Courts Asia Limited

In credit we trust providing a unique proposition

Bloomberg Reuters POEMS COURTS SPCOUR SICAL SG Industry: Retail Phillip Securities Research Pte Ltd 25 March 2013
Courts Asia Limited Rating - Previous Rating Target Price (SGD) - Previous Target Price (SGD) Closing Price (SGD) Expected Capital Gains (%) Expected Dividend Yield (%) Expected Total Return (%) Raw Beta (Past 2yrs w eekly data) Market Cap. (USD mn / SGD mn) Enterprise Value (USD mn / SGD mn) 3M Average Daily T/O (mn) 52 w eek range (SGD) Closing Price in 52 w eek range 0% 1.20 50% 100% 20 18 16 14 12 10 8 6 4 2 0
Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Report type: Initiation

Company Overview Courts Asia is a leading electrical, IT products, and furniture retailer in Singapore and Malaysia. Courts Asia also offers in-house credit facilities, generating additional revenue for the retailer. Courts Asia will be expanding to Indonesia, with the opening of a Megastore in Eastern Jakarta by FY2015. Two sources of revenue Profit from sales of goods Electrical products, IT products, Furniture, and Services Earned service charge income in-house Credit Facilities 83% of 9M13 revenue from Sale of goods, 17% from earned service charge income 69% of 9M13 revenue from Singapore, 31% from Malaysia Investment Merits In Singapore Strong growth in market demands from: - Increase in population up to a yearly increase of 86k - Increase in spending power Favorable age demographics, positive impact from Budget 2013 - Rapid technological innovations higher rates of Electrical and IT product replacements - Increase in new housing units 200,000 by 2016 Earned service charge income from credit facilities also provides additional resilient revenue In Malaysia In-house credit facilities provide resilient, strong earnings Courts credit facilities attract different market segments Revenue growth from opening of new stores Other merits for the group include Marketing Exp as % of rev to decrease as rev increases Experienced Management with deep understanding eCourts enables consumers to compare prices, learn more about the products, and make online purchases Focus on innovative retailing concepts and unique experience to strengthen brand, attract customers We are overall positive on the expansion to Indonesia Key upside/ Downside Catalysts Global economic recovery to increase sales and lower loans allowance required Rise in unemployment rates may increase bad debts Over-reliance on one bank for funding of credit ops Unfavorable government policies on wages and levies Investment Actions Based on our DCF valuation, assuming WACC of 7.1%, and terminal growth of 2.5%, we derive a target price of S$1.14. This gives an implied P/E multiple of 15.6X, and P/B multiple of 2.1X. Based on the investment merits highlighted above, and current share price, we initiate coverage of Courts Asia with a BUY recommendation. MCI (P) 194/11/2012 Ref. No.: SG2013_0059

1 0 1.14 0.00 0.98 16.2% 2.3% 18.5% NA 439 / 549 567 / 705 0.7 0.66 - 1.04

Buy Not Rated

1.00

0.80

0.60

Volume, mn

COURTS SP EQUITY

STI rebased

Major Shareholders 1. Singapore Retail Group 2. O'Connor Terence Donald 3. FMR LLC Key Financial Sum m ary FYE Revenue (SGD mn) Net Prof it, adj. (SGD mn) EPS, adj. (SGD) P/E (X),adj. BVPS (SGD) P/B (X) DPS (SGD) Div. Yield (%) Source: Bloomberg, PSR est. *All multiples & yields based on current market price Valuation Method DCF (WACC: 7.1%; terminal g: 2.5%) Analyst Ken Ang Kenangw y@phillip.com.sg +65 6531 1793 03/12 724 39 7.03 13.9 0.39 2.5 9.24 9.4% 03/13F 818 41 7.29 13.4 0.52 1.9 3.21 3.3% 03/14F 964 41 7.40 13.2 0.57 1.7 2.22 2.3%

(%) 68.2 2.3 2.1 03/15F 1,023 49 8.71 11.3 0.63 1.6 2.61 2.7%

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Courts Asia Limited Singapore Equities Research 25 March 2013 Company Background in brief IPO on 15 October 2012, with an offer price of S$0.77 Proceeds from IPO mainly to Singapore Retail Group (Holding company) (S$86 million) and to fund the expansion into the Indonesian market (S$40 million)

First Courts store opened in 1974 in Singapore, and entered Malaysia in 1987. Courts intends to re-enter Indonesia, with the opening of a Megastore by FY2015 13 stores in Singapore, 59 in Malaysia as at 3Q13 4 store formats from biggest to smallest Megastore, Superstore, Departmental store, and Small-format store Re-launched online platform, eCourts, in FY2013, with intention to introduce instant credit approval Based on 2011 retail value sales excluding sales tax, - In Singapore, Courts is the biggest retailer, with market share of 9.8%. Best Denki is second with market share of 7.2%. - In Malaysia, Courts is the second biggest retailer, with market share of 7.0%. Senheng Electric is the biggest with market share of 9.9%.

2. Earned service charge income from in-house Credit Facilities with loan tenures of up to 5 years, and insurance options embedded in some of Courts credit plans Singapore - 11% of sales of goods on Credit for 9M13 - Proportion of credit sales relatively stable - Average tenure of loans estimated to be >50 months - Average interest rate lower than 24% p.a. Malaysia - 57%+ of sales of goods on Credit - Proportion of credit sales declining at a gradual rate - Average tenure of loans estimated to be 34 months - Average interest rate higher than those of Singapore Per prospectus, Credit is funded mainly by Asset Securitization Programme 2012 with HSBC - Interest rate fixed at 1) 5.5% per annum for first S$94 million, and 2) SOR + Spread for balance amount. - Programme 2012 will expire on 21 Sep 2018 or in 2017, at the option of HSBC. - S$105.9 million were drawn down as of date of lodgment of prospectus. Senior Loan Facility with HSBC, OCBC, and HWANGDBS - Interest rate of KLIBOR + Spread up to RM350 million. Courts entered into a floating-to-fixed interest rate swap, fixing KLIBOR for borrowings of up to RM 265 million, resulting in effective rate of interest rate of 6.6% per annum up to RM 265 million. - Facility has a tenor of 5 years. Revolving credit facility in the first 3 years, before converting to fullyamortizing term loan facility at the end of third year. - RM253 million drawn down as at 31 March 2012 Management has guided that they are looking to borrow smaller amounts from two to three banks, as opposed to one bank, to reduce risk of not being able to increase borrowings or extend loans tenure at favorable rates. Fig 3: Revenue mix for 9M13 83% from Sale of goods
MY Earned service charge 10.7% Sg Earned service charge 6.4% MY Rev from Sale of goods 20.7%

Two revenue sources 1. Profit from sale of goods Electrical Products Major White Goods, Vision, Small appliances, Audio IT Products Computers, Accessories, Photography, Mobile Furniture Mattresses, Furniture for Bedroom, Dining room, Living room and Home Offices Services Warranty sales, Other services such as product replacement services Profit in order of margins (highest to lowest) Furniture, Electrical products, IT products. Fig 1: Product mix by Sale of goods as at YTD Dec 2012
Services 4.8% Furniture 18.3% Electrical 41.8%

IT Products 35.1%

SG Rev from Sale of goods 62.1%

Fig 2: Strong y-y sales growth for IT products

100% 80% 60% 40% 20% 0% 2009 2010 2011 2012 47.3% 46.0% 43.8% 42.6% Electrical Services 6.5% 20.1% 26.1% IT Products Total Revenue 6.2% 6.9% 20.0% 19.1% 27.9% 30.1% Furniture 5.8% 19.3% 32.3% 750,000 700,000 650,000 600,000 550,000 500,000 450,000 400,000

Fig 4: Revenue by Geography 67% from Singapore

Singapore 600,000 500,000 400,000 300,000 200,000 100,000 2009 2010 64.6% Malaysia 67.0% SG as % of Total Rev 67.4% 67.3% 68.0% 67.5% 67.0% 66.5% 66.0% 65.5% 65.0% 64.5% 64.0% 63.5% 63.0% 2011 2012

Source: Company, PSR

Source: Company, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Investment Merits With significant difference in key drivers for the Singapore and Malaysia business, we discuss the investment merits of these two businesses separately. Recent budget measures, aimed at helping both the lower and middle income people, including the Wage Credit Scheme (WCS), is also likely to increase short term consumer spending power by increasing wages. In brief, the WCS encourage businesses to raise wages, by cofunding 40% of wage increase for Singapore employees over the next 3 years, up to a gross monthly wage of S$4k. In addition, other measures including the one-off personal income tax rebate of up to S$1,500 for resident taxpayers, and lowered property tax for 99% of homes through changing the tax structure to progressive tax, is expected to marginally increase consumer spending power. 3. Rapid technological innovations Technology innovations have developed rapidly in recent years. For example, television sets are now thinner, of higher resolution and richer in color, with new technologies developed including LCD, LED and now OLED. Mobile phones have also advanced from feature phones to smartphones capable of detecting gestures and movements. Coupled with the higher consumer spending power described above, these technology innovations have led to higher rates of replacement of Electrical and IT products as people adopt the latest innovations. With innovations expected to continue, this is expected to drive sales growth. 4. Increase in new housing units 200,000 by 2016 The government has shared plans to construct 200,000 new housing units by 2016. 500,000 more new housing units are also expected to be constructed after 2016 to 2030, taking the total new housing units to 700,000. These new housing units would require household products, including items like new television, refrigerators, and furniture. Assuming a straight line increase, this translates to 65,853 new houses yearly from CY2013 to CY2016 and 35,714 new houses from CY2017 to CY2030. Based on a forecast spending of $5,000 per new house, this translates to S$32.3 million of recurring sales till CY2016, and S$17.5 million of recurring sales till CY2030, based on market share assumption of 9.8%. This represents 4.5% and 2.4% of FY2012 total sales revenue respectively. While these figures are recurring and do not represent potential y-y growth in revenue, the larger number of housing units leads to higher sales as more homeowners replace their old household items. Fig 7: 200,000 new houses expected by 2016

A. Singapore
Strong growth in market demands from 4 key areas: 1. Increase in population up to a yearly increase of 86k Based on the latest government projection, Singapores population could rise up to 6.9 million by 2030. With 2012 mid-year estimated population of 5.3 million, and assuming a straight line increase, this implies an increase of 85,820 people per year. With a total fertility rate of 1.29 as at 2012 in Singapore, this increase in population is expected to come from having more foreigners, likely with considerable purchasing power and need for household products. Based on a forecast spending of S$2,000 per person yearly, this translates to S$16.8 million increase in sales yearly, based on market share assumption of 9.8%. This represents 2.3% of FY2012 total sales revenue. 2. Increase in spending Favorable age demographics, positive impact from Budget 2013 With a median age of 38.4 years in Singapore, and a majority of the population being working adults, as opposed to retirees or infants with limited spending power, Courts is able to benefit from the favorable age demographic. Furthermore, this favorable demographic is likely to sustain in the near term, benefiting from the flow of foreigners, as per discussed above, converting to resident status. Fig 5: Age demographics Mostly working adults

Source: Singstat, PSR

Fig 6: Retail Sales Index, CY2010 rebased, seasonally adjusted, Constant Price, Furniture & Household Equip Sales Index expected to continue trending up strongly
140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 11/1984 5/1990 10/1995 4/2001 10/2006 4/2012

Source: CEIC, PSR

Source: mndsingapore.wordpress.com, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013

Other investment merits for SG operations

1. Earned service charge income from credit facilities provide additional resilient revenue While the majority of revenue is from sales of goods, 9.4% of Singapore revenue is contributed by earned service charge, from the 11% of goods sold on credit. Revenue is resilient, while bad debts are low. Cost of funding is also cheap at 5.5% per above, while interest rates charged are attractive to Courts. Consumers who are not within the income bracket required to obtain a credit card are attracted to Courts in-house credit facilities due to the ability to buy on credit, with low monthly payments. With average interest rates lower than the 24% charged by credit card companies, consumers with tighter cash flows may also prefer Courts in-house credit facility. Promotions, such as free gifts, make these credit facilities even more attractive. Having had many years of experience in offering credit, and a large database on the consumers credit quality and behavior, Courts is able to effectively promote to these customers while minimizing bad debts.

management guidance, employees are experienced, and able to distinguish between genuine and fake buyers. Through data on specific customers collected over the years from its HomeClub membership programme, and extensive background checks for first-time customers, Courts is able to make better judgments and evaluate a customers credit quality. For the credit facility, interest rate charged is tiered, with rates depending on the payment period which ranges from 6-60 months, to reflect the higher risk associated with longer tenures. Measures are immediately taken to minimize losses once a customers ability to repay is in doubt. This includes outsourcing to professional debt collectors.

Fig 9: Delinquency rates falling, improving credit quality

B. Malaysia
1. Resilient earnings from in-house credit facilities, While the majority of revenue comes from the sale of goods, a significant proportion, at 34.2% of 9M13 revenue from Malaysia, comes from the in-house credit facility. This is due to the higher mix of credit sales of 57%+. The earned service charge income from these credit facilities provides resilient earnings through recurring interest repayments. While credit facilities are susceptible to high loan allowances required, should customers default on payment, we note that unemployment rate has stayed low in Malaysia, thus customers should continue to have the ability to service their repayments. Courts also has extensive experience in providing of credit facility in Malaysia, and have developed ways to reduce delinquency rates as discussed below. Fig 8: Unemployment rate consistently low in Malaysia
10.00 8.00 6.00 4.00 2.00 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Unemployment of SG and MY (%) Singapore Malaysia

Source: Company presentation, PSR

While the rising affluence in Malaysia is gradually leading to lower usage of its Credit facilities, management guides that the growth of consumer spending power is expected to maintain sales growth, as in the case of Singapore. Fig 10: Sale of goods Credit mix significant in MY

Source: Company presentation, PSR

Source: MOM Singapore, Labour force Statistics Malaysia, PSR

2. Credit facility attracts different market segments With its unique credit facilities, Courts is able to attract both customers with adequate cash on hand, and customers with inadequate cash on hand but has a steady flow of income. This enlarges its base of potential customers. Gross profit margins from the sale of more high-end goods, which was enabled through its credit facilities, are also higher as compared to competitors with no in-house credit facilities. Competitors may outsource their credit facilities, but these would be subject to the terms, such as minimum annual income, set by these third party providers.

How Courts reduces delinquency rates: Salesmen are well-trained to pick up any signs of customers whose intention is not to buy household products, but for other reasons such as utilizing the credit facility to repay other debts, with no intention of repayment. With a low employee turnover rates per

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Courts Asia Limited Singapore Equities Research 25 March 2013 3. Revenue growth from opening of new stores With 60 stores by the end of FY2013, Courts can further grow their presence and market share in Malaysia through the opening of more retail stores in Malaysia as Courts penetrates further into Malaysia, in both existing and possibly new areas. Focus would be on areas with favorable demographics, higher population density, considerable purchasing power, high need for credit facilities with low unemployment, and rising affluence. Fig 10: Growing from 57 stores to 59 stores since Courts IPO, with more in the pipeline 1 more in 4Q13 2. Experienced Management with deep understanding Courts CEO, Mr Terence Donald OConnor, has worked in Courts since 1993. The CFO, Ms Kee Kim Eng, joined courts in 1996. We note that other members of management also have long working experiences in Courts, and experience working in various departments. Management likely has strong loyalty to Courts, and valuable experience, having guided Courts through previously challenging times. 3. eCourts enables consumers to compare prices, learn more about the products, and make online purchases leading to higher revenue With 7,000 different offerings available online, eCourts caters to sophisticated and more price sensitive consumers, by allowing them to learn more and compare prices with other online retailers. The online platform, while only contributing less than 2% to the business based on online purchases, ensures consumers do not overlook Courts product offerings due to a lack of convenient access to product information and price. 4. Focus on innovative retailing concepts and unique experience to strengthen brand, attract customers Courts continues to introduce innovative concepts such as Sleep Clinic, Sofa Maker, Cool Zone and Courts Connect, which aims to provide a unique experience, and comprehensive range of products. Advice from salesman are readily available, to help customers in their purchasing decision. 5. Insurance options embedded in some credit plans attractive to customers Courts credit plans may provide insurance options, such as the waiving of repayments should the customer be hospitalized. This gives the customer a peace of mind, while the insurance risk to Courts is outsourced to third party providers. 6. Courts has economics of scale, higher bargaining power due to large market presence As the largest retailer in Singapore, and second largest in Malaysia based on CY2011s retail value sales excluding sales tax, Courts has economics of scale and possibly enjoy better margins through bulk purchases. As a large tenant in some malls, Courts can enjoy favorable occupancy rates, due to higher bargaining power. Overall positive on Expansion to Indonesia st 1 store to be operational in FY Mar 2015 Management has announced the opening of a two-storey Megastore, to be located in Kota Harapan Indah, in Eastern Jakarta. The size of the store, at close to 140,000 square feet, would be marginally bigger than Singapores Megastore in Tampines. While initial contributions to net profit would be minimal, the growth rate potential is much higher as Courts penetrates this market. More stores are expected to open in Indonesia, following the opening of the Megastore.

Source: Company prospectus, PSR

Other investment merits for MY operations

1. Courts Malaysia undergoing consultation to improve cost to income ratio Management has identified the need to improve cost efficiencies especially in Malaysia, and has engaged an external consulting firm to review and streamline their SG and MY operations. Key areas include optimizing supply change and enhancing marketing efficiency. More information is however required to measure the quantitative impact of these initiatives. Operations have also been continuously reviewed, while unprofitable stores, due to high occupancy costs and low sales, have been closed.

C. Other investment merits for the Group

1. Marketing Expenses as % of revenue to decrease as revenue increases, Distribution and Admin to be stable Management guides that marketing expenses, as a percentage of revenue, is likely to decrease, due to the limitations on the amount of effective marketing that Courts can do. With the outsourcing of warehousing and logistics functions in Malaysia, and Delivery function of the Group to DHL and SCS Logistics (S) Pte Ltd, distribution expenses are expected to be stable. Admin expenses are expected to be relatively stable as wages and occupancy costs increase with revenue growth, while loan allowances remains stable at a percentage of total receivables.

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Courts Asia Limited Singapore Equities Research 25 March 2013 Areas to highlight 1. Higher growth potential in Indonesia (Positive) With a higher CY13 forecasted GDP growth potential of 4.5% as compared to Singapore (CY13 F: 2.0%) and Malaysia (CY13 F: 4.0%) based on our economists forecast, more positive long term growth prospects, and rising affluence, Indonesia is an exciting market. 2. Likely strong demand for Credit Facilities (Positive) The Indonesian market is likely to be attracted to Courts inhouse credit facilities, with credit to cash goods mix potentially higher than that seen in Malaysia. This would help Courts to attract more customers, and derive revenue from both the sale of goods, and earned service charge income. Average interest rates for the credit facilities are expected to be higher than that in Malaysia, due partly to the higher cost of funding in Indonesia. Interest rates charged would be comparable to existing interest rates for consumer durables in Indonesia. 3. Previous experience in Indonesian market (Positive) Before Courts was restructured, Courts had a presence in the Indonesian market. This provides Courts with some experience in navigating the Indonesian market. Management has also guided on the hiring of management with extensive experience and knowledge of the Indonesian retail market. 3. Infrastructure in Indonesia may hinder sales (Neutral) Due to a transport infrastructure that is still being developed in Indonesia, traffic jams are common, while floods also happen occasionally in Jakarta. We think that this may reduce sales as sales volumes may drop during floods, while the traffic jams, lasting hours, may lead to lesser people willing to travel to Courts stores. Management has however guided that their research has identified that people are willing to travel 17km for value purchases. Coupled with the high population density of the area surrounding Courts Megastore, management expects high traffic flows. 4. Credit cost may be slightly elevated initially (Neutral) This is however expected to decrease over time as management gains experience and build a bigger database of their customers credit quality. Management guides that they are currently working with Indonesian banks to understand and develop a scorecard to evaluate first-time customers purchasing on credit. In mitigating risk, initial loan tenures are expected to be shorter, potentially at 3 years, compared to the 5 years maximum loans tenure available in Singapore and Malaysia. 5. Megastore with a warehouse for future expansion With the large land area, the Megastore will have a warehouse within the compound. This is to house goods for future satellite stores. The warehouse within the Megastore will also reduce distribution expenses, and improve immediate availability of inventory. Cost is also lower from the larger scale and supply chain efficiencies. Other areas to highlight Dividends 30% Payout ratio guided Management announced that approximately 30% of the Groups profit after tax for 2H13, and FY14, to be paid as dividends. Dividend is expected to be paid semi-annually. Based on this guidance, we forecast S$0.01 dividend for 2H13, and S$0.02 dividend for FY2014. Trade payable days have been declining. Management guides this to be due to shorter payable terms with a specific supplier of significant volume of goods. This has led to an overall decline in payable days as payments to the supplier are made more promptly. Capital expenditure partially funded by Suppliers Management guides that a significant portion of renovation works for a retail store is paid for by contributions from the suppliers. This reduces renovation cost. However, display sets, required in enhancing customer experience, would incur expenditure due to the discount that is given when eventually sold. Key upside/ downside risk 1. Global economic recovery to increase sales and lower loans allowance required A strong recovery of the global economy is expected to increase consumer confidence, leading to higher spending. Similarly, bad debts are expected to be minimal as consumers have the ability to service their debts, leading to lower loans allowance required. 2. Rise in unemployment rates may increase bad debts As wages are typically used for repayment of credit, an increase in unemployment rates will reduce the customers ability to pay off their credit loans. This will result in higher loans allowance, and thus reducing net profits. 3. Over-reliance on one bank for funding of credit ops With the current reliance on HSBC to secure funding, the non-renewal of loans may lead to Courts being unable to continue its credit operations or procure additional funding should the need arise. Management has however guided, per above, that they are looking to secure some loans from other banks to diversify this risk. 4. Unfavorable government policies on wages and levies Possible further tightening of foreign worker policies in Singapore, and an increase in minimum wage order in Malaysia, may lead to higher expenses. However, management have guided that most of their employees in Singapore are not E or S pass holders. Valuation Based on our DCF valuation, assuming WACC of 7.1%, and terminal growth of 2.5%, we derive a target price of S$1.14. This gives an implied P/E multiple of 15.6X, and P/B multiple of 2.1X. Based on the investment merits highlighted above, and current share price, we initiate coverage of Courts Asia with a BUY recommendation.

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Courts Asia Limited Singapore Equities Research 25 March 2013

FYE Mar Valuation Ratios P/E (X), adj. P/B (X) EV/EBITDA (X), adj. Dividend Yield (%) Per share data based on IPO shares (SGD) EPS, reported (cents) EPS, adj. (cents) DPS (cents) BVPS (adjusted) Grow th & Margins (%) Grow th Revenue EBITDA EBIT Net Income, adj. Margins EBITDA margin EBIT margin Net Profit Margin FY11 17.0 2.3 15.6 3.1% FY12 13.9 2.5 10.4 9.4% FY13F 13.4 1.9 9.7 3.3% FY14F 13.2 1.7 9.3 2.3% FY15F 11.3 1.6 8.3 2.7%

5.76 5.76 3.05 0.42

7.03 7.03 9.24 0.39

7.29 7.29 3.21 0.52

7.40 7.40 2.22 0.57

8.71 8.71 2.61 0.63

16.3% 45.6% 62.8% 77.7% 6.8% 6.0% 4.8%

7.4% 47.8% 53.9% 22.2% 9.3% 8.6% 5.4%

13.0% 8.2% 1.2% 3.7% 8.9% 7.7% 5.0%

17.8% 4.2% 3.6% 1.5% 7.9% 6.8% 4.3%

6.1% 11.9% 12.6% 17.7% 8.3% 7.2% 4.8%

Key Ratios ROE (%) ROA (%) Net Debt/(Cash) Net Gearing (X) Incom e Statem ent (SGD mn) Revenue EBITDA Depreciation & Amortisation EBIT Net Finance (Expense)/Income Profit Before Tax Taxation Profit After Tax Non-controlling Interest Net Incom e, reported Net Incom e, adj. Source: PSR

14% 6% 84 35.9%

18% 7% 143 65.2%

16% 7% 117 40.3%

14% 6% 126 39.7%

15% 7% 124 35.2%

674.1 45.6 5.0 40.6 (10.9) 29.7 2.5 32.2 0.0 32.2 32.2

724.2 67.4 4.9 62.5 (14.4) 48.1 (8.7) 39.4 0.0 39.4 39.4

818.3 72.9 9.7 63.3 (13.5) 49.8 (9.0) 40.8 0.0 40.8 40.8

964.0 76.0 10.4 65.6 (15.0) 50.5 (9.1) 41.4 0.0 41.4 41.4

1,022.9 85.0 11.2 73.8 (14.3) 59.5 (10.7) 48.8 0.0 48.8 48.8

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Courts Asia Limited Singapore Equities Research 25 March 2013

FYE Mar Balance Sheet (SGD m n) PPE Intangibles Trade and other receivables Others Total non-current assets Inventories Trade and other receivables Cash Others Total current assets Total Assets Short term loans Accounts Payables Others Total current liabilities Long term loans Others Total non-current liabilities Non-controlling interest Shareholder Equity Cashflow Statem ents (SGD m n) CFO PAT Adjustments Cash from ops bef ore WC changes WC changes Cash generated f rom ops Taxes paid, net Cashflow from ops CFI CAPEX, net Proceeds f rom sale of PPE Increase in contributions of suppliers Others Cashflow from investm ents CFF Share issuance Loans, net of repayments Dividends and Distributions Others Cashflow from financing Net change in cash Ef fects of exchange rates CCE, end Source: PSR FY11 15.1 21.6 178.8 4.7 220.2 59.7 170.0 57.9 2.4 289.9 510.1 43.0 124.4 6.0 173.4 98.8 4.0 102.8 0.0 233.9 FY12 16.3 23.1 208.5 5.0 252.9 66.6 183.0 59.2 0.0 308.8 561.7 66.5 127.0 8.0 201.5 135.7 5.2 140.9 0.0 219.3 FY13F 18.6 23.7 232.4 5.3 280.0 73.8 197.7 103.3 0.0 374.8 654.8 5.3 131.1 7.8 144.2 214.8 5.9 220.6 0.0 289.9 FY14F 20.9 25.5 232.4 5.3 284.1 86.7 237.3 93.6 0.0 417.6 701.6 5.3 149.0 7.8 162.1 214.8 5.9 220.6 0.0 318.9 FY15F 21.1 25.1 232.4 5.3 283.8 97.3 265.0 76.3 0.0 438.6 722.4 5.3 155.1 7.8 168.2 195.2 5.9 201.1 0.0 353.1

32.2 7.1 39.3 (12.8) 26.6 (1.2) 25.4 (8.2) 0.1 3.3 2.4 (2.3) 0.0 32.4 (41.4) (2.1) (11.1) 12.0 0.1 50.5

39.4 23.0 62.4 (47.8) 14.5 (8.0) 6.5 (11.0) 0.7 4.4 5.3 (0.5) 0.0 58.0 (51.7) (13.7) (7.4) (1.4) (0.2) 49.0

40.8 26.9 67.7 (40.6) 27.1 (9.0) 18.1 (12.5) (0.1) 3.0 4.2 (5.4) 0.0 16.5 (104.2) 113.0 25.3 38.0 (0.5) 86.5

41.4 34.5 76.0 (34.6) 41.3 (9.1) 32.2 (14.5) 0.0 2.0 2.2 (10.3) 0.0 0.0 (12.4) (15.4) (27.8) (5.9) 0.0 80.6

48.8 36.2 85.0 (32.1) 52.9 (10.7) 42.2 (11.0) 0.0 2.0 2.2 (6.8) 0.0 (20.0) (14.6) (14.7) (49.3) (13.9) 0.0 66.7

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Courts Asia Limited Singapore Equities Research 25 March 2013

Ratings History 2 1.5 1 0.5 0
Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13
Market Price Target Price

Source: Bloomberg, PSR

1 2 3 4 5 PSR Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate 2 -5% to +5% Neutral 3 -5% to -20% Reduce 4 < -20% Sell 5 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

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Courts Asia Limited Singapore Equities Research 25 March 2013

Appendix
Fig 1: Courts has 4 different Store formats: (Note: number of stores as at date of lodgment of prospectus)

Small-format stores deliver the highest sales per square foot

Source: Company prospectus, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Fig 2: Management reporting Structure

Source: Company prospectus, PSR

Fig 3: Store network Singapore and Malaysia as at date of lodgment of IPO

Source: Company prospectus, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Fig 4: Courts competitor in the retail space Singapore Top five retailers by retail value sales excluding sales tax (%)

Singapore Top five retailers by selling space (%)

Malaysia Top five retailers by retail value sales excluding sales tax (%)

Malaysia Top five retailers by selling space (%)

Source: Euromonitor, Company prospectus, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Fig 5: Highlights from recent 3Q13 results presentation Total Sales

Operating Metrics

Source: Company presentation, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Fig 6: Highlights from recent 3Q13 results presentation (continued) Operational updates

Management outlook

Source: Company presentation, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Fig 7: Examples of Singapores Courts Flexi Plans including some with embedded insurance options For Singaporeans and PRs Courts Flexi Plans Basic 11.9% p.a. 10% deposit on merchandise value Minimum merchandise value: $150 Benefits: Waiver of remaining installments due up to $30,000 in the event of total permanent disability or death of designated owner due to accidental bodily injury* Courts Flexi Plans Access 19.9% p.a. No deposit required Minimum merchandise value: $150 Benefits: Waiver of remaining installments due up to $30,000 in the event of total permanent disability or death of designated owner due to accidental bodily injury* Waiver of remaining installments due up to $60,000 or cost of repairs whichever is lower in the event of destruction of goods by fire* One month installment due (general ward) and two months installments due (ICU) will be waived for each day the applicant is hospitalized due to accidental bodily injury up to a maximum waiver of four installments due or the remaining installments due, whichever is lower* Waiver of initial 12 months installments due or remaining installments due, whichever is lower, up to a maximum of $1,000 per month in the event of involuntary unemployment* Courts Flexi Plans Titanium 23.9% p.a. No deposit required Minimum merchandise value: $150 Benefits: Waiver of remaining installments due up to $60,000 in the event of total permanent disability or death of designated owner due to accidental bodily injury* Waiver of remaining installments due up to $80,000 or cost of repairs, whichever is lower, in the event of destruction of goods by fire* One month installment due (general ward) and two months installments due (ICU) will be waived for each day the applicant is hospitalized due to accidental bodily injury, dengue fever, dengue hemorrhagic fever, malaria and hand, foot & mouth disease up to a maximum waiver of four installments due or the remaining installments due, whichever is lower* Waiver of initial 12 months installments due or remaining installments due, whichever is lower, up to a maximum of $1,000 per month in the event of involuntary For S Pass or E Pass Holders Courts Flexi Plans Titanium 27.9% p.a. No deposit required Minimum merchandise value: $150 Benefits: Waiver of remaining installments due up to $60,000 in the event of total permanent disability or death of designated owner due to accidental bodily injury* Waiver of remaining installments due up to $80,000 or cost of repairs, whichever is lower, in the event of destruction of goods by fire* One month installment due (general ward) and two months installments due (ICU) will be waived for each day the applicant is hospitalized due to accidental bodily injury, dengue fever, dengue hemorrhagic fever, malaria and hand, foot & mouth disease up to a maximum waiver of four installments due or the remaining installments due, whichever is lower*
Source: Company website, PSR

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Courts Asia Limited Singapore Equities Research 25 March 2013 Important Information This publication is prepared by Phillip Securities Research Pte Ltd., 250 North Bridge Road, #06-00, Raffles City Tower, Singapore 179101 (Registration Number: 198803136N), which is regulated by the Monetary Authority of Singapore (Phillip Securities Research). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below. This publication has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this document by mistake, please delete or destroy it, and notify the sender immediately. Phillip Securities Research shall not be liable for any direct or consequential loss arising from any use of material contained in this publication. 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Recipients should be aware that many of the products, which may be described in this publication involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks. Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this research should take into account existing public information, including any registered prospectus in respect of such product. 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Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the

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Courts Asia Limited Singapore Equities Research 25 March 2013 preparation or issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this publication. Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the preparation or issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment. To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the preparation or issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold a interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this publication. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the preparation or issuance of this report, which is not reflected in this material, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the preparation or issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the preparation or issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this material. The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction. Section 27 of the Financial Advisers Act (Cap. 110) of Singapore and the MAS Notice on Recommendations on Investment Products (FAA-N01) do not apply in respect of this publication. This material is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this material may not be suitable for all investors and a person receiving or reading this material should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products. Please contact Phillip Securities Research at [65 65311240] in respect of any matters arising from, or in connection with, this document. This report is only for the purpose of distribution in Singapore.

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Courts Asia Limited Singapore Equities Research 25 March 2013 Contact Information (Singapore Research Team)

Chan Wai Chee CEO, Research Special Opportunities +65 6531 1231 yebo@phillip.com.sg Go Choon Koay, Bryan Investment Analyst Property +65 6531 1792 gock@phillip.com.sg Ng Weiwen Macro Analyst Global Macro, Asset Strategy +65 6531 1735 ngww@phillip.com.sg Research Assistant General Enquiries +65 6531 1240 (Phone) research@phillip.com.sg

Joshua Tan Head of Research Global Macro, Asset Strategy +65 6531 1249 joshuatan@phillip.com.sg Travis Seah Investment Analyst REITs +65 6531 1229 travisseahhk@phillip.com.sg Roy Chen Macro Analyst Global Macro, Asset Strategy +65 6531 1535 roychencz@phillip.com.sg

Derrick Heng Deputy Head of Research SG Equity Strategist & Transport +65 6531 1221 derrickhengch@phillip.com.sg Ken Ang Investment Analyst Financials, Telecoms +65 6531 1793 kenangwy@phillip.com.sg Nicholas Ong Investment Analyst Commodities, Offshore & Marine +65 6531 5440 nicholasonghg@phillip.com.sg

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Courts Asia Limited Singapore Equities Research 25 March 2013 Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd Raffles City Tower 250, North Bridge Road #06-00 Singapore 179101 Tel +65 6533 6001 Fax +65 6535 6631 Website: www.poems.com.sg HONG KONG Phillip Securities (HK) Ltd Exchange Participant of the Stock Exchange of Hong Kong 11/F United Centre 95 Queensway Hong Kong Tel +852 2277 6600 Fax +852 2868 5307 Websites: www.phillip.com.hk INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 Indonesia Tel +62-21 5790 0800 Fax +62-21 5790 0809 Website: www.phillip.co.id THAILAND Phillip Securities (Thailand) Public Co. Ltd 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand Tel +66-2 6351700 / 22680999 Fax +66-2 22680921 Website www.phillip.co.th UNITED KINGDOM King & Shaxson Capital Limited 6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS Tel +44-20 7426 5950 Fax +44-20 7626 1757 Website: www.kingandshaxson.com AUSTRALIA PhillipCapital Level 12, 15 William Street, Melbourne, Victoria 3000, Australia Tel +61-03 9629 8288 Fax +61-03 9629 8882 Website: www.phillipcapital.com.au

MALAYSIA Phillip Capital Management Sdn Bhd B-3-6 Block B Level 3 Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel +603 2162 8841 Fax +603 2166 5099 Website: www.poems.com.my JAPAN Phillip Securities Japan, Ltd. 4-2 Nihonbashi Kabuto-cho Chuo-ku, Tokyo 103-0026 Tel +81-3 3666 2101 Fax +81-3 3666 6090 Website:www.phillip.co.jp

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd No 550 Yan An East Road, Ocean Tower Unit 2318, Postal code 200001 Tel +86-21 5169 9200 Fax +86-21 6351 2940 Website: www.phillip.com.cn FRANCE King & Shaxson Capital Limited 3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France Tel +33-1 45633100 Fax +33-1 45636017 Website: www.kingandshaxson.com

UNITED STATES Phillip Futures Inc 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL 60604 USA Tel +1-312 356 9000 Fax +1-312 356 9005

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