Conditions and Targets for TSE Reform

In the recent Japanese stock market, only certain thematic stocks and rapidly rising stocks are being talked about, and the essence of the 'TSE Reform' that should originally be receiving more attention tends to be left behind. However, in reality, the transitional measures will end in March 2025, and companies have entered a phase where they 'cannot survive unless they reform in earnest'.

In other words, 'an era where companies actively seek to raise their stock prices' has begun in earnest.

In this article, for my own organization as well, I will summarize in an easy-to-understand manner the conditions for maintaining Prime Market listing and the 'characteristics of targets' where stock price increases can be expected from now on.

◆ The 'True Conditions' Required of Companies by TSE Reform

The criteria for remaining on the TSE Prime Market are actually quite severe. The following four are particularly important.

① Market capitalization of tradable shares: 10 billion yen or more

The most important. To satisfy this, companies must either raise their stock price or increase the number of tradable shares.

② Tradable share ratio: 35% or more

Companies where major shareholders hold too much must take measures such as selling off holdings or stock splits.

③ Average daily trading value: 20 million yen or more

Companies with low liquidity must strengthen IR and disseminate information to overseas investors.

④ Positive net assets

Companies with weak finances are required to make improvements such as business restructuring or capital increases.

◆ What happens to companies that do not meet the criteria?

Companies that cannot meet the criteria will enter the process of 'submission of an improvement plan' → 1-year improvement period → designation as a security on alert → delisting.

In other words, the option of 'doing nothing' is no longer left for companies.

That is why stock price measures, capital efficiency improvements, and IR strengthening are advancing all at once.

◆ So, what kind of companies are 'targets'?

With TSE reform as a tailwind, I will organize the characteristics of companies where stock price increases can be expected into 5 points.

① Companies showing movement to clear the 10 billion yen market capitalization of tradable shares

• Share buybacks (increasing the ratio of tradable shares without cancellation)

• Encouraging major shareholders to sell their holdings

• Improving liquidity through stock splits

These are measures that directly affect stock prices, and they tend to cause actual movement in stock prices.

(2) Companies strengthening IR to increase trading value

• Enhancing English IR

• Actively holding earnings briefings

• Creating materials for overseas investors

The key point is that when liquidity increases, the downside of the stock price becomes firmer.

(3) Companies clearly declaring improvements in ROE and PBR

Since the TSE has issued improvement requests to companies with a PBR below 1x,

• restructuring unprofitable businesses

• reviewing capital policies

• clarifying growth investments

companies that announce such measures are easily re-evaluated.

(4) Companies actively pursuing growth investments and M&A

The essence of TSE reform is "strengthening earning power." Companies that clearly announce M&A and new business investments are highly regarded by overseas investors.

(5) Companies that disclosed improvement plans early

Companies that release improvement plans early are easily trusted by the market as "companies with motivation." As a result, the stock price floor tends to become firmer.

◆ Summary: TSE reform is a chance to see a company's "seriousness"

Now, when it is easy to be distracted by soaring stocks, focusing on how seriously companies are taking reform will make it easier to find the 'prime' Japanese stocks of the future.

TSE reform is not just a change in the system, but a structural reform that forces companies to be conscious of their stock prices.

That is why • Measures for tradable shares • Strengthening IR • Improving capital efficiency • Clarifying growth investments companies that are active in these areas are 'targets' where future stock price increases can be expected.

Conversely, if you hold shares in companies that are not actively implementing the measures mentioned above, it may be time to reconsider.