Analysis of Shinnihon Corp (1879:TYO)

SHINNIHON CORPORATION is a Japanese construction company that has been active since 1964. It is engaged in design, planning, construction/repair and civil engineering management, as well as the sale of buildings and subdivisions. It has 510 employees.

Shinnihon is a steal as it trades at just 4.7x recurring earnings, 1.19x tangible book value, 0.69x sales, and 5.25x free cash flow. I wish you luck finding a quality European or US company this cheap right now.

From a dividend perspective, it looks a little less good, since the yield is only 1,82%. But if we look more closely, we see that the distribution ratio is only 8,56%! In other words, the Japanese company has enormous room to invest in its own development and continue to increase its dividend in the future, even in the event of a substantial drop in profits! Shinnihon has not hesitated to increase the distributions it offers to shareholders, since it has done so with an average annual growth rate of 18% over the last five years! This shows us once again that an approach that focuses only on dividend yield would make us completely miss out on nuggets of this kind...

Just like the dividend, profits, cash reserves and asset values are growing over the long term, which proves the strength of Shinnihon's business model. The Japanese company clearly succeeds in creating value over time for its owners and this is reflected in the share price which has more than quadrupled over the last five years.

Cash reserves are very comfortable, with a current ratio of 2.09 (increasing) and a reduced liquidity ratio of 1.87. Shinnihon therefore has no problem meeting its current financial obligations. Even if it is slightly down, the gross margin is correct, at 19%, for a net margin of 9.3%. The return on assets is notable, and increasing, at 19%, for a return on equity of 18%.

As for debt, it remains at prudent levels, with a long-term debt-to-asset ratio of 6.4% (constantly declining for several years). To give a concrete picture, the Japanese company would theoretically be able to pay off its entire debt in less than a year using its free cash flow. If I dare to make a bad pun, there is no need to get worked up about it... The icing on the cake is that despite this low use of debt, the company does not need to finance its development by other means, such as a capital increase. The number of shares outstanding has indeed been stable for several years, which avoids a dilution of shareholders' equity.

Shinnihon is certainly active in a sector that is quite sensitive to the economic situation, this is reflected in the beta of the stock (1.35). Nevertheless, we can see that it is not only a very solid company, but that it is also trading at a significant discount. Although the stock has risen sharply in recent years, the price is still below its historical highs reached almost thirty years ago! I believe that the price should at least double to reflect its intrinsic value and that the dividend should do at least as well.

I have owned this stock since August 2017 and plan to hold on to it. The buy signal is still strong.