Japanese Basket

[generalsandworkouts]

I've just bought some more KG Intelligence Co (2408). It has discounted NCAV of 529 yen per share (mostly cash) as well as some land. It's currently trading at 262 yen. Business is v. crappy and declining, but it's too cheap IMO. These things can stay cheap for a long time, so best to use a basket approach.

[Stuart D]

9628 - San Holdings inc.

 

Largest funeral services provider in Japan (source: https://www.capitalisticman.com/profiting-from-death-global-funeral-industry-overview-and-analysis/)

 

 

Shares outstanding: 11,166,249

Price: ¥1,101 / share

M.cap: ¥12.3b

Total liabilities: ¥4.3b

 

Cash: ¥5.3b

A few other assets up their sleeve as well.

 

Profit: ¥1.5 (2018), ¥2.1b (2019)

This may be morbid, but we could expect their profits to grow short term (virus) and long term (relatively old population).

[ValueHippie]

7523.T Art Vivant

 

Profitable netnet that is growing.

 

Full writeup: http://findstox.com/2020/03/10/growing-netnet-with-good-upside-potential/

[Spekulatius]

Bought some Tosnet Corp 4754.T. Security service provider. Found it using Kenkyo Investing Magic formula screen.

 

Very cheap and growing. Substantial net cash and FCF.

[mjohn707]

I bought shares in 8050 Seiko Holdings just below current prices, maybe 1750 yen per share.  Trades maybe around 70% of book, not including any current losses in the equity holdings, and something around 9-10X earnings.  This is sort of on the more expensive side for a Japanese name, but the company has recognizable brand names in the popular line of Seiko watches, a significant export business, a number of new premium offerings, and pays a good dividend.  The company's ROIC has been decent, and free cash has gone over the last number of years towards paying down debt.  It's reasonable I think and at the floor of the 5-year average valuations.

 

 

[generalsandworkouts]

I also bought some Taihei Machinery Works Ltd (6342). It trades at roughly NCAV, has a PE < 5 and pays a reasonable dividend.

[samwise]

1782 is down back to its lows, cheap on p/e, p/b, decent dividend, still decent ROE, which I don’t understand in the construction business.

 

They recently reorganized their organization, and published it, down to local sales who were reassigned. Is this usual in Japan?

[Janeo]

Bought these cigar butts recently:

TYO: 4234 Sun A. Kaken

TYO: 5928 ALMETAX

TYO: 6467 NICHIDAI

 

[mjohn707]

It really seems like a lot of these Japanese net-nets have help up better than the market, or at least better than certain areas of the market, possibly because they're so well capitalized and names with debt have just been killed.  In any case, I've been selling that names that have held up to buy US names that seem relatively cheaper now.  Who knew that the only way these things would actually outperform the market would be in some sort of cataclysm? 

[fishwithwings]

It really seems like a lot of these Japanese net-nets have help up better than the market, or at least better than certain areas of the market, possibly because they're so well capitalized and names with debt have just been killed.  In any case, I've been selling that names that have held up to buy US names that seem relatively cheaper now.  Who knew that the only way these things would actually outperform the market would be in some sort of cataclysm?

 

Do you mind sharing some of the US names?  Maybe not on this thread b/c it's for Japanese stocks tho.

[mjohn707]

It really seems like a lot of these Japanese net-nets have help up better than the market, or at least better than certain areas of the market, possibly because they're so well capitalized and names with debt have just been killed.  In any case, I've been selling that names that have held up to buy US names that seem relatively cheaper now.  Who knew that the only way these things would actually outperform the market would be in some sort of cataclysm?

 

Do you mind sharing some of the US names?  Maybe not on this thread b/c it's for Japanese stocks tho.

 

I mentioned some names in another thread here:

 

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/companies-with-a-fortress-balance-sheet-and-liquidity-at-the-moment/msg404747/#msg404747

 

What do people usually say, do your own research?  Statistically though I'm not sure it makes a difference 

[fishwithwings]

It really seems like a lot of these Japanese net-nets have help up better than the market, or at least better than certain areas of the market, possibly because they're so well capitalized and names with debt have just been killed.  In any case, I've been selling that names that have held up to buy US names that seem relatively cheaper now.  Who knew that the only way these things would actually outperform the market would be in some sort of cataclysm?

 

Do you mind sharing some of the US names?  Maybe not on this thread b/c it's for Japanese stocks tho.

 

I mentioned some names in another thread here:

 

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/companies-with-a-fortress-balance-sheet-and-liquidity-at-the-moment/msg404747/#msg404747

 

What do people usually say, do your own research?  Statistically though I'm not sure it makes a difference

 

thx :)

[Foreign Tuffett]

Nansin (7399)

 

Probably controlled by Saito family. Manufactures and distributes caster wheels and related products.

 

Very small (about $32 million USD market cap), not terribly liquid. ~2% dividend yield @ current stock price.

 

As you would expect, margins aren't great but company is consistently profitable. Trades at about a 39% discount to NCAV.

 

The company has a YouTube channel. Can anyone watch the below video and NOT think the stock is a strong buy? Look how well those carts roll! And that music!

 

https://www.youtube.com/watch?v=FPyP71QwSck&t=19s

 

 

 

[Foreign Tuffett]

Kawagishi Bridge Works (5921)

 

Structural steel fabrication company (for things like bridges and high rise buildings). Like much of the Japanese construction industry, may be controlled by the yakuza.

 

More than twice the size of Nansin by market cap, and more liquid. ~3% dividend yield. Trades at a whopping ~50% discount to NCAV, but something like this needs and will always have lots of current assets. Cheap on an income statement basis too, with market cap / TTM operating profit ratio around 6X.

 

 

[Foreign Tuffett]

DAISHIN CHEMICAL CO (4629)

 

Manufactures and sells paint thinners and other similar products.

 

Market cap is the equivalent of about $62 million USD. ~2.2% dividend yield. Trades 16 or 17% below NCAV.  Market cap / last fiscal year's (ended 3/31/20) operating profit is ~4.3X.

 

I think the core business here is decent, but like all J-nets the company is OVERCAPITALIZED.

 

 

[Foreign Tuffett]

Isamu Paint (4624)

 

Manufactures and sells paints and related products. I believe they specialize in automotive repair paints. Margins in core biz seem solid. 

 

Market cap is the equivalent of $51 or $52 million USD. Typical trading volume is very low, maybe a few hundred shares a day. I don't know the extent of insider ownership, but it is probably very high.

 

~1.75% dividend yield.

 

Grossly overcapitalized, even more so than even the other three companies I have posted.

 

Calculating the discount to NCAV is a little tricky since the company owns a great deal of long term investment securities. If you exclude them altogether then the stock is at maybe a 24% discount to NCAV. If you 'cheat' and treat them as current assets, then the discount to this adjusted NCAV figure approaches 57%.

 

 

 

This is the last of the four J-nets I own. If anyone has any thoughts, thinks my #s are wrong, etc, feel free top chime in.

 

 

[MattR]

I bought shares in 8050 Seiko Holdings just below current prices, maybe 1750 yen per share.  Trades maybe around 70% of book, not including any current losses in the equity holdings, and something around 9-10X earnings.  This is sort of on the more expensive side for a Japanese name, but the company has recognizable brand names in the popular line of Seiko watches, a significant export business, a number of new premium offerings, and pays a good dividend.  The company's ROIC has been decent, and free cash has gone over the last number of years towards paying down debt.  It's reasonable I think and at the floor of the 5-year average valuations.

They seem to have a lot of debt and not really high cashflow. Why did you decide to invest in them? I really like their watches so I would really love to know.

[mjohn707]

I bought shares in 8050 Seiko Holdings just below current prices, maybe 1750 yen per share.  Trades maybe around 70% of book, not including any current losses in the equity holdings, and something around 9-10X earnings.  This is sort of on the more expensive side for a Japanese name, but the company has recognizable brand names in the popular line of Seiko watches, a significant export business, a number of new premium offerings, and pays a good dividend.  The company's ROIC has been decent, and free cash has gone over the last number of years towards paying down debt.  It's reasonable I think and at the floor of the 5-year average valuations.

They seem to have a lot of debt and not really high cashflow. Why did you decide to invest in them? I really like their watches so I would really love to know.

 

My stated reason was to buy at the lower end of the historical P/B and P/average earnings and all of that, but clearly I was just looking for a 25% loss in a market where everything else has just flown up

 

[CorpRaider]

I started looking at a couple of the Japanese trading cos with ADRs after the BRK investment.  As a retail schmuck, I set it aside, deciding it was probably more attractive for me if I gained potential options on future JVs  (i.e., by going through BRK).

[MattR]

I bought shares in 8050 Seiko Holdings just below current prices, maybe 1750 yen per share.  Trades maybe around 70% of book, not including any current losses in the equity holdings, and something around 9-10X earnings.  This is sort of on the more expensive side for a Japanese name, but the company has recognizable brand names in the popular line of Seiko watches, a significant export business, a number of new premium offerings, and pays a good dividend.  The company's ROIC has been decent, and free cash has gone over the last number of years towards paying down debt.  It's reasonable I think and at the floor of the 5-year average valuations.

They seem to have a lot of debt and not really high cashflow. Why did you decide to invest in them? I really like their watches so I would really love to know.

 

My stated reason was to buy at the lower end of the historical P/B and P/average earnings and all of that, but clearly I was just looking for a 25% loss in a market where everything else has just flown up

With the rise of smartwatches I can't see  them having a great future. What would be the catalyst for the company to go back to it's higher valuations over the last 5 years ? I just wanted to have some more context to your investment since I am not able to find out how it would go back up again.

[mjohn707]

I bought shares in 8050 Seiko Holdings just below current prices, maybe 1750 yen per share.  Trades maybe around 70% of book, not including any current losses in the equity holdings, and something around 9-10X earnings.  This is sort of on the more expensive side for a Japanese name, but the company has recognizable brand names in the popular line of Seiko watches, a significant export business, a number of new premium offerings, and pays a good dividend.  The company's ROIC has been decent, and free cash has gone over the last number of years towards paying down debt.  It's reasonable I think and at the floor of the 5-year average valuations.

They seem to have a lot of debt and not really high cashflow. Why did you decide to invest in them? I really like their watches so I would really love to know.

 

My stated reason was to buy at the lower end of the historical P/B and P/average earnings and all of that, but clearly I was just looking for a 25% loss in a market where everything else has just flown up

With the rise of smartwatches I can't see  them having a great future. What would be the catalyst for the company to go back to it's higher valuations over the last 5 years ? I just wanted to have some more context to your investment since I am not able to find out how it would go back up again.

 

I would suspect you'd likely need a rebound in earnings to get closer to historical valuations, which may or may not be in the cards.  This issue of the smartwatch is certainly a complication, and probably a bigger risk at the lower end of the market, but I'm just not convinced that it means that they can't do well in the future

[aesophawk]

Anyone add any positions in this space lately? I have always had some of my portfolio in J Net Nets.  I recently sold 9885 after a nice run up. Currently holding 6346, 5983, 5900, and 6496. 

[Stuart D]

Anyone know what's happened to 6541, Grace Technologies?

It was the cheapest company in my screener on every value-metric, but the stock is down 99.3% in the last 12-months. The most recent filing's I can see are from June 2021 and there was plenty of cash (4 billion yen), so I wouldn't have guessed this would be a donut. It's a little bit concerning to see these type of draw downs for seemingly well-capitalized Japanese stocks. There is limited news or analyst coverage and I haven't found any answers yet by bumbling through their IR Information section on their website. Looks as though there was a 2 for 1 share split and revenues waaaay down (50% decrease), but only 2.8b in total liabilities and it was still profitable, so there must be something else that's happened.

[MattR]

4 hours ago, Stuart D said:

Anyone know what's happened to 6541, Grace Technologies?

It was the cheapest company in my screener on every value-metric, but the stock is down 99.3% in the last 12-months. The most recent filing's I can see are from June 2021 and there was plenty of cash (4 billion yen), so I wouldn't have guessed this would be a donut. It's a little bit concerning to see these type of draw downs for seemingly well-capitalized Japanese stocks. There is limited news or analyst coverage and I haven't found any answers yet by bumbling through their IR Information section on their website. Looks as though there was a 2 for 1 share split and revenues waaaay down (50% decrease), but only 2.8b in total liabilities and it was still profitable, so there must be something else that's happened.

They had an investigation done regarding their accounting. I took the report from the Japanese Section of their Investors Relation and put it into google Translate.

 

Seems that they recorded sales in a lump sum and then recorded sales without any payments at all. Additionally they forged documents to fake the sale.

What they will do: 

• It means that the company will be delisted: As announced separately in "Rase", it is scheduled to be delisted on February 28, 2022.
• They will have to change back the financial statements of the last years. 

 

So it doesn't look to good for them. 

 

 

GraceTech_Translated_InvestigationReport.pdf

[Spekulatius]

My only holding in these is Tosnet 4754 (Security services), which isn’t a net net, but fairly close. my thesis is that earnings should rebound fairly quickly from the COVID-19 hot, which indeed did happen, but the stock is just sitting there. I believe Tosnet is controlled by Secom 9735 (if I recall correctly).

Investing in these Japanese net net is boring as hell. They do nothing but everyone once in a while some of them go on epic runs for no obvious reasons whatsoever. Probably  some pumping and retail excitement that we won’t mostly be aware of unless we follow some sources very closely.

Edited January 30, 2022 by Spekulatius