Analyzing Bargain Stocks

Yotai (‘company’) primarily manufactures refractories, which is an indispensable basic material in the steel, chemical, cement, glass, and other high heat industries. The company operates two segments: a) manufacturing of refractories (85-90% of sales based out of four factories in Japan), and b) engineering, which is the design and construction of kilns that meet the demand of refractory customers (based out of one subsidiary in China). The company’s primary customer is the steel industry, which has been sluggish lately. This adversity was exacerbated by pandemic-related restrictions. Further, there were large increases in the price of raw materials sourced from China. Moreover, competition in the industry is fierce and intensifying. It reported TTM sales (to September 2020) of 24.1b yen (FY 2019: 27.9b), ebitda of 4b yen (2019: 5.9b yen), and net profits of 2.2b yen (2019: 3.6b yen). Recent free cash flows were good at 5bn yen. The financial position is strong with net cash o

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 (abo

Nakayama Steel (‘company’) manufactures and sells steel products – in the form of crude, rolled, and processed steel – primarily to the construction, automobile, and industrial machinery industries. It also has small engineering, and real estate leasing/brokerage operations. The company sells its output within Japan with significant sales to Hanwa and Nippon Steel – both major shareholders. One competitive advantage it has is in securing low-cost raw materials via its scrap iron facilities. The steel industry suffered during the pandemic with a drop in steel prices and volumes. Beyond that, the Japanese steel industry suffers from a sluggish demand outlook with a declining population. Further, competition is expected to intensify with excess capacity of Chinese steel mills set up in South East Asia. Moreover, it suffers from increasing labor, transport, and electricity costs. The company reported TTM sales (to September 2020) of 115.7b yen, down from a 2019 high of 153.7b yen; eb

Techno Ryowa (‘company’) is engaged in the design and manufacture of construction equipment using air conditioning and sanitation equipment technology. It generates practically all of its sales within Japan from industrial equipment construction (58% of 2019 sales), general building equipment construction (39%), and electrical equipment construction (3%). The private sector contributes over 80% of its revenues with the balance coming from government work. The pandemic adversely affected capital investment demand from the private sector and sales efforts were badly hampered. Orders dropped 28% over the year, and sales declined 18%. Further, 78% of its business is generated via competitive bidding and the balance via “special mission” projects. The company reported TTM revenues (to September 2020) of 55.7b yen down from the 2019 high of 67.4b yen. TTM ebitda and net profits were 3.3b yen and 2.1b yen - down from 4.8b yen and 3b yen respectively in 2019. Average earnings were 2.6b y

Shinnihon (‘company’) is another construction business operating in Japan. In addition to civil engineering and construction contract work (60% of sales), it engages in purchase and development of properties (40% of sales). It engages primarily in residential condominium construction but is also engaged in contracts to build hospitals, hotels, dormitories, etc. It also develops and rents office space. Management intends to strengthen its capacity in logistics/commercial construction – with a particular focus on large-scale steel frame construction. The pandemic has disrupted activity in Japan’s construction sector. In addition to sluggish demand, the company faces severe competition, and increasing prices of construction materials and labour. The company reported TTM sales (to September 2020) of 102.2b yen (FY 2020: 112.5b yen), ebitda of 13.1b yen (2020: 15.2b yen), and net profits of 8.9b yen (2020: 10.5b yen). It generated average free cash flows of 11.9b/year. It had substantial ca

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

Daisue (‘company’) is engaged in the civil engineering and construction contracting business in Japan. It focuses primarily on condominium/housing construction. It also owns 19.7% interest in an associate that specializes in industrialized housing; and has smaller interests in supplying manpower for security and nursing. The company is long-established and has generated consistent orders and revenues through the years. The coronavirus pandemic resulted in suspension of orders, difficulty in obtaining building materials from China, and general interruption of construction activity. This resulted in 15% declines in sales over the year (to September) and 28% declines in operating profits. It reported TTM sales of 60.2b yen (2019: 65.2b), ebitda of 2.5b yen (2019: 2.9b), and net profits of 1.7b yen (2019: 1.9b). The cash balance was substantial at 7.6b yen and the net current asset value stood at 13.4b yen. Receivables were also substantial at 20.6b yen but doesn’t indicate a problem