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.

Keisei Electric Railway Co., Ltd. provides passenger rail and bus transportation services in the Metropolitan Tokyo and Chiba prefecture areas.  The Company operates department and supermarket stores, hotels, travel agents, movie theater and restaurants, and sells, leases, and maintains real estate.  Keisei Electric is a shareholder of Oriental Land Co., Ltd. which operates Tokyo Disneyland.

<ul>
<li>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.</li>
<li>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.</li>
<li>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.</li>
</ul>


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.


Golden Egg Was Not Lost, but How Long Can Keisei Electric Railway Buy Time?

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.

<ul>
<li>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.</li>
<li>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.</li>
<li>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.</li>
</ul>


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.


Stricter Voting Criteria for Domestic Asset Managers May Aim to Enhance Value Through Engagement

<ul>
<li>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.</li>
<li>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.</li>
<li>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.</li>
</ul>


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.


More Companies Will Choose to Go Private Because They Can't Find an Effective Use for Their Cash

<ul>
<li>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.</li>
<li>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. </li>
<li>Nearly half of all listed companies are companies with major shareholders of 20% or more, which is an obstacle to improving corporate governance.</li>
</ul>


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.


The Solution to Better Corporate Governance Is to Reduce the # of Companies with Large Shareholders

<ul>
<li>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."</li>
<li>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.</li>
<li>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.</li>
</ul>


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.


Doesn't Cooperation Rather than Competition Slow the Pace of Improvement in Disclosure in English?

Executive Director, Co-head of CG Research, Metrical Inc.
METRICAL INC. is a corporate governance(CG)research, investment research and consulting firm in Japan, offering a full service CG research and solutions to investors, public companies and other wide range of organizations globally. http://www.metrical.co.jp/

Aki Matsumoto
Executive Director
• Metrical Inc

Golden Egg Was Not Lost, but How Long Can Keisei Electric Railway Buy Time?

I would like to discuss the issues on the March 8 Nikkei article, "Keisei Electric Railway to Sell 1% Stake in Tokyo Disney, a Compromise for...

Metrical Inc

Stricter Voting Criteria for Domestic Asset Managers May Aim to Enhance Value Through Engagement

I would like to discuss the issues on the March 7 Nikkei article, "Two Major Asset Management Companies Oppose Appointment of 'CEO' for Companies...

Metrical Inc

More Companies Will Choose to Go Private Because They Can't Find an Effective Use for Their Cash

I would like to discuss the issues on the March 5 Nikkei Shimbun article, Listed Companies' ROE 9.7%, Capital Efficiency Improved by Profit...

Metrical Inc

The Solution to Better Corporate Governance Is to Reduce the # of Companies with Large Shareholders

I would like to discuss the issues on the March 4 Nikkei article, "Top Analysts' Focus: Expectations for Enhanced Shareholder Returns."

Metrical Inc

Doesn't Cooperation Rather than Competition Slow the Pace of Improvement in Disclosure in English?

I would like to discuss the issues on the February 26 Nikkei article, "TSE Announces Mandatory English Disclosure Starting April 2025.”

Metrical Inc