As can be seen from the snapshots in '58,'76,'78,'90,'91,'96,'98,'16, '19 & '23, the piano maker, tuner, music school & OEM for musical instrument metal part's book value & capital adequacy[CAR] have increased steadily over time as well as cumulatively +64% & 16% points respectively compared to 3 decades ago [note the increasing losses in the consecutive years '94 till '96]. In 1996, Kawai, on top of waning demand for upright pianos in the US & Japan, was also hobbled by 'endaka' or yen strength while the opposite situation currently should contribute to improving results, EPS having taken a sharp dip to ¥47 last year, down from a record ¥587, then ¥427 & ¥323.7 in the previous years '22-'24.
Curiously, the stock more than doubled by June '18 from mid-'17 even though its EPS only rose 26% from '17-'19 & then nearly doubled by July '21 perhaps anticipating the +95% rise in EPS from '21-'22. The sole dividend in March has increased 27% since that EPS record 4 years ago & stands 90% higher than 30 years ago when earnings were spotty despite turnover being 20% lower now, yet projected '26 revenue is still 39% above its lowest level in '13 & only 35% below its all-time record of ¥117.675 billion in 1991. This forecast figure of ¥76 billion was first surpassed in '86 when the NTA was 35% lower. The latest Grahamian net-net per share is about ¥1,856, compared to -ve working capital in 1998, when borrowings were 7.5x higher. The ¥520 low in '02, which amazingly matched the 1958 low four years after listing, was printed in the midst of big impairment & restructuring losses of (¥3.342 billion),(¥2.715 billion) & (¥7.077 billion) in '02 - '04, causing NTA to plunge to ¥455 in '05 [ low of ¥320 in '04], when CAR bottomed out at 12.7% before rising to 28-43% in the next 8 years. Dividends halted in the 5 years between '02-'06.
I bought it today after stalking the stock for many months & was delighted to get a fill at ¥2,778, just two ticks above the intraday low & with 63% of the commission discounted by the close. This is a price barely above the '95 low of ¥2,750, when the yen's strength was a headwind rather than the tailwind which it is now in light of the export ratio exceeding 40%.
Possible risks? The de facto China boycott of Japanese exports due to the recent political spat & maybe incursion into high quality piano-making by that country. Also interesting is the fact that my entry point was first surpassed way back in 1960[!] before the price declined nearly 90% from its 1961 peak of ¥3,870 by 1969. The old record was approached once again in 1973, followed by a 46% drop by the tail end of the 1974 bear market. It rose above this entry level price the next year & did not revisit this price despite a 65% decline from the 1976 fresh record of ¥8,180 in the following 5 years. Post '85 Plaza Accord, the stock nearly quintupled in the Bubble Era to set a fresh high of ¥15,200 by Feb '90. Based just on the intervals between historic highs, Kawai's next peak could come in '30 -'31, perhaps on the wave of what some project as 100,000 points on the Nikkei index!
Another area of concern is that free cash flow is (¥3.989 billion), accompanied by operating cashflow of (¥1.698 billion) in '25.
A 44% discount to book that I obtained, backed by a forecast EPS that is double '25's figure, plus the maintained 3.4% dividend, will be comprise a buffer of safety for this investment choice that could bear fruit as early as March!
*As an aside, I have honed my piano playing skills on a Kawai instrument that has lasted 45 years & still works well despite some very minor issues: a testament to the quality of their product!
