Nissin Corp (9066) - A Dirt Cheap $400m JP Logistics Company That Bought Back 24% Of Shares Trading at 6x EPS, 5%+ Dividend, and 0.7x Book
A rock solid logistics company that only ever lost money twice (2001 and 2009) over the last 40 years trading at dirt cheap valuations and returning cash
Nissin Corp (TYO 9066) bought back 23.6% of their outstanding shares in a single day on May 10th and also doubled their dividend. The result? The stock went up about 39% (up 72% YTD). I already had a full sized position in Nissin Corp and despite being up big on it I added to my position at ¥4,265. This company was dirt cheap before the buyback and even after the buyback it remains stupid cheap.
Here is a company taking the new Tokyo Stock Exchange governance reforms seriously. They’ve telegraphed for a while now that they take PBR 1x seriously (the effort to get book value above 1).
One of the biggest (and fairest) criticisms of cheap Japanese stocks is ‘Will they ever return capital?’ and the answer with Nissin Corp is an unequivocal “Yes”.
Here’s what Nissin Corp looks like today after accounting for the big buyback:
0.75x book (¥5674/share)
6x EPS (¥701 eps)
4.6% dividend (likely higher, they said 4% DOE which would be 5.3%)
Do these numbers make sense to you? This isn’t a company that won’t return capital. They’ve demonstrated in no uncertain terms that they’re taking shareholder returns seriously.
So why isn’t the stock up more? They’re absurdly cheap, likely have tons of undervalued real estate on the balance sheet, unwinding their cross shareholdings, and returning cash to shareholders.
As stupid as this reason sounds, here's my explanation. This is a smallish cap stock with a market cap of ¥62.7B (USD $400m). While not nearly as small as most of the companies I usually write about, this area of the market is dominated by Japanese retail investors who aren’t used to seeing big buybacks. They see a big jump and look to cash out some profits, as they think multiples are getting extended. After all, the company’s own earnings forecast for next year (released May 9) showed ¥536.94 per share, but the big buyback took place on May 10th.
Adjusting for the decrease in shares outstanding, the real forecast for the coming year is ~¥707 (19,058,798 shares outstanding on May 9th earnings release - 4,500,000 repurchased on May 10th divided by net income forecast).
Using the same basic maths, the company’s net assets per share disclosed on May 9th (¥5,111/share) was inaccurate on May 10th. They bought back 4,500,000 shares for ~¥14B (¥3,111/share). At that price the shares were trading at 60% of book value. Buying back a lot of shares below book is immediately accretive to book value per share. So subtract ¥14B from net assets for the purchase price of the shares and then subtract 4.5M shares from shares outstanding and we get a book value of ~¥5674/share on May 10th after subtracting minority interest.
Nissin Corp also doubled their dividend forecast from ¥100 to ¥200 per share, but even this is understated, as the company announced a 4% dividend on equity policy, meaning they aim to pay out 4% of equity as dividends, which would be ¥227 (5674 * 0.04). This would put the dividend at ~5.3%.
As silly as this sounds, I suspect that when data providers adjust shares outstanding down, Japanese retail investors will bid this up.
Ignoring all that though, there’s a lot to like about Nissin Corp. They’re a logistics company that’s been public since 1950 and owns a trove of valuable industrial properties that are likely deeply undervalued on the balance sheet. I haven’t done a deep dive on this name, but after the run up and adding to my position, it’s the biggest single name in my cheap JP basket.
Koyfin data goes back to 1985 and since then the company only ever reported losses in 2 years (2001 and 2009).
Travis Lundy on SmartKarma also wrote this name up after the big buyback announcement. His writeup is available to all SmartKarma subscribers and if you have access it’s worth reading. He ends his analysis with “Unmitigated bullishness.”
Edit 05/18/2024: I forgot to subtract non-controlling interests of ¥5.6B from my book value calculation. I updated with the correct book value per share of ¥5674. Thanks to generalsandworkouts in the comments.
Disclosure: I own shares in Nissin Corp. None of this is investment advice. Everything in this post is my own opinion and I could be wrong. Do your own due dilligence.
Continuous Compounding put together a useful excel file for Nissin Corp, you can read his writeup/grab the excel file here: https://continuouscompounding.substack.com/p/fellow-substacker-spotlight-altaycap
Great post as usual, Altay. Thanks as always for sharing your thoughts on these names. A few quick notes after looking at this:
1. I had a slightly different share count. The May 9 announcement notes that the company had 19,058,798 shares outstanding at March 31 excluding treasury shares. This checks out with the post-buyback announcement which noted that the 4.5MM shares bought back were 23.61% of the total share count (4.5 / 19.058798 = 0.2361). That suggests the share count post buyback should be 14,558,798. Let me know if I've missed something here.
2. The balance sheet at March 31 showed book value of 102.2B yen but of that 5.6B is attributable to non-controlling interests. After subtracting that, we are left with 96.6B. If we then subtract the 14B for the buyback, the adjusted book value is 82.6B. Using the share count above, that would suggest book value of 5,673 yen per share, which is slightly lower than your number, and a P/B of 0.79.
3. Nissin looks cheap on a P/E basis but less cheap on a EV/EBIT basis. It looks like they had roughly 28.9B in cash and 23.3B in debt at March 31, which implies net cash of about 5.6B. If you add the cost of the buyback (14B yen) it would imply net debt of 8.64B yen. That would suggest an enterprise value of 73.8B which is 8.1x the forecast operating profit of 9.1B. Operating income might not be the best way to look at this company, but I'd be concerned about using P/E here as net income is forecast to be higher than operating income for FY25.
Would be interested to hear if you have any thoughts on the above — and sorry for the long comment!