Power Solutions, Ltd. provides corporate IT services in Japan. It provides business consulting, system design, development, and operation and maintenance services. The company offers system integration and business process outsourcing services, as well as license sales and implementation support services to robotic process automation. It serves asset management companies and other financial institutions. Power Solutions, Ltd. was founded in 2002 and is based in Chiyoda, Japan.

Japan

Power Solutions, Ltd.

Technology

The company pays dividends on rare occasions. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been moderate and on par with its peers. 

4450.T reported revenue of JPY 6 748mn in the last 12 months, up 14% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 46% from FY23 to JPY 144.46.

The stock has been growing steadily in the past six months, adding 17% in total. The stock has outperformed its global peers from the same sector and industry (as shown above), surpassing them by 17ppts in total. 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 modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 8.8% in the last 12 months, up from 8.5% in FY23. 

Historically, 4450.T has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 4.9%, down from 7.5% in FY23. 

Power Solutions, Ltd. reported a return on equity (RoE) of 11.0% in the last 12 months, down from 16.0% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to 9.0%, below the peers. 

Another important profitability metric, return on assets (RoA), amounted to 6.2% in the last 12 months, a decrease from 9.0% in FY23. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.2 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.

4450.T 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 may be 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 strong debt servicing capacity, adequate interest coverage, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, bleak profitability, poor working capital management, and poor cash flow generation.

In highly turbulent market conditions, 4450.T is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate. 

In normal market circumstances, 4450.T is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. 

Considering past and projected metrics, the stock is distinctly 'cheaper' than its peers. In particular, the stock is underpriced on P/E, 'cheap' on EV/EBITD. 

Power Solutions, Ltd.

¥ 1365

5

Power Solutions, Ltd.

¥ 1365

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

¥ 1365

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