8068:Tokyo - Ryoyo Electro Corp

[Guest hellsten]

Mohnish Pabrai talked about Ryoyo Electro Corp in 2012:

http://www.bengrahaminvesting.ca/Outreach/2012_Conference_PPT/Monish_Pabrai.pdf

 

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=8068:JP&dataset=balanceSheet&period=Q&currency=native

http://ediunet.jp/company/E02685/?lang=en

 

Ryoyo is a technology distributor and service company, portfolio includes e.g. QNX:

The main business of the Ryoyo Group consists of the sales of

semiconductors, computer systems and peripherals, embedded products,

and other electronic devices.

 

A quick look at the company gives me this:

- ¥13.3B JPY cash

Cash and cash equivalents totaled ¥13.3 billion at the fiscal year-end,

a ¥1.7 billion year-on-year increase.

- ¥14B JPY short-term investments

To strengthen and maintain its relations with business partners, the

Ryoyo Group purchases the shares of specific customers, suppliers,

and financial institutions.

- ¥23B JPY market cap

- 5-year average free cash flow ~¥2.5B JPY

- No long-term debt

- Claims to be a shareholder friendly company:

At Ryoyo Electro, we view returning profits to shareholders

as one of our most important management tasks.

Another matter we see as an import element of our

shareholder returns policy is the acquisition and cancellation

of treasury stock.

- Bought back ~7% of shares since March 3, 2011.

- Buying and selling a lot of securities:

Major inflows included ¥9.0 billion generated as proceeds from redemption of securities. Major

outflows included ¥10.6 billion in purchase of investment securities

- Stock options introduced for management. Plans for introducing it for employees:

the Company is taking steps to further expand management’s

desire and motivation to contribute to medium- to long-term improvements in performance and corporate value, and will continue to conduct

management activities targeting higher stock prices

- Major holders:

- 7% CBNY Fidelity Small Cap Value Fund

- 3% CBNY DFA INTL SMALL CAP VALUE PORTFOLIO 778 3.01

- Mohnish?

- Moat? Long-term relationships with international and Japanese technology companies, e.g. QNX and Microsoft. Source: http://globaldocuments.morningstar.com/documentlibrary/document/3bfe6c09cfbef0d0.msdoc/original

 

Source:

http://www.ryoyo.co.jp/library/file/jp/ir/ar2012.pdf

 

So, if the figures are correct, for ¥11B JPY you get:

- ¥13.3B JPY cash

- ¥14B JPY short-term investments

- ~¥2.5B JPY free cash flow

- ~3.7% dividend yield

- Trading at ~0.34 times tangible book value

 

Seems Ryoyo Electro Corp has a very big margin of safety based on this very short analysis.

 

Issues:

- The Yen is overpriced? Mohnish pointed out that almost all debt is held inside Japan and Japan has a trade surplus, so maybe not a big deal?

- Japanese corporate management culture could be an issue? I don't see any proof of this at Ryoyo based on this short analysis and my limited experience.

- Software sales moving to the internet.

In software and embedded products, we forecast sales growth for embedded

products—one of our focus areas—as well as for pre-installed software.

 

Thoughts? Anyone know CBNY, one of the major holders?

[Guest hellsten]

Ryosan Co looks like a competitor to Ryoyo:

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=8140:JP

 

Ryosan was trading below liquidation value in December, but has since gone up ~50%:

http://undervaluedjapan.blogspot.com/2012/12/and-now-we-are-three-ryosan-jp8140.html

[Hielko]

Just because they say they are shareholder friendly doesn't make it true, although for Japanese standards they are probably pretty decent given a small dividend and some share repurchases. I'm not an expert on Japan, so hopefully someone can correct me or elaborate,  but it appears to me that the number one goal of companies in Japan is not to create shareholder wealth, but just to remain in existence. Probably does have some cultural reason since companies with huge cash balances are widespread in Japan, but think this is a fundamental difference that you should account for in a valuation. How much is that cash worth if it's going to remain on the companies balance sheet for decades to come?

 

Usually I'm happy to buy something undervalued without a catalyst, just betting that someone will want to make some money at some point, but I'am not so sure this works in Japan. If the people in Japan would like to make money you wouldn't have hundreds of companies trading for less than net cash for a decade or so.

[rijk]

reuters has a yen 23 billion mc

 

2012 earnings drop to approx yen 500 million

 

management claims that the 2011 japan earthquake and thai floods caused the drop in sales in 2011, however, 2012 sales remain flat

 

only 18% of sales is export

 

regards

rijk

 

http://www.reuters.com/finance/stocks/overview?symbol=8068.T

[Guest hellsten]

reuters has a yen 23 billion mc

 

2012 earnings drop to approx yen 500 million

 

management claims that the 2011 japan earthquake and thai floods caused the drop in sales in 2011, however, 2012 sales remain flat

 

only 18% of sales is export

 

regards

rijk

 

http://www.reuters.com/finance/stocks/overview?symbol=8068.T

 

Thanks. Corrected the market cap in my previous post.

 

Soros made $1 billion by betting against the Yen:

http://www.reuters.com/article/2013/02/14/hedgefund-yen-sorosfund-idUSL1N0BE0YL20130214

 

Feb 14 (Reuters) - U.S. hedge fund investor George Soros has gained about $1 billion since November betting against the yen, the Wall Street Journal reported, citing people with knowledge of the firm's position.

The yen lost nearly 20 percent against the dollar between November and early February, picking up speed as Japan's new government put pressure on the Bank of Japan to ease monetary policy more aggressively to defeat deflation.

 

Soros Fund Management's internal portfolio, which has been led by Scott Bessent since last summer, holds about 10 percent Japanese shares, the paper reported, citing people close to the firm.

 

Investors including David Einhorn's Greenlight Capital , Daniel Loeb's Third Point LLC and Kyle Bass's Hayman Capital Management LP, also made big trading profits by riding the yen down, the Journal said.