■ 2QFY3/16 results higher than expected, thanks to outstanding performance in Malaysia.
■ Gross margin expanded to 35.3%, mainly thanks to higher earned service charge income from Malaysia.
■ Raise FY16-18F EPS by 19-22%. Upgrade to BUY from HOLD with new TP of SGD0.44, up from SGD0.36. Still based on 9x FY17 P/E, its 3-year average. Expect catalysts from further margin expansion.
1HFY3/16 revenue was in line, but net profit surged 78% YoY to SGD12m, forming 62% of our full-year forecast, thanks to outstanding performance in Malaysia. Despite a weakening currency, poor consumer sentiment, and the introduction of a 6% GST, Malaysia sales grew 13% YoY in the reporting currency and 27% YoY in Ringgit, thanks to a successful credit campaign and bulk sales for digital products. Courts continued to launch new credit products in 2QFY3/16, which proved successful. In Singapore, sales declined 2.5% YoY. Indonesia recorded an operating loss of SGD2m. Management expects to break even only next financial year (vs previous guidance: Dec this year). Courts plans to open two additional stores in Jakarta by 4QFY3/16, bringing its total to five.
Gross margin expanded from 32.7% in 2QFY3/15 to 35.3% in 2QFY3/16, mainly thanks to higher earned service charge income in Malaysia. SG&A-to-revenue decreased from 28.8% in 2QFY3/15 to 27.2% in 2QFY3/16, partly thanks to lower impairment of trade receivables of SGD1.4m.
Upgrade to BUY with new TP of SGD0.44
We are impressed by its performance in Malaysia and increase our FY16-18 EPS by 19-22%. The stock trades at 7.9x FY17 P/E. Our new TP of SGD0.44 , up from SGD0.36 after our EPS adjustments, is still based on 9.4x FY17 P/E, its 3-year average. (Read Report)
Read Related Reports
1) Courts Asia Ltd - Hold: Impressive performance in Malaysia by HSBC Global Research, published on 12 November 2015
2) Courts Asia Ltd - Hold: Strong 2Q16 rebound by HSBC Global Research, published on 10 November 2015
3) Courts Asia - Courts in Malaysia: All rise! by CIMB Research, published on 9 November 2015
Source : Maybank Kim Eng Research