Food Junction

[iisterry]

Hi Dritzz,

I visited your blog and saw that :
Enterprise Value : 6.89 mil.

How did you derive at the value of 6.89 mil ?
Thanks.

It is the estimated takeover price for the company I believe.

Roughly market cap (current share price * outstanding shares) + liabilities - cash & cash equivalents.

[cyborg]

Using iisterry formula with Dritzz data :
Market Cap @ 0.21 = 27.09 mil
Liabilities = Total Assets - Total Equity = 50.18 mil - 31.38 mil = 18.8 mil
Cash holdings = 20.50 mil
EV = 27.09 + 18.8 - 20.50 = 25.39 mil

[Nick]

I agree with Cyborg. While usually, we use market cap + net debt (debt - cash) to compute EV, in FJ case, it is unwise to ignore $15 million worth of current liabilities -

Trade payables consist of stall tenants' sales proceeds ( after deducting fees & necessary charges )
to be refunded to stall tenants on the 12th of the following month.

Other payables, deposits received and accruals include the following:-
(a) Other payables : unpaid invoices from creditors of both food courts and F&B operations
(b) Deposits received : security deposits received from stall tenants
© Accruals : provisions for incurred expenses and unbilled costs.

These liabilities might be the reason behind the huge cash-hoard. When they are paid up, the cash position declines.

What do you think ?

[Drizzt]

Enterprise value =
common equity at market value
+ debt at market value
+ minority interest at market value, if any
– associate company at market value, if any
+ preferred equity at market value
– cash and cash-equivalents.

there is really not much debts. why add back liabilities when we can use market cap in that case??

[iisterry]

I think Drizzt forgot about the liability portion?

[dydx]

A simpler and targetted valuation method:

What's the average total cost of setting up a well-designed food court? My guess is at least $2m, which includes the upfront fitting-out cost and the usual 3 months' rental deposit. As FJ has 19 food courts, the total replacement/investment cost should be minimum $38m (19 x $2m).

FJ now operates 9 Toast@Work kopi/teh outlets. As a low-risk, already well-established and popular business, each outlet should have an investment value of say $0.3m. So, total value: $2.7m (9 x $0.3m).

FJ's single-outlet Tetsu Japanese restaurant at Tanglin Mall should be worth at least $1m; the 3-outlet Malone's pub-restaurant chain in PRC, at least $4m; and the single-out Lippo Chiuchow in Hong Kong, at least $5m (vs. acquisition cost of $5.21m).

Adding up all the above, total investment value: at least $50.7m; or approx. $0.40/share (based on the latest 127.398m outstanding issued shares as at 22Mar11), before additional value of existing nett cash reserve and future business/earning growth.

Please run your own estimates, as the above are merely my own ball-park number-crunching!

[Drizzt]

is the fitting out cost for a food court that high?

---

they renovated 4 food court last year coming up to approximate 2 mil

[redcorolla95]

Enterprise value =
common equity at market value
+ debt at market value
+ minority interest at market value, if any
– associate company at market value, if any
+ preferred equity at market value
– cash and cash-equivalents.

there is really not much debts. why add back liabilities when we can use market cap in that case??

All figures from 2010 Annual Report.

The debt you should be adding to this is the operating lease commitments. $19m due within the year, $24m in the next 2 to 5 years. Once you account for the operating lease commitments, FJH is no longer net cash.

To look at the replacement costs, the company carries for all the outlets all the leasehold improvements, F&B equipt, furniture at $18.56m. Very unlikely that the cost for all this would have skyrocketed. The 3 months rental deposit don't count toward the replacement cost - they would show up in the bank balances anyway.

FJH itself estimates that the life of assets is about 6 years, which seems reasonable to me. But since they didn't renovate all their outlets in 2010, there're some aging ones which are worth somewhat less. So the company puts it on its books at $9m, not $50m.

For the $5m purchase of the HK restaurant, $1.6m of it was cash, $3.5m of it was goodwill, and the rest of the fixed assets, inventories etc etc is $70k (because there were lots of liabilities). Fixed assets themselves were $171k.

Furthermore, since FJH rents (rather than owns) its premises, the replacement costs may not be realizable; so unlike a jewelry shop or steel stockist, the fixed assets would carry far less value at liquidation. If they decide to close down a restaurant / food court, the landlord could very well order them to restore it to a bare empty shell - so the leasehold improvements would be worth 0, less costs needed to tear it down.

In other words, investment value has to come from something other than the replacement costs.

[Drizzt]

ah thanks red corolla.

[dydx]

In Jul08, Auric Pacific Group (controlled by the Lippo Group/James Riady/Riady Family) made a $0.55/share Voluntary Conditional Cash Partial Offer for 35% of FJ.....
http://info.sgx.com/listprosp.nsf/5ec09b...00036967a/$FILE/APG%20Strategic-OffDoc-Casting.pdf [formal offer document to FJ's shareholders, by Stirling Coleman]
http://info.sgx.com/listprosp.nsf/5ec09b...c0029913e/$FILE/Food%20Junction.pdf [circular to FJ's shareholders, containing IFA Westcomb's opinion on the partial offer]
and, at the end of the exercise, Auric Pacific Group managed to raise its stake in FJ to the present 58.8% (adjusted for the recent/latest share buy-backs by FJ).

A relevant question: Were the management of Auric Pacific Group, James raidy, and their professional adviosrs 'nuts' when they offered $0.55/share for FJ in 2008?