Hong Kong generally stretch for three years, some with a fixedpercentage rental increase each year and others with a set increase at the end ofthree years. Rents are usually fixed, although some malls may have rent peggedto store turnover. Leases in China have similar terms, although rents are moreoften based on turnover. While Sa Sa has been opening bigger flagship stores inHong Kong to accommodate high customer traffic and a larger number of SKUs(14,000-15,000), it found that in China, smaller stores work better as stores inChina can offer only about half of Hong Kong s SKUsand roughly 300 brands,and there is lower traffic.

Figure 22: Global prime retail rent ranking, 3Q12 Figure 23: Prime retail rent index and yoy change

SOURCE: CBRE SOURCES: CIMB, COLLIERS HONG KONG

2.10 Cosmetics sales seem more resilient and less volatileCosmetics and related sales seem to be more resilient and less volatile thanother macro indicators. The figures below show the respective growth in thesales of beauty and personal-care products vs. GDP in different countries

Figure 24: China GDP growth vs beautyand personal care market sales growth

Figure 25: HK GDP growth vs beauty andpersonal care market sales growth

Figure 26: SG GDP growth vs beauty andpersonal care market sales growth

SOURCES: CIMB, EUROMONITOR, CEIC SOURCES: CIMB, EUROMONITOR, CEIC SOURCES: CIMB, EUROMONITOR, WORLD BANK

0%

2%

4%

6%

8%

10%

12%

14%

2008 2009 2010 2011

Beauty and personal care market growth

GDP growth

-4%

-2%

0%

2%

4%

6%

8%

2008 2009 2010 2011


GDP growth

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2008 2009 2010 2011


GDP growth


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Figure 27: South Korea GDP growth vsbeauty and personal care market salesgrowth

Figure 28: Japan GDP growth vs beautyand personal care market sales growth

Figure 29: USA GDP growth vs beautyand personal care market sales growth

SOURCES: CIMB, EUROMONITOR, WORLD BANK SOURCES: CIMB, EUROMONITOR, WORLD BANK SOURCES: CIMB, EUROMONITOR, WORLD BANK

2.11 E-commerce: fragmentation, with competition bringingopportunitiesOnline retailers do compete directly with Sa Sas retail stores (more so on themainland than in Hong Kong). Beauty and personal-care products represented8% of the sales of the top 50 B2C online retailers in 2011 and were the fourthmost popular type of products purchased online by consumers. The segmentsgrowth is projected at a 35% CAGR through 2015 (by iResearch) and productscan be bought at every one of the top 10 online retailers as well as severalupcoming specialty stores, including Lefang, Jumei and Tiantian (Figure 32).

Sa Sas brick-and-mortar stores have in their favour an established and trustedbrand, which is important in a country rife with product-safety and -qualityissues and consumers who prefer to try out products on the spot (especiallyimportant for a category that offers a constant stream of new products). It alsohas sasa.com to capture some of the online buyers. Most importantly, given itsmarket share of less than 0.15% of the Chinese cosmetics industry, there is stillroom to grow its network and be a consolidator in a highly-fragmentedindustry.

Figure 30: iResearchstop 50 online B2C retail survey 2010 Figure 31: iResearchstop 50 online B2C retail survey 2011

SOURCES: CIMB, IRESEARCH SOURCES: CIMB, IRESEARCH

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2008 2009 2010 2011


GDP growth

-6%

-4%

-2%

0%

2%

4%

6%

2008 2009 2010 2011


GDP growth

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2008 2009 2010 2011


GDP growth

Apparel, 47%

ConsumerElectronics, 23%

GeneralMerchandise,

17%

Health & Beauty,7%

Maternity /Baby, 3%

Music / Books, 3%

Apparel, 40%

ConsumerElectronics, 20%

General

Merchandise,14%

Health & Beauty,8%

Luxury, 8%

Music / Books, 4%

Alcohol, 2%

Maternity / Baby,2%

Food, 2%


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Figure 32: 2011 top B2C online retailers

SOURCES: CIMB, IRESEARCH

Figure 33: sasa.comssales, FY08-16F Figure 34: sasa.comsEBIT and EBIT margins, FY10-16F


2.12 Any succession plans? YesDr. Simon Kwok and Mrs Eleanor Kwok have been instrumental in building SaSa. At the age of 60, Dr. Simon Kwok is still energetic and very much involved

in its day-to-day operations. The company has a CFO but not a COO or aregional manager for Hong Kong/China. Our conversations with managementsuggest that Dr. Kwok is looking to hire someone in the 40s with vastexperience in the beauty sector. The second generation of the Kwok family isstill too young (early 20s to 30s) to be involved full-time in the business.

-10%

0%

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0

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FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F

HK$m

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FY10 FY11 FY12 FY13F FY14F FY15F FY16F

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3. RISKS

3.1 Intense competitionCosmetics retailing is a highly competitive industry. Offline competitors includedepartment stores (mostly premium brands), supermarkets and hypermarkets

(mostly mass-market brands), professional stores (e.g. Watsons, Sephora,Gialen [] and Cosmart []), specialty stores (mostly mono-brand

stores e.g. Koreas Skin Food, Etude House, Missha , H2O), pharmacies(especially for cosmeceutical brands such as Boots, Vichy, La Roche-Posay) andbeauty parlours (more niche products such as organic facial bars, bath salts).

3.2 Execution risks in ChinaWe see the increasing importance of a China presence for Sa Sa as China couldfuel its earnings growth in the long term. The company has accelerated itsexpansion in the last couple of years after developing a business model that itthinks would suit China. We think that China remains a work-in-progress asthe company would need to show that its operations can be scaled up theresignificantly.

3.3 Disruptions to visits to Hong KongA tightening of restrictions on visits by mainland Chinese to Hong Kong (e.g.from multiple- to single-entry permits, reducing the scope of the existing IVS),the stricter implementation of customs regulations in China (currently, levieson the purchase of cosmetics and luxury products abroad are usually notstrictly enforced) or another SARS-like breakout that could affect tourist flowsinto Hong Kong could all hurt Sa Sas business.

Figure 35: Customs duties on mainlanderspurchases abroad

SOURCE: GENERAL ADMINISTRATION OF CUSTOMS OF THE PRC

3.4 China cutting taxes on cosmeticsOne key impetus for mainlanders to buy cosmetics in Hong Kong is the price

differential, which is partly a function of taxes in China: a 6.5-15% customs duty,a 30% consumption tax and a 17% VAT. There has been occasional chatterabout China cutting its customs and/or luxury taxes to stimulate domesticconsumption. Our view is that given the 30-70% price differences, even if thosetaxes were reduced or cut, cosmetics would still be cheaper in Hong Kong thanon the mainland. Moreover, in terms of product selection, newness and safety,Hong Kong will likely still be more attractive to mainland shoppers.


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3.5 SWOT analysis

Figure 36: SWOT analysis

SOURCE: CIMB

4. FINANCIALS

4.1 Topline: all eyes on Hong Kongsnew stores and SSSGSa Sas P&L should remain driven by its performance in Hong Kong, whichrepresents about 80% of its sales and more than 90% of its EBIT. We expecttopline growth in Hong Kong to be spurred by both new store additions andSSSG. We anticipate the opening of 17 new stores in FY13 (87 in all in FY12)and about 10 in each of the following years to reach 114 by FY15 as penetrationin the New Territories deepens to accommodate increased demand from daytrippers from China.

We project that SSSG will reach 15% in FY13 (1H13: 16.8%) despite a high basefrom last year, followed by another 15% in FY14 and very low teens each yearuntil FY16. Hong Kong revenue is expected to grow 21-23% in FY13 and FY14,19% in FY15, and 15-17% each year thereafter.

4.2 Topline and SSSG: regional and segmental overviewMainland China

For mainland China, we estimate that Sa Sa will open 20 new stores a year(store base of 48 in FY12), mostly in or around cities where it already has apresence, to increase its regional clustering and operating leverage.

Our SSSG assumptions are 2% for FY13 and 3-5% for FY14 and beyond, whichwould be just about enough for SSSG to catch up with inflation. Currently at 5%of total sales, Chinas share should climb to 6-7% in the next few years.

Singapore

Sa Sas SSSG declined by low single digits in FY08 -12, except in FY11 when itachieved SSSG of 5.2%. There have been staffing issues in Singapore as thecountry continues to experience labour shortages; this has affected operationalefficiency at its stores. Local Singaporeans do not prefer working in the retailingindustry because that generally entails working on holidays. In addition, a weakeconomy in Singapore continues to affect consumer sentiment. Despite these

issues, Sa Sas SSSG was 6.6% in 1H13.We think expansion in Singapore will be somewhat limited by its high labourcosts. Although the business is still profitable, we assume just 2-3 new stores ayear to its existing 20-store base.

Strengths Opportunities

Well-known brand with regional retail footprint Network expansion in New Territories in HK to cater for

One-stop destination shopping for cosmetics and personal demand from same-day visitors from mainland

care products Improving operations and profitability in China

Wide selection of products , brands and price points Network expansion in China

Key beneficiary of trend of mainlanders doing mass market Introduction of more "Made for China" products in China

shopping in HK (product quality, selection, competitive prices) GM improvement from favorable mix shift towards house

St rong balance sheet and cash flow brands and exclusive products

Weaknesses Threats

Still heavily dependent on HK market which drives >90% of Rising rental costs in HK

profits Intense online competition especially in China

Challenges in broadening merchandise selection and raising Successsion

sales staff productivity in China Possibility of Chinese government lowering taxes on imported

Reputation for price discounts in HK cannot be used to draw cosmetics and personal care products thus reducing price gap

in traffic in China due to import restrictions and duties there with HK

An unexpected event (e.g., SARS, severe tension in mainland-HK

relations) that hurts mainland tourism to HK


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Taiwan

Sa Sa operates in a very competitive landscape in Taiwan, competing head-onwith Watsons, the leader in store count (about 500 POS), and Cosmed, theleader in the mid-mass market. Sa Sas sales had been mixed in the past fewyears. SSSG had fluctuated between high single digits to declines of a similarmagnitude in FY08-12. Similarly, Taiwans consumer sentiment remainsmediocre (1H13 SSSG down 0.8% following two consecutive years of just 2%).We have assumed the opening of 2-3 new stores a year to its existing 27. Still,we believe Sa Sa has good growth potential in Taiwan as the number ofindividual tourists from mainland China should increase in the coming years.

Malaysia

In Malaysia, Sa Sa benefits from strong brand awareness among the youngerpopulation, booking positive SSSG every year in FY08-12 (1H13: 4.1%). Webelieve Malaysia will be more promising with a capacity for 7-10 new stores ayear on its existing 49-store base.

sasa.com

sasa.coms sales grew by a 25% CAGR over the past three years, which we thinkcan be sustained as its sales base remains modest while e-commerce salesshould continue to grow.

All in all, we project a 24% sales CAGR through to FY16, including 30% in FY13and 25% in FY14.

Figure 37: Store count and SSSG by country


FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F 1HFY13 2HFY13

Standalone "Sasa" stores

HK & Macau 62 70 78 87 104 114 124 132 94 104

China 10 17 26 48 68 88 108 128 53 68

Singapore 14 18 20 21 24 26 28 30 20 24

Malaysia 26 30 38 45 54 62 70 77 49 54

Taiwan 13 15 19 26 29 32 35 38 27 29

Total 125 150 181 227 279 322 365 405 243 279

Single -brand stores/counters

HK & Macau 3 2 2 2 2 2 2 2 2 2

China 18 21 21 20 15 17 18 20 13 15

Singapore 0 0 0 0 0 0 0 0 0 0

Malaysia 0 0 0 0 0 0 0 0 0 0

Taiwan 2 1 1 0 0 0 0 0 0 0

Total 23 24 24 22 17 19 20 22 15 17

yoy % chg - Standalone "Sasa" stores

HK & Macau 7% 13% 11% 12% 20% 10% 9% 6% 12% 20%China 150% 70% 53% 85% 42% 29% 23% 19% 36% 42%

Singapore 8% 29% 11% 5% 14% 8% 8% 7% 0% 14%

Malaysia 24% 15% 27% 18% 20% 15% 13% 10% 26% 20%

Taiwan -7% 15% 27% 37% 12% 10% 9% 9% 29% 12%

Total 14% 20% 21% 25% 23% 15% 13% 11% 20% 23%

SSSG

HK & Macau 4.5% 7.1% 9.3% 22.2% 15.0% 15.0% 14.0% 13.0% 16.8% 13.2%

China na 13.0% -1.7% 0.5% 1.5% 3.0% 5.0% 5.5% 5.9% -2.9%

Singapore -1.6% -1.5% 5.2% -1.5% 1.0% 2.0% 3.0% 3.5% 6.6% -4.6%

Malaysia 13.5% 9.5% 4.6% 0.7% 1.0% 3.0% 4.0% 5.0% 4.1% -2.1%

Taiwan -2.6% 8.6% 2.0% 2.1% 2.0% 2.0% 3.0% 3.0% -0.8% 4.8%


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Figure 38: Turnover by country


4.3 EBIT margins still have room to improve, driven by GMWe expect EBIT margins to dip 3-18bps to 12.9% and 12.8% in FY13 and FY14respectively, due to staff and rental cost pressures, before improving by 30bpper year beginning in FY15 as rent growth should have passed its peak by thenand as SG&A comes under greater control. Gross margins, on the other hand,should inch up by 30-40bp each year to 46.3% in FY14 and 46.8% by FY17, ledby 60-80bp annual increases in its mix of house-brand products.

Figure 39: Ratio analysis (as % sales)



Turnover

HK & Macau 2,981 3,288 3,923 5,093 6,143 7,534 8,944 10,492 2,630 3,513

Mainland China 60 97 145 291 360 418 506 594 168 192All other segments 568 726 833 1,022 1,220 1,417 1,621 1,855 579 641

Singapore 140 162 206 242 272 296 323 353 126 146

Malaysia 142 176 221 257 297 353 409 472 146 151

Taiwan 132 147 172 226 264 285 309 335 124 140

sasa.com 154 241 235 297 386 483 580 695 183 203

Total Sales 3,609 4,111 4,901 6,405 7,723 9,369 11,071 12,942 3,377 4,345

Turnover yoy chg

HK & Macau 8% 10% 19% 30% 21% 23% 19% 17% 19% 22%

Mainland China nm 61% 50% 100% 24% 16% 21% 18% 55% 5%

All other segments 23% 28% 15% 23% 19% 16% 14% 14% 23% 17%

Singapore 4% 16% 27% 18% 12% 9% 9% 9% 8% 17%

Malaysia 36% 24% 25% 16% 16% 19% 16% 15% 24% 9%

Taiwan 0% 12% 17% 32% 17% 8% 9% 8% 16% 18%

sasa.com 66% 57% -2% 26% 30% 25% 20% 20% 40% 22%

Total Sales 12% 14% 19% 31% 21% 21% 18% 17% 21% 20%

Turnover as % total

HK & Macau 83% 80% 80% 80% 80% 80% 81% 81% 78% 81%

Mainland China 2% 3% 5% 5% 4% 5% 5% 5% 4%


Singapore 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%

Malaysia 4% 4% 5% 4% 4% 4% 4% 4% 5% 5%

Taiwan 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%

sasa.com 4% 6% 5% 5% 5% 5% 5% 5% 5% 5%

Total Sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F 1HFY13 2HFY13COGS -56.3% -55.9% -54.9% -54.8% -54.1% -53.7% -53.4% -53.2% -54.3% -53.9%

Gross margins 43.7% 44.1% 45.1% 45.2% 45.9% 46.3% 46.6% 46.8% 45.7% 46.1%

Staff costs -13.7% -13.5% -13.4% -12.7% -13.2% -13.2% -13.2% -13.1% -14.0% -12.5%

Occupancy costs -9.7% -9.7% -9.9% -9.8% -9.9% -10.0% -10.0% -10.0% -10.8% -9.2%

Ad exp's -1.9% -2.0% -1.9% -1.8% -1.8% -1.8% -1.8% -1.8% -1.6% -1.9%

Depreciation -1.8% -1.5% -1.6% -1.8% -1.9% -2.0% -2.0% -2.0% -2.4% -1.5%

Other opex -7.1% -6.9% -6.8% -6.8% -6.9% -7.2% -7.2% -7.2% -7.5% -6.3%

Total SG&A -34.2% -33.6% -33.6% -32.9% -33.6% -34.2% -34.2% -34.1% -36.4% -31.4%

EBIT margin 10.2% 11.2% 12.2% 12.9% 12.9% 12.8% 13.1% 13.4% 10.1% 15.1%

EBITDA margin 12.0% 12.7% 13.8% 14.8% 14.8% 14.8% 15.1% 15.4% 12.5% 16.6%

Tax rate 17.6% 18.0% 17.0% 17.4% 18.0% 18.0% 18.0% 18.0% 19.0% 17.5%

Net profit margin 8.8% 9.3% 10.4% 10.8% 10.6% 10.5% 10.7% 11.0% 8.4% 12.4%

Core net profit margin 8.7% 9.3% 10.2% 10.8% 10.6% 10.5% 10.7% 11.0% 8.3% 12.5%


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Figure 40: EBIT and EBIT margins by country


4.4 Two largest cost items: rent and labourThe company has been nimble in managing its rental costs. Rent as apercentage of sales had climbed by only 10bp from 9.7% in FY09 to 9.8% inFY12. Management did this by relocating stores facing unreasonably large rentincreases (e.g. more than double) to sites nearby and opening more stores inthe New Territories where rents are more modest.

We think rents will continue to be a pressure point although their growth has atleast been decelerating. We expect rents to inch up by about 10bps p.a. as apercentage of sales over the next several years.

Staff costs should remain a pressure point for the company. Although theirgrowth has been accelerating, we believe they will remain fairly stable as apercentage of sales in the coming years.


EBIT

HK & Macau 318 348 475 674 811 994 1,198 1,416 283 528

Mainland China (27) (19) (22) (38) (36) (29) (10) 6 (20) (16)All other segments 25 53 56 54 53 69 84 100 19 34

Singapore, Malaysia, Taiwan 21 25 41 34 33 42 52 58 13 20

sasa.com 4 28 15 19 19 27 32 42 6 14

Total EBIT 316 382 509 690 828 1,034 1,272 1,522 282 545

EBIT margin

HK & Macau 10.7% 10.6% 12.1% 13.2% 13.2% 13.2% 13.4% 13.5% 10.8% 15.0%

Mainland China -45.3% -19.2% -15.5% -13.1% -10.0% -7.0% -2.0% 1.0% -0.8% -0.5%

All other segments 4.4% 7.3% 6.8% 5.2% 4.3% 4.8% 5.2% 5.4% 3.3% 5.3%

Singapore, Malaysia, Taiwan 5.1% 5.1% 6.9% 4.7% 4.0% 4.5% 5.0% 5.0% 3.4% 4.6%

sasa.com 2.4% 11.7% 6.4% 6.5% 5.0% 5.5% 5.5% 6.0% 3.0% 6.8%

total 8.8% 9.3% 10.4% 10.8% 10.7% 11.0% 11.5% 11.8% 8.4% 12.6%

EBIT yoy chg

HK & Macau 9% 37% 42% 20% 23% 21% 18% 27% 17%

Mainland China -32% 21% 70% -6% n.m. n.m. -159% 0% -12%

All other segments 113% 7% -5% -2% 30% 22% 19% -14% 7%

Singapore, Malaysia, Taiwan 17% 67% -17% -3% 26% 24% 11% -4% -2%

sasa.com 652% -46% 27% 1% 38% 20% 31% -29% 21%

total 21% 33% 35% 20% 25% 23% 20% 26% 17%

EBIT as % total

HK & Macau 101% 91% 93% 98% 98% 96% 94% 93% 100% 97%

Mainland China -9% -5% -4% -6% -4% -3% -1% 0% -7% -3%


Singapore, Malaysia, Taiwan 7% 6% 8% 5% 4% 4% 4% 4% 5% 4%

sasa.com 1% 7% 3% 3% 2% 3% 3% 3% 2% 3%Total Sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%


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Figure 42: Yoy changes


4.5 Attractive ROEs and cash flow generationSa Sa had an enviable 46% ROE in FY12 as a solid conversion from EBIT to netincome (net income/PBT and PBT/EBIT) and steady EBIT margins(EBIT/sales) were combined with very high sales efficiency (sales/assets) andmodest leverage ratios (assets/equity). We think such high ROEs aresustainable for at least 3-5 years given the high sales productivity of its stores inHong Kong while dilution from store expansion in China is likely to be limitedas China contributions will likely remain below 10% of its total turnover in thenext few years.

4.6 High earnings quality and sustainable high payoutsSa Sa is able to convert close to 100% of its net profit into cash from operations.Free cash flow amounted to HK$392m in FY12 (1HFY13: HK$121m) andshould top HK$900m by FY15. Management has budgeted HK$250m-260mp.a. for capex from 2013 onwards. We factor in 70% dividend payouts, in linewith its historical practice and guidance.

Figure 43: Annual sales per store (latest available annual data)



Revenue 12% 14% 19% 31% 21% 21% 18% 17% 21% 20%

COGS 11% 13% 17% 30% 19% 20% 18% 16% 17% 20%

Staff costs 9% 13% 18% 24% 24% 21% 18% 16% 26% 23%Occupancy costs 14% 13% 22% 29% 22% 23% 18% 17% 24% 20%

Ad exp's 27% 19% 12% 23% 22% 21% 18% 17% 16% 27%

Depn 0% -4% 27% 48% 25% 28% 18% 17% 63% -3%

Other opex 23% 10% 17% 31% 21% 28% 18% 16% 28% 16%

Total SG&A 13% 12% 19% 28% 23% 23% 18% 17% 28% 19%

EBIT 15% 25% 30% 39% 20% 20% 21% 20% 22% 19%

EBITDA 13% 21% 29% 40% 21% 21% 21% 19% 29% 17%

PBT 10% 22% 32% 36% 20% 20% 21% 20% 28% 16%

Reported profit 14% 21% 33% 35% 19% 20% 21% 20% 26% 16%

Core net profit 15% 22% 30% 38% 19% 20% 21% 20% 20% 18%

Reported EPS 14% -40% 32% 35% 19% 19% 21% 19% 26% 16%

Core EPS 15% -40% -1% 35% 19% 19% 21% 19% 20% 18%

DPS 10% -39% 0% 25% 16% 19% 21% 19% 17% 16%

60.3

5.1

11.8

6.29.8

57.4

9.412.2

2.67.4

2.8 3.4

11.9

5.09.1

1.7

0

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HK$

m


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Figure 44: Cash flow and net cash projections


Figure 45: ROE projections


5. VALUATION AND RECOMMENDATION

5.1 Not cheap but there are more catalystsRather than valuing Sa Sa as a discretionary retailer, we think it is in fact astaple retailer if we examine its growth profile in the past 5-10 years, which hasbeen very resilient. Sa Sa was still able to enjoy low- to mid-teens toplinegrowth and mid-single-digit SSSG during the 2009 crisis when many of theother retailers round the globe suffered revenue drops. To us, its earningsgrowth resembles that of an F&B/staple company.

We initiate coverage with an Outperform rating and target price of HK$9.50,set at 23x CY14 P/E, in line with its global peer average. While Sa Sas scaleis

smaller than its global peers, its solid ROEs of 47-50% forecast for FY13-15 beatthe global average of high teens by far.

We foresee three re-rating catalysts:

(i) Improving operating leverage and long-term profitability

(ii) More room for expansion from POS additions and more merchandise,even for Hong Kong

(iii) Another 200m+ mainland tourists have yet to visit HK under IVS and weexpect the number of day trippers to grow

Consensus focuses on Sa Sas forward P/E (currently at 23x) vs. its historical(15x since 2005, 20x since 2010) and concludes that the stock is fully valued

(average target price of HK$8.19 from 23 analysts). We think Sa Sa willcontinue to be re-rated, based on the above catalysts, and can trade up toHK$9.50.

FY07 FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F

Cash Flow

Net profit 220.5 276.3 316.0 381.9 509.3 689.7 821.0 983.6 1,188.8 1,420.8

Depreciation 77.9 75.5 65.3 62.4 79.2 117.1 146.7 187.4 221.4 258.8

Change in working capital (52.3) (12.4) (28.2) (40.7) (156.1) (190.3) (143.8) (179.7) (185.7) (204.1)

Other operating activities (12.9) (82.8) (18.5) 11.0 10.8 22.8 (5.1) (5.1) (5.1) (5.1)

Cash from operations 233.2 256.6 334.5 414.7 443.1 639.3 818.9 986.2 1,219.4 1,470.4

as % net profit 106% 93% 106% 109% 87% 93% 100% 100% 103% 103%

Capex (57.8) (59.0) (75.1) (74.1) (136.7) (247.2) (266.0) (269.5) (295.1) (314.1)

FCF 175.4 197.6 259.4 340.5 306.4 392.1 552.8 716.7 924.3 1,156.3

Dividends (230.0) (233.9) (290.1) (360.0) (391.3) (435.7) (574.7) (688.6) (832.2) (994.6)

FCF post dividends (54.6) (36.3) (30.6) (19.4) (84.9) (43.6) (21.9) 28.2 92.1 161.7

Cash 570.0 424.4 584.6 392.6 524.3 563.0 556.1 599.2 706.4 883.1

Debt - - - - - - - - - -

Net cash 570.0 424.4 584.6 392.6 524.3 563.0 556.1 599.2 706.4 883.1Net cash per share (HK$) $0.21 $0.15 $0.21 $0.14 $0.19 $0.20 $0.20 $0.21 $0.25 $0.31

FY07 FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F

ROE 21% 25% 28% 33% 39% 46% 47% 48% 50% 51%

Net inc/PBT 75% 79% 82% 82% 82% 83% 82% 82% 82% 82%

PBT/EBIT 1.19 1.09 1.04 1.01 1.03 1.01 1.01 1.00 1.00 1.00

EBIT/Sales 8.5% 9.9% 10.2% 11.2% 12.2% 12.9% 12.9% 12.8% 13.1% 13.4%

Sales/Assets 1.88 2.25 2.53 2.76 2.84 2.95 2.88 2.97 2.98 2.98

Assets/Equity 1.50 1.39 1.28 1.29 1.36 1.46 1.52 1.55 1.56 1.56


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Figure 46: Sa Sas valuation

SOURCES: CIMB, BLOOMBERG

Figure 47: Sa Sa vs. best-in-class consumer staple stocks

SOURCES: CIMB, COMPANY REPORTS, * BLOOMBERG

0

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Forward P/E (LHS) Stock price (RHS) Price/Book (RHS)

Global cosmetics and staples pe ers

Name Ticker Ccy Price TP Rating CY13 CY14 CY13 CY14 CY13 CY14 CY13 CY14 CY13 CY14 CY13 CY14

Sa Sa International 178 HK HKD 8.40 9.50 OUTPERFORM 25.2 21.0 1.3 1.0 19.4 20.3 12.8 13.0 10.5 10.7 47.8 49.6

Sun Art Retail 6808 HK HKD 10.64 9.60 UNDERPERFORM 30.4 25.9 1.9 1.5 15.7 17.4 4.4 4.5 3.1 3.1 22.0 23.0

Tingyi 322 HK HKD 20.05 21.70 NEUTRAL 28.0 23.2 0.6 1.1 43.2 20.6 7.6 8.2 4.8 5.1 27.3 28.9

Want Want China 151 HK HKD 12.08 12.70 OUTPERFORM 29.0 23.9 1.0 1.1 28.2 21.3 22.3 22.8 17.4 17.6 53.5 54.0

Dairy Farm DFI SP USD 12.50 13.62 OUTPERFORM 30.4 26.2 1.3 1.6 24.1 16.0 6.3 6.5 5.1 5.3 42.6 41.9

L'Occitane * 973 HK HKD 22.90 N/A NR 21.8 18.4 1.4 1.0 15.5 18.7 16.6 17.0 12.7 13.0 19.3 19.7

Estee Lauder * EL US USD 70.31 N/A NR 25.2 22.3 1.9 1.7 13.2 13.1 15.5 16.2 10.3 10.9 35.1 34.6

L'Oreal * OR FP EUR 133.65 N/A NR 26.0 23.9 4.4 2.8 5.9 8.6 16.9 17.2 13.2 13.5 14.5 14.7

Fancl Corp * 4921 JP JPY 1,060.00 N/A NR 30.7 27.4 3.9 2.3 7.9 11.9 0.0 0.0 2.6 2.9 2.7 2.9

Amorepacific Corp * 090430 KS KRW 898,000.00 N/A NR 18.4 16.2 0.7 1.2 25.1 13.7 12.8 12.7 9.8 10.0 12.4 12.6

Average 27.2 23.0 1.4 1.3 22.8 18.2 12.2 12.6 9.1 9.4 35.4 36.0

Note: priced as of 8 May 2013; calendarised to Dec-end

ROAE (%)PE (x) PEG (x) EPS grow th (%) EBIT m argin (%) Net m argin (%)


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6. APPENDIX

6.1 Sa Sas in-house brands

Figure 48: In-house brands

SOURCES: CIMB, COMPANY REPORTS AND WEBSITE

6.2 Sa Sas exclusive distribution brands

Figure 49: Exclusive distribution brands


6.3 Sa Sa vs. Bonjour

Figure 50: HK/Macaus retail store count Figure 51: Mainland Chinas retail store count


Brand Description

Suisse Programme Premium Swiss made skincare treatment products

Methode Swiss Skincare products produced with advanced technologies of Switzerland and high

quality natural ingredients

Swiss Rituel Produced with natural ingredients from Switzerland. Suitable for all skin types

including sensitive skin

Skin Peptoxyl Cosmeceutical brand made in USA

Hadatuko Japanese concept products made in Japan; products include beauty drinks

Haruhada Japanese brand; products formulated with various botanical extracts and hyaluronic

acid or collagen

Orchid From Paradise Herbal skincare products made in Australia and France

Home Secrets Skincare and haircare products

Sasatinnie Young and trendy beauty/personal care products

Cyber Colors Makeup products and tools; skincare and bodycare products

Color Combos Makeup, skincare and bodycare products

Armand Basi Caudalie Dr.Jart+ Guess LALIQUE PARFUMS Pal Zileri fragrances Talika

Blumarine Cellex-C Ed Hardy IN ESSENCE Mandarina Duck Paris Hilton Tous

Britney Spears Coll istar Elizabeth Arden INSTITUT ESTHEDERM Masaki Paris Perry Ell is Transvital

BRTC Disney Ferrari Jaguar Fragrances Natio Police United Colors of Benetton

byblos Dsquared Perfumes Gianfranco FERRE Katy Perry Neogence PUPA Victorinox

Calotine Dr.G GoodSkin Labs La Colline Nuxe Salvatore Ferragamo

51 5358

62

70

78

8784

94

31 29 30

26

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40

48 47 49

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Sasa Bonjour


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Figure 52: Same-store sales growth Figure 53: Revenue and growth


Figure 54: Gross and EBIT margins Figure 55: Rental as % sales


(Note: partly because of difference in stores distribution between the two)

Figure 56: Staff costs as % sales Figure 57: Marketing costs as % sales


-10%

-5%

0%

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30%

2005 2006 2007 2008 2009 2010 2011 1H11 1H12

Sasa Bonjour

-10.0%

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40.0%

50.0%

2005 2006 2007 2008 2009 2010 2011 1H12

Sa Sa GM Bonjour beauty products GM

Sa Sa EBIT margins Bonjour EBIT margins

0%

2%

4%

6%

8%

10%

12%

14%

16%

2008 2009 2010 2011 1H12

Sa Sa Bonjour beauty products

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2008 2009 2010 2011 1H12


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2008 2009 2010 2011 1H12



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Figure 58: EBIT Figure 59: Net profits


Figure 60: Cash and ROEs


Figure 61: Forward P/E


-60%

-40%

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0%

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40%

60%

80%

100%

0

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800

2007 2008 2009 2010 2011 1H12

HK$m

Sa Sa net profit Bonjour net profit

Sa Sa net profit yoy chg (RHS) Bonjour net profit yoy chg (RHS)

0%

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140%

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35

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Sa Sa fwd P/E (LHS) Bonjour fwd P/E (LHS)Avg Sa Sa premium/(discount) (RHS) Sa Sa premium/(discount) (RHS)


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Figure 62: Price to book


-100%

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0%

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100%

150%

200%

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Sa Sa P/BV (LHS) Bonjour P/BV (LHS)

Sa Sa premium/(discount) (RHS) Avg Sa Sa premium/(discount) (RHS)


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6.4 Management biographies

Figure 63: Management biographies

SOURCE: COMPANY REPORTS

Dr. Kwok Siu Ming, Simon Dr. Kwok , 60, together with his wife, Dr. Kwok Law Kwai Chun Eleanor, has run Sa Sa's operations since its

early days. Over the past 35 years, he has played a leading role in transforming Sa Sa into a leading market

player with a regional network of operations in Asia. Dr. Kwok is, among others, the President, Councillor andHonorary Life President of the Cosmetic & Perfumery Association of Hong Kong, the Honorary President of the

Federation of Beauty Industry (HK), and the Honor President of International CICA Association of Esthetics-

CIDESCO Section China. Dr. Kwok received degrees of Doctor of Business Administration honoris causa from

the Open University of Hong Kong in 2011 and from Lingnan University in 2008. Dr. Kwok is the brother-in-law

of Mr Law Kin Ming Peter, SVP of Category Management and Product Development.

Chairman and Chief Executive Officer

Dr. Kwok Law Kwai Chun, Eleanor Dr. Kwok, 59, is a founder of Sa Sa and has more than 37 years of experience in the sales and market ing of

beauty products and is a pioneer of open-shelf display of beauty products. Dr. Kwok plays a leading role in the

marketing, operations, human resources and staff training functions of the company. She is, among others,

currently the Honorary President of the Cosmetic & Perfumery Association of Hong Kong, and received The

Excellent Award in Hong Kong Beauty Industry 2012/13 from International CICA Association of Esthetic-

CIDESCO Section China in 2012. She was conferred an Honorary Doctorate of Management by Morrison

University, USA. Dr. Kwok is the wife of Dr Kwok Siu Ming Simon, and the sister of Mr Law Kin Ming Peter,

SVP of Category Management and Product Development.

Vice Chairman

Mr. Look Guy Mr. Look, 56, has over 30 years of experience in local and overseas financial and general management. Prior to

joining Sa Sa in 2002, he was the CFO and an Executive Director of Tom.com Limited (renamed TOM Group

Ltd.). Mr Look was appointed as an Independent Non-Executive Director of Cafe de Coral Holdings Limited in

2009. He holds a Bachelors degree in Commerce from the University of Birmingham, England, and is an

associate member of the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute

of Certified Public Accountants ("HKICPA"). Mr. Look is also a member of the Professional Accountants in

Business Leadership Panel of HKICPA, and the Vice Chairman of the Hong Kong Retail Management

Association. He is the nephew of Mrs. Lee Look Ngan Kwan Christina, Non-Executive Director.

Chief Financial Officer and Executive Director

Mr. Law Kin Ming Peter Mr. Law, 57, joined Sa Sa in 1996. He has more than 30 years of experience in the field of sales and

marketing, 20 of which were in senior management positions. He is also responsible for the Groups acquisition

of exclusive distribution rights of international brands and the development of the Groups house brand

products. Mr. Law holds a Bachelors degree in Arts majoring in Communications Studies from the University

of Windsor, Ontario, Canada and pursued a Bachelors degree in Commerce later. He is the brother of Dr Kwok

Law Kwai Chun Eleanor and the brother-in law of Dr Kwok Siu Ming Simon.

SVP, Category Management & Product Development

Ms. Loi Wei Sin Corina Ms. Loi, 53, joined Sa Sa in 1997, and became Senior Vice President and Country Head of Malaysia in 2008.

She was a crucial member of the start-up team for the Malaysian operation. Ms Loi has over 30 years of

marketing and retail experience ranging from health food products to high fashion. Prior to joining Sa Sa, she

was with Dickson Trading (Malaysia).

SVP/Country Head of Malaysia

Ms. Lu Szu-Jen Ms. Lu, 56, joined Sa Sa as SVP of Information Technology in 2004. She had held senior management

positions with various multinational information technology corporations. Before joining Sa Sa, she was the

Chief Technology Officer of Softbank Investment International (Strategic) Limited, a venture capital firm which

focused on internet technology investment projects. Ms. Lu holds a Master of Science in Computer Science

from the John Hopkins University, USA.

SVP, Information Technology


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(ii) As of May 8, 2013, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any otherderivatives) in the following company or companies covered or recommended in this report:

(a) -

The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports onhe subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event ofa material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliatesdoes not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinioncontained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct,indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates clients generally and does not have regardo the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not andshould not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof.

Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situationand particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect ofhe securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to a ll categories of investors.

Australia:Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited (CSAL) (ABN 84 002 768 701, AFS Licence number240 530). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X Australia PtyLtd.This research is only available in Australia to persons who are wholesale clients (within the meaning of the Corporations Act 2001 (Cth)) and is supplied solely for the use of such

wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into account the objectives, financial situation or needs of theindividual recipient.

France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with,any offer for subscription or sale or marketing or direct or ind irect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument.

Hong Kong:This report is issued and distributed in Hong Kong by CIMB Securities Limited (CHK) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1(dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered inhis report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the


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