Analysis of Hagihara Industries Inc (7856:TYO)

HAGIHARA INDUSTRIES INC. is a Japanese company active since 1962 in the manufacture and sale of raw yarns, synthetic fabrics and machinery for the textile industry. It has 1,380 employees.

Valorization

The Japanese company trades at an attractive price of 12.2 times recurring earnings, 1.22 times tangible book value, 1.03 times sales and 14.2 times free cash flow. The dividend yield is certainly not huge, at 1.86%, but it is explained by a conservative payout ratio of 22.8% to earnings and 26.5% to free cash flow. Hagihara therefore has room to continue increasing his dividend in the future, as he has regularly done in the past, at an average annual rate of 9.86% over the last five years.

Balance sheet & Result

Just like the dividend, the profit, cash reserves and asset values are growing over the long term, which proves the solidity of the Japanese company's business model. Hagihara is clearly succeeding in creating value for its owners and this is reflected in the share price which has more than quadrupled in the last ten years.

Cash reserves are very comfortable, with a current ratio of 2.95 (and increasing) and a liquidity ratio of 2.3. Hagihara therefore has no problem meeting its current financial obligations. However, cash reserves should not continue to grow in this way, as this would start to represent a waste of resources. If they have too much money, let them pass it on to the shareholders!

The gross margin is up, at 29.6%, for a correct free cash flow margin, at 7.25%. The return on assets is also not bad, at 7.25%, although slightly down. The cash flow profitability of assets is also quite good, at 9.35%.

As for debt, it is almost laughable, with a long-term debt-to-asset ratio of just 0.7%. Debt is just 0.37 times equity, and Hagihara would be able to pay it off in full in less than eight months using his free cash flow.

As for the number of shares in circulation, it is stable, or even slightly decreasing over the long term, which is obviously positive for the shareholder who thus avoids any dilution of his assets.

Conclusion

Hagihara operates in a fairly defensive sector, which is corroborated by a beta of only 0.5, which is always good to take when the markets are overheating.

The current price is slightly undervalued. I believe the stock should gain around 20% to reflect its intrinsic value.

So I just took a position on Hagihara.