A Better Kyocera
A Case for Change
Kyocera is a Kyoto based diversified manufacturer producing components for the industrial, automotive, telecommunication and semiconductor sectors as well as printers, industrial tools and a long-tail of many other products.
Over the past decade, many Japanese companies have embraced enhanced corporate governance practices: improving their capital efficiency, eliminating cross-shareholdings, improving shareholder returns and business restructuring. Kyocera has been slow to embrace this change.
The Company’s stock price has been stagnant over the last 10 years and has dramatically underperformed both its peers and the broader market. Kyocera’s focus on being diversified has led to slow decision making and poor strategic planning that has seen the Company miss out on opportunities in its core businesses and waste substantial capital on investments in technologies with limited commercial potential.
In addition to being over-diversified, Kyocera is also over-capitalized with cross-shareholdings amounting to a staggering 50% of shareholders’ equity. Kyocera’s Return on Equity (“ROE”) has averaged less than 5% over the last five years.
Oasis Demands for Change
Under pressure from a plummeting approval rate, Kyocera’s management have announced some changes, however, these changes do not address the Company’s key issues. Even if Kyocera fully implements its plan, the Company will remain over-diversified, over-capitalized with a low return on equity (ROE) and retain a worrying lack of focus on core businesses.
Against this backdrop of persistently low ROE and abnormally high-levels of cross-shareholdings, Oasis believes this is the right time for Kyocera to take bold decisions.
Oasis has developed a seven-point plan for Kyocera, set out below, that Kyocera should execute to turn around the company. By implementing this plan, we believe that the stock could see an upside of over 90% from current levels.
Oasis Demand
Why?
| 1 | Divest non-core business amounting to ~30% of revenue | Streamline overly diversified portfolio |
| 2 | Exit Organic Packages | Prevent further losses |
| 3 | Restructure KAVX | Achieve industry-leading profitability |
| 4 | Stop losses by terminating investment in GaN and millimeter-wave technologies | Implement oversight in R&D and reduce soaring losses for products that are unlikely to achieve a return on investment and invest in the core business. |
| 5 | Focus on core competencies to capture untapped opportunities | Capture untapped opportunities in ceramics |
| 6 | Commit to aggressive M&A | Reinforce core businesses through M&A |
| 7 | Buyback of JPY 1 trillion over the next four years amounting to approx. 37% of the Company | Review overcapitalized balance sheet and Improve capital efficiency |
About Oasis
Oasis is a long-term Japan engagement investor. Oasis invests in companies that are trading substantially below their intrinsic value and works, when necessary, through engagement to increase the companies’ intrinsic and market value.
