CHICAGO–(BUSINESS WIRE)–RMB Capital (“RMB”), a Chicago-based independent investment advisory firm, is a long-term shareholder of Ohashi Technica, Inc. (7628 JP, “Ohashi”) and owns approximately 3% of the firm’s total outstanding shares. RMB has filed shareholder proposals of a share buyback (maximum 1.5 million shares of common stock or 2.4 billion yen) for Ohashi’s 69th annual general shareholders meeting, scheduled in June 2021.
- RMB has been a shareholder of Ohashi since 2019 and has continued discussion with the management. RMB recognizes that the key issue at Ohashi is its capital structure; more specifically, its excess capital.
- Ohashi should not need any large capital expenditure under its fabless manufacturing business model. As Ohashi consistently generated profits in recent years, its equity ratio rose from approximately 50% in 2011 to more than 70% in 2015, then reached as high as 74% in 2020, which RMB believes is excessively high.
- Ohashi’s return on equity (ROE) declined consistently on the back of this build-up of excess capital, falling below 10% in 2019, well before the adverse impacts of the COVID-19 pandemic, and has remained in the single digits since then. Ohashi’s stock price remained sluggish reflecting the weak ROE. Its price-to-book ratio (PBR) dropped as low as 0.6 times, well below one-time which is technically a liquidation value of the firm. The weak valuation indicates the equity market believes that Ohashi’s capital policy is destroying shareholders’ equity.
- The bottom line is that addressing excess capital at Ohashi is an urgent issue to improve shareholders’ value. RMB has been encouraging the management to implement more share buybacks without success, and thus decided to make an official shareholder proposal.
- RMB believes the proposal (share buyback of up to 1.5 million shares or 2.4 billion yen) is not excessive and is reasonable given the size of the cash balance and the shareholders’ equity at Ohashi, which are approximately 21.3 billion yen and 30.9 billion yen, respectively. RMB believes Ohashi should even accelerate its shareholder reward programs and reduce its equity ratio to an appropriate level.
- The dividend increase of 5 yen per share announced by the management in May 2021 translates into mere 70 million yen in total and is clearly insufficient to address Ohashi’s excess capital issue.
RMB proposes the following steps to Ohashi’s management:
- Initiate a share buyback program suggested by RMB (up to 1.5 million shares or 2.4 billion yen) immediately.
- Commit to a 10% ROE goal with an equity ratio target of 60% to the shareholders.
- Increase the total payout ratio (dividend and share buyback combined) to more than 100%, with the dividend payout ratio significantly higher than the current 30% target.
RMB believes management should not sit on the excess cash, as they are running operations on the capital provided by shareholders. The capital policy should be balanced, and Ohashi has to address its excess capital issue to improve shareholders’ value.
RMB also opposes the extension of the poison pill proposed by management. As corporate governance becomes a higher priority in Japan, more companies have terminated their poison pills. RMB believes Ohashi should follow suit to protect shareholders’ interests.
About RMB Capital
Headquartered in Chicago, RMB Capital is an independent investment advisory firm that serves high-net-worth individuals and families as well as institutional investors. Its businesses include wealth management, family office services, asset management, and retirement plan consulting. Its asset management business specializes in long-term, concentrated, active investing strategies with coverage that spans the market-cap spectrum and the globe. To learn more about RMB, visit https://rmbcapital.com.
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