Furubayashi Shiko (TYO 3944) - A Deep Value Packaging Nanocap Trading at 9x P/E, 0.27x Book, and Well Below NCAV+Investments

Consistently Profitable but mediocre packaging business backed by under-marked land and a big securities portfolio, offset by an overpaid family chairman. Tiny ($16.4m mcap) and illiquid, but cheap

Source: Company website. All the images on their website are very old!

Furubayashi Shiko (TYO 3944)

• Share Price: ¥2,283

• Market cap: ¥2.5 billion ($16.4m USD)

• NCAV+Investment Securities: ¥4.2 billion (¥3,820/share)

• P/B: 0.27x (¥8,680/share)

• P/E (FY25 Forecast): 9.14 (¥251.78 EPS)

• Dividend: ¥50 (2.2%)

• Position Size: ½ Basket

Furubayashi Shiko is a Japanese packaging manufacturer founded in 1934 that produces printed paper cartons and plastic packaging for everyday consumer products such as confectionery, food, and household and personal care items. Its major customers are blue-chip names like Kao, Meiji, and Ezaki Glico. It’s a classic cheap Japanese nanocap, right down to a corporate website that looks like it was last redesigned in 1997:

Source: Company homepage (Screenshot is translated via Google Chrome)

The company happens to make the packaging for my favorite Japanese chocolate:

You can see the company’s products here

The Good:

Dirt cheap: Furubayashi Shiko is stupid cheap net-net with sub 10 P/E. There’s over 50% upside just to get to NCAV+Investment securities. While the operating business is unglamorous, it’s consistently profitable. They’ve been net income profitable for 20 of the last 21 years with a negligible net loss of ¥5.7 million in 2012. Operating income-wise, they’ve only reported a single small loss in 1999 over the last 30 years. The company forecasts it will earn ¥251.78 per share for the FY ending December 31, 2025, which puts P/E at 9x this year’s earnings.

Currently all profits are generated in Japan, but there’s real upside if the Chinese business improves, which currently operates around break-even after being nicely profitable last year.

Source: Koyfin

Undervalued land: While the company’s factories and offices are required to run the business, they’re worth substantially more than their carrying values. The land for their main factory in Totsuka Ward, Yokohama City is likely worth 10x its carrying value. It’s carried at ¥0.23bn vs my fair market value guess of ¥2.4bn (ChatGPT estimate based on government data and a nearby REIT transaction). The head office’s land in Chuo Ward, Osaka City is carried at ¥0.27bn, but is likely worth at least ¥0.82bn. The company announced on November 19 that they are relocating their head office to the 9th floor of a modern building in the same ward/city (leased). Perhaps they will sell or lease their old building? Operating expenses will likely increase as office space in this area costs roughly ~¥30-¥40m a year (estimate).

There are other real estate assets too, but these are the most valuable.

Historical share repurchases: While Furubayashi Shiko hasn’t repurchased any meaningful amount of shares in over a decade, the company has bought back a ton of stock in the past. Shares outstanding fell from 1,772,820 in May 2008 to 1,082,395 in December 2015, a 39% decrease. Shares outstanding today sit at 1,109,484, almost flat since 2015.

The Bad:

Overpaid executive: Takahiro Furubayashi, the company’s 83 year old chairman, was paid ¥172.9 million last year and is routinely compensated well over ¥100 million per year. While this may seem quaint by American standards, it is downright egregious by Japanese norms.

To put this figure into context, the 83 year old family patriarch earns more than the median CEO of a Nikkei 225/Topix100 company (which earns ¥141m). This is despite being a nanocap!

Looking at this another way, Takahiro Furubayashi’s compensation is a whopping 42% of this year’s expected operating profit and 6.7% of the company’s market cap. Despite this, the company remains consistently profitable.

Takahiro Furubayashi only owns 7% of outstanding shares while other members of the Furubayashi family (among the top 10 shareholders) own another 11%. The largest shareholder seems to be an unaffiliated private medical device leasing company based out of Osaka which owns 8% of outstanding shares. They’ve slowly been increasing their position over the last year with tiny open market purchases. At least one seemingly unaffiliated investor likes the name.

Hikari Tsushin sold out: Hikari Tsushin is a publicly listed company that manages a large portfolio of investment securities. They own everything from large caps to nanocaps and seeing them on a shareholder roster is usually a good sign. I’ve found many of my basket holdings by digging through Hikari Tsushin’s holdings. In this case, Hikari Tsushin, which held 6–8% through the early 2020s and was still on the roster at end-2023, appears to have fully exited by 2024. This is usually a yellow flag. It’s one of the main reasons this is just a tiny bet for me.

Hikari Tsushin’s exit was at least partially facilitated by numerous share repurchases by the company during this window. Unfortunately shares outstanding did not decrease, as shares repurchased during this window were immediately reissued to executives as stock-based compensation. Still, a flat share count after massive buybacks in the past isn’t bad.

Flat Dividend: Dividends have been flat for 16 years at ¥50 per share, which is only 2.19%. This more than covers the cost of borrowing yen, but total shareholder returns here are weak, especially since the last major repurchase was in 2015.

Poison Pill: There’s a poison pill in place which makes it difficult for anyone to amass a stake larger than 20%.

Conclusion:

This is not a great business, but it’s extremely cheap. I sized it at a little under half a typical basket position. I see it as a low downside, decent upside bet. There’s no reason for this thing to be public. I’m betting that management will likely take it private eventually.

I don’t expect to ever see anything close to liquidation or fair value, but an eventual take private with a 30-50% premium is a realistic outcome. While many management led buyouts are often ‘too cheap’, we do get some decent ones from time to time. One of my earlier writeups, Sapporo Clinical Laboratory (TYO 9776), got a buyout bid from its management on November 6 at a 73% premium. This is a low conviction bet and is a tiny position in my basket of cheap stocks.

I use Koyfin for looking at historical data, screening, and visualizing financials. Koyfin offers real value to me and I have been a paid user long before they offered me an affiliate link with a 20% discount. The free version is excellent as well! I don’t charge for access to my writeups. I wouldn’t promote something unless I really loved it and I love Koyfin.

Disclosure: I own shares in Furubayashi Shiko (TYO 3944). The security could be sold at any point in time without prior notice. This is a small position as part of a broader basket of cheap Japanese companies so I haven’t dug too deep into this name. If I missed anything important, feel free to share in the comments. None of this is investment advice. Everything in this post is my own opinion and I could be wrong. Do your own due diligence.