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

TORIDOLL Holdings Corporation / Equity Bottom-Up

<ul>
<li>Macro trends for restaurant chains are all negative: Food prices rising faster than restaurant unit prices, part-time wages rising faster than full-time.</li>
<li>Toridoll’s same store sales resuming long-term underperformance trend that was broken only briefly during the pandemic.</li>
<li>Stock trades at 3x the market average PBR, despite merely average RoE. Technical support has broken down.</li>
</ul>


Macro trends for restaurant chains are all negative: Food prices rising faster than restaurant unit prices, part-time wages rising faster than full-time.
Toridoll’s same store sales resuming long-term underperformance trend that was broken only briefly during the pandemic.
Stock trades at 3x the market average PBR, despite merely average RoE. Technical support has broken down.


Toridoll (3397): Restaurant Chain on a Ledge

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>The Nikkei reports that Carlyle is in the final stages of buying <a href="https://www.smartkarma.com/entities/mitsubishi-corp" target="_blank" data-smartkarma-citation="entities:20668:1" rel="noopener">Mitsubishi Corp (8058 JP)</a>’s 35% stake in <a href="https://www.smartkarma.com/entities/kfc-holdings-japan-ltd" target="_blank" data-smartkarma-citation="entities:12358:1" rel="noopener">Kfc Holdings Japan (9873 JP)</a>, which will result in a tender offer. </li>
<li>The structure will likely be similar to the <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a>/ <a href="https://www.smartkarma.com/entities/lawson-inc" target="_blank" data-smartkarma-citation="entities:1040:1" rel="noopener">Lawson Inc (2651 JP)</a> tender, where MitCorp provides an irrevocable NOT to accept but vote for share consolidation.</li>
<li>The shares have been up 33.6% since Nikkei flagged the sale on 28 February. KFC Japan will trade in line with peers’ multiples at a JPY5,700 offer.  </li>
</ul>


The Nikkei reports that Carlyle is in the final stages of buying Mitsubishi Corp (8058 JP)’s 35% stake in Kfc Holdings Japan (9873 JP), which will result in a tender offer. 
The structure will likely be similar to the KDDI Corp (9433 JP)/ Lawson Inc (2651 JP) tender, where MitCorp provides an irrevocable NOT to accept but vote for share consolidation.
The shares have been up 33.6% since Nikkei flagged the sale on 28 February. KFC Japan will trade in line with peers’ multiples at a JPY5,700 offer.  


KFC Holdings Japan (9873 JP): Carlyle Edging Towards a Tender Offer

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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>
<a href="https://www.smartkarma.com/entities/toridoll-holdings-corporation" target="_blank" data-smartkarma-citation="entities:8193:1" rel="noopener">TORIDOLL Holdings Corporation (3397 JP)</a> is trading near the historical peak of ¥3,000 per share which translates to a consensus FY+2 EV/OP of 30.9x.</li>
<li>We think the stock has more room to run as its OP margin is expected to reach double digits for the first time since FY13.</li>
<li>Meanwhile, there could be an upside to FY23 guidance as it is currently based on an exchange rate of ¥116 per $1.0.</li>
</ul>



TORIDOLL Holdings Corporation (3397 JP) is trading near the historical peak of ¥3,000 per share which translates to a consensus FY+2 EV/OP of 30.9x.
We think the stock has more room to run as its OP margin is expected to reach double digits for the first time since FY13.
Meanwhile, there could be an upside to FY23 guidance as it is currently based on an exchange rate of ¥116 per $1.0.


Toridoll - Bull Run Can Stretch Much Longer

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<a href="https://www.smartkarma.com/entities/yihai-int-l-holding-ltd" target="_blank" data-smartkarma-citation="entities:22803:1" rel="noopener">Yihai Int’L Holding (1579 HK)</a> was trading at par with <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a> although the former has previously been the market’s darling due to its less capital intensive and higher-margin business. But the fall during COVID was worse for Yihai compared to Haidialo as investors rushed to cash out their unrealized profit, ignoring the fact that Yihai’s previously smaller business in providing ready-to-eat food products which is essentially what the market wanted at that time, has grown bigger, and has become the differentiator during the difficult period hence maintaining respectable earnings multiples compared to Haidilao whose earnings multiple has gone through to the roof. Only recently, post the vaccine discovery, Haidilao’s earnings multiple normalized but it is still trading at almost twice as much of Yihai (92 to 50).
On a YTD basis, however, both share prices have been heavily correlated although 1) Haidilao’s revenue growth slowed considerably, 2) Yihai’s diversification away from being Haidilao’s supplier have shown result and 3) the earnings multiples differences are still persistent although it has narrowed. This begs to question that shouldn’t Yihai’s share price trading higher than Haidilao?
Yihai's share price is currently highly correlated to Haidilao although its business has become less and less correlated to the former and has pivoted away from providing condiments to Haidilao to manufacture ready-to-eat food products hence the business nature is more similar to <a href="https://www.smartkarma.com/entities/nissin-foods-co-ltd" target="_blank" data-smartkarma-citation="entities:26062:1" rel="noopener">Nissin Foods (1475 HK)</a> although Yihai's share price is still massively underperforming Nissin Food Holdings'.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/131/original/image_48603681281635075064982.png?1635075064" class="editor-image img-responsive" data-smartkarma-image-id="237131"></figure>
<div class="content-remarks">
source: Reuters
</div>

Yihai Int’L Holding (1579 HK) was trading at par with Haidilao (6862 HK) although the former has previously been the market’s darling due to its less capital intensive and higher-margin business. But the fall during COVID was worse for Yihai compared to Haidialo as investors rushed to cash out their unrealized profit, ignoring the fact that Yihai’s previously smaller business in providing ready-to-eat food products which is essentially what the market wanted at that time, has grown bigger, and has become the differentiator during the difficult period hence maintaining respectable earnings multiples compared to Haidilao whose earnings multiple has gone through to the roof. Only recently, post the vaccine discovery, Haidilao’s earnings multiple normalized but it is still trading at almost twice as much of Yihai (92 to 50).
On a YTD basis, however, both share prices have been heavily correlated although 1) Haidilao’s revenue growth slowed considerably, 2) Yihai’s diversification away from being Haidilao’s supplier have shown result and 3) the earnings multiples differences are still persistent although it has narrowed. This begs to question that shouldn’t Yihai’s share price trading higher than Haidilao?
Yihai's share price is currently highly correlated to Haidilao although its business has become less and less correlated to the former and has pivoted away from providing condiments to Haidilao to manufacture ready-to-eat food products hence the business nature is more similar to Nissin Foods (1475 HK) although Yihai's share price is still massively underperforming Nissin Food Holdings'.


source: Reuters


Yihai International (1579): Diversified Away from Haidilao

Equity Capital Markets

Tam Jai International / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tam-jai-international-co-ltd" target="_blank" data-smartkarma-citation="entities:34227:1" rel="noopener">Tam Jai International (TJI HK)</a> is a popular fast casual restaurant chain in Hong Kong that offers a type of rice noodle called “Mixian” under two restaurant brands; TamJai Yunnan Mixian (譚仔雲南米線) and TamJai SamGor Mixian (譚仔三哥米線).</li>
<li>Tam Jai is an excellent business with market leadership in Hong Kong’s specialty noodles restaurants segment. It offered earnings stability during the COVID-19 lockdowns, and has an earnings growth potential of around 99% EBIT CAGR through FY21-24. Though all the restaurants are company-owned, the business model requires low initial capital, resulting in a fast payback period and above industry average investment returns. Moreover, the company expects to pay out a minimum of 30% of earnings as annual dividends.</li>
<li>We think that these factors should help tick the investment criteria of a wide range of investors. As long as it is not priced unreasonably, we think Tam Jai’s proposed US$100m IPO on the Hong Kong Stock Exchange could get lots of institutional and retail investors interested.</li>
</ul>



Tam Jai International (TJI HK) is a popular fast casual restaurant chain in Hong Kong that offers a type of rice noodle called “Mixian” under two restaurant brands; TamJai Yunnan Mixian (譚仔雲南米線) and TamJai SamGor Mixian (譚仔三哥米線).
Tam Jai is an excellent business with market leadership in Hong Kong’s specialty noodles restaurants segment. It offered earnings stability during the COVID-19 lockdowns, and has an earnings growth potential of around 99% EBIT CAGR through FY21-24. Though all the restaurants are company-owned, the business model requires low initial capital, resulting in a fast payback period and above industry average investment returns. Moreover, the company expects to pay out a minimum of 30% of earnings as annual dividends.
We think that these factors should help tick the investment criteria of a wide range of investors. As long as it is not priced unreasonably, we think Tam Jai’s proposed US$100m IPO on the Hong Kong Stock Exchange could get lots of institutional and retail investors interested.


Tam Jai International IPO Satisfies Investor Cravings

Japan

TORIDOLL Holdings Corporation operates a variety of restaurants such as skewered grill chicken, Japanese noodle, ramen noodle, Japanese-style pancake, and pasta restaurants.  The Company operates its business at food courts in shopping centers, stations, highway rest areas, and suburbs.

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TORIDOLL Holdings Corporation (3397 JP)

Toridoll (3397): Restaurant Chain on a Ledge

Stock trades at 3x the market PBR despite consistently average RoE. Even the slightest disappointment could send the stock tumbling, and now, macro...

Michael Allen

KFC Holdings Japan (9873 JP): Carlyle Edging Towards a Tender Offer

The shares have increased 33.6% since Nikkei flagged the sale on 28 February. KFC Japan will trade in line with peers’ multiples at a JPY5,700 offer.

Arun George

Toridoll - Bull Run Can Stretch Much Longer

Although the takeaway and delivery revenue has declined by around 20% from the COVID-driven peak, it continues to be a substantial revenue stream...

Oshadhi Kumarasiri

Yihai International (1579): Diversified Away from Haidilao

Mispriced Yihai Intl - share price highly correlated with Haidilao although it has diversified away by growing its ready-to-eat food business that...

Henry Soediarko

Tam Jai International IPO Satisfies Investor Cravings

Tam Jai is an excellent business with market leadership in Hong Kong’s specialty noodles restaurants segment. It offered earnings stability during...

Oshadhi Kumarasiri

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