It’s not always easy for retail investors to gain access to a
publicly-listed company’s top-level management to ask questions and gain
a deeper understanding of the company’s business – we recognise that at
The Motley Fool Singapore.
Thus, when any opportunity arises for me or any of my colleagues to
speak to important executives of publicly-listed companies, we would aim
to bring you, dear readers, any interesting insights we can glean about
the company’s business.
We’ve
done that previously with instant beverage manufacturer
Super Group (SGX: S10). Now, we’d like to do it with electronics and furniture retailer,
Courts Asia (SGX: RE2).
Last week, my colleague Stanley Lim and I had the chance to sit down
for a cup of coffee with Courts Asia’s Chief Financial Officer, Ms. Kee
Kim Eng, and Regional Head of Strategy Planning & Communications,
Ms. Tammy Teo. The indented portions below are six interesting insights
Stanley and I heard from Kim and Teo on how Courts Asia manages
credit-related risks.
For those unfamiliar with Courts Asia, the sale of goods based on the
company’s credit plans (i.e. Courts Asia’s many varieties of instalment
plans) makes up roughly 20% of its total sales while the sale of goods
based on cash payments constitutes the rest. So, credit control in
relation to the sale of goods is pretty important for the company.
Without further ado, here are the six insights as promised:
1) For the first three insights, see
here.
4) In January this year,
Courts Asia announced the expected opening of its first ‘Big-Box’
Megastore in Indonesia in the second quarter of the financial year
ending 31 March 2015. The Indonesian Megastore would mark the company’s
first foray into another geographical market apart from its traditional
stronghold in Singapore and Malaysia.
With Indonesia, the company’s expansion
will be very measured. Part of the reason is because Courts Asia wants
to build up a strong database in order to better understand the
behaviour of Indonesian shoppers when it comes to paying using the
company’s credit plans. To mitigate some of the risks involved with
issuing credit in a new and relatively alien market, Courts Asia intends
to charge a higher average interest rate of 30% (simple interest – i.e.
not compounded) for credit sales in the country. In Singapore
and Malaysia, the company charges an average interest rate of 22%-23%
and 27% respectively.
5) When it comes to
customers’ eligibility in using the company’s instalment plans to pay
for purchases, Courts Asia does not take things lightly. For instance,
70% and 80% of credit sales (in Malaysia and Singapore, respectively)
are made to repeat customers, whose credit and payment histories Courts
Asia has intimate knowledge of.
6) Courts Asia actually
takes the loans it makes to customers (the company’s ‘loaning’ money to
customers when customers sign up for instalment plans) and
securitises it with banks.
This securitisation process ultimately creates a banking facility with
banks (i.e. a sum of money that can be borrowed by Courts Asia) from
which the company can draw upon as and when it requires. During the
securitisation process, Courts Asia’s loan book would also effectively
become an asset for the banks it’s dealing with.
The quality of credit control that Courts
Asia displays when it offers its instalment plans to customers was
hinted at during the Great Financial Crisis of 2007-09: Back then, the
banks which worked with Courts Asia for the securitisation programmes
had treated Courts Asia’s loan book as a strong asset (the banks refused
to sell Courts Asia’s loan book to raise capital).
Reference:
http://www.fool.sg/2014/07/25/6-things-you-never-knew-about-courts-asia/
