Exited UKC Holdings Corp (TYO:3156)

So UKC hit a valuation of above net current assets a lot sooner than I expected. Not because the share price took of on a rocket, but because the company made large write-downs of receivables and prepayments.

The share has traded up since I took my position, but I feel a bit anxious about the write-downs so I sold. You know “Misfortunes never come singly” – there could be more problems with the books. The need to put together an independent audit committee indicates managerial problems.

Exited at ¥1922, so return of about +17 % in 5 weeks.

 

Entered UKC Holdings Corp (TYO:3156)

UKC Holdings is engaged in the sales and distribution of semiconductor and electrical components. It´s a typical Japanese net-net low margin business. Entered at ¥1630 or a NCAV ratio of about 0.51. The company pays dividends and have some IR info in English.

Current assets  ¥  134 895 000
Total liabilities  ¥   85 111 000
Net current assets  ¥   49 784 000
Market cap  ¥   25 500 000
Ratio 51%

Entered Odawara Auto-Machine Mfg (TYO:7314)

Odawara is principally engaged in the manufacturing, development and sale of bus fare and ticket systems. The company has it’s roots in the 1950s and seems to have been involved with bus fare equipment since the 1970s. The company was listed in 2009. The company has less than 1500 share holders and a market cap of circa 14 million USD.

All reports are in Japanese. From what I can gather business is a bit slow. The Tokyo Summer Olympics in 2020 may give an upswing, as public transport will be overhauled and the company is well established in the Japanese metropolitan areas.

The company has current assets of 4.6 B¥, total liabilities of 1.2 B¥. Current assets includes 1.7 B¥ in cash. Market cap is 1.6 B¥.  The company is in other words trading at 50 % discount to the current assets. Price 507¥.

 

Entered Sasakura Engineering (TYO:6303)

I am aware that I may be overenthusiastic about the Japanese net-nets, but I’ve still picked another one. This time Sasakura Engineering. The company is engaged in the development of desalination plants, heat exchangers etc.

It’s a quantitative pick. There are many things to like from a net-net perspective, strong balance sheet, reducing share count, cyclic business. From my limited knowledge it would seem that the company could benefit from some macro trends – growing population and urbanization.

The company provides some limited IR info in English. Trading at NCAV of 0.5.

The share has a rather large lot size of 1 000 shares, so it’s limited liquidity. Unlocking value in this company could be as simple as reducing the lot size to 100 shares (common for many Japanese stocks).

 

Entered Kawasumi Laboratories (TYO:7703)

Opened a small position in Kawasumi Laboratories. KL manufactures and sells medical devices relating to hemodialysis, blood banking, infusion therapy etc. The devices are mainly of a more simple and disposable nature.

It’s not wide moat medtech business, but more of a commodity market. However, the company has a very low valuation, is trading below NCAV and have a strong balance sheet. The company has been profitable during the last years, although poor margins as with most Japanese net-nets. Dividends looks ok and the company performed a 5% share repurchase last year.

Entered at ~0.63 of NCAV or 660¥.

Market cap 14 400 M¥ (126 MUSD)
Total cash 15 501 M¥
Total liabilities 5 637 M¥
P/S 0.54
P/B 0.40

 

 

Entered Sanshin Electronics (TYO:8150)

Japanese stocks still make out a large chunk of my net-net observation list. Once a month or so I go over the list and select the cheapest or best deal possible. This month I took a position in Sanshin Electronics. As with most Japanese stocks this one was selected on a quantitative basis. However, Sanshin does have some IR info in English.

Sanshin has two business lines. First a device distribution business and second a solution business, where the solution business deals in planning and developing IT infrastructure. The distribution business have a high turnover and slim margins. The solutions business seems to be the more profitable one.

I found a nice write-up of the company on this Swedish blog. Entered at 870¥ or P/NCAV of 0.43.