enish, Inc. (3667)
Masanori Sugiyama, President
Masanori Sugiyama,
Corporate Profile
enish, Inc.
Code No.
Mothers Market of the TSE
Information, Communications
Masanori Sugiyama
HQ Address
Hiroo 1-13-1, Shibuya-ku, Tokyo
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥4,650 2,637,400 shares ¥12.264 billion 48.9% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥34 0.7% ¥170.62 27.3x ¥398.24 11.7x
* Closing stock price as of May 2, 2013. Numbers of shares at the end of the most recent quarter excluding treasury shares. ROE and BSP based on actual results at previous term end.
Consolidated Earnings Trends
Fiscal Year Sales Operating Profit Current Profit Net Profit EPS Dividend (¥)
January 2010 22 -40 -41 -41 - 0.00
December 2010 415 64 71 55 821.99 0.00
December 2011 2,590 526 523 298 2,956.25 0.00
December 2012 4,430 666 654 373 174.55 28.00
December 2013 Est. 6,700 820 800 450 170.62 34.00
* Estimates are those of the Company.
We present this Bridge Report along with the first quarter earning results of the fiscal year December 2013 for enish, Inc.
Key Points
Company Overview
enish is a social game development company that boasts of the highly popular restaurant management simulation game "Bokuno Restaurant II," apparel shop management simulation game "Galsho☆," and card battle game "Dragon Tactics." The Company has also formed capital alliance and operational ties with GREE, Inc., which operates the popular SNS website "GREE," in addition to relationships with "Mobage," "mixi," and other popular SNS websites over which its game titles are provided. President Masanori Sugiyama formerly worked as the corporate planning officer at the cellular telephone contents provider Index Corporation (4835: JASDAQ), and as the Chairman and President of the fortune telling contents provider ZAPPALAS, INC. He was also instrumental in helping ZAPPALAS list on the First Section of the Tokyo Stock Exchange.
<Business Description>
enish is comprised of only a single business segment entitled social applications business. In this business, games developed in-house are provided via "GREE," "Mobage," "mixi," "hangame," "Ameba," "entag!," and other SNS and social game platforms to be played by feature phone and smartphone users. Games are provided free of charge, but various items including tools used in the games to make them more enjoyable are offered for purchase over phones (For example, "Bokuno Restaurant II" sells recipes and decorations designed to make restaurants in the game more popular). The collection of fees from users is outsourced to the SNS platform operators, and they keep a portion of the fees as system operating commissions.

70% to 80% of "Bokuno Restaurant II" and 90% of "Galsho☆" users are called "F1 Layer" users and represent a group of Japanese in their 20s to 30s, who are primarily women with high purchasing power. Therefore, enish is in the process of creating battle games to expand the number of male users. For the first quarter of the fiscal year December 2013, "Bokuno Restaurant II," "Galsho☆," "Dragon Tactics" (Battle game), "Pocket Dungeon 2" and others accounted for 35%, 21%, 28%, 9%, and 7% of non-consolidated sales respectively.
The social games business employs a model where games are provided to users free of charge with earnings being derived from the sale of tools used in these games. Therefore, the key to making successful games is to increase their quality levels so that they captivate users and "make them want to purchase tools to enjoy the games even more." Furthermore, making improvements in the game system to match the changing tastes of users after the release of games is also important in ensuring the continued popularity and profitability of games.

enish leverages its data mining capability to analyze user information to derive game utilization rates, continuation rates, fee charge rates, and other data needed to optimize their games on an ongoing basis. While these optimization efforts are not unique to only enish, the fact that they have numerous long selling games that continue to contribute to earnings over the long term in a market where many games are only distributed for several weeks is a reflection of the accuracy of enish' s data analysis, and the success of its various measures. Furthermore, new title planning and development activities are based on these successes as part of a strategy to launch new titles on a sustained basis.

Another of enish' s strengths is its effort to facilitate a framework that enables the quick provision of games over a wide range of multiple platforms. Consequently, the Company is able to choose the most appropriate platform after considering the users and characteristics of each platform to best match the characteristics of its games. Furthermore enish is able to quickly plan and develop applications in short periods of time and produce flexible responses that match the speed of growth in the social games market (Framework refers to the software that functions as a foundation when application software are first developed.).
First Quarter of Fiscal Year December 2013 Earning Results
Sales, Current Profit Grow by 89.8%, 264.8% Year-Over Year
Sales rose by 89.8% year-over-year to ¥1.6 billion due in part to the release of "Dragon Tactics" in July 2012 (Third quarter of the previous term). The long selling games "Bokuno Restaurant II," "Galsho☆," "Pocket Dungeon 2" (Battle game) also contributed to the increase in sales.

Operating profit rose by 264.6% to ¥409 million. While sales rose, early employment of human resources to develop native applications also resulted in an increase of labor costs. However, by controlling costs and maintaining a balance of outsourcing costs, the cost of sales ratio improved by 2.6% points year-over-year to 60.1%. At the same time, the growth in sales, general and administrative expenses remained low relative to the growth in sales and gross profits due to lower advertising expenses resulting from the lack of new title releases during the quarter and restraint in hiring costs resulting from the increased brand recognition and credibility because of enish' s listing.

By the end of the first quarter, the number of employees increased by 15 from the previous year end to 136 people (113 full time, 23 dispatched workers). By category of employees, 39.7% of enish employees are engineers (42.1% end of previous term), 28.7% designers (previously 29.8%), 19.9% directors (previously 18.2%), and 11.8% management (previously 9.9%). Dispatched workers were hired after the middle of the previous term and were not present the previous first quarter. enish will carefully select qualified employees to achieve its goal of creating an employment structure with 157 employees by the end of the year.

In addition, native applications are mainstream applications for smartphones that are downloaded to handsets (In enish' s example, applications downloaded are games). In contrast, browser applications refers to games that were played over browsers and are mainly used by traditional mobile phones.
Measures Progress Smoothly: Sales and Male Users of Battle Games Increase, Progress in Platform Diversification
Battle games, which are being cultivated as a new category of games, saw an increase in sales during the first quarter, while sales of the main management simulation games also continued to grow. Specifically, "Pocket Dungeon 2" continued to trend favorably, and the contribution of "Dragon Tactics" helped to raise battle game sales by 1440% year-over-year, and allowed its share of net sales to rise from 5% of in the previous term to 38% in the current term. At the same time, management simulation game sales grew by 23%, but their share of total sales dropped from 94% in the previous term to 61% in the current term (Other business remained unchanged at 1%). Along with the sales increase of battle games, the ratio of male users rose from 24% to 31% as planned (The ratio of male users has not increased as much as battle game sales because battle game unit prices are higher by 1.3 - 1.4 times).

In addition, the number of platforms used for distribution has also expanded. By platform, sales over "GREE" declined from 73% to 56%, "Mixi" grew from 12% to 23%, "Mobage" rose from 9% to 10%, and others increased from 6% to 11%. In addition, the contribution from "Ameba" (4.7%), which started the distribution of "Dragon Tactics" last fall, also contributed to the increase in sales of other business.

Furthermore, responses for smartphones are growing, and sales over smartphones rose from 17% in the previous term to 43% in the current term.
Trends in Quarterly Results
In the fourth quarter (October-December), sales tend to rise with highest volumes throughout the year being recorded due possibly to the end and start of the year, and subsequent increases in marketing events compared to other quarters. Thus on average, first quarter sales tend to decline on a quarter-over-quarter basis. During the current first quarter, "Dragon Tactics" sales grew in addition to an increase in sales of "Galsho☆" due to the popularity of Valentine Day related marketing events. These increases helped to absorb the seasonal decline in sales of "Bokuno Restaurant" and "Pocket Dungeon 2."

With regards to costs, commissions paid (Payment to platform operators), which accounts for nearly 60% of cost of sales, tend to grow in line with sales, but effective control of labor and outsourcing expenses through improvements in development efficiencies have yielded results (The quarter-over-quarter decrease in labor and personnel expenses is attributed to the payment bonus at end of previous fiscal year) since the fourth quarter of the previous term. Advertising and sales promotional expenses declined due to a lack of new title launches and improvements in efficiency of and focus upon cost-effectiveness in marketing of existing titles.

In the O2O (Online to Offline) business, which is being cultivated as a peripheral business to social games, enish was successful in its sales promotion campaign with Burger King Japan and was able to raise the number of customers visiting the 60 nationwide stores between February 1 to March 3 to a level that exceeded targets. Specifically, customers making purchase at Burger King during the sales campaign were provided with serial numbers printed on the receipts, which could be used to acquire special tools used in the game "Bokuno Restaurant II" .
Total assets rose by ¥91 million from the end of the previous term to ¥1.689 billion at the end of the first quarter. Progress in recovery of accounts receivables contributed to a rise in cash and equivalents, and an increase in office space led to a rise in tangible fixed assets. Net assets rose in reflection of the strong earnings performance. Equity ratio saw a 7.0% point improvement to 72.7% as proof of the extremely healthy financial position, with over half of assets accounted for by receivables and cash equivalents, and zero interest-bearing liabilities.
Strategies from the Second Quarter Forward: Native Applications Responses and Overseas Expansion
In addition to the strategic move to enter the native application market, enish will also seek to achieve new growth through its launch of its overseas business expansion. With regards to native applications, one management simulation game title and one battle game title are expected to be released during the third quarter (July-September, for Android version as well as iOS), and the Company will leverage its strengths in its existing markets (management simulation game operational knowhow, female user acquisition knowhow) to promote its business. Thereafter, enish plans to localize titles including response to local languages as a means of capturing demand in overseas markets, where volume is high and growth potential strong, during the fourth quarter (October-December). While the overseas business expansion is expected to be launched initially in North America and Asia, sales have not been factored into the current term earnings estimates and only advertising and management costs have been considered.

Along with the efforts mentioned above, enish will promote efforts to develop its O2O business at the rate of one project per quarter. At the same time, the Company will strive to reduce risks arising from volatility in demand for existing titles (Use new distribution platforms that are not currently being used) and promote business over NTT Docomo' s d Game website (Distribution from d Game started from April 25).
Fiscal Year December 2013 Earnings Estimates
Growth Strategy Leads to Higher Marketing Expenses from Second Quarter Onwards
The achievement rate of first half earnings estimates was 53% of sales, 87% of both operating and current profits, and 90% of net profit. While high achievement rates of first half profit estimates were recorded, plans to release one animated battle game title using large IP (Browser application) is expected to lead to increases in marketing and labor expenses (There were no new titles released during the first quarter) during the second quarter. In addition, development expenses are expected to also increase due to the impending release of two native applications anticipated during the third quarter.

Second half earnings estimates call for sales, and operating, current and net profits of ¥3.7 billion, ¥350 million, ¥330 million and ¥170 million respectively. enish plans to release one simulation and battle game title each (Both native applications) during the third quarter, and release one browser application title and expand overseas during the fourth quarter. Consequently higher marketing expenses compared with the second quarter, and other expenses associated with localization for overseas business expansion are anticipated.
Full Year Sales, Operating Profit Expected to Grow by 51.2%, 23.1% Year-Over-Year
Achievement rates of earnings estimates for sales, and operating, current and net profits during the full fiscal year were 24%, 50%, 51%, and 56% respectively. As described above, increases in costs (While advertising and operational costs are expected to be incurred in the overseas expansion, no revenues have been included in estimates) are expected to contribute to a deterioration in profit margins compared to the first half, but enish expects to be able to achieve its full year management target of 20% growth in profits during the full year.

Dividend estimate has not been officially announced, but enish is expected to maintain a dividend payout ratio of 20% of net profit. Therefore, the Company could pay a dividend of ¥34 per share should it achieve its full year profit estimates.
Along with cost controls, efforts to develop battle games and acquire male users, and measures to diversify platforms have been successful. With regards to marketing expenses from the second quarter forward, enish is expected to implement measures to control marketing expenses including focused spending for the development of new titles and new platforms, and cost effective expenditures for existing platforms. For existing long selling titles, spending upon advertising leads to increases in MAU (number of active users per month), but does not always translate into increases in the number of unique paying users who spend money to play games. The fact that restraint in marketing expenses led to a decline in MAU but did not affect the number of existing unique paying users and the spend per user is a reflection of this trend. While the possibility that the decrease in MAU may have affected the acquisition of new unique paying users to some extent, the impact is expected to have been insignificant. Furthermore, the restraint is expected to have led to an overall improvement in the cost effectiveness of advertising when all titles are considered.

enish seeks to strike a balance in its growth strategy between offensive measures including the fortification of its existing titles through multi-platform diversification, battle game cultivation, and O2O business development (Participation in native applications and overseas expansion) and defensive measures including cost controls.
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.

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