I'm a value investor based in Hong Kong. This is my first post and idea on the board - I'd welcome any feedback on the ideas I post, which will primarily be focused on value oriented ideas from Asia Pacific. Hope that adds to the diversity of ideas posted on the board.
Kobayashi Pharmaceuticals (TSE: 4967)
"You make a wish and we make it happen"
kobayashi.co.jp
- Niche, under-followed 125 year old company from Japan engaged in sale of simple, predictable products (over 150 brands) for sanitary, oral hygiene, toilet bowl cleaners, heat pads, eye wash and skin care
- Genuine competitive advantages in core consumer products division - i) returns on tangible invested capital in excess of 50%+ over the last 10 years, high market share stability in key product segments
- High returns on unlevered tangible equity, near debt-free balance sheet, strong cash flow, margins and earnings growth (net income grew consecutively for 15 years...), dividend increases (14 years), share repurchases and low levels of capital intensity relative to net income, CFO, sales etc.
- Valuation around ~7.7x EBITDA (no debt, predictable capex, d&a, working capital normal)
- Catalysts: operating improvements from last few years of non-core (and loss making) divestment's (medical business, wholesale business), focus on "crown jewel" consumer products business (high, predictable margins and cash flow), growth overseas in Asia (replicate simple products elsewhere) and potential bolt-on M&A opportunities
- Management: Terrific. Not your typical Japan run company focused on customers, employees, suppliers and finally, shareholders. History of value creation, instituted the Kobayashi Value Added (KOVA) indicator from the Economic Value Added (EVA) concept)
- Several reasons for undervaluation given the high ROIC/market share/stability in core: 1) its dull, boring and does something ridiculous (toilet cleaners, etc.), 2) under followed (one domestic Japanese analyst - who we found several errors in the report, including peer comps, shares outstanding, etc), 3) misunderstood (sales decline due to divestments -- but margins improved significantly, looking at topline doesn't tell you the "true picture"), 4) The "Japan" discount - all Japanese stocks are classified automatically as "value traps" - we beg to differ given excellent management capital allocation (history of measuring return on capital employed, share buybacks, dividend increases, and more...)
Feedback, questions, comments always welcome. Thanks for reading!
Note: Returns on tangible invested capital defined as normalized operating income divided by (non cash working capital (i.e. less interest bearing short term debt, current capital leases, short term cash, etc) plus tangible fixed assets)
Good Investing,
AsianValueInvestor |
