COURTS ASIA LIMITED
RE2.SI
Courts Asia - All about driving efficiency in tough markets
- 3QFY3/16’s net profit (S$4m, flat yoy) was in line. 9M formed 80% of our FY16 forecast. We expect a muted retail environment in the near-term.
- Courts Malaysia outperformed the retail climate with sales growth of 20% yoy (constant currency terms), but this was lost in translation due to a weaker ringgit.
- 3Q PBT was up a strong 26% yoy, but net profit offset by higher effective tax rates.
- We lower our FY17-18 EPS forecasts on higher tax rate assumptions, and our target price falls to S$0.42.
■ 3Q net profit hampered by higher tax rates
- Group sales growth (+6% yoy) was mostly due to higher bulk sales of digital products in Singapore.
- Earlier cost saving measures meant improved operating margins, and PBT was up 26%, but net profit (S$4m, flat yoy) was offset by higher taxes.
- There were some one-off tax provisions in this quarter, but a higher tax rate is expected as regulatory changes mandated certain costs to no longer be tax deductible.
■ Singapore still weak, but boosted by bulk sales of digital products
- In Singapore, Courts is still reeling from the hangover of a lacklustre residential market and debt servicing ratio.
- While total Singapore sales finally bucked the trend of six consecutive quarters of yoy declines (+8% this quarter), this was mostly due to higher bulk sales of digital products (Apple-related). Excluding which, like-for-like sales growth would have declined 5% yoy.
- Management’s tone on sales growth was not optimistic, but profit contribution should be supported by an easing rental market and cost control.
■ Malaysia operationally strong, but lost in translation
- Malaysia continues to do well and has been lifting the group’s results.
- Total Malaysia sales rose 2% yoy and an even stronger 20% on a constant currency basis. Malaysia now makes up 64% of group earnings (ex-Indonesia losses).
- Taken in the context of
- subdued consumer spending with a weakened ringgit,
- GST implementation, and
- closure of non-performing stores,
■ Focusing on cost-savings to navigate a muted retail environment
- Management was honest about the tough retail environment across all its markets. The reality is Singapore can only do better when the residential market improves.
- The softer consumer sentiment in Malaysia and Indonesia also means that the group will remain selective in store openings.
- The focus is on improving productivity – one way being subletting existing floor space.
■ Maintain Add, stock is trading below -1 s.d.
- We cut our FY17-18 EPS by 10% to factor in higher effective tax rates, offset by share buybacks. Our target price (based on 9.6x CY16 P/E, -1 s.d.) falls as a result.
- While the retail environment is expected to remain tough, Malaysia continues to deliver strong earnings.
- Management also highlighted that it can now negotiate for lower rents.
- Other catalysts include the lifting of cooling measures and Indonesia turning profitable.
Jonathan SEOW
CIMB Securities
|
Kenneth NG CFA
CIMB Securities
|
http://research.itradecimb.com/
2016-02-15
CIMB Securities
SGX Stock
Analyst Report
0.42
Down
0.46
