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Purpose

The purpose of this website is to analyze the quantitatively cheapest 1% - 2% of common stocks on the planet as measured by price to value derived from basic elements of earning power and balance sheet position. As a group, this portfolio is likely to outperform the market significantly. We will, however, evaluate each stock to determine investment value - with the aim of continually improving investment performance, and business analysis. There is likely to be good cause for fear in each stock we analyze. We will seek to prioritize inherent stability as the key qualitative factor in our analysis. This could be trumped if the risk/reward equation is skewed in our favor (as it usually is with such cheap stocks, though not always). We are aware of the multiple biases that creep into a selective approach and the pitfalls in investment performance to those who attempt this. In any case, we press forward towards the goal of superior analysis. We hope this exercise will also enlighten

Mori-Gumi Co. Ltd.

Mori-Gumi (‘company’) is a small civil engineering and construction company – with minor operations in real estate sales/leasing, and manufacture and sales of crushed stones. Asahi Kasei Corporation owns 30.26% of the company. Its civil engineering and construction segments are roughly split 50:50 on a revenue basis. Its orders are also split roughly halfway between the government and private sectors. About 1/3 rd of its projects are categorized as “special mission”, and 2/3 rd are generated as a result of competitive bidding. Two customers accounted for 35% of its revenues. The travails of the Japanese construction industry include lower prospective demand due to an aging population; and a real shortage of skilled workers joining the industry. The coronavirus pandemic led to delays and suspensions of major contract work. Though reported sales in the last six months were higher over the previous period, construction orders were down 20%. The company reported TTM sales (to Sep

Tobishima Corporation

Tobishima (‘company’) is engaged in civil engineering (57% of revenues), construction (37%), and real estate development (6%) work in Japan. It generates 25-35% of its orders via “special mission” contracts, and the balance via competitive tenders. The construction industry in Japan is currently experiencing declining demand and fierce competition after work for the Tokyo Olympics subsided. It faces a fairly poor demand outlook on account of Japan’s aging population, and a shortage of skilled workers. Orders to March 2020 were already down 25-30%. The coronavirus pandemic further dented orders and sales. The company reported TTM sales (to September 2020) of 129.4b yen (FY20: 134.9b), ebitda of 7.6b yen (FY20: 8.7b), and net profits of 4.3b yen (FY20: 5.1b). Earnings averaged 5.2b yen over the last five years. The company operates with net debt of 6.9b yen, which is easily covered by less than a year’s operating earnings. Receivables were fairly high at 55.2b yen, which indic

Pegasus Sewing Machine Manufacturing Co. Ltd.

Pegasus Sewing (‘company’) is engaged in manufacturing industrial sewing machines for use in the apparel industry (80% of revenues); and die-casting parts for use in automobile safety belts (20% of revenues). The company specializes in ‘chain sewing’ machines used in garment factories for sewing jeans and other knit clothing – and is a leading operator in Japan. Its die-casting parts manufacturing facilities are located in the three major automobile parts production hubs – China, Vietnam, and Mexico – to service American and European automobile manufacturers. The company sells its products across the world in Japan (8% of sales), China (21%), Bangladesh (13%), Rest of Asia (32%), Americas (16%), Europe (7%), and others (3%). Its manufacturing facilities are spread as follows: Japan (46%), China (29%), Vietnam (12%), Americas (11%), and others (2%). The US-China trade dispute and resulting protectionist measures hit the apparel industry badly and capital investment from the garm

Nippon Gear Co. Ltd.

Nippon Gear (‘company’) is a small operator that manufactures, sells, and maintains gears and jacks, valves and actuators, other acceleration/deceleration machines, etc. - for use in power plants, automobiles, industrial machinery, construction machinery, machine tools, railways, shipping, and water and sewage - among other industries. The company operates entirely in Japan and has a diversified customer base (including some exports to machine tool manufacturers in China). The business is largely dependent on the capital investment cycle and the frequency of inspections/maintenance of plant and machinery. It is also exposed to severe price competition and rising raw material costs of iron and copper. The coronavirus pandemic resulted in orders declining by 11% (though revenues were up 6% to September). The company reported TTM revenues (to September) of 7.8b yen (FY20: 7.6b), ebitda of 998m (FY20: 842m), and net profits of 504m (FY20: 396m). Earnings averaged 432m yen over the last fiv

Yurtec Corporation

Yurtec is a contracting company primarily engaged in “equipment construction” – for electrical, communication, air conditioning, and other general equipment. This activity accounts for 98% of revenues. It is also engaged in miscellaneous businesses such as leasing of equipment, security services, and manufacture/sale of mineral water. Tohoku Electric Power (‘Tohoku’) owns 41.8% of the company – and contributes 42% of its revenues. Its equipment construction business includes: a) indoor wiring work, b) power distribution line construction, c) power transmission and information/communication work, and d) air conditioning pipe construction. Recent regulations requiring Tohoku to tender work to external companies has curtailed orders for the company and subject it to greater competition, and this may continue to adversely impact operations. (Sales have declined continuously since 2016 – see below.) In addition, it is subject to all the pains afflicting Japan’s construction industry

Takamatsu Machinery Co. Ltd.

Takamatsu Machinery engages in manufacturing: a) machine tools (88% of revenues), b) equipment related to liquid crystal substrates and semiconductors (8%), and c) automobile parts (4%). It generates 2/3 rd of its sales within Japan, 12% in China, 10% in North America, 10% in the rest of Asia, and the balance in Europe. The company primarily manufactures CNC lathes (computer-controlled NC lathes), which are used as ‘mother’ machines for making metal processing machines. They are primarily sold to the automobile industry, which makes up over 50% of sales – and therefore, the company’s fortunes are largely tied to the capital investment cycle of the automobile industry. Its semiconductor segment operates under a different demand cycle pertaining to that industry. And the auto parts business is marginally loss-making. The coronavirus pandemic has gutted capital investment, and the company’s machine tools orders fell a whopping 68% in the six months to September 2020. Though semiconductor

Sanko Co. Ltd.

Sanko (‘company’) is a small manufacturer of precision parts – primarily in the form of pressed and plastic composite processed products – for use in automobiles, housing equipment (electricity meters), office equipment (printers), digital appliances (cameras), and other electronic component-related and industrial equipment-related products. The company sells over 80% of its products within Japan and the balance throughout Asia and elsewhere. It has a manufacturing subsidiary in Thailand that constitutes 25% of its tangible assets - from which it imports molds, jigs, tools and other products. The overwhelming majority of its sales is for use in automobiles and hence, its fortunes are largely tied to the automobile industry. 30% of its sales are to two customers (Denso Corporation and Osaki Electric Co.). The company’s product offerings are subject to severe competition internationally – but orders prior to 2020 remained firm due to effective cost management. However. the coronavi