Target price (SGD) 1.46
Share price (SGD) 0.95
Going “Big” in Indonesia
Two new Megastores in Jakarta to accelerate growth
Sinar Mas Land will be a strong partner for Courts
Reiterate Overweight (V) rating and raise TP to SGD1.46 from SGD1.32
Two record sized Megastores announced in Greater Jakarta. Courts announced on 22 July 2013 a tie-up with Sinar Mas Land (one of the strongest property developers in Indonesia) to build two “Big-Box” Megastores in Greater Jakarta with total retail area of 270,000sqf. The first store, that we believe will open mid CY 2014, will measure 140,000sqf and will be located in Bekasi, east of Jakarta.
This will be Courts’ largest Megastore in the region while the second store (measuring 130,000sqf) will open six months after and will be located in Sinar Mas Land’s development, the BSD City, in southwest Jakarta. The two stores are expected to increase Courts’ existing retail footprint by 20% when they open (currently Courts has around 1.35m sqf of retail space, including the newly-opened Megastore in Kuala Lumpur).
Upgrade our revenue and earnings estimates. Based on the new disclosure, we raise our FY Mar 2015e and 2016e revenue forecast by 5% and 12%, respectively while we increase the corresponding earnings estimates by 2% and 6% as a result of faster store rollout assumption. By the end of FY Mar 2016e, we expect Indonesia to contribute c11% of Courts’ total group revenue. Due to the change in our estimates, we raise our DCFbased target price to SGD1.46 from SGD1.32. We assume a FCF CAGR of 13.7% from FY Mar 2014-23e, WACC of 7.9-8.1% and an exit multiple of 3.0x to derive terminal value. We believe DCF is an appropriate way to value Courts to take into account its multi-year expansion plan. Courts is currently trading at 10.9x FY Mar 2014e PE, below its sector average of 16.2x PE and we believe it has a significant upside potential.
Investment thesis intact. We believe that Courts has strong revenue and earnings growth potential driven by store expansion in Singapore, Malaysia, and Indonesia. Key catalysts remain faster store rollout, higher same-store-sales growth ,and credit sales.
HSBC vs. consensus. Our Overweight(V) rating and EPS estimates for FY Mar 2014-16e are in line with consensus with all covering analysts bullish who are on the stock. We believe that investors are still not fully appreciating Courts’ growth potential and the share price should trade higher.