Japanese Turnaround Situations, Short-Ideas, Azabu Research

Michael Allen

Japanese Turnaround Situations, Short-Ideas

Azabu Research

Azabu Research is a publishing and consulting firm focused on distressed equities in the Japanese market. We specialize in turnaround strategies, corporate combinations, divestitures, and restructuring.

Publisher of the Tokyo Turnaround Letter, which conducts the most thorough research possible of publicly available information, including forensic tests for fraudulent overstatement of assets and understatement of liabilities, as well as rigorous market and industry analysis to assess the underlying strengths of the company’s products or services, the appropriateness of the company’s turnaround strategy, and the skill of its current management team. The average length of a report exceeds 25 pages of text and tables, excluding any disclosures or executive summaries.

We have more than 30 years of experience in applying this process to distressed equities in Japan. Additionally, subscribers have free access to detailed, yet easily navigated earnings models for the target company as well as the top five comparable companies, and unlimited access to the analyst for follow-up questions.

Azabu Research also conducts be-spoke research on a project basis, and provides consulting services to companies looking to restructure, divest, make acquisitions, go public, or improve investor sentiment toward their stock.

Independent Research and Consulting Firm

Equity Bottom-Up

<ul>
<li>Sales per outlet and gross margin per vehicle were supposed to rise in Q3. Instead, both went south, causing management to lower FY guidance about 50%. </li>
<li>Evidence from the 1st and 2nd quarters that indicated an immanent turnaround simply vanished in the 3rd quarter. </li>
<li>We lower our rating form “Massive Growth at Huge Discount” to “Decent Growth at Reasonable Price, No immanent catalyst.”</li>
</ul>


Sales per outlet and gross margin per vehicle were supposed to rise in Q3. Instead, both went south, causing management to lower FY guidance about 50%. 
Evidence from the 1st and 2nd quarters that indicated an immanent turnaround simply vanished in the 3rd quarter. 
We lower our rating form “Massive Growth at Huge Discount” to “Decent Growth at Reasonable Price, No immanent catalyst.”


<ul>
<li>Simply Wall Street published an article on Aug 20, 2024, suggesting the fair value of Nextage was ¥1,772 or 16% below the previous day's closing price.</li>
<li>Yet, on the Simply Wall Street website’s stock page for Nextage, updated on August 26, they calculate the fair value at ¥5,726, or 189% above the close on Aug 19.</li>
<li>Both cannot be right. Here's an interesting window into how markets mis-price stocks.</li>
</ul>


Simply Wall Street published an article on Aug 20, 2024, suggesting the fair value of Nextage was ¥1,772 or 16% below the previous day's closing price.
Yet, on the Simply Wall Street website’s stock page for Nextage, updated on August 26, they calculate the fair value at ¥5,726, or 189% above the close on Aug 19.
Both cannot be right. Here's an interesting window into how markets mis-price stocks.


Nextage (3186): One Analyst, Two Valuations, Both Wrong

<ul>
<li>NextAge has, in just two short years, moved from number 3 to number 1 in the used car market in Japan. </li>
<li>It’s market share is still less than 7% and we no longer see any meaningful obstacle in the company’s path to 30% share within the next 8 years. </li>
<li>The stock underperformed Topix by 59% following a series of earnings misses, but we think all issues have been resolved. Fair value could be 3x the current price.</li>
</ul>


NextAge has, in just two short years, moved from number 3 to number 1 in the used car market in Japan. 
It’s market share is still less than 7% and we no longer see any meaningful obstacle in the company’s path to 30% share within the next 8 years. 
The stock underperformed Topix by 59% following a series of earnings misses, but we think all issues have been resolved. Fair value could be 3x the current price.


NextAge (3186):  Disruptive Business Model at Massive Discount

Thematic (Sector/Industry)

<ul>
<li>The median stock in our Dogs of Topix basket outperformed the median stock in the Topix 400 by 4% through Sept 2024.</li>
<li>This is below the average of 7% achieved by such stocks over the past 9 years, but it was a much tougher stretch than it looked. </li>
<li>Do we need to re-think? Much can be learned comparing the outperformers, whose median return was +34%, compared to the underperformers, which declined 23%.</li>
</ul>


The median stock in our Dogs of Topix basket outperformed the median stock in the Topix 400 by 4% through Sept 2024.
This is below the average of 7% achieved by such stocks over the past 9 years, but it was a much tougher stretch than it looked. 
Do we need to re-think? Much can be learned comparing the outperformers, whose median return was +34%, compared to the underperformers, which declined 23%.


Have the Rules for Bottom Fishing Changed?

Japan Specialist

Mark Chadwick

<ul>
<li>OVERSEAS. SPX eakes out gains despite weak ISM Manufacutring in light trading ahead of July 4th Independence Day Holiday; TESLA +6.9% on big 2Q delivery numbers </li>
<li>JAPAN. NKY Futs -0.4% vs Cash; JPYUSD 144.7; Strong BOJ Tankan print drives NKY to new highs;  JP land prices continue to rise; Support for JP foundry goals from IBM</li>
<li>NUGGET.  Japan's passing of the GX Promotion Law enables the issuance of ¥20 trillion in bonds and promotes ¥150 trillion of decarbonization investment over the next decade. Investment opportunities abound!</li>
</ul>


OVERSEAS. SPX eakes out gains despite weak ISM Manufacutring in light trading ahead of July 4th Independence Day Holiday; TESLA +6.9% on big 2Q delivery numbers 
JAPAN. NKY Futs -0.4% vs Cash; JPYUSD 144.7; Strong BOJ Tankan print drives NKY to new highs;  JP land prices continue to rise; Support for JP foundry goals from IBM
NUGGET.  Japan's passing of the GX Promotion Law enables the issuance of ¥20 trillion in bonds and promotes ¥150 trillion of decarbonization investment over the next decade. Investment opportunities abound!


Ohayo Japan| SPX Gains Despite Weak Factory PMI; NUGGET: Japan's GX Promotion Law - Opportunity !

Japan

NEXTAGE Co., Ltd. operates a used automobile business. Its main line of business is retail of used domestic cars but it also sells imported cars and SUV/vans. In addition, the company also operates an automobile maintenace business.

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Nextage Co Ltd (3186 JP)

NextAge (3186): What Went Wrong?

Sales per outlet and gross margin were supposed to rise in Q3. Instead, both went south, causing management to lower FY guidance about 50%. A bad...

Michael Allen

Nextage (3186): One Analyst, Two Valuations, Both Wrong

Simply Wall Street published two valuations for Nextage (3186) that were more than 200% apart. We unpack what they got wrong in both cases.

Michael Allen

NextAge (3186): Disruptive Business Model at Massive Discount

Couche tard's bid for 7&i was made possible by a combination of a weak yen and an undervalued stock. NextAge is in a similar situation, but unlike...

Michael Allen

Have the Rules for Bottom Fishing Changed?

Increased passive investing and a rising interest rate environment have made the bottom-fishing game more treacherous, but the rules are still the...

Michael Allen

Ohayo Japan| SPX Gains Despite Weak Factory PMI; NUGGET: Japan's GX Promotion Law - Opportunity !

SPX gains ahead of 4th July holidays; NKY Futs -0.4% vs Cash; JPYUSD 144.7; Strong BOJ Tankan print drives NKY to new highs; JP land prices...

Mark Chadwick

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