Courts Asia

[CY09]

Dun you think the 300+ mil in long term
Borrowings is a lot?

I like to think of courts operations similar to a bank. Essentially Courts is telling depositors (aka its creditors) who have lent them 300M that I will only pay you all after May 2015.

On the other side, Courts will be collecting the money from ppl whom it has lent at a high rate to. It will be collecting around 210M in the short term, and 270M in the long run ( I assume the non current receivables are around the same duration as the non-current liabilities due date).

However, it is very likely courts will not receive 100% of the 480M receivables. Thus to determine if the 300M borrowings is a lot, we will have to do a Value at Risk analysis.

Do correct me for any errors as I have rather limited knowledge of Courts asia.
<not vested>

[GreedandFear]

Dun you think the 300+ mil in long term
Borrowings is a lot?

I like to think of courts operations similar to a bank. Essentially Courts is telling depositors (aka its creditors) who have lent them 300M that I will only pay you all after May 2015.

On the other side, Courts will be collecting the money from ppl whom it has lent at a high rate to. It will be collecting around 210M in the short term, and 270M in the long run ( I assume the non current receivables are around the same duration as the non-current liabilities due date).

However, it is very likely courts will not receive 100% of the 480M receivables. Thus to determine if the 300M borrowings is a lot, we will have to do a Value at Risk analysis.

Do correct me for any errors as I have rather limited knowledge of Courts asia.
<not vested>

Courts is indeed like a bank. I don't have the numbers anymore but, when they listed, I used the footnotes to strip out financial income (ie their sales on credit) from regular income and adjust the margins. The margins on non- credit sales were tiny. IMHO this needs to be analysed as a bank with the key factors being net interest margin and bad credit write-offs.

[felixleong]

Thanks for the explanation guys, its very helpful. ^^

[BlueKelah]

there are better fish in the sea than courts.

I very much prefer to buy furniture from ikea and electronics from funan or SLS

[CityFarmer]

Dun you think the 300+ mil in long term
Borrowings is a lot?

I like to think of courts operations similar to a bank. Essentially Courts is telling depositors (aka its creditors) who have lent them 300M that I will only pay you all after May 2015.

On the other side, Courts will be collecting the money from ppl whom it has lent at a high rate to. It will be collecting around 210M in the short term, and 270M in the long run ( I assume the non current receivables are around the same duration as the non-current liabilities due date).

However, it is very likely courts will not receive 100% of the 480M receivables. Thus to determine if the 300M borrowings is a lot, we will have to do a Value at Risk analysis.

Do correct me for any errors as I have rather limited knowledge of Courts asia.
<not vested>

Courts is indeed like a bank. I don't have the numbers anymore but, when they listed, I used the footnotes to strip out financial income (ie their sales on credit) from regular income and adjust the margins. The margins on non- credit sales were tiny. IMHO this needs to be analysed as a bank with the key factors being net interest margin and bad credit write-offs.

I didn't spend too much time on Courts, but few points worth a note.

- Product margin is very thin, and most profit are from Flexi Plan (credit lending scheme), which effective interest is as high as >20% pa.
- The credits are mostly unsecured. The company seems has bought insurance on them, but I am not sure it is fully insured, likely only partial.
- The risk management seems not proactive, but rather monitoring the current trend.

Sharing few of last conclusions on the company. Please comment if any mistake done.

(not vested)

[specuvestor]

I think most of us here have concluded that Courts is a finance company

The detail is even more complicated that even though they have a securitisation program it comes with recourse to Courts on defaults, to save on interest cost. About 70% of eligible pool are securitised hence the big figure.

The insurance they bought are mainly on their extended warranties, evident by the rising impairment charge YoY. This is also complicated because as they collateralised the loans, the income on warranties and cost on insurance gets recognised immediately. Interest component is also higher at the beginning of Court's loan to customers, which is why their PnL from service charge can be quite volatile real time, RATHER THAN SMOOTHED OUT as most expect.

[safetyfirst]

Courts will bleed badly when interest rate rises. It is never a good idea to try to act like a bank when you are obviously not. The bank pays less than 1% for deposits and Courts paying 5%, serious anot, this is a good deal? It seems to me that those people who fall for the Flexi plan are like subprime customers. When they can still pay the high interest, the party goes on. More likely than not, the party has to stop one day

[opmi]

Courts will bleed badly when interest rate rises. It is never a good idea to try to act like a bank when you are obviously not. The bank pays less than 1% for deposits and Courts paying 5%, serious anot, this is a good deal? It seems to me that those people who fall for the Flexi plan are like subprime customers. When they can still pay the high interest, the party goes on. More likely than not, the party has to stop one day

Hire purchase loan rate are high 8-18% pa. Will they be whacked by higher interest rate? May not. Got margin buffer.

They are more affected by credit gone bad or tightening of credit underwriting guidelines by govts.

[arriyana]

Courts will bleed badly when interest rate rises. It is never a good idea to try to act like a bank when you are obviously not. The bank pays less than 1% for deposits and Courts paying 5%, serious anot, this is a good deal? It seems to me that those people who fall for the Flexi plan are like subprime customers. When they can still pay the high interest, the party goes on. More likely than not, the party has to stop one day

Agreed. For Courts, I think a 50% haircut on AR is recommended when doing its valuation. Another similar case that cross my mind is WorldComm where much of its sales are generated by AR. Courts is in a position where if they cut down their credit allowance to reduce bad debt, they will lose a huge chunk of sales. If they keep this up, its only a matter of time when a huge write down is needed.

[ahyeh]

Courts Malaysia to open 6 more stores

KUALA LUMPUR: Courts Malaysia Sdn Bhd plans to open six more stores this year, increasing its network to 70 stores nationwide.

Its country chief executive officer Allard Sjollema said the company is aiming to increase its current retail space by 10% or equivalent to 120,000 square feet.

"In the financial year ended March 31, 2014 (FY14), we increased our retail space by 20% with the opening of two 'Big-Box" Megastores and four small format stores," he told reporters at the Courts Malaysia 2014 business plan briefing.

Currently, the group has 64 stores nationwide with a combined area of 1.2 million sq ft.

The company opened its first Megastore in July last year in Sri Damansara, with a floor space of 108,000 sq ft, followed by its second Megastore in Subang Jaya with smaller floor space of 66,000 sq ft.

It also expanded its footprint in Sabah last year after opened its first Courts store in September.

Sjollema said the company was considering to open at least one Megastore concept, preferably in the Klang Valley, Johor Bharu or Penang.

"We are looking for the sites to open theses stores, but we are definitely going to open stores in Sabah and the Klang Valley," he said.

Courts Malaysia is unit of Singapore-listed Courts Asia Ltd.

http://www.thestar.com.my/Business/Busin...re-stores/