What Investors Need to Know about Courts Asia’s Latest Full-Year Earnings

Courts Asia (SGX: RE2) is a leading electrical, IT and furniture product retailer in Southeast Asia. It is also one of the oldest and most well-known retailers in markets like Singapore and Malaysia. The company has since expanded into Indonesia, with its first Courts Megastore there slated to be ready by September this year. The company announced its full year earnings yesterday.

Operating results

For the financial year ended 31 March 2014 (FY2014), Courts Asia experienced an increase in annual revenue in both Singapore and Malaysia.

Singapore, which contributes about two-thirds of the company’s sales, saw its revenue jump by 4.4%. Similarly, Malaysia, which accounts for the rest of the company’s sales, recorded a 5% improvement in revenue. Overall, Courts Asia ended FY2014 with revenue of S$830.3 million, up 4.6% year-on-year.

However, the company had faced higher operating expenses, especially in the impairment of its trade receivables and interest charges. These brought down the company’s net profit for the year; Courts Asia ended the year with a net profit of S$28.3 million, which was 31.6% lower than a year ago.

An important area for the company to watch

On the balance sheet side, Courts Asia continues to have the main bulk of its assets in trade receivables.

Unlike a traditional retailer that sells its products for cash, Courts Asia is more of a hybrid between that and a financing company. That’s because Courts Asia typically offers credit facilities to its customers to help them finance their purchases. For instance, the company has ‘Courts Flexi Schemes’ that allow customers to pay for their purchases by installments over a period of up to 60 months; in FY2013 and FY2014, such credit-based sales made up 71.5% and 72.8%, respectively, of the company’s total revenue in Malaysia, for instance.

Therefore, it’s very important for Courts Asia to have good credit control when it comes to financing its customers. Unfortunately, the company has been experiencing an impairment rate for its loans that’s actually quite high for a while now – it’s currently at 4.3% of all receivables, down slightly from 4.4% for FY2013.

Concurrently, the company’s also taking on more debt with its net debt to equity ratio increasing from 46.7% to 64.6%. Courts Asia might need to keep a close watch on the credit quality of its customers or the company may need to take on even larger financial risks by borrowing more money to fund its daily operations..

Foolish Summary

The company ended the year with a net asset value per share of S$0.538 and an earnings per share of 5.08 Singapore cents. Courts Asia opened the trading session today at S$0.54. At that price, the company is trading at 10.6 times trailing earnings and 1 times its book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.