Tigers Polymer Co., Ltd.

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 (above). However, cash flows were positive during this period.

The balance sheet is strong with 8b yen of net cash, and net current assets of 10.3b yen. Adding in investment securities (at market) of 3b yen and investment properties (on a conservative 5% rental yield basis) of 1.2b yen, the company has minimum realizable assets worth 14.5b yen.

The stock is selling at market for 7.8b yen - a 47% discount to minimum asset value, which doesn’t include the manufacturing business.

Considering the basic demand of the company’s products, management’s own target for FY 2020, the research and development into new products, and the recent capital expenditures, we consider revenues and net profits of 40b yen and 1.3b yen to be achievable – this is still below the performance of every year to 2019. This would represent an earnings multiple of 6x at market.

Management declared a policy of paying out 20% of consolidated profits, which to us is inadequate. Nevertheless, recent payouts have averaged 320m yen, which yields 4% at market – though the recent interim dividend was cut by over 1/3^rd.

Returns on tangible assets are low at 6.5%. Furthermore, the directors proposed anti-takeover measures at the most recent AGM, which were passed. These are important drawbacks for minority shareholders.

Considering the overall scenario, the stock appears to be selling considerably below its value to a private owner.