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PJ Asset Management Issued A Letter to All Shareholders of TECO Electric & Machinery

15 December 2019

TAIPEI, Dec. 15, 2019 /PRNewswire/ -- PJ Asset Management (PJAM)'s announcement to TECO's shareholders (on Dec. 13rd) was as below:

In compliance with the Securities and Exchange Act 43-1, PJAM and its subsidiary have notified TECO Electric & Machinery (the "Company" or "TECO") of our collective holdings over 10% common stock in TECO on Nov 28, making us the largest investor.

Subsequent to the announcement, we appreciated Chairman Chiu, CFO Yeh and IR manager Chien taking the time to meet with us on Dec 06 to discuss PJAM's "value creation proposition" laid out below. A friendly dialog to express our concerns and TECO's clarifications regarding our view was fully exchanged during the meeting. We were promised with regular engagements in the future to review the progress of our proposition. Considering the content of conversation may affect all investors, we feel it necessary to issue a public letter and make our appeal known to all investors.

PJAM has a strong track record of value investment and working with the investee companies to create long-term, fundamental value. Either through engagement with the target company's key stakeholders or issuance of the public letter, PJAM wishes to provide professional advices or necessary resources to help enhance the target company's operational efficiency, to remedy its chronic undervalue, and to improve its businesses and to unlock significant, sustainable value for its shareholders.

PJAM has spent considerable time working with industry experts and analysts to understand the challenges TECO's business is facing and potential solution. The outcome of the review shows TECO has the potentiality to achieve US$380 million of value creation. The value-added upside may arise from the following areas.

TECO's sustainable value creation and opportunities:

  • Incorporate system automation business into its core business line. This can prove to be a cutting-edge growth momentum to the machinery business.
  • Revisit all direct and indirect investment and shed non-performing assets by completing a sober, dispassionate, full portfolio and operational review. The Company will find one or more significantly underperforming business lines or business lines with markedly different growth potential.
  • Conduct a comprehensive review of its existing governance policies, board and management structure to ensure the right leadership and governance is in place for each business to achieve its full potential.
  • Improve balance sheet efficiency by reducing the equity book or excessive cash on hand.
  • Adjust current major-shareholder-oriented strategy and identify the optimal industry position for the Company may yield significantly better tangible outcomes for customers, employees, and shareholders.

We were glad to hear that Chairman Chiu agreed with most of the proposed points and explained some measures have been taken place prior to our meeting, which include:

  1. Conduct an institutional investors' meeting periodically to improve the investors communication and the Company's transparency
  2. Shed part of the non-performing assets
  3. Incorporate system automation business into its core business line
  4. Consider to pay higher dividend

In addition to the consensus above, we sincerely hope the Company's board and management team can seriously consider other options suggested by us, such as

  1. Spin-off the food business line, a line in our view has markedly different growth potential. Despite Chairman Chiu's claim the food enterprise serves as an experimental platform for TECO's robot automation development, the current business strategy may continue to affect TECO's stock valuation and raise a further concern of interested-party transaction.
  2. Simplify the conglomerate shareholding structure to minimize the circular shareholding puzzles and lighten the founding family's influence. A CEO succession planning and candidate management policy may be taken into consideration to enhance the corporate governance standard.
  3. Start a sober, dispassionate, full portfolio and operational review immediately and take prompt actions to bring the balance sheet to an optimal level, including but not limited to share buyback, higher dividend or capital reduction.

In doing so, we believe there is the potential to unlock the full, long-term value for TECO shareholders in a sustainable manner. This path requires only an acknowledgement of TECO's history of investments and a willingness to change course and realize the tremendous opportunity at hand. The friendly interaction was a start of regular engagements for both parts to review the progress of our proposition. We welcome the constructive discussion and look forward to working with the Company amiably hereafter.

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SOURCE PJ Asset Management