Quick Pitch: Totenko Co (TYO 8181) - Nanocap Operator of Banquet Halls and Restaurants With Tourism Tailwind and Profit Inflection Trading at 5.3x Forward P/E and 0.36x P/B
$14.5 million market cap company with history of losses is inflecting to profitability and will begin paying dividends. Screens poorly today, but will screen much better soon
Share Price: ¥885
P/E: 5.3 (Management Forecast)
P/B: 0.36
Market Cap: ¥2.27 billion ($14.5 million)
Enterprise Value: ¥4.1 billion
Totenko operates banquet halls and restaurants specializing in Chinese cuisine across Japan, with its flagship Ueno location in Tokyo also hosting weddings.
Quick Pitch: After decades of poor management, Totenko has significantly improved profitability post-COVID. Profitability is inflecting and dividends are returning. It currently screens poorly, but will screen much better next year.
Sizing: 1/3 a typical basket position.
Japan's tourism boom, especially from China, directly benefits Totenko. Inbound Chinese tourists accounted for 35.3% of arrivals in November 2023, rising to 39.5% in November 2024. Recent visa easing for mainland Chinese travelers is expected to boost these numbers further.
While revenue forecasts remain unchanged, profit forecasts were revised upward by 30% based on H1 results—likely still conservative. The company also announced the return of dividends, with the amount to be decided at the fiscal year-end.
Totenko faced significant financial strain during COVID, taking on debt and closing underperforming stores. However, the crisis pushed management to streamline operations, improve efficiency, and adopt measures such as online banquet reservations and a new personnel management system. These changes led to a leaner organization and a return to operating profit last year, with net income profitability expected this year for the first time since 2019.
The current operating profit forecast of ¥470 million on ¥4,600 million in sales represents a 10.2% margin—the highest in the company’s history (at least since 2009).
Historically, Totenko was plagued by mismanagement, with frequent operating losses and rare sporadic profits. This investment thesis hinges on the belief that structural improvements have made the company sustainably more profitable. However, if recent profitability proves temporary, the stock’s performance will continue its downward march. Activism is largely off the table given tiny size and ~32% ownership by insiders.
Bonus: The company’s rental real estate investments in Tokyo may be worth more than their book value. These bring in ~¥80m in operating profit annually. The company’s flagship Ueno location has also appreciated significantly and is company owned.
Disclosure: I own shares in Totenko Co., Ltd (TYO: 8181). The security could be sold at any point in time without prior notice. This is a tiny 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.
Further Reading: Official Website, EDINet Filings (Chrome in-browser translation works well here. When clicking into a new section on the left hand side upon opening a filing, you will need to switch back to original language then translate again for it to load properly)
Got an email asking "Why would a chinese tourist book a banquet hall in Japan? who is the ideal customer?" figured I'd answer here as well.
They operate regular restauraunts as well as banquet halls at their facilities. Individual Chinese tourists I imagine are most likely out of any tourist group to visit a Chinese restauraunt. The company cites the increase in tourism as a tailwind.
Their ideal customers are anyone in medium sized to large groups as their facilities are designed to handle smaller groups wanting a private room (12 people) to their largest facility designed to handle up to 400 people. These are ideal for parties, conferences, birthdays, meeting spaces, and even shareholder meetings! They list some possible uses here
https://www.totenko.co.jp/banquet/
The business has historically been poorly run. The bet is post COVID they got serious about running it more efficiently. Time will tell if that proves true or just a temporary thing.
Nanocap writeups teach me things about the world. Wouldn’t have guessed the China->Japan tourism numbers were this big or had these impacts. Happy New Year Altay!