Author Topic: 7893 JP - Pronexus Inc  (Read 6817 times)

MrB

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Re: 7893 JP - Pronexus Inc
« Reply #10 on: March 18, 2011, 12:30:58 PM »
This is an asset light business returning 30% if you adjust for the cash and investments. In light of that the average Capex/Rev for 2000-2008 of 1.5% makes sense. The high for that period was of 3.1% (2001) and this translates into capex between 300m and 600m.
If company land was not expropriated it would likely have been years before a new factory was built. You can argue that they were subsidized to upgrade the factory. However, it was not necessary from an operational point.  The current 680m of depreciation charge is also a good indicator and comes to 3.4% of revenue . Another point of reference is Takara, the main and really only competitor. Takara did not have to build a new factory and averaged capex/rev of 2% over the last decade. The businesses are virtually carbon copies, so I do think it makes for a good comparison.
Considering the nature of the business I would include expenditure on intangibles (software) too, which bumps up the "capex"/rev over the last decade to 3.8% and 3.3% for Pronexus and Takara, respectively. This once again supports the notion that 680m of depreciation for 2010 is a good indicator of "capex".

In terms of the real estate I doubt that there is any significant hidden value due to the expropriation, which means most of it passed through the IS recently and sits on the balance sheet at close to market value.
Even if there is hidden value then I will not count on seeing any of that value anytime soon. It is hard enough for shareholders to pocket the cash & investment value in this business.


dolce2think

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Re: 7893 JP - Pronexus Inc
« Reply #11 on: March 19, 2011, 04:15:54 AM »
Bao,

Faber is great, he has a 1000 foot macro view - globally.
I have bought on Tuesday more shares. I think this here is a buying opportunity,
and the monetization scenario will play out sooner, due to the reconstruction money needed.
Please read the VIC report on the payer swaps (type in "japan" in the search box).

Japans government sector is much smaller relative to GDP vs Europes, but since
the economy (GDP, tax incomes, nominal prices) is on the downslope, I don't think
that they can raise taxes, this would kill the economy and lead to lower
taxes later on. So if the interest rate spend is 30% of total spending at a 1.5% rate,
well at 4.5% it is close to 100%, this is default. They could only amass this debt because
the population bought all the bonds internally - global investors would demand a higher
rate. So as the deficit is coming on top of this - I see no way of not defaulting somehow
in the next 5 years or so.

What could they do? Default - cut all bonds by 50%. Shock and awe. Unlikely.
Raise the pension age - already the highest, could be. Force bond buying.

OR - and now most likely since the desaster "finished all debates" and gave
the government every extra power to do what could not be done otherwise -
think of 9/11 and President Bush. Monetization of debt, means simply, that
all of the "funding gap" will be directly funded by the central bank at 1.5% interest.
Then a lot of people will at some point sell their bonds - to the central bank at
the fixed price - and put the money elsewhere. (this might happen
in the US at some point as Gonzalo Lira describes). Since there will be a huge
reconstruction program, the money will get spent by government order,
creating inflation - maybe not visible at the beginning.
Also then, the Yen will fall, creating rising profits from exports (like Germany
is having a killing due to the weak Euro vs the Deutsche Mark would have been).
This creates rising profits and taxes.
People will shift their money overseas and into stocks as they always do -
just look at 2003 - 2006. So yes, you should hedge the Yen.
I guess the "nice part" of this reflation will be short, followed by massive
dumping of the bonds into the central banks hands. What happens then is
hard to know (political decisions), but I would guess, they will let the interest
rate rise at a rate slower than inflation is, so to get rid of the debt and never
default technically (rising government income, faster than rising debt service).

The money will find its way into the real estate, of course, but "normally" later on,
as inflation picks up and loans are cheap. The banks (local) are very levered to the
real estate.
The local companies - are mostly not internationally owned - sell around book value,
with generally little debt and lots of cash (depending on the sector). This is after
the long bear market (kontratieff winter) typical.

I own: JP 1615 (banking sector etf)
JP 8622, 8614, 8625 brokerage shares, selling for around 0,33x tangible book,
mostly cash. Only Toyo (8614) has english annual reports. simple and short.
They were loosing money, but turned positive in q4. Peak earnings from 2006
were around 50% of current share prices. You can do the math what happens
when the business picks up.
Share count is lower now, due to buybacks.
More international are: Daiwa, Mizuho, Nomura. Selling below book, but lots of different
stuff on the balance sheet.

I see the cash rich balance sheets as a cushion - as is now evident.
Companies in Japan generally never liquidate, they bleed cash and wait
for the cycle to turn, so they can stay in business.
All that cash cushions you now, later it will find its way into stocks, etc.
The stocks will - in my view - only rise, when the earnings come in, as
was in 2006. Until then they can hold through.

Financials will do well since they are most levered to inflation - rising assets.
THis is the reverse of what happened in 2008 in the US.
Just imagine 30% higher assets and run the numbers in a banks balance sheet.
THe insurers would suffer, however, in rising inflation.

I think the broker shares are exceptional bargains here, once in a decade or so,
they could easily go up 5 to 10 times. And they tend to raise dividends and
buyback stock when they make dough, this will be a catalyst of its own.

dolce

MrB

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Re: 7893 JP - Pronexus Inc
« Reply #12 on: March 19, 2011, 04:36:01 AM »
"Also then, the Yen will fall"
Against what?

dolce2think

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Re: 7893 JP - Pronexus Inc
« Reply #13 on: March 28, 2011, 03:25:07 AM »
Mr B,

the Yen will certainly fall against hard assets, but I think your question
relates more to whether it will fall against other currencies, especially the USD.
I would suspect, that the Yen will fall towards 100 to 120 Yen per Dollar over
the next 3 years - baring a USD meltdown.

The banking and brokerhouse shares are levered to this reflation wave and will
rise much more than the Yen should fall. If you were to play safe you could hedge
50% to your home currency.

I am also long the Nikkei futures, holding the margin (without leverage) in my base currency.

It is interesting to see that McIlvaine bought into Monex (JP:8698), as it is selling
below book value and profitable, due to its low cost structure. The other more
traditional brokers are much cheaper - because they have not been profitable.
But once the masses come back into the market, I think they will "demand"
"consulting" - i.e. investment tips - as they always have.

dolce