The Hennessy Japan Small Cap Fund (Trades, Portfolio) acquired four new holdings in the final quarter of 2016. The fund’s new holdings are Tonami Holdings Co. Ltd. (TSE:9070, Financial), Japan Meat Co. Ltd. (TSE:3539, Financial), Maeda Kosen Co. Ltd. (TSE:7821, Financial) and DMG Mori Co. Ltd. (TSE:6141, Financial).
The fund was established in 2007 and is managed by Tadahiro Fujimura and Tetsuya Hirano. To achieve its goal of long-term capital appreciation, the fund invests in smaller Japanese companies with a market capitalization in the bottom 15% of all companies. Through in-depth research and analysis, the portfolio managers seek stocks with significant value gaps and strong business structures and management that trade at an attractive price.
The fund purchased 113,000 shares of Tonami Holdings for an average price of 307.6 yen ($2.64) per share. The trade had an impact of 1.1% on the portfolio, and the fund’s holding represents 0.12% of the company’s shares outstanding.
Tonami is involved in integrated logistics through truck, freight and harbor transportation and its warehousing business. The company has a market cap of 33.4 billion yen and an enterprise value of 41.4 billion yen. Its shares were trading around 369 yen Thursday with a price-earnings (P/E) ratio of 8.4, a price-book (P/B) ratio of 0.6 and a price-sales (P/S) ratio of 0.3.
The Peter Lynch chart below suggests the stock is trading below its intrinsic value.
GuruFocus ranked Tonami’s financial strength 6 of 10. The Piotroski F-Score of 5 and Altman Z-Score of 1.85 suggest the company is in stable business condition with some financial stress. The cash-debt ratio of 0.66 and interest coverage ratio of 20.4 suggest the company is not able to pay off its debt with cash on hand.
Tonami’s profitability and growth was ranked 6 of 10 by GuruFocus. It has an operating margin of 4.33% and a net margin of 3.2%. The return on equity (ROE) and return on assets (ROA) outperform 52% and 53% of other companies in the global shipping and logistics industry. The return on capital (ROC) underperforms 54% of competitors.
The fund bought 20,800 shares of Japan Meat for an average price of 1,456.8 yen per share. The holding represents 1.05% of the fund’s total assets managed and is 0.08% of the company’s shares outstanding.
Japan Meat is involved in the wholesale and retail of meat, general food, fruits and vegetables, fish and other prepared foods. It has a market cap of 42.6 billion yen and an enterprise value of 36.5 billion yen. Its shares were trading around 1,611 yen Thursday with a P/E ratio of 15.4 and a P/B of 2.3.
The Peter Lynch chart indicates the stock is trading below its intrinsic value.
GuruFocus ranked the company’s financial strength 7 of 10 and its profitability and growth 3 of 10. The cash-debt ratio and interest coverage ratio suggest the company is able to pay off debt using cash on hand along with the interest expenses. The company has an operating margin of 4.4% and a net margin of 2.6%. The ROE and ROA outperform 76% and 75% of other companies in the global packaged foods industry. Similarly, the ROC outperforms 89% of competitors.
The fund invested in 25,500 shares of Maeda Kosen for an average price of 1,175.72 yen per share. The holding represents 1.02% of the fund’s total assets managed and is 0.08% of the company’s shares outstanding.
Maeda Kosen manufactures and sells environmental and industrial materials. The company has a market cap of 42.03 billion yen and an enterprise value of 39.4 billion yen. Its shares were trading around 1,304 yen Thursday with a P/E ratio of 14.9, a P/B ratio of 1.8 and a P/S ratio of 1.4.
The Peter Lynch chart below suggests the stock is trading close to intrinsic value.
GuruFocus ranked Maeda Kosen’s financial strength 8 of 10. While the low Piotroski F-Score of 3 suggests the company has poor operating conditions, the Altman Z-Score of 4.8 indicates the company is not facing fiduciary stress. In addition, the cash-debt ratio of 2.4 and interest coverage ratio of 367.2 indicate the company is capable of paying off debt with cash on hand as well as cover interest expenses.
Maeda Kosen’s profitability and growth were ranked 7 of 10 by GuruFocus. It has an operating margin of 12.8% and a net margin of 9.6%. The ROE and ROA outperform 74% and 83% of other companies in the global pollution and treatment controls industry. The ROC outperforms 70% of competitors.
The fund purchased 25,000 shares of DMG Mori for an average price of 1,254.09 yen per share. The holding represents 0.96% of the fund’s total assets managed and is 0.02% of the company’s shares outstanding.
DMG Mori manufactures and sells machine tools like CNC lathes and multiaxis machines. The company has a market cap of 173.2 billion yen and an enterprise value of 337.8 billion yen. Its shares were trading around 1,443 yen Thursday with a P/B ratio of 1.7 and a P/S ratio of 0.5.
The Peter Lynch chart below suggests the stock is trading below its intrinsic value.
GuruFocus ranked the company’s financial strength 4 of 10. The Piotroski F-Score of 4 and Altman Z-Score of 1.3 suggest the company is in poor condition and at risk of bankruptcy in the next several years. The cash-debt ratio of 0.2 indicates the company is not able to cover its debt with cash on hand.
DMG Mori’s profitability and growth was ranked 6 of 10 by GuruFocus. While the operating margin, net margin and returns are negative, the company has good growth. The ROE and ROA underperform 86% and 80% of other companies in the global tools and accessories industry. The ROC underperforms 82% of competitors. The company’s three-year EBITDA and EPS growth are 21.3% and 37.9%. The EBITDA growth outperforms 76% of competitors while EPS growth outperforms 87% of competitors.
During the quarter, Hennessy also increased its position in four additional holdings. The firm increased its position in FUJIKURA KASEI Co. Ltd. (TSE:4620, Financial) by 57.1%, Honeys Co. Ltd. (TSE:2792) by 33.3%, TOCALO Co. Ltd. (TSE:3433) by 32.7% and Soliton Systems KK (TSE:3040) 17.8%.
Disclosure: I do not own any stocks mentioned in the article.
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