Courts Asia

UOBKayhian on 10 Jan 2013

Valuation/ Recommendation

·    Share price has climbed by as much as 10% since we initiated coverage on Courts Asia (CAL). As of 2 Jan 12, it has closed at a high of S$0.88.  Since then, the stock has retraced and at the current share price of S$0.835, is trading at a 2013F PE of 9.0x compared with its peers’ weighted average of 14.5x based on Bloomberg figures. We view the current share price as an attractive entry level.

·    There is an upside of 42.5% to our target price of S$1.19 on the back of continued earnings growth and market share gains. We base our target price on 0.6x PEG, which implies 11.5x FY14F PE. We forecast a 3-year (FY12-15F) revenue and EPS CAGR of 17.7% and 19.2% respectively.

What’s New

·    Expect strong December sales. In 2QFY13, CAL posted a 12.7% and 45.5% qoq growth in sales and net profit respectively. We anticipate continued strong performance in 3QFY13 on the back of the recently-concluded Christmas season. Furthermore, CAL unveiled its fully-refurbished Megastore in Tampines on 1 Dec 12 and held a grand re-launch celebration over two weekends that offered bigger deals and new store features for its customers. Another period of robust sales could push CAL’s share price higher.

·    Riding on hot IT boom. In Oct 12, Singapore’s seasonally-adjusted retail sales of telecommunications apparatus & computers grew 6.9% mom and 8.0% yoy. These figures support the boom in IT and IT-related products, which continue to drive CAL’s performance inSingapore. Management has proactively introduced new concepts to cater to this trend such as Courts Connect, the first in-store mobile retail concept to offer services fromSingapore’s three major telecom providers, and Courts Solution Bar, which provides extra service to customers with newly-purchased IT devices.

·    Potential from Malaysia’s domestic market.Malaysia’s retail sales grew 6.2% yoy in 1H12 and GDP growth was 5.2% yoy in 3Q12, as domestic demand continued to prop up the economy. Management sees significant potential in Malaysia as the country is trying to catch up with Singapore. For CAL, growth will mainly be driven by repeat purchases from credit customers and faster take-up of IT products. 68% of credit customers inMalaysia have exhibited repeat purchasing and IT sales has grown at a CAGR of 30% in FY10-12.