Mitachi Co. Ltd.

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 financial year ended May 2019. The company reported TTM sales of 31.6b yen (2019: 38.5b yen), ebitda of 701m yen (2019: 1.5b yen), and net profits of 297m yen (2019: 972m yen). Average earnings in the last five years have exceeded 600m yen.

The balance sheet revealed a strong financial position with net cash of 1.4b yen, net current assets of 7.3b yen, and net tangible assets of 9.2b yen.

The non-current assets included buildings, machines, investment property (generating rent), and investments in securities.

The stock currently sells for 4.8b yen (609 yen/share), which is at a 1/3^rd discount from net current asset (liquidation) value, a 48% discount from net tangible asset value, and 8x earnings.

Dividend payouts are reasonable at 237m yen in the last year yielding 5% at market. Management aim to payout 30% of earnings. There are, however, 628,400 outstanding options issued to employees - though they have a strike price of 804 yen/share, which is 32% above market.

On the face of it, the business is selling for considerably below its liquidation value with a reasonable earnings yield because of recent poor performance due to the pandemic, which should be short-lived.