Nix Inc: good quality nanocap trading below liquidation value
Nix Inc (ticker 4243 in Tokyo, Japan) focuses on “development, manufacturing and sales of industrial plastic products.” Disclosure is in Japanese. I had a look at the recent quarterly report (31 March 2022) and in the annual report over the year ending on 30 September 2021. My analysis depends on the accuracy and readability of software translations.
In Japan the company sells to the “office equipment industry, production equipment industry, automobile industry, housing equipment industry, environmental hygiene industry”. The company also sells overseas, in the US and China.
Products are as follows: (1) “For the fields of automobiles, electricity, electronics, OA, communications, and housing equipment, ‘fasten’ parts and ‘bundle’ electric wires. A precision functional component made of engineering plastic material with high properties such as strength and heat resistance, which is used for applications such as ‘protecting’ from metal edges. There are recycled fasteners that can be attached and detached with a single touch, which were developed to address the recycling problem of electrical and electronic equipment, and heat-resistant fasteners that can be used even in high-temperature environments.”, (2) (lightweight) jigs for “transferring and storing printed circuit boards” such as “jigs for automatic mounting machines (mounters) of electronic components at rack assembly production factories”, (3) molds for plastic products.
About 25% of the revenue is from “Industrial plastic fasteners and precision plastic parts” and almost all of the rest is from “Production equipment jig”. Presence in China is through a 38% stake in a Chinese company.
The company spends lots on research and development to develop its own materials. In particular, it sells NIXAM, a material “with various functions such as heat resistance, wear resistance, and conductivity” for the “printed circuit board mounting industry, office equipment industry, etc”. It also develops NIXAM “heat-resistant sliding parts” to replace metal with plastic in buildings, for example “plastic joint parts for hot water supply equipment for floor heating”.
A key audit matter was 223 million JPY of (non-current) deferred tax assets (page 62 of the annual report).
The balance sheet is strong with low to moderate leverage, a high current ratio, a large cash pile but also some debts. I think this company could pay out about 1 million JPY to shareholders.
NCAV/Market cap = 0.98 at 684 JPY per share. Because there is 1.23 billion JPY of land I estimate liquidation value at 2.04 billion JPY. Therefore Liquidation Value/Market cap = 1.28.
Substantial shareholders: SK Corporation Co 9.04%, NIX Employee Stockholding Association 7.72%, Mikio Nakajima 6.26%, the CEO or chairman Kazuhide Aoki 5.36%, Aoki Hiroaki 4.30%, Tatsuya Aoki 3.87%, Toshiko Nakajima 3.17%, director/advisor Aoki Shinichi 2.96%, Tadamasa Nakajima 2.83%, Kazunori Nakajima 2.83%. I like this kind of ownership structure.
Related party transactions: minor purchases from the 38% owned Chinese affiliate. Last financial year 4 directors earned together 53 million JPY (no bonus).
Conclusion
Extremely cheap Japanese manufacturing nanocap based on EV/EBIT, EV/Revenue and Liquidation Value/Market cap. Probably with substantial know-how and/or intellectual property. I like the ownership structure and governance seems to be good.
Disclosure: long Nix Inc.