Excitement ahead. FYMar13 results came in-line with consensus and our expectations with revenue at SGD793.8m (+9.6% YoY) and net profit at SGD41.4m (+5.1% YoY). 4Q results were largely uninspiring due to store rationalisation in Malaysia, but the growth prospects for Courts remain bright and within reach. We have revised our earnings estimates down slightly to account for higher cash sales relative to credit in Malaysia. Yesterday’s share price pullback has created a good opportunity for investors to accumulate. Reiterate BUY with a TP of SGD1.49, pegged to 16.6x FYMar14F earnings.

In-line with expectations. FYMar13 underlying net profit of SGD41.4m was underpinned by stronger sales recorded from full-year contributions from Bukit Timah and Clementi stores, as well as the re-launch of the Megastore in Tampines. Singapore rose 11.3% YoY to SGD543.4m. Malaysia registered a 6.1% YoY rise to SGD250.4m due to stronger sales from digital products. However, this was partially offset by currency translation losses and closure of underperforming stores in KL. Gross margin remained stable at 31.5%, which we expect will trend down against a stronger cash to credit mix in Malaysia due to tightening in credit policy. A final dividend of 1.01 cents was announced which makes up to 30% of 2nd half FYMar13’s earnings payout.

Earned service charges healthy. Service charges remains strong at SGD136.7m (+14.3% YoY), which indicates positive credit sales to be rolled over and recognised progressively next year onwards. Impairment loss is at its lowest with Malaysia at 4.6% of receivables, and Singapore at 2.6%.

First Mega-box in Malaysia. Courts will be launching its first Mega-box in Sri Damansara, Klang Valley this August. The store has a GFA of 108,000 sq ft versus management’s guidance of 120,000 sq ft GFA expansion per annum. It will follow Singapore’s Mega-box format, entailing services such as Sleep Clinic, Cool Zone, Dr. Digital and Sofa Makers. The Group remains confident of opening a total of 6 stores in Malaysia, citing Kota Kinabalu as one of the likely prospects next.

Compelling valuations on a regional growth play. Courts trades at 11.7x FYMar14F P/E against its regional peers at 16.6x. Maintain Buy on this retailer with robust regional growth prospects.

Source: Maybank Kim Eng Research - 30 May 2013