Dialogues between Kyokuto and Strategic Capital | 極東貿易への株主提案に関する特集サイト
極東貿易
If our proposals are approved and Kyokuto continues 100% payout ratio, the estimated share price is;
>JPY 4,000(*)
*Calculation based on dividend yield. Please find the detail of calculation in “our shareholder proposals”.

Dialogues between Kyokuto and Strategic Capital

We have done numerous activities to increase the Kyokuto’s shareholders’ value. For example, discussions with managements, questions at the AGMs, sending letters and etc.

Summary of our letter in August 2018

The management should not leave such a cheap valuation such as PBR below 0.5x.
It is effective to show the market Kyokuto does not hesitate to execute share buyback (hereinafter referred to as “SBB”) when the share price falls.

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Summary of our letter in October 2018

SBB improves valuation such as EV/EBITDA ratio and etc.
Kyokuto should not hold listed companies’ shares, but execute SBB and dispose excessive shares it holds.

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Summary of our letter in December 2018

Kyokuto should take the falling of share price seriously and cope with it.
We expect Kyokuto’s rational judgement that the management decides SBB.

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Summary of our letter in February 2019

If Kyokuto would like to elect ex. CEO / Chairman of IHI as a director, he should be a candidate of a part-time director, not an independent outside director.
An outside auditor or director whose period in office is long is not secured his “independency”. Right person for the right post should be elected at the AGM.

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We also attend the AGM as followings.

AGM in June 2018

Re:AGM Re: Proposal Re: Letters to shareholders Re: Result
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Regarding the equity financing in 2015

Kyokuto increased ca. JPY 1.2 billion of capital through equity financing which was appropriated to repay its debt required for the acquisition of Eto’s share. It is true that, as of the end of June 2015, Kyokuto had JPY 13.2 billion of interest-bearing debt, however, at the same time, Kyokuto also held JPY 13.1 billion cash and JPY 9.9 billion securities.
The BPS at that time was JPY 676. Kyokuto issued new shares with far lower price than such BPS which led to 21% of dilution. Reviewing the subsequent B/S, Kyokuto would not have faced financial difficulty even without such equity financing. What was the point in financing merely JPY 1.2 billion?

The equity financing was carried out for repayment of the debt which was used for the acquisition of Eto. As we have released, the acquisition costs ca. JPY 10 billion. Considering our financial situation at that time, the cost was so huge that it was a big adventure for us. We think our financial policy, carrying out JPY 12 billion equity financing, was right because we had already owed a huge debt and we needed the fund for repayment. Our understanding is that the market understood our decision and the share price rose afterward.

I suppose, at the timing of equity financing, you didn’t have the sense of guilt when such financing damaged the shareholders’ value. As I mentioned before, a share-based payment system, granting directors shares with restriction on transfer, has been just introduced, so, I strongly wish the management makes the decision based on shareholders’ value and not let this happen again.

Regarding securities Kyokuto holds

On 1st June (2018), Corporate Governance code was revised and it is stipulated that companies should disclose their policies regarding the reduction of cross-shareholdings. Please tell us your policy regarding cross-shareholdings.

As stated in YUHO (annual report in Japan), the purpose is to establish close and strategic relationship like founding joint ventures. The cross-shareholdings produce adequate profits as we can maintain our business opportunities. Therefore, we don’t plan to reduce them for the time being.
Investment securities are precious assets of Kyokuto for the new business investment in the future. We use them for the increase of shareholders’ value.

Regarding capital allocation policy

What is the suitable level of capital-to-asset ratio for Kyokuto?

We don’t set any target or suitable level for this. Depending on the position, the meaning of suitable ratio is quite different, and business conditions also lead to the change of such level.

As a trading company, management with higher financial leverage is required. To improve the low ROE, it is needed not to increase net assets, but reduce them.

Regarding a plan to increase shareholders’ value

We wish board members pay attention how to use assets efficiently, improve capital efficiency and take actions as possible as they can. I want to ask the board members what plan you have to increase shareholders’ value.

You have strictly pointed out that our ROE is only 6.6% and we would like to increase shareholders’ value, setting our goals high. To increase fundamentals like ROE, it is important to increase our business performance and steady effort will be needed. At the same time, depending only on organic growth will lead us to a tough circumstances, so we would like to continue M&A practice in order to increase our enterprise value.

They are the minimum requirements but not enough for the increase of shareholders’ value. As long as the share valuation is not in the appropriate level, please don’t execute such an equity financing as you did in 2015. Although Kyokuto aims to grow via M&A, you cannot utilize such effective business tool when the share price is too low.

Our voting at the AGM

At the 2018 AGM we voted against the election of CEO Mito and the director from IHI.

  • 株式会社ストラテジックキャピタル
 

This website is for AGM in 2019. Please find our latest proposal in 2020 here.

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