Pulstec Industrial Co (6894): well managed and cheap nanocap, based on earnings
Pulstec Industrial Co manufactures “measurement, control, and data processing equipment, as well as contract measurement services and equipment associated with these”. Its main products are portable X-ray residual stress measuring devices for healthcare and inspection of optical discs and 3D scanners. The company sells its equipment in Japan, Asia and the US.
The stock trades as 6894 in Tokyo, Japan. Currently the share price is about 1550 JPY and the market cap is about 15.5 million USD. This is an extremely cheap stock based on earnings, compared to other nanocaps and other microcaps with low trading volume.
I had a look at the annual report over the year ending on 31 March 2022. My analysis depends on the accuracy and readability of software translations.
Since 4 years the company is paying a dividend. I have not found any significant dilutions or repurchases.
Almost all sales are from Japan (page 49 annual report).
According to page 11 of the annual report there are 3 business segments: 1. “residual stress measuring device related”, 2. “Healthcare device related Optical”, 3. “application / special equipment related“. About half of the revenue is from the second business segment and the rest is about equally divided between the other 2 business segments. The health care related business is much less profitable than the other business segments (page 47 of annual report).
Multi-year metrics for judging earnings quality and asset allocation are very good. I estimate the company has spent 60-70 million JPY on research and development over the last 5 financial years. Moreover, until 5 years ago annual R&D expenses were much higher.
There are 1,368,459 shares net of 25,000 treasury shares. The balance sheet is strong with low leverage, a high current ratio, lots of cash, and low debts. The combination of cash and current debt is a red flag.
I estimate the liquidation value of the current assets at 2.96 billion JPY. The book value of the liabilities is 1.37 billion JPY. The company owns 704 million JPY of land and 99 million JPY of listed non-current investment securities (page 41 annual report). Therefore my estimate of liquidation value = 2.96 -1.37 +0.70 +0.10 = 2.39 billion JPY and Liquidation Value/Market cap = 2.39/2.06 = 1.16. The stock trades below liquidation value but not by a wide margin.
Substantial shareholders (page 16 annual report): Katsumi Ito 8.41%, Kunio Tsuboi 7.61%, Shuji Goto 3.75%. The 8 largest shareholders own together 34.53%. In addition the CEO, Yukihiro Suzuki, owns almost 2% (about 26k shares).
Because of dispersed ownership I think chances that this company gets acquired are higher than for most other Japanese stocks.
Compensation: Last financial year 4 directors earned together 80.7 million JPY including bonuses of 6.2 million JPY.
Apparently no related party transactions were worth mentioning (page 49 annual report).
My take: very cheap Japanese manufacturing nanocap based on various earnings related metrics. Good quality metrics. Shareholder friendly. I have not found any governance issues. I think this is a good stock for a small position.
Disclosure: long Pulstec Industrial Co