Reuters: Global Markets: Shares in China's GOME hit three-year low on profit warning

Reuters: Global Markets Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

Shares in China's GOME hit three-year low on profit warning May 2nd 2012, 06:09 By Donny Kwok HONG KONG | Wed May 2, 2012 2:09am EDT HONG KONG (Reuters) - Shares of Chinese home appliance distributor GOME Electrical Appliances Holding Ltd (0493.HK) plunged to their lowest level in more than three years on Wednesday after it warned of a sharp drop in quarterly profit due to an end to government subsidies, a housing slowdown and losses in its e-commerce business. GOME's stock, which has dropped nearly 30 percent so far this year, plunged 11.4 percent to a session low of HK$1.24 on Wednesday, its lowest since November 2008, lagging a 1.14 percent gain in the benchmark Hang Seng Index .HSI. "We expect to see operating deleverage continue" in the first half "as the government subsidy expiration impact could last for the whole year and it could take another six months for the (enterprise resource planning) system to fully ramp up," Macquarie's Linda Huang wrote in a research note, referring to a system to enhance supply chain and logistics efficiencies. China announced a nationwide subsidy program for purchases of home appliances in 2008 in a bid to boost domestic spending and offset an export slowdown, but the scheme ended in December. Huang also said GOME's plan to cut prices to gain market share in the e-commerce sector was likely to hurt its outlook. She cut GOME's 2012 earnings forecast by 14 percent on slower same-store sales growth, lower margins and higher operating expenses and reiterated an underperform rating on the stock. GOME and rival Suning Appliance Co Ltd 002024.SZ, regarded by some as the country's answers to Best Buy Co Inc (BBY.N) in the United States, are racing to beef up their e-commerce arms and tap the booming but highly competitive online retail market. BROKER DOWNGRADES Controlled by jailed founder Huang Guangyu and nearly 10 percent-owned by private equity firm Bain Capital, GOME said on Monday it expected a significant decline in profit for the three months ended in March due to a drop in sales revenue. Suning, whose shares have risen 17 percent this year, last week posted a 7.2 percent drop in same-store sales and 15 percent fall in profit for the first quarter. Its Shenzhen-listed shares were up 0.5 percent in afternoon trade. "We believe Suning has led GOME in many initiatives. Whether GOME is losing competitiveness is a key issue to watch," Bank of America Merrill Lynch wrote in a research note. "While the Street may widely anticipate an earnings decline for 1Q 12, the fundamental weakness could be greater than expected," it added. Some analysts expect a pick-up in consumer sentiment will help to boost GOME's sales in the short term. "We believe consumer sentiment is improving gradually on a monthly basis and this will help Gome's sales performance too," Anne Ling, an analyst from Deutsche Bank wrote in a research note. "We are not surprised by the profit warning, due to the current market trend and last year's high base effect." CLSA said GOME's profit warning came as no surprise but Suning's disappointing first-quarter results had indicated a worse-than-expected industry slowdown. It downgraded GOME to outperform from buy. DBS Group Research downgraded GOME to sell from fully valued, saying "GOME could continue to suffer from weak consumer sentiment, sales disruption from the enterprise resource planning system and further losses in e-commerce business". (Reporting by Donny Kwok; Editing by Anne Marie Roantree and Matt Driskill) Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions