I built a net-net/ ideally NegEv basket in 2023 and am just revisiting it now (a little slow, I know. although I have sold some positions that moved a lot, over that time frame). Thought you might be interested in the few that haven't moved a whole lot yet.
I haven't run back over them properly yet but at the time I wanted them to most of the below boxes - ideally all:
- Net/Net, Ideally not made up of bloating AR or potentially difficult to shift/expiring inventory.
- Ideally negative EV or very close to.
- NCAV build over last decade (or at least not slipping).
- BV built over last years.
- Cash build, or at least not burning through their cash pile.
- 10+ years of profitability with slight leniency, particularly for one time events/write downs.
Some of these I've noticed you post about, some of them I haven't although you may well be aware of them. If not, they might be worth a quick look for you - some of these will have moved beyond my above criteria so i'll just post them from those that have moved least, to those that have moved most, of those i continue to hold for now for now.
7399 - Nansin.
8881 - Nisshin.
6964 - Sanko Corp.
4976 - Toyo Drilube.
7614 - OM2 Network.
7902 - Sonocom.
1879 - Shinnihon.
5958 - Sanyo Ind.
5078 - Cel Corp.
5658 - Nichia Steel.
7841 - Endo Manufacturing.
Hopefully there's one or two in there you haven't stumbled across and find interesting - although that's probably unlikely with how prolific you are with your JapCo hunting.
Both looks interesting! Neither are deep deep net nets, but they have good earnings/history. Both are worth owning and I bought a small position in both. Thank you for the heads up. Will dig deeper later too to see if i'd like to buy more. It would have to be based on business quality than assets though, as these 2 are just barely net nets vs some other names on the list like Sanko Corp which is a double net net. NCAV is 2x market cap!
They're +~23% if I bring it back to my home currency AUD.
+~33% if I look at it on a constant currency basis - JPY.
I built the basket after a lot of Co's had already made a bit of a jump after the Japanese government had made their comments around improving the asset efficiency of TSE Co's; so I could have been earlier to the party in that respect.
Part of my original idea for building a cheap Jap basket was the ability to use leverage at the Jap interest rate - which it turned out I couldn't do through my brokerage anyway (although some people seem to be able to, I guess it's either specific to my region, or more likely account size, but in true IBKR fashion, I got a word salad explaining very little, when I queried it).
I also bought 7974 Nintendo at a similar time - potentially just prior to - in the low 5000's but being that that's a larger position and doesn't fit within the net/net basket, I've excluded that from the above return.
Thanks for taking the time to share Adam, really appreciate it. Solid gains 💪! I haven't fully adopted the net net investing strategy although I have a few net nets. I've done quite well looking for undervalued with a growth catalyst. I am interested in creating a basket with NN when I don't have any high conviction ideas.
Thanks, I've been happy with the return so far, it has been a worthy use of capital, up until now at least.
Yeah I built the basket with a similar frame of mind. It's in some respects 'easier' having something very objective and quantitative that you can build-around and allocate to, that as a basket should have somewhat limited downside and seems to have done well historically. Hopefully the Japanese government's comments will help things along too,
Anyway, good luck with it. There's certainly plenty of them out there.
Thanks for sharing. Fantastic breakdown of opportunities. Completely agree on The Keihin Co - fascinating to see a company improve its fundamentals so dramatically over two decades yet still trade at these valuations. The upcoming TSE response adds an interesting catalyst to an already compelling story. Keep these gems coming!
Operating profit revised up from ¥2,400 million -> ¥2,700 million. EPS forecast up from ¥1,031 to ¥1,341. Dividend raised from ¥70 to ¥100. Dividend is still way too low.
Hyoki Kaiun Kaisha (TYO 9362) announced over the weekend the capital alliance with Yamato Kogyo. They apparently own 13.56% of 9362 now, making them the #1 shareholder, pushing Dojima Kisen down to #2 which owns 10.16%.
Yamato Kogyo will also acquire additional shares of 9362 up to 20%. It was phrased like this
"Yamato Kogyo will hold common shares of the Company until its voting rights ratio reaches 20%.
The shares will be acquired through financial instruments exchanges or other methods that Daiwa Kogyo considers appropriate."
What does this even mean? Happy to see the company isn't dilluting and issuing shares directly. This is the usual defense to non-friendly shareholders. Issue shares to friendly party. But looks like they haven't done this. Yamato Kogyo also will buy up to 20%. Not sure where they going to find the liquidity unless another big shareholder sells.
Company also bumped their dividend by 8 jpy from 107 -> 115.
Curious what happens next with this tiny company! I'm still sitting on my shares.
If you see any charts with fundamentals over time in my posts, they are all from Koyfin. Great for screening and visualizing data over time. Big fan. The free tier is solid. I ended up paying for the Plus option since I use them a lot.
Question from a J net-net newbie: it seems that the key to making money in these plays is if there is catalyst of some sort. What is the realistic change of this happening in the next 12-36 months given that most of these companies have anchor shareholders whose interests are unlikely to be aligned with minority shareholders?
For example, Keihin and Somar scan great but both have blocking insider ownership: 10% for the Otsu family (mgmt) in the former and 15% for the Sotani family (mgmt) for the latter. Why would either family be interested in M&A/buybacks/dividends?
Hi Altay, great article and great blog. Reading through your blog I've noticed a lot of logistics companies. Is there a reason there are so many logistics companies in Japan, I was thinking maybe they just haven't consolidated like in other countries?
Just curious, I am surprised Akatsuki isnt on the list.
I really like the article you written on it and the alliance with Sony and Koei definitely sounds promising with glimpses of its new system under development.
I still own Akatsuki and have done well on it, but it isn't exactly deep deep value like most of the names in the cheap JP basket.
Outside of China, it seems no other country can produce Genshin Impact/Wuthering Waves style high quality mobile games. Akatsuki is trying to change that. It's a good bet. Not much has changed with the story here, so no updated thoughts.
Neither of these are net nets, though they are cheap. I see marketcap of $496m on Daiwa with NCAV of ~$400m.
Noritz is $512m market cap and NCAV of ~$250m.
Daiwa is close. They may be net nets if we include investment securities, haven't looked. These are both a bit bigger market cap than I usually buy on super cheap stuff
If you believe in mean reversion of stock prices, Dynam Japan is probably the most interesting stock. There is some evidende for mean reversion e.g. as documented here:
"More specifically we find that the 10 per cent of shares with the worst total share return record over five years go on to produce the highest returns in the subsequent five years with an average out-performance of 8.9% per year - defying those who would write these companies off as the 'dogs' of the market. "
Hey Altay,
Thanks as always for the write ups.
I built a net-net/ ideally NegEv basket in 2023 and am just revisiting it now (a little slow, I know. although I have sold some positions that moved a lot, over that time frame). Thought you might be interested in the few that haven't moved a whole lot yet.
I haven't run back over them properly yet but at the time I wanted them to most of the below boxes - ideally all:
- Net/Net, Ideally not made up of bloating AR or potentially difficult to shift/expiring inventory.
- Ideally negative EV or very close to.
- NCAV build over last decade (or at least not slipping).
- BV built over last years.
- Cash build, or at least not burning through their cash pile.
- 10+ years of profitability with slight leniency, particularly for one time events/write downs.
Some of these I've noticed you post about, some of them I haven't although you may well be aware of them. If not, they might be worth a quick look for you - some of these will have moved beyond my above criteria so i'll just post them from those that have moved least, to those that have moved most, of those i continue to hold for now for now.
7399 - Nansin.
8881 - Nisshin.
6964 - Sanko Corp.
4976 - Toyo Drilube.
7614 - OM2 Network.
7902 - Sonocom.
1879 - Shinnihon.
5958 - Sanyo Ind.
5078 - Cel Corp.
5658 - Nichia Steel.
7841 - Endo Manufacturing.
Hopefully there's one or two in there you haven't stumbled across and find interesting - although that's probably unlikely with how prolific you are with your JapCo hunting.
Anyway thanks again for the blog.
I own all the names you mentioned except OM2 and Toyo. Great minds think alike! Will take a look at those two tonight. Thanks :)
Both looks interesting! Neither are deep deep net nets, but they have good earnings/history. Both are worth owning and I bought a small position in both. Thank you for the heads up. Will dig deeper later too to see if i'd like to buy more. It would have to be based on business quality than assets though, as these 2 are just barely net nets vs some other names on the list like Sanko Corp which is a double net net. NCAV is 2x market cap!
If you don't mind sharing. Curious, how your returns have been in your NN basket in 2023 and 2024?
Posted 2023 screen grab last year on Jan 1. 2024 is harder to easily screen grab as positions have changed, sold some, added others.
This question was actually directed at @adamcooke (somehow the function to tag isn't working)
Hey Alan,
They're +~23% if I bring it back to my home currency AUD.
+~33% if I look at it on a constant currency basis - JPY.
I built the basket after a lot of Co's had already made a bit of a jump after the Japanese government had made their comments around improving the asset efficiency of TSE Co's; so I could have been earlier to the party in that respect.
Part of my original idea for building a cheap Jap basket was the ability to use leverage at the Jap interest rate - which it turned out I couldn't do through my brokerage anyway (although some people seem to be able to, I guess it's either specific to my region, or more likely account size, but in true IBKR fashion, I got a word salad explaining very little, when I queried it).
I also bought 7974 Nintendo at a similar time - potentially just prior to - in the low 5000's but being that that's a larger position and doesn't fit within the net/net basket, I've excluded that from the above return.
Most of the positions were initiated in Mid October 2023 and I've quoted total return over that period so CAGR would be a little under that.
Thanks for taking the time to share Adam, really appreciate it. Solid gains 💪! I haven't fully adopted the net net investing strategy although I have a few net nets. I've done quite well looking for undervalued with a growth catalyst. I am interested in creating a basket with NN when I don't have any high conviction ideas.
Thanks, I've been happy with the return so far, it has been a worthy use of capital, up until now at least.
Yeah I built the basket with a similar frame of mind. It's in some respects 'easier' having something very objective and quantitative that you can build-around and allocate to, that as a basket should have somewhat limited downside and seems to have done well historically. Hopefully the Japanese government's comments will help things along too,
Anyway, good luck with it. There's certainly plenty of them out there.
Thanks for sharing. Fantastic breakdown of opportunities. Completely agree on The Keihin Co - fascinating to see a company improve its fundamentals so dramatically over two decades yet still trade at these valuations. The upcoming TSE response adds an interesting catalyst to an already compelling story. Keep these gems coming!
Somar (TYO 8152) reported today.
Operating profit revised up from ¥2,400 million -> ¥2,700 million. EPS forecast up from ¥1,031 to ¥1,341. Dividend raised from ¥70 to ¥100. Dividend is still way too low.
Back to back forecast raises.
Hyoki Kaiun Kaisha (TYO 9362) announced over the weekend the capital alliance with Yamato Kogyo. They apparently own 13.56% of 9362 now, making them the #1 shareholder, pushing Dojima Kisen down to #2 which owns 10.16%.
Yamato Kogyo will also acquire additional shares of 9362 up to 20%. It was phrased like this
"Yamato Kogyo will hold common shares of the Company until its voting rights ratio reaches 20%.
The shares will be acquired through financial instruments exchanges or other methods that Daiwa Kogyo considers appropriate."
What does this even mean? Happy to see the company isn't dilluting and issuing shares directly. This is the usual defense to non-friendly shareholders. Issue shares to friendly party. But looks like they haven't done this. Yamato Kogyo also will buy up to 20%. Not sure where they going to find the liquidity unless another big shareholder sells.
Company also bumped their dividend by 8 jpy from 107 -> 115.
Curious what happens next with this tiny company! I'm still sitting on my shares.
Hello Altay. Thanks for the writeup. I was wondering which tools or screener do you use for monitoring Japanese stocks?
I use Koyfin https://www.koyfin.com/affiliate/koyfin/?via=altaycapital
If you see any charts with fundamentals over time in my posts, they are all from Koyfin. Great for screening and visualizing data over time. Big fan. The free tier is solid. I ended up paying for the Plus option since I use them a lot.
Question from a J net-net newbie: it seems that the key to making money in these plays is if there is catalyst of some sort. What is the realistic change of this happening in the next 12-36 months given that most of these companies have anchor shareholders whose interests are unlikely to be aligned with minority shareholders?
For example, Keihin and Somar scan great but both have blocking insider ownership: 10% for the Otsu family (mgmt) in the former and 15% for the Sotani family (mgmt) for the latter. Why would either family be interested in M&A/buybacks/dividends?
Appreciate your thoughts!
If there was a clear catalyst you would not be able to buy them for less than free valuations.
Historically Japanese net nets have out performed their indexes. The TSE reforms are another tailwind.
There are no guarantees in investing. These may stay cheap for another decade or longer!
Hi Altay, great article and great blog. Reading through your blog I've noticed a lot of logistics companies. Is there a reason there are so many logistics companies in Japan, I was thinking maybe they just haven't consolidated like in other countries?
Thanks
They should consolidate and we've seen some M&A deals in the sector over the last year. This trend should contnue!
Thanks
Hey,
Thank you !
Do you think your write-ups have an impact on the share prices of some very small companies ?
I think my writeup on Takigami Steel Construction (5918) had an impact. I have not sold any since my writeup though.
Hi Atlay ,
Thanks for the write ups.
Just curious, I am surprised Akatsuki isnt on the list.
I really like the article you written on it and the alliance with Sony and Koei definitely sounds promising with glimpses of its new system under development.
I still own Akatsuki and have done well on it, but it isn't exactly deep deep value like most of the names in the cheap JP basket.
Outside of China, it seems no other country can produce Genshin Impact/Wuthering Waves style high quality mobile games. Akatsuki is trying to change that. It's a good bet. Not much has changed with the story here, so no updated thoughts.
Interesting .
Currently own daiwa 6459 and Noritz 5943 as japanese net net
Will take a look at them! Thanks!!
Neither of these are net nets, though they are cheap. I see marketcap of $496m on Daiwa with NCAV of ~$400m.
Noritz is $512m market cap and NCAV of ~$250m.
Daiwa is close. They may be net nets if we include investment securities, haven't looked. These are both a bit bigger market cap than I usually buy on super cheap stuff
If you believe in mean reversion of stock prices, Dynam Japan is probably the most interesting stock. There is some evidende for mean reversion e.g. as documented here:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=998418
"More specifically we find that the 10 per cent of shares with the worst total share return record over five years go on to produce the highest returns in the subsequent five years with an average out-performance of 8.9% per year - defying those who would write these companies off as the 'dogs' of the market. "
thanks for sharing.