Despite the Nikkei being at something like a 21 year high, I think there are still some decent values in Japanese small caps. I recently flipped through the entire Autumn 2017 edition of the Japan Company Handbook (which took me about two months for the 1800+ pages) and I made 13 investments. A twitter follower (@valuewolf) tipped me on 3 of the 13.
I believe that deep value Japanese small caps presently have a number of risks over and above your average US based small cap value, namely that you usually can’t get English language financial disclosures, you’re taking currency risk, management is possibly less shareholder orientated, you generally get poor liquidity and high trading costs, and undervaluation can seemingly persist for longer than it does in other markets.
Despite these issues, I think a diverse basket of Japanese statistical bargains are a reasonable investment at current prices with a pretty protected downside. Just as a warning, the extent of the research I did on these names was reading the listing in the Japan Company Handbook and reviewing a few years of financial data in translation. Any sort of situation that I wouldn’t catch just with that I can promise I didn’t. Just wanted to point out that additional risk, and with that out of the way, here are the names. Also prices may be a bit out of date, but I don’t think anything has moved a ton either up or down since I invested
1. 5918:JP Takigami Steel @ 5560 yen. Trades about 60% of cash and investments less all liabilities. Has a poor earnings history, some hair with a price fixing scandal a few years ago
2. 6303:JP Sasakura Engineering @ 2549 yen. Maybe 60-66% of Graham style liquidating value depending on inventory mark, poor earnings history, may have an inventory issue
3. 6346:JP Kikukawa Enterprise @ 288 yen. Trades about 66% of cash and investments less all liabilities. Has a decent earnings history, about 75% of the company’s assets are cash and investments
4. 6930:JP Nippon Antenna @ 665 yen. Maybe 60% of liquidating value, has a poor earnings history, but pays a dividend and has repurchased shares
5. 6964:JP Sanko @ 505 yen. About 66% of liquidating value, poor long term earnings history but recently better. Pays a dividend and has repurchased shares
6. 7229:JP Yutaka Giken @ 2590 yen. Auto part supplier 70% owned by Honda. Trades about 50% of book value and at a PE of around 7. Has a well established and stable earnings record, decent balance sheet, and pays a dividend
7. 7314:JP Odawara Auto-Machine Manufacturing @ 638 yen. Trades at about 66% of cash and investments less all liabilities, pays a dividend, has a mixed earnings record
8. 7937:JP Tsutsume Jewelry @ 2140 yen. Money losing but below liquidating value. Management has large ownership stake, lots of cash, has repurchased 12% of shares since 2015. The company previously had a good earnings history
9. 8144:JP Denkyosha Co @ 1445 yen. 36% of book value, which is mostly rental real estate, securities, cash, and a long term bank deposit. The business is profitable and has a reasonable ROIC, stable and established earnings record
10. 8191:JP Hikari Furniture @ 5000 yen. 50% of rental real estate valued at a 7.5% cap rate plus cash, less total liabilities. Profitable and pays a small dividend, but very illiquid. At the current price the company trades at a large discount to the historical cost of the rental real estate
11. 6466:JP Toa Valve Engineering @ 1299 yen. 66% of liquidating value, profitable now, but previously had a good earnings history (@valuewolf)
12. 7501:JP Tiemco @ 591 yen. 52% of liquidating value and about 30% of book value. Poor earnings history, but very statistically cheap (@valuewolf)
13. 9885:JP Charle @ 521 yen. 66% of liquidating value, some small profits. Most of the assets are cash and investments. (@valuewolf)