WHAT THE BROKER SAYS
SHK Financial Group has reiterated its 'buy' recommendation on Gome Electrical Appliances and set a 12-month share price target with an 18.9 per cent upside.
It sees a rosy outlook for the company, which operates 96 stores in China with revenue of 5.25 billion yuan from January to May. Revenue last year totalled 9.34 billion. Gome sells audio visual products, refrigerators, washing machines and other appliances of international and domestic brands, and maintains a competitive pricing policy for quick turnover. Growth momentum is driven by mobile phones, which account for 17 per cent of sales.
To reflect higher production capacity and strong outlook, the broker has increased Gome's sales forecast for 2005 to HK$12.2 billion and bottom line to $418.1 million. In the absence of peers for direct comparison, the broker believes Gome is justified in trading on a par with Lianhua Supermarket and Wumart Stores, or 21.7 times the forecast 2005 price/earnings ratio, translating into a new target price of $7.25 from $5.90. The counter closed on Friday at $6.35.