MMA isn't fought on paper. If you're just going to look at a fighter's resume in a vacuum and call it a day that's not really assessing anything. If you go beyond a tapology page it's obvious that he's one of the best MMA fighters in the world. His chin is his only true weakness and against flyweights that's less of a concern. Still a concern but less pronounced as he's only ever been knocked out by bantamweights. There's also the Patchy Mix fight but he's so much smaller than Patchy that it's hard to take much from that considering Patchy is so good at leveraging his frame and leveraging your frame is only going to be more effective against a guy you almost literally dwarf. Very few fighters control distance and keep fighters off balance and uncomfortable on the feet as well as Kyoji. You can point to his grappling as a potential weakness, and against the absolute best grapplers at 125 it might be (that's something I can admit is a reasonable doubt, how would he fare against a better flyweight grappler than Ougikubo) but we've also seen a fair bit from him that suggests his grappling is pretty damn good. At least when he isn't fighting a guy that has 20 pounds and however many inches on him (Caldwell ((which ofc he still won)) and Mix). He can scramble, he has submissions and he's always going to be fighting guys who want to take him down since he's pretty well un-matched on the feet, at least at 125. A couple bad moments notwithstanding he is really good at staying safe using the aforementioned distance control which is also going to make him hard to take down.
I also think the term "regional guy" is way overused and very deceiving when taken without any context. Regional guys span from anything from guys making their debut on un-broadcasted cards to ACA and Rizin champions who are often amongst the best in the world. To dismiss Shinryu as a win because he's a "regional guy" is a pretty oblivious take. It's a chicken or egg thing and somewhat self fulfilling. Fighter has bad resume on paper because he hasn't been fighting in UFC but if the exact same fighters were signed by the UFC and he beat them in the same order all of a sudden it's no longer a bad resume.
It's possible Kyoji falls off because he's a flyweight and his quick twitch muscles are going to start slowing soon (as they always do with flyweights) but in terms of pure skill demonstrated on tape he's not overrated at all. If anything he's vastly underrated because 90% of the MMA fanbase forgets he exists. Like, on tapology fan rankings he's #26. That's about 23-26 spots too low.