Analyzing Bargain Stocks

Imasen (‘company’) is primarily engaged in manufacturing and supplying seat adjusters for automobiles. It also has small operations in manufacturing wire harness products for aircrafts and machine tools; as well as welfare equipment such as electric wheelchairs. Its seat adjusters are ultimately sold to Honda (36.1% of sales), Nissan (11.8%), Subaru (16.9%), and Mitsubishi (13.3%) among others – via intermediate auto parts suppliers. It sells its products in Japan (43% of sales), USA (27%), China (15%), and Thailand (10%) among others – though ultimately its fortunes are linked with automobile demand in North America and China. Automobile demand was severely impacted during the pandemic and the company reported losses, which included impairment of its USA and Mexico operations (605m yen) and inventory losses (80m yen). It reported TTM sales (to September 2020) of 92b yen (FY 2019: 118.6b yen), ebitda of 3.9b yen (2019: 8.3b yen) and net losses of 2.7b yen (2019: 2.5b profit). However,...

Sun-wa Technos (‘company’) operates in the industrial electronics and mechatronics industry. It is affiliated with various manufacturers and trades in products used in automobiles, smartphones, semiconductors, and industrial machinery – among others. The company sells in Japan (74% of sales), China and South East Asia (22%), and the West (4%). It reported product segment sales as follows: Electric (15% of sales), electronic (77%), and machinery (8%). It appears to have a diversified customer and supplier base but is dependent on capital investment trends. The company’s products were unfortunately at the forefront of the US-China trade conflict attracting tariffs. Further, the coronavirus pandemic has delayed capital investment plans and therefore, reduced demand for the company’s products. It reported TTM sales (to September 2020) of 132.1b yen – down from a 2018 high of 146.8b yen. Similarly, ebitda and net profits were 2.1b yen and 1.4b yen – down from 2018 highs of 4.4b yen and 3.1b...

Yotai (‘company’) primarily manufactures refractories, which is an indispensable basic material in the steel, chemical, cement, glass, and other high heat industries. The company operates two segments: a) manufacturing of refractories (85-90% of sales based out of four factories in Japan), and b) engineering, which is the design and construction of kilns that meet the demand of refractory customers (based out of one subsidiary in China). The company’s primary customer is the steel industry, which has been sluggish lately. This adversity was exacerbated by pandemic-related restrictions. Further, there were large increases in the price of raw materials sourced from China. Moreover, competition in the industry is fierce and intensifying. It reported TTM sales (to September 2020) of 24.1b yen (FY 2019: 27.9b), ebitda of 4b yen (2019: 5.9b yen), and net profits of 2.2b yen (2019: 3.6b yen). Recent free cash flows were good at 5bn yen. The financial position is strong with net cash o...

Tigers Polymer (‘company’) manufactures rubber products such as hoses (26% of 2020 sales), rubber sheets (13%), molding products (58%), and others (3%). Hoses are sold for home appliances and industrial uses. Rubber sheets include packing and cushioning materials, and mats (for entrance). Rubber molded products are used in automobile parts. The company manufactures and sells throughout the world: Japan (30% of assets, 50% of revenues), USA (36%, 30%), South East Asia (19%, 7%), and China (15%, 13%). Its largest customer is Honda Motor Company, which contributed 44% of 2020 sales. The coronavirus impacted demand and reduced sales and profits in the latest period. Prior to that, the US-China trade tensions adversely hit the US operation, which resulted in impairment losses at its Ohio facility. The company reported TTM sales (to September 2020) of 36.2b yen, below the 2019 peak of 43b yen; ebitda of 2.4b yen, and net losses of 475m yen – mainly as a result of the 432m yen impairment (abo...

Nakayama Steel (‘company’) manufactures and sells steel products – in the form of crude, rolled, and processed steel – primarily to the construction, automobile, and industrial machinery industries. It also has small engineering, and real estate leasing/brokerage operations. The company sells its output within Japan with significant sales to Hanwa and Nippon Steel – both major shareholders. One competitive advantage it has is in securing low-cost raw materials via its scrap iron facilities. The steel industry suffered during the pandemic with a drop in steel prices and volumes. Beyond that, the Japanese steel industry suffers from a sluggish demand outlook with a declining population. Further, competition is expected to intensify with excess capacity of Chinese steel mills set up in South East Asia. Moreover, it suffers from increasing labor, transport, and electricity costs. The company reported TTM sales (to September 2020) of 115.7b yen, down from a 2019 high of 153.7b yen; eb...

Techno Ryowa (‘company’) is engaged in the design and manufacture of construction equipment using air conditioning and sanitation equipment technology. It generates practically all of its sales within Japan from industrial equipment construction (58% of 2019 sales), general building equipment construction (39%), and electrical equipment construction (3%). The private sector contributes over 80% of its revenues with the balance coming from government work. The pandemic adversely affected capital investment demand from the private sector and sales efforts were badly hampered. Orders dropped 28% over the year, and sales declined 18%. Further, 78% of its business is generated via competitive bidding and the balance via “special mission” projects. The company reported TTM revenues (to September 2020) of 55.7b yen down from the 2019 high of 67.4b yen. TTM ebitda and net profits were 3.3b yen and 2.1b yen - down from 4.8b yen and 3b yen respectively in 2019. Average earnings were 2.6b y...

Shinnihon (‘company’) is another construction business operating in Japan. In addition to civil engineering and construction contract work (60% of sales), it engages in purchase and development of properties (40% of sales). It engages primarily in residential condominium construction but is also engaged in contracts to build hospitals, hotels, dormitories, etc. It also develops and rents office space. Management intends to strengthen its capacity in logistics/commercial construction – with a particular focus on large-scale steel frame construction. The pandemic has disrupted activity in Japan’s construction sector. In addition to sluggish demand, the company faces severe competition, and increasing prices of construction materials and labour. The company reported TTM sales (to September 2020) of 102.2b yen (FY 2020: 112.5b yen), ebitda of 13.1b yen (2020: 15.2b yen), and net profits of 8.9b yen (2020: 10.5b yen). It generated average free cash flows of 11.9b/year. It had substantial ca...

Mitachi (‘company’) manufactures and sells electronic devices (for car electronics, consumer/industrial equipment, etc.), and assembly equipment for electronic devices (SMT line, inspection system, etc.) It generates 2/3rds of its revenues within Japan and 1/3 rd abroad, of which the majority is from China. In its domestic business, it sources electronic devices, on a wholesale basis, primarily from Toshiba Group Co. Its primary customer is Aisin Seiki Co., a major auto parts manufacturer (51% owned by Toyota Group), which contributes more than 1/3 rd of sales. It acts as a contract manufacturer in its overseas business - with its primary manufacturing facilities set up in the Philippines. The coronavirus pandemic has dented automotive sales, and in turn, the company’s business. However, the latest quarterly report in August was prepared before news of the vaccine. To highlight the deterioration in performance due to the pandemic, we compare TTM performance (to August 2020) with the ...

Daisue (‘company’) is engaged in the civil engineering and construction contracting business in Japan. It focuses primarily on condominium/housing construction. It also owns 19.7% interest in an associate that specializes in industrialized housing; and has smaller interests in supplying manpower for security and nursing. The company is long-established and has generated consistent orders and revenues through the years. The coronavirus pandemic resulted in suspension of orders, difficulty in obtaining building materials from China, and general interruption of construction activity. This resulted in 15% declines in sales over the year (to September) and 28% declines in operating profits. It reported TTM sales of 60.2b yen (2019: 65.2b), ebitda of 2.5b yen (2019: 2.9b), and net profits of 1.7b yen (2019: 1.9b). The cash balance was substantial at 7.6b yen and the net current asset value stood at 13.4b yen. Receivables were also substantial at 20.6b yen but doesn’t indicate a problem...

Dynam (‘Company’) is incorporated in Japan but listed in Hong Kong. It is Japan’s largest ‘Pachinko’ game operator with 445 halls. Incongruously, it recently entered the aircraft leasing business. Pachinko halls offer two types of gaming machines: Pachinko and Pachislot. Pachinko is similar to pinball, and Pachislot is similar to slot machines. The company earns 20% revenue margins on average (gross pay-ins minus payouts) before expenses. The company had to shut down 97% of its halls during Covid-19 from April to June resulting in revenue declines of 40% and operating profit declines of 80%. Although it reopened in June, it has only been operating at 70-80% of its normal capacity. It entered the aircraft leasing business in 2018 and currently owns three narrow-body aircrafts (Airbus A320). The average age of the fleet is under two years and operating leases are for five years. Its annualized surface yield is 8.8%. Covid-19 practically decimated the aircraft leasing business – the compa...

APT (‘Company’) is a Chinese state-owned enterprise controlled via China Aerospace Science and Technology Corporation, which holds 54.7% of the company’s shares. It is a leading regional satellite operator with five satellites in orbit, and provides transponder capacity and related services. Its five satellites are Apstar 7, 9, 6C, 5C, and 6D. 6D was put into orbit in July 2020 and is a high throughput (HTS) satellite. The company leases out its transponders to telecommunications and broadcasting customers. Its satellites span Asia, Australia, Middle East, and parts of Europe – covering 75% of the world’s population. It also generates revenues from gateway services – acting as a hub to connect other HTS satellites, processing satellite traffic, and providing network and hosting services. Further, it generates revenues via satellite project consulting services for other satellite operators. The business is suffering from an oversupply of transponder capacity and lower leasing ra...

Changmao (‘Company’) manufactures organic acid products. It operates out of mainland China and sells its products in: China (50% of sales in 2019), Europe (22%), Asia Pacific (20%), America (6%), and others (2%). It is a leading operator in its industry and has benefited from ever-increasing stringency in environmental and safety regulations that have put smaller players out of business and consolidated the industry. The effects of Covid-19 reduced demand for its products and brought down selling prices and profit margins – it also had to suspend operations in some of its plants during the lockdown period. This resulted in declines of 26% in revenues and 64% in profits in the six months to June 2020 compared to the previous year. The company reported TTM sales of $462m (2019: $561m), ebitda of $74m (2019: $109m), and net profits of $34m (2019: $66m). Net profits have averaged $44m over the last five years, which incidentally is the target before which management and employee bonu...

Cinda (‘Company’) is 63% owned by Cinda Securities Co. Ltd, which is indirectly controlled by China Cinda Asset Management Co. Ltd – and ultimately controlled by the Chinese Ministry of Finance. The company was formed in 1999 and the H-shares were listed in 2013. It provides asset management services (36% of latest six-month revenues), corporate finance services (44%), and sales/trading/brokerage services (21%). It acts as China Cinda Group’s service centre for overseas asset management with a focus on distressed and troubled assets. In its corporate finance business, it acts as advisor for equity and debt issuance. This includes equity issuance for Chinese companies looking to list in Hong Kong and overseas US$ bond issuances for Chinese companies. The sales/trading business benefits from increased trading activity on the Hong Kong stock exchange, and includes interest income on margin financing (8-13% p.a. in the recent period). The company reported TTM revenues (to June) of $320m (2...

Thelloy (‘Group’) provides building construction services, repairs/maintenance/alterations/additions (‘RMAA’) services, and modular integrated construction services in Hong Kong as the main contractor. The group has several crucial construction licenses to execute projects for public works, housing authority, buildings department, etc. that confer competitive advantages. It experienced severe declines of 70% in revenues, however, in the six months to September due to the pandemic as customers suspended construction work, and suppliers suspended delivery of materials. The group reported TTM revenues of $297m (2019: $537m), which was down from a peak of $912m in 2018. TTM ebitda was $18m (2019: $31m) and net profits were $4m (2019: $13m). It reported cash balances, in excess of working capital requirements and debt, of $41m. It has committed $44.1m, however, towards a 49% interest in a joint venture (with external financing) to redevelop a 13-storey industrial building to a 23-storey bui...

A.Plus (‘Group’) is a provider of financial printing services to listed companies in Hong Kong. It provides design, typesetting, translation, and printing services. It generates revenues from a) Results announcements/Financial reports (58% of sales); b) Company announcements/Shareholder circulars (27%); c) Debt offering circulars/IPO (11%); d) Fund documents (1%); and e) Others (3%) Revenues to September 2020 only fell marginally as debt and stock offerings in Hong Kong dried up compared to the previous year due to the pandemic and geo-political concerns – but this was offset by recurring work with results/other corporate announcements. Profits held up over the previous year due to the receipt of $5.2m of government grants in pandemic relief. The group reported TTM sales of $140m (2019: $147m), ebitda of $30m (2019: $37m) and net profits of $26m (2019: $26m). The group generated average earnings of $25-$28m and similar free cash flows. (This is after charging rental payments to...

CCID (‘Company’) is 70% owned by the Chinese state. It is affiliated to the China Electronics Information Industry Development Research Institute - of the Ministry of Industry and Information Technology. It is one of China’s leading providers of research, consulting, and IT-related outsourcing services - and has a diverse roster of high-profile clients. It reports revenues under four segments: i) Management and strategic consultancy services – implementation of enterprise management applications (48% of 2019 revenues); ii) Market consultancy services – market research (9%); iii) Information Engineering Supervision Services – software, network, communication, and security projects (37%); and iv) Others (6%). The company was hit by quarantine during the Covid-19 outbreak which resulted in delays in customer acceptance of work done and hence, declines in revenue recognition during the period. As of date, however, it is back to full operational strength. The company reported TTM sa...

Perfect (‘Group’) is in the business of a) designing, manufacturing, and exporting fine jewellery; and b) property development. It manufactures high-end fine jewellery products primarily mounted with diamonds. Its product range includes rings, earrings, pendants, bangles, necklaces, and bracelets. The group sells its wares in Hong Kong and Dubai; and has a jewellery trading operation in China via a 19% interest in an associate (loss-making so far). The group is also developing an industrial park in Foshan, China and leasing/selling completed units. Covid-19 has severely impacted the jewellery segment with sales dropping 67% over the year. This was offset by property sales. The group reported TTM sales of $746m (2019: $787m), ebitda of $253m (2019: $232m), and net profits of $173m (2019: $171m). The jewellery segment generates normal sales of around $320m and average profits before taxes of $40-$50m. The property segment is represented by $207m of properties held for sale under inventor...

Tang Palace (‘Company’) operates 59 restaurants and 11 others under joint ventures across China. It operates primarily under the ‘Tang Palace’ brand (30 restaurants; contributing 76% of revenues) along with ‘Social Place’ (9 restaurants; 14%), ‘Canton Tea Room’ (4 restaurants; 5%), ‘Pepper Lunch’ (14 restaurants, 3%), and ‘Tang’s Cuisine’ (1 restaurant, 2%). The company was particularly hard hit during Covid-19, with revenues dropping by 46% over the year and generating losses. Restaurants in China were closed from the end of January to mid-March. The company reduced labour costs considerably in the six months to June. Lease liabilities, however, are a significant factor in the business and contributed to the losses despite rent concessions. It reported TTM sales of $1.3b (2019: $1.7b), ebitda of $158m (2019: $311m), and net losses of $29m (2019: profit of $104m). Despite reporting losses, the company generated $18m in free cash flows in the six months to June. The company’s ba...

Brilliant Circle (‘group’) is engaged in the printing of cigarette packages (87% of sales), manufacture of paper packaging materials (6%), laminated papers (3%), and RFID products (4%). It generates 98% of revenues in China and exports to Brazil, Indonesia, USA, and Korea. The group halted production in February due to lockdowns arising from the pandemic. However, subsequent sales picked up so vigorously as to eliminate any adverse impact from Covid-19. The key risk facing the business apart from public pressure to restrict smoking are the tendering rules set by China Tobacco, the monopolistic government-owned cigarette company and tobacco regulator. The current mandatory tendering system has kept the group’s selling price under pressure. It reported TTM sales of $1.5b (2019: $1.5b), ebitda of $336m (2019: 335m), and net earnings of $183m (2019: $176m). The balance sheet was healthy with net cash of $61m though gross borrowings had gone up to $672m – apparently to pay a $300m final div...

Goldion (‘group’) is a Hong Kong-listed enterprise owned 68.17% by the Tsang family. It is engaged in the manufacture and sale of apparel, leather goods, and accessories in China, Hong Kong, Singapore, and Malaysia. It also has a substantial investment property portfolio and develops residential properties for sale. The group distributes its apparel through 880 retail outlets in China of which 100 were self-operated. It also earns licensing fees for use of its brand. Further, it sells via e-commerce, which contributed to 35% of China apparel sales. In addition, it had 17 outlets in Singapore and 7 in Malaysia. Its apparel business was badly hit by the pandemic with 28% decrease in China revenues (largest contributor) in the last six months and 40% decrease in apparel profits excluding inventory impairment, which was substantial at $45m as near-term prospects were gloomy. It owns investment properties worth $2.9b in China ($1.7b), Hong Kong ($1.1b) and Singapore. The key property ...