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>With IPOs becoming a place for founders to recoup their capital, and the desire for post-IPO growth declining, IPOs are a place for retail investors to speculate using scarce liquidity.</li>
<li>If a market is provided that recovers funds without relying on IPOs, IPOs will become larger and more selective, which brings them closer to the investment focus of institutional investors.</li>
<li>The expansion of the private equity market will play a significant role in the "industry restructuring," as more M＆As between private companies and public companies are expected to take place.</li>
</ul>


With IPOs becoming a place for founders to recoup their capital, and the desire for post-IPO growth declining, IPOs are a place for retail investors to speculate using scarce liquidity.
If a market is provided that recovers funds without relying on IPOs, IPOs will become larger and more selective, which brings them closer to the investment focus of institutional investors.
The expansion of the private equity market will play a significant role in the "industry restructuring," as more M＆As between private companies and public companies are expected to take place.


Will the Creation of a Private Stock Market Help Accelerate Industry Restructuring?

<ul>
<li>In order to carefully select IPOs and increase MBO/TOB, management's mindset should be shifted to expanding shareholder interests and IPOs that are not for tax-saving purposes.</li>
<li>Many companies still have top management even though the founding family's holdings have already declined. Such companies have relatively low ROE, ROA, and Tobin's Q.</li>
<li>For MBO candidates, the key is to think on the side of institutional investors who propose MBOs through engagement with decision makers and PE funds who provide　capital and business plans.</li>
</ul>


In order to carefully select IPOs and increase MBO/TOB, management's mindset should be shifted to expanding shareholder interests and IPOs that are not for tax-saving purposes.
Many companies still have top management even though the founding family's holdings have already declined. Such companies have relatively low ROE, ROA, and Tobin's Q.
For MBO candidates, the key is to think on the side of institutional investors who propose MBOs through engagement with decision makers and PE funds who provide　capital and business plans.


Companies that Don't Have Growth Plans but Are Competitive in a Specific Market Are Targeted for MBO

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>Some low liquidity stocks in the TOPIX Index carry a liquidity factor of 0.75x resulting in their actual index weights being smaller than their default weights.</li>
<li>These names are reviewed every April and if the liquidity factor of a stock gets removed, the stock will enjoy buying flows from passive trackers of TOPIX.</li>
<li>In this insight, we take a look at Quiddity's final predictions for the names that are likely to see their Liquidity Factors removed in April 2023.</li>
</ul>


Some low liquidity stocks in the TOPIX Index carry a liquidity factor of 0.75x resulting in their actual index weights being smaller than their default weights.
These names are reviewed every April and if the liquidity factor of a stock gets removed, the stock will enjoy buying flows from passive trackers of TOPIX.
In this insight, we take a look at Quiddity's final predictions for the names that are likely to see their Liquidity Factors removed in April 2023.


TOPIX Index Upweights: Final Predictions for The "The Big April Basket” 2023

<ul>
<li>P/B's slightly higher valuations in October 2023 while ROE, EPS, and BPS did not change much were due to external factors, not internal factors.</li>
<li>Clearly, improvements in ROE and ROA are effective in improving stock valuations, but valuations have further increased for companies with higher valuations and profitability for the past year.</li>
<li>Some of these companies have begun to use cash more effectively for investment and shareholder returns. The gap in market capitalization between these companies and the rest will increasingly widen.</li>
</ul>


P/B's slightly higher valuations in October 2023 while ROE, EPS, and BPS did not change much were due to external factors, not internal factors.
Clearly, improvements in ROE and ROA are effective in improving stock valuations, but valuations have further increased for companies with higher valuations and profitability for the past year.
Some of these companies have begun to use cash more effectively for investment and shareholder returns. The gap in market capitalization between these companies and the rest will increasingly widen.


Companies with High Stock Valuations and High Profitability Will Increasingly Attract Investment

<ul>
<li>Overseas investors have increased buying Japanese stocks in anticipation of acceleration in profit growth due to the shift to inflation. This is consistent with the trends of ROE and TOPIX.</li>
<li>As far as ROE trends are concerned, neither share buybacks nor dividends are sufficient. It may be said that many managers are still dominated by a deflationary mindset.</li>
<li>Companies with high foreign shareholdings are seeing changes that are starting to use cash more effectively. However, it’ll take time, as most companies will start to move after asking around.</li>
</ul>


Overseas investors have increased buying Japanese stocks in anticipation of acceleration in profit growth due to the shift to inflation. This is consistent with the trends of ROE and TOPIX.
As far as ROE trends are concerned, neither share buybacks nor dividends are sufficient. It may be said that many managers are still dominated by a deflationary mindset.
Companies with high foreign shareholdings are seeing changes that are starting to use cash more effectively. However, it’ll take time, as most companies will start to move after asking around.


When Will Deflationary Mindset of Managers Disappear? Some Companies Have Begun to Change, Though

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)

Will the Creation of a Private Stock Market Help Accelerate Industry Restructuring?

I would like to discuss the issues on the December 17 Nikkei article, Overseas Investors Focus on Japan's Unlisted Stocks, Hoping to Expand 'Exit'."

Metrical Inc

Companies that Don't Have Growth Plans but Are Competitive in a Specific Market Are Targeted for MBO

I would like to discuss the issues on the January 14 Nikkei Newspaper article, "Next MBO, Money Focuses on Weak Stocks and Founding Family Companies."

Metrical Inc

TOPIX Index Upweights: Final Predictions for The "The Big April Basket” 2023

This insight (from Feb 2023) discusses the annual TOPIX Liquidity Factor (LF) removal event (which we call the "Big April Basket"). It might be a...

Janaghan Jeyakumar, CFA

Companies with High Stock Valuations and High Profitability Will Increasingly Attract Investment

I would like to discuss the issues on the January 10 Nikkei Shimbun article, "Nikkei 225 Stock Price Index at 33-year High, P/B Reforms Successful,...

Metrical Inc

When Will Deflationary Mindset of Managers Disappear? Some Companies Have Begun to Change, Though

I would like to discuss the issues on the Nikkei Shimbun's January 11 report, "Japan's Stock Market Gains Strength; Overseas Investors Purchase 3...

Metrical Inc