Ambitious long-term target
? GOME had about 2m SKUs at the end of Jan, and it plans to increase this to 5m by the end of 2022 and 10m in the next three years through quickly expanding its 3P business and becoming a full product profile online platform.
? GOME added more experience spaces in its offline stores to attract customers. GOME’s long-term aim is a 5% market share of the Rmb30tr “Home • Living” market.
? Management expects the government to announce more stimulus policies to promote domestic consumption in 2022.
? Upgrade to Hold with a new DCF-based TP of HK$0.7, as we believe GOME has developed an important growth strategy and built up the related facilities, but the reforms still need time to bear fruit.
Jan 2022 operation updates
In Jan 2022, GOME achieved over 40% yoy sales growth and upgraded its offline stores to experience stores and integrated showcases with interactive functions. So far, 35 stores have completed the upgrade, and GOME plans to upgrade 65 stores in total at current stage, with total store area of about 1m sqm. Currently, over 60% of suppliers of these new stores have adopted the contract for the new sales model. The Jan MAUs of GOME’s online platform “Fun” reached 70m, with average DAUs of 3.5m. GOME had about 2m SKUs at the end of Jan, and it plans to increase this number to 5m by the end of 2022 and 10m in the next three years. The third-party business of GOME’s Anxun Logistics accounted for over 48% of its overall business, and Anxun owns over 5m sqm of storage space in total. GOME is planning to launch an IPO for Anxun Logistics in the next two years. GOME’s supply chain platform has attracted 4k manufacturers and 6k channel distributors, and its consumer traffic platform has attracted over 2k KOL/KOCs.
Ambitious long-term targets
In Mar, GOME will launch a family shopping campaign as a major promotion event under its “Home • Living” strategy. Management expects GOME to return to profitability in1Q22F. In its online platform, GOME promoted a special selection series to drive up the sales of high-value and high-quality domestic brands. GOME plans to serve 50–100m families by the end of 2022, with average time spent of 8–10 hours per month and average spending of Rmb600–1,000 per month, resulting in expected annual spending by families of Rmb360–1,200bn. Gome’s long-term is over a 5% market share of the Rmb30tr “Home • Living” market.
Gov policy to stimulate consumption and support offline economy
The Chinese government announced 10 measures to stimulate consumption, with a couple of measures that are expected to benefit GOME. Government media has proposed rebooting the offline economy. GOME’s “Home • Living” strategy is in line with government proposals, and it expects the strategy to help it attract more consumers. At the current stage, some of GOME’s transformation efforts, such as offering an interactive shopping experience in its offline stores and a real-time video shopping guide for its online platform, are unique among its peers. We believe GOME has developed an important growth strategy and built up related facilities, but the reforms still need time to bear fruit.
Upgrade to Hold with a new DCF-based TP of HK$0.7
We cut our FY21F earnings forecast by 45.2%, since 2H21F is a transitional period for GOME to build up its new strategy and related facilities. But we raised our earnings forecasts for FY22–23F by 16.5% and 12.6%, to reflect stronger revenue growth and better expenses control. A positive catalyst is faster sales growth. The risks include the unsuccessful roll-out of further reforms and a higher-than-expected financial burden.