After Daiken (TYO:5900) last week, I sold my shares of Fujimak (TYO:5965) today. Like Daiken, Fujimak’s stock has also shot up in recent weeks and is up ~75% this year. The company is now selling at 0.72x book value.
Fujimak did report pretty strong earnings for their third fiscal quarter. My approach in Japan has been to primarily invest in net-nets and companies trading at large discounts to book value. Fujimak’s price-to-book value has moved up from 0.41x to 0.72x since I mentioned the company in December, 2015. Fujimak’s dividend yield is pretty low and the company doesn’t have a history of meaningful share buybacks either.
Perhaps Fujimak’s rise is due to their improved earnings, but my impression of many of the other recent rapid stock price rises in Japan is that those are mainly driven by speculators. Daiken for instance, has dropped substantially since the last post. It seemed like a good idea to move on and search for some better opportunities in the Japanese market.
One company that looks very cheap to me, but that I’ve decided not to buy for now is Solcom (TYO:1987). I’ve written a post on the Corner of Berkshire & Fairfax forums that explains why. I’ve copied the post below.
I almost bought Solcom (1987.JP) and think it looks very cheap. The issue for me is that they are transitioning to a 100 share board lot from the current 1000 share lot. All Japanese companies that currently have 1000 share lots have to do this. The deadline is October 1, 2018.
Anyway, Solcom seems to be doing a 1-for-5 reverse split concurrently with this change. From what I understand, if you own fewer than 5 shares, the company will sell those shares in the open market and ultimately give you the proceeds. It is all described in a press release from February 14, 2017.
I think this event might limit the upside in the near term, as people wait for this change to occur. Also, I wonder if the price will fall when the company sells the shares of investors with less than 5 shares in the open market. That’s why I’ve decided to wait for now.
Some details about Solcom:
FT.com description: The Company operates in three business segments. The Construction segment is engaged in the design, construction and maintenance of outdoor communication equipment construction works, Internet protocol (IP) network construction works, and information communication works for mobile communications facilities. The Sales segment sells office automation (OA) equipment and materials for information communications works, as well as develops and sells software. The Others segment is involved in the real estate-related business, as well as security, transportation and leasing businesses.
Market cap: 8.0 billion Yen.
Price / NCAV: 0.59x (I included long-term investments in the calculation)
Price / BV: 0.32x
Cash: 4.6bn, long term investments: 5.1bn, debt: 1.1bn, total liabilities: 10bn. There might be pension liabilities, I haven’t dug into the financial statements.
Free cash flow is a bit lumpy. The company seems to be consistently profitable though, and trading at 8.4x earnings, but 2016 did look a little stronger than previous years. The dividend yield is 2.6% and the company has made some small share buybacks in the past.
Disclosure: no position in Fujimak (TYO:5965) and Solcom (TYO:1987).