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 many institutional investors' voting criteria apply the rule of "support the proposed appointment of top management director if one female director is nominated," more in-depth examination should be conducted.</li>
<li>Agenda based on TSE's request isn't easy to understand for all investors, and the current voting guidelines for domestic institutional investors make it unlikely that they will vote for it.</li>
<li>The ISS ROE criteria will be raised next year, and companies may not raise ROE with bold shareholder returns until the voting guidelines for domestic institutional investors are also raised.</li>
</ul>


Although many institutional investors' voting criteria apply the rule of "support the proposed appointment of top management director if one female director is nominated," more in-depth examination should be conducted.
Agenda based on TSE's request isn't easy to understand for all investors, and the current voting guidelines for domestic institutional investors make it unlikely that they will vote for it.
The ISS ROE criteria will be raised next year, and companies may not raise ROE with bold shareholder returns until the voting guidelines for domestic institutional investors are also raised.


Raising ROE May Require Raising Proxy Voting Guidelines

<ul>
<li>Most large companies initially estimate sales and profits conservatively, and CapEx, which is often planned more than a year in advance, isn’t often above plan.</li>
<li>Companies have a cautious earnings outlook, but the market consensus still expects profit growth in FY2024. CapEx growth in the BOJ Tankan is expected to be slightly higher than profits.</li>
<li>Assuming an 8.5% increase in CapEx for large manufacturing companies and a low single-digit growth in the recurring profit outlook, the level of cash on hand is unlikely to decrease.</li>
</ul>


Most large companies initially estimate sales and profits conservatively, and CapEx, which is often planned more than a year in advance, isn’t often above plan.
Companies have a cautious earnings outlook, but the market consensus still expects profit growth in FY2024. CapEx growth in the BOJ Tankan is expected to be slightly higher than profits.
Assuming an 8.5% increase in CapEx for large manufacturing companies and a low single-digit growth in the recurring profit outlook, the level of cash on hand is unlikely to decrease.


Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

<ul>
<li>Profit margins boosted by cuts in personnel, R&amp;D, CapEx, and corporate tax rates. Much of the improved free cash flow went onto the balance sheet instead of being invested.</li>
<li>OP Margin's sluggish growth indicates that the cost-cutting model is no longer working. Investments are needed to create products with higher gross margins.</li>
<li>While the limitations of the cost-cutting model can be seen, ROE, which indicates the achievement of the management goal of increasing medium-to-long-term shareholder returns, is sluggish in many companies.</li>
</ul>


Profit margins boosted by cuts in personnel, R&amp;D, CapEx, and corporate tax rates. Much of the improved free cash flow went onto the balance sheet instead of being invested.
OP Margin's sluggish growth indicates that the cost-cutting model is no longer working. Investments are needed to create products with higher gross margins.
While the limitations of the cost-cutting model can be seen, ROE, which indicates the achievement of the management goal of increasing medium-to-long-term shareholder returns, is sluggish in many companies.


Any Manager Can Simply Implement Shareholder Returns

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

TSE Tokyo Price Index TOPIX / Event-Driven

<ul>
<li>The TSE and Government are pressuring low-PBR companies to DO SOMETHING to raise their PBR to &gt;1.0x. The easiest way to do that is raise ROE.</li>
<li>Raising R requires customers "agree" (buying more, paying a higher price, etc). Lowering E means buying back shares or paying big special dividends. That's easier for a company.</li>
<li>So buybacks have been increasing in number, and breadth, and to some degree in size. This insight describes the mechanics/details of how buybacks work in Japan.</li>
</ul>


The TSE and Government are pressuring low-PBR companies to DO SOMETHING to raise their PBR to &gt;1.0x. The easiest way to do that is raise ROE.
Raising R requires customers "agree" (buying more, paying a higher price, etc). Lowering E means buying back shares or paying big special dividends. That's easier for a company.
So buybacks have been increasing in number, and breadth, and to some degree in size. This insight describes the mechanics/details of how buybacks work in Japan.


<ul>
<li>In April 2022, after long prep and considerable public comment as to desires and design, the TSE launched its new market segments designed to encourage governance and foreign investment.</li>
<li>At the time, the TSE wanted to showcase Japan's best blue chips. In March, JPX announced JPX Prime 150, designed to make visible</li>
<li>In March 2023, JPX announced JPX Prime 150, to "make visible the leading Japanese companies that are estimated to create value." Ambitious? Yes. Fated to fail? Probably. Badly constructed?  Definitely. </li>
</ul>


In April 2022, after long prep and considerable public comment as to desires and design, the TSE launched its new market segments designed to encourage governance and foreign investment.
At the time, the TSE wanted to showcase Japan's best blue chips. In March, JPX announced JPX Prime 150, designed to make visible
In March 2023, JPX announced JPX Prime 150, to "make visible the leading Japanese companies that are estimated to create value." Ambitious? Yes. Fated to fail? Probably. Badly constructed?  Definitely. 


The TSE's New 'Better' Index:  JPX Prime 150

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)

Raising ROE May Require Raising Proxy Voting Guidelines

In summary, I would like to discuss the issues on the Nikkei Shimbun article of March 29, "March Shareholders' Meetings, Stock Market High, but...

Metrical Inc

Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

I would like to discuss the issues on the April 1 Nikkei article, "CapEx up 8.5%, first growth since the bubble economy, driving future economic...

Metrical Inc

Any Manager Can Simply Implement Shareholder Returns

I would like to discuss the issues on the April 1 Nikkei article titled "Good Performance, Future Strategies of Japanese Companies: Time to...

Metrical Inc

The TSE's New 'Better' Index: JPX Prime 150

The TSE is launching a new JPX Prime 150 Index on 3 July 2023. It is 150 stocks with high PBRs and high "Equity Spread" (ROE vs cost of capital)...

Travis Lundy

Raising ROE May Require Raising Proxy Voting Guidelines

In summary, I would like to discuss the issues on the Nikkei Shimbun article of March 29, "March Shareholders' Meetings, Stock Market High, but...

Metrical Inc

Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

I would like to discuss the issues on the April 1 Nikkei article, "CapEx up 8.5%, first growth since the bubble economy, driving future economic...

Metrical Inc

Any Manager Can Simply Implement Shareholder Returns

I would like to discuss the issues on the April 1 Nikkei article titled "Good Performance, Future Strategies of Japanese Companies: Time to...

Metrical Inc

Share Buybacks In Japan - A 2023 Primer

This is a primer of Share Buybacks - types and processes - in Japan. As the TSE and Govt try to get PBRs up, it is worth understanding how...

Travis Lundy

The TSE's New 'Better' Index: JPX Prime 150

The TSE is launching a new JPX Prime 150 Index on 3 July 2023. It is 150 stocks with high PBRs and high "Equity Spread" (ROE vs cost of capital)...

Travis Lundy