We are trying out new formats to continue to grow subscribers. This “video + bullet points” format will be a key feature in future posts!
Today, we are discussing how to screen for activist stocks. Please watch the video for the full content. Bullet points from the video presentation and key slides are shared below. Also, this post is free, so please share it and spread the word!
Here we go!
Shareholder activism is coming to Asia because roughly half of the listed companies trade below 1x Price-to-Book (PBR) after years of neglect as everyone focused on the US.
Activists invest in cheap companies stuck with certain issues and they try to unlock value by resolving those issues. Activists might change management, or divest poor performing businesses, or even taking the entire company private.
Activist investing has proven to be a viable strategy to outperform the general market.
Japan is currently the biggest hotbed with 70-80 activist funds targeting over a few hundred listed Japanese companies
In this presentation, we will use some simple stock screens to look for stocks that activists tend to like in both Japan and Asia.
We conducted the first screen for Japan. We screened for revenue growth (>0%), no debt i.e. net cash co.s and positive free cashflow (FCF) margins.
We have over 20 names of which many are already targeted by activists and highlighted in red. (See slide below).
At the bottom, we highlighted two names in yellow which are interesting take-private plays. Toyota could take Tokai Rika private if engaged by activists.
Tsubakimoto Chain could be taken by private equity because it has no controlling shareholder and it is looking really cheap.
We have not done deep research. So, DYOR - Do Your Own Research.
We used the same screen for Asia, or rather South East Asia but with an important tweak - we want dividends!
There are less interesting companies because they are still held by families or large shareholders with controlling stakes.
Or sometimes, the state or sovereign entity is still owning it. Very few activists could take on countries.
We also tend not to look at financial companies because they are kind of a different animal. Cash on the balance sheet do not necessarily belong to shareholders.
Having said that, there are two companies with cash more than its market cap! We won’t go into them though.
Because we wish to highlight JOYY and Haw Par, which are more interesting.
JOYY operates a portfolio of innovative, video-based social media platforms with over 250m global users.
It has positive free cashflow for the last 10 years with net cash at c.50% of its market cap.
Recent sale of YY Live (one of JOYY’s business) to Baidu made the company less reliant on China, hoping to pave the way for ex-China global growth .
However, there is one issue. It has 250m users but nobody seemed to know the platforms nor the company.
Sven Carlin has done some work - https://svencarlin.com/yy-stock-analysis/
Haw Par is a unique Singapore stock primed for activist action. It is cheap, has lots of cash and pays dividend as shown in the red box.
Its sister company, United Overseas Insurance or UOI has been sparring with an individual activist shareholder for a couple of years.
At its core, Haw Par’s Healthcare Business, with the Tiger Balm brand, has been a consistent free cashflow generator.
It also owns some real estate and property businesses, and operates two theme parks. Underwater World Singapore and Underwater World Pattaya.
But the crown jewel is its ownership of
c.30-60 million sharesc.75 million of UOB which is worth more than 2 billion Singapore dollars (>80% of its market cap). [Correction: updated on the no.s of shares. Narration in the video cannot be corrected, apologies.]
Haw Par has always been cheap when we incorporate its holdings and investment assets.
If you believe some activist, some day will shake things up, you are paid to wait. Haw Par pays a good 2.8% dividend.
Granted, share price has rallied, but it is still cheap. As such, we hope to do a deep dive on this name in the future.
In conclusion, activists look for cheap companies, with cash on their balance sheets and generating strong free cashflow.
We monitor these names because shareholder activism is coming to Asia with so many value names trading below book.
While we see many interesting names in Japan like Nippon Shokubai and Tsubakimoto Chain, there are very few names in South East Asia.
Most names generated by the screens are still owned by founders or controlling entities.
Names like JOYY require just a bit more desktop research to rule out. For JOYY, we cannot determine how real is the business.
As such, the only interesting name worth doing more research might be Haw Par which we hope could be the materials for future video content on this channel.
Huat Ah!
This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.
