Our Activities in April 2024

At Cadira Capital Management, our mission is "Connecting the Investment Chain and Beyond". Collaborative relationships with internal and external stakeholders are essential to achieving our mission. We therefore seek to deepen the relationship of trust with our stakeholders by disclosing specific details of our activities, including dialogue with the companies in which we invest.

This month, we'll report on the following activities. 

Our Dialogue with SBI Sumishin Net Bank 

SBI Sumishin Net Bank is a company owned 34% each by Sumitomo Mitsui Trust Bank, Limited ("SMTB") and SBI Holdings, Inc. Originally established as a trust bank management company, SBI Holdings invested in the company in 2006 and began operating as a bank in 2007. The company continued to grow as an online bank and went public about a year ago in March 2023.

What piqued our interest in SBI Sumishin was the company's top message:

With technology, in the spirit of integrity, we will create a society where affluence circulates.

Why does technology continue to evolve?

It must not be used to create monopolies or increase the uneven distribution of wealth. Rather, it must be to create opportunities for all who are in need. To inspire a world of diversity and dynamism, leading to a vibrant cycle of abundance in society. We believe that technology should only exist to serve these purposes.

Our mission is to carry on the spirit of public service and integrity, which is the very reason for the existence of banks. Moving away from monopolies to fair competition. Moving toward a society where affluence circulates. Based on our DNA, which is fortified with creativity and innovation. With technology, in the spirit of integrity we will create an infrastructure where wealth can be more evenly shared with all people.

Be brave and act without fear.

President and CEO
Noriaki Maruyama

Technology and financial development make the world more convenient, but if we are not careful, they can have the side effect of increasing inequality. What kind of company is SBI Sumishin, whose top management is aware of this issue?

Leveraging its cost competitiveness as an online bank and its ability to build IT systems, SBI Sumishin has become the leading lender in the core mortgage loan market in terms of the amount of new transactions (the company estimates its share to be 7.4% in 2023). The company's high operational efficiency has enabled it to offer competitive loan rates and attract more customers. The company's strategy is also to avoid competing on interest rates by improving its services, such as face-to-face interaction. The company has indicated that it will continue to grow by increasing its market share to 10% by 2025 and 20% beyond that. The current upward trend in interest rates is favorable to the company's profit outlook, as the company's business structure allows it to increase its profit level as interest rates rise.

An important part of face-to-face customer service is the relationship with partner companies. SBI Sumishin provides banking functions through a business model called "Bank as a Service" (BaaS), in which SBI provides banking functions to companies that already have customer contact. For example, Japan Airlines, Takashimaya and Yamada Denki have partnerships with SBI Sumishin. As the company has no branches of its own, it has been able to build good partnerships by working behind the scenes.

Growth in corporate accounts has also been strong. On average, the number of corporate accounts has grown by 35% over the past three years. Strengths of the company's corporate services include the speed of account opening, the ease of loan approval, and the convenience of the mobile app. In fact, we have heard from start-up business owners that it takes a very long time to open an account at a large bank, and that SBI Sumishin's quick vetting process has saved them time and money.

When looking at SBI Sumishin from an investor's perspective, two things should be noted. One is the parent-subsidiary listing and the other is the fact that the company has only recently gone public.

Regarding the parent-subsidiary listing, Cadira Capital Management is cautious about investing in companies where the major shareholder is a listed company, i.e. a "subsidiary" of a parent-subsidiary listing. The main reason for this is that there are concerns about weak governance. For example, the parent company may put its own interests first and sacrifice the interests of minority shareholders. In addition, if the subsidiary's management team is assigned to the subsidiary as a result of descent from the parent company, they may lack the ability to manage a listed company.

In the case of SBI Sumishin, we believe there is no need to be overly concerned about the above issues. In terms of shareholder composition, SMTB and SBI are equally invested in the company, making it difficult for either party to prioritize only its own interests. Rather, the balance between SMTB, a traditional company, and SBI, a company with a strong growth orientation, has created a structure that combines governance and business promotion capabilities, which has had a positive effect on management.

In addition, the current top management, President Noriaki Maruyama, was involved in launching businesses within the SBI Group in the early 2000s, including a loan comparison website and a mortgage bank, and has served as President of SBI Sumishin since 2014. He has experience in starting and growing businesses, and his ability to effectively manage and build a growth model for SBI Sumishin over the past 10 years is worthy of recognition.

Secondly, as the company has just gone through an IPO, it may be more difficult to research such a company than a regular stock due to the lack of historical data. In addition, there is a risk that the composition of shareholders may not be stable, resulting in greater volatility in price movements. Even in such a situation, if a company has a competent management team, a superior business model and is making a positive impact on the world, but for some reason its value in the market is low, it can be a very good investment opportunity. In the case of SBI Sumishin, the company has already built a strong business foundation as a corporation and has a solid disclosure record, which makes it worthy of investment consideration.

Cadira Capital Management appreciate SBI Sumishin's Investor Relations team's willingness to gather information. When we requested a visit to one of their partner offices, they immediately arranged it. On the day of the visit, the director in charge of IR accompanied us and the team showed a willingness to actively seek input from the sales managers of the branches we visited. Both the speed with which the company responded to the investor's request and its willingness to link the opportunity for a site visit to its own improvements were seen as examples of how the company runs its business with a healthy sense of urgency.

Cadira has also asked SBI Sumishin to strengthen its sustainability response. The company has already made some disclosures on its website, but these are not yet systematic. The company is aware of this issue and has stated that it will strengthen its disclosure. The company has stated that it will not only list ESG risks, but also work on the positive impact it creates. We would like to have further dialogue with the company after the disclosure is completed.

Our Dialogue with Mitsubishi Research Institute, Inc.

Cadira Capital Management participated in the "MRI DEMO DAY 2024" (DEMO) held by the Mitsubishi Research Institute (MRI) and the Initiative for Co-Creation of the Future (ICF). It was a very unique event from the perspective of the world becoming more impact-oriented.

Established in 1970 by Mitsubishi Group companies as a pioneering think tank in Japan, MRI's two main businesses today are think tank consulting services and IT services. The think tank consulting service has a competitive edge in the government sector, while the IT service focuses on the financial and credit card sectors. The company is focused on developing and monetizing recurring-revenue businesses, such as public-private co-creation solutions that leverage the knowledge it has developed in the public sector and wholesale energy trading. The company aims to solve societal problems through its business activities, with the goal of achieving a prosperous and sustainable society in the age of "10 billion people, 100 years old". To achieve this goal, MRI promotes sustainable management, which is a business model with a very strong impact-oriented approach, by promoting the dissemination and expansion of the three values: social value, non-financial value and financial value.

ICF is a membership organization operated by MRI that aims to solve social problems through business, using innovative technologies and open innovation. It has identified 31 social issue themes, grouped into 6 areas, as the starting point for its activities. MRI aims to create collective impact through multi-stakeholder co-creation and social implementation of solutions to social problems.

This year's DEMO showcased various efforts to create greater social impact, including examples of MRI's co-creation efforts, with each company using social issues as the starting point for their activities. More than 400 people attended the event, both in person and online, and it was an exciting opportunity to find partners and learn how to create innovation.

The cases of collaboration from start-ups to large corporations to create social impact were instructive, and we realized that the involvement and support from different angles of MRI and ICF helped solve problems that would be difficult to achieve through the efforts of each company alone. Cadira believes that these activities can be an important factor for companies participating in DEMO when considering a Theory of Change.

Cadira has been in regular dialogue with MRI, including participation in these events and our feedback, and we have been able to evaluate MRI's positioning as a think tank that consistently works to solve social problems, from proposals to social implementation through consulting and IT services, as well as their efforts to realize social value. We also expect that these activities will lead to an increase in the value of the company and strengthen the explanations of the social value KPIs.