China's Sun Art sees 2016 profit lift 5%

Hypermarket operator Sun Art Retail Group Ltd on Sunday posted a 5.2 percent rise in 2016 net profit, beating forecasts, as steady demand from lower-tier cities helped offset growing pressure from the rapidly growing e-commerce sector.

The retailer, a joint venture between Taiwanese conglomerate Ruentex Group and French retailer Groupe Auchan SA, posted a net profit of 2.6 billion yuan ($380 million) for the 12 months ended December, up from 2.4 billion yuan in 2015.

That compared with an average forecast of 2.5 billion yuan from 16 analysts polled by Reuters.

Sun Art has been grappling with a rapidly expanding e-commerce market, a slowing economy and increased offline competition in cities ranked as lower tier where the bulk of its stores are focused.

Existing players in the traditional retail sector are scaling back expansion plans in a struggle to attract customers.

"The growth of the consumer market was steady, although it was slower than previous periods. The competition in the retail industry was still intensive in 2016," Sun Art said in a statement filed with the Hong Kong stock exchange, adding that new store openings had driven an increase in turnover.

Sun Art, which competes with China Resources and Wal-Mart Stores Inc in China, said its 2016 turnover rise 4.2 percent from a year earlier to 100.4 billion yuan. Gross profit margin increased 0.6 percentage points to 23.9 percent.

Sun Art opened 38 new stores during the year, bringing its total to 446. At the end of 2016, about 45 percent of its stores were in third-tier cities, with 22 percent in fourth-tier cities and 8 percent in fifth-tier. Sun Art had 8 percent of stores in tier-one cities and 17 percent in tier two.

At the end of 2015 it had 409 stores, with about 45 percent in third-tier prefecture-level cities, 22 percent in fourth-tier county-level cities, and 7 percent in fifth-tier townships and towns. It had just 9 percent in first-tier cities and 17 percent in second-tier cities.

Sun Art's shares rose 16 percent in 2016, outpacing a 0.4 percent gain for the benchmark Hang Seng Index. Shares of Sun Art have jumped nearly 30 percent so far this year.