enish, inc. (3667)
Kouhei Antoku, President
Kouhei Antoku,
Corporate Profile
enish, inc.
Code No.
1st Section of Tokyo Stock Exchange
Information, Communications
Kohei Antoku
HQ Address
Roppongi Hills Mori Tower 39F, 6-10-1 Roppongi, Minato-ku, Tokyo
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥480 7,187,880 shares ¥3.450 billion - 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (Est.)
undecided - - - ¥224.35 2.1x
*Stock price as of close on February 17, 2016.
Non-Consolidated Earnings Trends
Fiscal Year Sales Operating Profit Current Profit Net Profit EPS DPS
December 2011 2,590 526 523 298 147.81 0.00
December 2012 4,430 666 654 373 87.28 28.00
December 2013 6,624 1,109 1,078 653 121.89 22.00
December 2014 6,452 149 151 22 3.19 0.00
December 2015 5,482 -964 -1,004 -1,447 - 0.00
* 20 for 1 and 2 for 1 stock splits were performed in September 2012 and October 2013, respectively. * EPS has been retroactively adjusted to reflect these stock splits.
We present this Bridge Report reviewing the fiscal year December 2015 earnings results.
Key Points
Company Overview
enish is a social game planning, development and operations 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." Under the motto "Link with Fun," the Company's mission is to cultivate enish fans all around the world. The company name "enish" is derived from the Japanese word "en," meaning a link or bond that connects people. Effective March 2014, Kohei Antoku was appointed to serve as the new President. The Company aims to maintain profitability of browser applications, while creating new hit native applications and expanding its business by deploying its contents distribution both domestically and internationally with a focus on Asia.
Native applications are applications that can be enjoyed by users by downloading them to their smartphones and other devices. Browser applications, on the other hand, are not downloaded but can be accessed and enjoyed over various platforms such as GREE, mixi, and Mobage. Both forms of applications are provided for free, but various items used in the games to make them more enjoyable are offered for purchase. Responsibility for collection of the fees charged to users for items purchased over browser applications is contracted to social networking service (SNS) platform providers, and the Company pays them system usage fees in consideration.
<Corporate History>
<Business Description>
enish maintains only a single business segment entitled social applications business (Games are considered as one type of application category). Based upon the Company's earnings foundation built up in the browser application busienish maintains only a single business segment entitled social applications business (Games are considered as one type of application category). Based on the Company's earnings foundation built upon the browser application business, enish also develops native applications. While games are provided free of charge, various items in the games to make them more enjoyable are offered for purchase. Responsibility for collection of the fees charged to users for items purchased in browser applications is contracted to social networking service (SNS) platform providers, and as the Company pays them system usage fees in consideration.
Management simulation games such as "Bokuno Restaurant II" and "Galsho☆," both browser applications, are well-liked among female users and have been popular over time. Female users tend to be long-term users.
Success of social games hinges on operation after their launch
Social games have features that allow for: 1) users to communicate with other users through relevant games; 2) items and tools to be purchased by users of relevant games which are provided free of charge; 3) smartphone users to easily play being in principle free of charge; 4) a play without goals; 5) release of new functions as games are updated after their launch; and 6) the operation style to add characters and items. Unlike packaged games, how the games are operated after their launch is the key for success.

"Operation" refers to event operations within games, and there are three different types of events including acquisition event, where items and characters to be improved are acquired and collected; improvement event, where characters are improved (Implement distribution of specialized items for character improvement); and usage event, where improvement items' and characters' capabilities are tested. Furthermore, a type of usage event where users battle and cooperate with each other and user rankings are displayed in real time as the game progresses, draws a great deal of attention from users, contributing to a large growth in sales.
<Fundamental Policies>
Introduction of new native titles, global deployment, and maintenance of a stable earnings foundation are the three fundamental pillars in enish's business deployment strategy. With regards to native title introductions, games will be deployed in various genres regardless of whether they target male or female users, and strict adherence to development plans will also be implemented. Furthermore, the outcome of launch in the Japanese market will be carefully considered in collaboration with local partners to lower the risk of global business deployment. Maintenance of a stable earnings foundation will be achieved by leveraging marketing capabilities to maintain profitability of existing browser titles, while at the same time making ongoing efforts to introduce contents and add new functions.
<Main Titles>
Fiscal Year December 2015 Earnings Results
<FY12/15 Efforts to Facilitate a Business Structure to Achieve Growth from FY12/16 Onwards>
While browser-related sales trended strongly during fiscal year December 2015, efforts to improve the quality of native applications have led to delays in their launch. Consequently, an operating loss of ¥964 million was incurred. However, a certain level of results were achieved in efforts designed to secure growth from fiscal year December 2016 onwards.
Specifically, enish focused its efforts on four main issues including 1) expansion of sales, 2) strengthening of the progress management structure, 3) reduction and reorganization of overseas facilities, and 4) implementation of strict cost controls. Of the above, 3) reduction and reorganization of overseas facilities and 4) implementation of strict cost controls have been completed. The Company will continue to implement measures to expand sales and to strengthen the progress management structure during fiscal year December 2016. In addition, strict cost controls will also be pursued on an ongoing basis.
(1) Expansion of Sales
Efforts were made to strictly observe development plans and to expedite development of native application titles, in addition to efforts to strengthen the earnings generating capability by improving operational quality of and adding functions to browser applications. While the launch of four new titles scheduled to be out during the previous term have been delayed until fiscal year December 2016, two of these four titles were already released during the latter part of January to the early part of February. enish is expected to continue to implement the above mentioned measures in fiscal year December 2016.
(2) Strengthening of the Progress Management Structure
enish focused upon strict quality checks at an early stage through prototyping, and adopted milestone management and an internal committee for progress monitoring. These efforts will be maintained in fiscal year December 2016.
(3) Reduction, Reorganization of Overseas Facilities
As part of the change in policy from in-house distribution of contents in overseas markets to a collaboration with local partners for distribution, the three dimensional studio function in China was downsized and other overseas facilities were reorganized. In addition, efforts to convert fixed to variable expenses were implemented, including the transfer of the customer satisfaction function in Thailand to Japan.
(4) Strict Cost Management, Expansion of Sales
Various measures, including optimization of staff numbers, reductions in director compensation, and other cost reduction efforts have been implemented, in addition to freezing certain titles that are predicted to become unprofitable at an early stage to reduce risks. With regards to cost reductions, efforts to further strengthen the supervision structure will continue to be implemented in fiscal year December 2016.
Operating Loss Better Than Estimates
Sales fell below expectations due to the delay of the launch of two new titles, which had been expected to be launched in the fourth quarter of fiscal year December 2015 ("Twelve Odins" and "Qlton"), into the beginning of fiscal year December 2016. However, strict cost controls and restraint in advertising allowed enish to reduce the operating loss to below its estimates.

Sales declined by 15.0% year-on-year to ¥5.482 billion. Despite their gradual declining trend, browser applications sales helped to offset part of the struggling sales from the native application side.
At the same time, cost of sales rose by 6.8% year-on-year to ¥5.404 billion. While commissions paid to distributors declined by little over ¥0.3 billion, labor and outsourcing expenses rose by about ¥0.3 and ¥0.4 billion, respectively. Within sales, general and administrative expenses, while commission rose by little over ¥0.1 billion, advertising declined by about ¥0.1, and labor and hiring expenses also decreased by about ¥0.05 billion year-on-year Other expenses declined by about ¥0.1 billion.
Sales during the fourth quarter fell by 1.7% compared with the third quarter to ¥1.289 billion. Despite the release of a native application "YuruKami!" in October, the majority of sales continue to be derived from browser applications. Browser application sales continue to trend firmly despite the gradual downward trend in the overall browser applications market accompanying the shift towards native applications, with sales of "Galsho☆" and "Sakigake! Otokojuku" rising on a quarter-on-quarter basis during the fourth quarter. Moreover, the launch of two native application titles was delayed until the beginning of fiscal year December 2016.

With regards to expenses, efforts to optimize staff numbers and closure of overseas facilities contributed to declines in both cost of sales and sales, general and administrative expenses during the fourth quarter compared with the third quarter. Consequently, the actual operating loss excluding one-off expenses is estimated to have been ¥95 million.
Total assets declined by ¥1.202 billion from the end of the previous term to ¥2.253 billion at the end of the current term. Reflecting cash flow and earnings, cash and equivalents and net assets both declined, and enish chose to realize its deferred tax assets. At the same time, the Company took on new short-term debt for use as funds to fuel growth. Capital adequacy ratio declined from 82.9% at the end of the previous term to 71.6% at the end of the current term.
The deterioration in profitability caused the net outflow of operating cash flow to expand. At the same time, restraint in investments and closure of overseas facilities contributed to a decline in the net outflow of investing cash flow.
Fiscal Year December 2016 Earnings Estimates
<Disclosure of Earnings Estimates Postponed>
Due to potential large fluctuations in near-term earnings arising from the dramatic changes in the operating environment surrounding social applications, calculating reliable first-half and full-year earnings estimates has become difficult and enish has therefore decided to postpone disclosure of earnings estimates. In the future, the Company will endeavor to disclose information regarding its business and earnings in a timely manner.
(1) First Quarter (January to March)
First Quarter Topics: "Appropriate Operations and New Title Releases", "Maintenance of a Stable Earnings Structure"
enish will work on setting a general direction towards securing profits with the proposed topics for the first quarter of "appropriate operations and new title releases" and "maintenance of a stable earnings structure."
With regards to new titles, two native applications have already been released (A total of four titles expected in the full year). Specifically, the battle role playing game "Twelve Odins" were released for Android on January 26 and the iOS version on 28, 2016. In addition to these releases, provision of the farming simulation game "Qlton" was started over the "Kakao Game" platform in Korea from February 2, 2016. These launches have proceeded smoothly, and measures to improve the earnings generating capabilities of these games will be implemented, including hosting events and expanding functions. With regards to the current main driver of earnings, browser applications, similar measures are necessary. Along with strict cost controls, the Company intends to maintain them as a stable earning foundation.
Efforts by Application
Native Applications
The two most recently launched titles have been trending favorably. Spending on advertising at the time of release is expected to range between ¥50 to ¥60 million, with spending thereafter undertaken flexibly and in consideration of key performance indicators.
Battle Role Playing Game "Twelve Odins"
Based upon the plot of a magical dragon that threatens to destroy the world, this game "allows players to enjoy real time battles with other players with flashy three dimensional effects and to leverage their battle skills." The Android and iOS versions were released on January 26 and 28, 2016 respectively. This game has exceeded expectations and recorded 280,000 downloads as of February 17, 2016.
Farming Simulation Game "Qlton"
"Qlton" began being provided over Korea's largest game platform "Kakao Game" from February 2, 2016 (Exceeded 500,000 downloads as of February 17). This is a simulation game that allows players to enjoy farming with a mystical character "Qlton." In this game, players are sucked into a magical bottle found on the shoreline where they are met by the mystical character "Qlton," and they work together to establish a farm and cultivate over 300 different vegetables and fruits represented in the form of deco-items. This game also allows players to create their own virtual farm and seek out the help of other friends playing this game.
Browser Applications
Browser applications continue to be a "cash cow" for enish with a strong fan base. Collaboration with various well known characters including "Hello Kitty", "My Melody", "Kuromi", "Snoopy", "Chocobo" and others will be strengthened as part of enish's strategy of maintaining the earnings generating capability of its browser games.
New Efforts: "EDIST CLOSET"
The development and operational knowhow cultivated through "Bokuno Restaurant," "Galsho☆" and other titles targeting female users has been leveraged in the launch of the new business "EDIST CLOSET." "EDIST CLOSET" is a monthly fee based service that provides fashion advice of popular stylists and represents a new challenge crossing the borders of the "social media" and "fashion" realms.
(2) Full Year
Two new titles are expected to be released from the second quarter onwards. Through the development of "Twelve Odins", enish has been able to acquire knowhow and development skills necessary to create "middle-hit" products. By leveraging this experience, the Company expects to focus on a fewer number of titles, but in turn spend a greater amount of attention upon developing each title. In addition, the efforts to optimize human resources and reduce and reorganize overseas facilities have been completed and are beginning to show some results. Along with the release of new titles as scheduled, efforts to achieve profitability at the operating level, including continued strict cost controls, will be implemented.
The efforts to optimize human resources and reduce and reorganize overseas facilities implemented in fiscal year December 2015 appear to have contributed to a lowering of break-even level. Investment Bridge estimates that the break-even level has been reduced from ¥1.5 to ¥1.350 billion (Excluding expenses for strategic advertising for new titles). If enish is able to secure the same level of sales of browser and other applications on the back of strengthened operations, it can be expected to break even. Furthermore, the ability to secure profits will be profoundly affected by the strength of the four new titles, including the two already released titles.
Moreover, intensifying competition within the game industry is contributing to difficulties in the release of new titles for all companies, even though they may have launched hits in the past. And while enish expects its elite game development teams to spend a greater amount of attention upon developing each title by focusing upon a fewer number of titles, forecasting the earnings contributions from each new titles is difficult. Therefore, the decision to postpone disclosure of earnings forecast was understandable.
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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