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>Buying the worst-performing stocks of the previous 12 months has outperformed Japan’s Topix index by an average of 7% annually for 9 straight years</li>
<li>For most of 2024, the strategy didn’t work, but an uptick in TOBs, MBOs, and merger talks is suddenly making it unsafe to short low-PBR companies indiscriminately.</li>
<li>Suddenly, dozens of previously complacent companies have the fear of God and are taking action to up their profitability and the market is taking notice. </li>
</ul>


Buying the worst-performing stocks of the previous 12 months has outperformed Japan’s Topix index by an average of 7% annually for 9 straight years
For most of 2024, the strategy didn’t work, but an uptick in TOBs, MBOs, and merger talks is suddenly making it unsafe to short low-PBR companies indiscriminately.
Suddenly, dozens of previously complacent companies have the fear of God and are taking action to up their profitability and the market is taking notice. 


2024 Was Ugly for Turnarounds, 2025 Should Be Awesome!

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>On 13 November, <a href="https://www.smartkarma.com/entities/kansai-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:18907:1" rel="noopener">Kansai Electric Power (9503 JP)</a> announced an equity offering to raise capital for capex expenditures over the next several years. It is significantly dilutive.</li>
<li>The shares responded by falling 23% to 8-months lows of ¥1,850 last Thursday and Friday. That puts the stock at the same forward PER post-offering as it was pre-offering. </li>
<li>That's probably not an awful place to own now that the stock will have been slightly de-risked/de-levered. </li>
</ul>


On 13 November, Kansai Electric Power (9503 JP) announced an equity offering to raise capital for capex expenditures over the next several years. It is significantly dilutive.
The shares responded by falling 23% to 8-months lows of ¥1,850 last Thursday and Friday. That puts the stock at the same forward PER post-offering as it was pre-offering. 
That's probably not an awful place to own now that the stock will have been slightly de-risked/de-levered. 


Kansai Electric Power (9503 JP) - Huge Offering Is Smaller Now; Reward/Risk Skews Upwards

Equity Bottom-Up

<ul>
<li>Mazda’s domestic unit volume was up 24% in September, compared to an industrywide total of only 1.1%.</li>
<li>Meanwhile, Q2 consensus EBIT estimates have come down by 32% since the release of Q1 results.</li>
<li>But the yield is over 6%, and the Payout ratio is only 17% even on the new estimates.</li>
</ul>


Mazda’s domestic unit volume was up 24% in September, compared to an industrywide total of only 1.1%.
Meanwhile, Q2 consensus EBIT estimates have come down by 32% since the release of Q1 results.
But the yield is over 6%, and the Payout ratio is only 17% even on the new estimates.


Equity Capital Markets

<ul>
<li>Today, <a href="https://www.smartkarma.com/entities/toenec-corp" target="_blank" data-smartkarma-citation="entities:9957:1" rel="noopener">Toenec Corp (1946 JP)</a> - an integrated facilities company 50+% owned by <a href="https://www.smartkarma.com/entities/chubu-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:14574:1" rel="noopener">Chubu Electric Power Co (9502 JP)</a> announced Chubu EPCO would sell down 7.7% to go to 43%+.</li>
<li>This is surprising. It suggests there are more selldowns to come. It's also "big" at 88 days of ADV and about 26% of Max Real World Float (85% retail).</li>
<li>This is an odd sell-down. Chubu EPCO obviously doesn't want to buy it in. That means overhang for years.</li>
</ul>


Today, Toenec Corp (1946 JP) - an integrated facilities company 50+% owned by Chubu Electric Power Co (9502 JP) announced Chubu EPCO would sell down 7.7% to go to 43%+.
This is surprising. It suggests there are more selldowns to come. It's also "big" at 88 days of ADV and about 26% of Max Real World Float (85% retail).
This is an odd sell-down. Chubu EPCO obviously doesn't want to buy it in. That means overhang for years.


Toenec (1946 JP) Offering - Nearly $50mm on SmallCap Utility Infra Co as Chubu EPCO Sells Down

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

S&P BSE SENSEX Index / Technical Analysis

<ul>
<li>Our 2023 outlook remains unchanged as we continue to expect broad-based consolidation with $93 capping upside on MSCI ACWI (ACWI-US), while important downside targets are $86, $84, and $75-77.</li>
<li>We still recommend tactical overweight to defensives including gold miners and MSCI ACWI Staples, Health Care, and Utilities, given ACWI-US remains near the top of our expected 2023 trading range.</li>
<li>We are now starting to see broad-based improvement, particularly in Japan and India, but also in Taiwan and South Korea. Most of today's buy recommendations are cyclicals in these countries.</li>
</ul>


Our 2023 outlook remains unchanged as we continue to expect broad-based consolidation with $93 capping upside on MSCI ACWI (ACWI-US), while important downside targets are $86, $84, and $75-77.
We still recommend tactical overweight to defensives including gold miners and MSCI ACWI Staples, Health Care, and Utilities, given ACWI-US remains near the top of our expected 2023 trading range.
We are now starting to see broad-based improvement, particularly in Japan and India, but also in Taiwan and South Korea. Most of today's buy recommendations are cyclicals in these countries.


Broad-Based Improvement in India, Add Exposure/Overweight. Buys: Cyclicals in Japan, India, & Taiwan

Japan

Chubu Electric Power Company, Incorporated generates, transmits, distributes, and sells electricity in Chubu area.  The Company's service area includes Aichi, Gifu, Mie, Nagano, and part of Shizuoka Prefecture.

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Chubu Electric Power Co (9502 JP)

2024 Was Ugly for Turnarounds, 2025 Should Be Awesome!

2025 could be a banner year for turnarounds and value stocks as a spate of recent TOBs, MBOs and merger discussions have suddenly made it unsafe to...

Michael Allen

Kansai Electric Power (9503 JP) - Huge Offering Is Smaller Now; Reward/Risk Skews Upwards

KEPCO has fallen 23% then rebounded 2% since announcing its equity offering which dilutes 20%. The discount is worthwhile catching. The combo of...

Travis Lundy

Unloved Japan Roundup: Bracing for Q3

Mazda’s domestic volume up 24% in September, compared to industrywide average of 1.1%. Q2 estimates down by 32% in 3 months, but yield over 6%,...

Michael Allen

Toenec (1946 JP) Offering - Nearly $50mm on SmallCap Utility Infra Co as Chubu EPCO Sells Down

Chubu Electric is offering 1.4mm shares of Toenec (1946). This is only 7% of the company, but it is a sign it will not be a parent buy-in. That...

Travis Lundy

Broad-Based Improvement in India, Add Exposure/Overweight. Buys: Cyclicals in Japan, India, & Taiwan

Seeing broad-based improvement in India #SENSEX -- overweight/add exposure. We still recommend a tactical overweight to ACWI defensives with $ACWI...

Vermilion Research

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