"HOYA (7741) of the 'high-consciousness type company'. Is corporate governance useful for stock investing?"

HOYA (7741) stands out in Japan for having a high awareness of corporate governance.A company with a strong consciousness of corporate governance.

Corporate governance, in Japanese, is translated as "company governance." It is not about managing with a casual, lax attitude,but about shareholders, directors, and executives playing appropriate roles to enhance the company's value.

Among six people, five are outside directors with ROE over 20%

Originally, shareholders, directors, and management are separate,and each must operate with an appropriate level of tension. Directors are elected by the owners who are shareholders, and are entrusted with the role of monitoring the company's management.

However, in many Japanese companies, most directors are internal promotions. The effect of “monitoring” by insiders is weak, and management can become undemanding and lacking in tension.

HOYA sits on the opposite end of this spectrum. For a clear view,five of six directors are independent outside directors. They do not directly handle management and are focused on monitoring it.

So who runs the company? It is people called “Executive Officers.” Not to be confused with executive directors. This is a position unique to “company with committees.” They are entrusted by the board of directors anddedicated to managing the company.

What executive officers should think about isthe interests of shareholders that exist above the board. At HOYA, the measure of shareholder interests is the SVA (Shareholders Value Added). This is the amount by which shareholder value is increased each year.

This is simplified as ROE.HOYA's ROE is 21%, well above the average 8%. If you can generate as much profit as possible with limited capital, it naturally leads to increased shareholder value and long-term stock price appreciation.

Practicing the Blue Ocean Strategy faithfully. Ordinary income margin exceeds an astonishing 25%!

HOYA's business covers “Life Care” such as eyeglasses and contact lenses, and “Information & Communication” such as mask blanks for semiconductor manufacturing and displays.

The business strategy is consistent. Its underlying principle is “the big fish in a small pond.” In other words, it concentrates management resources on sectors where it can achieve top market share in a niche market.

For example,second in the world in eyeglass lenses,world’s top share in mask blanks used for semiconductor manufacturing. Both yield high profit margins. Both are indispensable in modern society and provide stability.

Anyone with even a bit of management knowledge has likely heard of “Blue Ocean Strategy. HOYA's management faithfully implements this strategy.

What is impressive is that they do not stop at theoretical discussion but actually implement it and achieve success. Profits steadily grow, andan operating margin (current profit) of 25% is achieved, well above the typical 10% for manufacturers.

As performance grows, the stock price remains steady. Over the past decade it has shown a clean upward trend. Because the company has solid corporate governance,investors can confidently hold the stock.

A company that you can hold with confidence, but with significant decisions needed for growth

However, whether the growth trend continues depends on the management as well.

“The small pond” does not grow very large. To continue growing, new ponds must be found one after another. Doing this purely through internal efforts is not easy, so strategies such as M&A are required.

HOYA has done some small-scale M&As, but has not carried out anything that would fundamentally change the company. To do this, governance alone will not suffice;big decisions by management are required.

Fortunately, the financial condition is excellent, and the company is effectively debt-free.To grow further from here, either make a major decision, or return value to shareholders through dividends or share buybacks.

The stock price is at a somewhat high level, with a PER of about 25. It holds semiconductor-related products as well, so now may not be the time to invest. However, if you buy during a downturn, you could say it offers a business and management situation that can be held with confidence.

This is a company I would like to put into the textbooks of corporate governance and management strategy.

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