Yamato Kogyo Co., Ltd. (5444.T) fair value

ACCE thesis

Yamato Kogyo makes steel H-beams, sheet piles and other structural steel sections, mainly for construction and civil engineering projects in Japan, and is one of the country's larger producers of steel bridge and building components. The case for a closer look rests on its position as a domestic supplier with a fairly stable market share, combined with an earnings base that the market is pricing at a modest 11.1x trailing and 13.9x forward P/E. Revenue growth is flat at 0.0% and the company posted a small operating loss (-1.1% margin) on a 12.9% gross margin, so the thesis depends on margins recovering rather than on volume growth. The return on equity of 12.2% is respectable for a capital-intensive steelmaker, but the forward P/E sitting above the trailing figure signals analysts expect earnings to come down, which needs to be understood before any position is considered. The name is outside the major indices, so coverage and liquidity are thinner than for larger Japanese steelmakers, and that is worth weighing alongside the valuation.