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>Many companies had the goal of IPOs as a means to save taxes rather than growth, but it's good to seriously consider go private for the sake of their shareholders.</li>
<li>This is due to companies' awareness of listing costs, such as demands from overseas investors for improved governance and requests from TSE for "management with awareness of the stock price.”</li>
<li>Another issue that needs to be examined is the loss of growth and profitability for companies that are delisted and then relisted.</li>
</ul>


Many companies had the goal of IPOs as a means to save taxes rather than growth, but it's good to seriously consider go private for the sake of their shareholders.
This is due to companies' awareness of listing costs, such as demands from overseas investors for improved governance and requests from TSE for "management with awareness of the stock price.”
Another issue that needs to be examined is the loss of growth and profitability for companies that are delisted and then relisted.


Maybe Management Is Finally Becoming Aware of the Cost of Listing

<ul>
<li>Since the ROE has been hovering around the 9% ceiling, the challenge is that few companies could present future outlook convincing enough to raise expectations of sustainable ROE growth.</li>
<li>Since stable BPS has higher correlation with TOPIX than EPS, investors trust a company that accumulates cash flow in shareholders' equity to sustainably increase profits than to temporarily increase profits.</li>
<li>Since it’s been confirmed that Tobin's Q of companies with more cash on hand is higher, the stock valuations of companies with higher cash flow margins tend to be higher.</li>
</ul>


Since the ROE has been hovering around the 9% ceiling, the challenge is that few companies could present future outlook convincing enough to raise expectations of sustainable ROE growth.
Since stable BPS has higher correlation with TOPIX than EPS, investors trust a company that accumulates cash flow in shareholders' equity to sustainably increase profits than to temporarily increase profits.
Since it’s been confirmed that Tobin's Q of companies with more cash on hand is higher, the stock valuations of companies with higher cash flow margins tend to be higher.


A Market with a Low Average ROE Favors Valuations for Companies with More Reliable Cash Flow

<ul>
<li>While OP Margin did not improve much, companies did execute a certain degree of shareholder return in the previous fiscal year, but it did not significantly increase ROE.</li>
<li>Since companies with lower profits are also increasing shareholder returns, the dividend payout is likely to rise a bit more. It will be interesting to see how much ROE improves.</li>
<li>There is a correlation between ROE+DOE and TOPIX. Since TOPIX has risen significantly this year, it will be interesting to see if ROE+DOE actually increases in the future.</li>
</ul>


While OP Margin did not improve much, companies did execute a certain degree of shareholder return in the previous fiscal year, but it did not significantly increase ROE.
Since companies with lower profits are also increasing shareholder returns, the dividend payout is likely to rise a bit more. It will be interesting to see how much ROE improves.
There is a correlation between ROE+DOE and TOPIX. Since TOPIX has risen significantly this year, it will be interesting to see if ROE+DOE actually increases in the future.


Is the Rise in TOPIX Anticipating the Actual Rise in ROE+DOE?

<ul>
<li>TSE data (April 2022-October 2023) shows that the correlation between TOPIX and ROE for prime market listed companies is extremely low, while the correlation between TOPIX and BPS is high.</li>
<li>It may be that a company that can sustainably increase cash flow and build up net assets is more trustworthy than a temporary increase in profits.</li>
<li>It's presumed that the company increased EPS to the extent that it did not reduce ROE and implemented a certain degree of shareholder return to slow the increase in BPS.</li>
</ul>


TSE data (April 2022-October 2023) shows that the correlation between TOPIX and ROE for prime market listed companies is extremely low, while the correlation between TOPIX and BPS is high.
It may be that a company that can sustainably increase cash flow and build up net assets is more trustworthy than a temporary increase in profits.
It's presumed that the company increased EPS to the extent that it did not reduce ROE and implemented a certain degree of shareholder return to slow the increase in BPS.


Determining the Cause of the Sluggish ROE Growth Is More Important for Future ROE Increases

<ul>
<li>An increasing number of companies rehire senior employees until age 65 to address labor shortages and pass on skills, but there are challenges in retaining senior employees and maintaining loyalty.</li>
<li>Daikin is expected to be effective in motivating senior employees and passing on skills in terms of extending employment to age 65 without lowering wages. </li>
<li>Daikin's board members are older, so they fully understood that age was not an obstacle to senior employee success. On the other hand, Daikin faces many challenges in diversity.</li>
</ul>


An increasing number of companies rehire senior employees until age 65 to address labor shortages and pass on skills, but there are challenges in retaining senior employees and maintaining loyalty.
Daikin is expected to be effective in motivating senior employees and passing on skills in terms of extending employment to age 65 without lowering wages. 
Daikin's board members are older, so they fully understood that age was not an obstacle to senior employee success. On the other hand, Daikin faces many challenges in diversity.


Future Human Resource Strategy to Mobilize Power Regardless of Age, Gender, or Nationality

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)

Maybe Management Is Finally Becoming Aware of the Cost of Listing

I would like to discuss the issues on the November 23, 2023 Nikkei article, "Going Private Requires Discipline and Strategy."

Metrical Inc

A Market with a Low Average ROE Favors Valuations for Companies with More Reliable Cash Flow

I would like to discuss the issues on the November 19 Nikkei article, "Japanese Stocks' 2024 Issue is 'Multiples': Insights from a P/B below 1x."

Metrical Inc

Is the Rise in TOPIX Anticipating the Actual Rise in ROE+DOE?

I would like to discuss the issues on the November 20 Nikkei article, "Rush of Dividend Increases and Share Buybacks, Kikkoman and Honda etc."

Metrical Inc

Determining the Cause of the Sluggish ROE Growth Is More Important for Future ROE Increases

I would like to discuss the issues on the November 13 Nikkei article, "Growing Pains Striking High ROE Stocks; Shareholder Returns the Prescription...

Metrical Inc

Future Human Resource Strategy to Mobilize Power Regardless of Age, Gender, or Nationality

I would like to discuss the issues on the November 16 Nikkei article, "Daikin Industries to Abolish Mandatory Retirement Age for Positions,...

Metrical Inc