China's top supermarket operator seems set for lowers earnings growth because of increased pressure on margins and easing top-line growth, says Nomura, which reiterates its 'reduce' recommendation. Its fair-value estimate on Lianhua Supermarket of $8.30 compares with a Friday close of $8.90.

Last week Shanghai-based Lianhua posted an 11 per cent rise in profit for last year amid strong consumer growth. It earned 239.67 million yuan for the year to December, compared with 215.54 million yuan a year earlier. Lianhua's profit growth was led by a 32 per cent rise in turnover (mainly driven by 486 new stores, equivalent to 16 per cent store growth) and a 56 per cent rise in supplier income.

The broker says the main factor in the lower-than-expected profit increase was a steep decline in operating margin. The company is pinning its hopes for growth on the competitive hypermarket segment, which is also the main focus of aggressive international players. Lianhua seems set for slower earnings growth, at a compound annual growth rate of 5 per cent for 2006-2008, well below that of major peers.