COMPANY RESEARCH AND ANALYSIS REPORTDYNAM JAPAN HOLDINGS
06889
Hong Kong Stock Exchange

25-Dec.-2018
FISCO Ltd. Analyst

Hiroyuki Asakawa

FISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Increased operating profit by 40% YoY by leveraging its strength of low-cost operations...........................

01

2. Longer-term growth strategy unchanged, bolstering resilience in all areas, including halls, operations,and finances................................................................................................................................................

01

3. Announced entry into aircraft leasing as a new business. ............................................................................

01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. History................................................... ......................................................................................................

02

2. DYNAM JAPAN HOLDINGS Group’s features and strengths. ......................................................................

03■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 06■Medium-term growth strategy and current initiatives------------------------------------------------------------ 09
1. Business environment in the pachinko hall industry.....................................................................................

09

2. Growth strategy and initiatives. . ...................................................................................................................

11

3. Update on initiatives to lower machine costs. ..............................................................................................

12

4. Initiatives for the future.. ...............................................................................................................................

12

5. New business: Entering the aircraft leasing business...................................................................................

13■Business outlook-------------------------------------------------------------------------------------------------------------------------------------------------------- 15• FY3/19 outlook...................................... ......................................................................................................

15■Returns to shareholders-------------------------------------------------------------------------------------------------------------------------------------- 17■CSR/ESG initiatives-------------------------------------------------------------------------------------------------------------------------------------------------- 18
1. CSR initiatives and enhancement of long-term enterprise value . ................................................................

18

2. ESG activities. . .............................................................................................................................................

19■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 20

We encourage readers to review our complete legal statement on “Disclaimer” page.

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html██Summary
Achieved higher operating profit through rigorous low-cost operations
Announced entry into aircraft leasing as a new business
DYNAM JAPAN HOLDINGS Co., Ltd. (HK06889; hereinafter, the Company) is one of Japan’s top operators ofpachinko halls with the largest number of halls operated. Its strength and characteristics lie in low-cost operations
based on the “chain store theory.” In addition, the Company is a pioneer as the first in its industry to be listed on astock market, aided by recognition of its high-quality management with implementation of a customer-first approach,
information disclosure, compliance management, and other measures.
1. Increased operating profit by 40% YoY by leveraging its strength of low-cost operations
The Company reported sharply higher profits on reduced sales in FY3/19 1H with revenue at ¥73,583mn (-4.7%
YoY) and operating profit at ¥12,268mn (+40.7%). Despite continuation of difficult business conditions, the Company
has been taking steps to reinforce its operating foundation from a medium-term perspective. Specifically, it createshalls from a customer perspective of low-cost playing (ball rental) and avoiding gambling reliance in sales expansion
measures and implements rigorous low-cost operations in hall management. While revenue fell YoY as a result, thedecline margin is generally small and operating profit climbed 40% thanks to efforts to lower machine costs andother expenses.
2. Longer-term growth strategy unchanged, bolstering resilience in all areas, including halls, operations, andfinances
The Company’s longer-term growth strategy mainly consists of increasing the number of halls and boosting customer
traffic at existing locations. While the Company has not changed this fundamental approach, it still confronts aharsh business environment in the pachinko hall industry and is focusing on a defensive stance rather than offensive
initiatives. During 1H, it reinforced low-cost playing (ball rental) and promoted sales initiatives tailored to local
areas, rather than expansion of the hall network, in order to lift customer traffic at its existing halls. In spending,
the Company sharply reduced machine costs by emphasizing efficient use of game machines and scaling backnew machine purchase in light of new ball output regulations that took effect in February 2018 and by expanding
use of private-brand machines. In finances, it continues to repay loans while continuing steady investment in hallrenovations. This stance is strengthening resilience for the future along with increase in cash and deposits.
3. Announced entry into aircraft leasing as a new business
The Company announced entry into aircraft leasing as a new business. It is widely known that the number of global
air passengers has been steadily growing. The aircraft leasing industry is sustaining growth in this environment, andthe Company decided to pursue this area as a new business. The Company’s business model fundamentally involves
buying and leasing used mid-sized “narrow-body” planes, a highly fluid segment. Its near-term goal is buying about
20 planes over the next three years. While aircraft leasing business is an entirely new area, the Company intends toreduce risk by using outside advisers, enlisting external personnel, and narrowing the target market, and it hopes
to promptly realize stable operations.

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01 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Summary

Key Points
Growth strategy through expansion of the hall network is unchanged; also striving to solidify operations for fulltransition to machines that meet new rules at the end of January 2021
• Pursuing maximization of profits by building joint development operations for privately branded machines anda new analysis model and by purchasing machines supported by customers• Announced entry into the aircraft leasing business•㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼞㼑㼟㼡㼘㼠㼟㻾㼑㼢㼑㼚㼡㼑㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻞㻝㻜㻘㻜㻜㻜

㻼㼞㼛㼒㼕㼠㻌㼎㼑㼒㼛㼞㼑㻌㼕㼚㼏㼛㼙㼑㻌㼠㼍㼤㼑㼟㻌㻔㼞㼕㼓㼔㼠㻕㻟㻠㻘㻢㻝㻠

㻔¥㼙㼚㻕㻟㻡㻘㻜㻜㻜

㻝㻤㻜㻘㻜㻜㻜

㻟㻜㻘㻜㻜㻜

㻝㻡㻜㻘㻜㻜㻜

㻞㻡㻘㻜㻜㻜
㻝㻥㻘㻡㻝㻤
㻝㻣㻘㻠㻜㻟

㻝㻞㻜㻘㻜㻜㻜

㻝㻢㻘㻤㻜㻠

㻞㻜㻘㻜㻜㻜

㻝㻠㻘㻤㻞㻡
㻥㻜㻘㻜㻜㻜

㻝㻢㻡㻘㻣㻡㻠

㻝㻡㻘㻜㻜㻜
㻝㻡㻡㻘㻥㻝㻝

㻝㻡㻠㻘㻡㻡㻢

㻝㻡㻢㻘㻤㻢㻥

㻝㻡㻞㻘㻜㻥㻞

㻢㻜㻘㻜㻜㻜

㻝㻜㻘㻜㻜㻜

㻟㻜㻘㻜㻜㻜㻡㻘㻜㻜㻜㻜㻜㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

Source: Prepared by FISCO from the Company's financial results summary materials██Company profile
Steadily expanding business with revolutionary measures basedon the chain store theory and became the first in the industry to belisted on a stock market
1. History
The Company was founded as Sawa Shoji Co., Ltd. in 1967 by Yohei Sato, the father of Yoji Sato, a current senior
corporate advisor. When the founder passed away in 1970, his eldest son, Yoji, who was then working at The Daiei,Inc., took over the business, and steadily expanded operations.

We encourage readers to review our complete legal statement on “Disclaimer” page.

02 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Company profile

The Company was a pioneer in the pachinko hall industry by acting on new initiatives ahead of peers, including hiring
new university graduates, opening suburban halls and low-cost halls, forming a labor union, and spreading low-feeball rental nationwide. Yoji Sato was an important factor in the Company’s adoption of a progressive corporate
culture. He joined Daiei due to interest in the chain store theory that was still a novel concept in Japan. Since
succeeding his father, who was the founder, he managed the Company, and expanded business by consistently
applying the chain store theory to pachinko hall operations. The chain store theory is the source of low-cost
operations, the Company’s largest strength.
His logical approach rooted in the chain store theory took hold as the corporate culture and served as a fundamental
force lifting the Company to the position of being the top company in the industry. The Company also moved quickly
in embracing the most important concepts for modern management of a customer-first approach, information
disclosure, and compliance, providing a foundation for its listing on the Hong Kong Stock Exchange in August 2012.
Company history
Date
July 1967
November 1987
April 1989

HistoryFounded Sawa Shoji Co., Ltd. (opened the Kameari and Kanamachi halls)
Renamed as DYNAM Co., Ltd.
First group of new university graduates entered the firm

October 1993

Became a corporate member of the Pegasus Club, an organization that analyzes chainstore operations.

August 1994

Opened the Company’ s first low playing cost pachinko hall made of wood in Ebetsu, Hokkaido.

July 1997

Held the Company’s first business results briefing with securities analysts.

April 1998

Established the Dynam Union, the first labor union in the pachinko industry

December 2006

Started the first low ball rental fees (pachinko ¥2, slot ¥10) at the Ebetsu hall
Established DYNAM HOLDINGS Co., Ltd.

September 2011

DYNAM JAPAN HOLDINGS Co., Ltd. is established, as a result of incorporation-type company split from DYNAM Holdings Co., Ltd.

August 2012

Listed shares on the Hong Kong Stock Exchange

January 2013

Incorporated the Hong Kong entity, Dynam Hong Kong Co., Limited

June 2013
October 2013

Announced an investment of $35mn in Macau Legend Development Limited
Announced an investment of $15mn in IGG Inc.

November 2015

Consolidated Yume Corporation Co., Ltd.

December 2018

Announced entry into the aircraft leasing business

Source: Prepared by FISCO from the Company’s website and securities report

Possesses a robust business foundation and achieves differentiationfrom other companies by leveraging four strengths
2. DYNAM JAPAN HOLDINGS Group’s features and strengths
We focus on four points as the Company’s attributes and strengths – 1) top player in terms of the number of halls
in Japan, 2) low-cost operations, 3) customer-oriented management, and 4) fund-raising capabilities. Importantly
these strengths are mutually interactive. We think it is difficult for other companies to realize the same combined
strength seen at the Company.

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03 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Company profile

Relationship among the four strengths of the Dynam Japan Holdings Group

Source: Prepared by FISCO from interviews(1) Top group with 450 halls in JapanThe Company is the top hall operator in Japan with 450 halls managed within its group (as of the end of September2018). The market share in Japan was 4.3% in terms of the number of halls and 4.7% based on the number ofmachines.
Economies of scale are a benefit of having a large number of halls. They extend to new hall openings, renovations,
machine purchasing, prize procurement, logistics and others. Machine purchasing is particularly important. The
large number of halls naturally means having many pachinko and pachislot machines, thereby enhancing buying(price negotiating) power with manufacturers. The Company also develops and deploys private-brand machines
and seeks to attract customers and lower costs by expanding inter-hall transfer of machines. These measures
are feasible because of the Company’s large network of halls.
Benefits at Yume Corporation, which entered the Group in November 2015, offer a specific example. Yume
Corporation reduced costs by a total of about ¥700mn (on an annualized basis) after joining the Group in
items such as machine purchases, logistics, and financing costs. The savings corresponds to 12% of Yume
Corporation’s previous costs.

㼀㼞㼑㼚㼐㻌㼕㼚㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㼓㼞㼛㼡㼜㻌㼔㼍㼘㼘㼟㻔㼔㼍㼘㼘㼟㻕
㻡㻜㻜
㻠㻡㻜
㻠㻜㻜
㻟㻡㻜
㻞㻣㻞

㻟㻜㻜

㻞㻤㻣㻞㻤㻜

㻟㻜㻞

㻟㻟㻝

㻟㻡㻜

㻟㻡㻡㻟㻢㻞

㻟㻣㻡㻟㻥㻟㻠㻠㻞㻠㻠㻢

㻠㻡㻜㻠㻡㻜 㻞㻜㻘㻜㻜㻜㻝㻤㻘㻜㻜㻜

㻞㻟㻟

㻞㻡㻜

㻠㻡

㻡㻠 㻢㻝 㻢㻤㻤㻝 㻥㻢㻝㻠㻘㻜㻜㻜
㻝㻞㻘㻜㻜㻜
㻤㻘㻜㻜㻜

㻝㻡㻞

㻝㻡㻜

㻝㻢㻘㻜㻜㻜

㻝㻜㻘㻜㻜㻜

㻝㻥㻟

㻞㻜㻜

㻝㻜㻜

㻔㼔㼍㼘㼘㼟㻕

㻰㼅㻺㻭㻹㻌㻶㻭㻼㻭㻺㻌㻴㻻㻸㻰㻵㻺㻳㻿㻌㻳㼞㼛㼡㼜㻌㻔㼘㼑㼒㼠㻕㻼㼍㼏㼔㼕㼚㼗㼛㻌㼍㼚㼐㻌㼜㼍㼏㼔㼕㼟㼘㼛㼠㻌㼔㼍㼘㼘㼟㻌㼚㼍㼠㼕㼛㼚㼣㼕㼐㼑㻌㻔㼞㼕㼓㼔㼠㻕

㻝㻝㻤

㻢㻘㻜㻜㻜
㻠㻘㻜㻜㻜

㻡㻜

㻞㻘㻜㻜㻜

㻜

㻜

Source: Prepared by FISCO from the Company's results briefing materials

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Company profile(2) Low-cost operations based on the chain store theory
Low-cost operations are a vital source of the Company’s competitiveness. Our understanding is that this aspect
enables the Company to realize and benefit from various measures, including the growth strategy.
The chain store theory provides the theoretical backdrop to low-cost operations. Costs of personnel and machinesconstitute a large portion of the total cost of operating a pachinko hall. Yet it takes more than just direct cost
cutbacks. The Company is succeeding with low-cost operations as an overall group by deploying hall designs
and hall operating systems (such as ball counters at each machine) that facilitate operations with a small numberof employees and by standardizing new halls. The chain store theory plays an important role in a variety of ways
and is enabling low-cost operations for the Group.
The Company is the industry leader in Japan, as mentioned earlier, with 450 halls. Aggressive hall network
expansion supports this position and low-cost operation know-how has been an essential enabler. Hall network
expansion has created a virtuous cycle of cost reductions through economies of scale that has put the Company
in its strong position. We think the customer-oriented management explained below is an outcrop from low-cost
operations as well.
The history section explained the background to the Company’s utilization of the chain store theory in its management. The Company established the Pachinko Chain Store Association (PCSA), an industry group, with peers
who have a similar view, and this entity has been researching application of the chain store theory to pachinko
hall management. PCSA activities have not only contributed to strengthening the business foundation of industry
peers, but also played a major role in the Company’s expansion with the addition of Yume Corporation to theGroup.
(3) Implementing management from a customer perspective
The Company advocates a customer-first approach as one of its five business policies and has been practicing
it. This stands out because we think few peers who promote a similar policy are actually seeing actions through.
Among the Company’s business policies, we have a favorable view of a) low ball rental fees and b) operations
that do not rely on gambling appeal. These are also key words for understanding the Company’s business policy
and growth strategy.
a) Low ball rental fee operations
Pachinko is a game that is played with rented balls. The fee for renting balls (halls lend the balls) had been ¥4
per ball. Low ball rental fee operations take a cheaper approach that lowers the fee to ¥1 or ¥2. Customers canrent more balls for the same amount, extending their playing time in accordance with the additional balls. The
Company’s low ball rental fee machines account for 71.7% of pachinko machines (47.4% for the overall industry)and 56.9% of pachislot machines (22.7% for the overall industry), substantially exceeding industry averages (asof the end of September 2018).
Data shows that halls offering low ball rental fees have attracted more customers than halls charging higher fees.
Yet it takes substantial company wherewithal to adopt this type of strategy as margin declines at halls with lowball rental fees see weaker revenue than halls charging higher fees without much difference in operating costs. A
measure to offset this aspect is growth through expansion of hall numbers. The Company has followed this path.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Company profileb) Operations that do not rely on gambling appeal
The Company does not position models with strong gambling appeal as a central strategy. Pachinko machines
range from ones with high probability of major wins to ones with low probability. Machines with lower probability
give a larger number of balls in a major win and are preferred by pachinko fans. Many pachinko halls hence attract
customers by operating halls with a high ratio of machines that have low major-win probability (in other words,
machines with strong gambling features).
However, authorities introduced regulations to curtail gambling appeal in FY3/17, lifting the lowest probability
threshold from 1/400 to 1/320. The industry removed 1/400 machines by December 2016. Regulations ongambling appeal address the addiction issue and authorities applied new rules in February 2018. These changes
are eroding the pachinko hall management style of attracting customers with gambling.
The Company, meanwhile, has a lower ratio of gambling-type machines than the industry and conversely theshare of machines with the lowest gambling features at 1/100 probability is 20 percentage points higher than
the industry average. While the Company cannot avoid an impact from stricter gambling appeal regulations, wethink the negative impact is fairly light due to its existing pursuit of operations that do not rely on gambling appeal.
(4) Fund-raising capabilities that leverage strength as a listed company
The Company became the first in the pachinko hall industry to list its shares with its IPO on the Hong Kong Stock
Exchange in 2012. Only three companies, including the Company, out of the pachinko hall industry’s roughly 3,200
companies are listed on stock markets as of September 30, 2018. The industry is projected to face realignment
going forward. An important point for a buyer in this environment is obviously whether it has fund-raising capabilities. The Company capitalized on its strength as a listed company to acquire Yume Corporation in November
2015 through a stock swap for all of its shares. We anticipate very strong benefits for the Company as a listedcompany in non-M&A areas too because of the likely need for a variety of funds in the future for hall investment,
new business development and other initiatives.

██Results trends
Achieved sharply higher profits by promoting efficient utilization of
expenses
The Company reported higher profits on a decline in sales in FY3/19 1H with revenue at ¥73,583mn (-4.7%
YoY), operating profit at ¥12,268mn (+40.7%), profit before income taxes at ¥12,411mn (+47.6%), and net profit
attributable to owners of the Company at ¥8,340mn (+53.6%). The Company has delivered higher operating profit
YoY in three straight half-year periods since FY3/18 1H.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Results trends

Summary of FY3/19 1H results(¥mn)
FY3/18

FY3/19

1H

1H

YoY

ChangeBall rental fee revenue

397,127

386,840-2.6%-10,287

Cost of prizes

319,916

313,257-2.1%-6,659

Revenue

77,21173,583-4.7%-3,628

Total expenses

68,48961,315-10.5%-7,174

Operating profit

8,722

12,268

40.7%

3,546

Profit before income taxes

8,406

12,411

47.6%

4,005

Net profit attributable to ownersof the Company

5,430

8,340

53.6%

2,910

EBITDA

14,78318,049

22.1%

3,266

Source: Prepared by FISCO from the Company's financial results summary materials

Authorities introduced regulations on output ball ratio and output ball numbers from February 1, 2018. Key points
are setting 1) the upper limit on the output ball ratio to around two-thirds of the former level and 2) the numberof balls received per major win to roughly two-thirds of the former level. Nevertheless, the regulations allow for athree-year transition period with continued use of pachinko machines with existing ball output standards for as longas three years (through the end of January 2021) if approval is obtained. This means the Company’s halls have amix of pachinko machines that comply with the new rules (referred to below as new rule machines) and pachinko
machines based on former rules (former rule machines).
Ball rental revenue, which corresponds to gross sales, was down 2.6% YoY to ¥386,840mn in 1H, which started
under the new rules. While former rule machines remain installed at halls, restriction of major win probability in
FY3/18 and the latest application of output ball restrictions substantially affected core pachinko customer and otherpachinko fans. In response to this situation, the Company reinforced low-cost playing (ball rental) and implemented
measures to attract customers tailored to local areas around halls in order to boost the number of visits by existingcustomers and acquire new customers. Pachinko operating data and other information suggest a relatively lighter
setback in the Company’s business compared to peers, but sales fell YoY. Cost of prizes declined 2.1% YoY alongwith the drop in rental ball revenue. Revenue ended up shrinking 4.7% YoY (¥3,628mn).
Spending, meanwhile, was down 10.5% (¥7,174mn) to ¥61,315mn (this is the total of hall operating costs, SG&A
expenses, and net value of other income and other expenses). In individual items, hall operating costs dropped by¥7,254mn and covers nearly all of the decline in operating costs. Lower machine costs accounted for the largest
portion at just over 90% of the decline in hall operating costs. Key factors in the reduction were curbing purchasesof new machines that comply with former rules and rolling out private-brand machines that the Company has been
focusing on. Combined decline in expenses hence exceeded the drop in revenue, and this outcome resulted in a
40.7% YoY (¥3,546mn) increase in operating profit.
The number of the DYNAM Group’s halls was unchanged from six months earlier at 450 based on one new opening
at DYNAM and one closure at Yume Corporation. In format conversions, DYNAM changed two locations fromhigh-cost playing (rental balls) to low-cost playing halls and one location from a low-cost playing to high-cost playing
hall. These adjustments put the percentage of low-cost playing halls at 60.2% of total at the end of September 2018.

We encourage readers to review our complete legal statement on “Disclaimer” page.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Results trends

Hall changes during FY3/19 1H
No. of halls at
start of period
DYNAM
High-cost
playing (ballrental) hall

Low-cost
playing (ballrental) hall

New openings

Closures

Conversions

No. of halls at
end of period

-1

167

168

Cabin Plaza

2

2

Yume Corporation

10

10

High-cost playing(ball rental) hall total

180

0

DYNAM

237

1

0

-1

179

1

239

Cabin Plaza

6

Yume Corporation

27

6

Low-cost playing(ball rental) hall total

270

1

-1

1

271

Total number of group halls

450

1

-1

0

450

-1

26

Source: Prepared by FISCO from the Company’s materials, interviews, etc.

The Company continued to repay loans during 1H, as it had done in FY3/18. Profit rose sharply YoY in 1H with a gainof over 40%, and EBITDA, which restores depreciation costs and some other expenses, reached ¥18,049mn. Use of
these funds consisted of ¥3bn each for income tax payments and capital investments (hall renovation investments,
new openings) and an equal three-way split of the remaining ¥12bn for dividends, loan repayment, and cash anddeposits build-up. These allocations put the interest-bearing debt balance at ¥5,156mn and the cash and depositsbalance at ¥44,921mn at the end of September 2018.
Changes in cash and cash equivalents, and interest-bearing debt at the end of the period(¥mn)
FY3/16

FY3/17

FY3/18

FY3/19 1H

30,49428,46929,52418,049New openings (gross value, including M&A deals)

53

5

6

1

(Net increase in the number of halls)

49

4

4

0

Total dividends paid (annual)

10,055

9,192

9,192

4,596

Cash and cash equivalents at the end of the period

28,134

48,49940,53344,921

Interest-bearing debt at the end of the period

20,76330,049

8,572

5,156

Total assets

189,184

205,115

184,971

187,315

EBITDA

Source: Prepared by FISCO from the Company’s materials

Business conditions at core group company DYNAM almost entirely overlap with the explanation of parent company
results. Revenue fell YoY on lower number of customers and decline in average customer spending. Cutbacks inoperating expenses (mainly machine costs) more than offset the decline and led an increase in operating profit.
During 1H, the Company opened one new hall, converted two halls from the high-cost playing (rental balls) to
low-cost playing format, and conducted hall renovations and updates at the same pace as a normal year.
In key performance indicators, pachinko and pachislot machine operating rates modestly improved during 1H versus
FY3/18 (full-year basis) results and remain well above rates at rival halls. The Company has been lowering machinecosts through deployment of private-brand machines, and the ratio of private-brand machines installed at its halls
was 5.8% at the end of 1H.

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08 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Results trends

DYNAM’s management situation(¥mn)
FY3/18 1H

FY3/19 1H

YoY

Summary

Revenue

71,336

68,581-2,755Decline in pachinko machine operating rates,
impact from removing machines with high gambling
features

Operating profit

7,246

10,0142,768

Higher profit on lower expenses mainly in machine
costs

Ordinary profit

7,670

10,5052,835

Net profit

5,047

7,011

1,964

KPIs
405

406

1

Yamagata Tendo hall

Pachinko machine operating rate

43.1%

43.3%

0.2%

+10.7pp vs. rival halls

Pachislot machine operating rate

39.6%

39.9%

0.3%

+6.3pp vs. rival halls

186,898

187,667769

4.2% share of all machines in Japan

7,315

7,785

470

5.8% of all machines at DYNAM halls

No. of halls

No. of machines
No. of private-brand machines

Note: KPIs listed under FY3/18 1H are either end-FY3/18 values or full-year average values.
Source: Prepared by FISCO from the Company’s materials██Medium-term growth strategy and current

initiatives

Pachinko market weakened to less than ¥20tn, possible impact ofgambling restrictions
1. Business environment in the pachinko hall industry(1) Market size and number of halls
Japan’s population of pachinko and pachislot players in 2017 was down 4.3% (400,000 people) YoY to 9mn people. Reflecting this change, the pachinko hall market (total rental ball revenue at pachinko halls that corresponds
to gross sales) weakened to less than ¥20tn, declining 4.3% YoY to ¥19,540bn in 2017.
The number of pachinko halls nationwide has also been steadily dropping due to ongoing market contraction.
According to National Police Agency data, it was down by 390 halls from the previous year to 10,596 halls as ofDecember 2017. While it has been falling at a pace of 200-300 halls per year over the last few years, it slightly
accelerated in 2017.
(2) Regulatory actions
The government has been strengthening regulations that target pachinko and pachislot businesses as part ofefforts to “address gambling and other addictions.” Regulatory action primarily aims to reduce gambling appeal
as a specific measure. It heavily affects pachinko hall management because gambling is one of the appeals ofpachinko and pachislot games.

We encourage readers to review our complete legal statement on “Disclaimer” page.

09 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Medium-term growth strategy and current initiatives

Following a regulatory change in 2016 that raised the major-win probability ratio of pachinko machines*, authorities
introduced regulations on output ball ratio and output ball numbers from February 1, 2018. Key points are setting1) the upper limit on the output ball ratio to around two-thirds of the previous level and 2) the number of balls
received per major win to roughly two-thirds of the previous level.
*	Machines with the strongest gambling appeal prior to then utilized a major-win probability of 1/400. After industry removalof these machines by the end of 2016, today’s most potent machines for gambling are those with a 1/320 ratio. Stricter
regulation hence changed pachinko from a high-risk, high-return game to a middle-risk, middle-return game.

These regulations have a very large impact. An even bigger impact than diminished customer appeal from dilutionof gambling appeal is the need to replace machines. Machine costs are the one of the largest expenses for halloperations along with wages, and higher machine costs put significant pressure on hall profits.
Nevertheless, the February 2018 ball output regulations have a three-year transition period with continued use offormer rule machines for as long as three years (through the end of January 2021) if approval is obtained. While itcosts about ¥10,000 per machine to acquire approval, hall operators can avoid incurring the capital investment
burden accompanying the regulations (machine replacements) immediately and take actions to transition tomachines that meet the new rules at a moderate pace.
We think the February 2018 regulations closed the discussion of curtailing gambling appeal in pachinko businessfor the time being and the pachinko hall industry and pachinko game manufacturers have moved to a stage of
gradually complying with the rules.
Content of ball output regulations
Upper limit on
output balls

Current regulations

New regulations

Maximum rounds: 16R
Maximum paid output balls: 2,400 balls

Maximum rounds: 10R
Maximum paid output balls: 1,500 balls

1 hour: Output ball ratio 3x or less10 hours: Output ball ratio at no less than 1/2x and up to 2x

1 hour: Output ball ratio at no less than 1/3x and up to 2.2x
4 hours: Output ball ratio at no less than 2/5x and up to 1.5x
10 hours: Output ball ratio at no less than 1/2x and up to 4/3x

No setting

Supports settings at 1-6 levels similar to pachislot machines

Playing tests
Setting

Source: Prepared by FISCO from Company materials

Similar to pachinko, authorities are implementing stricter regulations on gambling appeal in the pachislot businesstoo. They plan to incrementally lower the permissible percentage of machines with high gambling appeal fromthe current 30% threshold to 0% by the end of January 2021. Zenkoku Yuugi Jigyou Kyoudou Kumiai Rengokai,
the industry organization, adopted voluntary regulations in June 2015 to lower the percentage of machines notin compliance with new standards (so-called machines with high gambling appeal) to 30% or less by the end of
November 2017. It subsequently proceeded to formulate voluntary regulations to incrementally reduce this ratio
to 0% in April 2018.
Installation ratio rules for pachislot machines with high gambling content
PeriodPercentage of machineswith high gambling content

Present through end-January 2019

Lower from 30% or less to 15% or lessFebruary 2019 to end-January 2020

Lower from 15% or less to 5% or lessFebruary 2020 to end-January 2021

Lower from 5% or less to 0%

Source: Prepared by FISCO from interviews*	In November 2018, the industry organization decided to extend the period because of sales and supply shortages formachines that comply with the new rules.

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Medium-term growth strategy and current initiatives

Growth strategy through expansion of the hall network is unchanged
Also striving to solidify operations for full transition to machines thatmeet new rules at the end of January 2021
2. Growth strategy and initiatives
The Company adopted a two-pronged approach in the growth strategy that adds a push to boosting customer
traffic at existing locations to its efforts of driving higher sales through hall network expansion. Both initiatives are
similarly important to the two approaches. We think a key point is flexible use of the growth strategy depending on
the business environment in the industry and conditions of rivals. (Please refer to previous reports on for details on
how the Company expanded its network of halls based on a hall opening model, and on initiatives it has used toincrease the number of customers at existing halls).
Image of the two-pronged growth strategy – hall network expansion and increasing revenue of existing halls

Source: Prepared by FISCO from Company materials

The Company is not overtly applying the axle or brakes to expansion of the hall network. Instead the number of halls
has been flat in recent years because of the extremely small number of opportunities that meet its standard basedon the chain store theory for direct openings and M&A deals.
Despite these conditions, meanwhile, it is necessary to update all equipment to new rule machines by the endof January 2021 when the 2018 regulations fully apply. Many pachinko hall operators are likely to face difficult
decisions on whether to continue or exit their businesses. The three years through FY3/21 hence could be seen
as a preparatory phase for realization of the above-mentioned growth strategy (especially expansion of the hall
network and market share).
Within this context, the Company pursued reduction of machine costs and started building joint development
operations for machines and a joint analysis model as longer-term initiatives in FY3/19 1H.

We encourage readers to review our complete legal statement on “Disclaimer” page.

11 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Medium-term growth strategy and current initiatives

Sharply lowered machine costs in 1H by curbing new machinepurchases and promoting private-brand machine deployments
3. Update on initiatives to lower machine costs
As mentioned earlier, the Company reported sharply higher profits (YoY) in 1H with reduction of machine costs as
the main driver. Machine costs are the second-largest item in hall operating expenses after wages, and savings inthis area have a very large impact on profits. For FY 3/19, the Company has cut machine costs (YoY), which leadto increased operating profit. Specific measures for reducing machine costs during 1H were 1) cutbacks in newmachine purchase and 2) lowering the average price of machines via deployment of private-brand machines.
Ball output regulations that took effect in February 2018 are a key factor in understanding activities related tomachine costs. As explained earlier, halls can continue to use former rule machines, even after the regulations
begin, up until the end of January 2021 if approved, but they must fully switch to new rule machines thereafter. The
transition phase covers three years from FY3/19 to FY3/21. In FY3/19, the Company strategically utilized existing
former rule machines (about 131,000 machines) with approvals and curtailed new machine (particularly former rulemachine) purchases.
Meanwhile, the Company deployed about 1,800 private-brand machines in 1H with an average purchase price at
73% of national-brand machines with the same performance.
To support machine cost reduction, the Company formed a dedicated team to analyze machine data using big
data gathered from its 450 group halls. The analysis team identified ideal solutions from the standpoint of costs andcustomer appeal through data analysis.
Machine cost savings were unquestionably the largest profit increase factor contributing to earnings in 1H. However,
we advise caution in outlooks due to the prospect of a smaller machine-related savings effect in 2H and a switch
to rising costs in FY3/20. This view takes into account the need to replace existing former rule machines in order
to comply with new output ball regulations described above. The Company has roughly 131,000 group machinesthat comply with former rules and received approval in FY3/18. This roughly works out to 65,000 machines a year
when split into two years. While the number itself is on par with the level in a normal year for the Company throughFY3/17, we expect a rise in machine costs and pressure on profits compared to FY3/18 and FY3/19 that curtailed
new machine purchases.

Pursuing maximization of profits by building private-brand machine
joint development operations and a new analysis model and bypurchasing machines supported by customers
4. Initiatives for the future
Machine costs occupy about one-fourth of hall operating costs and are the second-largest item after wages, as
explained earlier. The Company has been striving to rectify these costs from a longer-term perspective. It conducted
the following activities in 1H.

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12 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Medium-term growth strategy and current initiatives(1) Lowered costs of developing machines through new joint development operations
Private-brand machines are an important aspect of efforts to rectify machine costs. While private-brand machines
lower average machine pricing, they come with risk of underperforming national-brand machines in customer
attraction in terms of name recognition and other aspects. From this perspective, the Company fundamentallyused an approach of adjusting specifications based on national-brand machines in private-brand machinesdeveloped up to now and thus was unable to achieve major cost savings and product feature improvements.
Recently, however, core operating company DYNAM adopted an efficient development scheme with a developer
and machine manufacturer for three-way joint development operations. DYNAM intends to implement co-workwith the developer from the design stage and work toward lower parts and materials costs and development
costs. It hopes to develop machines that meet customer needs by continuing initiatives over the long term andreduce prices to 50% of the national-brand machine level by realizing stable supply and installations.
(2) Joint construction of an analysis model for new machine selection and deployment
The Company formed a dedicated analysis team in 1H and is also developing a new analysis model for data
analysis. It is collaborating with an external analysis expert company and has begun trial operation of threemodels (new machine purchase decision model, used machine purchase decision model, and inter-hall transfer
model. Through these tests, it plans to improve the precision of each model and boost the efficiency of machinepurchases.
(3) Response to a phase of industry changes
Full transition from former rule machines to new rule machines might cause significant changes in the pachinko
hall industry because of heavy cost burden. The Company’s biggest near-term goal is capitalizing on this phaseas a growth opportunity. As preparation, the Company is making maximum use of analysis technology to prevent
customer attraction opportunity losses and invest efficiently in machine that reflect results of machines supported
by customers. These efforts aim to maximize profits.
We think the Company’s future-oriented measures are likely to produce concrete results in FY3/20 because they
just started in FY3/19 1H. The usage term of former rule machines expires at the end of January 2021. However,related activities, including industry changes, might arrive substantially sooner because of the need for lead-time(preparation) in various areas. We expect fairly rapid progress with these initiatives in order to deliver a sufficienteffect.

Announced entry into the aircraft leasing business, aims to reducerisk with a model of leasing used planes in top-selling segments
5. New business: Entering the aircraft leasing business
The Company announced that it would launch aircraft leasing service as a new business. The growth in the numberof global air passengers has been accelerating in recent years with globalization and progress in emerging countries.
According to the International Air Transport Association (IATA), the number of global air passengers reached about
4.1bn people in 2017 and average annual growth in the 17 years since 2000, which recorded 1.672bn people, was
5.4%. The average annual pace in the past 10 years has been 6.5% amid acceleration since after the Lehman shock.

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13 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Medium-term growth strategy and current initiatives㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㼓㼘㼛㼎㼍㼘㻌㼍㼕㼞㻌㼜㼍㼟㼟㼑㼚㼓㼑㼞㼟㻔㼙㼕㼘㼘㼕㼛㼚㻌㼜㼑㼛㼜㼘㼑㻕㻺㼛㼞㼠㼔㻌㻭㼙㼑㼞㼕㼏㼍㻱㼡㼞㼛㼜㼑

㻭㼟㼕㼍㻛㻼㼍㼏㼕㼒㼕㼏

㻻㼠㼔㼑㼞

㻠㻘㻡㻜㻜
㻠㻘㻜㻜㻜
㻟㻘㻡㻜㻜
㻟㻘㻜㻜㻜
㻞㻘㻡㻜㻜
㻞㻘㻜㻜㻜

㻝㻘㻡㻜㻜
㻝㻘㻜㻜㻜
㻡㻜㻜
㻜

Source: Prepared by FISCO from International Air Transport Association (IATA) materials

A relatively small number of companies dominate the aircraft leasing industry with the top 10 companies (led by
US-based GE Capital Aviation Services (GECAS) and AerCap)) holding a market share of just over 60% and the
top 20 companies controlling almost 100% of the market. This is the leasing market for new planes. The Company,
meanwhile, is targeting the market for used planes with a business model in which it has transaction relationships
with global major leasing companies, rather than competing with them. Airplane leases typically utilize a lease
period of about 7-10 years, and airlines agree to purchase planes they had been leasing when the lease period
finishes. Since airlines prefer to operate under a leasing format, instead of directly owning planes, there is demand
for renewal of the lease contract with a new leasing company. The Company’s business model aims for this type of
secondary lease demand. It reduces risk because the airline that will use the plane is already arranged at the timeof buying the plane.
As a way of lowering risk even more, the Company plans to narrow its scope of plane purchases to “narrow body”
models, a highly fluid segment. Specific examples are the Boeing 737 series and Airbus A321, A320, and A319
models with 125-180 seats. The Boeing 737 and Airbus A320 are top volume sellers at these companies. They
also dominate orders backlog at 4,668 out of 5,864 planes at Boeing and 4,009 out of 7,265 planes at Airbus asof 2017 and are large enough markets for the Company’s purpose.
The near-term business plan calls for establishing a wholly owned subsidiary and beginning business in 2019 withan actual start in FY3/20. It also aims to purchase and conclude lease contracts for 20 used planes within three
years. We expect further steady purchase of planes thereafter. The lease business income model involves initial cash
outlays to purchase planes and then cash inflow from lease fees. This business finalizes income from a subject leasedeal at the point when the lease expires and the plane is sold. Given this pattern, the ideal approach is arranging
lease contracts to have a certain number of contracts expire each year, though it will take some time to establish
such operations. We think the Company’s business plan for acquiring 20 planes over the next three years takes
into account this aspect.

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14 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html██Business outlook
Estimate shows increase in full-year operating profit even with
tough assumptions• FY3/19 outlook
We prepared our own simulation for an outlook based on certain conditions because the Company does not disclose
forecast.
Ball rental revenue, the basis of revenue, dropped 2.6% YoY in FY3/19 1H. At the start of the year, we projected
a 2.3% YoY decline in ball rental revenue, assuming a 4.3% decline in industry ball rental revenue (applying the
average annual growth rate for the pachinko market over the past 10 years) with an adjustment for core subsidiary
DYNAM’s pachinko machine operating rate that exceeds rival halls by 10 percentage points. While it is possible
to think that the disparity is “in line with expectations,” we took a cautious view that the “business environment istougher than anticipated” and revised our FY3/19 ball rental revenue estimate to a 3.5% YoY decline, which works
out to ¥747,933mn.
Revenue (gross margin) was 19.0% of ball rental revenue in 1H. We initially forecast a higher level than in FY3/18(19.6%) at 20.0%, but the Company bolstered return to customers. Based on the 1H result, we changed our FY3/19
gross margin estimate to 19.2% and thus project ¥143,603mn in FY3/19 revenue (-5.6% YoY).
Simulation of FY3/19 revenue
Factors
FY3/18 rental ball revenue for theCompany (¥mn)

Amount(A)

775,060

FY3/19 average rental ball revenue
growth estimate for the industry-4.3%

FY3/19 rental ball revenue growthestimate for the Company(B)

FY3/19 rental ball revenue estimate
for the Company(C = A × B)

(E = C × D)

Average growth rate for pachinko market size (ball rental fee revenue basis) overthe 10 years through 2016 with 2006 as the starting point-3.5% Updated our outlook in light of the 1H result (-2.6%) to -3.5% for FY3/19
747,933

FY3/19 gross margin estimate for the(D)
Company
FY3/19 revenue estimate for theCompany

Remark

19.2%

Gross margin is the percentage of revenue to ball rental revenue, projecting 19.2%
in FY3/19 given the 1H result (19.0%)

143,603 5.6% YoY decline

Source: Prepared by FISCO from the Company’s materials

Overall expenses, meanwhile, declined 10.5% in 1H with a steep 10.4% drop in hall operating costs because ofa hefty reduction of machine costs as well as savings in SG&A expenses and other areas. A key point is whether
steep decline in machine costs continues in 2H. As explained earlier, we think the market reality of few new rulemachine releases and primarily existing rule machine releases played a major role in machine cost savings during
1H. This matters because former rule machines bought now still have to be replaced by the end of January 2021.
However, we expect steady deployment of new rule machines from 2H because it would be difficult for the Company
to replace the number of machines it owns in just one year in terms supply capacity on the manufacturer side andfunding burden, as noted earlier. We assume an increase in machine costs from 1H and scale back the anticipateddecline in hall operating costs to 3.0%. We hence estimate a 2.7% decline in 2H costs, including SG&A expenses,
to ¥64,459mn and full-year costs at ¥125,774mn (-6.7%).

We encourage readers to review our complete legal statement on “Disclaimer” page.

15 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Business outlook

Simulation of FY3/19 expenses(¥mn)
FY3/18
Hall operating expenses
YoY
SG&A expenses
YoY

FY3/191H

2H

Full year

1H

2H (E)

Full year (E)69,70667,021

136,72762,45265,000127,452

-3.8%

-3.8%

-3.8%

-10.4%

-3.0%

-6.8%

2,445

2,604

5,049

2,241

2,559

4,800

-9.2%

-11.1%-10.2%

-8.3%

-1.7%

-4.9%
9,264

4,441

5,017

9,458

4,764

4,500

Other expenses

779

1,646

2,425

1,386

1,400

2,786

Total expenses

68,48966,254

134,743

61,31564,459125,774

-4.3%

-4.5%

-4.4%

-10.5%

-2.7%

-6.7%

Other income (vending machine fee income)

YoY

Source: Prepared by FISCO from the Company’s materials

Our estimates for revenue and expenses shown above suggest ¥17,829mn in FY3/19 operating profit (+2.8% YoY).
Main points are 2H ball rental revenue, gross margin, and cost reduction measures (mainly machine costs). We
obtain a rise in operating profit even using tougher assumptions than 1H results and hence think the Company has
leeway to expand operating profit in FY3/19.
Income statement(¥mn)
FY3/15

FY3/16

FY3/17

FY3/18

FY3/19 1H

Revenue

154,556

155,911

156,869

152,092

73,583

YoY

-6.8%

0.9%

0.6%

-3.0%

-4.7%

134,659

138,326

142,142

136,72762,452-10.4%Hall operating expenses

-0.9%

2.7%

2.8%

-3.8%

5,456

5,798

5,622

5,049

2,241

33.5%

6.3%

-3.0%

-10.2%-8.3%

Other income

6,850

8,184

9,224

9,458

4,764

Other expenses

1,947

1,805

2,430

2,425

1,386

Total expenses

135,212

137,745

140,970

134,743

61,315YoY
SG&A expenses
YoY

0.9%

1.9%

2.3%

-4.4%

-10.5%

19,344

18,166

15,89917,34912,268-39.0%-6.1%-12.5%

9.1%

40.7%

Financial income

2,151

311

233

236

322

Financial expenses

1,977

1,074

1,307

781

179

Profit before income taxes

19,51817,403

14,825

16,804

12,411

YoY
Operating profit
YoY-43.6%-10.8%-14.8%

13.3%

47.6%

Tax expenses

8,259

6,864

5,520

5,879

4,086

Net profit for the year

11,25910,5399,305

10,9258,325-47.0%-6.4%-11.7%

17.4%

53.2%

11,303

10,5449,360

10,870

8,340

YoY

YoY
Net profit attributable toowners of the Company
YoY-46.8%-6.7%-11.2%

16.1%

53.6%

EBITDA

30,63730,49428,46929,52418,049YoY-28.3%

-0.5%

-6.6%

3.7%

22.1%

EPS (¥)

15.22

13.92

12.23

14.19

10.89

Dividend per share (¥)

14.00

13.00

12.00

12.00

6.00

We encourage readers to review our complete legal statement on “Disclaimer” page.

16 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Business outlook

Balance sheet(¥mn)
FY3/15

FY3/16

FY3/17

FY3/18

FY3/19 1H

48,72343,24063,07253,14556,57629,23928,134

48,49940,53344,921

Trade receivables

486

459

563

469

463

Non-current assets

132,213145,944

142,043

131,826

130,739

Property, plant and equipment

99,961

109,532

106,687

98,79496,931Intangible assets

1,029

3,991

3,833

3,545

3,460

Total assets

180,936

189,184

205,115

184,971

187,315

Current liabilities

Current assets
Cash and cash equivalents

31,38030,83838,496

39,64337,754

Trade and other payables

20,46817,786

18,282

19,22017,923

Borrowings

3,160

2,369

7,281

7,351

4,370

14,50325,72729,738

7,813

7,293

9,160

18,394

22,7681,221

786

135,077

132,645

136,953

137,532

142,300

Share capital

15,00015,00015,00015,00015,000Capital reserve

10,12912,883

12,741

12,741

12,741Retained profits

111,037

110,253

112,403

114,106

117,860-1,089-5,202-3,191-4,315-3,301

-24

-26

-72

-17

-32

Total equity

135,053

132,619

136,881

137,515

142,268

Liabilities and net worth

180,936

189,184

205,115

184,971

187,315

Non-current liabilities
Borrowings
Equity attributable to owners of the Company

Other component of equity
Non-controlling interests██Returns to shareholders
Approved a ¥6 dividend for the FY3/19 interim period
The Company is highly conscious of the significance of returns to shareholders because it recognizes the importanceof raising shareholder value in order to achieve sustainable growth. Based on this view, its policy is to pay stabledividends.
Based on the 1H result, the Company decided to pay a ¥6 dividend for the FY3/19 interim period. With its ¥8,340mn
in net profit attributable to owners of the Company, the ¥4,596mn dividend payment puts the payout ratio at 55.1%.
While the business environment remains difficult, the Company booked sharply higher profit in 1H thanks to low-cost
operations and dividend payout ratio slipped from the level seen through FY3/18.

We encourage readers to review our complete legal statement on “Disclaimer” page.

17 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

Returns to shareholders㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼍㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛

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Source: Prepared by FISCO from financial statements██CSR/ESG initiatives
Aiming to enhance long-term enterprise value as “regional
infrastructure” in dealing with working style reforms, fostering andappointing women managers, and other important themes
1. CSR initiatives and enhancement of long-term enterprise value
As a listed company, the Company conducts compliance management in line with the laws and seeks to maximize
profits. It also aims to build “regional infrastructure” (being a presence that is vital to local areas) and possesses
strong CSR (corporate social responsibility) awareness. Amid discussions of working style reforms, fostering womenmanagers, and other themes, the Company addresses these as important topics in an effort to understand where
society is headed and seeks to enhance long-term enterprise value.
(1) Focus on working style reforms (Important theme: Work friendly environment)
The Company reinforced the program for shorter working hours in May 2018 by opening it up to employees withnursing care, pregnancy, and illness situations and removing the limit on the number of times it can be used. As
other work style reforms, it extended the retirement age to improve its record of employing seniors, converted
non-regular employees to regular employees, and formulated the “healthy management declaration.”

We encourage readers to review our complete legal statement on “Disclaimer” page.

18 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

CSR/ESG initiatives(2) Earthquake reconstruction assistance (Important theme: Co-existence with local society)
The Company has been continually engaged in activities for earthquake reconstruction assistance. The Company’s
total donations to the three Tohoku prefectures affected by the Great East Japan Earthquake in 2011 are well
above ¥600mn thus far. It is also providing recovery assistance for the Kumamoto Earthquake in 2016 andtorrential rainfall in July 2018. It is also actively involved in hands-on assistance in the area. One example is theparticipation of many employees in planting trees to create a row of sakura (cherry) trees along the roughly 170km
line where the tsunami reached furthest inland in Rikuzentakata city (Iwate Prefecture) organized by the SakuraLine 311, a nonprofit organization (NPO). The Company assists employees in volunteer activities too.
(3) Fostering women managers and interaction assistance (Important theme: Diversity and humanresource development)
The Company has created an internal “Nadeshiko Team” to promote training of women managers. The Nadeshiko
Team has repeatedly exchanged views with representatives in charge of promoting women at industry peers andrecently held an event called the Nadeshiko Summit 2018 that also invited representatives from three companies
in other industries. The Company intends to continue and bolster initiatives to utilize women.
(4) Continued hiring of new university graduates (Important theme: Diversity and human resource
development)
The Company was the first in the pachinko hall industry to establish a framework for hiring new university
graduates and continues to hire them without being affected by changes in the business environment. In FY2018,it hired 91 new university graduates (69 men, 22 women). It intends to continue hiring new university graduates
based on the employment plan.
(5) “Torepachi!” playing events at welfare facilities (Important theme: Co-existence with local society)
The Company has been steadily implementing playing events using the “Torepachi!” pachinko machine developed
for welfare facilities since 2016. This event aims to provide enjoyment and rehabilitation training to residents. The
Company plans to continue these events and contributions to local society.
(6) Secondhand smoke prevention (Important theme: Provision of an enjoyable and safe playing
environment)
The Company operates 26 halls in the network with complete separation including the 24 halls from the Shinrai
no Mori brand that incorporates smoker separation in the hall concept and 2 halls from the Yuttari Kan brand.
Other halls in the Company’s network are structurally ready for complete separation. We expect the Company toexpand halls with this feature in light of societal trends and customer reaction.

Disclosed an integrated report, enhancing non-financial (ESG)
information and provision of tools for dialogue with long-term
investors
2. ESG activities
The Company issued its annual report (Annual Report 2018) on May 29, 2018. The Hong Kong Stock Exchange
requires companies listed on the exchange to disclose ESG information since 2017, and listed companies are
ramping up their disclosure of non-financial information. The Company’s annual report also added to information
disclosure on its views of and initiatives with the environment (E) and society (S) in light of the CSR activities reviewed
above.

We encourage readers to review our complete legal statement on “Disclaimer” page.

19 20

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

DYNAM JAPAN HOLDINGS

25-Dec.-2018

06889 Hong Kong Stock Exchange

https://www.dyjh.co.jp/english/ir/index.html

CSR/ESG initiatives

Additionally, the Company’s annual report uses a structure that reflects the international integrated report framework
defined by the International Integrated Reporting Council (IIRC) and the “guidance on comprehensive disclosureand dialogue to promote collaborative value innovation” presented by the Ministry of Economy, Trade and Industry.
Pursuit of improvements in enterprise value from a long-term perspective, including ESG, is gaining recognition as
a common theme among long-term investors and companies in an environment that encourages closer dialogue
between investors and companies. We have a positive view of the Company’s information disclosure in an integrated
report as evidence of its openness to dialogue with global long-term investors. The Company also disclosed a CSR
report (CSR Report 2018) in July. We expect steady enhancement of tools for dialogue with long-term investors to
broaden opportunities for appropriate assessment of the Company in the stock market.

██Information security
Strives for rigorous management of personal information (acquired aprivacy mark)The Company issues member cards as part of its efforts to build a fixed customer base. It currently has about 4mn
members and possesses massive amounts of personal information on members. Given these circumstances, it ishighly conscious of information security in its activities. As a specific measure, it established operations that comply
with JISQ15001:2006, a set of guidelines for appropriate management of personal information defined by JIS(Japan Industrial Standards) and thereby obtained a privacy mark. It also undergoes periodic assessments of overallmanagement operations by the Pachinko Trustee Board, a third-party evaluation entity for pachinko hall operators,
and has continuously received the highest rating (AAA) for items that include information security. We believe theCompany has already built sufficient information security operations in light of these results.

We encourage readers to review our complete legal statement on “Disclaimer” page.

20 20

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock priceand index information. The trademark and value of the “JASDAQ INDEX” are the intellectual
properties of the Tokyo Stock Exchange, and therefore all rights to them belong to the Tokyo
Stock Exchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment or
any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content of
this report are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplications of thereport, without the express written consent of FISCO, is strictly prohibited. Any transmission,
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The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.