Courts

Courts: (S$0.395) 2QFY16 profit triples; Malaysia boleh

The furniture and electronics retailer posted 2QFY16 results that topped estimates with net profit more than tripling to $6m (+253% y/y) on revenue of $186.1m (+4.2%).

The stronger sales was contributed by Malaysia and new stores in Indonesia, which partially offset weaker Singapore sales. An operational breakdown of its geographic markets is as follows:

1) Singapore - Revenue: $118m (-2.6%)
The decline in Singapore sales was broad based with lower sales across its product categories. Same store sales growth fell 4%, while psf sales slipped 16% to $219. Operating profit held steady at $5m.

2) Malaysia - Revenue: $65m (+13%)
Revenue from Malaysia grew mainly due to bulk sales of digital products. However, the weaker MYR crimped growth as revenue would have climbed 27% on a local currency basis. Same store sales grew 20.6% due to higher service charge income (+18.2%). Operating profit jumped 2.75x to $11m.

3) Indonesia - Revenue : $3m
Indonesian operations commenced in 1HFY16 and contributed 1.7% of total revenue following the opening of two new stores in May ‘15. Operating loss doubled to $2m due to start-up costs.

Gross margin widened 2.6 ppt to 35.3% on the the higher service charge income from Malaysia.

Bottom-line was swung by:
1) Lower distribution and marketing expenses od $13.7m (-1.6%) due to better warehouse and distribution cost management in Malaysia operations
2) Lower admin expenses of $36.9m (-1.4%) on reduced provisions for doubtful debts and lower general expenses
3) Higher finance costs of $7.2m (+25.5%), mainly FX loss arising from an SGD denominated inter-company loan

Going forward, Courts expects the demand for home furnishing and electronic goods to remain stable given the expected increase in supply of HDB flats in 2016.

The group recently opened a JYSK outlet in Bukit Timah in late Sep with another store to open in Tiong Bahru Plaza by 1QFY17. It also intends to offer Ace Hardware products at its Courts Megastore from Dec ‘15 onwards.

For Malaysia, Courts remains relatively bullish despite the MYR’s depreciation and economic outlook after the government introduced a slew of schemes in its Budget 2016 that will help boost growth and home ownership.

It recently reopened a refurbished store in Johor Bahru and launched new credit products. Courts intends to re-launch its online platform by 4QFY16.

It plans to open six new stores in Indonesia over the next 12 months to leverage on the relatively rapid growth in the country.

At its current price, Courts trades at a forward P/E of 11x.

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