Proposals for Improving Corporate Governance at Hazama Ando
Oasis has submitted two reasonable, important proposals aimed at improving Hazama’s corporate governance, protecting the company’s corporate value, and protecting shareholder return.
1. Implementation of a Share Buyback
This buyback is a productive use of capital to buy more of one of the cheapest listed companies in Japan, trading at 1.1x P/E (ex. cash) and one that the company knows very well. This is an extraordinary productive use of cash, rather than investments in low return and highly competitive real estate and power businesses the company has suggested.
In its Medium-Term Business Plan announced in February 2020, the Company says it plans to invest ¥100 billion outside the construction industry, including in highly competitive real estate projects, over the next ten years. In our discussions with management, they failed to explain the basis or economic rationale behind diving into the new businesses.
Accordingly, we recommend that an initial modest portion of that cash be used to fund a buyback, within ISS’ recommended size limitation of 10%. A buyback reduces cost of capital and will improve long-term corporate value via an investment in the Company. This is a high return investment and among the cheapest assets the Company can buy.
The buyback proposal amounts to less than 20% of the cash that Hazama plans to risk on real estate and power projects, which would still leave the Company with well over ¥80 billion of the excess cash. This is a deliberately modest proposal, in light of the current environment. All shareholders should support this proposal.
2. Revisions to a Portion of the Articles of Incorporation (Thorough Health and Safety Management)
Hazama has experienced repeated major accidents at its construction locations in recent years. As a result of these accidents, people have lost their lives -- not only people who were working on construction, but also an unrelated bystander walking past the construction site. Following these incidents, the Company announced measures to prevent the recurrence of disasters like these on November 8, 2018.
But the Company’s previously announced measures on safety may have not led to fundamental changes in the Company’s attitude and response on these issues. We believe we can -- and we must -- make Hazama’s health and safety management a top priority. We think it is imperative to improve the Company’s record on safety and its implementation of preventative measures, in line with the measures stated in its November 2018 public announcement, by incorporating this provision into the Company’s Articles of Incorporation.
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If you care about Hazama’s future, vote FOR these proposals at the upcoming AGM.
We CARE about Hazama’s future and we will be voting FOR these proposals.
We believe Hazama can be among the best governed companies in Japan. These two changes -- enhancing safety and stopping wasteful investments -- can alone significantly improve the company. We believe these changes can help improve Hazama’s share price beyond our conservative estimate of ¥1,620 a share, for an upside of over 140%.