Reincarnated High Prince of Retailers. Courts Asia is the reincarnation of Courts Singapore and Courts Malaysia, two separately listed companies that were privatised in 2007-2009 following the bankruptcy of its controlling shareholder. Bought out by private investors, its loss-making Thai operations closed, its credit facility strengthened and previously-separate management teams aligned, and relisted in 2012, Courts Asia is a direct play on the ASEAN consumption story in Malaysia, Singapore and soon, Indonesia. Then angle of consumer financier has been buttressed and remains a key selling point for both customers and investors. Your Honour, Courts is a BUY with a target price of SGD1.49 for upside of 63.7%.

Courting the ASEAN big spenders. If ASEAN were a country, it would rank among the top 10 economies in the world. Its consumption story is played out every day by large young populations salivating for the latest gadget and the most fashionable sofa. The biggest retailer of electrical and IT products and furniture in Singapore, No. 2 in Malaysia and soon, Indonesia as well, Courts is a direct play on this story. It has 59 stores in Malaysia and 13 stores in Singapore with 1m sq ft of space. By 2014, it will open its largest outlet in Jakarta, Indonesia.

Financing the retail masses for a fat margin. Courts' unique in-house credit financing facility, offered for up to 60 months and at interest rates exceeding 22% annually, adds additional margin allure for investors, as this facility allows it to enjoy much higher margins than competitors that rely on third-party credit providers. Via an innovative asset securitisation programme for its consumer loans, Courts is able to tap into cheap funding to grow this non-retail income stream and earn a lucrative spread. Bad debt risks are controlled through rigorous credit screening.

Growing through new stores, new markets and higher efficiency. The next few years’ earnings growth of 14-15% annually will be driven by new store openings in Malaysia (adding six stores a year) and by improving efficiency in Singapore to eke out higher revenue per square foot of retail space. In addition, Courts is ultra bullish on Indonesia. By 2014, it will have opened its single largest store throughout its regional network in Indonesia's most populated suburb.

Valuations too cheap for this prince of retailers. For its market leadership position and sustainable growth model, Courts is too cheap in our view. As the first non-underwriter syndicate to cover Courts, our TP of SGD1.49 is the highest on the street, based on 16.4x FY3/14F earnings, and on par with the best in Singapore for consumer products distributors. Though still 20% lower than highly-priced regional retailers in high consumption countries like Indonesia, Thailand and the Philippines, we would not discount a rapid catch-up on re-rating once investors warm to this prince of retailers.

Source: Maybank Kim Eng Research - 12 Mar 2013