TL;DR Miyoshi is in the manufacturing industry. This has resulted in high operating and reinvestment costs which produces weak cashflows. Based on their multiples, the firm could potentially be overvalued as well.
Business Profile
Source: Miyoshi Limited
Miyoshi Limited is a manufacturer for Japanese brands in the data storage, consumer electronics and automotive segments. They have an international customer network of more than 18 countries across the world and provides a wide range of precision stamping, prototyping, metal finishing and automation solutions. Their technical hub is located in China, while their headquarters are located here in Singapore.
Source: Miyoshi Limited
Income Statement
For 2018, Miyoshi had quite weak profitability. This is evidenced by tthefairly weak profitability margins. Moreover, revenue and earnings growth had also decreased in the previous year. The margins themselves had also weakened over time. This paints a rather bleak picture of their income statement.
Balance Sheet
The balance sheet of the firm doesn't seem very strong either. Their short-term liquidity ratios are fairly alright, with a good current ratio but with quick and cash ratio falling below the mark.
The level of debt relative to other balance sheet items such as assets and equity is fairly good too. Despite fairly weak earnings, these metrics to show that the firm has a good chance of paying off debt and interest expenses. The Altman Z score also shows a moderate chance of bankruptcy. However, operating cash flow relative to current liabilities is also fairly weak though.
Free Cashflow Analysis
The firm had negative free cash flows, due to the high reinvestment needs in fixed assets for 2018. Worryingly, this had also weakened from the previous year, due to a decrease in NOPAT and higher reinvestment needs. This thus had reduced free cash flow to equity holders. Despite such weak cash flows, the company still paid a very high dividend payout ratio, which had increased over time. Due to negative FCFE, this suggest s that the firm had to dig into their cash balance to pay dividends. This would thus prove that dividends payout will not be sustainable if earnings don't increase.
Efficiency Metrics
As a whole, the firm seems fairly weak in its efficiency metrics too. The very low return on equity can be attributed to low net profit margins, low asset turnover and high equity to assets ratio. There was also a high reinvestment need which had exceeded earnings, as mentioned earlier. The overall return on capital seems fairly low as well. However, if we estimate that the return on capital will be fixed, the high reinvestment rate should cause quite a significant growth in earnings the following year.
Valuation
Most of the firm's valuation metrics seem fairly weak as well. This is evidenced by the high multiples that the shares are trading at. Moreover, companion variables of such multiples are weak too. This could mean that the valuation the firm's multiples are trading at is not justified. Moreover, due to weak cash flows, the FCF yield and FCFE yield were both negative.
Cost of Capital
Based on synthetic interest rates and, we can estimate that the cost of debt is extremely high, at 10.14%. This is due to the weak interest coverage ratio that is the product of weak earnings.
I was not able to obtain data for Miyoshi's beta, but even with a conservative estimate of 0.2, the Weighted Average Cost of Capital would be 4.86%. This is almost 2% higher than the ROIC, which could mean that that the firm is destroying value for both debt and equity holders.
TL;DR Miyoshi is in the manufacturing industry. This has resulted in high operating and reinvestment costs which produces weak cashflows. Based on their multiples, the firm could potentially be overvalued as well.
Business Profile
Source: Miyoshi Limited
Miyoshi Limited is a manufacturer for Japanese brands in the data storage, consumer electronics and automotive segments. They have an international customer network of more than 18 countries across the world and provides a wide range of precision stamping, prototyping, metal finishing and automation solutions. Their technical hub is located in China, while their headquarters are located here in Singapore.
Source: Miyoshi Limited
Income Statement
For 2018, Miyoshi had quite weak profitability. This is evidenced by tthefairly weak profitability margins. Moreover, revenue and earnings growth had also decreased in the previous year. The margins themselves had also weakened over time. This paints a rather bleak picture of their income statement.
Balance Sheet
The balance sheet of the firm doesn't seem very strong either. Their short-term liquidity ratios are fairly alright, with a good current ratio but with quick and cash ratio falling below the mark.
The level of debt relative to other balance sheet items such as assets and equity is fairly good too. Despite fairly weak earnings, these metrics to show that the firm has a good chance of paying off debt and interest expenses. The Altman Z score also shows a moderate chance of bankruptcy. However, operating cash flow relative to current liabilities is also fairly weak though.
Free Cashflow Analysis
The firm had negative free cash flows, due to the high reinvestment needs in fixed assets for 2018. Worryingly, this had also weakened from the previous year, due to a decrease in NOPAT and higher reinvestment needs. This thus had reduced free cash flow to equity holders. Despite such weak cash flows, the company still paid a very high dividend payout ratio, which had increased over time. Due to negative FCFE, this suggest s that the firm had to dig into their cash balance to pay dividends. This would thus prove that dividends payout will not be sustainable if earnings don't increase.
Efficiency Metrics
As a whole, the firm seems fairly weak in its efficiency metrics too. The very low return on equity can be attributed to low net profit margins, low asset turnover and high equity to assets ratio. There was also a high reinvestment need which had exceeded earnings, as mentioned earlier. The overall return on capital seems fairly low as well. However, if we estimate that the return on capital will be fixed, the high reinvestment rate should cause quite a significant growth in earnings the following year.
Valuation
Most of the firm's valuation metrics seem fairly weak as well. This is evidenced by the high multiples that the shares are trading at. Moreover, companion variables of such multiples are weak too. This could mean that the valuation the firm's multiples are trading at is not justified. Moreover, due to weak cash flows, the FCF yield and FCFE yield were both negative.
Cost of Capital
Based on synthetic interest rates and, we can estimate that the cost of debt is extremely high, at 10.14%. This is due to the weak interest coverage ratio that is the product of weak earnings.
I was not able to obtain data for Miyoshi's beta, but even with a conservative estimate of 0.2, the Weighted Average Cost of Capital would be 4.86%. This is almost 2% higher than the ROIC, which could mean that that the firm is destroying value for both debt and equity holders.