Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Profit margins boosted by cuts in personnel, R&amp;D, CapEx, and corporate tax rates. Much of the improved free cash flow went onto the balance sheet instead of being invested.</li>
<li>OP Margin's sluggish growth indicates that the cost-cutting model is no longer working. Investments are needed to create products with higher gross margins.</li>
<li>While the limitations of the cost-cutting model can be seen, ROE, which indicates the achievement of the management goal of increasing medium-to-long-term shareholder returns, is sluggish in many companies.</li>
</ul>


Profit margins boosted by cuts in personnel, R&amp;D, CapEx, and corporate tax rates. Much of the improved free cash flow went onto the balance sheet instead of being invested.
OP Margin's sluggish growth indicates that the cost-cutting model is no longer working. Investments are needed to create products with higher gross margins.
While the limitations of the cost-cutting model can be seen, ROE, which indicates the achievement of the management goal of increasing medium-to-long-term shareholder returns, is sluggish in many companies.


Any Manager Can Simply Implement Shareholder Returns

Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>Quiddity's "<strong>Who is Ready</strong>" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>Dozens of companies have been able to meet the key Section Transfer requirements on paper for several months but there have been no TOPIX Inclusions announcements in 2024 so far. </li>
<li>However, there are some pre-event candidates we believe are worth monitoring as they have previously confirmed their desire to move to the Prime Market.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
Dozens of companies have been able to meet the key Section Transfer requirements on paper for several months but there have been no TOPIX Inclusions announcements in 2024 so far. 
However, there are some pre-event candidates we believe are worth monitoring as they have previously confirmed their desire to move to the Prime Market.


TOPIX Inclusions: Who Is Ready (May 2024)

<ul>
<li>The reason why the approval for the shareholder proposal on profit appropriation exceeded 40% is that the proposal was easy to understand and easy to get approval from other shareholders.</li>
<li>Although domestic institutional investors don't currently vote against a low ROE when it comes to improvement measures, they may take a more aggressive stance if ISS raises its ROE criteria.</li>
<li>The trend of top management being reappointed even with continued low ROE is likely to continue for a while longer, but the time frame is definitely getting smaller.</li>
</ul>


The reason why the approval for the shareholder proposal on profit appropriation exceeded 40% is that the proposal was easy to understand and easy to get approval from other shareholders.
Although domestic institutional investors don't currently vote against a low ROE when it comes to improvement measures, they may take a more aggressive stance if ISS raises its ROE criteria.
The trend of top management being reappointed even with continued low ROE is likely to continue for a while longer, but the time frame is definitely getting smaller.


A Common Case of a Company with a Low ROE but with the Founding Family Serving as Successive CEOs

<ul>
<li>In addition to too much cash on hand to begin with, ROE is expected to continue to grow at a sluggish pace, as shareholder returns are less than profit growth.</li>
<li>Given that we expect more companies to have stock price, P/B, and ROE on the agenda for the June AGM, more companies are expected to announce increases in shareholder returns.</li>
<li>However, ROE is unlikely to increase significantly. Shareholder returns are certainly too small, but a more serious problem is the inability to find growth investment opportunities.</li>
</ul>


In addition to too much cash on hand to begin with, ROE is expected to continue to grow at a sluggish pace, as shareholder returns are less than profit growth.
Given that we expect more companies to have stock price, P/B, and ROE on the agenda for the June AGM, more companies are expected to announce increases in shareholder returns.
However, ROE is unlikely to increase significantly. Shareholder returns are certainly too small, but a more serious problem is the inability to find growth investment opportunities.


Shareholder Returns Will Increase over June AGM, but Will Companies Hold up with Sluggish ROE?

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Cross Asset Strategy

<ul>
<li>Risk reward favours a shift in allocation between these markets.</li>
<li>Hong Kong washed out from a sentiment, valuation and positioning perspective.</li>
<li>Minimal investor expectations  and continual disappointment  have set the stage for a rally in 2024.</li>
</ul>


Risk reward favours a shift in allocation between these markets.
Hong Kong washed out from a sentiment, valuation and positioning perspective.
Minimal investor expectations  and continual disappointment  have set the stage for a rally in 2024.


2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong - Part 2

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Any Manager Can Simply Implement Shareholder Returns

I would like to discuss the issues on the April 1 Nikkei article titled "Good Performance, Future Strategies of Japanese Companies: Time to...

Metrical Inc

TOPIX Inclusions: Who Is Ready (May 2024)

I expect Basket A to continue to outperform Basket B over the next few weeks. Basket A and B consists of names that can satisfy 6/6 and 5/6...

Janaghan Jeyakumar, CFA

A Common Case of a Company with a Low ROE but with the Founding Family Serving as Successive CEOs

I would like to discuss the issues on the March 30 Nikkei article, "Ezaki Glico's Shareholders' Meeting Causes Ripples in the Era of "All Activist...

Metrical Inc

Shareholder Returns Will Increase over June AGM, but Will Companies Hold up with Sluggish ROE?

I would like to discuss the issues on the March 25 Nikkei article, "Shareholder Returns Reach a Record 25 Trillion Yen Due to Earnings Expansion...

Metrical Inc

2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong - Part 2

Since we published this piece, The HSI is up 12%, the HSCEI is up 16% and the HSCCI is up 17%. Since January's bottom, when we reiterated BUY,...

Rikki Malik