Today I am reviewing Jinpan International – JST – after looking at Guru Focus’ latest “Buffet Munger” newsletter in which they analyze MDT which I have recently reviewed as well as JST.
JST is one of the world's largest producers of cast resin transformers and related electrical
Equipment and is one of two UL certified cast resin transformers in the world. These are vital in the distribution of electricity and are used in a wide range of applications from factories and refineries to power plants, airports, and even high rise apartment buildings.
Over the last month, JST has been trading between $10 and $20
1- Business Performance Risk (-) and intrinsic returns (=)
|FCF / Sales||Last twelve months: 15%, higher than in previous 10 years, which included 3 negative FCF years|
|ROE||LTM: 14.5%, lower than the company's average over the last 5 years of 19.8%, in line with company's experience between 2000 and 2006|
|ROA||LTM:10.1%, lower than the average over the last 5 years of 13.4%|
|Revenue Growth||On a LTM basis, JST has declined quite significantly, with revenues coming down 10% after a flat 2009! This is a large contrast to JST's experience in previous years with 20%+ growth, year over year|
|Cash distribution to shareholders||JST does not pay a dividend a meaningful dividend (0.5 and has been increasing its number of shares outstanding!|
In terms of intrinsic retunrs:
- The company pays a 0.5% dividend yield on a payout ratio of 6%!
- Growth is tricky to evaluate given the current situation. I will use GuruFocus’ 5% as as base case, which should – based on a ROE of 15% - consume 33% of JST’s earnings
- JST could use its excess cash to buyback shares (that is if working capital comes under control). With an earnings yield of 8.5% and 60% of earnings available, JST could buy back 5% of its shares back
Putting it all together JST’s intrinsic retunrs could be slightly over 10%, depending on actual growth rates.
2- Balance Sheet Risk (+)
|LT Debt / Equity||JST does not carry any debt|
|Current Ratio||Current ratio: 3.1x, well above what would get me nervous|
3- Valuation Risk (+)
|P/E||JST currently trades at 11.7x, not too far from its 5-years average of 12.8x. Note that EPS fell from $1.78 last year to $1.14 on a TTM basis|
While I understand, looking at JST’s balance sheet and valuation while the company could be attractive, I have some lingering doubts about the business: JST’s sales have been declining on a last twelve month basis and earnings have been dropping quite fast…but for now this has not been yet reflected in FCF. In addition, JST’s days receivables and inventories have shot up, making me wonder if – in order to not show too much decline in sales – the company has been doing some channel stuffing. All in all I have too many doubts at this point to feel comfortable with the stock and will not perform a more detailed analysis of JST.
Have you looked at JST in the past? What was your conclusion?
Many happy returns!