Fellow Substacker Spotlight: AltayCap on Nissin Corp (9066)

Corporate Governance Done Right

May 20, 2024

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Disclaimer: I am long shares of Nissin Corp (9066) at the time of publishing this post.

This idea 100% originates from

AltayCap

. Read his post here:

Altay Capital - Mostly Value Investing

Nissin Corp (9066) - A Dirt Cheap $400m JP Logistics Company That Bought Back 24% Of Shares Trading at 6x EPS, 5%+ Dividend, and 0.7x Book

Nissin Corp (TYO 9066) bought back 23.6% of their outstanding shares in a single day on May 10th and also doubled their dividend. The result? The stock went up about 39% (up 72% YTD). I already had a full sized position in Nissin Corp and despite being up big on it I added to my position at …

a year ago · 22 likes · 2 comments · AltayCap

I took the numbers from his post and consolidated them into an Excel file available here:

Nissin Corp 9066 Pre- and Post- Buyback Valuation Excel File

Just replace the current stock price in the post-acq tab, and you’re good to go.

You guys should read AltayCap’s post and then come back here.

TLDR:

-”Nissin Corp (TYO 9066) bought back 23.6% of their outstanding shares in a single day on May 10th and also doubled their dividend” (Altaycap post)

This recent massive buyback should provide shareholders with complete confidence that management is creating shareholder value by repurchasing shares below P/B of 1.

Remember, Japanese value traps exist because investors see so much cash on the balance sheet that, from an enterprise value standpoint, the company is very cheap.

Imo, it is only cheap if you can get the cash out!

The problem is that no one knows when management is going to return excess cash to shareholders. Shareholders wait and wait, and eventually they give up.

You get situations where the company has a historical track record of hoarding cash in a low-interest rate environment.

Now Nissin has proven they do not belong to the above group

Prior to the buyback, the company traded for 0.6x P/B

As we can see, they had 29 bn yen in cash and 21 bn yen in investment securities. They also have 23 bn yen in debt. Net Cash is 27 bn yen.

The company purchased 14 bn yen worth of stock at 0.6x P/B. AltayCap states “[t]hey’ve telegraphed for a while now that they take PBR 1x seriously (the effort to get book value above 1).” (Altaycap post)

I was busy this weekend, so I didn’t quite get around to posting this until now, but at the time of writing this article (May 19th), the stock had jumped some more to 4800 yen per share.

Post-share buyback, the stock is now trading at 0.84x P/B.

Book value per share, as I calculate it, is around 5700 yen per share.

This is different than what AltayCap calculated. I subtracted the 14 bn yen of shares repurchased and added it to the treasury shares account in the BS which lowers book value.

All-in all, to make things super simple, there are 2 catalysts for the stock price to continue to climb:

Continuous share buybacks:
Bring P/B to 1 and beyond. The company has bought back 23% of shares; what more of an indication do you need that they will make this happen?
The company still has 13 bn yen of net cash to repurchase shares
The company, from now until the end of FY2025, will generate 10.3 bn yen of net income, which is around 715 yen per share of NI.
The company has raised dividends to 200 yen per share which is a 4.2% dividend yield. The may raise it because they stated they would target a 4% DOE. This trade has a positive carry.

Hence, even after dividends, the company will generate cash each quarter to continue repurchasing shares if it wants to.
From 0.84x P/B to 1x P/B, or from the current 4800 yen share price to 5736 yen per share price is around a 20% increase.
But wait there’s more:
The company has lots of real estate on its books that isn’t marked to market.
The company has 30 bn yen worth of land sitting on its balance sheet. Something to dive into later.