Embattled cosmetics chain Sa Sa International is suddenly hot – with its shares shooting up 17 per cent over the past week. After the share price was pounded by the US-China trade war , months of anti-government protests and more recently the coronavirus , it gained in four of the past six sessions. And, in a real head-turner, it got its first “buy” rating from an analyst tracked by Bloomberg in nearly two years. What investors are liking is a mix of such cost-cutting as executive pay reductions and lease breaks as well as more online outreach, analysts say. It also quickly responded to the pandemic by offering customers plenty of hand sanitisers and face masks. “Sa Sa has piled in a lot of effort in cost savings. They have also actively negotiated with landlords for some temporary support in terms of rental concessions. They are also looking at fine-tuning their sales network in Hong Kong,” said Mavis Hui, an analyst at DBS Bank. When China’s film industry raises the curtain, giants will reclaim starring roles, analysts predict Hui bumped Sa Sa up to a coveted “buy” rating from “hold” on April 22, and said she anticipates the share price will rise to HK$1.68. That’s 16 per cent higher than where the shares closed on Wednesday, at HK$1.45. Hui’s target price is also higher than the consensus of analysts tracked by Bloomberg. The stock has already blown past their HK$1.35 expectation over 12 months. Hui is the only “buy,” and eight analysts rate the stock a “hold” and three “sell”. Coronavirus sank Hong Kong’s stock market into bear territory For comparison, in the past six sessions that Sa Sa ran up 17 per cent, the Hang Seng Index rose 3.1 per cent. But even Hui says Sa Sa shares aren’t for everyone. A recent run-up doesn’t mean stocks will continue to rise. Meanwhile, the company has a lot of proving to do, and some problems remain out of its hands, such as whether protests will revive, when the virus will end, and when – or even if – the old flood of mainland Chinese tourists will return. Sa Sa, known by its distinctive hot pink storefronts, sells make-up and skincare products, often at discounted prices. But it has struggled to boost a slowdown in same-store sales. Its troubles can be seen all the way back to two years ago: The Chinese yuan weakened. The trade war escalated. And competition heated up from online rivals. Five questions every investor should be asking about the coronavirus Sa Sa’s stock has been on a downward trend since mid-2018, plunging nearly 75 per cent from HK$5.76 on June 22 to Wednesday’s close. Retail sales fell 5.8 per cent in the second half of the year, while same-store sales decreased by 7.3 per cent on a year-on-year basis, according to Sa Sa’s 2018/2019 annual report. Consumer sentiment was affected by the depreciation of the yuan and a decline in both the stock and property markets, which began in late June 2018, the company said. Its retail and wholesale turnover has fallen on a year-on-year basis every quarter since the third quarter of 2018, according to stock exchange filings. Sa Sa declined to comment on what’s ahead, but its recent results and annual report to investors gives some hints. The cosmetics giant said it will focus on catering to Hongkongers’ demands after local customers emerged as Sa Sa’s largest source of revenue in its fourth quarter. “Local customers now account for the majority of the group’s revenue, the group will continue to adjust its product mix to meet their demand for protective and pandemic-related products, and other beauty products,” Simon Kwok Siu-ming, the company’s chairman and chief executive said in an exchange filing this month. It has closed nine stores across all markets excluding Singapore since October, and plans to downsize its store network in Hong Kong, ask for short-term rental concessions and streamline its organisational structure by slashing salaries and adopting an unpaid leave scheme to cut costs. In February, Sa Sa said all executive directors would take a 75 per cent pay cut for three months. This comes on top of Sa Sa’s announcement in December that it would shut all 22 stores in Singapore. It has 235 stores as of end March – 112 in Hong Kong and Macau, 79 in Malaysia and 44 in mainland China. Part of why Sa Sa has fallen so hard is its comparatively smaller presence in mainland China than some other well-known retailers in Hong Kong. Chow Tai Fook Jewellery Group, for example, the world’s second largest jeweller by market value, has been cushioned by its big mainland presence. The jeweller has over 3,000 stores on the mainland and plans to open more. Chow Tai Fook is down 22 per cent since July 1, when the Hong Kong protests turned violent, while Sa Sa has fallen almost 38 per cent. In August, Sa Sa launched a WeChat mini programme – small apps that run inside another platform – that allows its frontline sales staff to interact with customers and sell products online so people can make purchases without visiting physical stores. Anne Ling and Boya Zhen, analysts at investment bank Jefferies, said in their latest report that Sa Sa’s management expects that the WeChat mini programme will boost its online-to-offline strategy – enticing online customers to go back into physical stores – in China. In Hong Kong, it will team up with HKTV Mall as part of its long-term strategy post-pandemic. The retailer also plans to beef up its website and broaden its product offerings. Near-term performance could stay volatile, said analyst Hui. But a boost in consumer spending is expected on the mainland. Plus, a slowdown of coronavirus cases in Hong Kong and Macau as well as bargain stock prices suggests discretionary retailers like Sa Sa could get a boost, she said. “We’re not expecting an overnight recovery,” Hui said. “It’s just that valuation-wise and as we are forward looking, given a very low base and the management’s active improvement in their cost structure, we believe Sa Sa will look good again starting 12 months ahead. So that’s why we believe it is time to start looking ahead now.”