Imasen Electric Industrial Co., Ltd.

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, free cash flows have been impressive – averaging 3.3b yen/year.

The balance sheet is strong with net cash of 14.8b yen. Adding its investment securities (at market) to net current assets results in 24.3b yen of minimum realizable value.

The stock currently sells for 15.5b yen (746 yen/share) – at a 36% discount to minimum liquidation value and under 5x free cash flows.

Interestingly, this company was subject to a tender offer in the last month by TS Tech – a customer of the company – for 930 yen/share. As a result, it ended up raising its stake from 3% to 28% currently.

It also entered into a “Capital and business alliance” agreement with management to raise its stake to 34% via a share issue – likely by the end of January above 840 yen/share. Management asserts that such a partnership will help expand the company’s business by combining manufacturing, research, and sales capabilities.

As part of the tender offer, management commissioned a securities firm to helpfully value the shares. Though it wasn’t a fairness opinion, values ranged from 765 to 1197 yen using comparable companies, and 925 to 1410 yen using discounted cash flows (which used management’s estimates for business performance to 2023).

Even accounting for the proposed share issue (at a premium to the current share price), the shares appear to be selling at a sufficient discount to a fair assessment of value – and certainly on the basis of liquidation value and cash flows – to warrant investment.