Update on Japanese holdings

A nice current example of Mr. Market’s manic-depressive nature is the Japanese stock market. From the start of this year to the high point, the Nikkei rose almost 50% to 15,627 on May 22nd. Since then the index has lost almost 3,000 points. For a few days it even looked like net-nets were becoming scarce in Japan!

I sold my Maruzen (JP:5982) shares recently and was lucky about the timing of the sale, selling just before the market (and Maruzen) tanked. The stock was still pretty cheap, looking at the P/E ratio and FCF yield, but the discount to book value did narrow significantly with the rising price. I was looking at some other Japanese stocks and found some that did not participate fully in the run-up of the market. Ultimately I decided to sell and put the proceeds in a few of these stocks.

I find it very difficult to determine the relative cheapness of Japanese stocks and the attractiveness to other investors of these stocks. Some stocks are extremely cheap when looking at the assets, but are other investors even looking at balance sheets in Japan right now and will they do so in future? Perhaps stocks that trade at low P/E and cash flow multiples will perform better? I don’t know the answers. The price swings in some of these Japanese stocks are pretty crazy and I don’t think it can be explained very well. I just buy the stocks that jump out to me in some way and try not to worry too much about whether other stocks end up performing better.

I now own 4 Japanese stocks and will discuss them briefly here.

Riken Keiki (JP:7734)

No change here. I’m still holding Riken Keiki. The stock has risen since the time of my initial post and is up about 30%. The company posted good results for the fiscal year ended March 31, 2013, earning ¥2 billion and showing strong free cash flow of of ¥1.9 billion. You can check out bovine bear’s post on the results for some more details. The stock price reacted favorably. Since then, the stock has dropped a little in the market slump, but has held up nicely relative to the Nikkei.

Shares are trading a little below NCAV (including the long-term investments) and a P/E ratio of 8.4. Riken Keiki still looks pretty cheap and I will continue to hold.

Maezawa Kasei Industries (JP:7925)

Maezawa Kasei Industries manufactures and sells water supply related products, drainage related products and environmental related products. They produce things like pipes, joints, valves, water meter boxes, etc.

The company currently trades at ¥913, giving it a market cap of ¥13.8 billion. Their NCAV (again including LT investments) is ¥23.7 billion. Maezawa Kasei Industries is currently trading at 0.58x NCAV. Also, the company is cash rich, with 18.5 billion in cash & investments against 7.3 billion in liabilities.

I mainly bought the stock for the cheap assets. On an earnings basis Maezawa Kasei Industries isn’t cheap, trading at 12x earnings.

The company does not have English financial reports on their website, but they do provide some basic information about the company in English.

Alps Logistics (JP:9055)

Alps Logistics provides logistical services, specifically tailored to electronic components. The company is affiliated with Alps Electric (JP:6770) which owns 46.7% of the shares of Alps Logistics. Fidelity Low Price Stock Fund owns 9.7% of the shares.

The company trades at 7x earnings and has a market cap of ¥16.9 billion. Alps Logistics is a bit of a strange choice compared to my other Japanese stocks: there is no discount to NCAV and the company is pretty capital intensive as well. They do produce free cash flow though and the company trades at 0.51x book. The dividend yield is 3.7%.

Over the years Alps Logistics has built up an extensive network of logistic centres, especially in China. In 2012 the company had 28 Japanese branches and 28 foreign branches. I think Alps Logistics could be a nice way to profit from economic growth in China at a cheap price.

I do consider this my most speculative Japanese stock though and it is my smallest position in the basket. Unfortunately there are no English financials for this stock, but there is some English information and documentation available on the company website.

Sugimoto & Co Ltd (JP:9932)

Sugimoto (website) sells measuring instruments, machine tools and hydraulic and pneumatic equipment. Sugimoto’s market capitalization is ¥8.73 billion and NCAV is ¥16.51 billion. The company trades for 0.53x NCAV. Cash and investments total ¥9 billion and total liabilities are ¥3.7 billion, giving the company a large net cash position.

Sales have fallen since the start of the financial crisis, but seem to have stabilized. The lower sales also affected profits, but Sugimoto did manage to stay profitable, even in 2009.

Sugimoto’s stock has lagged the Nikkei this year and the stock has dropped from a high of ¥950 to ¥787 currently. This is about the same level seen at the beginning of the year. The company’s website does not have an English version.

Sugimoto is probably the cheapest of the bunch. That does not mean it will end up performing the best though.

Disclosure: long Riken Keiki, Maezawa Kasei Industries, Alps Logistics and Sugimoto & Co. No position in Maruzen.

Posted in Japanese stocks and tagged , , , , .


  1. Hi, have you had a look at New Cosmos Electric (6824)?
    They are a direct competitor too Riken Keiki and are trading at similar multiples.

    Ps. Could you please add my too your mailing list?

    • I just looked at New Cosmos Electric and they look cheap as well! At first glance very similar in all regards to Riken Keiki: same industry, cash rich, large discount to book value, good cash flows. Certainly a stock that looks like a good candidate for a net-net portfolio.

      I’m considering buying a few more Japanese stocks, especially if the Nikkei keeps falling.

      I have e-mailed you the link to my RSS feed. Not sure why it didn’t work for you earlier. I hope it works now.

  2. About the industry, do you have info about cheaper competitors from china selling gas detectors? I guess the barriers are fairly high due too the japanese customers conservativeness and quality demands. If industrial capex increases domestically it would perhaps help Riken Keiki and New Cosmos.
    Do you know if Riken Keiki is part of a industrial keiretsu or is it independent? Can it be taken over? MBOs are getting more popular in Japan.
    New Cosmos has a main shareholders (a gas company), probably not the ideal main shareholder (for minority shareholders..).
    I noted that First Eagle Funds owned some shares in Maezawa Kasei, do you know if it is an old holding? It is not the first time that First Eagle pops up in interesting japanese smallcaps..

  3. Pingback: Current basket of Japanese stocks | ValueInvestingBlog.net

  4. I just saw that Alps Logistics (9055) received a takeover offer, according to the May 8, 2024 press release: https://www.alps-logistics.com/jp/ir/news/2024/index.html. The company hasn’t responded to the approach yet and the price is also still unknown.

    Alps Logistics has had an incredible run since this post was published. The price at that time was ¥477 and today the stock is trading at ¥3815. Of course I have long since sold it. 🙂 Overall I’d say I’ve had just as many value traps as winners among my Japanese holdings. Still interesting to see that Alps Logistics has done really well.

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