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Eiken Chemical was the second largest contributor over the month, adding +21bps to performance as its share price rose +5%.

Eiken Chemical is a diagnostics company specialising in manufacturing medical chemicals that react with body samples to obtain a diagnosis for cancer, disease or infection. Our investment thesis centred on Eiken’s fundamentals, attractive valuation and room for improvement through our constructive engagement. The company has a track record of earnings growth, benefits from structural tailwinds such as the ageing population, and holds a leading market position in colon cancer screening.

In early March, the company announced it had completed a buyback of 266,800 shares, taking the total number of shares acquired in its Nov 2024 to July 2025 buyback program to 996,800, in which a maximum of 2m shares (c.6% of outstanding) may be acquired. It was also announced that another activist on the register, Dalton Investments, was engaged in dialogue with Eiken Chemical, seeking to appoint three external directors to the board.

We anticipate substantial upside to the share price, with the 7.5% position as the top holding in AJSS reflective of our conviction. The investment since inception has achieved an ROI of +8% for an IRR of +17% (in JPY) to March month-end.

Eiken Chemical (4549) – Share buyback program progress

Eiken Chemical was the second largest contributor over the month, adding +23bps to performance as its share price rose +5%.

Eiken Chemical is a diagnostics company specialising in manufacturing medical chemicals that react with body samples to obtain a diagnosis for cancer, disease or infection. Our investment thesis centred on Eiken’s fundamentals, attractive valuation and room for improvement through our constructive engagement. The company has a track record of earnings growth, benefits from structural tailwinds such as the ageing population, and holds a leading market position in colon cancer screening.

In early March, the company announced it had completed a buyback of 266,800 shares, taking the total number of shares acquired in its Nov 2024 to July 2025 buyback program to 996,800, in which a maximum of 2m shares (c.6% of outstanding) may be acquired. It was also announced that another activist on the register, Dalton Investments, was engaged in dialogue with Eiken Chemical, seeking to appoint three external directors to the board.

We anticipate substantial upside to the share price, with the 8.5% position in AJOT (4th largest) reflective of our conviction. Added to the portfolio in July 2023, the investment has achieved an ROI of +37% for an IRR of +33% (in JPY) to March month-end.

Eiken Chemical (4549) – Downward earnings revision

Eiken Chemical was the largest detractor in November, reducing performance by -72bps as its share price fell -10%.

As a reminder, Eiken Chemical is a diagnostics company specialising in manufacturing medical chemicals that react with body samples to obtain a diagnosis for cancer, disease or infection. Our investment case was based on Eiken’s quality, valuation and scope for upside through our engagement. Eiken is a high-quality company with a track record of growing earnings, room for structural growth with the ageing population and a dominant market position in colon cancer screening. At the time of our investment, Eiken traded at a forward EV/EBIT of just 6.0x vs peers 18.0x average. We identified several areas for engagement, including focusing the product portfolio, growing overseas sales, optimising the balance sheet and communicating the growth story, as well as enhancing corporate governance.

This poor performance was a result of the disappointing earnings announcement at the end of October, which included a downward revision of full-year operating profit guidance by -43%. More positively, the company announced a new buy-back program of Y5bn, around 6% of the market cap.

We first invested in Eiken Chemical in mid-2023, and to date our investment has generated an ROI of +37% for an IRR of +39%.

Eiken Chemical, a manufacturer of medical diagnostics equipment, was the second largest contributor, adding +128bps to performance as its share price rose +9.2%. Eiken Chemical holds a dominant market position in Colon Cancer Screening, with over 70% global market share.

However, shortly after month-end the share price fell by -11.9% as the market was left disappointed by an underwhelming earnings announcement. Despite the slow start to the financial year, as its operating margin fell from 10.7% to 6.1%, the full-year guidance remains unchanged. Management attribute most of the earnings miss to delays in orders and are projecting underlying demand for its genetic testing and overseas FIT test reagents. Increased R&D costs also partly explain the lower than expected operating profit.

Eiken Chemical is the second largest holding in the portfolio, accounting for 8.9% of AJOT’s NAV. We will monitor the earnings recovery closely and will consider adding to our position if the share price falls further. Our investment has so far generated an ROI of +45% and an IRR of +73%. We anticipate an additional +105% upside to the current share price.

The largest holding in the fund is Eiken Chemical, a manufacturer of medical diagnostics equipment that holds a dominant global market share exceeding 70%. Across AVIs funds, we are the second largest shareholder, and with an open shareholder register, Eiken Chemical and its shareholders are very well positioned to benefit from our constructive engagement. The company has an overcapitalised balance sheet, with net cash and investment securities accounting for 35% of the market cap.

Our engagement with Eiken Chemical is in its early stages, but we are pleased to see that management have already taken steps to address its poor capital efficiency by buying back shares and improving disclosure to investors. However, we are disappointed with Eiken Chemical’s profitability and believe that there is significant room for improvement on product optimisation and overseas distribution strategy.

Although the EV/EBIT has increased to 10.5x due to the increased share price and temporarily depressed earnings, we still foresee a substantial growth runway for the Company, which if successfully executed by management, could unlock upside in the order of +120%. We are excited about Eiken Chemical’s future and building our relationship with management.

Eiken Chemical saw its share price increase +8% over the month after announcing a 7.3% share buyback, of which 2.7% was repurchased through an off-market transaction the following day. Our engagement with Eiken Chemical is in its early stages, but we are pleased to see that management have already taken steps to address its poor capital efficiency by buying back shares at attractive prices. However, we are disappointed with Eiken Chemical’s profitability and believe that there is significant room for improvement on product optimisation and overseas distribution strategy.

Although the EV/EBIT has increased to 8.8x vs the 4.8x when we initiated our position, due to the increased share price and temporarily depressed earnings, we still foresee a substantial growth runway for the Company, which if successfully executed by management, could unlock upside in the order of 150%. We’re excited about Eiken Chemical’s future and building our relationship with management.

We started building a stake in Eiken Chemical in July, but it wasn’t until after four months of further research and meetings with the company that we decided to bring the position to a full size. By the end of the quarter Eiken Chemical accounted for 6.5% of NAV, making it the 7 th largest position.

Eiken Chemical is a diagnostics company specialising in manufacturing medical chemicals that react with body samples to obtain a diagnosis for cancer, disease or infection. While the overall diagnostics market is dominated by the likes of Roche, Abbott and Siemens, smaller companies can operate in niche markets, as Eiken Chemical does. The market is attractive with high regulatory barriers to entry, a razor/razor blade style business model and stable growth from increased diagnostics healthcare expenditure.

Eiken Chemical has produced a number of niche products, but the most exciting is its Colon Cancer screening test, called FIT (Faecal Immunochemical Test), accounting for around 40% of sales. For any UK readers over the age of 59, you should have received a stool sample kit from the NHS, and with it a sample tube manufactured by Eiken Chemical. Eiken’s testing kit, along with its OC-Sensor analyser is utilised in screening or diagnostics programs across 45 countries. Generating low margins from the sale of its analyser, high-margin after sales from the tube and solution thereafter provide recurring sticky income. Eiken Chemical’s global dominance is driven by its testing accuracy and consistency, the proprietary technology in its buffer solution, and that the OC-Sensor has been cited in over 100 journals driving brand recognition and trust with healthcare providers.

The appeal of the diagnostics business is not lost on investors, with a set of peers, both domestic and global, trading on an EV/EBIT of 26x vs Eiken’s 8x. The disparity, we believe, is driven in part by a misunderstanding of its niche business model, the roll-off from high margin COVID-related reagents, and a bloated balance sheet (32% of assets in net cash). We see almost +100% upside currently and if the Company achieves its 2030 plan, possible with the successful launch of a DNA-based stool test, over +200% upside.

Management seems receptive to our suggestions, and although early in our relationship we are optimistic they will take actions to address the low share price. We look forward to seeing Eiken’s true earnings power and realising the significant upside for all stakeholders.