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>Rohm’s cyclical turning points in revenue typically lag the turn METI production %YoY less inventory % YoY for electronic devices and components by 12 months.</li>
<li>Investors were disappointed with Q1 results, but the company cleanly outperformed most peers in the power semiconductor space, and recovery now looks inevitable. </li>
<li>We believe the fair value of shares to be around ¥3,300, 2x the current price, but investors should ask, “When?” Not “How much.”</li>
</ul>


Rohm’s cyclical turning points in revenue typically lag the turn METI production %YoY less inventory % YoY for electronic devices and components by 12 months.
Investors were disappointed with Q1 results, but the company cleanly outperformed most peers in the power semiconductor space, and recovery now looks inevitable. 
We believe the fair value of shares to be around ¥3,300, 2x the current price, but investors should ask, “When?” Not “How much.”


Japanese Equity Specialist, Ortus Advisors

Andrew Jackson

Japanese Equity Specialist

Ortus Advisors

Thematic (Sector/Industry)

<ul>
<li>Texas Instruments and STM numbers pointing to a bottom for industrial and automotive semi's.</li>
<li>Memory catching a bid on SK Hynix numbers yesterday, may see signs of live for Kioxia.</li>
<li>Renesas may run after better-than-feared numbers yesterday and a more positive read for the sector overall.</li>
</ul>


Texas Instruments and STM numbers pointing to a bottom for industrial and automotive semi's.
Memory catching a bid on SK Hynix numbers yesterday, may see signs of live for Kioxia.
Renesas may run after better-than-feared numbers yesterday and a more positive read for the sector overall.


Japan Morning Connection: Japan Set to Melt up with Smaller Cap SPE and Power/Analog Names in Focus

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>Japanese semiconductor equipment stocks have started to drop back, but device maker Rohm is already down 25% year-to-date and down 43% from its 52-week high. </li>
<li>Rohm's operating profit fell 53% last fiscal year and management is guiding for a 68% decline in in FY Mar-25. Investment in power devices remains strong despite weak sales.</li>
<li>1H guidance is for an 80% year-on-year decline in operating profit on a 6% decline in sales. Buy into this weakness. Recovery should start in 2H.</li>
</ul>


Japanese semiconductor equipment stocks have started to drop back, but device maker Rohm is already down 25% year-to-date and down 43% from its 52-week high. 
Rohm's operating profit fell 53% last fiscal year and management is guiding for a 68% decline in in FY Mar-25. Investment in power devices remains strong despite weak sales.
1H guidance is for an 80% year-on-year decline in operating profit on a 6% decline in sales. Buy into this weakness. Recovery should start in 2H.


Rohm (6963 JP): Negative Scenario Discounted

<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?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The Sep 2024 Nikkei 225 Review data set is mostly done, and one can interpolate results relatively accurately. It still leaves us with one ADD, one DELETE, and capping fun.</li>
<li>Recently, Yanai-san sold more <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>. There is more Real World Float- more active holders own more stock (which may mean less interest to buy later).</li>
<li>There is a dark horse candidate which is on investor radar for other reasons. It would not be out of the question, but the precedent is old, and different.</li>
</ul>


The Sep 2024 Nikkei 225 Review data set is mostly done, and one can interpolate results relatively accurately. It still leaves us with one ADD, one DELETE, and capping fun.
Recently, Yanai-san sold more Fast Retailing (9983 JP). There is more Real World Float- more active holders own more stock (which may mean less interest to buy later).
There is a dark horse candidate which is on investor radar for other reasons. It would not be out of the question, but the precedent is old, and different.


Sep24 Nikkei 225 Rebal - Still 1 ADD (Ryohin Keikaku), 1 DELETE, and 1 Very Large Very Dark Horse

Japan

ROHM COMPANY LIMITED manufactures custom linear integrated circuits and semiconductor devices for use primarily in consumer electronics.  The Company has plants and sales offices worldwide.  Rohm's subsidiaries include Wako Electric and Apollo Electronics.

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ROHM Co Ltd (6963 JP)

Rohm (6963): Search for the Bottom

Growth of production less growth of inventory turned positive last September, which could lead to an upturn in Rohm’s sales by the third quarter. ...

Michael Allen

Japan Morning Connection: Japan Set to Melt up with Smaller Cap SPE and Power/Analog Names in Focus

Positive signs for semiconductors as Texas Instruments and STM report good numbers. May see some recovery from Kioxia after the SK Hynix numbers.

Andrew Jackson

Rohm (6963 JP): Negative Scenario Discounted

A 43% decline from its 52-week high has largely discounted the collapse of earnings. This year's guidance is "severe" and projected valuations for...

Scott Foster

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

Sep24 Nikkei 225 Rebal - Still 1 ADD (Ryohin Keikaku), 1 DELETE, and 1 Very Large Very Dark Horse

The Nikkei 225 Rebal for Sep24 has 3mos before the data cutoff. I still see one ADD and one DELETE. There is a possible dark horse ADD, and Fast...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Rohm (6963): Search for the Bottom

Growth of production less growth of inventory turned positive last September, which could lead to an upturn in Rohm’s sales by the third quarter. ...

Michael Allen

Japan Morning Connection: Japan Set to Melt up with Smaller Cap SPE and Power/Analog Names in Focus

​Positive signs for semiconductors as Texas Instruments and STM report good numbers. May see some recovery from Kioxia after the SK Hynix numbers.

Andrew Jackson

Rohm (6963 JP): Negative Scenario Discounted

A 43% decline from its 52-week high has largely discounted the collapse of earnings. This year's guidance is "severe" and projected valuations for...

Scott Foster

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

Sep24 Nikkei 225 Rebal - Still 1 ADD (Ryohin Keikaku), 1 DELETE, and 1 Very Large Very Dark Horse

The Nikkei 225 Rebal for Sep24 has 3mos before the data cutoff. I still see one ADD and one DELETE. There is a possible dark horse ADD, and Fast...

Travis Lundy

Positive signs for semiconductors as Texas Instruments and STM report good numbers. May see some recovery from Kioxia after the SK Hynix numbers.