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>If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.</li>
<li>A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.</li>
<li>Even if a company's P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.</li>
</ul>


If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.
A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.
Even if a company's P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.


It Is Time to Identify True Value and Growth Stocks Rather than High and Low P/Bs

<ul>
<li>The GPIF employs a "passive enhanced engagement" approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.</li>
<li>The challenge is whether GPIF's extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.</li>
<li>GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.</li>
</ul>


The GPIF employs a "passive enhanced engagement" approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.
The challenge is whether GPIF's extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.
GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.


Is Engagement Functioning Well with The "Engagement-Enhanced Passive" Approach Adopted by GPIF?

<ul>
<li>While 4% of the number of companies mentioned in annual securities reports regarding P/B, half of companies have P/B of below 1x, which suggests managers still lack sense of urgency.</li>
<li>Many companies that mention P/B in their annual securities reports rely on share repurchases, and their presentation of strategies to increase cash flow is weak.</li>
<li>Clearly stating the cost of capital will lead to more appropriate ROE and ROIC targets and disclosure of specific measures to achieve them.</li>
</ul>


While 4% of the number of companies mentioned in annual securities reports regarding P/B, half of companies have P/B of below 1x, which suggests managers still lack sense of urgency.
Many companies that mention P/B in their annual securities reports rely on share repurchases, and their presentation of strategies to increase cash flow is weak.
Clearly stating the cost of capital will lead to more appropriate ROE and ROIC targets and disclosure of specific measures to achieve them.


The First Thing Managers Should Do Is Disclose Their Cost of Capital and Their Company's Return

<ul>
<li>Since so many companies have not prepared for internal female talent, the trend of hiring female independent outside directors will continue for the foreseeable future.</li>
<li>Metrical studies have confirmed the tendency for the percentage of female board members to show a more significant positive correlation than the number of female board members. </li>
<li>This is consistent with the expectation that the increased weight of women board members' voices on the board will contribute to value creation. </li>
</ul>


Since so many companies have not prepared for internal female talent, the trend of hiring female independent outside directors will continue for the foreseeable future.
Metrical studies have confirmed the tendency for the percentage of female board members to show a more significant positive correlation than the number of female board members. 
This is consistent with the expectation that the increased weight of women board members' voices on the board will contribute to value creation. 


Diversity Will Work when % of Women and Foreign Directors Exceeds 50%, but It’s Still a Long Way Off

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>Since my last insight, three new TOPIX Inclusion events have been confirmed: <a href="https://www.smartkarma.com/entities/m-a-research-institute-inc" target="_blank" data-smartkarma-citation="entities:36749:1" rel="noopener">M&amp;A Research Institute (9552 JP)</a>, <a href="https://www.smartkarma.com/entities/fp-partner-inc" target="_blank" data-smartkarma-citation="entities:40040:1" rel="noopener">FP Partner (7388 JP)</a>, and <a href="https://www.smartkarma.com/entities/i-ne-co-ltd" target="_blank" data-smartkarma-citation="entities:40117:1" rel="noopener">I-NE (4933 JP)</a> </li>
<li>Separately, <a href="https://www.smartkarma.com/entities/core-concept-technologies-inc" target="_blank" data-smartkarma-citation="entities:34323:1" rel="noopener">Core Concept Technologies Inc (4371 JP)</a> has announced it intends to work towards a Prime Market move in the future.</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.
Since my last insight, three new TOPIX Inclusion events have been confirmed: M&amp;A Research Institute (9552 JP), FP Partner (7388 JP), and I-NE (4933 JP) 
Separately, Core Concept Technologies Inc (4371 JP) has announced it intends to work towards a Prime Market move in the future.


TOPIX Inclusions: Who Is Ready (Sep 2023)

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)

It Is Time to Identify True Value and Growth Stocks Rather than High and Low P/Bs

I would like to discuss the issues on the August 23 Nikkei article, "High P/B Stocks with Weak Upside, High Interest Rates Make Selection Time for...

Metrical Inc

Is Engagement Functioning Well with The "Engagement-Enhanced Passive" Approach Adopted by GPIF?

I would like to discuss the August 23 Nikkei article, "GPIF to Quantitatively Analyze ESG Investments to Explore Causal Relationship between...

Metrical Inc

The First Thing Managers Should Do Is Disclose Their Cost of Capital and Their Company's Return

I would like to discuss the August 22 Nikkei Shimbun article, "Number of companies that have included P/B in their securities reports reaches...

Metrical Inc

Diversity Will Work when % of Women and Foreign Directors Exceeds 50%, but It’s Still a Long Way Off

I would like to discuss the issues on the August 18 Nikkei Newspaper article, "Female Directors Increase by 17%; In-House Director Growth Stalls."

Metrical Inc

TOPIX Inclusions: Who Is Ready (Sep 2023)

The Offer Price for I-NE (4933 JP)'s secondary sale of shares was decided today. Our estimates show the Offer Quantity could exceed the demand from...

Janaghan Jeyakumar, CFA