Hong Kong Retail Landlords:March retail sales:Discretionary spending still declining;local spending hardly encouraging

　　March retail sales declined by 9.8% YoY, below market expectations of -8.8% albeit it's better than -13.6% in 2M16. Discretionary retail sales were still weak: jewellery -20%, clothing & footwear -10%, electrical goods & photographic equipment -20% and miscellaneous consumer durable goods -38% YoY.

　　Despite Mainland tourist arrivals rose by 3% YoY during the Labour Day holiday, including the day preceding the Holiday (i.e. 29 April-3 May), our observations suggest that major prime malls were not crowded, while some jewellery and drug store retailers still reported 20% and 30-40% decline in retail sales, respectively.

　　Medicines and cosmetics retail sales rose by 1.5% YoY, which may explain Sa Sa's +1% SSSG during Labour Day holiday is more segment specific. Meanwhile, Sa Sa's numbers suggest local consumption has weakened significantly, as sales from Mainland customers were up 6% , but that from locals were down 13%.

　　Growth decline could narrow, given easier base, rentals should stay under pressure without sustainable retail sales recovery. Avoid retail landlords Wharf (UNDERPERFORM), prefer Hysan (NEUTRAL).