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ALP STOCK INVESTMENT CLUB (5April2016)
Courts Asia (RE2)
(5April2016) close: S$0.335
12-M Target price: S$ 0.44
1.) Sector: Consumer cyclical (Home Furnishings)
2.) Core business structure: The Group’s activities consist of retailing and financing.
3.) Segment that generates the highest revenue: Retailing which made up more than 80% of the group total revenue can be broken down into specific categories of goods as shown below. Revenue generated through Electrical products made up the main bulk of their revenue.
4.) Countries that the business operates:
5.) Challenges: In Singapore, the effects of the Total Debt Servicing Ratio (“TDSR”) and Additional Buyer’s Stamp Duty (“ABSD”) measures implemented in June 2013 to cool the property market continue to impact the overall property market. With a softer property landscape, we saw a weaker consumer demand for our sector.
In Malaysia, consumer sentiment remained muted due to rising inflation arising mainly from cuts in government subsidies and regulatory measures aimed at tempering household borrowing and property lending. The weakening Ringgit, coupled with the implementation of the Goods and Services Tax (“GST”) were also drag factors.
6.) Strengths: Malaysia led recovery in FY16F, especially in credit sales, has helped 9M16 earnings to outperform 9M15 by 49% y-o-y.
7.) Significant events:
-Courts Asia Limited (the “Company”) refers to its previous announcement dated 7 March 2016 in connection with its proposed issue of S$75,000,000 5.75% fixed rate notes.
-Announcement of Share buy-back on March 2016.
8.) GTI Ranking(last column): NA
9.) TABLE:(only 3 years data as it was listed on 2012)
10.) Quarterly report
*Last quarter of 2016 has not been released. As you can see from the chart, the group revenue in 2016 is likely to surpass 2015.
11.) Recommendation :
Buy. Attractive valuation is the main reason why we upgrade to BUY. As the company is relatively cyclical in nature, investors will need to take note that this company is extremely affected by consumer sentiment, a weak global outlook might affect the group’s share price adversely. However, 2016 might be a good year for the company as higher sales in Malaysia and Indonesia sent second-quarter earnings skyrocketing at Courts Asia Limited. Hence, there might be some potential upside for the stock as the overall fundamental of the company is relatively healthy. However, do keep in mind that decreasing EPS and increasing debt/equity ratio are worrying signs.
Compiled by : Chu Cehan
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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