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).