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Li Lu

Hyundai Department Stores
KRX:069960
2004-2007
Industry: Department Stores, Cable, Real Estate
Category: Sum of Parts

Why the Company is Mispriced
Unclear why this was mispriced. Perhaps the whole Korean equities market was undervalued.
As mentioned in the book Snowball, in 2004 Alice Shroeder noticed Warren Buffett had a few telephone-sized books of Korean stocks on his desk
In a 2005 speech at Harvard, he said
"Citicorp sent a manual on Korean stocks. Within 5-6 hours, 20 stocks selling at 2 or 3x earnings with strong balance sheets were identified... the strategy was to buy the securities of 20 companies... $100m was quickly put to work."

Alternative View
60m market cap, 240m book value, 30m pre-tax profit, 25m net income
70m net cash,
30m "hotel-like" department store that hasn't been revalued in 10 years (South Korean real estate has gone up dramatically)
13% of a department store on the book at 13m, but equity has a market cap of 600m, therefore value of the asset is 80m (furthermore, department store equity is similar, tons of cash and assets)
Also own the 3 cable companies and some real estate
50% owned by insiders

Visited department stores and they look quite decent
Looked at recent real estate transactions, seems like real estate is worth 2-4x more than book

Simply, the value is outrageous and the probabilities are in your favor

Result
Department store traded at 22 (2004)
Last time Lu checked, traded at 100 (2007), which is a 50% CAGR
In 2011, the equity traded at 200, which is a 30% CAGR