The Store Corporation Berhad is a leading operator of supermarket, department stores and hypermarket in Malaysia. It is operated through three store formats, The Store Supermarket & Department Stores, Pacific Hypermarket & Department Stores, and Milimewa Supermarket & Department Stores.In Malaysia, The Stores is operating under a competitive industry, we have a lot of huge supermarket/hypermarket like Mydin, Tesco,Aeon, Aeon Big(previously Carrefour), Giant, Econsave and so on. The Store is having a wide presence in Malaysia, it has it outlets located at all the states in Peninsular Malaysia.
Financial Performance
Having a look on its revenue for past 9 years, i would say it is flattish.
Its net profit for past 9 years is inconsistent, fall dramatically after 2008 but improving gradually after that. (no adjustment had been made, all the figures is purely extracted from annual report). Although The Store is well known among the household, its financial performance is so so only. The profit margin is quite fluctuate, dropping from around 2% to around 0.5%. It raised to above 1% in FYE 2013.
As an investor, we would like to grow our capital, hence we always prefer those company with solid business, good management with growing potential. The best is at the same time we could buy in low valuation. Although it is not a foolproof method but by far its the greatest chance we ever had. In this case, The Store is having a solid business as a prominent retailer in Malaysia, however, it shows no sign of growing in terms of revenue and gradually rebound on its earning in recent years. Let's us have a look on the stock valuation, price over net tangible asset per share. (NTA per share)
Total Asset
As we can see, the asset quality for the company is quite good. Property, plant and equipment constitute 43% of total asset. Other major portion are cash and bank deposits, inventories as well as investment properties. When one trying to value a company's NTA, the quality of asset is important. We should not blindly follow the accounting figure but instead, understand what is the component behind the figures.
Net Tangible asset per share
To calculate NTA, we took Total Asset to minus Total liabilities and Intangible Assets. The figure we get is 439,557,000. Divide it with the share base of 68.503 Million shares, we get NTA per share of RM6.42 or price over NTA per share of 0.4. (using share price of RM2.55 as reference for date 5/02/14). Current price is trading at 60% discount to its NTA per share, which is deeply undervalued in book.
Is it a value trap or a value buy?
Now we know that theoretically The Store is deeply undervalued. If we look into its closest comparison in Bursa stock, Aeon is trading at price to book value of above 2. So, are we finally found a super value stock to buy? Are we going to "huat" this time? When we decide to buy a stock solely because of book value, we need to be extra careful as the stated book value might bear less or no relationship to the company true worth. Why? Let's imagine, when a company went bankrupt, how much can a company assets worth? If most of the assets for a company are inventories, do you think it can still sell at normal prices? During bankruptcy, inventories can be worthless especially for finished goods. As for The Store, I believe the building and investment properties are worth much more than before due to the property boom on recent years. Let's have a glance on the historical share price against book value.
From the above table we can see that since FYE 2009 until now, the share price is trading way below the NTA per share. While the assets are valuable, Mr. Market had been ignoring it for years. So what are the chances that the value will be realized? How long do we have to wait? I believe this is the case where many investors got frustrated because in Bursa, we can always spot on this kinda companies. Sometimes, what we need is to be patient and wait for some "Catalysts". If you happen to buy into a cyclical stock, you might need to wait for the upswing of the cycle, just like properties or furniture companies. More often that not it is highly dependent on the management of the company to unlock the value.
Tan Sri Dato' Sri Tang Yeam Soon and his wife, Puan Sri Datin Khor Guik Lee are the major shareholders through their holding on Equatorial Century Sdn.Bhd. However,
One of the Malaysia tycoon, Vincent Tan is the substantial shareholder of the company. I believe for some people they know this tycoon well. When we bought into a company' shares, we entrusted our money to the company and hopefully the management will create wealth for the shareholders, be it minority or majority shareholders.
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