Courts Asia

Phillip Securities Research, May 30

COURTS' Q4 2013 earnings of S$12.6 million was marginally above our expectations on lower expenses. Sales registered in Singapore were weaker than expected, while expenses were well managed. Underlying service charges from the in-house credit facilities grew strongly at 25.3 per cent y-o-y to S$32.5 million.

Total earned service charge was, however, lower y-o-y because of movements related to the accounting recognition of service charges. Proposed dividend of 1.01 cents, representing a 30 per cent payout ratio of H2 2013 net profit, was also announced.

While Q4 2013's sales were below expectations, we continue to expect stronger sales growth in FY2014. This is expected to be driven both by higher sales of goods, and earned service charges.

The opening of new stores in Singapore (two stores), and Malaysia (six stores + one megastore) in FY2014 is expected to drive this increase. Overall credit quality in Singapore and Malaysia remains benign, while credit sales are expected to remain strong.

We adjust our forecast to include Q4 2013's results. Based on our DCF (discounted cash flow) valuation, assuming WACC (weighted average cost of capital) of 7.1 per cent, and terminal growth (g) of 3.0 per cent, we maintain our target price of S$1.14.

We continue to view the expansion into Indonesia positively, while the higher expected sales growth and good cost management is expected to drive net profits. We therefore maintain our "buy" rating.

BUY