15 February 2014

Courts Asia - 3Q2014 Result Released - Feb 2014

Courts Asia Limited reported a 4% increase in Total Revenue for 9M2014 compared to same period last year, with net profit reported a 28.8% drop to S$20M compared to S$29M corresponding period last year. Malaysia contributed 33% of the Group's sales and reported 20.8% revenue growth mainly attributable to higher credit sales from credit campaign and opening of new stores during the period. Singapore remains main contributor (67% of the Group's sales but registered a 2.9% decrease in 3Q14 due to weaker consumer demand and lower bulk sales during the period).

Balance sheet item wise, Current Assets increased to S$412M as inventories, receivables and cash increased S$10M - S$20M respectively. The current ratio remains at healthy level of more than 3.0X, while debt-to-assets ratio was at roughly 42%. The borrowings are mainly formed by the Asset Securitisation Programme, Multicurrency Medium Term Note Programme and unsecured fixed rate notes.

Cash flow wise, the group recorded negative cash flow in operating activities as well as investing activities and positive cash flow in financing activities. The working capital needs as well as CAPEX increased significantly compared to same period last year, as the group tried to expand further in oversea. As a result of this, the group had to increased the borrowing via proceeds from unsecured fixed rate notes (S$125M) partially offset by repayment of loan received on asset securitisation and term loan. Total cash now stands at S$104M, with S$37M in fixed deposits and S$72M in bank balance.

The management mentioned that it is expected retails sales to remain soft for the next six months in Singapore, while the Group continues to improve credit sales in Malaysia via aggressive campaign. The second Courts Megastore in Subang was opened in January 2014, in tandem with the Group's expansion plan in Malaysia. In Indonesia, construction work for the Group's first 'Big-Box' Megastore in Bekasi is currently on track and is expected to be opened by 2Q15 (by September 2014).

9M2014 EPS was 3.66c or annualized 4.88c. With NAV of 52.3c, the Return on Equity would be roughly less than 10%. To me, this is not an exciting result. However, I believe that the net profit would be strengthened given the group's expansion plan in Malaysia and Indonesia.

Given current performance, I would think 50c would be a better entry price. I would prefer to invest in it after observing a few more quarters later and check if the sales growth could catch up with the the expansion plan.

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