Gome raises first-half earnings 45pc
Gome Electrical Appliances Holding, China's biggest electronics retail chain, posted a 45 per cent rise in first-half net profit, although much of the increase reflected its acquisition of full control of its unlisted parent firm and a big gain in finance income.
Same-store sales slipped 1.24 per cent in the first half from levels a year ago in the face of fierce competition and the company's net margin declined 0.04 percentage point to 2.83 per cent.
Gome, chaired by the mainland's richest man, Wong Kwong-yu, said net profit climbed to 344.5 million yuan for the six months to June, up from 237.7 million yuan in the same period last year. The results exceeded analysts' estimates of 272.3 million yuan.
Finance income soared to 120 million yuan from 21 million yuan a year ago - good news, but hardly a sign of health in its core retail business.
Another reason for the higher net profit was the company's 6.98 billion yuan acquisition of the 35 per cent of Gome's parent firm - the direct owner of the retail chain - it did not already own from Mr Wong in May. That meant Gome was able to consolidate 100 per cent of the chain's profit in May and June, according to Curt Lam, Gome's head of corporate finance.
Turnover at Gome, which is set to take over third-ranked China Paradise Electronics Retail later this year, rose 47 per cent to 12.17 billion yuan from 8.28 billion yuan a year ago.
Gome opened 84 regular stores and one megastore in the first half bringing the chain's total to 338 at the end of June.
Mr Wong said yesterday that Gome had studied China Paradise's finances thoroughly before concluding the HK$5.27 billion takeover deal last month. On Monday, China Paradise said first-half net profit fell 89 per cent to 15.01 million yuan despite a 41.6 million yuan one-time gain from the sale of a subsidiary.
'The earnings decline of China Paradise is expected,' Mr Wong said. 'When a company has expanded to certain stages, its profitability will drop.'
Gome and its mainland peers also must deal with the entry of Best Buy, the biggest home appliance chain in the United States, into the China market through its acquisition earlier this year of Jiangsu Five Star Appliance.
Gome's share price yesterday fell 1.8 per cent to close at HK$5.95.
