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>Japan’s chemicals industry is finally undergoing a long-overdue consolidation that should lead to fewer companies, higher profitability, and less volatility.</li>
<li>These changes may be driving significant mispricing. Like most segments, RoE drives most of the variance in PBR, but with more frequent and far larger outliers.</li>
<li>KH Neochem, Daicel, and Mitsui Chemicals are the undervalued outliers, and all three are positioned for rapid growth in our view.</li>
</ul>


Japan’s chemicals industry is finally undergoing a long-overdue consolidation that should lead to fewer companies, higher profitability, and less volatility.
These changes may be driving significant mispricing. Like most segments, RoE drives most of the variance in PBR, but with more frequent and far larger outliers.
KH Neochem, Daicel, and Mitsui Chemicals are the undervalued outliers, and all three are positioned for rapid growth in our view.


Long-Overdue Consolidation in Japanese Chemicals Drives Growth & Mispricing

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

<ul>
<li>Our outlook remains neutral on global equities (MSCI ACWI) as of our August 8, 2024 Int’l Compass, after being bullish since early-November 2023</li>
<li>As discussed since late-July, we believe we're still within a 4- to 6-month pullback/consolidation from our selected July 17 starting point, until the market decides which was this consolidation resolves </li>
<li>TOPIX is below 2740-2820 resistance. Europe is testing resistance, though near potential breakouts on the EURO STOXX 50, STOXX Europe 600, and STOXX Europe 50. Watch for false breakouts</li>
</ul>


Our outlook remains neutral on global equities (MSCI ACWI) as of our August 8, 2024 Int’l Compass, after being bullish since early-November 2023
As discussed since late-July, we believe we're still within a 4- to 6-month pullback/consolidation from our selected July 17 starting point, until the market decides which was this consolidation resolves 
TOPIX is below 2740-2820 resistance. Europe is testing resistance, though near potential breakouts on the EURO STOXX 50, STOXX Europe 600, and STOXX Europe 50. Watch for false breakouts


Japan and Europe Holding Below Resistance; MSCI ACWI, ACWI Ex-US, EAFE (Local Curr) Below Resistance

Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<ul>
<li>In <a href="https://www.smartkarma.com/insights/jpx-nikkei-400-2022-rebal-final-predictions" target="_blank" data-smartkarma-citation="insights:72159" rel="noopener">JPX-Nikkei 400 2022 Rebal: Final Predictions</a>, I discussed Quiddity's final predictions for Potential ADDs/DELs for the JPX-Nikkei Index August 2022 Annual Review.</li>
<li>In that insight, I classified the potential ADDs/DELs by conviction levels and discussed why the high conviction ADDs and DELs deserved a higher weight than the other baskets.</li>
<li>Since then, the LONG High Conviction ADDs - SHORT High conviction DELs Trade has outperformed the other LONG-SHORT combinations.</li>
</ul>


In JPX-Nikkei 400 2022 Rebal: Final Predictions, I discussed Quiddity's final predictions for Potential ADDs/DELs for the JPX-Nikkei Index August 2022 Annual Review.
In that insight, I classified the potential ADDs/DELs by conviction levels and discussed why the high conviction ADDs and DELs deserved a higher weight than the other baskets.
Since then, the LONG High Conviction ADDs - SHORT High conviction DELs Trade has outperformed the other LONG-SHORT combinations.


JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Event-Driven

When <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a> presented their H1 <a href="https://www.sdk.co.jp/assets/files/english/ir/library/pdf_presentation/results2021-2q.pdf" target="_blank" rel="noopener">results</a> on 10 August 2021, and later held their analyst call, it seemed quite bullish. The company was a year ahead of its internal integration efforts after having purchased Hitachi Chemical (renaming it Showa Denko Materials) in a HUGE debt-financed deal in 2020. The company noted that all businesses were operating well and that residual negative numbers coming from restructuring costs and other weaknesses were simply a matter of time to overcome.The company showed an OP forecast which even it admitted was light, and for the year the forecast at ¥85bn remains significantly impacted by the amortisation of goodwill due to the purchase of the Hitachi Chemicals business (¥17.6bn this year). This is to say that OP would be 20% higher if Showa Denko had used US-GAAP or IFRS to account for the purchase of Hitachi Chem.Net Income forecasts out years from now are impacted by this cost to amortise the purchase goodwill. The call was interesting in that it talked about efforts to reduce interest-bearing debt, and also talked about aggressive investment measures. That probably should have been a hint. The shares fell hard from the 17th to the 20th as crude oil did too. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/837/original/Screenshot+2021-09-04+at+5.14.22+PM.png?1630746942" class="editor-image img-responsive" data-smartkarma-image-id="227837"></figure></section>And 13 days after the earnings release the company <a href="https://www.sdk.co.jp/assets/files/english/news/2021/20210823_sdknewsrelease_e.pdf" target="_blank" rel="noopener">announced</a> an equity sale where they would sell 35.1mm shares (including greenshoe) to investors. That is a big number, at roughly a quarter of the pre-existing share count. It is even bigger when you consider shareholder structure. Pricing is likely on 6 September. Below the fold we look at shareholder structure, offer structure, and index demand.

When Showa Denko K.K. (4004 JP) presented their H1 results on 10 August 2021, and later held their analyst call, it seemed quite bullish. The company was a year ahead of its internal integration efforts after having purchased Hitachi Chemical (renaming it Showa Denko Materials) in a HUGE debt-financed deal in 2020. The company noted that all businesses were operating well and that residual negative numbers coming from restructuring costs and other weaknesses were simply a matter of time to overcome.The company showed an OP forecast which even it admitted was light, and for the year the forecast at ¥85bn remains significantly impacted by the amortisation of goodwill due to the purchase of the Hitachi Chemicals business (¥17.6bn this year). This is to say that OP would be 20% higher if Showa Denko had used US-GAAP or IFRS to account for the purchase of Hitachi Chem.Net Income forecasts out years from now are impacted by this cost to amortise the purchase goodwill. The call was interesting in that it talked about efforts to reduce interest-bearing debt, and also talked about aggressive investment measures. That probably should have been a hint. The shares fell hard from the 17th to the 20th as crude oil did too. And 13 days after the earnings release the company announced an equity sale where they would sell 35.1mm shares (including greenshoe) to investors. That is a big number, at roughly a quarter of the pre-existing share count. It is even bigger when you consider shareholder structure. Pricing is likely on 6 September. Below the fold we look at shareholder structure, offer structure, and index demand.

Showa Denko (4004 JP) Offering - Supply, Passive Demand, and Opportunity

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written on all recently and below is a summary of the main points as well as an some valuation metrics. All are sensibly priced in our view now.

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written on all recently and below is a summary of the main points as well as an some valuation metrics. All are sensibly priced in our view now. 

A Round up of Some Japanese Equities Buys as We Begin the New Year.

Japan

KURARAY CO., LTD. manufactures synthetic and chemical fibers.  The Company provides special resin, man-made leather, fine chemicals, and non-woven fabrics used as apparel and industrial materials.  Kuraray also produces pharmaceutical and medical products such as dialyzers and dental-care products.  The Company focuses on environmentally beneficial products.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Kuraray Co Ltd (3405 JP)

Long-Overdue Consolidation in Japanese Chemicals Drives Growth & Mispricing

Consolidation in Japan's chemicals industry leading to fewer companies, higher profitability, and potential for growth in undervalued outliers...

Michael Allen

Japan and Europe Holding Below Resistance; MSCI ACWI, ACWI Ex-US, EAFE (Local Curr) Below Resistance

Japan and Europe Holding Below Resistance; MSCI ACWI, ACWI ex-US, and EAFE (local currency) Also Below Resistance Though Testing Now; $EEM breakout...

Vermilion Research

JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

The official index changes could be announced on 5th August 2022. Expect some positive and negative surprises. Inclusion/Exclusion events could...

Janaghan Jeyakumar, CFA

Showa Denko (4004 JP) Offering - Supply, Passive Demand, and Opportunity

Showa Denko's offering is not ginormous, but it is BIG. And it will engender a fair bit of passive flow. The question is whether investors will buy...

Travis Lundy

A Round up of Some Japanese Equities Buys as We Begin the New Year.

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written...

Pearl Hill Advisors

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Long-Overdue Consolidation in Japanese Chemicals Drives Growth & Mispricing

​Consolidation in Japan's chemicals industry leading to fewer companies, higher profitability, and potential for growth in undervalued outliers...

Michael Allen

Japan and Europe Holding Below Resistance; MSCI ACWI, ACWI Ex-US, EAFE (Local Curr) Below Resistance

Japan and Europe Holding Below Resistance; MSCI ACWI, ACWI ex-US, and EAFE (local currency) Also Below Resistance Though Testing Now; $EEM breakout...

Vermilion Research

JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

The official index changes could be announced on 5th August 2022. Expect some positive and negative surprises. Inclusion/Exclusion events could...

Janaghan Jeyakumar, CFA

Showa Denko (4004 JP) Offering - Supply, Passive Demand, and Opportunity

Showa Denko's offering is not ginormous, but it is BIG. And it will engender a fair bit of passive flow. The question is whether investors will buy...

Travis Lundy

A Round up of Some Japanese Equities Buys as We Begin the New Year.

Please see some recent buy ideas, all very cheap, that we believe offer decent longer term growth and have had a dreadful December. We have written...

Pearl Hill Advisors

Consolidation in Japan's chemicals industry leading to fewer companies, higher profitability, and potential for growth in undervalued outliers...