7297.JP - Car Mate Manufacturing Co

[west]

My last Japan post for the day, and probably the last one for a few days.

 

Car Mate Manufacturing Co manufactures car accessories, such as roof racks, child seats, pretty much everything that goes inside or outside of a car.  Part of their business also sets up and runs nursing care facilities.  (Oh, Japan...)

 

They have an English website here:

 

http://www.carmate.co.jp/english/

 

I think I've heard of INNO roof racks before.  Looks like REI's got some, and they're expensive:

 

http://www.rei.com/search?query=inno

 

Here are the numbers: Negative EV (rendering EV/EBIT and EV/EBITDA as not meaningful).  P/TBV of 0.44 while BVPS has grown ~11%+ each of the last three years.  Sales have been steadily growing.  ROIC has been above 40% each of the last four years.  P/E < 6.0x.

 

Liquidity seems low, so be careful if you buy in.

[cobafdek]

Thanks for your Japan ideas. 

 

Do you hedge the yen?  If so, why? and how?  If not, why not?

 

 

[matjone]

I have nothing to add on these but I just want to say that I appreciate simple ideas like this.  Do you have a blog, west?

[west]

Thanks for your Japan ideas. 

 

Do you hedge the yen?  If so, why? and how?  If not, why not?

 

Thinking strongly about it due to macro/debt concerns, but I've never actually implemented a hedge before.  I believe, in theory, it can easily done by rolling futures.  If this the case, this is probably how I'll do it.  I'd love to have access to one year forwards, versus constantly rolling futures, but I'm not that well connected into the industry.

[west]

I have nothing to add on these but I just want to say that I appreciate simple ideas like this.  Do you have a blog, west?

 

No.  My feeling is until I know I have something to contribute, I'll generally just stay silent.  I feel there's no reason to add to the noise while I'm still doubting the skills I may or may not have.

 

Maybe sometime in the future...

[west]

Thanks for your Japan ideas. 

 

Do you hedge the yen?  If so, why? and how?  If not, why not?

 

Thinking strongly about it due to macro/debt concerns, but I've never actually implemented a hedge before.  I believe, in theory, it can easily done by rolling futures.  If this the case, this is probably how I'll do it.  I'd love to have access to one year forwards, versus constantly rolling futures, but I'm not that well connected into the industry.

 

Options might be another way, but I haven't looked at them in depth.  My uninformed guess is they'll be too expensive relative to futures.

[yadayada]

carefull you don't buy into cheap looking cyclicals near the top.

 

where do you find financials?

[writser]

Too bad about the blog, you have some interesting ideas. btw, if you want to hedge your currency you can also trade the 1yr forward future, should be relatively liquid. I don't hedge any currencies personally.

[cobafdek]

I don't hedge any currencies personally.

 

Thanks for your response.  I don't either, but I'd like to hear your rationale for not doing so.  Perhaps I'm exercising my confirmation bias.

[writser]

Sorry, that was a bit of a short post indeed. My reasons:

 

1. Most of my personal assets are denominated in my native currency. I don't mind (actually I like) diversifying a bit by having exposure to other currencies. Is the ideal situation that all your assets are only exposed to your 'home' currency? I think that is a bit of a fallacy.

2. I believe fx markets are quite efficient most of the time. Or, at least I don't assume I have a better outlook on the macro-economic future of the world (or Japan) than the fx market. So I don't believe I will generate alpha by hedging anyway.

3. But hedging costs money.

4. And hedging would be extra work and I am lazy.

5. This is up for discussion, but the yen and Japanese stock market are correlated. Yen devalues -> Nikkei goes up (check out the 10yr NKY vs USDJPY, for example). So you are already hedged in a way. If the yen goes to zero stock your Japanese assets wouldn't be worth zero in dollar (gold, euro) terms suddenly. So what you are doing by hedging is, in a way, creating exposure to the yen instead. You hope to outperform because you expect the yen will go down. If that is what you expect, don't fool yourself into believing it is a hedge - it is an opinion. You don't need a stock position to go short the yen.

 

Some people here will undoubtedly disagree with me on the last point and that is fine. For me the most important are 1 - 4 anyway: I don't hedge any currencies.

 

By the way, for some reason this mostly comes up with Japan stocks - some people have a very vocal opinion about where the yen should be trading and they are fine with having exposure to the euro or Canadese dollar. I think that is an inconsistent approach. (I am not implying that anyone in this topic is guilty of that)

[yadayada]

if they buy in japan and sell in japan, it is usually not a big problem if they can charge the extra costs to their customers. And if they buy in Japan and sell in US or Europe for example, there is certainly no need to hedge. They still get USD and Euro's and convert them to yen. This could even be good for them if they buy their goods in Japan.

 

What you gotta watch out for is firms selling in japan and buying a lot of their materials or parts in rest of the world. For example commodities. With inflation they can now buy less materials from outside Japan, and if they cannot increase prices this could be trouble for them if they already have small margins.

[cobafdek]

Sorry, that was a bit of a short post indeed. My reasons:

 

1. Most of my personal assets are denominated in my native currency. I don't mind (actually I like) diversifying a bit by having exposure to other currencies. Is the ideal situation that all your assets are only exposed to your 'home' currency? I think that is a bit of a fallacy.

2. I believe fx markets are quite efficient most of the time. Or, at least I don't assume I have a better outlook on the macro-economic future of the world (or Japan) than the fx market. So I don't believe I will generate alpha by hedging anyway.

3. But hedging costs money.

4. And hedging would be extra work and I am lazy.

5. This is up for discussion, but the yen and Japanese stock market are correlated. Yen devalues -> Nikkei goes up (check out the 10yr NKY vs USDJPY, for example). So you are already hedged in a way. If the yen goes to zero stock your Japanese assets wouldn't be worth zero in dollar (gold, euro) terms suddenly. So what you are doing by hedging is, in a way, creating exposure to the yen instead. You hope to outperform because you expect the yen will go down. If that is what you expect, don't fool yourself into believing it is a hedge - it is an opinion. You don't need a stock position to go short the yen.

 

Some people here will undoubtedly disagree with me on the last point and that is fine. For me the most important are 1 - 4 anyway: I don't hedge any currencies.

 

By the way, for some reason this mostly comes up with Japan stocks - some people have a very vocal opinion about where the yen should be trading and they are fine with having exposure to the euro or Canadese dollar. I think that is an inconsistent approach. (I am not implying that anyone in this topic is guilty of that)

 

 

Thanks for bolstering my personal bias (especially #4)!

[writser]

Hah, you are welcome. Join the club ;) .

 

What I probably didn't explain very well in my previous post was this:

 

1. If you own a piece of a business trading on the Tokyo Stock exchange you don't have any exposure to the yen _yourself_. The fact that your business is trading, yen denominated, on a Japanese stock exchange is completely irrelevant in theory. The yen could move all over the place but your factory, your order book and your inventory would be worth still the same when measured in ounces of gold. Put in a different way, if the same business was listed on the NY stock exchange instead the USD price would stay constant. The intrinsic value of your company stake doesn't change. The price in yen denominated will change, sure, but that is nullified by the move in the currency itself. At least, this is what you would expect in an efficient market. Otherwise I can arbitrage it (i.e. if the yen goes down I sell my dollars, buy a shitload of yens at a bargain price and use those to buy your company for basically nothing).

 

2. However, the underlying business _does_ have exposure to the yen, as yadayada pointed out. The exchange rate influences import & export prices, wages, interest rates, etc and thus will affect the intrinsic value of your business stake and thus, indirectly, it will influence the stock price over the long term.

 

Surprisingly many people make the mistake of thinking they have to hedge because of scenario (1) which is, well, just wrong. As I pointed out in my previous post you are actually creating exposure instead. And if you want to protect yourself against (2) going short the yen for exactly the value of your position is an overly simplified way to do so. A company might have liabilities in yen and thus profit from a currency decline, wages could decrease which would be good (or bad), the company could start hedging currencies themselves, whatever.

 

I think it is pointless to go short the yen against a long stock position because (1) is irrelevant and I have no clue about how (2) will influence my businesses. Not to mention that don't even know whether it will decline in the first place :) .

[west]

Too bad about the blog, you have some interesting ideas. btw, if you want to hedge your currency you can also trade the 1yr forward future, should be relatively liquid. I don't hedge any currencies personally.

 

wrister, where can you find these one-year futures?  (I'm guessing you didn't mean forwards, which are not traded as far as I know?)  I'd love to not have to roll over futures on a regular basis if I can avoid it.

[writser]

I don't know what broker you have, but CME lists yen contracts for up to a few years out (link). 95% percent of the liquidity is usually in the front month but you should be able to trade some of the further contracts as well. I have no Bloomberg at home to check out liquidity though. By the way, have you ever looked at Isamu Paint? Another forum member here is also constructing a Japan basket and it is his favourite stock. I hope he doesn't mind that I copy-paste what he has to say about it on his great blog:

 

My favorite net-net in Japan. Isamu Paint produces paints, thinners and other products for automobile repair use, industrial use and construction use. The market cap of the company is just ¥4.6bn (about $45m). Revenues and net income have grown steadily over the last five years and the company also produces free cash flow. The dividend is small at just 2.1%, but the company has bought back stock in fiscal 2013 and 2014 (¥85m and ¥127m respectively).

 

Isamu Paint is trading at 0.39x BV and a P/E of 6. It has ¥6.8bn in cash and long-term investments against just ¥4.2bn in liabilities. Even though the stock has moved up a bit from where I purchased, I still think this is probably the most attractive stock in the basket currently.

[west]

I don't know what broker you have, but CME lists yen contracts for up to a few years out (link). 95% percent of the liquidity is usually in the front month but you should be able to trade some of the further contracts as well. I have no Bloomberg at home to check out liquidity though. By the way, have you ever looked at Isamu Paint? Another forum member here is also constructing a Japan basket and it is his favourite stock. I hope he doesn't mind that I copy-paste what he has to say about it on his great blog:

 

My favorite net-net in Japan. Isamu Paint produces paints, thinners and other products for automobile repair use, industrial use and construction use. The market cap of the company is just ¥4.6bn (about $45m). Revenues and net income have grown steadily over the last five years and the company also produces free cash flow. The dividend is small at just 2.1%, but the company has bought back stock in fiscal 2013 and 2014 (¥85m and ¥127m respectively).

 

Isamu Paint is trading at 0.39x BV and a P/E of 6. It has ¥6.8bn in cash and long-term investments against just ¥4.2bn in liabilities. Even though the stock has moved up a bit from where I purchased, I still think this is probably the most attractive stock in the basket currently.

 

Thanks!  I will take a look at those futures tomorrow.  Must... sleep... soon.

 

On Isamu, it is in my spreadsheet.  It looks like it got left out of the final list because of its relatively high (to the other companies I found) EV/EBIT and very low historic BVPS growth rate.  The rest of the numbers look great though.

[cobafdek]

West, writser, others -

 

Let's say you've got a basket of these Japanese stocks.  What is your exit point?  When it reaches BV, or some premium to BV?  When it reaches industry PE or market PE?  When it reaches industry/market PE based on past peak earnings?  etc.

 

Assume you will have no better information sources than what you had when you bought now, i.e., ft.com statistics and the like, and no access to good and convenient translations.

 

Thanks.

[west]

West, writser, others -

 

Let's say you've got a basket of these Japanese stocks.  What is your exit point?  When it reaches BV, or some premium to BV?  When it reaches industry PE or market PE?  When it reaches industry/market PE based on past peak earnings?  etc.

 

Assume you will have no better information sources than what you had when you bought now, i.e., ft.com statistics and the like, and no access to good and convenient translations.

 

Thanks.

 

I'm undecided on my approach.  I've valued each of the companies I've posted and will be posting using a few very conservative quantitative, assuming-earnings-stay-flat approaches and industry multiple approaches.  So I've got approximate low end fair values for each of the companies in mind.

 

However, I'm thinking I'm going to do things magic formula style.  In other words, buy and hold for a year, with no selling no matter what happens.  Then rotate to whoever is the best measured by cheapness/quality at the end of the year.  (This being said, the basket at the end of the year won't necessarily not have some of the beginning of the year's picks in it.  In that case I wouldn't rotate those companies out.)

 

Why the buy-and-hold-for-one-year approach?  So last year I did a few "virtual" basket portfolios in Japan using different cheapness/quality criterion.  (I did not invest using any of the approaches because I was too scared to use a low-information/exclusively-quantitative approach with my money.  It's a decision I regret.)  A lot of the strategies outperformed the Nikkei only because of a few stocks.  If those had been sold once they hit, say, 100% or 200% returns the basket as a whole was less likely to outperform the market.  So, if the results from last year can be naively projected into the future with good results, the lesson is to let your winners run.  They are what will make the basket outperform.

 

The other nice thing about buy-and-hold-for-one-year approach is it's easy.  You set it (your basket of picks) and forget it.

 

So, to make a short answer long, the best approaches I can think of (and they're probably not the only ones available) are:

 

#1) Conservatively value the company.  Sell once it gets as close to fair value as your comfortable with.  The classic net-net/Net Current Asset Value (NCAV) strategy does this.  It buys at 66.6% of NCAV and sells once it hits 100% of NCAV.  Or in two years (if I remember right), whichever happens first.  You can tweak this to be less naive, since the NCAV approach is a pretty dumb way to value a going concern imho.

 

#2) Buy and hold for a certain period of time.  After that period of time is up, rotate into whatever company's are ranked the best according to your quantitative criterion.  This may be difficult for most people to implement though, as it requires looking at the market as a whole.

 

[writser]

Car-mate is up 30% in the past few days, today up another ~20% on big volume. I can't find any news. Anybody in the know?

[mjohn707]

Car-mate is up 30% in the past few days, today up another ~20% on big volume. I can't find any news. Anybody in the know?

 

I'm not sure either, I don't think the quarterly earnings report is due for another month or so and I can't find anything in their announcements with google translate

[rukawa]

I did not invest using any of the approaches because I was too scared to use a low-information/exclusively-quantitative approach with my money.  It's a decision I regret.)  A lot of the strategies outperformed the Nikkei only because of a few stocks.  If those had been sold once they hit, say, 100% or 200% returns the basket as a whole was less likely to outperform the market.  So, if the results from last year can be naively projected into the future with good results, the lesson is to let your winners run.  They are what will make the basket outperform.

 

Currently I am employing a very low information, mostly exclusively quantitative approach with all my investments. However with one difference...I don't let my winners run. I very very aggressively rebalance. I've found this lowers volatility, improves predictability and returns. But I'm only one year into it. We'll see. But my backtesting does NOT indicate that letting your winners run is a good approach. Quite the opposite.

[NeverLoseMoney]

Car-mate is up 30% in the past few days, today up another ~20% on big volume. I can't find any news. Anybody in the know?

Up another 23% today. I think it's just speculators driving up the price. Japanese traders on Carmate's Yahoo message board seem pretty excited: https://textream.yahoo.co.jp/message/1007297/a5aba1bca5aa5a4a5h

[cobafdek]

I'm out, and satisfied enough.  Bought in July 2014 at 634, sold yesterday at 1616.  All I have to go on is faith in the available online value metrics, where I find that Car Mate is at or above its historical norms for P/B, PE, etc.

 

Anybody have any insights on Japanese market makers and market trading mechanics?  According to Google Finance, it appears that only one huge block traded for each of the last three trading days.  For my trade, the bid was 1,316, but I placed a limit order at 1600 for 2,000 shares.  This morning, Google Finance tells me that 96,900 shares traded in one block at 1,616 yen.

[writser]

Anybody have any insights on Japanese market makers and market trading mechanics?  According to Google Finance, it appears that only one huge block traded for each of the last three trading days.  For my trade, the bid was 1,316, but I placed a limit order at 1600 for 2,000 shares.  This morning, Google Finance tells me that 96,900 shares traded in one block at 1,616 yen.

 

It has been trading 'limit up' for a few consecutive days. The maximum daily price fluctuation for this stock is 300 JPY, meaning it can go up at most 300 JPY on a single day. Yesterday the maximum tradable price was 1316, today it was 1616, tomorrow it will be 2016. Because this stock is hot for some (unknown?) reason there are lots of people bidding at the maximum price and there are not many people willing to sell at that price. Meaning that there's only a large bid at the daily maximum price and buyers wait there hoping to get filled. Tomorrow the buyers can enter higher limit orders. So big chance that this will trade higher again tomorrow as no equilibrium has been reached today (i.e. without the limit it would likely have traded higher - and at the same time if people wanted to sell they could have driven the price down today).

 

That said, the current craziness doesn't seem to happen because of any fundamental reasons afaik so what happens next is anybody's guess. Could also go limit down if it's some sort of coordinated pump and dump.

[mjohn707]

Sold my shares tonight, this has been a very strange experience but I’m not complaining