Ly Corp’s 150 Billion Yen Buyback: A Bold Move or Overextension?

On May 6, 2025, Ly Corp (4689:TYO) announced plans to repurchase up to 3.93% of its outstanding shares, totaling 150 billion yen. The move signals confidence in its stock’s undervaluation, yet it arrives amid volatile market conditions and a stock price hovering near its 52-week low. Is this a strategic bet to boost shareholder value, or a risky maneuver in uncertain waters? Let’s dissect the data.

Financial Fortitude or Overleveraged?

Ly Corp’s balance sheet reveals a company in solid shape to execute this buyback. Its debt-to-equity ratio stands at 49.6%, down sharply from 103.7% five years ago, and its interest coverage ratio of 273.5x—meaning earnings easily cover interest expenses by over 270 times—reflects minimal default risk. With ¥1.04 trillion in cash and short-term investments, Ly Corp has ample liquidity to absorb the buyback without straining its financial health.

But context matters. The company’s market capitalization of ¥29.44 billion (as of May 7, 2025) places it far below peers like Honda Motor (¥44.65 billion) and Toyota (¥247.43 billion). This raises questions: Is Ly Corp undervalued, or is its small market cap a sign of limited investor appetite?

Stock Performance: A Bull Market Buyback?

The buyback announcement followed a 5.35% drop in Ly Corp’s stock from its April 23 high of ¥561.00, closing at ¥531.00 on May 7—a price below its 15-day moving average. Analysts at Pujance Chan had previously rated Ly Corp’s “moat” as Wide and set a fair value estimate of ¥560, suggesting the stock remains undervalued. However, trading volume spiked by 58.48% on May 7, hinting at investor skepticism or strategic selling.

The buyback could stabilize the stock, but the timing is tricky. With the stock trading at a 4.6% discount to its fair value estimate, Ly Corp may be acting preemptively. Yet, its market cap-to-debt ratio (¥29.44 billion vs. ¥1.69 trillion debt) is alarmingly imbalanced, raising concerns about whether the buyback dilutes capital better spent on core operations.

The Buyback’s Strategic Logic

Proponents argue the buyback makes sense for two reasons:
1. Undervaluation: The stock’s current price lags behind its fair value, allowing Ly Corp to reclaim shares at a discount.
2. Capital Allocation: With ¥1.04 trillion in cash, the company can afford to return capital to shareholders without compromising liquidity.

Critics counter that:
- Ly Corp’s small market cap limits its ability to influence its own stock price significantly.
- Competitors like LINE Corporation (post-merger with NAVER) and SoftBank’s digital ventures could overshadow its services, making organic growth harder.

Conclusion: A Calculated Risk, But Not Without Hurdles

Ly Corp’s buyback is a high-stakes gamble that hinges on its ability to execute against two variables:
1. Stock Price Performance: If the stock rebounds toward its ¥560 fair value, the buyback becomes a win-win—enhancing EPS and boosting investor confidence.
2. Financial Resilience: With debt still at ¥1.69 trillion, any economic downturn could strain liquidity, especially if operating cash flow (which covers net debt by just 30.7%) weakens.

The key data points tilt cautiously positive:
- Strong cash reserves and interest coverage ratios suggest Ly Corp can manage the buyback without financial distress.
- The undervaluation argument holds water, given its fair value estimate.

However, the small market cap and intense competition in Japan’s digital economy mean this move is more about signaling confidence than transforming shareholder value overnight. Investors should monitor the stock’s post-buyback performance closely—specifically whether it climbs above its 15-day moving average and approaches the ¥560 target.

For now, Ly Corp’s buyback is a prudent but unproven bet on its own worth. The market will decide if it’s a masterstroke or a misstep.