Kinki Sharyo (7122): Hidden Gem or Trainwreck in Disguise?

Could this be the world's most undervalued train manufacturing stock?

Please note: This article is for informational purposes only and is not intended as investment advice. The mention of specific stocks is not a recommendation to buy or sell any securities.

At a Glance

• Stock Price at Publication: 1,939 JPY

• P/E Ratio: 3.1x

• Revenue Growth: 20.3%

• Operating Income Margin: 10.0%

• Return on Equity: 14.6%

• Market Cap: 13.53 billion JPY (Small Cap on TSE)

• Dividend Yield: 2.6%

As most of you know, I am a train aficionado (link to my public transit blog), and Japan has some of the best train manufacturers in the world.

Hence, I've been looking forever to find my golden goose, an undervalued rolling stock manufacturer with high hopes for the future. Companies like Hitachi and Kawasaki are great contenders, but their rolling stock manufacturing segments don't really move the needle for these companies. For mega industrials, Japan just has better stocks.

Other companies, like Nippon Sharyo and Japan Transport Engineering Company (J-TREC), the main manufacturers of the Shinkansen, are interesting but often struggle with shrinking margins and revenue due to complex management structures. Nippon Sharyo, for instance, is majority-owned by Central JR and is often forced to sell trains at discounted rates to prop up JR Central's profits, especially with their ventures like the Japan Maglev​ (Wikipedia)​​ (IHRA-HSR)​​ (Railway Technology)​.

Lo and behold, when I found Kinki Sharyo, a big rail manufacturer with a funny name from Japan's southern island, Kyushu, with an over 100 year long history of not only creating some of Japan's finest trains but also helping the world's transit by exporting to countries like Egypt since 1962​​!

Kinki Sharyo's history span more than a 100 years, from a one of Japan's first train exporter, the co-inventor of the Shinkansen, to a global train manufacturing powerhouse

This is a company with a solid track record both historically and financially. Despite a massive fallout in revenue during COVID and the overall trend of a shrinking Japanese population resulting in fewer trains needed, Kinki Sharyo remains a significant exporter. Notable projects include the Cairo Metro Line 4 and the Los Angeles Metro Rail​ (IHRA-HSR)​. Its valuation is insanely low with a P/E of 3.1x on the last twelve months (LTM)!

Is this really the undervalued hidden treasure of value investors' wildest dreams, or is the company a value trap waiting to sink even further? Find out in this stock analysis of Kinki Sharyo.

Table of Content
1. Overview
2. Financial Summary
3. Market Position & Competitive Landscape
4. SWOT Analysis
5. KonichiValue Score