1H19 performance is in line with our expectations
Gome Retail announced 1H19 results: revenue of 34.333 billion yuan, down 1.1% from the same period last year; net loss of 380 million yuan, narrowed compared with 460 million yuan of net loss in the same period last year, corresponding to a loss of 0.02 yuan per share, in line with our expectations.
Trend of development
1. In the first half of the year, the same store-4.14%, the contribution of new business has been improved. In the first half of the year, the group achieved revenue of 34.333 billion yuan,-1.1% compared with the same period last year; of which, comparable store revenue decreased by 4.14%; total transaction volume (GMV) was + 1.8% to 72.19 billion yuan year-on-year, mainly driven by new business, including county store GMV year-on-year + 339%, US store GMV year-on-year + 123%, smart product GMV + 62% year-on-year, family solution, cabinet and electricity integration and other new business GMV + 108%, service GMV + 32%. In the first half of the year, the company continued to promote new business and market expansion, the proportion of county store revenue increased to 5.49%, and the proportion of new business income such as cabinet and electrical integration, home decoration and home decoration increased to 5.2%. In terms of exhibition stores, in the first half of the year, 492 stores were opened / closed, with a net increase of 278 to 2400, of which the first and second line continued to adjust and close loss-making stores, while the county store opened a total of 218. the company expects to open about 1000 new stores for the whole year, mainly to join the model to accelerate the sinking of low-line cities and supply chain output; supermarket stores opened in the first half of the year to promote integration with supermarket chains.
2. The net loss has narrowed compared with the same period last year. Sales gross profit margin year-on-year-1.1ppt to 14.6%, mainly due to changes in sales structure, in which the gross profit margin of all categories is basically stable compared with the same period last year. From the expense point of view, the sales expense rate is-2.1ppt to 11.7% compared with the same period last year, which is partly affected by the rental criteria, while advertising fees and salary fees have also been reduced. The management expense rate was unchanged at 3.4% compared with the same period last year; the other expense rate was from + 0.5ppt to 1.6% year-on-year, mainly due to the increase in the loss of closing stores. The financial cost was $1.12 billion, up significantly from $370 million in the same period last year, mainly due to interest expenses on lease liabilities of $440 million resulting from the application of the leasing criteria, as well as an increase in interest on discounted notes and bank loans. In addition, in the first half of the year, other income increased significantly by 576 million yuan to 1.154 billion yuan compared with the same period last year, mainly due to the income from investment in Meituan, which led to a substantial increase in the fair value of financial assets by 530 million yuan.
3. In the follow-up, we still need to pay attention to the effect of company transformation and cash flow. In 2019, the company continues to promote strategic transformation, deepening the integration of American stores, Gome APP and physical stores, and is committed to becoming an overall home life solution provider, service solution and supply chain exporter. With the increase in the proportion of new business, we still need to pay attention to the progress of strategic transformation and cash flow.
Profit forecast and valuation
Maintain profit forecasts. The current share price maintains a neutral rating of 0.2 times Pmax S in 2019, but increases the target price by 3% to HK $0.68 based on the company's narrowed losses and the layout of its new business, and 0.2 times Pmax S in 2020, with 4% room for decline.
Risk
The strategic transformation is not up to expectations; the competition in the industry is intensifying.