Courts Asia (COURTS SP) - DBS Research 2017-06-30: Met Expectations

Courts Asia (COURTS SP) - DBS Vickers 2017-06-30: Met Expectations COURTS ASIA LIMITED RE2.SI

Courts Asia (COURTS SP) - Met Expectations

  • FY17 revenue decline made up by lower costs.
  • Final dividend of 1.29 Scts declared.
  • Expect more new stores and higher margin initiatives going forward.
  • Maintain BUY with S$0.50 Target Price on 10x FY18F PE.

What’s New 

  • Courts Asia reported FY17 earnings that were in line with our expectations. Earnings were S$23.7m (vs S$6.8m FY16), 8% shy of our S$25.7m forecast. 
  • Revenue was S$740.5m, in line with our estimate (-1.5% y-o-y). The revenue decline was due to softer Singapore and Malaysia sales, which declined by 2-3% y-o-y, offset by an increase in Indonesia sales (+15% to S$25m). 
  • SSSG for both Singapore and Malaysia were down by -1% to -4%. 
  • Operating profit, however, improved 42% to S$47m due to an improvement in Singapore’s profitability on better credit-to-cash mix, and efforts to reduce lower-yielding promotions and marketing expenses. Indonesia, however, recorded widening operating losses of S$11m from S$8m last year as it continues towards gaining economies of scale. 
  • A first and final DPS of 1.29 Scts has been declared, equating to 28% payout ratio and maintaining FY16’s DPS level but below our 1.65-Sct expectation.

Our view 

  • Going forward, we can expect at least five new stores each in Malaysia and Indonesia, better margin management on products, suppliers, and services, and more omni-channel marketing including the online platform. 
  • Key earnings catalyst will be a turnaround of Indonesia business into profitability. 
  • We reduce earnings marginally but maintain our BUY recommendation with a Target Price of S$0.50 based on 10x FY18F PE.

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | 2017-06-30
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.50 Down 0.510