Kinki Sharyo (TYO 7122) - A ¥10 billion Net Net Rolling Stock Manufacturer Trading at 0.3x Book Value and a 64% Discount to NCAV + Rental Real Estate

105 year old company and there's even an activist shareholder in the register (Effissimo Capital). Kinki Sharyo is a listed subsidiary of Kintetsu Group (9041).

Source: Kinki Sharyo Website

Kinki Sharyo (TYO 7122) is a Japanese manufacturer of rolling stock that supplies Japanese railways as well as mass transit systems around the world. They also have manufacturing in the United States and have provided railcars to the Los Angeles, Seattle, Phoenix, Santa Clara, and Dallas metro systems. The U.S. business specializes in light rail vehicles, but they also produce heavy vehicles for the Japanese and other international markets. They’ve been in business since 1920 and are a listed subsidiary of Kintetsu Group (9041).

• Stock Price: ¥1,432 (¥10 billion market cap)

• NCAV+Inv Securities: ¥2,979

• NCAV+Inv Securities+Rental Real Estate (conservative): ¥3,997

• Upside while valuing operating business at zero: 175%

• P/TBV: 0.3x (Near all time lows)

• Adjusted P/TBV: 0.23x (Using company’s fair value for rental real estate)

• Dividend Yield: 3.5%

Source: Koyfin

I’ve periodically posted on X about this name and briefly mentioned it on the Substack, so I’ll keep this short. This is a riskier bet than some of the consistently profitable names I usually cover, but it’s cheap, offers a decent dividend (3.4%), and plays on the parent-child takeover theme.

The Good:

• Net-net valuation. Net current asset value sits at ¥14 billion vs a market cap of ¥10 billion. There’s also ¥6.5 billion of investment securities. A bit under half of current assets are “orders in progress”, so this isn’t a super clean figure.

• NCAV+Inv securities are worth ¥2,979 per share vs a market price of just ¥1,432. That’s 100% upside even if we value the business and the other assets at 0.

• The company owns rental real estate as an investment. Sales from this segment are mainly from their Higashiosaka (Osaka) and Tokorozawa (Saitama) commercial facilities. Sales were ¥612 million and Operating income was ¥528 million year to date (Q1-Q3). Annualizing this figure gets us ¥704 million in operating income.

• What’s the real estate worth? Let’s be conservative and assume a 10% cap rate on operating income. This is stupidly conservative and values the rental real estate at ¥7 billion. Adding that to our NCAV+INV securities figure gets us to ¥3,997 per share. This is super conservative. The company itself estimates these properties are worth ¥10.2 billion (7% cap rate) and are held on the balance sheet at just ¥1.5 billion:

  

  Source: FY 2024 English Annual Report pg28

• Effissimo Capital Management is a shareholder and has been for some time. They’re an activist fund that has been involved in many Japanese stocks. They own 8.45% of the company.

• On March 31, 2025 the company announced that their U.S. subsidiary won a contract to assemble 182 HRVs (heavy rail vehicles) for Hyundai Rotem for use in the Los Angeles County Metro. The base contract value for the entire project is $663.7 million and the value of final assembly is likely between 10-20% (this figure is a ChatGPT estimate and sounds reasonable). This contract is scheduled to run from 2026-2030. The market has not given the company any credit for this win.

• The company aims for ‘stable dividends’, so even during weaker years (like this year), investors should get ¥50 per share (~3.5% dividend)

• If the U.S. succeeds in isolating China, Kinki Sharyo has a much better chance of winning international contracts. Chinese state-owned CRRC is the global leader in rolling stock and has won big contracts even in the U.S. (for heavy rail, which Kinki Sharyo does not make in the U.S). Kinki Sharyo’s pricing power internationally would improve if they didn’t have to compete with Chinese companies.

Some public transit systems that Kinki Sharyo International supplies

The Bad:

• The company had a disastrous quarter in Q2 2016 where it reported a loss of ¥11.82 billion. It took 6 years for book value to return to 2016 levels. The primary cause of the loss was cost overruns and low margin contracts. While book value has grown since, share price has declined significantly.

• ¥3 billion of that loss was due to Yen appreciation. A sudden appreciation in JPY will likely hurt profits in the future. Since this disastrous quarter, practically every earnings forecast has proven conservative except briefly after COVID. Yen weakness was likely the main reason they beat their own forecasts.

• Net income is bumpy as fulfilling orders can take a long time. Profitability should be measured over a couple years. For example in FY2024 net income was ¥4.3 billion and FY2025 is expected to be just ¥100 million.

• No real share buybacks in 20+ years. Share count is down 0.4% since 2004.

• Stagnant core business. Revenues are flat since 1998.

• Kinki Sharyo is a child listing of Kintetsu Group (9041) which owns 30.3% of the company through Kintetsu Railway Co and another 14.1% directly for a combined ownership of ~44.4%. This makes outside activism practically impossible. The most likely exit here is an eventual MBO by Kintetsu.

• The company lost a slip and fall lawsuit in California in May 2024 that resulted in $58 million judgement. It was settled for $21 million in August, 2024. This was likely covered by the company’s insurance as it was not specifically mentioned in previous quarterly reports, so it is likely just business as usual for them.

Conclusion:

I think Kintetsu Group just takes Kinki Sharyo private eventually. There’s been a lot of parent-child takeovers over the last few years and this trend seems to be accelerating lately. Most recently, AEON made a bid to take over 2 of their listed subsidiaries in late February.

Kinki Sharyo market cap is tiny at just ¥10 billion vs Kintetsu Group’s ¥586 billion and they already own almost half the company. Kintetsu isn’t averse to taking their listed subsidiaries private. They purchased the 52% of Kintetsu World Express they didn’t own back in 2022 for a 40% premium, an all time high price for the company. That figure valued Kintetsu World Express at ~¥300 billion. Kinki Sharyo on the other hand is a much smaller company and is trading at a massive discount to its net current assets and rental real estate. I consider the core business riskier than most of my basket positions, but it’s too cheap to not be a part of my basket. It’s an overweight position in the basket.

Disclosure: I own shares in Kinki Sharyo (TYO 7122). 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.

Update July 3, 2025:

Posted on X about this, so I figure I’ll add it to this writeup. The investment property Kinki Sharyo owns with FMV ~¥10 billion (vs 1.2 bil book) is in the same lot as their huge factory in Osaka. This is facility is obviously required to operate the business, but there’s no reason manufacturing has to be done in THIS location. Nearby properties are all residential and commercial. They could sell theoretically sell this facility to a developer and build a new facility outside Osaka. Fair market value in the below screenshot is from their English annual report. The area shaded in blue is the rental property which is adjacent to their factory.

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