5965.JP - Fujimak Corp

[rmitz]

I don't agree. Splitting out the currency trades vs. the actual stock trades is far more transparent to the end user. Lots of brokers rip you off by charging arbitrary currency conversion fees. And you are clueless about the fairness of the rates they execute at (for example, with dividends paid out in yen, you are completely left at the mercy of your broker for deciding what days' exchange rate to use). And you can't even choose whether you want to hedge currency or not with these other brokers. Ok, maybe it's not intuitive, but I don't think that should be an argument. You should be aware of what is going on under the hood when trading foreign stocks. I have a finance background though. I agree that their interface is quite overwhelming at first - maybe the only drawback of IB.

 

The only thing I’d really wish for is a way to set up the trade so that both steps happen at once, and I don’t have to manually figure out how much yen to buy and so on…do you know if there’s a way to do that?  I haven’t really tried to plumb the depths of the interface.

[Hielko]

You can right-click on the FX balances in the account windows and choose "close currency balance".

[benhacker]

The only thing I’d really wish for is a way to set up the trade so that both steps happen at once, and I don’t have to manually figure out how much yen to buy and so on…do you know if there’s a way to do that?  I haven’t really tried to plumb the depths of the interface.

 

In IB, just create the order to buy (limit), and then right click it, you can "attach" a forex order to it.  It makes the stock buy and the forex to neutralize the buy / sell back to your home currency all one transaction (two commissions still).

 

The upside is that it's simple, you don't worry about currency balances, and any forex gain / loss is rolled into the basis of the shares instead of split separately complicating your taxes (US based statement).

 

Ben

 

PS - please trade liberally... still long IBKR. :)

[Libs]

Libs,

 

If I remember right, I saw that video in late 2012.  It was one of the reasons why I was convinced to stay out of Japan in 2013.  Whoops.

 

To give Grant credit (and whoever else made me initially wary of just doing, say, net-nets in Japan), because of them I spent a *lot* of time researching different strategies, beyond just net-nets, low P/B, etc., to see which ones really seemed to consistently work.  All of my posts meet the "stats show a catalyst based on what's been previously seen in the market" requirement, which is typically, but not exclusively, having a low P/B with a medium to high BVPS growth rate, and a high and stable ROIC.

 

Thanks West. That makes sense intuitively...if there is at least some growth in IV, at some point the market should lift these things.

 

My previous approach to this rattled me a bit. 0129.HK. Bought it around .3 BV, waited a year+, and gave up in disgust after a 35% loss.

 

I sold it and it promptly doubled.

 

I think the basket approach, (correctly screened), and more patience, is the way to go.

 

By the way 0129.HK was ~.2 book last time I checked. Although it should be noted, on average it has sold ~.3 book. I might add it to the Japanese basket...

 

Thanks again.

 

 

 

 

 

 

[west]

Libs,

 

On the Hong Kong stock: I'm pretty familiar with Japanese culture and how things work over there.  I used to be able to speak Japanese decently well and studied abroad there in college.  Because of this, I have no issues putting money to work in Japan.

 

Besides knowing that they speak Cantonese and that they used to be a British colony (so maybe they're a common law system?), I'm not familiar with Hong Kong at all.  So I don't know how well my interests are protected.  Ditto with Russia and China.

 

Until I know this, I'm going to stay away from those countries myself.  There are plenty of opportunities in the US, Europe, and Japan for me!  (And Korea, which I think is very similar to Japan in many respects.  But don't tell anyone from Korea or Japan that!)

[oddballstocks]

Yes, all my Japanese holdings on the back burner.  I'm going to get kicked out of being a value investor for what I say next but here it goes..

 

With these stocks I basically ignore them.  I log in and look at their price a few times a week.  If the stock suddenly starts to appreciate I'll look and see if there's a filing or news release.  If the price drops like crazy I'll look at their results as well.  Otherwise I do nothing, literally nothing.  I have a few that have been mostly flat or slightly down for two years, I haven't looked at their financials since I purchased.  If I did I know what I'd see, a company that hasn't really changed since I purchased it.

 

As west said just sit back and enjoy the ride.  These things do appreciate given enough time.  Sometimes it's quick, I've had a number go up 50-100% in a matter of days or a week.

 

Wanted to thank all for these great Japanese threads, especially West and Oddball.

 

A little dash of cold water....

 

Jim Grant seems to have applied these principles - net- nets, profitable, dividend payers - and basically treaded water in Japan for 12 years. He (ruefully) invokes Graham and Dodd in this video.

 

http://www.businessinsider.com/jim-grant-japan-2010-10

 

 

I'm sure many of you are familiar with this...it's just a reminder of how frustrating this approach might be.

 

(It isn't stopping me, though).

 

There is a bit of misdirection in this video if I remember correctly.  Grant didn't beat the S&P, but he did beat the Japanese index.  So while he "lost" because he didn't invest in the US, he did beat the relevant index.

[rmitz]

The only thing I’d really wish for is a way to set up the trade so that both steps happen at once, and I don’t have to manually figure out how much yen to buy and so on…do you know if there’s a way to do that?  I haven’t really tried to plumb the depths of the interface.

 

In IB, just create the order to buy (limit), and then right click it, you can "attach" a forex order to it.  It makes the stock buy and the forex to neutralize the buy / sell back to your home currency all one transaction (two commissions still).

 

The upside is that it's simple, you don't worry about currency balances, and any forex gain / loss is rolled into the basis of the shares instead of split separately complicating your taxes (US based statement).

 

Ben

 

PS - please trade liberally... still long IBKR. :)

 

Hey, thanks!  That’s just what I’m looking for.

[randomep]

Well, the complete annual contains at least *more* information. Major shareholders, insider ownership, segment splitouts and a splitout of their stock holdings, among others. Granted, maybe it is not all that important. For those interested I uploaded a rough translation here: http://www.writser.nl/fujimak/translated.htm .

 

I'm starting to like this. Market cap of the company is ~5.3 billion yen, for that you get at the very least:

 

* 3.4 billion yen in cash (net of all debt)

* 0.9 billion yen in listed stocks.

* 0.4 billion yen in investment properties.

* an operating business generating 0,9 billion of fcf on average over the past 5 years.

 

Obviously capital allocation is horrible but this is still dirt cheap. Still wondering about the pension situation. If somebody a little more knowledgeable about that could have a look at the footnotes in the uploaded annual report that would be really appreciated.

 

Hi Writser, I lost my copy of the translation and the link is not longer good, can you plz post it again?

 

thanks in advance

[writser]

My bad, I moved some stuff around. New link: http://writser.nl/beurs/translated.htm .

 

 

 

 

 

 

[randomep]

My bad, I moved some stuff around. New link: http://writser.nl/beurs/translated.htm .

 

thanks! great stuff

[randomep]

 

sh***t 2nd quarter loss is -39yen / shr

 

that's two quarters of losses in a row!

[west]

Thanks for keeping us up to date.  I really should follow quarterly reports for these companies better...

 

That being said, if I'm reading things right, it's now trading for *less* than its cash balance despite earning 1/3 its market cap before tax last year (and similar numbers the years before)??

 

I *really*, *really* wish I could read Japanese so I could put all of my money (ok, because I'm conservative, more like 40% of all my money) into this company...

[oddballstocks]

Looks like it was just a forecast?  Extraordinary loss due to a pension contribution if I'm reading it right.  I just translated their website, then read their latest press release.

 

They're still on track to pay the ordinary dividend, and they mentioned being profitable in 2015.  I just sit and wait on these things, don't check them often, just wait.

[mjohn707]

For me fujimak is a little tricky.  I think how cheap it is depends on two things: 1) how confident you are that the recent uptick (2011-2014) in income represents the normal earning power of the business and not a cyclical fluctuation and 2) how much of their cash is actually distributable.

 

In reference to the earning power, if you take the 7-year average (2008-2014) of the net profit from the japan company handbook you get 590 mill yen, which is about a 10% earnings yield on the market cap of 5,550 mill yen.  Earnings in 2011-2104 averaged much higher, a little over 1,000 mill yen per share (18% yield on current market cap), but earnings in the 2008-2010 period were much weaker and only averaged 27 mill yen per share (>1% on current market cap).

 

So for me the question is if we are seeing some sort of depression effect in the 2008-2010 period and that the 2011-2014 represents the true earning power of the business, or if the full 2008-2014 averages are more appropriate.  I don't really know the answer to the question, but I think it's at least possible considering the type of goods being produced (kitchen equipment) and the customer base (restaurants) that we might be seeing at least some extra sales and income in the 2011-2014 period simply because the 2008-2010 period was so bad that restaurants deferred kitchen upgrades and new openings for a while.

 

In reference to the distributable cash, the company does have some debt and a bit of negative working capital if you back out all the cash, so I'm thinking that only 3,500 mill yen to 5,000 mill yen is actually true excess cash.

 

Using a 10x multiple on the low (590 mill yen) and high (1,000 mill yen) earning power and valuing the excess cash at the low (3,500 mill yen) and high (5,000 mill yen) range that gives us a range of values of 9,400 mill yen to 15,000 mill yen, or about a 50 cent dollar, which is not too shabby, but I'm not sure it's a 40% type of position. 

 

What would really solve this problem is if someone had a japan company handbook from the summer 2007 period.  If we had seven additional years of earnings history I think we could handicap this a lot better.

 

[randomep]

Looks like it was just a forecast?  Extraordinary loss due to a pension contribution if I'm reading it right.  I just translated their website, then read their latest press release.

 

They're still on track to pay the ordinary dividend, and they mentioned being profitable in 2015.  I just sit and wait on these things, don't check them often, just wait.

 

The 2nd quarter is over and this appears to be a warning required by law. Their -39yen / share isn't going to change much when the final number is out. On track for dividends? What makes you say that? They are seriously reconsidering.

 

 

[lathinker]

Thanks for posting and discussing the idea. I just bumped into Fujimak when reading the latest annaul report of Rational AG, which is one of the most successful German midcap stocks with a hell of a track record in terms of growing earnings. While discussing Rational as a potential investment would be a matter for a different post, I found it interesting that they were naming Fujimak as one of their OEM partners - the Fujimak CEO has a sizeable picture in the Rational Annual Report: http://www.rational-online.com/media/webseite_ag/ir/annualreports/gb_2013_EN.pdf (just serach the PDF for "Fujimak")

 

This may only be a very minor puzzle piece of the picture but I thought it was worth contributing as I feel we would all love to understand the Fujimak business better.

 

 

[west]

For me fujimak is a little tricky.  I think how cheap it is depends on two things: 1) how confident you are that the recent uptick (2011-2014) in income represents the normal earning power of the business and not a cyclical fluctuation and 2) how much of their cash is actually distributable.

 

In reference to the earning power, if you take the 7-year average (2008-2014) of the net profit from the japan company handbook you get 590 mill yen, which is about a 10% earnings yield on the market cap of 5,550 mill yen.  Earnings in 2011-2104 averaged much higher, a little over 1,000 mill yen per share (18% yield on current market cap), but earnings in the 2008-2010 period were much weaker and only averaged 27 mill yen per share (>1% on current market cap).

 

So for me the question is if we are seeing some sort of depression effect in the 2008-2010 period and that the 2011-2014 represents the true earning power of the business, or if the full 2008-2014 averages are more appropriate.  I don't really know the answer to the question, but I think it's at least possible considering the type of goods being produced (kitchen equipment) and the customer base (restaurants) that we might be seeing at least some extra sales and income in the 2011-2014 period simply because the 2008-2010 period was so bad that restaurants deferred kitchen upgrades and new openings for a while.

 

In reference to the distributable cash, the company does have some debt and a bit of negative working capital if you back out all the cash, so I'm thinking that only 3,500 mill yen to 5,000 mill yen is actually true excess cash.

 

Using a 10x multiple on the low (590 mill yen) and high (1,000 mill yen) earning power and valuing the excess cash at the low (3,500 mill yen) and high (5,000 mill yen) range that gives us a range of values of 9,400 mill yen to 15,000 mill yen, or about a 50 cent dollar, which is not too shabby, but I'm not sure it's a 40% type of position. 

 

What would really solve this problem is if someone had a japan company handbook from the summer 2007 period.  If we had seven additional years of earnings history I think we could handicap this a lot better.

 

One of the more awesome members of this board has given me access to CapIQ, Bloomberg, etc. today.  It's pretty awesome.  Previously I've only worked with publicly available tools and Value Line.

 

Anyways, attached is a chart and Excel file of the EBITDA, EBIT and Net Income for Fujimak from 1996.  I think your analysis, from a Graham standpoint, is about right.

 

Part of the reason I would consider it as a 40% position (maybe hyperbole... but maybe not) is because of their high return on invested capital in the last four years and the fact that they've been reinvesting their earnings massively for growth.  And return on invested capital has remained stable on the money is that was reinvested.  So they've had a massive bout of high quality growth recently.

 

If I could read Japanese well enough, I could see whether they've just randomly gotten lucky in all areas in the last four years, or if there's a real mover and shaker stirring things up to make the business grow big time.  If they just got lucky with their reinvestment these last four years, I would be very surprised.

Fujimak_Corporation_TSE_5965_Financials.xls

[west]

Thanks for posting and discussing the idea. I just bumped into Fujimak when reading the latest annaul report of Rational AG, which is one of the most successful German midcap stocks with a hell of a track record in terms of growing earnings. While discussing Rational as a potential investment would be a matter for a different post, I found it interesting that they were naming Fujimak as one of their OEM partners - the Fujimak CEO has a sizeable picture in the Rational Annual Report: http://www.rational-online.com/media/webseite_ag/ir/annualreports/gb_2013_EN.pdf (just serach the PDF for "Fujimak")

 

This may only be a very minor puzzle piece of the picture but I thought it was worth contributing as I feel we would all love to understand the Fujimak business better.

 

Thanks for posting!  Very cool stuff.

 

I wonder if it's Rational's actions that are driving Fujimak's high quality growth as of late, or their good growth is because of what they're doing themself?

 

And not knowing all of this is why Fujimak remains a basket bet for me...

[oddballstocks]

Came here to post similar data to west, looks like he beat me to it. 

[mjohn707]

That is really good data!  So if we average the 19 years of operating income we get about 850 mill yen, or 510 mill yen after taxes if we assume a 40% tax rate.  That's similar to the figure I calculated from the 7-year data in japan company handbook (590 mill yen).

 

What's funny is that revenue is pretty much flat over that period, 36,551 mill yen in 1997 and 36,276 mill yen in 2014.  So what we have is margin expansion rather than sales growth.  Maybe all the new capex was for more efficient equipment or a facility in a lower cost area or something.

 

The idea that they're an OEM doesn't make me confident that they'll be able to keep earning these higher margins though.  If I HAD to guess (and this is with close to zero confidence) I'd say margins will fall to the 19-year average, and fujimak is worth closer to the low end of range I calculated (9,400 mill yen.) 

 

[west]

That is really good data!  So if we average the 19 years of operating income we get about 850 mill yen, or 510 mill yen after taxes if we assume a 40% tax rate.  That's similar to the figure I calculated from the 7-year data in japan company handbook (590 mill yen).

 

What's funny is that revenue is pretty much flat over that period, 36,551 mill yen in 1997 and 36,276 mill yen in 2014.  So what we have is margin expansion rather than sales growth.  Maybe all the new capex was for more efficient equipment or a facility in a lower cost area or something.

 

The idea that they're an OEM doesn't make me confident that they'll be able to keep earning these higher margins though.  If I HAD to guess (and this is with close to zero confidence) I'd say margins will fall to the 19-year average, and fujimak is worth closer to the low end of range I calculated (9,400 mill yen.)

 

I recommend calculating ROIC for the last ten years and looking at reinvestment, and then the ROIC from that reinvestment.  This tells a different story than a reversion to the mean story.  You could very well be right, but by the numbers Fujimak has had steady, good growth in the last five years.

[randomep]

That is really good data!  So if we average the 19 years of operating income we get about 850 mill yen, or 510 mill yen after taxes if we assume a 40% tax rate.  That's similar to the figure I calculated from the 7-year data in japan company handbook (590 mill yen).

 

What's funny is that revenue is pretty much flat over that period, 36,551 mill yen in 1997 and 36,276 mill yen in 2014.  So what we have is margin expansion rather than sales growth.  Maybe all the new capex was for more efficient equipment or a facility in a lower cost area or something.

 

The idea that they're an OEM doesn't make me confident that they'll be able to keep earning these higher margins though.  If I HAD to guess (and this is with close to zero confidence) I'd say margins will fall to the 19-year average, and fujimak is worth closer to the low end of range I calculated (9,400 mill yen.)

 

I recommend calculating ROIC for the last ten years and looking at reinvestment, and then the ROIC from that reinvestment.  This tells a different story than a reversion to the mean story.  You could very well be right, but by the numbers Fujimak has had steady, good growth in the last five years.

 

That is what I feel too. Look at the last five years and it is a good story and I was hoping they'd sell into asia a lot more. There is no point looking at what happened 15 or 19 yrs ago,  the company was different the world was different.

 

 

[mjohn707]

That is really good data!  So if we average the 19 years of operating income we get about 850 mill yen, or 510 mill yen after taxes if we assume a 40% tax rate.  That's similar to the figure I calculated from the 7-year data in japan company handbook (590 mill yen).

 

What's funny is that revenue is pretty much flat over that period, 36,551 mill yen in 1997 and 36,276 mill yen in 2014.  So what we have is margin expansion rather than sales growth.  Maybe all the new capex was for more efficient equipment or a facility in a lower cost area or something.

 

The idea that they're an OEM doesn't make me confident that they'll be able to keep earning these higher margins though.  If I HAD to guess (and this is with close to zero confidence) I'd say margins will fall to the 19-year average, and fujimak is worth closer to the low end of range I calculated (9,400 mill yen.)

 

I recommend calculating ROIC for the last ten years and looking at reinvestment, and then the ROIC from that reinvestment.  This tells a different story than a reversion to the mean story.  You could very well be right, but by the numbers Fujimak has had steady, good growth in the last five years.

 

I agree that the last 4-5 years have been good, I'm just not sure if they will be able to keep it up.  The good thing is that the investment doesn't depend on the good performance continuing.  It's still a 50-60% dollar just considering their historical performance and excess cash.  I own it, but just as a 1% or so position.

 

That is really good data!  So if we average the 19 years of operating income we get about 850 mill yen, or 510 mill yen after taxes if we assume a 40% tax rate.  That's similar to the figure I calculated from the 7-year data in japan company handbook (590 mill yen).

 

What's funny is that revenue is pretty much flat over that period, 36,551 mill yen in 1997 and 36,276 mill yen in 2014.  So what we have is margin expansion rather than sales growth.  Maybe all the new capex was for more efficient equipment or a facility in a lower cost area or something.

 

The idea that they're an OEM doesn't make me confident that they'll be able to keep earning these higher margins though.  If I HAD to guess (and this is with close to zero confidence) I'd say margins will fall to the 19-year average, and fujimak is worth closer to the low end of range I calculated (9,400 mill yen.)

 

I recommend calculating ROIC for the last ten years and looking at reinvestment, and then the ROIC from that reinvestment.  This tells a different story than a reversion to the mean story.  You could very well be right, but by the numbers Fujimak has had steady, good growth in the last five years.

 

That is what I feel too. Look at the last five years and it is a good story and I was hoping they'd sell into asia a lot more. There is no point looking at what happened 15 or 19 yrs ago,  the company was different the world was different.

 

 

 

I disagree with this.  Look at the revenue over the period.  The world might have changed a lot, but their revenue hasn't that much

[west]

Phew.  I don't know about the rest of you, but I wish I hadn't been lazy in regards to setting up a currency hedge!

[rmitz]

The only thing I’d really wish for is a way to set up the trade so that both steps happen at once, and I don’t have to manually figure out how much yen to buy and so on…do you know if there’s a way to do that?  I haven’t really tried to plumb the depths of the interface.

 

In IB, just create the order to buy (limit), and then right click it, you can "attach" a forex order to it.  It makes the stock buy and the forex to neutralize the buy / sell back to your home currency all one transaction (two commissions still).

 

The upside is that it's simple, you don't worry about currency balances, and any forex gain / loss is rolled into the basis of the shares instead of split separately complicating your taxes (US based statement).

 

Ben

 

PS - please trade liberally... still long IBKR. :)

 

Hey, thanks!  That’s just what I’m looking for.

 

Just wanted to note that I finally tried this out and it works great in my portfolio margin account. It doesn't work in a cash IRA account, as it won't let the order go through due to calculating that there are insufficient funds in the target currency.