Thinking Points

  • Mabuchi Motors (TSE: 6592) manufactures and sells small electric motors used in electronics, toys, and automotive applications around the world.
  • The company developed the world’s first high performance horseshoe electric motor, which was adopted by toymakers and electronics makers, often used in CD/DVD players.
  • Despite the displacement of its previous core business of audio/visual equipment motors, the company managed to pivot and thrive with motors for automotive applications.
  • At 3,905 yen per share, Mabuchi Motors trades at 8.3x EV/EBIT and 171% of NCAV with a market capitalization of 267 billion yen (2.4 billion USD).
  • Considering the recent strong automotive industry, Mabuchi Motors’ position as an automotive supplier, and the company’s shareholder return policies, Mabuchi Motors currently trades at about fair value.

Introduction

Mabuchi Motors (TSE: 6592) manufactures and sells small electric motors used in everything from toys and consumer electronics to office equipment and automotive applications. The company’s segments are categorized by region: Japan, Asia, US, and Europe:

Source: Kenkyo Investing, based on company data


The company made an early entrance into foreign markets, establishing its first overseas office in New York in 1965. In fact, Mabuchi Motors is a global company, with less than 10% of annual revenues generated in Japan in FY12/18. Over the last decade, the company’s revenue base shifted heavily toward the automotive industry, and Mabuchi Motors is working to diversify its revenue sources while reducing manpower.

The business & environment

The founding of Mabuchi Motors can be traced back to 1946, when Kenichi Mabuchi established Kansai Scientific Lab. In the following year, Kenichi developed the world’s first high performance horseshoe magnetic motor (small DC motor with brush contact). Fast forward several years and the company managed to develop mass production capabilities.

In 1958, all of the company’s previous operations, which were setup and run under separate entities, were merged into Mabuchi Industrial. This is the official start of today’s Mabuchi Motors. 

While the company mainly caters to the automotive industry today, its early breakthrough took place in toys and electronics. Mabuchi Motors’ small electric motors revolutionized how toys are made in Japan, essentially replacing wind-up toys with motorized toys. An iconic example of a Mabuchi-powered toy is the Mini 4WD, a miniature plastic racing car toy produced by Tamiya (private).

Source: Tamiya Official Mini 4WD website


Leading into the 2000s, Mabuchi Motors gained high market share for motors used in consumer electronics like CD/DVD players, tape recorders, and various audio/visual equipment. Around this time, the company’s market capitalization reached 800 billion yen ($7.3 billion USD). However, as digital media players like the iPod and MP3 players emerged, the company’s audio/visual related motor business deteriorated. 

Fortunately, the company had been shifting toward making motors for the automotive industry. These were for things like power windows, door locks, mirror adjusters, seat adjusters, etc. Gradually, it replaced audio/visual and other consumer electronics related revenues with automotive revenues:

Source: Kenkyo Investing, based on company data

Since starting its operations in Hong Kong in 1964, Mabuchi Motors started shifting its production capacity overseas. In 1980, the company stopped all motor production in Japan. Its production network is now mainly Asia focused, with facilities in China, Taiwan, and Vietnam. Aside from Asia, the company has manufacturing functions in Mexico and Poland.

With its global manufacturing facilities, the company maintains over 50% global market share in small DC motors according to some sources (Japanese). Mabuchi Motors’ geographic revenue source is about as diverse as its production network, with China/Asia being the biggest market for the company:

Source: Kenkyo Investing, based on company data


In its latest medium term management plan, the company is focused on realizing a 30% manpower reduction compared to FY12/17 by the end of FY12/19. This is an on-going effort that started in 2011, and the company has made successful automation efforts thus far. As for financial targets, Mabuchi Motors aims for revenues of 160 billion yen ($1.46 billion USD), operating margins of 15.0%, and ROE of 8.0%.

For FY12/19, Mabuchi Motors initially guided for revenues of 146 billion yen ($1.3 billion USD, +2.0% YoY) and operating profit of 19,000 million yen ($173.0 million USD, -10.6% YoY). This was adjusted downward in Q2 to revenues of 135 billion yen ($122.9 billion USD, -5.7% YoY) and operating profit of 17,500 million yen ($159.3 million USD, -17.6% YoY). The adjustment was largely a result of a slowdown in automotive-related sales in China and Europe.

As of Q3 FY12/19 (ending September 30, 2019), the company generated revenues of 100.1 billion yen ($911 million USD, -8.1% YoY) and operating profit of 12,888 million yen ($117.3 million USD, -20.2% YoY).

Shareholders

As of Q3 FY12/19 (ending September 30, 2019), Mabuchi Motors had 68,562,462 shares issued and 2,170,385 shares in treasury, putting outstanding shares at 66,392,077.

Here are the major shareholders:

Source: Kenkyo Investing, based on company and Nikkei data


Between Takaichi Mabuchi, Mabuchi International Scholarship Foundation, Tamotsu Mabuchi, Takashi Mabuchi, Texas (Mabuchi family related company), and Rei Corporation (Mabuchi family related fund), the founding family holds 23.6% of outstanding shares. We weren’t able to find information about Premier.

In terms of shareholder returns, Mabuchi Motors has consistently paid dividends for over 10 years. For FY12/18, the company had a dividend payout ratio of 74.9%. In the last several years, the company repurchased ~5,000 million yen ($45.5 million USD) worth of shares, with the exception of FY12/18, when it repurchased about 3,000 million yen ($27.3 million USD) worth of shares.

It’s also worth noting that Mabuchi Motors’ English disclosures are considerably more comprehensive when compared to the average listed Japanese company. 

Financials & Valuation

  • Mabuchi Motors manufactures and sells small electric motors used in electronics, toys, and automotive applications around the world.
  • The company developed the world’s first high performance horseshoe electric motor, which was adopted by toymakers and electronics makers, often used in CD/DVD players.
  • Despite the displacement of its previous core business of audio/visual equipment motors, the company managed to pivot and thrive with motors for automotive applications.
  • At 3,905 yen per share, Mabuchi Motors trades at 8.3x EV/EBIT and 171% of NCAV with a market capitalization of 267 billion yen (2.4 billion USD).
  • Considering the recent strong automotive industry, Mabuchi Motors’ position as an automotive supplier, and the company’s shareholder return policies, Mabuchi Motors currently trades at about fair value.

Mabuchi Motors manufactures and sells small electric motors primarily to the automotive industry. The company is the pioneer of high performance small horseshoe magnetic motor, which is used in a wide variety of products including power windows and power seats for cars, printers, DVD players, and remote control cars.

Although it is difficult to tell by Mabuchi Motors’ financial performance over the last decade, the company transitioned from catering to the consumer products market to essentially becoming an automotive supplier, with 72.8% of revenues coming from the automotive sector in FY12/18. This is an important point as the company is now prone to cyclical swings.

Mabuchi Motors maintains a high cash balance about equivalent to one year’s worth of revenues. The company carries no debt and generally has an equity to asset ratio of above 0.90. While the balance sheet is undoubtedly overcapitalized, Mabuchi Motors returned more than half of profits to shareholders over the last several years through historically consistent dividends as well as its more recent share repurchases. 

That said, there’s no mention about further shareholder returns or sizable reinvestment in order to boost capital efficiency. It’s also worth noting that 105 yen per share of the guided 135 yen per share dividend is categorized as special dividends. The company has maintained regular dividends at 30 yen per share since FY12/06 (note: 2:1 stock split in January 2015).

In terms of product quality, management quality, and balance sheet quality, there is little doubt that Mabuchi Motors is anything less than high quality. Considering its cyclical exposure and currency exposure (negative impact from strong JPY), the overall company quality is between medium and high.

While there are near term concerns for Mabuchi Motors, such as the slowdown in the automotive industry, Grandview Research expects the global electric DC motor market to grow at 3% CAGR through 2025

At 3,905 yen per share, Mabuchi Motors trades at 8.9x EV/EBIT and 183% of NCAV with a market capitalization of 267 billion yen (2.4 billion USD). Adjusted for long term investment securities, the company trades for 8.3x EV/EBIT and 171% of NCAV.

In assessing fair value for Mabuchi Motors, it’s important to keep in mind that the automotive industry has remained strong for almost a decade. With a shift in Mabuchi Motors’ revenue source, a downturn in the automotive sector will have a profound impact on the company’s profitability. In other words, today’s valuation of 8+x EV/EBIT is based on historically strong operating profits. This combined with the assumption that Mabuchi Motors’ excess cash will remain on its balance sheet for the foreseeable future, leads us to believe that Mabuchi Motors is fairly valued at today’s price, even at a seemingly undervalued 171% NCAV.

The bottom line

Mabuchi Motors is an established and well known global small electric motor manufacturer. The company shows excellent quality in various areas. Trading at 8.3x EV/EBIT with a recent strong automotive industry, however, the company is about fairly valued today. Investors as best advised to keep the company on a watchlist and re-examine the company should the automotive industry slow down in the future.


Kenkyo Investing
Kenkyo Investing

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