1Q17 results in line with expectation
　　GOME Electrical Appliances Holding announced its 1Q17 results:
　　revenue was Rmb17.3bn, up 14.4% YoY; net profit wasRmb137mn, up 2.7% YoY, or Rmb0.01 per share. Results werelargely in line with our expectation. In 1Q16, the previousnon-listco stores were not consolidated into the listco.
　　Offline SSSG was ~-4% in 1Q17 （-9.4% in 2016），mainly because some stores were still under renovation.
　　Online B2C sales +42% YoY. The listco recorded a netloss of ~Rmb120mn in e-commerce.
　　Consolidated gross margin +0.45ppt to 17.46%,thanks to a differentiated product strategy and higherinvestment income.
　　Trends to watch
　　Net profit is expected to recover on a low base. 2016profit was down 73% YoY, partly driven by major storestransformations. As major stores are reopened, earnings willresume growth in 2017 and 2018.
　　However, e-commerce is still grabbing share fromoffline. Online market share in the home appliance industryexpanded to 21% in 2016 from the 8% in 2013. Large homeappliances are the fastest-growing sector for JD currently.
　　Earnings forecast
　　We lower our EPS forecast by 4% from Rmb0.03 toRmb0.02 for 2017, and lower our 2018 earnings forecastby 3%.
　　Valuation and recommendation
　　The stock is trading at 37x 2017e P/E. We maintain our HOLDrating, but lower our target price by 1.08% to HK$0.92,implying 9.8% downside room from the current price. Our targetprice is based on SOTP valuation.
　　Risks
　　Consumption slows further; store transforming effects lowerthan expected.