Lowering TP by 24% to reflect lower NP forecasts in 2017/18/19. Hold.
　　We lower our 2017/18/19 net profit forecasts by 40/30/30% and cut our targetprice by 24%, to HKD0.85. We note that positive SSSg momentum will likelycontinue during the rest of year. The GPM should also benefit from productdifferentiation and product selection initiatives. However, the online/offlineintegration exercise resulted in a higher-than-expected opex ratio and higherfinance costs with investment in supply chain and technology facilities.Success in business transformation is yet to be proven. We maintain a Hold, aswe consider the current price to be fairly valued.
　　NP cut by 40%/30%/30% for FY17/18/19E on higher opex and finance costs
Post 1H17 results, we have factored in the latest sss and cost trendincorporating part of guidance from management, including a higher SG&Aratio and a higher net finance cost. We also forecast that net loss from onlinewill be RMB937m, remaining at a similar level to last year, as we see the onlineplatform as still needing more time to ramp up. Our NP reduction reflectsmainly a higher opex ratio and higher finance costs.
　　1H17 EBIT missed due to foreign exchange loss and wider loss from online
Gome recorded NP down 2%, to RMB121m, on sales up 8%, to RMB38bn.Sales were largely in line, but EBIT was 47% lower than our forecast due to ahigher-than-expected opex ratio, attributed mainly to an RMB186m foreignexchange loss, a higher-than-expected loss from the online business and ahigher SG&A ratio.
　　Target price cut to HKD0.85 （from HKD1.12）； risks
We maintain our Hold rating as we believe shares are fairly valued. Ourprimary valuation methodology is a DCF （9.5% COE, 1.1 beta, 1.5% terminalgrowth rate）。 Upside/downside risks relate to SSSg and competition.