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Hi CY09,
RNAV of Isetan should be above $10. This is taking into consideration the valuation of Isetan Office Building at 593 Havelock Road, 5 Kallang Pudding Road warehouse and also Apartment in Valley Park besides Wisma Atria Podium Block that you have cited above.
If you look closely at Isetan balance sheet, you can see that it is a debt free company. Also, they do not have a general share issue mandate like most companies and therefore, they cannot issue more shares to dilute minorities to raise funds unless they wanted to do an EGM for that. You can see that it is therefore a conservatively managed company. It cannot be zero value after 20 years.
I do share your concerns on their losses in recent years. Those were valid ones. But the two major part of their expenses that contributed to their losses are depreciation and impairments. Depreciation is due to their cost accounting treatment of not only their PPE but also investment properties. Impairment charges are made on those retail stores. There is a limit on how much they can impair. If they impaired everything to zero, then we will not see further impairments here. It is good to note that the company is still operating cash flow positive, despite decreasing revenue.
I do agree with you that their suburban stores are a drag. They have closed loss making Isetan Jurong East store but opened Isetan Serangoon Central store. I guess they are still trying to have some presence in suburban areas, but they are not really expanding though. Just trying to maintain what they have. I think there will be losses here and there in those suburban stores, but I think with cost control, they should be able to limit those losses.
As to your concern on E-commerce, they are also going into it with its own website and Lazmall. You have also cited Don Don Ki and Uniqlo, but Isetan strength is not only in retail, but also supermarket and their imported goods. They are not trying to complete on discounted goods segment.
All in, I think we cannot expect a perfect management. Otherwise, the company will be trading above book value. Obviously, there are flaws in their running of the business, but as value investors, we have to be patient if we see value in a stock.
RNAV of Isetan should be above $10. This is taking into consideration the valuation of Isetan Office Building at 593 Havelock Road, 5 Kallang Pudding Road warehouse and also Apartment in Valley Park besides Wisma Atria Podium Block that you have cited above.
If you look closely at Isetan balance sheet, you can see that it is a debt free company. Also, they do not have a general share issue mandate like most companies and therefore, they cannot issue more shares to dilute minorities to raise funds unless they wanted to do an EGM for that. You can see that it is therefore a conservatively managed company. It cannot be zero value after 20 years.
I do share your concerns on their losses in recent years. Those were valid ones. But the two major part of their expenses that contributed to their losses are depreciation and impairments. Depreciation is due to their cost accounting treatment of not only their PPE but also investment properties. Impairment charges are made on those retail stores. There is a limit on how much they can impair. If they impaired everything to zero, then we will not see further impairments here. It is good to note that the company is still operating cash flow positive, despite decreasing revenue.
I do agree with you that their suburban stores are a drag. They have closed loss making Isetan Jurong East store but opened Isetan Serangoon Central store. I guess they are still trying to have some presence in suburban areas, but they are not really expanding though. Just trying to maintain what they have. I think there will be losses here and there in those suburban stores, but I think with cost control, they should be able to limit those losses.
As to your concern on E-commerce, they are also going into it with its own website and Lazmall. You have also cited Don Don Ki and Uniqlo, but Isetan strength is not only in retail, but also supermarket and their imported goods. They are not trying to complete on discounted goods segment.
All in, I think we cannot expect a perfect management. Otherwise, the company will be trading above book value. Obviously, there are flaws in their running of the business, but as value investors, we have to be patient if we see value in a stock.