Kajima's ¥20 Billion Buyback: A Strategic Play to Boost ROE and Lift an Undervalued Stock

Kajima Corporation (TYO: 1812) has embarked on a bold capital allocation strategy with its ¥20 billion share buyback program, designed to bolster shareholder value amid a challenging construction sector. With 1.95 million shares repurchased in May alone—representing 22% of its 9 million-share target—the company is signaling confidence in its long-term prospects while addressing undervaluation. This move not only aims to improve financial metrics like return on equity (ROE) but also creates a strategic floor for its stock, now trading at a steep discount to industry peers.

The Buyback Math: ROE and Capital Efficiency
The buyback's core strategic advantage lies in its ability to reduce the number of outstanding shares, thereby amplifying ROE. As of April 2025, Kajima had 473.3 million shares outstanding. A full execution of the 9 million-share buyback would shrink this to 464.3 million—a 1.9% reduction. This contraction directly improves ROE by reducing equity without requiring a proportional increase in net income.

Currently, Kajima's ROE stands at ~8%, below the sector average of ~10%. Analysts estimate that even a partial buyback could lift ROE to 9.5–10% by September 2025, narrowing the gap with peers. For shareholders, this means higher earnings per share (EPS) and a better alignment of valuation with industry benchmarks.

Valuation Discount and Buyback Catalysts
Kajima's stock trades at a price-to-book (P/B) ratio of 0.8x—well below the construction sector average of 1.2–1.5x. This discount reflects broader concerns about Japan's slowing infrastructure spending and an aging population. However, the buyback program acts as a counterweight to these risks by artificially supporting the stock price.

With ¥13.02 billion remaining in the buyback budget (as of May 31), Kajima has ample flexibility to purchase shares at lower prices, creating a “floor” effect. The company's history of disciplined capital allocation—including a 2022 buyback that spent ¥6.97 billion to acquire 4.56 million shares—supports the view that management will act aggressively if the stock dips further. This dynamic reduces downside risk for investors.

Sector Risks and Mitigation
The construction sector faces headwinds such as rising interest rates, delayed public projects, and intensifying competition. Kajima's net debt/EBITDA ratio of ~1.5x, however, provides a financial buffer. The buyback also mitigates earnings dilution, ensuring that any stagnant revenue growth doesn't disproportionately hurt ROE.

Meanwhile, Kajima's focus on high-margin projects—such as urban redevelopment and smart infrastructure—positions it to weather sector slowdowns. Its recent wins in Tokyo's “Green Capital” initiative, aimed at decarbonizing urban areas, underscore its strategic shift toward sustainable growth.

Investment Thesis: Buy the Dip, Target ¥3,300 by September
Analysts at TipRanks have maintained a “Buy” rating on Kajima, citing the buyback's valuation tailwinds and undervalued P/B. Their price target of ¥3,300–¥3,350 implies a ~10% upside from current levels (~¥3,000).

Investors should consider entering positions at dips below ¥2,900—a 3–4% discount to current prices—where the buyback's “floor” effect becomes most pronounced. The recommendation holds until September 2025, when the buyback deadline could trigger a final rally as shares shrink and EPS expands.

Key Risks to Monitor
- Buyback Pace: Slower purchases than planned could delay ROE improvements.
- Sector Woes: Delays in government infrastructure spending could pressure margins.
- Valuation Reassessment: If the P/B gap narrows prematurely, upside potential diminishes.

Conclusion
Kajima's buyback program is more than a share repurchase—it's a strategic offensive to reclaim its fair value. With a disciplined management team, a clear path to ROE improvement, and a stock trading at a deep discount, the company presents a compelling opportunity for investors to “buy the dip” ahead of its September deadline. The ¥2,900 level offers a high-probability entry point, with catalysts firmly in place to drive the stock toward its ¥3,300 target by year-end.