Sa Sa and Chow Sang has been down by 23 per cent and 24.5 per cent since mid of July. The luxury sales come mainly from Mainland Chinese tourists. But tourism is down in Hong Kong due to the protests as reported by South China Morning Post.
The protests in Hong Kong which have been going since the last 16 weeks are not going to end any time soon. They are causing the tourism and ultimately the retail sector/industry to take major hits. It has also led malls and stores to close down early.
The locals are also not buying much of the luxury goods as well. This due to fear of getting laid off or getting pay cuts.
“I don’t know how it will end finally, but before it ends, those stocks related to the domestic economy will get hurt,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai.
“The latest figures for retail sales are free falling. No one will buy retailers now, even though they are cheap. We don’t see any specific factor driving the stock prices to go up significantly in the near future,” Wen said.
Tourism has suffered the most since the breakdown in 2003
Skin care and cosmetics retail chain Sa Sa International Holdings and Jeweller Chow Sang Sang are the most vulnerable. They are highly dependent on the Hong Kong market. The other retailers have posted bad earnings and alerts regarding low or no profits. Analysts expect a bounce back in the long term.
“My stance is downbeat for the time being, I’m waiting until better valuations,” said Louis Wong Wai-kit, director of Phillip Capital Management. “Investors need deeper discounts to offset the risks they are taking.”
The Hong Kong and Macau markets account for almost 85 percent of the total sales for the cosmetics chain Sa Sa. They have alerted the Stock Exchange in Hong Kong regarding a shock in its profits. They reported a downfall of sales by 28 percent last month as compared to last year’s sales in that month. Also, a 14 percent monthly fall has occurred between 1st and 15th September.
The weak numbers are “caused by continuous social incidents in Hong Kong”, as well as the US-Sino trade war and a devaluation of the yuan. It said decline in rent rates and “staff costs” are needed.
This announcement made Goldman Sachs to lower Sa Sa’s target price to HK$1.8 -HK$1.5. Whereas, Citibank has predicted a steep decline in its sales in the said markets for the second half of the financial year as well.
The stock’s 14-Day RSI is at 28.A reading below the 30 mark means that the share is oversold.
The financial secretary Paul Chan Mo stated that tourism has gone down by 40 percent in August. Also, he warned about a recession in the months of July – September. He also downgraded the GDP growth forecast to 0-1% from 2-3% previously.
“We are entering into a recession,” said VC Asset’s Wong. “As long as that continues, retailers will continue to be pressured.”
Jewellers are not likely to see a turnaround any time soon, according to Catherine Lim, consumer products analyst at Bloomberg Intelligence.
“Jewellers’ second half profits are likely to be hurt by the drop in Chinese visitors,” she said.
The protests are only one of the influencers for low sales in the Jewellery Sector in Hong Kong. The low sales are also due to the weakening Yuan. This hurts the purchasing power of the consumers from Mainland China.
The spot prices of gold have also gone up considerably by 19 per cent. This has made gold jewellery even more expensive.
The retailer Chow Sang Sang declined in sales growth by 20 percent and 30 percent for the months of July and August respectively. Nomura and HSBC have brought their target prices down as well from HK$14.8 to HK$10 (i.e. from buy to neutral) and HK$22.4 to HK$12.4(i.e. no change to the buy rating).
The RSI has fallen to 31 from 47 causing investors to pull their money out from the stock.
The store sales growth for it ‘s rival jeweller Chow Tai Fook Jewellery Group in Hong Kong and Macau has been lower than Goldman Sach’s expectations for the full year ended 30th June. Macro – uncertainties and low tourism numbers are to be blamed.
Bloomberg analyst Lim said ongoing protests “could accelerate the shift in spending by Chinese travellers, who are likely to spend more on foreign goods at home – where import taxes are falling – as well as in other countries, away from Hong Kong.”
Bossini International Holdings and Giordano International released low full year and half year earnings, respectively, partly due to the protests. They lost 4 per cent and 20.6 per cent respectively since 19th July.
Wing on Company, Department Store Group said, “fragile consumer sentiment amid uncertain local market conditions and the mass demonstrations since June” as impacting store sales in the first half of the year. The net profit was done by 28 per cent and revenue was down by 9 per cent.
Whereas, Lifestyle International Holdings announced a 45 per cent increase in net profit for the first 6 months of the year, but political unrest “took a toll” on its Hong Kong retail, which it said is set for a challenging second half. But it’s subsidiary Sogo department store in Causeway Bay is taking hit on footfall and sales revenue. It recorded a 4.8 per cent decline in sales revenue for the first 6 months of the year, and a 37 per cent decline in overall traffic footfall.
Milan Station Holdings, Handbag retailer also said that for the second half of the year it has a “prudent” view about business performance
Lastly, L’Occitane witnessed the only decline in sales globally for the quarter ending 30th June in Hong Kong.
