Kevin Smith, of Delft Partners and portfolio manager of the TAMIM Asia Small Companies Fund, highlights one of the stocks in the Asia Small Companies portfolio. Japan Aviation has been a star performer recently with the portfolio up +13.5% CYTD.
Japan Aviation Electronics Industry, Ltd (JAE) is a diversified technology business that was founded in 1953 as a entity within the Nippon Electric Company and was listed on the Tokyo Stock Exchange in 1963 (TYO: 6807). Initially JAE manufactured solenoids under licence from Cannon Electronics of the United States and later diversified into aerospace equipment under licence from Honeywell of the United States. JAE has developed a competitive advantage in the field of electronic connectors in mobile devices and vehicles. JAE has a strong business in the field of motion sensing technology for the aerospace industry. JAE won a place in the Thomson Reuter “Top 100 Global Innovators Award” in 2011.
Accounting, Strategy and Governance Comments
Value, Momentum and Quality Comments
JAE sits in the top 30% of our VMQ ratings universe for the region with a strong score for value and good scores for momentum and quality. The company has cash on the balance sheet in excess of USD 400 million and long-term liabilities equivalent to USD 60 million, a very conservative business structure. JAE has the capacity to fund future growth plans without the need for raising equity.
JAE has a return on equity (ROE) of 8% which we expect to rise to double figures in the next three to five years, that expected improvement in ROE will improve the quality score.
The momentum score has improved from well below average three months ago to average in the past month as the period of downgrades to earnings has ended. The expected recovery in earnings in the next two years is 11%, we expect that number to be upgraded during the next twelve months.
There are nine analysts providing coverage of JAE and their expectations are relatively modest with eight analysts rating the company as a hold and only one with a clear buy recommendation. We believe that the analysts are being too conservative in the assessments of JAE and there is significant upside to the company in the next phase of rising demand for connectors in vehicles and mobile devices.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.