Japan Specialist

Mark Chadwick

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Corporate governance is hard, messy and often frustrating for everyone. Those frustrations boiled over for shareholders in <a href="https://www.smartkarma.com/entities/fujitec-co-ltd" target="_blank" data-smartkarma-citation="entities:11686:1" rel="noopener">Fujitec Co Ltd (6406 JP)</a> , with two outspoken activist investors going public with their grievances in May this year, ahead of the AGM.  
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At the AGM, Oasis secured 33% of the votes in favour of its proposals for cancelling the Company’s treasury shares. If it hadn't been for the Coronavirus, the proposals would have been far more intrusive. In the end, there was a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san. If the low level of support for management was a gentle wake-up call, Oasis’ June statement was a ringing alarm clock.   
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Oasis will continue its active engagement with the Company and, failing any material change to the situation, will consider a wide variety of options, including calling an EGM later this year, in order to bring about a change of leadership at the Company to ensure that progress is made to improve Fujitec’s corporate value for the medium and long-term, to the benefit of all stakeholders (June 2020) 
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 And so here we are today, with grudging consent, Uchiyama-san has <a href="https://www.fujitec.com/common/fjhp/doc/top_global/document/irnews/2139/20201204_Fujitec%20Co.,%20Ltd.%20Announces%20Future%20Strategic%20Direction%20Plan.pdf" target="_blank" rel="noopener">announced a “new” strategic direction</a>. It’s a step in the right direction, but will it be enough to silence the critics?  
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Corporate governance is hard, messy and often frustrating for everyone. Those frustrations boiled over for shareholders in Fujitec Co Ltd (6406 JP) , with two outspoken activist investors going public with their grievances in May this year, ahead of the AGM.  


At the AGM, Oasis secured 33% of the votes in favour of its proposals for cancelling the Company’s treasury shares. If it hadn't been for the Coronavirus, the proposals would have been far more intrusive. In the end, there was a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san. If the low level of support for management was a gentle wake-up call, Oasis’ June statement was a ringing alarm clock.   



Oasis will continue its active engagement with the Company and, failing any material change to the situation, will consider a wide variety of options, including calling an EGM later this year, in order to bring about a change of leadership at the Company to ensure that progress is made to improve Fujitec’s corporate value for the medium and long-term, to the benefit of all stakeholders (June 2020) 



 And so here we are today, with grudging consent, Uchiyama-san has announced a “new” strategic direction. It’s a step in the right direction, but will it be enough to silence the critics?  


Fujitec (6406) - Governance Is Messy – but that Doesn’t Mean It Isn’t Working

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/fujitec-co-ltd" target="_blank" data-smartkarma-citation="entities:11686:1" rel="noopener">Fujitec Co Ltd (6406 JP)</a>  share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the outperformance was driven by activist interest in the name, with Asset Value Investors (AVI) revealing their aptly titled “Taking Fujitec to the next level” presentation. Another well-known activist, Oasis Investors, took things a step further by adding shareholder proposals to the June AGM agenda. Although shareholders rejected the proposed cancellation of treasury stock, Oasis can feel vindicated by the relatively high 33% of votes in favour of the proposal. Moreover, with a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san, it seems that many minority shareholders are also becoming frustrated with management. With activists publicly calling for change, the stock looks a cheap and low risk play on governance reform.

Fujitec Co Ltd (6406 JP)  share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the outperformance was driven by activist interest in the name, with Asset Value Investors (AVI) revealing their aptly titled “Taking Fujitec to the next level” presentation. Another well-known activist, Oasis Investors, took things a step further by adding shareholder proposals to the June AGM agenda. Although shareholders rejected the proposed cancellation of treasury stock, Oasis can feel vindicated by the relatively high 33% of votes in favour of the proposal. Moreover, with a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san, it seems that many minority shareholders are also becoming frustrated with management. With activists publicly calling for change, the stock looks a cheap and low risk play on governance reform. 

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/740/original/2020-02-07_03-39-22.png?1581019080" class="editor-image img-responsive" data-smartkarma-image-id="116740"></figure><div class="content-caption">Source • Japan Analytics</div>INTO THE 'RED' - As predicted, our Results Score dipped into negative territory yesterday, declining by 56 basis points to -0.21. Of the 65 large-cap results, only ten companies had positive qoq changes in Results Score, while seventeen saw double-digit declines. <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> did well to limit its quarterly year-on-year changes in Revenue and OP to -3%, and they are forecasting similar declines against TTM numbers for the full year. The Forecast/Revision Score added six basis points driven primarily by <a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido (4911 JP)</a> overly optimistic initial forecast for FY2020. 'Mr Market' meanwhile is content to bid up share prices to close to the recent highs, and 8% below the January 2018 peak, when the Results Score was 7.54. <hr>• SECTOR TIMELINE •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/741/original/2020-02-07_03-45-05.png?1581019946" class="editor-image img-responsive" data-smartkarma-image-id="116741"></figure><div class="content-caption">Source • Japan Analytics</div>SECTOR TIMELINE - The majority of Sectors saw lower Results &amp; Revision Scores yesterday, with Food, Beverages &amp; Tobacco being the exception due to <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>'s stable topline performance and better-than-expected 2020 forecast. <a href="https://www.smartkarma.com/entities/mitsubishi-heavy-industries" target="_blank" data-smartkarma-citation="entities:13613:1" rel="noopener">Mitsubishi Heavy Industries (7011 JP)</a> decline into the red at the OP level and full-year downward revision took the Machinery Sector lower, while <a href="https://www.smartkarma.com/entities/seibu-holdings-inc" target="_blank" data-smartkarma-citation="entities:458:1" rel="noopener">Seibu (9024 JP)</a> was the negative driver for Multi-Industry. <a href="https://www.smartkarma.com/entities/terumo-corp" target="_blank" data-smartkarma-citation="entities:6708:1" rel="noopener">Terumo (4543 JP)</a> and <a href="https://www.smartkarma.com/entities/olympus-corp" target="_blank" data-smartkarma-citation="entities:356:1" rel="noopener">Olympus (7733 JP)</a> fuelled the decline in Healthcare and <a href="https://www.smartkarma.com/entities/fujifilm-holdings-corp" target="_blank" data-smartkarma-citation="entities:16353:1" rel="noopener">Fujifilm (4901 JP)</a> did the same for Technology Hardware.

Source • Japan AnalyticsINTO THE 'RED' - As predicted, our Results Score dipped into negative territory yesterday, declining by 56 basis points to -0.21. Of the 65 large-cap results, only ten companies had positive qoq changes in Results Score, while seventeen saw double-digit declines. Toyota Motor (7203 JP) did well to limit its quarterly year-on-year changes in Revenue and OP to -3%, and they are forecasting similar declines against TTM numbers for the full year. The Forecast/Revision Score added six basis points driven primarily by Shiseido (4911 JP) overly optimistic initial forecast for FY2020. 'Mr Market' meanwhile is content to bid up share prices to close to the recent highs, and 8% below the January 2018 peak, when the Results Score was 7.54. • SECTOR TIMELINE •Source • Japan AnalyticsSECTOR TIMELINE - The majority of Sectors saw lower Results &amp; Revision Scores yesterday, with Food, Beverages &amp; Tobacco being the exception due to Japan Tobacco (2914 JP)'s stable topline performance and better-than-expected 2020 forecast. Mitsubishi Heavy Industries (7011 JP) decline into the red at the OP level and full-year downward revision took the Machinery Sector lower, while Seibu (9024 JP) was the negative driver for Multi-Industry. Terumo (4543 JP) and Olympus (7733 JP) fuelled the decline in Healthcare and Fujifilm (4901 JP) did the same for Technology Hardware. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 6th February ▲ 2914 4911 6406 ▼ 9024 4901 7951

Quantitative Analysis

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• RELATIVE PRICE SCORE - COMPANIES •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/110/839/original/2019-12-17_10-16-56.png?1576545466" class="editor-image img-responsive" data-smartkarma-image-id="110839"></figure><div class="content-caption">Source: Japan Analytics</div>
COMPANY RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can reveal attractive trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. 
</div><div><div>Following on from our previous Insight <a href="https://www.smartkarma.com/insights/japan-december-sector-peer-group-relative-price-scores-from-defensives-to-cylicals" target="_blank" data-smartkarma-citation="insights:35266" rel="noopener">December Sector &amp; Peer Group Relative Price Scores - From Defensives to Cylicals</a> which covered Sectors and Peer Groups, in the DETAIL section below, we update our list of Overbought and Oversold large-cap companies (market capitalisation over ¥100b) with the current Very Overbought (RPS&gt;5), Too-Late-To-Buy (RPS &gt;4.5) and Oversold (RPS &lt;-2) companies, as well as the largest positive and negative 3-month Changes in RPS adding some stock-specific comments in each category.</div></div>


• RELATIVE PRICE SCORE - COMPANIES •
Source: Japan Analytics
COMPANY RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can reveal attractive trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. 
Following on from our previous Insight December Sector &amp; Peer Group Relative Price Scores - From Defensives to Cylicals which covered Sectors and Peer Groups, in the DETAIL section below, we update our list of Overbought and Oversold large-cap companies (market capitalisation over ¥100b) with the current Very Overbought (RPS&gt;5), Too-Late-To-Buy (RPS &gt;4.5) and Oversold (RPS &lt;-2) companies, as well as the largest positive and negative 3-month Changes in RPS adding some stock-specific comments in each category.

🇯🇵 JAPAN • December Company Relative Price Scores - Opportunities in the Outliers

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

The shares are cheap. The company is cash rich and owns 10% in treasury stock; it owned more last year but has cancelled 4%. It has some Y6bn in long term investment. EV in our view is Y57bn vs the current market cap of Y110bn. With ebitda next year coming in at Y15bn, EV/ebitda is under 4x. The shares yield 3.4% and trade at book. They have slightly underperformed the market over the last 12 months. For now, we view this as a defensive buy. There remain many issues longer term as to its place in the global elevator world. A potential positive, however, is that in May the company will announce a new mid-term plan and in it, they will outline their view as regards to shareholder returns for the next three years. They are aware that they are very over capitalised, so greater returns are a real possibility.

The shares are cheap. The company is cash rich and owns 10% in treasury stock; it owned more last year but has cancelled 4%. It has some Y6bn in long term investment. EV in our view is Y57bn vs the current market cap of Y110bn. With ebitda next year coming in at Y15bn, EV/ebitda is under 4x. The shares yield 3.4% and trade at book. They have slightly underperformed the market over the last 12 months. For now, we view this as a defensive buy. There remain many issues longer term as to its place in the global elevator world. A potential positive, however, is that in May the company will announce a new mid-term plan and in it, they will outline their view as regards to shareholder returns for the next three years. They are aware that they are very over capitalised, so greater returns are a real possibility.

Japan

FUJITEC CO., LTD. mainly manufactures elevators, escalators, and sky-parking systems by the orders from customers.  The Company also provides installation and repair services.  Fujitec has manufacturing bases in overseas including the USA, Singapore, Taiwan, and South Korea.

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Fujitec Co Ltd (6406 JP)

Fujitec (6406) - Governance Is Messy – but that Doesn’t Mean It Isn’t Working

Fujitec announced a new strategic plan, trying to fend off further activist encroachment. They addressed operational changes, capital allocation...

Mark Chadwick

Fujitec - Love in an Elevator

Fujitec Co Ltd (6406 JP) share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the...

Mark Chadwick

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 6th February ▲ 2914 4911 6406 ▼ 9024 4901 7951

INTO THE 'RED' - As predicted, our Results Score dipped into negative territory yesterday, declining by 56 basis points to -0.21. Of the 65...

Campbell Gunn

🇯🇵 JAPAN • December Company Relative Price Scores - Opportunities in the Outliers

• RELATIVE PRICE SCORE - COMPANIES • COMPANY RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance...

Campbell Gunn

Fujitec (6406) Value Buy

The shares are cheap. The company is cash rich and owns 10% in treasury stock; it owned more last year but has cancelled 4%. It has some Y6bn in...

Pearl Hill Advisors

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