Wednesday, May 30, 2012

Continuing my travels through Japan..net-net's part four

I have a list of 100 Japanese net-net's, 34 are marked for further review, I've looked at seven so far.  With the three in this post I'm almost 1/3 of the way done, I need to pick up the pace.  Use these posts as a starting point for further research into Japanese stocks.

Part 1, Part 2, Part 3

Cyber Com Ltd (3852:JP)

Cyber Com is a custom software development company.  The specialize in creating software using open source technologies such as Ruby and developing software for networked applications.

Highlights

  • Revenue and profits have recovered slightly after a two year slump (revenue up 2.8%, profit up 16%)
  • Negative enterprise value
  • Net margin appears to be shrinking
  • ROE ex-cash 15%
  • The company expects to hit peak earnings again by 2017 (about 10x this past year's results).



Daiken Co (5900:JP)

Daiken is a manufacturer of metal flashing, car ports, outdoor sheds, and building facades.  The company reminds me of French company I hold Installux (value&opportunity writeup link) so I'm somewhat familiar with the products.  They also make metal kerosene tanks, and decorative metal gates.

Highlights

  • EV/FCF 2.69
  • EV/EBIT 1.59
  • EV/CFO 1.42
  • Large capex in 2009, otherwise free cash flow positive in the past five years
  • Earned ¥67 in 2012 for a P/E of 5.92
  • Selling for less than 2/3 NCAV




Noda Screen (6790:JP)

The company is an electronics manufacturer specializing in printed circuit boards.  Their products can be found in most electronics including cell phones and computers.  The company has two other divisions, one is a chemical division, and the last builds and sells machinery to print integrated circuits.

Highlights

  • Negative enterprise value
  • Doesn't seem to be a strong FCF generator with a few of the past five years with negative FCF
  • 2012 financials aren't out yet so things may have improved over the past year
  • Tokyo exchange traded




Summary

I have a picture of my updated comprehensive Japan net-net spreadsheet shown below.


Out of this batch I really like Daiken for some reason.  They're paying a nice dividend and can be bought for a significant discount to NCAV.  They seem to fit the type of company that's perfect to buy for 2/3 NCAV and sell when the price reaches NCAV for a 50% gain.

Cyber Com has very low margins, but their ROE ex-cash is pretty high.  I would attribute this to the fact that you don't need much in the way of fixed equipment for a software development company.  It's reasonable to think that ROE is a bit overstated in this case.

I don't have much to say about Noda Screen.  They met the criteria to be reviewed further, but nothing about them was really eye catching.  I don't think I would consider them for inclusion into my portfolio.

Disclosure: No positions...yet

2 comments:

  1. Nate,

    Really enjoying your coverage here. I'm curious to know how, if at all, does the deteriorating global macro environment affect your view of these net-nets?

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  2. Cyber Com is a subsidiary of Fujisoft. Cyber Com pretty much has no moat. It sells system integration services, which is a ridiculously overcrowded and low-entry-barrier area in Japan right now (although, it should be stressed that due to the way that Japanese business works, it is very easy for a business like this to retain customers, but the danger is that those customers might reduce spending, which it looks like they have already been doing). The company's sales and earnings look like a downward-pointing ski slope. The only reason why they have stayed in profit is due to aggressive cost management.
    Also, this company has a gigantic unfunded pension liability which dwarfs their current assets.
    Granted, they have been able to grow net assets per share over the last few years, and they are forecasting growing earnings, however, there are much better Japanese companies around, even at affordable prices.

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