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

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.

<ul>
<li>Solar power will be cheaper than fossil fuels and EVs will be cheaper than ICE vehicles, but you can't make either without the parts that Rohme excels in. </li>
<li>Tesla is up 201% on speculation about its FSD, but Taiyo Yuden, which makes critical parts in FSD systems is down systems, is down 43%.</li>
<li>Kose is down 49%, largely on China woes, but China is no longer big enough to be a problem, and Japan and other regions growth should start to take over. </li>
</ul>


Solar power will be cheaper than fossil fuels and EVs will be cheaper than ICE vehicles, but you can't make either without the parts that Rohme excels in. 
Tesla is up 201% on speculation about its FSD, but Taiyo Yuden, which makes critical parts in FSD systems is down systems, is down 43%.
Kose is down 49%, largely on China woes, but China is no longer big enough to be a problem, and Japan and other regions growth should start to take over. 


Unloved Japan Roundup-Rohm, Taiyo Yuden, Kose

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.

<ul>
<li>NextAge's stock price dropped nearly 8% on December 5, when the Topix was up, with no apparent news on either the company's website or any local media.</li>
<li>The next day, the Nikkei reported that the Financial Services Agency had raided the company's office after confirming that insurance schemes had been deployed to defraud customers. </li>
<li>This sounds like an old story being leaked by rivals, so we called the company and confirmed: This is most likely old news. </li>
</ul>


NextAge's stock price dropped nearly 8% on December 5, when the Topix was up, with no apparent news on either the company's website or any local media.
The next day, the Nikkei reported that the Financial Services Agency had raided the company's office after confirming that insurance schemes had been deployed to defraud customers. 
This sounds like an old story being leaked by rivals, so we called the company and confirmed: This is most likely old news. 


Seven & i Holdings Co., Ltd. is a holding company which was established through the merger of Ito-Yokado Co., Seven Eleven Japan Co., and Denny's Japan. The Company plans, manages, and operates mainly convenience stores, supermarkets, and department stores.

<ul>
<li>7&amp;I traded at less than 5x reported EV/EBITDA consistently for roughly 4 years straight, and no one seemed to care or notice.</li>
<li>Now that it trades close to 9x, there is an overflow of eager financiers and a mile-long line of analysts who will tell you that it is still undervalued.</li>
<li>This is the stock market equivalent of duct tape and a banana.</li>
</ul>


7&amp;I traded at less than 5x reported EV/EBITDA consistently for roughly 4 years straight, and no one seemed to care or notice.
Now that it trades close to 9x, there is an overflow of eager financiers and a mile-long line of analysts who will tell you that it is still undervalued.
This is the stock market equivalent of duct tape and a banana.


Seven&I (3382): Who Will Be the Greater Fool?

KIKKOMAN CORPORATION produces and markets soy sauce, alcoholic beverages, and other food products.  The Company has marketing rights for Del Monte brand products outside of the United States.  Kikkoman also operates restaurants in Japan and other countries.

<ul>
<li>Adding a new strategy I call TARP – Tariff-Proof at a Reasonable Price. Stocks need to have little or no direct or indirect exposure to the US unless locally procured.</li>
<li>Kotobuki (2222), Kikkoman (2801), and Orix JREIT (8954) are all close to bullet-proof.</li>
<li>Yamada (9831) proves that what the market is looking for is a concept of a plan, not necessarily results.</li>
</ul>


Adding a new strategy I call TARP – Tariff-Proof at a Reasonable Price. Stocks need to have little or no direct or indirect exposure to the US unless locally procured.
Kotobuki (2222), Kikkoman (2801), and Orix JREIT (8954) are all close to bullet-proof.
Yamada (9831) proves that what the market is looking for is a concept of a plan, not necessarily results.


YAMADA DENKI CO., LTD. operates consumer electronic mass sales stores throughout Japan.  The Company sells home appliances, audio & visual systems, office automation equipment, telecommunication equipment, software, and computers. The Company also provides repair services for its merchandises.

<ul>
<li>We expect Yamada to grow EBIT 18% annually on 3.6% growth in revenues, vs. consensus forecast of 7.2% growth in EBIT on 3.2% growth in sales.</li>
<li>If correct, our valuation model suggests that a fair value for Yamada is about ¥1,029, or about 145% higher than the current price.</li>
<li>The stock trades at 0.6x book value, which is fair if you expect no change, but we see ROE rising to almost 10%, from a low of less than 4%.</li>
</ul>


We expect Yamada to grow EBIT 18% annually on 3.6% growth in revenues, vs. consensus forecast of 7.2% growth in EBIT on 3.2% growth in sales.
If correct, our valuation model suggests that a fair value for Yamada is about ¥1,029, or about 145% higher than the current price.
The stock trades at 0.6x book value, which is fair if you expect no change, but we see ROE rising to almost 10%, from a low of less than 4%.


Yamada Denki (9831): What Hasn't Killed Them Made Them Stronger

Michael Allen is a representative director of Azabu Research, an independent research company focused on turnaround situations in the Japanese stock market. He has covered Japanese stocks for more than 30 years in both sell-side and buy-side roles and is fluent in both written and spoken Japanese.  He holds a degree in international studies from the University of Pacific, and certificates in corporate governance from both the Board Director Training Institute of Japan and the Wharton School of Business.

Michael Allen
Japanese Turnaround Situations, Short-Ideas
• Azabu Research

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Seven&I (3382): Who Will Be the Greater Fool?

7&I traded at a low valuation for years, but now that it's higher, analysts claim it's still undervalued - this is the stock market equivalent of...

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Unloved Japan: Cheap & Tariff-Proof

New strategy TARP focuses on investing in stocks with little to no exposure to the US, highlighting companies like Kotobuki, Kikkoman, and Orix...

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Yamada Denki (9831): What Hasn't Killed Them Made Them Stronger

Yamada's potential for 18% EBIT growth could lead to a fair value of ¥1,029, 160% higher than current price, with ROE expected to rise to almost 10%.

Michael Allen

Unloved Japan Roundup-Rohm, Taiyo Yuden, Kose

The top 5 performing large-cap stocks in Japan returned 241% on average so far in 2024, but these stocks were all on their knees a short while ago....

Michael Allen

NextAge (3186): Here We Go Again?

​NextAge's stock price dropped 8% with no apparent news, but later the Nikkei reported that the Financial Services Agency raided their office for...

Michael Allen

Seven&I (3382): Who Will Be the Greater Fool?

​7&I traded at a low valuation for years, but now that it's higher, analysts claim it's still undervalued - this is the stock market equivalent of...

Michael Allen

Unloved Japan: Cheap & Tariff-Proof

​New strategy TARP focuses on investing in stocks with little to no exposure to the US, highlighting companies like Kotobuki, Kikkoman, and Orix...

Michael Allen

Yamada Denki (9831): What Hasn't Killed Them Made Them Stronger

​Yamada's potential for 18% EBIT growth could lead to a fair value of ¥1,029, 160% higher than current price, with ROE expected to rise to almost 10%.

Michael Allen

NextAge's stock price dropped 8% with no apparent news, but later the Nikkei reported that the Financial Services Agency raided their office for...

7&I traded at a low valuation for years, but now that it's higher, analysts claim it's still undervalued - this is the stock market equivalent of...

New strategy TARP focuses on investing in stocks with little to no exposure to the US, highlighting companies like Kotobuki, Kikkoman, and Orix...

Yamada's potential for 18% EBIT growth could lead to a fair value of ¥1,029, 160% higher than current price, with ROE expected to rise to almost 10%.