STI : 3,166.74
(Downgrade to from BUY)
Price Target : 12-Month S$ 0.77 (Prev S$ 1.00)
• 2Q14 below expectations as margins disappoint on lower earned interest charges
• Slashed FY14F/FY15F earnings by 32%/33%
• Downgrade to HOLD with TP cut to S$0.77
2Q14 results below expectations as growth, margins disappoint. 2Q14 results were below expectations due to slower than expected revenue growth and lower margins. Revenue grew 3.3% y-o-y to S$223m but earnings plunged 55% to S$7.2m. Revenue growth was driven by Singapore sales (+11% y-o-y) and 16% higher SSSG on higher bulk/export sales. However, gross profit margins declined 5.5ppts to 28.5%, leading to net earnings declining by 55%. Interim DPS of 0.76 Scents was declared.
Internal credit tightening resulted in slower SSSG, lower earned interest and gross margins. In 2Q14, management tightened credit criteria on new customers paying via credit across Singapore and Malaysia to improve its overall credit portfolio and to keep delinquency rates in check.
Cut FY14F/FY15F earnings by 32%/33%. We expect muted results over the next two quarters going by management’s past tightening experience. We therefore lower FY14F/FY15F earnings by 32%/33% on lower SSSG assumptions, interest recognition and gross margins for the next two quarters. Thereafter, we factor in a mild recovery in anticipation of management loosening its credit control.
Downgrade to HOLD, TP cut to S$0.77. Following the earnings revision, we derive a lower TP of S$0.77 based on 13x FY15F earnings. Downgrade Courts to HOLD for now. Re-rating catalyst will be when credit indicators turn more positive.
Publish date: 14/11/13