COURTS ASIA LIMITED
RE2.SI
Courts Asia - Cost control drives earnings turnaround
- 1Q17 earnings ahead on lower costs, better margins.
- Sales flat despite Hari Raya season, but better cost management led to earnings surprise.
- Earnings estimates unchanged given weak regional consumer sentiment and a seasonally firm 1Q17.
- Maintain BUY and S$0.45 TP.
What’s New
1Q17 (FYE Mar) earnings ahead.
- 1Q17 earnings of S$9.4m (+56% y-o-y) were ahead of our estimates, largely driven by better cost management.
- Revenue was flattish (-1% y-o-y) at S$196m despite the Hari Raya celebrations in the quarter.
- The earnings surprise came from:
- improvement in product margins as sales mix of lower margin IT products declined, while electrical products improved;
- a drop in distribution and marketing costs on lower advertising and warehouse & distribution costs in Malaysia; and
- S$1.2m reduction of finance expenses on the repayment of a SGD denominated loan by the Malaysia subsidiary.
Outlook remains firm.
- Going forward, we expect improvement in earnings backed by store count expansion in Singapore, Malaysia and Indonesia, while margins (including rentals and cost efficiencies) have room to rise.
Maintain BUY and S$0.45 TP.
- Our earnings estimates remain largely unchanged as we are cautious over weak regional consumer sentiment and flat revenue performance despite the Hari Raya season.
- Earnings improvement was mainly driven by cost and margin improvements. The stock remains attractive at valuations below book, FY17F PE of 8.6x, and dividend yield of 3.9%.
- We have also identified COURTS as a potential privatisation candidate.
- Our TP remains S$0.45 based on 10x FY17F PE. Maintain BUY.
Alfie Yeo
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Andy Sim CFA
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http://www.dbsvickers.com/
2016-08-12
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