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>TSE market capitalization of has doubled since 1990 and the number of companies has doubled, while TOPIX is 20% lower than its 1989 high. Money went mainly to IPOs.</li>
<li>P/B, TSE's expectation for stock price appreciation, had high correlation with TOPIX, 0.84 from 1999-2019. However, it correlated negatively for 4 years from 2020 with other factors having significant impact.</li>
<li>Correlation between TOPIX and nominal GDP is 0.94 for 2020-2023, showing higher correlation. Expectations of higher nominal profits caused by transition from deflation to inflation are behind the stock rally.</li>
</ul>


TSE market capitalization of has doubled since 1990 and the number of companies has doubled, while TOPIX is 20% lower than its 1989 high. Money went mainly to IPOs.
P/B, TSE's expectation for stock price appreciation, had high correlation with TOPIX, 0.84 from 1999-2019. However, it correlated negatively for 4 years from 2020 with other factors having significant impact.
Correlation between TOPIX and nominal GDP is 0.94 for 2020-2023, showing higher correlation. Expectations of higher nominal profits caused by transition from deflation to inflation are behind the stock rally.


Expanding Nominal Profits from Shift from Deflation Rather than P/B Is the Driver of Stock Prices

<ul>
<li>Companies enjoy the benefits of going public, as a larger market capitalization expands their financing and makes it easier to acquire other companies, without capital raising through equity issuance.</li>
<li>In a market economy, cash returned to shareholders through share buybacks etc is rationally allocated by investing it in companies that need more funds or are worthy of investment.</li>
<li>Companies should successfully communicate their strategies for expanding corporate value and how to use cash to do so. More such companies will lead to the expansion of Tokyo market.</li>
</ul>


Companies enjoy the benefits of going public, as a larger market capitalization expands their financing and makes it easier to acquire other companies, without capital raising through equity issuance.
In a market economy, cash returned to shareholders through share buybacks etc is rationally allocated by investing it in companies that need more funds or are worthy of investment.
Companies should successfully communicate their strategies for expanding corporate value and how to use cash to do so. More such companies will lead to the expansion of Tokyo market.


Now Is the Time to Seek Ingenuity in Cash Allocation, Not Lament the Decline in Equity Financing

<ul>
<li>Modest profit growth and slow ROE growth are expected this year, and sustained TOPIX appreciation in the future will depend on increases in ROE and ROE+DOE.</li>
<li>Lower OP Margin is the reason for the lack of ROE growth in FY3/2023. OP Margin and ROE are expected to have difficulty rebounding from this year's profit forecast.</li>
<li>Looking at the results of DOE, Total Dividends Paid and Dividend Payout for FY3/2023, which have not improved, there is still a lot of room for shareholder returns.</li>
</ul>


Modest profit growth and slow ROE growth are expected this year, and sustained TOPIX appreciation in the future will depend on increases in ROE and ROE+DOE.
Lower OP Margin is the reason for the lack of ROE growth in FY3/2023. OP Margin and ROE are expected to have difficulty rebounding from this year's profit forecast.
Looking at the results of DOE, Total Dividends Paid and Dividend Payout for FY3/2023, which have not improved, there is still a lot of room for shareholder returns.


Amid Slow ROE Improvement, Calls for Stronger Shareholder Returns Will Become Even Stronger

<ul>
<li>The number of companies that announced their intention to move to Standard Market has increased to 48, while most of 268 transitional companies are expected to move to Standard Market.</li>
<li>Companies that cannot meet Prime Market listing criteria in 2026 can also move to Standard Market by undergoing examination, so they don't need to announce their move in a hurry.</li>
<li>Prime Market has slimmed down from TSE 1st Section by 600 companies, but it will remain market where many companies with market capitalization of about 50 billion yen are listed. </li>
</ul>


The number of companies that announced their intention to move to Standard Market has increased to 48, while most of 268 transitional companies are expected to move to Standard Market.
Companies that cannot meet Prime Market listing criteria in 2026 can also move to Standard Market by undergoing examination, so they don't need to announce their move in a hurry.
Prime Market has slimmed down from TSE 1st Section by 600 companies, but it will remain market where many companies with market capitalization of about 50 billion yen are listed. 


The Fruit of TSE Market Reorganization Was the Creation of Prime Market with 600 Fewer Companies

<ul>
<li>To narrow the gender wage gap for all workers, reducing non-regular female workers, who make up the majority, is a possible solution, but changing this structure will not be easy.</li>
<li>Many companies recognize that the low ratio of female managers (about 10% among listed companies) is behind the gender wage gap among regular workers.</li>
<li>However, many companies aren't taking immediate actions because they believe that % of female managers will increase as the age of newly hired female full-time hires in recent years increases.</li>
</ul>


To narrow the gender wage gap for all workers, reducing non-regular female workers, who make up the majority, is a possible solution, but changing this structure will not be easy.
Many companies recognize that the low ratio of female managers (about 10% among listed companies) is behind the gender wage gap among regular workers.
However, many companies aren't taking immediate actions because they believe that % of female managers will increase as the age of newly hired female full-time hires in recent years increases.


Gender Wage Gap Has Structural Problems and a Less than Positive Attitude of Companies

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)

Expanding Nominal Profits from Shift from Deflation Rather than P/B Is the Driver of Stock Prices

I would like to discuss the issues on the July 21 Nikkei article, ""TSE Should Continue Reforms to Improve Results of Market Restructuring."

Metrical Inc

Now Is the Time to Seek Ingenuity in Cash Allocation, Not Lament the Decline in Equity Financing

I would like to discuss the issues on the July 14 Nikkei article, "Shrinking Market for Share Buybacks: Growth Challenged, Treasury Stock Gaining...

Metrical Inc

Amid Slow ROE Improvement, Calls for Stronger Shareholder Returns Will Become Even Stronger

I would like to discuss the Nikkei article of July 8, 2023, which stated that "ROE Declines Despite Forecast for Highest Profit in FY2023, Ample...

Metrical Inc

The Fruit of TSE Market Reorganization Was the Creation of Prime Market with 600 Fewer Companies

I would like to discuss the issues on the July 11 Nikkei article, "48 Companies Intend to Leave TSE Prime Market; One Year after Market...

Metrical Inc

Gender Wage Gap Has Structural Problems and a Less than Positive Attitude of Companies

I would like to discuss the issues on the July 13 Nikkei article, "Gender Wage Gap in Japanese Companies Averages 30%, with Finance and Insurance...

Metrical Inc