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Happinet

Happinet 7552

ハピネット
Happinet Corporation
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Komagata CA Bldg.,2-4-5, Komagata, Taito-ku,Tokyo, Japan 111-0043
https://www.happinet.co.jp/
03-3847-0521
Summary
Leading intermediary distributor for toys, DVDs, CDs and video games, with a 60% market share in capsule toys and card games. Manages inventories and handles orders/shipments.
Distributors
Key dates
2014-03-06
Coverage initiation
Full Report
2022-05-12
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Key financial data

Income statementFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Sales176,757206,867217,232187,274174,059197,607240,398233,347259,313282,441280,000
YoY-10.7%17.0%5.0%-13.8%-7.1%13.5%21.7%-2.9%11.1%8.9%-0.9%
Gross profit22,50124,03926,15221,99721,97122,88025,19323,54026,07429,364
YoY-10.0%6.8%8.8%-15.9%-0.1%4.1%10.1%-6.6%10.8%12.6%
Gross profit margin12.7%11.6%12.0%11.7%12.6%11.6%10.5%10.1%10.1%10.4%
Operating profit2,9733,8885,0563,4503,6984,8064,5402,5724,2495,5755,300
YoY-38.8%30.8%30.0%-31.8%7.2%30.0%-5.5%-43.3%65.2%31.2%-4.9%
Operating profit margin1.7%1.9%2.3%1.8%2.1%2.4%1.9%1.1%1.6%2.0%1.9%
Recurring profit3,0813,9175,1243,4973,4794,7014,3832,4134,3215,8535,500
YoY-38.8%27.1%30.8%-31.8%-0.5%35.1%-6.8%-44.9%79.1%35.4%-6.0%
Recurring profit margin1.7%1.9%2.4%1.9%2.0%2.4%1.8%1.0%1.7%2.1%2.0%
Net income attributable to owners of the parent2,0112,4664,0492,3592,0404,0312,7351,2242,5913,5543,300
YoY-18.2%22.6%64.2%-41.7%-13.5%97.6%-32.2%-55.2%111.7%37.2%-7.2%
Net margin1.1%1.2%1.9%1.3%1.2%2.0%1.1%0.5%1.0%1.3%1.2%
Per-share data (JPY)
No. of outstanding shares('000 shares) 24,05024,05024,05024,05024,05024,05024,05024,05024,05024,050
EPS (JPY)89.8109.4178.9104.192.3185.3125.455.9118.2161.7150.1
EPS (fully diluted; JPY)89.6108.1176.2102.290.4181.1122.554.6115.1157.3
Dividend per share (JPY)22.5024.7528.5030.0035.0040.0050.0050.0050.0065.0050.00
Book value per share (JPY)1,036.21,128.31,293.01,364.81,464.81,659.31,712.11,713.81,835.21,943.8
Balance sheet (JPYmn)
Cash and cash equivalents10,1559,99615,86711,41211,60511,45817,44714,41021,77223,358
Total current assets47,93047,02552,44944,90548,97560,48459,07255,08666,00367,607
Tangible fixed assets1,1101,3426887537777588108131,0911,165
Investments and other assets2,9765,0655,90010,04710,57911,61412,43812,26613,49114,393
Total fixed assets5,0726,8547,44311,88712,36114,83815,85015,66816,95417,717
Total assets53,00353,87959,89356,79361,33775,32374,92370,75482,95785,325
Notes and accounts payable22,67220,09920,11818,28221,55027,78525,58922,18829,09727,413
Short-term debt----------
Total current liabilities26,88325,03626,95721,81725,18834,35432,57527,99637,32337,051
Long-term debt----------
Total fixed liabilities2,8293,1483,3553,6213,8374,2694,3644,5784,6604,779
Total liabilities29,71328,18530,31225,43829,02638,62436,93932,57541,98441,831
Total net assets23,28925,69429,58031,35532,31136,69837,98338,17840,97343,494
Total interest-bearing debt----------
Cash flow statement(JPYmn)
Cash flows from operating activities-1,5052,5476,6589783,0554,4537,940-1,05610,2623,711
Cash flows from investing activities-108-87-158-4,752-1,107-3,837-948-1,047-1,533-1,236
Cash flows from financing activities-588-2,618-628-677-1,754-762-1,001-1,111-1,217-1,104
Financial ratios
ROA (RP-based)5.7%7.3%9.0%6.0%5.9%6.9%5.8%3.3%5.6%7.0%
ROE8.9%10.1%14.8%7.8%6.5%11.0%7.0%3.1%6.4%8.6%
Equity ratio43.9%47.7%49.4%55.2%52.7%48.7%50.7%54.0%49.4%51.0%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
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.

Recent updates

Ninth medium-term business plan

2022-05-12

On May 11, 2022, Happinet Corporation announced its ninth medium-term business plan.

In its ninth medium-term business plan, the company aims at growth revolving around the creation of services and content (entertainment businesses) and delivery (platform businesses). It plans to leverage its strengths as an intermediary distributor and strengthen its creative capabilities to generate synergies between the two to enhance business value.

Three core strategies

  1. Upstream/downstream initiatives in all businesses: The company aims to create services focusing on experiential value from the consumer’s perspective and use enhanced creative capabilities to develop content.
  2. Investment in new business to become the fifth pillar and overseas expansion: The company aims to invest in a new business and build business creation infrastructure that will generate ideas on a sustainable basis. The company also plans to expand overseas after looking into growth potential.
  3. Initiatives to build sustainable management structure: The company plans to build a new management structure and business/HR portfolio management system geared toward sustainability.

FY03/23 initiatives

In the first year of the medium-term plan, the company plans creating values across all business areas. It aims to enhance its added value as an intermediary distributor by rebuilding its marketing model. It plans to delegate authority to each business company, clarify responsibilities, and develop its managers.

Revision of full-year earnings forecast and annual dividend forecast

2022-04-25

Happinet Corporation announced a revision to its full-year earnings forecast and dividend forecast for FY03/22.

Revised full-year FY03/22 earnings forecast
  • Sales: JPY282.0bn (previous forecast: JPY280.0bn)
  • Operating profit: JPY5.5bn (JPY5.0bn)
  • Recurring profit: JPY5.8bn (JPY5.3bn)
  • Net income attributable to owners of the parent: JPY3.5bn (JPY3.2bn)
  • EPS: JPY159.7 (JPY146.0)
Reasons for revisions

Sales of trading cards in the Toy business and capsule toys in the Amusement business continued to be strong. In the Videogames business, both sales and profits are expected to exceed the previous forecast due to hit products such as Pokémon LEGENDS: Arceus.

Reason for revision of FY03/22 dividend

Based on the upward revision of the full-year earnings forecast, the year-end dividend per share is revised to JPY40/share (previous forecast: JPY35/share), bringing the annual dividend to JPY65/share (previous forecast: JPY60/share).

Revisions to earnings and dividend forecasts

2022-03-10

On February 9, 2022, Happinet Corp. announced revisions to its full-year FY03/22 earnings forecast. 

Revised full-year FY03/22 earnings forecast
  • Sales: JPY280.0bn (previous forecast: JPY266.0bn)
  • Operating profit: JPY5.0bn (JPY4.5bn)
  • Recurring profit: JPY5.3bn (JPY4.5bn)
  • Net income attributable to owners of the parent: JPY3.2bn (JPY2.7bn)
  • EPS: JPY146.0 (JPY123.2)
Reasons for revisions

In the Toys business, products for sale in convenience stores performed strong, and the business benefited from hit products including the Pokemon trading card games. In the Amusement business, performance recovered from the impact of the COVID-19 pandemic a year ago, and sales of capsule toys grew more than expected. As a result, sales and profits are expected to exceed the previous forecast. 

On the same day, the company announced a revision to its dividend forecast for FY03/22.

  • Dividend forecast per share: JPY60 (previous forecast: JPY50)

Reason for revision

Based on its basic policy of providing returns to shareholders with a target consolidated payout ratio of 40% while maintaining a stable annual dividend of JPY50 per share, the company decided to increase its annual dividend forecast for FY03/22.

Trends and outlook

Quarterly trends and results

Earnings (cumulative)FY03/21FY03/22FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Sales50,499111,340200,927259,31359,282125,189220,488282,441100.2%282,000
YoY9.2%8.1%10.6%11.1%17.4%12.4%9.7%8.9%8.7%
Gross profit5,24111,88820,60826,0746,64813,51822,89729,364
YoY-4.7%1.2%9.4%10.8%26.9%13.7%11.1%12.6%
Gross profit margin10.4%10.7%10.3%10.1%11.2%10.8%10.4%10.4%
SG&A expenses4,7909,94016,31721,8255,46710,91717,60323,788
YoY-2.7%-2.0%3.2%4.1%14.1%9.8%7.9%9.0%
SG&A-to-sales ratio9.5%8.9%8.1%8.4%9.2%8.7%8.0%8.4%
Operating profit4501,9484,2904,2491,1812,6005,2935,575101.4%5,500
YoY-21.7%21.4%41.8%65.2%162.3%33.5%23.4%31.2%29.4%
Operating profit margin0.9%1.8%2.1%1.6%2.0%2.1%2.4%2.0%2.0%
Recurring profit4832,0234,3544,3211,3362,7635,5195,853100.9%5,800
YoY-15.7%28.8%46.4%79.1%176.4%36.6%26.7%35.4%34.2%
Recurring profit margin1.0%1.8%2.2%1.7%2.3%2.2%2.5%2.1%2.1%
Net income attributable to owners of the parent2851,2602,7512,5918411,7073,5323,554101.5%3,500
YoY107.9%65.0%60.8%111.7%194.5%35.5%28.4%37.2%35.1%
Net margin0.6%1.1%1.4%1.0%1.4%1.4%1.6%1.3%1.2%
Earnings (quarterly)FY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales50,49960,84189,58758,38659,28265,90795,29961,953
YoY9.2%7.2%14.0%12.8%17.4%8.3%6.4%6.1%
Gross profit5,2416,6478,7205,4666,6486,8709,3796,467
YoY-4.7%6.3%22.9%16.3%26.9%3.4%7.6%18.3%
Gross profit margin10.4%10.9%9.7%9.4%11.2%10.4%9.8%10.4%
SG&A expenses4,7905,1506,3775,5085,4675,4506,6866,185
YoY-2.7%-1.3%12.4%6.9%14.1%5.8%4.8%12.3%
SG&A-to-sales ratio9.5%8.5%7.1%9.4%9.2%8.3%7.0%10.0%
Operating profit4501,4982,342-411,1811,4192,693282
YoY-21.7%45.4%64.9%-162.3%-5.3%15.0%-
Operating profit margin0.9%2.5%2.6%-2.0%2.2%2.8%0.5%
Recurring profit4831,5402,331-331,3361,4272,756334
YoY-15.7%54.3%66.1%-176.4%-7.3%18.2%-
Recurring profit margin1.0%2.5%2.6%-2.3%2.2%2.9%0.5%
Net income attributable to owners of the parent2859751,491-1608418661,82522
YoY107.9%55.8%57.4%-194.5%-11.2%22.4%-
Net margin0.6%1.6%1.7%-1.4%1.3%1.9%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.

Seasonality: The Toys business typically accounts for 30% of annual sales and 60% 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.

Breakdown of SG&A expenses
CumulativeFY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
SG&A expenses4,7909,94016,31721,8255,46710,91717,60323,788
YoY-2.7%-2.0%3.2%4.1%14.1%9.8%7.9%9.0%
Distribution expenses9732,1473,8394,9021,1852,3653,9455,047
YoY-2.8%0.8%7.9%8.8%21.8%10.2%2.8%3.0%
Personnel expenses2,0794,2076,8219,3062,2314,4307,34110,195
YoY-1.1%0.0%5.3%7.2%7.3%5.3%7.6%9.6%
Depreciation149335545747178405641903
YoY19.3%20.4%26.0%26.8%19.3%20.9%17.7%20.8%
Goodwill amortization397210613952104156208
YoY16.9%8.5%5.6%4.2%33.1%43.6%47.4%49.4%
QuarterlyFY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
SG&A expenses4,7905,1506,3775,5085,4675,4506,6866,185
YoY-2.7%-1.3%12.4%6.9%14.1%5.8%4.8%12.3%
Distribution expenses9731,1741,6921,0631,1851,1801,5801,102
YoY-2.8%4.0%18.5%12.2%21.8%0.5%-6.6%3.7%
Personnel expenses2,0792,1282,6142,4852,2312,1992,9112,854
YoY-1.1%1.1%15.2%13.0%7.3%3.3%11.4%14.8%
Depreciation149186210202178227236262
YoY19.3%21.6%36.4%28.7%19.3%22.0%12.4%29.7%
Goodwill amortization3933343352525252
YoY16.9%0.0%3.0%0.0%33.1%57.6%52.9%57.6%
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.
Performance by segment
CumulativeFY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Sales50,499111,340200,927259,31359,282125,189220,488282,441
YoY9.2%8.1%10.6%11.1%17.4%12.4%9.7%8.9%
Toys17,49339,81872,64190,32722,93248,03583,749105,401
YoY6.9%8.2%13.4%14.3%31.1%20.6%15.3%16.7%
Visual and Music13,36830,61149,15367,52915,78634,20251,95166,965
YoY-25.0%-12.3%-8.5%-5.7%18.1%11.7%5.7%-0.8%
Videogames16,85633,40466,25782,95015,43631,63867,51785,998
YoY125.9%57.4%34.8%31.4%-8.4%-5.3%1.9%3.7%
Amusement2,7817,50512,87418,5065,12711,31317,26924,075
YoY-39.6%-25.5%-12.2%-5.3%84.4%50.7%34.1%30.1%
Segment profit4501,9484,2904,2491,1812,6005,2935,575
YoY-21.7%21.4%41.8%65.2%162.3%33.5%23.4%31.2%
Toys4561,1742,8182,6307531,5323,1963,324
YoY79.5%65.5%82.5%146.9%65.0%30.6%13.4%26.4%
Visual and Music198495603519249493597515
YoY-28.5%-11.3%3.8%-2.5%25.5%-0.4%-1.0%-0.7%
Videogames2365961,3261,4472564481,3761,603
YoY-243.2%78.5%72.3%8.2%-24.9%3.8%10.8%
Amusement-1372865279612337491,0741,593
YoY--63.8%-53.5%-34.8%-161.7%103.8%65.7%
Adjustments-304-604-985-1,310-311-623-952-1,462
QuarterlyFY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales50,49960,84189,58758,38659,28265,90795,29961,953
YoY9.2%7.2%14.0%12.8%17.4%8.3%6.4%6.1%
Toys17,49322,32532,82317,68622,93225,10335,71421,652
YoY6.9%9.3%20.4%17.8%31.1%12.4%8.8%22.4%
Visual and Music13,36817,24318,54218,37615,78618,41617,74915,014
YoY-25.0%0.9%-1.3%2.6%18.1%6.8%-4.3%-18.3%
Videogames16,85616,54832,85316,69315,43616,20235,87918,481
YoY125.9%20.2%17.6%19.5%-8.4%-2.1%9.2%10.7%
Amusement2,7814,7245,3695,6325,1276,1865,9566,806
YoY-39.6%-13.8%16.9%15.9%84.4%30.9%10.9%20.8%
Segment profit4501,4982,342-411,1811,4192,693282
YoY-21.7%45.4%64.9%-162.3%-5.3%15.0%-
Toys4567181,644-1887537791,664128
YoY79.5%57.8%96.9%-65.0%8.5%1.2%-
Visual and Music198297108-84249244104-82
YoY-28.5%5.7%390.9%-25.5%-17.8%-3.7%-
Videogames236360730121256192928227
YoY-132.3%28.1%24.7%8.2%-46.7%27.1%87.6%
Amusement-137423241434233516325519
YoY--8.0%-29.9%27.3%-22.0%34.9%19.6%
Adjustments-304-300-381-325-311-312-329-510
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
CumulativeFY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Sales17,49339,81872,64190,32722,93248,03583,749105,401
YoY6.9%8.2%13.4%14.3%31.1%20.6%15.3%16.7%
Bandai, Bandai Spirits8,80021,80041,60051,70011,40025,70044,30056,000
YoY-0.6%0.8%10.6%13.9%28.7%17.7%6.5%8.4%
% of total50.8%54.9%57.3%57.3%49.9%53.6%52.9%53.2%
TAKARA TOMY1,4003,0005,3006,3002,3004,4007,2008,500
YoY-7.5%-20.4%-11.6%-13.7%58.8%45.7%35.7%34.3%
% of total8.6%7.7%7.4%7.1%10.4%9.3%8.7%8.1%
Happinet original200400700900200300700900
YoY-37.0%-53.1%-50.9%-36.7%-21.2%-14.9%1.5%-6.6%
% of total1.5%1.2%1.0%1.0%0.9%0.8%0.9%0.9%
Other6,80014,40024,90031,2008,80017,40031,40039,800
YoY27.2%40.9%32.1%26.3%30.1%20.9%26.1%27.5%
% of total39.1%36.2%34.3%34.6%38.8%36.3%37.5%37.8%
Segment profit4561,1742,8182,6307531,5323,1963,324
YoY79.5%65.5%82.5%146.9%65.0%30.6%13.4%26.4%
Segment profit margin2.6%2.9%3.9%2.9%3.3%3.2%3.8%3.2%
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.
Visual and Music segment
CumulativeFY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Sales13,36830,61149,15367,52915,78634,20251,95166,965
YoY-25.0%-12.3%-8.5%-5.7%18.1%11.7%5.7%-0.8%
Visual10,00019,90029,50041,80010,60020,80032,30041,500
YoY0.3%-1.9%-9.0%-4.0%6.0%4.7%9.2%-0.7%
% of total75.0%65.0%60.2%61.9%67.3%60.9%62.2%62.1%
Wholesale8,70017,60025,70036,8009,50018,70029,00037,300
YoY-1.4%-2.5%-11.4%-6.1%9.2%6.0%12.8%1.6%
% of total65.7%57.7%52.3%54.5%60.7%54.8%55.8%55.9%
Manufacturers1,2002,2003,8005,0001,0002,0003,3004,100
YoY13.4%2.8%10.9%15.3%-16.1%-6.1%-14.4%-17.3%
% of total9.3%7.3%7.9%7.4%6.6%6.1%6.4%6.2%
Music3,30010,70019,50025,7005,10013,30019,60025,400
YoY-57.3%-26.8%-7.7%-8.4%54.4%24.9%0.4%-1.1%
% of total25.0%35.0%39.8%38.1%32.7%39.1%37.8%37.9%
Segment profit198495603519249493597515
YoY-28.5%-11.3%3.8%-2.5%25.5%-0.4%-1.0%-0.7%
Segment profit margin1.5%1.6%1.2%0.8%1.6%1.4%1.1%0.8%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Videogames segment
CumulativeFY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Sales16,85633,40466,25782,95015,43631,63867,51785,998
YoY125.9%57.4%34.8%31.4%-8.4%-5.3%1.9%3.7%
Nintendo products15,40030,90060,80075,40013,00026,40060,00075,500
YoY134.9%62.5%34.3%29.4%-15.5%-14.5%-1.3%0.1%
% of total91.3%92.6%91.8%91.0%84.3%83.6%89.0%87.9%
SIE products1,0001,8004,0005,8001,9003,8005,3007,500
YoY51.1%8.4%36.6%52.6%77.8%111.1%29.8%29.0%
% of total6.5%5.4%6.2%7.0%12.5%12.1%7.9%8.7%
Other3006001,3001,6004001,3002,1002,900
YoY96.3%27.3%55.3%65.6%34.6%103.4%61.9%77.2%
% of total2.2%2.0%2.0%2.0%3.2%4.3%3.1%3.4%
Segment profit2365961,3261,4472564481,3761,603
YoY-243.2%78.5%72.3%8.2%-24.9%3.8%10.8%
Segment profit margin1.4%1.8%2.0%1.7%1.7%1.4%2.0%1.9%
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
CumulativeFY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Sales2,7817,50512,87418,5065,12711,31317,26924,075
YoY-39.6%-25.5%-12.2%-5.3%84.4%50.7%34.1%30.1%
Capsule toys2,0005,1008,60012,3003,7008,10012,40017,000
YoY-23.9%-16.0%-4.6%3.4%83.9%58.4%44.1%38.1%
% of total73.0%68.5%67.0%66.8%72.8%72.0%72.0%70.9%
Card games4001,4002,3003,3007002,0003,1004,300
YoY-71.1%-51.3%-42.6%-39.0%65.1%44.3%34.9%28.7%
% of total15.3%18.9%18.0%18.1%13.7%18.1%18.1%17.9%
Other3009001,9002,7006001,1001,7002,600
YoY-29.3%-9.8%20.8%33.7%112.7%18.4%-11.5%-3.5%
% of total11.7%12.6%15.0%15.1%13.5%9.9%9.9%11.2%
Segment profit-1372865279612337491,0741,593
YoY--63.8%-53.5%-34.8%-161.7%103.8%65.7%
Segment profit margin-4.9%3.8%4.1%5.2%4.5%6.6%6.2%6.6%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Full-year FY03/22 results

  • Sales: JPY282.4bn (+8.9% YoY)
  • Operating profit: JPY5.6bn (+31.2% YoY)
  • Recurring profit: JPY5.9bn (+35.4% YoY)
  • Net income attributable to owners of the parent: JPY3.6bn (+37.2% YoY)

Sales and profit grew YoY, driven by the Toys and Amusement businesses. The Videogames had hit products.

The company began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) from Q1 FY03/22. In FY03/22, the application of the new standard resulted in decreases of JPY763mn in sales, JPY329mn in cost of sales, JPY424mn in SG&A expenses, and JPY9mn each in operating profit, recurring profit, and net income before taxes. 

Breakdown of results by segment was as follows.

Toys
  • Sales: JPY105.4bn (+16.7% YoY)
  • Segment profit: JPY3.3bn (+26.4% YoY)

Both sales and profit increased YoY. Sales of BANDAI SPIRIT's Ichiban Kuji and other kuji-related products for convenience stores were strong. The Pokémon and Duel Masters trading card games were hits.

Visual and Music
  • Sales: JPY67.0bn (-0.8% YoY)
  • Segment profit: JPY515mn (-0.7% YoY)

While sales of new video and music packages were strong, there was a drop-off in previously released works which were strong a year earlier due to stay-at-home demand. On the profit front, the company incurred losses on movie investments due to seating restrictions at theaters. Sales and profit both declined YoY.

Videogames
  • Sales: JPY86.0bn (+3.7% YoY)
  • Segment profit: JPY1.6bn (+10.8% YoY)

Both sales and profit rose YoY. On the hardware front, sales of Nintendo Switch, following the release of the organic EL model in November 2021, and PlayStation 5 remained strong. In software, there were hit products such as Pokémon LEGENDS: Arceus. 

Amusement
  • Sales: JPY24.1bn (+30.1% YoY)
  • Segment profit: JPY1.6bn (+65.7% YoY) 

Sales were up YoY due to favorable sales of capsule toys and a recovery in card game sales from the impact of the pandemic a year ago.

Profit was also up YoY. Although the company incurred initial costs related to the opening of new capsule toy stores, the increase in sales contributed to higher profits.

Company forecast for FY03/23

Est.(JPYmn) FY03/22FY03/23
1H Act.2H Act.FY Act.1H Est.2H Est.FY Est.
Sales125,189157,252282,441125,000155,000280,000
YoY12.4%6.3%8.9%-0.2%-1.4%-0.9%
Cost of sales111,671141,406253,077
Gross profit13,51815,84629,364
Gross profit margin10.8%10.1%10.4%
SG&A expenses10,91712,87123,788
SG&A-to-sales ratio8.7%8.2%8.4%
Operating profit2,6002,9755,5752,4002,9005,300
YoY33.5%29.3%31.2%-7.7%-2.5%-4.9%
Operating profit margin2.1%1.9%2.0%1.9%1.9%1.9%
Recurring profit2,7633,0905,8532,5003,0005,500
YoY36.6%34.5%35.4%-9.6%-2.9%-6.0%
Recurring profit margin2.2%2.0%2.1%2.0%1.9%2.0%
Net income attributable to owners of the parent1,7071,8473,5541,5001,8003,300
YoY35.5%38.8%37.2%-12.1%-2.5%-7.2%
Net margin1.4%1.2%1.3%1.2%1.2%1.2%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Forecasts by segment (published on November 11, 2021)
FY03/22FY03/23
(JPYmn)1H Act.2H Act.FY Act.FY Est.
Sales125,189157,252282,441280,000
YoY12.4%6.3%8.9%-0.9%
Toys48,03557,366105,401105,000
YoY20.6%13.5%16.7%-0.4%
Visual and Music34,20232,76366,96568,000
YoY11.7%-11.3%-0.8%1.5%
Videogames31,63854,36085,99880,000
YoY-5.3%9.7%3.7%-7.0%
Amusement11,31312,76224,07527,000
YoY50.7%16.0%30.1%12.1%
Segment profit2,6002,9755,5755,300
YoY33.5%29.3%31.2%-4.9%
Toys1,5321,7923,3243,200
YoY30.6%23.1%26.4%-3.7%
Segment profit margin3.2%3.1%3.2%3.0%
Visual and Music49322515600
YoY-0.4%-8.3%-0.7%16.3%
Segment profit margin1.4%0.1%0.8%0.9%
Videogames4481,1551,6031,500
YoY-24.9%35.7%10.8%-6.5%
Segment profit margin1.4%2.1%1.9%1.9%
Amusement7498441,5931,400
YoY161.7%25.0%65.7%-12.1%
Segment profit margin6.6%6.6%6.6%5.2%
Adjustments-623-839-1,462-1,400
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

For FY03/23, the company forecasts sales of JPY280.0bn (-0.9% YoY), operating profit of JPY5.3bn (-4.9% YoY), recurring profit of JPY5.5bn (-6.0% YoY), and net income attributable to owners of the parent of JPY3.3bn (-7.2% YoY).

The company forecasts lower sales YoY due to declines in the Toys and Amusement businesses.

It also forecasts a decline in profit as it plans to relocate its logistics center in May 2022 to streamline distribution and reduce transport energy consumption, and expects to book associated relocation expenses.

Medium-term outlook

Happinet announced its ninth three-year medium-term business plan starting in FY03/23 along with the release of its FY03/22 results.

Ninth medium-term business plan

In its ninth medium-term business plan, the company aims at growth revolving around the creation of services and content (entertainment businesses) and delivery (platform businesses). It plans to leverage its strengths as an intermediary distributor and strengthen its creative capabilities to generate synergies between the two to enhance business value.

Three core strategies

  1. Upstream/downstream initiatives in all businesses: The company aims to create services focusing on experiential value from the consumer’s perspective and use enhanced creative capabilities to develop content.
  2. Investment in new business to become the fifth pillar and overseas expansion: The company aims to invest in a new business and build business creation infrastructure that will generate ideas on a sustainable basis. The company also plans to expand overseas after looking into growth potential.
  3. Initiatives to build sustainable management structure: The company plans to build a new management structure and business/HR portfolio management system geared toward sustainability.

FY03/23 initiatives

In the first year of the medium-term plan, the company plans creating values across all business areas. It aims to enhance its added value as an intermediary distributor by rebuilding its marketing model. It plans to delegate authority to each business company, clarify responsibilities, and develop its managers.

The following is an explanation of the previous medium-term business plan.

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 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)  FY06/15FY06/16 FY06/17
Sales58,52055,06153,327
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 FY09/18FY09/19
Sales   9831,613963
Operating profit  1930 17
Recurring profit  1018 8
Net income873
Net assets113121125
Gross assets1,3831,3441,256
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 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 33 stores as of December 2021, but is aiming to build a 100-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.

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 (7.2%).

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
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Sales198,021176,757206,867217,232187,274174,059197,607240,398233,347259,313
YoY3.7%-10.7%17.0%5.0%-13.8%-7.1%13.5%21.7%-2.9%11.1%
Toys77,31374,66076,82193,27076,87473,72571,40377,00479,06090,327
YoY11.9%-3.4%2.9%21.4%-17.6%-4.1%-3.2%7.8%2.7%14.3%
% of total39.0%42.2%37.1%42.9%41.0%42.4%36.1%32.0%33.8%34.8%
Visual and Music55,71944,81042,95543,37238,36734,89042,46681,76271,61867,529
YoY-3.5%-19.6%-4.1%1.0%-11.5%-9.1%21.7%92.5%-12.4%-5.7%
% of total28.1%25.4%20.8%20.0%20.5%20.0%21.5%34.0%30.7%26.0%
Videogames42,70436,83963,60956,44850,00944,79363,10761,64863,13682,950
YoY-8.1%-13.7%72.7%-11.3%-11.4%-10.4%40.9%-2.3%2.4%31.4%
% of total21.6%20.8%30.7%26.0%26.7%25.7%31.9%25.7%27.1%32.0%
Amusement22,28220,44723,48124,14022,02320,64920,63019,98319,53218,506
YoY26.8%-8.2%14.8%2.8%-8.8%-6.2%-0.1%-3.1%-2.3%-5.3%
% of total11.3%11.6%11.4%11.1%11.8%11.9%10.5%8.3%8.4%7.2%
Segment profit4,8552,9733,8885,0563,4503,6984,8064,5402,5724,249
YoY70.0%-38.8%30.8%30.0%-31.8%7.2%30.0%-5.5%-43.3%65.2%
Toys3,0092,0552,7104,2792,8483,0442,4672,0211,0652,630
YoY29.6%-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 Music4483093072024664188821,096533519
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%
Videogames93667879254-433841,1801,0388401,447
YoY-19.0%-27.6%-88.2%217.9%--207.0%-12.0%-19.1%72.3%
Segment profit margin2.2%1.8%0.1%0.4%-0.9%1.9%1.7%1.3%1.7%
Amusement1,8011,2652,0531,7961,6521,2811,6781,7241,475961
YoY34.4%-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.

Toys: main manufacturers
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Sales77,31374,66076,82193,27076,87473,72571,40377,00479,06090,327
YoY11.9%-3.4%2.9%21.4%-17.6%-4.1%-3.2%7.8%2.7%14.3%
Bandai, Bandai Spirits42,30038,80040,70055,40041,90037,60036,50047,70045,30051,700
YoY13.1%-8.3%5.0%35.8%-24.2%-10.4%-3.0%30.7%-4.9%13.9%
% of total54.7%52.0%53.1%59.4%54.6%51.0%51.1%62.0%57.4%57.3%
TAKARA TOMY6,3005,3004,2004,1004,9007,0007,3008,8007,4006,300
YoY-10.0%-15.9%-21.6%-1.6%20.4%41.6%4.0%20.2%-15.9%-13.7%
% of total8.1%7.1%5.5%4.5%6.5%9.6%10.3%11.5%9.4%7.1%
Happinet original2,2002,5002,0001,9001,5001,7001,6001,9001,500900
YoY57.1%13.6%-17.7%-8.1%-16.3%10.6%-6.8%17.6%-21.1%-36.7%
% of total2.8%3.3%2.7%2.0%2.1%2.4%2.3%2.5%1.9%1.0%
Other26,40027,90029,70031,80028,20027,20025,90018,50024,70031,200
YoY14.3%5.7%6.5%6.9%-11.1%-3.6%-5.0%-28.5%33.4%26.3%
% of total34.1%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.

Toy earnings
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Sales (JPYmn)77,31374,66076,82193,27076,87473,72571,40377,00479,06090,327
YoY11.9%-3.4%2.9%21.4%-17.6%-4.1%-3.2%7.8%2.7%14.3%
Segment profit (JPYmn)3,0092,0552,7104,2792,8483,0442,4672,0211,0652,630
YoY29.6%-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 (JPYmn)1,3001,3001,0001,6001,8007001,3001,8001,500900
% of sales1.7%1.7%1.3%1.7%2.3%0.9%1.8%2.3%1.9%1.0%
Inventory (JPYmn)2,3002,4002,4002,3002,2002,7002,9002,9002,7003,000
Inventory turnover33.630.731.038.733.629.625.126.327.931.3
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)
(JPYbn）FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Youkai Watch--1.455.230.89.3----
Mobile Suit Gundam15.616.518.422.925.826.426.232.535.741.0
Kamen Rider28.327.122.320.615.720.424.827.328.524.3
Super Sentai13.09.614.411.37.88.89.16.06.04.5
Anpanman9.610.010.38.19.410.610.911.59.48.3
Precure series10.710.69.86.56.67.58.110.18.36.6
Dragon Ball4.44.86.45.811.610.314.220.420.715.4
Aikatsu!-1.513.08.62.62.62.31.91.61.0
Ultraman1.82.03.22.62.73.14.34.44.34.9
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 transactions with manufacturers and 40% was through intermediaries. Of intermediate distribution, the company says its group had 30% market share.

Visual and Music earnings
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Sales55,71944,81042,95543,37238,36734,89042,46681,76271,61867,529
YoY-3.5%-19.6%-4.1%1.0%-11.5%-9.1%21.7%92.5%-12.4%-5.7%
Visual39,60031,50031,60033,00029,50026,70032,50045,00043,50041,800
YoY-1.7%-20.3%0.1%4.4%-10.4%-9.5%21.7%38.4%-3.3%-4.0%
% of total71.1%70.5%73.6%76.1%77.1%76.6%76.6%55.1%60.8%61.9%
Wholesale33,60025,90025,20026,00024,80022,20028,00040,60039,10036,800
YoY-2.3%-22.8%-2.7%3.3%-4.9%-10.2%26.1%44.9%-3.7%-6.1%
% of total60.3%58.0%58.8%60.2%64.7%63.8%66.1%49.8%54.7%54.5%
Manufacturers5,9005,6006,3006,9004,7004,4004,4004,3004,3005,000
YoY1.7%-5.1%13.3%8.7%-31.2%-5.8%-0.1%-2.7%0.3%15.3%
% of total10.6%12.5%14.8%15.9%12.4%12.8%10.5%5.3%6.1%7.4%
Music16,10013,20011,30010,3008,7008,1009,90036,70028,00025,700
YoY-7.5%-18.0%-14.3%-8.5%-15.3%-7.7%21.8%269.9%-23.6%-8.4%
% of total28.9%29.5%26.4%23.9%22.9%23.4%23.4%44.9%39.2%38.1%
Segment profit4483093072024664188821,096533519
YoY-168.3%-31.0%-0.6%-34.2%130.7%-10.3%111.0%24.3%-51.4%-2.5%
Net 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

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.

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.

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
FY03/11FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.(JPYmn)Act.Act.
Sales46,44742,70436,83963,60956,44850,00944,79363,10761,648Sales63,13682,950
YoY4.7%-8.1%-13.7%72.7%-11.3%-11.4%-10.4%40.9%-2.3%YoY2.4%31.4%
Nintendo (stationary)4,7003,2004,40010,7009,00012,3008,60036,80048,000Nintendo58,30075,400
YoY-26.6%-31.9%37.5%142.4%-15.3%36.6%-30.1%327.9%30.4%YoY10.5%29.4%
% of total10.1%7.5%11.9%16.9%16.2%24.9%19.2%58.3%77.9%% of total92.4%91.0%
Nintendo (portable)9,90010,40014,20040,30035,60026,70022,60014,0002,900Nintendo Switch-related57,300
YoY-3.9%5.1%36.7%182.8%-8.3%-27.5%-15.4%-38.1%-79.3%YoY-
% of total21.3%24.4%38.7%63.4%65.5%53.6%50.5%22.2%4.7%Other (3DS, other)100
Nintendo (other)-----1,2002,3002,9001,600YoY-
YoY------91.7%26.1%-44.0%Other700
% of total-----2.4%5.1%4.6%3.2%YoY-
PlayStation (stationary)6,0006,8005,3004,8003,1003,4005,7005,9006,400SIE3,8005,800
YoY-13.0%13.3%-22.1%-9.1%-34.8%11.3%67.6%3.5%8.5%YoY-50.3%52.6%
% of total12.9%15.9%14.4%7.6%5.6%7.0%12.7%9.3%10.4%% of total6.0%7.0%
PlayStation (portable)11,60012,2007,1004,7004,3004,4004,0002,200900PlayStation-related3,800
YoY45.0%5.2%-41.8%-33.1%-9.4%3.0%-9.1%-45.0%-59.1%YoY-
% of total25.0%28.6%19.3%7.5%7.7%8.9%8.9%3.5%1.5%Other9001,600
Segment profit1,15693667879254-433841,1801,038Segment profit8401,447
YoY11.7%-19.0%-27.6%-88.3%221.5%--207.0%-12.0%YoY-19.1%72.3%
Segment profit margin2.5%2.2%1.8%0.1%0.4%-0.9%1.9%1.7%Segment profit margin1.3%1.7%
Losses on inventory write-offs-10010080030050010090100Losses on inventory write-offs80100
% of sales-0.2%0.3%1.3%0.5%1.0%0.2%0.1%0.2%% of sales0.1%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.

Amusement sales breakdown
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Sales22,28220,44723,48124,14022,02320,64920,63019,98319,53218,506
YoY26.8%-8.2%14.8%2.8%-8.8%-6.2%-0.1%-3.1%-2.3%-5.3%
Capsule toys---10,10010,3009,40010,90011,50011,90012,300
YoY----2.0%-8.7%15.2%5.5%3.9%3.4%
% of total---42.1%47.1%45.8%52.9%57.6%61.2%66.8%
Card games---10,5009,3009,1008,0006,4005,4003,300
YoY-----11.4%-2.2%-11.7%-19.7%-15.5%-39.0%
% of total---43.6%42.3%44.4%39.2%32.5%28.1%18.1%
Other---3,4002,3002,0001,6001,9002,0002,700
YoY-----32.4%-13.0%-19.1%21.2%5.6%33.7%
% of total---14.3%10.6%9.8%7.9%9.9%10.7%15.1%
Segment profit (JPYmn)1,8011,2652,0531,7961,6521,2811,6781,7241,475961
YoY34.4%-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 26 stores as of September 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 September 2021, the company had about 220,000 machines in place nationwide.

Capsule-toy vending machines