Okura Holdings Limited, an investment holding company, operates pachinko and pachislot halls in Japan. The company operates 12 pachinko halls under the Big Apple. and K's Plaza names in the Kyushu, Kanto, Kansai, and Chugoku regions. It also invests in and rents real estate properties; and provides business consulting services. The company was founded in 1968 and is headquartered in Nagasaki, Japan.

Japan

Okura Holdings Limited

Consumer Cyclical

The company does not pay dividends at all, or it pays them sporadically. There have only been a few years with dividend payments in the past ten years. 

1655.HK reported revenue of JPY 6 480mn in the last 12 months, up 2% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 69% from FY23 to JPY 2.40.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 17ppts over six months and grown 20ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 33.0% in the last 12 months, a decline from 41.5% in FY24. 

Historically, 1655.HK has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 22.1%, down from 31.5% in FY24. 

In the last 12 months, the return on capital employed (RoCE) declined to 9.4%, above the peers. 

Another important profitability metric, return on assets (RoA), amounted to 7.9% in the last 12 months, a decrease from 11.2% in FY24. 

Okura Holdings Limited reported a return on equity (RoE) of 17.3% in the last 12 months, down from 27.1% in FY24. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.5 in the past several years. This ratio implies a strong shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

1655.HK has very poor trading liquidity. It will take considerable time for the average private investor to sell a common position under normal market conditions. Liquidity is very unstable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note robust profitability, solid return on capital, and adequate interest coverage, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, and excessive margin volatility.

In highly turbulent market conditions, 1655.HK is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical. 

In normal market circumstances, 1655.HK is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from critical to immense. 

From both historical and forecast perspectives, the stock is considerably underpriced compared to similar stocks. In particular, the stock is underpriced on P/E, 'cheap' on EV/EBITDA, undervalued on P/FCF. 

Okura Holdings Limited

HK$ 0.12

3

Okura Holdings Limited

HK$ 0.12

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

HK$ 0.12

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