What is the news?

Courts’ 4Q13 earnings of S$12.6 million was marginally above our expectations on lower expenses. Sales registered in Singapore were weaker than expected, while expenses were well managed. Underlying service charges from the in-house credit facilities grew strongly at 25.3% y-y to S$32.5 million. Total earned service charge was however lower y-y due to movements related to the accounting recognition of service charges. Proposed dividend of 1.01 cents, representing a 30% payout ratio of 2H13 net profit, was also announced.

How do we view this?

While 4Q13’s sales were below expectations, we continue to expect stronger sales growth in FY2014. This is expected to be driven both by higher sales of goods, and earned service charges. The opening of new stores in Singapore (2 stores), and Malaysia (6 stores + 1 megastore) in FY2014 is expected to drive this increase. Overall credit quality in Singapore and Malaysia remains benign, while credit sales are expected to remain strong.

Investment Actions

We adjust our forecast to include 4Q13’s results. Based on our DCF valuation, assuming WACC of 7.1%, and terminal growth (g) of 3.0%, we maintain our target price of S$1.14. We continue to view the expansion into Indonesia positively, while the higher expected sales growth and good cost management is expected to drive net profits. We therefore maintain our “Buy” rating.

Source: PhillipCapital Research - 30 May 2013