Slow start but expect better 2Q
Price Target : 12-Month S$ 1.05 (Prev S$ 1.13)
•1Q14 slightly below as SSSG declines
•Expect recovery in the coming quarters backed by new stores and Hari Raya effect
•Trim FY14F/FY15F earnings by 7%/3%
•Maintain BUY with lower TP of S$1.05
1Q14 slightly below, SSSG declines. 1Q14 sales grew 2% y-o-y to S$197m while earnings grew 5% to S$7m. Revenue growth was driven by the Singapore market (+2% y-o-y to S$137m), supported by the relaunch of Courts Megastore Tampines (Dec 12) and Toa Payoh (Mar 13) branches. Malaysia registered flat growth as store sales declined 2.5% due to the haze situation and election campaigns, compensated by a 5% increase in service charges. Same Store Sales Growth (SSSG) in Singapore and Malaysia shrank by 0.9% and 4.2%, respectively.
Better gross and operating margins. Gross profit margins increased 0.5ppts to 30.6% due to higher service charge income and better sales mix towards higher margin electrical and furniture products. Operating expenses as a percentage of sales declined mainly due to reduced advertising rates. Net debt stood at S$145m or 0.5x net gearing ratio. 1Q14 earnings made up 14% of our full year initial estimates, in line with mid teens historical average.
Opening three more stores in Malaysia, secured another Big Box site in Indonesia. Courts opened its first Big Box in Malaysia in July and is scheduled to open three more stores by the end of this year – two small format stores in Sabah by September and a second Big Box store in Subang Jaya by December. It has also secured a second Big Box site in Jakarta, targeted to open six months after the opening of its first Big Box in Bekasi, Eastern Jakarta.
Trim FY14F/FY15F earnings by 7%/3%. Following the decline in SSSG in Singapore and Malaysia, we trim our FY14F/FY15F earnings by 7%/3%. 1Q earnings tend to be seasonally low due to the absence of festive periods. We expect a seasonally stronger quarter in 2Q14, backed by new store openings and stronger sales during the Hari Raya period.
Maintain BUY, TP lowered to S$1.05. Having factored in slightly lower earnings expectations, our TP based on 13x FY14F PE is lowered accordingly to S$1.05. Maintain BUY for 17% upside.
Publish date: 13/08/13