Courts Asia - Firmly on track; U/G to BUY


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.

Outstanding Results
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.

Technical Analysis
Daily Chart
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

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