On 19th April 2024, Hibiki Path Value Fund (hereinafter referred to as “HPVF”), managed by Hibiki Path Advisors (hereinafter referred to as “we” or “Hibiki”), submitted a shareholder proposal to Japan Pure Chemical CO., LTD. (hereinafter referred to as “JPC” or “the company”), one of our core portfolio holdings and it was duly accepted. On 21st May 2024, the company has released the opposition stance to our proposal. As reference, we attach the proposal document from HPVF at the bottom of this post and explain the background leading to the shareholder proposal.
We have been conducting various forms of engagement and support to the JPC management over the years. We believe that the company should not only aim for profit growth but also for the maximization of corporate value through a well-integrated capital allocation policy. We hope to continue providing constructive encouragement to the management.
Over the past 10 years¹ , Topix’s dividend reinvested total shareholder returns (“TSR”) reached 128%. In contrast, JPC’s TSR was a mere 56%, significantly underperforming the index. Similarly, its stock price has outperformed Topix only twice; CY2016 and CY2019 during the same period. The “annualized” TSR of 4.5% of the company fails to surpass 6-7% of the cost of equity announced by JPC in March 2024. This shareholder return is significantly lower than that of listed peers in the high-end precision chemicals industry, and we believe the improvement of the capital profitability through a more sophisticated balance sheet management is an imminent issue for JPC.
We understand that the lack of profit growth in the past decade was a management strategy issue. However, the company’s cash and investment securities consist of approximately 87% of the total assets, and 103% of the net assets as of March 2024. This is because historically, cash earnings have not been appropriately distributed to shareholders even though the company operates an extremely efficient high ROI fabless business with no large capex requirements.
Considering the current management and financial situation, we proposed measures that we deem are necessary to improve the low ROE due to the excess capital. However, the Board of Directors opposed both of our shareholder proposals. We have engaged in dialogue with JPC over many years, and it is with great regret that we acknowledge the management’s lack of sincerity to our proposals. We have publicized our perspective on the reasons behind the Board’s opposition at Business Wire. We would appreciate it if you could take some time to go through and hope you vote accordingly to what you think is right for JPC in the upcoming AGM.
¹ 12/31/2013~12/29/2023
Shareholder proposal for JAPAN PURE CHEMICAL CO., LTD.
03/Jun/2024 – Shareholder Proposal Explanation Video about JAPAN PURE CHEMICAL CO., LTD.
This post does not constitute a solicitation for an offer to acquire or recommend the purchase or sale of specific securities, or advice on investment, legal, tax, accounting, or any other matters. In the event of any discrepancy or conflict between the English and Japanese versions, unless otherwise noted, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated.