Analysis of Nichirin Co Ltd (5184:TYO)

NICHIRIN CO., LTD. is a Japanese company founded in 1914, engaged in the manufacture and sale of automobile and motorcycle hoses such as brake hoses, air conditioning hoses, power steering hoses and other hydraulic and air pressure hoses. The company also produces and sells sanitary fittings. It has 1,860 employees.

Valorization

Disons-le crûment : Nachirin est une véritable aubaine. Elle s'échange à seulement 7.7 fois les bénéfices récurrents, 1.3 fois la valeur comptable corporelle, 0.64 fois les ventes et 7.9 fois le free cash flow. De prime abord le dividend yield paraît lamentable, avec seulement 1.37%, mais ceci s'explique par un distribution ratio de seulement 10.6% par rapport aux bénéfices et de 10.9% par rapport au free cash flow. Nachirin possède donc une marge énorme pour faire progresser ses distributions dans le futur. L'entreprise nippone ne s'est d'ailleurs pas privée pour le faire dans le passé, puis qu'elle a fait progresser son dividende sur un rythme annuel moyen de 27.5% ces cinq dernières années, en ne parvenant même pas à suivre la courbe des bénéfices!

Balance sheet & result

Just like the dividend, profits, cash reserves and asset values are growing over the long term, which proves the strength of Nachirin's business model. The Japanese company clearly succeeds in creating value for its owners and this is reflected in the share price which has more than quintupled in the last five years! This small company is a real war machine for generating results on a recurring basis, year after year.

The company also has very comfortable liquidity, with a current ratio of 2.66 (up) and a reduced liquidity ratio of 2.15. Nachirin therefore has no gray hairs to worry about in meeting its current financial obligations.

Du point de vue de la marge, c'est pas mal non plus, avec une gross margin en hausse, à 25% et une marge de free cash flow de 8%. C'est tout aussi bien pour le rendement des actifs, en hausse à 8.8%, pour une rentabilité en cash flow des actifs encore supérieure, à 13%. Nachirin est une affaire très profitable, qui gère bien ses frais généraux et génère d'abondantes liquidités.

As for debt, it has been steadily declining for many years, with a long-term debt-to-asset ratio of only 3%. The Japanese company would theoretically be able to wipe out all of its debt within six months, using its free cash flow. Let's also add that share capital has remained stable for years, which avoids any dilution of shareholders' equity.

Conclusion

Nachirin is a very profitable and very solid company, with a history of more than a century. It has seen world wars, nuclear fire, Japanese deflation pass around it and it continues to produce and market its pipes despite everything. It is not really the sexiest thing (although...), there are very few institutions who are interested in it, but it is devilishly effective.

I believe its price should at least double to reflect its intrinsic value and the dividend should do at least as well.

So I just took a position on this nugget.