Courts

Courts: Despite delivering relatively robust 1QFY16 results, Maybank Kim Eng believes the furniture and electronics retailer could face strong headwinds in the near term.

Although its Malaysian operations proved to be a bright spot in its latest report card, thanks in no small part to its successful launch of a credit campaign, the house reckons that sales will be hit by domestic economic issues such as political uncertainty, lacklustre economic growth, as well as a weak Malaysian ringgit.

Over in Singapore, sales have remained tepid, falling for five consecutive quarters, due largely to poor consumer sentiment on the effects of the Total Debt Servicing Ratio limit and Additional Buyer’s Stamp Duty impacting the property market and new household creation.

Another major problem for its Singaporean operations stems from the lack of a market niche given that its broad product range, which offers little pricing advantage over its competition.

Meanwhile, Indonesia is still bleeding from losses of about $2m as of 1QFY16. While expansion plans are in place, a turnaround to profitability is not expected until after 3QFY16 with the opening of its second megastore in Jakarta.

In particular, the research house notes that the lacklustre retail environment has forced Courts to focus on refurbishing and re-launching of its existing stores, rather than expand coverage, with the exception of its Indonesian operations.

On the flip side however, Courts has also undertaken various initiatives that have helped it to enhance margins through store makeovers; new retail concepts to boost sales; and the launch of new credit products.

Consequently, the house expects the group to enjoy gross margins of 33% in the next three years. However, topline estimates have been lowered to factor in the current tepid retail environment, with a pick-up in 2016/17. As such, the house maintains its Hold rating on the counter with a TP of $0.36.