March 4, 2018 / 1:45 PM / a year ago

UPDATE 2-China's Sun Art shares plunge on weak sales performance, dividend cut

* Net profit up 8.6 pct, same store sales down 1 pct

* Shares drop 9.7 pct

* Says to open 35 stores in 2018

* Says to work with Alibaba to make use of big data (Recasts on share plunge, adds management comment)

By Donny Kwok and Adam Jourdan

HONG KONG/SHANGHAI, March 5 (Reuters) - Hypermarket operator Sun Art Retail Group, saw its shares tumble 10 percent on Monday after a drop in same-store sales and a lower dividend underlined the challenges traditional retailers face as consumers increasingly shop online.

Although Sun Art last year gained a new partner in e-commerce giant Alibaba Group Holding, which became its No. 2 shareholder with a 36 percent stake, that backing in itself has not been sufficient to shake off investor concerns.

“Investors are looking at the fact revenue growth was really pretty weak,” said Jason Yu, Shanghai-based general manager of market research firm Kantar Worldpanel.

Overall revenue rose just 1.9 percent despite new store openings while same-store sales fell around 1 percent, faster than a 0.3 percent drop in 2016.

He added industry watchers were still waiting for more details on how the tie-up with Alibaba would help and that it would take time for any new innovations to have an impact.

“The general trading environment is just quite difficult and there’s no quick fix,” he said,

Although net profit climbed 8.6 percent to 2.79 billion yuan ($440 million) for 2017, slightly ahead of a consensus estimate, Sun Art also said its final dividend would be cut to HK$0.16 per share versus HK$0.23 in 2016.

Sun Art’s chief executive officer, Ludovic Holinier, said Alibaba would help the firm boost its online muscle. Alibaba’s Tmall and Taobao platforms dominate China’s e-commerce market and it has a highly popular digital wallet Alipay.

“Alibaba has got almost 500 million qualified customers on Taobao platform, so the idea is we can use Taobao to push our online and offline businesses,” Holinier said during an earnings call on Monday.

At the end of 2017, Sun Art operated 461 stores across China, most of these in smaller cities. It plans to open 35 more in 2018.

Shares in Sun Art ended down 9.7 percent on Monday, their lowest close since Feb. 12, giving it a market value of $11.8 billion. ($1 = 6.3428 Chinese yuan) ($1 = 7.8317 Hong Kong dollars) (Reporting by Donny Kwok in HONG KONG and Adam Jourdan in SHANGHAI; Editing by Edwina Gibbs)

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