Painting a better SK Kaken



Dear fellow shareholders, investors and other market participants,

Asset Value Investors (“AVI”) has submitted shareholder proposals to SK Kaken Co., Ltd. (TYO 4628) (“SK Kaken” or the “Company”) addressing issues contributing to the Company’s poor share price performance, low valuation and potential delisting from the Tokyo Stock Exchange (“TSE”).

Despite a high-quality business model and a dominant share of the domestic construction paint market, SK Kaken trades on an EV/EBIT ratio of less than 0x with net cash covering 103% of its market cap (all as of 30 April 2022). Furthermore, over the last five years, SK Kaken’s share price underperformed the TOPIX Index by -69% and its peers’ by -32% while profits dropped by -9%. With 409 shareholders, SK Kaken only just meets the requirements for listing on the TSE Standard market.

SK Kaken’s issues reflect a lack of urgency and weak management discipline, a symptom often encountered at a company with a controlling shareholder. Approximately 40% of SK Kaken’s shares are owned by, and key senior executive positions are held by, members of the founding family.

The average tenure of the SK Kaken board is 21 years and the Founder has a major influence on the decision-making process. This leads to a culture of intransigence and traditionalism, starving the Company of progress including on environmental concerns that impacts wider stakeholders.

Despite a high-quality business model and a dominant share of the domestic construction paint market, SK Kaken trades on an EV/EBIT ratio of less than 0x with net cash covering 103% of its market cap (all as of 30 April 2022). Furthermore, over the last five years, SK Kaken’s share price has underperformed the TOPIX Index by -69% and its peers’ by -32% while profits have fallen by -9%. With 409 shareholders, SK Kaken only just meets the requirements for listing on the TSE Standard market.

AVI submitted shareholder proposals last year, seeking a 10-for-1 stock split and to cancel 90% of the outstanding treasury shares. Although general shareholders strongly endorsed both our proposals (55% and 57% respectively), it has fallen on deaf ears.

In response to AVI’s proposals, SK Kaken announced a shareholder benefit program in December 2021, a nonsensical attempt to attract more shareholders and retain its TSE listing. For the privilege of holding more than 100 shares, worth Y3,550,000 as of 30 April 2022, shareholders qualify for a voucher card worth Y5,000 – an effective 0.14% return on investment.

AVI has been a large minority shareholder and owner of SK Kaken for five years. Due to a lack of progress and both President and Chairman’s refusal to meet, AVI has submitted shareholder proposals to address six issues aimed at sustainably enhancing SK Kaken’s corporate value and retaining the Company’s TSE listing.

  1. A 10-for-1 stock split to reduce the prohibitively high minimum trading lot from ¥3,550,000 (the seventh-highest trading value among TSE-listed companies) to ¥355,000. This should improve liquidity and attract individual shareholders.
  2. The cancellation of 90% of the 438,400 shares held in treasury. SK Kaken currently holds 14% of outstanding shares in treasury and has not put forward any plans to use the shares such as M&A or executive compensation.
  3. Increase the dividend from Y400 per share to Y800, for a 30% payout ratio. SK Kaken has hoarded earnings on its balance sheet, with cash and cash equivalents accounting for almost 70% of balance sheet assets.
  4. Shorten the Board of Directors’ term to one year. Against a background of increased awareness of the need to strengthen corporate governance, there has been a general trend of companies in Japan of reducing director terms from two to one year.
  5. Appoint a minimum of two independent directors. SK Kaken’s board of directors is currently only composed of one outside director, despite the Corporate Governance Code stipulating that for a company with a controlling shareholder, in SK Kaken’s case the Family, at least one-third of directors should be independent.
  6. Disclose Scope 1 and Scope 2 greenhouse gas (GHG) emissions. SK Kaken has not formulated even the most basic sustainability policy. The Corporate Governance Code stipulates that companies should promote positive and proactive responses to sustainability issues.

AVI asks its fellow general shareholders to continue to express their disapproval of management policies under the influence of a controlling shareholder who has neglected the interests of minority shareholders for too long, by voting in favour of the shareholder proposals.

Yours sincerely,

19th May 2021
Joe Bauernfreund
CEO & CIO, Asset Value Investors

Also available in: 日本語 (Japanese)

AVI Japan Opportunity Trust

Key facts

  • Total assets:
    164.8 million*
  • Launch date:
    23 October 2018
  • Return since launch:
  • Ongoing Charges:

* As at 31 January 2023
** Source: Morningstar, performance period 23 October 2018 to 31 January 2023, NAV TR net of fees, GBP
*** As at 30 September 2020, includes: management fee 1.0%, marketing and administration costs.

AVI Japan Opportunity Trust p.l.c is referred to as ‘AJOT’ throughout the website. AJOT’s investment managers, Asset Value Investors are referred to as ‘AVI’

AJOT currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers (“IFAs”) in the UK to ordinary retail investors in accordance with the Financial Conduct Authority (“FCA”) rules in relation to non-mainstream investment products and intends to continue to do so. The shares are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an authorised investment trust. © AVI Japan Opportunity Trust plc. 2018 Registered in England No: 11487703. An investment company under Section 833 of the Companies Act 2006. Registered Office: 6th Floor, 65 Gresham Street, London EC2V 7NQ. Managed by Asset Value Investors Ltd. which is authorised and regulated by the Financial Conduct Authority. Past performance should not be seen as an indication of future performance. The price of investments and the income may fall as well as rise and investors may not get back the full amount invested. AJOT may use gearing techniques (leverage) which will exaggerate market movements both down and up which could mean sudden and large falls in market value. Please refer to the Key Features Document for further details of the risks affecting your investment. Performance figures are cumulative and based on Price total return and do not include Plan charges. For more information, please call 03458 500181. Tax treatment depends on the individual circumstances and may be subject to change in the future. Asset Value Investors Ltd do not offer Innovative Finance ISAs.

Legal disclaimer

This website, and the information contained herein, (collectively referred to as “the Website”) is being provided for the shareholders of SK Kaken (4628) for information purposes only.  Asset Value Investors Limited (“AVI”) is the investment manager of two of the shareholders of SK Kaken, namely AVI Global Trust (“AGT”) and AVI Japan Opportunity Trust (“AJOT”).

AVI is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is also registered as an Investment Advisor with the United States Securities and Exchange Commission (the “SEC”) under the United States Investment Advisors Act of 1940.

The Website is directed only at Professional Clients or Eligible Counterparties as defined by the UK FCA.

The Website was created solely for the purpose mentioned above and is provided for information purposes only.  AVI is by no means soliciting or requesting other shareholders of SK Kaken to jointly exercise their shareholders’ rights with AVI (including, but not limited to, voting rights).

The Website exclusively represents the opinions, interpretations and estimates of AVI in relation to SK Kaken’s business and governance structure.  AVI is expressing such opinions, interpretations and estimates solely in its capacity as an investment manager of AGT and AJOT.

The information contained herein is derived from proprietary and non-proprietary sources deemed by AVI to be reliable.  While AVI believes that reasonable efforts have been made to ensure the accuracy of the information contained in the Website, AVI makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of such information.







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