2016 results in line with expectations
　　GOME’s 2016 revenue was Rmb76.7bn, up 18.7% YoY; net profitwas Rmb325mn, down 73% YoY, or Rmb0.01 per share. 4Q16revenue +30% but net profit -79%, in line with expectations.
　　SSSG was -9.4% in 2016 (2.3% in FY15, -10.2% in 9M16),mainly due to: 1) >100 stores being under renovation in 2016; 2)weak performance in TV and cell phone categories.
　　Consolidated gross margin down 1.7ppt to 16%, due tothe store renovations and e-commerce development.
　　Online B2C sales +59% YoY to Rmb 10bn. Listco bears a netloss of Rmb 540mn in e-commerce.
　　Trends to watch
　　Net profit is expected to recover on a low base. Weakperformance in 2016 was partly driven by major storetransformations. As these stores have reopened, earnings willresume growth in 2017 and 2018.
　　E-commerce is still gaining share from offline. We expectonline market share in the home appliance industry has reached21% in 2016 from 8% in 2013.
　　Transformation effect uncertain. GOME aims to transforminto an integrated solution provider, with more creative offlineexperiences in stores (e.g. video games, gourmet theme andhome design solutions). We expect 120~130 stores will be underrenovation in 2017.
　　Earnings forecast
　　We trim 2017e net profit from Rmb686mn toRmb573mn, and estimate 2018 net profit at Rmb826mn.
　　Valuation and recommendation
　　The stock is trading at 35x 2017e P/E. We maintain our HOLDrating, but lower our target price by 4.12% to HK$0.93, implying8.82% downside room from the current price. Our target price isbased on SOTP valuation.
　　Risks
　　Consumption slows further.