The current situation of the company
Gome Retail announcement: the company has signed a convertible bond subscription agreement with JD.com. JD.com will subscribe for Gome US $100 million convertible bonds at a premium of 37.91%, with an initial conversion price of HK $1.255 per share. JD.com will receive 2.8% of Gome's enlarged total share capital after the full conversion. Gome also signed a strategic cooperation agreement with JD.com to carry out strategic cooperation in commodity procurement and logistics services. This cooperation is the landing of Gome together with the e-commerce giant after Pinduoduo subscribed for US $200 million convertible bonds at a 66% premium in April. we believe that it is expected to further enhance the advantages of both sides in the field of home appliance retail and help Gome's retail transformation.
Comment
1. After continuing to buy more, Gome's convertible bonds of US $100 million were subscribed by JD.com at a premium of 37.91%.
The maturity of the convertible bond is 3 years and the coupon rate is 5%. The initial conversion price is HK $1.255 per share, a premium of 37.91% over the company's closing price of HK $0.91 on May 28. After the full conversion, Gome will issue 622 million new shares, accounting for 2.8 per cent of the company's enlarged share capital (assuming no other changes). In April, Pinduoduo subscribed for US $200m of Gome convertible bonds, which were converted into HK $1.215 per share, and held about 5.62 per cent of the enlarged total share capital after the conversion.
2. The strategic cooperation between the two home appliance retail giants is conducive to the efficient coordination of both online and offline and the integration of the commodity supply chain. This cooperation is the further deepening of the strategic cooperation between the two sides after the official Gome flagship store officially settled in JD.com, with equity as the link, this cooperation includes: ① joint procurement: the two sides will carry out joint procurement and joint marketing to enhance product competitiveness and sales scale. ② logistics services: Gome's Anxun Logistics will provide JD.com with large home appliances delivery solutions, Anxun Logistics self-logistics warehousing and distribution services of large household appliances will be open to JD.com; ③ store network support: more than 2600 Gome stores and 160000 communities across the country will also access the JD.com platform to provide them with richer goods and services. According to the "first quarter report of China's Household Appliance Industry in 2020" released by the National Household Appliance Industry Information Center, JD.com and Gome ranked second and fourth among Chinese household appliance retailers with 18.8% and 5.0% market share respectively (SUNING ranked first, omni-channel share 25.3%). We believe that there is a strong coordination and complementarity between the two sides in online and offline supply chains, and this strategic cooperation will help Gome accelerate online penetration and digital transformation.
3. Follow up to pay attention to the progress of bilateral cooperation and the effect of Gome's transformation. Recently, Gome has made frequent efforts in strategic transformation, and with external cooperation with Pinduoduo, JD.com and other platforms, we believe that it is expected to make full use of the flow and user resources of the head e-commerce platform to give full play to its supply chain advantages and promote the rapid growth of sales scale. At the same time, the company actively embraces new models such as live streaming and social marketing, and recently joined hands with CCTV hosts to carry out "fight for a better life".
Live broadcast activities, reached more than 500 million yuan in sales. Follow up to pay attention to the effect of the company's business transformation.
Valuation proposal
Maintain the earnings forecast for the time being, and the current share price corresponds to 0.3 times Pmax S in 2020. Maintain a neutral rating, but based on this strategic cooperation is expected to boost short-term sentiment, raising the target price by 25% to HK $1.00, corresponding to 0.3 times Pamp S in 2020, with 9.9% room for increase.
Risk.
Competition in the industry continues to intensify; the impact of the epidemic exceeds expectations.
