Suning announces Interim Results Express

Suning Appliances (002024, shares) announced the interim results, the net profit fell 29.5%, in the previous profit early warning range of the low-end. We are more pessimistic about the competition in the business market and the main competitor has already said that it will continue to spell prices in the second half. Real-store sales growth is also lower than we expected, and started to be affected by the competition in the market. We will further reduce the 2012 and 2013 earnings forecast by 8%, the rating from the backward major market to sell, the new target price of 5.31 yuan (the same as the same).

Net profit fell 30% in first half

Total sales grew 6.7% year-on-year, net profit fell 29.5% to 1.745 billion yuan, is located in the company previously released 20–30% profit decline early warning range of the low-end. That means revenue grew only 3.8% in the second quarter, while net profit fell 41%. Although profitability is consistent with our expectation of a 30% decline throughout the year, revenue lags behind our original 14% annual growth forecasts.

Online Market Shiji

The first half of the year's online sales growth of 106%, to 5.28 billion yuan, with the previous company announcement in line. Although Suning expanded the business market share in the second quarter, but due to the domestic electricity price war between the fierce, serious damage to the entire industry profitability, we expect the second half of Suning's profits will be further decline. Suning's main rival Gome Electric and Jingdong Mall have announced that the second half will continue to reduce prices.

Offline sales are disappointing.

Same-store sales fell 10.38% per cent in the first half, more than 7.24% in the initial quarter, indicating a further deterioration in the second quarter, which we estimate was 12-13%. In the first half, the company has only a net increase of 5 stores in the country, a far cry from its original plan of 200 stores a year. Operating costs are expected to be saved as store openings slow. Sales growth in the first half of the year was flat at 0.6%, down 4.5% in the second quarter, when we were expecting an increase of 4.2%.

International Home appliance retailer Valuation List

Downgrade to Sell

In view of the deterioration in same-store sales and the increasingly frantic price wars in the business market, we lowered the assumption of new stores and same-store sales, resulting in a 7% reduction in revenue forecasts for 2012 and 2013 and a 8% per cent reduction in earnings forecasts. Based on the expected P/E ratio of 11 times times the 2013 Wealth Lyon (a 1 standard deviation from the historical average), we lowered the target price of the unit from 7.34 to 5.31 Yuan and downgraded it to a sale from a lagging market.