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>Dentsu’s problems are fixable, and tiny changes in cost assumptions swing operating profit massively. Consensus seems far too cautious.</li>
<li>The cleanup is real: headcount is down 6%, and 500 weak business lines have been shut or merged. Yen weakness shifts from headwind to profit accelerant.</li>
<li>After 2025’s brutal write-downs and with acquisitions frozen, RoE could surge into the high-teens and then stabilize above 20%, forcing a re-rating of the badly distressed equity.</li>
</ul>


Dentsu’s problems are fixable, and tiny changes in cost assumptions swing operating profit massively. Consensus seems far too cautious.
The cleanup is real: headcount is down 6%, and 500 weak business lines have been shut or merged. Yen weakness shifts from headwind to profit accelerant.
After 2025’s brutal write-downs and with acquisitions frozen, RoE could surge into the high-teens and then stabilize above 20%, forcing a re-rating of the badly distressed equity.


Dentsu (4324): Baby Steps Lead to Giant Improvements

Leading International Investment Research, Edison Investment Research

Edison Investment Research

Leading International Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

Dentsu Group’s underlying FY25 results were ahead of guidance that was upgraded with the Q325 results. However, there was also less positive news. First, a further write-down of the goodwill of the international businesses eliminates the ability to pay dividends in FY25 and FY26. Second, the new FY26 guidance points to limited improvement in organic net revenue growth and a lower underlying operating margin and, therefore, there is no progress towards the FY27 financial targets. Dentsu also announced that the current CEO of its Japan business, who is also deputy global COO, will become the new president and global CEO from end-Q126. There was no update on the strategic alliances for the international businesses, although management expects an improvement in performance in FY26. The company has also filed a shelf registration for the issuance of bond-type shares that do not result in equity dilution.

Dentsu Group’s underlying FY25 results were ahead of guidance that was upgraded with the Q325 results. However, there was also less positive news. First, a further write-down of the goodwill of the international businesses eliminates the ability to pay dividends in FY25 and FY26. Second, the new FY26 guidance points to limited improvement in organic net revenue growth and a lower underlying operating margin and, therefore, there is no progress towards the FY27 financial targets. Dentsu also announced that the current CEO of its Japan business, who is also deputy global COO, will become the new president and global CEO from end-Q126. There was no update on the strategic alliances for the international businesses, although management expects an improvement in performance in FY26. The company has also filed a shelf registration for the issuance of bond-type shares that do not result in equity dilution.

Dentsu Group — New CEO to drive transformation

Dentsu Group’s better-than-expected Q325 profit performance, which was driven by Japan, and the phasing of restructuring costs and investment have enabled management to upgrade underlying profit guidance for the year. The regional revenue trends remain consistent with prior quarters, with Japan leading the charge and outperforming management’s expectations, while international markets remain weak with trends quite mixed. Relative to its peers, Dentsu’s organic growth position is broadly in the middle of the pack. Although the upgrade is encouraging, there is uncertainty due to management’s ongoing search for strategic partnerships for its international business and regarding the FY25 dividend.

Dentsu Group’s better-than-expected Q325 profit performance, which was driven by Japan, and the phasing of restructuring costs and investment have enabled management to upgrade underlying profit guidance for the year. The regional revenue trends remain consistent with prior quarters, with Japan leading the charge and outperforming management’s expectations, while international markets remain weak with trends quite mixed. Relative to its peers, Dentsu’s organic growth position is broadly in the middle of the pack. Although the upgrade is encouraging, there is uncertainty due to management’s ongoing search for strategic partnerships for its international business and regarding the FY25 dividend.

Dentsu Group — Strength in Japan feeds FY25 profit upgrade

Dentsu’s Q225 performance was a little below management expectations, with conditions remaining challenging outside Japan. Group operating margins were controlled for H125 at 12.0%. With a further goodwill write-down of ¥86.0bn, Dentsu reported a statutory loss for H125 and is not now paying an interim dividend. A decision on the full year will be made later, and our model assumes dividends resume for FY26. Our FY25 forecasts have been realigned to match revised guidance, with a slightly more cautious stance on growth for FY26. Management’s target for operating margins of 16–17% by FY27 remains in place, predicated on the targeted cost reductions in the mid-term management plan.

Dentsu’s Q225 performance was a little below management expectations, with conditions remaining challenging outside Japan. Group operating margins were controlled for H125 at 12.0%. With a further goodwill write-down of ¥86.0bn, Dentsu reported a statutory loss for H125 and is not now paying an interim dividend. A decision on the full year will be made later, and our model assumes dividends resume for FY26. Our FY25 forecasts have been realigned to match revised guidance, with a slightly more cautious stance on growth for FY26. Management’s target for operating margins of 16–17% by FY27 remains in place, predicated on the targeted cost reductions in the mid-term management plan.

Dentsu Group — Japan performs well, international tougher

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>The drop in <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu Inc (4324 JP)</a>'s stock price over the last few months could lead to the deletion of the stock from a global index in August.</li>
<li>
<a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu Inc (4324 JP)</a> has underperformed its peers over the last year and trades cheaper than the average of its Advertising peers.</li>
<li>There is positioning in <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu Inc (4324 JP)</a>, though it is likely to be smaller than the estimated passive selling. A relative selloff could be used to enter the stock.</li>
</ul>


The drop in Dentsu Inc (4324 JP)'s stock price over the last few months could lead to the deletion of the stock from a global index in August.

Dentsu Inc (4324 JP) has underperformed its peers over the last year and trades cheaper than the average of its Advertising peers.
There is positioning in Dentsu Inc (4324 JP), though it is likely to be smaller than the estimated passive selling. A relative selloff could be used to enter the stock.


Dentsu Group (4324 JP): Global Index Deletion Likely

Japan

DENTSU INC. mainly provides comprehensive advertising services.  The Company also provides marketing and event planning & promotion services.  Dentsu has associated companies in the US, Europe, and Asia.

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Dentsu Inc (4324 JP)

Dentsu (4324): Baby Steps Lead to Giant Improvements

Dentsu's problems are huge, but fixable. Very minor cost adjustments could lead to a massive surge in RoE to above 20% and lead to re-rating of...

Michael Allen

Dentsu Group — New CEO to drive transformation

Dentsu Group’s underlying FY25 results were ahead of guidance that was upgraded with the Q325 results. However, there was also less positive news....

Edison Investment Research

Dentsu Group — Strength in Japan feeds FY25 profit upgrade

Dentsu Group’s better-than-expected Q325 profit performance, which was driven by Japan, and the phasing of restructuring costs and investment have...

Edison Investment Research

Dentsu Group — Japan performs well, international tougher

Dentsu’s Q225 performance was a little below management expectations, with conditions remaining challenging outside Japan. Group operating margins...

Edison Investment Research

Dentsu Group (4324 JP): Global Index Deletion Likely

Dentsu has underperformed its peers this year and the stock could be deleted from a global index in August. Positioning appears to be smaller than...

Brian Freitas

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Dentsu (4324): Baby Steps Lead to Giant Improvements

​Dentsu's problems are huge, but fixable. Very minor cost adjustments could lead to a massive surge in RoE to above 20% and lead to re-rating of...

Michael Allen

Dentsu Group — New CEO to drive transformation

Dentsu Group’s underlying FY25 results were ahead of guidance that was upgraded with the Q325 results. However, there was also less positive news....

Edison Investment Research

Dentsu Group — Strength in Japan feeds FY25 profit upgrade

Dentsu Group’s better-than-expected Q325 profit performance, which was driven by Japan, and the phasing of restructuring costs and investment have...

Edison Investment Research

Dentsu Group — Japan performs well, international tougher

Dentsu’s Q225 performance was a little below management expectations, with conditions remaining challenging outside Japan. Group operating margins...

Edison Investment Research

Dentsu Group (4324 JP): Global Index Deletion Likely

Dentsu has underperformed its peers this year and the stock could be deleted from a global index in August. Positioning appears to be smaller than...

Brian Freitas

Dentsu's problems are huge, but fixable. Very minor cost adjustments could lead to a massive surge in RoE to above 20% and lead to re-rating of...