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 coronavirus pandemic has suspended automobile manufacturing and dented the company’s sales. All other segments also suffered declines in sales.

It reported TTM sales (to September 2020) of 13.1b yen (FY20: 14.7b), ebitda of 853m yen (FY20: 1b), and net profits of 237m yen (FY20: 423m). However, net profits have averaged 473m yen since 2017.

The balance sheet abounds with net cash of 5.2b yen, and a wealth of net current assets (including securities at market and investment properties) of 8.8b yen.

The stock is currently selling for 4.3b yen, at less than half of liquidation value, and 9x average earnings.

Returns on tangible assets are dismal at 6% and payouts of dividends seem inadequate at 25% of average earnings - amounting to 117m yen and yielding under 3% at market.

However, this is a stock that is selling so cheap that investors are unlikely to lose their principal at this price, and appear to obtain an adequate earnings yield to tide them through future adversities.