Profit attributable to shareholders increased by 9.3% in the first quarter of 15 years.
Revenue and profit attributable to shareholders rose 8.3 per cent and 9.3 per cent respectively: in the first quarter of 2015, Gome recorded sales of 14.46 billion yuan (ditto), up 8.3 per cent from a year earlier. The consolidated gross profit margin remained at a high level of 18.2%. There are more than 10, 000 brands and 2.6 million SKU. The sales share of differentiated products increased to 35%. This share is expected to continue to rise, possibly reaching 50% by 17. The operating expenditure ratio decreased by 0.2 percentage points to 16.2% from a year earlier (thanks to good rent, advertising and other marketing expenses control); profits attributable to shareholders increased by 9.3% to 290 million yuan from a year earlier. The profit margin attributable to shareholders is 2.0%.
Same-store growth of 4.2%, associated store revenue up 177.6% year-on-year: Gome recorded 4.2% same-store growth in the first quarter of 2015. Among them, the same-store growth in the primary market was 3.3%, and that in the secondary market was 7.6%. We expect same-store growth to be about 3-5% for the whole of 2015. Revenue from the company's cooperation with third parties such as supermarkets, department stores and local chain stores increased by 177.6% to 240 million yuan compared with the same period last year.
The volume of online business transactions increased by 107%, entering the field of cross-border e-commerce: the volume of online business transactions in the first quarter increased by about 107% year-on-year to 2.2 billion yuan, and the growth trend remained strong. The growth of proprietary business is about 50 to 1 billion yuan. Mobile visits increased by 400% compared with the same period last year. The gross profit margin is about 6%. The loss attributable to the company is about 96 million yuan. In addition, Gome will also begin to enter the field of cross-border e-commerce; it mainly plans to sell its products overseas (such as South America, Southeast Asia and India) and introduce cost-effective products from overseas to Gome online for sale.
Target price of HK $2.54, maintain buy rating: we expect Gome to maintain medium-to high-unit revenue growth from 2015 to 2017 (mainly based on low / medium-unit same-store growth, high double-digit online growth and the contribution of new stores). We believe that Gome's comprehensive gross profit margin and expense ratio should remain stable. Therefore, we expect the profit attributable to shareholders in 2015-2017 to be RMB 1.37 billion, RMB 1.47 billion and RMB 1.64 billion; earnings per share are RMB 0.081, RMB 0.087 and RMB 0.097, respectively. Due to the good performance of the company and our optimistic all-retail development strategy, we maintain our buy rating. The target price is HK $2.54 (equivalent to 25 times forecast earnings per share in 2015).
Important risk
We believe that the following are some important risks: 1) fierce competition in the industry, 2) the impact of shop operators, 3) the online business turns into profits for a longer time than expected, and 4) the effect of the whole retail development strategy is not good as expected.