Performance review
Lower-than-expected performance in 2018
Gome Retail announced its 2018 results: operating income was 64.356 billion yuan, down 10.09% from the same period last year; the net profit attributed to the parent company was 4.887 billion yuan, which was larger than last year's loss of 450 million yuan, which was lower than the market and our expectations. It is mainly dragged down by large goodwill impairment and financial costs. On a quarterly basis, the year-on-year growth rate of 2018Q1/Q2/Q3/Q4 revenue is + 0.4%, 16.6%, 15.9%, 5.5%, and the year-on-year growth rate of net profit belonging to the parent company is-17.4%, 3641%, and 563%, respectively.
Trend of development
1. The end of the traditional business pressure drag camp dropped by 10.1%. For the whole year, online and offline GMV totaled 132.56 billion yuan, unchanged from the same period last year; revenue fell 10.09% from the same period last year. In terms of store efficiency, sales of comparable stores (1381 during the reporting period) fell 13.78 per cent compared with the same period last year. In terms of new stores, 602 Universe opened / closed 139 stores throughout the year, with a total of 2122 stores at the end of 2018. In 2019, the company will continue to adjust and improve the offline network layout, planning to focus on the layout of large comprehensive experience stores in first-and second-tier cities, while promoting the layout of county stores in third-to sixth-tier cities. It is expected to open 916 new stores in 2019, including 16 comprehensive experience stores, 200 home appliance stores in the urban building materials market, 500 franchise stores in the county market and 200 self-operated stores.
2. The impairment of large goodwill is a drag on performance. The gross profit margin of sales for the whole year was 15.1%, down 0.3ppt from the same period last year. At the same time, due to the decline in sales revenue, the sales expense rate / management expense rate increased 1.7/0.8ppt respectively compared with the same period last year. The financial cost was 860 million yuan, an increase from 690 million yuan in the same period last year, mainly due to the increase in bank borrowing by the company, resulting in an increase in interest charges. At the same time, based on the principle of prudence, the company reduced the goodwill of Yiwei Group and Yongle Electrical Appliances which did not meet expectations by a total of 2.185 billion yuan, which was a drag on the annual results.
3. We still need to pay attention to the effect of strategic transformation. At this stage, the company is transforming into a "home life" overall solution provider, with an active layout around new markets, new businesses and new technology strategies. During the reporting period, the GMV of new business (home decoration, integration of cabinet and electricity, etc.) increased by 116% compared with the same period last year, and the proportion of new business revenue increased to 4.7%. However, the improvement at the financial level is still limited, and the follow-up focus is on the effect of strategic transformation.
Profit forecast
Keep the profit forecast of 2019x20e-0.02zome 0.01 yuan unchanged.
Valuation and suggestion
The current share price corresponds to 2020e 0.2x Ppace S. Maintain the neutral rating and target price of HK $0.66, corresponding to 2020e 0.2x Pmax S, which is 9.6% lower than the current share price.
Risk.
The strategic transformation is not up to expectations; the competition in the industry is intensifying.
