Berjaya 5196.KL should spin off Starbucks and liquidate the remaining assets. The result could be a consistently profitable company with a larger market cap.

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Interesting opportunity. Seems like the valuation / upside depends on re-rerating to 25-30x earnings. But do the other branded retail "comps" trade there because there is a long growth pathway to open new units + high SSS% under those brands? And as you admit, the growth opportunity at Innature is much more limited? Without growth, 15x pre-Covid earnings isn't cheap. Asked another way, if the market was closed and you didn't have comps to value this against, what do you think underlying value is and how do you get there?

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Dear Aaron,

Thx for the writeup, solid and detailed analysis. I do have some concerns nonetheless:

(1) Are there any near-term catalysts for the stock, given that 15x FY 19 earnings are not exactly cigar-butt cheap, and the Covid-19 situation in Malaysia doesn't seem to be improving, the earnings for 2021 are likely to be affected as well. A pessimistic scenario would be that the price is going to remain stagnant for the next 1~2 years, possibly even longer.

(2) Does the Body Shop have a strong presence online? The products they sell are used daily by customers, consequently, are there any indications that the customers are shifting away from their products (given that The Body Shop stores are closed and customers might have bought other stuff?) A Branded Retail product notwithstanding, there are a myriad range of similar products available on the market.

(3) Referring to your point regarding the market thinking Innature has zero earnings growth visibility in Malaysia, has the management given any indication to analysts (I don't have access to analysts reports/interviews) of their growth strategy. The company has been here for 37 years (first shop in 1984), if the earnings do not grow, just waiting for the stock to rerate seems a little risky. Personally, I think the multiples 7-11 and Berjaya are preposterous, given that 7-11 is an obviously declining business and Berjaya is at best a mediocre business (no idea of the potential of Starbucks).

(4) What are the terms and conditions which The Body Shop is being licensed to Innature? By which I mean are there any payments/royalties etc to be paid to the UK brand? I was unsure about this as the annual reports do not make this clear.

Side note: Similarly, having read your point about MCD's (big fan of the company and the food), Do you know of the licensing agreement/business model of the Sendirian Berhad owning McDonald's Malaysia. Is it akin to the standard licensing agreement given by McDonalds Corporation to US MCD operators (owner/operator pays a the majority of Maintenance CAPEX, certain percentage of revenues have to be given to McDonald's Corporation etc)?

It was a refreshing experience to read your blog, written in clear prose with incisive analysis. You just earned another subscriber! :)

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