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>Last year's CAPEX plan was also a record high, but ROE growth was limited. We should closely monitor whether the allocation of CAPEX, shareholder returns, and retained earnings is appropriate.</li>
<li>When a company finally begins using cash on hand for investments and lacks reliable track records, it should be monitored to ensure that it’s generating sufficient cash flow from CAPEX.</li>
<li>The trend continues to remain that most investments are directed overseas. Note that many Japanese companies have a history of having difficulty managing their overseas operations.</li>
</ul>


Last year's CAPEX plan was also a record high, but ROE growth was limited. We should closely monitor whether the allocation of CAPEX, shareholder returns, and retained earnings is appropriate.
When a company finally begins using cash on hand for investments and lacks reliable track records, it should be monitored to ensure that it’s generating sufficient cash flow from CAPEX.
The trend continues to remain that most investments are directed overseas. Note that many Japanese companies have a history of having difficulty managing their overseas operations.


Focus on Cash Flow Recovery from Investments as Planned, as Well as Appropriate Cash Allocation

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Thematic (Sector/Industry)

<ul>
<li>A review of recent events/data impacting our investment themes or outlook</li>
<li>We take a look at how some of the markets we focus on reacted to the aftermath of the Federal Reserve Decision.</li>
<li>China is watching key levels on the Shanghai Composite Index</li>
</ul>


A review of recent events/data impacting our investment themes or outlook
We take a look at how some of the markets we focus on reacted to the aftermath of the Federal Reserve Decision.
China is watching key levels on the Shanghai Composite Index


<ul>
<li>Without the driving force to generate cash flow in excess of the discount rate (cost of capital), there is not enough power to push stock valuations higher and higher.</li>
<li>The fact that 8% ROE is the threshold at which valuations change means that investors consider the cost of capital for Japanese equities to be roughly 8% on average.</li>
<li>Little progress has been made since 10 years ago, when the Ito Report advocated "shift to corporate value management with an awareness of capital efficiency" and "engagement of institutional investors.”</li>
</ul>


Without the driving force to generate cash flow in excess of the discount rate (cost of capital), there is not enough power to push stock valuations higher and higher.
The fact that 8% ROE is the threshold at which valuations change means that investors consider the cost of capital for Japanese equities to be roughly 8% on average.
Little progress has been made since 10 years ago, when the Ito Report advocated "shift to corporate value management with an awareness of capital efficiency" and "engagement of institutional investors.”


Will the Challenges that Have Taken a Decade to Make Progress Finally Be Resolved?

<ul>
<li>Rather than "companies with advanced disclosure have higher ratios of female managers," companies with high ratios of female managers are willing to disclose their ratios to show their progress.</li>
<li>Women's tenure in the company is shorter than men's, which is one of the reasons for the low ratio of women in management positions.</li>
<li>Changing from the "traditional division of labor in households" to a mindset in which men and women are equally responsible for household tasks is essential to solving the root problem.</li>
</ul>


Rather than "companies with advanced disclosure have higher ratios of female managers," companies with high ratios of female managers are willing to disclose their ratios to show their progress.
Women's tenure in the company is shorter than men's, which is one of the reasons for the low ratio of women in management positions.
Changing from the "traditional division of labor in households" to a mindset in which men and women are equally responsible for household tasks is essential to solving the root problem.


Mandatory Disclosure of the % of Women Managers Alone Will End up Being a Noncommittal Measure

<ul>
<li>Few Japanese stocks that have advantages in profitability has led to the fact that investors who invest long-term in quality stocks have few Japanese stocks to choose from globally.</li>
<li>It's the profit margin on sales that has had the greatest impact on changes in ROE. Companies must now get their core competencies once again to regain competitiveness and profitability.</li>
<li>Even if business selection and investment in promising businesses were to be implemented, it would be several years before they bear fruit. For many investors, this pace seems unacceptable.</li>
</ul>


Few Japanese stocks that have advantages in profitability has led to the fact that investors who invest long-term in quality stocks have few Japanese stocks to choose from globally.
It's the profit margin on sales that has had the greatest impact on changes in ROE. Companies must now get their core competencies once again to regain competitiveness and profitability.
Even if business selection and investment in promising businesses were to be implemented, it would be several years before they bear fruit. For many investors, this pace seems unacceptable.


Can Investors Tolerate the Current Pace of Capital Profitability Improvement?

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)

Focus on Cash Flow Recovery from Investments as Planned, as Well as Appropriate Cash Allocation

I would like to discuss the issues on the July 26 Nikkei article, ""CAPEX at 33 trillion yen, record high; Toyota tops the list for the first time."

Metrical Inc

Overview #9 Fallout from the Fed

A review of recent events/data impacting our investment themes and outlook. We look at the usual suspects of Gold, the JPY, Topix and the Hang...

Rikki Malik

Will the Challenges that Have Taken a Decade to Make Progress Finally Be Resolved?

I would like to discuss the issues on the July 24 Nikkei article, "The "1.5x P/B" Wall Stands in the Way of Japanese Stocks."

Metrical Inc

Mandatory Disclosure of the % of Women Managers Alone Will End up Being a Noncommittal Measure

I would like to discuss the issues on the August 2 Nikkei article, "Disclosure of Ratio of Female Managers Mandatory, Lagging Behind Overseas...

Metrical Inc

Can Investors Tolerate the Current Pace of Capital Profitability Improvement?

I would like to discuss the issues on the July 28 Nikkei article, “Japanese Stocks Seek Price Dominance, Industry Restructuring to Attract Foreign...

Metrical Inc