Tobishima Corporation

Tobishima (‘company’) is engaged in civil engineering (57% of revenues), construction (37%), and real estate development (6%) work in Japan.

It generates 25-35% of its orders via “special mission” contracts, and the balance via competitive tenders.

The construction industry in Japan is currently experiencing declining demand and fierce competition after work for the Tokyo Olympics subsided. It faces a fairly poor demand outlook on account of Japan’s aging population, and a shortage of skilled workers. Orders to March 2020 were already down 25-30%. The coronavirus pandemic further dented orders and sales.

The company reported TTM sales (to September 2020) of 129.4b yen (FY20: 134.9b), ebitda of 7.6b yen (FY20: 8.7b), and net profits of 4.3b yen (FY20: 5.1b). Earnings averaged 5.2b yen over the last five years.

The company operates with net debt of 6.9b yen, which is easily covered by less than a year’s operating earnings.

Receivables were fairly high at 55.2b yen, which indicates an average collection period of five months. Though recent operating cash flows are weak, the past average is sufficient to warrant some confidence in management’s ability to collect.

In addition to the current assets, the company owns 11.9b yen in real estate (at market) that is leased out, and listed securities worth 3.8b yen. Adding these to the net current asset value amounts to 29.5b yen in minimum liquidation value. Further, tangible equity amounted to 39.5b yen.

The stock is currently selling for 20.5b yen – at a 30% discount to liquidation value, and 4x earnings.

Recent dividends amounted to 961m yen yielding just under 5% at market.

At the current market price of equity, despite the negative outlook, it appears to us that even debt for this amount could be safely issued against this company’s property and earning power.