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Even though Takefuji (OTC:TAKAF) gained on the news last week that legendary value investor Peter Cundill is now the company’s second-largest shareholder (behind the founding Takei family), the stock is still down 16.6% in USD terms since I bought it in April.

Why has the consumer finance company’s stock faired poorly? Because of uncertainty about the future of consumer lenders in Japan. The uncertainty existed when I recommended Takefuji. I just thought it’d be more of a dead money holding until the uncertainty cleared up.

I was wrong about that.

The ruling Liberal Democratic party unveiled a plan last month to lower the maximum interest rate on consumer loans from 29.2% to 20%. The final decision will be made later this year.

Investors fear a rapid reduction in the rate cap would hurt the consumer lending companies. And analysts fear that would also lead to a credit crunch, forcing many weaker borrowers to turn towards illegal loan sharks and depress consumption.

On the other hand, if the ruling party lowers the cap over many years to minimize the impact on Japan’s economy, the impact on consumer lenders would not be that significant.

I think the latter scenario will play out. This means Takefuji will continue making lots of money, just not as much as before. I hope that means the share price will recover, and reward my brokerage statement in the future.

Put simply, I remain optimistic about this pick. Its balance sheet is rock-solid and the stock is cheap -- it was when I bought it and it’s even more so now.

Plus, with the aging of the founding shareholder and the consolidation of Japan’s financial services industry, the possibility of a takeover definitely exists.

Cundill now owns 8.53% of Takefuji’s stock. The founding family owns about 25%. Foreign (non-Japanese) investors as a group own 56%.

I don’t know what’s going to happen. But with a dividend yield of more than 3%, I’m content to wait and see.

TAKAF 1-yr chart:

TAKAF 1-yr chart

Source: I Still Like Takefuji, Though I'm Down 16% (TAKAF)