Courts Asia

[freedom]

Courts has lodged its prospectus with MAS. you can find the prospectus
http://masnet.mas.gov.sg/opera/sdrprosp....7003D7E33/$File/52557647_1_1.%20Preliminary%20Prospectus.pdf


what surprises me is that unlike Challenger, Courts is much more than a electronics retailers. It has much more credit sales and it runs its own credit sales rather through bank credit cards. It seems that it is also a small credit company. similar to banks' credit card practice, they securitise their non-current receivables to obtain working capital and different from banks, they retain most of the junior or equity part of the securitisation.

[CityFarmer]

IIRC, Courts been privatized few years ago, in 2009/2010 time frame.

Time to come back with lot of idle money around

[pianist]

funny, delisted recently only to IPO again..is this some kinda of a joke?

[CityFarmer]

Courts Singapore delisted from the SGX by owner Singapore Retail Group (SRG) in 2007/2008 (to be exact, instead of 2009/2010 previously thought)

To recap, the GO price was 55 cents per share, one (1) cent higher than last traded price in 2008. It is also a big discount to NAV of approx 70 cents then.

Retail biz is one sector been researched recently. Will it a worth to participate? Will look into detail of the prospectus.

[money]

funny, delisted recently only to IPO again..is this some kinda of a joke?

well many private equity funds delist the company, payout large amounts of dividend, then find a good time to relist the company at a similar price to stupid/naive retail and institutional investors, it sounds funny to you but it benefits the pockets of the "smart" fund manager

[shanrui_91]

not a simple company indeed and is quite complex. ROA is not too impressive <10% as a result of the huge receivables (60% of total asset), else inventory turnover is pretty low given its nature of business and that its trade payable is double that of its inventory.

"The receivables are packaged into beneficial interest instruments with priority of repayments to the Senior, Mezzanine and Junior Beneficiaries" reminds me of the mbs in the sub-prime crisis. However, they still bear the risk of default unlike those banks that are able to orginate and transfer the loan, earning the spread with 0 risk. They do have something similar in their warranty service :"When a customer purchases an extended warranty, we will obtain a back-to-back warranty from a third party, thereby transferring the risk to that third party while retaining a significant portion of the fee for the warranty."

Basically, Courts is able to retrieve up to 70% of their total receivables at an interest rate of 5.5% for the first $94 million and an undisclosed SOR + spread thereafter for Court SIngapore. Therefore, if Courts receives service fee + interest from the customer at a higher rate than the 5.5%, I supposed we can say it is a good deal for them? Impairment loss on receivable is ard 2.5% for Singapore and 5% for Malaysia. And if we look at the Malaysia and Singapore's service segments, it is closely linked to their sales in credit. Just look at the difference in percentage of service revenue in Singapore and Malaysia.

For Malaysia facility, "CMB is subject to certain financial covenants, which include maintaining its consolidated gearing ratio at (i) not more than 1.40 times during the revolving period; and (ii) not more than 1.25 times during the amortisation period. CMB’s consolidated gearing ratio shall be tested on a half yearly basis by reference to the consolidated financial statements of CMB. If these financial covenants are not met, a trigger event automatically occurs and no drawdown is allowed until it is remedied.The use of receivables is more rampant in Malaysia where credit sale is 60% of their total sales."

This convenent is worth noting though it does seemed wise why Courts is doing an IPO to raise equity funding.

Anyway, they also happen to reveal the market share of Courts, Harvey Norman, Best Denki, Challenger and Ikea on Pg 94. Courts seemed to have the highest sales per selling space given that they are the number 1 in retail sale in Singapore but they are only the 3rd in terms of number of selling space after Challenger and Ikea. Competition is tighter in Malaysia, but it seemed like their sales per sq ft is still one of the highest.

I believe the business is one of using cheap credit to drive sale. They securitise credit to get money to increase turnover and which will then increase service charge fee and credit interest fee. but I simply don't feel comfortable or able to fully understand the consequences of such a business

[pianist]

seems like the prospectus is out already?
may i ask in the previous delisting..was it delisted by a private equity firm?

[CityFarmer]

not a simple company indeed and is quite complex. ROA is not too impressive <10% as a result of the huge receivables (60% of total asset), else inventory turnover is pretty low given its nature of business and that its trade payable is double that of its inventory.

"The receivables are packaged into beneficial interest instruments with priority of repayments to the Senior, Mezzanine and Junior Beneficiaries" reminds me of the mbs in the sub-prime crisis. However, they still bear the risk of default unlike those banks that are able to orginate and transfer the loan, earning the spread with 0 risk. They do have something similar in their warranty service :"When a customer purchases an extended warranty, we will obtain a back-to-back warranty from a third party, thereby transferring the risk to that third party while retaining a significant portion of the fee for the warranty."

Basically, Courts is able to retrieve up to 70% of their total receivables at an interest rate of 5.5% for the first $94 million and an undisclosed SOR + spread thereafter for Court SIngapore. Therefore, if Courts receives service fee + interest from the customer at a higher rate than the 5.5%, I supposed we can say it is a good deal for them? Impairment loss on receivable is ard 2.5% for Singapore and 5% for Malaysia. And if we look at the Malaysia and Singapore's service segments, it is closely linked to their sales in credit. Just look at the difference in percentage of service revenue in Singapore and Malaysia.

For Malaysia facility, "CMB is subject to certain financial covenants, which include maintaining its consolidated gearing ratio at (i) not more than 1.40 times during the revolving period; and (ii) not more than 1.25 times during the amortisation period. CMB’s consolidated gearing ratio shall be tested on a half yearly basis by reference to the consolidated financial statements of CMB. If these financial covenants are not met, a trigger event automatically occurs and no drawdown is allowed until it is remedied.The use of receivables is more rampant in Malaysia where credit sale is 60% of their total sales."

This convenent is worth noting though it does seemed wise why Courts is doing an IPO to raise equity funding.

Anyway, they also happen to reveal the market share of Courts, Harvey Norman, Best Denki, Challenger and Ikea on Pg 94. Courts seemed to have the highest sales per selling space given that they are the number 1 in retail sale in Singapore but they are only the 3rd in terms of number of selling space after Challenger and Ikea. Competition is tighter in Malaysia, but it seemed like their sales per sq ft is still one of the highest.

I believe the business is one of using cheap credit to drive sale. They securitise credit to get money to increase turnover and which will then increase service charge fee and credit interest fee. but I simply don't feel comfortable or able to fully understand the consequences of such a business

I share with you that the credit service is the product (service) worth focus on.

Another point is the sales per sqm of Courts might be misleading due to unfair comparison. Courts have various type of product, furniture, electrical appliances, IT etc, but retailer e.g. Challenger has only IT product, Harvey Norman have IT and Electrical appliances.

[yeokiwi]

Courts' micro-loans have been around for many years and the company had gone through SARS, 2008 financial meltdown, asia financial crisis.
These micro-loans are pretty popular among those families that like to buy things on credits.

Their ability to adjust the interest rate and downpayment means that they can tune it to compensate for the bad receivables.
The low unemployment rate in Singapore and Malaysia means that their % of bad receivables will continue to be low.

[dzwm87]

Such consumer financing is typical among such business concepts. I think, for now & depending on which geographical market, default risk is quite small.

Probably the concern should be the estimated replacement rate & new market penetration. For the former, in developed countries like Singapore, most of the households are adequately furnished. How long is a typical product cycle in order for them to change their household appliances?

Of course, that said, with the recent surge in BTO & condos to be TOP in 2013/14, there might be a slight demand push for household appliance - though the extent of the benefit is debatable.