TOKYO–(BUSINESS WIRE)–3D Investment Partners Pte. Ltd. as investment manager of 3D OPPORTUNITY MASTER FUND (together “3D,” “we” or “us”) announced that Institutional Shareholder Services (“ISS”), a leading independent provider of proxy research and vote recommendations to the institutional investment community, has recommended that shareholders of Fuji Soft Incorporated (“Fujisoft” or “the Company”) (9749.T) vote “FOR” 3D’s two director nominees – Kanya Hasegawa and Keiji Torii – at Fujisoft’s Annual General Meeting of Shareholders to be held on March 11, 2022.
3D urges Fujisoft shareholders to support enhanced independent Board oversight by voting “FOR” 3D’s proposal to appoint its two nominees.
3D’s summary of ISS Report
Is Change Warranted?: Yes
- Poor shareholder return: Fujisoft’s five-year and three-year TSR performance (through February 17, 2022, the day of 3D’s press release announcing shareholder proposal) of 192.1% and 112.3% lagged significantly behind peer median of 257.5% and 133.8% respectively.
Poor operation performance:
- Despite the Company owning real estate it uses in its operation, Fujisoft’s operating margin of 6.0% (latest five-year average) is lowest amongst peers with median of 9.7%. Although operating margin has improved through revenue growth, it remains lowest relative to peers.
- Fujisoft’s ROE of 7.5% (FY21) and ROIC of 5.2% (FY21) is substantially below peer median of 13.5% and 12.3% respectively. ISS also pointed out Fujisoft’s fixed assets accounted for 62% of current market capitalization, and total net property, plant and equipment accounted for 77% of total fixed assets – an unusual asset structure for a business in asset-light IT sector.
- Poor valuation: Fujisoft has historically traded at a discount of approximately 18% to peer median on EV to forward EBITDA basis.
Questionable capital allocation:
- Fujisoft allocated 40% of its cumulative EBITDA (FY17-21) to capex, more than 4 times higher than peer median.
- Fujisoft’s historical payout ratio remains low at around 18% (FY17-21 avg) compared to its peers ranging 23-47%
- Conclusion: considering the above factors, ISS concluded change is warranted. While Fujisoft recently increased its payout ratio, this does not fully address these key issues.
Are 3D’s candidates necessary to bring about change? Yes
- Given the historical underperformance, it is questionable whether the presence of only three outside directors that the Company has nominated (two of them serving since 2019) is enough to prompt the board to address these issues.
- With expertise in finance, accounting and capital allocation, 3D’s candidates would help the board evaluate these issues and set Fujisoft in the right direction
- Keiji Torii’s relevant IT and public company board experience would add value to the Board
About 3D Investment Partners Pte.
3D Investment Partners Pte. Ltd. is an independent Singapore-based Japan focused value investing fund manager founded in 2015. 3D Investment Partners Pte. Ltd. focuses on partnering with managements who share its investment philosophy of medium- to long-term value creation through compound capital growth and a common objective of achieving long-term returns.
This press release is provided for informational purposes only and does not constitute an offer to purchase or sell any security or investment product, nor does it constitute professional or investment advice. This press release should not be relied on by any person for any purpose and is not, and should not be construed as investment, financial, legal, tax or other advice.
3D Investment Partners Pte. Ltd. and its affiliates and their related persons (“3DIP”) believe that current market price of Fujisoft does not reflect its instinct value. 3DIP acquired beneficially and/or economic interest based on its own idea that Fujisoft securities have been undervalued and provides attractive investment opportunity and may in the future beneficially own and/or have an economic interest in, Fujisoft securities. 3DIP intends to review its investments in the Fujisoft on a continuing basis and, depending upon various factors including, without limitation, the Fujisoft’s financial position and strategic direction, the outcome of any discussions with Fujisoft, overall market conditions, other investment opportunities available to 3DIP, and the availability of Fujisoft securities at prices that would make the purchase or sale of Fujisoft securities desirable, 3DIP may, from time to time (in the open market or in private transactions), buy, sell, cover, hedge, or otherwise change the form or substance of any of its investments (including the investment in Fujisoft securities) to any degree in any manner permitted by any applicable law, and expressly disclaims any obligation to notify others of any such changes.
No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness, or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets, or developments referred to herein. 3DIP expressly disclaims any responsibility or liability for any loss howsoever arising from any use of, or reliance on, this press release or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this press release.
3DIP disclaims any intention or agreement to be treated as a joint holder (kyodo hoyu sha) under the Financial Instruments and Exchange Act of Japan, a closely related party (missetsu kankei sha) under the Foreign Exchange and Foreign Trade Act with other shareholders, or receiving any power to represent other shareholders in relation to the exercise of their voting rights by virtue of its act to express its views, estimates, and opinions or otherwise to engage in dialogue with other shareholders through this press release.
3DIP does not have the intention to make a proposal, directly or through other shareholders of Fujisoft, to transfer or abolish the business or asset of Fujisoft and/or Fujisoft group companies at the general shareholders meeting of Fujisoft. 3DIP does not have the intention and purpose to engage in any conduct which constricts the continuing and stable implementation of business of Fujisoft and/or Fujisoft group companies.
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