全球指数

GOME(0493.HK):2017 A RECOVERING YEAR BUT YET TO SHOW BENEFITS FROM INTEGRATION

德意志银行股份有限公司2017-03-30
  Maintaining Hold on Gome, prefer Midea and Qingdao Haier in CE segment
  We maintain Hold on Gome. While we note that there was improvement insales performance in 4Q16 and that it continues in 1Qytd according tomanagement, we need to see more evidence of its success in integration, e.g.reduction in losses for online and sustainable SSS with cost ratio for offline.We like the CE segment which benefited from consumer upgrade and strongproperty market over the past 12 months. We prefer Midea and Qingdao Haier.
  A recovery in 2017 - a year to show benefits from initial integration
For 2017, we expect NP to recover to RMB682m on a 10% rise in sales toRMB84bn. This is driven by an improvement in SSS to 5%, thanks to its storeremodeling effort and strong property market over the past 12 months. Lossesfrom its online operations are expected to contained to RMB950m (i.e., similarto 2016)。 We also incorporate a net interest expense of ~RMB199m-288m forthe next three years.
  We raise our forecast by 37/9% for FY17/18 and introduce 2019 forecast
This is because the recovery in margin is faster than expected in 2017 on storeremodeling plan. FY18 should normalize. Our NP forecast is -16/-5/7% differentfrom the market. We note that Street forecasts come with a wide range asthere are lots of variables given Gome’s store restructuring, acquisitions andfrequent debt restructuring. For 2017, we believe that our NP forecast is lowerdue to our net interest expense assumption from the new bond.
  Increasing target price to HKD1.12 (from HKD1.02); risks
Our target change reflects the earnings upgrade from 2018. Our primaryvaluation methodology is DCF, employing a COE of 9.5%, beta of 1.1 and aterminal growth rate of 1.5%. Upside/downside risks relate to SSSg andcompetition.

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