UPDATE 1-China's GOME Q2 net triples from low base, sales up
(Adds details, executive comments)
HONG KONG, Aug 12 (Reuters) - GOME Electrical Appliances Holding (0493.HK), China's top electronics retailer, nearly tripled its quarterly profit on Tuesday thanks to higher sales and a low comparison base caused by huge impairment losses a year ago.
Analysts predict GOME -- which operates over 800 outlets across China -- will continue to see improvements in operating efficiency in the second half, but say gloom could linger in 2009 as suppliers tighten credit terms due to slowdown fears.
In addition, corporate governance issues linger over billionaire Chairman Huang Guangyu's investments in China's property market.
The Beijing-based retailer competes with U.S. giants Wal-Mart (WMT.N) and Best Buy (BBY.N), as well as domestic rival Suning Appliance Co (002024.SZ) for a slice of China's $1.3 trillion retail market.
GOME earned 637 million yuan ($92.8 million) for the three months ended-June, based on Reuters calculations, versus 226.17 million yuan a year earlier when it booked 410 million yuan impairment losses arising from convertible bonds.
One-off incidents, including the earthquake in China's Sichuan province in May and flooding in southern China have slowed down revenue growth in the second quarter, GOME said.
"There have been tragedies this year such as the Sichuan earthquake," GOME's executive director and president Chen Xiao told reporters.
"But they already happened -- we are optimistic about China's retail market for the second half of the year."
First half net profit also nearly tripled to 1.15 billion yuan from 395.39 million yuan last year, the company said in a statement. Sales during the first-half rose roughly 18 percent to 24.9 billion yuan.
For a full-earnings statement, please click here
The interim earnings result was about half of GOME's expected full-year performance.
STORE IMPROVEMENTS
GOME, which plans to spend up to 2 billion yuan this year to improve the firm's existing stores, is expected to book roughly 2.3 billion yuan in 2008 profit, more than doubling the 1.13 billion yuan it booked in 2007.
Analysts say the gains will come as its margins improve amid a wave of consolidation in the electronic retail segment and it sells new products such as cell phones.
China is the world's largest mobile phone market, with 547 million users as of end-2007.
GOME bought two regional cellphone chains with more than 40 stores earlier this year, and plans to open 300 to 450 new shops of its own by year-end.
China's consumer electronics market is expected to hit $100 billion this year. GOME -- which aims to control a fifth of that market by 2011 -- has aggressively acquired smaller rivals to ramp up market share gains.
In February, a subsidiary of the firm paid 541 million yuan for a controlling stake in Sanlian Commerce Co (600898.SS), a retailer in eastern China's Shandong province.
Last December it lent 3.6 billion yuan to a third party to buy the Dazhong Electrical Appliances chain, China's No. 4 appliance retailer.
But its sales were not immune to a slowdown in global discretionary spending as U.S. economic woes fan out across the world and credit markets tighten.
Revenue grew 15 percent in the second quarter, according to Reuters calculations of previously reported figures.
That's down from the more than 20 percent leap in revenue to roughly 12.2 billion yuan in the first quarter.
Fears of diminishing aggregate demand from dwindling property transactions in the mainland caused shares in GOME to shed 17.2 percent in the April to June period, underperforming the market's .HSI roughly 3.3 percent slide.
The stock trades at 16.1 times forecast earnings versus rival Suning Appliance's forward multiple of 23.4 times.
GOME's stock closed up 4.6 percent on Tuesday ahead of the earnings announcement.
