THE low-profile Tang family has launched a bid to take The Store Corp Bhd private amid a time when the earnings and cash pile of the supermarket and department store operator have fallen sharply in the past year.

Their unexpected move also comes at a crucial juncture as the broader Malaysian retail sector is suffering from poor consumer sentiment brought on by the weakening ringgit and higher cost of living.

What has piqued market observers is the timing of the privatisation bid and the recent turn of events.

The Tang family had maintained a combined stake of about 28% in the group for the last 15 years. The bulk of it is held under their private vehicle, Equatorial Century Sdn Bhd, which has a 21.75% stake. Tan Sri Tang Yeam Soon, The Store group managing director, and his wife Puan Sri Khor Guik Lee hold stakes of 4.42% and 1.99% respectively.

The next largest shareholder, Berjaya Group founder Tan Sri Vincent Tan, had for many years held a 9% to 11% stake.

Interestingly, Tan Sri Kong Hon Kong, the founder of Nirvana Asia Ltd, had in early November bought out Tan’s stake, raising his equity interest in The Store to 13.88%.

Kong’s entry and subsequent exit a mere three weeks later may have been a catalyst for the Tang family’s recent move.

After buying Kong’s 13.88% via the Tang family vehicle, TYS Consolidated Sdn Bhd, the family now holds 42.05% in The Store and is extending a mandatory takeover offer at RM3.52 per share cash to other shareholders.

The Tangs were not available for comment. Kong, meanwhile, tells The Edge that his quick exit from his investment was a “willing buyer, willing seller” deal. He sold at RM3.52 per share, the offer price the Tang family is proposing.

“They offered that price and I think it is attractive. I always buy and sell based on pricing,” Kong says.

According to the Nov 28 offer, the RM3.52 offer price is at a 21.38% premium to the volume-weighted average price (VWAP) on Nov 25, prior to the offer. The offer price also represents a 11.89% and 11.24% premium to the six- and three-month VWAP for The Store.

It is true that The Store has been undervalued by the market. For the last five years, the stock has been trading at an average of 0.3 to 0.4 times book value.

Even though it ran up to a five-year high of RM3.45 last Friday following the privatisation deal, it is still trading at a substantial 49% discount to its net asset value of RM6.76 per share as at Sept 30.

The last time the shares climbed above the RM3-level was for a brief period in 2007 and 2014.

The Tangs will now have to purchase the remaining 57.95% from minority shareholders.

A quick calculation shows that they would have to fork out about RM139.73 million for the 39.7 million shares they do not currently own.

That would give them control over the remaining RM48.75 million cash pile that The Store has as well as all of its assets, in particular, a long list of properties valued at about RM423.8 million as at Sept 30, 2015.

The most valuable assets include a two-storey commercial complex in Alor Setar, Kedah, valued at RM170.37 million and units within a commercial centre in Seberang Perai Tengah, Penang, valued at RM73.58 million, according to its 2015 annual report.

Though they are not the founders, the Tang family has been the major shareholders and the driving force behind The Store in recent decades.

Yeam Soon joined the board in 2001 after The Store took a 49% stake in his company, Pacific Hypermarket Group Sdn Bhd.

For the last 48 years it has been in business, The Store has enjoyed a good growth trajectory. It opened its first outlet in Bukit Mertajam, Penang, in 1968, and its network now extends throughout the country.

According to its 2015 annual report, The Store Corp has a total of 74 outlets across 12 states, with over one million sq ft in retail space. There are 48 supermarket and department stores under The Store brand, nine under the Pacific Hypermarket and Department Stores brand, and 17 under the Milimewa brand in Sabah.

Its heyday of strong earnings growth were in the years that preceded the global financial crisis of 2008/09. In the last 10 years, its strongest set of figures was seen in FY2007 when net profit grew almost 37% to RM40.06 million year on year, with revenue growing 20.72% to RM19.54 million.

But the group was impacted following the financial crisis. In FY2009 and FY2010, net profit clocked in at RM1.94 million and RM3.92 million respectively.

Although earnings eventually recovered, earnings have come under pressure again. Recently, The Store posted its first net loss in almost two decades in FY2016 ended Sept 30.

Net loss came in at RM2.17 million from a net profit of RM12.7 million a year ago, despite revenue falling just 12.2% to RM1.436 billion from RM1.635 billion a year ago.

Its poor showing for the year was ostensibly dragged down by the RM10.146 million net losses it booked for 4QFY2016, which had widened from RM1.649 million a year ago. Revenue for the quarter fell 23.19% to RM323.5 million.

The Store blamed “very weak” consumer sentiment for its lower earnings, owing to the falling ringgit and inflated cost of living, and expects market conditions to remain challenging.

Apart from earnings pressure, its cash pile has fallen a staggering 69.7% to RM48.75 million as at end-September, compared with RM160.63 million a year ago.

A look at the group’s cash flow statement shows it generated negative cash flow from operations of RM62.688 million in FY2016, compared with RM33.469 million in positive cash flow in FY2015.

FY2016 saw higher levels of cash deployed toward payables at RM89.306 million, compared with RM18.804 million a year ago, and inventories at RM12.097 million from RM2.943 million a year ago.

Although the chips may be down for The Store, there appears to be a lot of unlocked value within the group. It is certainly not a bad time for the Tangs to strike.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.