Happinet / 7552
COVERAGE INITIATED ON: 2014.03.06 LAST UPDATE: 2021.07.12
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.
Research Coverage Report by Shared Research Inc. Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.
Key financial data ------3 Recent updates ------4 Highlights ------4 Trends and outlook ------5 Business ------20 Description ------20 Strengths and weaknesses ------30 Market and value chain ------31 Strategy ------34 Historical performance ------36 Other information ------48 History ------48 News and topics ------49 Major shareholders (as of end-March 2021) ------53 Profile ------54
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Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Key financial data
Income statement FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 FY03/22 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 198,021 176,757 206,867 217,232 187,274 174,059 197,607 240,398 233,347 259,313 266,000 YoY 3.7% -10.7% 17.0% 5.0% -13.8% -7.1% 13.5% 21.7% -2.9% 11.1% 2.6% Gross profit 25,007 22,501 24,039 26,152 21,997 21,971 22,880 25,193 23,540 26,074 YoY 12.0% -10.0% 6.8% 8.8% -15.9% -0.1% 4.1% 10.1% -6.6% 10.8% GPM 12.6% 12.7% 11.6% 12.0% 11.7% 12.6% 11.6% 10.5% 10.1% 10.1% Operating profit 4,855 2,973 3,888 5,056 3,450 3,698 4,806 4,540 2,572 4,249 4,500 YoY 70.1% -38.8% 30.8% 30.0% -31.8% 7.2% 30.0% -5.5% -43.3% 65.2% 5.9% OPM 2.5% 1.7% 1.9% 2.3% 1.8% 2.1% 2.4% 1.9% 1.1% 1.6% 1.7% Recurring profit 5,032 3,081 3,917 5,124 3,497 3,479 4,701 4,383 2,413 4,321 4,500 YoY 67.0% -38.8% 27.1% 30.8% -31.8% -0.5% 35.1% -6.8% -44.9% 79.1% 4.1% RPM 2.5% 1.7% 1.9% 2.4% 1.9% 2.0% 2.4% 1.8% 1.0% 1.7% 1.7%
Ne t in c o me attributable to owners of the parent 2,458 2,011 2,466 4,049 2,359 2,040 4,031 2,735 1,224 2,591 2,700 YoY 78.6% -18.2% 22.6% 64.2% -41.7% -13.5% 97.6% -32.2% -55.2% 111.7% 4.2% Net margin 1.2% 1.1% 1.2% 1.9% 1.3% 1.2% 2.0% 1.1% 0.5% 1.0% 1.0% Per-share data (JPY) Shares issued (year-end; '000) 24,050 24,050 24,050 24,050 24,050 24,050 24,050 24,050 24,050 24,050 EPS 109.7 89.8 109.4 178.9 104.1 92.3 185.3 125.4 55.9 118.2 123.2 EPS (fully diluted) 109.6 89.6 108.1 176.2 102.2 90.4 181.1 122.5 54.6 115.1 Dividend per share 27.50 22.50 24.75 28.50 30.00 35.00 40.00 50.00 50.00 50.00 50.00 Book value per share 972.1 1,036.2 1,128.3 1,293.0 1,364.8 1,464.8 1,659.3 1,712.1 1,713.8 1,835.2 Balance sheet (JPYmn) Cash and cash equivalents 12,359 10,155 9,996 15,867 11,412 11,605 11,458 17,447 14,410 21,772 Total current assets 48,269 47,930 47,025 52,449 44,905 48,975 60,484 59,072 55,086 66,003 Tangible fixed assets 1,392 1,110 1,342 688 753 777 758 810 813 1,091 Investments and other assets 2,946 2,976 5,065 5,900 10,047 10,579 11,614 12,438 12,266 13,491 Total fixed assets 6,054 5,072 6,854 7,443 11,887 12,361 14,838 15,850 15,668 16,954 Total assets 54,323 53,003 53,879 59,893 56,793 61,337 75,323 74,923 70,754 82,957 Notes and accounts payable 23,042 22,672 20,099 20,118 18,282 21,550 27,785 25,589 22,188 29,097 Short-term debt ------Total current liabilities 29,617 26,883 25,036 26,957 21,817 25,188 34,354 32,575 27,996 37,323 Long-term debt ------Total fixed liabilities 2,909 2,829 3,148 3,355 3,621 3,837 4,269 4,364 4,578 4,660 Total liabilities 32,527 29,713 28,185 30,312 25,438 29,026 38,624 36,939 32,575 41,984 Total net assets 21,795 23,289 25,694 29,580 31,355 32,311 36,698 37,983 38,178 40,973 Total interest-bearing debt ------Cash flow statement (JPYmn) Cash flows from operating activities 4,609 -1,505 2,547 6,658 978 3,055 4,453 7,940 -1,056 10,262 Cash flows from investing activities -50 -108 -87 -158 -4,752 -1,107 -3,837 -948 -1,047 -1,533 Cash flows from financing activities -421 -588 -2,618 -628 -677 -1,754 -762 -1,001 -1,111 -1,217 Financial ratios ROA (RP-based) 9.8% 5.7% 7.3% 9.0% 6.0% 5.9% 6.9% 5.8% 3.3% 5.6% ROE 11.8% 8.9% 10.1% 14.8% 7.8% 6.5% 11.0% 7.2% 3.2% 6.7% Equity ratio 40.1% 43.9% 47.7% 49.4% 55.2% 52.7% 48.7% 50.7% 54.0% 49.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Per share data adjusted for the 2-for-1 stock split on December 1, 2011. Per share data is retroactively restated. Note: Net income attributable to owners of the parent from before FY03/15 refers to net income. Note: The company will apply the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) from FY03/22. Company forecasts for FY03/22 in the table above reflect estimates after the relevant accounting standards are applied. The YoY figures for the FY03/22 forecasts are for reference purposes only and reflect a comparison of earnings prior to the application of the new standard.
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Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Recent updates
Highlights On July 12, 2021, Shared Research updated the report following interviews with Happinet Corporation.
On May 14, 2021, the company announced earnings results for full-year FY03/21; see the results section for details.
For previous releases and developments, please refer to the News and topics section.
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Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Trends and outlook
Quarterly trends and results
Cumulative FY 03/ 20 FY 03/ 21 FY 03/ 21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4% of Est. FY Es t . Sales 46,257 103,014 181,590 233,347 50,499 111,340 200,927 259,313 103.7% 250,000 YoY -2.1% -1.5% -5.1% -2.9% 9.2% 8.1% 10.6% 11.1% 7.1% Gross profit 5,496 11,747 18,842 23,540 5,241 11,888 20,608 26,074 YoY 1.2% 0.2% -7.6% -6.6% -4.7% 1.2% 9.4% 10.8% GPM 11.9% 11.4% 10.4% 10.1% 10.4% 10.7% 10.3% 10.1% SG&A expenses 4,921 10,141 15,816 20,967 4,790 9,940 16,317 21,825 YoY 5.5% 3.4% 2.0% 1.5% -2.7% -2.0% 3.2% 4.1% SG&A ratio 10.6% 9.8% 8.7% 9.0% 9.5% 8.9% 8.1% 8.4% Operating profit 575 1,605 3,025 2,572 450 1,948 4,290 4,249 98.8% 4,300 YoY -25.0% -16.4% -38.0% -43.3% -21.7% 21.4% 41.8% 65.2% 67.2% OPM 1.2% 1.6% 1.7% 1.1% 0.9% 1.8% 2.1% 1.6% 1.7% Recurring profit 573 1,571 2,974 2,413 483 2,023 4,354 4,321 100.5% 4,300 YoY -23.9% -15.2% -37.9% -44.9% -15.7% 28.8% 46.4% 79.1% 78.2% RPM 1.2% 1.5% 1.6% 1.0% 1.0% 1.8% 2.2% 1.7% 1.7%
Net income attributable to owners of the parent 137 763 1,710 1,224 285 1,260 2,751 2,591 96.0% 2,700 YoY -68.5% -30.8% -43.7% -55.2% 107.9% 65.0% 60.8% 111.7% 120.5% Net margin 0.3% 0.7% 0.9% 0.5% 0.6% 1.1% 1.4% 1.0% 1.1% Quarterly FY 03/ 20 FY 03/ 21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Sales 46,257 56,757 78,576 51,757 50,499 60,841 89,587 58,386 YoY -2.1% -1.0% -9.4% 5.3% 9.2% 7.2% 14.0% 12.8% Gross profit 5,496 6,251 7,095 4,698 5,241 6,647 8,720 5,466 YoY 1.2% -0.7% -18.1% -2.2% -4.7% 6.3% 22.9% 16.3% GPM 11.9% 11.0% 9.0% 9.1% 10.4% 10.9% 9.7% 9.4% SG&A expenses 4,921 5,220 5,675 5,151 4,790 5,150 6,377 5,508 YoY 5.5% 1.5% -0.4% 0.1% -2.7% -1.3% 12.4% 6.9% SG&A ratio 10.6% 9.2% 7.2% 10.0% 9.5% 8.5% 7.1% 9.4% Operating profit 575 1,030 1,420 -453 450 1,498 2,342 -41 YoY -25.0% -10.7% -52.0% - -21.7% 45.4% 64.9% - OPM 1.2% 1.8% 1.8% - 0.9% 2.5% 2.6% - Recurring profit 573 998 1,403 -561 483 1,540 2,331 -33 YoY -24.0% -9.0% -52.2% - -15.7% 54.3% 66.1% - RPM 1.2% 1.8% 1.8% - 1.0% 2.5% 2.6% -
Net income attributable to owners of the parent 137 626 947 -486 285 975 1,491 -160 YoY -68.5% -6.3% -51.1% - 107.9% 55.8% 57.4% - Net margin 0.3% 1.1% 1.2% - 0.6% 1.6% 1.7% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Three-month quarterly figures are calculated as the cumulative figures minus the previous quarter’s cumulative figures.
Seasonality: The Toys business typically accounts for 30% of annual sales and 40% of operating profit. Retail toy sales peak in the weeks leading up to Christmas, thus the company’s sales and operating profit are highest in Q3 which includes December.
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Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Breakdown of SG&A expenses Cumulative FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 SG&A expenses 4,921 10,141 15,816 20,967 4,790 9,940 16,317 21,825 YoY 5.5% 3.4% 2.0% 1.5% -2.7% -2.0% 3.2% 4.1% Logistics expenses 1,001 2,130 3,558 4,505 973 2,147 3,839 4,902 YoY 9.4% 7.5% 3.4% 3.3% -2.8% 0.8% 7.9% 8.8% Personnel expenses 2,103 4,207 6,477 8,677 2,079 4,207 6,821 9,306 YoY 2.0% -0.9% -1.8% -2.9% -1.1% 0.0% 5.3% 7.2% Depreciation 125 278 432 589 149 335 545 747 YoY 13.5% 25.3% 28.7% 28.0% 19.3% 20.4% 26.0% 26.8% Amortization of goodwill 33 66 100 133 39 72 106 139 YoY - - - - 16.9% 8.5% 5.6% 4.2% Quarterly FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 SG&A expenses 4,921 5,220 5,675 5,151 4,790 5,150 6,377 5,508 YoY 5.5% 1.5% -0.4% 0.1% -2.7% -1.3% 12.4% 6.9% Logistics expenses 1,001 1,129 1,428 947 973 1,174 1,692 1,063 YoY 9.4% 5.8% -2.1% 3.0% -2.8% 4.0% 18.5% 12.2% Personnel expenses 2,103 2,104 2,270 2,200 2,079 2,128 2,614 2,485 YoY 2.0% -3.7% -3.4% -6.0% -1.1% 1.1% 15.2% 13.0% Depreciation 125 153 154 157 149 186 210 202 YoY 13.5% 36.6% 35.1% 26.6% 19.3% 21.6% 36.4% 28.7% Amortization of goodwill 33 33 33 33 39 33 34 33 YoY - - - - 16.9% 0.0% 3.0% 0.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Three-month quarterly figures are calculated as the cumulative figures minus the previous quarter’s cumulative figures.
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Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Performance by segment Segments (cumulative) FY 03/ 20 FY 03/ 21 FY 03/ 21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4% of Est. FY Es t . Total sales 46,257 103,014 181,590 233,347 50,499 111,340 200,927 259,313 103.7% 250,000 YoY -2.1% -1.5% -5.1% -2.9% 9.2% 8.1% 10.6% 11.1% 7.1% Toys 16,362 36,785 64,048 79,060 17,493 39,818 72,641 90,327 102.6% 88,000 YoY 25.5% 15.9% 3.9% 2.7% 6.9% 8.2% 13.4% 14.3% 11.3% Visual and Music 17,829 34,921 53,702 71,618 13,368 30,611 49,153 67,529 103.9% 65,000 YoY -12.1% -18.6% -15.5% -12.4% -25.0% -12.3% -8.5% -5.7% -9.2% Videogames 7,462 21,227 49,168 63,136 16,856 33,404 66,257 82,950 103.7% 80,000 YoY -20.5% 5.6% -4.3% 2.4% 125.9% 57.4% 34.8% 31.4% 26.7% Amusement 4,601 10,079 14,671 19,532 2,781 7,505 12,874 18,506 108.9% 17,000 YoY 1.6% 2.5% 0.0% -2.3% -39.6% -25.5% -12.2% -5.3% -13.0% Segment profit 575 1,605 3,025 2,572 450 1,948 4,290 4,249 98.8% 4,300 YoY -25.0% -16.4% -38.0% -43.3% -21.7% 21.4% 41.8% 65.2% 67.2% Toys 254 709 1,544 1,065 456 1,174 2,818 2,630 93.9% 2,800 YoY -0.2% -12.2% -38.1% -47.3% 79.5% 65.5% 82.5% 146.9% 162.9% Visual and Music 278 559 581 533 198 495 603 519 97.9% 530 YoY -21.7% -26.3% -47.5% -51.4% -28.5% -11.3% 3.8% -2.5% -0.6% Videogames 18 173 743 840 236 596 1,326 1,447 101.2% 1,430 YoY -81.8% -18.3% -29.3% -19.1% - 243.2% 78.5% 72.3% 70.2% Amusement 330 790 1,134 1,475 -137 286 527 961 114.4% 840 YoY -9.0% 3.7% -6.1% -14.4% - -63.8% -53.5% -34.8% -43.1% Adjustments -306 -627 -977 -1,342 -304 -604 -985 -1,310 - -1,300 Segments (quarterly) FY 03/ 20 FY 03/ 21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Total sales 46,257 56,757 78,576 51,757 50,499 60,841 89,587 58,386 YoY -2.1% -1.0% -9.4% 5.3% 9.2% 7.2% 14.0% 12.8% Toys 16,362 20,423 27,263 15,012 17,493 22,325 32,823 17,686 YoY 25.5% 9.2% -8.9% -2.1% 6.9% 9.3% 20.4% 17.8% Visual and Music 17,829 17,092 18,781 17,916 13,368 17,243 18,542 18,376 YoY -12.1% -24.4% -9.1% -1.5% -25.0% 0.9% -1.3% 2.6% Videogames 7,462 13,765 27,941 13,968 16,856 16,548 32,853 16,693 YoY -20.5% 28.4% -10.6% 35.7% 125.9% 20.2% 17.6% 19.5% Amusement 4,601 5,478 4,592 4,861 2,781 4,724 5,369 5,632 YoY 1.6% 3.2% -4.9% -8.6% -39.6% -13.8% 16.9% 15.9% Segment profit 575 1,030 1,420 -453 450 1,498 2,342 -41 YoY -25.0% -10.7% -52.0% - -21.7% 45.4% 64.9% - Toys 254 455 835 -479 456 718 1,644 -188 YoY -0.2% -17.9% -50.5% - 79.5% 57.8% 96.9% - Visual and Music 278 281 22 -48 198 297 108 -84 YoY -21.7% -30.4% -93.7% - -28.5% 5.7% 390.9% - Videogames 18 155 570 97 236 360 730 121 YoY -81.8% 40.9% -32.1% - - 132.3% 28.1% 24.7% Amusement 330 460 344 341 -137 423 241 434 YoY -9.0% 15.0% -22.9% -33.9% - -8.0% -29.9% 27.3% Adjustments -306 -321 -350 -365 -304 -300 -381 -325 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Three-month quarterly figures are calculated as the cumulative figures minus the previous quarter’s cumulative figures.
Toys segment Cumulative FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Total sales 16,362 36,785 64,048 79,060 17,493 39,818 72,641 90,327 YoY 25.5% 15.9% 3.9% 2.7% 6.9% 8.2% 13.4% 14.3% BANDAI, BANDAI SPIRITS 8,900 21,600 37,600 45,300 8,800 21,800 41,600 51,700 YoY 22.5% 14.0% -0.3% -4.9% -0.6% 0.8% 10.6% 13.9% % of total 54.7% 59.0% 58.7% 57.4% 50.8% 54.9% 57.3% 57.3% TAKARA TOMY 1,600 3,800 6,000 7,400 1,400 3,000 5,300 6,300 YoY -7.5% -4.9% -15.9% -15.9% -7.5% -20.4% -11.6% -13.7% % of total 9.9% 10.5% 9.5% 9.4% 8.6% 7.7% 7.4% 7.1% Happinet original 400 900 1,400 1,500 200 400 700 900 YoY -6.8% -0.1% -6.8% -21.1% -37.0% -53.1% -50.9% -36.7% % of total 2.5% 2.7% 2.3% 1.9% 1.5% 1.2% 1.0% 1.0% Other 5,300 10,200 18,800 24,700 6,800 14,400 24,900 31,200 YoY 52.2% 33.8% 24.8% 33.4% 27.2% 40.9% 32.1% 26.3% % of total 32.9% 27.8% 29.5% 31.3% 39.1% 36.2% 34.3% 34.6% Segment profit 254 709 1,544 1,065 456 1,174 2,818 2,630 YoY -0.2% -12.2% -38.1% -47.3% 79.5% 65.5% 82.5% 146.9% Segment profit margin 1.6% 1.9% 2.4% 1.3% 2.6% 2.9% 3.9% 2.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Some sales categorizations have been modified from FY03/19 due to the April 2018 startup of BANDAI SPIRITS CO., LTD.
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Happinet / 7552 RCoverage LAST UPDATE: 2021.07.12 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Visual and Music segment Cumulative FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Total sales 17,829 34,921 53,702 71,618 13,368 30,611 49,153 67,529 YoY -12.1% -18.6% -15.5% -12.4% -25.0% -12.3% -8.5% -5.7% Visual 10,000 20,200 32,500 43,500 10,000 19,900 29,500 41,800 YoY -16.7% -22.8% -16.4% -3.3% 0.3% -1.9% -9.0% -4.0% % of total 56.1% 58.1% 60.5% 60.8% 75.0% 65.0% 60.2% 61.9% Wholesale 8,900 18,100 29,000 39,100 8,700 17,600 25,700 36,800 YoY -20.5% -26.8% -20.6% -3.7% -1.4% -2.5% -11.4% -6.1% % of total 49.9% 51.9% 54.0% 54.7% 65.7% 57.7% 52.3% 54.5% Manufacturers 1,100 2,100 3,400 4,300 1,200 2,200 3,800 5,000 YoY 35.1% 44.0% 50.2% 0.3% 13.4% 2.8% 10.9% 15.3% % of total 6.2% 6.2% 6.5% 6.1% 9.3% 7.3% 7.9% 7.4% Music 7,800 14,600 21,100 28,000 3,300 10,700 19,500 25,700 YoY -5.5% -12.0% -14.2% -23.6% -57.3% -26.8% -7.7% -8.4% % of total 43.9% 41.9% 39.5% 39.2% 25.0% 35.0% 39.8% 38.1% Segment profit 278 559 581 533 198 495 603 519 YoY -21.7% -26.3% -47.5% -51.4% -28.5% -11.3% 3.8% -2.5% Segment profit margin 1.6% 1.6% 1.1% 0.7% 1.5% 1.6% 1.2% 0.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Videogames segment Cumulative FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Total sales 7,462 21,227 49,168 63,136 16,856 33,404 66,257 82,950 YoY -20.5% 5.6% -4.3% 2.4% 125.9% 57.4% 34.8% 31.4% Nintendo products 6,500 19,000 45,300 58,300 15,400 30,900 60,800 75,400 YoY -10.1% 15.5% 1.3% 10.5% 134.9% 62.5% 34.3% 29.4% % of total 87.8% 89.6% 92.2% 92.4% 91.3% 92.6% 91.8% 91.0% SIE products 700 1,600 3,000 3,800 1,000 1,800 4,000 5,800 YoY -63.3% -49.3% -47.2% -50.3% 51.1% 8.4% 36.6% 52.6% % of total 9.7% 7.9% 6.1% 6.0% 6.5% 5.4% 6.2% 7.0% Others 100 500 800 900 300 600 1,300 1,600 YoY 41.9% 55.7% -11.5% -16.0% 96.3% 27.3% 55.3% 65.6% % of total 2.5% 2.5% 1.7% 1.6% 2.2% 2.0% 2.0% 2.0% Segment profit 18 173 743 840 236 596 1,326 1,447 YoY -81.8% -18.3% -29.3% -19.1% - 243.2% 78.5% 72.3% Segment profit margin 0.2% 0.8% 1.5% 1.3% 1.4% 1.8% 2.0% 1.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: SIE is Sony Interactive Entertainment Inc.
Amusement segment Cumulative FY 03/ 20 FY 03/ 21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Total sales 4,601 10,079 14,671 19,532 2,781 7,505 12,874 18,506 YoY 1.6% 2.5% 0.0% -2.3% -39.6% -25.5% -12.2% -5.3% Capsule toys 2,600 6,100 9,000 11,900 2,000 5,100 8,600 12,300 YoY 6.2% 11.3% 6.8% 3.9% -23.9% -16.0% -4.6% 3.4% % of total 58.0% 60.7% 61.6% 61.2% 73.0% 68.5% 67.0% 66.8% Card games 1,400 2,900 4,000 5,400 400 1,400 2,300 3,300 YoY -10.0% -14.4% -14.8% -15.5% -71.1% -51.3% -42.6% -39.0% % of total 32.0% 28.9% 27.5% 28.1% 15.3% 18.9% 18.0% 18.1% Other 400 1,000 1,500 2,000 300 900 1,900 2,700 YoY 20.9% 12.2% 9.0% 5.6% -29.3% -9.8% 20.8% 33.7% % of total 10.0% 10.4% 10.9% 10.7% 11.7% 12.6% 15.0% 15.1% Segment profit 330 790 1,134 1,475 -137 286 527 961 YoY -9.0% 3.7% -6.1% -14.5% - -63.8% -53.5% -34.8% Segment profit margin 7.2% 7.8% 7.7% 7.6% -4.9% 3.8% 4.1% 5.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY03/21 results
▷ Sales: JPY259.3bn (+11.1% YoY) ▷ Operating profit: JPY4.2bn (+65.2% YoY) ▷ Recurring profit: JPY4.3bn (+79.1% YoY) ▷ Net income*: JPY2.6bn (+111.7% YoY)
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*Net income attributable to owners of the parent
▷ Sales were up YoY due to hit products in the Toys segment and the successful targeting of stay-at-home demand in the Videogames segment. The company’s entry into the model toy wholesaling business in November 2019 also contributed to higher sales. ▷ On the earnings front, the company reported gross profit of JPY26.1bn, up 10.8% YoY on the back of higher sales. This represented GPM of 10.1%, basically on par with FY03/20. Losses on inventory disposal were lower, at JPY1.5bn (JPY2.1bn in FY03/20), but the relatively low-margin Videogames segment made up 32.0% of sales (+4.9pp YoY), causing GPM to remain unchanged. Smaller losses on disposal of inventory were due mainly to the company’s scaled back purchasing in the wake of the pandemic. ▷ The gains at both the operating profit and recurring profit levels reflect the relatively slow growth in SG&A spending, which at JPY21.8bn rose 4.1% YoY and yet was smaller than gross profit growth. There was an increase in logistics costs accompanying the rise in sales. Breaking down SG&A spending, logistics-related costs accounted for JPY4.9bn (+8.8% YoY), personnel-related costs JPY9.3bn (+7.2% YoY), depreciation JPY747mn (+26.8% YoY), and goodwill amortization JPY139mn (+4.2% YoY). ▷ Net income attributable to owners of the parent was up YoY thanks to the growth in recurring profit. Another factor contributing to profit growth is that extraordinary losses in FY03/20 came to JPY306mn as the company booked JPY288mn in
charges in connection with the celebration of its 50th anniversary, whereas in FY03/21, extraordinary losses stood at just JPY107mn on the booking of fixed asset retirement losses (JPY29mn) and valuation losses on investment in affiliates (JPY78mn).
Along with its release of cumulative Q3 results on February 9, 2021, the company also issued an upwardly revised forecast for the full year, raising its estimate for full-year consolidated sales by JPY10.0bn, operating profit by JPY600mn, recurring profit by JPY800mn, and net income attributable to owners of the parent by JPY600mn. By way of explanation, the company said sales were running ahead of expectations at its Toys business, the thanks here going to hit products such as those connected with the popular anime Kimetsu no Yaiba (Demon Slayer). Strong sales of Nintendo Switch-related products at its Videogames segment also contributed. On top of the better-than-expected sales, the company said earnings were further aided by the decline in inventory valuation losses versus the previous year.
Compared with its upwardly revised forecast, in FY03/21 the company reached 103.7% of its full-year target for sales, 98.8% of operating profit, 100.5% of recurring profit, and 96.0% of net income attributable to owners of the parent.
Breakdown of results by segment:
Toys
▷ Sales: JPY90.3bn (+14.3% YoY) ▷ Segment profit: JPY2.6bn (+146.9% YoY)
Sales grew YoY thanks to brisk sales of popular Kimetsu no Yaiba-related products and strong sales of products for convenience stores, including BANDAI SPIRITS’ Ichiban Kuji-related merchandise. The rise in segment profit reflected sales growth and its successful efforts to improve inventory control and the resulting decline in inventory valuation losses. At Irisawa, which was first included in Happinet’s consolidated results in Q4 FY03/20 (January–March 2020), the company reported sales for FY03/21 of roughly JPY4.7bn (about JPY1.9bn in FY03/20) and indicated that Irisawa contributed to consolidated profit.
Sales by manufacturer
▷ Bandai/BANDAI SPIRITS products: JPY51.7bn (+13.9% YoY), or 57.3% of segment sales (versus 57.4% in FY03/20)
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▷ Takara Tomy products: JPY6.3bn (-13.7% YoY); 7.1% of segment sales (versus 9.4%) ▷ Happinet original products: JPY900mn (-36.7% YoY); 1.0% of segment sales (versus 1.9%) ▷ Products from other manufacturers: JPY31.2bn (+26.3% YoY); 34.6% of segment sales (versus 31.3%)
The segment saw robust sales of Bandai/BANDAI SPIRITS products such as Kimetsu no Yaiba DX Nichirintou and Ichiban Kuji character lottery cards. The company said the increase in sales of products from other manufacturers in FY03/21 was driven primarily by the addition of Irisawa to the Happinet group in November 2019, which meant Irisawa started making a full quarter’s contribution to consolidated results in Q4 FY03/20 (January–March 2020). The company noted that the toy wholesaling business of Irisawa handles some Bandai and BANDAI SPIRITS products, but most of Irisawa’s sales are derived from sales of products made by other manufacturers.
Segment profit The rise in segment profit was driven largely by rising sales and smaller losses on disposal of inventory, which were down to JPY900mn in FY03/21 from JPY1.5bn in FY03/20.
(Reference) Bandai Namco Holdings Inc. results For FY03/21, the Toys and Hobby segment of Bandai Namco Holdings Inc. reported sales of JPY296.0bn, up 16.7% YoY. According to Bandai Namco’s results report, successful online sales and marketing efforts drove strong sales in its adult-oriented products such as the plastic models and figurines in its Mobile Suit Gundam series. Legacy intellectual property (IP) products such as the KAMEN RIDER series, and various peripheral products such as toys and snacks utilizing new IP were also popular.
(Reference) Takara Tomy results For FY03/21, Takara Tomy reported domestic sales of JPY113.3bn, down 18.4% YoY. Recovery in performance took longer than expected at the company’s various retail outlets, such as Kiddy Land and Takara Tomy Plarail Shops, and in its event business, which handles special expositions of Tomica and Plarail toys. The company also faced fewer sales opportunities for some mainstay products, such as at resort areas and public transportation hubs. Products targeting stay-at-home demand were popular, however, and online sales were up.
Visual and Music
▷ Sales: JPY67.5bn (-5.7% YoY) ▷ Segment profit: JPY519mn (-2.5% YoY)
Despite stay-at-home demand contributing to firm sales of albums packaged with videos featuring already released tracks and content sold to video streaming services, sales declined YoY as the COVID-19 pandemic delayed the launch of new albums. Segment profit declined YoY, for while the company was able to reduce SG&A expenses, it also incurred losses on movie investments as seating restrictions and the temporary closure of theaters contributed to a slump in box-office earnings from movies in which the company invested.
Sales by field
▷ Visual field: JPY41.8bn (-4.0% YoY) Wholesale business: JPY36.8bn (-6.1% YoY) Manufacturing business: JPY5.0bn (+15.3% YoY) ▷ Music field: JPY25.7bn (-8.4% YoY)
In the visual wholesale section, although Frozen II did well, sales were down YoY, hurt by ongoing delays in the release of new packaged products in the wake of the pandemic. Sales grew in the visual manufacturing section thanks to strong sales of self- produced movies such as Romance Doll and Mother to video streaming services. In the music section, the company reported
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robust sales of the new STRAY SHEEP album from popular singer Kenshi Yonezu since its release in Q2, on top of which it said it has also seen brisk sales of the new This is Arashi album since its release in Q3. Despite the strong sales in Q2 and Q3, sales for FY03/21 still fell YoY owing to the small number of new releases during Q1.
Segment profit Segment profit was down YoY in line with lower segment sales. Losses on disposal of inventory were JPY200mn (JPY100mn in FY03/20). Sales in Q4 (January‒March 2021) were up YoY, but the segment recorded a JPY84mn loss (versus a JPY48mn loss in Q4 FY03/20). This was owing to the above-mentioned box office losses.
Videogames
▷ Sales: JPY83.0bn (+31.4% YoY) ▷ Segment profit: JPY1.4bn (+72.3% YoY)
The double-digit increase in sales at the Videogames segment was driven in large part by sales of Nintendo products, which at JPY75.4bn were up 29.4% YoY. Sales of products from Sony Interactive Entertainment were up 52.6% YoY to JPY5.8bn. Sales and profit grew YoY thanks to strong sales of game consoles for Nintendo Switch and game software (such as Animal Crossing: New Horizons, Ring Fit Adventure, and Monster Hunter Rise) driven by stay-at-home demand. The release of new game console PlayStation 5 also contributed.
Segment profit rose YoY on the back of higher sales, which grew by JPY19.8bn YoY, although segment profit was only up by JPY607mn owing to the relatively low margins for the hardware the segment handles.
Amusement
▷ Sales: JPY18.5bn (-5.3% YoY) ▷ Segment profit: JPY961mn (-34.8% YoY)
Despite the recovery in the market environment from the severe conditions in place following the government declaring a state of emergency in Q1, segment performance was still impacted by people refraining from going out and the shortening of operating hours or temporary closure of locations operated by the company’s commercial-facility customers. As such, sales and profit were both down YoY. The segment also booked initial expenses on the opening of a new capsule toy store operated by the company.
By product type, the segment reported capsule toy sales of JPY12.3bn (+3.4% YoY), card game sales of JPY3.3bn (-39.0% YoY), and other product sales of JPY2.7bn (+33.7% YoY). Sales of capsule toys showed double-digit declines in Q1 and Q2, but turned around and grew by double digits in Q3 and Q4. 1H was impacted by the temporary shuttering of commercial facilities and curtailed business hours, but in 2H, products connected with the popular Kimetsu no Yaiba (Demon Slayer) manga/anime series performed well. New directly managed capsule toy stores (18 stores as of June 2021), which the company started opening in FY03/20, also contributed to sales. The increase in other product sales was driven in large part by sales of capsule toy vending machines and card game cabinets, and trading cards other than Data Carddass cards.
Card game sales consist of sales derived from Data Carddass cards. Data Carddass is a series of arcade game machines developed by Bandai, which allows users to play games using the data stored on Data Carddass cards with special bar codes. Trading card sales (excluding sales of Data Carddass cards) are recorded under other product sales when they are sold through vending machines.
Segment profit was down YoY, reflecting both lower sales in added expenses on the opening of directly managed capsule toy stores. Although having run at a loss during Q1 due to the aforementioned closure or shortened business hours of shopping centers, as restrictions on businesses were relaxed, the segment moved back into the black in Q2 and stayed there.
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In FY03/21, sales were down by JPY1.0bn YoY, but since the Amusement segment has relatively high marginal ratio, segment profit was only down by JPY514mn YoY.
For details on previous quarterly and annual results, please refer to the Historical performance section.
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Company forecast for FY03/22
FY 03/ 21 FY 03/ 22 (JPYmn) 1H A ct. 2H A ct. FY A ct. 1H Est. 2H Est. FY Est. Sales 111,340 147,973 259,313 122,000 144,000 266,000 YoY 8.1% 13.5% 11.1% 9.6% -2.7% 2.6% Cost of sales 99,451 133,788 233,239 Gross profit 11,888 14,186 26,074 GPM 10.7% 9.6% 10.1% SG&A expenses 9,940 11,885 21,825 SG&A ratio 8.9% 8.0% 8.4% Operating profit 1,948 2,301 4,249 2,000 2,500 4,500 YoY 21.4% 137.9% 65.2% 2.6% 8.6% 5.9% OPM 1.8% 1.6% 1.6% 1.6% 1.7% 1.7% Recurring profit 2,023 2,298 4,321 2,000 2,500 4,500 YoY 28.8% 172.9% 79.1% -1.2% 8.7% 4.1% RPM 1.8% 1.6% 1.7% 1.6% 1.7% 1.7% Net income attributable to owners of the parent 1,260 1,331 2,591 1,200 1,500 2,700 YoY 65.0% 188.7% 111.7% -4.8% 12.6% 4.2% Net margin 1.1% 0.9% 1.0% 1.0% 1.0% 1.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: The company will apply the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) from FY03/22. Company forecasts for FY03/22 in the table above reflect estimates after the relevant accounting standards are applied. The YoY figures for the FY03/22 forecasts are for reference purposes only and reflect a comparison of earnings prior to the application of the new standard.
Forecasts by segment FY 03/ 21 FY03/22 (JPYmn) 1H Act. 2H Act. FY Act. FY Est. Sales 111,340 147,973 259,313 266,000 YoY 8.1% 13.5% 11.1% 2.6% Toys 39,818 50,509 90,327 92,000 YoY 8.2% 19.4% 14.3% 1.9% Visual and Music 30,611 36,918 67,529 67,000 YoY -12.3% 0.6% -5.7% -0.8% Videogames 33,404 49,546 82,950 83,000 YoY 57.4% 18.2% 31.4% 0.1% Amusement 7,505 11,001 18,506 24,000 YoY -25.5% 16.3% -5.3% 29.7% Segment profit 1,948 2,301 4,249 4,500 YoY 21.4% 137.9% 65.2% 5.9% Toys 1,174 1,456 2,630 2,800 YoY 65.5% 308.9% 146.9% 6.5% OPM 2.9% 2.9% 2.9% 3.0% Visual and Music 495 24 519 750 YoY -11.3% - -2.5% 44.5% OPM 1.6% 0.1% 0.8% 1.1% Videogames 596 851 1,447 1,500 YoY 243.2% 27.5% 72.3% 3.7% OPM 1.8% 1.7% 1.7% 1.8% Amusement 286 675 961 950 YoY -63.8% -1.4% -34.8% -1.1% OPM 3.8% 6.1% 5.2% 4.0% Adjustments -604 -706 -1,310 -1,500 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: The company will apply the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) from FY03/22. Company forecasts for FY03/22 in the table above reflect estimates after the relevant accounting standards are applied. The YoY figures for the FY03/22 forecasts are for reference purposes only and reflect a comparison of earnings prior to the application of the new standard.
Happinet forecasts FY03/22 sales of JPY266.0bn (+2.6% YoY), operating profit of JPY4.5bn (+5.9% YoY), recurring profit of JPY4.5bn (+4.1% YoY), and net income attributable to owners of the parent of JPY2.7bn (+4.2% YoY). The company will apply the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) from FY03/22, with forecasts for that year reflecting amounts after the application of that accounting standard. YoY comparisons are against actual results in FY03/21, prior to the application of the new accounting standard.
Amid the ongoing spread of COVID-19, when the pandemic will be brought under control remains out of sight, leaving an uncertain future for the industries in which the company operates. Against this backdrop, the company has decided to delay the launch of the ninth medium-term business plan from FY03/22, as initially expected, to FY03/23. The company acknowledges that the business and operating environment, including in terms of consumer needs, has changed during the pandemic. Happinet
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positions FY03/22 as a year in which it advances a number of measures and strengthens its management base to formulate the company’s ninth medium-term business plan.
Breakdown of company forecast for FY03/22 by segment is outlined below.
Toys segment For the Toys segment, the company projects full-year sales of JPY92.0bn (+1.9% YoY) and segment profit of JPY2.8bn (+6.5% YoY). Supporting both sales and profits will be efforts to streamline model toy distribution, grow market share, and curb inventory disposal losses.
Planned measures for the segment involve steps to streamline model toy distribution and grow market share, expand business lines targeting convenience stores, and obtain more exclusive toy product lines.
▷ Streamlining distribution of model toys and growing market share: Amid an ongoing decline in the birth rate in Japan, the company in April 2021 integrated the model toy sales divisions throughout the group in an effort to strengthen the wholesaling business for adult-oriented model toys. Moving forward, the company aims to fully integrate its sales operations while unifying its logistics functions to further improve efficiency. Happinet aims to expand its distribution share by building a system, based the common use of the company’s industry-leading sales support systems and information systems, that can respond to customer demand in an even more timely manner. ▷ Expanding business lines targeting convenience stores: Sales of Ichiban Kuji character lottery cards at convenience stores were robust in FY03/21. In FY03/22, in addition to existing efforts, the company will undertake various promotions, such as offering toys as prizes when buying snacks or food in bulk. ▷ Obtaining more exclusive product lines: The company will seek to obtain relatively high-margin exclusive toy lines to boost segment profitability.
Happinet landed distribution rights for several promising products, including Kimetsu no Yaiba-related sword toy Kimetsu no Yaiba DX Nichirintou (JPY6,380 including tax, released July 2021); DX Guts Spark Lens, a weapon from the latest Ultraman film Ultraman New Generation Tiga (JPY6,050, released July 2021); and Pokémon Sword & Shield card game expansion packs Silver Lance and Dark Black Geist (JPY165, released April 2021). The company is also launching an original line of remote-control creature toys, Exploding Volcano Tyrannosaurus (JPY5,478, released June 2021).
Visual and Music segment For the Visual and Music segment, the company projects full-year sales of JPY67.0bn (-0.8% YoY) and segment profit of JPY750mn (+44.5% YoY). The company projects higher segment sales and profits off the full-year contribution of Phantom Film, which Happinet made a subsidiary in October 2020 and integrated with its visual manufacturing section in April 2021. The company incurred losses on its movie investments in FY03/21, but expects higher earnings in FY03/22 in the absence of similar losses.
Planned measures for the Visual and Music segment involve reinforcing the manufacturing business by expanding functionality, boosting efficiency of packaged product distribution, and expanding market share.
▷ Reinforcing the manufacturing business by expanding functionality: In a market undergoing change as a result of the increased prevalence of distribution services, the company in October 2020 made Phantom Film Co., Ltd. a subsidiary in line with its goal of expanding operations in the video production business. Phantom Film distributes, plans, produces, and promotes Western and Japanese films (and has worked on several hit films). Later, Happinet established Happinet Phantom Studio, integrating it with the company’s visual manufacturing section in April 2021. The two companies will leverage their respective strengths to create an integrated business covering everything from the planning and production of videos to their distribution, as well as the management of package sales and rights in the Japanese and overseas markets.
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▷ Boosting efficiency of packaged product distribution and expanding market share: The company will grow market share by revising its sales system and bolstering its planning and proposal capabilities for retailers.
The company expects solid performance from a film it jointly financed, The Door Into Summer, due out in theaters in June 2021. In package sales, the company has exclusive selling rights to the anime, HoneyWorks 10th Anniversary LIP x LIP FILM x LIVE, due for release in July 2021, as well as the second album of the rock band This is LAST, which Happinet plans to release on its private label in February 2022. In terms of other companies’ titles, the latest film in Japan’s number-one-grossing Kimetsu no Yaiba series, Kimetsu no Yaiba the Movie: Mugen Train, came out in June 2021—Happinet played a part in distributing the film.
Videogames segment For the Videogames segment, the company projects full-year sales of JPY83.0bn (+0.1% YoY) and segment profit of JPY1.5bn (+3.7% YoY). Coming off of strong contributions from Nintendo Switch game consoles and Animal Crossing: New Horizons game software in FY03/21, the company expects similarly solid contributions from consoles for Sony Interactive Entertainment’s new Play Station 5 in FY03/22, and projects segment performance roughly on a par YoY.
Planned measures for the segment include marketing to capitalize on stay-at-home demand, and broadening the lineup of gaming peripheral products and software for which it holds exclusive distribution rights.
▷ Marketing to capitalize on stay-at-home demand: Given expectations for ongoing stay-at-home demand, the company will continue to meet the needs of customers in a timely manner and strengthen marketing and promotional measures to boost sales. ▷ Broadening the lineup of gaming peripheral products: Handling a broader range of accessories, merchandise, and other gaming peripheral products. ▷ Broadening the lineup of software for which it holds exclusive distribution rights: Step up efforts to acquire exclusive distribution rights to software, which carry relatively high profit margins.
Happinet landed distribution rights for several promising products. In its Nintendo Switch software lineup, Pokémon Brilliant Diamond and Pokémon Shining Pearl, remakes of a 2006 title, are due for release in winter 2021. The newest title in the Pokémon series, Pokémon Legends: Arceus for Nintendo Switch, is set for release early in 2022, while The Legend of Zelda Skyward Sword HD for Nintendo Switch, a remake of a 2011 title, is set for release in July 2021. From the popular Kimetsu no Yaiba manga/anime series, Demon Slayer: The Hinokami Chronicles software for Sony Interactive Entertainment and Microsoft-based hardware is slated for release in 2021.
Amusement segment For the Amusement segment, the company projects full-year sales of JPY24.0bn (+29.7% YoY) and segment profit of JPY950mn (- 1.1% YoY). The projected YoY growth in sales reflects the company’s plans to open more directly operated Gashacoco specialty capsule toy stores. Opening costs for these stores is likely to offset higher sales, and the company projects lower segment profit YoY.
Segment focus is on opening new capsule toy stores, fortifying operational capabilities through the use of IT, and researching and developing vending machines covering a variety of price points.
▷ Opening new capsule toy stores: The company operated 18 stores as of June 2021, but is aiming to build a 60-store network over the medium term. The company looks for new stores in shopping malls and other tenant locations. In addition to the Gashacoco format, the company will seek to install its capsule toy machines in commercial and amusement facilities, as well as train stations and other public transportation hubs. ▷ Fortifying operational capabilities through the use of IT: The company will roll out and utilize an IoT system to build more streamlined operational capabilities. ▷ Developing and installing vending machines covering a variety of price points: Research and development of vending machines capable of cashless transactions.
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Promising products for the Amusement segment include products related to the Kimetsu no Yaiba (Demon Slayer) and Jujutsu Kaisen manga/anime series, as well as premium toy capsules in the JPY600‒1,500 price range.
Dividends Happinet targets an annual dividend of JPY50 per share (versus JPY50 in FY03/21), including an interim dividend of JPY25 per share and an end-year dividend for the same amount.
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Medium-term outlook
On September 23, 2020, Happinet announced its FY03/21 earnings forecast. The company thinks delays to the implementation of strategies and changes in the business environment, including as a result of the spread of COVID-19, make achievement of the sales target of JPY230.0bn and recurring profit target of JPY5.6bn in its eighth three-year medium-term business plan launched in FY03/19 rather difficult. While making no changes in principle to its basic policies and strategies, the company is focused on responding flexibly to changes in the operating environment.
The company has positioned FY03/22 as a period for strengthening its management infrastructure in advance of formulating its ninth medium-term business plan, which it plans to put into effect in FY03/23. The company will release the ninth medium-term plan once it becomes ready for disclosure.
Eighth medium-term business plan In May 2018 Happinet unveiled its eighth medium-term business plan for FY03/19 to FY03/21. The company will in principle continue the policies of the seventh medium-term business plan and aim for improved profits through the wholesale business for music and visual products it took over from Seikodo in FY03/18 and cost reduction as it integrates logistics and systems.
Toys segment According to the company, the market environment during the eighth medium-term business plan will continue to be harsh as the number of toy stores decreases due to the rise in e-commerce and the shrinking child population. In this environment, the company will strengthen its relationships with manufacturers, including Bandai Namco, as an intermediary distributer. The company plans to compile expertise regarding product lineups and sales displays unique to the company and aims to achieve an overwhelmingly favorable position as an intermediary distributer of toys in the long term. As a manufacturer, the company plans to enhance its lineup of original products.
In FY03/20, the company acquired stock in Irisawa Corp. to expand its market share in hobby merchandise.
Acquisition of Irisawa (making it a subsidiary) In November 2019, Happinet bought shares in hobby-related product company Irisawa Corp., making it a wholly owned subsidiary, with the aim of entering the model toy wholesaling business. In the field of hobby products, Happinet previously only dealt in plastic models from BANDAI SPIRITS. Having Irisawa under its umbrella will enable it to handle other brands of plastic models, hobby RC products, and model railways. The company said that the wholesale hobby product market was worth about JPY80bn, and Irisawa had a market share of roughly 8% and the company 9%, so the acquisition will give it a market share of about 17%. In FY03/21, Irisawa contributed sales of JPY4.7bn and posted a profit.
Visual and Music segment In the visual wholesale business and music business, the company aims to expand its share of the distribution market by integrating systems and logistics with the business it took over from Seikodo. It will strengthen the visual manufacturing business by integrating new subsidiary Phantom Film with its own visual manufacturing section (discussed below).
Business succession from Seikodo Co., Ltd. In FY03/18, subsidiary Seikodo Marketing (currently Happinet Media Marketing Corporation), which succeeded the music and visual products wholesale business of Seikodo Co., Ltd., which had 17% domestic market share in intermediate distribution of video of music merchandise. In FY03/20 and beyond, Happinet expects further earnings contributions from cost reductions and the integration of logistics and systems. Goodwill from the business succession was JPY658mn at end-FY03/18 with an amortization period of five years.
According to the company, the following were the market shares of intermediary distributors for domestic visual and music products in FY03/18: Seikodo 17%, Happinet 11%, others 13% (including 10% market share of companies which only distribute for parent companies) while 59% of distribution was a direct transaction with manufacturers. By taking over the business of
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Seikodo, the company share would rise to 28%. Excluding the 59% share of direct transactions with manufacturers and the 10% share of companies which only distribute for parent companies, the company in essence holds exclusive control over the market.
Business figures and financial condition of Seikodo (at the time of succession) (JPYmn) FY06/15 FY06/16 FY06/17 Sales 58,520 55,061 53,327 Operating profit -103 -55 -123 Recurring profit -219 -190 -257 Net income -252 -216 -1,471 Source: Shared Research based on company data
Turning to the integration of logistics and systems, subsidiary Seikodo Marketing succeeded a portion of Happinet’s rights and obligations regarding its wholesale business for packaged visual and music products. It also changed its name from Seikodo Marketing to Happinet Media Marketing Corporation. As a result of the succession, the company group will provide services closely fitted to the market, enhance shared use of distribution functions, systems, etc., and strengthen its nationwide distribution net.
In FY03/20, the company says it made progress integrating its logistics systems and offices with the former Seikodo, which has delivered cost-cutting effects.
Strengthen manufacturing business In the visual manufacturing business, Happinet has sought to strengthen its productions by focusing on Japanese films, which have seen a higher percentage of hits thanks to the expertise it had gained, and on animated works, which are capable of expanding into multiple product areas, including toys and games. In October 2020, the company made Phantom Film Co., Ltd. a subsidiary. Phantom Film distributes (through sales outreach to cinemas), plans, produces, and promotes Western and Japanese films, and has worked on several hit films. The company intends to draw on Phantom Film’s expertise in distribution and other areas to develop the visual manufacturing business into an integrated business covering everything from the planning and production of videos to their package sales. In April 2021, Happinet established a new company, Happinet Phantom Studio, to integrate Phantom Film with its own visual manufacturing section.
Phantom Film earnings (JPYmn) FY09/17 FY09/18 FY09/19 Sales 983 1,613 963 Operating profit 19 30 17 Recurring profit 10 18 8 Net income 8 7 3 Net assets 113 121 125 Gross assets 1,383 1,344 1,256
Videogames segment The company will propose and execute optimized support strategies for each sales channel in order to maximize the sale of the Nintendo Switch. It will also optimize distribution and services by cooperating with Nintendo Sales Inc. The company aims to improve profitability by expanding sales of its gaming peripheral products and exclusively distributed products, which are more profitable.
Amusement segment In this segment, the company aims to strengthen and expand its business foundation by evolving its operational style and generating demand by planning and developing products and tapping into new locations as well as making use of IT
In its eighth medium-term plan, to generate demand, Happinet sought to make permanent its rolling out of machines at public transportation hubs (service areas, airports, etc.), as well as installing machines in concert and event halls. It also developed
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products to reach non-traditional consumer segments, including housewives and female office workers, as well as inbound tourists. In FY03/21, the company focused on opening new directly operated Gashacoco specialty capsule toy stores in shopping malls. The company operated 18 stores as of June 2021, but is aiming to build a 60-store network over the medium term.
In order to evolve its operational style, the company will continue initiatives to improve efficiency by introducing IT to gain an understanding of timings for replacing products, which had conventionally been done physically through human efforts.
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Business
Description
Happinet is a leading intermediary distributor for toys, DVDs, CDs and videogames. The company buys goods from makers and distributes to retailers, managing inventories and handling orders/shipments. Segments comprise Toys (34.8% of FY03/21 sales), Visual and Music (26.0%), Videogames (32.0%), and Amusement (7.1%).
The group is a major distributor for toys, DVDs, CDs, and holds about 60% market share for capsule toy machine operation and sales, according to the company.
Segment sales and profit FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act. Total sales 198,021 176,757 206,867 217,232 187,274 174,059 197,607 240,398 233,347 259,313 YoY 3.7% -10.7% 17.0% 5.0% -13.8% -7.1% 13.5% 21.7% -2.9% 11.1% Toys 77,313 74,660 76,821 93,270 76,874 73,725 71,403 77,004 79,060 90,327 YoY 11.9% -3.4% 2.9% 21.4% -17.6% -4.1% -3.2% 7.8% 2.7% 14.3% % of total sales 39.0% 42.2% 37.1% 42.9% 41.0% 42.4% 36.1% 32.0% 33.8% 34.8% Visual and Music 55,719 44,810 42,955 43,372 38,367 34,890 42,466 81,762 71,618 67,529 YoY -3.5% -19.6% -4.1% 1.0% -11.5% -9.1% 21.7% 92.5% -12.4% -5.7% % of total sales 28.1% 25.4% 20.8% 20.0% 20.5% 20.0% 21.5% 34.0% 30.7% 26.0% Videogames 42,704 36,839 63,609 56,448 50,009 44,793 63,107 61,648 63,136 82,950 YoY -8.1% -13.7% 72.7% -11.3% -11.4% -10.4% 40.9% -2.3% 2.4% 31.4% % of total sales 21.6% 20.8% 30.7% 26.0% 26.7% 25.7% 31.9% 25.7% 27.1% 32.0% Amusement 22,282 20,447 23,481 24,140 22,023 20,649 20,630 19,983 19,532 18,506 YoY 26.8% -8.2% 14.8% 2.8% -8.8% -6.2% -0.1% -3.1% -2.3% -5.3% % of total sales 11.3% 11.6% 11.4% 11.1% 11.8% 11.9% 10.5% 8.3% 8.4% 7.2% Segment profit 4,855 2,973 3,888 5,056 3,450 3,698 4,806 4,540 2,572 4,249 YoY 70.0% -38.8% 30.8% 30.0% -31.8% 7.2% 30.0% -5.5% -43.3% 65.2% Toys 3,009 2,055 2,710 4,279 2,848 3,044 2,467 2,021 1,065 2,630 YoY 29.6% -31.7% 31.8% 57.9% -33.4% 6.9% -19.0% -18.1% -47.3% 146.9% Segment profit margin3.9%2.8%3.5%4.6%3.7%4.1%3.5%2.6%1.3%2.9% Visual and Music 448 309 307 202 466 418 882 1,096 533 519 YoY - -31.0% -0.7% -34.3% 130.7% -10.3% 110.9% 24.3% -51.4% -2.5% Segment profit margin0.8%0.7%0.7%0.5%1.2%1.2%2.1%1.3%0.7%0.8% Videogames 936 678 79 254 -43 384 1,180 1,038 840 1,447 YoY -19.0% -27.6% -88.2% 217.9% - - 207.0% -12.0% -19.1% 72.3% Segment profit margin 2.2% 1.8% 0.1% 0.4% - 0.9% 1.9% 1.7% 1.3% 1.7% Amusement 1,801 1,265 2,053 1,796 1,652 1,281 1,678 1,724 1,475 961 YoY 34.4% -29.8% 62.4% -12.5% -8.0% -22.5% 31.0% 2.7% -14.4% -34.8% Segment profit margin8.1%6.2%8.7%7.4%7.5%6.2%8.1%8.6%7.6%5.2% Adjustments -1,341 -1,335 -1,263 -1,475 -1,473 -1,430 -1,402 -1,340 -1,342 -1,310 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: % of segment profit comparisons are made using operating profit before adjustments.
Toys (34.8% of FY03/21 consolidated sales; 47.3% of operating profit [before adjustments])
In this segment, Happinet generates earnings buying products (toys) from toy makers and selling them to retailers.
It buys goods from big toy makers like Bandai and Tomy and sells them to toy retailers, large consumer electronics stores and retail chains, and major online retailers. Major toy manufacturers are shown in the following table. Happinet handles about 90% of Bandai’s toy distribution in Japan, Japan’s largest toy manufacturer.
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Toys: main manufacturers FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 77,313 74,660 76,821 93,270 76,874 73,725 71,403 77,004 79,060 90,327 YoY 11.9% -3.4% 2.9% 21.4% -17.6% -4.1% -3.2% 7.8% 2.7% 14.3% Bandai, Bandai Spirits 42,300 38,800 40,700 55,400 41,900 37,600 36,500 47,700 45,300 51,700 YoY 13.1% -8.3% 5.0% 35.8% -24.2% -10.4% -3.0% 30.7% -4.9% 13.9% % of sales 54.7% 52.0% 53.1% 59.4% 54.6% 51.0% 51.1% 62.0% 57.4% 57.3% TAKARA TOMY 6,300 5,300 4,200 4,100 4,900 7,000 7,300 8,800 7,400 6,300 YoY -10.0% -15.9% -21.6% -1.6% 20.4% 41.6% 4.0% 20.2% -15.9% -13.7% % of sales 8.1% 7.1% 5.5% 4.5% 6.5% 9.6% 10.3% 11.5% 9.4% 7.1% Happinet original 2,200 2,500 2,000 1,900 1,500 1,700 1,600 1,900 1,500 900 YoY 57.1% 13.6% -17.7% -8.1% -16.3% 10.6% -6.8% 17.6% -21.1% -36.7% % of sales 2.8% 3.3% 2.7% 2.0% 2.1% 2.4% 2.3% 2.5% 1.9% 1.0% Other 26,400 27,900 29,700 31,800 28,200 27,200 25,900 18,500 24,700 31,200 YoY 14.3% 5.7% 6.5% 6.9% -11.1% -3.6% -5.0% -28.5% 33.4% 26.3% % of sales 34.1% 37.4% 38.7% 34.1% 36.8% 37.0% 36.3% 24.0% 31.3% 34.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: From FY03/11, other makers are included in the others segment. Note: Some sales categorizations have been modified from FY03/19 due to the April 2018 startup of BANDAI SPIRITS CO., LTD.
Intermediate distribution of toys Japan’s toy market centers on fads, rather than long-selling, staple products. Goods featuring characters from TV animation series tend to have a one-year sales cycle with products refreshed when a new series begins. Popularity drops and sales falter for products whose TV programs have finished.
Also, toy manufacturers often make use of overseas factories, particularly in China. These toys are different in nature from automobiles or consumer electronics, which usually remain in production for an extended period of time. Toymakers must adjust their production based on demand forecasts and produce items within a limited time frame. It takes about three months from when toys are manufactured until they are ready to be sold by retailers, due to strict procedures for managing and checking quality—after all, these are products that will be used by children.
As an intermediary distributor, Happinet not only routes orders between toy makers and retailers, but also adds value by forecasting demand and absorbing inventory risk when goods remain unsold. By trading with intermediary distributors, toy makers are able to reduce their inventory of finished products and retailers can avoid carrying inventory other than store inventory, thus mitigating the risk of inventory disposal losses.
Toy distribution flow Toy distribution breaks down as follows:
▷ Happinet and toymakers agree on order quantities three months prior to the release of new products. ▷ On product launch, toymakers deliver toys to the company, which in turn delivers them to retailers that shoulder inventory risk. ▷ The company holds inventories worth roughly two weeks of sales and partially distributes them in response to additional orders from retailers. Here, the company bears the inventory risk.
For toys, annual inventory disposal is 1–2% of annual sales. Annual inventory write-off amounts are trending lower, however. This positive trend is due to the company’s heightened efforts to maintain inventory levels to match product sales. The company is also working more closely with retailers, providing product-specific sales data to help forecast trends. In addition to controlling store inventories, this information helps to drive sales promotions, and keeping a lid on inventory disposal levels is indispensable in improving the company’s profit ratio.
The company carries out disposal of slow-moving inventory as required, but differences in the accuracy of predictions give corresponding variations in losses on disposal of inventory, and fluctuations of 1% in GPM.
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Toy earnings FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 77,313 74,660 76,821 93,270 76,874 73,725 71,403 77,004 79,060 90,327 YoY 11.9% -3.4% 2.9% 21.4% -17.6% -4.1% -3.2% 7.8% 2.7% 14.3% Segment profit 3,009 2,055 2,710 4,279 2,848 3,044 2,467 2,021 1,065 2,630 YoY 29.6% -31.7% 31.9% 57.9% -33.4% 6.9% -19.0% -18.1% -47.3% 146.9% Segment profit margin3.9%2.8%3.5%4.6%3.7%4.1%3.5%2.6%1.3%2.9% Inventory write-off 1,300 1,300 1,000 1,600 1,800 700 1,300 1,800 1,500 900 % of sales 1.7% 1.7% 1.3% 1.7% 2.3% 0.9% 1.8% 2.3% 1.9% 1.0% Inventory 2,300 2,400 2,400 2,300 2,200 2,700 2,900 2,900 2,700 3,000 Inventory turnover 33.6 30.7 31.0 38.7 33.6 29.6 25.1 26.3 27.9 31.3 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Positioning of Happinet as intermediary toy distributor According to Happinet, it is a major intermediary distributor of toys, holding a 30% market share. The company’s rise to prominence as the largest intermediary distributor of toys began in the 1990s with the relaxation of the Large Scale Retail Store Law. Distributors began to need advanced information and logistics systems in order to keep up with the growing size of retailers. Happinet rose to meet the needs of the changing business environment, and further increased its share through M&A activity. Additionally, Shared Research notes that growth in toy sales by Bandai Co., Ltd., a subsidiary of Bandai Namco Holdings (TSE1: 7832) that holds 26.7% of Happinet stock has led Happinet to become the largest company in the industry.
Shared Research understands that Bandai—a group company and one of Happinet’s main toy suppliers—specializes in making products and accessories that feature characters from popular TV animations. Bandai has leveraged these character goods to increase its domestic toy sales.
Bandai’s character goods portfolio: Leading toy characters with the highest sales rankings at Bandai are those from the Super Sentai, KAMEN RIDER, and PreCure series. Toei or Toei Animation makes these series; TV Asahi broadcasts them on Sundays. Program sponsor Bandai merchandises related toys. This system has a long history: KAMEN RIDER is the longest-running series of the trio, albeit with several interruptions along the way. It first aired in 1971 with Kamen Rider in 1971, and the 35th series, Kamen Rider Saber, was produced in 2021.
KAMEN RIDER is a 30-minute TV drama in which the protagonist and his companions transform into masked warriors called Kamen (Masked) Riders and fight against a variety of monsters or bad guys. There are also episodes where riders fight one another. There is no clear definition of a Kamen Rider, but the lead role is always played by an actor in his early twenties. He transforms into a Kamen Rider using supernatural powers and advanced weapons and armament technology.
Each TV series lasts a year, with broadcasting starting in September, with a movie version launched in August of the following year. Bandai commercializes the items the Kamen Riders use to transform, weapons, and other toys, and adds new characters and items during the year based on the progress of the TV program.
Bandai Sales by Character (Domestic Toy and Hobby) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYbn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act. Youkai Watch - - 14 552 308 93 - - - - Mobile Suit Gundam 156 165 184 229 258 264 262 325 357 410 Kamen Rider 283 271 223 206 157 204 248 273 285 243 Super Sentai 130 96 144 113 78 88 91 60 60 45 Anpanman 96 100 103 81 94 106 109 115 94 83 Precure series 107 106 98 65 66 75 81 101 83 66 Dragon Ball 44 48 64 58 116 103 142 204 207 154 Aikatsu! - 15 130 86 26 26 23 19 16 10 Ultraman 18 20 32 26 27 31 43 44 43 49 Source: Shared Research based on Bandai Namco Holdings’ materials
Visual and Music (26.0% FY03/21 consolidated sales; 9.3% of operating profit [before adjustments])
This segment comprises the visual wholesale section (54.5% of segment sales in FY03/21), the visual manufacturing section (7.4%), and the music section (38.1%). In FY03/18, the company assumed the music and visual product wholesale business of Seikodo Co., Ltd. following a company split. In FY03/20, 60% of domestic video and music distribution consisted of direct
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transactions with manufacturers and 40% was through intermediaries. Of intermediate distribution, the company says its group had 30% market share.
Visual and Music earnings FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act. Sales 55,719 44,810 42,955 43,372 38,367 34,890 42,466 81,762 71,618 67,529 YoY -3.5% -19.6% -4.1% 1.0% -11.5% -9.1% 21.7% 92.5% -12.4% -5.7% Visual 39,600 31,500 31,600 33,000 29,500 26,700 32,500 45,000 43,500 41,800 YoY -1.7% -20.3% 0.1% 4.4% -10.4% -9.5% 21.7% 38.4% -3.3% -4.0% % of sales 71.1% 70.5% 73.6% 76.1% 77.1% 76.6% 76.6% 55.1% 60.8% 61.9% Wholesale 33,600 25,900 25,200 26,000 24,800 22,200 28,000 40,600 39,100 36,800 YoY -2.3% -22.8% -2.7% 3.3% -4.9% -10.2% 26.1% 44.9% -3.7% -6.1% % of sales 60.3% 58.0% 58.8% 60.2% 64.7% 63.8% 66.1% 49.8% 54.7% 54.5% Manufacturers 5,900 5,600 6,300 6,900 4,700 4,400 4,400 4,300 4,300 5,000 YoY 1.7% -5.1% 13.3% 8.7% -31.2% -5.8% -0.1% -2.7% 0.3% 15.3% % of sales 10.6% 12.5% 14.8% 15.9% 12.4% 12.8% 10.5% 5.3% 6.1% 7.4% Music 16,100 13,200 11,300 10,300 8,700 8,100 9,900 36,700 28,000 25,700 YoY -7.5% -18.0% -14.3% -8.5% -15.3% -7.7% 21.8% 269.9% -23.6% -8.4% % of sales 28.9% 29.5% 26.4% 23.9% 22.9% 23.4% 23.4% 44.9% 39.2% 38.1% Segment profit 448 309 307 202 466 418 882 1,096 533 519 YoY -168.3% -31.0% -0.6% -34.2% 130.7% -10.3% 111.0% 24.3% -51.4% -2.5% Segment profit margin0.8%0.7%0.7%0.5%1.2%1.2%2.1%1.3%0.7%0.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Visual wholesale section Happinet generates earnings from buying DVDs, Blu-ray Discs, and other packages from content manufacturers and selling them to retailers. According to the company, package orders from retailers take about a week to be delivered. This means intermediary distributors like itself mainly focus on routing orders between content manufacturers and retailers and handling shipping, and therefore seldom need to hold substantial inventories compared with toy wholesaling. However, GPM is slimmer than in toy wholesaling.
The company buys products from all major content makers. The company distributes products to major online retailers and consumer electronics chains.
Visual manufacturing section Happinet invests in movie production partnerships, thus obtaining videogram rights or rights concerning existing videograms and then makes and sells the movie content package products. Income hinges on the amount and ratio of investment in partnerships, box-office proceeds, package sales volumes, and videogram royalties.
Videogram is a Japanese legal term, used to refer to visual media (movies and TV programs) on a certain format (e.g., VHS, DVD) and its packaging. Videogram rights here refer to the rights to manufacture, release, and sell this media.
The movie industry and movie production partnerships handle production, distribution, exhibition, and secondary use (packaging/renting/selling/distributing movie content to consumers following releases to movie theaters).
DVD content makers obtain videogram rights to movies by investing in production partnerships or by purchasing the rights from their holders.
When investing in production partnerships, they receive box-office proceeds in proportion to the amount invested in the production partnership, as well as videogram rights.
▷ Box-office proceeds: Box-office profits are defined as proceeds—i.e., number of viewers multiplied by ticket prices—less expenses (cinema operators and distributors, production, and advertising). According to the company, production costs, investment stake, and box-office proceeds differ substantially from movie to movie.
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▷ Videogram rights: In addition to receiving box-office proceeds in proportion to the amount invested, package content makers may also obtain corresponding videogram rights based on the relevant investment agreement with the production partnership, and accordingly sell DVDs and generate sales and profit commensurate with sales volume. Another way to obtain videogram rights is from copyright holders, such as production partnerships. This can be done either by paying for the rights, or by paying a minimum guarantee (MG). According to the company, videogram royalties differ widely by movie, so it is difficult to calculate an average profitability for videogram rights.
In the visual manufacturing business, until FY03/20 Happinet sought to strengthen its productions by focusing on Japanese films, which have seen a higher percentage of hits thanks to the expertise it had gained, and on animated works, which are capable of expanding into multiple product areas, including toys and games. In October 2020, the company made Phantom Film (now Happinet Phantom Studio) a subsidiary. Phantom Film distributes (through sales outreach to cinemas), plans, produces, and promotes Western and Japanese films, and has worked on several hit films. Going forward, the company intends to draw on Phantom Film’s expertise in distribution and other areas to develop the visual manufacturing business into an integrated business covering everything from the planning and production of videos to their package sales.
Music wholesale section In the music section, Happinet gains earnings from buying CDs from music content makers and selling them to retailers. As in its visual wholesale section, the company does not shoulder much risk of inventory disposal losses in this section. Therefore, GPM is lower than in the toy wholesaling business.
The company buys goods from big music software manufacturers and distributes them to online shops and consumer electronics chains.
Japan’s resale price maintenance system (recommended retail price)—as established by Japanese copyright law—means the manufacturers are able to force retailers to observe a certain retail price for music software. As product discounting does not occur, the distribution of music media differs from that of visual media. Although in both cases companies are effectively purchasing stock, for music media a limit is set for a proportion of the sales that may be returned, and the seller sometimes ends up accepting these returns.
The proportion of sales that may be returned differs between the manufacturer and the distributor, and between the distributor and the retailer. Therefore, the distributor must accept some inventory risk in cases where there is more leeway for the retailer to return stock to the distributor, than for the distributor to return it to the manufacturer.
Music CDs: resale price maintenance: A maker or supplier of music imposes selling prices on wholesalers and retailers who abide by this. The resale maintenance system of music software (such as CDs) is approved as an exception to the Antimonopoly Act which normally prohibits such conduct as unfair trading practices.
Videogames (32.0% of FY03/21 consolidated sales; 26.0% of operating profit [before adjustments])
Happinet generates profits by buying videogame consoles and game software from manufacturers and distributing these to shops. This segment has the lowest GPM of all the company’s businesses, which stems from the company bearing little inventory risk due to short order placement/delivery times.
Focus on Nintendo game-related products Happinet buys products from Nintendo Sales Inc., a subsidiary of Nintendo Co., Ltd. (TSE1: 7974), Sony Interactive Entertainment Inc. (a subsidiary of Sony Corporation [TSE1: 6758]), and Microsoft Corp. It is the only wholesaler handling all consumer game consoles available in Japan. The sales mix of Nintendo products increased following the acquisition of Toys Union—a distributor of Nintendo products—in FY03/14.
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In FY03/21, Nintendo products accounted for 91.0% of sales, with Sony Interactive Entertainment Inc. products next, at 7.0%. The company distributes products to major online retailers and consumer electronics chains.
Shared Research estimates the company’s share of Nintendo’s game-related sales at around 25%, making it the second largest distributor of Nintendo products. As for the Sony Interactive Entertainment Inc. videogames, the company mainly distributes to GMS. It also handles Microsoft products.
Videogame sales breakdown FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. (JPYmn) Act. Act. Sales 46,447 42,704 36,839 63,609 56,448 50,009 44,793 63,107 61,648 Sales 63,136 82,950 YoY 4.7% -8.1% -13.7% 72.7% -11.3% -11.4% -10.4% 40.9% -2.3% YoY 2.4% 31.4% Nintendo (console) 4,700 3,200 4,400 10,700 9,000 12,300 8,600 36,800 48,000 Nintendo 58,300 75,400 YoY -26.6% -31.9% 37.5% 142.4% -15.3% 36.6% -30.1% 327.9% 30.4% Nitendo Switch-related 10.5% 29.4% % of sales 10.1% 7.5% 11.9% 16.9% 16.2% 24.9% 19.2% 58.3% 77.9% YoY 92.4% 91.0% Nintendo (mobile) 9,900 10,400 14,200 40,300 35,600 26,700 22,600 14,000 2,900 % of sales 57,300 YoY -3.9% 5.1% 36.7% 182.8% -8.3% -27.5% -15.4% -38.1% -79.3% Other (3DS, other) - % of sales 21.3% 24.4% 38.7% 63.4% 65.5% 53.6% 50.5% 22.2% 4.7% YoY 100 Nintendo (other) - - - - - 1,200 2,300 2,900 1,600 % of sales - YoY ------91.7% 26.1% -44.0% Other 700 % of sales - - - - - 2.4% 5.1% 4.6% 3.2% YoY - PlayStation (console) 6,000 6,800 5,300 4,800 3,100 3,400 5,700 5,900 6,400 % of sales 3,800 5,800 YoY -13.0% 13.3% -22.1% -9.1% -34.8% 11.3% 67.6% 3.5% 8.5% SIE -50.3% 52.6% % of sales 12.9% 15.9% 14.4% 7.6% 5.6% 7.0% 12.7% 9.3% 10.4% PlayStation-related 6.0% 7.0% PlayStation (mobile) 11,600 12,200 7,100 4,700 4,300 4,400 4,000 2,200 900 YoY 3,800 YoY 45.0% 5.2% -41.8% -33.1% -9.4% 3.0% -9.1% -45.0% -59.1% % of sales - % of sales 25.0% 28.6% 19.3% 7.5% 7.7% 8.9% 8.9% 3.5% 1.5% 900 1,600 Segment profit 1,156 936 678 79 254 -43 384 1,180 1,038 Segment profit 840 1,447 YoY 11.7% -19.0% -27.6% -88.3% 221.5% - - 207.0% -12.0% YoY -19.1% 72.3% Segment profit margin 2.5% 2.2% 1.8% 0.1% 0.4% - 0.9% 1.9% 1.7% Segment profit margin 1.3% 1.7% Inventory write-off - 100 100 800 300 500 100 90 100 Inventory write-off 80 100 % of sales - 0.2% 0.3% 1.3% 0.5% 1.0% 0.2% 0.1% 0.2% % of sales 0.1% 0.1% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods. In FY03/20, the company revised its categorization of merchandise-specific sales in the Videogames segment. Nintendo Switch related sales include both Nintendo Switch and the portable Nintendo Switch Lite. Play Station related sales include both Play Station 4 and the portable PS Vita.
Also develops original game software The segment is undertaking the development of its own original game software as well. It has produced game software for girls, launched the original brand “Asakusa Studio,” and developed products for the “Steam” PC game sales platform. It also launched its original game software Brigandine: Lunasia Senki for Nintendo Switch in June, 2020.
Steam is a digital rights management (DRM) and game download sales platform for PC games operated by US-based Valve Corporation. Its monthly active users exceed 120mn.
The company entered video gaming in 1994 and expanded sales by acquiring distributors.
Amusement (7.2% of FY03/21 consolidated sales; 17.3% of operating profit [before adjustments])
The company’s amusement business includes toy vending machine operations and card game operations.
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Amusement sales breakdown FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act. Sales 22,282 20,447 23,481 24,140 22,023 20,649 20,630 19,983 19,532 18,506 YoY 26.8% -8.2% 14.8% 2.8% -8.8% -6.2% -0.1% -3.1% -2.3% -5.3% Capsule toys - - - 10,100 10,300 9,400 10,900 11,500 11,900 12,300 YoY - - - - 2.0% -8.7% 15.2% 5.5% 3.9% 3.4% % of sales - - - 42.1% 47.1% 45.8% 52.9% 57.6% 61.2% 66.8% Card games - - - 10,500 9,300 9,100 8,000 6,400 5,400 3,300 YoY - - - - -11.4% -2.2% -11.7% -19.7% -15.5% -39.0% % of sales - - - 43.6% 42.3% 44.4% 39.2% 32.5% 28.1% 18.1% Other - - - 3,400 2,300 2,000 1,600 1,900 2,000 2,700 YoY - - - - -32.4% -13.0% -19.1% 21.2% 5.6% 33.7% % of sales - - - 14.3% 10.6% 9.8% 7.9% 9.9% 10.7% 15.1% Segment profit 1,801 1,265 2,053 1,796 1,652 1,281 1,678 1,724 1,475 961 YoY 34.4% -29.8% 62.3% -12.5% -8.0% -22.5% 31.0% 2.7% -14.5% -34.8% Segment profit margin8.1%6.2%8.7%7.4%7.5%6.2%8.1%8.6%7.6%5.2% Source: Shared Research based on company data Figures may differ from company materials due to differences in rounding methods.
Toy vending machine section The company installs vending machines at major retail and electronics stores, public transport-related facilities such as stations and airports, and shopping malls, from which it sells capsule toys. The company in FY03/20 began focusing on opening new directly operated Gashacoco specialty capsule toy stores. It operated 18 stores as of June 2021. It purchases vending machines from Bandai. This format is close to the retail industry, and therefore has the highest GPM of all the company’s businesses.
Sales and earnings for capsule toys have continued to rise since FY03/18, as the company sought to secure prime locations for machines while withdrawing from underperforming locations. In FY03/21, both sales and earnings were down due to the temporary shuttering of commercial facilities and the drop off in inbound demand amid the pandemic.
Capsule toys retail at between JPY100-JPY500 (including tax). The vending machines work thus: a capsule toy comes out when the customer inserts coins and turns the crank in the middle of the machine. The toys are varied, ranging from scale models of animation characters and animal figures, to mobile phone accessories. There is an element of entertainment in the fact that, although the vending machines are themed, the customer does not know the contents of the capsule.
As of March 2021, the company had about 200,000 machines in place nationwide.
Capsule-toy vending machines
Source: Company data
In November 2007, Happinet acquired the two leading operators of toy vending machines in the industry, Sunlink Co., Ltd. and The Apple Corporation. Then, after merging the amusement businesses of these companies with its own in October 2008, the
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company established Happinet Vending Service Corporation—a consolidated subsidiary that then continued running this business.
According to Happinet, the three companies—Happinet, Sunlink, and The Apple Corporation—together had vending machines at around 8,600 locations nationwide in 2007, but nearly half of these locations were unable to turn a profit. When operating toy vending machines, staff members still need to visit machine sites to monitor sales, refill capsules, and collect the money. The company must therefore allocate labor according to the number of machines at sites and the frequency of visits. There were many unprofitable areas where sales did not cover fixed costs.
After integration, Happinet scrapped and streamlined unprofitable sites and business offices, reducing the number of sites to 4,800 from 8,600. The amusement arm reported an operating profit in FY03/10.
Digital card game section The company operates card game machines based on popular anime characters, in major retail and electronics stores. As in the toy vending machine section, GPM is high for the digital card game section because it is close to retail.
To play on a digital card game machine, a customer inserts JPY100 (includes tax) and the machine ejects an IC card, on which an animation character is shown and electronic data (offensive and defensive abilities, and a special move, in the case of a battle game) is printed in transparent ink. The game unfolds on an LCD, affected by input from a panel that reads the data on the cards. The cards themselves are also collectors’ items.
The company buys and leases digital card game machines from Bandai, which also supplies the cards. As of March 2021, the company operates roughly 6,000 digital card game machines nationwide.
Card game machine
Source: Company data
Group companies
Happinet Group includes Happinet Corp and six consolidated subsidiaries. In particular, Happinet Marketing Corporation, Happinet Media Marketing Corporation, and Maxgames Corporation have a big impact on consolidated performance, each accounting for more than 10% of group sales.
▷ In November 2015, the company entered into a capital and business alliance with Broccoli Co., Ltd., including the underwriting of new Broccoli shares issued through a third-party allocation, making Broccoli an equity-method affiliate as of December 2015.
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▷ In March 2018, the company took over the music and visual products wholesale business of Seikodo Co., Ltd., making it a 100% owned subsidiary (company name: Seikodo Marketing Corporation; currently Happinet Media Marketing Corporation). ▷ In FY03/20, the company made Irisawa Corp. (now Happinet Hobby Marketing Corp.), which has approximately 8% market share in hobby merchandise wholesaling, a subsidiary to help expand its market share in the field of hobbies. ▷ In FY03/21, to strengthen its visual manufacturing business, Happinet made Phantom Film a subsidiary. Phantom Film distributes, plans, produces, and promotes Western and Japanese films, and has worked on several hit films. In April 2021, Happinet established a new company, Happinet Phantom Studio, to integrate Phantom Film with its own visual manufacturing section. Happinet Phantom Studio is a consolidated subsidiary.
Consolidated subsidiaries Happinet Marketing Corp. (100% owned) The company distributes a wide range of products nationwide, including Bandai products. FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act. Act. Act. Act. Act. Sales 32,715 30,873 30,748 29,643 33,475 YYoY -4.4% -5.6% -0.4% -3.6% 12.9% Recurring profit 1,047 768 894 528 921 YYoY 5.9% -26.6% 16.4% -40.9% 74.4% Net income 681 495 583 325 601 YYoY 7.6% -27.3% 17.8% -44.3% 84.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Happinet Hobby Marketing Corp. (100% owned, previously Irisawa Corp.) Wholesaler of hobby-related products. Happinet acquired the shares of Irisawa in FY03/20 and integrated the subsidiary with its model toy sales division in April 2021. Sales in FY03/21 were approximately JPY4.7bn (JPY1.9bn in FY03/20), and the company appeared to have contributed to consolidated earnings.
Happinet Media Marketing Corporation (100% owned; previously Seikodo Marketing) Happinet Media Marketing Corporation is an intermediate distributor formed from the merger of the wholesale arm of Seikodo Co., Ltd., and Happinet’s Visual and Music segment. Seikodo had 16% market share (as of FY03/19) in intermediate distribution of domestic visual and music products. After taking over Happinet’s Visual and Music segment in April 2019, Happinet Media Marketing reported FY03/21 sales of JPY65.5bn (-6.5% YoY), recurring profit of JPY883mn (+8.2% YoY), and net income of JPY515mn (+10.3% YoY).
Happinet Media Marketing earnings (JPYmn) FY03/19 FY03/20 FY03/21 (JPYmn) Act. Act. Act. Sales 51,143 70,026 65,489 YYoY - 36.9% -6.5% Recurring profit 852 816 883 YYoY - -4.2% 8.2% Net income 503 467 515 YYoY - -7.2% 10.3% Source: Shared Research based on company data
Maxgames Corporation (100% owned) Sells videogame consoles and videogames.
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FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Act. Act. Act. Act. Act. Sales 34,670 54,582 54,294 59,294 76,138 YoY -16.6% 57.4% -0.5% 9.2% 28.4% Recurring profit 179 1,227 1,116 1,178 1,789 YoY -10.1% 585.5% -9.0% 5.6% 51.9% Net income 92 889 782 805 1,238 YoY -23.3% 866.3% -12.0% 2.9% 53.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Happinet Vending Service Corporation (100% owned) Operates toy vending machines.
Happinet Logistics Service Corporation (100% owned) Handles logistics business for group companies.
Equity-method affiliates Broccoli Co., Ltd. (25.15% ownership) Plans and produces content (anime, games, music, video, card games), and plans, produces and sells character goods.
Performance trends of Broccoli., Ltd. (JPYmn)
FY02/17 FY02/18 FY02/19 FY02/20 FY02/21 (JPYmn) Act. Act. Act. Act. Act. Sales 5,692 5,410 5,975 6,479 6,307 YoY -11.5% -5.0% 10.4% 8.4% -2.7% Recurring profit 728 594 834 703 999 YoY -26.4% -18.4% 40.4% -15.7% 42.2% Net income 479 405 550 378 522 YoY -23.0% -15.5% 35.8% -31.2% 38.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Strengths and weaknesses
Strengths
◤ Business diversification leading to stable earnings. Shared Research understands that faddish toy demand makes for big fluctuations in sales. If a distributor is dependent on a particular manufacturer its earnings will be greatly affected by the sales of that manufacturer’s products. But Happinet trades with many domestic toy manufacturers, and does not depend solely on Bandai as a supplier. Furthermore, the company has diversified into other fields like videogames, movies, and music. Thus, its profits may be described as stable.
◤ Solid relationship with Bandai. Shared Research thinks that Bandai will continue to have a stable domestic toy business. This belief is based on the broad, intergenerational popularity of its products—mainly its character toys portfolio—and its capabilities in developing new character toys. Bandai Namco Holdings Inc., Bandai’s parent company, is Happinet’s largest shareholder with a 26.7% stake, and Happinet distributes about 90% of Bandai toys sold in Japan (company estimate). We assume the company will continue to enjoy the benefits of doing business with Bandai.
Weaknesses
◤ Limited scope to add value, create profit opportunities. Happinet is chiefly an intermediary distributor, buying from manufacturers and selling to retailers. Hence there is little scope to add value by adapting products. Thus, the company must accept low gross profit margins, particularly in its visual media and music and videogames businesses. We see limited potential for it to lift sales under its own steam through new products and store openings.
◤ Scant track record developing original products. Happinet aims to unlock new opportunities for profit by developing non-distribution businesses—mainly rolling out original products. Yet Shared Research understands that the company has scant track record of developing products in-house, especially toys, and it has few distinctive products. For the copyright- holders of popular animations and the like, an incentive exists to pursue merchandising deals with established toy makers where success is more likely. Given this, Shared Research thinks that as a debutant, the company may struggle to land toy merchandising rights for popular characters.
◤ Shrinking markets. Shared Research thinks that Happinet’s markets will shrink over the medium and long term. Toys sales will suffer from Japan’s aging population while sales of visual media and music will be pummeled by online distribution. The company’s large market shares in these types of product mean that it is unlikely to be able to escape the impact of these changes on its sales.
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Market and value chain
Overview Japan’s toy market According to the Statistics Bureau (population statistics), the number of people in Japan aged 0–14 decreased from 17.0mn in 2009 to 15.2mn in 2019 (average annual decline of 1.1%). The market for ten types of toys went from JPY542.8bn in 2010 to an estimated JPY522.5bn in 2019, for an average annual decline of 0.4%. During this timeframe, sales peaked at JPY563.4bn in 2011 before falling to JPY446.1bn in 2012 and have been trending higher since then.
Dividing the domestic toy market (as defined below) by the number of children ages 0–14, we find spending per head increasing from JPY32,230 in 2010 to JPY34,350 in 2019 (up by an average of 0.7% per year).
According to the company, toy prices are trending upward due to the addition of new features, such as electronic parts. Increasing prices mean the toys market still provides stable opportunities for profits.
Domestic toy market and population
Domestic toy market and population 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Market of 10 toy items (JPYbn) 542.8 563.4 446.1 447.6 490.5 499.8 515.9 508.1 541.8 522.5 Population at ages of 0–14 ('000) 16,839 16,705 16,548 16,390 16,233 15,945 15,780 15,592 15,414 15,210 Average purchase price of 10 toy items (JPY) 32,230 33,730 26,960 27,310 30,220 31,350 32,690 32,590 35,150 34,350 Note: The ten toy items are games (excluding videogame-related), card games, trading card games, jigsaw puzzles, high-tech trendy toys, characters for boys, toys for boys, toys for girls, stuffed toys, education toys (excluding automobile related products such as strollers, child seats, and tricycles), and seasonal products. Source: Shared Research based on data from the Japan Toy Association, National Institute of Population and Social Security Research (IPSS), and the Statistics Bureau’s population statistics.
The IPSS predicts that the population of children in Japan (0-14 years old) will have decreased to 13.4mn by 2029, due to declining birth rates and the shift toward late marriage. With a rate of decline averaging 1.3% per year since 2019, this would mean potential purchasers of toys were decreasing faster than the rate of decline between 2010 and 2018, when the number fell by an average of 1.1% annually.
Shared Research thinks the toys market will shrink as Japan’s aging population leads to a decreasing target demographic for toys. However, Shared Research also thinks that the rate of this shrinkage will remain slow as long as toy manufacturers continue to raise toy prices by adding value to their products.
Japan’s visual media market The visual media market (cell and rental markets excluding paid video distribution) continues to contract, shrinking at an average annual rate of 5.9% between 2011 and 2020.
Video software market
Video software market (JPYbn) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 502.1 480.2 461.5 439.0 417.5 400.2 370.3 364.8 323.5 290.1 YoY -5.4% -4.4% -3.9% -4.9% -4.9% -4.1% -7.5% -1.5% -11.3% -10.3% Software for sale 247.9 241.3 243.1 228.7 223.4 217.1 204.4 210.6 197.6 186.0 YoY -5.9% -2.7% 0.7% -5.9% -2.3% -2.8% -5.8% 3.0% -6.2% -5.9% Software for rental 254.2 238.9 218.4 210.3 194.1 183.1 165.9 154.2 125.9104.1 YoY -4.9% -6.0% -8.6% -3.7% -7.7% -5.7% -9.4% -7.1% -18.4% -17.3% Source: Shared Research based on Japan Video Association Note: Figures may differ from company materials due to differences in rounding methods.
Shared Research believes the market has been shrinking because of a drop in the number of software purchasers. According to a report released by the Japan Video Software Association, purchases of video software have been falling, although there has not been a significant decline in the average number of discs purchased by each customer. The average amount spent by each customer peaked in 2015 and has since been in a downtrend, declining at an average annual rate of 1.5% from 2015 to 2020.
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Video software purchasing ratio, average number of discs purchased, average spending
Video software purchasing survey 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Purchase rate (%) 21.6 19.3 16.3 18.2 16.7 18.2 17.1 15.8 15.9 15.6 Average total purchases (titles) 3.9 3.8 5.0 4.2 4.2 3.9 4.0 3.9 3.9 5.0 Average total spend (JPY) 15,706 14,720 18,004 17,745 19,370 18,827 17,456 15,792 13,560 17,922
Source: Shared Research based on Japan Video Association Note: Purchase Rate: the percentage of total respondents that had purchased video software. The total number of respondents differs per year.
The spread of pay-video distribution hurts sales of visual media. According to the Digital Content Association of Japan, the domestic market of pay-video (video on demand) distribution expanded from JPY82.6bn in 2011 to JPY371.0bn in 2020.
Video on Demand (VOD) market
Video on Demand (VOD) market 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 VOD market (JPYbn) 82.6 101.6 123.0 125.5 141.0 163.6 185.0 220.0 277.0 371.0 YoY 8.4% 23.0% 21.1% 2.0% 12.4% 16.0% 13.1% 18.9% 25.9% 33.9% Source: Shared Research based on Digital Content Association of Japan
Shared Research forecasts that the visual media market will continue to decline in the face of free online video, the spread of pay- video distribution and the expected fall in the number of people aged 15-64 (the main buyers). Importantly, the National Institute of Population and Social Security Research estimates that the number of people aged 15 to 64 will decrease by 0.7% a year from 74.1mn in 2020 to 69.5mn in 2029.
Music content The paid music distribution market is on a downward trend after peaking in 2007 in both volume and value terms.
Record production and paid distribution music
Record production and paid music dis 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total (JPYbn) 283.7 282.0 240.2 230.1 229.7 230.6 231.2 222.1 223.4 208.2 YoY -8.8% -0.6% -14.8% -4.2% -0.2% 0.4% 0.3% -3.9% 0.6% -6.8% Music software sales value 211.7 227.7 198.5 186.4 182.6 177.7 173.9 157.6 152.8 129.9 (excl. music video) YoY -5.9% 7.6% -12.8% -6.1% -2.0% -2.7% -2.1% -9.4% -3.0% -15.0% Paid distribution of music 72.0 54.3 41.7 43.7 47.1 52.9 57.3 64.5 70.6 78.3 YoY -16.3% -24.5% -23.2% 4.8% 7.8% 12.3% 8.3% 12.6% 9.5% 10.9% Total (mn) 567.3 489.9 407.0 369.0 348.0 320.0 300.0 272.0 248.6 196.5 YoY -12.9% -13.6% -16.9% -9.3% -5.7% -8.0% -6.3% -9.3% -8.6% -21.0% Music software sales volume 200.0 218.0 191.0 172.0 170.0 161.0 154.0 139.0 134.3 105.7 (excl. music video) YoY -4.8% 9.0% -12.4% -9.9% -1.2% -5.3% -4.3% -9.7% -3.4% -21.3% Paid distribution of music 367.3 271.9 216.0 197.0 178.0 159.0 146.0 133.0 114.2 90.8 YoY -16.8% -26.0% -20.5% -8.8% -9.6% -10.7% -8.2% -8.9% -14.1% -20.5% Source: Shared Research based on "The Recording Industry of Japan" by the Recording Industry Association of Japan
According to the Recording Industry Association of Japan’s survey of music media users, the percentage of the population who pay for music content peaked at 52.5% in 2010, and declined to 32.6% in 2016. Since then, the percentage began to rise again, and in 2017, the percentage of university students and working adults in their twenties who pay for music content rose to 40.6%. Reasons for purchasing music included valuing ownership of music, the appeal of special goods received with purchases, and lack of free alternatives to listen to the music. The figure has trended around 40% since 2017, and in 2020, the percentage of the population who pay for music content declined 5.1pp YoY to 33.5%.
Shared Research expects that—as with visual media—the music content market will continue to decline over the long term given free distribution sites and a falling number of buyers.
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Japan’s game market Nintendo launched the Family Computer System (later released as the Nintendo Entertainment System (NES) in America) in 1983, and the overall market for home videogame consoles peaked at JPY760bn in 1997. The market, spearheaded by Nintendo and Sony Computer Entertainment, remained on a downtrend through 2005, dancing to the beat of new consoles and major game releases. Between 2005 and 2007 the market recovered given new portable game consoles including Nintendo’s Wii and Sony’s PlayStation 3. The market thereafter has been anemic. In 2017, hardware shipments rose 51.9% YoY on solid momentum for the Nintendo Switch following its launch in March 2017.
Shipments of Domestic Home Videogame Consoles
(JPYbn) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total shipment value 425.8 402.8 395.8 409.5 373.4 330.2 314.7 386.7 350.6 333.0 YoY -6.2% -5.4% -1.7% 3.5% -8.8% -11.6% -4.7% 22.9% -9.3% -5.0% Software 259.1 237.9 220.2 253.7 235.6 194.9 188.0 194.2 179.6 165.7 YoY 2.6% -8.2% -7.4% 15.2% -7.1% -17.3% -3.5% 3.3% -7.5% -7.7% Hardware 166.7 164.9 175.6 155.8 137.8 135.3 126.7 192.4 171.0 167.3 YoY -17.3% -1.1% 6.5% -11.3% -11.6% -1.8% -6.4% 51.9% -11.1% -2.2% Source: Shared Research based on CESA data
The game market is now impacted by the popularity of smartphones and online (including social media) games in tandem with new consoles. Since 2010 online gaming has mushroomed yet the game console market remains in the doldrums. The package game software market is likely to contract due to migration to smartphones and online gaming. Yes, game consoles may be a sunset sector but some sunsets last a long time. Bedrock demand should stay firm given key advantages: low price next to smartphones and PCs, internet access is not needed, software borrowing/lending is possible, and software once bought is free to use (online gaming requires ongoing payments).
Japanese capsule toy market Uptrend. The size of the capsule toy market has hovered between JPY25bn and JPY35bn for the past 10 years. In 2007 Happinet scrapped unprofitable machines and thereafter the market enjoyed a gradual uptrend. The company said demand is solid but dependent on providing popular products. Kamen Rider toys buoyed 2011 sales.
(JPYbn) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total market (value) 28.5 24.9 25.9 30.1 27.0 27.8 31.9 31.1 27.7 31.9 YoY -6.6% -12.6% 4.2% 16.0% -10.3% 3.0% 14.7% -2.5% -10.9% 15.2% Source: Shared Research based on Japan Toy Association
Competition
Limited competition. Happinet said that it and Kawada are among the major distributors operating nationwide with a variety of toy manufacturers, and that it is the only company handling a range of products from toys to visual and music products. Kawada distributes original products like block toys and educational toys, with diablock and nanoblock toys being the most famous. For FY05/20 Kawada reported annual sales of JPY24.0bn (per Kawada’s website), compared to JPY25.2bn in FY05/19. Happinet sells much more volume than Kawada and their products are different, so they are not competitors.
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Strategy
The company’s strategy is two-pronged. First, increasing sales by grabbing market share even though the overall pie will continue to get smaller as society ages; and second, increasing sales and profitability by selling more products that have been developed in-house.
Market share expansion Shared Research predicts that the main markets for the products dealt with by the company—toys, videogames, visual media, and music—will contract given Japan’s ageing society and the spread of Internet transactions. The spread of download sales for visual and music software, as well as sites which offer free visuals have in fact been impacting the contraction of the market for software packages.
The contracting market for the company’s products is not something that is welcome for its short-term results. However, as reorganization has been underway for intermediate distribution since the late 1990s, the company has continued to expand its sales capacity through acquisitions (see “Historical performance”). Shared Research believes that as reorganization proceeds among intermediary distributors specializing in visual and musical software and videogames, there will be significant room for the company to expand its transactions.
Moreover, the company has indicated that in its eighth medium-term plan which takes effect from FY03/19, one of its basic strategies is to explore new businesses, such as hobby areas like plastic models which are not toys, as well as game production, music concerts, and event planning for its amusement segment. Under this basic strategy, in FY03/20, the company made Irisawa Corp, which has approximately 8% market share in hobby merchandise wholesaling, a subsidiary to help expand its market share in the field of hobbies. Originally, the only hobby merchandise Happinet handled was BANDAI SPIRITS plastic models, around 9% market share in hobby merchandise wholesaling. By making Irisawa a subsidiary, the company group will now have approximately 17% market share of the hobby merchandise wholesaling market, which is worth approximately JPY80bn.
Visual and Music: scope for expansion Happinet said that direct transactions between visual/music content makers and retailers were 60% of overall distribution of visual media and music as FY03/19. Shared Research thinks that the curtailment of content sold at bricks and mortar stores may cause visual and music software makers to shift part of their sales promotion and distribution operations to intermediary distributors like Happinet in the future. Shared Research believes this shift will provide opportunities for Happinet to expand its transactions and sales in the medium and long term.
In March 2018, Happinet took over the wholesale business for music and visual products from Seikodo Co., Ltd. following a company split. According to the company, in FY03/20, 60% of domestic video and music distribution consisted of direct transactions with manufacturers and 40% was through intermediaries. Of intermediate distribution, the company says its group had 29% market share (13% on its own and 16% by the former Seikodo). Excluding the 10% share of companies which only distribute for parent companies, the company in essence holds exclusive control over the market.
Videogames: also scope for expansion The company consolidated Toys Union (currently Maxgames Corporation) as a subsidiary in July 2013. According to the company, this acquisition means its share of the Nintendo-related market was 25%, making it the second largest distributor of Nintendo-related products.
Nintendo Sales is the largest distributor of Nintendo products. In January 2016, Nintendo acquired 70.0% of JESNET (FY07/15 sales of JPY57.1bn), making it a consolidated subsidiary. Nintendo also acquired the videogame wholesale business of AJIOKA Co Ltd (FY06/16 sales of JPY38.7bn). JESNET was renamed Nintendo Sales in April 2017.
Nintendo Sales and Happinet have a combined domestic market share of almost 100% for Nintendo products. According to Happinet, the company plans to form a partnership with Nintendo Sales.
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Originally developed products: increased sales The company aims to expand sales of original products developed in-house and exclusive products which offer high rates of profitability.
In its eighth medium-term plan starting in FY03/19, the company plans to maintain the policies of its seventh medium-term plan to improve profitability by focusing on markets where it has an advantage related to its internally developed products.
In the visual manufacturing business of the Visual and Music segment, Happinet has sought to strengthen its productions by focusing on Japanese films, which have seen a higher percentage of hits thanks to the expertise it had gained, and on animated works, which are capable of expanding into multiple product areas, including toys and games. In October 2020, the company made Phantom Film a subsidiary. Phantom Film distributes (through sales outreach to cinemas), plans, produces, and promotes Western and Japanese films, and has worked on several hit films. The company intends to draw on Phantom Film’s expertise in distribution and other areas to develop the visual manufacturing business into an integrated business covering everything from the planning and production of videos to their package sales. In April 2021, the company established a new company, Happinet Phantom Studio, to integrate Phantom Film with its own visual manufacturing business.
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Historical performance Cumulative Q3 FY03/21 results
▷ Sales: JPY200.9bn (+10.6% YoY) ▷ Operating profit: JPY4.3bn (+41.8% YoY) ▷ Recurring profit: JPY4.4bn (+46.4% YoY) ▷ Net income*: JPY2.8bn (+60.8% YoY)
*Net income attributable to owners of the parent
▷ The YoY rise in sales was driven by hit product sales under the Toys and Videogames segments, and the added sales from the company’s entry into the model toy wholesaling business in November 2019. ▷ On the earnings front, the company reported gross profit of JPY20.6bn, up 9.4% YoY versus the 10.6% rise in sales. This represented a gross profit margin of 10.3%, basically flat versus 10.4% in cumulative Q3 FY03/20, weak results at the high- margin Amusement segment having offset the boost from smaller losses on inventory disposal YoY. At JPY984mn, losses on disposal of inventory were below year-earlier losses of JPY1.5bn, due mainly to reduced purchasing by the company under its Toys business as toy manufacturers themselves scaled back production in the wake of the pandemic. ▷ The gains at both the operating profit and recurring profit levels reflect the relatively slow growth in SG&A spending, which at JPY16.3bn rose 3.2% YoY and yet was smaller than gross profit growth. There was an increase in logistics costs accompanying the rise in sales. Breaking down SG&A spending, logistics-related costs accounted for JPY3.9bn (+7.9% YoY), personnel-related costs JPY6.8bn (+5.3% YoY), depreciation JPY545mn (+26.0% YoY), and goodwill amortization JPY106mn (+5.6% YoY). ▷ Net income attributable to owners of the parent was up YoY thanks to the growth in recurring profit. Another factor contributing to profit growth is that extraordinary losses in cumulative Q3 FY03/20 came to JPY294mn as the company booked JPY288mn in charges in connection with the celebration of the 50-year anniversary of the company’s founding, whereas in
cumulative Q3 FY03/21, extraordinary losses stood at just JPY25mn on the booking of fixed asset retirement losses.
Along with its release of cumulative Q3 results on February 9, 2021, the company also issued an upwardly revised forecast for the full year, raising its estimate for full-year consolidated sales by JPY10.0bn, operating profit by JPY600mn, recurring profit by JPY800mn, and net income attributable to owners of the parent by JPY600mn. By way of explanation, the company said sales were running ahead of expectations at its Toys business, the thanks here going to hit products such as those connected with the popular anime Kimetsu no Yaiba (Demon Slayer). Strong sales of Nintendo Switch-related products at its Videogames segment also contributed. On top of the better-than-expected sales, the company said earnings were further aided by the decline in inventory valuation losses versus the previous year.
Compared with its upwardly revised forecast, results for cumulative Q3 in FY03/21 has left the company with 80.4% of its full- year target for sales (versus 77.8% in cumulative Q3 in FY03/20), 99.8% for operating profit (versus 117.6%), 101.3% for recurring profit (versus 123.2%), and 101.9% for net income attributable to owners of the parent (versus 139.7%).
Breakdown of results by segment:
Toys segment
▷ Sales: JPY72.6bn (+13.4% YoY) ▷ Segment profit: JPY2.8bn (+82.5% YoY)
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The top-line gains were driven by a combination of brisk sales of products for convenience stores and hit products such as Kimetsu no Yaiba-related sword toy Kimetsu no Yaiba DX Nichirintou from Bandai, and Happinet’s move into the model toy wholesaling business with its acquisition of Irisawa Corp. (now a wholly owned subsidiary) in November 2019. The rise in segment profit reflected sales growth coupled with ongoing efforts to improve inventory control and the resulting decline in inventory valuation losses. At Irisawa, which was first included in Happinet’s consolidated results in Q4 FY03/20 (January–March 2020), the company reported sales for cumulative Q3 FY03/21 of roughly JPY3.6bn and indicated that Irisawa finished the period in the black at the profit level.
Sales by manufacturer
▷ Bandai/BANDAI SPIRITS products: JPY41.6bn (+10.6% YoY), or 57.3% of segment sales (versus 58.7% in cumulative Q3 FY03/20) ▷ Takara Tomy products: JPY5.3bn (-11.6% YoY); 7.4% of segment sales (versus 9.5%) ▷ Happinet original products: JPY700mn (-50.9% YoY); 1.0% of segment sales (versus 2.3%) ▷ Products from other manufacturers: JPY24.9bn (+32.1% YoY); 34.3% of segment sales (versus 29.5%)
The segment saw robust sales of Bandai/BANDAI SPIRITS products such as Kimetsu no Yaiba DX Nichirintou and Ichiban Kuji character lottery cards. The company said the increase in sales of products from other manufacturers during cumulative Q3 in FY03/21 was driven primarily by the addition of Irisawa to the Happinet group in November 2019, which meant Irisawa started making a full quarter’s contribution to consolidated results in Q4 FY03/20 (January–March 2020). The company noted that the toy wholesaling business of Irisawa handles some Bandai and BANDAI SPIRITS products, but most of Irisawa’s sales are derived from sales of products made by other manufacturers.
Segment profit The rise in segment profit was driven largely by rising sales and smaller losses on inventory disposal; in the three-month period of Q3 (October–December 2020), the segment also benefited from a more profitable sales mix, which together with the rise in sales and smaller losses on disposal of inventory gave the segment an operating profit margin of 5.0%, up 1.9pp YoY.
(Reference) Bandai Namco Holdings Inc. results For cumulative Q3 FY03/21, the Toys and Hobby segment of Bandai Namco Holdings Inc. reported sales of JPY221.0bn, up 9.9% YoY. According to Bandai Namco’s results report, it had strong sales in its adult-oriented products such as the plastic models and figurines in its Mobile Suit Gundam series. Legacy IP products such as the KAMEN RIDER series, and various peripheral products utilizing new IP were also popular.
(Reference) Takara Tomy results For cumulative Q3 FY03/21, Takara Tomy reported domestic sales of JPY89.9bn, down 20.2% YoY. The weak sales reflected a number of different factors other than the generally depressed consumer sentiment in the wake of the pandemic, including cancelations/delays of previously scheduled movie debuts and other events, and the sharp drop in sales to overseas tourists visiting Japan, which together weighed heavily on the sales at its various retail outlets (such as Kiddy Land and Takara Tomy Plarail Shops) and also hurt its event business, which among other things handles special expositions of Tomica and Plarail toys.
Visual and Music segment
▷ Sales: JPY49.2bn (-8.5% YoY) ▷ Segment profit: JPY603mn (+3.8% YoY)
The market has started to recover in Q2 (July–September 2020) from the slump stemming from event cancellations and delayed release of new albums and movies, but sales were down YoY. Sales of the new Arashi album This is Arashi and older content packaged with video were brisk thanks to stay-at-home demand, but not sufficient to compensate for the downturn in Q1 (April– July 2020). However, segment profit rose YoY due to SG&A expense cuts.
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Sales by field
▷ Visual field: JPY29.5bn (-9.0% YoY) Wholesale business: JPY25.7bn (-11.4% YoY) Manufacturing business: JPY3.8bn (+10.9% YoY) ▷ Music field: JPY19.5bn (-7.7% YoY)
In the visual wholesale section, sales were down YoY, hurt by ongoing delays in the release of new packaged products in the wake of the pandemic. Sales grew in the visual manufacturing section thanks to strong sales of self-produced movies such as Romance Doll and Mother to video streaming services. In the music section, the company reported robust sales of the new STRAY SHEEP album from popular singer Kenshi Yonezu since its release in Q2, on top of which it said it has also seen brisk sales of the new This is Arashi album since its release in Q3. Despite the strong sales in Q2 and Q3, sales for cumulative Q3 FY03/21 still fell YoY owing to the small number of new releases during Q1.
Segment profit The decline in segment sales notwithstanding, the company was still able to report higher earnings YoY thanks to cuts in SG&A spending.
Videogames segment
▷ Sales: JPY66.3bn (+34.8% YoY) ▷ Segment profit: JPY1.3bn (+78.5% YoY)
The double-digit increase in sales at the Videogames segment was driven in large part by sales of Nintendo products, which at JPY60.8bn were up 34.3% YoY. Sales of products from Sony Interactive Entertainment were similarly strong but smaller, finishing up 36.6% YoY at JPY4.0bn. More specifically, the company attributed the gains at the segment to the Nintendo Switch hardware and related game software (including Animal Crossing: New Horizons and Ring Fit Adventure), which was in especially high demand as people refrained from going out amid the pandemic, generating strong sales. Adding further to segment sales during the period were sales of the newly released PlayStation 5 console.
On the profit front, higher sales pushed up segment profit YoY.
Amusement segment
▷ Sales: JPY12.9bn (-12.2% YoY) ▷ Segment profit: JPY527mn (-53.5% YoY)
Sales and profit were down YoY despite brisk sales of Kimetsu no Yaiba-related capsule toys in Q3, because this was not enough to compensate for weak earnings in Q1 affected by temporary closures and shortened operating hours of commercial facilities and falling demand from foreign tourists.
By product type, the segment reported capsule toy sales of JPY8.6bn (-4.6% YoY), card game sales of JPY2.3bn (-42.6% YoY), and other product sales of JPY1.9bn (+20.8% YoY). The increase in other product sales was driven in large part by sales of capsule toy vending machines and card game cabinets, and trading cards other than Data Carddass cards.
Card game sales consist of sales derived from Data Carddass cards. Data Carddass is a series of arcade game machines developed by Bandai, which allows users to play games using the data stored on Data Carddass cards with special bar codes. Trading card sales (excluding sales of Data Carddass cards) are recorded under other product sales when they are sold through vending machines.
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Hurt by the drop in sales, segment profit was down YoY. Although having run at a loss during Q1 due to the aforementioned closure or shortened business hours of shopping centers, as restrictions on businesses were relaxed, the segment moved back into the black in Q2 and stayed there. Segment sales for cumulative Q3 in FY03/21 were down JPY1.8bn YoY but this precipitated just JPY607mn decline in segment profit, as the Amusement segment has relatively high marginal ratio.
In Q3 on a standalone basis, the Amusement segment reported sales of JPY5.4bn (+16.9% YoY) and segment profit of JPY241mn (-29.9% YoY). The double-digit increase in segment sales in Q3 was driven largely by strong performance from products related to the popular anime Kimetsu no Yaiba and other products mentioned previously. The drop in segment profit reflected added spending on the opening of new directly managed stores carrying capsule toys.
1H FY03/21 results
▷ Sales: JPY111.3bn (+8.1% YoY) ▷ Operating profit: JPY1.9bn (+21.4% YoY) ▷ Recurring profit: JPY2.0bn (+28.8% YoY) ▷ Net income*: JPY1.3bn (+65.0% YoY)
*Net income attributable to owners of the parent
▷ The top-line gains during the period were driven by strong sales at the company’s Videogames segment and its entry into the model toy wholesaling business in November 2019. ▷ In terms of profits, the GPM dipped to 10.7% (-0.7pp YoY), but the effect of increased sales resulted in gross profit of JPY11.9bn (+1.2%). The drop in GPM is attributable to sluggish performance in the Amusement segment, which has relatively
high GPMs. However, inventory disposal losses came to JPY331mn (vs. JPY584mn in 1H FY03/20). The reason for this is that the company made fewer purchases, as manufacturers have curtailed production amid the COVID-19 pandemic. ▷ Operating profit and recurring profit increased YoY thanks to higher gross profit and a reduced SG&A expenses, which came to JPY9.9bn (-2.0% YoY). Making Irisawa Co., Ltd. a subsidiary in November 2019 acted to drive up SG&A expenses by approximately JPY200mn, while sales promotion expenses decreased by about JPY400mn. SG&A expenses broke down to logistics costs of JPY2.1bn (+0.8% YoY), payroll costs of JPY4.2bn (flat YoY), depreciation of JPY335mn (+20.4% YoY), and
goodwill amortization of JPY72mn (+8.5% YoY). ▷ Net income attributable to owners of the parent was up YoY thanks to the growth in recurring profit. Another factor contributing to profit growth is that extraordinary losses in 1H FY03/20 came to JPY287mn as the company booked JPY282mn
in charges in connection with the company’s celebration of the 50-year anniversary of Happinet’s founding, whereas in 1H FY03/21, extraordinary losses came to just JPY25mn, mostly from JPY24mn in fixed asset retirement losses.
In September 2020, the company announced forecasts for cumulative Q2 (1H) and full-year FY03/21. At the start of FY03/21, company forecast was undetermined since the outbreak of COVID-19 and the resulting market unpredictability at the outset of the fiscal year made it difficult to form rational calculations. The forecasts released in September are based on available information under the assumption that the economy will gradually pick up again.
1H sales came to 101.2% of the company’s 1H FY03/21 forecast, operating profit 121.8%, recurring profit 134.9%, and net income attributable to owners of the parent 140.0%. Operating profit, recurring profit, and net income exceeded the company’s 1H forecast thanks to strong performance by the Toys and Video Games segments.
The company left its FY03/21 full-year forecast unchanged since the Christmas and year-end/new year shopping season, which is the most critical shopping season for Happinet, remained unpredictable as of November 2020.
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Following is the breakdown of results by segment.
Toys
▷ Sales: JPY39.8bn (+8.2% YoY) ▷ Segment profit: JPY1.2bn (+65.5% YoY).
The top-line gains were driven by a combination of solid growth in sales of products (such as Ichiban Kuji character lottery cards and Demon Slayer: Kimetsu No Yaiba-related toys from BANDAI SPIRITS) through convenience stores, and Happinet’s move into the model toy wholesaling business with its acquisition of Irisawa Corp. (now a wholly owned subsidiary). The strong jump in segment profit reflected its successful efforts to improve inventory control and the resulting decline in inventory writedowns versus the same six-month period the previous year. To be precise, the company indicated that Irisawa booked sales of approximately JPY2.4bn in 1H, and posted a profit.
Sales by manufacturer
▷ Bandai/BANDAI SPIRITS products: JPY21.8bn (+0.8% YoY), representing 54.9% of segment sales (versus 59.0% in 1H FY03/20) ▷ Takara Tomy products: JPY3.0bn (-20.4% YoY); 7.7% of segment sales (versus 10.5%) ▷ Happinet original products: JPY400mn (-53.1% YoY); 1.2% of segment sales (versus 2.7%) ▷ Products from other manufacturers: JPY14.4bn (+40.9% YoY); 36.2% of segment sales (versus 27.8%)
The decline in sales of Bandai/BANDAI SPIRITS products reflected weak sales of mainstay character goods, which effectively offset the solid growth in popular BANDAI SPIRITS products such as Ichiban Kuji. In Ichiban Kuji, Demon Slayer: Kimetsu No Yaiba and Twisted Wonderland-related merchandise sold well. The company says the outsized jump in sales of products from other manufacturers in 1H was driven primarily by the addition of Irisawa to the Happinet group last November, which meant Irisawa started making a full quarter’s contribution to consolidated results in Q4 FY03/20 (January–March 2020). The company noted that the toy wholesaling business of Irisawa handles some Bandai and BANDAI SPIRITS products, but most of Irisawa’s sales are derived from sales of products made by other manufacturers.
Segment profit Profits were up YoY thanks to the effects of sales growth as well as the aforementioned drop in inventory disposal losses., which came to JPY220mn, (vs. JPY450mn in 1H FY03/20).
(Reference) Bandai Namco Holdings Inc. results For 1H FY03/21, the Toys and Hobby segment of Bandai Namco Holdings Inc. reported sales of JPY128.9bn, up 0.6% YoY. According to Bandai Namco’s results report, it had strong sales in its adult-oriented products such as the plastic models and figurines in its Mobile Suit Gundam series. It had healthy sales over its own e-commerce site, while its strengthening of collaboration with other companies’ e-commerce sites and the use of online promotional events paid off. Legacy IP products such as the KAMEN RIDER series, and various peripheral products utilizing new IP were also popular. Sales of prizes, digital card products, and other products featured at amusement facilities were hit by the temporary closure of those facilities in wake of the COVID-19 pandemic.
(Reference) Takara Tomy results For 1H FY03/21, Takara Tomy reported domestic sales of JPY53.4bn, down 24.9% YoY. The impact of the COVID-19 pandemic took a toll on earnings in the retailing, events, and capsule toy dispenser businesses. Takara Tomy’s toys business benefitted from healthy sales of some products were up due to rising demand from young adults living at home with their parents, as well the ongoing rise in online purchases.
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Visual and Music
▷ Sales: JPY30.6bn (-12.3% YoY) ▷ Segment profit: JPY495mn (-11.3% YoY).
Sales and profit were both down in 1H. Sales and profit were actually up YoY in Q2 (July-September 2020), but not enough to compensate for the sales and profit declines in Q1 (April-June 2020).
▷ Q1 saw double-digit YoY declines in sales and profit as the stay-at-home advisory from the Japanese government accelerated the move to online streaming services and delayed the company’s release of new albums and movies. ▷ In Q2, sales and profit at the segment came in above year-ago levels thanks to strong sales from a few big hits, including the newly released STRAY SHEEP album from Kenshi Yonezu and sales of special boxed sets featuring the popular animated characters from PRINCESS CONNECT! Re: Dive, for which the company holds exclusive distribution rights.
Sales by field
▷ Visual field: JPY19.9bn (-1.9% YoY) Wholesale business: JPY17.6bn (-2.5% YoY) Manufacturing business: JPY2.2bn (+2.8% YoY) ▷ Music field: JPY10.7bn (-26.8% YoY)
In visual products field, in spite of solid sales of PRINCESS CONNECT! Re: Dive (which is distributed exclusively by Happinet), wholesaling operations saw sales decline YoY, mainly due to the nonrecurrence of boost from physical (boxed) sales such as the movie Bohemian Rhapsody, which benefitted earnings in 1H FY03/20. On the manufacturing side, the gains reflected sales from the distribution of its popular self-produced movie Romance Doll. On the music side, Q2 saw brisk sales of singer Kenshi Yonezu’s album STRAY SHEEP, but sales were nevertheless down since there were essentially no new music releases in Q1, while 1H a year ago also benefitted from greatest hits album by the popular group Arashi.
Segment profit Segment profit declined YoY as gross profit was dragged down by lower sales and higher inventory disposal losses, which came to JPY50mn (versus JPY20mn a year ago).
Videogames
▷ Sales: JPY33.4bn (+57.4% YoY) ▷ Segment profit: JPY596mn (+243.2% YoY).
Sales and profit were up thanks to strong sales of Nintendo's game console "Nintendo Switch" and related software.
By manufacturer, the company reported 1H sales of Nintendo products of some JPY30.9bn (+62.5% YoY), and 1H sales of Sony Interactive Entertainment products of JPY1.8bn (+8.4% YoY). The strong double-digit gains at the Videogames segment were driven by a surge in buying of game hardware (such as the Nintendo Switch), game software (such as Animal Crossing: New Horizons), and original game accessories as more people stuck close to home in the wake of the pandemic.
On the profit front, higher sales pushed up segment profit YoY. Segment sales were up by JPY12.2bn YoY, but because margins on videogame hardware are low relative to game software, the increase in segment profit was only JPY423mn.
Amusement
▷ Sales: JPY7.5bn (-25.5% YoY)
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▷ Segment profit: JPY286mn (-63.8% YoY).
The market environment has been improving in stages, with the easing of stay-at-home requests as well as temporary closures and shortened operating hours of commercial facilities, Happinet’s main business partners. But the gains in Q2 were not enough to offset the shortfalls in Q1. Lower YoY sales and profit were also caused by falling demand from foreign tourists. 1H sales broke down to capsule toy sales of JPY5.1bn (-16.0% YoY) and card game sales of JPY1.4bn (-51.3%).
Profit was down due to the drop in sales. The segment booked a loss for Q1 due to the aforementioned closure or shortened business hours of shopping centers, was swung back into the black in Q2 as the situation eased down. Sales in 1H fell by JPY2.6bn YoY, but segment profit was down JPY504mn since the Amusement segment has relatively high marginal profit rates.
Other: Acquisition of shares in Phantom Film Co., Ltd. (making it a subsidiary) In September 2020, the company announced the acquisition of shares in Phantom Film Co., Ltd. (making it a subsidiary). Phantom Film Co., Ltd. distributes, plans, produces, and promotes Western and Japanese films, and has worked on several hit films. Happinet says that, by acquiring Phantom Film’s expertise in distribution, it plans to operate an end-to-end business from film planning through package sales. The acquisition was implemented in October 2020, and Happinet plans to include the subsidiary’s earnings in its consolidated FY03/22 results. The company has not disclosed the acquisition price.
Phantom Film’s performance (JPYmn) FY09/17 FY09/18 FY09/19 Sales 983 1,613 963 Operating profit 19 30 17 Recurring profit 10 18 8 Net income 8 7 3 Net assets 113 121 125 Total assets 1,383 1,344 1,256
Q1 FY03/21 results
▷ Sales: JPY50.5bn (+9.2% YoY) ▷ Operating profit: JPY450mn (-21.7% YoY) ▷ Recurring profit: JPY483mn (-15.7% YoY) ▷ Net income*: JPY285mn (+107.9% YoY)
*Net income attributable to owners of the parent
The top-line gains reported for Q1 FY03/21 (April–June 2020) were driven by a combination of solid growth in sales in the Videogames segment and the company’s acquisition of a model toy wholesaling business in November last year.
On the earnings front, gross profit finished the quarter down, falling 4.7% YoY to JPY5.2bn. The Q1 gross profit margin of 10.4% was down from 11.9% in the same quarter last year, hurt by falling sales in the high-margin Amusement segment and JPY92mn in inventory write-offs (versus JPY76mn in write-offs in Q1 FY03/20).
At the operating and recurring profit levels, the decline in earnings was further aggravated by sticky SG&A expenses, which at JPY4.8bn were down only 2.7% YoY versus the 4.7% decline in gross profit. The breakdown of SG&A expenses shows logistics- related costs coming in at JPY973mn (-2.8% YoY), personnel-related costs coming in at JPY2.1bn (-1.1% YoY), and goodwill amortization coming in at JPY39mn (+16.9% YoY).
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The rise in net income reflected the dropout of JPY280mn in extraordinary costs booked in the same quarter last year in connection with the celebration of the 50-year anniversary of the company’s founding and the absence of any new extraordinary charges in Q1 FY03/21.
Toys The Toys segment reported Q1 sales of JPY17.5bn (+6.9% YoY) and a segment profit of JPY456mn (+79.5% YoY). The top-line gains were driven by the company’s acquisition of Irisawa Corp. and its model toy wholesaling business in November last year and solid growth in sales of products through convenience stores. To be precise, the company indicated that the addition of Irisawa to the group last November added JPY1.2bn to consolidated sales in Q1 FY03/21, but its contribution to earnings was negligible.
Q1 sales by manufacturer
▷ Bandai/BANDAI SPIRITS products: JPY8.8bn (-0.6% YoY), representing 50.8% of segment sales (versus 54.7% in Q1 FY03/19) ▷ Takara Tomy products: JPY1.4bn (-7.5% YoY); 8.6% of segment sales (versus 9.9% in Q1 FY03/19) ▷ Happinet original products: JPY200mn (-37.0% YoY); 1.5% of segment sales (versus 2.5% in Q1 FY03/19) ▷ Products from other manufacturers: JPY6.8bn (+27.2% YoY); 39.1% of segment sales (versus 32.9% in Q1 FY03/19)
The decline in sales of Bandai/BANDAI SPIRITS products reflected weak sales of mainstay character goods, which effectively offset the solid growth in popular BANDAI SPIRITS products such as Ichiban Kuji character lottery cards. The outsized jump in sales of products from other manufacturers was driven primarily by the addition of Irisawa to the Happinet group last November, which meant Irisawa started making a full quarter’s contribution to consolidated results in Q4 FY03/20 (January–March 2020). The company noted that the toy wholesaling business of Irisawa handles some Bandai and BANDAI SPIRITS products, but most of Irisawa’s sales are derived from sales of products made by other manufacturers.
On the earnings front, the outsized jump in segment profit was driven in part by the top-line gains but the main driver was the reduction in advertising/promotional spending and other SG&A spending.
(Reference) Bandai Namco Holdings Inc. results For Q1 FY03/21, the Toys and Hobby segment of Bandai Namco Holdings Inc. reported sales of JPY54.4bn, down 4.3% versus the same quarter last year. According to Bandai Namco’s Q1 results report, the decline in sales at its Toys and Hobby segment was driven by falling sales of prizes, digital card products, and other products that are handled by amusement facilities, whose operations were shut down or otherwise restricted in the wake of the pandemic. On the plus side, Bandai Namco reported that it saw continued strong sales of sales of its adult-oriented products such as the plastic models and figurines in its Mobile Suit Gundam series, legacy IP products such as the KAMEN RIDER series, and various peripheral products utilizing new IP.
(Reference) Takara Tomy results For Q1 FY03/21, Takara Tomy reported domestic sales of JPY23.1bn, down 24.3% versus the same quarter last year. Takara Tomy attributed the double-digit decline in domestic sales to widespread impact of the pandemic, which not only kept people staying close to home but also led to the temporary closures/shortened operating hours at retail stores, delays in the openings of new movies (to which its products are tied), cancellations/delays of promotional events, and a sharp decline in tourism-related demand. Takara Tomy said sales of some products were up due to rising demand from young adults living at home with their parents and increased buying by consumers online, but this was far from enough to offset the downturn in sales elsewhere.
Visual and Music The Visual and Music segment reported Q1 sales of JPY13.4bn (-25.0% YoY) and a segment profit of JPY198mn (-28.5% YoY). The company attributed the drop in sales to sharp downturn in the packaged product market as a whole in the wake of the pandemic, which kept people sticking close to home and prompted more to use online streaming services. The segment reported a few bright spots during the quarter, including packaged products tied the Disney movie Frozen II, but this was far from enough to offset the downturn in sales elsewhere.
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Sales by field
▷ Visual field: JPY10.0bn (+0.3% YoY) Wholesale business: JPY8.7bn (-1.4% YoY) Manufacturing business: JPY1.2bn (+13.4% YoY) ▷ Music field: JPY3.3bn (-57.3% YoY)
In visual products field, the decline in sales from wholesaling operations was attributed mainly to the dropout of the sales of packaged products tied to the movie Bohemian Rhapsody booked during the same quarter last year. On the manufacturing side, the gains reflected sales from the distribution of its popular self-produced movie Romance Doll. On the music side, the sharp drop in sales reflected the near total lack of new releases and the cancelation of promotional events, as well as tough comparisons with the same quarter last year, when sales got a big boost from hit albums, such as a greatest hits album by the popular group Arashi.
On the earnings front, the 28.5% YoY drop in segment profit closely tracked the 25.0% drop in sales and the resulting decline in gross profit.
Videogames The Videogames segment reported Q1 sales of JPY16.9bn (+125.9% YoY) and a segment profit of JPY235mn (versus profit of JPY18mn in Q1 FY03/20). The company attributed the strong top-line gains to the influx of demand from the stay-at-home crowd in the wake of the pandemic, which gave a huge lift to entire video game hardware and software market.
By manufacturer, the company reported Q1 sales of Nintendo products of some JPY15.4bn (+134.9% YoY), and Q1 sales of Sony Interactive Entertainment products of JPY1.0bn (+51.1% YoY). Particularly strong sellers on the Nintendo side included Nintendo Switch hardware and related software titles such as the popular Animal Crossing: New Horizons. Software titles for Sony’s PlayStation 4 were also strong sellers.
On the earnings front, earnings were up sharply versus the same quarter last year but the JPY218bn YoY increase in segment profit trailed far behind the JPY9.4bn jump in sales because most of increase in segment sales came from sales of videogame hardware, where margins are low relative to game software.
Amusement The Amusement segment reported Q1 sales of JPY2.8bn (-39.6% YoY) and a segment loss of JPY137mn (versus profit of JPY330mn in Q1 FY03/20). The pandemic weighed heavily on sales at the Amusement segment as most people stuck close to home and many of the commercial buildings where the company’s products are sold either shortened operating hours or closed temporarily, on top of which there was a huge drop in tourism-related demand. More specifically, the company reported capsule toy sales of some JPY2.0bn (-23.9% YoY) and card game sales of only JPY400mn (-71.1% YoY).
On the earnings front, the JPY137mn loss reported for the quarter represents a JPY467mn decline in segment profit versus the same quarter last year. The segment’s high marginal profit margin meant the hit to earnings from the JPY1.8bn YoY drop in sales was especially large, especially in the case of the decline in high-margin card game sales. Further aggravating the losses, the segment also booked inventory valuation losses of JPY25mn on slow-moving inventories.
Full-year FY03/20 results
▷ Sales: JPY233.3bn (-2.9% YoY) ▷ Operating profit: JPY2.6bn (-43.3% YoY) ▷ Recurring profit: JPY2.4bn (-44.9% YoY) ▷ Net income*: JPY1.2bn (-55.2% YoY)
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*Net income attributable to owners of the parent
▷ Consolidated sales were down YoY as higher sales in the Toys segment were offset by double-digit decline in sales in the Visual and Music segment. ▷ Gross profit of JPY23.5bn was down 6.6% YoY, hurt by lower sales and a lower GPM, which at 10.1% was down 0.4pp YoY. Inventory disposal losses came to JPY2.1bn (compared to JPY2.5bn in FY03/19), but sales of relatively high-margin merchandise were sluggish, notably in the Toys segment. ▷ At the operating profit level and below, the decline in earnings reflected the drop in gross profit coupled with rising SG&A expenses. At JPY21.0bn, SG&A expenses were up 1.5% YoY, driven by a combination of rising distribution costs and increases in depreciation charges following the startup of part of the company’s new core system.
The company had announced a downward revision to its full-year forecast in January 2020, cutting its projection for full-year consolidated sales by JPY20.0bn, operating profit by JPY2.3bn, recurring profit by JPY2.3bn, and net income by JPY1.5bn. Explaining the downward revision, the company said that in addition to weaker-than-expected performance in all areas during the nine-month period through Q3, it booked valuation losses on slow-moving inventories.
Sales came to 106.1% of the company’s revised FY03/20 forecast, operating profit 95.3%, recurring profit 96.5%, and net income attributable to owners of the parent 94.2%. Sales exceeded forecast thanks to solid performance by Ichiban Kuji character lottery cards and other convenience store merchandise as well as the Animal Crossing: New Horizons Nintendo Switch game software. At the profit level, sale of relatively high-margin merchandise, particularly in the Toys segment, fell short of the company’s anticipations, and consequently, operating, recurring, and net profit all fell short of company forecasts.
Earnings by segment were as follows.
Toys In the Toys segment, sales rose 2.7% YoY to JPY79.1bn while segment profit fell 47.3% YoY to JPY1.1bn.
Sales rose YoY due to the company’s entry into the model toy wholesaling business through the purchase of shares of Irisawa Corp. (making it a subsidiary) in November 2019, and also due to robust performances by BANDAI SPIRITS’ Ichiban Kuji and other products sold through convenience stores. Profit fell YoY due to weak sales of high margin products and higher SG&A expenses including logistics costs and depreciation expenses.
Sales by manufacturer
▷ Bandai and BANDAI SPIRITS products: JPY45.3bn (-4.9% YoY), representing 57.4% of segment sales (versus 62.0% in FY03/19) ▷ Takara Tomy products: JPY7.4bn (-15.9% YoY); 9.4% of segment sales (versus 11.5% in FY03/19) ▷ Happinet original products: JPY1.5bn (-21.1% YoY); 1.9% of segment sales (versus 2.5% in FY03/19) ▷ Products from other manufacturers: JPY24.7bn (+33.4% YoY); 31.3% of segment sales (versus 24.0% in FY03/19)
In Bandai products and BANDAI SPIRITS, Ichiban Kuji products (from BANDAI SPIRITS) were strong sellers, but sales of the mainstay character goods were weak. Sales of products from other manufacturers, such as Pokémon Company, accounted for a larger portion of segment sales versus FY03/19. In Q4 FY03/20 (January–March 2020), the company added Irisawa Corp. to consolidation, which contributed JPY1.9bn to sales in the quarter. Irisawa’s sales are mostly to “other manufacturers”, but the company says they also include Bandai and BANDAI SPIRITS products.
Segment profit Despite the rise in sales and the reduction in inventory disposal losses to JPY1.5bn (down from JPY1.8bn in FY03/19), segment profit was down due to a lower gross profit margin caused by changes to the product mix as well as an increase in SG&A
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expenses. The increase in SG&A expenses was due to depreciation charges of JPY339mn (+35.0% YoY) following the startup of the new core system in the Toys segment, as well as higher logistics costs accompanying brisk sales of convenience store merchandise.
(Reference) Bandai Namco Holdings Inc. results For FY03/20, the Toys and Hobby segment of Bandai Namco Holdings Inc. reported sales of JPY253.7bn, an increase of 4.5% over FY03/19. According to disclosures from Bandai Namco, sales of its adult-oriented products in the Mobile Suit Gundam series, including plastic models and collector figures (which accounted for 40% of the segment’s sales in FY03/20), were strong, as were sales of mainstay IP-related toys and peripheral products, such as the Kamen Rider, Super Sentai, and One Piece series.
(Reference) Takara Tomy results For FY03/20, Takara Tomy’s Japan segment reported sales of JPY138.9bn, down 6.6% versus FY03/19. Disclosures from Takara Tomy show strong sales of not only its mainstay Tomica merchandise line, but also strong sales of merchandise featuring characters from the animated movie Toy Story 4 and Frozen II. The Beyblade Burst product line, on the other hand, reported lower sales. The Rika-chan doll had brisk sales in FY03/18 and FY03/19 after celebrating its 50th anniversary in 2017, but experienced fallback in FY03/20.
Acquisition of Irisawa (making it a subsidiary) In November 2019, Happinet bought shares in hobby-related product company Irisawa Corp., making it a wholly owned subsidiary, with the aim of entering the model toy wholesaling business. In the field of hobby products, Happinet previously only dealt in plastic models from BANDAI SPIRITS. Having Irisawa under its umbrella will enable it to handle other brands of plastic models, hobby RC products, and model railways. The company said that the wholesale hobby product market was worth about JPY80bn, and Irisawa had a market share of roughly 8% and the company 9%, so the acquisition will give it a market share of about 17%.
Irisawa reported annual sales of JPY5.4bn and operating profit of JPY38mn in FY01/19. Happinet added the new subsidiary to consolidated results starting in Q4 FY03/20 (January–March 2020), including five months’ worth of results from Irisawa, which contributed approximately JPY1.9bn to sales in Q4. Also, in Q4, the company recorded a JPY59mn extraordinary gain from negative goodwill associated with the acquisition of Irisawa.
Visual and Music In the Visual and Music segment, sales fell 12.4% YoY to JPY71.6bn and segment profit fell 51.4% YoY to JPY533mn.
Both sales and profit fell YoY. While the efficiency and productivity improvement were achieved in the wholesale section due to logistics outsourcing and other initiatives, the package market became a harsher environment compared to FY03/19. In the visual manufacturing section, performance of movie production partnerships in which the company invested was weak, resulting in investment losses.
Sales by field
▷ Visual field: JPY43.5bn (-43.3% YoY) Wholesale business: JPY39.1bn (-3.7% YoY) Manufacturing business: JPY4.3bn (+0.3% YoY) ▷ Music field: JPY28.0bn (-23.6% YoY)
In the visual field wholesale business and music field, sales were down due to the absence of major contributions from the Namie Amuro’s concert video (Namie Amuro Final Tour 2018: Finally) which added greatly to sales during FY03/19. At its manufacturing business, sales for cumulative Q3 FY03/20 were up YoY thanks to strong sales of the drama Tonbo (where Happinet has exclusive distribution rights) and Manaria Friends (an anime series the company has invested), but Q4 sales fell 55.0% YoY to JPY900mn, resulting in generally flat sales for the full year. In Q4 FY03/19 (January–March 2019) the company partially recorded distributions
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on the jointly managed film Nichinichi Kore Kojitsu (which opened in October 2018 and had box office receipts of approximately JPY1.3bn), but in Q4 FY03/20, movies financed by the company did not perform as well.
Segment profit The drop in segment profit reflected the downturn in sales and the resulting drop in gross profit, which was only partially offset by lower inventory disposal losses of JPY100mn (down from JPY300mn in FY03/19) and cost-savings stemming from the integration of distribution systems and office space with its former subsidiary Seikodo. Another factor contributing to profit decline was the recording of losses on movie investments in the manufacturing business due to poor performance by movies financed by Happinet.
Videogames In the Videogames segment, sales rose 2.4% YoY to JPY63.1bn while segment profit fell 19.1% YoY to JPY840mn.
Sales rose YoY. Nintendo Switch hardware sold well, as did software titles, including Pokémon Sword, Pokémon Shield, and Animal Crossing: New Horizons.
Breaking down sales by maker, the videogames segment reported Nintendo products sales of JPY58.3bn (+10.5% YoY) and Sony Interactive Entertainment product sales of JPY3.8bn (-50.3% YoY). Strong sellers among the Nintendo products included Nintendo Switch Lite (portable game machine) and the upgraded Nintendo Switch, which can now operate off batteries, and associated software.
On the earnings front, in spite of the reduction in inventory disposal losses to JPY80mn (down from JPY100mn in FY03/19), profit was weak due to a lack of hit merchandise among relatively high-margin exclusively distributed software as well as an increase in spending on advertising for original game titles.
Plans to launch original game software in Q1 FY03/21 The company plans to launch its original game software Brigandine: Lunasia Senki for Nintendo Switch in 1H FY03/21. The game is a remake of Brigandine: Grand Edition, which Happinet released in 2000. According to the company, it sold roughly 200,000 copies of Brigandine: Grand Edition, and aims at worldwide sales of 200,000 for Brigandine: Lunasia Senki as well. Recommended retail price for the regular version is JPY7,200 (excluding tax).
Amusement In the Amusement segment, sales declined 2.3% YoY to JPY19.5bn and segment profit dropped 14.5% YoY to JPY1.5bn.
Sales declined YoY. Capsule toy sales came to JPY11.9bn (+3.9% YoY) and card game sales came to JPY5.4bn (-15.5% YoY). Capsule toys performed well due to the positive effects of increased installation of vending machines in high-visibility locations such as large commercial facilities. However, sales of card games were weak. Profit fell YoY as the company recorded JPY200mn valuation losses on slow-moving inventories (compared to JPY100mn in FY03/19).
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Other information
History
In 1991 Toys“R”Us entered Japan. At that time small toy stores were key outlets for toys in Japan, with distributors serving retailers. Yet Toys“R”Us with its strong selling power started direct transactions with toy makers. Bandai continued to do business with big toy stores and small/medium-sized shops through wholesalers. Yet at the same time it did business with Toys“R”Us and big retailers through Happinet.
Toys"R"Us introduced open pricing to Japan’s retail industry. In the early 1990s many retailers set prices according to the wishes of makers. Toys"R"Us thus introduced competition and a price war began. The upshot: toy makers and retailers slashed distribution costs with a lot of intermediary business migrating to big distributors.
In the 1990s the toy wholesale industry saw a shakeout amid post-bubble sluggish consumption, direct makers/shop transactions, and big distributors controlling the market in the wake of the Toys"R"Us incursion. Happinet bought small/medium- sized distributors as they hit hard times, and expanded business with non-Bandai players.
From the mid-1990s, the company achieved earnings growth by distributing non-toy products, including videogames and DVDs.
1969 Incorporated as Tosho Ltd (Tosho becomes a stock company in 1972). 1972 Starts full-scale transactions with Popy (now Bandai). 1991 Company name changes to Happinet Corp with absorption of Dairin Corp and Seiko Corp (integration of Bandai- affiliated toy distributors). 1994 Bandai buys more Happinet shares; Happinet joins the Bandai group. Happinet begins distributing PlayStation game consoles and starts distributing videogames. 1994 Acquires Taiyo Gangu Shokai, Aichi Prefecture. 1995 Acquires Hiranaka, Hokkaido. 1999 Buys shares in Beam Entertainment Corp, advancing into DVD distribution business. 2001 Buys shares in Toyokuni Corp, Shizuoka Prefecture. 2002 Happinet JP Corp takes over the operations of Matsui Sakae Toys, a toy wholesaler in Osaka. 2006 Buys shares in Mori Toys, a wholesaler of Nintendo products in Osaka. 2007 Buys shares in Sunlink and The Apple Corporation. 2009 Buys shares in Wint Corp, the second largest intermediary distributor of visual media and music, advancing into CD wholesaling. 2013 Buys shares in Toys Union Co Ltd, a Nintendo distributor. 2014 Merges Happinet PM 2014 Toys Union Co., Ltd. and Mori Games Co., Ltd. merged; renamed Maxgames Corporation (presently a consolidated subsidiary) 2015 Creates capital business alliance with Broccoli Co., Ltd. (now an equity-method affiliate) 2018 Takes over wholesale business for music and visual products from Seikodo Co., Ltd. (now Happinet Media Marketing Corp.) following company split 2019 Buys shares in Irisawa (now Happinet Hobby Marketing Corp.), a company that handles model toys 2020 Acquired shares of Phantom Film Co., Ltd. (now Happinet Phantom Studios Corp.), which distributes, plans, produces, and promotes Western and Japanese movies.
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News and topics March 2021 On March 15, 2021, the company announced the transfer of its model toy sales division to a subsidiary and the subsidiary’s name change.
The company decided to transfer its model toy sales division to wholly owned subsidiary Irisawa Corp., for the purpose of strengthening the model toy wholesaling business. At an extraordinary general meeting of shareholders, it was decided to change the subsidiary’s name. April 1, 2021 was set as the date for both the transfer and name change.
Purpose of transfer of model toy sales division In November 2019, Happinet bought shares in hobby-related product company Irisawa, making it a wholly owned subsidiary. Subsequently, both companies leveraged their distribution networks to make further inroads into the model toy market. Going forward, to foster greater business collaboration as a group, Happinet opted to transfer its model toy sales division to Irisawa.
Following the transfer, the company aims to fully integrate its sales operations while unifying its logistics functions to further improve efficiency, and will build a system, based the common use of the company’s industry-leading sales support systems and information systems, that can respond to customer demand in an even more timely manner.
Regarding its core Toys segment, the company says a key issue is the need to expand its distribution share and boost profitability, which it will do by expanding its product lineup, including adult-oriented toys. Going forward, the company will continue working to make inroads into the model toy market by building relationships with business partners, expanding collaborative ventures, and maximizing sales of numerous products.
Overview of transfer of model toy sales division and name change of Irisawa Corp. Happinet is transferring its model toy sales division to consolidated subsidiary, Irisawa. The transfer is to be done by consolidating the accounts of business partners. No assets or liabilities are transferred. At the time of transfer, Irisawa’s name will change to Happinet Hobby Marketing Corp.
February 2021 On February 9, 2021, the company announced revisions to its earnings forecast.
Revised earnings forecast for full-year FY03/21
▷ Sales: JPY250.0bn (previous forecast: JPY240.0bn) ▷ Operating profit: JPY4.3bn (JPY3.7bn) ▷ Recurring profit: JPY4.3bn (JPY3.5bn) ▷ Net income*: JPY2.7bn (JPY2.1bn) ▷ EPS: JPY123.35 (JPY95.94)
*Net income attributable to owners of the parent
Reasons for revision Sales and profits were revised up, because Kimetsu no Yaiba-related toys were big sellers in the Toys segment, while Nintendo Switch-related products sold well in the Videogames segment. The company also focused on maintaining optimal inventory levels to reduce inventory valuation losses.
On the same day, the company announced a company split (simplified absorption-type split) in the visual manufacturing section and an absorption-type merger between wholly owned subsidiaries (simple merger).
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Effective April 1, 2021 (planned), the company will reorganize its organizational structure. Its video manufacturing section will be split from the company and inherited by Happinet Phantom Studio. Further, Happinet Phantom Studio (succeeding company) will absorb the company’s wholly owned subsidiary Phantom Film Co., Ltd.
Purpose of the integration The aim is to operate an end-to-end business from film planning and production to distribution and rights and package sales in Japan and overseas, by integrating the company’s visual manufacturing section, which has worked on Japanese films and anime, and Phantom Film, which distributes, plans, produces, and promotes Western and Japanese films.
Overview of the succeeding company
▷ Company name: Happinet Phantom Studio ▷ Established: January 2021 ▷ Business: Planning, production, distribution, and promotion of films, and planning, production, and sale of film and music software ▷ Capital: JPY10mn ▷ Major shareholders and ownership ratio: 100% owned by Happinet Co., Ltd.
Overview of the absorbed company (Phantom Film Co., Ltd.)
▷ Business: Import, distribution, and promotion of foreign-language films, and planning, production, distribution, and promotion of Japanese films ▷ Major shareholders and ownership ratio: 100% owned by Happinet Co., Ltd. ▷ FY09/20 results: Sales JPY1.1bn, operating loss JPY657mn, recurring loss JPY643mn, net loss JPY443mn
January 2021 On January 13, 2021, the company announced its plan to integrate its visual manufacturing section, and the establishment of a new company to enable such integration.
The company decided to integrate its visual manufacturing section, and to establish a new company to enable such integration. The company plans for the integration to proceed as follows, subject to approval at a meeting of its Board of Directors that will take place in February 2021: the company’s video manufacturing section will be split from the company and inherited by a new company, which will also absorb the company subsidiary Phantom Film Co., Ltd.
Purpose of the integration The aim is to operate an end-to-end business from film planning and production to distribution and rights and package sales in Japan and overseas, by integrating the company’s visual manufacturing section, which has worked on Japanese films and anime, and Phantom Film, which distributes, plans, produces, and promotes Western and Japanese films.
Integration method A new company, Happinet Phantom Studio, will be established in January 2021 as a wholly owned subsidiary of the company. In April 2021, the company plans to split off its visual manufacturing section for the new company to inherit, and the new company will absorb company subsidiary Phantom Film.
Overview of the new company (planned)
▷ Company name: Happinet Phantom Studio ▷ Business: Planning, production, distribution, and promotion of films, and planning, production, and sale of film and music software.
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▷ Capital: JPY10mn ▷ Major shareholders and ownership ratio: 100% owned by Happinet Co., Ltd.
November 2020 On November 12, 2020, the company also announced that it had changed the timing of the start of its ninth medium-term business plan from FY03/22 to FY03/23.
The company has been working to implement various initiatives set forth under its eighth medium-term plan, the three-year plan put into effect in FY03/19. Meanwhile, needs of consumers and other elements of its operating environment have changed due to the impact of the COVID-19 pandemic on related industries, and the outlook is still clouded by uncertainty. As a result, the company decided to set FY03/22 as the year in which it would focus on strengthening its management infrastructure in advance of the creation of its ninth medium-term plan, which it now plans to put into effect in FY03/23. The company will release its ninth medium-term plan once it becomes ready for public disclosure.
September 2020 On September 29, 2020, the company announced the acquisition of shares in Phantom Film Co., Ltd. (making it a subsidiary).
Purpose of the stock acquisition The company has been working to expand related functions in the Visual and Music segment, to expand its operations in the production business as the market changes with the rising prominence of streaming services and the like.
Phantom Film Co., Ltd. distributes, plans, produces, and promotes Western and Japanese films, and has worked on several hit products. Happinet has worked on Japanese films and anime, but expects that Phantom Film’s expertise will be an asset going forward, as the company expands its production business. The company plans to expand its business by bringing Phantom Films into its group, and to operate an end-to-end business from film planning and production to distribution and rights and package sales in Japan and overseas.
Overview of the subsidiary to be transferred
▷ Company name: Phantom Film Co., Ltd ▷ Business: The import, distribution, and promotion of foreign language films; the distribution and promotion of Japanese films; the planning and production of Japanese films; the management and promotion of actors and talent.
Phantom Film’s performance (JPYmn) FY09/17 FY09/18 FY09/19 Sales 983 1,613 963 Operating profit 19 30 17 Recurring profit 10 18 8 Net income 8 7 3 Net assets 113 121 125 Total assets 1,383 1,344 1,256
Counterpart in the share transfer, acquisition price, and ownership status prior to and after the acquisition
▷ Counterpart and acquisition price: Not disclosed, pursuant to the provisions of the share transfer agreement ▷ Number of shares held prior to the share transfer: 0 shares (0.0% of voting rights) ▷ Number of shares held after the transfer: 220 shares (100.0% of voting rights)
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Schedule
▷ Contract date: September 29, 2020 ▷ Planned share transfer date: October 1, 2020
Future outlook The company expects the acquisition to contribute to earnings growth in the medium- to long-term, although its impact on FY03/21 earnings performance will be marginal.
On September 23, 2020, the company announced 1H and full-year FY03/21 earnings forecasts.
1H FY03/21 earnings forecast
▷ Sales: JPY110.0bn (1H FY03/20 result: JPY103.0bn) ▷ Operating profit: JPY1.6bn (JPY1.6bn) ▷ Recurring profit: JPY1.5bn (JPY1.6bn) ▷ Net income*: JPY900mn (JPY763mn) *Net income attributable to owners of the parent.
FY03/21 earnings forecast
▷ Sales: JPY240.0bn (FY03/20 result: JPY233.3bn) ▷ Operating profit: JPY3.7bn (JPY2.6bn) ▷ Recurring profit: JPY3.5bn (JPY2.4bn) ▷ Net income: JPY2.1bn (JPY1.2bn) ▷ EPS: JPY95.94 (JPY55.93)
Reasoning behind the forecasts The company previously indicated that it was refraining from issuing FY03/21 earnings forecast due to limitations on making reasonable estimates given uncertainties in regard to market trends amid the COVID-19 pandemic. However, the company has now released its earnings forecast that assumes a gradual resumption in economic activity based on currently available information.
For 1H FY03/21, the company forecasts a YoY increase in sales on the back of favorable performance in the Videogames segment, especially for Nintendo Switch products thanks to stay-at-home demand amid the pandemic, and the positive effects from the company’s full-fledged entry into model toy wholesaling business following its November 2019 purchase of shares in Irisawa Corp. (made it a subsidiary). On the other hand, the company expects operating profit and recurring profit to decline YoY amid a slump in the relatively high profit margin Amusement segment due to a decline in inbound demand and consumers refraining from going out. The company forecasts a YoY increase in net income attributable to owners of the parent in reaction to extraordinary losses booked in 1H FY03/20 in line with expenses incurred in celebration of the 50th anniversary of the company’s founding.
In its full-year earnings forecast, the company assumes trends in place through 1H will continue throughout the year, with the Amusement segment staging a gradual recovery. The company intends to maintain an appropriate level of inventory, reduce inventory disposals, and build a low-cost structure through operational improvements. Based on these initiatives, the company expects full-year FY03/21 sales and profits to grow YoY.
The three-year medium-term business plan launched in FY03/19 targets FY03/21 sales of JPY230.0bn and recurring profit of JPY5.6bn. However, the company thinks it will be difficult to achieve those targets given changes in the business environment, including as a result of the spread of COVID-19, and delays in the implementation of management strategies. While making no
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changes in principle to its basic policies and strategies, the company is focused on responding flexibly to changes in the operating environment.
Major shareholders (as of end-March 2021)
Shares held Shareholding Top shareholders ('000) ratio Namco Bandai Holdings Inc. 5,883 26.7% The Master Trust Bank of Japan, Ltd. (Trust account) 886 4.0% SMBC Trust Bank Ltd. (Sumitomo Mitsui Banking Corporation Retirement 676 3.1% benefit trust account) Yasuhiko Idaira 483 2.2% SMBC Nikko Securities Inc. 303 1.4% Hiroshi Kawai 300 1.4% Custody Bank of Japan, Ltd. (Trust account) 296 1.3% The Bank of New York Mellon 140040 284 1.3% Happinet Empolyees Shareholding Association 265 1.2% The Bank of New York Mellon 140044 260 1.2% SUM 9,636 43.8% Source: Shared Research based on company data Note: Excluding 2,026,000 shares of treasury stock
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Profile
Company Head office Komagata CA Bldg., Happinet Corp 2-4-5, Komagata, Taito-ku, Tokyo, Japan 111-0043 Phone Exchange listing +81-3-3847-0521 Tokyo Stock Exchange 1st Section Established Listed on June 7, 1969 August 29, 1997 Website Fiscal year-end https://www.happinet.co.jp/english/ March IR web https://www.happinet.co.jp/english/ir/index.html
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Advance Create Co., Ltd. Doshisha Corporation KFC Holdings Japan, Ltd. Raysum Co., Ltd. ADJUVANT COSME JAPAN CO., LTD. Dream Incubator Inc. KI-Star Real Estate Co., Ltd. RESORTTRUST, INC. Aeon Delight Co., Ltd. Earth Corporation KLab Inc. ROUND ONE Corporation Aeon Fantasy Co., Ltd. Edion Corporation Kondotec Inc. RYOHIN KEIKAKU CO., LTD. Ai Holdings Corporation Elecom Co., Ltd. Kumiai Chemical Industry Co., Ltd. SanBio Company Limited AI inside Inc. en Japan Inc. Lasertec Corporation SANIX INCORPORATED AirTrip Corp. Estore Corporation. Locondo, Inc. Sanrio Company, Ltd. ALINCO INCORPORATED euglena Co., Ltd. LUCKLAND CO., LTD. SATO HOLDINGS CORPORATION and factory, inc. FaithNetwork Co., Ltd. Marumae Co., Ltd. SBS Holdings, Inc. ANEST IWATA Corporation Ferrotec Holdings Corporation MATSUI SECURITIES CO., LTD. Seikagaku Corporation AnGes Inc. FIELDS CORPORATION Media Do Co., Ltd. Seria Co.,Ltd. Anicom Holdings, Inc. Financial Products Group Co., Ltd. Medical System Network Co., Ltd. Serverworks Co.,Ltd. Anritsu Corporation First Brothers Col, Ltd. MEDINET Co., Ltd. SHIFT Inc. Apaman Co., Ltd. FreeBit Co., Ltd. MedPeer,Inc. Shikigaku Co., Ltd ARATA CORPORATION Gamecard-Joyco Holdings, Inc. Mercuria Holdings Co., Ltd. SHIP HEALTHCARE HOLDINGS, INC. Artspark Holdings Inc. GameWith, Inc. Metaps Inc. SIGMAXYZ Inc. AS ONE CORPORATION GCA Corporation Micronics Japan Co., Ltd. SMS Co., Ltd. Ateam Inc. Good Com Asset Co., Ltd. MIRAIT Holdings Corporation Snow Peak, Inc. Aucfan Co., Ltd. Grandy House Corporation Monex Goup Inc. Solasia Pharma K.K. AVANT CORPORATION GiG Works Inc. MORINAGA MILK INDUSTRY CO., LTD. SOURCENEXT Corporation Axell Corporation Hakuto Co., Ltd. Mortgage Service Japan Limited. Space Value Holdings CO., LTD Azbil Corporation Hamee Corp. MRT Inc. Star Mica Holdings Co., Ltd. AZoom, Co., Ltd. Happinet Corporation NAGASE & CO., LTD Strike Co., Ltd. Base Co., Ltd Harmonic Drive Systems Inc. NAIGAI TRANS LINE LTD. Sunnexta Group Inc. BEENOS Inc. HENNGE K.K. NanoCarrier Co., Ltd. SymBio Pharmaceuticals Limited Bell-Park Co., Ltd. Hosokawa Micron Corporation NEC Networks & System Integration Corporation Synchro Food Co., Ltd. Benefit One Inc. Hope, Inc. Net Marketing Co., Ltd. TAIYO HOLDINGS CO., LTD. B-lot Co.,Ltd. HOUSEDO Co., Ltd. Net One Systems Co.,Ltd. Takashimaya Company, Limited Broadleaf Co., Ltd. H2O Retailing Corporation Nichi-Iko Pharmaceutical Co., Ltd. Take and Give Needs Co., Ltd. CanBas Co., Ltd. IDOM Inc. NIHON CHOUZAI Co.,Ltd. TEAR Corporation Canon Marketing Japan Inc. IGNIS LTD. Nihon Denkei Co., Ltd. Tenpo Innovation Inc. Career Design Center Co., Ltd. i-mobile Co.,Ltd. Nippon Commercial Development Co., Ltd. 3-D Matrix, Ltd. Carna Biosciences, Inc. Inabata & Co., Ltd. Nippon Koei Co., Ltd. The Hokkoku Bank,Ltd. CARTA HOLDINGS, INC Infocom Corporation NIPPON PARKING DEVELOPMENT Co., Ltd. TKC Corporation CERES INC. Infomart Corporation NIPRO CORPORATION TKP Corporation Chiyoda Co., Ltd. Intelligent Wave, Inc. Nisshinbo Holdings Inc. Tsuzuki Denki Co., Ltd. Chori Co., Ltd. ipet Holdings CO., Ltd. Nisso Corporation TOCALO Co., Ltd. Chugoku Marine Paints, Ltd. Itochu Enex Co., Ltd. NS TOOL CO., LTD. TOKAI Holdings Corporation cocokara fine Inc. ItoKuro Inc. OLBA HEALTHCARE HOLDINGS,Inc. Tokyu Construction Co., Ltd. COMSYS Holdings Corporation JAFCO Co.,Ltd. OHIZUMI MFG. CO., LTD. TOYOBO CO., LTD. COTA CO.,LTD. JMDC Inc. Oisix ra daichi Inc. Toyo Ink SC Holdings Co., Ltd CRE, Inc. JSB Co., Ltd. Oki Electric Industry Co., Ltd Toyo Tanso Co., Ltd. CREEK & RIVER Co., Ltd. JTEC Corporation ONO SOKKI Co., Ltd. Tri-Stage Inc. Daiichi Kigenso Kagaku Kogyo Co., Ltd. J Trust Co., Ltd ONWARD HOLDINGS CO.,LTD. TSURUHA Holdings Daiki Axis Co.,Ltd. Japan Best Rescue System Co., Ltd. Pan Pacific International Holdings Corporation VISION INC. Daiseki Co., Ltd. JINS HOLDINGS Inc. PARIS MIKI HOLDINGS Inc. VISIONARY HOLDINGS CO., LTD. Daiwabo Holdings Co.,Ltd. JP-HOLDINGS, INC. PCA CORPORATION V-cube,Inc. Demae-Can CO., LTD KAMEDA SEIKA CO., LTD. PIGEON CORPORATION World Holdings Co., Ltd. DIC Corporation Kanamic Network Co.,LTD P3, inc. WOW WORLD Inc. Digital Arts Inc. KANEMATSU CORPORATION QB Net Holdings Co., Ltd. YELLOW HAT LTD. Digital Garage Inc. kaonavi, inc. RACCOON HOLDINGS, Inc. YOSHINOYA HOLDINGS CO., LTD. ZAPPALLAS, INC. Attention: If you would like to see companies you invest in on this list, ask them to become our client, or sponsor a report yourself.
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