SINGAPORE (Feb 8): DBS Group Research is keeping its “buy” call for Courts Asia, the IT, electrical goods and furniture retailer, with a 51 cents target price as it continues to see value in the stock’s current valuations.
In a Wednesday report, lead analyst Alfie Yeo says the company is on track to post core full-year earnings growth of 30% y-o-y on the back of better cost controls, stronger gross margins and lower interest costs.
“Valuation is also compelling at 8x FY18 PE and 0.7x P/B... the stock also offers dividend yield of 3.8% for FY17F,” says Yeo.
For 3Q17 ended Dec, Courts’ earnings recovery was supported by more stores as well as better product margins. Earnings recovery would be led by revenue growth from more new stores, effective cost controls and sustainable improvement in margins, says Yeo.
(See also: Courts Asia posts 24% rise in 3Q earnings to $5 mil)
Looking ahead, Courts’ store network expansion plans in Indonesia and Malaysia are progressing well, and will benefit from the expected acceleration in GDP growth, and consumer sentiment recovery regionally in 2017, adds the analyst.
Indonesia’s planned expansion to nine stores by end of FY17 is on track, having opened its Bogor Trade Mall store in December. Malaysia is also moving towards its target of 70 stores by the end of FY17 after opening its Semenyih Store in December.
Courts is also increasing its bundled services offerings which helped gross margins to expand in FY17. Currently contributing 6-7% to sales, the value added service are available for installation, setup, delivery and extended warranty for electrical, furnishing and IT products purchases.
“The success of this service should help to support higher gross margins going forward,” says Yeo.
Shares of Courts Asia are trading flat at 44 cents at 12.31pm.
