Yahoo Finance Rio Tinto, Japan and AI Feature at Sohn Forum in Hong Kong
(Bloomberg) -- Hedge funds zoomed in on opportunities at Japanese and South Korean companies as well as mining giant Rio Tinto Group at the Sohn Hong Kong Investment Leaders Conference.
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Artificial intelligence, a drugmaker’s scandal and Ecuadorian debt were among the areas explored at the 12th annual gathering of the forum in the financial hub. Below is a summary of ideas pitched.
Japan
Seth Fischer of Oasis Management highlighted activist opportunities in Japan. Issues of underperforming management and a lack of board accountability still plague some companies, according to Fischer.
He focused on Kobayashi Pharmaceutical Co., the drugmaker that recalled health supplement products which left five people dead and more than a hundred hospitalized. Kobayashi’s return on equity and stock price have both underperformed, according to Fischer. He laid out three options: bolster board governance and shareholder returns, go private, or work with Oasis to improve governance.
David Mitchinson, founding partner at Zennor Asset Management LLP, picked Transcosmos Inc., which provides human resource and business support services for Japanese companies.
While the company had a slowdown last year, it has a track record of organic growth. It’s trading at a significant discount compared with peers, but is starting to engage with investors, who argue the firm’s goals aren’t ambitious enough, according to Mitchinson. If Transcosmos sets a coherent capital strategy, it can become a better business, he said.
Japan Catalyst Inc. President Taro Hirano sees potential to generate more value in Dai Nippon Printing Co., which operates a myriad of side businesses. The company owns an electric-vehicle battery pouch operation and an OLED metal mask firm, both of which have significant global market share. It owns a business that focuses on third-party photomasks for semiconductors, while also providing bottling services for Coca-Cola Co.
Read more: Dai Nippon Printing Jumps on Plan for Record Share Buybacks
Hirano said the country’s big family-style management operations — where staff stayed for life and the chief executives were mostly picked in-house — made firms reluctant to sell assets. Now that’s changing. The fund has proposed to put an influential business professor — Ken Kusunoki — on the board. The company’s return on equity should be improved, Hirano said.
Meanwhile Toby Rodes, co-founder of Kaname Capital, sees room to increase shareholder value at second-hand car listing platform Proto Corp. Kaname wants to push for a more independent board, better capital allocation, and a structure where the founder owns the company but doesn’t control operations.
Rodes signaled that the company should do more to focus on its core businesses. Proto’s share price has the potential to triple, he said.
South Korea
Tybourne Capital Management’s Eashwar Krishnan said Samsung Electronics Co.’s share price could more than double in the next three years.
The growing adoption of artificial intelligence will drive demand for memory chips produced by the company, according to Krishnan. Although mobile phones already have basic AI capability like facial recognition, more advanced features will require much more memory than current handsets support, he said. Integrating and executing these features directly on devices, such as smartphones and laptops, will drive accelerated demand growth for DRAM memory, he added.
Read more: Tybourne Expects Samsung Price to Double in Next Three Years
Chris Wang, a founding partner of CloudAlpha Capital Management, is positive on HD Hyundai Electric Co., on the basis that electricity distributors and equipment makers stand to benefit from the AI boom. Hyundai Electric is trading at a discount to global peers, according to Wang, who sees an upside of 100% from the current stock price, with a target of 500,000 won. The shares have already tripled this year.
AI servers consume 10 times more electricity than general servers, according to Wang. The electricity transformer market can grow two times in six years, and Hyundai Electric is a leading supplier of step-up transformers, he said.
Many of Hyundai’s competitors are based in China, and could face scrutiny from the US for providing equipment for the AI sector, Wang said during an interview with Bloomberg Television on Friday. That’s why he says Hyundai stands to benefit.
Another South Korean company drew the attention of Darren Kang, co-founder of Life Asset Management. He argued that DN Automotive Corp.’s share price has the opportunity to double.
Rio Tinto
James Smith, founder of Palliser Capital, called for a shakeup at Rio Tinto. He suggested that the company abandon its primary listing in London and unify its corporate structure in Australia.
Palliser Capital has bet about $180 million on Rio Tinto. It’s one of the most important holdings at the fund, Smith said.
As the world’s second-largest mining company, Rio Tinto is trading at a discount to peers due to its dual-listing structure, which is outdated, according to Smith. He argues the shares are suffering from a “long-standing share price distortion” where the London-listed stock is trading at a discount to Australia’s.
Ecuador Debt
Aaron Stern, managing partner at Converium Capital, focused on the sovereign bonds of the Republic of Ecuador, saying they are trading at large discounts to peers. As the new administration ushers in economic changes and social reforms, the country has lower debt-to-GDP ratios than peers. It also faces less credit maturity thanks to restructuring a few year ago.
--With assistance from Claire Ballentine.
(Updates with panelist interviews with Bloomberg TV)
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