COURTS ASIA LIMITED
RE2.SI
Courts Asia (COURTS SP) - Within Expectations
- Courts Asia (COURTS) 1Q18 earnings in line, lower revenue made up by higher margins.
- Lower SSSG offset by better sales mix and profitability.
- Expect more new stores and higher margin initiatives going forward.
- Maintain BUY with S$0.49 TP.
What’s New
- Courts Asia's 1Q18 earnings of S$6.1m were largely in line with our estimates. While revenue missed our expectations, earnings was boosted by slightly better than expected margins.
- Revenue declined by 4.5% y-o-y to S$187m dragged by lower earned service charge income from Singapore and Malaysia. Store sales excluding earned service charge income was largely flat, with new stores offsetting the decline in same store sales growth (SSSG). Singapore and Malaysia’s SSSG were -2.5% and -17.6% respectively.
- Operating profit of S$12.1m was offset by slightly better than expected gross and EBITDA margins of 38.2% and 7.7% respectively, largely due to an improved sales mix from more electrical goods and service income.
Our view
- Courts continues to open stores in Malaysia and Indonesia while taking an omni-channel approach in Singapore. It has already opened two stores in East Malaysia and targets to open at least five new stores in Malaysia. It already has nine pop-up stores across Greater Jakarta and plans to add a minimum of five new stores in Indonesia. Indonesia continues to make operating losses of S$3m a quarter.
- We expect profitability in the next two years once Indonesia attains scale. Better margin management on products, suppliers, and services will also enhance profitability.
- We leave our earnings estimates largely unchanged. Our S$0.49 TP is based on 10x FY18F PE. Maintain BUY.
Alfie YEO
DBS Vickers
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Andy SIM CFA
DBS Vickers
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http://www.dbsvickers.com/
2017-08-14
DBS Vickers
SGX Stock
Analyst Report
0.49
Down
0.500
