Why I Don’t Invest In Japanese Construction

Thinking Points

  • Japanese construction companies flood value-focused quantitative screens.
  • Japanese construction doesn’t necessarily transfer well in other regions.
  • My avoidance of Japanese construction is simply a decision heuristic, not a suggestion that everybody should avoid Japanese construction.

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Idea: Consistent 60+% Greenblatt ROIC For… Weather Data? – Weathernews (TYO: 4825)

Thinking Points

  • Weathernews is one of the world’s largest private weather data service.
  • After its start in Ocean route planning, Weathernews now offers consulting and data services to airlines, railroads, TV stations, consumers, and many other areas.
  • Leveraging its healthy ROIC performance, Weathernews is exploring different avenues for market and service offering expansion.

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Idea: An Alternative To Activision Or Electronic Arts – Capcom (TYO: 9697)

Thinking Points

  • Capcom (TYO: 9697) is just getting started with digital distribution.
  • With strong Intellectual Property (IP) like Street Fighter and Resident Evil, Capcom is well grounded.
  • If you missed the Activision and/or Electronic Arts digital distribution wave, you might want to consider looking at Capcom.

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Idea: 100% Payout Ratio And Still Growing? – TYO: 7865 People Co

Thinking Points

  • People Co (TYO: 7865) is a toy company that consistently pays out nearly 100% of its income.
  • Company strategy is similar to Apple & Keyence (TYO: 6861), focusing on design and outsourcing manufacturing.
  • Explosive US growth provides larger non-Japanese revenue exposure.

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Quick Idea: 101% NCAV With 3.5+% Dividend Yield On Consistent Performance – Nihon Decoluxe (NGO: 7950)

Thinking Points

  • Nihon Decoluxe’s (NGO: 7950) story is profitable, but as boring as it gets.
  • Revenues have only slightly increased over the past 10 years while EBIT delivered 20% CAGR.
  • At 0.37x EV/EBIT and a 3.5+% dividend yield, it’s hard to go wrong with Nihon Decoluxe.

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Japan’s Leading Condom Manufacturer Protects Other Things Too – Okamoto (TYO: 5122)

Thinking Points

  • Japan’s top condom maker, Okamoto (TYO: 5122) is about more than just condoms.
  • Okamoto’s active share buybacks that precede Japan’s push for corporate governance reform is particularly encouraging.
  • Thanks in part to the buybacks, per share metrics look appealing with 10-year revenue CAGR of 3% and EBIT CAGR of 20%.

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Quick Idea: 19% EBIT CAGR Over 9 Years – Morningstar Japan (TYO: 4765)

Thinking Points

  • Morningstar has a long lost cousin in Japan – Morningstar Japan (TYO: 4765)
  • This cousin has performed quite well over the last 9 years with an EBIT CAGR of 19%
  • Business performance is stellar on a Greenblatt ROIC basis, and current dividend yield is 2.5%

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Quick Idea: Japan’s Blue Apron Making Moves To Corner The Market – Oisix Daichi (TYO: 3182)

Thinking Points

  • Oisix Daichi (TYO: 3182) holds a 30% share in a highly niche-y organic vegetable delivery industry in Japan.
  • The company is the result of a recent merger between Oisix and Daichi, the #2 and #3 players in the organic vegetable delivery industry.
  • With large companies entering the market, competitive pressures are on the rise. The CEO, however, thinks this is a good thing.

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Quick Idea: Global Leader In Silicon Wafers And A Bunch Of Other Stuff – TYO: 4063 Shinetsu Chemicals

Thinking Points

  • Shinetsu Chemicals has healthy exposure to various industries and is an industry-leader in many areas.
  • The diversified nature of Shinetsu’s operating businesses helped weather through the 2008/2009 financial mess, though profitability briefly declined.
  • Despite a high cash position (net cash at 10% of market cap), Shinetsu delivered respectable low teen ROIC over the past couple of years.

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Quick Idea: Japan’s Leading Tankless Water Heater Company With Growth In China & USA – Rinnai (TYO: 5947)

Thinking Points

  • Rinnai (TYO: 5947) leads the Japanese water heater market with a 40% market share.
  • However, Rinnai’s Japan share is not the story. Growth outside of Japan has rapidly gained traction over the past few years – particularly in China and the US.
  • As infrastructure in ASEAN countries develop, we can expect Rinnai’s ASEAN revenues to grow as well.

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