The Nikkei Average has surged 48.6% from its April 7 low of ¥30,792 to
¥45,769 as of Oct 3. With bottom-up opportunities harder to uncover in
this environment, I tried the net cash ratio* as a fundamental value
indicator. Among companies that appear sufficiently large to merit
consideration by institutional investors, TOMEN DEVICES (TD) stands
out.

TD functions as a sales arm of Samsung, mainly in Japan. Japan is not
a direct part of the recent announcement* in which Samsung and Hynix
supply memory chips to OpenAI’s Stargate AI data center. But Japan is
involved in the Stargate project through SoftBank, which is a key lead
partner alongside OpenAI and Oracle.  Additionally, SoftBank has
entered a joint venture with OpenAI in Japan to deploy and market AI
technologies across its group companies.  Thus, TD could benefit from
increased AI-related sales at Samsung.

*Net cash ratio

The indicator known as the “Net Cash Ratio” gained attention after
legendary fund manager Tatsuro Kiyohara introduced it in his book.
Net Cash Ratio = (Current Assets + 70% of Investment Securities −
Liabilities) ÷ Market Capitalization

1. Tomen’s valuation dissected.

1) Net cash ratio of 1: indicates that all of Tomen’s market value is
explained by its balance sheet (net working capital + part of its
securities).

That is, investors are effectively valuing the company’s operating
business at close to zero, suggesting skepticism about growth or
profitability.

2) Low equity ratio of 30 % reflects a typical trading house balance
sheet, characterized by big current assets (inventory, receivables)
matched with big current liabilities (payables).

3) High EV/EBITDA at 9.8x indicates low EBITDA(earnings) power.

The stock trades as if its operations are worth nearly zero. Investors
recognize that Tomen Devices is cash- and asset-rich, but they see low
earnings, thin margins, and balance sheet risk from the trading model.
Unless it improves profitability or starts returning more cash to
shareholders, the market will keep valuing it this way.

In the report to my clients, I try to argue that TD is undervalued with a
meaningful growth potential.  Think I’ve missed the mark? Let me
know—course correction is how I improve and stay useful to you.

Note:

TD’s ownership structure is notable:

Toyota Tsusyo 26.6%

NEXTY Electronics 23.5%, an electronics trading company and wholly
owned by Toyota Tsusho Group. Thus, Toyota Tsusho owns 50.1% of TD.

Samsung Japan 12.2%

TD’s market cap is not even 1% of Toyota Tsusyo, wonder if Tsusyo
will absorb the entire TD (if Samsung lets that happen)?

If you’re interested in learning more about Tomen and its growth potential, I’d like to invite you to experience my service—completely free of charge. I am confident that once you discover the value, convenience, and quality I offer, you’ll be glad you gave me a try.