Stock du Jour : Toda Kogyo

 

The stock peaked way before the bubble popped, in 1984 at an amazing (adjusted) ¥30,683 in January of that year. From '85-'88, turnover stayed in the ¥15,000 - 18,000 mil range while EPS was ¥400,¥100,¥200 & ¥260 between 85- '88, sustained by the now obsolete VCR & audio tape deck market. In the last 30 years, revenue fluctuated between  ¥16,623 mil in '96 &  ¥43,900 mil in '08, with EPS fluctuating between ¥45 & 80 between '92 & '97(small loss in '94), ¥98 & 182 between '98 & '02 and ¥(1255) & 238 between '03-'13, with the last 5 years showing two massive years of consecutive losses of ¥(917.1) & ¥(718.8) in '20 & '21 before rebounding to ¥566.5 last year & a forecast of a -78% drop to ¥121.2 this year. Capital adequacy ratio has almost doubled from 19.5 in the last huge losing year of '21 to 30.5 currently. Revenue in the last few years has fluctuated between ¥26,500 & ¥35,000 mil.

 Trading giant Itochu used to own 20.66% of the stock until '19, after which another well-known Japanese co. TDK took over that stake. About 5% of the stock is treasury shares. Book value was steady at over ¥6000 from the mid-'80s till '08, reaching a high of ¥6600 in '02 then dropped to 6080 in '08, declining to the low ¥5000s by '13 & then tumbled 72% to ¥1411 in '21 before almost doubling to ¥2744 currently, giving a PBR of 0.52. In its latest quarter, the co. forecast that demand for magnet metals & diaelectric materials will recover going forward. The 200-year-old functional pigments maker has developed catalytic iron oxides that will suppress generation of harmful substances in combustion & is collaborating with two other listed companies in ventures to hoist its share price from the danger line of ¥1,640 that marks the 1 billion mkt cap criterion to avoid delisting. Though still  in a net current assets position, its net-net position has declined from  (¥6,991 mil)  to  (¥8,279 mil) from '23 -'24. Cash & investment securities have decreased from  ¥11,185 mil to  ¥10,603 mil with borrowings rising from  ¥21,717 mil to  ¥22,591 mil while land valued at over ¥6 bil rests on its balance sheet.

Technically, there are both MACD & Stochastics bullish crossovers in the weekly & timeframe & the latter in the monthly timeframe while a nice bullish engulfing pattern has emerged in the monthly chart. The current price is lower than both the '09 & '12 lows and about half the '02 low, though still 60% above the ¥1,043 panic selling low in '20.

Looking back to the bubble peaking period of the late '80s, the price came up against the ¥17,000 (adjusted) resistance at least 6 times between '88  till '90 before tumbling in earnest, repenetrating the ¥10,000 level(¥1,000 back then) 3 times: in '91,'94 & '96 before resuming a decline that brought it down by 2/3 to ¥3,240 in '97 & ¥3,550 in '02. Subsequent rebounds only hoisted it as high as ¥6,380('06) & it got to a few hundred yen short of the the ¥ 1 万 level in late '09 & just before the '11 East Japan quake. Current price is the lowest since 1977, when it spurted to as high as ¥2,799. Currently at 8/9 on the TdM yearly candlestick downtrend count.

Toda Kogyo could turn out to be a classic Peter Lynch-type TURNAROUND play.