Courts Asia

Courts Asia actually rebounded due to the stellar earnings growth for 2Q and 3Q but this is due to a smaller base (i.e. SGD11mln & SGD5mln for 2Q and 3Q respectively).

Also, I'm not confident of their Indonesia venture. They did it once back then and had failed. Though they had said they expanded too fast for the last venture, it remained to be seen if they had get it right this time round. Anybody knows anything about Bekasi? A check on google map seem to show that it is on the border of the Jakarta city. Not surprise for a megastore location but not sure abt the potential.

Also looking forward to 4Q13 to see if they can sustain the growth for 4Q13 (Jan-Mar 2013) which is against a higher earnings of SGD16mln for 4Q12.

For knowledge, I am also more curious at how their accounting revenue recognition works for hire-purchase. Will be great if somebody can enlighten a little.

(19-02-2013, 09:54 AM)dzwm87 Wrote: Courts Asia actually rebounded due to the stellar earnings growth for 2Q and 3Q but this is due to a smaller base (i.e. SGD11mln & SGD5mln for 2Q and 3Q respectively).

Also, I'm not confident of their Indonesia venture. They did it once back then and had failed. Though they had said they expanded too fast for the last venture, it remained to be seen if they had get it right this time round. Anybody knows anything about Bekasi? A check on google map seem to show that it is on the border of the Jakarta city. Not surprise for a megastore location but not sure abt the potential.

Also looking forward to 4Q13 to see if they can sustain the growth for 4Q13 (Jan-Mar 2013) which is against a higher earnings of SGD16mln for 4Q12.

For knowledge, I am also more curious at how their accounting revenue recognition works for hire-purchase. Will be great if somebody can enlighten a little.

There is a detail description revenue recognition for credit purchase (hire-purchase). I captured a portion of it here, you can refer to page 59 of the final prospectus of IPO

"When a customer makes a purchase using our in-house credit facility, there is a service charge
where repayment is made in instalments over the term of the facility. For the purpose of revenue
recognition, each instalment is divided into (1) repayment of principal and (2) a service charge for
the provision of the credit facility. The service charge also includes additional fees when the
customer chooses a plan with instalments waiver plan in case of unforeseen incident, such as,
unemployment, hospitalisation or death. These additional fees are recognised as revenue at the
same time as the sale of the goods.
Earned service charge in any particular period is derived from service charges arising from credit
sales in the period, after subtracting any unearned service charges arising from current period’s
credit sales deferred to future periods and adding prior periods’ unearned service charges now
recognised as earned. Service charge relating to future periods is calculated using the effective
interest rate method and transferred to the unearned service charge account to ensure that profit
and loss reflects only service charge earned for that period."

Hi.. just started looking at the company, any reason why the sell-off following the earnings result??
Earnings didnt really look that bad to me though + PE is seems quite low relative to the sector + potential growth from more shops.

This is the type of uncertainty Courts Asia venture into Indonesia consumer market.

Indonesia eyes consumer sector with regulatory zeal

JAKARTA — Indonesian consumers are increasingly opening their wallets, sustaining the country’s solid economic growth, but some retailers worry the government may dash the good fortune by imposing restrictions on them.

Last year, Indonesia’s mining boom was ended, partly because the government set new foreign-ownership rules, taxes and extra layers of red tape for the industry.

http://www.todayonline.com/business/indo...atory-zeal

http://remisiers.org/cms_images/research...v4_ed1.pdf

KE did a pretty good initiation on Courts yesterday and i was surprise that net interest income accounts for 46% of their PBT and that interest rate charged is actually 11.6%-29%.

Previously, poor credit control seemed to have led them to disaster in 2008 according to the report. "The old poorly designed credit infrastructure. Inadequate credit controls a sharp jump in bad debts, especially in Malaysia, Thailand. This led to the eventual closure of operations."

this is probably a problem since "Courts’ target audience for credit facility is those who cannot afford credit card loans or meet the minimum requirement for credit card sign-ups."

Seemed like the way to analyse this company will be to treat it like a finance company, looking at deliquncy ratio and net interest margin. Might even have to do some scuttlebutt to test their credit control

In any case, this is definitely not a simple retail company like challenger

(not vested)

Courts Singapore was previously run by Terry O'Connor, and now he runs Courts Asia. So Courts Singapore's results would be reflective of his management skills.

Looking at the prospectus, the Singapore segment had margins of 6.2%, 5% and 8.6% in the last 3 years (FY10-FY12). Segment ROA was 10.3%, 8.5% and 15.8%. This is really impressive. FY09 might be excusable due to the crisis. But let's look further back in time to when Courts Singapore was separately listed. It included the Thailand operations but there are segment breakdowns so we can see Singapore separately.

Let's go back to FY02-FY08. During this period the Segment margins and Segment ROA for the Singapore segment were:

FY02: 8.4%, 7.7%
FY03: 2.8%, 2.3%
FY04: -0.3%, -0.3%
FY05: 2.1%, 1.8%
FY06: 5.4%, 5.2%
FY07: 3.1%, 3.4%
FY08: 0.5%, 0.5%

Late FY03 and early FY04 could be blamed on SARS. But what about all the other years? Singapore's economy was definitely doing well in 2004-2007. One might even say it was booming. But Terry struggled to make Courts Singapore work.

For FY02-FY08:
Median segment margin 2.8%
Median segment ROA 2.7%

Compare this to FY09-FY12:
Median segment margin 5.6%
Median segment ROA 9.4%

The difference is a veritable gulf.

In FY09-FY12 Singapore was either suffering the fallout from the crisis or just recovering. Yet Terry was able to obtain some remarkable numbers in a worse economic environment.

What is today's Terry O'Connor doing differently from yesteryear's Terry O'Connor that is resulting in such dramatic improvements?

I have no proof that the financial statements were "dressed up" for the IPO, but it is certainly puzzling. In any case, investors should be aware that "reversion to the mean" is a powerful business trend.

As usual, YMMV.

I was of the impression that Courts was losing money and bleeding heavily before it was delisted back then, therefore I was surprised to see the numbers presented by d.o.g. Isn't IKEA still the world's largest (and unfortunately private) furniture retailer? How does Courts stack up?

(13-03-2013, 10:21 PM)Musicwhiz Wrote: I was of the impression that Courts was losing money and bleeding heavily before it was delisted back then, therefore I was surprised to see the numbers presented by d.o.g. Isn't IKEA still the world's largest (and unfortunately private) furniture retailer? How does Courts stack up?

The big losses came from Thailand. They never made a profit there except in FY05, and even then it was a paltry $45k on $18m of sales. In FY07 Thailand lost $19.6m and in FY08 it lost $20m. So at the Group level there were big losses. The scale of the losses suggests fraud, as from FY03-FY08 inclusive, cumulative sales in Thailand were $114m and cumulative losses were $43m.

Furniture retail is a really tough business. Your occupancy costs are high (furniture is bulky), your logistics costs are high (furniture is heavy) and your turnover is slow (people buy furniture infrequently). IKEA has a cost advantage in logistics because of the flat-packing they use. And of course they get a markup for design even when they use cheap materials.

Courts is selling third-party furniture so they cannot get the brand premium, and there is no flat-packing so logistics costs are high. Berkshire Hathaway does own a few furniture retailers, but to the best of my knowledge they are megastore operators. IKEA also uses megastores.

Courts is split across small-format stores, department stores, superstores and a megastore. Management resources may be spread pretty thin managing the different store formats, each with their own layout, inventory strategy etc.

I am just hypothesising. Maybe there was a optimisation of costs structure lead by the PE investors? Alternatively optimisation of transfer pricing for Singapore business to its overseas subsidiaries and possible currency benefits from strong SGD for past 3 years?

seems like HTL - furniture sofa tanner and retailer is a much safer bet?