Gome shares up after profit soars 66pc

PUBLISHED : Saturday, 28 May, 2011, 12:00am
UPDATED : Saturday, 28 May, 2011, 12:00am


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Shares in Gome rose more than 8 per cent after China's second-largest home appliance retailer posted a higher-than-expected profit gain of 66 per cent in the first quarter.

The shares jumped 8.2 per cent, the most in six months, to close at HK$3.04, outperforming the Hang Seng Index, which rose 1 per cent.

The Beijing-based company posted a net profit of 552 million yuan (HK$662 million) for the first quarter, compared with 333 million yuan a year earlier. Revenue rose 16 per cent to 13.6 billion yuan for the period.

The retailer said yesterday that the growth was mainly driven by favourable government policies that fuelled domestic consumption, allowing it to expand its sales network.

However, Gome still lags behind Suning Appliances, the largest home appliance chain in the country. Suning recorded a net profit of 1.12 billion yuan and revenue of 20.5 billion yuan for the same period.

Gome opened 37 stores and closed seven in the first quarter, bringing the total number under the company's management to 856 at the end of March. More than 400 other Gome shops are controlled by its jailed founder, Wong Kwong-yu.

By contrast, Suning has 1,380 shops on the mainland, Hong Kong and Japan. It opened 44 shops on the mainland in the first quarter.

Merrill Lynch analyst Luo Chen said Gome was still on track to achieve its target of opening 260 stores this year. 'First quarters are normally a low season for store openings and more will come on stream from the second quarter, especially in April, September and December, to prepare for the upcoming holiday sales seasons,' he said.

Merrill Lynch maintained a 'buy' rating for the company and a target price of HK$3.60.

Earlier this year, a Beijing business newspaper quoted Gome's former chairman Chen Xiao as saying there were loopholes in the company's financial system and that it would not be able to meet its expansion target.