Dec 23, 2022·edited Dec 23, 2022Liked by generalsandworkouts
A well-structured write-up and pleasure to read. The back-and-forth with their IR was definitely useful. I’ll dive in soon and leave more constructive thoughts! Btw, I also pitch investment ideas and would love to recommend your Substack to my readers. If you like my work (I think you can see the link here?), would you consider doing the same?
I have a feeling that main purpose of listing, with its inherent better liquidity/transferability of ownership and at least stated aim of "better corporate governance" could be estate planning; to be able to enable better transition of ownership into next generation, especially if there are several heirs. Given the stated age of the main shareholder it is even more likely that that could be the main reason. Are there any children involved in company's management or there have been any talk about succession?
in their latest earning Q/A they stated, that they just want to invest 30-50% of that cash over a multiple year timespane. They stated they want to invest only 3-5 billion in investments/expansions. 1 billion in hiring/training , 1 billion in research/development. Also in addition in their latest stock report ( from 26.5, page 11 ) they stated they always want to have an equity ratio of > 60%, now we are at 85%. So dont expect all cash will be deployed. Investing 6-7 billion of that total cash of 18 billion is nice and good, but i would have hoped for more.
Great write-up, GaW. I like Cel Corp and think it's super cheap, but in their last Q report they now record shares held in a trust (that are part of a compensation plan for directors) as treasury shares. That's a bit weird, because if you just looked at the raw data you'd think they bought back shares, but the reality is they just bought those shares and put them in a trust whose purpose is to transfer those shares to the directors when they retire. Shouldn't that be recorded as an expense instead? Appreciate your help. Full disc.: I own a small position in Cel Corp.
Hoping you may be able to shed some light on something as my eyes are going cross-eyed with all this translated Japanese. They have a cash outflow LFY of a little over Y2b and a little over Y8B this most recent FY which they note little more other than that it's taxes paid?
I'm trying to understand what exactly is going on there and why that isn't/didn't just get sent through their income statement. The paid like Y6.5B in tax last year which seems to have included tax due on their Chinese seg. sale.
My main concern is as to whether they Y2B - Y8B is going to be somewhat recurring and thus chew away at their cash pile - as it did by ~Y5B this year.
The note in their financial statement is as follows:
"(Cash flow from operating activities) Funds used as a result of operating activities amounted to 4,181 million yen. This was mainly due to the sale of owned properties in the rental development business and a decrease in real estate for sale and real estate for sale in progress, resulting in the acquisition of funds of 2,180 million yen. This was due to the use of funds of 8,037 million yen as the amount of corporate taxes paid."
Sorry - I'm sure it'll be something super obvious when I hear it.
Just wondering if I can get your thoughts now as of April 2023 - It's been a few months since you published, have your thoughts changed on the business, valuation, or some of the thesis' central points (cash balance, etc.)?
Hello, I'm Lenka, the co-founder of strike.market - a stock research web with alternative data. I love your content and would love to share it with our investors. What would you think about a short interview? I would send you a few questions.
Hi! Great write-up, a pleasure tu read. Definitely an interesting situation.
Only question I would have is about management compensation. Is there any high compensation by salary, bonus or related party transactions ? Always a risk for me with companies having large ammounts of cash.
A well-structured write-up and pleasure to read. The back-and-forth with their IR was definitely useful. I’ll dive in soon and leave more constructive thoughts! Btw, I also pitch investment ideas and would love to recommend your Substack to my readers. If you like my work (I think you can see the link here?), would you consider doing the same?
I have a feeling that main purpose of listing, with its inherent better liquidity/transferability of ownership and at least stated aim of "better corporate governance" could be estate planning; to be able to enable better transition of ownership into next generation, especially if there are several heirs. Given the stated age of the main shareholder it is even more likely that that could be the main reason. Are there any children involved in company's management or there have been any talk about succession?
Some adds:
in their latest earning Q/A they stated, that they just want to invest 30-50% of that cash over a multiple year timespane. They stated they want to invest only 3-5 billion in investments/expansions. 1 billion in hiring/training , 1 billion in research/development. Also in addition in their latest stock report ( from 26.5, page 11 ) they stated they always want to have an equity ratio of > 60%, now we are at 85%. So dont expect all cash will be deployed. Investing 6-7 billion of that total cash of 18 billion is nice and good, but i would have hoped for more.
Really, really great write-up, hopefully the first of many (subscribed!).
I'm always mystified by these uber cash-rich Japanese businesses, but this one is definitely worthy of some DD... These numbers are mind-boggling.
Great write up. Made some decent money on Shinoken in the past. Will have a closer look. When I first looked I didn't like the Chinese part....
Great write-up, GaW. I like Cel Corp and think it's super cheap, but in their last Q report they now record shares held in a trust (that are part of a compensation plan for directors) as treasury shares. That's a bit weird, because if you just looked at the raw data you'd think they bought back shares, but the reality is they just bought those shares and put them in a trust whose purpose is to transfer those shares to the directors when they retire. Shouldn't that be recorded as an expense instead? Appreciate your help. Full disc.: I own a small position in Cel Corp.
Great write up GaW.
Hoping you may be able to shed some light on something as my eyes are going cross-eyed with all this translated Japanese. They have a cash outflow LFY of a little over Y2b and a little over Y8B this most recent FY which they note little more other than that it's taxes paid?
I'm trying to understand what exactly is going on there and why that isn't/didn't just get sent through their income statement. The paid like Y6.5B in tax last year which seems to have included tax due on their Chinese seg. sale.
My main concern is as to whether they Y2B - Y8B is going to be somewhat recurring and thus chew away at their cash pile - as it did by ~Y5B this year.
The note in their financial statement is as follows:
"(Cash flow from operating activities) Funds used as a result of operating activities amounted to 4,181 million yen. This was mainly due to the sale of owned properties in the rental development business and a decrease in real estate for sale and real estate for sale in progress, resulting in the acquisition of funds of 2,180 million yen. This was due to the use of funds of 8,037 million yen as the amount of corporate taxes paid."
Sorry - I'm sure it'll be something super obvious when I hear it.
Thanks again for the write up.
Hi G&W - just came across this writeup.
Just wondering if I can get your thoughts now as of April 2023 - It's been a few months since you published, have your thoughts changed on the business, valuation, or some of the thesis' central points (cash balance, etc.)?
Cheers
Hi, excellent, detailed write up, congrats!
I have a long pos in Shinnihon and I wonder why you think it is inferior to CEL, because Shinnihon has:
- better margins
- better returns on equity
- higher growth
So it operating business looks better than CEL's but is valued a lot cheaper.
Yes they have built up a lot of cash but note that they have been heavily indebted in the past and only recently paid off all of their debt.
They are also increasing their dividends every year (although very slowly).
Anyway, I'd rather own a company with too much cash than one with too much debt, the latter is easier to solve :)
Really like this write up. Are there more coming down the pipe?
Hello, I'm Lenka, the co-founder of strike.market - a stock research web with alternative data. I love your content and would love to share it with our investors. What would you think about a short interview? I would send you a few questions.
If you are interested, you might look at the last interview with the two youngest portfolio managers in Europe: https://strike.market/academy/interviews/interview-jacob-tobias-schober
Let me know, what you think via Twitter message. My account is: https://twitter.com/Lenka_Schanova
Thank you.
Thorough write up. Thank you.
Hi! Great write-up, a pleasure tu read. Definitely an interesting situation.
Only question I would have is about management compensation. Is there any high compensation by salary, bonus or related party transactions ? Always a risk for me with companies having large ammounts of cash.
Thanks for the work.
Dani