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>While OP Margin did not improve much, companies did execute a certain degree of shareholder return in the previous fiscal year, but it did not significantly increase ROE.</li>
<li>Since companies with lower profits are also increasing shareholder returns, the dividend payout is likely to rise a bit more. It will be interesting to see how much ROE improves.</li>
<li>There is a correlation between ROE+DOE and TOPIX. Since TOPIX has risen significantly this year, it will be interesting to see if ROE+DOE actually increases in the future.</li>
</ul>


While OP Margin did not improve much, companies did execute a certain degree of shareholder return in the previous fiscal year, but it did not significantly increase ROE.
Since companies with lower profits are also increasing shareholder returns, the dividend payout is likely to rise a bit more. It will be interesting to see how much ROE improves.
There is a correlation between ROE+DOE and TOPIX. Since TOPIX has risen significantly this year, it will be interesting to see if ROE+DOE actually increases in the future.


Is the Rise in TOPIX Anticipating the Actual Rise in ROE+DOE?

<ul>
<li>TSE data (April 2022-October 2023) shows that the correlation between TOPIX and ROE for prime market listed companies is extremely low, while the correlation between TOPIX and BPS is high.</li>
<li>It may be that a company that can sustainably increase cash flow and build up net assets is more trustworthy than a temporary increase in profits.</li>
<li>It's presumed that the company increased EPS to the extent that it did not reduce ROE and implemented a certain degree of shareholder return to slow the increase in BPS.</li>
</ul>


TSE data (April 2022-October 2023) shows that the correlation between TOPIX and ROE for prime market listed companies is extremely low, while the correlation between TOPIX and BPS is high.
It may be that a company that can sustainably increase cash flow and build up net assets is more trustworthy than a temporary increase in profits.
It's presumed that the company increased EPS to the extent that it did not reduce ROE and implemented a certain degree of shareholder return to slow the increase in BPS.


Determining the Cause of the Sluggish ROE Growth Is More Important for Future ROE Increases

<ul>
<li>An increasing number of companies rehire senior employees until age 65 to address labor shortages and pass on skills, but there are challenges in retaining senior employees and maintaining loyalty.</li>
<li>Daikin is expected to be effective in motivating senior employees and passing on skills in terms of extending employment to age 65 without lowering wages. </li>
<li>Daikin's board members are older, so they fully understood that age was not an obstacle to senior employee success. On the other hand, Daikin faces many challenges in diversity.</li>
</ul>


An increasing number of companies rehire senior employees until age 65 to address labor shortages and pass on skills, but there are challenges in retaining senior employees and maintaining loyalty.
Daikin is expected to be effective in motivating senior employees and passing on skills in terms of extending employment to age 65 without lowering wages. 
Daikin's board members are older, so they fully understood that age was not an obstacle to senior employee success. On the other hand, Daikin faces many challenges in diversity.


Future Human Resource Strategy to Mobilize Power Regardless of Age, Gender, or Nationality

<ul>
<li>A company that does't include a cash flow statement in its 1Q and 3Q financial summaries, which will now be mandatory, is a company that is reluctant to disclose information.</li>
<li>Management groups have called for making quarterly disclosure voluntary. This time, a hand has been dealt with a compromise proposal to unify quarterly reports and financial statements in securities reports.</li>
<li>While the risk of dropping quarterly disclosure in the near future is small, the major problem is that some managers are still reluctant to disclose information.</li>
</ul>


A company that does't include a cash flow statement in its 1Q and 3Q financial summaries, which will now be mandatory, is a company that is reluctant to disclose information.
Management groups have called for making quarterly disclosure voluntary. This time, a hand has been dealt with a compromise proposal to unify quarterly reports and financial statements in securities reports.
While the risk of dropping quarterly disclosure in the near future is small, the major problem is that some managers are still reluctant to disclose information.


It's Unreasonable to Hope for Higher Stock Prices While Being Reluctant to Disclose Information

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>There could be a US$4.6bn secondary placement in <a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso Corp (6902 JP)</a> before year-end as <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a> and <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Corp (7259 JP)</a> unwind cross-holdings.</li>
<li>
<a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso Corp (6902 JP)</a> was down 4.85% yesterday (and even more intra-day) and the stock could remain under pressure for the next few weeks.</li>
<li>There will be limited passive buying in conjunction with the secondary offering and active investors will need to buy a lot of stock.</li>
</ul>


There could be a US$4.6bn secondary placement in Denso Corp (6902 JP) before year-end as Toyota Motor (7203 JP), Toyota Industries (6201 JP) and Aisin Corp (7259 JP) unwind cross-holdings.

Denso Corp (6902 JP) was down 4.85% yesterday (and even more intra-day) and the stock could remain under pressure for the next few weeks.
There will be limited passive buying in conjunction with the secondary offering and active investors will need to buy a lot of stock.


Denso Corp (6902 JP): Potential US$4.6bn Placement & Limited Passive Buying

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)

Is the Rise in TOPIX Anticipating the Actual Rise in ROE+DOE?

I would like to discuss the issues on the November 20 Nikkei article, "Rush of Dividend Increases and Share Buybacks, Kikkoman and Honda etc."

Metrical Inc

Determining the Cause of the Sluggish ROE Growth Is More Important for Future ROE Increases

I would like to discuss the issues on the November 13 Nikkei article, "Growing Pains Striking High ROE Stocks; Shareholder Returns the Prescription...

Metrical Inc

Future Human Resource Strategy to Mobilize Power Regardless of Age, Gender, or Nationality

I would like to discuss the issues on the November 16 Nikkei article, "Daikin Industries to Abolish Mandatory Retirement Age for Positions,...

Metrical Inc

It's Unreasonable to Hope for Higher Stock Prices While Being Reluctant to Disclose Information

I would like to discuss the issues on the November 14 Nikkei article, "TSE to Require Disclosure of Earnings by Segment in Quarterly Financial...

Metrical Inc

Denso Corp (6902 JP): Potential US$4.6bn Placement & Limited Passive Buying

The Denso Corp block is likely to be priced today. The stock is down 4.7% since the news of the placement and there could be some more downside...

Brian Freitas