Sa Sa Int’l (00178.HK) &

Bonjour Hold (00653.HK)

Financial Analysis Report

2012-2014

Irene SONG Yinjin 14252309 Hong Kong Baptist University

JOUR 2006 Finance for Business Journalists Instructor: Mr. Clemence Poon

2015/11/29

Content

Summary ............................................................. 1

Common-Size Income Statement ......................... 3

Income Statement-YTY Comparison .................... 5

Common-Size Balance Sheet ................................ 7

Balance Sheet-YTY Comparison ......................... 10

Ratio Analysis .................................................... 13

Appendix ........................................................... 17

Irene SONG Yingjin

1

Summary

Sa  Sa  International  Holdings  (Chinese:  莎莎國際)  (SEHK:  178)  is  a  Hong  Kong-­based   chain   store   company   selling   cosmetics,   personal   care,   skin   care  and  baby  care  products.  

For  the  year  ended  31  December  2014,  Sasa’s  turnover  amounted  to  HK$8,756  million,  representing  an  increase  of  14.2%  over  the  HK$7,670  million  recorded  last   year.   The   Group’s   profit   for   the   year   2014   was   HK$4,073   million,   a  decrease  of  14.5%  over  the  HK$3,558  million  recorded  last  fiscal  year.  Basic  earnings  per  share  were  HK33.0  cents,  as  compared  to  HK29.3  cents   in  the  previous   fiscal  year.  The  overall  gross  profit  margin  of   the  Group   for   the   full  fiscal  year  increased  to  46.52%  from  46.39%  last  year.  

The  principal  activity  of  Bonjour  Holdings   (Chinese:卓悅控股)   (SEHK:653)   is  principally   engaged   in   the   retail   and   wholesale   of   beauty   and   health-­care  products  and  the  operation  of  beauty  and  health  salons  in  Hong  Kong,  Macau  and  the  PRC.  

For   the   year   ended   31   December   2014,   Bonjour’s   turnover   amounted   to  HK$3,144  million,  representing  an  increase  of  3.5%  over  the  HK$3,039  million  recorded  last  year.  The  Group’s  profit  for  the  year  2014  was  HK$226  million,  a  decrease  of   17.2%  over   the  HK$273  million   recorded   last   fiscal   year.  Basic  earnings   per   share   were   HK6.6   cents,   as   compared   to   HK8.3   cents   in   the  previous   fiscal  year.  The  overall  gross  profit  margin  of   the  Group   for   the   full  fiscal  year  increased  to  47.68%  from  47.35%  last  year.  

Sasa  has  a  great  name  and  good  brand  so  it  attracts  big  cosmetic  names  and  customers  trust  it  for  the  brands  it  sells,  especially  tourists  from  mainland  China.  Also   it   has   advantages   in   going   overseas  market.   Compared   with   Bonjour,  Sasa   is   a   larger   enterprise   and   performs   better   than   Bonjour   generally,  statistically  speaking.  But  Bonjour  also  is  a  company  with  good  development,  and  its  gross  profit  margins  were  even  a  little  bit  higher  than  Sasa’s.  And  for  stock  investors,  Bonjour’s  price  was  much  cheaper  and  the  return  of  investment  was  considerable.  

In  recent  years,  the  overall  retail  market   in  Hong  Kong  was  challenging.  The  retail  industry  sailed  through  ups  and  downs  throughout  the  year  as  a  result  of  the  instabilities  of  the  external  environment  and  the  change  of  Mainland  tourists’  consumption  pattern.  According  to  the  statistics  in  2014  released  by  the  Census  and   Statistics   Department,   the   total   retail   sales   value   edged   down   0.2%   to  HK$493.3  billion  compare  to  2013.  Hong  Kong’s  annual  retail  sales  figures  fell  for   the   first   time   since   the  SARS   outbreak   in   2003.Given   the   current   social  unrest  expelling  the  PRC  tourist  inflow  to  Hong  Kong  and  the  change  in  tourist  mix   with   less   spending   pattern,   Sasa   and   Bonjour   are   inevitably   facing   a  challenging  environment.  As  the  two  cosmetics  retail  giants  in  Hong  Kong  even  Asia,  their  financial  performance  can  be  used  as  a  benchmark  of  this  industry.  

Irene SONG Yingjin

2

 This  report  consists  the  Common-­Size  Income  Statement,  Income  Statement-­  YTY   comparison,   Common-­Size   Balance   Sheets,   Balance   Sheets-­YTY  Comparison  and  Ratio  Analysis  of  Sasa  and  Bonjour  in  2014,2013  and  2012,  and  comments  followed.              

Irene SONG Yingjin

3

Common-Size Income Statement HK $M 2014 2013 2012

Sasa Bonjour Sasa Bonjour Sasa Bonjour Sales 8756 3144 7670 3039 6405 2808 COGS (4683) (1645) (4112) (1600) (3508) (1483) Gross Profit 4073 1499 3558 1439 2897 1325 Other income 103 54 58 54 40 56 Distribution costs (2728) (103) (2361) (99) (1901) (100) Administrative expenses (341) (1172) (272) (1063) (208) (1006) Other operating expenses

N/A (3) N/A (2) N/A (5)

Total operating expenses

(3069) (1278) (2633) (1164) (2108) (1111)

Other gains-‐net 7 N/A 4 N/A 0.2 N/A Operating Profit 1114 275 987 329 828 270 Finance income-‐net 12 N/A 8 N/A 7 N/A Finance costs (0.3) (2) (0) (1) (0) (1) Profit Before Tax 1126 273 995 328 835 269 Taxation (191) (47) (169) (55) (145) (47) Profit After Tax 935 226 826 273 690 222

2014 2013 2012

Sasa Bonjour Sasa Bonjour Sasa Bonjour Sales 100% 100% 100% 100% 100% 100% COGS 53.5% 52.3% 53.6% 52.6% 54.8% 52.8% Gross Profit 46.5% 47.7% 46.4% 47.4% 45.2% 47.2% Other income 1.2% 1.7% 0.8% 1.8% 0.6% 2.0% Distribution costs 31.2% 3.3% 30.8% 3.3% 29.7% 3.6% Administrative expenses 3.9% 37.3% 3.5% 35.0% 3.2% 35.8% Other operating expenses

N/A 0.1% N/A 0.1% N/A 0.2%

Total operating expenses

35.1% 40.6% 34.3% 38.3% 32.9% 39.6%

Other gains-‐net 0.1% N/A 0.1% N/A 0.0% N/A Operating Profit 12.7% 8.7% 12.9% 10.8% 12.9% 9.6% Finance income-‐net 0.1% N/A 0.1% N/A 0.1% N/A Finance costs 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% Profit Before Tax 12.9% 8.7% 13.0% 10.8% 13.0% 9.6% Taxation 2.2% 1.5% 2.2% 1.8% 2.3% 1.7% Profit After Tax 10.7% 7.2% 10.8% 9.0% 10.8% 7.9%

Irene SONG Yingjin

4

Comments [1].   In  2014,  2013  and  2012,  Sa  Sa’s  revenue  was  about  three  times  as  much  

as  that  of  Bonjour,  so  the  business  scale  of  Sasa  was  larger.  Main  reasons  are  as  follows:  Firstly,  Sasa  established  280  retail  stores   in  Hong  Kong,  Macau,  Mainland  China,   Singapore,  Malaysia   and   Taiwan,   but   Bonjour  only  had  47  stores  in  Hong  Kong,  Macau  and  Mainland  China.  Secondly,  the   performance   of   Sasa’s   e-­commerce   was   strong   as   turnover   for  sasa.com  amounted  to  HK$394.0  million  in  2014,  a  rise  of  2.6%  over  the  previous  fiscal  year.  And  turnover  from  Bonjour’s  e-­commerce  amounted  to   HK$44.8   million,   a   decrease   of   13.8%   over   the   previous   fiscal  year.  Thirdly,  Sasa  continued  to  implement  the  its  diversification  strategy  in  the  product  categories  as  well  as  to  broaden  its  appeal  to  segments  such  as  the  young  people  segment  and  home  DIY  sector,  so  Sasa  had  a  more  various  types  of  brands  for  different  kinds  of  customers  to  choose.    

 [2].   Bonjour’s  cost  of  goods  sold  accounted  for  about  1%  or  2%  lower  than  that  

of  Sasa  in  total  sales,  which  made  the  proportion  of  Bonjour’s  gross  profit  higher.  Because  medium  and  low  level  products  constituted  a  larger  part  of  Bonjour’s  structure  of  products.  Bonjour  introduced  a  series  of  Korean  skincare   and   cosmetic   products   as   Korean   products   have   been  increasingly  popular  and  its  overall  average  selling  price  is  in  general  lower  than  that  of  European  and  Japanese  brands.  

 [3].   The   proportions   of   total   operating   expenses   of   Sasa   and   Bonjour   are  

around   34%   and   39%   relatively,   so   Bonjour   paid   more   for   operating  expenses.  Mainly   due   to  Bonjour   spent  more   on  promotion.   In   order   to  raise   the   visibility   of   exclusive   brands,   Bonjour   has   invited   well-­known  artists  to  participate  in  its  brand  ambassadors  from  Hong  Kong  and  Korea,  including  Miss  Ada  Choi,  Miss  Cecilia  Wang,  Miss  Tracy  Ip,  Miss  Queenie  Chu  and  Miss  Sherman  Chung  for  the  retail  sectors  spokeswomen.  

 [4].   Due  to  much  higher  operating  overheads,  Bonjour’s  operating  profit  and  

profit  after  tax  were  lower  than  that  of  Sasa  even  though  the  former  had  higher  gross  profit,  so  Sasa  got  a  better  result  of  its  ordinary  activities  than  Bonjour.  

Irene SONG Yingjin

5

Income Statement-YTY Comparison Sasa

HK $M 2014 2013 △% 2013 2012 △% Sales 8756 7670 14.2% 7670 6405 19.8% COGS 4683 4112 13.9% 4112 3508 17.2% Gross Profit 4073 3558 14.5% 3558 2897 22.8% Other income 103 58 77.6% 58 40 45.0% Distribution costs 2728 2361 15.5% 2361 1901 24.2% Administrative expenses

341 272 25.4% 272 208 30.8%

Total operating expenses

3069 2633 16.6% 2633 2108 24.9%

Other gains-‐net 7 4 75.0% 4 0.2 1900.0% Operating Profit 1114 987 12.9% 987 828 19.2% Finance income-‐net 12 8 50.0% 8 7 14.3% Profit Before Tax 1126 995 13.2% 995 835 19.2% Taxation 191 169 13.0% 169 145 16.6% Profit After Tax 935 826 13.2% 826 690 19.7%

Comments  [1].   In  2014,  retail  and  wholesale  turnover  of  the  Group  recorded  an  increase  

of  14.2%  year-­to-­year  yet,  the  growth  of  sales  slowed  down  compared  to  2013  when  the  increase  is  19.8%  from  2012.  Similarly,  the  expansion  rate  of   gross  profit   also   fell   from  22.8%   to  14.5%.   In  2014,   the  overall   retail  market  in  Hong  Kong  was  challenging.  The  retail  industry  sailed  through  ups  and  downs  throughout   the  year  as  a  result  of   the   instabilities  of   the  external   economic   environment   and   the   change   of   Mainland   tourists’  consumption  pattern.  In  addition,  in  the  second  half  of  2014,  the  unstable  political  environment  and  social  movement  “Occupy  Protest”  which  began  in  late  September  also  struck  a  blow  to  Hong  Kong  retail  market.  The  sales  and  gross  profit  growth,  as  a  result,  were  impacted.    

[2].   The   change   rate   of   other   income   increased   significantly   from   45.0%   to  77.6%,  because   the  Group   increased   the   sub-­lease   income   in   2014  as  stated   in  Notes   to  Consolidated  Financial  Statements  2  of  Sasa  Annual  Report  2013/14.  

[3].   The  expansion  of  operating  expenses  and  its  segments  all  slowed  down,  which   indicates   the  volume  of  business  was  going  down  and   the  Group  also  tried  to  limit  the  supporting  costs  of  the  sales  in  the  challenging  retail  market  situation.    

[4].   The  growth  rate  of  operating  profit  declined  from  19.2%  to  12.9%  and  the  profit  after   tax  dropped  from  19.7%  to  13.2%,  which  means  the  Group’s  ordinary  activity  is  going  down.  

Irene SONG Yingjin

6

Bonjour HK $M 2014 2013 △% 2013 2012 △%

Sales 3144 3039 3.5% 3039 2808 8.2% COGS 1645 1600 2.8% 1600 1483 7.9% Gross Profit 1499 1439 4.2% 1439 1325 8.6% Other income 54 54 0.0% 54 56 -‐3.6% Distribution costs 103 99 4.0% 99 100 -‐1.0% Administrative expenses

1172 1063 10.3% 1063 1006 5.7%

Other operating expenses

3 2 50.0% 2 5 -‐60.0%

Total operating expenses

1278 1164 9.8% 1164 1111 4.8%

Operating profit 275 329 -‐16.4% 329 270 21.9% Finance cost 2 1 100.0% 1 1 0.0% Profit before tax 273 328 -‐16.8% 328 269 21.9% Taxation 47 55 -‐14.5% 55 47 17.0% Profit After Tax 226 273 -‐17.2% 273 222 23.0%

Comments [1].   During   the   three   years,   sales   and   gross   profit   of   the   Group   showed   a  

continuous  growth,  but  the  rate  of  growth  slowed  down  in  2014  compared  with  2013.  Both  sales  and  gross  profit  margin  of  retail  business  slowdown  were  mainly  due   to   lesser  consumer  spending   in   the  second  half  of   the  year.  This  weakening  reflected  the  change  of  consumers’  appetite  and  the  change  of  the  tourist  consumption  pattern.      

[2].   The   growth   rate   of   operating   expenses   increased   from   4.8%   to   9.8%,  mainly  due  to  more  expenses  on  brand  promotion  to  appeal  customers.  

 [3].   For  the  group,  the  finance  costs  are  mainly  from  interest  expense  on  bank  

borrowings  and  finance  leases  charges  as  stated  in  Notes  to  the  Financial  Statements  9  of  Bonjour  2014  Annual  Report.  And   in  2014,   the   interest  expense  on  bank  borrowings  doubled  in  the  not  wholly  repayable  part  as  the  Group  borrowed  more  from  bank.  

 [4].   The  profit  before  tax  and  the  profit  after  tax  both  decreased  and  showed  a  

negative  growth,  which   indicated   the  Group  performed  quite  poorly  and  weak  resistance  in  difficult  market  environment.  

 

Irene SONG Yingjin

7

Common-Size Balance Sheet

HK $M 2014 2013 2012 Sasa Bonjour Sasa Bonjour Sasa Bonjour

Property, plant and equipment 405 749 343 79 333 93 Rental deposits, prepayments

and other assets 215 87 215 83 133 113

Deferred tax assets 4 3 5 4 5 2 Total non-‐current assets 624 839 563 166 471 207

Inventories 1373 261 1235 271 1191 248 Trade receivables 52 43 93 66 70 61

Other receivables, deposits and prepayments

198 92 154 125 136 81

Time deposits 571 19 209 19 36 19 cash and cash equivalents 419 189 543 368 563 299

Assets classified as held for sale 106 Total current assets 2613 710 2234 849 1996 708

Total Assets 3237 1549 2797 1015 2467 915 Trade payables 392 170 411 201 451 160

Other payables and accruals 302 89 317 334 289 345 Income tax payable 84 14 63 31 68 35

Borrowings and loans 80 193 N/A 45 N/A 39 Liabilities directly associated with assets classified

as held for sale N/A 240 N/A N/A N/A N/A

Total current liabilities 858 706 791 611 808 579 Retirement benefit obligations 6 4 3 3 3 6

Bank borrowings N/A 232 N/A N/A N/A N/A Deferred tax liabilities 0.3 N/A 2 1 4 N/A

Other payables 49 29 25 2 21 6 Total non-‐current Liabilities 55 265 30 6 28 12

Total Liabilities 913 971 821 617 836 591 Share Capital 284 34 283 30 281 30

Reserves 2041 543 1692 369 1349 295 Total Equity 2325 577 1975 399 1630 325

Total Liabilities and Equity 3238 1548 2796 1016 2466 916

Irene SONG Yingjin

8

2014 2013 2012 Sasa Bonjour Sasa Bonjour Sasa Bonjour

Property, plant and equipment

12.5% 48.4% 12.3% 7.8% 13.5% 10.2%

Rental deposits, prepayments and other assets

6.6% 5.6% 7.7% 8.2% 5.4% 12.3%

Deferred tax assets 0.1% 0.2% 0.2% 0.4% 0.2% 0.2% Total non-‐current assets 19.3% 54.2% 20.1% 16.4% 19.1% 22.6%

Inventories 42.4% 16.8% 44.2% 26.7% 48.3% 27.1% Trade receivables 1.6% 2.8% 3.3% 6.5% 2.8% 6.7%

Other receivables, deposits and prepayments

6.1% 5.9% 5.5% 12.3% 5.5% 8.9%

Time deposits 17.6% 1.2% 7.5% 1.9% 1.5% 2.1% cash and cash equivalents 12.9% 12.2% 19.4% 36.3% 22.8% 32.7%

Total current assets 80.7% 45.8% 79.9% 83.6% 80.9% 77.4% Total Assets 100.0% 100% 100% 100% 100% 100%

Trade payables 12.1% 11.0% 14.7% 19.8% 18.3% 17.5% Other payables and accruals 9.3% 5.7% 11.3% 32.9% 11.7% 37.7%

Income tax payable 2.6% 0.9% 2.3% 3.1% 2.8% 3.8% Borrowings and loans 2.5% 12.5% N/A 4.4% N/A 4.3%

Total current liabilities 26.5% 45.6% 28.3% 60.1% 32.8% 63.2% Retirement benefit

obligations 0.2% 0.3% 0.1% 0.3% 0.1% 0.7%

Bank borrowings N/A 15.0% N/A N/A N/A N/A Deferred tax liabilities 0.0% N/A 0.1% 0.1% 0.2% N/A

Other payables 1.5% 1.9% 0.9% 0.2% 0.9% 0.7% Total non-‐current Liabilities 1.7% 17.1% 1.1% 0.6% 1.1% 1.3%

Total Liabilities 28.2% 62.7% 29.4% 60.7% 33.9% 64.5% Share Capital 8.8% 2.2% 10.1% 3.0% 11.4% 3.3%

Reserves 63.0% 35.1% 60.5% 36.3% 54.7% 32.2% Total Equity 71.8% 37.3% 70.6% 39.3% 66.1% 35.5%

Total Liabilities and Equity 100.0% 100% 100% 100% 100% 100%

Irene SONG Yingjin

9

Comments [1].   In  2014,  the  percentage  of  Bonjour’s  non-­current  assets  was  as  much  as  

54.2%,  because  at  31  December  2014   the  carrying  amount  of   land  and  buildings  pledged  as  security  for  the  Group’s  bank  borrowings  amounted  to  HK$693,851,000,  adding  its  medium-­term  leases  in  Hong  Kong  (stated  in  Notes  to  the  Financial  Statements  17  of  Bonjour  2014  Annual  Report).  Besides,   in   other   fiscal   years,   the   current   assets   of   Sasa   and   Bonjour  commanded  a  bigger  slice  at  about  80%  in  total  assets.  This  indicates  the  two  companies  had  enough  liquidity.  

[2].   In   the   three   years,   the   amount   of   Sasa’s   total   current   assets   and   non-­current  assets  was  much  more  than  that  of  Bonjour,  which  means  Sasa  is  a  larger-­scale  enterprise  as  it  processes  more  assets.    

[3].   The  percentages  of  Bonjour’s  current  liabilities  in  total  liabilities  and  equity  were  quite  high  at  about  61%  in  2012  and  2013,  mainly  due  to  the  large  amount  of  other  payables  and  accruals.  

[4].   The  two  companies  performed  quite  differently   in  borrowings  and   loans.  For  Sasa,  the  only  borrowings  it  got  at  31  March  2014,  which  was  short  term  bank  borrowings  of  a  subsidiary  of   the  Company  are  secured  by  a  corporate   guarantee   given   by   the   Company   as   stated   in   Notes   to  Consolidated  Financial  Statements  23  of  Sa  Sa  Annual  Report  2013/14.  But  Bonjour  got  bank  borrowings  on  demand  or  within  one  year  repayable  every  year,  and   in  2014,   the  percentage  of  bank  borrowings  making  up  total  liabilities  and  equities  was  as  much  as  12.5%,  which  means  Bonjour  was  under  a  relatively  high  leverage  risk.  Besides,  Bonjour  also  got  a  large  amount   of   long-­term   bank   borrowings   at   15.0%,   this   indicates   its   bad  management  situation.  

[5].   During  the  three  years,  the  proportions  of  total  liabilities  to  total  equity  were  about  3:7  for  Sasa,  but  these  were  around  6:4  for  Bonjour.  These  mean  that  Sasa  relied  more  on  shareholders’  equity,  but  Bonjour  depended  more  on  debt.  

Irene SONG Yingjin

10

Balance Sheet-YTY Comparison Sasa

HK $M 2014 2013 △% 2013 2012 △% Property ,plant and equipment 405 343 18.1% 343 333 3.0%

Rental deposits, prepayments and other assets

215 215 0.0% 215 133 61.7%

Deferred tax assets 4 5 -‐20.0% 5 5 0.0% Total non-‐current assets 624 563 10.8% 563 471 19.5%

Inventories 1373 1235 11.2% 1235 1191 3.7% Trade receivables 52 93 -‐44.1% 93 70 32.9%

Other receivables, deposits and prepayments

198 154 28.6% 154 136 13.2%

Time deposits 571 209 173.2% 209 36 480.6% cash and cash equivalents 419 543 -‐22.8% 543 563 -‐3.6%

Total current assets 2613 2234 17.0% 2234 1996 11.9% Total Assets 3237 2797 15.7% 2797 2467 13.4%

Trade payables 392 411 -‐4.6% 411 451 -‐8.9% Other payables and accruals 302 317 -‐4.7% 317 289 9.7%

Income tax payable 84 63 33.3% 63 68 -‐7.4% Borrowings and loans 80 N/A N/A N/A N/A N/A

Total current liabilities 858 791 8.5% 791 808 -‐2.1% Retirement benefit obligations 6 3 100.0% 3 3 0.0%

Deferred tax liabilities 0.3 2 -‐85.0% 2 4 -‐50.0% Other payables 49 25 96.0% 25 21 19.0%

Total non-‐current Liabilities 55 30 83.3% 30 28 7.1% Total Liabilities 913 821 11.2% 821 836 -‐1.8%

Share Capital 284 283 0.4% 283 281 0.7% Reserves 2041 1692 20.6% 1692 1349 25.4%

Total Equity 2325 1975 17.7% 1975 1630 21.2% Total Liabilities and Equity 3238 2796 15.8% 2796 2466 13.4% Comments [1].   Time  deposits  increased  greatly  in  the  three  years,  especially  from  2012  to  

2013,  it  grew  at  480.6%.  As  a  main  reason,  it  resulted  a  growing  expansion  of   the  amount  of   current  assets.  Although   the   rising   rate  of   non-­current  assets  declined  in  2014  compared  to  2013,  the  growth  of  total  assets  still  increased.  

[2].   The  growth  rate  of  total  liabilities  rose  from  -­1.8%  to  11.2%,  and  the  non-­current  liabilities  got  significant  changes  from  7.1%  to  83.3%,  mainly  due  to  the  company  got  more  other  payables  and  accruals.  

 

Irene SONG Yingjin

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Bonjour

 

 

 

 

HK $M 2014 2013 △% 2013 2012 △% Property, plant and

equipment 749 79 848.1% 79 93 -‐15.1%

Rental deposits, prepayments and other assets

87 83 4.8% 83 113 -‐26.5%

Deferred tax assets 3 4 -‐25.0% 4 2 100.0% Total non-‐current assets 839 166 405.4% 166 207 -‐19.8%

Inventories 261 271 -‐3.7% 271 248 9.3% Trade receivables 43 66 -‐34.8% 66 61 8.2%

Other receivables, deposits and prepayments

92 125 -‐26.4% 125 81 54.3%

Time deposits 19 19 0.0% 19 19 0.0% cash and cash equivalents 189 368 -‐48.6% 368 299 23.1%

Assets classified as held for sale

106 N/A N/A N/A N/A N/A

Total current assets 710 849 -‐16.4% 849 708 19.9% Total Assets 1549 1015 52.6% 1015 915 10.9%

Trade payables 170 201 -‐15.4% 201 160 25.6% Other payables and accruals 89 334 -‐73.4% 334 345 -‐3.2%

Income tax payable 14 31 -‐54.8% 31 35 -‐11.4% Borrowings and loans 193 45 328.9% 45 39 15.4%

Liabilities directly associated with assets classified as held for sale

240 N/A N/A N/A N/A N/A

Total current liabilities 706 611 15.5% 611 579 5.5% Retirement benefit

obligations 4 3 33.3% 3 6 -‐50.0%

Bank borrowings 232 N/A N/A N/A N/A N/A Deferred tax liabilities N/A 1 N/A 1 N/A N/A

Other payables 29 2 1350.0% 2 6 -‐66.7% Total non-‐current Liabilities 265 6 4316.7% 6 12 -‐50.0%

Total Liabilities 971 617 57.4% 617 591 4.4% Share Capital 34 30 13.3% 30 30 0.0%

Reserves 543 369 47.2% 369 295 25.1% Total Equity 577 399 44.6% 399 325 22.8%

Total Liabilities and Equity 1548 1016 52.4% 1016 916 10.9%

Irene SONG Yingjin

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Comments [1].   The   expansion   rate   of   non-­current   assets   increased   amazingly   from   -­

19.8%   to   405.4%,   because   the   change   rate   of   property,   plant   and  equipment  soared  from  -­15.1%  to  848.1%.  The  current  assets  increased  at  19.9%  from  2012  to  2013,  but  decreased  at  16.4%  in  2014.  That  is  the  amount  of  non-­current  assets  rose  quite  a  lot,  but  the  number  of  current  assets  dropped  slightly.  Offsetting  each  other,  the  increasing  rate  of  total  assets  rose  from  10.9%  to  52.6%.  

[2].   The  change  rate  of  current  liabilities  climbed  from  5.5%  to  15.5%,  and  the  increase  of  borrowings  and  loans  was  the  greatest,  as  it  lifted  328.9%  from  2013  to  2014.  And  the  change  rate  of  non-­current  liabilities  went  up  from  -­50.0%   to  4316.7%,  as   the  significant   rise   in  bank  borrowings  and  other  payables.  So  the  rising  rate  of   total   liabilities  also  went  up  from  4.4%  to  57.4%   greatly.   To   sum   up,   from   2012   to   2014,   the   company   was  increasingly   depending   on   liabilities,   which   showed   a   bad   situation   of  operation  and  financing,  so  the  Group  had  the  increasing  level  of  risks.  

[3].   The  growth  rate  of  equity  increased  from  22.8%  to  44.6%,  and  the  reserves  increased   from   25.1%   to   47.2%,  mainly   because   of   great   increases   of  share   premium   and   retained   profit   stated   in   Notes   to   the   Financial  Statements  31  of  Bonjour  2014  Annual  Report.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irene SONG Yingjin

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Ratio Analysis 2014 2013 2012 Category Ratio Sasa Bonjour Sasa Bonjour Sasa Bonjour Leverage ratios Equity multiplier 1.4 2.5 1.4 2.5 1.5 2.8 Debt-‐to-‐equity

ratio 0.4 1.3 0.4 1.5 0.5 1.8

Cash flow coverage ratio

1.1 0.3 1 0.5 0.8 0.5

Operating efficiency ratios

Days in inventory 102 59 108 59 104 57

Inventory Turnover(times)

3.6 6.2 3.4 6.2 3.5 6.4

Days in receivable 3.02 6.33 3.88 7.63 3.36 7.73 Receivable

Turnover(times) 120.77 57.69 94.11 47.86 108.56 47.19

Days in payable 31.29 41.16 38.26 41.18 36.68 39.13 Payable turnover

(times) 11.66 8.87 9.54 8.86 9.95 9.33

Liquidity ratios Cash conversion cycle(days)

73.73 24.17 73.62 25.45 70.69 25.60

Current ratio 3 1.3 2.8 1.4 2.5 1.2 Quick ratio 54.89% 32.86% 80.40% 71.03% 78.34% 62.18% Cash ratio 48.84% 26.77% 68.65% 60.23% 69.68% 51.64% Profitability ratios

Gross profit margin

46.52% 47.68% 46.39% 47.35% 45.23% 47.19%

Net profit margin 10.68% 7.19% 10.77% 8.98% 10.77% 7.91% Basic earnings per

share(HK cents) 33.0 6.6 29.3 9.1 24.6 7.4

Diluted earnings per share(HK cents)

32.9 6.4 29.3 8.7 24.4 7.1

Return on assets 30.99% 13.39% 31.38% 28.29% 31.78% 25.46% Return on equity 43.49% 46.31% 45.81% 75.41% 46.25% 72.31% Valuation ratios Dividend payout 71.21% 62.12% 71.67% 79.12% 71.14% 81.08% Dividend yield 3.99% 3.73% 2.76% 6.43% 3.76% 7.06% Price-‐to-‐earnings

ratio 17.9 16.7 26.0 12.3 18.9 11.5

Price-‐to-‐book ratio

8.6 2.0 11.9 15.2 8.3 9.6

 

Irene SONG Yingjin

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Comments

Leverage  

[1].   As  Bonjour’s  equity  multiplier  and  debt-­to-­equity  ratio  both  are  higher  than  Sasa’s,  Bonjour  relied  more  on  debt  to  finance  its  assets,  so  it  had  a  higher  financial  risk.  

[2].   Sasa’s   cash   flow   coverage   ratios  were   higher,   which  means   Sasa   had  more   amount   of   debts   covered   by   cash   flow   generated   from   operating  activities,  so  Sasa  was  under  lower  leverage  risk.  

Operating  efficiency  

[1].   Sasa  held  the  inventory  for  a   longer  time,  which  was  almost  doubled  as  long  as  Bonjour’s  days  in  inventory.  So  Sasa  performed  less  efficiently  in  selling  inventories  due  to  it  had  more  retail  stores  and  larger  volume.  The  slower  a  company  can  sell  its  inventories,  the  slower  a  company  can  begin  to  settle  the  account  receivables  and  solve  its  own  debts.  And  the  inventory  turnover   of   Sasa   was   much   less   than   that   of   Bonjour   because   the  proportion  of  inventories  to  total  assets  of  Sasa  was  higher.  

[2].   Bonjour’s  days  in  receivables  were  almost  Sasa’s  twice,  contrarily,  Sasa’s  receivable  turnover  was  Bonjour’s  two  times.  This  indicated  that  Sasa  had  a  better  account  management  than  Bonjour.  

[3].   Bonjour  took  more  days  to  pay  its  creditor  than  Sasa,  and  Sasa’s  payable  turnover  was  a  bit  of  higher  than  Bonjour’s.  So  for  suppliers,  Bonjour  had  longer  payment  days.  

Liquidity  

[1].   Sasa  had  a  really  high   liquidity,  as   its  short-­term  assets  had  covered  its  immediate  liabilities  at  about  2.8:1  in  the  three  years.  As  for  Bonjour,  it  still  had  enough  short-­term  assets  to  cover  its  current  liabilities,  but  it  was  not  so  liquid  as  Sasa.  That  could  be  risky  for  Bonjour,  if  there  is  an  urgent  crisis  situation.    

[2].   Sasa  had  higher  quick  ratios,  which  means  it  had  more  current  assets  that  were  more  easily  and  quickly  converted  into  cash  compared  with  current  liabilities.   For   both   of   the   two   companies,   the   quick   ratios   decreased  significantly  in  2014,  which  indicates  potential  liquidity  risk.  

[3].   Sasa’s  cash  ratios  were  higher  than  those  of  Bonjour  in  the  three  years,  which  indicates  that  Sasa  had  a  higher  and  more  reliable  liquidity  in  a  crisis  situation.  So  for  creditors,  lending  money  to  Sasa  was  more  reliable.  But  from  2012  to  2014,  the  cash  ratios  of  the  two  companies  had  a  decreasing  trend,   which   means   the   two   companies   tried   to   improve   their   asset  utilization  to  hold  less  amounts  of  cash  and  they  need  to  decrease  the  cash  held  to  put  into  other  uses  to  resist  the  economic  downturn.  But  they  should  take  care  to  make  sure  that  companies  had  enough  liquidity.  

Irene SONG Yingjin

15

 

Profitability  

[1].   The  gross  profit  margins  of  Bonjour  were  a  bit  higher  than  these  of  Sasa,  mainly   because   Bonjour   sold   diversified   products   and   for   the   same  products,  Bonjour’s  prices  were  always  lower  than  Sasa’s.  As  Sasa  and  Bonjour   are   two   of   the   most   influential   cosmetic   retailers,   their   figures  indicated  the  gross  profit  of  the  whole  cosmetics  retailing  industry  is  around  46%.      

[2].   Sasa’s  net  profit  margins  were  higher  than  Bonjour’s,  which  means  Sasa  had  higher  operating  efficiency  and  profitability  from  2012  to  2014.  

 [3].   As  for  Basic  EPS  and  Diluted  EPS,  Sasa’s  EPS  was  almost  as  five  times  

much  as  than  of  bonjour,  which  means  Sasa  generated  much  more  profit  by  per  dollar  of  assets.    

 [4].   Return  on  assets  of  Sasa  remained  at  around  31%  for  three  years  and  was  

higher  than  that  of  Bonjour,  which  means  Sasa  generated  more  profit  by  per  dollar  assets.  But  the  return  on  assets  of  Bonjour  decreased  greatly  in  2014  mainly  because  its  total  assets  increased  greatly  at  52.6%  from  2013  to  2014  as  stated  in  Balance  Sheet-­  YTY  comparison.  

 [5].   Return  on  equity  of  Bonjour  was  higher  than  that  of  Sasa,  which  means  

Bonjour  generated  more  profit  by  per  dollar  of  shareholder’s  equity.  And  Sasa’s  return  on  equity  kept  at  45%  in  the  three  years,  but  Bonjour’s  ratio  had   fallen   from   72.31%   and   75.41%   to   46.31%   due   to   its   total   equity  increased  hugely  at  44.6%  from  2013  to  2014  compared  with  the  growth  rate   was   22.8%   from   2012   to   2013   as   stated   in   Balance   Sheet-­   YTY  comparison.  

 Valuation  

[1].   In   2013   and   2012,   Bonjour’s   dividend   payout   ratios   were   higher   than  Sasa’s,   but   in   2014,   Bonjour’s   dividend   payout   was   around   10   percent  lower   than  Sasa’s.   This  means   the  percentage  of   earnings   the  Bonjour  pays  out  as  dividends   to  shareholders  decreased.   In   the  past,   investors  who  sought  for  higher  current  income  may  prefer  to  buy  Bonjour’s  stocks,  but  Sasa’s  stocks  seems  more  attractive  for  them  now.  

[2].   In  2013  and  2012,  Bonjour’s  dividend  yield  was  much  higher  than  that  of  Sasa,   which   indicates   Bonjour   pays   out   more   in   dividends   each   year  relative   to   its   share  price.  However,   in  2014,  Sasa’s  dividend  yield  was  approximately  equal   to  Bonjour’s,   this  means  the  two  stocks  had  similar  return  on  investment  in  the  absence  of  any  capital  gains.  With  the  overall  consideration  of  Basic  EPS,  Diluted  EPS,  dividend  payout  and  dividend  yield,  Sasa  seemed  to  be  a  better  choice  than  Bonjour  for  investors.  

 

Irene SONG Yingjin

16

 

[3].   From  fiscal  2012  to  2014,  Sasa’s  price-­to-­earnings  ratios  were  higher  than  Bonjour’s,   which   means   an   investor   pays   more   for   Sasa’s   per   dollar  earnings.  And  Sasa’  P/E  ratio  decreased  significantly  in  2014.  Because  the  share   price   dropped  at   22.6%  and  Basic  EPS   increased  at   12.63.  This  indicated   a   faster   investment   recovery   time,   less   investment   risks   and  higher  investment  value  of  stock.  

Sasa 2014 2013 △% 2013 2012 △% share prices 5.89 7.61 -‐22.60% 7.61 4.66 63.30%

Basic EPS 33 29.3 12.63% 29.3 24.6 19.11%  

Bonjour 2014 2013 △% 2013 2012 △% share prices 1.1 1.12 -‐1.79% 1.12 0.85 31.76%

Basic EPS 6.6 9.1 -‐27.47% 9.1 7.4 22.97%  

[4].   In   2013   and   2012,   Bonjour   had   higher   price-­to-­book   ratios   than   Sasa,  which  means  investors  paid  more  for  per  dollar  of  Bonjour’s  net  asset,  so  Bonjour’s  stock  had  higher  investment  risks.  However,  in  2014,  Bonjour’s  P/B  ratio  slumped  from  15.2  to  2.0,  as  its  share  price  dropped  at  1.79%  but  net  asset  value  soared  at  45.23%.    

Sasa 2014 2013 △% 2013 2012 △% share prices 5.89 7.61 -‐22.60% 7.61 4.66 63.30%

net asset value 2324 1976 17.61% 1976 1631 21.15%  

Bonjour 2014 2013 △% 2013 2012 △% share prices 1.1 1.12 -‐1.79% 1.12 0.85 31.76%

net asset value 578 398 45.23% 398 324 22.84%  

 

 

 

 

 

 

 

Irene SONG Yingjin

17

Appendix 2014 2013 2012

Sasa Bonjour Sasa Bonjour Sasa Bonjour *Average share prices(HK dollars)

5.89 1.1 7.61 1.12 4.66 0.85

Dividend per share(HK cents)

23.5 4.1 21 7.2 17.5 6

Net cash generated from operating activities (HK millions)

1021 252 846 292 640 282

 

*The  share  prices  are  calculated  from  the  average  numbers  of  every  trading  day’s  closing  prices  of  the  whole  year.  

 

 

 

 

 

 

 

 

 

 

 

 

-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­      End      -­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­-­