{ "docId": "019dd923-622b-71dc-a6dd-4b946aa1859a", "docSlug": "350d355e27a6", "documentTitle": "Digital Garage Inc. (4819 JT)", "authorId": "25_Oasis_Management", "authorName": "Seth Fischer", "documentKindSlug": "press-release", "documentKindLabel": "Press release", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2022-12-21 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 2, "pageCount": 3, "prevPage": 1, "nextPage": 3, "slideType": "executive_summary", "function": "summarize", "density": "overcrowded", "nDataPoints": 7, "notes": "This is a text-heavy press release document. It functions as an executive summary of an activist investor's proposal.", "elementsJson": [ "paragraph", "quote_block" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622b-71dc-a6dd-4b946aa1859a/2", "deckHref": "/decks/019dd923-622b-71dc-a6dd-4b946aa1859a", "deckJsonHref": "/decks/019dd923-622b-71dc-a6dd-4b946aa1859a.json", "deckAnchorHref": "/decks/019dd923-622b-71dc-a6dd-4b946aa1859a#slide-2", "components": [ { "bbox": null, "kind": "callout", "text": "We urge DG's Board of Directors to formally propose this spin-off plan at the Company's next annual general meeting of shareholders (\"AGM\").", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-f5d3-71df-9935-d777f1068446", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.58 }, "kind": "paragraph", "text": "Second, we propose that the remaining business operate as DG Investments, including the Incubation Technology and Long-term Incubation segments, with an increased focus on start-up and VC investments, and new dedicated management.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "87ba6a66-aad7-4f12-ab70-81249648ffb8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.78, "x": 0.11, "y": 0.74 }, "kind": "paragraph", "text": "Third, moreover, DG’s Kakaku shares should be sold and the proceeds returned to shareholders. We applaud the Company’s announcement on November 16, 2022, that it would divest some of its Kakaku shares. However, we believe that DG should sell the entirety of its stake and return the capital to shareholders. We note that the value of DG’s Kakaku shares post-tax accounts for 32% of DG’s market cap.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9f06f37c-4c47-4dbb-ac1c-eda5025e0104", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.78, "x": 0.11, "y": 0.25 }, "kind": "paragraph", "text": "However, DG has not done enough to prepare to benefit from this market transition. The payment service provider market has grown 18% annually over the last three years, while DG has grown 17% annually, in line with the market. DG’s largest competitor, GMO Payment Gateway, Inc. (“GMO PG”), has grown 26% per year over the same period. We believe that DG product quality is superior to that of GMO PG, and this underperformance is primarily driven by mismanagement, as DG’s management has been distracted by other business ventures and has not been able to fully focus on the opportunity presented by the rise in cashless transactions. The valuation of DG has also fallen behind GMO PG: while DG is valued at 19.4x FY2P/E, GMO PG trades at 55.1x FY2P/E.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ae05009d-d17c-4132-a1d9-ea40bd09cc9c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.78, "x": 0.11, "y": 0.44 }, "kind": "paragraph", "text": "To remedy this, we propose a tax-free spin-off of the Company’s Financial Technology and Marketing Technology businesses, creating a new entity called DG Financial Technology. We believe that this will ensure focus and accountability, accelerate growth, and prevent DG from missing the opportunity presented by the shift to cashless transactions. We urge DG’s Board of Directors to formally propose this spin-off plan at the Company’s next annual general meeting of shareholders (“AGM”). Prior to the AGM, DG should update investors about this plan by no later than mid-March 2023, as a milestone.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bce5d5f8-ed40-4691-8fc2-5dc12f0878c9", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "The shift towards cashless transactions in Japan represents a once-in-a-generation growth opportunity for payment service providers. While currently just 32.5% of Japan’s payments are cashless today according to a METI presentation, the government aims to increase Japan’s cashless settlement ratio to 80%. The payment service provider market is assumed to grow from current JPY23.0tr to JPY33.8tr in the next four years. With its strong position in the Financial Technology segment as a payment service provider, DG must not miss this opportunity.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d68ef309-6101-4dba-b9be-084bce549ec0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.78, "x": 0.11, "y": 0.64 }, "kind": "paragraph", "text": "DG’s Chairman, Mr. Kaoru Hayashi, is a visionary founder of the business. However, we believe he has been distracted by other businesses, preventing him from fully focusing on the opportunity in the Financial Technology segment. Among other roles, Mr. Hayashi serves as the Chairman of Kakaku. We believe he should step down from his role as Kakaku Chairman so he can fully focus on the DG Financial Technology business.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fcc551cc-34e3-4b96-9369-992643ef2ff3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.78, "x": 0.11, "y": 0.83 }, "kind": "quote", "text": "Digital Garage has a great payment service provider business, and yet, they have not done enough to capture the shift toward cashless payments in Japan. As shareholders, we can no longer sit idly by and allow this great company to miss this opportunity. This is a call to action for DG’s management.", "attrs": null, "subkind": "testimonial", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d8811607-4b63-4ae9-bb5f-c2810c8f9f1d", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "\"Digital Garage has a great payment service provider business, and yet, they have not done enough to capture the shift toward cashless payments in Japan. As shareholders, we can no longer sit idly by and allow this great company to miss this opportunity. This is a call to action for DG's management.\" — Seth Fischer, Founder and Chief Investment Officer of Oasis", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-f5d3-71df-9935-d8f6aa6ae41c", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "c5b5405b-6590-4e33-9565-3aa642bdcb44", "evidence": "However, DG has not done enough to prepare to benefit from this market transition.", "confidence": 0.9 } ], "frameworks": [], "arcBeats": [ { "to": 2, "from": 2, "beatId": "8675462f-fa38-4397-adb7-567eaec092fb", "arcName": "AIDA", "arcSlug": "aida", "beatName": "Interest", "beatSlug": "aida-interest", "evidence": "The second page is an executive summary.", "position": 1, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }