AGM | Value For Sun

Leopard Asset Management urges Sun’s shareholders to hold management accountable for their ongoing frustration of shareholders and their failure to achieve their own stated goals of increasing shareholder value. On June 25, vote against Ryusuke Utsumi, CEO, and his management team.

Since we raised concerns about the undervaluation of Sun in March 2024 and debunked Sun’s management push-back on our suggestion to distribute the shares of Cellebrite as a dividend to shareholders, fellow shareholders have reached out and expressed their frustration with management. We, and other shareholders, have given the current management the benefit of the doubt and waited patiently for them to deliver on their statements to enhance shareholder value.

Sun’s value is derived from cash and securities holding, 47% holdings in Cellebrite and its entertainment and IT business. We believe the fair value for Sun’s shares based on its liquid assets alone is in excess of ¥7,200, after accounting for deferred taxes. This compares to the current market price of ¥3,300. Based on the (lack of) actions of Sun’s management up to now, we believe they are not genuinely interested in closing this gap.

Realizing Sun's holding in Cellbrite will unlock value for shareholders

Between the launch of LAM’s campaign in March and management's release of the upcoming AGM agenda, Sun's share price appreciated by 23%, reaching an all-time high of ¥4,250 and adding approximately ¥19 billion to its market capitalization. During this period, the average daily trading volume increased by 160% compared to early 2024, exceeding an average of 80,000 shares per day. This surge reflects investors’ belief that management would address Sun's share price undervaluation. However, after the company published a “no-news” agenda for the June AGM, the share price plummeted by 19%, wiping out approximately ¥17 billion in shareholder value in three days. We believe this decline highlights shareholders' lack of trust in Sun’s management will to resolve this undervaluation.

Sun’s management stated in November 2021 that it is “considering all possible measures to improve this situation [undervaluation]”. Then again, in reply to our engagement, management wrote in February 2024 ”We are considering various measures to enhance the SUN’s shareholder value (…)”.

We believe management has had ample time to drive change and realize the value of the company’s assets. Shareholders must hold management accountable by exercising their rights and decide:

has this management been openly communicating its plan for the company and for its holding in Cellebrite, which accounts for more than double the market value of Sun?
have they made any genuine effort to resolve this undervaluation?
do they have any actionable plan for the liquid assets which comprise more than 70% of the balance sheet?
are they the best leadership to grow Sun’s entertainment and IT business?

Sun's company slogan is "Dreams, Challenges, and Creations"

We believe that current management lacks a vision for the company. Under their leadership, Sun did not demonstrate any dreams, did not accept new challenges, or invest any meaningful amount in innovations. Management is complacent, sitting comfortably on top of ¥200 billion of idle assets in the form of cash, securities, and CLBT shares. Despite this, 8 out of 9 candidates, including the current CEO, are nominated again for directorship at the AGM on 25 June.

The company’s Medium Term management plan for the period 2022-2024 stated the following in relation to corporate value maximization:

Actively develop priority growth businesses. Optimal allocation of CF for sustainable growth businesses.
Maximize the use of a cash-rich balance sheet, strengthen human resources and R&D functions, and achieve sustainable growth.
Contribute to stakeholder value creating by returning profits (including share buybacks)

We believe management has failed to act on its plan, and we question whether there is any genuine intention to do so. Management has set the following goals and we provided our comments on these goals:

“Develop priority growth business” – The minimal top-line growth demonstrated in the last few years results mainly from acquiring a low-margin Malaysian IT company in 2023
“Maximize use of cash-rich balance sheet” - The Company acquired a Malaysian company with its $200 million “cash-rich balance sheet” for a meager $5m
“Strengthening R&D functions” - R&D expenses (ex Cellebrite) have dropped by more than 50% and are minimal for a company that wants to “Dream” and “Create”

“Contribute to stakeholder value creation by returning profits”- The company bought back approx. 7% of its shares outstanding after the listing of Cellebrite shares. It currently holds ¥200 billion of liquid assets while its market cap is only approx. ¥80 billion.

We call on shareholders to hold the board accountable for their lack of action and entrenchment.