STI : 3,038.71
Price Target : 12-Month S$ 0.70 (Prev S$ 0.77)
• 3QFYMar14 results was slightly below expectations on lower than expected sales
• Still positive on prospects
• Maintain BUY with lower TP of S$0.70
3Q14 results slightly below. Net earnings of S$6.3m (+2% y-oy) was slightly below our estimate of S$6.8m on lower than expected revenue. Revenue was S$203m (+4% y-o-y), driven by earned service charges in Malaysia.
SSSG for Singapore declined by 4.4% due to lower digital and electrical product sales, weaker consumer demand and lower bulk sales. Malaysia’s SSSG increased by 2.8% on higher credit sales from an aggressive credit campaign and higher furniture and electrical product sales. Gross margins improved to 32.1% on higher interest charges earned, while net debt to equity headed higher, from 0.5x to 0.7x. 9M14 earnings accounted for 70% of our full year estimates.
Indonesia to open earlier than expected. Courts’ first big box megastore in Bekasi Indonesia will open earlier than expected, by 2Q FY14/15 (Sept 2014) instead of 3Q FY14/15 (Dec 2014). Its second ‘Big-Box’ Megastore is scheduled to open in BSD City, Serpong in 2H FY14/15. We now expect a modest contribution from Indonesia from FY15F.
We remain positive on prospects going forward. Tighter credit measures which were implemented in the previous quarter led to weaker than expected 2Q14 results. While Courts has maintained its credit policy in 3Q14, we expect the tighter credit measures to ease by the start of FY15F. We believe this should help growth next year. Besides this, growth will also be supported by the full 12 months contribution from new stores that were opened this year, particularly the two new Big Boxes in Malaysia. Housing completions in Singapore is set to accelerate in 2014 as well.
Maintain BUY with TP S$0.70. Courts trades at an attractive valuation of 9.9x FY15F PE, close to -1SD of its forward PE mean valuation of 12x. No significant change to our earnings estimates. Maintain BUY with a lower TP of S$0.70 based on 12x FY15F PE pegged to average PE valuation vs 13x previously.