A Gome Electrical Appliances Holding Ltd store in Shanghai. The company aims to open 400 new stores on the Chinese mainland in 2011. [Photo / Bloomberg]

HONG KONG - Gome Electrical Appliances Holding Ltd replaced its chairman in a move that sparked a 6.5 percent surge in the shares of China's second-largest home appliance retailer as it ended a drawn-out management tussle.

Gome, founded by imprisoned billionaire Huang Guangyu, replaced Chen Xiao, whom Huang has been trying to remove since September because of a dispute over management of the company.

Chen will be succeeded by Zhang Dazhong, the founder of Beijing Dazhong Electrical Appliances Co Ltd, which was bought by Gome in 2007, Gome said in a filing to the Hong Kong Stock Exchange late on Wednesday.

On Thursday, shares of Gome, in which the private equity company Bain Capital has a stake of about 10 percent, rose as much as 6.5 percent to HK$2.95 (38 cents).

Gome manages more than 1,000 stores and ranks after Suning Appliance Company in China by market value and competes with foreign players such as Best Buy.

"We see room on the upside, not only because of an end of the management battle, but also due to quite a promising industry outlook because of increasing housing supply in the mainland," said Conita Hung, head of equity research at Delta Asia Financial Group.

"The government is emphasizing supplying more low-cost housing, which means there will be demand for basic electrical appliances. However, the narrowing profit margin is a risk."

Gome said that Chen quit to spend more time with his family, though analysts said the move was due to his disagreement with Huang, once China's richest man, over control of the management of the company.

Shares in Gome had fallen sharply since the end of last year amid the fight.

Founder Huang has been fighting from prison, where he is serving a 14-year sentence since May for bribery and insider trading, for control of the company in which he is already a controlling shareholder.

Huang also owns a large number of Gome-branded stores that have not yet been included in the listed Gome.

Bain, which invested about $420 million in Gome in June 2009, applauded the leadership change.

"We welcome Mr Zhang ... to the Gome board and look forward to working with them to grow Gome and create value for shareholders," said Jonathan Zhu, a managing director at Bain Capital.

Some analysts say Zhang Dazhong is a good choice for Gome.

"With the background of the new chairman, there is synergy there that may benefit the company in the longer run," said Linus Yip, chief strategist of First Shanghai Securities.

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Zhang, 62, is a veteran in China's fast-growing home appliance industry who sold his interests in Beijing Dazhong in 2007 for 3.6 billion yuan ($548 million) to Gome.

He will enter into an appointment with Gome for a term of three years.

Analysts said that Zhang faces wider challenges that retailers are grappling with in China's fast-growing market, including rising labor and operating costs.

Gome, which posted a nine-month net profit of 1.44 billion yuan, aims to open 400 new stores on the mainland in 2011 - about 60 percent are in lower tier cities, a Gome executive told Reuters. He declined to be identified as he was not authorized to speak to the media.

Reuters