Can Nippon Kayaku (6988) become a Nichia? In search of a star for the Reiwa era!
Nitto Denko (6988) is a company that supplies components such as tapes and films to various fields including automobiles, precision machinery, housing, and medical care.
Such stocks arecategorized as “cyclical stocks” that are highly sensitive to the business cycleand tend to be tossed about by economic conditions and market fluctuations.
Global Niche Top and Area Niche Top strategies for trademark registration
The company is no exception, and its stock price and performance move greatly with the waves of the economy. Nevertheless, it achieved record highs in the fiscal year ending March 2018,and is, in the long term, on an upward trend.
The reason for the solid performance is the attitude of pursuing the strategies of “Global Niche Top” and “Area Niche Top.” The company develops in areas that other firms do not touch, and continues to meet demand with persistence. (Note: the underlined parts are areas the company even trademarked.)
Zero debt management and cash of 3 trillion yen
Operating profit margin exceeds 10%, a reasonable level for a manufacturing company. It remained profitable even during the Lehman Shock, showing conservative management.
The prudent management is reflected in the financial status.Interest-bearing debt is effectively zero, and cash and deposits amount to 3 trillion yen. With a current market capitalization of 7.8 trillion yen (as of May 24, 2019), nearly half of the stock value is backed by cash.
With abundant cash as a weapon,the company has also continued to increase dividends. The latest payout ratio exceeds 40%, and the expected yield reaches 4%.
Invest in long-term growth stocks in the “worst period”!
At present, we are at a point where it is unclear whether the economy will peak and start to fall, soit is better to avoid investing in cyclical stocks. The same goes for Nitto Denko.
On the other hand,if you can buy such stocks in the “worst period,” high returns can be expected as the economy cycles. If a stock can grow over the long term, you can enjoy both cyclical and growth phases, and it is not impossible to see several-fold increases in a few years.
Therefore, looking ahead to the coming worst period,you should check the long-term growth potential.
Nitto Denko quietly aims to be a top player in niches that others cannot imitate. Its business spans many industries, andwill continue to provide essential components in the future in areas like electric vehicles and IoT. As long as it maintains solid management, there seems to be no blind spots there.
If possible,it might be better to be more aggressive. With 3 trillion yen in cash on hand, simply paying dividends would be wasteful.
If it strengthens its own niche-top areas and embarks on more M&A to become even stronger, it could become a company like Nichicon/Nidec (6594) that undergoes rapid growth.
Japanese general electronics weakened in the Heisei era, but the component field remains robust. I hope it blooms greatly in the Reiwa era.
