HONG KONG: Gome Electrical Appliances Holdings Ltd, the second-biggest electronics retailer on the mainland by market value, declined in Hong Kong trading after profit fell 50 percent, missing analysts' estimates.

Gome fell as much as 3.6 percent to HK$2.16 in Hong Kong during yesterday's trading, while the benchmark Hang Seng Index gained 1.67 percent. The retailer's stock closed at HK$2.23, 0.45% lower from Friday's close.

The retailer, whose billionaire founder and largest shareholder Huang Guangyu is in detention for "economic crimes", said August 21 that first-half profit fell to 580 million yuan ($85 million) after mainland consumers cut spending on big-ticket items. Net income was lower than the mean estimate of 733.3 million yuan from three analysts in a Bloomberg survey.

"There will be some slight jitters over the outcome of the largest shareholder's legal cases and the impact on Gome," Liang Ying, a Shenzhen-based analyst at China Merchants Securities (HK) Co, said in a phone interview yesterday.

Gome in June announced plans to raise $432 million to help finance new stores, revamp existing outlets and pay down debt.

The company's stock resumed trading in Hong Kong June 23 following a seven-month suspension after Huang was detained by Beijing police. The shares have more than doubled since the resumption of trading, compared with a 14 percent gain for the benchmark Hang Seng Index in the same period.

First-half sales fell 17.7 percent to 20.5 billion yuan, with Gome attributing the decline to "the macroeconomic slowdown." The country's economic growth eased to 6.1 percent in the first quarter, the slowest pace in almost 10 years.

Same-store sales fell 10 percent at 595 comparable outlets which account for 76 percent of the total number of shops, Gome said. The declines outstripped any gains at newly opened outlets.

The decline in same-store sales slowed to 8.28 percent in the second quarter from 20.75 percent in the first three months of the year, Executive Vice President Wang Junzhou said at an August 21 briefing in Hong Kong.

The company opened 30 outlets in the first half while closing 110 "low efficiency" stores, Wang said.

Gome "will continue to close the stores of low efficiency while opening new stores in first- and second-tier cities" on the mainland, it said in its statement.

The retailer won't pay an interim dividend this year, after paying 3 HK cents a share a year ago.

Gome's sales are "improving" in the third quarter, Chairman Chen Xiao told the briefing, without providing numbers.

The company is benefiting from the central government's program to spend 20 billion yuan on subsidies of home-appliance purchases by farmers.

"Operationally, the company is proceeding with its plans to improve store profitability," said China Merchants Liang, who upgraded Gome to "buy" from "neutral". "Earnings will improve."

Gome raised funds in June by selling 1.59 billion yuan worth of convertible bonds to an affiliate of Bain Capital LLC and shares to stockholders.

China Daily - Agencies

(HK Edition 08/25/2009 page4)