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>There are 167 companies of 1,784 companies in Metrical Universe (12/2023) with major shareholders holding over 50% stake, and 605 companies with major shareholders holding between 20% and 50% stake.</li>
<li>TSE has requests listed parent companies, listed subsidiaries, and affiliates to disclose the significance of parent-subsidiary (affiliates) listings. This will further increase pressure for the dissolution of parent-subsidiary (affiliates) listings.</li>
<li>Hitachi's transformation into value-creating company, which once spawned numerous listed subsidiaries, has been a success story since it began full-fledged "selection and concentration" process through the dissolution of parent-subsidiary listings.</li>
</ul>


There are 167 companies of 1,784 companies in Metrical Universe (12/2023) with major shareholders holding over 50% stake, and 605 companies with major shareholders holding between 20% and 50% stake.
TSE has requests listed parent companies, listed subsidiaries, and affiliates to disclose the significance of parent-subsidiary (affiliates) listings. This will further increase pressure for the dissolution of parent-subsidiary (affiliates) listings.
Hitachi's transformation into value-creating company, which once spawned numerous listed subsidiaries, has been a success story since it began full-fledged "selection and concentration" process through the dissolution of parent-subsidiary listings.


Increasing Pressure from Investors for Dissolution of Parent-Subsidiary (Inc. Affiliates) Listings

<ul>
<li>While many companies have disclosed enhanced shareholder returns, dividend payout ratio in 30% range and no increase, and 4% increase in total dividends from the previous year, is not enough.</li>
<li>Since DOE remains at just under 3% same as the previous year, few companies allocate enough cash to dividend to reduce Shareholder's Equity, and consequently ROE is expected to lower.</li>
<li>Cash on hand in September is at all-time high. Behind the ROE, which shows no sign of rising, is the psychology of managers who want to keep cash on hand.</li>
</ul>


While many companies have disclosed enhanced shareholder returns, dividend payout ratio in 30% range and no increase, and 4% increase in total dividends from the previous year, is not enough.
Since DOE remains at just under 3% same as the previous year, few companies allocate enough cash to dividend to reduce Shareholder's Equity, and consequently ROE is expected to lower.
Cash on hand in September is at all-time high. Behind the ROE, which shows no sign of rising, is the psychology of managers who want to keep cash on hand.


Is Japan's Culture the Psychology of Managers Who Prefer to Keep Cash on Hand over Higher ROE?

<ul>
<li>In addition to the large number of micro-caps among companies listed on the Growth Market, another problem is the lack of growth in market capitalization after IPOs. </li>
<li>Many managers consider IPO to be the goal, and this is evidenced by the fact that not many companies raise capital at IPO and after listing.</li>
<li>The government proposed raising the market capitalization criteria for IPOs and revitalizing the secondary market for pre-listed companies. TSE is likely to review its listing criteria as early as 2025.</li>
</ul>


In addition to the large number of micro-caps among companies listed on the Growth Market, another problem is the lack of growth in market capitalization after IPOs. 
Many managers consider IPO to be the goal, and this is evidenced by the fact that not many companies raise capital at IPO and after listing.
The government proposed raising the market capitalization criteria for IPOs and revitalizing the secondary market for pre-listed companies. TSE is likely to review its listing criteria as early as 2025.


What Is A "Growth Market" Where Many Companies Do Not Grow in Market Cap or Raise Capital?

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 "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.</li>
<li>The TOPIX Inclusion events of <a href="https://www.smartkarma.com/entities/visional-inc" target="_blank" data-smartkarma-citation="entities:32977:1" rel="noopener">Visional (4194 JP)</a> and <a href="https://www.smartkarma.com/entities/furuya-metal-co-ltd" target="_blank" data-smartkarma-citation="entities:5196:1" rel="noopener">Furuya Metal (7826 JP)</a> took place at the end of January and the price performances were mostly in line with expectations.</li>
<li>Currently, there are no upcoming TOPIX Inclusion events that have been announced officially but there are couple of pre-event names that should be on your watchlist.</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.
The TOPIX Inclusion events of Visional (4194 JP) and Furuya Metal (7826 JP) took place at the end of January and the price performances were mostly in line with expectations.
Currently, there are no upcoming TOPIX Inclusion events that have been announced officially but there are couple of pre-event names that should be on your watchlist.


TOPIX Inclusions: Who Is Ready (Feb 2024)

<ul>
<li>Since the introduction of the Corporate Governance Code, the hurdle for listed companies to fulfill their responsibilities has become higher, which is why more managers are choosing to go private.</li>
<li>While some of companies with large market capitalizations that overseas investor engagement extends to are showing promise for change, many others are failing to step up management to create value.</li>
<li>TOPIX's rise has been mainly driven by an increase in the number of companies rather than an increase in stock prices. The market should become higher in quality through de-listing.</li>
</ul>


Since the introduction of the Corporate Governance Code, the hurdle for listed companies to fulfill their responsibilities has become higher, which is why more managers are choosing to go private.
While some of companies with large market capitalizations that overseas investor engagement extends to are showing promise for change, many others are failing to step up management to create value.
TOPIX's rise has been mainly driven by an increase in the number of companies rather than an increase in stock prices. The market should become higher in quality through de-listing.


Isn't It Hypocritical to Request a P/B Raising Measure While Continuing the Listed Subsidiary IPO?

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)

Increasing Pressure from Investors for Dissolution of Parent-Subsidiary (Inc. Affiliates) Listings

I would like to discuss the issues on the December 25 Nikkei article, "European money in 'dissolution of parent-subsidiary listings': Hitachi's...

Metrical Inc

Is Japan's Culture the Psychology of Managers Who Prefer to Keep Cash on Hand over Higher ROE?

I would like to discuss the issues on the December 24 Nikkei Shimbun article, "Listed Companies' Dividends to Reach 16 Trillion Yen in FY2024, 3...

Metrical Inc

What Is A "Growth Market" Where Many Companies Do Not Grow in Market Cap or Raise Capital?

I would like to discuss the issues on the December 17 Nikkei article, "TSE Considers Raising Criteria for Growth Market Listings, Criticisms Strong...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Feb 2024)

Our main pre-event name Celsys has experienced a drop in share price in recent weeks. It is still very close to being able to satisfy the Section...

Janaghan Jeyakumar, CFA

Isn't It Hypocritical to Request a P/B Raising Measure While Continuing the Listed Subsidiary IPO?

I would like to discuss the issues on the November 26 Nikkei Shimbun article, "MBOs to Top 1 Trillion Yen in 2023, Taisho Pharmaceutical and...

Metrical Inc