Analyzing Bargain Stocks

Dutech (‘company’) is listed in Singapore and primarily operates in two segments: a) High security solutions (HSS): Manufacturing safes for ATM machines, banking, and commercial use; and b) Business solutions (BS): Manufacturing ticketing/vending machines (used for parking, gaming, lottery, etc.) and wholesaling semiconductor and precision machine parts. Though both segments contribute equally to sales, the HSS segment contributes 85% of profits. It is Asia’s largest operator in the HSS segment – its UL and CEN certified products are valued in Europe (60% of sales) and the Americas (25%) – but not so much in its home base of China (4%) where it doesn’t intend to compete with lower-priced offerings. This segment, however, faces long-term headwinds due to the increasing use of cashless transactions resulting in lower demand for ATM safes. In addition, the industry faces rising raw material and labor costs. Moreover, the US-China trade spat resulted in higher costs with the use of t...

IJTT (‘company’) is engaged in manufacturing automobile parts – primarily for use in trucks and construction machinery. Isuzu Motors – a prominent commercial vehicle and diesel engine manufacturing company - owns 43.5% of the company’s stock, and generates 69% of its sales. Its sales are primarily generated in Japan (83% of 2020 sales – split further as 54% auto parts and 29% engine parts) with the balance from the rest of Asia (17% auto parts – primarily to China’s construction machinery market). Moreover, its tangible asset investment is split similarly - and includes operations in Indonesia and Thailand. FY20 sales were actually higher than expected because of rushed buying before Japan’s consumption tax hike kicked in. However, the coronavirus pandemic has significantly diminished sales for the company’s products – and suspended production. TTM sales (to September 2020) was 136.3b yen (FY20: 171.7b); ebitda was 6.4b yen (FY20: 13.9b yen) and net losses were 1.2b yen (FY20:...

Geostr (‘company’) manufactures construction materials used in a) the civil engineering segment using reinforced concrete; and b) the building construction segment using precast concrete. It primarily specializes in supplying tunnel structural materials for subways, waterworks, and sewerage. The industry is blighted by an aging workforce and a shortage of skilled labor. It also faces the unpleasant long-term prospect of a declining population and consequent reduced demand. Further, it is also exposed to rising raw material prices of cement, aggregates, steel, etc. Nippon Steel (third largest steel manufacturer in the world) owns 42.3% of the company – directly and via subsidiaries. It also generates about 50% of the company’s sales. The company primarily serves the public sector and therefore its prospects are tied to the Japanese government’s public investment plans, which has been relatively firm in the recent past – though some work has been suspended as a result of the corona...

Trinity Industrial (‘company’) is part of the Toyota Group and is engaged in manufacturing painting equipment (74% of 2020 sales), and automobile interior and exterior parts (26%). The segment profit split is 83% and 17% respectively. The Toyota Motor Corporation owns 40.71% of the company directly and through other subsidiaries. Further, 38% of 2020 sales were to Toyota. In addition to Japan (67% of sales), the company also sold to customers in China (18%), rest of Asia (8%), and others (7%). The company primarily sells to the automobile industry and hence, its fortunes are tied to automobile demand and the industry’s capital investment plans. It is also subject to raw material price rises in resin and steel, which are procured internationally. Recent demand in Japan was adversely impacted by the consumption tax hike – and the main markets of USA and China exhibited lower demand in the last year. Though the pandemic worsened this situation, the company’s sales fell only 6% in th...

Mori-Gumi (‘company’) is a small civil engineering and construction company – with minor operations in real estate sales/leasing, and manufacture and sales of crushed stones. Asahi Kasei Corporation owns 30.26% of the company. Its civil engineering and construction segments are roughly split 50:50 on a revenue basis. Its orders are also split roughly halfway between the government and private sectors. About 1/3 rd of its projects are categorized as “special mission”, and 2/3 rd are generated as a result of competitive bidding. Two customers accounted for 35% of its revenues. The travails of the Japanese construction industry include lower prospective demand due to an aging population; and a real shortage of skilled workers joining the industry. The coronavirus pandemic led to delays and suspensions of major contract work. Though reported sales in the last six months were higher over the previous period, construction orders were down 20%. The company reported TTM sales (to Sep...

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 indic...

Pegasus Sewing (‘company’) is engaged in manufacturing industrial sewing machines for use in the apparel industry (80% of revenues); and die-casting parts for use in automobile safety belts (20% of revenues). The company specializes in ‘chain sewing’ machines used in garment factories for sewing jeans and other knit clothing – and is a leading operator in Japan. Its die-casting parts manufacturing facilities are located in the three major automobile parts production hubs – China, Vietnam, and Mexico – to service American and European automobile manufacturers. The company sells its products across the world in Japan (8% of sales), China (21%), Bangladesh (13%), Rest of Asia (32%), Americas (16%), Europe (7%), and others (3%). Its manufacturing facilities are spread as follows: Japan (46%), China (29%), Vietnam (12%), Americas (11%), and others (2%). The US-China trade dispute and resulting protectionist measures hit the apparel industry badly and capital investment from the garm...