Introduction
This is a post mortem on Hogy Medical, a Japanese stock investment mentioned on my old blog undervaluedjapan.blogpost.com around mid 2012.
It was introduced to the audience around 1´700 Yen (split adjusted). End of 2025 a consortium around the PE Firm Carlyle took the company private at 6`700 Yen.
Thus, the investment generated a CAGR of roughly 10% (excl. Dividends) over the holding period.
Company Overview
Hogy Medical is a leading manufacturer of premium quality medical products. Its mission is to improve infection management (infection prevention) and efficiency in operating rooms. Sales are generated exclusively within Japan.
The most important segment Hogy operates in are surgical kits; carefully packaged collections of medical instruments and supplies, organized for specific surgeries and delivered just in time.
The company also offers Mekkin Bags (Sterilization Pouches). Sterilization pouches are used to package and protect medical instruments. They ensure that instruments remain sterile until they are needed for surgery or other medical interventions.
In addition, Hogy manufactures medical non-woven fabric products at its Indonesian subsidiary P.T. HOGY Medical Indonesia. Those are surgical gowns, drapes, FP masks and wound dressings that are essential for maintaining sterility during medical procedures.
Lastly, the company offers OPERA MASTER. An IT system that analyzes and provides information on the status of operating rooms, as well as cost management to help improve operating room management. Together with Hogy’s surgical kits the system enhances security and operating efficiency of surgical procedures i as medical supplies needed for surgical intervention are delivered according to surgery schedule, helping alleviate the inventory burdens of medical institutions.
In short, the investment was in a quite unique, top notch, mission critical company that had a leading position within Japan.
Starting Valuation
Lately, Japan has seen a major renaissance when it comes to investor interest. Japan is in vogue. The crowd is eager to invest. The indices taking out all-time highs on a daily basis.
In 2012, when I started investing in and writing about individual Japanese companies, the sentiment was completely different. From peak to trough the indices lost almost 80% from the all -time high of 1989. Foreign and Japanese investors would not touch Japanese stocks with a barge pole. Japan was irrelevant. The future was in China.
The market was littered what I phrased J- Nets. Stocks that traded below conservatively estimated liquidation value. Even high-quality large cap stocks like Nintendo could have been bought around Net Current Asset Value (NCAV). Nobody was interested. Nobody cared. I did.
Hogy Medical was not a J-Net Stock when mentioned in 2012. It traded roughly double its liquidation value (incl. Investments). Nevertheless, it was still dirt cheap. Especially, when Hogy’s headquarter, a freehold in one of Tokyo’s best districts, was taken into account.
From a qualitative angle Hogy was a mission critical business with stable and satisfying margins. In addition, it had a proven long- term track record with some sales growth and uninterrupted history of dividend payments. Thus, I was willing to pay up a little for Hogy compared to my other investments.
Quantitive Metrics in 2012
Stated P/E was around 13. But given the company carried no interest-bearing debt on the balance sheet, and had a high cash balance, the ratio was distorted to the upside.
On an enterprise Value (EV) basis, which adjusts for different financing, cash and investment holding of companies, Hogy traded at multiple of 2,7 and 3,3 in relation to Ebitda and EBIT.
Since 1997 the company had not posted a loss year and showed some sales growth. It generated significant and growing Operating Cash- Flow (OCF). Free Cash- Flow (FCF)was depressed in 2012 due to capital expenditure (CAPEX) in a new sterilization center.
In 2012 it had a stated ROE of roughly 7% (in line with its average for the past 15 Years). This was rather a better reading for a Japanese company during that time. If one adjusted the stated numbers for conservative financing and accounting, return metrics were significantly higher.
Why was the Stock Cheap?
As mentioned before, nobody cared and nobody watched. The investment community was indifferent/ ignorant about what was happening on the Japanese stock market.
In addition, substantial part of the float was owned by the founder of the company. Although, the company paid a dividend, and had a history of dividend increases, the pay- out ratio and the dividend increases were small. There was no history of significant share repurchases.
By no means the company was outright hostile toward their minority shareholders. It appeared rather indifferent. Astute capital allocation certainly was not the company’s strong suit, as it kept piling up cash on its balance sheet.
Furthermore, shareholder activism was non- existent. They all had turned their back on Japan after the Great Financial Crisis of 2008/2009. [1]
Last, but not least, the market cap was smallish (low liquidity) and the stock was not covered by any analyst.
The Ride
Stock price action during the holding period was quite typical for a stock mentioned on the blog that multi-bagged during the holding period. I call it the hockey stick, roundabout ride.
Shortly after I mentioned the stock on the blog, the price dropped by roughly 10%. Reason: The company announced that Masao Hoki, founder of Hogy Medical, had the intention to retire from business.
Given that Masao Hoki was already 91 that did not come as a surprise, and not the reason for the sell off. The shocker (to me and the market) was an accompanying news release. The management intended to sweeten Masao Hoki’s retirement with a 2 bln. yen bonus for “extraordinary achievements”. Profit forecast was slashed by more than half and no guidance was given anymore for FY 2012. Apparently, in addition to the aforementioned reasons for the stock being cheap, we got a veritable corporate governance issue on top of it.
Luckily, I did not sell the holding. It took two weeks that my, and the markets, emotions, cooled down a little over this totally incomprehensible move by Hogy’s management. An announcement appeared that the founder politely declined the offer by management.[2] Welcome to investing in Japanese family-controlled businesses!
The stock swiftly recovered. And with the advent of Abenomics in late 2012 rallied to 3’400 Yen (roughly 110%) till April 2013 on no news (the Hockey Stick).
The stock quickly consolidated to 2’500 Yen the following half a year, and did not take out the high for another two years. A break through the highs of 2013 initiated a rally, accompanied by news about dividend increase, stock buybacks and a 2:1 stock split until 3/2018 to 5000 Yen. The rally abruptly stopped and reversed, and within half a year the stock crashed by roughly 40% to below 3000 yen (the roundabout).
For something like a year, the stock showed wild swings in the 3’000 to 4’000 Yen range. Followed by a narrower range between 3’000 and 3’500 Yen. The whole consolidation lasted for a gruesome 6 years.
In July 2024 the stock started to rally again. The rally accelerated after Jamie Rosenwald, a well- known Japan activist, had been appointed as independent director. [3]
After, the stock kept rallying, accompanied by rumors that the company was taken private. Mid December 2025 the rumor was confirmed. Hogy would be taken private for 6’700 Yen. A number that had been spoon fed to the press shortly before the official announcement.
No premium was paid to the trading day preceding the announcement.
Operational Performance During Holding Period
Operationally, the stock did not perform as expected when the position was initiated.
Pretty much right from the beginning, Hogy’s gross margin started compressing. Albeit from a high level (51%) in FY 2012, and only slightly to 49% in FY 2016. But the picture was not getting any better. In FY 2017 (that ended march 2018) gross margins crashed to 39 %. Stated operating margins held up until Fy 2016, but started plummeting from 24% in FY 2015 to 12% in FY 2023.
OCF was not growing, but neither was it under pressure. But FCF generation, that used to be reliable and stable in the past, turned highly volatile during the holding period, due to high (growth) CAPEX.
When initiating the position, I was highly optimistic about the business. I was envisioning major tailwinds for Hogy, and the Japanese medical sector in general, given the aging society.
But there were several factors I underestimated/ misinterpreted with Hogy Medical.
The major ones were:
· I underestimated how the weak Yen increased input costs while Japanese medical device renumeration capped sales prices of products
· I underestimated the true amount of CAPEX in plant expansion and modernization, and its impact on increasing depreciation charges
· I underestimated the markets inability looking through (temporary) negative impact on EPS and FCF due to aforementioned depreciation, although OCF remained stable
· I underestimated how premium kits cannibalized Hogy’s regular kits
The stock crash from mid-2018 to beginning 2020 was a response to aforementioned factors. It was not only emotionally pretty painful, but also ruined a CAGR that would have been more than satisfying.
Lets be honest. What saved my ass was picking a multidecade low in the stock price, and an extremely low starting valuation (Margin of Safety) when initiating the position.
Barbarians at the Gate
The first foreign investor who took a significant stake in Hogy Medical was Godheart Partners. I had been aware of the fund, as it was the only foreign fund that took significant positions in Japan following the triple disaster of March 2011. (I am not aware of any other fund that had not been active in Japan before took a significant wager on Japan between March 2011 and before the advent of Abenomics!)
I am not sure if Godheart partners engage with management. But they certainly follow a contrarian approach to value investing. If I remember correctly, they took on the investment right at the peak of COVID. A time Hogy’s operations and stock price were seriously beaten down due to postponement of surgeries in Japanese hospitals and a sharp overall market correction. I contacted someone at the fund, and they told me that they saw Hogy Medical profiting from Japan’s work style reform at hospitals.
What followed was quite an astounding reshuffling of the shareholder structure on Hogy’s register.
In FY 2021 the founder’s son, who took over the role as CEO after the founder retired, stepped down and sold almost its entire stake back to the company (roughly 20%). At the same time GMO, a fund cofounded by permabear Jeremy Grantham, had built a significant position. Shortly after, Jamie Rosenwald, a well-known activist that had been investing in Japan for a long time, and an associate fund (Nippon Active Value) were taking on a more than significant stake.
What was strange is that the stock did not significantly react to these major changes in the shareholder register.[4] It kept being stuck in the 3’000 to 3’500 Yen range.
Apparently, the market was spooked by the company’s dismal (stated) operating performance, with gross-, operating- and net margins plummeting.
Only in 2024 the stock started moving again, after a new management team took the helm at Hogy. Most notably was the new CFO Taisuke Fujita who had extensive background in capital markets and investment management, including roles at Amundi Japan, SPARX Asset Management, and Taiyo Pacific Partners. Shortly after they presented a compelling and promising new management plan.
At the same time Jamie Rosenwald launched a proxy battle trying to gain a board seat at Hogy. He won the battle, and was appointed as independent director.
The Battle Taking Hogy Privat
With Rosenwalds winning of the board seat the market finally realized something was brewing at Hogy Medical, as Rosenwald had frequently demanded for a review of strategic options, including a potential privatization of the company.
Mid 2025 rumors emerged that U.S PE Firms were bidding for the company. Hogy countered rumors frequently with press releases citing that no decision regarding a privatization had been taken. But the stock rocketed and rumors kept swirling. Apparently, the press was spoon fed about negotiations from within the company’s board.
In December 2025, the Carlyle Group emerged as the winning bidder to take the company private at 6’700 Yen. No premium was paid to the previous closing price, as the stock had already rallied to the price finally offered by Carlyle due to leaked information to the public.
Dalton Investments and associated (the largest shareholders) and GMO agreed to tender their shares. They were given preferential treatment over other minority shareholders. Namely, the right to reinvest and maintain a significant stake in the, now-private, company.
The Outcome
Hogy Medical is the only mid/ long-term holding mentioned on the blog in 2012 that did not earn its stock performance operational wise. On all counts, may it be P/E, P/ OCF, P/ B, P/ NCAV, all the performance was based on multiple expansion.
Most notably was the expansion of EV/ EBITDA, as it takes into account conservative financing and excess depreciation. In 2012 EV/ Ebitda (excl. Investments) stood at roughly 3. The stock was taken private at a multiple of 13 in 2025. The multiple expansion is, more or less, the performance (excl. Dividends) of the stock during the holding period.
The premium paid by the consortium was roughly 70% above a conservatively estimated intrinsic Value (3900 Yen). A liberal estimate would value the stock at roughly 6’000 Yen. Thus, a premium of 10% was paid.
Premiums paid for Japanese medical device companies in take private operations are quite high. When compared to other deals, and especially the take private transaction of Topcon that had taken place shortly before, the Hogy deal was at the lower end of the valuation range.
Conclusion
The price performance of the investment over the holding period was ok, but not great. It did not outperform the Topix. It did outperform most other medical device stocks from within Japan though.
For two long periods during the investment horizon it was no fun at all having the stock in the portfolio. Not so much because of the severe stock price corrections and volatility, but rather by those being accompanied by dismal operational performance over an extended period.
Still, I am proud of this investment. It showed that my asset valuation was correct, as there was a severe disconnect between the price/ value the stock was trading when I initiated the position and the price/ value a private bidder would be willing to pay for controlling the whole entity.
Most importantly, it showed that I have what Peter Cundill called the most important personal trait when it comes to deep value investing. Namely: Patience, patience and more patience.
Final Remarks
I was disappointed by Rosenwald and GMO preferential treatment over other minority shareholders by getting a significant stake in the now taken private entity. I think GMO acted opportunistically, and Rosenwald being more active in the deal.
I do not blame Rosenwald for what he did. It would be naïve to expect altruism from activist funds. Stock market investing is a cutthroat business, and I hold it with Gordon Gekko. If I need a friend I will get a dog.
Still, I think Rosenwald did a disfavor to his long build reputation in Japan. Management opposed the proxy that suggested the nomination of Jamie Rosenwald as independent director, citing he was not truly independent. Apparently, for the right reason.
In the future I will be wary when I see Jamie Rosenwald, or any associates, turn up on any of my holding’s shareholder register. I will certainly not buy into any Japanese company they have a significant stake in.
The new management team at Hogy, formed after the founder’s son had left the company, was promising. They presented a comprehensive long- term management plan to return cash to the shareholders, turn operations around and enter a new growth era at Hogy Medical. The selling of the Headquarter shortly before the company was taken private serves as a strong indication that management was walking its talk.
Although, without doubt, I made several mistakes in my assumptions concerning Hogy’s operational performance over the medium term, I am pretty sure the investment would have turned out a big winner over the long- term.
Rosenwald and GMO apparently agree with me. Unfortunately, I will never find out.
Source:
[1] I am only aware of one major activist boutique that did not abandon Japan. Namely: Symphony Financial Partners co-founded by David Baran (a very underrated activist by the way with an unique approach). Unfortunately, Hogy Medical was never on their radar.
[2] What the heck...He doesn’t want his bonus now? I couldn’t get my head around this absolute shit show at all. So I asked somone who was more familiar with Japanese business culture than I was and he told me, that he found this news very interesting and very japanese. Basically, he explained to me, Mr. Hoki expected this offer to him by management, as a sign of respect. At the same token management expected Mr.Hoki to decline the offer
[3] Interesting to note is activist action built around 2020-2024 was totally ignored by the public. Only after Rosenwald had won the board seat did the stock price react.
[4] As a side note: Japan Investing saw some interest on Fintwit in 2023 with Warren Buffett increasing its stake in Japanese trading houses and the stock indices finally printing new ATH after 35 Years of doldrum. Before Japanese stocks were neglected. Still, I am only aware of one person on fintwit pointing to the interesting shareholder composition at Hogy, and that was beginning of 2025 (A few years after the reshuffling had been unfolding). And, although Jamie Rosenwalds (failed) campaign at Fuji media had some steer on twitter, only one Japan observer on engish twitter commented on Rosenwald winning a proxy battle and board seat at Hogy Medical. Actually, the whole battle went unnoticed by Fintwit.
Disclaimer:
Myself and/ or partners closed its position in Hogy Medical (JP:3593) in January 2026.
Undervaluedjapan uses information sources believed to be reliable and accurate. But this cannot be guaranteed.
The information contained in this publication are not intended to constitute individual investment advice and is not designed to meet your personal financial situation.
The opinions expressed in this publications is that of the publisher and subject to change without notice.
Substack needs more posts like this. Loaded with takeaways. That absurd retirement bonus and then the founder turning it down was a series of twists, even for Japan.
A great investment story to read, driven by two perennial key insights: margin of safety, and patience.
Thanks for sharing! :-)