History of Engagement
Hazama is an undervalued and over-capitalized construction company whose venerated legacy has been damaged by underreporting scandals, work accident-related fatalities, and now, destructive capital allocation plans.
These deficiencies in corporate governance have had a clearly negative impact on the Company’s stock price as it is the most undervalued of its peer group, and trades at extremely low multiples: just 1.1x PE adjusted for cash.
Over the past few years, Oasis has been engaging with Hazama to improve its business and corporate governance. Unfortunately, Hazama’s management team has failed to address the underlying issues we have discussed with them, which further compounded their problems.
On February 12, Hazama announced a 3.5% buyback, a step in the right direction. But this was followed by a large and potentially very damaging step in the wrong direction: an investment plan with the potential to squander the entirety of the Company’s excess cash, repeating the company’s historical mistakes of investing in real estate.
The real estate and power industries are highly competitive, with entrenched players with decades of experience. Further, the prospects for returns from these industries are small -- even the experienced players in these industries produce a lower return than Hazama’s normalized return on equity. This is in addition to the substantial and inherent risk of investing at peak real estate prices, particularly in this time of uncertainty.
In our meetings with management, it’s clear these plans are poorly conceived and lack detailed, thorough analysis and consideration.