Thinking Points

  • Fisco published two reports this week, both are worth reading.
  • One is particularly interesting – a late stage startup online B2B platform that’s delivered explosive, 20+% 10-year CAGR revenue growth.
  • Both companies hold attractive qualities and deserve a spot on your watchlist.

Fisco published two reports this week. If explosive growth or capital light manufacturing is your thing, you get a piece of both. One is on Monotaro (TSE: 3064), an online retailer for maintenance, repair, and operations products that’s been growing explosively. The other is Ohashi Technica (TSE: 7628), an auto parts maker with several factories as well as a vast network of partnered companies for “fabless” operations.

 

Monotaro (TSE: 3064)

Monotaro sells products that aren’t mission critical, but still important for ongoing operations. These are products like nuts, bolts, tape, and gloves. The primary target is small and mid size businesses, which don’t get the benefit of volume discounts like some of the larger companies do. Monotaro’s foreign ownership is disproportionately high (80+% of issued shares). This is largely due to W.W. Grainger (NYSE: GWW), the founding partner, owning just about half of issued shares. I’ve actually written about this company for Kenkyo Plus a few months ago.

Source: Monotaro website

 

Monotaro’s been growing explosively, with 10-year revenue CAGR of 20+% and 10-year operating income CAGR of 25+%. Moreover, the company delivered 40+% ROE over the past few years, and maintains a dividend payout ratio of about 30% consistently. Though the current EV/EBIT of 60x is intimidating at first glance, the multiple may not be so crazy given its explosive growth.  

Read Fisco’s full report on Monotaro here.

 

Ohashi Technica (TSE: 7628)

Ohashi Technica supplies over 20,000 different precision machined parts for the automotive industry all over the world. Roughly 25% of sales come from products manufactured in its own factories. The remainder is produced by its 300 partnered companies.

Source: Ohashi Technica website

 

Though the company is susceptible to all the cyclical swings that come with the automotive industry, it still turned a profit during the 2008/2009 turmoil. During normal times, the company regularly delivers 8+% operating margins. In fact, operating margins came in over 10% the last few years. Current EV/EBIT is at ~1.4x, and it feels odd to say this, but given the cyclical nature of the automotive industry, you can probably expect to see a better deal the next time a crash comes around. Ohashi Technica has more than enough cash to weather through a crash. Net cash is at 29% of current market cap.

Read Fisco’s full report on Ohashi Technica here.

 

Fisco Wrap Up

If you’re a growth investor, you should definitely take a look at Monotaro. And if you have a knack for Japanese manufacturing or the automotive industry in general, Ohashi Technica is worth a look. Both companies deliver solid business performance and carry a healthy balance sheet. The big question is price.

 

Author: Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.