ESG

• The two groups with the highest percentages of female board members (companies with over 30% and 20%-30%) are consistent with the characteristics of companies in which overseas investors primarily invest.
• Companies with over 30% female board members show superior values in many of Board Practices and Key Actions evaluation items. This may be due to improved engagement by overseas investors.
• Companies with no female board members have the lowest values in most Corporate Governance Practices items. Therefore, percentage of female board members indicates the seriousness of improving corporate governance practices.

• Until the “parent-subsidiary (affiliate) listing” is resolved, the value of parent company isn’t  usually reflected. If Keisei has some business interest in holding OLC shares, it’s responsible for explaining it.
• If OLC shares were mostly sold, there’d be nothing left for Keisei, which couldn’t find strategy for using cash, so the decision of not losing the growing affiliate isn’t bad.
• This small sale is to buy time until a clear growth strategy is found, but once the ratio of foreign shareholders exceeds 1/3, building time will likely become more difficult.

• Stricter voting standards for domestic investment managers seem aimed at increasing value through engagement for companies that show little improvement in efforts to improve stock price and return on capital.
• Stricter voting standards for policy shareholding ratios of domestic investment management companies are expected to push companies to consider reducing cross-shareholdings. Reference to deemed shareholdings is also commendable.
• Since engagement of overseas investors has been effective in increasing value of companies, engagement by Japanese investment managers more seriously than before will contribute to enhancing the value of companies.

• The problem lies in the fact that even with a 10% increase in net profit, ROE only grew by 0.5%. This is due to having too much cash on hand.
• TSE has provided an opportunity for companies to develop measures to increase their corporate value. However, not many companies can derive concrete ways to effectively use cash.
• Since many companies are expected to take time to find concrete solution to this problem, an increasing number of companies are expected to go private once they have done so.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Reno de Medici’s ESG as “Adequate”, in line with its Environmental and Governance scores. The company has a “Strong” score for the Social pillar. Controversies are “Immaterial” and Disclosure is “Strong”. 

• Since “profitability of capital” like ROE or ROIC cannot create value in mid-to-long-term without improvement, the fact that ROE has stalled is a cause for concern for future stock prices.
• The slow growth in Net Profit Margin and the sluggish improvement in Asset Turnover and Financial Leverage indicate that it is still holding too much cash, cross-held shares, etc. 
• Nearly half of all listed companies are companies with major shareholders of 20% or more, which is an obstacle to improving corporate governance.

• TSE officially announced that it will request prime market listed companies to simultaneously disclose two documents, financial statements and timely disclosure information, in Japanese and English from April 2025.”
• Given the characteristics of Japanese companies, which tend to implement only minimum requirements, few companies will engage in English language disclosure in their annual securities reports, which wasn’t explicitly stated.
• Rather than improving the quality of the market to make it easier for global investors to trade, TSE has set efforts targets to match the speed of the slowest ship.

• Since 2020, there has been a divergence between P/B and TOPIX movements, complicating matters for listed companies that have been asked to raise their P/Bs.
• Expectations are high for a rise in ROE, which has a certain correlation with nominal GDP, which is also increasingly correlated with TOPIX, as deflation exits.
• If price pass-through fails, escaping deflation may not lead directly to higher profit margins. If profit margin increase is insufficient, reducing cash on hand is essential to increase ROE.

• Net profit per listed company increased 4.4 times over the 33 years from 1989 to 2023, which means only a modest 4.5% annual growth.
• The reason why ROE has been sluggish since FY 2005 is due to the slow growth of Net Profit Margin, the decline of Asset Turnover, and the flat financial leverage.
• When the escape from deflation becomes a reality, the key is to have products ready to pass on prices, and defense by cash alone is not sufficient for this purpose.

• Nominal GDP grew 1.8% from 2012 to 2017, higher than the annual average over the past 33 years, in anticipation of an escape from deflation, but TOPIX gains have stalled.
• Nominal GDP from 2021 to 2023 will grow 3.8% per year, far above the average of the past 33 years, and the correlation with TOPIX is even higher.
• With average P/B showing little correlation with TOPIX after 2020, expanding nominal earnings without losing out to rising prices seems to be a more important factor for stock price appreciation.

• ETF sale is pie in the sky if the dividend income from ETFs held by BOJ is used to cover the interest payments associated with lifting of negative interest rates.
• ETFs held by the Bank of Japan, which account for 7% of prime market capitalization, are actually reducing the number of actual tradable shares and hindering trading liquidity.
• Furthermore, ETFs held by BOJ, which don’t indicate their intention to be shareholders, may be voting in favor of the company’s proposal as new silent shareholders in place of cross-shareholdings.