1H17 results miss expectation
　　GOME Electrical Appliances Holding announced its 1H17 results:
　　revenue was Rmb38bn, up 7.8% YoY; net profit was Rmb122mnor Rmb0.01 per share, down 1.6% YoY. 1H17 results arelower than we expected.
　　SSSG was +8.5% in 2Q17 （-7.7% in 4Q16 and -4.4% in1Q17）， due to a low base and an overall offline recovery.
　　Consolidated gross margin rose 1.5ppt, thanks to a differentiatedproduct strategy. However, larger online loss （+Rmb95mn），higher interest expenses （+Rmb219mn） and foreign exchangeloss （+Rmb180mn） dragged down the bottom line performance.
　　Trends to watch
　　Net profit is expected to recover on a low base in 2018.
　　Considering a SSSG recovery, major stores reopening and lessforex loss, earnings will likely resume growth in 2018.
　　Watch GOME’s new retail reform. GOME aims to transforminto an integrated home solution provider, engaging itscustomers with more creative offline experiences. It plans tointroduce the home decoration business in 80~100 stores in2H17, which may generate revenue of Rmb1.5~2.0bn in 2018.
　　Earnings forecast
　　Considering higher forex loss, we lower 2017e net profit by14.7% to Rmb468mn, and 2018e by 9.6% toRmb726mn.
　　Valuation and recommendation
　　The stock is trading at 23.8x 2018e P/E. We maintain ourHOLD rating, but lower our target price by 8.7% toHK$0.84, implying 8.7% downside room from the current price,based on SOTP valuation.
　　Risks
　　Store transforming effects lower than expected.