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.

 

Entered Magnificent Hotel Investments (HKG:0201)

Magnificent Hotel Investments is a owner and operator of seven large hotels, one located in Shanghai and the rest in Hong Kong. Magnificent has been going through some restructuring the last year, spinning of another listed company as well as changing company name. Going forward it seems that the company will focus on the hotels in Hong Kong, already sold of one hotel i Macao.

The investing thesis for Magnificent is simple:

  • The share is trading at large discount to book value (sorry, not a net-net this time).
  • The company has little outstanding debt, ie financially strong given the several large properties they own.
  • Clear focus in the company going forward.

The discount to book value is likely caused by the down turn in the Chinese economy and falling property prices in, particularly, Hong Kong. The last year has been though on hotels in HK as the number of mainland tourists have decreased. Given the world does not end, I think it’s likely the tourists will be back.

Entered small position at 0.174 HK$.

P/B: 0.4

P/S: 3.5

P/E: 16.50

Portfolio Performance 2015

I started the “Bargain Hunter”-portfolio at the end of Q1 2015 with a clear idea of buying quantitatively cheap shares.

The average return of the shares was -0.3 %. This is not the same as the portfolio return (which was a tad worse). The absolute return of the portfolio is more difficult to calculate (transaction costs, tax, fx rates etc) and I think – of little value in the first year. Especially given the short holding period for most shares.

So, what does -0.3 % tell me? Well, comparing to some major indices it looks promising. Most major markets have been in decline since Q1, so a break-even result is ok.

Next year is going to be interesting!

Open Positions        
Company Price Div EOY Return
Kingboard Copper Foil Holdings Ltd 0.1807 0.2 11%
NICHIWA SANGYO CO., LTD. 235 252 7%
MultiClient Geophysical 0.7 0.74 6%
KK Chuokeizai-Sha Holdings 418 432 3%
EIDAI KAKO CO., LTD 294 301 3%
Charle Co Ltd 474 481 1%
Renesas Easton Co Ltd 460 458 0%
QC Holdings, Inc. 1.67 0.075 1.46 -8%
PC Partner Group Ltd 0.752 0.69 -8%
Tiemco Limited 577 517 -10%
I-O DATA DEVICE, INC. 630 13 549 -11%
NIPPON ANTENNA CO., LTD 655 576 -12%
Oriental Watch Holdings Limited 1.344 0.0035 1.14 -15%
Emerson Radio Corp 1.18 0.99 -16%
Coventry Group Ltd. 1.454 0.025 1.15 -19%
Swing Media 0.856 0.61 -29%
Boom Logistics Limited 0.13 0.092 -29%
Closed Positions        
Company Entered Div Exited Return
HXTL 1.38 3.05 121%

1 year follow-up, QC Holdings, Inc (NASDAQ:QCCO)

QCCO has been in the portfolio for one year and it’s time to do a follow-up. Price has fluctuated during the year and is at the moment -17% (including dividends). The total dividend during the year was 0.075 $.

The share had a 52-week high of 2.68 $, which was equal to a 60 % gain. Still, a bit short of my get-out early trigger and now the share is in the red.

Glancing the key ratios and balance sheet the share still looks ok, so it will stay in the portfolio one more year.

Q3-14 Q4-15
Price 1.67 $ 1.3 $
F-Score 4 8
Z-Score 3.0 3.6
P/NCAV 0.59 0.5

1 year follow-up, Boom Logistics (ASX:BOL)

Time for a one year review of Boom Logistics. At the moment the share is trading at 0.1 A$, which is equal to a -23 % drop.

Boom Logistics was included in the portfolio on the assumption that Plant & Property could be treated as current assets and that the stock was a net-net in disguise. Given this assumption the share price had a big margin of safety one year ago.

The company has faced decreasing demand during the last year, primarily due to due to decreasing commodity prices. However, the company has been been able to sell down underutilized equipment and repay debt so the basic assumption has proven true.

The company is not profitable, but management seem on-top of the situation. As P/NCAV ratio is lower today and there is progress the stock will remain in the portfolio one more year.

 

FY-14 FY-15
Price 0.13 0.1
F-score 3 4
Z-score 0.1 0.1
P/NCAV*  0.57  0.52

*Includes 60% of Plant & Property

Entered Nichiwa Sangyo Co Ltd (TYO:2055)

Nichiwa Sangyo is a Japanese company manufacturing livestock feeds. Nichiwa is trading at a discount to net-current assets (P/NCAV 0.5) and has a strong balance sheet with plenty of cash. The company offers a dividend and stable share count.

As most documents are in Japanese, which I don’t understand, this is mainly a quantitative bet. I see plenty of reasons for the discount, such as poor margins and swelling working capital.