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PSAKF - Plant Co, Ltd.


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This is a japanese wall mart basicly. ANd it is really dirt cheap. The japanese branch of walmart is already heavily represented in the big cities. But not in the rural areas. These guys operate only in the rural areas, and that seems to be their niche for the past years. The annual reports are in japanese, and there isn't much information on it.


Revenues have been in very slight decline over teh years because they have not been expanding. They own like 18 stores or something (dont have the write up here, but it is somewhere around taht number).


What makes this one interesting is that it is basicly insanely cheap. Net income excluding some of the special charges is somewhere around 1.6 billion yen. That gives this a  PE of below 5. But since apparantly capital expenditures are very low, on average less then half of their actual depreciation, would add another ~500 million yen a year. So on a FCF basis, the multiple is between 3-4x.


IF you look at the return on capital tho, it is just awefull. If they want to add a new store, it eats up all their free cash flow. Currently they have about 12 billion in debt. With 2 billion in FCF a year, it will take several years before they can direct most of their cash to actual dividends or buybacks. So the dividend yield on this is veyr low now. But still, it seems even with a few % decline each year (which i guess is old people dying off on the country side) a multiple of around 4 just seems too low. It should be more like 7 or 8.


From what I could read in the google translation (put the pdf files in here http://translate.google.nl/#auto/en/), they will open one or 2 new stores in the next few years.


One final note is that they lost 2 stores due to earth quakes in the last 7  years. This ate up a full year worth of net income each time. But they are insured, and are slowly getting this money back. So I wouldn't say this is much of a risk. And they were 2 very heavy earth quakes compared to the last 100 years.


Another note is that I cannot find anything about an auditor in their annual reports. Which kinda worries me. Are they not being audited? This should always be in every annual report no?


Would love to hear some thoughts on this.


There is also a VIC write up on this.

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Seems cheap, but it's also pretty small (US$70mm market cap). And if you're willing to dive into small cap Japanese names, then there's a whole list of companies that trade for negative or nearly negative EVs with solid earnings. The main concern I guess on all these is corporate governance.


But by and large, I'd think buying a basket of these cheap Japanese small caps will probably work out well.



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