Katakura’s underlying value is hidden by underperforming business lines and a distracted management.

Katakura is trading at 0.86x price to book ratio, however, this excludes the value of Katakura’s large land holdings. In its annual report, Katakura provides a conservative market valuation of the real estate that has been developed and is operational. In FY2017, Katakura reported this to be ¥122.5 billion compared to its book value of ¥36.5 billion. Including these unrealized gains net of tax to equity reveals that Katakura is trading at just 0.42x book (excluding minorities). This is very conservative for the following reasons:

i.                   The valuation is based on conservative assumptions

ii.                  This only includes the value of the developed land and Katakura owns significant undeveloped real estate

We believe that if management focuses their attention on developing and selling more of its owned land then Katakura, at least, should trade at 0.8x adjusted book, an upside of 90%.