This article is written by @calvinwee in InvestingNote.
1. Brief background
Courts Asia ($Courts Asia(RE2)) is a leading furniture and electronic products retailer from the United Kingdom and was first established in Singapore in 1974. Courts operates more than 85 stores in different store formats spanning over 1.7 million square feet of retail space across Singapore, Malaysia and Indonesia. Courts has enjoyed a dominating presence with the largest market share and the second largest in Singapore and Malaysia respectively. Moreover, Courts’ entrenched presence in Singapore and Malaysia is reflected by the 1.4 million members under its ‘Homeclub’ loyalty programme.
2. Recent events and news
– April 5, Courts Asia’s annual report of financial year 2016, refer to the report at: http://courts.listedcompany.com/misc/ar201…
– March 20, ‘Courts eyes e-commerce growth in Southeast Asia’, refer to the news at http://www.marketing– interactive.com/courts-eyes-e-commerce-growth-in-southeast-asia/
– February 7, ‘Courts records higher Q3 profit despite revenue drop’, refer to the news at http://www.businesstimes.com.sg/companies-…
– September 26, ‘Terry O’Connor courting omni-channel future for Courts’, refer to the news at http://www.businesstimes.com.sg/companies-…
– August 6, 2016, ‘Courts Asia Ltd’s Investors Should Know This Important Investing Formula’, refer to the news at https://www.fool.sg/2016/08/16/courts-asia…
3. Performance summary
Courts Asia has started to shown signs of recovery after adapting its overall strategy to new trends and changes in consumers’ preferences. ROE improved to 6.9% and profits after tax increase by 11.8%. Also, EPS has increased 16.8% in FY2016, coming off two consecutive years of negative EPS growth since 2014. Moreover, Courts Asia has continued to pay steady dividends to its shareholders of 1.29cents/share. One point of concern would be the increase in its gearing ratio from 52.6% to 56% yoy. Moving forward, Courts Asia hopes to reap the dividends from its partnership with international brands such as JYSK and its focus on multi-channel retailing to capture the growth of ecommerce in the region. Lastly, Courts Asia will continue to expand its presence in Indonesia by opening more small format stores to achieve economies of scale. If Courts execute its expansion strategy successfully, it will greatly boost its overall revenue as its Indonesia operations are not breaking even as of now.
4. Financial highlights
a. Operating performance
Although Courts Asia’s revenue only inched up 1.56% yoy, however, its net profits increased substantially by 16.8% from $20.3 million to $25.3 million. In view of the rise in net profits, Courts’ EPS reflected a corresponding increase for the first time since 2014. This is a testament to Courts’ effective cost cutting measures as its business operations in Indonesia were contributing marginal revenue during the financial year.
b. Financial & cash position
As seen from the chart, Courts’ net cash flows entered positive territory for the first time in FY2016 with the strong boost from the operations cash flow. However, it is noted that the overall increase was muted because of the negative cash outflows from investment activities, likely due to their expansion of their Indonesian operations. Correspondingly, they reported a 26.15% increase in their cash and cash equivalent.
c. Segment performance
Geographically, Courts derive its revenue mainly from their business operations in Singapore, contributing 65.6% of the Group’s revenue in FY March 2016.This has remained largely status quo in FY16. The operations from its Malaysia business revenue, which contributed to 32.3% of the Group’s total revenue reported 11.7% (in RM currency) increase in FY16 as due to corporate sales for digital products and higher service charge income. Indonesia revenue, which contributed to 2.1% of the Group’s revenue, registered a 157.3% (in Rupiah currency) increase in revenue as compared to FY15 mainly due to additional new store openings. It is interesting to note that net profits from the Malaysia operations has grown significantly from 2% to 13% likely due to higher proportion of credit sales.
In terms of its revenue from their product segment, FY2016 has seen a slight drop of 2.4% from its electrical business segment while the IT business segment reported a 6.9% increase in revenue contribution. Due to the negative economic sentiment globally, the furniture product segment recorded a dip in revenue as consumers are hesitant to spend on big ticket items.