Why Courts Asia's earnings nightmare may not be over yet

Earnings forecast for FY14F slashed by 32%.

According to DBS, Courts Asia's 2Q14 results were below expectations due to slower than expected revenue
growth and lower margins. Revenue grew 3.3% y-o-y to S$223m but earnings plunged 55% to S$7.2m.

Revenue growth was driven by Singapore sales (+11% y-o-y) and 16% higher SSSG on higher bulk/export sales. DBS expects muted results to spill over to the next two quarters going by management’s past tightening experience.

Here's more:

As such, we have cut our FY14F/FY15F earnings by 32%/33%. We have lowered our SSSG assumptions, as well as interest recognition. With these adjustments, we expect gross margins to remain below 30% for the next two quarters.

Thereafter, expect mild recovery in earnings assuming that management loosens its credit control.

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