On June 27, Yuya Shimizu, CIO of Hibiki Path Advisors (“Hibiki”), attended the annual shareholders’ meeting of Kawai Musical Instruments Manufacturing (Securities Code 7952, “KAWAI”) as a shareholder.
We feel that KAWAI’s globally acclaimed brand value is not recognized in the capital market, and on May 8th, we sent a ” Proposal to Enhance Kawai’s Corporate Value” to KAWAI’s Board of Directors. In addition, as an interactive shareholder of KAWAI, we have been engaged in constructive engagement activities, such as exchanging ideas directly in late May and releasing a follow-up engagement video.
In order to invigorate KAWAI management as a shareholder and to have KAWAI’s management team reaffirm the gap between KAWAI’s brand value and its valuation in the capital market, we attended the annual shareholders’ meeting and asked one question and made one suggestion to Hirotaka Kawai CEO and Kentaro Kawai Executive Vice President.
At the KAWAI shareholders’ meeting: Hibiki’s Shimizu asked the following question (summary)
“Although your company’s earnings decreased this fiscal year, profit margins have generally been improving from the past. You have stated your aim to further improve your margin in your medium-term plan, and I hope that you will achieve sustainable operating profit margin of 7% to 10% as a strong company. To achieve this, of course, it will be necessary to further improve the value of the brand. However, as a person involved in the capital market, I believe that there is a large gap between the valuation of your stock price and the intrinsic brand value. In terms of P/E ratios, based on your company’s forecast for the current term, is 8x, while that of YAMAHA, your strong competitor, is 24x. Your valuation is also well below the average of about 14x for Topix Index. For my part, I support KAWAI’s path to become the world’s number one piano manufacturer, but I believe that the current market valuation is excessively low. I would like to hear from either the Chairman and President or the Executive Vice President about your honest thoughts on the stock price and its valuation in the market, beyond the general comment that “market will determine stock price”. ”
Vice President Kawai’s response is follows (summary) :
“We do not believe that our stock price is at a satisfactory level yet. First, it is important for us to achieve our current medium-term management plan, and we would like to continue to improve our ROE. We also recognize the urgent need to strengthen IR activities, which is why we established the Corporate Strategy Division in April of this year. This division is responsible for all IR activities at once. I do not believe that our IR activities to date have been sufficient. We will make further disclosures that are beneficial to investors, such as disclosing cash allocations, and engage in dialogue with various investors to have them understand our strategy and cash allocations. Regarding shareholder distribution, we are currently considering various measures and other options under current circumstance. We would like to raise the share price by striving to give our shareholders expectations for future growth.”
In his own words, Kentaro Kawai, Executive Vice President, stated that the company is not satisfied with the current share price, and that in order to raise the share price, the company will not only strengthen investor relations by appropriately disclosing asset allocation, but also aim for strong growth based on ROE improvement and face the share price.
In addition, Hibiki’s Shimizu separately pointed out to the board in the meeting that the number of directors with knowledge of branding strategy and music is relatively small in the skills matrix of the Board of Directors, and that he would like to see more directors with expertise in these fields actively appointed to the Board, which should be ideal to grow the business as well as brand recognition.
Hibiki renewed its determination to continue to actively engage with KAWAI to ensure that its brand value is appropriately recognized and evaluated by the stock market
This document does not constitute a solicitation to subscribe for, or a recommendation to buy or sell, any specific securities, nor does it constitute investment, legal, tax, accounting, or other advice.