AVI submits shareholder proposals to SK Kaken

RNS Number : 1912Z

AVI Japan Opportunity Trust PLC

20 May 2021

 

Asset Value Investors (AVI) Submits Modest Proposals to SK Kaken as a Test of Company's Motivation to Improve Performance and Share Price

London 20 May 2021

  SK Kaken share price has severely underperformed relative to the TOPIX and industry peer group

  SK Kaken's rejection of AVI's modest proposals to address technical causes of low share price reflects controlling family's misaligned motivations

Asset Value Investors ("AVI") announced today that it has submitted shareholder proposals to SK Kaken Co., Ltd. (TYO 4628) to address, at no cost to the Company, some of the factors contributing to the company's poor share price performance and low valuation.

Over the last 12 months SK Kaken's share price has underperformed against the TOPIX Index and its peer group of paint and coatings¹ companies by -31% and -33%, respectively. SK Kaken now trades on an EV/EBIT ratio of less than 1x, a price-to-book ratio of 0.9x with net cash covering 93% of its market cap.

There are multiple causes for SK Kaken's underperformance and undervaluation. Chief among these are poor operating results reflected in low profit growth², inefficient capital allocation, lack of board diversity and independence, woeful shareholder communication, excess treasury shares and a prohibitively high minimum trading lot size. In comparison to more aggressive and dynamic competitors in the industry, SK Kaken is falling behind.

These issues reflect a lack of urgency and weak management discipline, a symptom of a company with a controlling shareholder. Approximately 40% of SK Kaken's shares are owned by, and key senior executive positions are held by, members of the founding Fujii family.

With this as background, AVI has submitted shareholder proposals to call to the attention of fellow shareholders the company's stubborn resistance to even the most reasonable proposals.

The first proposal is a 10-for-1 stock split to reduce the prohibitively high minimum trading lot from approximately ¥4,000,000 (the sixth highest trading value among TSE-listed companies) to ¥400,000. This will create greater liquidity and open the company to investment by retail investors, who are now effectively excluded.

The second proposal is to cancel 90% of its treasury shares. SK Kaken holds 14% of outstanding shares in treasury. These shares have no business purpose such as M&A or executive incentive stock plan - SK Kaken has no M&A plans or a stock-based compensation scheme - and serve only to depress the share price.

AVI are not the only shareholder disappointed with the Company's treatment of minority shareholders, with only 76% of shareholders supporting the re-election of SK Kaken's Chairman in 2020, compared to 93% in 2016.

AVI calls on its fellow shareholders to continue to register disapproval of management policies under the influence of a controlling shareholder who has neglected the interests of minority shareholders for too long, by voting in favor of AVI's proposals.

A more detailed letter and AVI's shareholders proposals are available at AVI's dedicated website www.paintingabetterSKKaken .com .

Contact

Daniel Lee

[e-mail]

 

---

_{1Nippon Paint (4612) and Kansai Paint (4613). TOPIX total return. Source, CapitalIQ.}

_{² For FY3/21, SK Kaken achieved operating profits of Y9,942m compared to Y9,140m in FY3/11, a 9% growth. Over the same period, Nippon Paint and Kansai Paint achieved 444% and 48% profit growth respectively.}

 

END

 

 

STRZKLFFFELEBBE