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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (44486)	8/29/2003 2:57:12 PM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

FUND VIEW-Gabelli Asset hunts for hidden value in Japan Mon August 25, 2003 10:52 PM ET By Nathan Layne TOKYO, Aug 26 (Reuters) - Many foreign investors in Japan would probably not even recognise names like Amatsuji Steel Ball or Chofu Seisakusho, but one U.S.-based asset manager is betting these relatively obscure stocks will pay out nicely in the end. In fact, Gabelli Asset Management Inc GBL.N reckons Japan is full of attractive stocks trading on the fringes of the unknown. They are often small and illiquid, possibly suffering from an inefficient use of funds, but may also dominate niche markets and generate healthy cash flow. "The companies that have a hidden value, a value that is not really recognised by market participants, tend to be small," said Takehiko Serai, co-manager of Gabelli Japanese Value Partners, a long/short hedge fund, in a recent interview with Reuters. "When that latent value comes out, it makes a huge return." Gabelli likes Chofu Seisakusho Co Ltd 5946.T , Japan's top maker of hot water boilers, and also bought shares of Amatsuji Steel Ball Mfg Co 6475.T , a manufacturer of bearing balls for bearing companies such as NSK Ltd 6471.T and NTN Corp 6472.T . Both Chofu and Amatsuji have a negative enterprise value, basically meaning their stock is trading below its cash value. It is usually a sign that the market has little faith in the firm's ability to create value. "We like them (Chofu and Amatsuji) because they are cash generative. Their respective market share is high and stable," said Serai. "In order for a negative enterprise value company to be more correctly valued by the market, management should take some action to unlock the value of its assets." Gabelli, based in Rye, New York, is taking a calculated gamble that Chofu and Amatsuji will take such steps, perhaps increasing their dividend payout or boosting shareholder value by buying back shares. But with Maezawa Kyuso Industries Co Ltd 6485.T , a maker of water supply equipment such as connectors and valves, Gabelli is eyeing the potential for something more radical. "I think it is possible for a buyout firm to acquire a large share of Maezawa and try to unlock the liquid asset value of the company. If that happens, it will probably have a positive impact on the share price," Serai said. BUILDING UP SHORTS Gabelli declined to disclose the size of its Japanese hedge fund, which was launched in April last year. But of the $23 billion of assets Gabelli manages worldwide, over $1 billion is allocated to alternative investments including hedge funds. Data compiled by AsiaHedge magazine showed $8.2 billion yen in long/short hedge fund assets was dedicated to Japan as of the end of 2002, part of $21 billion in the Asia Pacific region. And while Gabelli also declines to say how well Gabelli Japanese Value Partners has performed, like many other short sellers the fund was caught off guard by the 30 percent surge in the Tokyo stock market's Nikkei average since late April. Long/short hedge funds targeting Japan delivered 8.9 percent in yen terms in the year to July 31, according to the median score of an index published by the Bank of Bermuda and AsiaHedge. That underperformed the Nikkei's 11.5 percent gain. "We were short...some of the electronics firms and it did hurt performance but as things went against us we did reduce those shorts," said Caesar Bryan, senior vice president at Gabelli Asset Management and co-manager of the fund. Gabelli believes the Nikkei could rally further, but is still looking to build up shorts on shares it believes are overvalued. "We are short some industrial electronics, transportation, and basic materials stocks whose valuations are not justifiable based on their fundamentals," said Serai. Gabelli recently took profits on Daikin Industries Ltd 6367.T , a maker of commercial airconditioners, and sold off its stake in cosmetics giant Shiseido Co Ltd 4911.T due largely to worries about soft demand for makeup in Japan. On the long side, Gabelli's Serai is bullish about casual wear retailer Fast Retailing Co Ltd 9983.T drugstore chain operator Sundrug Co Ltd 9989.T and Yamaichi Electronics Co Ltd 6941.T , a maker of integrated circuit (IC) sockets. "(Yamaichi's) last fiscal year end results were disappointing. But semiconductor capex will increase this year, that's pretty much given. This year towards next year I guess," said Serai. "And if Yamaichi's IC (socket) orders pick up, then Yamaichi's stock should have a pretty huge return."