Troubled electrical retailer reports 49 percent increase in earnings

HONG KONG - Gome Electrical Appliances Holding Ltd, the China retailer seeking to end a dispute with its jailed founder over management control, said profit in the first nine months of the year surged 49 percent.

Net income rose to 1.44 billion yuan ($217 million) in the year through Sept 30 from 964.6 million yuan a year earlier, Gome said in a statement to Hong Kong's stock exchange on Monday.

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Improving relations between billionaire founder Huang Guangyu and Chairman Chen Xiao may further boost Gome's earnings, said Charlie Chen, a Hong Kong-based analyst for BNP Paribas SA. Gome has advanced 17 percent in Hong Kong trading since agreeing on Nov 10 to appoint Huang's representatives to the board, easing concerns over his threat to cut ties between his 400 privately owned stores and the listed company.

"Revenue growth should be pretty healthy in the next six months," BNP Paribas's Chen, who recommends buying Gome's shares, said. "The current management has done a pretty good job in expanding the margins. I don't see a lot of bumps but the only concern I have is the situation between the management and the chairman."

Gome rose 0.3 percent to HK$3.19 (41 cents) in Hong Kong trading before the announcement. The stock has gained 13 percent this year, compared with a 9.9 percent advance for the benchmark Hang Seng Index.

Operating profit grew 61 percent to 1.87 billion yuan, Gome said in its statement.

Suning Appliance Co, China's biggest electronics retailer, said profit rose 21.2 percent in the third quarter to 854 million yuan ($128 million). Suning overtook Gome to become China's biggest electronics retailer by sales in 2008, according to data compiled by Bloomberg.

While shareholders rejected Huang's proposal to remove Chen, they agreed to cancel a mandate to sell new shares, which may have resulted in diluting his stake. Huang, who is serving a 14-year prison sentence in Beijing, owns the Gome brand and remains the Hong Kong-traded retailer's largest shareholder.

Gome is suing Huang in Hong Kong for breach of trust and share repurchases. Hong Kong's Securities and Futures Commission accused Huang, also known as Wong Kwong Yu, and wife Lisa Du Juan of stock-market fraud in August last year.

Huang is serving a 14-year sentence after being convicted in a Beijing court in May of bribery, insider trading and illegally buying foreign currency.