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Hong Kong company reporting season

Chinese electronics retailer Gome reports 1.6pc drop in interim profit amid increased financing costs

PUBLISHED : Monday, 28 August, 2017, 9:27pm
UPDATED : Monday, 28 August, 2017, 9:27pm

Gome Electrical Appliances Holding, China’s largest electronics retailer, reported a 1.6 per cent drop in net profit for the first half of 2017 on Monday, as a result of its increased financing costs during the period.

The company said its interim profit for the half year reached 122 million yuan (US$18.3 million), or 0.6 fen per share. The result was on track to miss a Reuters analysts’ consensus estimate of 733.5 million yuan net profit for the full year.

The company said the result was negatively impacted by increased interest payments that amounted to 323 million yuan for the first half, as total borrowings increased 150 per cent to 16 billion yuan. The borrowings were mainly used to fund the company’s working capital, capital expenditure and cash for investments. Revenue reached 38 billion yuan, up 7.8 per cent year on year.

The company did not declare an interim dividend.

During the period, the company saw its online to offline total gross merchandise volume

increase by 22.9 per cent on year, with 54.2 per cent growth in e-commerce amid its efforts to expand its online presence in recent years.

Looking ahead, the company said it would continue to enhance its new retail ecosystem by integrating the online and offline resources and leveraging its strong supply chain system, logistics technology, internet technology and big data analysis.

“The group will capitalise on its ‘Gome Plus’ mobile application to strengthen the integration of online and offline operations,” Zhang Dazhong, chairman of the group said in the statement.

While a leading player in China’s brick-and-mortar electronics retail scene, the group now finds itself facing strong competition from e-commerce giants such as JD.com, Suning and Alibaba Group, which have grabbed online market share from the country’s traditional retailers.

Founded in 1987 by Chinese billionaire Wong Kwong-yu, the company has expanded from a small shop based in a two-storey building in Beijing, to one of China’s largest retail chains with more than 1,727 stores across the country. Wong was sentenced to 14 years in jail in 2010, after being convicted on charges of bribery, insider trading and illegal business operations.

Gome is still likely to see growth in profit as it renovates its existing retail locations in the second half, analysts said.

“The same-store sales decline narrowed in the first quarter in 2017 due to increased traffic in renovated stores,” said Huei-Chen Flannery from KGI Securities. “Same-store sales may improve further to 3 to 5 per cent growth in the second half, as more of the stores to be renovated this year are medium sized, requiring less time for construction,” said Huei

Gome shares ended Monday’s trade at HK$0.9 in Hong Kong, a rise of 1.1 per cent, before the after-hours results announcement.