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

Thematic (Sector/Industry)

<ul>
<li>Japan is sending a delegation of top trade negotiators to the U.S, but both sides are making the same mistakes that led to WWII.</li>
<li>I asked Grok to use game theory to map out the most likely scenarios for how Japanese and U.S. governments might avoid the worst-case scenario. </li>
<li>According to Grok, both sides have a strong motivation to delay any agreement no matter what the other side offers.</li>
</ul>


Japan is sending a delegation of top trade negotiators to the U.S, but both sides are making the same mistakes that led to WWII.
I asked Grok to use game theory to map out the most likely scenarios for how Japanese and U.S. governments might avoid the worst-case scenario. 
According to Grok, both sides have a strong motivation to delay any agreement no matter what the other side offers.


Equity Bottom-Up

KOMERI CO., LTD. operates a home center chain based in Niigata Prefecture. The Company sells DIY (do-it-yourself) products, building materials, tools, hardware, household utensils, gardening materials, car care goods, and leisure goods.  Komeri also operates business in China.

<ul>
<li>Komeri plans to expand their addressable market by 75% and to double their current market share to 21%.</li>
<li>Same store sales of the company’s Pro Stores rose an average of more than 7% in the past 8 quarters, and selling area is expanding at more than 25% annually.</li>
<li>Yet Komeri trades at just 11x earnings, compared to about 16x for Topix and 18x for the median retail stock.</li>
</ul>


Komeri plans to expand their addressable market by 75% and to double their current market share to 21%.
Same store sales of the company’s Pro Stores rose an average of more than 7% in the past 8 quarters, and selling area is expanding at more than 25% annually.
Yet Komeri trades at just 11x earnings, compared to about 16x for Topix and 18x for the median retail stock.


Komeri (8218) Rare, Tariff-Proof Domestic Growth Idea at a Steep Discount

<ul>
<li>Flawed economic theory, poor execution, and fatal over-reach have crippled Trump's chances of winning a Trade War before it even started.</li>
<li>Even with sound execution, the thought leaders behind Trump’s policy had predicted only a narrow path to success. Trump’s promises that it would be easy will backfire.</li>
<li>Historical precedents show tariffs can lead to massive political losses, and trading partners are exploiting this weakness in the U.S. position adroitly.</li>
</ul>


Flawed economic theory, poor execution, and fatal over-reach have crippled Trump's chances of winning a Trade War before it even started.
Even with sound execution, the thought leaders behind Trump’s policy had predicted only a narrow path to success. Trump’s promises that it would be easy will backfire.
Historical precedents show tariffs can lead to massive political losses, and trading partners are exploiting this weakness in the U.S. position adroitly.


Keisei Electric Railway Co / Equity Bottom-Up

Keisei Electric Railway Co., Ltd. provides passenger rail and bus transportation services in the Metropolitan Tokyo and Chiba prefecture areas.  The Company operates department and supermarket stores, hotels, travel agents, movie theater and restaurants, and sells, leases, and maintains real estate.  Keisei Electric is a shareholder of Oriental Land Co., Ltd. which operates Tokyo Disneyland.

<ul>
<li>Activist investors, confusing market price with intrinsic value, have shot themselves in the foot by offering terrible advice to Keisei Railway’s management. </li>
<li>When Keisei followed advice from the activist, selling just 1% of the shares of Oriental Land, Keisei's share price collapsed, proving market price has nothing to do with intrinsic value. </li>
<li>Keisei’s revenue growth and return on investment are stronger than most of its peers, and the crash in its stock price caused by activists might create an opportunity for others.</li>
</ul>


Activist investors, confusing market price with intrinsic value, have shot themselves in the foot by offering terrible advice to Keisei Railway’s management. 
When Keisei followed advice from the activist, selling just 1% of the shares of Oriental Land, Keisei's share price collapsed, proving market price has nothing to do with intrinsic value. 
Keisei’s revenue growth and return on investment are stronger than most of its peers, and the crash in its stock price caused by activists might create an opportunity for others.


Keisei Railway (9009) Gets Bad Advice from Activists, Which Is Good for The Rest of US

Lasertec Corporation develops, designs, manufactures and markets photomask inspection systems to make semiconductor devices, confocal scanning laser microscopes and liquid crystal display (LCD) inspection systems.

<ul>
<li>Lixil increased operating profit by 15.7% YoY, to ¥20.6bn, compared to consensus estimates for an 18% decline. The stock trades at 80% of book value.</li>
<li>TEPCO earned ¥112bn compared to a consensus forecast of a ¥3bn loss. It trades at 35% of book value.</li>
<li>Lasertec increased EBIT by 122% to ¥47.7bn compared to consensus estimates for ¥27bn, and the stock trading at the lowest multiples relative to Topix in seven years.  </li>
</ul>


Lixil increased operating profit by 15.7% YoY, to ¥20.6bn, compared to consensus estimates for an 18% decline. The stock trades at 80% of book value.
TEPCO earned ¥112bn compared to a consensus forecast of a ¥3bn loss. It trades at 35% of book value.
Lasertec increased EBIT by 122% to ¥47.7bn compared to consensus estimates for ¥27bn, and the stock trading at the lowest multiples relative to Topix in seven years.  


Unloved Japan Round-Up: Some Massive Results Surprises

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.