Isetan Singapore

[lonewolf]

Starhill Global approached them in 2019 for a non-binding discussion but nothing seems to have materialised out of that discussion.

I'm not sure if SG has ROFR for the remaining Strata Title that Isetan owes in WA. But hopefully, SG can iron out a deal with Isetan. If another party get it, the situation will be less ideal fo SG.

[¯|_(ツ)_/¯]

Isetan @ 392
Appointment of Marketing Agent Savills to Assess Interest in Possible Purchase of Isetan Wisma Atria
https://links.sgx.com/FileOpen/Isetan%20...eID=670958

Stay home and stay safe, everyone.

[CY09]

The management has been destroying shareholder value for years. In the current FY, another 49 cents per share loss was recorded.

It has been 3 full financial years that Isetan is making wide losses possibly due to e commerce and that was even before COVID struck. With more discount stores and clothing stores like Don Don Ki and Uniqlo appearing, if I were the management, I would have thrown in the towel and close all the stores except Scotts. Then hopefully I can offload the Wisma stake.

Based on its declared book value on Wisma of 28.7 mil vs the expected market value for $310 mil by comparing against Starhill Global valuation of its Wisma stake, the real NAV of the company is about $9.40 per share. Personally, I think the management will continue on its value destruction path and I would expect its eventual NAV to be about $6.0. However, if the company continues on its antics for another 20 more years, the company could be a zero value investment

Once the Mgmt wises up, it is a double bagger.

The company is better off dead than trying to fight in the brick and mortar scene of Singapore especially in the heartland malls where don don ki is comng up.

<On my watchlist, but am apprehensive to invest because of the stubborn and lousy management>

[ghchua]

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.

[Shrivathsa]

Hi CY09,

I agree with you on the evaluation of this stock as well as your opinion on the management. One potential path to value destruction is to erode the Book Value by stubbornly holding on to the company and using brick and mortar to fight as it may not hurt management much, as they will / may be paid fees for managing the company's value and operations.

[specuvestor]

Gave up on this stock ever since they refuse to pay special dividend arising from Section44 dividend franking expiry (for those old enough to remember)

Reason being their parent company will have to pay Japan tax on it unnecessarily, so you already know what is their main consideration. Unless anyone knows when Isetan Japan will give up it is difficult to realise the RNAV.

[ghchua]

Hi specuvestor,

If you remembered, Isetan Singapore paid out a special dividends amounting to a total of more than $1.60 per share in 2007 to utilize those credits. Minorities activism was heard eventually.

Now, minorities had been pushing the company to sell Wisma Atria Podium Block. Yes, parent company in Japan has tax considerations, but not only Isetan Singapore but their parent is also not doing well currently. They might be willing to realize value in some of those valuable assets in Isetan Singapore if they could get some working capital to finance their own operations as well. They have been quite firm on not selling Wisma Atria, but the current move is that the company has appointed a marketing agent to assess interest. Obviously, they wanted to see how much it is worth. I think it is a change in stance now.

[ghchua]

Hi CY09,

I agree with you on the evaluation of this stock as well as your opinion on the management. One potential path to value destruction is to erode the Book Value by stubbornly holding on to the company and using brick and mortar to fight as it may not hurt management much, as they will / may be paid fees for managing the company's value and operations.

Hi Shrivathsa,

Evaluation of a stock is not only on management, but whether there is value in it. Yes, some management might be deemed shareholder unfriendly and destroying value, but margin of safety when we purchase a stock (at way below RNAV) will provide the downside protection. If we just want good management and profit growth, then we have to pay for it after the market had discovered it.

Obviously, the market knows that Isetan Singapore management and board is not so good. That is why it is trading at below RNAV. As value hunters, we have to determine whether the discount is good enough to buy into it. And hopefully, the discount to RNAV could narrow eventually.

[specuvestor]

Thanks ghchua for the info. Frankly after that AGM I can't be bothered with them anymore So all the S44 credits were used to fullest? Cause I still distinctively remember a newspaper article list out the listed companies that have S44 credits that will expire, and Isetan was one of them

And personally I don't "hope" for the discount to be narrowed. I think we need to watch for catalysts. So it will be interesting to see if anything comes out from the marketing agent you mentioned, and hence Isetan Japan "giving up"

Hi specuvestor,

If you remembered, Isetan Singapore paid out a special dividends amounting to a total of more than $1.60 per share in 2007 to utilize those credits. Minorities activism was heard eventually.

Now, minorities had been pushing the company to sell Wisma Atria Podium Block. Yes, parent company in Japan has tax considerations, but not only Isetan Singapore but their parent is also not doing well currently. They might be willing to realize value in some of those valuable assets in Isetan Singapore if they could get some working capital to finance their own operations as well. They have been quite firm on not selling Wisma Atria, but the current move is that the company has appointed a marketing agent to assess interest. Obviously, they wanted to see how much it is worth. I think it is a change in stance now.

[ghchua]

Thanks ghchua for the info. Frankly after that AGM I can't be bothered with them anymore So all the S44 credits were used to fullest? Cause I still distinctively remember a newspaper article list out the listed companies that have S44 credits that will expire, and Isetan was one of them

I don't think so. There should be some tax credits left expired but they did pay out some of it. Companies which utilized all their tax credits during that time used the dividend plus rights issue combination to take back those dividends that had been paid out via rights issue. Effectively, they are not really paying out those dividends, just using rights issue to get them back.

For Isetan Singapore, they just paid out dividends. No rights issue was called. Obviously, that will result in a lower amount of tax credit being utilized.