Summer Quarterly Updates

Tachibana Eletech reported Q1 total income increased 18.9% yoy; revenue increased 6.7% yoy. This improvement was partly the result of strong industrial demand in Japan. The results are even more impressive because the market presumed that last quarter's results were good because customers moved forward purchases to avoid the impending consumption tax increase. Q1 results were the first that included the consumption tax increase, and the results would have been impressive even if there was no tax increase!

The company also upped its year end EPS guidance from ¥161.41 to ¥170. The stock has rallied recently but it is still selling for only 8 times EPS guidance.

Riken Keiki reported earnings increased 19% yoy. Revenue increased 6.6% yoy. This company is firing on all cylinders. Last year its earnings increased 14% and the year before it increased 22%. This is my best performing Japanese holding, increasing by 90% in the 18 months that I've held it. When I initially bought the stock 18 months ago, the fact that it was a netnet was my margin of safety. Now it has risen 90% and is no longer a netnet. The market has priced it more as a earnings growth engine. But the stock still trades below book and and at 11x EPS guidance. This is Ben Graham's value investing at work: buy a good cheap stock, and usually something good happens!

Fujimak reported a ¥ (38.39) loss per share versus ¥ 3.5 a year ago. Revenue decreased 5% yoy. This was a surprise...no... a shock! The company said much of this was the result of a natural pullback from its knockout Q4, when it earned ¥ 99 a share, and to a lesser extent the consumption tax increase.

The company gave an EPS guidance of ¥98, which I hope is true but I also fear may not be met. The company trades at 8x EPS guidance.

Now on to US stocks. Seaboard Corp had one of its best quarters in history. Because of record pork prices, EPS was $79 versus $33 a year ago. H1 EPS was $119 versus $81 a year ago. The stock didn't budge after the earnings reports. In fact it dropped a bit because of plunging pork futures. Pork meat was regularly around $0.80/lb for the last several years, then it suddenly jumped to a high of $1.30. Today, futures for delivery in the next several months is back at $0.90s. Next year delivery dropped but now is back in the 90s also! So the weak stock performance is understandable.

Kansas City Life Insurance reported Q2 earnings slight down. Q2 EPS was $0.77 versus $0.98 a year earlier and premium revenue was down 5%. Book value has grown steadily and now the stock trades at 2/3 book. It also pays a 2% dividend. I feel this is one undervalued and neglected company.

Investors Title Insurance Company reported earnings were down 20% yoy. Premium revenue was flat yoy, which is encouraging considering the exceptional refinancing activity last year. The decrease in earnings was primarily the result of increased commissions. The company now trades at 1.1x book.

Putprop pre-announced that the company's earnings will be approximately ZAR$1.50 vs ZAR$0.86 a year ago! That is a 75% increase and even after the stock jumped by 30% from my initial purchase, it is still trading at 6 times earnings!

IEHC reported Q1 EPS $0.17 versus $0.23 a year ago. Sales was down 4% yoy. I would've liked to see better yoy results, but last year's Q1 was exceptional. I don't really know what to make of this tiny company. I had hoped based on my reading that this company's sales would take off in the last several quarters. But this hasn't happened. The company's sales are quite erratic. I'll pay close attention to this one in the coming quarters.

Tachibana Eletech and Fujimak Results Fail to Satisfy Investors

TSE:8159
Price	¥ 1161.00
Market Cap	¥ 25078.12 M ($ 246 M USD)
P/E TTM	6.5 x
Div yield	2.0 %
P/BV	0.57
Price/Netnet	0.65
ROE	8.8 %

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.

TSE:5965
Price	¥ 719.00
Market Cap	¥ 4712.04 M ($ 46 M USD)
P/E TTM	4.1 x
Div yield	2.8 %
P/BV	0.40
ROE	9.6 %
LT Debt/Equity	0.33

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.

Riken Keiki Reports Great Q3 Earnings, Fujimak Not So Good

Riken Keiki
Price	¥ 874
Market Cap	¥ 20.29 B ($ 198 M USD)
P/E TTM	8.2 x
Div yield	1.9 %
P/BV	0.70
Price/Netnet	1.02
ROE	8.6 %

Riken Keiki (TSE:7734) reported earnings improved 40% for the first 9 months this year versus last year. The company makes gas detectors and related equipment for industrial use. Sales were up and cost of goods were down. This shows good management of operations.

The company's year-end earnings projection of ¥ 76 / shr did not change, but I think that is a bit conservative. Book value increased 5% over the last 9 months.

Fujimak (TSE:5965) reported disappointing earnings that caused the stock to drop 10%. Fujimak makes commercial grade kitchen equipment. The company reported earnings that came 30% lower than this point last year. I believe the report indicated that the fast food segment was a major contributor to the poor results. Overall, sales were up 10%. But high raw material costs offset the sales gains. Also, SG&A costs were significantly higher than last year. The comprehensive earnings was better at 10% lower. Like many other Japanese companies, Fujimak benefited from gains in its investment holdings in yen.

Fujimak
Price	¥ 800 B
Market Cap	¥ 5.24 B ($ 51 M USD)
P/E TTM	5.1 x
Div yield	2.0 %
P/BV	0.58
ROE	11.55 %

The company did not change its current year earnings projection of ¥ 130 which would give the company a 6.3x earnings multiple for the year. For now I am not panicking.

Why I Own Fujimak

I found Fujimak (5965:TSE) while looking for small Japanese net-nets. Although Fujimak is not a net-net, it got my attention for its great earnings. The stock trades at only 5 times trailing earnings. I have only seen this in very special situations. But from what I have seen Fujimak can earn this type of earnings regularly, and without much leverage. The only negative that stands out to me is that this is a Japanese microcap. Its current market cap is only $55 mil USD.

Fujimak makes kitchen equipment for commercial use. The company has been around since 1950. The company only provides investors online information in Japanese. The online data only go back six years. Their equity and earnings per share are shown below.

Equity and Earnings per share (yen)

I don't have any information prior to the six years. I can only assume that the company was just humming along when earnings took off around 4 years ago. The stock price currently is 860 yen. The expected income for fiscal 2014 is 130 yen.

But digging deeper, the data is peculiar. The income increase did not come from greater sales, it came from greater margins. And what an improvement this makes.

The following table shows the gross margin is relatively constant, but the profit margin benefited greatly from improved SG&A expenses. So the improved performance comes from selling possibly less and more profitably products. Other than that, I don't have much more to add because I can't read the reports in Japanese, and even if I could I don't think they would reveal much. But whatever the reason, the numbers, if true, is compelling enough reason to buy Fujimak.

Fujimak should also benefit from the current Japanese resurgance. The USD is worth 102 yen now. Between 100 and 110 is a wonderful sweet spot for Japanese exports. And I can tell that Fujimak is pushing its expansion into Asia. They recently opened an office in Vietnam.