Japan Markets ViewInformation Disclosure Regarding TSE’s Request – High Disclosure Rates in Low P/B Ratio Industries

 

[Nikkei QUICK News] On January 15, Tokyo Stock Exchange (TSE) published a list of companies that have disclosed information regarding “Action to Implement Management that is Conscious of Cost of Capital and Stock Price.” Companies on the list are those that included the keywords “actions to implement management conscious of the cost of capital and stock price” (including those under consideration) in their corporate governance (CG) reports. The list contained 815 companies on the Prime Market (49.2% of 1,656 companies) and 300 on the Standard Market (18.5% of 1,619 companies) of Tokyo Stock Exchange. The market is likely to evaluate more highly 1,115 companies that made disclosures (including those currently under consideration) as companies that are aware of the issues and have taken action. At the same time, these companies will be expected to implement the content of their disclosures.

 

The list published this time was compiled based on the CG reports as of the end of December 2023. In March 2023, TSE requested companies to take “Action to Implement Management that is Conscious of Cost of Capital and Stock Price.” In particular, TSE strongly asked them to improve the price-to-book (P/B) ratio below one.

 

Taking a closer look at the list, 660 Prime Market listed companies (39.9% of the total) disclosed the information, and 155 (9.4%) were under consideration. In the Standard Market, 191 companies (11.8%) made disclosures, and 109 (6.7%) were under consideration. Notably, the disclosure rates were higher among industries with low P/B ratios and low return on equity (ROE).

 

Banks top the disclosure rate at 94.1%, followed by Electric Power and Gas (85.7%) and Iron and Steel (81.8%). All of them have average P/B ratios below one. Shutaro Yasuda, a market analyst at Tokai Tokyo Research Institute, said, “This is commendable, given that the intention was to give a sense of crisis to companies with P/B ratios below one.”

 

On the other hand, industries with high P/B ratios and ROE tended to have lower disclosure rates. The lowest disclosure rates were seen in the industries of Fishery, Agriculture & Forestry (16.7%) and Information & Communication (33.0%). All of these industries have P/B ratios above one. Among the leading companies, Toyota Motor (7203) and Fast Retailing (9983) were not on the list.

 

Toyota Motor commented on the fact that the company was not on this disclosure list, saying, “We are proactively implementing such measures as enhancing disclosure materials. We believe that the TSE’s request to take ‘Action to Implement Management That is Conscious of Cost of Capital and Stock Price’ and our ‘Growing Together with Our Stakeholders’ are virtually the same,” in response to an interview with Nikkei Quick News. The company emphasized that it has already been taking actions in response to the TSE’s request.

 

The focus of attention will be on how to improve low P/B ratios and low ROE, not just on disclosure. Yuusuke Maeyama, a senior researcher at NLI Research Institute, pointed out, “Fundamentally, it is critical for companies to improve their return on capital and grow, not just to buy back their own shares or raise their dividends. Particularly, foreign investors are interested in the implementation of these measures, and all eyes will be on future disclosures and implementation by companies.”

 

(Reported on January 16)

 

 

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