Courts Asia - Maybank Kim Eng 2015-11-11: Firmly on track; U/G to BUY

Courts Asia - OCBC Investment 2015-11-11: Firmly on track; U/G to BUY COURTS ASIA LIMITED RE2.SI 

Courts Asia - Firmly on track; U/G to BUY 

  • 2QFY3/16 results higher than expected, thanks to outstanding performance in Malaysia. 
  • Gross margin expanded to 35.3%, mainly thanks to higher earned service charge income from Malaysia. 
  • Raise FY16-18F EPS by 19-22%. Upgrade to BUY from HOLD with new TP of SGD0.44, up from SGD0.36. Still based on 9x FY17 P/E, its 3-year average. Expect catalysts from further margin expansion. 


Outstanding Results 

  • 1HFY3/16 revenue was in line, but net profit surged 78% YoY to SGD12m, forming 62% of our full-year forecast, thanks to outstanding performance in Malaysia. 
  • Despite a weakening currency, poor consumer sentiment, and the introduction of a 6% GST, Malaysia sales grew 13% YoY in the reporting currency and 27% YoY in Ringgit, thanks to a successful credit campaign and bulk sales for digital products. 
  • Courts continued to launch new credit products in 2QFY3/16, which proved successful. 
  • In Singapore, sales declined 2.5% YoY. Indonesia recorded an operating loss of SGD2m. 
  • Management expects to break even only next financial year (vs previous guidance: Dec this year). 
  • Courts plans to open two additional stores in Jakarta by 4QFY3/16, bringing its total to five. 
  • Gross margin expanded from 32.7% in 2QFY3/15 to 35.3% in 2QFY3/16, mainly thanks to higher earned service charge income in Malaysia. 
  • SG&A-to-revenue decreased from 28.8% in 2QFY3/15 to 27.2% in 2QFY3/16, partly thanks to lower impairment of trade receivables of SGD1.4m. 

Upgrade to BUY with new TP of SGD0.44 

  • We are impressed by its performance in Malaysia and increase our FY16-18 EPS by 19-22%. The stock trades at 7.9x FY17 P/E. 
  • Our new TP of SGD0.44 , up from SGD0.36 after our EPS adjustments, is still based on 9.4x FY17 P/E, its 3-year average.


Truong Thanh Hang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-11
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade HOLD 0.44 Up 0.36


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