Shift from furniture to digital products sales mix drags earnings at Courts Asia

Courts Asia's second quarter net profit has more than halved to $7.2 million from $15.9 million previously.

This was despite revenue rising 3.3 per cent to $222.9 million for the three months to Sept 30.

Singapore's sales, which contributed to 70 per cent of group sales, registered a 10.8 per cent increase, on the back of bulk sales for digital products and a focus in the air systems category which drove consumer demand.

Malaysia's sales, which contributed to 30 per cent of group sales, were affected by poorer consumer sentiment due to the government's newly-introduced policies to rein in household debt as well as a reduction in fuel subsidies.

Further, Courts tightened its credit sanctioning in-line with a stricter borrowing environment, leading to a drop in credit sales.

As a result, it posted an 11 per cent decrease in sales for Malaysia.

Gross profit fell by 13.5 per cent while margin decreased from 34 per cent to 28.5 per cent. This was mainly due to a shift in product sales mix from furniture to digital products, which carry a lower gross profit margin, as well as lower service charge income resulting from lower credit sales.

Earnings per share slipped to 1.28 cents from 3.18 cents previously while net asset value per share firmed to 52 cents compared to 51.7 cents as at March 31.

The macro environment in Malaysia is expected to remain challenging with a downward gross domestic product growth rate revision to 4.5-5 per cent and Bank Negara's tightened lending to control household debt.

Despite the challenging retail environment, Malaysia's long term fundamentals remain favourable and the group continues to execute its expansion plans, which are progressing well.

The second Courts Megastore in Subang and the second Courts store in Sabah, Kota Kinabalu is on track for opening by the end of 2013.

In Singapore, the retail environment is expected to remain relatively favourable.

The continued strong takeup of new HDB flats will translate into robust demand for household furniture, appliances and electronics in the medium term.

Courts remains on track to open its Westgate store by the end of 2013.

The company declared an interim dividend of 0.76 cent a share.