Activist Campaign

Painting a better SK Kaken

5th June 2024

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 two 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 having a dominant share of the domestic construction paint market, SK Kaken trades on an EV/EBIT ratio of less than 0.0x and a price-to-book ratio of just 0.7x[1]. Over the last five years, SK Kaken’s share price has fallen -8%, while its domestic peers’[2] share price has risen +15% and the TOPIX has gained +91%. With 420 shareholders, SK Kaken only narrowly 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. Over 40% of SK Kaken’s shares are owned by, and several key senior executive positions held by, members of the founding Fujii family.”

“The average tenure of the SK Kaken board is 15 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.”

“We submitted shareholder proposals for the last three years, and despite receiving strong support from non-Fujii family shareholders, SK Kaken has failed to reduce its excess treasury shares nor address its overcapitalised balance sheet.”

AVI has been a large minority shareholder and owner of SK Kaken for over five years. Due to a lack of progress and the Fujii family’s refusal to engage in strategic discussion, AVI is again seeking to enhance SK Kaken’s corporate value through submitting shareholder proposals. Although more radical reform is needed than can be addressed through shareholder proposals alone, we have identified two easily addressable issues, aimed at sustainably enhancing SK Kaken’s corporate value.

  • The cancellation of 90% of the 2,192,425 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 to complete M&A or improve executive compensation, for example.
  • Increase the dividend from Y135 per share to Y290, representing a 50% payout ratio. SK Kaken has hoarded earnings on its balance sheet, with cash and equivalents accounting for 71% of balance sheet assets.

Two directors of AVI Japan Opportunity Trust plan to attend the AGM to directly challenge the Fujii family’s fiduciary failure and neglect of minority shareholders.

AVI is calling on its fellow shareholders to continue to express their disapproval of poor management policies, which are negatively influenced by a controlling shareholder who has repeatedly neglected minority shareholder interests.

Yours sincerely,

Joe Bauernfreund
CEO & CIO, Asset Value Investors

[1] Source from Capital IQ as at 30/04/2024

[2]Nippon Paint (4612) and Kansai Paint (4613). TOPIX total return. Source, Capital IQ.

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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.







本ウェブサイトに掲載される情報は、AVIが信頼できると判断した専有又は非専有の情報源から得たものです。AVIは本ウェブサイトに掲載する情報の正確性を確保するために合理的な注意を払っておりますが、その正確性、完全性および 信頼性について明示・黙示にかかわらず一切の表明・保証をするものではありません。