Sunday, May 18, 2014

Tachibana Eletech and Fujimak Results Fail to Satisfy Investors

Price¥ 1161.00
Market Cap¥ 25078.12 M
($ 246 M USD)
P/E TTM6.5 x
Div yield2.0 %
ROE8.8 %
Tachibana Eletech (TSE:8159) and Fujimak (TSE:5965) both reported 2013 results and both stocks tanked by 10% in the last month.

Tachibana's revenue was ¥141.9 B versus ¥123.8 B the previous year. The company earned ¥3.8 B versus ¥2.8 B the previous year. In addition, the company increased its dividend to ¥23 from ¥20 a year ago. The stock dropped mostly because the company's 2014 revenue and income guidance was ¥146 B and ¥3.5 B, respectively. And the company intends to give a ¥22 dividend. The market may be disappointed by the guidance, but I don't think that justifies such a low stock price.

In view of the disappointing stock price, I find myself doubting my thesis on this company. Tachibana Eletech is a wholesaler of factory automation and related products. Such a business requires a large large balance sheet. So, now I think being a netnet in this line of business isn't as attractive as in some other lines of business. This is something I am learning to appreciate. Nonetheless, when I bought I had such a margin of safety that I am still sitting on a USD gain today.

Price¥ 719.00
Market Cap¥ 4712.04 M
($ 46 M USD)
P/E TTM4.1 x
Div yield2.8 %
ROE9.6 %
LT Debt/Equity0.33
Fujimak had a similar story. Their 2013 results were great. Revenue was ¥36,276 M versus ¥32,713 M the previous year. Income was ¥1146 M versus ¥1246 M the previous year. See numbers in the box; the company's numbers relative to market cap are tremendous.

However, the stock tanked because management expects a -44% income drop in their 2014 guidance! But then again I have noticed that these standard projections are always quite conservative. And both companies have expressed worry about the consumption tax increase that comes into effect in April. But as usual, I think the market is discounting the macro issues too much. I wouldn't be surprised if the worries of slowdown don't pan out and these two companies do better than expected in 2014.

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