Maybank Kim Eng 2015-08-24: Courts Asia - Still Some Headwinds Ahead.


Still Some Headwinds Ahead 

  • While steadier in recent quarters, sales will encounter more hurdles. Malaysia will be hit by weakening MYR; Singapore remains sluggish as Courts struggles to find its positioning; Indonesia will record a loss of an estimated SGD2m. 
  • Expect high margins of 33%, thanks to Courts’ cost efficiency initiatives. 
  • We cut our FY16-18E EPS by 5-25%. Maintain HOLD and TP of SGD0.36 is based on 9x FY17E P/E. 

Improvement in Operations, but Weak Markets 

  • Recent economic malaise will likely put off discretionary consumer spending. Despite Malaysia’s successful launch of a credit campaign in 1QFY3/16, the improvement will be offset by translational losses from weakening MYR. 
  • In Singapore, there is no sign of revival yet, as sales have declined for five consecutive quarters, due to poor consumer sentiment. We expect sales to be flat this year, but could improve gradually from FY3/17, if measures to boost furniture sales prove successful. 
  • In Indonesia, sales will build over a small base but likely to break even only at end 2015. On the brighter side, margins have been improving thanks to Courts’ initiatives to enhance profitability, including 
    1. store make-overs; 
    2. innovative retail concepts to boost sales of high-margin product categories; and 
    3. launch of new credit products. 
  • We expect gross margins to remain high at 33% in FY16-18E. 

Maintain HOLD 

  • We cut our FY16-18E EPS forecasts by 5-25%, to reflect expected weaker sales in core markets. Our new TP of SGD0.36 is based on 9x FY17E EPS, in line with historical 3-year P/E average. Our previous TP was based on 8x P/E, on par with valuations for Malaysia-listed AEON Credit Services. Maintain HOLD. The improvement in the previous quarters may be mitigated by the headwinds ahead. Courts will more likely be a 2016/2017 story.

Truong Thanh Hang | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-24
HOLD Maintain HOLD 0.36 Same 0.36