Japan Deep Value

Hi-Lex Corporation (7279, ~US$600m market cap) is an interesting activist case study. Three activist / engagement firms have been engaged with the company in recent times - Lim Advisors, Japan Catalyst (Monex), and most recently Zennor. The company historically had a strong position in auto control cables with high global market shares (mechanical cables for auto transmissions, popping your trunk, pulling on the park brake). This business is rapidly dying as everything goes electric. The company has pivoted into the equivalent electrics, but it does not have the same market positions, it is up against stronger competitors such as Aisin, and as a result this business has not generated much in the way of profitability. The market cap is basically covered by the net cash and listed equity holdings on the balance sheet, in companies such as Honda Motor and Asahi Intecc. Theoretically, the company does not have to listen to the activists. The shareholder register is 43-45% controlled by the founding family and other aligned shareholders. This is an unassailable voting bloc. That said, perhaps in response to public activist pressure - or perhaps due to business realities, the company has in recent times sold half its Asahi Intecc stake, and has announced it will focus more on profitability - including restructuring its factory footprint. This is a messy situation. Obviously cheap, uncertain business prospects, an entrenched management that can only be influenced - not pushed. From the management's perspective, they need to pivot to continue as a going concern, and this requires investment. From shareholders' perspective, why waste another dollar of investment on a business that does not, and may not ever realise an economic return, when your own stock trades at 0.4x book? Such a valuation implies that any $1 invested, immediately loses 60% of its value. For me, this situation is too hard. We like plenty of liquid assets, which Hi-Lex has in droves - as well as a cheap valuation relative to book equity and on adjusted EV / EBITDA. But, we also want positive and stable cash flows, low risk of business disruption, and a shareholder register composition that means management cannot ignore outside shareholders. What do you think - would you buy this stock? After all, it is trading for only around the value of the cash and investment securities on its balance sheet!

How is there not a single article from a mainstream news outlet on the massive quantitative tightening being carried out by the central bank of the world's largest creditor nation, and its effect on global interest rates? Just look at the charts below to see the obvious correlation. It was a very similar dynamic in the US when it went through its quantitative tightening period (now halted). There are plenty of articles on the increase in Japan's government bond yields, with many factors blamed for this dynamic - including the growth investment plans of "Sanaenomics" - named after the recently appointed Prime Minister. There has been a tonne of talk about the potential for the "carry trade" to unwind. But somehow, despite the Bank of Japan owning almost half the JGB market, the BoJ's quantitative tightening has not been cited as perhaps the key contributing factor to the jump in bond yields over the last two years (at least according to my Google news search)? Why is no one talking about this? @GearoidReidy @Urbandirt @davidkeo @harrydemps @MerrynSW @yasuhaminami @sano_h45191 @alice_c_french @aya_wagatsuma @TSWestbrook @jessicasier @g_nishiyama @wsj_douglas @JamesGlynnWSJ @kosakunarioka @TSWestbrook @MomokaYokoyama_ @linreporting @MandyCNBC @KatrinaHamlin