TYO:9193 - Tokyo Kisen Co

[claphands22]

Here is a Japanese net-net.

 

Tokyo Kisen is a tugboat company with other chartering activities. The company also has a weird restaurant business.

 

I original heard this from a Value Investing podcast with Jacob Taylor of Farnam Street Investments.  http://beyondproxy.libsyn.com/42-jacob-taylor-of-farnam-street-investments

 

At 25:15 Jacob starts to explain the company a bit more. He also gives another Japanese net-net idea.

 

share price: 549

dividend yield: 2.45% (current information is from MSN money Q2 of 2013, wish I could get more up to date info)

shares outstanding: 9.95mil

cash per share 770

debt per share 162

cash net of debt per share 608

P/E 7.7

 

 

For those of you interested in Japanese net-nets, this could be an opportunity for you. It's hard to get good information on this company because of the language barrier . The restaurant business makes me cringe, but maybe this goes with the territory of Japanese net-nets.

[Brice]

Was digging through the archives here and ended up buying Tokyo Kisen.  It's been a couple years since the OP and they posted a <a href="http://www.tokyokisen.co.jp/eng/english.pdf">company overview in English</a> that made starting the research easier.  Overall situation hasn't changed much; just growing earnings and dividend.

P/E: 6.7

Dividend yield: 4.35%

Current Assets-Total Liabilities=648 yen/share vs last trade of 620.  On top of that you get their income generating tug assets in Tokyo Bay, Hong Kong, and a few places in China and non-Tokyo Japan.  Those tug assets would be worth ~3.5B yen in the current secondary market (50% of market cap) but they're not going to be liquidating or anything.

 

I'm cautious of Japanese net-nets because there's rarely a catalyst and the time value of money can quickly melt a balance sheet's value away.  The occasional profitable one seems to always be in a business I just don't understand the local dynamics of (kitchen appliances, pachinko parlors, etc.)  I found a <a href="http://www.e-stat.go.jp/SG1/estat/OtherListE.do?bid=000001009040&cycode=1">monthly report of vessels calling on Tokyo Bay</a> that got me comfortable Tokyo Kisen is in a zero growth business that doesn't change.

[rb]

I'm sorry if I'm hijacking this thread a bit but I'm curious if anyone has figured how to trade these Japanese equities successfully. I think for the discussion Tokyo Kisen is a good example for the japanese market which has a lot of peculiarities.

 

The environment is very different. There's a lot of capital inefficiency. In Japan there's not a lot of catalysts, there's not gonna be a PE shop that'll take out Kisen, or any corporate restructurings. Then there's also the yen which is a crazy currency.

 

So then what are we left with? Do we go to the most basic version of owner earnings - dividend yield? In the case of Kisen the previous poster says yield is 4.35 as per google. Bloomberg says 3.71 but whatever. Does one price off of that and finances with margin yen at 1% and uses it as a positive carry trade?\

 

We know there won't be much growth in this business but we'll need tugs in tokyo bay and hong kong. Those aren't going away. So that coupled with the company's cash position should make the dividend safe? Or may the management decide that they need more cash for no reason?

 

I'm struggling with these valuations and I would really appreciate the help of someone who has a feel for Japanese companies and what's going on over there to help a greedy blind man though the crowd.

[writser]

As a foreigner you'll always be at a huge information disadvantage. I can barely understand the annual report of a few of the Japanese companies I own. Basically the only thing that makes me like these stocks is that they are (or appear) very cheap on most metrics. I think the sensible thing to do is to buy a basket and wait .. I personally don't care about the yen fluctuating, but if you do you can hedge it. "Trading" these stocks is very difficult because sometimes a stock goes up or down 10% and you either cannot find any news or cannot interpret it. As another poster said a few years ago: "buy them and put them on the back burner". If a stock trades at 1/3 book and 5x PE with a 4% dividend eventually something good willl happen. If that is not your cup of tea you should probably stay away from Japanese stocks.

 

FWIW there are some older threads here about investing in Japan with decent discussions going on (also about general investing in Japan and currency hedging), for example:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/5965-jp-fujimak-corp/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/finding-japanese-net-nets/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7297-jp-car-mate-manufacturing-co/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/9776-jp-sapporo-clinical-laboratory-inc/

 

[ScottHall]

Tokyo Kaizen Ichiban, Tokyo Kaizen #1!

[rb]

Thanks Writser! :)

[Brice]

So then what are we left with? Do we go to the most basic version of owner earnings - dividend yield? In the case of Kisen the previous poster says yield is 4.35 as per google. Bloomberg says 3.71 but whatever. Does one price off of that and finances with margin yen at 1% and uses it as a positive carry trade?

 

We know there won't be much growth in this business but we'll need tugs in tokyo bay and hong kong. Those aren't going away. So that coupled with the company's cash position should make the dividend safe? Or may the management decide that they need more cash for no reason?

 

I'm struggling with these valuations and I would really appreciate the help of someone who has a feel for Japanese companies and what's going on over there to help a greedy blind man though the crowd.

 

The P/E of 6.7 is based on company's guidance of 900M yen for current Fiscal Year.  Hasn't disclosed why guiding down YoY but likely because of softness in their Chinese minority stakes or just a softball number the're looking to beat

 

As to the more important question of how to trade, I just trade them like US micro cap stocks.

Private equity purchase catalyst: very unlikely for either though both markets do see them on occasion

Insiders reaping the benefits: problem in both though in Japan it tends to materialize as cash accumulating on the BS which at least isn't totally lost.

 

I agree with Writser that trading in and out of Japanese small caps is unlikely to be the best idea.  Liquidity alone makes that even more difficult than in the US.  I disagree there's an information imbalance when compared to the US market.  There are even fewer local investors looking at Japanese small caps than US ones so if anything your relative information position can be better.

 

As another poster said a few years ago: "buy them and put them on the back burner". If a stock trades at 1/3 book and 5x PE with a 4% dividend eventually something good willl happen. If that is not your cup of tea you should probably stay away from Japanese stocks.

 

My thoughts exactly.  On many investments.