1782.JP - Joban Kaihatsu Co Ltd

[west]

More Japan stocks coming up!  I'm going to try to post one a day for the next few days.

 

Joban Kaihatsu is a medium-scale general construction firm based in Iwata in the Fukushima Prefecture area.  Despite being in Fukushima, Iwata is fairly far south of where the tsunami hit the hardest in 2011, and is about 40 miles away from the Fukushima Daiichi nuclear power plant.  So, none of the earthquake/tsunami/nuclear reactor stuff is really a factor here.

 

So, with that out of the way, here are the numbers:

 

Cash makes up over 50% of the firm's current market cap.

 

EV/TTM EBIT - 1.15x

EV/TTM EBITDA - 1.06

ROIC - Using Greenblatt's approach has been about 25.6% over the last four years on average (with a good amount of variability).  Using Damodaran's approach shows an ROIC of 27% last year, increasing from 11% four years ago.

 

P/B - 0.67x

BVPS Growth has averaged 19% a year (!) on average over the last four years (again, a good amount of variability however).

 

Cash collection cycle has gone down from 56 days four years ago to 12 days (!) last year.

 

Comps for the industry (Construction) give me an upside of:

 

EV/EBIT for Industry in Japan: 13.29x

Upside to fair value with cash valued as an operating asset: 212.8%

Upside to fair value with cash valued as cash: 1056.2%

 

EV/EBITDA for Industry in Japan: 7.78x

Upside to fair value with cash valued as an operating asset: 98.6%

Upside to fair value with cash valued as cash: 634.2%

 

P/B for Industry in Japan: 1.22x

Upside to fair value: 85.4%

 

EV/S for Industry in Japan: 0.83x

Upside to fair value with cash valued as an operating asset: 230.5%

Upside to fair value with cash valued as cash: 1122.0%

 

Enjoy!

[Picasso]

How do you get through their filings without knowing Japanese? 

 

I recall investing in a small NY based construction firm and most of the cash was set aside for construction projects so it was not really for shareholders.  But I suppose that is reflected in your comps and EV multiples.

 

Is there a way to view an annual report on this company in English?

[west]

I hate to do this, but I'm starting to repeat myself in my Japan posts.  I refer to my other ideas here:

 

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

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7399-jp-nansin-co/

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

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7014-jp-namura-shipbuilding-co/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7292-jp-murakami-corp/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7235-jp-tokyo-radiator-manufacturing/

 

Basically I don't do any analysis beyond the basic financials and I only do 1% to 2% position bets.  I'm flying blind to a certain degree, but it's worked out disgustingly well so far.

 

I'm beginning to think I might need to open a thread for discussing strategies with these Japan stocks so the discussion doesn't get scattered all around in the different idea threads (like it currently is...)

 

[oddballstocks]

How do you get through their filings without knowing Japanese? 

 

I recall investing in a small NY based construction firm and most of the cash was set aside for construction projects so it was not really for shareholders.  But I suppose that is reflected in your comps and EV multiples.

 

Is there a way to view an annual report on this company in English?

 

Let me ask a different question, how much information is enough?  This is at .9x EV/EBITDA and 67% of book value.  They're earning incredible amounts on their capital, so what else do you need to know?  Is it a comfort thing, in that you don't trust the numbers unless you read some text around them (that might not confirm anything beyond what you see), or is it something else?

 

I ask because the numbers are available in English from a variety of different sources, many free.  Their statements are in Japanese and can be accessed via the Tokyo Exchange site.

 

Personally I have cost myself with Japan in the past because I over thought these stocks.  I'd look at something like this at less than 1x EV/EBITDA and read their statement looking for some problem then pass.  Stocks like this are cheap, rock bottom cheap.  Maybe this'll never trade for 11x EV/EBITDA, but at 3x you have a triple.  This has a P/E of 3, is it worth 6, maybe, that's a double.  At some point these companies are so cheap you can't pass on them.  So yes, I don't know Japanese, but I just buy these things in bulk and move on.  I have done fantastic with Japanese companies since adopting the "blind eye" approach. 

 

Maybe this is like human powered quant investing and it isn't sexy enough or complex enough for the board.  Fair enough, although there are no style points in investing.  At the end of the day it's only returns that matter, and getting there with the least amount of risk.  I'd say buying cheap Japanese companies certainly qualifies. 

 

If you do want a sense of emotional well being on these Japanese stocks you can buy the Japan Company Handbook for $150.  They have a short paragraph in English about each company along with financials and an analyst opinion.  I have a copy from 2012 that I still use.  Here is how they describe Joban Kaihatsu: "Medium-scale general construction firm belonging to Joban Kosan group.  On top of construction and engineering works in Fukushima Pref, also engaged in environmental equipment business.  Breaking away from reliance on local government for demand."

 

One other point, in the Autumn of 2012 BVPS was ¥268, so it's grown quite a lot.  The book has ROE at 19.2%.  59% of the companies sales come from construction, 21% from civil engineering, 13% from environmental things, 1% from real estate and 6% from other.

[oddballstocks]

I hate to do this, but I'm starting to repeat myself in my Japan posts.  I refer to my other ideas here:

 

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

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7399-jp-nansin-co/

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

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7014-jp-namura-shipbuilding-co/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7292-jp-murakami-corp/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7235-jp-tokyo-radiator-manufacturing/

 

Basically I don't do any analysis beyond the basic financials and I only do 1% to 2% position bets.  I'm flying blind to a certain degree, but it's worked out disgustingly well so far.

 

I'm beginning to think I might need to open a thread for discussing strategies with these Japan stocks so the discussion doesn't get scattered all around in the different idea threads (like it currently is...)

 

No need to repeat yourself.  The ideas you've given have been GOLD.  Although I can't get a fill on Joban Kaihatsu even crossing the bid.

 

I think there are many a quarter dozen of us on this board who are investing in these and everyone else is either mystified or too scared to put any money to work in Japan.  I've talked extensively about my strategy and you have as well.  I'm not sure we'll ever convert the unconverted, but I don't mind if there's no competition!

[west]

No need to repeat yourself.  The ideas you've given have been GOLD.  Although I can't get a fill on Joban Kaihatsu even crossing the bid.

 

I think there are many a quarter dozen of us on this board who are investing in these and everyone else is either mystified or too scared to put any money to work in Japan.  I've talked extensively about my strategy and you have as well.  I'm not sure we'll ever convert the unconverted, but I don't mind if there's no competition!

 

Ha! :)

 

Well... to give some of the non-believers on this board credit, I put at least a thousand hours of work into researching all of this (no BS) before I was confident enough to buy even one Japanese stock.  I also missed out on 2013's awesome returns...

[Picasso]

How do you get through their filings without knowing Japanese? 

 

I recall investing in a small NY based construction firm and most of the cash was set aside for construction projects so it was not really for shareholders.  But I suppose that is reflected in your comps and EV multiples.

 

Is there a way to view an annual report on this company in English?

 

Let me ask a different question, how much information is enough?  This is at .9x EV/EBITDA and 67% of book value.  They're earning incredible amounts on their capital, so what else do you need to know?  Is it a comfort thing, in that you don't trust the numbers unless you read some text around them (that might not confirm anything beyond what you see), or is it something else?

 

I ask because the numbers are available in English from a variety of different sources, many free.  Their statements are in Japanese and can be accessed via the Tokyo Exchange site.

 

Personally I have cost myself with Japan in the past because I over thought these stocks.  I'd look at something like this at less than 1x EV/EBITDA and read their statement looking for some problem then pass.  Stocks like this are cheap, rock bottom cheap.  Maybe this'll never trade for 11x EV/EBITDA, but at 3x you have a triple.  This has a P/E of 3, is it worth 6, maybe, that's a double.  At some point these companies are so cheap you can't pass on them.  So yes, I don't know Japanese, but I just buy these things in bulk and move on.  I have done fantastic with Japanese companies since adopting the "blind eye" approach. 

 

Maybe this is like human powered quant investing and it isn't sexy enough or complex enough for the board.  Fair enough, although there are no style points in investing.  At the end of the day it's only returns that matter, and getting there with the least amount of risk.  I'd say buying cheap Japanese companies certainly qualifies. 

 

If you do want a sense of emotional well being on these Japanese stocks you can buy the Japan Company Handbook for $150.  They have a short paragraph in English about each company along with financials and an analyst opinion.  I have a copy from 2012 that I still use.  Here is how they describe Joban Kaihatsu: "Medium-scale general construction firm belonging to Joban Kosan group.  On top of construction and engineering works in Fukushima Pref, also engaged in environmental equipment business.  Breaking away from reliance on local government for demand."

 

One other point, in the Autumn of 2012 BVPS was ¥268, so it's grown quite a lot.  The book has ROE at 19.2%.  59% of the companies sales come from construction, 21% from civil engineering, 13% from environmental things, 1% from real estate and 6% from other.

 

Sorry, I just have a habit of diving into the stuff I invest in and I do not normally take this kind of quant approach.  Plus I own a small amount of high conviction holdings so spreading out into dozens of cheap stocks is a bit different. 

 

That said, I see the value in the strategy here and am thinking about placing 15-20 1% bets on these Japanese micro-caps.  I like this one in particular so we'll see how much liquidity is on the buyside.

 

Thanks for the tip on the Japan Company Handbook.  I'll order mine tonight.  :)

[oddballstocks]

How do you get through their filings without knowing Japanese? 

 

I recall investing in a small NY based construction firm and most of the cash was set aside for construction projects so it was not really for shareholders.  But I suppose that is reflected in your comps and EV multiples.

 

Is there a way to view an annual report on this company in English?

 

Let me ask a different question, how much information is enough?  This is at .9x EV/EBITDA and 67% of book value.  They're earning incredible amounts on their capital, so what else do you need to know?  Is it a comfort thing, in that you don't trust the numbers unless you read some text around them (that might not confirm anything beyond what you see), or is it something else?

 

I ask because the numbers are available in English from a variety of different sources, many free.  Their statements are in Japanese and can be accessed via the Tokyo Exchange site.

 

Personally I have cost myself with Japan in the past because I over thought these stocks.  I'd look at something like this at less than 1x EV/EBITDA and read their statement looking for some problem then pass.  Stocks like this are cheap, rock bottom cheap.  Maybe this'll never trade for 11x EV/EBITDA, but at 3x you have a triple.  This has a P/E of 3, is it worth 6, maybe, that's a double.  At some point these companies are so cheap you can't pass on them.  So yes, I don't know Japanese, but I just buy these things in bulk and move on.  I have done fantastic with Japanese companies since adopting the "blind eye" approach. 

 

Maybe this is like human powered quant investing and it isn't sexy enough or complex enough for the board.  Fair enough, although there are no style points in investing.  At the end of the day it's only returns that matter, and getting there with the least amount of risk.  I'd say buying cheap Japanese companies certainly qualifies. 

 

If you do want a sense of emotional well being on these Japanese stocks you can buy the Japan Company Handbook for $150.  They have a short paragraph in English about each company along with financials and an analyst opinion.  I have a copy from 2012 that I still use.  Here is how they describe Joban Kaihatsu: "Medium-scale general construction firm belonging to Joban Kosan group.  On top of construction and engineering works in Fukushima Pref, also engaged in environmental equipment business.  Breaking away from reliance on local government for demand."

 

One other point, in the Autumn of 2012 BVPS was ¥268, so it's grown quite a lot.  The book has ROE at 19.2%.  59% of the companies sales come from construction, 21% from civil engineering, 13% from environmental things, 1% from real estate and 6% from other.

 

Sorry, I just have a habit of diving into the stuff I invest in and I do not normally take this kind of quant approach.  Plus I own a small amount of high conviction holdings so spreading out into dozens of cheap stocks is a bit different. 

 

That said, I see the value in the strategy here and am thinking about placing 15-20 1% bets on these Japanese micro-caps.  I like this one in particular so we'll see how much liquidity is on the buyside.

 

Thanks for the tip on the Japan Company Handbook.  I'll order mine tonight.  :)

 

On the handbook, call the book store in NYC that sells it.  I talked to someone on the phone who took my order, they shipped it next day air, which is included in the price.  I'm not sure if shipping online is extra, but if you can get it next day via NYC it might be worth it.

 

My approach is similar to yours, I like to know what I'm investing in.  But I've also realized there are areas of the worldwide market that are too cheap to ignore, so I'll place a number of bets on these Japanese companies, forget about them and look again in a year.

[matjone]

I have been waiting for you to start posting again, west.  Thanks.

 

I am a little more drawn to the outrageously cheap ones with less regard to quality, as long as they are earning a little or at least holding steady.  I can feel your pain on missing out - I missed Ohmoto Gumi because I didn't want to buy a full lot and go over some pre-set rule I came up with on position size for these.  Take a look at how ridiculously cheap it was - something like 1/4 NCAV, no debt, neg ev, and actually a little growth to boot.  If you have any of those that you saw and weren't interested in, send them my way.

[simplefocus]

hi west,

 

which brokerage account do you use?  how much does it cost you per trade?  I have Ameritrade and Sharebuilder, but they both don't have an option for me to buy international stocks directly.  I can buy their ADRs or pink sheets.  thanks.

 

 

[west]

hi west,

 

which brokerage account do you use?  how much does it cost you per trade?  I have Ameritrade and Sharebuilder, but they both don't have an option for me to buy international stocks directly.  I can buy their ADRs or pink sheets.  thanks.

 

Interactive Brokers.  I think something like $0.0025 a share (damn cheap).  ADRs generally aren't available since most of these companies have less than a $50m market cap (but are easily worth in the low hundreds of millions).

[lathinker]

Hello west and others,

 

this one has proven a good call as far as I can see. I was wondering with this stocks and others of your Japanese bucket, how do you determine your exit strategy? Do you just wait for a certain EV/EBIT, P/B, P/E to be reached? Do you wait untill you make 30, 50, 100%?

As it appears tough to make qualitative calls on stocks mostly purchased on quantitative cheapness, the exit criterion should be quantitative aswell?

 

I appreciate your thoughts here.

 

Thanks, LT

[ValueHippie]

I can't really get comfortable with this one... Even though Joban Kaihatsu seems to be dirt cheap, I would like to see a higher current ratio (at least 1.8 or higher). I'm sure this one will turn out well and make quite a lot of money for shareholders, but I will stay away from this one. Any thoughts?

[rukawa]

Its gone up in price but its practically still as cheap as before because earnings have increased. Returns have been something like 20% a year since the idea was posted and the discount is pretty much still intact.

 

Stock increased 76%. Earnings increased 71%.

[DW1234]

I picked up a bit of Joban. There's really not much to my thesis here. Japan is cheap (but maybe for good reason), but Joban is extremely cheap.

 

At current prices (Y5270):

 

P/E: 3.62

P/B: 0,46

ROE: 13.48% --> Which is outstanding in Japan because of large cash balances.

 

They have 1.75x their marketcap in cash + investment securities.

 

Even in comparison to other Japanese stocks, this is just dirt cheap. Their dividend payout has steadily risen from 5% 4y ago, to 19% in 2018. Which equals a ROI of ~5.4%. Their Q1 results were a bit disappointing, but Q1 is a small part of their total revenue, so the damage could be contained.

 

Ofcourse there are many unknowns, but I think there's enough margin at this valuation to be able to withstand some negative future events.

[samwise]

Results seem to be going down a bit. But definitely cheap. The business model won’t be impaired by the virus. They have enough cash to survive anything. Bought some.

[DW1234]

Could you expand on how their business won't be affected by the virus? To me it seems they are in the type of business which will see a ripple effect through the economy and be hurt by this.

[samwise]

Short term effects only. I don’t expect long term effects on the economy from this, unless everyone ends up more indebted and there are longer term effects on consumption from that.

[samwise]

Tender offer 7800. MBO.

Share price has only partly reacted.

[samwise]

Share price is now up 50% in 3 days, trading through the tender price. The earlier slow price reaction was due to Japan's daily price limits. About 17% of shares have traded through the MBO tender price of 7800, as high as 9000.

 

Someone thinks they can block the tender (which needs 2/3rds of the shares to succeed) and force the price up from 7800 to above 9000. Apparently activists have had success in Japan in recent years, specially in preventing managers from stealing the company at their original offer price. They still steal it, but pay up a bit more. So this could be fun if someone is interested and knows more about these dynamics in Japan.

 

Still decently cheap here on earnings and book, so perhaps management will actually pay up, but I've decided to take my gains.

[DW1234]

Thanks for the info, price action made me wonder what was going on here.

[samwise]

Thanks for the info, price action made me wonder what was going on here.

 

You’re welcome.

 

If anyone is interested here is the MBO document posted on their IR page. http://www.jobankaihatsu.co.jp/news/pdf/2020/2020-11-13-2.pdf

Google translate is your friend, but you’ll have to look past obviously garbled statements like”it was a spider”!

 

Summary is here: https://www.jpx.co.jp/english/news/1023/20201113-11.html

 

On TSE’s daily price limits https://www.jpx.co.jp/english/news/1030/20201117-01.html