Hiraga Co (7863): a cheap Japanese flyer printing company
Hiraga Co provides sales promotion, sales management, system planning and management, and digital marketing for the web and social networks. The main business is manufacturing “insert advertising” (printing flyers) for large clients such as supermarkets. The largest customer is good for 15% of the revenue.
I suppose this is a no-growth business. Over the last 10 years revenue has increased by about 15%. This includes a revenue jump of 10% last year. The company has just invested 374 million JPY in machinery and almost 100 million JPY in machinery for on-demand printing.
I had a look into the interim report over the 6 months ending on 30 September 2024 and into the annual report over the 12 months ending on 31 March 2024. All documents are in Japanese. So, my analysis depends on the accuracy and readability of software translations.
The shares trade in Japan with stock code 7863. This is a small company, with a market cap of about 18 million USD. At 1005 JPY per shares the stock trades below book value (P/B is about 0.7), EV/Revenue = 0.14, and EV/EBIT = 2.5.
The shares are also cheap based on P/cash flow from operations. Furthermore the dividend yield is about 4%. I looked at several multi-year quality metrics. These metrics suggest profitability is sustainable.
Substantial shareholders: “Snowball Capital Co” 36.80%, Nagawa Co 4.07%, Koji Masai 3.53%, DIC Graphics Corporation 3.48%, Dainichi Seika Color & Chemicals Co 2.78%, Hiraga Employee Stock Ownership Association 2.51%, SCREEN Holdings Co 1.74%. I do not think this company can be acquired with an unfriendly bid.
The balance sheet is strong with moderate leverage, a safe current ratio and much more cash than debt. I estimate the company can return 1.5 billion JPY to shareholders, or 521 JPY per share.
In financial year 2020 (ending on 31 March 2020) the company returned almost 400 million JPY to shareholders. Otherwise I have not found significant dilutions or repurchases. The company is a reliable dividend payer except that it did not pay a significant dividend in financial year 2022.
Related party transactions: Last financial year two directors earned together 68 million JPY in base salary plus 20 million JPY in restricted shares. In the section for related party transactions in the annua report it says “Not applicable”.
My take
This seems to be a well managed Japanese industrial printing nanocap. The company is very cheap based on various metrics such as EV/EBIT, EV/Revenue and P/B. Good earnings quality and shareholder friendly. Apart from the company holding too much cash and the company not canceling repurchased shares I have not found any governance issues.
I think this is a good stock for a small position. I own shares of Hiraga Co.