GOME dives 10.7% on HK$2.4b Huishang deal
Updated: 2014-11-13 08:46
By Celia Chen in Hong Kong(HK Edition)
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Gome Electrical Appliances Holding Ltd saw its share price plunge to its lowest level in more than two years in Hong Kong trading after the mainland retail giant said it has agreed to acquire a stake in Huishang Bank for HK$2.4 billion. Asian News |
Shares of GOME Electrical Appliances Holding Ltd plunged by 10.7 percent on Wednesday morning trading after it said it had arranged to acquire a 5.72-percent stake in Huishang Bank Corporation Ltd for HK$2.4 billion ($309.5 million).
GOME, backed by private equity firm Bain Capital, said it would buy 632.5 million new H-shares of the Anhui-based commercial bank at HK$3.8 apiece - a 12.8-percent premium to the bank's closing price for the past five trading days.
The mainland retailer's shares closed at HK$1.14, down HK$0.08, or 6.56 percent, from Tuesday. The company's share price has dropped a total of 10.5 percent since Sept 30 against the backdrop of a 4.39-percent rise in the benchmark Hang Seng index.
Defending the poor performance of GOME shares, Fang Wei, the company's chief financial officer, blamed investors for ignoring the retailer's long-term potential.
He explained that the proposed purchase of Huishang represents a key step forward in GOME's strategic plan to become a full-fledged online retailer.
"I'm confident that GOME's online business will rise to 20 percent of its total sales by 2017," Fang said. GOME competes in the mainland market with retailers like Suning Appliance Co Ltd, which has been moving aggressively to online sales.
GOME said it's now creating its own online sales mechanism by cooperating with Huishang which, Fang said, will benefit customers and suppliers by upgrading the company's financial services platform.
"For consumers, we can provide installment payment plans and personal loans. We can also offer different financial services to our suppliers," he added.
Stock analysts, however, have remained skeptical. "I believe GOME cannot benefit much from its link with Huishang Bank at least in the short term," said Ben Kwong Man-bun , KGI Asia's chief operating officer.
In the longer term, he said, the link can enable GOME to create synergies in its own financial payment system and obtain financing from Huishang.
Although GOME has earned an "outperform" rating from Credit Suisse, Barclays has an "equity weight" rating on the retailer's stock, saying there's still significant uncertainty in the company's online business due to intense competition.
"In our view, GOME's investment in Huishang Bank is not relevant to its core business of home appliances and electronics products retailing," said Barclays analyst Ally Wang in a report. "We think such a working partnership could be achieved without any commitment to an equity investment."
celia@chinadailyhk.com
(HK Edition 11/13/2014 page10)