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>Since the introduction of the Corporate Governance Code, the hurdle for listed companies to fulfill their responsibilities has become higher, which is why more managers are choosing to go private.</li>
<li>While some of companies with large market capitalizations that overseas investor engagement extends to are showing promise for change, many others are failing to step up management to create value.</li>
<li>TOPIX's rise has been mainly driven by an increase in the number of companies rather than an increase in stock prices. The market should become higher in quality through de-listing.</li>
</ul>


Since the introduction of the Corporate Governance Code, the hurdle for listed companies to fulfill their responsibilities has become higher, which is why more managers are choosing to go private.
While some of companies with large market capitalizations that overseas investor engagement extends to are showing promise for change, many others are failing to step up management to create value.
TOPIX's rise has been mainly driven by an increase in the number of companies rather than an increase in stock prices. The market should become higher in quality through de-listing.


Isn't It Hypocritical to Request a P/B Raising Measure While Continuing the Listed Subsidiary IPO?

<ul>
<li>The fact that only 7% of companies disclosed their cost of capital disappoints investors who had hoped that the "TSE request" would change management's mindset to become more share-price conscious.</li>
<li>The average ROE of listed companies declined slightly. This indicates that they haven't been able to find effective investments to raise business profitability and that shareholder returns have been inadequate.</li>
<li>The ROE trend does not indicate a significant change in management's mindset, so this will be a major issue if the stock price moves lower to the June AGM season.</li>
</ul>


The fact that only 7% of companies disclosed their cost of capital disappoints investors who had hoped that the "TSE request" would change management's mindset to become more share-price conscious.
The average ROE of listed companies declined slightly. This indicates that they haven't been able to find effective investments to raise business profitability and that shareholder returns have been inadequate.
The ROE trend does not indicate a significant change in management's mindset, so this will be a major issue if the stock price moves lower to the June AGM season.


ROE Trends Do Not Seem to Indicate a Significant Change in Management's Mindset?

<ul>
<li>If the ISS ROE criteria, which seems somewhat slow, were to be resumed, many companies would still be below 5%. However, how many companies are feeling threatened?</li>
<li>About 40% of the companies have large shareholders holding more than 20% of their shares, which is one reason why many companies do not feel a sense of threat.</li>
<li>Domestic institutional investors should apply the Proxy Voting Guidelines more strictly to companies that do not make maximum efforts to increase their ROE.</li>
</ul>


If the ISS ROE criteria, which seems somewhat slow, were to be resumed, many companies would still be below 5%. However, how many companies are feeling threatened?
About 40% of the companies have large shareholders holding more than 20% of their shares, which is one reason why many companies do not feel a sense of threat.
Domestic institutional investors should apply the Proxy Voting Guidelines more strictly to companies that do not make maximum efforts to increase their ROE.


To Raise ROE, Breaking Away from Familiar Relationships and Creating Tension in Management Is Key

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kansai-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:18907:1" rel="noopener">Kansai Electric Power (9503 JP)</a> is looking to raise up to US$3.5bn via a primary offering and a sale of Treasury shares. Pricing date is between 26-29 November.</li>
<li>
<a href="https://www.smartkarma.com/entities/kansai-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:18907:1" rel="noopener">Kansai Electric Power (9503 JP)</a> is among the better performing stocks from the Electric Utilities industry and trades at higher valuations compared to its peers.</li>
<li>There will be a fair bit of passive buying with around 29% of the offering being bought at the time of settlement of the shares.</li>
</ul>



Kansai Electric Power (9503 JP) is looking to raise up to US$3.5bn via a primary offering and a sale of Treasury shares. Pricing date is between 26-29 November.

Kansai Electric Power (9503 JP) is among the better performing stocks from the Electric Utilities industry and trades at higher valuations compared to its peers.
There will be a fair bit of passive buying with around 29% of the offering being bought at the time of settlement of the shares.


KEPCO (9503 JP): Index Implications of US$3.5bn Primary + Secondary Offering

<ul>
<li>Looking at BOJ's fund flows for private non-financial corporations for 4 cumulative quarters, Cash and Deposits have increased, and Outward Direct Investment has increased steadily as a destination for cash.</li>
<li>The average dividend payout ratio for listed companies has remained flat, while both ROE and DOE have declined slightly, which may reinforce the view that shareholder returns are not sufficient.</li>
<li>With cash on hand still increasing while capital expenditures have not grown much, the use of cash is expected to remain a focus of discussion next fiscal year.</li>
</ul>


Looking at BOJ's fund flows for private non-financial corporations for 4 cumulative quarters, Cash and Deposits have increased, and Outward Direct Investment has increased steadily as a destination for cash.
The average dividend payout ratio for listed companies has remained flat, while both ROE and DOE have declined slightly, which may reinforce the view that shareholder returns are not sufficient.
With cash on hand still increasing while capital expenditures have not grown much, the use of cash is expected to remain a focus of discussion next fiscal year.


Is the Deflationary Mindset of Managers Still Prevailing?

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)

Isn't It Hypocritical to Request a P/B Raising Measure While Continuing the Listed Subsidiary IPO?

I would like to discuss the issues on the November 26 Nikkei Shimbun article, "MBOs to Top 1 Trillion Yen in 2023, Taisho Pharmaceutical and...

Metrical Inc

ROE Trends Do Not Seem to Indicate a Significant Change in Management's Mindset?

I would like to discuss the issues on the Nikkei article published on December 22, "Cost of Capital Disclosure Stays at 7%."

Metrical Inc

To Raise ROE, Breaking Away from Familiar Relationships and Creating Tension in Management Is Key

I would like to discuss the issues on the December 21 Nikkei article, "U.S. Proxy Voting Advisor ISS to Restore ROE Criteria; Objections to...

Metrical Inc

KEPCO (9503 JP): Index Implications of US$3.5bn Primary + Secondary Offering

KEPCO is down 22.8% from the time of the announcement of the primary + secondary offering. The stock is now back to where it was at the start of...

Brian Freitas

Is the Deflationary Mindset of Managers Still Prevailing?

I would like to discuss the issues on the December 20 Nikkei article, "Weak Yen and M&A Effects Lead to Highest Corporate Financial Assets, Likely...

Metrical Inc