Deep Value in Japan
Profitable companies trading below liquidation value
If you’re like me, seeing the S&P 500 trading at 30 times earnings does not fill you with confidence or joy. As a value investor, I believe most of the American stock market is significantly overvalued. I suspect the end result will either be a market crash or a decade or so of churn, but of course I could be wrong. That said, I was tired of scouring American markets for opportunities that mostly weren’t there.
So instead, a little over a year and a half ago, I hit a turning point in my value investing career. No longer would I limit myself to stocks trading on American exchanges. Several value investors had commented publicly on the opportunities available in Japan, and I had been doing some research and found several I liked. I jumped in with 10 companies that I was confident in, and the results have been excellent.
So far, all 10 have been profitable and the group has beaten the S&P 500 comfortably and the Nikkei handsomely. A couple I already exited, but I’m still holding seven and thought the group of businesses would be an interesting place to start Deep Value Digest.
What’s in it for you? Well, nine of the 10 still trade below tangible book value, with the exception trading just 2.5% higher. Five are net-nets and trade below net current asset value, with nine trading below 1.3x net current asset value. They all have low debt and strong balance sheets, all are profitable, and a few are growing their earnings nicely in recent years. Seven of them trade for less than 10x earnings.
So in several cases, you’re about to be reading about profitable companies trading below liquidation value. If those metrics sound interesting to you, then perhaps you’ll find some businesses to dig deeper on.
A quick disclaimer on these businesses - my due diligence runs a little less deep on these than on stocks on the American market. I chose to diversify into 10 different companies at about a third the size of my normal position. I based my research off Google’s machine translation of their corporate filings and any English language articles I could find (not many).
Obviously there’s a little more risk in that approach, which is why I kept the positions smaller. I decided that no matter how deep I tried to go as an English speaker, I would never be able to have the same level of confidence in any one business, so my time was better used finding more opportunities and keeping the risk down through sizing the investments smaller.
By the way, this article is available free at launch, but in the future this is the type of content that will only be available to paid subscribers.
Trinity Industrial (6382.T)
Trinity Industrial is only up a little over 4% since I purchased it, but it has paid out an additional 4.6% in dividends during that span and remains attractively priced. The manufacturer makes auto equipment and components, with their primary customer being Toyota.
Over the last year, a little over 41% of their sales were to three customers that are part of the Toyota Group (Toyota Motor Corporation, Toyota Tsusho Corporation, and Toyotsu Machinery Co.). This type of arrangement is common in Japanese businesses.
Price/Tangible Book Value: 0.57
Price/NCAV: 0.98
Price/Earnings: 7.7
Dividend Yield: 5.19%
By any of these metrics, this is a bargain price. This is a consistently profitable company (23 of the last 25 years) with an extremely stable business relationship that returns capital to shareholders, and it’s trading for just 57% of its tangible book value. They have low debt (less than 5% of tangible book value), as well.
I would like to see a bigger dividend, but it’s worth noting that the dividend has doubled over the last five years.
KU Holdings (9856.T)
KU Holdings is a chain of car dealerships that’s been profitable for 19 consecutive years (as far back as I went). Since 2006, their earnings have grown at a CAGR of 8.98%. However, over the last three years that has dropped to 3.29%, which has caused the stock to dip from a peak of ¥1,640 in March of 2023 to a low of ¥934. It’s currently trading at ¥1,165.
It remains to be seen whether they can resume a higher rate of growth, but they’re cheap enough that I’m simply not very concerned about it.
Price/Tangible Book Value: 0.56
Price/NCAV: 0.78
Price/Earnings 6.13
Dividend Yield: 5.49%
The company’s plan is to distribute around 30% of earnings as a dividend, while using retained earnings to build new stores and improve existing stores in order to try to grow the business. Their balance sheet gives investors a strong margin of safety while that plays out.
If they are unable to successfully continue growth, I would anticipate a higher dividend payout and KU can simply throw off substantial cash for me each year given the bargain P/E ratio at current earnings. If they grow, the share prices should rise accordingly.
FJ Next Holdings (8935.T)
FJ Next is a real estate development company with a couple of side hustles, if you will. Their primary business is the development, sales, and rental of new condominiums. They also buy and sell pre-owned condos, which has been an area of recent growth for FJ Next. They have a rental management business, a construction business, and an inn business, as well as a financial services business.
In the last fiscal year, about 88% of their revenue came from real estate development - of that, a little over two-thirds was from used condos and most of the rest was new condos. Other segments included about 6% from the construction business, less than 4% from real estate management, and about 1% from the hotel business.
There are plenty of naysayers about real estate stocks in Japan due to population decline, and I get it. But FJ Next’s projects are in Tokyo, a highly dense area that is in high demand. I think the sector gets beaten down overall, and real estate businesses primarily focused on Tokyo in particular will outperform and are thus beaten down unfairly.
Of course, it’s cheap.
Price/Tangible Book: 0.67
Price/NCAV: 1.30
Price/Earnings: 6.41
Their earnings per share have grown in 8 of the last 11 years at a CAGR of 9.58%, and one of the three bad years was the COVID year. I’ll take nearly 10% growth in EPS at a P/E ratio of 6.41 and P/TBV of 0.67 all day.
Kyowakogyosyo Co. (5971.T)
Don’t ask me to pronounce Kyowakogyosyo Co., and be prepared for a business that’s far more boring than the name. Kyowakogyosyo makes bolts for construction machinery, parts with shafts in autos, and bolts for internal combustion engines and large buildings. Just boring stuff that the world continues to need. (And lest you be worried about gasoline-powered engines, the auto-related business accounts for around 1% of the company’s revenue.)
When I first bought shares at ¥5,680, the business was trading for just over half its tangible book value and just under three-quarters of its NCAV, at a laughable P/E ratio of 3.80.
They had been growing pretty consistently, but they’ve pulled back the last year. They cite customers’ uncertainty due to the trade environment with American tariffs. Never the less, they’re now trading at ¥6,970 per share and the fundamentals remain appealing. It’s going to be hard to avoid exposure to the trade war, but I’ll take mine cheap…
Price/Tangible Book Value: 0.57
Price/NCAV: 0.76
Price/Earnings: 13.01 trailing
Shareholder Yield (using current year dividends and trailing buybacks): 4.12%
By the way, Kyowakogyosyo has been buying back shares which is pretty rare in the Japanese markets from what I’ve seen, and I think that’s a big reason we’ve seen the share price go up 22% despite mediocre results. A lot of these stocks are relatively illiquid. Around 61% of shares are locked up by insiders/counterparties, so when the company buys back around 3% of its shares it’s actually buying back nearly 8% of its traded shares.
Mitachi Industry Co. Ltd (3321.T)
Mitachi is a trading company that buys and sells semiconductors, electronic components, and electronic equipment to customers in a variety of fields including car electronics, consumer equipment, industrial equipment, and amusement equipment.
They’ve been profitable in 18 of the last 19 years, growing their earnings per share from ¥84 in 2007 to ¥213 today.
Price/Tangible Book Value: 0.82
Price/Earnings Ratio: 7.55
Accelerating Earnings Growth: 28% CAGR over last 5 years
This one’s not as attractive in terms of NCAV (trading at 12.27x) or dividend yield (3.7%), but it’s still objectively cheap with the upside of accelerating earnings growth - and even if that doesn’t play out, the strong balance sheet means there shouldn’t be too much to worry about.
I could wax poetic about semiconductors and artificial intelligence, but I’m not going to pretend to be able to guess if or when that bubble is going to pop, or how much of that spending is going to help Mitachi - which is trading semiconductors, not manufacturing them, and thus will probably see similar margins on a higher revenue number.
That should be good for the company, but we’re not talking about Nvidia here. (Nor are we talking about a P/E ratio north of 50.) No, I’ll just focus on the fact that Mitachi is a cheap business that’s consistently profitable that might reap extra rewards from the surge in demand for semiconductors.
Okayama Paper Industries (3892.T)
If you haven’t figured it out by now, cheap and boring companies are kind of my jam. Okayama Paper sells cardboard for boxes and retail packaging for products such as food and produce, home appliances, and gifts.
Their earnings skyrocketed in 2018, but they’ve been pretty much flat over the last five years. Again, similar narrative to these other businesses. It’s very cheap.
Price/Tangible Book Value: 0.55
Price/NCAV: 0.95
Price/Earnings 9.00
This one has been a bit of a laggard in this group, both in terms of returns (about 14% so far) and governance. The dividend yield remains around 3%. Around the time I opened these positions, the Japanese government and exchanges were pressuring companies to utilize dividends and buybacks to push share prices above book value.
So far, Okayama hasn’t done that. Hopefully they’re able to use the cash on hand to fuel more growth in the business - if not, then ideally buybacks will begin or dividends will increase to drive shareholder value.
Pulstec Industrial Co. (6894.T)
Pulstec manufactures x-ray stress measurement equipment and healthcare equipment, and has been profitable for 10 consecutive years (I didn’t go back farther). Their annual earnings seem cyclical, between ¥114 and ¥260 per share.
When I bought Pulstec at ¥1,605 per share, it was trading at 65% of its tangible book value, 96% of its net current asset value, and under 9x earnings. The stock is still a relative bargain by many metrics, trading at ¥1,980 (10/15/25).
Price/Tangible Book: 0.70
Price/NCAV: 0.97
Price/Earnings: 8.04
Dividend Yield: 5.55%
I suspect that investors who buy/hold Pulstec at the current price will do well in the long run. They have a strong margin of safety in a profitable business with an attractive dividend yield.
That said, I exited because their earnings appear to be headed towards a down cycle (probably south of ¥200 per share this fiscal year), and as a result I was happy to take a nice profit and keep an eye on it for price movements while looking towards other opportunities.
Sele Corporation Co. (CEL Corp) (5078.T)
Sele Corporation handles apartment management and construction contracting on residential buildings around Tokyo. They have the most impressive growth in this group, so investors more focused on growth might find this to be the most attractive business in this article, currently trading at ¥6,070 (10/15/25).
Price/Tangible Book: 1.025
Price/NCAV 1.20
Price/Earnings 15.6
What has been most impressive about CEL is their earnings growth, from ¥226 per share in 2021 to ¥412 per share in 2025, a CAGR of 16.2%.
With that said, I am concerned about the potential for an earnings miss in the range of 10-15% this year, so that’s something to keep an eye on.
They guided for ¥450 per share in the fiscal year, and they have not changed that target. However, in the first six months of the year, they earned ¥202, down from a forecast of ¥269 for the period. Generally, Japanese companies are very conservative in their forecasts. So perhaps I should have more faith in their maintenance of the annual forecast for ¥450.
However, given the importance of the growth in earnings to keep pushing this stock price up given a dividend yield hovering around 2%, I’ll be keeping a close eye on their share price and results.
When I first purchased CEL at ¥3,530, it was trading at just 0.64x tangible book value and 0.71x net current asset value, with a p/e ratio of 12.95. My guess is that a substantial earnings miss would pull it back towards two-thirds of its tangible book value.
Akatsuki Eazima Co. (1997.T)
Akatsuki Eazima is an HVAC and plumbing company, which is recently pulling back from highs of ¥3,560. I sold it at ¥3,400 and it’s now dipped to ¥3,205. It was my best performer in the group, with returns were around 124% including dividends (against about 33% for the S&P 500 with dividends during the same span).
Essentially, Akatsuki Eazima went from jumping off the page at me to looking lackluster at current prices despite increasing its earnings per share by about 90%. I believe those earnings are cyclical in nature, rather than representing ongoing growth, and the appreciation in value took it away from its margin of safety.
Price/Tangible Book Value: 0.89
Price/NCAV: 1.05
Price/Earnings: 9.26
Dividend Yield: 2.80%
It may well be at the high end of an earnings cycle with a P/E now nearing 10, which also represents a high P/E historically speaking. That spells risk to me, and while I’d love to take another round trip in Akatsuki Eazima, for now it’s just on my watchlist.
GungHo Online Entertainment Inc. (3765.T)
GungHo develops, operates, and distributes smartphone games - the most popular ones are Puzzle & Dragons and Ragnarok. I bought it at ¥2,123 on 3/14/24, and was out of it pretty quickly at ¥3,428 on 10/29/24. I viewed it as a simple play - I bought it at 0.85x tangible book value and 0.95x NCAV, and most of their value was in cash and receivables.
Most of the company’s business being centered around two smart phone games definitely brings risk into play, and the business wasn’t growing, so I was happy to exit when it reached a reasonable price. It’s starting to head back into that range and bears watching - but their earnings have been declining.
Price/Tangible Book Value: 0.93
Price/NCAV: 1.07
Price/Earnings: 27.26
What to Expect from Deep Value Digest
If you’ve made it this far, I hope you found my analysis compelling and are interested in reading my future investment ideas. While most of my ideas probably won’t be Japanese stocks over the long run, these are the types of businesses I tend to invest in and write about - a deep value proposition in a relatively boring and conservatively run business. Sometimes there will be exceptions, but that’s my wheelhouse.
Usually I’ll be writing about one company in depth, rather than a paragraph or two about 10 different businesses.
My goal is to write as often as I find good value investments or want to update analysis of a stock I’ve already covered, and not much more frequently - I won’t be blowing up your inbox. I hope that my paid subscribers will come to see e-mails from me as an exciting chance to learn about a new opportunity, rather than feeling pestered by an oversaturation of content.
Disclaimer: This is not investment advice. Nothing written here is investment advice. I’m not formally educated in finance, and sometimes I’m wrong - but I try to learn from it. Past performance is no guarantee of future results. I’m not your fiduciary, or a licensed securities dealer, broker, or investment advisor of any kind.