Thinking Points

  • Nihon Decoluxe (NSE: 7950) primarily manufactures and sells melamine boards, phenolic resin laminate (for printed circuit boards), and chemical anchors.
  • More recently, the company purchased several buildings in the Tokyo area, growing its new real estate business.
  • Meanwhile, Nihon Decoluxe enjoyed recent strong demand for melamine boards while the chemical anchor and phenolic resin laminate businesses stagnated.
  • At 6,030 yen per share, Nihon Decoluxe trades at 95.3% of NCAV with a market capitalization of 4,902 million yen ($45.2 million USD).
  • Investors can expect an investment CAGR of between 4.0% and 6.0%, inclusive of dividends, over the next 5 to 8 years.

Introduction

Nihon Decoluxe (NSE: 7950) primarily manufactures and sells melamine boards, phenolic resin laminate (for printed circuit boards), and chemical anchors. Secondarily, the company rents office space. It operates through two segments: Construction Materials and Real Estate.

Source: Kenkyo Investing, based on company data

What’s interesting about Nihon Decoluxe is that it only trades on the Nagoya Stock Exchange (NSE). You may want to check with your broker before further reading as not many online brokers trade exclusively NSE-listed stocks.

The business & environment

Nihon Decoluxe was founded in 1958 in Bisai City, Aichi prefecture: a part of Japan’s third largest metroplex, Nagoya. The company started out by manufacturing and selling melamine boards (typically used for cabinets, shelves, countertops, etc), and quickly opened offices in Tokyo (1960) and Osaka (1961).

The company then proceeded to develop, manufacture, and sell chemical anchors in 1969. In fact, the term chemical anchor is a trademark of Nihon Decoluxe which is a common language in the construction industry used when referring to the resin used for chemical anchor bolts. According to Toyo Keizai’s company page (Japanese), Nihon Decoluxe has the highest domestic market share for chemical anchors.

In 1980, Nihon Decoluxe started manufacturing and selling phenolic resin laminate for printed circuit boards. Then in 2010, the company made its first move into the real estate business. Although the company operated with a single segment until 2014, it categorized revenues:

Source: Kenkyo Investing, based on company data

Technically, the Real Estate revenues in the above chart for fiscal years 2011 through 2013 were categorized as Other revenues. In fiscal 2014, 2015, and 2019, Nihon Decoluxe made several building purchases in the Tokyo area for its Real Estate segment.

Aside from the Real Estate business, the technology common across Nihon Decoluxe’s segments are in the lamination of synthetic resins. The company considers this its strength, offering products in the construction and electronics industries.

While demand for melamine boards remained strong in recent years, the company experienced difficulty growing Chemical Anchor and Phenolic Resin Laminate revenues. The company attributes much of the revenue decline for chemical anchors to a slowdown in anti-earthquake construction. Meanwhile, recent demand for Phenolic Resin Laminate declined in China, resulting in a revenue decline.

Source: Kenkyo Investing, based on company data

For fiscal 2020, Nihon Decoluxe expects revenues of 5,700 million yen ($52.5 million USD, -2.9% YoY) and operating income of 550 million yen ($5.1 million USD, +5.5% YoY). The company does not provide segment or category specific forecasts, but notes the US-China frictions, among other things, as an uncertainty affecting the business. As of Q1 2020, the company delivered revenues of 1,288 million yen ($11.9 million USD, -8.6% YoY) and operating profits of 83 million yen ($765K USD, -20.9% YoY).

The company noted that real estate rental revenues and expenses have been recategorized and included in company revenues and cost of goods sold as of 2019. It was previously recorded below the operating profit line item as a subcategory of non-operating income and expenses.

Shareholders

As of Q1 2020 (ending June 30, 2019), Nihon Decoluxe had 893,000 shares issued and 80,737 shares in treasury, putting outstanding shares at 812,263.

Here are the major shareholders:

Source: Kenkyo Investing, based on company and Nikkei data

Shigeo Kimura is the CEO of Nihon Decoluxe and a part of the founding Kimura family. Kimura and Takahira Shoji are both Kimura family funds. The Kimura family collectively controls the company.

The company has no unexercised stock options outstanding and offers no management equity compensation.

Financials & Valuation

  • Nihon Decoluxe primarily manufactures and sells melamine boards, phenolic resin laminate (for printed circuit boards), and chemical anchors.
  • More recently, the company purchased several buildings in the Tokyo area, growing its new real estate business.
  • Meanwhile, Nihon Decoluxe enjoyed recent strong demand for melamine boards while the chemical anchor and phenolic resin laminate businesses stagnated.
  • At 6,030 yen per share, Nihon Decoluxe trades at 95.3% of NCAV with a market capitalization of 4,902 million yen ($45.2 million USD).
  • Investors can expect an investment CAGR of between 4.0% and 6.0%, inclusive of dividends, over the next 5 to 8 years.

Nihon Decoluxe got its start in melamine boards in 1958, then expanded its business into phenolic resin laminates and chemical anchors by leveraging its strength in the lamination of synthetic resins. In recent years, the company has enjoyed resilient demand for melamine boards while sales for phenolic resin laminates and chemical anchors have stagnated.

Meanwhile, in recent years, the company heavily invested in its new real estate business, which currently consists of 5 office buildings, mainly in the Tokyo area. Prior to the purchase of two Tokyo buildings in fiscal 2019, Nihon Decoluxe traded slightly below NCAV, with the bulk of current assets as cash. 

After the purchase, however, the company now trades above NCAV. Some investors may consider the purchase of Tokyo properties at recently higher prices as questionable capital allocation while others may consider it a move in the right direction. While the purchase may be a wise move for the long-term given the uncertainty in the operating business, however, we generally prefer shareholder returns over real estate investments out of net-net companies.

At 6,030 yen per share, Nihon Decoluxe trades at 141.5% of NCAV with a market capitalization of 4,902 million yen ($45.2 million USD). Adjusted for long-term investment security holdings, however, the company trades at 95.3% of NCAV.

The company plans to pay 280 yen per share in dividends for fiscal 2020, which puts the dividend yield at 4.6%. With the near 100% adjusted NCAV valuation and neither attractive nor unattractive operating business, however, the dividends are Nihon Decoluxe’s main attraction for investors. With this in mind, investors can expect an investment CAGR of between 4.0 and 6.0%, inclusive of dividends, over the next 5 to 8 years.

The bottom line

Nihon Decoluxe primarily manufactures and sells melamine boards, phenolic resin laminate (for printed circuit boards), and chemical anchors. Secondarily, the company operates a real estate business. Nihon Decoluxe’s core operating business has delivered mixed results recently, but is generally stable overall. With its recent focus on real estate, the company’s dividend payouts are its biggest attraction for investors. However, with a near 100% NCAV valuation already and a medium quality business, investors can only expect an investment CAGR of between 4.0% and 6.0%, inclusive of dividends, over a 5 to 8 year period.


Kenkyo Investing
Kenkyo Investing

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