Enplas (6961) ENORMOUS Buyback With Longer-Term Implications

Enplas Corp (6961 JP) makes plastics. They also have a variety of technological solutions which improve semiconductor performance. 5+years ago, their biggest segment was their "optical" business which had 50% OPMs, but that has declined over the years to be a bit over 13% of revenues and OP has dropped commensurately. Now the plastics and semiconductors business are roughly similar in revenue size for the remaining 87%, the plastics business has made net zero OP over the past five years, and the semiconductor-related business has substantially lower margins than the optics business had.

It has been a real comedown. The company hit the jackpot in its optical business from 2013-2018 and now it is back where it stood 8 years ago in profit terms.

But the company has been buying shares back, and now has substantially fewer outstanding.

Last month, the company announced a huge share cancellation of accumulated treasury shares. They also announced a further buyback of up to 500,000 shares (4.19%) for up to ¥1.25bn to be bought back in the next 4.5 months. When these announcements were made, the stock popped 14.7% the next day (17 November) and then rose the next 6 days in a row. The company announced on the 26 November that they had spent the whole ¥1.25bn in 7 trading days. They were 22.7% of volume. On the 30th, the company announced another buyback for up to 500,000 shares spending up to ¥1.5bn.

As of yesterday at the close, the stock was up 57% since the share cancellation announcement.

The NEW News

On 9 December, the company announced the completion of the buyback announced on 30 November. They spent all the money buying 444,100 shares (3.86% of shares out ex-Treasury shares) in 6 days. From 1 December through 8 December, the company buyback was 28% of traded volume.

On 10 December, the company announced a further large buyback, announcing a repurchase of up to 1,500,000 shares for up to ¥5.25bn to be purchased between 11 December and 31 March 2021.

That would be 13.59% of shares out (ex-Treasury shares). But it is more like one-third of float.

There is a lot going on here. And there may be a long-term angling at an MBO (see the math below). But the hugely cash-rich nature of the stock means that equity moves translate directly to EV/EBITDA multiples in a way that doesn't happen for a company with debt.