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 which means there will TOPIX Inclusions at the end of August 2024.</li>
<li>Our pre-event pick <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a> has seen its price fall by more than 20% during the recent market sell-off and it is close to a key share price threshold.  </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 which means there will TOPIX Inclusions at the end of August 2024.
Our pre-event pick CELSYS (3663 JP) has seen its price fall by more than 20% during the recent market sell-off and it is close to a key share price threshold.  


TOPIX Inclusions: Who Is Ready (August 2024)

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>Sustainable management should be considered in the sustainable expansion of corporate value, including shareholders' interest, and non-financial information should provide direction based on information that isn't feasible, including financial information.</li>
<li>Starting with appointing people who are diverse in nationality and gender to the board of directors will lead to discussing management issues with diverse opinions.</li>
<li>Significant differences exist between those companies that have improved their efforts to improve board practices and capital profitability and achieved results, and those that have only formally put board practices.</li>
</ul>


Sustainable management should be considered in the sustainable expansion of corporate value, including shareholders' interest, and non-financial information should provide direction based on information that isn't feasible, including financial information.
Starting with appointing people who are diverse in nationality and gender to the board of directors will lead to discussing management issues with diverse opinions.
Significant differences exist between those companies that have improved their efforts to improve board practices and capital profitability and achieved results, and those that have only formally put board practices.


Sustainability Has Many Companies Confused About Linking Financial and Non-Financial Information

<ul>
<li>Signs of change in companies that have improved their capital profitability and valuations can be seen in their policy shareholdings/total assets. </li>
<li>Companies with fewer policy shareholdings, as measured by (policy shareholdings + equity holdings)/total assets, tend to have the best values for valuation, ROE, and ROA, and vice versa.</li>
<li>To measure the seriousness of reducing cross-shareholdings, as long as the company has the voting right of cross-shareholdings in retirement benefit trust, the deemed shares should be included in cross-shareholdings.</li>
</ul>


Signs of change in companies that have improved their capital profitability and valuations can be seen in their policy shareholdings/total assets. 
Companies with fewer policy shareholdings, as measured by (policy shareholdings + equity holdings)/total assets, tend to have the best values for valuation, ROE, and ROA, and vice versa.
To measure the seriousness of reducing cross-shareholdings, as long as the company has the voting right of cross-shareholdings in retirement benefit trust, the deemed shares should be included in cross-shareholdings.


Reducing Cross Shareholdings Is Necessary to Increase the Effectiveness of Engagement

<ul>
<li>The issue of the discrepancy between disclosure documents in English highly remanded by overseas investors and actual disclosures in English by companies has not been resolved.</li>
<li>Companies with the highest English language disclosure scores had superior ROE, valuation, market capitalization and foreign ownership, and corporate governance. Companies with the lowest English disclosure scores showed the opposite.</li>
<li>Through overseas investor engagement, companies are likely to improve its corporate governance practices and has actually taken actions that have led to improved capital profitability.</li>
</ul>


The issue of the discrepancy between disclosure documents in English highly remanded by overseas investors and actual disclosures in English by companies has not been resolved.
Companies with the highest English language disclosure scores had superior ROE, valuation, market capitalization and foreign ownership, and corporate governance. Companies with the lowest English disclosure scores showed the opposite.
Through overseas investor engagement, companies are likely to improve its corporate governance practices and has actually taken actions that have led to improved capital profitability.


English Language Disclosure Will Raise Investment of Overseas Investors and Lead to Higher Valuation

<ul>
<li>Companies that have increased their valuations over the past year are those with higher valuations and have further increased their ROE and ROA, resulting in even higher valuations.</li>
<li>The difference between the characteristics of companies whose valuations increased and those whose valuations did not change over the past year is the foreign ownership ratio.</li>
<li>Companies with low foreign ownership have less access to overseas investors' suggestions for solving individual company problems, which is why they are slow to act to improve capital profitability.</li>
</ul>


Companies that have increased their valuations over the past year are those with higher valuations and have further increased their ROE and ROA, resulting in even higher valuations.
The difference between the characteristics of companies whose valuations increased and those whose valuations did not change over the past year is the foreign ownership ratio.
Companies with low foreign ownership have less access to overseas investors' suggestions for solving individual company problems, which is why they are slow to act to improve capital profitability.


Companies Without Engagement Opportunities Lack a Sense of Urgency to Solve Problems

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)

TOPIX Inclusions: Who Is Ready (August 2024)

As far as the share price of CELSYS stays above JPY689, CELSYS would be able to satisfy the key Section Transfer requirements.

Janaghan Jeyakumar, CFA

Sustainability Has Many Companies Confused About Linking Financial and Non-Financial Information

I would like to discuss the overview of "Management with Sustainability in Mind" in the "Action Program 2024 for Implementing Corporate Governance...

Metrical Inc

Reducing Cross Shareholdings Is Necessary to Increase the Effectiveness of Engagement

I would like to discuss the overview of "Solving Market Environment Challenges" in the "Action Program 2024 for Implementing Corporate Governance...

Metrical Inc

English Language Disclosure Will Raise Investment of Overseas Investors and Lead to Higher Valuation

I would like to discuss the overview of "Enhancing Information Disclosure and Promoting Dialogue with Global Investors" in the "Action Program 2024...

Metrical Inc

Companies Without Engagement Opportunities Lack a Sense of Urgency to Solve Problems

I would like to discuss the overview of "Management Conscious of Profitability and Growth" in the "Action Program 2024 for Implementing Corporate...

Metrical Inc