I stumbled over Japan Petroleum Exploration Co., Ltd. or Japex via Inpex (1605 JP) …
I wrote a small twitter thread about Inpex’ Q3 results and its revise guidance for FY results, which still seems conservative based on current Brent prices. Inpex bought back a good chunk of shares from Japex in November (link) and I decided to take a look based on a low P/B metric (and potential willingness to monetize assets).
This is another part of my series of Quickies on new companies.
The balance sheet (as of March 31, 2021) shows total net assets of JPY 434bn vs a market cap of 126bn as of Nov 8th, indicating a low P/B of 0.3x. Consolidated assets mostly consist of (i) cash and equivalents, (ii) PPE and (iii) investment securities. Total net assets increased to 450bn as of June 30 for an 0.28x (link).
Its Inpex stake accounted for 3/4 of its investment securities. Its Inpex stake was recorded at JPY 80bn in March 2021. Since then, Inpex stocks have gained +25%. Japex sold a good chunk of its Inpex stake to Inpex for JPY 946 per share in November, reducing its stake from 7.3% to 3.8%.
Based on asset value Japex looks quite nice – BUT… Sadly, they pay rather low dividends despite a big cash pile. Monetizing some of their assets might lower their discount to asset value, but without further catalysts this might not be enough. Such catylasts (higher divis, buybacks, …) are not too likely I guess with the Japan Ministry of Economy Trade and Industry as the biggest shareholder (34%) likely being more interested in using that cash (and other values) for pursueing its mission instead of caring for minority shareholders. Other big shareholders are Inpex (5%), and Government Pension Investment Fund Japan (5%).
Orbis allan gray is the second biggest shareholder (12%) and they seem to have recently added to their position. The question here is, if they will drive value realization? Their Japan fund also holds a big stake/allocation in Inpex (link), as do the ministry and Japex. I found Orbis’ investment thoughts here (p 8f). Surprisingly, they mostly see the same value (and problems), and they highlight an incredibly value accretive move from Inpex to buy Japex, effectively buying back their shares. Just now, this potential catalysts did disappear, unfortunately, since Inpex bought back a chunk of its shares from Inpex. When I found this document, I hoped for fidning some activist roadmap, since I also found this doc from Lazard. But I foudn nothing else hinting at an activist investor playbook — which might be needed here to realize tons of value, esp. after Canadian assets were recently sold (news).
If Japex might merely increase shareholder returns like double its current dividend (for a then 4.5% yield) and show some growth, this could be a solid investment. Japex will report its Q3 results tomorrow (NOV 9).
Japex business segments (below) show a dispersed and volatile performance over time (integrated report for FY2021, ending March 2021), including drastic impairment charges. Page 50 shows Ebitda and CFFO seem much more stable, still, net assets per share were flat around JPY 7k from 2012/3 to 2021/3 and dividends per share are back to 2012/3 levels after a strong dip in FY2017/18.
- Oil and Gas E&P
- New Business Development
Operating development seems quite good (below: first 6m, vs yoy). Japex increased FY operaing income forecast to JPY 16.67bn (up from 13.48). Partial sale of Inpex stake is used for buybacks of up to 5%, dividend not raised, and investments in various projects.
I hope you enjoyed this post.