8909 - Shinoken Group Co

[shamelesscloner]

Word on the street is that Mohnish Pabrai took a 5% stake recently.

 

A few fine resources to learn more about the company...

Value Investors Club: https://www.valueinvestorsclub.com/idea/Shinoken/7471075774

 

Raper Capital: https://rapercapital.com/2019/08/19/shinoken-this-is-what-value-looks-like/

 

And it appears Shinoken was presented as a Best Idea 2021 at MOI Global: https://moiglobal.com/mike-kruger-202101/

 

If you own Shinoken, what is your elevator pitch?

[Arski]

Thanks for sharing those great resources. I take a lot of comfort in those long and detailed write-ups, Pabrai holding it and a 18.5% stake for the president of the company, Hideaki Shinohara.

 

I'm take more comfort in 5% bets and made Shinoken also one.

[shamelesscloner]

Thanks for sharing those great resources. I take a lot of comfort in those long and detailed write-ups, Pabrai holding it and a 18.5% stake for the president of the company, Hideaki Shinohara.

 

I'm take more comfort in 5% bets and made Shinoken also one.

 

Raper Capital also posted an update on Shinoken here: https://rapercapital.com/2020/02/19/shinoken-update-the-story-keeps-getting-better-still-a-double-and-more/

[Arski]

Thanks for sharing those great resources. I take a lot of comfort in those long and detailed write-ups, Pabrai holding it and a 18.5% stake for the president of the company, Hideaki Shinohara.

 

I'm take more comfort in 5% bets and made Shinoken also one.

 

Raper Capital also posted an update on Shinoken here: https://rapercapital.com/2020/02/19/shinoken-update-the-story-keeps-getting-better-still-a-double-and-more/

 

Interesting. Thanks!

[zuminsan]

I Took 20% position and very comfortable. If it gets cheaper, I will pile in more.

I just took a simple approach of taking their recurring cash flow business which is around 5-6 billion yen and assume every other parts of the business and their cash flow falls apart 0 Yen. So I am basically buying strongest part of the business which is the real estate Management service, Elder care, utility and their insurance business all together. It would still be a bargain Because the current market cap is around 40-42 bil. yen, so I am paying 6 -8 time cash flow for the strongest part of business and bet everything else is 0. I think my downside is pretty protected.

If the other part of the business (construction, apartment & condo sales) stays normal which is roughly about 50-60% which is another 6-7 bill yen cash, then it's a double.

Love to hear what others think, maybe there is some blindspot that I am missing. Would love to find out.

[zuminsan]

Also read Raper capital's report, anyone has any idea on why he is using EBIT to look at the business instead of new income or owner's earning? Thanks

[valuepickr]

Any idea why volume is very less

https://seekingalpha.com/symbol/SHIOF

[shamelesscloner]

Any idea why volume is very less

https://seekingalpha.com/symbol/SHIOF

 

It shows up on TDAmeritrade but isn't actually available. I wonder about other US brokerages.

[MattR]

Apparently Raper has already sold due to this:

https://twitter.com/puppyeh1/status/1362563109357973504

[Arski]

I saw nobody mentioning it (also not in the Raper Capital write-up, if I remember it correctly), but I'm a little concerned with the global housing boom. I don't know how the house prices are in Japan but probably are quite high.

 

In 2008 - which was of course an exceptional year -, shinoken got hit bad and lost 50% of their revenue. Their share price got hammered from 514 in april 2007 to the low of 21 in september 2009.

 

As I understand it correctly, their income from real estate was like 80% or more and now the income is like 50% service and 50% real estate, which reduces the exposure to a downturn/crash in the housing market. Still, when such an event happens I think shinoken could lose 25% of their revenue.

 

Maybe someone thinks he has a better view/judgement about this?

[valuepickr]

Any idea why volume is very less

https://seekingalpha.com/symbol/SHIOF

 

It shows up on TDAmeritrade but isn't actually available. I wonder about other US brokerages.

 

Thank You !

[SoonParted]

Apparently Raper has already sold due to this:

https://twitter.com/puppyeh1/status/1362563109357973504

 

Tech companies routinely compensate executives with options and dilutive share creation, so I don't see why this is seen as terrible, that he created 3% more shares to give to charity.  It's certainly a negative, but are such things more common in Japan?

[zuminsan]

Honestly, I was in a panic on why raper sold and was looking through the reasoning. Based on what I read, the treasury shares are the shares that Shinoken group previous purchased with cash and it was sitting in the balance sheet (those shares didn’t get retired so It’s like cash sitting in the balance sheet). So from what I understand, it is a proposal to donate to a scholarship foundation within the shinoken group to incentivize the student workers joining the company after graduation. So the shares are not really newly issued shares but they are pre-existing shares, and I think ceo is proposing to give those shares(like cash) and donate to a company foundation.

Even if that’s the case, I don’t see how that’s changing the story of the company, under-priced Real Estate construction and management company, I am buying based on the fact the strong recurring revenue stream of the management service (5-6 Bil Owner’s earning) and putting 0 value on the real construction/apart/condo side (assuming they build no apart/condo/building and take on no construction project in the future). It’s current market cap is 38 bil yen.

Again, love to hear what others think, maybe my story is completely wrong.

Currently looking into more statistics on the total market Apart/condo construction and hopeful get some ideas on the future prosperity of Shinoken group in Japanese Real Estate. I think it would help to get some idea of the future of Shinoken market cap if we have roughly the total market cap of the apartment/condo construction industry. 

[Spekulatius]

Apparently Raper has already sold due to this:

https://twitter.com/puppyeh1/status/1362563109357973504

 

Tech companies routinely compensate executives with options and dilutive share creation, so I don't see why this is seen as terrible, that he created 3% more shares to give to charity.  It's certainly a negative, but are such things more common in Japan?

 

I don’t think share based compensation is that common in Japan, outside of the tech sector perhaps. The problem with this share donation is not that it fundamentally changes the story for this in terms of valuation, it puts in question the managements fairness and capital allocation.

There are plenty of cheap stocks in Japan and they are very easy to find. What is hard to find are cheap stocks with capable management and reasonable capital allocation. I think in this regard, Shinoken is now a bit more of a question mark. Well at least it has a rising dividend going for it, but that alone is unlikely to give shareholders a  reasonable return.

[ACooke]

 

I don’t think share based compensation is that common in Japan, outside of the tech sector perhaps. The problem with this share donation is not that it fundamentally changes the story for this in terms of valuation, it puts in question the managements fairness and capital allocation.

There are plenty of cheap stocks in Japan and they are very easy to find. What is hard to find are cheap stocks with capable management and reasonable capital allocation. I think in this regard, Shinoken is now a bit more of a question mark. Well at least it has a rising dividend going for it, but that alone is unlikely to give shareholders a  reasonable return.

 

I agree - i think it's more a matter of perception and a question as to managements moves going forward.

I don't and didn't have overly high standards for management with Japan's corporate culture, i don't think they're needed here, at this price.

 

To me, 8909 is too cheap for a reasonable/good business with a hand full of growth 'options'. There's not much that needs to go right for this to return north of 10%.

 

Mohnish speaks highly of the business, and as a 'spawner' with a long track record in this recent interview. Sorry - not certain on the time stamp - closer to the start/middle than the end. It's worth a watch regardless.

 

 

 

[Spekulatius]

Another thought is that the transfer of 3% of the shares to a foundation, which I assume is controlled by chairman Shinohara too, is just a move to ensure control now that more and more gaijin show up as shareholders and may make some noise.

Shinohara owns ~18.5% himself, so another ~3% that he controls without really paying anything up sure doesn’t hurt in this respect.

[keerthiprasad]

Why is Shinoken any different than all the other Japanese value traps?

[RetroRanger]

I have the feeling for clarification to a few things here!!

 

1) Jeremy Raper did not sold because of the 3% share spending , He sold before ( you can read that on twitter) because he saw better opportunities. If you follow Jeremy you know that he is seeking way shorter investment stories than Shinoken.

 

2) Pabrai even increased his stake on 29.01 . You can check that for yourseld on EBINET ( the japanese filing system) . Pabrais Fund code is E36293. But here is the query for you guy, to find his latest filings EBINET Filings. If you use google translate you can see that he increased the amount . And if you look closely you will find out that Pabrai has this position in 2 different funds, not only his Pabrai Fund, but also in the Dhandoo Fund ( i guess for his daughter)

 

3) "Why is Shinoken any different than all the other Japanese value traps?" Because Shinoken is undervalued even without growth. It is shown in the latest Report from Jeremy Raper and it is even shown in the latest official Shinoken document (mid-long term view) . So even without any future growth you buy the company for less than its asset value... Also Shinoken is not the typical REIT company. It has spawned different stuff, like life insurance, services per app , customer services like managing contracts . Those "managed services" already make 50% of their profit and has even increased during Covid. This is the future of the company.

 

And i did not even include their expansion programs in Indonesia ( the first official foreigner REIT )

 

So it is the typical Pabrai move. You have nearly no downside but high potential upside through this "REaaS = Real Estate as a Service" and expansion program. And you have this spawning potential like they have done over the last years.  Look at their 30 years history: https://www.shinoken.co.jp/en/about/history/

 

 

 

[Spekulatius]

I agree that Shinoken doesn’t look like a typically Japanese value trap, but spawning née business is a very Japanese thing (that’s how the Keiretsu evolved after all) and many companies start new business lines that often waste capital and don’t work out.

Shinoken does better here because their business seems to be working out. Now we we just need a CEO that is friendly to gaijin shareholders.

[shamelesscloner]

I have the feeling for clarification to a few things here!!

 

1) Jeremy Raper did not sold because of the 3% share spending , He sold before ( you can read that on twitter) because he saw better opportunities. If you follow Jeremy you know that he is seeking way shorter investment stories than Shinoken.

 

2) Pabrai even increased his stake on 29.01 . You can check that for yourseld on EBINET ( the japanese filing system) . Pabrais Fund code is E36293. But here is the query for you guy, to find his latest filings EBINET Filings. If you use google translate you can see that he increased the amount . And if you look closely you will find out that Pabrai has this position in 2 different funds, not only his Pabrai Fund, but also in the Dhandoo Fund ( i guess for his daughter)

 

3) "Why is Shinoken any different than all the other Japanese value traps?" Because Shinoken is undervalued even without growth. It is shown in the latest Report from Jeremy Raper and it is even shown in the latest official Shinoken document (mid-long term view) . So even without any future growth you buy the company for less than its asset value... Also Shinoken is not the typical REIT company. It has spawned different stuff, like life insurance, services per app , customer services like managing contracts . Those "managed services" already make 50% of their profit and has even increased during Covid. This is the future of the company.

 

And i did not even include their expansion programs in Indonesia ( the first official foreigner REIT )

 

So it is the typical Pabrai move. You have nearly no downside but high potential upside through this "REaaS = Real Estate as a Service" and expansion program. And you have this spawning potential like they have done over the last years.  Look at their 30 years history: https://www.shinoken.co.jp/en/about/history/

 

Do you happen to know Li Lu's Fund code?

[RetroRanger]

I agree that Shinoken doesn’t look like a typically Japanese value trap, but spawning née business is a very Japanese thing (that’s how the Keiretsu evolved after all) and many companies start new business lines that often waste capital and don’t work out.

Shinoken does better here because their business seems to be working out. Now we we just need a CEO that is friendly to gaijin shareholders.

 

Youre right of course about the Keiretsu. But it is just one aspect of Shinoken like stated :)

 

@Shameless cloner. Sadly no. If anyone would know LiLus japanese fund name or at least one position, we could easily find out. But without any clou no chance :(

 

[keerthiprasad]

I have the feeling for clarification to a few things here!!

 

1) Jeremy Raper did not sold because of the 3% share spending , He sold before ( you can read that on twitter) because he saw better opportunities. If you follow Jeremy you know that he is seeking way shorter investment stories than Shinoken.

 

2) Pabrai even increased his stake on 29.01 . You can check that for yourseld on EBINET ( the japanese filing system) . Pabrais Fund code is E36293. But here is the query for you guy, to find his latest filings EBINET Filings. If you use google translate you can see that he increased the amount . And if you look closely you will find out that Pabrai has this position in 2 different funds, not only his Pabrai Fund, but also in the Dhandoo Fund ( i guess for his daughter)

 

3) "Why is Shinoken any different than all the other Japanese value traps?" Because Shinoken is undervalued even without growth. It is shown in the latest Report from Jeremy Raper and it is even shown in the latest official Shinoken document (mid-long term view) . So even without any future growth you buy the company for less than its asset value... Also Shinoken is not the typical REIT company. It has spawned different stuff, like life insurance, services per app , customer services like managing contracts . Those "managed services" already make 50% of their profit and has even increased during Covid. This is the future of the company.

 

And i did not even include their expansion programs in Indonesia ( the first official foreigner REIT )

 

So it is the typical Pabrai move. You have nearly no downside but high potential upside through this "REaaS = Real Estate as a Service" and expansion program. And you have this spawning potential like they have done over the last years.  Look at their 30 years history: https://www.shinoken.co.jp/en/about/history/

 

Thanks. I think it may be higher quality than most of the typical japanese value traps. However, its not rare to find solid businesses trading below book in Japan. I guess I was trying to figure out why this one has caught on all of a sudden. Jeremy is a really smart guy who I respect. He's also fluent in Japanese, so I trust him more than myself on this haha.

[RetroRanger]

"I guess I was trying to figure out why this one has caught on all of a sudden. Jeremy is a really smart guy who I respect. He's also fluent in Japanese, so I trust him more than myself on this haha."

 

From what i found out from other japanese investors via twitter...  locals are very "careful" about this one since the Loan Scandals of "Tateru" , "Suruga" , "Leopalace".

That would be one explanation.  But i guess the most compelling difference for me is simply the REaaS = Real Estate as a Service.

They dont rely purely on real estate building/selling anymore.

 

Shinoken is a company that is 30 years old, survived the real estate crisis/bubble in Japan and is ( thats what it looks like ) able to transform their business model into something more crisis stable.

And thats really working out. Also you have to look closely to Indonesia.. Its important that the model works their too. If so, you have an additional catalysator for healthy growth in the next 10-15 years. If you read through their long term vision, they are planing to do this in more and more external locations.

 

 

The biggest risk is, that the undervaluation is never really "seen" by the market or the trust of people is broken for those kind of companies ( like with the telekom stocks back than in Germany).

Another risk is, that the company does not act in a gaijin friendly shareholder perspective...  But the management Team "delievered" the last 15-20 years.

 

But Pabrai owns nearly 7% of the company. So i guess he even has some more insights we dont see or get.

 

 

[zuminsan]

Hey there,

First time getting involve in the forum and love the back and forth on the story!

Just a personal income, they were not quite as friendly as I thought even, I actually try calling their headquarter and try to speak to someone at the IR department, they don’t have a separate number for people who speak English even though the PowerPoint slide indicated to call. When I finally transfer over to someone who speaks English, they took down my name and promised someone will call back. Unfortunately, all I got was a email and telling me to schedule meeting through brokerage.

 

Not quite sure what they mean by silent period. Maybe they assume that I was gonna ask about their earning before they release it, I don’t know. I thought it was pretty interesting and wanna share it with everyone.

 

 

_______

 

 

Hi,

 

Thank you for your prompt reply.

 

I'm afraid we are currently in our silent period prior to our

disclosure (FY 2020 results) on February 12.

 

If you wish for a conference call after that as an institutional investor,

please provide the background information of

your company or that of your partnership fund.

And kindly request through a stock broker company to arrange it.

 

As for our company information,

Please refer to our material we have on our website.

https://www.shinoken.co.jp/press_ens/get_img/181/file1_path

(If you already have, my apologies..)

 

Thank you so much and best regards,

Yuki Otowa

Shinoken Group

 

[RetroRanger]

From what i know this is practicle behaviour. Meeting/Calls will only be hold/scheduled during specific times.

 

I guess if you were a fund with 1.000.000 shares it would be different.