Citi: Maintains "buy" rating on SA SA INT'L (00178), raises target price to HKD 1.74.

Citi released a research report stating that it maintains a "buy" rating on Sa Sa International (00178). The prospect of sales recovery and gross margin improvement remains unchanged. Profit forecast for fiscal year 2024-2026 has been adjusted by 1%, with the target price slightly raised from HKD 1.73 to HKD 1.74. The company's valuation is considered not high. As of the end of September this year, the company's interim net profit was CNY 102 million, which met the bank's expectations and was within the lower range of profit forecasts. The turnaround from loss to profit is mainly due to significant improvements in sales, which increased by 38% year-on-year, as well as an improvement in gross profit margin, which increased by 4.1 percentage points to 41.1%. The bank cited Sa Sa's management's expectations that the Hong Kong and Macau businesses will gradually recover in the second half of fiscal year 2024, and sales trends in the fourth quarter will weaken due to a high base. Nevertheless, after the traditional off-season Golden Week holiday, the management saw a strong sales momentum and constant additions to the lineup of performances and exhibitions in Hong Kong and Macau. It is expected that the number of tourists will increase, and the management remains confident. In terms of mainland business, the company is focusing on developing its own brands and online business through investments in TikTok, Kuaishou, and Taobao. It is estimated that online sales growth will accelerate. Furthermore, in the medium to long term, Sa Sa's management expects the proportion of exclusive brand sales to increase from the current 34% to 50%, and the target gross profit margin of the company can reach 50% within 3 to 5 years.