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>Comparing the number of Japanese companies in top 50 global market capitalization and Japan's GDP as percentage of world's GDP in 1989, it's clear that economy and companies didn’t grow.</li>
<li>Without more Japanese companies that have an edge in profitability, a key focus for long-term global investors, it will not be possible to put long-term investment money into Japanese equities.</li>
<li>It is assumed that BoJ's policy of inducing the yen to depreciate through ultra-monetary easing may have in part spoiled company managers and caused them to neglect their corporate efforts.</li>
</ul>


Comparing the number of Japanese companies in top 50 global market capitalization and Japan's GDP as percentage of world's GDP in 1989, it's clear that economy and companies didn’t grow.
Without more Japanese companies that have an edge in profitability, a key focus for long-term global investors, it will not be possible to put long-term investment money into Japanese equities.
It is assumed that BoJ's policy of inducing the yen to depreciate through ultra-monetary easing may have in part spoiled company managers and caused them to neglect their corporate efforts.


Companies Should Reset the Yen's Depreciation Benefit Mindset and Regain Core Competencies

<ul>
<li>If a company seeks immediate effects to improve capital profitability, it'll return cash to shareholders because it'll be years before the company can recoup it by making more investments now.</li>
<li>Even companies that have increased valuations by raising their capital profitability can improve it by reducing their cash on hand and policy shareholdings, which are still too large.</li>
<li>Companies with low capital profitability and low valuations have to gain investor confidence through quarterly earnings disclosures by demonstrating that their disclosed goals are achievable.</li>
</ul>


If a company seeks immediate effects to improve capital profitability, it'll return cash to shareholders because it'll be years before the company can recoup it by making more investments now.
Even companies that have increased valuations by raising their capital profitability can improve it by reducing their cash on hand and policy shareholdings, which are still too large.
Companies with low capital profitability and low valuations have to gain investor confidence through quarterly earnings disclosures by demonstrating that their disclosed goals are achievable.


Disclosure Is Important, but Walk the Talk Is More Important

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>
<a href="https://www.smartkarma.com/entities/sunwels-co-ltd" target="_blank" data-smartkarma-citation="entities:43702:1" rel="noopener">SUNWELS Co (9229 JP)</a> and <a href="https://www.smartkarma.com/entities/macbee-planet-inc" target="_blank" data-smartkarma-citation="entities:39863:1" rel="noopener">Macbee Planet (7095 JP)</a> moved to the Prime market in July 2024 and their TOPIX Inclusion events took place at the end of August 2024.</li>
<li>We currently have <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-eyewear-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:40217:1" rel="noopener">Japan Eyewear Holdings (5889 JP)</a>, and <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> in our TOPIX Inclusions pre-event 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.

SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) moved to the Prime market in July 2024 and their TOPIX Inclusion events took place at the end of August 2024.
We currently have CELSYS (3663 JP), Japan Eyewear Holdings (5889 JP), and Core Concept Technologies Inc (4371 JP) in our TOPIX Inclusions pre-event watchlist.


TOPIX Inclusions: Who Is Ready (September 2024)

<ul>
<li>The most significant reason for decreasing parent-subsidiary listings is the presence of overseas investors who have long pointed out the problems with this issue. This TSE's request will support them.</li>
<li>The issue of parent-subsidiary listing is whether the listed parent should incorporate the profitability of equity-method affiliate/listed subsidiary to enhance its profitability, or effectively use its assets by divesting them.</li>
<li>If extending to equity-method affiliates, there are many companies that haven't made progress in reviewing their business portfolios, and this is where the fundamental issue of ROE not increasing lies.</li>
</ul>


The most significant reason for decreasing parent-subsidiary listings is the presence of overseas investors who have long pointed out the problems with this issue. This TSE's request will support them.
The issue of parent-subsidiary listing is whether the listed parent should incorporate the profitability of equity-method affiliate/listed subsidiary to enhance its profitability, or effectively use its assets by divesting them.
If extending to equity-method affiliates, there are many companies that haven't made progress in reviewing their business portfolios, and this is where the fundamental issue of ROE not increasing lies.


Parent-Subsidiary Listing Issues Lead to Reasons Why ROE Is Not Increasing

<ul>
<li>While cash on hand is high, many companies have not been able to improve their return on capital, so more companies are expected to announce shareholder returns, including share repurchases.</li>
<li>The change in awareness of companies can be attributed largely to the changing environment of high foreign ownership and TSE requests.</li>
<li>Since it takes time to raise the profit margin, and it's not easy to identify CapEx opportunities, the measures to improve ROE will reduce policy shareholdings and cash on hand.</li>
</ul>


While cash on hand is high, many companies have not been able to improve their return on capital, so more companies are expected to announce shareholder returns, including share repurchases.
The change in awareness of companies can be attributed largely to the changing environment of high foreign ownership and TSE requests.
Since it takes time to raise the profit margin, and it's not easy to identify CapEx opportunities, the measures to improve ROE will reduce policy shareholdings and cash on hand.


While Raising Profit Margin Isn't Easy, the Focus Is on Reducing Policy-Shares and Cash on Hand

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)

Companies Should Reset the Yen's Depreciation Benefit Mindset and Regain Core Competencies

I would like to discuss the issues on the July 26 Nikkei article, “Japanese Stocks on a Growth Path: Market Reforms Needed Now."

Metrical Inc

Disclosure Is Important, but Walk the Talk Is More Important

I would like to discuss the issues on the July 24 Nikkei article, “Disclosure of ‘how money is used’ doubles: Mitsui Fudosan's investment in growth...

Metrical Inc

TOPIX Inclusions: Who Is Ready (September 2024)

Our long-term pre-event candidate Celsys (3663 JP) has outperformed TOPIX by +21.3% in the last month. The stock has decent earnings momentum and...

Janaghan Jeyakumar, CFA

Parent-Subsidiary Listing Issues Lead to Reasons Why ROE Is Not Increasing

I would like to discuss the issues on the July 23 Nikkei Shimbun article, “Parent and Subsidiary Listings Halve from Peak; Lawson to Delist on July...

Metrical Inc

While Raising Profit Margin Isn't Easy, the Focus Is on Reducing Policy-Shares and Cash on Hand

I would like to discuss the issues on the July 22 Nikkei Shimbun article, “10 trillion yen of share buybacks coming up in 2024, 30% of which will...

Metrical Inc