Familiar household name. Courts Asia, a leading electrical and IT products and furniture retailer in Singapore and Malaysia, has relisted on Singapore’s main board after being privatised a few years ago. The group has some big plans up its sleeve. It plans to grow retail space by 11.6% pa, or 140,000 sq ft on average, in Singapore (ie, one store on average) and Malaysia (ie, six stores on average). It also aims to break into a new market by 2014, namely, East Jakarta in Indonesia. Interestingly, Courts Asia has reinvented itself not only as an electronics retailer, but also a short-term financier.

Solving a credit problem. Asia Retail Group, backed by Baring Private Equity Asia and Topaz Investor Worldwide, took Courts Singapore and Courts Malaysia private separately between 2007 and 2009. According to management, Courts was then grappling with credit collection woes in Malaysia. Courts Asia solved the problem by implementing a stringent credit approval system and successfully slashed the delinquency rate in its Malaysian companies to 9.6% in 2012 from 15.4% in 2007.

Undertaking securitisation. Through its in-house credit facility, Courts Asia is able to internalise the service fees. These charges accounted for 16.5% of total sales in FY3/12. To keep risks to a minimum and improve cash flow, the group has undertaken a securitisation programme each in Singapore and Malaysia. In Singapore, 70% of the eligible receivables will be securitised after a stringent check by the bank. In Malaysia, Courts Asia will send its accounts receivable statement to both a bank and a credit rating agency. Typically, 53% of the eligible receivables will be allowed to be drawn down. Currently, SGD106m are drawn down in Singapore and SGD104m in Malaysia, with overall net gearing at 65.2%.

Fair valuations. The stock is trading at a historical FY3/12 PER of 10.2x and P/BV of 1.8x. Courts Asia has committed to a fixed dividend payout of 30% of its net profit for two years, distributed on a semiannual basis. This translates to a 2-3% dividend yield.

Source: Maybank Kim Eng Research - 30 Oct 2012