Factory site located in prime logistics hub where a previous steel site were redeveloped into major logistics project. Land could be worth ¥16bn+. We assume ¥8bn to be conservative.
I appreciate that you mention the current use is hard to justify. Valuable Real Estate is fine, but if it means closing the current business you need to think about that for business as a going concern. Not all businesses can survive a move though this one looks like it might
They really could just relocate elsewhere and continue doing what they're doing. Lease a large newer facility elsewhere that sits on cheaper land and continue running the biz. RoE isn't even terrible here, but it's bad if we use market value of the land instead of historical cost which is near zero now.
The fact that redevelopment has happened across the street is reassuring. A Nippon steel plant too! 8bn seems very conservative, but I always prefer to lean conservative anyway.
Why is it about Japan that makes this such a common occurrence? Is it an accounting convention?
By this I mean how often there seem to be companies sitting on real estate sometimes worth more than all their other assets but kept on book as near zero
Lots of inefficiencies in nano cap stocks. Plenty of net-nets and cheap stuff in Korea too. The U.S. market had them a long time ago too, but they've mostly disappeared.
Great find—how on earth do you unearth something like this?? Kudos to you.
The key as usual with these situations is what the trigger event is (cf Sato Foods). 4% divvy is nice but the chance of Nippon Steel redevelopment seems low unless they announce consolidating production elsewhere. Even then, hard to see a profitable company like this just being wound up. Have you come across any precedents?
There seems no obvious benefit to produce steel products in that location when plenty of vastly cheaper spaces likely available a bit further out.
The company IS talking about improving roe/closing pbr gap. Dividend has been going up too. All good signs of progress.
Remember, if there was every an obvious on X date we liquidate and return cash to shareholders, there would be no chance for any of us to get in early. This is a basket bet on a theme of cheap jp stocks which as a whole are getting more shareholder friendly. I have no idea when/if this name will do anything! But at least they're messaging and taking steps (inc dividend )!
You’re right of course. The recent move by Daido Steel on Tohoku is very encouraging, Unfortunately, having dealt with Nippon in the past, they do not tend to be as aggressive and opportunistic.
this is great for a safety play to park money in, certainly many multiples of value to protect from downside. the problem is that the upside is limited by long time inertia. what, if anything, is going to move this stock? if there were any chance of realizing the locked up value I'd buy, but there so would lots of investors, right?
Demand for land in that area will likely be an impetus for change eventually. Parent Nippon steel may want to use that land in a similar fashion as the property they redeveloped nearby.
Yeah, there are no obvious catalysts today, but that's why it's cheap. The dividend, profitability (low p/e), and optionality are interesting which is why I own it. Some day it'll be taken private for an unfairly cheap amount like other Nippon steel child listings, but I like the risk reward here.
the taking private cheap is another thing... but things might change. There's long been talk of liberating the locked in value sitting in Japanese corporate structures but so far it has remained talk. the safety angle can't be dismissed, it's so overlooked in frothy markets like we currently have.
The low P/E is more compelling to me than the hidden real estate value - those reserves could take decades to materialise. The stock has further upside from here, though the re-rating will also depend on the direction of the broader Japanese market. One caveat: with an ROE of only 5.8% (10% or more would be a good figure), capital efficiency remains weak - which may keep the valuation depressed.
I would not buy without the hidden RE value. Many cheap/cheaper names in Japan. This is a good combo of very cheap, low p/e, and high ish dividend + huge land value.
I appreciate that you mention the current use is hard to justify. Valuable Real Estate is fine, but if it means closing the current business you need to think about that for business as a going concern. Not all businesses can survive a move though this one looks like it might
They really could just relocate elsewhere and continue doing what they're doing. Lease a large newer facility elsewhere that sits on cheaper land and continue running the biz. RoE isn't even terrible here, but it's bad if we use market value of the land instead of historical cost which is near zero now.
The fact that redevelopment has happened across the street is reassuring. A Nippon steel plant too! 8bn seems very conservative, but I always prefer to lean conservative anyway.
Thanks for your support Alejandro.
Why is it about Japan that makes this such a common occurrence? Is it an accounting convention?
By this I mean how often there seem to be companies sitting on real estate sometimes worth more than all their other assets but kept on book as near zero
Lots of inefficiencies in nano cap stocks. Plenty of net-nets and cheap stuff in Korea too. The U.S. market had them a long time ago too, but they've mostly disappeared.
Great find—how on earth do you unearth something like this?? Kudos to you.
The key as usual with these situations is what the trigger event is (cf Sato Foods). 4% divvy is nice but the chance of Nippon Steel redevelopment seems low unless they announce consolidating production elsewhere. Even then, hard to see a profitable company like this just being wound up. Have you come across any precedents?
There seems no obvious benefit to produce steel products in that location when plenty of vastly cheaper spaces likely available a bit further out.
The company IS talking about improving roe/closing pbr gap. Dividend has been going up too. All good signs of progress.
Remember, if there was every an obvious on X date we liquidate and return cash to shareholders, there would be no chance for any of us to get in early. This is a basket bet on a theme of cheap jp stocks which as a whole are getting more shareholder friendly. I have no idea when/if this name will do anything! But at least they're messaging and taking steps (inc dividend )!
You’re right of course. The recent move by Daido Steel on Tohoku is very encouraging, Unfortunately, having dealt with Nippon in the past, they do not tend to be as aggressive and opportunistic.
They're sweating that asset hard. It looks rough on street view and has for a decade haha
this is great for a safety play to park money in, certainly many multiples of value to protect from downside. the problem is that the upside is limited by long time inertia. what, if anything, is going to move this stock? if there were any chance of realizing the locked up value I'd buy, but there so would lots of investors, right?
Demand for land in that area will likely be an impetus for change eventually. Parent Nippon steel may want to use that land in a similar fashion as the property they redeveloped nearby.
Yeah, there are no obvious catalysts today, but that's why it's cheap. The dividend, profitability (low p/e), and optionality are interesting which is why I own it. Some day it'll be taken private for an unfairly cheap amount like other Nippon steel child listings, but I like the risk reward here.
the taking private cheap is another thing... but things might change. There's long been talk of liberating the locked in value sitting in Japanese corporate structures but so far it has remained talk. the safety angle can't be dismissed, it's so overlooked in frothy markets like we currently have.
The low P/E is more compelling to me than the hidden real estate value - those reserves could take decades to materialise. The stock has further upside from here, though the re-rating will also depend on the direction of the broader Japanese market. One caveat: with an ROE of only 5.8% (10% or more would be a good figure), capital efficiency remains weak - which may keep the valuation depressed.
I would not buy without the hidden RE value. Many cheap/cheaper names in Japan. This is a good combo of very cheap, low p/e, and high ish dividend + huge land value.
Only obvious downside is very very illiquid.
yes, my screener gives me for the strongest value combination (only stocks with MC < 50 Mio.) e.g. the following picks:
- Saita Corporation (TSE:1999) - P/B: 0.45, EV/EBIT: 0.22, Earnings Yield: 18.6%, FCF Yield: 30.4%
- Nix Inc (TSE:4243) - P/B: 0.44, EV/EBIT: 0.04, Earnings Yield: 10.9%, FCF Yield: 6.0%
- HKS Co Ltd (TSE:7219) - P/B: 0.29, EV/EBIT: 0.75, Earnings Yield: 11.0%, FCF Yield: 4.6%
- Eidai Kako Co Ltd (TSE:7877) - P/B: 0.36, EV/EBIT: 1.57, Earnings Yield: 12.2%, FCF Yield: 14.8%
- Kanemitsu Corp (TSE:7208) - P/B: 0.48, EV/EBIT: 0.75, Earnings Yield: 12.0%, FCF Yield: 25.0%