Funai Electric Co Ltd (6839:TYO)

Recent Shares Price:  ¥744

Market Cap: $255 million (USD)

Accounting Method: Japenese Accounting Standards

Fiscal Year:  March 31

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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).

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