Nichiwa Sangyo Co Ltd (2055:TYO)

Recent Share Price: ¥296

Est Market Cap: ¥5.7 billion ($53 million)

Accounting: Japanese Accounting Standards

Fiscal Year: March 314179851-1466127266861196

Nichiwa Sangyo Co., Ltd. is a Japan-based company mainly engaged in the manufacture and sale of feed mixtures with grains as the main ingredient, for chicken rearing, pig rearing, cow rearing and fish rearing. The Company operates in two business segments.

  • Feed (96% Revenue)
    • engaged in the manufacture and sale of feed mixtures for livestock farming and fish rearing, as well as the purchase and sale of livestock products.
  • Livestock (4% Revenue)
    • engaged in the production of chicken eggs and piglets, as well as the rearing of pigs.

The company, founded in 1924, is headquartered in Kobe, Japan.

Margins are razor thin in the feed business and are heavily dependent on prices, (including effects of FX), of U.S. corn, the primary ingredient in their feed, and to soybean meal, an auxiliary ingredient, which is sourced mainly from the U.S. and, to some degree, from South America.  Based on their 2016 Annual Report, sales in feed volume increased 12.6%, which revenue increased 12.3% — revealing some pricing pressure.

Insider Ownership

There does not appear to be any significant insider ownership.

Full name or name Number of Shares Held (Co.) Ratio (%)
Toyota Tsusho Co., Ltd. 1,362,000 6.54
Tohoku Grain Terminal Co., Ltd. 1,153,000 5.54
(Ltd.) Cargill Japan 1,000,000 4.80
(Ltd.) Minato Bank 963,200 4.62
Co., Ltd. of Tokyo-Mitsubishi UFJ Bank 923,313 4.43
Sumitomo Mitsui Banking Corporation 923,022 4.43
Hyogo Prefecture credit Federation of Agricultural Cooperatives 849,000 4.08
Mitsui Sumitomo Insurance Co., Ltd. 827,022 3.97
Satosangyo (Ltd.) 535,434 2.57
Pacific Grain Center Co., Ltd. 501,000 2.41

The basic policy of the company is to pay dividends once a year as the year-end dividend and to pay interim dividends, if possible.

Shares Outstanding, of  20,830,825, less Treasury Shares, of 1,518,500, equates to net shares outstanding of 19,312,325.

 *in millions 3/31/15 3/31/16 3/31/17 12/31/17
Cash and Short-term Investments ¥6,648 ¥7,189 ¥10,089 ¥10,022
(0.75 * Accounts Receivable) ¥7,736 ¥6,934 ¥6,100 ¥7,251
(0.5 * Inventory) ¥1,126 ¥1,111 ¥953 ¥1,168
Total Liabilities ¥10,864 ¥10,475 ¥10,092 ¥11,323
NNWC ¥4,646 ¥4,759 ¥7,050 ¥7,118
NCAV ¥8,873 ¥8,991 ¥10,399 ¥11,151
NCAV + LT Investments ¥9,416 ¥9,385 ¥10,911 ¥11,151
TBV ¥16,191 ¥16,491 ¥16,812 ¥17,266
Enterprise Value ¥(960) ¥357
Retained Earnings ¥12,785 ¥13,130 ¥13,130
Dividend Payout ¥(97) ¥(97) ¥(96) ¥-
Shares Outstanding 19,312,325 19,312,325 19,312,325 19,312,325
P / NNWC 101% 95% 63% 80%
P / NCAV 53% 50% 43% 51%
P / NCAV + LT Investments 50% 48% 41% 51%
P / TBV 29% 27% 26% 33%
NCAV Burn Rate 17.7% 1.3% 15.7% 7.2%
Debt / Equity 28.2% 27.7% 27.2% 26.4%
F-Score 9 7 7
FS-Score 10 7 8
Z-Score 3.0
Beneish M-Score (3.1)
EV / Operating Income (5yr) 0%
EV / Operating Income (10yr) 0%
Operating Income (10yr) ¥2,467
Operating Income (5yr) ¥2,445

nichiwasangyo

Write-Ups:

Motiwala Capital 2017 Annual Letter

Bargain Hunter here

 

Disclosure: We own shares in Nichiwa Sangyo Co Ltd (2055:TYO)

Advertisements

Funai Electric Co Ltd (6839:TYO)

Recent Shares Price:  ¥744

Market Cap: $255 million (USD)

Accounting Method: Japenese Accounting Standards

Fiscal Year:  March 31

funaijpg

Funai Electric Company is a Japanese consumer electronics company headquartered in Daitō, Osaka, Japan. Its United States-based subsidiary, based in Torrance, California, markets Funai products in the US along with Funai-licensed brands including Magnavox, Phillips, and Sanyo.

Funai is the OEM providing assembled televisions and video players/recorders to major corporations such as Sharp, Toshiba, Denon, and others. Funai also manufactures printers for Dell and Lexmark and produces printers under the Kodak name.

Recent History

In 2016:

In 2017:

  • Received ‘Supplier of Year’ from Wal-Mart for the 5th time
  • Tetsuro Funai, the founder, dies aged 90.
  • Formed alliance with FOMM Corp via a private placement of FOMM shares, with payment date on Nov 30th.
  • Elecom Co Ltd bought Funai’s interest in DX Antenna Co Ltd for ¥10.4 billion ($96 million).  DX Antenna removed from consolidated reporting.

In 2018:

  • Announced plans to supply Magnovox Roku TVs to North America. (Previously announced same with Philips TVs)
  • Announced plans to supply 4K OLED TVs to retailer Yamada Denki in 2018.

The bread and butter of Funai’s business is making TVs for Wal-Mart sold in the U.S.  Based on their 2017 Annual Report, they have the 4th highest market share based on total shipments.  In their quarterly report, ending Dec 31, 2017, sales in the U.S. showed a mild improvement.

They have set a target to reach net sales, by 2019, of ¥210 billion and operating profit of ¥6 billion (2.8% operating margin).   Their path to improved profitability is three-pronged:

  1. Eliminating and/or reducing unprofitable product lines
  2. Reducing R&D expenses, and
  3. Streamlining overseas sales subsidiaries

With 6-straight years of negative operating earnings, these targets are ambitious, to say the least.  At current valuations, I’ll be happy with “profitable”.

Insider Ownership

Name

Number of shares held (thousands of share)

Shareholding ratio (%)

Tetsuro Funai (deceased)

12,359

36.22

Tetsuo Funai

1,079

3.16

Other

  • The company has a defined benefit employee pension
  • 429,000 stock options are outstanding
  • The company does not report any off-balance sheet obligations.  [In January 2016, IFRS 16 Leases was issued. For lessees, IFRS 16 requires most leases to be recognized on the balance sheet (under a single model), eliminating the distinction between operating and nance leases.]

     

    *in millions 3/31/15 3/31/16 3/31/17 12/31/17
    Cash and Short-term Investments ¥66,820 ¥57,609 ¥40,136 ¥33,415
    (0.75 * Accounts Receivable) ¥28,346 ¥17,769 ¥11,043 ¥8,318
    (0.5 * Inventory) ¥21,281 ¥18,588 ¥13,126 ¥15,988
    Total Liabilities ¥62,875 ¥68,691 ¥32,029 ¥33,664
    NNWC ¥53,571 ¥25,275 ¥32,276 ¥24,057
    NCAV ¥91,900 ¥54,523 ¥53,474 ¥46,997
    NCAV + LT Investments ¥94,714 ¥56,941 ¥54,899 ¥46,997
    TBV ¥120,703 ¥80,640 ¥73,314 ¥60,413
    Enterprise Value ¥(9,477) ¥(3,029)
    Retained Earnings ¥54,789 ¥47,020 ¥31,170
    Dividend Payout ¥(1,194) ¥(1,194) ¥(1,023) ¥-
    Shares Outstanding 34,119,178 34,119,119 34,119,089 34,119,031
    P / NNWC 55% 124% 88% 106%
    P / NCAV 32% 58% 53% 54%
    P / NCAV + LT Investments 31% 55% 52% 54%
    P / TBV 25% 39% 39% 42%
    NCAV Burn Rate 15.8% -40.7% -1.9% -12.1%
    Debt / Equity 8.8% 14.2% 1.0% 4.7%
    F-Score 7 2 5
    FS-Score 8 2 5
    Z-Score 2.7
    Beneish M-Score (4.1)
    EV / Operating Income (5yr) 0%
    EV / Operating Income (10yr) 0%
    Operating Income (5yr) ¥(54,662)
    Operating Income (10yr) ¥(51,459

Fuani

Disclosure: We own shares in Funai Electric Co Ltd (6839:TYO).

SP Corporation Ltd (AWE:SES)

Recent Share Price: $0.80

Accounting: Singapore Accounting Standards

Fiscal Year: December 31corporate-profile8

SP Corporation Limited, a Singapore-based investment holding company, trades in commodities, primarily from Indonesia, and distributes consumer staples, also primarily from Indonesia.  Recently, they sold off their tire distribution business.  They have a ‘Mining & Energy’ segment that does not contribute materially to earnings.

Commodities Trading segment (2017: 95% Revenue, 255% Profits)

  • SP Resources International Pte. Ltd.
    • Engages in the trading of selected industrial products such as coal, rubber, metals, and machinery in Asia.
    • Trades in coal produced by Indonesian coal mining companies, namely;
      • PT. Bukit Baiduri Energi, and
      • PT. Indexim Coalindo.
    • Supplies aluminum to a cable manufacturer and an automotive alloy wheel manufacturer in Indonesia
  • SP Global International Pte. Ltd.
    • Handles the marketing and distribution of consumer products produced by established manufacturers in China and Indonesia. It also provides in-house packaging for supermarkets.
    • The focus is on the bulk distribution of personal hygiene products from its main principal, PT. Softex Indonesia.
      • The products distributed by SP Global include “Softlove” baby diapers, “Softlove” smart pants, “Softlove” baby wet wipes, “Sweety” fit pants, “Confidence” & AdFit” adult diapers, and “Sally” & “Softex” feminine napkins.

Discontinued Tire Distribution segment (2017: 5% Revenue, -65% Profits)

  • Globaltraco International Pte Ltd distributes a full range of GT Radial tires from passenger car touring and ultra high-performance models, through to light commercial and heavy truck models.
  • The company was established in 1985 and is located in Singapore. Its tire distribution business commenced in 1996.
  • Globaltraco is the authorized distributor for GT tires in Singapore, Malaysia, Vietnam, Brunei, Myanmar, Cambodia, Laos, Pakistan and a few other countries.

Others

  • SP Energy Pte. Ltd; Investment Holding
  • SP Mining & Engineering Pte. Ltd.; Investment Holding
  • PT. SP Mining & Engineering; Engineering (Indonesia)

It has operations in Singapore, China, including Hong Kong, Indonesia, Malaysia and Germany.

Insider Ownership

According to the 2016 Annual Report, Tuan Sing Holdings Limited owns 80% of the shares outstanding, a company incorporated in Singapore and listed on the SGX-ST. Tuan Sing’s major shareholder is Nuri Holdings (S) Pte Ltd, incorporated in Singapore. Michelle Liem Mei Fung, daughter of tycoon Sjamsul Nursalim, has majority control of Nuri, giving here essentially 80% control of SP Corp.

Peter Sung, the Chairman, is a senior advisor to Nuri Holdings.

Boediman Gosali (Tony Wu), the CEO, is the uncle of Michelle Liem Mei Fung.  Tony has been on medical leave but plans to return to work this month, according to their year-end filing.

William Nursalim (William Liem), a member of the board, is the brother of Michelle Liem Mei Fung.

Recent History

In July 2017, the company announced plans to wind down their tire distribution business and sell off the remaining assets for S$2.2 million (book value of S$1.4 million).  Since 2014, the business has been a loss-making enterprise as the business continued to shrink due to increased competition.

2017 Results

SP Corp’s 2017 (Fiscal: December) net profit fell 75% to S$447,000 as higher costs and expenses overtook a revenue increase of 11% to S$121.1 million.   A portion of the loss was attributable to a write-down of S$519,000 in discontinued operations. Sales from the discontinued tire distribution business, which has been sold off, fell 59% to S$6.7 million.

Related Party Transactions

Much of SP Corp’s business is tied up with related party transactions. Related parties are members in which the shareholders of Nuri and their family members have a controlling interest.  In 2017, SP Corp recorded, in aggregate, $64.3 million in revenue and $68.9 million in expenses — for a net of ($4.5) million.  This may be of concern considering this exceeds total operating income.  Conversely, SP Corp reported a profit.

Included in the Commodities Trading revenue of $121.1 million (2016: $109.3 million) were sales of approximately $38.1 million and $19.2 million (2016: $44.7 million and $16.0 million) to the Group’s two largest customers and one of the customers is also a related party.

These estimates do not take into consideration a trade deposit of $8 million.

  • Refundable trade deposit of US$6,000,000 (2016: US$6,000,000) relates to monies placed by the Group with a coal mine which is a related party to secure coal allocations. The deposit is secured by a corporate guarantee issued by the immediate holding company of the coal mine, which itself is a coal mine and a related party of the Group.
  • The deposit (equivalent to $8,073,000 [2016: $8,689,000]) is repayable within one year and subject to annual renewal by mutual agreement between the two parties. It bears an effective interest rate of 5.73% (2016: 5.43%) per annum.

These types of transactions have occurred before, as the company was reimbursed for a similar transaction in 2017 worth $3.5 million.

On 23 January 2018, SP Corp renewed the coal allocation agreement with a related party extending the latter’s supply to 2021 and is expected to contribute positively.

Other

  • Non-cancelable leases due within 5 years approximate $450,000 SGD.
  • No company pension
  • Compensation for directors and key personnel totaled $1,480,000 SGD in 2017
  • No options or warrants
12/31/15 12/31/16 12/31/17
Cash and Short-term Investments $12,999,000 $24,826,000 $22,684,000
(0.75 * Accounts Receivable) $46,710,000 $39,008,250 $33,117,750
(0.5 * Inventory) $457,000 $379,500 $0
Total Liabilities $26,359,000 $24,987,000 $16,207,000
NNWC $33,807,000 $39,226,750 $39,594,750
NCAV $49,834,000 $52,609,000 $50,634,000
NCAV + LT Investments $49,834,000 $52,609,000 $50,634,000
TBV $50,364,000 $52,984,000 $50,806,000
Enterprise Value $5,395,200
Retained Earnings -$8,812,000 -$7,010,000 -$6,563,000
Dividend Payout $0 $0 $0
Shares Outstanding 35,099,000 35,099,000 35,099,000
P / NNWC 114% 43% 71%
P / NCAV 77% 32% 55%
P / NCAV + LT Investments 77% 32% 55%
P / TBV 76% 32% 55%
NCAV Burn Rate 5.4% 5.6% -3.8%
Debt / Equity 0.0% 0.0% 0.0%
F-Score 3 7 5
FS-Score 3 8 5
Z-Score 3.5
Beneish M-Score n/a
EV / Operating Income (5yr) 54%
EV / Operating Income (10yr) 28%
Operating Income (5yr) $9,928,000
Operating Income (10yr) $19,548,000

Untitled

Disclosure: We own shares in SP Corporation Ltd (AWE:SES)