Thinking Points

  • Chuokeizaisha Holdings (TSE: 9476) is a mid-tier publisher of business books and magazines with a particular focus on in-depth accounting related content.
  • Though the company provides a solid niche offering, the Japanese publishing industry has been on a 20+ year decline, with no sign of a recovery.
  • This has negatively affected Chuokeizaisha’s business performance, but the company has managed to remain profitable.
  • At today’s 474 yen per share price, the company trades at 59.8% of NCAV. When adjusting for equity holdings, the company trades at 55.9% of adjusted NCAV. Additionally, Chuo owns about 150 yen per share worth of land.
  • Investors can expect an investment CAGR of between 7.5% and 12.3% over the next 5 to 8 years.

Introduction

Chuokeizai-Sha Holdings (TSE: 9476) is primarily engaged in the publishing business and secondarily in the advertising business. The company specializes in business-related books and magazines, with a particular focus on accounting. Although Chuo is a single segment operation, it categorizes revenues into two categories:

Source: Company filings


Non-publishing revenues are primarily generated by advertisements which are placed inside Chuo’s magazines. In addition to business books and magazines, the company also publishes lifestyle printed goods, like calendars, tourist handbooks, and handcraft kit books.

The business & environment

From its founding in 1948, when it published a book on practical tax accounting, Chuo’s specialty has been on accounting related topics. Its first monthly magazine “Kigyo Kaikei (Corporate Accounting)”, which was also published in 1948, is still a core offering to this day.

Since then, Chuo has expanded its core product line up mainly around accounting. In total, there are five long-running magazines:


Source: Business Technical Book Online, titles translated by Kenkyo Investing


One thing to note about the magazines above is that electronic copies are not sold on any of the large online booksellers like Rakuten or Amazon Japan. Instead, e-copies are only made available on Chuo’s own online store: Business Technical Book Online. The company lists just about every book it publishes here as well. Unfortunately, revenues are not categorized by type of publication (magazine/book/other).

The Japanese publishing industry has been in a decline for over a decade as the internet has become  the primary information source for the average person. Before presenting industry data, here’s a quick explanation on how publishing works in Japan.

Historically, there were three parties involved in publishing: Publishers, distributors, and retailers (i.e., bookstores).

Source: Kenkyo Investing


There are two regulations to keep in mind when discussing publishing structure in Japan:

  • Publisher’s suggested retail price, no discount – publishers set a retail price and the price actually holds at retailers. (出版物再販売価格維持制度)
  • Consignment system – retailers get to return unsold books. (委託販売制度)

Essentially, this allows book stores to have a wide variety of books without worrying about inventory risk or price competition. The downside of this is the amount of returns, which has accounted for 40% of all books delivered to bookstores in recent years.

Technically speaking, publishers requiring retailers to stick to suggested retail prices would be in violation of Japanese antitrust laws, but Japan has made an exception for the publishing industry. If this were to change in a way that allows bookstores and other retailers to offer discounts, it may have a materially negative impact on Chuo’s business.

Physical bookstore count, along with sales, has decreased over the last couple of decades in Japan.


Source: Nippan website (Japanese)


Magazine sales have been hit particularly hard:


Source: Nippan website (Japanese)


Not all of these sales have been lost to internet sales either.


This context is important to keep in mind when looking at Chuo’s business performance. Although recent operating margins are considerably lower than a decade ago, Chuo has managed to recover revenues and maintain profitability, mainly through its continued niche focus and M&A of another magazine/book/corporate PR document editing company (2013).

Source: Company filings


The hallmark of Chuo’s work is most certainly its depth of content in the accounting field. In its filings, the company not only notes the industry-wide decline, but also that there is a small reader-base of people passionate about a specific domain. Chuo intends to remain focused on creating in-depth content for accounting and related business areas.

In short, Chuo’s online offerings, particularly for its magazines, are weak. The company only has digital copies of its long-running core magazines on its own platform. This is good and bad. It’s bad because reading digital copies of books and magazines is part of everyday life now and the company doesn’t have these offerings on a widely used platform. It’s good because Chuo has remained profitable overall and still has the opportunity to offer digital copies through mainstream platforms like Rakuten or Amazon Japan.

Management is expecting a continued industry decline going forward. Guidance for fiscal 2019 is 3,085 million yen ($28.1 million USD,  -2.6% YoY) in revenues and 63 million yen ($574 K USD, -40.3% YoY) in operating income.

Shareholders

As of fiscal 2018 (ending September 30th, 2018) Chuo had 4,398,464 shares issued and 667,881 shares in treasury, putting outstanding shares at 3,730,583.

The major shareholders are:

Source: Company filings & Nikkei


Tokio Yamamoto is the largest shareholder and adviser of Chuo. In fact, the Yamamoto family collectively control 35.5% of outstanding shares. Kei Yamamoto, Chuo board chairman, owns Triple A. Norio Yamamoto, CEO of Chuo, owns Interpub East Asia. Tokio Yamamoto owns Tokio Corporation. Kei and Norio are both Tokio’s children.

Black Clover is a Dubai-based deep value hedge fund managed by a Japanese manager, Shungo Sakamoto.

The company offers no equity based compensation and has not repurchased shares since 2009.

Financials & valuation

  • Chuokeizaisha Holdings is a mid-tier publisher of business books and magazines with a particular focus on accounting.
  • Since its founding in 1948, the company created five long-running magazines which are its core offerings today.
  • The Japanese publishing industry has been on a 20+ year decline. Despite this, Chuo has managed to retain most of its revenues, albeit with lower margins, even without digital offerings on mainstream platforms like Rakuten or Amazon Japan.
  • At today’s 474 yen per share price, the company trades at 59.8% of NCAV and 55.9% of NCAV adjusted for equity holdings.
  • At today’s 474 yen per share price, Investors can expect an investment CAGR of between 7.5% and 12.3% over the next 5 to 8 years.

Chuoukeizaisha Holdings is a mid-tier publisher with a focus on in-depth coverage of accounting related topics. The company maintains five core magazine offerings and a lineup of books on similar topics, publishing about 400 combined items per year.

Although the Japanese publishing industry has gone through a 20+ year decline with no signs of a recovery, Chuo has managed to weather through so far. Between 2009 and 2013, revenues dropped by 22% from 3,479 million yen ($31.7 million USD) to 2,704 million yen ($24.6 million USD) and operating margins from 10.3% to 1.6%. In late 2013, Chuo acquired CO2, an editing company which elevated revenues back up to previous levels. More importantly, however, CO2’s revenues have slightly declined since the acquisition while publishing revenues slowly recovered.

As far as opportunities go, digital copies of Chuo’s core offerings are not available on mainstream platforms like Rakuten or Amazon Japan. While management has not mentioned making these offerings available on outside platforms, the company still has the option to do so. Aside from that, Chuo is placed in a difficult industry with a series of headwinds as internet increasingly becomes the main source for reading material.

Still, Chuo has maintained profitability. The company currently has a NCAV per share of 792 yen. When adjusted for equity holdings, NCAV per share is 848 yen. At today’s 474 yen per share price, the Chuo currently trades at 55.9% of adjusted NCAV.

In addition to current assets, the company holds land carrying a book value of 560 million yen ($5.1 million USD), or about 150 yen per share. Half of this is the company headquarters in Chiyoda, Tokyo, and the other half is the headquarters of a subsidiary. The book value of the corporate HQ is in line with a conservative estimate of market prices. The exact location of the subsidiary HQ isn’t listed on company filings or website.

Chuo has a solid niche offering in an industry going through difficult times. So far, the company’s managed to consistently turn profits. Overall, it’s fair to expect a catalyst-less asset-heavy profitable company like Chuo to trade at 100% adjusted NCAV over the next 5 to 8 years.

Investing at today’s 474 yen per share price, Investors can expect an investment CAGR of between 7.5% and 12.3% over the next 5 to 8 years.

The bottom line

Chuokeizaisha Holdings is a mid-tier publisher of business books and magazines with a particular focus on in-depth accounting related content. Though the company provides a solid niche offering, it faces industry wide headwinds. With that said, Chuo has remained profitable throughout the last decade. Moreover, the company sits on a cash-heavy balance sheet. At today’s 474 yen per share price, the company currently trades for 55.9% of adjusted NCAV. At this price, investors can expect an investment CAGR of between 7.5% and 12.3% over the next 5 to 8 years.


Kenkyo Investing
Kenkyo Investing

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