Courts Asia, a home electronics and furniture retailer in Singapore and Malaysia, has raised S$137.1 million ($111 million) from its initial public offering after fixing the price at the top of the range. The company will start trading on the Singapore Exchange on October 15.
Contrary to many of the deals in the Hong Kong IPO pipeline that are struggling to gain traction in the market, Courts Asia was well received as investors liked its well-known brand and exposure to the growing consumer retail market in Southeast Asia. One source said the deal was multiple times covered with virtually no price sensitivity. About 50 institutional investors came into transaction, including both regional and global funds.
However, slightly more than 50% of the deal was pre-placed with six cornerstone investors.
The Singapore and Malaysian retail networks were originally part of the UK-based Courts group but were bought out by a group of four private equity investors in 2007 through a joint holding company named Singapore Retail Group. The businesses were then combined and over the past five years the combined company has undergone a comprehensive turnaround.
The private equity firms – Baring Private Equity, Topaz, Standard Bank and Deutsche Bank International – are monetising part of their investment through the IPO, but the CEO and CFO both participated in the offering as cornerstone investors. The pair, which has been with the company for more than 15 years, owned no shares prior to the IPO and their commitment is a vote of confidence in the business, one source said.
In the fiscal year to March 2012, Courts Asia derived about 42.6% of its sales from electronic products, including white goods, small appliances, and audio and vision products. Another 32.3% came from IT products such as computers, mobile devices and cameras, while 19.3% came from furniture. The remaining 5.8% came from other services.
The company has a fairly large consumer credit business, which provides financing to customers buying its products. In the listing prospectus, Courts Asia said that this gives it an advantage over its retail competitors who rely on external credit providers. In the latest fiscal year, 16.5% of its revenues came from service charges related to its in-house credit facilities.
The company currently has 13 stores in Singapore and 55 in Malaysia. It aims to add an average of six stores per year in Malaysia and one in Singapore over the next two to three years, and plans to open its first store in Jakarta in 2014 – a market that it describes as large, fast-growing and underpenetrated. Aside from Singapore, Malaysia and Indonesia, the company also own the intellectual property rights to either the Courts brand or other brands in another 14 countries in Asia-Pacific, which gives it the opportunity to enter these markets as well.
One concern among investors was the potential lack of liquidity in the stock. Sure, the company has a leading market share in Singapore and is the second largest in its sector in Malaysia by sales value, but it is still a small-cap. At the time of listing it will have a market cap of approximately $350 million. Hedge funds were particularly concerned about this, and the source said that the demand was skewed towards long-only investors.
That said, sales have been growing at a compound annual growth rate (CAGR) of 11.8% in the past three years, reaching S$724 million in the fiscal year to March 2012. Net profit has improved at a CAGR of 47.4% in the same period to S$39 million in the latest year.
The IPO comprised 178 million shares that accounted for 31.8% of the enlarged share capital. Of the total, 34% were new, while the remaining 66% were existing shares sold by Singapore Retail Group. The deal also comes with a 10% overallotment option that may increase the total proceeds to as much as $122 million.
The shares were offered at a price between S$0.675 and S$0.77 each and priced at S$0.77, which translates into a fairly undemanding price-to-earnings ratio of 10.3 times for the fiscal year to March 2013.
The cornerstones bought about S$71 million worth of shares, while S$59.2 million will be allocated to institutional investors. The remaining S$6.8 million will be offered to Singapore retail investors through a separate offering that opens today and runs until Thursday.
Aside from the CEO and the CFO, which will invest a combined S$11 million, the other cornerstones are JF Asset Management, New Silk Road Investment, Target Asset Management and Value Partners.
HSBC was the sole bookrunner for the IPO.