Analysis of Mory Industries Inc (5464:TYO)

MORY INDUSTRIES INC. is a Japanese company engaged in the manufacture and sale of stainless steel tubes and bars. It was founded in 1929 as a manufacturer of bicycle forks. It now has 600 employees.

Mory is trading at a fair price, 14.6 times recurring earnings, 0.9 times tangible book value, 0.84 times sales and 11.5 times free cash flow. Be careful, because of non-recurring exceptional items the announced P/E is less than 10, which can be confusing and make the stock artificially more advantageous. Nevertheless, we remain within the realm of what is acceptable with these price levels.

The dividend is certainly not huge, with a yield of only 1,24%, but this is explained by a prudent distribution ratio of 18,15% compared to profits and 14.3% compared to free cash flow. Mory therefore still has enough under its sole to continue to increase the income it offers to its shareholders in the future. So far, it has not been very generous in this little game since distributions have only increased by 2,13% per year over the last five years, less than half of the increase in profits. In addition, the dividend has remained static since 2014. Do the managers have other ideas for using what is in the coffers? Let's continue our analysis to answer this question.

Just like dividends and profits, asset values and cash reserves increase over time. Mory is therefore managing to create long-term value for its owners, and this is reflected in the share price, which has almost tripled over the last five years.

Cash reserves are comfortable, with a current ratio of 2.3 (very slightly down) and a reduced liquidity ratio of 1.5. Mory therefore has no problem meeting its current financial obligations. As for the gross margin, it is up, at 23%, for a net margin of 7.8%. The return on assets is also up, at 4.77%, for a return on equity of 9.7%.

As for debt, it has been steadily declining for many years, with a long-term debt-to-assets ratio of just 1.08%. Mory would be able to repay its entire debt in less than a year using its free cash flow. The company has clearly wanted to clean up its balance sheet in the past, and it has done so very well. This is a first element that explains the weak dividend growth so far. However, given the current paltry level of debt, the company can no longer use this excuse to keep the dividend at the same level.

However, there is a second point that justifies the sluggish dividend growth: the number of shares outstanding has been slowly but surely decreasing for several years. This is obviously interesting for the shareholder who sees his share of the pie increasing little by little. Ultimately, if we look closely, even if the dividend has not increased much so far, Mory has used the money available intelligently, by buying back shares or repaying its debt, which ultimately still translates into value for shareholders.

The Japanese company has a history of almost a century, and it is still there, very solid, building and selling its steel pipes and bars. It is certainly not very glamorous, but it works very well. Although we are in an industrial sector, the stock is not too sensitive to market variations (beta of only 0.7).

I bought Mory last August, already making a nice capital gain. I believe that it is currently trading at a price that fairly accurately represents its intrinsic value. So we are no longer in a buy signal, but on the other hand it is obviously a stock to keep.