STI : 3,160.70
(Upgrade from HOLD)
Price Target: 12-Month S$0.77
Opportunity to accumulate;
•Recent 22% share price correction presents accumulation opportunities
•Credit tightening factored into share price; likely to end post-FYE Mar’14
•Valuation attractive at -1SD, downside risk looks limited on our below consensus growth estimates
•Upgrade to BUY for 21% potential total return upside and S$0.77 TP.
Upgrade to BUY on attractive valuation. We upgrade Courts to BUY on attractive valuation, and believe its share price has more than factored in the negative aspects. Since 27 October, the counter has corrected 22% from S$0.83. With valuation at an attractive 11.0x FY15F PE, we believe the sell down could be overdone. Its current share price implies a 21% total return upside to our TP, and PEG (FY14F–16F) looks compelling at c.0.6x.
Near-term caution factored in, and long-term drivers remain intact. While we are cautious on post 2Q14 management’s credit tightening and earnings disappointment, this has largely been factored into our forecasts. Earnings are likely to remain soft for the next two quarters, since we expect Courts’ tight credit stance to continue in 2H14. However, we believe FY15F earnings should recover as we expect the company’s credit book to improve, leading the management to relax credit by the start of FY15F.
FY15F growth driven by new stores, relaxation of credit tightening. While we project FY14F to be weak, we have projected 13.7% earnings growth for FY15F, driven by relaxation of credit tightening by the start of FY15F. New stores opened in Malaysia will also contribute for a full 12 months next year.
Upgrade to BUY, TP S$0.77. Our forecasts are below consensus and we see limited downside risk at these levels, with our below consensus FY15F earnings estimate of S$33m. Our earnings estimates remain unchanged along with our TP of S$0.77, based on 13x FY15F PE. Upgrade to BUY.
Publish date: 05/12/13