Courts Asia

Courts Asia: HSBC upgrades to O/w with $0.79 TP. The house notes that Courts delivered revenue growth of 3% in 9M14 to $623m (+4%), in line with its forecast. Malaysia registered a much improved performance in the third quarter growing by over 20% to $69m driven by an aggressive campaign to boost credit sales, while new stores opened during the year also contributed to growth. This reversed the top-line decline in M’sia in 1H14 of 6% where now for 9M14, Malaysia has recorded 2% top-line growth. Meanwhile, Singapore registered revenue decline of 3% during the quarter to $134m driven by a weaker retail environment and tepid consumer demand. The higher credit sales in Malaysia were driven more by repeat sales to existing customers with good credit history rather than new origination. As a proportion of total sales, credit sales in Malaysia stood at 56%, well below the 60+% historical range in prior years. Courts is currently trading at around its 52-week low, having fallen by 52% from its 52-week high of $1.18 due to lacklustre top and bottom line performance over the past three quarters. The key drivers for Courts’ performance, in house view, are credit sales in Msia, new store rollout and the Indonesian expansion. On these metrics, believe Courts is executing well. Credit sales are recovering in Malaysia evidenced by the sales growth in the last quarter, Courts has opened 5 new stores year-to-date across Singapore and Malaysia with its largest Big Box Megastore in Malaysia profitable within the first quarter of operation, and the two new Megastores in Greater Jakarta are slated to open ahead of schedule. Between 28 November to 5 December 2013, Courts’ Group CEO accumulated an additional 3.56m shares, an investment of $2.2m, signalling his confidence in the company’s prospects. Courts is attractively valued, trading at 9.0x FY Mar 2015e PE and 2.6x EV to FY Mar 2015e EBITDA. The respective sector average multiples are 15.6x and 10.0x.