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Sandy Li

China Eagle Group yesterday shied away from providing detailed information about its unexpectedly high valuation for the purchase of a 65 per cent stake in Gome Appliance from its chairman.

However, investors approved of  the deal, with China Eagle shares soaring  112.83 per cent yesterday to  31.5 cents.

On Sunday,  the locally listed firm  said it would buy 65 per cent of Gome Appliance for 8.8 billion yuan, representing a price-earnings ratio (PE) of 49 times last year's earnings of 274.57 million yuan. The offer values Gome at 13.5 billion yuan.

Analysts said the PE  was  high  compared with other leading retail stocks, which  traded at about 25 times.  Esprit Holdings  trades at a PE of 34.8 times, Giordano  at 25 times and Lianhua Supermarket at 26 times.

Benny Chung, assistant director at financial adviser Rothschilds, said the valuation was not based solely on Gome's performance last year.

'Given Gome is a fast-growing company, the valuation also takes into account the potential growth,'  he said,  adding that a detailed  report  analysing the deal would be delivered to the shareholders.

Gome Appliance  lifted its net profit 157.95 per cent  last year on sales of 9.34 billion yuan.  In the first quarter of this year,  profit surged 233 per cent year on year to 84.53 million yuan on sales of 2.91 billion yuan.

Mr Chung  said the strong growth in the first quarter was mainly brought by aggressive expansion.  The number of Gome stores rose to 94 from 47 a year ago.

KGI Asia Securities associate director Ben Kwong Man-bun said retail investors should be cautious about trading China Eagle shares as the purchase price was quite high  compared with the valuation of other retail stocks.

'The sharp rise in prices may  last for only a short while,' he said.

China Eagle and Gome Appliance chairman Wong Kwong-yu said Gome would open 96  retail outlets, 478 smaller audio-visual and mobile-phone shops and six to nine mega-stores by 2006.  The  capital expenditure would be about 350 million yuan.



China Eagle mum on pricing of Gome deal