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>A massive shortage of IT professionals combined with Shift's overwhelming dominance of the labor market should drive 20% annual revenue growth through 2030. </li>
<li>But Shift missed consensus profitability estimates 3 consecutive quarters, and the share price is down 67% in 12 months, compared to an 18% rise in the median peer. </li>
<li>In our view, a recovery in profitability is already underway, and shares are at least 45% undervalued</li>
</ul>


A massive shortage of IT professionals combined with Shift's overwhelming dominance of the labor market should drive 20% annual revenue growth through 2030. 
But Shift missed consensus profitability estimates 3 consecutive quarters, and the share price is down 67% in 12 months, compared to an 18% rise in the median peer. 
In our view, a recovery in profitability is already underway, and shares are at least 45% undervalued


Shift (3697): Profitability Rebound Underway

<ul>
<li>The market sees testing as AI’s first casualty, but SHIFT is building an AI-powered Trojan horse into Japan’s ¥56tn modernization market.</li>
<li>Near-Term earnings are depressed by investment, hiring normalization, consolidation noise, and possible Rise impairment; none changes cash flow, long-run unit economics, or the path to 24% EBITDA CAGR.</li>
<li>At 9x EV/EBITDA and ~12x FY8/27 EPS, the stock discounts execution failure and permanent impairment; if conversion works even modestly, the current multiple is mispriced.</li>
</ul>


The market sees testing as AI’s first casualty, but SHIFT is building an AI-powered Trojan horse into Japan’s ¥56tn modernization market.
Near-Term earnings are depressed by investment, hiring normalization, consolidation noise, and possible Rise impairment; none changes cash flow, long-run unit economics, or the path to 24% EBITDA CAGR.
At 9x EV/EBITDA and ~12x FY8/27 EPS, the stock discounts execution failure and permanent impairment; if conversion works even modestly, the current multiple is mispriced.


Shift (3697): An AI Strategy Just Crazy Enough to Work

Research Coverage of Japanese Listed Companies, Shared Research Inc

Shared Research

Research Coverage of Japanese Listed Companies

Shared Research Inc

Pioneering research coverage of Japanese listed companies. Now customizable and interactive for global institutional investors. Corporate access reimagined.

<ul><li>In cumulative Q3 FY08/26, the company reported sales of JPY115.8bn, gross profit of JPY38.4bn, and net income of JPY4.0bn.</li><li>Software Testing Related Services segment sales reached JPY74.5bn, with operating profit at JPY15.7bn, despite increased SG&A expenses.</li><li>Revised FY08/26 forecast anticipates sales of JPY160.0bn, with adjusted net income reduced to JPY9.0bn, and a year-end dividend of JPY4.10.</li></ul>

In cumulative Q3 FY08/26, the company reported sales of JPY115.8bn, gross profit of JPY38.4bn, and net income of JPY4.0bn.Software Testing Related Services segment sales reached JPY74.5bn, with operating profit at JPY15.7bn, despite increased SG&A expenses.Revised FY08/26 forecast anticipates sales of JPY160.0bn, with adjusted net income reduced to JPY9.0bn, and a year-end dividend of JPY4.10.

Shift Inc (3697 JP): Q3 FY08/26 flash update

Thematic (Sector/Industry)

<ul>
<li>The median stock in our Dogs of Topix basket outperformed the median stock in the Topix 400 by 4% through Sept 2024.</li>
<li>This is below the average of 7% achieved by such stocks over the past 9 years, but it was a much tougher stretch than it looked. </li>
<li>Do we need to re-think? Much can be learned comparing the outperformers, whose median return was +34%, compared to the underperformers, which declined 23%.</li>
</ul>


The median stock in our Dogs of Topix basket outperformed the median stock in the Topix 400 by 4% through Sept 2024.
This is below the average of 7% achieved by such stocks over the past 9 years, but it was a much tougher stretch than it looked. 
Do we need to re-think? Much can be learned comparing the outperformers, whose median return was +34%, compared to the underperformers, which declined 23%.


Have the Rules for Bottom Fishing Changed?

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>Shift’s share price has been up by more than 35% YTD driven by improved margins which saw a temporary decline due to Shift’s investment on HR and system reinforcement.</li>
<li>The company’s GPM reached an all-time high in 2QFY08/2025 while OPM has shown significant improvement driven by the company’s changes to recruitment policy that is aligned to utilisation rates.</li>
<li>Though Shift’s top line growth has slowed down, it's not something to worry too much about as its new businesses and large-scale project wins should help revive top line growth.</li>
</ul>


Shift’s share price has been up by more than 35% YTD driven by improved margins which saw a temporary decline due to Shift’s investment on HR and system reinforcement.
The company’s GPM reached an all-time high in 2QFY08/2025 while OPM has shown significant improvement driven by the company’s changes to recruitment policy that is aligned to utilisation rates.
Though Shift’s top line growth has slowed down, it's not something to worry too much about as its new businesses and large-scale project wins should help revive top line growth.


Shift: Shift in Recruitment Policy Supports Margin Recovery; Further Upside

Japan

SHIFT Inc. offers information technology outsourcing services. The Company provides outsourcing software testing services to corporations and individual clients. SHIFT also provides software solutions and consulting services, as well as educational classes and programs.

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Shift Inc (3697 JP)

Shift (3697): Profitability Rebound Underway

Japan's massive shortage of IT professionals and Shift's dominance of the IT labor market should sustain 20% annual sales growth. Profit could grow...

Michael Allen

Shift (3697): An AI Strategy Just Crazy Enough to Work

The market sees testing as AI’s first casualty, but SHIFT is building an AI-powered Trojan horse into Japan’s ¥56tn modernization market. 9x EV...

Michael Allen

Shift Inc (3697 JP): Q3 FY08/26 flash update

In cumulative Q3 FY08/26, the company reported sales of JPY115.8bn, gross profit of JPY38.4bn, and net income of JPY4.0bn. Software Testing...

Shared Research

Have the Rules for Bottom Fishing Changed?

Increased passive investing and a rising interest rate environment have made the bottom-fishing game more treacherous, but the rules are still the...

Michael Allen

Shift: Shift in Recruitment Policy Supports Margin Recovery; Further Upside

Shift's share price up 35% YTD due to improved margins after a temporary decline due to HR and system investments. The company has aligned its...

Shifara Samsudeen, FCMA, CGMA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Shift (3697): Profitability Rebound Underway

Japan's massive shortage of IT professionals and Shift's dominance of the IT labor market should sustain 20% annual sales growth. Profit could grow...

Michael Allen

Shift (3697): An AI Strategy Just Crazy Enough to Work

The market sees testing as AI’s first casualty, but SHIFT is building an AI-powered Trojan horse into Japan’s ¥56tn modernization market. 9x EV...

Michael Allen

Shift Inc (3697 JP): Q3 FY08/26 flash update

In cumulative Q3 FY08/26, the company reported sales of JPY115.8bn, gross profit of JPY38.4bn, and net income of JPY4.0bn. Software Testing...

Shared Research

Have the Rules for Bottom Fishing Changed?

Increased passive investing and a rising interest rate environment have made the bottom-fishing game more treacherous, but the rules are still the...

Michael Allen

Shift: Shift in Recruitment Policy Supports Margin Recovery; Further Upside

​Shift's share price up 35% YTD due to improved margins after a temporary decline due to HR and system investments. The company has aligned its...

Shifara Samsudeen, FCMA, CGMA

Shift's share price up 35% YTD due to improved margins after a temporary decline due to HR and system investments. The company has aligned its...