Sasakura Engineering Co Ltd (6303:TYO) (SKENF:OTC)

Recent Share Price: ¥2,550

Accounting: Japanese Accounting Standards

Fiscal Year: Mar. 31st

Market Cap: ¥7.9 billion ($70 million)

Sasakura Engineering Co., Ltd. is a Osaka-based company engaged in the marine vessel equipment business. Founded in 1949, the company operates in five business segments:

  • The Marine Vessel Equipment segment (¥1,240M Revenue, ¥149M OI) manufactures and sells seawater desalination equipment, heat exchangers, sewage treatment equipment, oily water separators, liquefied natural gas (LNG) ship use ultracold butterfly valves and others.
  • The Land Equipment segment (¥1,494M Revenue, ¥145M OI) manufactures and sells air-cooled heat exchangers, land use ultracold butterfly valves, heat pipe cooling rolls and others.
  • The Water Treatment Equipment segment (¥1,177M Revenue, ¥351M OI) manufactures and sells seawater desalination equipment for land use, reverse osmosis water processors, evaporative concentration devices, ozone evolution devices and others.
  • The Sound Deadening and Air Conditioning Equipment (¥1,109M Revnenue, ¥32M OI) segment manufactures and sells noise control equipment, equipment for ice thermal storage tank systems use and others.
  • The Others segment operates parking lots rental business.
Revenue (in Million)2017
2018
Japan¥8,99087.90%¥8,97183.80%
Asia¥1,07010.50%¥1,18711.10%
Middle East¥1311.30%¥5104.80%
Other¥400.40%¥390.40%
Published 2016

President, Toshihiko Sasakura, age 65, owns ~48% of common stock.

Largest customer, ~11% of total revenue, is Hitachi Zosen Co. Ltd.

Recent History

2014

Established Sasakura Taiwan Co., LTD.

Began manufacture and sales of Fresh Water Generator series X

Obtained an order for rehabilitation of Al-Jobail Phase 2 C4 MSF Desalination Plant from SWCC of Saudi Arabia

2015

Obtained an order for Expansion of the Existing Shoaiba Phase 2 Desalination Plant (MED-TVC–Type Desalination Plant, 91,200T/D×1 unit) from SWCC of Saudi Arabia

2016

Acquired ALQ Environmental Engineering Co., Ltd. (currently Sasakura ALQ Acoustic Engineering Co., Ltd.) as a consolidated subsidiary.

Launched the Association of Radiant Cooling and Heating Systems of Japan (ARCH) with Toyox Co., Ltd., Inter Central, Inc. and Kubota ChemiX Co., Ltd.

2017

Acquired Arabian Company and Sasakura for Water & Power (currently Sasakura Middle East Company) as a subsidiary through further acquisition of shares.

The Vapor-Compression device with distillation tower, developed in cooperation with Nippon Refine Co., Ltd. won both the Technology Award from the Society of Separation Process Engineers, Japan (SSPEJ) in May, and the Chairman’s Award from the Japan Society of Industrial Machinery Manufacturers (JSIM) in June.

Reverse 1:5 stock split

2019

Company states, “to improve asset management and efficiency” the company has liquidated some of its investment holdings. In most recent quarter reported extraordinary gain of ¥898 million on sale of 3 listed securities (11% of current market cap; cash generation on sale was probably in the range of ¥2 billion). Post-liquidation, the balance sheet reports ¥1,480 million of investment securities held.

It appears recent results have been dragged by poor performance in Saudi Arabia, due to, what appears to be, conservative accounting for loss reserves on their large projects. For the first 3 quarters, a y/y comparison shows a loss of -¥64 million last year versus a gain of ¥558 million this year. This variance appears to be primarily due to their write down of loss reserves of ¥348 million; which appears to show up in higher revenue recognition, whereby improving gross margins materially. Their Land Equipment division also materially contributed to their improvement in operating income.

For the first 3 quarters, y/y, core business orders are up 11.2%; sales are up 2.7%; and order backlog is up 11.8%.

Summary

The bottom of the shipbuilding industry looks to be 2016; it appears things are improving for LNG and for shipbuilding in general. For Sasakura, the recovery is slow, but hopefully this provides added stability for the segment.

The company is pushing for inroads into the Chinese market for water treatment via their Tawainese subsidiary. This could lead to some areas of unexpected upside.

From what I can gather, there do not appear to be any major projects scheduled for the Middle East.

All told, the company looks safe and cheap and appears to be doing things that will increase shareholder value.

Financials

Write-ups

Bargain Hunter [here]

Disclosure: We own shares in Sasakura Engineering Co Ltd (6303:TYO)

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