How Courts Asia's expansion in Malaysia, Singapore could lead to short-term drag

Here are 3 risks.

According to Phillip Securities Research, while expansion is expected to increase sales volumes and net profits in the medium to long term, Courts continues to face short term earnings drag. 

"We note a short term drag on net profit as newly opened stores in Malaysia takes time to gain traction in terms of sales volume," says Phillip Securities Research.

In Singapore, meanwhile, Courts also plans to open its new store in West Gate Mall by end-2013," 

Here's more:

First, newly opened stores in Malaysia take some time to gain traction as customers are slower to warm up to stores.

Second, there is a short term increase in interest expense as management effectively utilizes proceeds from the recent S$125m bond issuance.
The higher capital is required to fund expansion plans, including in Indonesia.

Third, efficiencies are likely to be lower for new stores due to higher percentage of new staff relative to mature stores. This is especially so given the higher dependence on staff to increase credit sales, and lower credit cost.

This is through experience in picking out credit customers that are more likely to default via tell-tale signs, such as their actions.