Yoshicon (‘company’) is a Japanese construction company based in Shizuoka prefecture generating revenues from: a) residential construction (3% of sales), b) real estate development (65%), c) real estate leasing (17%), d) construction materials (8%), and e) Others including beverages, apparel, etc. (7%).
It acquires land, develops residential and commercial properties, and sells to corporations as well as individuals. Its largest customer (18% of FY 22 sales) is a REIT, which was a former subsidiary that was listed on the TSE in June 2021: Tokaido REIT, Inc. (Ticker: 2989) – in which it currently owns a 10.4% stake.
The Japanese construction industry suffers from problems such as declining birth rates clouding demand growth prospects, lack of construction labour, weakening yen, and rising costs of energy and raw materials.
The company reported lower sales and profits in the six months to September 2022 due to sluggish real estate sales.
It reported TTM revenues of ¥18.6b (FY22: ¥20.1b), ebitda of ¥2.2b (FY22: ¥2.5b), and net profits of ¥1.5b (FY22: ¥1.7b).
It operates with minimal net debt of ¥2.7b (which was paid down substantially in the last couple of years), net current asset value (including market value of securities and leased real estate) of over ¥20b, and net tangible assets of ~¥22.8b.
The key risk is the carrying amount of real estate inventory at ¥19.6b, which is marked at the lower of cost and net realizable value. The auditors have correctly focused on this area and compared realizable values to market prices of similar long-duration real estate projects, cost estimates to actual costs of similar projects, and adjusted these figures for forecasted interest rates. There appears to be sufficient attention paid to this area. Moreover, current inventory levels relative to cost of sales appear to be on the lower end of the range in the past several years.
The equity is currently selling for ¥7.4b, which is just 37% of minimum realizable asset value, and ~5x TTM earnings.
FY22 dividends and repurchases totaled ¥690m yielding over 9% at market. Directors have the mandate to repurchase to a maximum price of ¥1150/share and recent purchases were above the current price.
In addition, the stock has sold at least 50% higher on a price/tangible equity basis in the last three years i.e., it doesn’t appear to be a perennial laggard.
Overall, this stock appears to be selling considerably below its value to a private owner.
