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Gome Electrical Appliances yesterday posted a better-than-expected 45 percent jump in its net profit for the first half of the year, a strong performance analysts said could boost its confidence for further acquisitions.

 

And if that is the case, a consolidation and reshuffle of the mainland's highly competitively electronics retail sector is around the corner, analysts said.

 

The mainland's largest white-goods retailer, which agreed to swallow the third-largest player China Paradise for US$680 million last month, saw its turnover and earnings reach 12.2 billion yuan (US$1.5 billion) and 345 million yuan (US$43 million), respectively. Turnover jumped 46.7 percent year-on-year.

 

The "satisfactory" results came despite the "fiercely competitive nature" of the mainland's electrical appliance retail sector, said Chairman Huang Guangyu.

 

Gome attributed the increases to the opening of 85 new stores during the period, in line with its target of 120 to 150 new stores in 2006. The retailer now operates a total of 338 stores in 96 cities.

 

The Beijing-based company is striving to shift its status from a regional to a national player. Beijing is still the biggest of its markets, accounting for 16 percent in the first half of this year, with Shenzhen at 12 percent and Guangzhou at 10 percent.

 

Whereas in the same period last year, Beijing took up 22 percent, and Guangzhou was lower than 10 percent, while Shenzhen was the same.

 

"Although Beijing is still contributing the largest revenue share, we cannot always rely on our home market. It's good to see our network is gradually spreading largely yet evenly," Zhou Yafei, Gome's chief financial officer, told reporters yesterday.

 

The company has also vowed to expand into more smaller cities where consumer spending is rising sharply but competition is not heated but did not provide details.

 

In China's fully opened, fragmented and highly competitive retail market, Gome is one of the few behemoths that has a national presence and is strong enough to compete with foreign giants.

 

Gome is keen to acquire smaller rivals to fend off competition from second-largest player Suning and US giant Best Buy, which acquired the mainland's fourth-largest player Five Star.

 

"It (the merger with China Paradise) is an important step in Gome's development, and will confirm our clear position as the market leader in China," said Huang, adding aggressive price-cutting continues to press margins, and the company's challenge is to further improve service and build consumer loyalty.

 

But Gome's attempt to acquire China Paradise and arch rival Dazhong Electrical Appliances in one deal hit a bump on Wednesday when Dazhong unilaterally cancelled an agreement to be acquired by China Paradise.

 

Dazhong is Gome's rival in Beijing and the mainland's fifth-largest electronics retailer.

 

Yesterday, Huang said he would not comment on the matter.

 

But analysts said it is a setback for Gome's takeover ambitions.

 

"Suning and Best Buy are interested in Dazhong, too," said Lai Wai-shing, an independent analyst in Hong Kong. "It seems that Gome, via China Paradise, has to raise its offer."

 

No matter which firm triumphs, it will mean fewer big players are left to compete, ushering in consolidation of a sector that has been plagued by price cuts and tightened profit margins.

 

Lai gave a "buy" recommendation to the country's top electronics retail chain on the strength of its marketing strategy.

 

(China Daily August 18, 2006)