Tuesday, October 22, 2013

Courts Asia : Attractive valuations (DBSV)

Courts Asia
BUY S$0.77
STI: 3,186.62
Price Target: 12-Month S$1.00 (Prev S$1.05)
Attractive valuations

• Valuations attractive, as long-term trends remain favourable
• 2Q14 results could be soft, but short-term negativities do not derail its positive long-term potential
• Trim FY14F/FY15F earnings by 5%/2%
• Maintain BUY, with lower S$1.00 TP

Appealing valuations, as long-term trends remain positive. Since Apr/May 2013, Courts’ share price has fallen 33% from a high of S$1.145 to S$0.77 currently.
Courts now trades attractively at 10.0x FY14F PE, below average valuations of 11x and peer’s average of 14x. Long-term trends continue to be in favour for Courts as a beneficiary of increasing population and housing trend in Singapore. It will also continue to benefit from the growing middle class and rising income trend of ASEAN consumers in Malaysia, and Indonesia from 2014.

2Q14 results likely soft, but still positive over the long term. We expect results to be muted, on lower fuel subsidies in Malaysia and slower furniture and household equipment sales in Singapore. We have therefore reduced sales psf expectations in Singapore and Malaysia; and hence lowered our FY14F/FY15F earnings forecast by 5%/2%. Longer term, we expect demand in Malaysia to normalise when the market adapts to lower fuel subsidies. With higher housing completion in Singapore going forward, we remain positive on demand picking up.

Maintain BUY with lower S$1.00 TP. We maintain our BUY rating on Courts despite our earnings revision, as its valuation is attractive. Our TP of S$1.00 is derived based on 13x FY14F earnings.

Favourable long-term trends, attractive valuations, maintain BUY
Valuations attractive at current levels. Since Apr/May 2013, Courts’ share price has fallen 33% from a high of S$1.145 to S$0.77 currently. Courts now trades attractively at 10.0x FY14F PE, below average valuations of 11x and peer average of 14x. We maintain our BUY recommendation with S$1.00 TP, based on 13x FY14F earnings.

Long-term trends continue to be positive. Courts remains a beneficiary of increasing population and housing trend in Singapore. It will also continue to benefit from the growing middle class and rising income trend of ASEAN consumers in Malaysia, and Indonesia from 2014.

2Q14 results could be soft, but short-term negativities do not derail its positive long-term potential
2Q14 could be slightly weak. We believe lower fuel subsidies in Malaysia and slower furniture and household equipment sales in Singapore could be contributing factors to soft 2Q14 results.

Malaysia’s fuel subsidy reduction could affect domestic consumption in 2Q14, but demand should normalise going forward. The Malaysian government has lowered RON95 and diesel fuel subsidies by RM0.20/litre in September. With consumption dollars flowing back to the government, Courts could see a soft 2Q14. We believe that slower demand will be short-term and demand will normalise once consumers are accustomed to lower subsidies.

Negative y-o-y furniture sales growth for the quarter ended June, but demand will surge as 200,000 homes will be completed by 2016. The indicator for Singapore furniture and household equipment retail sales from the Department of Statistics showed a y-o-y decline. Since the beginning of 2013, furniture retail sales have recorded negative y-o-y growth.

However, the HDB has constructed mass market housing ahead of demand and will have 200,000 new homes by 2016, to support longer term demand for furniture and household goods.

Expect soft 2Q14, trim FY14F/FY15F earnings by 5%/2%
Lower FY14F/FY15F sales psf for Singapore and Malaysia. We expect results to be soft, on lower fuel subsidies in Malaysia and slower furniture and household equipment sales in Singapore. We have therefore lowered FY14F sales psf expectations in Singapore and Malaysia and hence reduced our FY14F/FY15F earnings forecast by 5%/2%. Longer term, we expect demand in Malaysia to normalise when the market adapts to lower fuel subsidies. With higher housing completion in Singapore going forward, we remain positive on demand picking up.

Valuation
Maintain BUY with lower S$1.00 TP. We maintain our BUY rating on Courts, as valuations are attractive at 10.0x FY14F PE, which are below average valuations of 11x and peer’s average of 14x. Our TP of S$1.00 is derived based on 13x FY14F earnings




Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 21/10/13

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