Feb 20, 2017
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Sun Art Retail offers downbeat outlook after Alibaba denial sends shares tumbling

Feb 20, 2017

Sun Art Retail offered a slightly downbeat outlook for growth in its mainstay hypermarket business on Monday, as investors dumped its stock after hopes for a tie-up with Alibaba were dashed.

The joint venture of Taiwanese conglomerate Ruentex Group and French retailer Groupe Auchan plans to open 30 to 35 hypermarkets this year, versus 38 in 2016, Chief Executive Bruno Mercier said, citing increased competition spurred by the encroachment of e-commerce.


He also said Sun Art would pursue a new strategy of opening small outlets and convenience stores in the biggest cities.

"We are slowing down a bit our pace of expansion of hypermarkets and at the same time we want to make sure that every one of them reaches the turnover we want to have," Mercier said at an earnings briefing. "We want to open some new formats. We will open some high-end supermarkets."

His comments came after Sun Art said late on Friday it was in early talks about a potential tie-up with parties including Suning Commerce Group  - but not Alibaba or Tencent Holdings, as reported by Taiwanese media.

Sun Art said it could not rule out the possibility of co-operation with any significant online platform, but its share price still fell as much as 18 percent on Monday morning.

Sun Art's shares had risen about 30 percent this year as of Friday, and traders said its denial of talks with Alibaba and Tencent triggered a long-expected bout of profit-taking.

Before the end of Monday morning trade in Hong Kong, Alibaba said it had formed a strategic partnership with retail conglomerate Bailian Group.

Sun Art stock was down 14 percent afternoon trade, lagging a 0.55 percent gain in the benchmark Hang Seng share price index.


Sun Art on Sunday posted a 5.2 percent net profit rise for 2016 as steady demand in smaller cities which house the bulk of its stores helped offset increased offline competition, pressure from e-commerce, and a slowing economy.

It ended the year with 446 stores and a market share of 14.6 percent, making it China's second-largest hypermarket operator. It said it was sandwiched between China Resources Co Ltd with 15.5 percent and Wal-Mart Stores at 10.6 percent.

Reflecting Sun Art's reduced store openings, Chief Financial Officer Nelson Hsu of subsidiary RT-Mart on Monday ruled out new stores in so-called tier five cities for the next three years.


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