First-half earnings at China Paradise Electronics
Retail Ltd plummeted nearly 90 per cent, highlighting management and cost
problems and shedding light on last month's Gome takeover deal, analysts said.
The earnings slump could see Gome putting more resources into streamlining
China Paradise businesses in the future.
China Paradise, the mainland's third-largest electrical home appliance
retailer, yesterday posted an 89 per cent slump in its net profit from January
to June to reach 15 million yuan (US$1.875 million).
The poor performance comes despite its turnover increasing 35.5 per cent to
7.72 billion yuan (US$965 million).
It was attributed to an increase in operating costs, which amounted to 7.1
billion yuan (US$887.5 million), up from 5.3 billion yuan (US$662.5 million) a
year ago.
China Paradise officials in Shanghai declined to comment.
But "it's clear the retailer has a lot to do to contain its swelling costs
and to improve its management," said Andes Cheng, associate director of Hong
Kong-based South China Research Ltd, who described the profit drop as
"surprising."
The Shanghai-based retailer has stepped up efforts to open more stores
outside its base in recent years, as bigger rivals Gome and Suning forge ahead
with national expansions.
China Paradise had 231 stores in 76 cities by the end of July, more than 70
of them in Shanghai, according to its website.
But its operation outside Shanghai was loss-making due to a lack of synergy
and resources integration, posing a "to-expand or not-to-expand" dilemma for the
retailer.
"Years of expansion saw it overlook management improvement," said Jin Zefei,
an analyst with Shanghai-based Shenyin & Waiguo Securities.
China Paradise last month accepted a US$680-million buyout offer from the
country's top player Gome, which appeared to be a rescue deal. The largest
merger in China's white-goods retail sector, the deal is expected to have an
impact on the landscape of the sector.
"Now the focus is on how China Paradise will perform under the Gome umbrella
and how long before the two can achieve synergy," said Cheng.
Judging from the current situation, however, "the sluggishness (of China
Paradise) will not be largely improved in the second half of this year," said
Jin.
Investors reacted by selling Hong Kong-traded shares in Gome and China
Paradise after the results were made public yesterday.
Shares in China Paradise plunged as much as 14.5 per cent yesterday to
HK$1.71 (22 US cents) before it regained ground to finish the day at HK$1.81
(23.2 US cents).
Gome's shares were down 5.75 per cent to close at HK$5.9 (75.6 US cents).
The performances are in sharp contrast to the rally of the two stocks after
they announced the buyout deal.
Gome is scheduled to announce its first-half results on Thursday.
(China Daily 08/15/2006 page9)
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