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Tuesday, July 23, 2013

Courts Asia - 2nd big box store in Indonesia

Source: http://sgx.i3investor.com/blogs/cimbresearchsgx/9726.jsp

Target S$1.44 (Long Term: Out Perform)

Courts Asia announced the site of its 2nd big box store in Indonesia, and an MOU agreement with Sinar Mas Land to jointly develop Courts Indonesian stores. Its first two Indonesian stores are expected to contribute to FY16 earnings. In the near term, we still expect earnings growth to be driven by an anticipated spike in completed housing units in Singapore. We adjust our FY15/16 estimates by -1/6% as we now have greater clarity on the timeframe for Indonesian store openings. Our residual income-based target price rises accordingly. No change to our Outperform call.

In the near term, we still expect earnings growth to be driven by an anticipated spike in completed housing units in Singapore. We adjust our FY15/16 estimates by -1/6% as we now have greater clarity on the timeframe for Indonesian store openings. Our residual income-based target price rises accordingly. No change to our Outperform call.

What Happened
Courts announced that its 2nd store in Indonesia will be located at BSD City, in Serpong, Tangerang, about 25km southwest of Jakarta. It will sit on a 194,500-sf site, of which 130,000 sf will be used for retail space and the rest of the land will house its regional distribution centre and support office.

An MOU has been signed with Sinar Mas Land to develop the first two Courts stores in Indonesia, and additional future stores when suitable sites are identified. Courts will lease back the two stores for 28 (Bekasi store, announced earlier this year) and 30 years (Tangerang). Courts's first Indonesian store is expected to be ready around Sep 14 (3QFY15) and the second store around Mar 15 (end-FY15).

What We Think
Courts is making good progress in Indonesia, and there is every chance that it can clinch market leadership in the highly fragmented market. The initial target will be to open 3-5 stores, which will allow Courts to reap economies of scale as well as to build up a good credit collection record to implement a securitisation programme. Further out, management sees the potential for up to 12 stores and its tie-up with Sinar Mas Land can only aid Courts in securing good locations.

What You Should Do
No change to our Outperform call. As the contribution of Indonesian stores to Courts's earnings will come through further down the road, we still expect its near-term earnings to be driven by the spike in completed housing units in Singapore.



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