Category

ESG

Apr 01
0

Daily Brief ESG: The Good Case Companies Had More Opportunities to Reflect on Cost of Capital and Return on Capital and more

By | Daily Briefs, ESG

In today’s briefing:

  • The Good Case Companies Had More Opportunities to Reflect on Cost of Capital and Return on Capital

The Good Case Companies Had More Opportunities to Reflect on Cost of Capital and Return on Capital

By Aki Matsumoto

  • Characteristic of companies TSE introduced as good disclosure examples is that they include more companies with a high foreign ownership and those that pay relatively close attention to cash allocation.
  • Not all companies that are good examples have increased their valuations noticeably compared to before TSE market restructuring, but TSE has chosen them based on the content of their initiatives.
  • These companies didn’t create their cash allocation policies abruptly, but had more opportunities to think through cost of capital, return on capital and stock price through engagements with overseas investors.

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Mar 30
0

Daily Brief ESG: Drivers of Corporate Governance Improvement Are the Percentage of Foreign Shareholdings and more

By | Daily Briefs, ESG

In today’s briefing:

  • Drivers of Corporate Governance Improvement Are the Percentage of Foreign Shareholdings

Drivers of Corporate Governance Improvement Are the Percentage of Foreign Shareholdings

By Aki Matsumoto

  • Overseas investors tend to invest in companies with large market capitalization and high profitability, resulting in higher stock price valuations. They also tend to avoid investing in listed subsidiaries.
  • Since companies with over 20% foreign ownership show superior board practices, it’s reasonable to assume that board practices improve as foreign ownership increases and the influence of overseas investors increases.
  • Companies with more than 30% foreign ownership have many items that generally show excellent values in Key Actions. However, all companies still face challenges in cash allocation.

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Mar 28
0

Daily Brief ESG: NTV’s Change of Policy Is a Positive Effect Of TSE’s Request and more

By | Daily Briefs, ESG

In today’s briefing:

  • NTV’s Change of Policy Is a Positive Effect Of TSE’s Request, But Its Seriousness Will Be Tested Now

NTV’s Change of Policy Is a Positive Effect Of TSE’s Request, But Its Seriousness Will Be Tested Now

By Aki Matsumoto

  • Although unavoidable under the provisions of Broadcasting Act, the fact that the right to receive dividends as interest-bearing securities was inhibited was problematic in terms of fairness with other shareholders.
  • NTV Holdings, which has ignored this issue, changes its policy, which is a positive impact of “TSE’s request,” but NTV’s seriousness can be measured by whether it raises its ROE.
  • If the intention is to leave cross-shareholdings intact and attract overseas investor purchases through some share repurchases, there would be little prospect of a serious increase in ROE.

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Mar 27
0

Daily Brief ESG: Shareholder Returns Should Be Examined on a Cash Basis and more

By | Daily Briefs, ESG

In today’s briefing:

  • Shareholder Returns Should Be Examined on a Cash Basis, Not on a Net Profit Basis

Shareholder Returns Should Be Examined on a Cash Basis, Not on a Net Profit Basis

By Aki Matsumoto

  • The pace of share repurchases in 2023 (+1.4%, YoY) is not sufficient compared to the increase in corporate profits, and there is much room for reconsideration of cash allocations.
  • In Japan, where many manufacturers keep CapEx within the depreciation, it’s more important to verify whether shareholder return is appropriate on a cash basis rather than a net income basis.
  • Companies that fail to formulate measures to generate ROE that exceeds the cost of capital in accordance with TSE requests are not able to achieve an appropriate cash allocation.

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Mar 24
0

Daily Brief ESG: First Step in Engagement in Term of Listening to Overseas Investors Is Seeking Disclosure in English and more

By | Daily Briefs, ESG

In today’s briefing:

  • First Step in Engagement in Term of Listening to Overseas Investors Is Seeking Disclosure in English

First Step in Engagement in Term of Listening to Overseas Investors Is Seeking Disclosure in English

By Aki Matsumoto

  • Companies with the highest Disclosure in English scores have the highest ROE, Tobin’s Q, Market Capitalization, and Foreign Shareholder Ratio, while companies with the lowest scores have the lowest values.
  • Companies with the highest Disclosure in English scores also show generally higher Board Practices and Key Actions. Both Disclosure in English and these practices are the result of engagement efforts.
  • If Disclosure in English and corporate governance efforts are advanced through engagement, it can be hypothesized that profitability will also increase through engagement with overseas investors.

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Mar 22
0

Daily Brief ESG: A Change in Manager’s Mindset that Has Begun Will Lower the Investment Risk for Activist Investors and more

By | Daily Briefs, ESG

In today’s briefing:

  • A Change in Manager’s Mindset that Has Begun Will Lower the Investment Risk for Activist Investors

A Change in Manager’s Mindset that Has Begun Will Lower the Investment Risk for Activist Investors

By Aki Matsumoto

  • In the past, value traps were macro environment that couldn’t generate profits in deflationary economy, and micro problem of managers who didn’t listen to constructive management improvement proposals from investors.
  • The introduction of Stewardship Code and Corporate Governance Code, and TSE’s request for change in awareness of companies, has reduced the risk of activist investors’ investment strategies flailing around in vain.
  • Management awareness has just begun to change, and few companies generate intrinsic value, as evidenced by the fact that ROE hasn’t begun to improve. Activist investors will continue taking interest.

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Mar 20
0

Daily Brief ESG: Continued Creation of JPX Prime 150-Type Passive Funds Will Help Solve TOPIX Challenges and more

By | Daily Briefs, ESG

In today’s briefing:

  • Continued Creation of JPX Prime 150-Type Passive Funds Will Help Solve TOPIX Challenges

Continued Creation of JPX Prime 150-Type Passive Funds Will Help Solve TOPIX Challenges

By Aki Matsumoto

  • TOPIX-Type passive funds have the challenges of buying stocks that aren’t of high quality and of not providing sufficient engagement. JPX Prime 150 is expected to resolve these issues.
  • Some believe that JPX Prime 150, a market capitalization-weighted index, shows little difference in performance from TOPIX. However, more careful engagement will contribute to value creation in the long run.
  • The continued creation of passive funds linked to the JPX Prime 150 Index is expected to further highlight high quality companies.

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Mar 18
0

Daily Brief ESG: In the Prime Market and more

By | Daily Briefs, ESG

In today’s briefing:

  • In the Prime Market, Disclosure in English Also Widens the Gap in the Company’s Attitude

In the Prime Market, Disclosure in English Also Widens the Gap in the Company’s Attitude

By Aki Matsumoto

  • Most companies with large market capitalization (i.e., those with a high ratio of foreign shareholders) already disclose their financial statements, timely disclosure materials, and convocation notices in English.
  • Disclosure in English of corporate governance reports and annual securities reports, which have lagged behind, is gradually increasing among companies with large market capitalization.
  • Similar to the results of the recent disclosure regarding the ”TSE’s request”, there is also a difference in the disclosure stance between companies with large market capitalization and other companies.

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Mar 16
0

Daily Brief ESG: Is the Emission Data of a Company that Doesn’t Disclose in Annual Securities Report Reliable? and more

By | Daily Briefs, ESG

In today’s briefing:

  • Is the Emission Data of a Company that Doesn’t Disclose in Annual Securities Report Reliable?

Is the Emission Data of a Company that Doesn’t Disclose in Annual Securities Report Reliable?

By Aki Matsumoto

  • Corporate Governance Code requires disclosure based on TCFD, and an ISSB-based disclosure system will be discussed in Japan. While interest in disclosing climate change-related information is growing, disclosure hasn’t progressed.
  • In the TSE survey, only one-tenth of the companies that listed Scope 1, 2, and 3 emissions in their integrated reports disclosed them in their annual reports.
  • If a company can’t disclose Scope 1/Scope 2 in its annual securities report, there’s concern that the company may have challenges in data collection and risk delaying management decisions.

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Mar 14
0

Daily Brief ESG: Will Parent Company Valuations Remain Undervalued Until the Parent-Subsidiary Listing Is Dissolved? and more

By | Daily Briefs, ESG

In today’s briefing:

  • Will Parent Company Valuations Remain Undervalued Until the Parent-Subsidiary Listing Is Dissolved?

Will Parent Company Valuations Remain Undervalued Until the Parent-Subsidiary Listing Is Dissolved?

By Aki Matsumoto

  • It’s true that the difference in profit margins between a listed subsidiary that focuses on specific business and a parent company that has different businesses is the difference in valuations. 
  • It will be difficult for a parent company to reverse the valuations of its subsidiaries until the parent company dissolves the parent-subsidiary listing and increases its own profit margins.
  • With respect to corporate governance practices, companies with no major shareholders are included with relatively higher corporate governance scores, but this isn’t as significant difference as it tends to be.

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