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>Although it's possible to move AGM forward given the timing of financial reporting, 70% of companies will hold their AGM during the 3 days of the last week of June.</li>
<li>As long as the concentration of AGM dates continues, the start of electronic provision of AGM documents should at least be accelerated to allow time to review the agenda.</li>
<li>Only slightly less than 30% of prime market listed companies provide English translations of all convocation notices, including business reports and financial statements.</li>
</ul>


Although it's possible to move AGM forward given the timing of financial reporting, 70% of companies will hold their AGM during the 3 days of the last week of June.
As long as the concentration of AGM dates continues, the start of electronic provision of AGM documents should at least be accelerated to allow time to review the agenda.
Only slightly less than 30% of prime market listed companies provide English translations of all convocation notices, including business reports and financial statements.


Many Companies Still Consider Engagement with Investors to Be Someone Else's Business

<ul>
<li>Companies that increased Tobin'sQ have further increased Tobin'sQ due to continued growth in ROE and ROA. They have room to further improve return on capital by reducing cash on hand.</li>
<li>Companies with lower Tobin's Q may include small-cap stocks that are increasingly undervalued because they have relatively high ROE and ROA but are not covered by overseas investors.</li>
<li>Over the past year, few companies raised their valuations based solely on expectations of P/B bottoming-out without improving profitability, and IR activities alone have had limited effect in boosting valuations.</li>
</ul>


Companies that increased Tobin'sQ have further increased Tobin'sQ due to continued growth in ROE and ROA. They have room to further improve return on capital by reducing cash on hand.
Companies with lower Tobin's Q may include small-cap stocks that are increasingly undervalued because they have relatively high ROE and ROA but are not covered by overseas investors.
Over the past year, few companies raised their valuations based solely on expectations of P/B bottoming-out without improving profitability, and IR activities alone have had limited effect in boosting valuations.


Improved Profitability to Attract Overseas Investors Key to Raise Valuation Even After TSE's Request

<ul>
<li>While communication with investors is an important tool, "TSE's request" should be the starting point for solving management issues, as it gave managers the opportunity to think about strategy themselves.</li>
<li>Since many Japanese companies have management issues, it is not surprising that more activist investors believe that investment opportunities can be created by encouraging companies to solve these issues.</li>
<li>Even if a company can convince activist investors through shareholder relations, it will only buy time, and investors/shareholders are looking to increase corporate value by solving problems.</li>
</ul>


While communication with investors is an important tool, "TSE's request" should be the starting point for solving management issues, as it gave managers the opportunity to think about strategy themselves.
Since many Japanese companies have management issues, it is not surprising that more activist investors believe that investment opportunities can be created by encouraging companies to solve these issues.
Even if a company can convince activist investors through shareholder relations, it will only buy time, and investors/shareholders are looking to increase corporate value by solving problems.


Investors Are Looking for Solutions to Challenges, Not Simply Improved Communication with Investors

<ul>
<li>Since shareholder proposals related to "TSE requests" are unlikely to be passed at the AGM, many companies are likely to have capital profitability improvement plans that merely indicate effort targets.</li>
<li>The outperformance of TOPIX by the company that announced the medium-term management plan can be attributed to the short-term outperformance of the company that announced the share repurchase.</li>
<li>Investors don’t trust the contents of "mid-term management plan" because they are focusing on more reliable shareholder return rather than betting on improving operating margins over the uncertain three-year horizon.</li>
</ul>


Since shareholder proposals related to "TSE requests" are unlikely to be passed at the AGM, many companies are likely to have capital profitability improvement plans that merely indicate effort targets.
The outperformance of TOPIX by the company that announced the medium-term management plan can be attributed to the short-term outperformance of the company that announced the share repurchase.
Investors don’t trust the contents of "mid-term management plan" because they are focusing on more reliable shareholder return rather than betting on improving operating margins over the uncertain three-year horizon.


Investors Still Do Not Trust the Profit Margin Improvement in the Mid-Term Management Plan

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Event-Driven

<ul>
<li>The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.</li>
<li>
<a href="https://www.smartkarma.com/entities/tokio-marine-holdings-inc" target="_blank" data-smartkarma-citation="entities:7591:1" rel="noopener">Tokio Marine Holdings (8766 JP)</a> had a stake over US$100m in at least 33 listed Japanese stocks, amounting to a total of US$16.5bn.</li>
<li>In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.</li>
</ul>


The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.

Tokio Marine Holdings (8766 JP) had a stake over US$100m in at least 33 listed Japanese stocks, amounting to a total of US$16.5bn.
In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.


Tokio Marine Cross-Shareholding - At Least US$18bn of Cross-Shareholding to Sell

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)

Many Companies Still Consider Engagement with Investors to Be Someone Else's Business

I would like to discuss the issues on the TSE's April 25 disclosure, "Trends in Annual General Meetings of Shareholders of Companies whose Fiscal...

Metrical Inc

Improved Profitability to Attract Overseas Investors Key to Raise Valuation Even After TSE's Request

I would like to discuss the issues on the characteristics and trends of the five groups of companies based on the percentage change in Tobin's Q.

Metrical Inc

Investors Are Looking for Solutions to Challenges, Not Simply Improved Communication with Investors

I would like to discuss the issues on the March 26 Nikkei article, "Mitsubishi UFJ Trust to Increase Headcount by 30% to Help Companies Counteract...

Metrical Inc

Investors Still Do Not Trust the Profit Margin Improvement in the Mid-Term Management Plan

I would like to discuss the the April 8 Nikkei article, "Expectations for Issues with 'Medium-Term Management Plans': Capital Efficiency...

Metrical Inc

Tokio Marine Cross-Shareholding - At Least US$18bn of Cross-Shareholding to Sell

Tokio Marine today announced that it aims to cut its cross-shareholding to zero by FY2029. It will aim to sell 50% of its holdings worth around...

Sumeet Singh