Friday, November 27, 2020
 
Columnist
Martin Hennecke
 
DYNAM JAPAN
HKEx Stock Code : 06889 
 
Corporate Profile
The Group is the second largest pachinko hall operator in Japan based on the total value of pachinko balls and pachislot tokens rented in 2010 and the largest in terms of number of halls according to Yano Research.

Business Review - For the year ended March 31, 2013

Our Business

Games

Our pachinko halls provide a venue for customers to play two types of games: pachinko and pachislot. Pachinko is similar to a vertical pinball machine and is played by firing small metal pachinko balls in rapid succession into the playing field of the machine and into pockets which trigger the release of more pachinko balls. Playing costs generally range from 0.5 yen to 4 yen per ball.

Pachislot is similar to casino slot machines, and is played by spinning the reels on the machine, then stopping them so that the pictures on each reel match, which triggers the release of pachislot tokens. Playing costs generally range from 5 yen to 20 yen per token. Customers rent pachinko balls and pachislot tokens to play the games, and the balls or tokens won can be either exchanged for prizes or saved for subsequent visits.

Prizes

Consistent with standard industry practice, we offer both general prizes, which are generally the types of goods sold in convenience stores, such as snacks, drinks and cigarettes, as well as ˇ§G-prizesˇ¨, which are decorative cards with a small embedded piece of gold or silver or coin-shaped pendants of gold or silver. Players who opt to claim G-prizes in exchange for the pachinko balls and pachislot tokens collected may sell their G-prizes to an independent prize buyer for cash outside of pachinko hall.

Operation of Three Types of Halls

We have focused on promoting the entertainment, instead of gaming, aspect of pachinko. We operate three types of halls, which offer various mixes of pachinko and pachislot games with different playing costs:

ˇE Traditional halls feature a greater proportion of high playing cost games, and allow smoking inside the halls.

ˇE Yuttari Kan halls offer primarily low playing cost games with a wider variety of general prizes, and generally allow smoking.

ˇE Shinrai no Mori halls also feature primarily low playing cost games with a wider variety of general prizes, and include additional features such as a general prohibition on smoking with designated closed-off smoking areas, and the addition of a ˇ§relaxation spaceˇ¨ in which customers can socialise.

We opened 7 new Yuttari Kan halls in several prefectures in Japan. Also, we changed over the hall type of 2 traditional halls and 10 Shinrai no Mori halls to Yuttari Kan halls so that we respond to the changing needs of our customers in trading zones and improve operating profit in our halls. As a result, the number of Yuttari Kan halls increased from 135 halls to 154 halls for the year ended March 2013.

Focus on low playing cost machines

We are among the first pachinko hall operators to promote, through our Yuttari Kan and Shinrai no Mori brands, the entertainment, instead of gaming, aspect of pachinko. We began offering low playing cost pachinko in 2006, and as at 31 March 2013, entertainment-oriented pachinko halls made up over half of our pachinko hall network. In doing so, we have been able to expand to a more demographically diverse customer base to include women, and players from older age groups and regional towns and cities. This has led to an increase in our market share and has provided us with a competitive edge over other pachinko hall operators.

Proportion of low playing cost machines in our pachinko halls

Because of the stagnation of the Japanese economy and the corresponding decline in the number of and spending by traditional pachinko players, we believe it is critical to broaden our customer base in order to increase overall customer spending in our pachinko halls. As a result, we may occasionally adjust the mix of high playing cost and low playing cost machines among our halls, particularly when opening new halls, in order to maintain customer interest as well as to grow our customer base. We also intend to continue to increase the number of our pachinko halls, with a particular focus on increasing the relative proportions of our Yuttari Kan and Shinrai no Mori halls, as the low playing cost machines featured in these hall types help to attract a broader customer base. The percentage of low playing cost machines increased from approximately 55.6% as at 31 March 2012 to approximately 58.4% as at 31 March 2013.

Business Outlook - For the year ended March 31, 2013

We seek to maintain our position as an industry leader and further grow our business by implementing the following major strategies.

Continue to promote the entertainment aspect of pachinko

Our unique branding strategy has enabled us to attract a diverse customer base by emphasising the entertainment, rather than gaming, aspect of pachinko. With the introduction of our Yuttari Kan and Shinrai no Mori brands, we are reinventing the image of pachinko halls and distinguishing our branded pachinko halls as venues in which a broader range of customers, such as women, younger players, and other non-traditional pachinko customers, can play for entertainment and recreation rather than prizes. In line with this focus, we will also continue to concentrate our efforts on promoting our low playing cost games, as we believe that the pachinko industry is experiencing a transition towards low playing cost games.

As part of our initiative to shift the image of pachinko as a gaming activity to one of entertainment and leisure, we will focus on improving the overall quality of the customer experience in our pachinko halls. This includes introducing more Yuttari Kan and Shinrai no Mori halls featuring lower playing cost pachinko and pachislot machines, as we believe that many potential players are deterred by the high playing costs involved in pachinko and pachislot. Furthermore, in order to address the concerns of loud noise volumes and smoking inside pachinko halls, our Shinrai no Mori halls have controlled, lower noise volumes and are non-smoking, with separate designated smoking areas. We will also continue to focus on improving the quality of our customer service by providing ongoing personnel training. We believe that this is an important factor in customer loyalty and retention, which we believe will lead to increased market share and improved industry standing.

Expansion of operations by setting up new halls

We have a proven track record in successfully expanding our operations throughout Japan in a careful, cost-conscious and strategic manner and in line with our chainstore operational management strategy. We intend to exploit our competitive strengths to continue to expand our pachinko hall network and add to our leading market position.

We believe that many opportunities for pachinko hall expansion continue to exist in Japan, particularly in rural/suburban areas. On the other hand, we realize that opening new halls is always subject to certain market conditions which are beyond our control, and negotiation with the landowner for a long term land lease at an acceptable rental. Therefore, the Directors will ensure that we pursue such new hall opening opportunities when the prospects of new halls warrant us to do so, taking into consideration initial investment amounts etc..

In line with the above basic policy, we intend to establish the system for quickly opening not less than 40 halls annually to achieve the goal of ˇ§1,000 hall organization and 10% share in the number of halls in the fiscal year ending 31 March 2023ˇ¨.

Consolidate the pachinko industry by strategically acquiring potential competitors

In addition to growing organically, we plan to take advantage of the fragmented nature of the pachinko industry in Japan and leverage our listing status to acquire additional pachinko halls that complement our existing operations. In doing so, we will also take advantage of the pachinko industry trend of smaller and medium-sized hall operators gradually being pushed out of the market by larger operators. We are committed to becoming a driving force for this industry's consolidation from now on.

Establishment of Hong Kong-based affiliate and business development in Asia

In January 2013, the Group established Dynam Hong Kong Co., Limited as our Hong Kong-based affiliate. In Japan, acceleration of demographic aging is anticipated. As the entire Group, we will promote to collect information at Dynam Hong Kong Co., Limited for enhancement of new business development in Asia expecting synergy with our domestic pachinko hall operation in addition to our expansion of pachinko hall business in Japan through our promotion of low playing cost games bringing closer and casual entertainment to our customers.

Source: DYNAM JAPAN HLDGS (06889) Annual Results Announcement
Chairman Yoji SATO Issued Capital (shares) 743M
Par Value N/A Market Capitalisation (HKD) 11,143M
 
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