Sa Sa's net profit climbed 19% to HK$825.6mn

But operating loss in China lingered.

According to Barclays, Sa Sa’s FY13 net profit of HK$825.6mn was +19.7% y/y and in line with its forecast. Revenue growth was strong at +19.7% y/y and the company was able to maintain flat EBIT margins.

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Acceleration in y/y earnings growth was seen in 2H. The company declared final and special dividends of 14.0 HK cents per share, making a total annual dividend payout of 21.0 HK cents, which is a 72% payout and in line with our expectations.

Hong Kong segment saw strong growth, as expected: The core Hong Kong segment (contributed 98% to EBIT) saw revenues grow by +19.8% y/y in FY13, and SSS was +15.0% y/y. EBIT margin was resilient at 15.9% (FY12: 15.8%), with the help of gross margin improvement offsetting pressure from rental and staff costs.

China loss similar to previous year: China recorded an operating loss of HK$37mn, which was similar to the HK$38mn loss a year ago, but loss as % of sales improved. Revenues were +23% y/y driven mainly by store openings. SSS was flat, which was mainly dragged down by 4QFY13 when SSS saw a decline on an over-emphasis on own brands and a strategy to avoid steep discounts.

Other segments: The “others” segment saw 19% y/y revenue growth but EBIT margin declined to 4.6% in FY13, vs 6.2% in FY12.

Group EBIT margins maintained at 12.9% in FY13: This was largely helped by gross margin that was up 1.2ppt at 46.4% on the continued success of its house brands. House brands contribute 42.5% to total sales, vs the 41.9% in FY12. Staff costs and rental costs both grew 24% y/y, but cost pressure was offset by the improved gross margin. Staff costs were +0.5ppt at 13.2% of sales, and rental expense was +0.4ppt at 10.1% of sales. Depreciation also increased by 0.4ppt to 2.3% of sales on increased relocation of stores.