Courts Asia

Courts Asia: Registered a dismal set of 2Q results which were below estimates. Net profit fell 76.2% to $1.7m taking 1HFY15 net profit to $6.8m (-52.2%). Revenue was down 19.9% to $178.6m, dragged by operations in both its Singapore and operations. Singapore sales, which contributed to 68% of the group’s sales, registered a 22.9% decline to $121.4m. The fall in sales was mainly due to a lacklustre retail environment and lower bulk sales from digital products. Malaysia’s sales, which contributed to 32% of the Group’s sales, fell 12.6% to $57.2m, due to muted consumer response during the Raya festive period and reduction of fuel subsidies have also negatively impacted consumer sentiment. Gross margin rose to 32.7% from 28.5%, mainly due to Singapore’s sales mix shifting towards electrical and furniture categories which carry a higher gross margin. Bottom-line was however weighed by a 9.8% rise in admin expenses to $37.3m. Going forward, the group guides that its flagship ‘Big-Box’ Megastore officially opened its doors in Bekasi, Indonesia on 18th Oct to a resounding success. The group remains encouraged by this warm reception and is on track to establish its second and third store in Indonesia by FY15. The group expects its continued drive towards greater cost efficiency to better position Courts as it embarks on its regional expansion strategy. In the mid to long-term, the group remains optimistic on Asia’s growth prospects, premised on a rising middle class and growing disposable income. At the current price, Courts Asia trades at 35x annualized 2QFY15 P/E versus Asean consumer peers average of ~20 to 30x P/E.