Happinet 7552

ハピネット

Recent Updates

2021-11-12

1H FY03/22 flash update

2021-09-27

Announcement of revision to 1H earnings forecast

2021-09-27

Announcement of revision to 1H earnings forecast

Get in touch

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

2021-11-12

1H FY03/22 flash update

2021-11-12

Announcement of revision to 1H earnings forecast

2021-09-27

Q1 FY03/22 flash update

2021-08-10

Download

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%
	Gross profit margin	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%
	Operating profit margin	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%
	Recurring profit margin	2.5%	1.7%	1.9%	2.4%	1.9%	2.0%	2.4%	1.8%	1.0%	1.7%	1.7%
Net income 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 (JPY)		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; JPY)		109.6	89.6	108.1	176.2	102.2	90.4	181.1	122.5	54.6	115.1
Dividend per share (JPY)		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 (JPY)		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.

Recent updates

Announcement of revision to 1H earnings forecast

2021-09-27

Happinet has announced a revision of its 1H forecast.

Revision of 1H forecast for FY03/22

Sales: JPY125bn (previous forecast: JPY122bn)
Operating profit: JPY2.3bn (previous forecast: JPY2.0bn)
Recurring profit: JPY2.5bn (previous forecast: JPY2.0bn)
Net income attributable to owners of the parent: JPY1.6bn (previous forecast: JPY1.2bn)

Reason for revision

For the first half of the current year, both sales and profits are expected to exceed the previous forecast due to the performance of the hit Pokémon Card Game in the Toys segment and strong sales of capsule toys in the Amusement segment. The company has left its full-year forecast unchanged due to uncertainty over business conditions for Christmas and New Year as of September 2021.

Trends and outlook

Quarterly trends and results

Earnings (cumulative)		FY03/21				FY03/22				FY03/22		FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	1H Est.	% of Est.	FY Est.
Sales		50,499	111,340	200,927	259,313	59,282	125,189			100.2%	125,000	47.1%	266,000
	YoY	9.2%	8.1%	10.6%	11.1%	17.4%	12.4%				12.3%		2.6%
Gross profit		5,241	11,888	20,608	26,074	6,648	13,518
	YoY	-4.7%	1.2%	9.4%	10.8%	26.9%	13.7%
	Gross profit margin	10.4%	10.7%	10.3%	10.1%	11.2%	10.8%
SG&A expenses		4,790	9,940	16,317	21,825	5,467	10,917
	YoY	-2.7%	-2.0%	3.2%	4.1%	14.1%	9.8%
	SG&A-to-sales ratio	9.5%	8.9%	8.1%	8.4%	9.2%	8.7%
Operating profit		450	1,948	4,290	4,249	1,181	2,600			113.0%	2,300	57.8%	4,500
	YoY	-21.7%	21.4%	41.8%	65.2%	162.3%	33.5%				2.6%		5.9%
	Operating profit margin	0.9%	1.8%	2.1%	1.6%	2.0%	2.1%				1.8%		1.7%
Recurring profit		483	2,023	4,354	4,321	1,336	2,763			110.5%	2,500	61.4%	4,500
	YoY	-15.7%	28.8%	46.4%	79.1%	176.4%	36.6%				-1.2%		4.1%
	Recurring profit margin	1.0%	1.8%	2.2%	1.7%	2.3%	2.2%				2.0%		1.7%
Net income attributable to owners of parent		285	1,260	2,751	2,591	841	1,707			106.7%	1,600	63.2%	2,700
	YoY	107.9%	65.0%	60.8%	111.7%	194.5%	35.5%				27.0%		4.2%
	Net margin	0.6%	1.1%	1.4%	1.0%	1.4%	1.4%				1.3%		1.0%
Earnings (quarterly)		FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		50,499	60,841	89,587	58,386	59,282	65,907
	YoY	9.2%	7.2%	14.0%	12.8%	17.4%	8.3%
Gross profit		5,241	6,647	8,720	5,466	6,648	6,870
	YoY	-4.7%	6.3%	22.9%	16.3%	26.9%	3.4%
	Gross profit margin	10.4%	10.9%	9.7%	9.4%	11.2%	10.4%
SG&A expenses		4,790	5,150	6,377	5,508	5,467	5,450
	YoY	-2.7%	-1.3%	12.4%	6.9%	14.1%	5.8%
	SG&A-to-sales ratio	9.5%	8.5%	7.1%	9.4%	9.2%	8.3%
Operating profit		450	1,498	2,342	-41	1,181	1,419
	YoY	-21.7%	45.4%	64.9%	-	162.3%	-5.3%
	Operating profit margin	0.9%	2.5%	2.6%	-	2.0%	2.2%
Recurring profit		483	1,540	2,331	-33	1,336	1,427
	YoY	-15.7%	54.3%	66.1%	-	176.4%	-7.3%
	Recurring profit margin	1.0%	2.5%	2.6%	-	2.3%	2.2%
Net income attributable to owners of parent		285	975	1,491	-160	841	866
	YoY	107.9%	55.8%	57.4%	-	194.5%	-11.2%
	Net margin	0.6%	1.6%	1.7%	-	1.4%	1.3%

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.

Breakdown of SG&A expenses

Cumulative			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
SG&A expenses			4,790	9,940	16,317	21,825	5,467	10,917
	YoY		-2.7%	-2.0%	3.2%	4.1%	14.1%	9.8%
	Distribution		973	2,147	3,839	4,902	1,185	2,365
		YoY	-2.8%	0.8%	7.9%	8.8%	21.8%	10.2%
	Personnel		2,079	4,207	6,821	9,306	2,231	4,430
		YoY	-1.1%	0.0%	5.3%	7.2%	7.3%	5.3%
	Depreciation		149	335	545	747	178	405
		YoY	19.3%	20.4%	26.0%	26.8%	19.3%	20.9%
	Goodwill amortization		39	72	106	139	52	104
		YoY	16.9%	8.5%	5.6%	4.2%	33.1%	43.6%
Quarterly			FY03/21				FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
SG&A expenses			4,790	5,150	6,377	5,508	5,467	5,450
	YoY		-2.7%	-1.3%	12.4%	6.9%	14.1%	5.8%
	Distribution		973	1,174	1,692	1,063	1,185	1,180
		YoY	-2.8%	4.0%	18.5%	12.2%	21.8%	0.5%
	Personnel		2,079	2,128	2,614	2,485	2,231	2,199
		YoY	-1.1%	1.1%	15.2%	13.0%	7.3%	3.3%
	Depreciation		149	186	210	202	178	227
		YoY	19.3%	21.6%	36.4%	28.7%	19.3%	22.0%
	Goodwill amortization		39	33	34	33	52	52
		YoY	16.9%	0.0%	3.0%	0.0%	33.1%	57.6%

Performance by segment

Segment performance (Cumulative)			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales			50,499	111,340	200,927	259,313	59,282	125,189
	YoY		9.2%	8.1%	10.6%	11.1%	17.4%	12.4%
	Toys		17,493	39,818	72,641	90,327	22,932	48,035
		YoY	6.9%	8.2%	13.4%	14.3%	31.1%	20.6%
	Visual and Music		13,368	30,611	49,153	67,529	15,786	34,202
		YoY	-25.0%	-12.3%	-8.5%	-5.7%	18.1%	11.7%
	Videogames		16,856	33,404	66,257	82,950	15,436	31,638
		YoY	125.9%	57.4%	34.8%	31.4%	-8.4%	-5.3%
	Amusement		2,781	7,505	12,874	18,506	5,127	11,313
		YoY	-39.6%	-25.5%	-12.2%	-5.3%	84.4%	50.7%
Segment profit			450	1,948	4,290	4,249	1,181	2,600
	YoY		-21.7%	21.4%	41.8%	65.2%	162.3%	33.5%
	Toys		456	1,174	2,818	2,630	753	1,532
		YoY	79.5%	65.5%	82.5%	146.9%	65.0%	30.6%
	Visual and Music		198	495	603	519	249	493
		YoY	-28.5%	-11.3%	3.8%	-2.5%	25.5%	-0.4%
	Videogames		236	596	1,326	1,447	256	448
		YoY	-	243.2%	78.5%	72.3%	8.2%	-24.9%
	Amusement		-137	286	527	961	233	749
		YoY	-	-63.8%	-53.5%	-34.8%	-	161.7%
	Adjustments		-304	-604	-985	-1,310	-311	-623
Segment performance (quarterly)			FY03/21				FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales			50,499	60,841	89,587	58,386	59,282	65,907
	YoY		9.2%	7.2%	14.0%	12.8%	17.4%	8.3%
	Toys		17,493	22,325	32,823	17,686	22,932	25,103
		YoY	6.9%	9.3%	20.4%	17.8%	31.1%	12.4%
	Visual and Music		13,368	17,243	18,542	18,376	15,786	18,416
		YoY	-25.0%	0.9%	-1.3%	2.6%	18.1%	6.8%
	Videogames		16,856	16,548	32,853	16,693	15,436	16,202
		YoY	125.9%	20.2%	17.6%	19.5%	-8.4%	-2.1%
	Amusement		2,781	4,724	5,369	5,632	5,127	6,186
		YoY	-39.6%	-13.8%	16.9%	15.9%	84.4%	30.9%
Segment profit			450	1,498	2,342	-41	1,181	1,419
	YoY		-21.7%	45.4%	64.9%	-	162.3%	-5.3%
	Toys		456	718	1,644	-188	753	779
		YoY	79.5%	57.8%	96.9%	-	65.0%	8.5%
	Visual and Music		198	297	108	-84	249	244
		YoY	-28.5%	5.7%	390.9%	-	25.5%	-17.8%
	Videogames		236	360	730	121	256	192
		YoY	-	132.3%	28.1%	24.7%	8.2%	-46.7%
	Amusement		-137	423	241	434	233	516
		YoY	-	-8.0%	-29.9%	27.3%	-	22.0%
	Adjustments		-304	-300	-381	-325	-311	-312

Toys segment

Cumulative			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales			17,493	39,818	72,641	90,327	22,932	48,035
	YoY		6.9%	8.2%	13.4%	14.3%	31.1%	20.6%
	Bandai, Bandai Spirits		8,800	21,800	41,600	51,700	11,400	25,700
		YoY	-0.6%	0.8%	10.6%	13.9%	28.7%	17.7%
		% of total	50.8%	54.9%	57.3%	57.3%	49.9%	53.6%
	TAKARA TOMY		1,400	3,000	5,300	6,300	2,300	4,400
		YoY	-7.5%	-20.4%	-11.6%	-13.7%	58.8%	45.7%
		% of total	8.6%	7.7%	7.4%	7.1%	10.4%	9.3%
	Happinet original		200	400	700	900	200	300
		YoY	-37.0%	-53.1%	-50.9%	-36.7%	-21.2%	-14.9%
		% of total	1.5%	1.2%	1.0%	1.0%	0.9%	0.8%
	Other		6,800	14,400	24,900	31,200	8,800	17,400
		YoY	27.2%	40.9%	32.1%	26.3%	30.1%	20.9%
		% of total	39.1%	36.2%	34.3%	34.6%	38.8%	36.3%
Segment profit			456	1,174	2,818	2,630	753	1,532
	YoY		79.5%	65.5%	82.5%	146.9%	65.0%	30.6%
	Segment profit margin		2.6%	2.9%	3.9%	2.9%	3.3%	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

Cumulative				FY03/21				FY03/22
(JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales				13,368	30,611	49,153	67,529	15,786	34,202
	YoY			-25.0%	-12.3%	-8.5%	-5.7%	18.1%	11.7%
	Visual			10,000	19,900	29,500	41,800	10,600	20,800
		YoY		0.3%	-1.9%	-9.0%	-4.0%	6.0%	4.7%
		% of total		75.0%	65.0%	60.2%	61.9%	67.3%	60.9%
		Wholesale		8,700	17,600	25,700	36,800	9,500	18,700
			YoY	-1.4%	-2.5%	-11.4%	-6.1%	9.2%	6.0%
			% of total	65.7%	57.7%	52.3%	54.5%	60.7%	54.8%
		Manufacturers		1,200	2,200	3,800	5,000	1,000	2,000
			YoY	13.4%	2.8%	10.9%	15.3%	-16.1%	-6.1%
			% of total	9.3%	7.3%	7.9%	7.4%	6.6%	6.1%
	Music			3,300	10,700	19,500	25,700	5,100	13,300
		YoY		-57.3%	-26.8%	-7.7%	-8.4%	54.4%	24.9%
		% of total		25.0%	35.0%	39.8%	38.1%	32.7%	39.1%
Segment profit				198	495	603	519	249	493
	YoY			-28.5%	-11.3%	3.8%	-2.5%	25.5%	-0.4%
	Segment profit margin			1.5%	1.6%	1.2%	0.8%	1.6%	1.4%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Videogames segment

Cumulative			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales			16,856	33,404	66,257	82,950	15,436	31,638
	YoY		125.9%	57.4%	34.8%	31.4%	-8.4%	-5.3%
	Nintendo products		15,400	30,900	60,800	75,400	13,000	26,400
		YoY	134.9%	62.5%	34.3%	29.4%	-15.5%	-14.5%
		% of total	91.3%	92.6%	91.8%	91.0%	84.3%	83.6%
	SIE products		1,000	1,800	4,000	5,800	1,900	3,800
		YoY	51.1%	8.4%	36.6%	52.6%	77.8%	111.1%
		% of total	6.5%	5.4%	6.2%	7.0%	12.5%	12.1%
	Other		300	600	1,300	1,600	400	1,300
		YoY	96.3%	27.3%	55.3%	65.6%	34.6%	103.4%
		% of total	2.2%	2.0%	2.0%	2.0%	3.2%	4.3%
Segment profit			236	596	1,326	1,447	256	448
	YoY		-	243.2%	78.5%	72.3%	8.2%	-24.9%
	Segment profit margin		1.4%	1.8%	2.0%	1.7%	1.7%	1.4%

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			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales			2,781	7,505	12,874	18,506	5,127	11,313
	YoY		-39.6%	-25.5%	-12.2%	-5.3%	84.4%	50.7%
	Capsule toys		2,000	5,100	8,600	12,300	3,700	8,100
		YoY	-23.9%	-16.0%	-4.6%	3.4%	83.9%	58.4%
		% of total	73.0%	68.5%	67.0%	66.8%	72.8%	72.0%
	Card games		400	1,400	2,300	3,300	700	2,000
		YoY	-71.1%	-51.3%	-42.6%	-39.0%	65.1%	44.3%
		% of total	15.3%	18.9%	18.0%	18.1%	13.7%	18.1%
	Other		300	900	1,900	2,700	600	1,100
		YoY	-29.3%	-9.8%	20.8%	33.7%	112.7%	18.4%
		% of total	11.7%	12.6%	15.0%	15.1%	13.5%	9.9%
Segment profit			-137	286	527	961	233	749
	YoY		-	-63.8%	-53.5%	-34.8%	-	161.7%
	Segment profit margin		-4.9%	3.8%	4.1%	5.2%	4.5%	6.6%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

1H FY03/22 results

Sales: JPY125.2bn (+12.4% YoY)
Operating profit: JPY2.6bn (+33.5% YoY)
Recurring profit: JPY2.8bn (+36.6% YoY)
Net income attributable to owners of the parent: JPY1.7bn (+35.5% YoY)

Both sales and profits were significantly higher YoY due to hit products in the Toys segment and strong sales of capsule toys in the Amusement segment.

The company began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) in Q1 FY03/22. The application of the accounting standard on cumulative Q2 (1H) resulted in decreases of JPY323mn in sales, JPY146mn in cost of sales, and JPY176mn in SG&A expenses.

Breakdown of results by segment was as follows.

Toys

Sales: JPY48.0bn (+20.6% YoY)
Segment profit: JPY1.5bn (+30.6% YoY)

Both sales and profits were higher YoY. Sales of products for convenience stores grew, BANDAI SPIRITS' Ichiban Kuji-related products remained strong, and Pokémon card games and Duel Masters trading cards were successful.

Visual and Music

Sales: JPY34.2bn (+11.7% YoY)
Segment profit: JPY493mn (-0.4% YoY)

Sales increased YoY due to a recovery from the impact of the postponement of new releases and some hit products such as the Blu-ray of Season 2 of the anime Uma Musume Pretty Derby.

Profits remained essentially the same as Q2 FY03/21 due to the sluggish performance of the company's video productions under the emergency declaration, which resulted in a loss on the investment.

Videogames

Sales: JPY31.6bn (-5.3% YoY)
Segment profit: JPY448mn (+24.9% YoY)

Both sales and profits decreased YoY. Although demand for the PlayStation 5 console and other products remained strong, there were no hit products that drove the overall market compared to Q2 FY03/21, when both game hardware and software performed well due to stay-at-home consumption.

Amusement

Sales: JPY11.3bn (+50.7% YoY)
Segment profit: JPY749mn (+161.7%)

Sales were higher than in Q2 FY03/21. In addition to the recovery from the impact of commercial facility closures and shorter operating hours in Q2 FY03/21, capsule toy sales were solid.

Profits were 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 FY03/22

Company forecasts (JPYmn)		FY03/21			FY03/22
		1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Sales		111,340	147,973	259,313	125,189	140,811	266,000
	YoY	8.1%	13.5%	11.1%	12.4%	-4.8%	2.6%
Cost of sales		99,451	133,788	233,239	111,671
Gross profit		11,888	14,186	26,074	13,518
	Gross profit margin	10.7%	9.6%	10.1%	10.8%
SG&A expenses		9,940	11,885	21,825	10,917
	SG&A-to-sales ratio	8.9%	8.0%	8.4%	8.7%
Operating profit		1,948	2,301	4,249	2,600	1,900	4,500
	YoY	21.4%	137.9%	65.2%	33.5%	-17.4%	5.9%
	Operating profit margin	1.8%	1.6%	1.6%	2.1%	1.3%	1.7%
Recurring profit		2,023	2,298	4,321	2,763	1,737	4,500
	YoY	28.8%	172.9%	79.1%	36.6%	-24.4%	4.1%
	Recurring profit margin	1.8%	1.6%	1.7%	2.2%	1.2%	1.7%
Net income attributable to owners of the parent		1,260	1,331	2,591	1,707	993	2,700
	YoY	65.0%	188.7%	111.7%	35.5%	-25.3%	4.2%
	Net margin	1.1%	0.9%	1.0%	1.4%	0.7%	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

			FY03/21			FY03/22
(JPYmn)			1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Sales			111,340	147,973	259,313	125,189	140,811	266,000
	YoY		8.1%	13.5%	11.1%	12.4%	-4.8%	2.6%
	Toys		39,818	50,509	90,327	48,035	43,965	92,000
		YoY	8.2%	19.4%	14.3%	20.6%	-12.9%	1.9%
	Visual and Music		30,611	36,918	67,529	34,202	32,798	67,000
		YoY	-12.3%	0.6%	-5.7%	11.7%	-11.1%	-0.8%
	Videogames		33,404	49,546	82,950	31,638	51,362	83,000
		YoY	57.4%	18.2%	31.4%	-5.3%	3.6%	0.1%
	Amusement		7,505	11,001	18,506	11,313	12,687	24,000
		YoY	-25.5%	16.3%	-5.3%	50.7%	15.3%	29.7%
Segment profit			1,948	2,301	4,249	2,600	1,900	4,500
	YoY		21.4%	137.9%	65.2%	33.5%	-17.4%	5.9%
	Toys		1,174	1,456	2,630	1,532	1,268	2,800
		YoY	65.5%	308.9%	146.9%	30.6%	-12.9%	6.5%
		Segment profit margin	2.9%	2.9%	2.9%	3.2%	2.9%	3.0%
	Visual and Music		495	24	519	493	257	750
		YoY	-11.3%	-	-2.5%	-0.4%	970.8%	44.5%
		Segment profit margin	1.6%	0.1%	0.8%	1.4%	0.8%	1.1%
	Videogames		596	851	1,447	448	1,052	1,500
		YoY	243.2%	27.5%	72.3%	-24.9%	23.6%	3.7%
		Segment profit margin	1.8%	1.7%	1.7%	1.4%	2.0%	1.8%
	Amusement		286	675	961	749	201	950
		YoY	-63.8%	-1.4%	-34.8%	161.7%	-70.2%	-1.1%
		Segment profit margin	3.8%	6.1%	5.2%	6.6%	1.6%	4.0%
	Adjustments		-604	-706	-1,310	-623	-877	-1,500

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 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.

In September 2021, the company announced a revision to its 1H FY03/22 forecast. Compared to the previous forecast, it has upgraded its forecasts as follows: sales +JPY3.0bn, operating profit +JPY300mn, recurring profit +JPY500mn and net income +JPY400mn. For the first half of the current year, both sales and profits are expected to exceed the previous forecast due to the performance of the hit Pokémon Card Game in the Toys segment and strong sales of capsule toys in the Amusement segment. The company has left its full-year forecast unchanged due to uncertainty over business conditions for Christmas and New Year as of September 2021.

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 free 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.

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, released 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, released 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, released 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 October 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 19 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.

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.

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 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 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 19 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.

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

			FY03/12	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			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	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	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	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	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 margin	3.9%	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 margin	0.8%	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 margin	8.1%	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

			FY03/12	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 total	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 total	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 total	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 total	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.

Toy earnings

		FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
		Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Sales (JPYmn)		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 (JPYmn)		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 margin	3.9%	2.8%	3.5%	4.6%	3.7%	4.1%	3.5%	2.6%	1.3%	2.9%
Inventory write-off (JPYmn)		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 (JPYmn)		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)

(JPYbn）	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Youkai Watch	-	-	1.4	55.2	30.8	9.3	-	-	-	-
Mobile Suit Gundam	15.6	16.5	18.4	22.9	25.8	26.4	26.2	32.5	35.7	41.0
Kamen Rider	28.3	27.1	22.3	20.6	15.7	20.4	24.8	27.3	28.5	24.3
Super Sentai	13.0	9.6	14.4	11.3	7.8	8.8	9.1	6.0	6.0	4.5
Anpanman	9.6	10.0	10.3	8.1	9.4	10.6	10.9	11.5	9.4	8.3
Precure series	10.7	10.6	9.8	6.5	6.6	7.5	8.1	10.1	8.3	6.6
Dragon Ball	4.4	4.8	6.4	5.8	11.6	10.3	14.2	20.4	20.7	15.4
Aikatsu!	-	1.5	13.0	8.6	2.6	2.6	2.3	1.9	1.6	1.0
Ultraman	1.8	2.0	3.2	2.6	2.7	3.1	4.3	4.4	4.3	4.9

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

				FY03/12	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 total		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 total	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 total	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 total		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%
	Net margin			0.8%	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

			FY03/11	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 (stationary)		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%			YoY		10.5%	29.4%
		% of total	10.1%	7.5%	11.9%	16.9%	16.2%	24.9%	19.2%	58.3%	77.9%			% of total		92.4%	91.0%
	Nintendo (portable)		9,900	10,400	14,200	40,300	35,600	26,700	22,600	14,000	2,900			Nintendo Switch-related		57,300
		YoY	-3.9%	5.1%	36.7%	182.8%	-8.3%	-27.5%	-15.4%	-38.1%	-79.3%				YoY	-
		% of total	21.3%	24.4%	38.7%	63.4%	65.5%	53.6%	50.5%	22.2%	4.7%			Other (3DS, other)		100
	Nintendo (other)		-	-	-	-	-	1,200	2,300	2,900	1,600				YoY	-
		YoY	-	-	-	-	-	-	91.7%	26.1%	-44.0%			Other		700
		% of total	-	-	-	-	-	2.4%	5.1%	4.6%	3.2%				YoY	-
	PlayStation (stationary)		6,000	6,800	5,300	4,800	3,100	3,400	5,700	5,900	6,400		SIE			3,800	5,800
		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 total	12.9%	15.9%	14.4%	7.6%	5.6%	7.0%	12.7%	9.3%	10.4%			% of total		6.0%	7.0%
	PlayStation (portable)		11,600	12,200	7,100	4,700	4,300	4,400	4,000	2,200	900			PlayStation-related		3,800
		YoY	45.0%	5.2%	-41.8%	-33.1%	-9.4%	3.0%	-9.1%	-45.0%	-59.1%				YoY	-
		% of total	25.0%	28.6%	19.3%	7.5%	7.7%	8.9%	8.9%	3.5%	1.5%		Other			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%
Losses on inventory write-offs			-	100	100	800	300	500	100	90	100	Losses on inventory write-offs				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.

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 total	-	-	-	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 total	-	-	-	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 total	-	-	-	14.3%	10.6%	9.8%	7.9%	9.9%	10.7%	15.1%
Segment profit (JPYmn)			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 margin		8.1%	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 19 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