Thursday, 4 October 2012

Courts Asia Limited (Preview)



Courts Asia Limited ("Courts" or the "Company") was previously listed in Singapore but was privatised in mid 2007 by both Baring Private Equity and Topaz Investment Worldwide. The article is here in case you need it. At that time, both the investors valued Courts at just over S$100m. 

The Company attempted to go IPO in 2010 but withdraw its listing eventually. At that time, the investors were seeking to raise $170m through the IPO.

Courts Asia lodged its prospectus with MAS recently for a listing. This time round, its has lined up a series of Cornerstone Investors such as JF Asset Management, New Silk Road Investment, Target Asset Management and Value Partners Hong Kong.

Again, this is just a preview with "off-the-cuff" comments and "back-of-envelope" kind of computations so please bear with me if there are inaccuracies as the pricing and final prospectus is not out yet. ^o^. 

Private Equity Backed-Deal

This is similar to Amtek, where the Company was de-listed and privatised again. There are 3 ways in which a PE firm can make money through such a move. 

(1) They managed to delist the firm at cheap valuation (say 6x PE) and relist it at a higher multiple some years later (say 12x PE). (Assuming all else remains equal)

(2) The PE Firm grew the company post delisting. Changing the CEO, streamlining processes, make further strategic acquisition such that earnings or EV/EBITDA improved over the years. (This is called value-adding by PE firms and multiple expansion)

(3) A combination of (1) and (2) above. :-P what else are you expecting.

Vendor sale

Don't be mistaken that a PE backed deal is always bad. A PE fund usually have a fixed term of life, so the Fund Manager needs to realise its investment for its investors and listing is one of the options available. The other will be trade sale. As such, you will see always see a vendor sale from a PE backed deal.

Cornerstone Investors

However, the Company has "cleverly" lined up a series of public market fund managers to act as cornerstone for its IPO to demonstrate confidence in its stock. Shrewd move! However, these are not fly by night cornerstone investors, so they must have seen certain merits to invest in Courts Asia.

PE investors will continue to hold a chunk of the Company post IPO and it really doesn't make much sense to list the company only to have its share price tanked.

Scale

In this tough retail business, you need scale and this is what you see in Courts Asia. Though i am not a fan of Courts Asia outlet, you can visit the mega store in Tampines to see for yourself whether you like the concept. I am sure you have bought at least one item from Courts before. 

In my view, the scale allows the Company to make cheap bulk purchases but part the "cream" is also from the interest earned through the "hire-purchase" plans which some customers like. 

Q&A time: Who prefer to pay by credit? Singaporeans or Malaysians?   

Dividends

This seems to be a standard feature in IPOs nowadays. It was not common last time but i like it. Hahaha. The company intends to distribute about 30% of its profit for FY13 and FY14. I can't compute the yield as i don't have the pricing details, contrary to what some of you may believe. hahaha :P

Financial Performance

Actually i quite like what i am seeing. Increasing revenue and profit trends for the last 3 years!


The answer to the Q&A above is: Consumers in Malaysia.


Probably there are so many interest-free credit card installments plans here in Singapore...it just doesn't make sense for Courts Asia anyway.  

Conclusion: Without the final pricing, i don't know what the valuation is to compare it to Pertama Holdings (a smaller competitor listed here also better known as Harvey Norman) but the business model is simple and straightforward. So check back again when the prospectus is registered. Alternatively, if you have the offering statistics, you can email to Mr.IPO at 2ycapital@gmail.com 


2 comments:

farmland investments said...

That one looks intriguing, but it would all come down to the actual dividend yield:)

Anonymous said...

The prospectus is registered already.

It is offered at $0.77

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