Thinking Points

  • Fisco released four company reports last week.
  • One of the companies is actually the one and only listed pachinko hall operator, listed in Hong Kong.
  • Additionally, you’ll find reports for one mobile game developer, one condo developer, and one biotech.

Fisco released 4 reports this week. There are no central themes or catchy phrases. In fact, the 4 companies are about as unrelated as they come: one pachinko hall operator, one game developer, one condo developer, and a biotech company.

And yes, this week’s post is delayed. I was in Tokyo with a client last week and managed to get stuck. A typhoon hit my hometown Okinawa and all flights were cancelled. But guess what? I went to Fisco headquarters last week and talked to a couple of the guys behind those precious English reports.

Assuming my next flight safely lands me in Okinawa, I will be meeting with the original (Japanese stock) gangster Steven Towns. If you haven’t heard about Steven, he was digging into Japanese stocks before it was cool. He even wrote a book about it: Investing In Japan. What a small world, he now lives in the same city as my parents.

Anyway, time to get on with the Fisco reports.


Dynam Japan Holdings (HKSE: 06889)

You read that right, Dynam Japan Holdings trades on the Hong Kong Stock Exchange. It is Japan’s largest pachinko hall operator. We’ve actually mentioned the company on Kenkyo before. There isn’t a single pachinko hall operator traded publicly in Japan. Because Dynam went public, a lot of industry data became readily available.

If you’re not familiar with pachinko, it’s a form of gambling. The simplest way to explain it is that you have a vertical pinball machine.

First, you pay to rent some balls – this usually costs 4 yen (about $0.04) per ball, or 1 yen (a penny in USD) if you’re on one of the newer low cost machines. Now twist the knob on the right and launch your ball! If your ball falls into the right hole, you get lots of flashy lights and noise. Then, the slot in the center of the machine fires up. If you hit the jackpot there, a flood of balls are given to you as a reward along with more lights and noise. You can then exchange these balls for prizes, which are often exchanged for money at a nearby store outside of the pachinko hall (but don’t tell anybody that because it’s supposed to be a secret).

My client and I visited a company involved in the pachinko industry last week. We also went to a pachinko hall, but not a Dynam operated one. The industry is in a tough place, with the Japanese government restricting jackpot rates and the number of balls that can be rented out. To give you an idea, there were a little over 12,000 halls in 2012. Now that figure is below 10,000. That said, Dynam has the benefit of being the largest hall operator.

Click here for Fisco’s full-report on Dynam Japan Holdings


KLab (TSE: 3656)

KLab started out as the R&D division for CYBIRD Co in 2000, working on developing programs for mobile phones. It was the first to release a Java application that ran on a mobile phone. Since then, the company has focused on developing social games for mobile phones. Its big hit came in 2009, when it released Koi-shite Kyaba-jyo, a game where the objective is to become the most popular hostess at a “Kyabakura” or a Japanese hostess/gentlemen’s bar.

More recently, the company has released popular games using already popular anime intellectual property (IP) like Captain Tsubasa and Bleach.

Source: Fisco Report

Among the titles in the image above, Bleach (top right) is probably the best known IP. Anybody who has spent their childhood in Japan would know Captain Tsubasa (bottom left) as well.

To be frank, KLab looks like a pretty typical mobile game developer, although I haven’t taken a close look. Revenues and cash flows are all across the board. Periods of losses are mixed in as well. And KLab isn’t the only one to license popular anime IP and develop its own at the same time. It’s difficult to see the differentiating factor at first site, but maybe digging deeper prove useful.

In any case, domain expertise and a tolerance for trend following is required to figure this one out. If you’re the type that enjoys games in general, you’ll probably enjoy learning about KLab as well.

Click here for Fisco’s full report on KLab.


Pressance Corporation (TSE: 3254)

Pressance Corporation is the largest condo developer (by supplied units) in Japan’s Kinki region – home to the second largest Japanese metro, which includes Osaka. Nationwide, it is the second largest condo developer, only behind Sumitomo Realty & Development (TSE: 8830).

Long-time readers would know that real estate developers are a little out of my wheelhouse. That said, I was surprised I wasn’t familiar with Pressance’s name. It was about equally as surprising that Pressance competes in the condo market with some of Japan’s household names like Sumitomo Realty & Development, Mitsui Fudosan (TSE: 8801), Nomura Real Estate Holdings (TSE: 3231), and Mitsubishi Estate (TSE: 8802).

In any case, one of the more interesting things that Fisco’s report points out is that Pressance delivered solid business performance during the financial meltdown. The company maintained a comparatively healthier balance sheet during this time. More recently, however, equity-asset ratios have come down to about the same level as the “big boys”.

Click here for Fisco’s full report on Pressance Corporation


RaQualia Pharma (TSE: 4579)

I’ll start this one off with Fisco’s introduction of the company:

RaQualia Pharma Inc. <4579> (hereafter, also “the Company”) is a drug discovery and development-type biotech venture company that was established when the central research laboratory of Pfizer’s Japanese subsidiary became independent of Pfizer. Its business model is to generate earnings by creating the development compounds that become the seeds for new drugs and licensing-out the resulting technologies and patents to pharmaceutical companies. The Company specializes in the gastrointestinal and pain therapeutic areas and its strengths include its superiority in ion channel drug discovery that has a high barrier to entry.

Personally, I don’t mess with biotech/pharma at all, so I’ll just cut this introduction short.

Click here for Fisco’s full report on RaQualia Pharma


Wrap Up

Of the four companies introduced in this roundup, I find Dynam Japan Holdings most interesting. This is largely because pachinko is a uniquely Japanese form of gambling and there isn’t a ton of information out in the open. Aside from that, I don’t have much to say about this week’s roundup.


Author: Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.