R

Gamecard-Joyco Holdings / 6249
COVERAGE INITIATED ON:

2011.07.11

LAST UPDATE:

2019.03.19

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is toprovide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate,
objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will
always present opinions from company management as such. Our views are ours where stated. We do not try toconvince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
sr_inquiries@sharedresearch.jp or find us on Bloomberg.

Research Coverage Report by Shared Research Inc.

R
Coverage

Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent
earnings. First-time readers should start at the business section later in the report.

Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 3
Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 4
Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------4
Trends and outlook -----------------------------------------------------------------------------------------------------------------------------------------------5
Business ------------------------------------------------------------------------------------------------------------------------------------------------ 14
Business description -------------------------------------------------------------------------------------------------------------------------------------------- 14
Business model --------------------------------------------------------------------------------------------------------------------------------------------------- 14
Earnings structure ----------------------------------------------------------------------------------------------------------------------------------------------- 17
Strengths and weaknesses------------------------------------------------------------------------------------------------------------------------------------ 20
Market and value chain ---------------------------------------------------------------------------------------------------------------------------------------- 21
Industry regulations -------------------------------------------------------------------------------------------------------------------------------------------- 22
Historical earnings results------------------------------------------------------------------------------------------------------------------------------------- 26
Other information ---------------------------------------------------------------------------------------------------------------------------------- 31
History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 31
News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 32
Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 32
Company profile ------------------------------------------------------------------------------------------------------------------------------------------------- 33

02/34

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Coverage

Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Key financial data
Income statement

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18(JPYmn)

Par.

Par.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

Total sales
YoY

32,8346.0%

37,005
12.7%

43,575-39,545-9.2%

34,192-13.5%

25,741-24.7%

23,885-7.2%

20,405-14.6%

16,928-17.0%

15,000-11.4%

Gross profit
YoY
GPM
Operating profit
YoY
OPM

9,660
-6.4%
29.4%
1,566
-41.4%
4.8%

11,199
15.9%
30.3%
4,322
176.0%
11.7%

13,093
30.0%
4,459
10.2%

11,884
-9.2%
30.1%
2,668
-40.2%
6.7%

10,980
-7.6%
32.1%
1,764
-33.9%
5.2%

9,665-12.0%
37.5%
816-53.7%
3.2%

8,413-13.0%
35.2%-1,440
-6.0%

8,250
-1.9%
40.4%
1,919
9.4%

7,871
-4.6%
46.5%
3,596
87.4%
21.2%

2,000
-44.4%
13.3%

Recurring profit
YoY
RPM

1,508
-44.4%
4.6%

4,208
179.0%
11.4%

4,543
10.4%

2,692
-40.7%
6.8%

1,849-31.3%
5.4%

836
54.7%
3.2%

-1,383
-5.8%

1,945
9.5%

3,594
84.8%
21.2%

2,000
-44.4%
13.3%

Net income
YoY
Net margin918-59.3%
2.8%

2,338
154.7%
6.3%

4,573
10.5%

1,598
-65.1%
4.0%

900-43.7%
2.6%

293-67.4%
1.1%-2,117
-8.9%

27
0.1%

2,318
13.7%

1,400
-39.6%
9.3%

11,413

11,413

14,263

14,263

14,263

14,263

14,263

14,263

14,263

80.4

204.9

320.6

112.1

63.2

20.5

-148.5

2.0

162.6

-

-

-

-

-

-

-

-

FY03/19

Per share data (split-adjusted)
Shares issued (year-end; '000)
EPS
EPS (fully diluted)

98.2

-

Dividend per share

50.0

50.0

60.0

60.0

60.0

60.0

60.0

30.0

35.0

Book value per share

2,838.8

2,991.8

2,881.7

2,930.5

2,933.2

2,893.7

2,684.3

2,654.0

2,771.4

35.0

Balance sheet (JPYmn)
18,071

22,642

24,84826,731

32,00925,02025,52923,47526,000Total current assets

Cash and cash equivalents

36,273

41,67051,05551,56756,52245,28443,93440,01540,038

Tangible fixed assets-2,190

2,005

2,369

2,120

2,193

1,486

776

469

373

Intangible fixed assets

6,540

5,506

4,636

3,509

2,624

2,896

2,226

3,188

2,619

Investments and other assets

7,628

6,991

7,921

8,313

3,315

9,413

7,844

6,975

6,480

52,431

56,17365,98365,51064,65559,08154,78150,64849,511

Accounts payable

3,320

3,453

4,423

3,675

3,040

2,211

2,402

2,019

1,334

Short-term debt

-

-

-

-

-

-

-

-

-

Unused card balance

4,323

3,578

3,308

2,770

2,660

2,591

2,530

2,335

2,143

Total current liabilities

11,927

12,237

13,905

13,183

13,448

10,107

10,363

7,932

6,188

-

-

-

-

-

-

-

-

-

8,104

9,790

10,977

10,528

9,370

7,702

6,132

4,862

3,795

Total assets

Long-term debt
Total fixed liabilities
Total liabilities

20,032

22,02824,882

23,712

22,81917,80916,496

12,795

9,983

Net assets

32,39934,145

41,101

41,79841,83541,272

38,23037,83039,506

-

-

-

-

-

-

-

-

-

Total interest-bearing debt
Statement ｏｆ cash flows (JPYmn)
Cash flows from operating activities

2,615

5,082

4,266

5,109

4,631

3,844

1,828

2,264

3,466

Cash flows from investing activities-4,31977-13,950

1,133-1,146-5,046

-841

1,381

-6,008Cash flows from financing activities-1,504-1,639-1,998-2,360-2,194-1,799-1,476-699-828

Financial ratios
ROA (RP-based)

2.9%

7.7%

7.4%

4.1%

2.8%

1.4%

-2.4%

3.7%

7.2%

ROE

2.8%

7.0%

11.1%

3.9%

2.2%

0.7%

-5.3%

0.1%

6.0%

Equity ratio

61.8%

60.8%

62.3%

63.8%

64.7%

69.9%

69.8%

74.7%

79.8%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures prior to FY03/12 are for Nippon Game Card.

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Coverage

Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Recent updates
Highlights
On March 19, 2019, Shared Research updated the report following interviews with Gamecard-Joyco Holdings, Inc.

On February 7, 2018, the company announced earnings results for Q3 FY03/19; see the results section for details.

For previous releases and developments, please refer to the News and topics section.

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Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Trends and outlook
Quarterly trends and results
FY03/18

Cumulative performance(JPYmn)FY03/19

FY03/19

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Sales

4,451

8,557

13,117

16,928

4,121

8,466

12,890

YoY-6.2%-12.2%-16.2%-17.0%

-7.4%

-1.1%

-1.7%

Gross profit

2,082

4,112

6,159

7,871

1,949

3,868

5,762

YoY

-4.6%

-5.3%

-6.9%

-4.6%

-6.4%

-5.9%

-6.4%

GPM

46.8%

48.1%

47.0%

46.5%

47.3%

45.7%

44.7%

1,131

2,181

3,228

4,274

988

2,141

3,200

YoY

-24.7%-29.1%-35.5%-32.5%-12.6%

-1.8%

-0.9%

SG&A ratio

25.4%

25.5%

24.6%

25.2%

24.0%

25.3%

24.8%

Operating profit

950

1,931

2,931

3,596

960

1,726

2,562

YoY

39.7%

52.8%

81.9%

87.4%

1.1%

-10.6%-12.6%

OPM

21.3%

22.6%

22.3%

21.2%

23.3%

20.4%

19.9%

958

1,927

2,927

3,594

963

1,727

2,564

YoY

37.8%

50.9%

79.4%

84.8%

0.5%

-10.4%-12.4%
19.9%

SG&A expenses

Recurring profit
RPM

21.5%

22.5%

22.3%

21.2%

23.4%

20.4%

Net income

694

1,399

1,990

2,318

693

1,177

1,690

YoY

81.2%

76.9%

92.8%

-

-0.1%

-15.9%-15.1%Net margin

15.6%

16.3%

15.2%

13.7%

16.8%

13.9%

13.1%

Quarterly performance(JPYmn)Sales

FY03/18
Q1
4,451

Q2
4,106

Q3
4,560

Q4
3,811

Q1
4,121

Q2
4,345

Q3
4,423
-3.0%

YoY

-6.2%

-17.8%-22.9%-19.7%

-7.4%

5.8%

2,082

2,030

2,047

1,712

1,949

1,919

1,894

YoY

-4.6%

-5.9%

-10.1%

4.8%

-6.4%

-5.5%

-7.5%

GPM

46.8%

49.4%

44.9%

44.9%

47.3%

44.2%

42.8%

1,131

1,050

1,047

1,046

988

1,153

1,059

YoY

-24.7%-33.3%-45.8%-21.1%-12.6%

9.8%

1.1%

SG&A ratio

25.4%

25.6%

23.0%

27.4%

24.0%

26.5%

23.9%

Operating profit

950

981

1,000

665

960

765

835

YoY

39.7%

68.0%

188.2%

115.9%

1.1%-22.0%-16.5%

OPM

21.3%

23.9%

21.9%

17.4%

23.3%

17.6%

18.9%

958

969

1,000

667

963

763

837

YoY

37.8%

66.5%

181.7%

113.1%

0.5%-21.3%-16.3%
18.9%

Recurring profit
RPM

21.5%

23.6%

21.9%

17.5%

23.4%

17.6%

Net income

694

705

591

328

693

483

512

YoY

81.2%

72.8%

145.2%--0.1%-31.5%-13.4%Net margin

15.6%

17.2%

13.0%

8.6%

16.8%

11.1%

11.6%

% of FYFY Est.

85.9%

15,000-11.4%

128.1%

2,000-44.4%
13.3%
2,000-44.4%
13.3%
1,400-39.6%
9.3%

128.2%

120.7%

FY03/19

Gross profit

SG&A expenses

Q4

Q4

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Company forecasts are the most recent figures.

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Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Performance by product type (cumulative)
Cumulative(JPYmn)Sales

FY03/18

FY03/19

Q1
4,451

Q2
8,557

Q3
13,117

Q4
16,928-6.2%-12.2%-16.2%-17.0%

5,732

1,478

3,186

YoY

-3.9%

-19.6%-27.4%-29.8%

-5.5%

11.3%

YoY

-11.2%-11.8%-12.7%-12.2%-11.0%

1,793

3,552

5,269

YoY

-6.2%

-6.4%

-6.7%

-6.9%

-8.1%

-8.1%

-8.3%

YoY

0.9%

-4.0%

-11.2%

-8.1%

2.6%

10.6%

15.0%

YoY

Equipment sales

Card sales
System-usage fees
Others

1,564
820

1,951
115

2,862

1,609

3,867

4,634

2,403

5,745

218

333

3,170

7,584
440

Q1
4,121
-7.4%

730

118

Q2
8,466

Q3
12,890

-1.1%

-1.7%

5,006

8.0%

1,485

2,230

-7.7%

-7.2%

241

383

Gross profit

2,082

4,112

6,159

7,871

1,949

3,868

5,762

YoY
GPM

-4.6%
46.8%

-5.3%
48.1%

-6.9%
47.0%

-4.6%
46.5%

-6.4%
47.3%

-5.9%
45.7%

-6.4%
44.7%

YoY
GPM

-3.6%
15.3%

-4.8%
16.0%

-15.0%
15.6%

4.5%
12.3%

-1.7%
15.9%

-3.1%
13.9%

-8.1%
13.3%

YoY
GPM

-13.4%
63.8%-13.6%
64.8%-12.4%
63.8%-10.3%
64.0%

-9.8%
64.6%

-7.8%
64.7%

-6.7%
64.1%

YoY
GPM

-0.6%
66.1%

-1.1%
66.2%

-2.0%
66.4%

-2.8%
66.2%

-6.9%
66.9%

-7.1%
67.0%

-7.5%
67.0%

Equipment sales

Card sales

System-usage fees

OthersSG&A expenses

239

523

1,289

31
1,131

457

1,042

2,560

52
2,181

725

1,533

3,815

84
3,228

703

2,029

5,022

116
4,274

235

472

1,200

443

666

961

1,430

2,378

3,530

41
988

83
2,141

134
3,200

YoY
SG&A ratio-24.7%
25.4%-29.1%
25.5%-35.5%
24.6%-32.5%
25.2%-12.6%
24.0%

362
94
960

789
281
1,726

1,175
408
2,562

YoY
OPM

39.7%
21.3%

52.8%
22.6%

81.9%
22.3%

87.4%
21.2%

1.1%
23.3%

-10.6%
20.4%-12.6%
19.9%

Personnel expenses
R&D expenses
Operating profit

416
82
950

Quarterly(JPYmn)

852
155
1,931

1,230
273
2,931

1,611
393
3,596

FY03/18

-1.8%
25.3%

-0.9%
24.8%

FY03/19

Q1

Q2

Q3

Q4

Q1

Q2

Q3

4,451

4,106

4,560

3,811

4,121

4,345

4,423

YoY

-6.2%

-17.8%-22.9%-19.7%

-7.4%

5.8%

-3.0%

Equipment sales

1,564

1,298

1,772

1,098

1,478

1,708

1,819
2.7%

Sales

YoY

-3.9%

-32.9%-37.1%-38.6%

-5.5%

31.6%

Card sales

820

789

794

767

730

754

744

YoY

-11.2%-12.5%-14.3%-10.5%-11.0%

-4.4%

-6.3%

System-usage fees

1,951

1,916

1,878

1,839

1,793

1,759

1,717

YoY

-6.2%

-6.5%

-7.2%

-7.7%

-8.1%

-8.2%

-8.6%

Others

115

103

115

107

118

123

141

Gross profit

2,082

2,030

2,047

1,712

1,949

1,919

1,894

YoY
GPM

-4.6%
46.8%

-5.9%
49.4%

-10.1%
44.9%

4.8%
44.9%

-6.4%
47.3%

-5.5%
44.2%

-7.5%
42.8%

Equipment sales
YoY
GPM

239

218

268

-22

235

208

222

-3.6%
15.3%

-6.0%
16.8%

-28.2%
15.1%

-

-1.7%
15.9%

-4.6%
12.2%

-17.2%
12.2%

Card sales

523

519

491

496

472

489

468

YoY
GPM

-13.4%
63.8%-13.8%
65.8%

-9.7%
61.8%

-2.9%
64.7%

-9.8%
64.6%

-5.8%
64.9%

-4.7%
62.9%

1,289

1,271

1,255

1,207

1,200

1,178

1,152

-0.6%
66.1%

-1.5%
66.3%

-3.7%
66.8%

-5.6%
65.6%

-6.9%
66.9%

-7.3%
67.0%

-8.2%
67.1%

System-Usage Fees
YoY
GPM

Others

31

21

32

32

41

42

50

SG&A expenses

1,131

1,050

1,047

1,046

988

1,153

1,059

YoY
SG&A ratio-24.7%
25.4%-33.3%
25.6%-45.8%
23.0%-21.1%
27.4%-12.6%
24.0%

9.8%
26.5%

1.1%
23.9%

Personnel

416

436

378

381

362

426

386

R&D expenses

82

73

118

120

94

187

127

Operating profit
YoY
OPM

Q4

950

981

1,000

665

960

765

835

39.7%
21.3%

68.0%
23.9%

188.2%
21.9%

115.9%
17.4%

1.1%
23.3%

-22.0%
17.6%-16.5%
18.9%

Q4

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

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Coverage

Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Earnings-related metrics (cumulative)
Cumulative

FY03/18

No. of equipment shipped ('000)
YoY

FY03/19

Q1
12.0

Q2
20.8

Q3
33.6

Q4
43.6

Q1
11.2

Q2
25.8

Q3
40.7

No. of member stores
YoY change

3,889
-219

-5.3%

-29.2%-38.3%-38.3%

3,674
-283

3,612
-277

-6.7%

23.7%

21.2%

YoY
QoQ change
QoQ

-5.3%
-68
-1.7%

-5.9%
-63
-1.6%

-6.0%
-48
-1.3%

-7.2%
-104
-2.8%

-7.1%
-62
-1.7%

-7.4%
-69
-1.9%

-7.8%
-61
-1.7%

3,826
-240

Quarterly

FY03/18

No. of equipment shipped ('000)
YoY

3,778
-242

3,543
-283

Q4

3,482
-296

FY03/19

Q1

Q2

Q3

Q4

Q1

Q2

Q3

12.0

8.8

12.8

10.0

11.2

14.6

15.0

-5.3%

-47.3%-49.0%-38.6%

-6.7%

65.1%

17.2%

Q4

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

Q3 FY03/19 results▷ Sales:

JPY12.9bn (-1.7% YoY)

▷ Recurring profit:

JPY2.6bn (-12.4% YoY)

▷ Operating profit:▷ Net income*:

JPY2.6bn (-12.6% YoY)

JPY1.7bn (-15.1% YoY)*Net income refers to net income attributable to parent company shareholders.

Business environment and the company’s initiatives
Pachinko hall operators that comprise the company's primary customer base were impacted by a tighter regulatory environment
reflecting the revised regulations enforced in February 2018 (Regulations Partially Amending the Ordinance for Enforcement of
the Act on Control and Improvement of Amusement Business, etc.) and the implementation of the Basic Bill on Gambling
Addiction Countermeasures in July 2018. The occurrence of several natural disasters also had a negative impact.
The company is maintaining and growing its share of member halls through aggressive marketing activities, as well as
strengthening its relationships with distributors, actively promoting equipment replacements, and carrying out aggressive
equipment sales leveraging its strong financial base.

Overview of cumulative Q3 FY03/19 results
Sales declined due to a decrease in the number of member halls and intensified competition as the market continued to contract.
In terms of profits, in addition to the decline in sales, the GPM declined to 44.7% (-2.3pp YoY). All profit lines below gross profit
declined.

Progress vs. full-year FY03/19 forecasts
Versus full-year FY03/19 company forecasts, sales reached 85.9% (77.5% of full-year results in Q3 FY03/18), operating profit
128.1% (81.5%), recurring profit 128.2% (81.4%), and net income attributable to parent company shareholders 120.7%(85.8%). In cumulative Q3 FY03/19, all profit categories below operating profit exceeded forecasts, and had greater progress
rates than in Q3 FY03/18. In addition to the greater-than-expected number of equipment units sold, card sales and system-usage
fees surpassed forecasts. However, in Q4 (January to March 2019), due to an increase in R&D expenses, the company expects
SG&A expenses to be higher than in any of the previous quarters in FY03/19, causing loss at all profit categories below operating
profit.

Sales breakdown◤ Equipment sales rose 8.0% YoY to JPY5.0bn on an increase in equipment unit sales to 40,739 units (+21.2% YoY). According

to the company, demand for conversion to more efficient machines, such as ball-counting systems, also increased due tolabor shortages. In addition, the company actively strengthened its relationships with distributors to maintain or increase its

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Coverage

Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

member hall share and actively rolled out machine replacement promotion measures at member halls. These efforts resulted
in higher equipment unit sales.

▷ Card sales were JPY2.2bn (-7.2% YoY), reflecting lower information management fees accompanying a drop in the total value ofcards issued, and lower media fees caused by a drop in the number of cards sold. The fall in the total value of cards issued was

attributable to a decline in the number of member halls to 3,482 (-296 or -7.8% YoY). Cancellations of member hall agreements
due to closures outnumbered acquisitions of new member halls. In addition to the decline in the number of member halls, adrop in average spend due to the spread of operations with low-priced balls resulted in a drop in the total value of cards issued▷ System-usage fee revenue fell 8.3% YoY to JPY5.3bn due to the drop in the number of member halls noted above. System-usage
fees the company collects from member halls based on the number of card-reading units installed fell

▷ Others (equipment installation and maintenance) posted sales of JPY383mn (+15.0% YoY)
Gross profit per sales item

Gross profit declined 6.4% YoY to JPY5.8bn. GPM also fell 2.3pp YoY to 44.7%. Gross profit dropped for all product types,
excluding those in others (equipment installation and maintenance), and GPM also decreased because equipment sales, whichhave a relatively low GPM took up a larger share of overall sales. However, GPMs from card sales and system-usage fees remained
flat YoY.

▷ Gross profit for equipment sales was JPY666mn (-8.1% YoY), and GPM was 13.3% (-2.3pp YoY). Equipment sales rose owing toan increase in the number of equipment units sold, but gross profit fell on lower GPM▷ Gross profit for card sales was JPY1.4bn (-6.7% YoY), and GPM was 64.1% (+0.3pp YoY)

▷ Gross profit for system-usage fees was JPY3.5bn (-7.5% YoY), and GPM was 67.0% (+0.6pp YoY)
SG&A expenses
SG&A expenses totaled JPY3.2bn (-0.9% YoY), of which personnel expenses were JPY1.2bn (-4.5% YoY) and R&D expenses were
JPY408mn (+49.5% YoY). R&D expenses increased due to progress in the development of products equipped with addiction
prevention features and compliant with new regulations, as well as product development and other measures geared toward
providing stable services.
As a result, operating profit, recurring profit, and net income attributable to parent company shareholders fell YoY.

For details on previous quarterly and annual results, please refer to the Historical earnings results section.

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Coverage

Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Full-year company forecasts(JPYmn)Sales
YoY

Cost of sales
Gross profit

1H Act.
8,557

FY03/18
2H Act.
8,371

FY Act.
16,928

4,112

4,613
3,759

9,057
7,871

-12.2%
4,444-21.5%-17.0%

1H Act.
8,466

FY03/19
2H Est.
6,534

FY Est.
15,000

3,867

3,401
3,133

8,000
7,000

-1.1%
4,599

-21.9%-11.4%

YoY
GPM

-5.3%
48.1%

-3.9%
44.9%

-4.6%
46.5%

-6.0%
45.7%

-16.7%
47.9%-11.1%
46.7%

SG&A ratio

25.5%

25.0%

25.2%

25.3%

43.8%

33.3%

YoY
OPM

52.8%
22.6%

154.2%
19.9%

87.4%
21.2%

-10.6%
20.4%-83.5%
4.2%-44.4%
13.3%

YoY
RPM

50.9%
22.5%

149.6%
19.9%

84.8%
21.2%

-10.4%
20.4%-83.6%
4.2%-44.4%
13.3%

YoY

76.9%

-

-

-15.9%-75.7%-39.6%

SG&A expenses
Operating profit
Recurring profit
Net income

2,181

1,931
1,927
1,399

2,093

4,274

1,665

3,596

1,667

3,594

919

2,318

2,140

1,726
1,727
1,177

2,860
274
273
223

5,000

2,000
2,000
1,400

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: “-” indicates that the year-on-year ratio exceeds 1000%.

Details of company forecasts
FY03/18(JPYmn)Equipment sales (units)
YoY
No. of member stores
YoY
Sales
YoY
Equipment sales
YoY
Card sales
YoY
System-usage fees
YoY
OthersGross profit
YoY
GPM
Equipment sales
YoY
GPM
Card sales
YoY
GPM
System-usage fees
YoY
GPM
OthersSG&A expenses
YoY
SG&A ratio
R&D expenses
YoY
R&D ratio
SG&A excl. R&D
YoY
Operating profit
YoY

FY03/19FY Act.
43,593FY Est.
43,670

3,674

3,375

-38.3%

0.2%

-7.2%

-8.1%

16,92815,000-17.0%

5,732-11.4%

5,065-29.8%-11.6%-12.2%-12.2%-6.9%-11.8%

-4.6%
46.5%

-11.1%
46.7%

4.5%
12.3%

-13.7%
12.0%-10.3%
64.0%-13.6%
63.0%

-2.8%
66.2%

-10.5%
67.2%-32.5%
25.2%

17.0%
33.3%

-56.6%
2.3%

167.9%
7.0%

3,170
7,584

440
7,871
703

2,029

5,022

116
4,274
393

3,881

-28.5%

2,782
6,690

462
7,000
607

1,754

4,497

143
5,000

1,053

3,947

1.7%

3,596

2,000

87.4%

-44.4%

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

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Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

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FY03/19 forecasts
Gamecard-Joyco group announced revisions to its earnings forecasts for FY03/19 in November 2018. The revised forecast calls forsales of JPY15.0bn (-11.4% YoY), operating profit of JPY2.0bn (-44.4% YoY), recurring profit of JPY2.0bn (-44.4% YoY), and net
income attributable to parent company shareholders of JPY1.4bn (-39.6% YoY).
Compared to initial forecasts, the company revised sales, operating profit, and recurring profit upward by JPY800mn and net
income attributable to parent company shareholders up by JPY600mn. The company has continuously striven to streamline its
operation with the theme of “completion of structural reform and maximization of its effects” as a core policy since FY03/18, andpromoted aggressive sales activities. As a result, sales are expected to exceed initial forecasts.
At the same time, operating profit, recurring profit, and net income attributable to parent company shareholders are expected to
exceed initial forecasts as a result of some development plans relating to the development of products in line with revised
regulations (Regulations Partially Amending the Ordinance for Enforcement of the Act on Control and Improvement of
Amusement Business, etc.) shifting to the next fiscal year or later.
The market environment for pachinko halls, which make up the company’s principal customer base, is likely to remain subdued
and under pressure from social trends. As a result, pachinko hall’s operators’ willingness to invest in peripheral equipment will
stay constrained due to a decline in the number of pachinko halls, a decrease in average spend, and tighter regulations. The
company expects these factors weigh on its sales in FY03/19.
Amid such market environment, the company plans to maintain and grow share of member halls using its system, and topromote aggressive marketing activities to secure future business opportunities. Specifically, it plans to implement measures tostrengthen relationships with distributors, actively promote equipment replacements, and carry out aggressive equipment sales
leveraging its strong financial base.
◤ Further deepen relationships with distributors and strengthen sales◤ Actively promote replacements: the company intends to maintain its share by encouraging distributors to replace old systems

with new ones, such as replacing outdated magnetic cards with IC cards and introducing ball-counting systems.

Prepaid cards: Since 2000, contactless IC chip-embedded cards have superseded one-time use magnetic cards as the industry standard.

◤ Aggressive equipment sales activity leveraging the company’s strong financial base: in the market environment in which only

a limited number of new pachinko halls can be opened, the company intends to maintain equipment unit sales at FY03/18
level.

The company forecasts higher R&D expenses as it thinks FY03/19 is the period to invest in R&D activities aimed at assessing thesocial climate and responding to the industry’s need for measures to curb gambling addiction as well as revitalizing the industry.
Based on this anticipated rise in R&D spending the company expects sales and operating profit to decline in FY03/19.
Underlying the forecast is the company’s plan to maintain equipment unit sales more or less even YoY at 43,670 units (+0.2%
YoY) with aggressive marketing activities. The company forecasts a decline in the number of member halls to 3,375 (-8.1% YoY).
The projected rate of decline in the number of halls for FY03/19 is greater than the average annual rate of decline of 5.7% seen in
the past five years.
The company expects lower equipment sales despite its forecast for even equipment unit sales YoY because of a drop in unit sales
price. It also expects lower card sales caused by declines in the number of member halls and information management fee
revenue reflecting a drop in card spend accompanying an increase in the number of machines offering low-priced balls. The
company also forecasts lower system-usage fees as well on the drop in the number of member halls.
The company forecasts gross profit of JPY7.0bn (-11.1% YoY) and GPM of 46.7% (flat YoY). Gross profit for equipment sales is
expected to decline significantly due to a fall in unit sales price among other factors. GPM for card sales and system-usage fees arealso expected to fall on lower sales.

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Gamecard-Joyco Holdings / 6249
LAST UPDATE: 2019.03.19

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SG&A expenses are forecasted to rise 17.0% YoY to JPY5.0bn, largely driven by an expected increase in R&D expenses to
JPY1.1bn (+167.9% YoY). R&D expenses related to controlled machines are expected to rise. Excluding the anticipated increasein R&D expenses, SG&A expenses are to remain flat YoY at JPY3.9bn.

Dividends
Based on its efforts to maintain a healthy financial position, the company plans to pay an annual dividend of JPY35 per share(interim dividend of JPY17.5 and year-end dividend of JPY17.5; annual dividend of JPY35 per share in FY03/18).

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Gamecard-Joyco Holdings / 6249
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Outlook
Gamecard-Joyco Holdings’ medium-term financial performance is primarily driven by:▷ Installed pachinko and pachislot equipment base and pachinko hall sales;▷ Total number of pachinko halls (itself dependent on competition among halls and market contraction);▷ Market share of halls using its systems▷ R&D progress

Costs including personnel expenses declined from FY03/18 onward following structural reform and introduction of a voluntary
retirement program in FY03/17. In addition, Shared Research believes that regulatory amendment that took effect in February
2018 will pave the way for the introduction of “controlled machines”, and accordingly see prospects of replacement demand forcard-reading units (devices from which game balls are borrowed) over the medium term.

Market size and total pachinko hall countMarket size (pachinko hall sales) and total number of pachinko halls are external factors that the company cannot directly control.
The operating environment continued to be harsh in FY03/18 (see the Market and value chain section for details).

Market share of member halls
Thanks to its merger with JOYCO SYSTEMS Corp. the company was able to capture a majority share of the market for prepaid
cards used at pachinko and pachislot halls. The number of member halls is trending down due to new market entrant Daikoku
Denki (TSE1: 6430) gaining market share.
Number of member halls, market share
Number of member halls
YoY
Market share

Dec. 2008 Dec. 2009 Dec. 2010 Dec. 2011 Dec. 2012 Dec. 2013 Dec. 2014 Dec. 2015 Dec. 2016 Dec. 2017
5,626
5,451
5,429
5,047
4,974
4,836
4,529
4,272
4,020
3,778
-3.1%
-0.4%
-7.0%
-1.4%
-2.8%
-6.3%
-5.7%
-5.9%
-6.0%
54.7%

53.3%

53.3%

52.1%

51.7%

50.9%

48.7%

46.7%

45.1%

43.6%

Source: Shared Research based on data from Prepaid System Association

R&D expenses
In response to the ongoing decline in sales that began in FY03/13, the company increased R&D spending steadily throughFY03/16, developing new features for its G∞WIN’Z series, next-generation systems, and attempting to create new business areas.
One major R&D project was the "inter-industry cooperation service". The company had been hoping to establish the service,
which was built around an electronic money service, but after a review of potential profitability and the return on investment, thecompany decided it would be difficult to continue and halted development in FY03/16. Due to the additional cost of cancelling
this project, the company's R&D spending swelled to JPY3.9bn in FY03/16.
R&D spending declined sharply to JPY906mn in FY03/17. The decline stemmed mainly from the dropout of expenditures related
to the canceled project in FY03/16 and being more focused and selective in its R&D investments. In FY03/18, R&D expenses
further dropped to JPY393mn. In FY03/19, the company plans to expand R&D spending to JPY1.1bn to cover the increased costs
involved in R&D related to controlled machines.
R&D expenses
FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

Par.

Par.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

Sales

32,83437,00543,57539,54534,192

25,741

23,885

20,405

16,92815,000R&D expenses

1,733

672

1,820

2,724

2,978

3,146

3,931

906

393

1,053

5.3%

1.8%

4.2%

6.9%

8.7%

12.2%

16.5%

4.4%

2.3%

7.0%

(JPYmn)R&D expenses as % of sales

FY03/19

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures prior to FY03/12 are for Nippon Game Card.

Implementation of structural reforms in FY03/17 and expense reduction in FY03/18 onward
The company carried out structural reforms to improve operating efficiency in FY03/17. The main initiatives of the structuralreforms were the relocation of the head office (consolidation of offices) and the implementation of a voluntary retirement

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program. These initiatives resulted in a decrease in the company’s SG&A expenses excluding R&D spending by JPY1.5bn YoY(-28.5%) to JPY3.9bn in FY03/18.

Replacement demand for card-reading units driven by “controlled machines”
Shared Research understands that the regulatory amendment in February 2018 will pave the way for the introduction of“controlled machines” (see the Market and value chain section for details). Because “controlled machines” differ fromconventional machines, a new card-reading unit is necessary when introducing “controlled machines”. This requirement may
drive replacement demand for card-reading units (devices from which game balls are borrowed) over the medium term.

Regulatory amendment in February 2018 to pave the way for introduction of “controlled machines”
In the partial amendment to the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Businesses
and the Regulations Concerning Authorization and Model Approval for Amusement Machines (promulgated in September 2017,
slated to take effect in February 2018), a machine equipped with a device that displays the number of game balls (i.e., a“controlled machine”) is added as a new gaming machine standard. Shared Research believes the amendment will pave the way
for the introduction of “controlled machines,” which in turn may drive replacement demand for card-reading units (devices fromwhich game balls are borrowed).

Differences between conventional and “controlled machines”
When using conventional machines, players borrow game balls from a card-reader unit (physical game balls are dispensed
externally), which are then loaded and shot in the machine by operating a handle. If a game ball enters the prize-winning chucker(scoring hole), prize balls are dispensed externally from the machine. “Controlled machines,” on the other hand, adopt a
structure in which there is no physical interaction between the players and the game balls. Our understanding at Shared Researchis that instead of dispensing the game balls externally, game balls are managed through an electromagnetic system. In otherwords, the process of borrowing game balls via a card-reading unit is the same as for conventional machines, but game balls are
no longer dispensed externally and the number of borrowed game balls corresponding to the purchased amount is indicatedusing an electromagnetic system. If the player wins prize balls, these are displayed as an increase in the total number of gameballs.

Advantages of “controlled machines” over conventional machines
Shared Research understands that “controlled machines” offer several advantages over conventional machines such as a
reduction in gambling addiction, prevention of fraud, enhanced freedom in machine layout, and cost reductions for pachinkohalls.

▷ Managing the number of game balls using an electromagnetic system makes it possible to caution players against excessive
spending, which should contribute to a reduction in gambling addiction▷ The adoption of a structure that removes physical interaction between the players and the game balls should support fraud
prevention▷ Compared with the conventional mechanism that re-uses game balls across a number of machines using a supply device,“controlled machines” re-use game balls in a single machine, eliminating the need for a supply device. This allows pachinko halls
to have greater freedom in machine layout and lower costs

Although details are not yet clear, the company is seeing similar demand for controlled machines for pachinko slot machines, justas it did for pachinko machines.

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Gamecard-Joyco Holdings / 6249
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Business
Business description
Gamecard-Joyco Holdings Inc., a holding company founded in April 2011, operates a prepaid-card system business for pachinko
machines and it is the market leader in terms of number of members (pachinko halls). Nippon Game Card and JOYCO SYSTEMS
Corp. are both 100% subsidiaries.

Business model
Nippon Game Card provides third-party issuer prepaid-card systems to pachinko halls (hereafter halls). JOYCO SYSTEMS provides
house-issuer card payment systems for halls. As of the end of March 2018, there were 3,674 halls using JOYCO SYSTEMS’s card
payment systems (market share of 43.3%).

Prepaid-card system and pachinko and pachislot machines
Most pachinko machines are card reader (CR) models. CR models rely on prepaid cards, and players obtain pachinko balls
directly from the pachinko machine using their card.
There are two ways to play a CR model pachinko machine.
◤ The first is when players purchase a prepaid card from a card-vending terminal.

◤ The second, and predominant, way is to insert money directly into a card-reading unit attached to a pachinko machine, whichissues a prepaid IC card on the spot with the monetary information recorded on the IC chip, and balls are then dispensed
based on that information.

◤ Customers can play on any machine with a card-reading unit installed.

◤ When done playing, a refund can be obtained using the same card from a separate card-balance refund terminal. The

company supplies all components of both systems, including equipment and cards themselves.

While CR model pachislot machines do not exist, there are a growing number of halls who install token-dispensing units forpachislot machines that allow use of the same prepaid-card system (and therefore the same card by individual players) for bothpachinko and pachislot machines in the same hall.

Third-party issued card system vs. house-issued card system
There are two types of prepaid-card systems:◤ Third-party issuer system: here the card company (i.e., the “third party”), is responsible for payment settlement between

the hall and player.

◤ House-issuer system (proprietary issuance): the company offering the card system merely manages the information

stored on cards. The hall operator issues cards and settles payments with players directly.

As of May 2018, Nippon Game Card was the only company in the industry operating a third-party issuer system. On the other
hand, JOYCO offers a house-issuer system.

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Third-Party Issuer Card System

House-Issuer Card System

Third-Party Issuer Card Company

House-Issuer Card Company

Coverage

Pays Used
Card
Balanceto HallRequests
used cardbalancepayment

Purchases
Card

IssuesCard

Purchases
Card from Hall

Hall

Card Use
Hall

Manages Card
Information for Hall

PlayerOffering
Pachinko

Issues Card

PlayerCard Use
Pachinko

Source: Shared Research based on company data

The advantages of the third-party issuer system compared to the house-issuer system are as follows:◤ Complete accounting transparency: all payments to the hall are made through the card company.

◤ Superior consumer protection: even if a hall goes out of business, the card company will pay the remaining balance to card

holders (when done playing, most players turn remaining balance in their cards into cash at a card-balance refund terminal
installed at pachinko halls within the same day).

The disadvantage of a third-party issuer system is higher development and running costs of the system. This is due to cardcompanies being responsible for settlements so it has to ensure the security and reliability of the system, which increases thecosts compared to house-issuer systems. Shared Research estimates the costs for third-party issuer systems are about 30% to 40%
higher than house-issuer systems. Apart from this, Shared Research understands that functionally both types of systems are
similar.

Relevant regulations
While the pachinko prepaid-card industry itself is not directly subject to any laws or regulations the company’s clients, halls, aregoverned by numerous regulations (Law on Control and Improvement of Amusement Businesses, National Public Safety
Commission's Rules, Prefectural Ordinances). In order to actually use a card-reading unit it is necessary to acquire permission
from and notify the authorities. Consequently, in the event that any of the various laws and regulations governing pachinko halls
are revised, the company’s business may be affected when selling and installing card units to halls.
Finally, in accordance with the Settlement of Funds Act (enacted on April 1, 2010; previously known as Act on Regulation, etc. of
Advanced Payment Certificates) Nippon Game Card is registered with the Kanto Regional Financial Bureau as a “third-party
issuer”. This regulation requires the company to deposit over 50% of the unused face value on its cards for card balance
insurance purposes.

Main product
B∞LEX
Released in November 2009, B∞LEX had become the company’s mainstay product. The device can be easily attached to existing
company products, additional functionality (e.g. ball-counting systems) can be added at any time, and similarly, ball-counting
systems to each pachinko machine can be easily removed. It is a full-color display.
Amidst the challenging market environment, halls have taken to cost cutting as a means to boost profits, such as throughreducing staff headcount and paring back on installation costs. This means that to sell well, prepaid-card systems too must
contribute to reducing operating costs and enhancing customer satisfaction. Furthermore, proliferation of low-price pachinko(e.g. “one-yen pachinko” where each ball is loaned out to players at one yen as opposed to the conventional four-yen) createddemand for measures to prevent usage of low cost balls at four-yen machines at halls that install both types on its premises.

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Ball-counting systems made by the company are a good example of a solution addressing both the halls’ needs to cut costs andthe issue of controlling the ball flow. Ball-counting systems are devices installed onto card-reading units connected to individual
pachinko machines that measure the number of dispensed balls.
In the past, players put dispensed balls into boxes at the end of play, and pachinko hall staff carried these boxes to and poured
into an automated counting machine (known as a Jet Counter). However, a box full of balls is heavy and the staff needs to carry it
for counting, particularly difficult and time consuming task when large winnings are involved. Winning players also need new
empty boxes, further increasing burden on personnel and driving up labor costs.
The ball-counting system emerged as a solution to this problem. The company was late in developing such a system compared tocompetitors, but the arrival in November 2009 of the B∞LEX line allowed its card-reading units to be equipped withball-counting systems. B∞LEX’s ease of use as well as its functional flexibility allowing installation of the ball-counting units at any
time, received high user acclaim. Furthermore, pachinko halls could reduce the number of staff onsite by roughly one-third to
one-half if operators installed ball-counting systems at their halls. Also, the overall working environment would improve, as theneed to carried heavy boxes of balls (i.e., winnings) is eliminated.

G∞WIN’Z
In March 2015, Gamecard-Joyco launched G∞WIN’Z, the successor to B∞LEX. It is the company’s mainstay product as of May
2018. In addition to the features of B∞LEX, pachinko hall operators can select whether to use G∞WIN’Z with card subtraction orball subtraction system machines (different methods of passing on consumption tax to customers). G∞WIN’Z also features afull-color 5-inch LC screen that can display and transmit original movies and still images, and transmit promotional movies foramusement machines. It also has a removable nozzle for dispensing balls into the trays of the amusement machines.
Two methods of collecting consumption tax: Shared Research understands that thus far ball and token lending charges included tax, with hall operators
shouldering the tax burden. But new and renovated stores are increasingly installing equipment with systems designed to handle the consumption tax
hike of April 2014. The card subtraction system maintains the same quantity of balls and tokens and subtracts the cost—plus the consumption
tax—from the amount loaded on the user’s prepaid card. By contrast, the ball subtraction system keeps the cost the same, but reduces the amount ofballs or tokens to compensate for consumption tax. The disadvantage of the card subtraction system is that prepaid card balances become too granular(units of a single yen) for the player to use the entire balance.

G∞WIN’Z(Pachinko) unit installation(Pachislot) token dispenser installation

Source: Company data

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Coverage

Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Earnings structure
The company’s revenues comprise of four main components:▷ Equipment sales▷ Card sales▷ System-usage fee revenue▷ Other revenues (such as, equipment installation and maintenance)
Shared Research thinks the company’s business resembles that of a mobile network operator. The company’s equipment sales
roughly correspond to handset sales by mobile network operators while card sales are comparable to network operators’
usage-based tariffs, such as call rates and packet usage fees, while system-usage fees mirror network operators’ basic monthly
fees.
ClientMachine Fee

Agent

Machine Sales

Nippon Game Card Corp.

Supplier

Card Fee

Installation Fee

System Usage Fee

Machine Sales(Purchasing & Sales)

Card
Manufacturing & Sales

Installation(Purchasing & Sales)

System Operations

Card Unit Machine

Unembossed-Cards

Manufacturing of Network
Communication Equipment Installation

Source: Shared Research based on company data
Note: Unembossed-cards refer to prepaid cards yet to be encoded with the required information.

Equipment sales (33.9% of total sales in FY03/18; 8.9% of GPM)
The company sells, via distributors, card systems, token dispensers, and card-balance refund terminals to halls.
Card systems: Devices located between (CR model) pachinko machines. They dispense balls and are necessary to calculate card cash balances.
Token dispensers: Devices that dispense pachislot tokens.
Card-balance refund terminals: Devices that calculate card balances after play is finished and refund any remaining balances to players.

Card systems and token dispensers, which are the company’s main product, are procured from Mamiya-OP Co. (TSE1: 7991),
International Card System Co. (a subsidiary of Sankyo Co. [TSE1: 6417]) and other companies.
According to the company, the standard replacement cycle for equipment in pachinko halls is roughly five to ten years, withadditional capex beyond the replacement cycle driven by equipment upgrades as new functionality comes into the market (e.g.,
new ball-counting systems etc.).

Card sales (18.7% of total sales in FY03/17; 25.8% of GPM)
The company collects two sets of fees from card sales. The first is a “media fee” it receives from halls for selling prepaid cards tothem. The second is a handling commission, or an “information management fee,” from the hall operator for account settlementsof players’ card balances; this fee is determined by the amount spent by players on their cards. The majority of card sales comefrom information management fees.
Prepaid cards are information recording media used to manage pachinko hall sales (ball and token fees). Since 2000 contactless IC cards havesuperseded one-time use magnetic cards as the industry standard.

The Corporation Tax Act stipulates that after four years any unused balances on issued cards purchased by players should bebooked as income. Such income represents a part of card sales. Both unused balances and corresponding income have been

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declining as the industry moved from magnetic card to IC card use. This is because more players using IC cards tend to cash out
their unused balances compared to players using magnetic cards.

System-usage fees (44.8% of total sales in FY03/18; 63.8% of GPM)
The company collects a recurring system-usage fee from member halls based on the number of prepaid card systems installed.
The company’s prepaid-card system is based on a design by NTT Data Corp. (TSE1: 9613) and system modifications, such as
improvements and addition of new functions, are outsourced to NTT Data. NTT Data also handles the collection of card usage
information and data processing.

Others (equipment installation and maintenance)
Equipment installation (card-reading units etc.) and maintenance is conducted by the company’s distributors, such as SANKYO,
based on contracts with halls. Installation of network communication equipment for prepaid-card systems (known as a “T-BOX”)
is outsourced to separate contractors, and the company then invoices halls for the installation cost.
A T-BOX (Terminal Box) is a data-collection unit used in the prepaid-card systems the company provides to halls. The T-BOX collates sales informationand other data from the installed card-reading units and token-dispensing units within a hall. This information is then transmitted to a data center,
which consolidates all the data for management of halls.

Earnings structure(JPYmn)Sales
YoY

FY03/09 FY03/10 FY03/11
Par.
Par.
Par.
30,96532,83437,005

FY03/16Cons.
23,885

FY03/17Cons.
20,405

FY03/18Cons.
16,92825,97822,295-9.2%-13.5%-24.7%

11,395

10,654-7.2%-14.6%-17.0%

YoY% of sales-15.2%
44.0%

22.2%
50.7%

28.1%
57.7%

59.6%

-14.2%
56.4%-17.0%
54.1%-38.4%
44.3%

-6.5%
44.6%

-23.3%
40.0%-29.8%
33.9%

YoY% of sales-14.1%
17.0%

11,533

-7.4%
14.8%

10,793

-1.4%
13.0%

10,421

12.7%

11,5811.0%
14.1%

11,230-13.1%
14.2%-12.9%
16.4%

-6.4%
16.6%

-8.8%
17.7%

-12.2%
18.7%

YoY% of sales-11.2%
37.2%

-6.4%
32.9%

-3.4%
28.2%

26.6%

-3.0%
28.4%

-7.3%
30.4%

-7.7%
37.3%

-8.4%
36.9%

-7.5%
39.9%

-6.9%
44.8%

System-usage fees

4,865

450
11,1995,530

485
13,093

5,587

432
11,88418,506

4,854

10,409422
10,980

4,229

9,612

503
9,665

3,957

8,808

465
8,413

8,167

3,609

8,148

479
8,250

5,732

3,170

7,584

OthersGross profit

558
10,322

YoY-16.3%

-6.4%

15.9%

-

-9.2%

-7.6%

-12.0%-13.0%

-1.9%

-4.6%

GPM

33.3%

29.4%

30.3%

30.0%

30.1%

32.1%

37.5%

35.2%

40.4%

46.5%

Equipment sales

524
9,660

4,797

-

FY03/15Cons.
25,741

21,336

5,252

12.7%

FY03/14Cons.
34,192

16,650Card sales

6.0%

FY03/13
Cons.
39,545

13,620Equipment sales-14.8%

FY03/12Cons.
43,575

440
7,871

1,634

1,904

3,333

3,757

2,569

2,356

1,187

554

673

703

YoY
YoY

-8.5%
12.0%

16.5%
11.4%

75.1%
15.6%

14.5%

-31.6%
11.5%

-8.3%
12.7%

-49.6%
10.4%-53.3%
5.2%

21.5%
8.2%

4.5%
12.3%

% of gross profit

15.8%

19.7%

29.8%

28.7%

21.6%

21.5%

12.3%

6.6%

8.2%

8.9%

Card sales

3,426

2,971

2,828

3,199

3,285

2,952

2,811

2,468

2,261

2,029

YoY

-19.4%-13.3%

-4.8%

-

2.7%

-10.1%-4.8%-12.2%-8.4%-10.3%

YoY

65.2%

61.1%

59.0%

57.8%

58.8%

60.8%

66.5%

62.4%

62.6%

64.0%

% of gross profit

33.2%

30.8%

25.3%

24.4%

27.6%

26.9%

29.1%

29.3%

27.4%

25.8%

System-usage fees

5,473

5,044

5,213

6,261

6,028

5,600

5,523

5,340

5,169

5,022

YoY

-10.5%

-7.8%

3.4%

-

-3.7%

-7.1%

-1.4%

-3.3%

-3.2%

-2.8%

YoY

47.5%

46.7%

50.0%

54.1%

53.7%

53.8%

57.5%

60.6%

63.4%

66.2%

% of gross profit

53.0%

52.2%

46.5%

47.8%

50.7%

51.0%

57.1%

63.5%

62.7%

63.8%

-211
7,648

-259
8,093

-175
6,877

-125
8,633

0
9,216

71
9,216

143
8,848

50
9,854

145
6,331

116
4,274

SG&A-to-sales ratio

24.7%

24.6%

18.6%

19.8%

23.3%

27.0%

34.4%

41.3%

31.0%

25.2%

Personnel expenses
R&D expenses
Operating profit

1,932
561
2,674

1,749
1,733
1,566

1,818
672
4,322

2,206
1,820
4,459

2,228
2,724
2,668

2,278
2,978
1,764

2,164
3,146
816

2,163
3,931
-1,440

2,139
906
1,919

1,611
393
3,596

-45.0%
8.6%-41.4%
4.8%

176.0%
11.7%

10.2%

-40.2%
6.7%-33.9%
5.2%-53.7%
3.2%

-6.0%

9.4%

87.4%
21.2%

OthersSG&A expenses

YoY
OPM

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

Looking at the company’s sources of revenues, card sales and system-usage fees command high gross profit margins. In card sales,
the majority of gross profit comes from information management fees (handling commissions for account settlements of card

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balances). The gross profit margin for card sales generally exceeds 60%. Given that for information management fees the grossprofit margin is 100%, it is possible to further infer that sales of prepaid cards (booked as a “media fee”) are relatively
unprofitable for the company.
Gross profit margin for system-usage fees tends to exceed 60%, with this part of the business contributing over 60% to theoverall gross profit.
In contrast, in FY03/18 the GPM for equipment sales were only 12.3%, lower than other income sources. Even though equipment
sales comprise 33.9% of the company’s overall sales it accounted for only 8.9% of gross profit. Shared Research believes that the
impact on profits of a decline in equipment unit sales will be limited and the company is likely to generate a steady stream ofincome from information management and system-usage fees.

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Strengths and weaknesses
Strengths◤ Leading company within the industry. The company has the largest market share both in terms of number of halls using its

systems and the overall card settlement value. Shared Research thinks this gives the company an advantage in identifying
customer needs and factoring these needs into new product development ahead of the competition.

◤ Pachinko/pachislot manufacturers as major shareholders. The company’s major shareholders are leading

pachinko/pachislot machine manufacturers, such as SANKYO Co. (TSE1: 6417), Sammy Inc. (a subsidiary of Sega Sammy
Holdings Inc. (TSE1: 6460)), and Heiwa Corp. (TSE1: 6412). For a company that develops critical ancillary features forpachinko machine manufacturers, such as prepaid-card systems and card-reading units, these capital ties provide it with anadvantageous position in co-operating with pachinko/pachislot machine manufacturers◤ Specialization in prepaid-card systems. Unlike its competitors, who also deal with other peripheral devices (such as prize

exchange systems, membership systems and call lights) for both pachinko and pachislot machines, the company specializes
purely in prepaid-card systems. This means it can collaborate with other leading companies in other areas who produce
different types of peripheral devices. If new halls were opening up systematically, this could allow companies offering a
one-stop shop model bundling a variety of peripheral pachinko devices together plenty of scope to increase market share,

however, this is not the case. Instead, demand is currently driven by upgrades of existing facilities and even then equipment
tends to be upgraded in piece-meal fashion. Nippon Game Card’s cross-compatibility with other peripheral device makers’
products in this environment may be thus seen as advantageous.

Weaknesses◤ Shrinking market. The pachinko market is continuing to shrink, and there are no signs of this trend reversing. As thedominant player within the industry the company is easily affected by market trends.

◤ Single source of income. The company’s core market is shrinking and while the company could theoretically move into

other businesses to grow, it is currently focused on the core business making its earnings highly susceptible to the vagaries ofthe pachinko market.

◤ Regulated industry. The company’s client base of halls is strictly regulated by laws such as the Law on Control and

Improvement of Amusement Businesses. By extension, the company’s financial performance is also affected by such
regulations.

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Market and value chain
Market overview
As for the company’s earnings, trends in the installed pachinko machine base affect its Equipment Sales segment; revenues forcard sales (essentially, information management fees or handling commissions for account settlements of card balances) are
affected by halls’ sales trends; while hall numbers are the swing factor for system-usage fees. Therefore, when looking at thecompany’s earnings structure it is necessary to focus on the earnings environment and competitive pressure among halls, inaddition to trends in the overall size of the pachinko market. For example, if the market continues to move toward large halls
combined with a lower overall hall count, this will have a negative impact on system-usage fees for the company.
The Japan Productivity Center estimated the total domestic leisure market at JPY69.9tn (+0.2% YoY) in fiscal 2017 (source: White
Paper on Leisure 2018). Pachinko/pachislot market (total lending charge of pachinko balls) was estimated at JPY19.5tn (-4.3%
YoY). The pachinko/pachislot market has created a large presence to account for around 28% of the overall leisure market.

Industry trend
Shared Research focuses on the following indicators to gauge the state of the pachinko/pachislot industry.
Key indicators for pachinko/pachislot industry
Key figures

Indicator

CAGR

Reference-4.7% (past 10 years)

In a long-term downtrend

JPY19.5tn(2017)-4.3% (past 10 years)

Declining since 2005 along with game-playing population

10,596(2017)-2.5% (past 10 years)

4.43mn(2017)-0.4% (past 10 years)

9.0mn

Number of players(2017)

Pachinko/pachislot
market size
Number of pachinko halls
Number of machines
installed

Shrinking with pachinko/pachislot market
Average number of machines installed per hall rising
In a mild downtrend

Source: Shared Research based on various sources
Note: replacement rate = number of machines sold ÷ number of machines installed

Downward trend in player population and declining number of pachinko halls
The pachinko industry has been experiencing a gradual long-term decline in the player base and market size. The player base fell
to 9.0mn in 2017 compared to 29.0mn in 1995. Until 2005, the market size grew despite a shrinking player population as
average annual spend per player was growing. The market size (total lending charge of pachinko balls) peaked in 2005 at
JPY34.9tn, and fell to JPY19.5tn in 2017.
Pachinko players and market size
Market size (JPYtn)
Player population (mn people)

23.1
19.8

18.6

20.2

21.2
19.3
17.4

17.9

17.1

16.6
14.5

28.4

1997

28.0

1998

28.5

1999

28.9

2000

30.4

29.2

2001

2002

32.4

33.9

34.9

2003

2004

2005

15.8

17.2

16.7
12.6

33.6

30.2

2007

2006

28.8

2008

28.2

26.0

2009

2010

25.5

2011

11.5

11.1

9.7

25.7

25.0

2012

2013

24.5

10.7
23.2

9.4

9.0

20.4

19.5

2017

2014

2015

2016

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Player population (mn people)

23.1

19.8

18.6

20.2

19.3

21.2

17.4

17.9

17.1

16.6

14.5

15.8

17.2

16.7

12.6

11.1

9.7

11.5

10.7

9.4

2017
9.0

Market size (JPYtn)

28.4

28.0

28.5

28.9

29.2

30.4

32.4

33.9

34.9

33.6

30.2

28.8

28.2

26.0

25.5

25.7

25.0

24.5

23.2

20.4

19.5

Source: Shared Research based on White Paper on Leisure

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Diverging trends among halls
The number of pachinko halls declined to 10,596 in 2017 from 17,773 in 1997 (source: National Police Agency). However,despite the growing downward trend in the number of pachinko halls, the number of installed machines has remained generally
unchanged at 4.43mn in 2017 and 4.73mn in 1997. On the other hand, hall sizes have become larger, increasing to an average of
419 installed machines per hall in 2017 from 268 machines in 1997.
A decrease in the amount of cash flow available for new investments has forced some smaller operators to sell or shut operations,while larger chains appear to be gaining scale, highlighting continued polarization of the market.
Number of pachinko halls and installed pachinko machines per hall

Number of pachinko halls
Installed machines per hall

268.0

270.3

274.3

279.9

284.9

17,773

17,426

17,173

16,98816,801

1997

1998

1999

2000

294.7

16,504

2001

1997

1998

2002

1999

304.3

16,076

318.2

323.1

15,617

15,165

2003

2004

2005

2000

2001

2002

337.9

336.5

14,6742006

2003

13,585

2007

2004

2005

349.8

356.2

12,937

12,652

2008

2006

387.8

365.0

371.9

378.0

12,47912,323

12,14911,893

2012

2013

2009

2010

2007

2008

2011

2009

2010

2011

2012

405.0

411.9

418.7

11,627

11,31010,986

10,596

2014

2015

2016

2017

2013

2014

2015

395.4

2016

2017

Number of pachinko halls

17,773 17,426 17,173 16,988 16,801 16,504 16,076 15,617 15,165 14,674 13,585 12,937 12,652 12,479 12,323 12,149 11,893 11,627 11,310 10,986 10,596

Installed machines per hall

268.0

270.3

274.3

279.9

284.9

294.7

304.3

318.2

323.1

336.5

337.9

349.8

356.2

365.0

371.9

378.0

387.8

395.4

405.0

411.9

418.7

Source: Shared Research based on National Police Agency

Industry regulations
Current gaming machine regulations that may affect the company’s earnings are as follows.
The industry association implemented voluntary regulations for pachinko machines in November 2015 and on pachislot
machines in December 2015. Further voluntary regulations were introduced for pachislot machines in October 2017. In February
2018, following the passage of the Bill for the Promotion of Integrated Resort Facilities as a measure to curb gambling addiction, apartial amendment to the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Businesses and theRegulations Concerning Authorization and Model Approval for Amusement Machines was enforced. The proposed amendment
includes a change in the number of pachinko balls released per play.

Effect of measures to curb the gambling nature of pachinko machines
In an effort to reduce the attraction of pachinko as a form of gambling and restore it as a form of entertainment, the pachinko
machine manufacturers association (the Japan Game Machine Industry Association) agreed to change the lower limit of thepachinko machine jackpot probability range (the chance of “winning big”) to 1/320 (from 1/400 as of May 2015). Effective
November 2015, this self-imposed regulatory change meant that game machine manufacturers would no longer be able to sell
and newly install extremely competitive “max-type” machines (jackpot probability of 1/370–1/399 but with bigger winnings)
that were the mainstay at pachinko halls prior to October 2015.
From May 2016, the Game Machine Industry Association also voluntarily introduced a lower maximum occurrence of a gamefeature called “probability fluctuation” (the jackpot rate after a successful a jackpot) from around 80% to 65%.
This latest self-regulatory move was precipitated by pachinko halls increasingly installing “max-type” machines (reached morethan 40% of all machines in pachinko halls at one point) to meet demand from hard-core pachinko players. As max-machines

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pushed up the average cost of playing pachinko, the number of players declined. The industry sought to tighten standards toreduce the addictive gambling aspect of pachinko, with the hope of bringing back more players into pachinko halls.

Impact of voluntary industry restrictions on pachislot machines
In September 2014, the Security Communication Association changed its testing methodology for pachislot machines. Previously,
pachislot machines had to register a minimum payout rate of 55% (at least 11 out of 20 tokens inserted) during a random test run.
The new standard called for the same minimum payout rate while testing under a play mode set for the lowest possible payout
rate. That same month, the pachislot machine manufacturers association (the Japan Game Machine Industry Association) adopted
a new standard that would prohibit penalty features from irregular pressing of machines and also mandated that machine makers
switch to motherboards with AT/ART functionality.
Prior to this change, pachislot machines incorporated a main circuit board and a sub board, both of which controlled the payout
rate of game tokens. Effective December 2015, the new industry standard requires the sub-board program that controls gametoken discharge to be incorporated into the main circuit board.
AT Machine: An abbreviation of Assist Time, an AT Machine is a type of pachislot machine. During regular play, even if the user selects the winningicons, they do not match up on the screen because of the push-order rule. However, when the AT function is installed, if the machine selects the AT
mode, a display screen on the pachislot machine will indicate the order of the buttons to press to match up the icons on the screen, allowing the user
to increase their coins.
ART Machine: An abbreviation of Assist Replay Time, an ART Machine is a type of pachislot machine. When this function is installed, if the machineenters ART mode, the odds of a replay increase, allowing the user to continue playing without using up coins.

In June 2016, Liaison Conference of Pachislot Machine Manufacturers explained that they would implement voluntary regulations,which limit ART functions for pachislot machines installed after October 2017, and classified pachislot machines that comply withthese voluntary regulations as 5.9 models. New units of the current 5.5 machine models can only be installed up to the end of
September 2017.
Shared Research understands that for 5.9 models there will be two sections related to the indicated navigation function (such as
the push-order): a regular section, which will prohibit the ART mode, and a section in which the ART mode is allowed. Machines
randomly select the transition from the regular to the ART mode, and the ART mode section will limit the total amount of tokens
released to 3,000 by ending the game after a maximum of 1,500 games. The chance of the ART mode being selected is limited tounder 70%.

Partial amendment to the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Businesses and theRegulations Concerning Authorization and Model Approval for Amusement Machines
In September 2017, the NPA promulgated a partial amendment to the Ordinance for Enforcement of the Act on Control and
Improvement of Amusement Businesses and the Regulations Concerning Authorization and Model Approval for Amusement
Machines, which was brought into effect in February 2018.
The proposed amendment, which aims to reduce the addiction of pachinko as a form of gambling, limits the game ball-releasing
capacity of amusement machines as well as the maximum number of game balls released per jackpot. It also introduces a“settings” feature for pachinko machines.

Tightening regulations on the number of balls released
The proposed amendment newly stipulates a rule, which curbs the ball-releasing capacity of amusement machines over a set
playing span of four hours. Under this rule, the total number of game balls released during a four-hour play must be less than 1.5
times the total number of game balls shot by the player. Existing technical specifications and standards for one hour and 10 hours
will also be tightened to the same degree so that the total number of game balls released may be reduced to about 2/3 of thecurrent level. For pachislot machines, a new regulation similar to that of pachinko machines also for a four-hour playing span
(1,600 shots in the case of pachislot machines) will be put in place.

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Regulations on the number of game balls released per jackpot
For pachinko machines, the maximum number of game balls released per jackpot will be reduced from the current upper limit of
2,400 to 1,500. For pachislot machines, the maximum number of game tokens will be reduced from 480 to 300.

Addition of gaming machine specifications that allow easy access to information on game balls released
Gaming machine specifications that allow easy access to information on game balls released will be set with an aim to prevent
excessively heightened addiction.

The Definitions of Terms Used in Technical Standards section of Appended Table 2 of the Regulations Concerning the Certification of Gaming Machines
and Model Inspections, Etc., included in the partial amendment to the Ordinance for Enforcement of the Act on Control and Improvement of
Amusement Businesses and the Regulations Concerning Authorization and Model Approval for Amusement Machines (promulgated in September2017), added the definition for Game Ball Number Display Device as “a device installed in gaming machines that adopt a structure that removes
physical interaction between players and game balls, and in which the total number of balls that can be shot by a player is recorded using anelectromagnetic system and can be displayed accordingly.” This definition refers to “controlled machines”.

Addition of managers’ operations
Pachinko hall managers will be required to provide information to customers and take other necessary measures to prevent
customers’ excessive game playing.

Introduction of a “settings” feature to pachinko machines
For more flexibility, up to six pachinko machine settings defining jackpot probabilities will be allowed as in the case with pachislot
machines.
As a transitional measure, amusement machines certified under the current regulations and those belonging to the same modeltype as the tested and approved models can remain in operation at pachinko halls for a period of three years from the initial datelaunched as outlined in the supplementary provisions.
The deadline for submission of public comments was August 8, 2017 and the amendment was slated to be enforced effective
February 1, 2018.

Barriers to entry
Barriers to entry are extremely high given that the company operates in an oligopolistic market and its client base of pachinkohalls is subject to strict regulations, such as the Law on Control and Improvement of Amusement Businesses.

Competitive environment
Number of member halls using prepaid-card systems and market share
As of end-March 2018, 8,491 halls (8,830 halls as of end-March 2017) used prepaid-card systems, representing 80% of the total
10,596 halls in Japan (as of end-December 2017; 10,986 halls at end-December 2016). The penetration rate for prepaid-card
systems among halls has not changed much.

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Halls using prepaid-card systems and market share
FY03/16
9,044
4,184

FY03/17
8,830
3,957

FY03/18
8,491
3,674

46.3%

44.8%

43.3%

2,098

2,076

2,044

Market share

23.2%

23.5%

2,011
22.8%
616
7.0%
141

24.1%

1,948
22.9%
679
8.0%
115

Market share

1.8%

1.6%

1.4%

Halls using prepaid-card systems
Nippon Game Card and JOYCO SYSTEMS
Market share

Glory Nasca
Mars Engineering
Market share
Daikoku Denki
Market share
Universal Entertainment

2,051
22.7%
527
5.8%
163

OIZUMI
Market share

21
0.2%

29
0.3%

31
0.4%

Total number of halls

11,31010,986

10,596

Source: Shared Research based on data from the company and Zennichiyuren
Note: Total number of halls represent the number at end-December of each year.

The pachinko prepaid-card industry is an oligopoly dominated by three companies: Gamecard-Joyco Holdings, GLORY NASCA
Ltd. (a subsidiary of Glory Ltd. (TSE1: 6457) created from an April 2011 merger with Creation Card Co.), and Mars Engineering
Corp. (TSE1: 6419).
Based on sales as of the end of March 2018, the company had 43.3% market share of halls using its prepaid-card system, making
it easily the largest company in the space. GLORY NASCA followed with 24.1%, and Mars Engineering had 22.9%.
The main difference between Nippon Game Card and its competitors is the company’s business model is based on a third-party
issuer card system, while the other two provide predominantly house-issuer card systems. (JOYCO SYSTEMS actually sells
house-issuer card system but for the company as a whole third-party issuer card systems are the dominant system). Additionally,
the other two companies sell equipment used outside of the pachinko and pachislot space, whereas Nippon Game Card
specializes purely in providing pachinko pre-paid card systems.
Please refer to the Business section for a detailed explanation on the differences between third-party issuer and house-issuer card
systems. It is hard to judge whether Nippon Game Card’s strategy of solely focusing on prepaid-card systems and collaboratingwith other companies for peripheral devices (for example, Daikoku Denki Co. [TSE1: 6430]) is superior to providing clients withother peripheral devices, as GLORY NASCA Ltd. and Mars Engineering do. Some halls, such as top-tier hall DYNAM (operates 405
halls nationwide as of end-January 2018), exclusively use Mars Engineering’s systems, leaving no room for Nippon Game Card orother peripheral device manufacturers. Nonetheless, not all halls rely solely on one equipment maker, as DYNAM does. Moreover,
GLORY NASCA and Mars Engineering’s market shares for peripheral devices are not particularly dominant. Thus, focusing on its
core business and partnering with other dominant specialist companies does have its advantages.
After 2012, Daikoku Denki, which has a high market share in computer systems used in pachinko and pachislot halls, entered the
prepaid-card systems market. Despite being a latecomer to the market, Daikoku Denki has steadily built up its following, and as ofthe end of FY03/18, had 679 member halls for an 8.0% market share. Daikoku Denki, like Mars Engineering, appears to beretaining clients by providing them with other peripheral devices.

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Historical earnings results
1H FY03/19 results
Consolidated results for 1H FY03/19 were as follows:▷ Sales:

JPY8.5bn (-1.1% YoY)

▷ Recurring profit:

JPY1.7bn (-10.4% YoY)

▷ Operating profit:▷ Net income*:

JPY1.7bn (-10.6% YoY)

JPY1.2bn (-15.9% YoY)*Net income refers to net income attributable to parent company shareholders.
Pachinko hall operators that comprise the company's primary customer base, were impacted by the revised regulations(Regulations Partially Amending the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Business,etc.) enforced in February 2018 and development of the Basic Bill on Gambling Addiction Countermeasures. The number ofpeople playing pachinko continued to decline as sources of entertainment diversified with the proliferation of the internet andsmartphones, causing the operating environment to remain difficult. Meanwhile, measures responding to the social need to curb
gambling addiction are expected, with the establishment of operations with low-priced balls and the spread of machines thatsuppress the gambling element in order to conform to revised regulations (Regulations Partially Amending the Ordinance for
Enforcement of the Act on Control and Improvement of Amusement Business, etc.).
Gamecard-Joyco group strove to streamline its operation with the theme of “completion of structural reform and maximization of
its effects” as a core policy. The company promoted marketing activity, planned to maintain and grow the share of member halls,
strengthened relationships with distributors, and promoted replacements at existing member halls. In terms of R&D, in order torevitalize the industry, the company simultaneously proceeded with development of products to conform to new regulations andcurb gambling addiction, and with planning and development to offer a continuous and stable service. As a result, although theoperating environment was difficult, sales remained similar to the level of FY03/18. Profit declined due to a fall in GPM to 45.7%(-2.4pp YoY).
Versus full-year FY03/19 company forecasts, 1H sales reached 56.4% (1H FY03/18 sales reached 50.5% of full-year FY03/18
results), operating profit 86.3% (53.7%), recurring profit 86.3% (53.6%), and net income attributable to parent company
shareholders 84.0% (60.4%). The company announced an upward revision to its FY03/19 full-year forecast in November 2018
but 1H performance in profit was high compared to revised projections. For 2H, Gamecard-Joyco Holdings Inc. predicts anoverall drop in sales, particularly in equipment sales, as well as concentrated recording of R&D expenses.

Sales breakdown◤ Equipment sales rose 11.3% YoY to JPY3.2bn on an increase in equipment unit sales to 25,786 units (+23.7% YoY). According

to the company, investment demand for peripheral devices in pachinko halls rose in 1H due to growing expectations forgaming machines compliant with new regulations. Demand for conversion to more efficient machines, such as ball-counting
systems, also increased due to labor shortages. In addition, the company actively strengthened its relationships with
distributors to maintain or increase its member hall share and actively rolled out machine replacement promotion measures atmember halls. These efforts resulted in higher equipment unit sales.
◤ Card sales were JPY1.5bn (-7.7% YoY), reflecting lower information management fees accompanying a drop in the total valueof cards issued, and lower media fees caused by a drop in the number of cards sold. The fall in the total value of cards issued

was attributable to a decline in the number of member halls to 3,543 (-283 or -7.4% YoY). The share of member halls also fellto 42.5% (43.3% at end-FY03/18). Acquisition of new member halls outpaced member hall loss due to closings or otherreasons. In addition to the decline in the number of member halls, a drop in average spend due to the spread of operations
with low-priced balls resulted in a drop in the total value of cards issued.
◤ System-usage fee revenue fell 8.1% YoY to JPY3.6bn due to the drop in the number of member halls noted above.
◤ Others (equipment installation and maintenance) posted sales of JPY241mn (+10.6% YoY).

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Gross profit declined 5.9% YoY to JPY3.9bn. GPM also fell 2.4pp YoY to 45.7%. Gross profit dropped for all product types,
excluding those in others (equipment installation and maintenance), and GPM also decreased because equipment sales, whichhave a relatively low GPM took up a larger share of overall sales.
◤ Gross profit for equipment sales was JPY443mn (-3.1% YoY), and GPM was 13.9% (-2.1pp YoY).
◤ Gross profit for card sales was JPY961mn (-7.8% YoY), and GPM was 64.7% (even YoY).

◤ Gross profit for system-usage fees was JPY2.4bn (-7.1% YoY), and GPM was 66.9% (+0.7pp YoY).

SG&A expenses totaled JPY2.1bn (-1.9% YoY), of which personnel expenses were JPY789mn (-7.4% YoY) and R&D expenses were
JPY281mn (+81.3% YoY). R&D expenses increased due to progress in the development of products equipped with addiction
prevention features and compliant with new regulations, as well as product development and other measures geared toward
providing stable services.
As a result, operating profit, recurring profit, and net income attributable to parent company shareholders fell YoY.

Q1 FY03/19 results▷ Sales:

JPY4.1bn (-7.4% YoY)

▷ Recurring profit:

JPY963mn (+0.5% YoY)

▷ Operating profit:▷ Net income*:

JPY960mn (+1.1% YoY)

JPY693mn (-0.1% YoY)*Net income refers to net income attributable to parent company shareholders.
For pachinko hall operators that comprise the company's primary customer base, the operating environment remained difficult.
Fewer people are playing pachinko since the sources of entertainment are diversifying and operations with low-priced balls are
becoming the norm. Additionally, there is uncertainty over the impact of the revised regulations (Regulations Partially Amending
the Ordinance for Enforcement of the Act on Control and Improvement of Amusement Business, etc.) enforced in February 2018
and development of the Basic Bill on Gambling Addiction Countermeasures.
Gamecard-Joyco group continued to provide ideas useful to revitalize the industry and to operate pachinko halls, swiftly andprecisely understanding the social needs as well as the needs of pachinko hall operators and pachinko fans. The company
continuously strove to streamline its operation with the theme of “completion of structural reform and maximization of its effects”
as a core policy. As a result, sales declined on lower number of equipment unit sales and member halls, but all profit items underoperating profit remained flat YoY owing to a drop in SG&A expenses.
Versus full-year FY03/19 company forecasts, Q1 sales reached 29.0% (Q1 FY03/18 sales reached 26.3% of full-year FY03/18
results), operating profit 80.0% (26.4%), recurring profit 80.3% (26.7%), and net income attributable to parent company
shareholders 86.6% (29.9%). Q1 results had high progress rates versus plan as unit prices of equipment were in line withexpectations and majority of R&D expenses were expected to be booked in 2H.

Sales breakdown◤ Equipment sales declined 5.5% YoY to JPY1.5bn on a drop in equipment unit sales to 11,208 units (-6.7% YoY). Amid

uncertainties accompanying the revised regulations involving amusement business enacted in February 2018, investment
interests in peripheral equipment of pachinko halls have dwindled, leading to a limited number of hall openings. As only a few
new pachinko halls opened, equipment unit sales primarily came from replacement demand at existing member stores.

◤ Card sales were JPY730mn (-11.0% YoY), reflecting lower information management fees accompanying a drop in the total

value of cards issued, and lower media fees caused by a drop in the number of cards sold. The fall in the total value of cards
issued was attributable to a decline in the number of member halls to 3,612 (-277 or -7.1% YoY). In addition to the decline in

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the number of member halls, a drop in average spend due to the spread of operations with low-priced balls resulted in a dropin the total value of cards issued.
◤ System-usage fee revenue fell 8.1% YoY to JPY1.8bn due to the drop in the number of member halls noted above.
◤ Others (equipment installation and maintenance) posted sales of JPY118mn (+2.6% YoY).

Gross profit declined 6.4% YoY to JPY1.9bn. However, GPM improved 0.5pp YoY to 47.3%. Gross profit fell for all products
except for others, but GPM rose.
◤ Gross profit for equipment sales was JPY235mn (-1.7% YoY), and GPM was 15.9% (+0.6pp YoY). Equipment sales mainly camefrom replacement demands at existing member halls.

◤ Gross profit for card sales was JPY472mn (-9.8% YoY), and GPM was 64.7% (+0.9pp YoY).

◤ Gross profit for system-usage fees was JPY1.2bn (-6.9% YoY), and GPM was 66.9% (+0.9pp YoY). The GPM rose as usage ofequipment for updates and booking of expenses was postponed.

SG&A expenses totaled JPY988mn (-12.6% YoY), of which personnel expenses were JPY362 (-13.0% YoY) and R&D expenses
were JPY94mn (+14.6% YoY).
As a result, operating profit, recurring profit, and net income attributable to parent company shareholders were flat YoY.

Full-year FY03/18 results▷ Sales:

JPY16.9bn (-17.0% YoY)

▷ Recurring profit:

JPY3.6bn (+84.8% YoY)

▷ Operating profit: JPY3.6bn (+87.4% YoY)
▷ Net income*:

JPY2.3bn (net income of JPY27mn in FY03/17)*Net income refers to net income attributable to parent company shareholders.
Among the pachinko hall operators that comprise the company's primary customer base, there are still some medium-sized andlarge chain operators that are looking to maintain or even improve their competitive position by opening up more pachinko halls
in and around Japan's major cities, especially in the Kanto and Kinki regions. For the most part, however, the number of pachinkohalls continues to decline as operators remain under pressure from 1) tighter regulations on machines offering high potential
payouts; 2) a loss of players to other forms of entertainment following the spread of smartphones mobile gaming; and 3) a dropin average spend stemming from an increase in the number of hall operators offering low-priced balls.
To cope with the increasing harsh operating environment, the Gamecard-Joyco Group has completed major structural reforms
and is now looking to maximize the benefits of those reforms with the help of 1) a streamlined business structure with more
selective and concentrated product and service lines; 2) a stronger financial position with real-time management of inventory andaccounts receivable; and 3) streamlined operations with a focus on efficiency and speed. As a result, all profit items underoperating profit exceeded FY03/17 results.

Sales breakdown▷ Equipment sales declined to JPY5.7bn (-29.8% YoY) on a drop in equipment unit sales to 43,593 units (-38.3%). As only a few
new pachinko halls opened, equipment unit sales primarily came from replacement demand for existing member stores▷ Card sales declined to JPY3.2bn (-12.2%), reflecting lower information management fees accompanying a drop in the total valueof cards issued, and lower media fees caused by a drop in the number of cards sold. The fall in the total value of cards issued was
attributable to a decline in the number of member halls to 3,674 (down 283, -7.2%). According to the company, the number ofcancelled memberships (including closures of existing members) exceeded that of newly acquired member halls. In addition to a

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decline in the number of member halls, continued sluggish performance of four-yen pachinko and a decline in average spend
due to reduced operation hours among other factors resulted in a drop in the total value of cards issued▷ System-usage fee revenue declined to JPY7.6bn (-6.9%) due to the drop in the number of member halls noted above▷ Other revenues declined to JPY440mn (-8.1%)

Gross profit declined to JPY7.9bn (-4.6% YoY) overall. However, the GPM improved 6.1pp YoY to 46.5%. Gross profit fell for all
products except for equipment sales, but the decline in gross profit for system-usage fees (which account for about 60% of total
gross profit) was negligible.

▷ Gross profit for equipment sales was JPY703mn (+4.5% YoY) and the GPM was 12.3% (+4.1pp)▷ Gross profit for card sales was JPY2.0bn (-10.3% YoY) and the GPM was 64.0% (+1.4pp)▷ Gross profit for system-usage fees was JPY5.0bn (-2.8% YoY) and the GPM was 66.2% (+2.8pp). The GPM rose because of lower
costs, which mainly reflected leased equipment entering re-lease periods

SG&A expenses totaled JPY4.3bn (-32.5% YoY), of which personnel expenses were JPY1.6bn (-24.7%) and R&D expenses were
JPY393mn (-56.6%). Personnel expenses fell due to the voluntary retirement (86 retirees) in FY03/17. R&D spending was downbecause the company had to push back development work. Following new regulations governing the amusement industry, it
now had to review the details and specifics of changes that must be made to the "controlled machines" it has been developing
and to measures to reduce compulsive gambling.
As a result, operating profit, recurring profit, and net income attributable to parent company shareholders rose significantly YoY.

FY03/17 results
Sales:

JPY20.4bn (-14.6% YoY)

Operating profit:

JPY1.9bn (operating loss of JPY1.4bn in FY03/16)

Recurring profit:

JPY1.9bn (recurring loss of JPY1.4bn in FY03/16)

Net income*:

JPY27mn (net loss of JPY2.1bn in FY03/16)*Net income refers to net income attributable to parent company shareholders.
The pachinko business environment remains more difficult than ever before: Fewer people are playing pachinko since the sourcesof entertainment are diversifying, operations with low-priced balls are becoming the norm, new industry regulations and theremoval of machines that feed gambling addictions, and the issue of shifting to new standard machines. Further, additional
gaming machine regulations are expected going forward as part of measures to deal with addiction. In such a difficult
environment, pachinko halls are working to lower costs of operations, and have a cautious stance when making capex decisions,such as new store openings and remodeling existing stores. Capex for new peripheral equipment, the company’s area of
operations, was dull.
Sales broken down by product category were as follows.
◤ Equipment sales were JPY8.2bn (-23.3% YoY). At first the company worked to win new member halls especially for its

mainstay product G∞WIN’Z and also focused its sales activities on adding more card systems and token dispensers andreplacing systems with ball-counting systems for existing member gaming halls. As such, the number of machines sold
dropped to 70,696 units (-36.0% YoY), breaking down into 39,999 pachinko card systems (-42.7%) and 31,297 pachislot
token dispensers (-25.1%). Equipment sales declined less in value terms than in volume terms, because unit prices were up
YoY.
◤ Card sales were JPY3.6bn (-8.8% YoY). Media fees were down, because information management fees declined due to a

13.0% fall in the total value of cards issued (usage value: JPY9.1tn) and 9.9% decline in card sales volume to3,390,000.

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Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp◤ Income from system-usage fees totaled JPY8.1bn (-7.5% YoY), because the number of member gaming halls decreased by

227 (-5.4%) to 3,957 and the unit system-usage fee fell. The company acquired 63 new member gaming halls (38 fewer thanin FY03/16) while 290 cancelled their memberships (70 fewer than in FY03/16) for a net decrease of 227 halls.

◤ Other income was JPY479mn (+3.0% YoY)

Gross profit was sustained at a slight fall finishing at JPY8.3bn (-1.9% YoY) overall. It increased YoY in the equipment sales andother categories, but declined on card sales and system-usage fees. However, GPM improved 5.2pp YoY to 40.4%. Gross profit
broken down by product category as follows.
◤ Equipment sales gross profit was JPY673mn (+21.5% YoY) and GPM improved 3.0pp to 8.2%. Gross profit was up YoY despitea 23.3% decline in equipment sales. The company determined that given the scarcity of new hall openings, it could notincrease equipment unit sales if it relied too heavily on sales to new halls. Thus it made sales efforts that focused on adding
new equipment and replacing ball-counting systems at existing member halls, and GPM rose as a result.
◤ Card sales gross profit was JPY2.3bn (-8.4% YoY) and GPM was 62.6% (+0.2pp).

◤ System-usage fee gross profit was JPY5.2bn (-3.2% YoY) and GPM was 63.4% (+2.8pp). GPM went up because of lower

system-usage costs as a result of renewing data centers.

SG&A expenses totaled JPY6.3bn (-35.8% YoY), of which R&D expenses were JPY906mn (-77.0%) and depreciation was
JPY485mn (-23.4%). R&D spending fell as a result of a selective approach to items for development and revamping theorganizational structure. The decrease in depreciation was mainly for molds. Sales-related expenses also fell as a result of lower
equipment unit sales.
As a result, profits from operating profit down saw significant YoY upside.
The company also initiated structural reforms to turn the business structure into one that can be competitive and profitable, evenamid a harsh market environment. As part of that, the company consolidated the head offices of group companies, and aiming tofurther enhance its corporate structure, implementing a voluntary retirement program in order to build a personnel structure
appropriate for its scale of business.

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Other information
History
Nippon Game Card
Early period (1989 to 1994)
At the time of Nippon Game Card’s establishment in Osaka in August, 1989, pachinko halls were under the spotlight for tax
evasion, fraud and other issues. As part of a drive to clean up the pachinko industry’s image the industry regulator, the National
Police Agency, decided to introduce prepaid-card systems which enabled card companies to monitor pachinko hall sales in order
to increase hall operator transparency.
Based on this, three main companies—all with capital ties to Japan’s leading trading houses—were established to develop andimplement the prepaid-card initiative:▷ Nihon Leisure Card System K.K.: Established in 1988, largest initial shareholder was Mitsubishi Corp. (TSE1: 8058)▷ Nippon Game Card: Established in 1989, largest initial shareholder was Sumitomo Corp. (TSE1: 8053)▷ Nihon Advanced Card System K.K.: Established in 1995, largest initial shareholder was Mitsui & Co. (TSE1: 8031)
From 1993 onward the company grew rapidly as CR model (prepaid-card system) pachinko machines proliferated.

Turmoil (1995 to 2001)
By 1996 the pachinko industry had become plagued by card counterfeiting. The company had to focus on prevention ofcounterfeiting while combating the growing fallout from it. At the same time, numerous new market entrants had appeared,
offering house-issuer card systems with lower running costs—Mars Engineering Corp. (entering the market in 1999), JOYCOSYSTEMS Corp. (see section below), Seta Corp. (which entered the market in 2000 and is now known as Universal Entertainment
Corp. (JASDAQ: 6425)), as well as Nasca Corp. and Creation Card Information System Co. (both of whom entered the market in1998), which have since merged to form Glory Nasca Ltd.

Rebuilding (2001 onward)
In 2001, pachinko/pachislot machine manufacturer SANKYO Co. replaced Sumitomo Corp. as the company’s largest shareholder.
The company used this change as an opportunity to refocus its business on meeting pachinko halls’ business needs. The
company also merged with former third-party card issuer competitors Nihon Advanced Card System in October 2003, and with
Nihon Leisure Card System in April 2008. In April 2006, the company listed on the JASDAQ Securities Exchange (now mergedwith the Tokyo Stock Exchange).

JOYCO SYSTEMS Corp.
JOYCO SYSTEMS Corp. was established in March 2001. Unlike Nippon Game Card, it provides house-issuer prepaid-card systems.
Relatively cheap maintenance costs of its system initially allowed it to grow market share among halls in the prepaid-card market.
However, as a late industry entrant the company faced a shrinking market early on, slowing its momentum. It then fell behindcompetitors in launching new products resulting in a decline in the number of halls using its system.

Gamecard-Joyco Holdings, Inc.
On April 1, 2011, Nippon Game Card and JOYCO SYSTEMS merged and established a joint holding company “Gamecard-Joyco
Holdings, Inc.” through a share transfer.

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News and topics
November 2018
On November 8, 2018, the company announced revisions to its earnings forecasts.

Revised forecast for FY03/19▷ Sales:

JPY15.0bn (versus previous forecast of JPY14.2bn)▷ Recurring profit:

JPY2.0bn (JPY1.2bn)▷ Operating profit:▷ Net income*:▷ EPS:

JPY2.0bn (JPY1.2bn)

JPY1.4bn (JPY800mn)
JPY98.16 (JPY56.09)*Net income refers to net income attributable to parent company shareholders.

Reason for revision
The company has continuously striven to streamline its operation with the theme of “completion of structural reform andmaximization of its effects” as a core policy since FY03/18, and promoted aggressive sales activities. As a result, sales are expected
to exceed initial forecasts.
At the same time, operating profit, recurring profit, and net income attributable to parent company shareholders are expected to
exceed initial forecasts as a result of some development plans relating to the development of products in line with revised
regulations (Regulations Partially Amending the Ordinance for Enforcement of the Act on Control and Improvement of
Amusement Business, etc.) shifting to the next fiscal year or later.

Major shareholders
Top shareholders
SANKYO CO., LTD.
DATA-ART, Inc.
Heiwa Corporation
Kyoraku Sangyo Co., Ltd.
Sammy Inc.
Daiichi Co., Ltd.
Newgin Group
Fujishoji Co., Ltd.
SAXA, Inc.
Sansei R&D Co., Ltd.
SANYO BUSSAN K.K.
Daito Giken, Inc.
Takao Co., Ltd.
Takeya Co., Ltd.
Toyomaru Industy Co., Ltd.
SUM

Shares held Shareholding('000)
ratio
2,131
14.94%
632
4.43%
612
4.29%
611
4.29%
611
4.29%
611
4.29%
611
4.29%
611
4.29%
510
3.57%
463
3.24%
463
3.24%
463
3.24%
463
3.24%
463
3.24%
463
3.24%
9,723
68.17%

Source: Shared Research based on company data
As of March 31, 2018

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Company profile
Company Name

Head Office

Gamecard-Joyco Holdings, Inc.

2-14-22 Ueno Taito-ku

Sakura Park Building
Tokyo, Japan 110-0005
Phone

Listed On+81-3-6803-0301

JASDAQ Standard

EstablishedExchange Listing

April 1, 2011

April 1, 2011

WebsiteFiscal Year-End

http://www.gamecard-joyco.co.jp/index.html

March

IR Contact

IR WebInvestor Relations & General Affairs Division

http://www.gamecard-joyco.co.jp/ir/

IR Mail

IR Phone-+81-3-5812-7595

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RYOHIN KEIKAKU CO., LTD.

Ateam Inc.

Infocom Corporation

SanBio Company Limited

Aucfan Co., Ltd.

Infomart Corporation

SANIX INCORPORATEDAVANT CORPORATIONIntelligent Wave, Inc.

Sanrio Company, Ltd.

Axell Corporation

ipet Insurance CO., Ltd.

SATO HOLDINGS CORPORATION

Azbil Corporation

istyle Inc.

SBS Holdings, Inc.

AZIA CO., LTD.

Itochu Enex Co., Ltd.

Seikagaku Corporation

BEENOS Inc.

JSB Co., Ltd.

Seria Co.,Ltd.

Bell-Park Co., Ltd.

JTEC Corporation

SHIP HEALTHCARE HOLDINGS, INC.

Benefit One Inc.

J Trust Co., Ltd

SIGMAXYZ Inc.

B-lot Co.,Ltd.

Japan Best Rescue System Co., Ltd.

SMS Co., Ltd.

Canon Marketing Japan Inc.

JINS Inc.

Snow Peak, Inc.

Career Design Center Co., Ltd.

JP-HOLDINGS, INC.

Solasia Pharma K.K.

Carna Biosciences, Inc.

KAMEDA SEIKA CO., LTD.

SOURCENEXT Corporation

CARTA HOLDINGS, INC

Kenedix, Inc.

Star Mica Co., Ltd.

CERES INC.

KFC Holdings Japan, Ltd.

Strike Co., Ltd.

Chiyoda Co., Ltd.

KI-Star Real Estate Co., Ltd.

SymBio Pharmaceuticals Limited

Chugoku Marine Paints, Ltd.

Kondotec Inc.

Synchro Food Co., Ltd.

cocokara fine Inc.

Kumiai Chemical Industry Co., Ltd.

TAIYO HOLDINGS CO., LTD.

COMSYS Holdings Corporation

Lasertec Corporation

Takashimaya Company, Limited

CRE, Inc.

LUCKLAND CO., LTD.

Take and Give Needs Co., Ltd.

CREEK & RIVER Co., Ltd.

MATSUI SECURITIES CO., LTD.

Takihyo Co., Ltd.

Daiseki Co., Ltd.

Medical System Network Co., Ltd.

TEAR Corporation

DIC Corporation

MEDINET Co., Ltd.

Tenpo Innovation Inc.

Digital Arts Inc.

MedPeer,Inc.

3-D Matrix, Ltd.

Digital Garage Inc.

Mercuria Investment Co., Ltd.

TKC Corporation

DIGITAL HEARTS HOLDINGS Co., Ltd

Milbon Co., Ltd.

TOKAI Holdings Corporation

Dream Incubator Inc.

MIRAIT Holdings Corporation

Tri-Stage Inc.

Earth Corporation

Monex Goup Inc.

VISION INC.

Elecom Co., Ltd.

NAGASE & CO., LTD

VISIONARY HOLDINGS CO., LTD.

Emergency Assistance Japan Co., Ltd.

NAIGAI TRANS LINE LTD.

WirelessGate, Inc.

en-Japan Inc.

NanoCarrier Co., Ltd.

YELLOW HAT LTD.

euglena Co., Ltd.

Net One Systems Co.,Ltd.

YOSHINOYA HOLDINGS CO., LTD.

Evolable Asia Corp.

Nichi-Iko Pharmaceutical Co., Ltd.

YUMESHIN HOLDINGS CO., LTD.

FaithNetwork Co., Ltd.

Nihon Denkei Co., Ltd.

Yume no Machi Souzou Iinkai Co., Ltd.

Ferrotec Holdings Corporation

Nippon Koei Co., Ltd.

Yushiro Chemical Industry Co., Ltd.

FIELDS CORPORATION
Financial Products Group Co., Ltd.

NIPPON PARKING DEVELOPMENT Co., Ltd.

ZAPPALLAS, INC.

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