Corner of Berkshire & Fairfax Message Board
General Category => General Discussion => Topic started by: mjohn707 on December 03, 2017, 10:37:22 AM
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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 Also prices may be a bit out of date, but I don’t think anything has moved a ton either up or down since I invested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)
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Thanks for the list! Will look into it. Sold some Japanese stocks than ran up last year, could use a few new ones. If I remember correctly you own many more Japanese stocks, right?
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Thanks for the list! Will look into it. Sold some Japanese stocks than ran up last year, could use a few new ones. If I remember correctly you own many more Japanese stocks, right?
I only have a few of my old positions left no, I’ve been selling them as they’ve run up
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Thanks for your work and for posting your list.
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 perennial concerns, I've had a Japanese basket for the past 3+ years. So far, the results are satisfactory or better (>70% total return when counting sells that ran up suddenly). I had no access to 10K type of reports, or any meaningful news reports. Too lazy even to use Google Translate.
As you know, Graham in Security Analysis recommended looking for other qualitative factors to filter out stocks that pass an initial net-net screen. For my Japanese basket, I filtered out those that had declining revenue over the past 10-15 years, declining book value, and rapidly increasing shares outstanding. My predetermined sell price was based on reversion to the mean: sell when net-net, book, PE, or free cash flow value approaches or exceeds what was achieved in the prior 10-15 years.
It was very simple, possibly too simpleminded.
Because of my filter, I'm passing on everything on your list, although I am very tempted.
What were your statistical or other filters you used to make you final selections? How have your selections worked out? If the info is handy, I'm specifically interested to hear how stocks you selected that didn't pass my filters worked out.
Thanks.
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Thanks for your work and for posting your list.
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 perennial concerns, I've had a Japanese basket for the past 3+ years. So far, the results are satisfactory or better (>70% total return when counting sells that ran up suddenly). I had no access to 10K type of reports, or any meaningful news reports. Too lazy even to use Google Translate.
As you know, Graham in Security Analysis recommended looking for other qualitative factors to filter out stocks that pass an initial net-net screen. For my Japanese basket, I filtered out those that had declining revenue over the past 10-15 years, declining book value, and rapidly increasing shares outstanding. My predetermined sell price was based on reversion to the mean: sell when net-net, book, PE, or free cash flow value approaches or exceeds what was achieved in the prior 10-15 years.
It was very simple, possibly too simpleminded.
Because of my filter, I'm passing on everything on your list, although I am very tempted.
What were your statistical or other filters you used to make you final selections? How have your selections worked out? If the info is handy, I'm specifically interested to hear how stocks you selected that didn't pass my filters worked out.
Thanks.
I think I first invested in Japan in 2014 or thereabouts after I read “Investing in Japan”, by Steven Towns (@activeinvesting on Twitter), which I think I saw mentioned on oddballstocks. Most of my results since then have been reasonable, part of that is more than likely due to the new highs the Japanese markets have been making I'm sure.
I reread the common stock portion of the 1940 edition of Security Analysis during the course of my pass through the handbook. Graham is always interesting even when he’s discussing topics that have passed into history a long time ago, but the state of the equity markets in the US in 1940 and the Japanese Markets do seem to have some strange symmetries.
I think it’s difficult to be very clever about statistical investments. I would bet, based on nothing but prejudice and a little experience in investing (and in my primary occupation), that the more filters of that sort you applied to a basket of statistically cheap stocks the worse you’d do on average compared to the full set of unfiltered cheap stocks.
I think part of what we’re looking for with these things is the randomness and the free speculative value, and I think the wider the set the more room we have to let these factors play out as they usually will over time. I feel quite confident about this even though I don’t have any compelling direct evidence that it’s true, so take it for what it’s worth. I don’t think I know what filters will optimize returns and I don’t think that you know it either, although I could be wrong about this.
We all have things that we like to see in investments, but I think that some of it is just prejudice and not rigorous when it comes to these statistical types of investments where we’re working with incomplete information. I tried to eliminate any bias of this type that I might have brought to the situation and so I just purchased things that were cheap based off of assets, earnings, or liquidation value. I believe in a big basket let’s just say.
You can check on some of the other Japanese ideas I wrote up on the Investment Board, just sort it by author and look under my name. I wrote up a few ideas that all seemed to do okay, and I also invested in a bunch of others that were originally mentioned by West and a few different authors
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I think it’s difficult to be very clever about statistical investments. I would bet, based on nothing but prejudice and a little experience in investing (and in my primary occupation), that the more filters of that sort you applied to a basket of statistically cheap stocks the worse you’d do on average compared to the full set of unfiltered cheap stocks.
I think part of what we’re looking for with these things is the randomness and the free speculative value, and I think the wider the set the more room we have to let these factors play out as they usually will over time. I feel quite confident about this even though I don’t have any compelling direct evidence that it’s true, so take it for what it’s worth. I don’t think I know what filters will optimize returns and I don’t think that you know it either, although I could be wrong about this.
We all have things that we like to see in investments, but I think that some of it is just prejudice and not rigorous when it comes to these statistical types of investments where we’re working with incomplete information.
I think you are correct with all of this. Three years ago, I also read Gray and Carlisle's Qualitative Value. Their message based on results of their backtesting corroborates what you're saying. They also show that cherrypicking hurts results.
Against Gray and Carlisle are the limitations of backtesting, such as not being able to account for transaction costs, etc. It is also impractical for most small individual investors to invest in all of the hundreds or thousands of stocks that pass the value screen. I think there are professionally run funds that do this, but I haven't looked too hard into these.
That's why I decided to cherrypick, and to rationalize my bias by citing Graham, who was also probably just going by his gut when he advised to consider (unspecified) qualitative factors. I admit I chose additional filters because it felt more comfortable. Ultimately, it is subjective.
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I think it’s difficult to be very clever about statistical investments. I would bet, based on nothing but prejudice and a little experience in investing (and in my primary occupation), that the more filters of that sort you applied to a basket of statistically cheap stocks the worse you’d do on average compared to the full set of unfiltered cheap stocks.
I think part of what we’re looking for with these things is the randomness and the free speculative value, and I think the wider the set the more room we have to let these factors play out as they usually will over time. I feel quite confident about this even though I don’t have any compelling direct evidence that it’s true, so take it for what it’s worth. I don’t think I know what filters will optimize returns and I don’t think that you know it either, although I could be wrong about this.
We all have things that we like to see in investments, but I think that some of it is just prejudice and not rigorous when it comes to these statistical types of investments where we’re working with incomplete information.
I think you are correct with all of this. Three years ago, I also read Gray and Carlisle's Qualitative Value. Their message based on results of their backtesting corroborates what you're saying. They also show that cherrypicking hurts results.
Against Gray and Carlisle are the limitations of backtesting, such as not being able to account for transaction costs, etc. It is also impractical for most small individual investors to invest in all of the hundreds or thousands of stocks that pass the value screen. I think there are professionally run funds that do this, but I haven't looked too hard into these.
That's why I decided to cherrypick, and to rationalize my bias by citing Graham, who was also probably just going by his gut when he advised to consider (unspecified) qualitative factors. I admit I chose additional filters because it felt more comfortable. Ultimately, it is subjective.
I haven’t read Quantitative Value, but there were also some papers published by Tweedy Brown that had some backtesting information about statistical investing that I took a look at a few years ago. The problem I have with this stuff is I don’t feel like I know enough statistics to understand their conclusions other than the very basic return sort of calculations, so that’s as much of their conclusions that I’m willing to put into actual practice.
I understand we’re basically in agreement then on all of this, all I’ll add is that in Japan I don’t think we’re generating enough statistical values at this market level to justify much cherrypicking. And if I had to cherrypick because of the sheer numbers of investment opportunities, I would do it randomly instead of emphasizing what factors I though would generate a higher returns, assuming pricing was similar. I don’t think we have enough information to do otherwise.
In regards to Graham, from memory I believe that in the liquidating value chapters of Security Analysis he gives examples of companies that are losing money currently, have declining sales, declining book values, and even declining liquidating values. It always struck me how few guidelines he gives considering how detailed orientated he was as demonstrated by the various investment case studies he outlines throughout the book.
I do think Graham is often enigmatic and knows more than he’s telling us, although I believe it’s at least in part because he thinks certain things aren’t scientific enough for what was basically a textbook that was supposed to be universally useful for the profession. In this particular section however, I don’t believe he’s trying to be obscure, I think he suspects that too many qualifications outside of price are not going to help investment returns in investments in securities priced this low. This is only my suspicion however
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You have a large number I've invested in and a few I've never seen. I have a couple not on your list that are still cheap:
FUJIX Ltd 3600
FUNAI ELECTRIC CO.,LTD 6839
Although its been posted on other threads I thought I would remind people that Japan Express provides translated Japanese financials
https://www.kaijinet.com/jpExpress/Default.aspx?f=company&cc=5918
I recently flipped through the entire Autumn 2017 edition of the Japan Company Handbook (which took me about two months for the 1800+ pages)
Not sure how much time you spent on this but I just used a screen. I would guess I spent a lot less time and there is a pretty large overlap in the stocks we have. There were a few things I didn't catch but I strongly suspect that the thorough search you did is not worth the additional effort given the limited added benefit compared to screening. My screen is basically a net net one.
There is one huge benefit of your search...I now realize that I shoud include certain non-current items as part of my net-net screen like rental properties, investment securites and long term time deposits which hit the non-current asset section.
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You have a large number I've invested in and a few I've never seen. I have a couple not on your list:
FUJIX Ltd 3600
FUNAI ELECTRIC CO.,LTD 6839
Although its best posted on other threads I thought I would remind people that Japan Express provides translated Japanese financials
https://www.kaijinet.com/jpExpress/Default.aspx?f=company&cc=5918
Thanks for the tip, will take a look at those two. Yeah I’ve been using Japan Express to translate the balance sheets as well
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You have a large number I've invested in and a few I've never seen. I have a couple not on your list:
FUJIX Ltd 3600
FUNAI ELECTRIC CO.,LTD 6839
Although its best posted on other threads I thought I would remind people that Japan Express provides translated Japanese financials
https://www.kaijinet.com/jpExpress/Default.aspx?f=company&cc=5918
Thanks for the tip, will take a look at those two. Yeah I’ve been using Japan Express to translate the balance sheets as well
I've actually got a few other but wasn't sure whether to include them because they have gotten more expensive like:
Chuokeizai Sha Holdings
Echo Trading
Mansei Corporation
Sanko Sangyo
Sanko Co
Nichiwa Sangyo
But admittedly my research is much less through than even yours is. So Buyer beware.
BTW, anyone know how to obtain xbrl for Japanese companies?
Its here:
https://disclosure.edinet-fsa.go.jp/E01EW/BLMainController.jsp?uji.verb=W1E63012CXW1E6A012DSPSch&uji.bean=ee.bean.parent.EECommonSearchBean&TID=W1E63013&PID=W1E63012&SESSIONKEY=1512362339345&lgKbn=1&pkbn=0&skbn=0&dskb=&dflg=0&iflg=0&row=100&idx=0&cal=2&mul=9476&fls=on&mon=&yer=&pfs=4
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John Henry vs the steam hammer I suppose. You always do find a few of the weird ones manually though
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Just to update this, I sold my shares of 7314:JP Odawara Auto-Machine for 950 yen, about a 50% return in a pretty short period of time. I don't know what's going in in Japan, but the behavior of some of these investments seems way different that what I was used to seeing just a few years ago
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To update, I sold my shares of 6346:JP Kikukawa Enterprise yesterday for 403 yen, about a 40% return on the purchase price
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Hi there. First time posting and thought I’d give this topic a little bump given the amount of cheap stuff that surfaced/got cheaper due to the poor performance of the JP market over the past yr.
Here’s sharing my holdings in hopes to draw out like-minded investors. ;D
2055.T NICHIWA SANGYO CO LTD
3426.T ATOM LIVIN TECH CO LTD
3892.T OKAYAMA PAPER INDUSTRIES CO
4624.T ISAMU PAINT CO LTD
5900.T DAIKEN CO LTD
5951.T DAINICHI CO LTD
5983.T IWABUCHI CORP
6466.T TOA VALVE ENGINEERING INC
6648.T KAWADEN CORP
6943.T NKK SWITCHES CO LTD
6964.T SANKO CO LTD
7399.T NANSIN CO LTD
7521.T MUSASHI CO LTD
7559.T GLOBAL FOOD CREATORS CO LTD
7877.T EIDAI KAKO CO LTD
7902.T SONOCOM CO LTD
8144.T DENKYOSHA CO LTD
9885.T CHARLE CO LTD
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Interesting list. I own 5965.T (Fujimak) and 9142.T ( Railroad/ real estate). The performance and moves of Japanese stock made very little sense to me, but there are a lot of cheap stocks out there. Overall I have done well over the years on contrarian buys of decent to good business.
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Hi there. First time posting and thought I’d give this topic a little bump given the amount of cheap stuff that surfaced/got cheaper due to the poor performance of the JP market over the past yr.
Here’s sharing my holdings in hopes to draw out like-minded investors. ;D
2055.T NICHIWA SANGYO CO LTD
3426.T ATOM LIVIN TECH CO LTD
3892.T OKAYAMA PAPER INDUSTRIES CO
4624.T ISAMU PAINT CO LTD
5900.T DAIKEN CO LTD
5951.T DAINICHI CO LTD
5983.T IWABUCHI CORP
6466.T TOA VALVE ENGINEERING INC
6648.T KAWADEN CORP
6943.T NKK SWITCHES CO LTD
6964.T SANKO CO LTD
7399.T NANSIN CO LTD
7521.T MUSASHI CO LTD
7559.T GLOBAL FOOD CREATORS CO LTD
7877.T EIDAI KAKO CO LTD
7902.T SONOCOM CO LTD
8144.T DENKYOSHA CO LTD
9885.T CHARLE CO LTD
Interesting list, appreciate the work. It's funny that a lot of these names were discussed on the board a few years ago, I bet a lot of them had a nice run up and then sold off again. The Japanese market is completely mysterious to me
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To update, 6930:JP Nippon Antenna is up 58% @ 1050 yen from the original 665 yen, and I don't think it would be crazy to reduce or sell at this price. There have been some good signs with this name being that they completed a tender for a decent amount of shares and have had some operating improvements, and current prices are only just around net working capital and maybe 60% of TBV, but probably worth taking some money off the table at the very least
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Grats! Just to update, added 2 new ones over the past month.
6496.T NAKAKITA SEISAKUSHO
7628.T OHASHI TECHNICA
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It looks like 8191:JP Hikari Furniture is going private at 6710 yen per share, which is about a 34% return on the purchase price in a bit over a year, at least if I'm reading the filing in translation correctly
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It looks like 8191:JP Hikari Furniture is going private at 6710 yen per share, which is about a 34% return on the purchase price in a bit over a year, at least if I'm reading the filing in translation correctly
Looks like it was delisted a couple of months ago already?
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It looks like 8191:JP Hikari Furniture is going private at 6710 yen per share, which is about a 34% return on the purchase price in a bit over a year, at least if I'm reading the filing in translation correctly
Looks like it was delisted a couple of months ago already?
Yeah, this was a little while ago, just took some time to try to figure out exactly what happened. It’s easy to miss or ignore press releases when they’re just in Japanese, but I think it’s important to at least try to understand them
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Joban Kaihatsu (1782) is a construction contractor based in Iwaki, Japan. Pays a decent dividend, is currently generating solid operating profits, trades at a ~23% discount to NCAV, and, once you factor the investment securities it owns, trades ~39% below enterprise value.
Hat tip to "Blue Tower Asset Management" for this idea.
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Are you guys buying just net - net or do you also look into traditional low PE/ “decent business at very low” price stocks as well. Most of the stocks I am looking at have a low valuation, but arn’t net nets.
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I think in Japan you should try to have both, at least that is my strategy. But something that is not just a net-net, but also has a low P/E at the same time. But if you buy something that is nicely growing at has a low P/E ratio, why not? As long as it's very cheap :)
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Are you guys buying just net - net or do you also look into traditional low PE/ “decent business at very low” price stocks as well. Most of the stocks I am looking at have a low valuation, but arn’t net nets.
I've mostly stuck to net-nets and businesses trading at extreme discounts to book value. My problem with buying better businesses at low P/E's or free cash flow multiples is mainly the language barrier. It's very difficult to get a good picture about a micro-cap Japanese company by trying to make sense of a Japanese annual report through Google Translate or something. If you're wrong about growth, or that low P/E, your downside can be quite large. I have some profitable, dividend paying companies in my portfolio that are trading at 30%-40% of book value. I'm hesitant to buy something that's trading at say, 7x earnings and 80% of book, because I think in Japan it can easily sell off to 40% of BV if earnings disappoint. Companies can get a lot cheaper than they would typically get in the US or Europe if investors become pessimistic about its prospects.
There's some limit that these deep value stocks almost never sink through. I don't think I've ever seen a consistently profitable, dividend paying Japanese company selling below 25% of tangible book value (if you've got any, please post them below!). So I feel relatively safe buying these at 30-40% of BV and doing little analysis due to the language barrier. That doesn't mean that I'll do well of course, but I think I'm unlikely to lose.
I've also tried to coattail some activist investors. I don't think any of those positions have worked out well. There's a decent book (bit too long and boring in some spots) about activism in Japan called "Hedge Fund Activism in Japan: The Limits Of Shareholder Primacy": https://www.amazon.com/Hedge-Fund-Activism-Japan-Shareholder/dp/1107672503/. I don't think coattailing foreign activists is a good idea today either. As an example: I think one company I owned (SNT Corp. - 6319.JP) did a share offering in August, 2018 to dilute their large, activist shareholder. Perhaps I misunderstood the transaction and there is another explanation. For those who want to take a look, press releases can be found on the Japanese version of their website: http://snt.co.jp/jpn/, but not on the English version. Apparently they sold ~835k shares to "improve distribution and liquidity of their stock" (Google translate). I believe there was a "purchase limit" of 400 shares per customer. The company was already swimming in cash, of course. So I don't think much has changed in terms of the treatment of activists.
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I have mostly purchased stocks in semi attractive business with growing top and bottom lines, selling at single digit PE’s and paying at least an increasing dividend.
I have avoided these money losing or barely break even companies or those that are supplier slaves to keiretsus. So no iron bridge construction, textile or refrigerator companies for me. The movements in the Japanese stock markets are a total mystery to me, but from time to time, companies ai know get really cheap, even though the business isn’t changing much. so, I buy what looks cheap, with a good balance sheet (net cash) and paying increasing dividends over time and just ride them - hopefully up.
It works more often than it does not and is often not correlated to other stock arrests either, although then Japanese markets sell of, they really do!
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In my opinion and in my experience, you can make money buying names that are net-nets or names that are trading at low PEs. We may all have our preferences on what sort of names we might like or feel better with, but I'm not sure it actually makes a difference as far as results, and I think a lot of this might just be a translation error from our experience in the US markets that might not apply here.
In reference to the supplier slaves, I've made money in those. I've also made money in construction names, textile names, and refrigerator companies. 6411 Nakano Refrigerators was written up on this board at some point and I think people did fine with that name, it was probably more than a double if you held on. I made a decent return on a Toyota Group automotive supplier, I think they made rear-view mirrors or something, but it worked out. And you can find construction names occasionally that trade for a percentage of cash and investments less all liabilities. I had a few of those and they worked out as well. I owned a textile name that was very cheap on a NCAV basis and I think it was taken out in a MBO. Wasn’t for a huge premium or anything, but it was a decent amount more than I paid.
Cheap is what seems to work in Japan. Maybe other things work too, but cheap is easy. I'd say find net-nets that are among the cheapest in the markets, especially when they're trading at or near historical valuation lows. Find low PE names where the earnings have been stable or increasing for a while, but the PE is lower than it has been historically. Or even try cyclical names where there was a good earnings history at some point but the current earnings are weak. If you can find those cheap on a TBV basis and compared to their historical earnings, they seem to work out as well. There are a lot of cyclical industrial names in Japan, and it seems like they get beat up when their earnings decline, and they go back up when their earnings recover. I've played a couple of those and made money. You can find names that are sort of a blend between these categories as well. Sometimes it's a net-net and an earnings recovery play at the same time, that sort of thing.
All of these strategies seem to work given a little time, and I don’t think it pays to be dogmatic here with any of this.
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This name has already been mentioned by mjohn707, rukawa, and Janeo, but I figured I would throw my two cents in.
Sanko Co (6964) (per Bloomberg) "manufactures, assembles, and markets metal molding, press, and mechatronics products. The Company also makes electronic power tools, precision parts for automobiles, air-conditioning units, and plastic moldings." Sanko is based in Shiojiri , Japan. If you've never heard of Shiojiri, that's probably because it's population is well under 100K. With all due respect to the residents of Shiojiri, this is a boring business based in a boring place.
@ 449 a share Sanko trades at a ~57% discount to $0 enterprise value. If you add the long-term investment securities it owns to current assets, it trades ~55% below NCAV. Company has been solidly profitable over the last several years. However, as mjohn707 mentioned earlier in this thread, results in fiscal years 2015 and 2016 were around break even. Finally, this is a very small company, the market cap is the equivalent of just over $36 million USD.
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These guys have an interesting stratagy( http://sureinvesting.libsyn.com/private-equity-investing-in-the-public-markets-with-dan-rasmussen-and-nick-schmitz ): Basically cheap on an ev basis with most of the ev being debt. They say there strategy works best in Japan for a variety of reasons: not only is japan cheap, but it's also basically impossible to go bankrupt, and paying back debt fixes the corporate governance risk in Japan.
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Hey guys, I stumbled upon the online version of the Japan Company Handbook recently. It seems to be a monthly subscription service. Just wondering has anyone tried it before?
https://shikiho.jp/stocks/6964/#news_shikiho
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These guys have an interesting stratagy( http://sureinvesting.libsyn.com/private-equity-investing-in-the-public-markets-with-dan-rasmussen-and-nick-schmitz ): Basically cheap on an ev basis with most of the ev being debt. They say there strategy works best in Japan for a variety of reasons: not only is japan cheap, but it's also basically impossible to go bankrupt, and paying back debt fixes the corporate governance risk in Japan.
That actually sounds quite sensible.
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They say there strategy works best in Japan for a variety of reasons: not only is japan cheap, but it's also basically impossible to go bankrupt,
7238.T ( Akebono Breaks) will Test that hypothesis. Terrible looking balance sheet and ominous language in their last quarterly report about going concern. This is an interesting case, because Akebono is actually a decent brand name in its space.
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They say there strategy works best in Japan for a variety of reasons: not only is japan cheap, but it's also basically impossible to go bankrupt,
7238.T ( Akebono Breaks) will Test that hypothesis. Terrible looking balance sheet and ominous language in their last quarterly report about going concern. This is an interesting case, because Akebono is actually a decent brand name in its space.
One company went bankrupt on the Nikki last year (at least according to them). I wonder if it will be Akebono will be that one this year (I havent looked at the company).
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Hi there. First time posting and thought I’d give this topic a little bump given the amount of cheap stuff that surfaced/got cheaper due to the poor performance of the JP market over the past yr.
Here’s sharing my holdings in hopes to draw out like-minded investors. ;D
2055.T NICHIWA SANGYO CO LTD
3426.T ATOM LIVIN TECH CO LTD
3892.T OKAYAMA PAPER INDUSTRIES CO
4624.T ISAMU PAINT CO LTD
5900.T DAIKEN CO LTD
5951.T DAINICHI CO LTD
5983.T IWABUCHI CORP
6466.T TOA VALVE ENGINEERING INC
6648.T KAWADEN CORP
6943.T NKK SWITCHES CO LTD
6964.T SANKO CO LTD
7399.T NANSIN CO LTD
7521.T MUSASHI CO LTD
7559.T GLOBAL FOOD CREATORS CO LTD
7877.T EIDAI KAKO CO LTD
7902.T SONOCOM CO LTD
8144.T DENKYOSHA CO LTD
9885.T CHARLE CO LTD
I finally made it to the end of this list, and I think there are a lot of good names here. Besides the ones I already owned, I might have only passed on one or two at current prices. Worth taking a look if you're looking for names
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Almetax Manufacturing 5928 is also an interesting one.
It's a Japan-based company principally engaged in the manufacture and sale of building materials centering on special customers in housing related markets. >30% s/o is owned by a major customer.
It's a low ROIC and margin biz but now trading at NCAV and under 40% pb. A decent chunk of non current assets consists of land and investment securities, with each category making up ~40% of current mcap. It pays a ~4% div as well so you're getting paid while you wait. Couldn't help myself and bought some recently ;D
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Below are two articles that I think are germane to this topic. As the founder of Varecs Partners, a Tokyo-based fund that specializes in small Japanese companies, Jiro Yasu has a good understanding of the types of companies mentioned in this thread.
http://www.varecs.com/en/2015/necessity-is-the-mother-of-invention/ (http://www.varecs.com/en/2015/necessity-is-the-mother-of-invention/)
http://www.varecs.com/en/2017/necessity-is-the-mother-of-invention-vol-2/ (http://www.varecs.com/en/2017/necessity-is-the-mother-of-invention-vol-2/)
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Below are two articles that I think are germane to this topic. As the founder of Varecs Partners, a Tokyo-based fund that specializes in small Japanese companies, Jiro Yasu has a good understanding of the types of companies mentioned in this thread.
http://www.varecs.com/en/2015/necessity-is-the-mother-of-invention/ (http://www.varecs.com/en/2015/necessity-is-the-mother-of-invention/)
http://www.varecs.com/en/2017/necessity-is-the-mother-of-invention-vol-2/ (http://www.varecs.com/en/2017/necessity-is-the-mother-of-invention-vol-2/)
The guy nails it. These articles should be required reading for anyone interested in the Japanese stock market.
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Below are two articles that I think are germane to this topic. As the founder of Varecs Partners, a Tokyo-based fund that specializes in small Japanese companies, Jiro Yasu has a good understanding of the types of companies mentioned in this thread.
http://www.varecs.com/en/2015/necessity-is-the-mother-of-invention/ (http://www.varecs.com/en/2015/necessity-is-the-mother-of-invention/)
http://www.varecs.com/en/2017/necessity-is-the-mother-of-invention-vol-2/ (http://www.varecs.com/en/2017/necessity-is-the-mother-of-invention-vol-2/)
Interesting articles. Every time I think I know something about the Japanese market I run into something like this that surprises me
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Note that Japanese markets are going to be closed until May 7th.
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Joban Kaihatsu (1782) update based in 3/31/19 financials. All #s are Japanese Yen.
Stock Price: 5020
Per Share Dividend: 270
Market Cap: 3.936B
NCAV: 4.651B
Long Term Investment Securities: 1.364B
TTM Operating Profit: $1.706B
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^ Seems splendid cheap. While not as cheap, I have been buying a bit of Nitto Denko 6988.T, which is an international Japanese chemical/material company (the Japanese 3M). they produce tapes made for semi/wafer processing and protection ,as well as materials used for displays, semi manufacturing etc. Higher margin stuff. ~30% of the market cap in cash.
Earnings are down somewhat as their end markets have weakened. I think they have decent LT prospects and pay a rising (now ~4% dividend). They also have an US ADR.
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A few sites I found helpful.
Good PDF translator. Website is confusing but does a decent job translating larger PDF's
https://www.onlinedoctranslator.com/translationform
Japanese Financials site
https://www.kaijinet.com/jpexpress/Default.aspx
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Interesting thread. Not sure if I already mentioned this, but I punted and decided to outsource to IVAL.
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For those who have access, there was recently a short article in the WSJ about Japanese banking stocks that I thought was interesting:
https://www.wsj.com/articles/japans-tantalizing-bank-dividends-mask-a-world-of-trouble-11558439046
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Finally was able to get my grimy hands on a tiny position in Isamu Paint last night. Only took 5 weeks for the order to fill.
I don't know if this has been mentioned in this thread yet, but (IMO) one of the reasons why many of these tiny "J-nets" are so cheap is that they are horribly illiquid, partially due to trading in only 100 share blocks.
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Here's an interesting blog post from "Undervalued Japan" on a microcap Japanese company with a management team that hasn't hesitated to damage shareholder value in order to maintain control and independence.
http://undervaluedjapan.blogspot.com/2019/08/j-net-kawasumi-laboratories.html (http://undervaluedjapan.blogspot.com/2019/08/j-net-kawasumi-laboratories.html)
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I suppose it's a matter of personal preference, but I can't imagine working for a company that dominated nearly every aspect of my life. Apparently in Japan such is the norm for big companies.
https://www.kalzumeus.com/2014/11/07/doing-business-in-japan/ (https://www.kalzumeus.com/2014/11/07/doing-business-in-japan/)
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I suppose it's a matter of personal preference, but I can't imagine working for a company that dominated nearly every aspect of my life. Apparently in Japan such is the norm for big companies.
https://www.kalzumeus.com/2014/11/07/doing-business-in-japan/ (https://www.kalzumeus.com/2014/11/07/doing-business-in-japan/)
Interesting article for sure. I’ve heard the term salary man before, but I never really understood the full context of it all
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I forget when I first saw that article but it was a good one for sure. Quite accurate too, from what I know. I think it also nicely highlights a lot of structural issues that are holding their economy back. My contacts tell me that things have started changing a lot over the last ~5 years though (e.g., some of their best engineering talent is now avoiding the salaryman-at-a-megacorp career route and going straight down the startup/entrepreneurship path after graduation, which was previously almost unheard of).
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From what I heard from friends, xenophobia even in engineering is still pretty high. My married-to-Japanese fluent-in-Japanese friend got interviews in some Japanese cos, but there were interviewers who were visibly uncomfortable with the foreign white man...
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Cool article, thanks for posting gaijin.
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Finally was able to get my grimy hands on a tiny position in Isamu Paint last night. Only took 5 weeks for the order to fill.
I don't know if this has been mentioned in this thread yet, but (IMO) one of the reasons why many of these tiny "J-nets" are so cheap is that they are horribly illiquid, partially due to trading in only 100 share blocks.
Bought a few hundred shares of 4624.T too. Looks like you can only get a fill when the mood in the market is a bit shoddy. I also gave back all my gains in 9142.T (GARP railroad stock) after they published a 5 year roadmap plan with more Capex even taking up debt. There was also an activist investor in it to no avail. I guess just scraping the bottom of the barrel avoids much downside. Lately, the Japanese stock market has been a bust for me. Isamu Paint (4624.T) is the only position I’m am holding right now.
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Finally was able to get my grimy hands on a tiny position in Isamu Paint last night. Only took 5 weeks for the order to fill.
I don't know if this has been mentioned in this thread yet, but (IMO) one of the reasons why many of these tiny "J-nets" are so cheap is that they are horribly illiquid, partially due to trading in only 100 share blocks.
Bought a few hundred shares of 4624.T too. Looks like you can only get a fill when the mood in the market is a bit shoddy. I also gave back all my gains in 9142.T (GARP railroad stock) after they published a 5 year roadmap plan with more Capex even taking up debt. There was also an activist investor in it to no avail. I guess just scraping the bottom of the barrel avoids much downside. Lately, the Japanese stock market has been a bust for me. Isamu Paint (4624.T) is the only position I’m am holding right now.
I’m far from an expert here, but when you get a nice pop in one of these names, decent enough that it changes the calculus of your risk and reward, don’t be afraid to sell part of your position or even all of it, especially if you’re in a dead money situation or even if the value accretion is low. These things aren’t compounders or whatever we’re calling them now, and unless there’s been some sort of sea change or you’re in a name that’s actually increasing in value, it doesn’t usually pay to hold out for the last 20%.
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We're in good company (https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos). Michael Burry:
“It is not hard in Japan to find simple extreme undervaluation -- low earnings multiple, or low free cash flow multiple. In many cases, the company might have significant cash or stock holdings that make up a lot of the stock price.”
“There is a lot of value in the small-cap space within technology and technology components. I’m a big believer in the continued growth of remote and virtual technologies. The global retracement in semiconductor, display, and related industries has hurt the shares of related smaller Japanese companies tremendously. I expect companies like Tazmo and Nippon Pillar Packing, another holding of mine, to rebound with a high beta to the sector as the inventory of tech components is finished off and growth resumes.”
Especially Nippon Pillar Packing looks like it could easily fit into a Japanese value basket. 0.6x book, dividend, decent ROE, boring business and a big pile of excess cash.
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We're in good company (https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos). Michael Burry:
“It is not hard in Japan to find simple extreme undervaluation -- low earnings multiple, or low free cash flow multiple. In many cases, the company might have significant cash or stock holdings that make up a lot of the stock price.”
“There is a lot of value in the small-cap space within technology and technology components. I’m a big believer in the continued growth of remote and virtual technologies. The global retracement in semiconductor, display, and related industries has hurt the shares of related smaller Japanese companies tremendously. I expect companies like Tazmo and Nippon Pillar Packing, another holding of mine, to rebound with a high beta to the sector as the inventory of tech components is finished off and growth resumes.”
Especially Nippon Pillar Packing looks like it could easily fit into a Japanese value basket. 0.6x book, dividend, decent ROE, boring business and a big pile of excess cash.
Although cheap, Pillar Nipples looks like it is significantly exposed to the vagaries of the semiconductor cycle (Q1 FY 2020 earnings way down from Q1 FY 2019). I suppose it would be a good bet if one was bullish on semiconductors.
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Yeah, Q1 looks bad. On the other hand, their track record the past 10 years looks reasonably stable. Semiconductor / LCD makes up ~55% of their total sales. They even have some decent (English) investor presentations on their website: link (https://www.pillar.co.jp/admin/pdf/117_en.pdf).
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Yeah, Q1 looks bad. On the other hand, their track record the past 10 years looks reasonably stable. Semiconductor / LCD makes up ~55% of their total sales. They even have some decent (English) investor presentations on their website: link (https://www.pillar.co.jp/admin/pdf/117_en.pdf).
The semi downturn may last a while. on the business, I agree, it looks like quite high margin. And. decent ROE. I put this on my watchlist.
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Bloomberg published a follow-up article in which Burry discloses all his Japanese holdings: https://www.bloomberg.com/news/articles/2019-09-05/burry-s-picks-of-undervalued-japanese-companies-rise-in-tokyo
His holdings are:
- Tazmo Co. (6266)
- Yotai Refractories (5357)
- Sansei Technologies (6357)
- Tosei Corp. (8923)
- Kanamoto (9678)
- Altech Corp. (4641)
- Nippon Pillar Packing (6490)
- Murakami Corp. (7292)
All these stocks are up nicely after he disclosed his stakes, which might be a reason why he decided to talk to the press about his Japanese holdings. A known Burry holding might hold up better in a big downturn as well.
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Bloomberg published a follow-up article in which Burry discloses all his Japanese holdings: https://www.bloomberg.com/news/articles/2019-09-05/burry-s-picks-of-undervalued-japanese-companies-rise-in-tokyo
His holdings are:
- Tazmo Co. (6266)
- Yotai Refractories (5357)
- Sansei Technologies (6357)
- Tosei Corp. (8923)
- Kanamoto (9678)
- Altech Corp. (4641)
- Nippon Pillar Packing (6490)
- Murakami Corp. (7292)
All these stocks are up nicely after he disclosed his stakes, which might be a reason why he decided to talk to the press about his Japanese holdings. A known Burry holding might hold up better in a big downturn as well.
I built a Murakami model in March, but passed on buying it as I didn't think it was quite cheap enough relative to some of the other J-net opportunities out there.
Also, I prefer names with tiny tit market caps and Murakami, while definitely small, is much larger than some of the other J-nets out there. Burry is managing almost $350 million dollars, so his opportunity set is somewhat constrained, particularly since he's a traditional stock picker and not running some quant strategy where he owns tiny pieces of 100 different Japanese companies.
Murakami (7292) ~$280 million USD equivalent market cap
1782 - $37M
2055 - $45M
4624 - $57.4M
6964 - $34.7M
9885 - $60M
Any thoughts?
*** Edited to make it clear I'm soliciting feedback and not just pontificating
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I own some of those. Since I started investing in Japan I've hardly ever lost money but many times I haven't made much either. The currency moved against me a little but the main problem is that these companies simply aren't run for the shareholders. A lot of times even if the business is decent they'll sit on cash for years on end earning like 4% on equity. Their business culture is very different. I forgot where I read it but someone was describing how they bought out a sake brewer. The guy's family had been doing it for like 500 years or something crazy and then he sold out. Apparently that was a very unorthodox decision and he was going to be seen as a failure for abandoning the family business. Price paid, returns on other prospective investments, etc. didn't figure into it. It kind of reminds me of how people view farm land where i grew up.
One thing I think might be smart, if you think there's a decent chance there's some sort of mass awakening of all these zombie companies, is to look for the ones that hold a lot of securities. That way you'd get a double re-rate. But to me it's a big if if this even happens. It would be interesting to hear from people who are over there what the feeling is.
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I own some of those. Since I started investing in Japan I've hardly ever lost money but many times I haven't made much either. The currency moved against me a little but the main problem is that these companies simply aren't run for the shareholders. A lot of times even if the business is decent they'll sit on cash for years on end earning like 4% on equity. Their business culture is very different. I forgot where I read it but someone was describing how they bought out a sake brewer. The guy's family had been doing it for like 500 years or something crazy and then he sold out. Apparently that was a very unorthodox decision and he was going to be seen as a failure for abandoning the family business. Price paid, returns on other prospective investments, etc. didn't figure into it. It kind of reminds me of how people view farm land where i grew up.
One thing I think might be smart, if you think there's a decent chance there's some sort of mass awakening of all these zombie companies, is to look for the ones that hold a lot of securities. That way you'd get a double re-rate. But to me it's a big if if this even happens. It would be interesting to hear from people who are over there what the feeling is.
The sake anecdote is from an article I linked to back in April.
Yeah, I would probably characterize the attitude of the average Japanese management team towards outside shareholders as benign neglect. They aren't actively hostile like Sardar Biglari, Chinese reverse mergers, or some of the Ukrainian companies listed in Poland. It's just that they have other priorities (no layoffs, fortress balance sheet, maintaining the firm's independence, saving face) that are more important to them than maximizing shareholder value.
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It is sort of like Teldar Paper before Gordon Gekko.
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A cool blog post about a peculiarity of the Japanese stock market:
http://undervaluedjapan.blogspot.com/2019/09/getting-by-on-yuutai.html
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A cool blog post about a peculiarity of the Japanese stock market:
http://undervaluedjapan.blogspot.com/2019/09/getting-by-on-yuutai.html
Great, yet another example of Japanese management teams entrenching themselves in order to maintain the status quo.
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I recently read a few books about Japan that helps me understand Japanese company and business in general.
Japan's New Middle Class and Japan as Number One both written by Harvard east Asia scholar Ezra Vogel. Although both books are initially published decades ago, I think a lot still apply in today's Japanese business.
How to Ignite the Low Desire Society by Kenichi Ohmae which talked about challenges faced by Japanese society today.