HONG KONG: Suning Appliance Co, China's biggest electronics retailer by market value, will buy Citicall Retail Management Ltd to gain 22 stores in Hong Kong and a platform for expansion overseas.

The Nanjing, eastern China-based company plans to increase Citicall's outlets to 50 within three years, President SunWeimin told reporters in a conference call on Wednesday. Suning will pay as much as HK$215 million ($28 million) for the acquisition, which will be completed by March, he said.

The purchase gives Suning control of its first outlets outside the mainland and pits the retailer against GomeElectrical Appliances Holdings Ltd, the Beijing-based chain that also has stores in Hong Kong.

"The acquisition price is reasonable and the risks are low," Xiang Tao, an analyst at Industrial Securities Co in Shanghai, wrote in a note yesterday. "Hong Kong has a retailing edge and this can help Suning better develop its marketing strategies and transfer the lessons learned into the mainland."

Suning shares closed 0.9 percent higher at 20.78 yuan in Shenzhen, after rising as much as 2.5 percent during the day.

The shares have risen 74 percent this year compared with a 117 percent gain for the Shenzhen Composite Index.

Suning will pay up to HK$180 million for Citicall's inventory and assets and HK$35 million for its brands and network, according to a statement to the Shenzhen stock exchange yesterday after the market closed.

"Hong Kong is a suitable platform for Suning to gain access to overseas markets," Sun said. "Our entry into Hong Kong will also allow us to take Chinese brands outside the country."

Nanjing-based Suning in June agreed to pay 800 million yen($8.7 million) for a 27.4 percent stake in Japanese household appliance and computer chain store Laox Co. Suning has the option to raise its holding to 29.3 percent between January 2010 and January 2013.

Citicall will focus on its real-estate business after selling the electronics operations to Suning, Managing Director Norman Tam told reporters.

The electrical-appliances retailer said yesterday it raised 3 billion yuan ($439 million) in a private sale of 177.6 million shares at 17.2 yuan each to seven investors including Stanford University.

Suning had 885 stores in China as of September 30, compared with rival Gome's 742 outlets.

Suning on November 2 forecast its 2009 net income may rise between 25 percent and 40 percent from the 2.17 billion-yuan earned in 2008. Third-quarter profit rose 15 percent to 704.8 million yuan.

"We know that Hong Kong is a very competitive consumer market for us," Sun said, adding, "Hong Kong people have high spending power and they are sophisticated, high-quality consumers."

Bloomberg News

(HK Edition 01/01/2010 page4)