Category

ESG

Oct 25
0

Daily Brief ESG: To Raise a Company’s ROE and OP Margin and more

By | Daily Briefs, ESG

In today’s briefing:

  • To Raise a Company’s ROE and OP Margin, Significant Restructuring of Business Portfolio Is Necessary

To Raise a Company’s ROE and OP Margin, Significant Restructuring of Business Portfolio Is Necessary

By Aki Matsumoto

  • BoJ will want to retain discretion regarding ETF sales, so it’ll sell flexibly depending on stock market conditions. The sale of ETFs is just the beginning of a long journey.
  • The shift to inflationary economy has made it easier than before to implement measures to improve capital profitability. Nevertheless, companies whose capital profitability hasn’t improved significantly should make further efforts.
  • To raise average ROE of companies 2ppt, OP margin must increase 25% from current levels. Achieving 25% increase in a company’s overall OP margin requires significant restructuring of business portfolios.

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Oct 23
0

Daily Brief ESG: Despite BoJ’s Post of ETF Sales and more

By | Daily Briefs, ESG

In today’s briefing:

  • Despite BoJ’s Post of ETF Sales, the Path to Normalization in Corporate Governance Remains Distant

Despite BoJ’s Post of ETF Sales, the Path to Normalization in Corporate Governance Remains Distant

By Aki Matsumoto

  • BoJ’s policy of small-scale ETF sales appears to have made inflation curb more difficult due to the yen’s depreciation, although it did not trigger a sharp stock market decline.
  • The ETFs held by BoJ reduce trading liquidity, thereby increasing stock price volatility and limiting the number of Japanese stocks available for investment by major institutional investors.
  • Given that the Bank of Japan’s holdings of ETFs exceed 20% of the issued shares in some companies, the existence of “silent shareholders” is not healthy for corporate governance.

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Oct 21
0

Daily Brief ESG: Companies Unable to Escape the Curse of the Unfortunate History of Misunderstanding “Cost of Equity” and more

By | Daily Briefs, ESG

In today’s briefing:

  • Companies Unable to Escape the Curse of the Unfortunate History of Misunderstanding “Cost of Equity”

Companies Unable to Escape the Curse of the Unfortunate History of Misunderstanding “Cost of Equity”

By Aki Matsumoto

  • In the past, dividends paid out of net income were often mistakenly regarded as “equity costs.” Consequently, many companies have adopted the concept of payout ratio as their dividend policy.
  • The increasing number of companies adopting dividend policy based on DOE may help curb the expansion of shareholders’ equity, but it hasn’t yet led to active use to raise ROE.
  • Few managers still understand that entire FCF belongs to shareholders. Due to the unfortunate history of dividends mistakenly viewed as “equity costs,” few companies clearly articulate their cash allocation strategies.

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Oct 20
0

Daily Brief ESG: Election of Foreign Board Directors Is More Critical than ％ of Female Board Members and more

By | Daily Briefs, ESG

In today’s briefing:

  • Election of Foreign Board Directors Is More Critical than ％ of Female Board Members

Election of Foreign Board Directors Is More Critical than ％ of Female Board Members

By Aki Matsumoto

  • The gradual increase in the proportion of independent directors is partly due to the growing shift from companies with audit committees to companies with audit and supervisory committees.
  • Companies with audit committees tend to have more outside directors by design, yet they can delegate operational matters to inside directors. Consequently, companies don’t strongly resist having more outside directors.
  • As more companies expand businesses globally, the number of foreign directors hasn’t increased significantly. The reason for this lack of growth is the absence of specific targets set by regulators.

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Oct 17
0

Daily Brief ESG: What the Two ROEs Mean and more

By | Daily Briefs, ESG

In today’s briefing:

  • What the Two ROEs Mean

What the Two ROEs Mean

By Aki Matsumoto

  • Although Net Profit Margin has been the most highly correlated of 3 components of ROE, improvements in Asset Turnover and Equity Ratio driven by share buybacks are now drawing attention.
  • In FY2026, once the temporary impact of U.S. tariffs has run its course, companies engaged in global business are expected to more aggressively repurchase their own shares alongside recovering profits.
  • The ROE derived from the aggregate profits and net assets of all companies differs by over 1% from the average ROE of individual companies, and this gap won’t be narrow.

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Oct 15
0

Daily Brief ESG: Many Companies Still Miss Opportunities to Deepen Investors’ Understanding of Business Strategies and more

By | Daily Briefs, ESG

In today’s briefing:

  • Many Companies Still Miss Opportunities to Deepen Investors’ Understanding of Business Strategies

Many Companies Still Miss Opportunities to Deepen Investors’ Understanding of Business Strategies

By Aki Matsumoto

  • While more companies are now undertaking English-language disclosures compared to the past, many have merely implemented them without achieving level that truly helps overseas investors deepen understanding of management strategies.
  • Overseas investors seek qualitative explanations and information regarding long-term strategies, yet many companies are reluctant to proactively disclose such information in English, including “corporate governance information” and “long-term/growth strategies.”
  • Only a limited number of companies provide opportunities for top management to directly explain business strategies to overseas investors in English or for outside directors to meet with overseas investors.

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Oct 13
0

Daily Brief ESG: Disclosure in English Is a Way to Help Overseas Investors Better Understand Management Strategy and more

By | Daily Briefs, ESG

In today’s briefing:

  • Disclosure in English Is a Way to Help Overseas Investors Better Understand Management Strategy

Disclosure in English Is a Way to Help Overseas Investors Better Understand Management Strategy

By Aki Matsumoto

  • Financial statements and accompanying explanations alone provide insufficient information about the background of earnings results and guidance, so overseas investors seek qualitative and information about long-term strategies regarding earnings information.
  • Currently, only half of Prime Market-listed companies disclose full earnings releases in English. It’s only natural that investors would want IR briefing materials to be disclosed in English as well.
  • Companies whose top management cannot communicate directly in English with overseas investors should provide simultaneous interpretation or written English translations for their investor relations presentations.

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Oct 11
0

Daily Brief ESG: The Key Is when the Next Move Will Come that Steers Away from Increasing Cash on Hand and more

By | Daily Briefs, ESG

In today’s briefing:

  • The Key Is when the Next Move Will Come that Steers Away from Increasing Cash on Hand

The Key Is when the Next Move Will Come that Steers Away from Increasing Cash on Hand

By Aki Matsumoto

  • Even as more companies shifted to cash flow-focused management, their cash reserves remained stubbornly high, and few announced cash allocation policies. Finally, cash reserves began to decline—driven by TSE’s request.
  • ROE and P/B of companies that disclosed in response to TSE’s request haven’t improved. Consequently, the strategic intent behind share buybacks appears weak and isn’t being well received by investors.
  • The decision to veer away from increasing cash reserves is the first step. How long will it take before the next move emerges to improve capital profitability and generate value?

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Oct 09
0

Daily Brief ESG: Companies Still Prioritize Compliance with the TSE over Consideration for Shareholders Interest and more

By | Daily Briefs, ESG

In today’s briefing:

  • Companies Still Prioritize Compliance with the TSE over Consideration for Shareholders Interest

Companies Still Prioritize Compliance with the TSE over Consideration for Shareholders Interest

By Aki Matsumoto

  • Given the fact that disclosure alone failed to raise stock valuations over three years, it can be assumed that many companies still prioritize compliance with TSE over consideration for shareholders.
  • Many companies have only recently begun incorporating capital allocation, cost of capital, and capital profitability into disclosures, so it’ll take a little while longer for the results to become apparent.
  • Without serious showdown with investors driven by exercising voting rights, it’s doubtful whether genuine management reform can be achieved. Without a sense of urgency in management, change will not occur.

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Oct 08
0

Daily Brief ESG: Example Supporting that Disclosure of Improvement Plans and Their Effectiveness Are Separate Matters and more

By | Daily Briefs, ESG

In today’s briefing:

  • Example Supporting that Disclosure of Improvement Plans and Their Effectiveness Are Separate Matters

Example Supporting that Disclosure of Improvement Plans and Their Effectiveness Are Separate Matters

By Aki Matsumoto

  • Standard Market contains many companies with small market capitalizations and low trading liquidity, so there aren’t many companies in the Standard Market that institutional investors can consider as investment targets.
  • Standard Market has more companies with P/B below 1x and ROE below 8%, but there’s little difference between Prime Market and Standard Market in their improvements over past two years.
  • Whether companies disclosed improvement plans in response to the TSE’s request does not necessarily correlate with improvements in their P/B ratio or ROE.

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