2024-01-03 14:40:00
22.5% owned by the electricity giant, Kyushu Electric Power, the Kyudenko Corporation group specializes in engineering services. It is among the latest entries in our Asia Investor portfolio. Let’s see why in this tip.
This Japanese company provides installation services for mainly electrical equipment. Its expertise also extends to the fields of heating, ventilation and air conditioning. In the airline sector, the company deals with the installation and maintenance of high and low voltage transmission lines. In the field of renewable energies, Kyudenko is responsible for electricity distribution operations.
Distribution of sales by profession (source: Kyudenko)
Kyudenko experienced a turning point in the early 2010s with the appearance of new applications in the field of renewable energies. Certainly, these remain minimal compared to total revenues (16.7% of turnover in 2022), but they allowed the group to find new momentum while growth was stalling. Margins have improved quite dramatically. Today, the company relies on a wide range of activities by having succeeded in mixing rather traditional professions such as the installation of electrical equipment in the field of construction and solutions with higher added value such as construction contracts. maintenance which ensures recurring income and renewable activities.
An overview of the history of professions and figures. We can see that from 2011, margins accelerate and then the company broadens its spectrum of activities (in yellow) (source: Kyudenko Annual report 2022)
Kyudenko’s other strength is the quality of the figures published. As mentioned, the margins are regular and high when compared to the group’s history. Another element of satisfaction is found in Kyudenko’s ability to generate profits with the money invested. In other words, the Return On Equity (ROE) reached completely respectable levels, between 10% and 11%. Finally, the balance sheet situation is excellent with very good cash flow. Capital is mainly allocated to shareholders in the form of dividends – no share buybacks however – and to growth investments.
The evolution of margins is a good point (source: Zonebourse)
We like Kyudenko for his agility. The market is complex but the Japanese company has been able to embrace new business opportunities. Also, visibility is optimal. Analysts have repeatedly raised their EPS forecasts for the next three financial years. We believe that the price is not aligned with these prospects and that a potential revaluation of the stock is probable. It is trading around 11% below its historical highs, a time when margins were close but revenues were lower.
BNA’s average objective has been revised upwards several times, especially for 2025 and 2026 (source: Zonebourse)
Kyudenko represents an attractive investment opportunity given the evolution of its profitability, its diversification, its revenue stability, the quality of its balance sheet and the analysts’ outlook.
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