Thinking Points

  • Komori Corporation (TSE: 6349) is a leading manufacturer of commercial printers with a global presence and a new entrant in the printed electronics market.
  • It has been the only money printing machine company in Japan since the late 1950s, and started expanding its money printer business globally in the late 1980s.
  • While sitting in an increasingly competitive commercial printing industry, Komori Corporation entered the printed electronics business in the last few years with aims to reignite growth.
  • At 835 yen per share, Komori Corporation trades at about 0 EV or 66.3% of NCAV with a market capitalization of 46,697 million yen ($433 million USD).
  • Investors can expect an investment CAGR of about ~4.7%, inclusive of dividends, over the next 5 to 8 years.

Introduction

Komori Corporation (TSE: 6349) is a major industrial printing equipment manufacturer with a 100% market share in domestic money printing machines. Although the company operates in three regional segments, it is best analyzed by revenue category.

Source: Kenkyo Investing, based on company data

The company has been a leading manufacturer of industrial printing equipment in Japan for several decades. With the gradual slowdown in the domestic printing business, however, Komori Corporation aims to strengthen its operating business by applying its existing technologies in newer areas such as printed electronics.

The business & environment

Komori Corporation was founded in 1923 in Tokyo by two brothers Zenshichi and Zenichi Komori soon after the Great Kanto Earthquake struck the Tokyo area the same year. Offset printing machines have essentially been the lifeblood of the company from its earliest days with the company building its first one in 1925.

In 1958, the company was awarded its first contract for a money printing machine by the National Printing Bureau after a competitive bidding process involving five competitors. Komori Corporation managed to deliver the machine on a tight schedule of four months from development to installation. This was a pivotal event for the company as it impressed the National Printing Bureau and solidied Komori Corporation’s position as the only money printing machine manufacturer in Japan, which is still true today.

With aims to acquire overseas money printing machine contracts, Komori Corporation set up its first overseas office in the US in 1982. This was followed by setting up an office in the UK (1986) and buying out a French printing machine manufacturer (1988). 

During this time, the company acquired capabilities required to bid on overseas currency printing contracts such as currency design, plate-making, and factory design. Its overseas business mainly consisted of selling printing machines, software, peripheral equipment, and ink as well as outsourced design, plate-making, and printing of bank notes, security certificates, and postage stamps.

The first overseas installation of money printing machines came through in 1988 when Komori received an order for a securities printing machine from S. Korea. Orders from other countries followed, with Komori money printers installed in India, Germany, Nigeria, and more.

In 2005, Komori completed the construction of its flagship Tsukuba factory, fully equipped with production facilities, R&D capabilities, demo centers, training centers, and recreational facilities. After the opening of this factory, Komori gradually shifted its focus toward digital printing technologies, developing its position as a print engineering service provider and then releasing its first commercial digital printer in 2012.

Source: Komori Corporation

The digital printer was developed and released mainly because North American customers, which often take on small lot orders with quick turnaround times, prefer digital printers over offset printers because of the low initial cost.

While Komori maintained its leading position as a commercial printer manufacturer, it wasn’t immune to the 2008-2010 global financial crisis and the low capital investment demand that followed. Between FY03/10 and FY03/13, the company booked net losses as revenues declined steeply from 155 billion yen ($1.44 billion USD) in FY03/08 to 68.7 billion yen ($637 million USD) in FY03/10, with continued at low levels.

The company never fully recovered from the 2008-2010 global financial crisis, with revenues remaining below 100 billion yen ($927 million USD) ever since. The increasingly competitive and saturated printing market, which is declining in size domestically, hasn’t helped either. Amid rising competitive pressures, however, Komori explored new ways to leverage its core printing and precision manufacturing technologies, ultimately entering the printed electronics market in 2013.

Source: Kenkyo Investing, based on company data

Digital Printing Services and Printed Electronics are included in the Other revenue category. This has steadily grown over the last several years, although it accounted for 12.2% of annual revenues in FY03/19. The company’s profitability, however, has not come close to pre-crisis levels.

Source: Kenkyo Investing, based on company data

It’s fair to expect sluggish growth or no growth for sheet-fed, web-fed, and currency presses as the domestic market is shrinking. Its most recent effort as a print engineering services provider includes the acquisition of post print folding technology leader MBO Group (Germany) for an undisclosed amount. One key positive for Komori’s mainstay printing equipment business is that the global market is still projected to grow at a 2% CAGR through 2024 according to some sources.

Komori Corporation’s revenues are geographically diverse, with overseas revenues accounting for the majority of the company’s overall revenues.

Source: Kenkyo Investing, based on company data

For FY03/20, Komori Corporation initially expected revenues of 93,200 million yen ($864 million USD) and operating profits of ($21.3 million USD). According to its Q3 FY03/20 revision (also revised in Q2 FY03/20), the company expects full-year FY03/20 revenues of 81,500 million yen ($755 million USD) and operating losses of 1,600 million yen ($14.8 million USD). The downward revision was mainly driven by the US-China trade frictions and the weakening CNY resulting in generally lower capital investment demand in China.

Shareholders

As of Q3 FY03/20 (ending December 31, 2019), Komori Corporation had 58,292,340 shares issued and 2,367,889 shares in treasury, putting outstanding shares at 55,924,451.

Here are the major shareholders:

Source: Kenkyo Investing, based on company, EDINET, and Nikkei data

According to an EDINET filing submitted on February 19, 2020, Brandes Investment Partners held 6,302,959 shares, or 11.3% of outstanding shares. Investors that hold over 5% of a company’s issued shares are required to file with the Financial Services Agency in Japan. Brandes Investment Partners filed on March 18, 2016, when its stake exceeded 5% of Komori Corporation’s issued shares. Meanwhile, the founding family’s combined stake accounts for just under 10% of outstanding shares.

In terms of shareholder returns, has regularly paid out dividends, although with some fluctuation in the amount. The company was more consistent with share repurchases prior to the 2008-2010 global financial crisis, but has since sporadically repurchased shares. Since the global financial crisis, Komori Corporation made meaningful repurchases in FY03/12, FY03/17, and FY03/20.

Source: Kenkyo Investing, based on company data

Financials & Valuation

  • Komori Corporation is a leading manufacturer of commercial printers with a global presence and a new entrant in the printed electronics market.
  • It has been the only money printing machine company in Japan since the late 1950s, and started expanding its money printer business globally in the late 1980s.
  • While sitting in an increasingly competitive commercial printing industry, Komori Corporation entered the printed electronics business in the last few years with aims to reignite growth.
  • At 835 yen per share, Komori Corporation trades at about 0 EV or 66.3% of NCAV with a market capitalization of 46,697 million yen ($433 million USD).
  • Investors can expect an investment CAGR of about ~4.7%, inclusive of dividends, over the next 5 to 8 years.

Komori Corporation is a domestic market leader in an increasingly competitive and global commercial printing industry. The company effectively has a monopoly in the domestic money printing machine business, and a global profile with installations in S. Koream, India, Germany, Nigeria, and several other countries.

The shift to digital printing along with the 2008-2010 global financial crisis hit the company’s operating business hard, and Komori Corporation has yet to recover to pre-crisis levels. In an attempt to reignite growth, the company is making efforts to shift its business into a more digital and services oriented business while adding the growing printed electronics market to the list of end markets.

After the 2008-2010 crisis, Komori Corporation returned to profitability in FY03/13 and has continued producing profits. However, it expects losses in FY03/20 as the US-China trade tensions and the weaker CNY affect capital investment demand. The recent coronavirus pandemic is sure to have a negative impact on business as well.

Despite its stronghold in money printing machines, Komori Corporation runs a low to medium quality operating business as it had a slow start to the digital printing industry and its efforts to push printed electronics have yet to produce meaningful results. Still, the company’s balance sheet is more than healthy with a cash-heavy equity to asset ratio of 0.77. 

At 835 yen per share, Komori Corporation trades at an EV of 7,430 million yen ($68.9 million USD) and a P/NCAV of 74.3% with a market capitalization of 46,697 million yen ($433 million USD). Adjusted for long-term investment security holdings, the company trades at about 0 EV and 66.3% P/NCAV.

Investors should note that the company made a downward revision to its initial full-year FY03/20 forecast twice, with the second one happening at the end of January 2020, before most companies started announcing revisions related to the coronavirus. At this point, Komori Corporation already expected operating losses, and this is likely to widen further.

Moreover, Komori Corporation’s business is dependent on a healthy capital investment environment. Despite its already low asset-based valuation levels, the company’s share price may decline further as the operating environment continues to deteriorate. Only investors with a longer term investment horizon and a stomach for lower quality operating businesses should consider investing in Komori Corporation. With this in mind, investors can expect an investment CAGR of about ~4.7%, inclusive of dividends, over the next 5 to 8 years.

The bottom line

Komori Corporation is a domestic leader in the commercial printing equipment industry with a global presence.  The company runs a low to medium quality operating business stemming from the impact of the 2008-2010 global financial crisis, its late start in digital printing, and the not yet meaningful printed electronics business. Investors can expect an investment CAGR of about ~4.7%, 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.