TOC has tons of real estate, securities, and net cash. Sankyo Kasei is a DOUBLE net-net that repurchased 33% of outstanding shares this year, and Takase is a dirt cheap logistics co.
TOC is just insane. How can it be possible for a company to trade at an EV of ~¥500 with ¥2100 in real estate, ¥150 in listed investments and an unlisted stake likely worth >¥100, with previous takeout offers 30% above the current price, buying back stock and have an obvious catalyst in change of ownership?
The catalyst isn't super obvious or a given. One member of the founding family died. There are several. Maybe it'll be an impetus to just do something. We'll see.
Yes, but the company's highest earnings in the last 5 years were 5,134 million, which gives a return on equity of about 5%. They therefore achieve modest returns on their assets. I like a stock such as 9776 more based on fundamentals e.g. a EV/EBIT of only 2.4x (I think it was covered by Altay earlier).
I wonder if it's also weighed down by them occupying one of their buildings.
Their historic EBIT of 5b over 184b gives a cap rate of ~2.7%. Current prime Tokyo rate is 3%. So taking account overhead + occupied space doesn't look like valuation is a stretch.
Problem is they're inefficient too. It's a family owned company that's proven that they're not exactly good at managing the biz. The TOC building rennovation for example. It's their main property and enormous. The plan was to redevelop it entirely, they kicked everyone out and closed the building, then decided eh, too much effort, and did some minor rennovations instead and re-opened it. It would take a lot of capital to re-develop it, but there's huge potential. They didn't have to close it to do their minor rennovations.
This gives you insight into how ineffective management is. In the hands of a larger professional landlord or developer, this can do way better.
You come up with some great ideas. I see that you are using Koyfin. I was wondering how sophisticated the stock screener is. I used to use Bloomberg and you could create your own formulas based on fundamentals and then export the results to Excel. Can you do the same in Koyfin?
Thanks very much and I really enjoy your substack.
The screener is quite good, but i doubt as good as BB (never used bb). You can make an account for free and try it. I used free Koyfin for 3 months before switching to paid.
The free screener is as good as the paid one. Paying lets you create custom formulas for when you're looking through screened results. I use custom formulas to have a table for NCAV and another for backing out NCAV+Investments to get an adjusted ev figure.
You can export all this as csv as well. You can try it all for free too.
Thanks very much for your reply. Yes, perhaps it's not quite as good as BB but it doesn't sound far off from what you've said. And it's so much cheaper, obviously.
These are certainly interesting stocks. What bothers me somewhat with most Japanese stocks is that the prices are not at multi-year lows and are not 'bombed out'. Profits are also low (except for Sankyo), which suggests that assets are being used very inefficiently. This could change in the future, but this is just a hope. Japanese companies are making efforts to bring the price to fair value. However, we may also simply see fluctuations without a clear up trend.
Japan also has a very old population, high debt, and very low immigration. With a median age of around 49, Japan has the oldest population in the world (if you don't count Monaco). As far as immigration is concerned, I don't think anyone in Japan really wants to change that, and there won't be more children either. These are poor conditions for growth.
Having said this, I also hold a lot of cheap Japanese stocks. I'm not particularly convinced and only hold them because they are very cheaply valued.
Takase is inconsistent and a tiny player. TOC shut down their biggest asset and lost out on all the rent and is re-leasing the properties, thus profits are down + capex for earthquake resistance. Sankyo one is crazy cheap but core biz kinda sucks, but OP seems to be doing okay. not exactly growing.
You can find plenty of cheap + growing companies in Japan too, but you usually pay up a bit more or are even more illiquid.
You can find plenty of totally ignored/bombed out small caps in Japan if that's what you prefer. But they usually have worse fundamentals.
The demographics are not great, we are in agreement there. But we still have very cheap companies trading at deeply neg EV that are profitable. I agree they shouldn't trade at U.S. multiples given worse demographics.
TOC is just insane. How can it be possible for a company to trade at an EV of ~¥500 with ¥2100 in real estate, ¥150 in listed investments and an unlisted stake likely worth >¥100, with previous takeout offers 30% above the current price, buying back stock and have an obvious catalyst in change of ownership?
It's my biggest position for a reason!
The catalyst isn't super obvious or a given. One member of the founding family died. There are several. Maybe it'll be an impetus to just do something. We'll see.
Yes, but the company's highest earnings in the last 5 years were 5,134 million, which gives a return on equity of about 5%. They therefore achieve modest returns on their assets. I like a stock such as 9776 more based on fundamentals e.g. a EV/EBIT of only 2.4x (I think it was covered by Altay earlier).
Roe is weighed down by net cash and securities portfolio. But yes, net income has not been great.
I wonder if it's also weighed down by them occupying one of their buildings.
Their historic EBIT of 5b over 184b gives a cap rate of ~2.7%. Current prime Tokyo rate is 3%. So taking account overhead + occupied space doesn't look like valuation is a stretch.
Problem is they're inefficient too. It's a family owned company that's proven that they're not exactly good at managing the biz. The TOC building rennovation for example. It's their main property and enormous. The plan was to redevelop it entirely, they kicked everyone out and closed the building, then decided eh, too much effort, and did some minor rennovations instead and re-opened it. It would take a lot of capital to re-develop it, but there's huge potential. They didn't have to close it to do their minor rennovations.
This gives you insight into how ineffective management is. In the hands of a larger professional landlord or developer, this can do way better.
Great work.
You come up with some great ideas. I see that you are using Koyfin. I was wondering how sophisticated the stock screener is. I used to use Bloomberg and you could create your own formulas based on fundamentals and then export the results to Excel. Can you do the same in Koyfin?
Thanks very much and I really enjoy your substack.
The screener is quite good, but i doubt as good as BB (never used bb). You can make an account for free and try it. I used free Koyfin for 3 months before switching to paid.
The free screener is as good as the paid one. Paying lets you create custom formulas for when you're looking through screened results. I use custom formulas to have a table for NCAV and another for backing out NCAV+Investments to get an adjusted ev figure.
You can export all this as csv as well. You can try it all for free too.
Thanks very much for your reply. Yes, perhaps it's not quite as good as BB but it doesn't sound far off from what you've said. And it's so much cheaper, obviously.
These are certainly interesting stocks. What bothers me somewhat with most Japanese stocks is that the prices are not at multi-year lows and are not 'bombed out'. Profits are also low (except for Sankyo), which suggests that assets are being used very inefficiently. This could change in the future, but this is just a hope. Japanese companies are making efforts to bring the price to fair value. However, we may also simply see fluctuations without a clear up trend.
Japan also has a very old population, high debt, and very low immigration. With a median age of around 49, Japan has the oldest population in the world (if you don't count Monaco). As far as immigration is concerned, I don't think anyone in Japan really wants to change that, and there won't be more children either. These are poor conditions for growth.
Having said this, I also hold a lot of cheap Japanese stocks. I'm not particularly convinced and only hold them because they are very cheaply valued.
Takase is inconsistent and a tiny player. TOC shut down their biggest asset and lost out on all the rent and is re-leasing the properties, thus profits are down + capex for earthquake resistance. Sankyo one is crazy cheap but core biz kinda sucks, but OP seems to be doing okay. not exactly growing.
You can find plenty of cheap + growing companies in Japan too, but you usually pay up a bit more or are even more illiquid.
You can find plenty of totally ignored/bombed out small caps in Japan if that's what you prefer. But they usually have worse fundamentals.
The demographics are not great, we are in agreement there. But we still have very cheap companies trading at deeply neg EV that are profitable. I agree they shouldn't trade at U.S. multiples given worse demographics.