BRIDGE REPORT
(3667)

東証1部

enish, inc. (3667)
Kouhei Antoku, President
Kouhei Antoku,
President
Corporate Profile
Company
enish, inc.
Code No.
3667
Exchange
First Section, TSE
Industry
Information, Communications
President
Kohei Antoku
HQ Address
Roppongi Hills Mori Tower 39F, 6-10-1 Roppongi, Minato-ku, Tokyo
Year-end
December
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥567 7,800,800 shares ¥4.423 billion - 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Est.)
¥0.00 - - - ¥215.96 2.6x
*Stock price as of close on February 15, 2017.
 
Non-Consolidated Earnings Trends
Fiscal Year Sales Operating Profit Current Profit Net Profit EPS DPS
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 22.00
December 2015 5,482 -964 -1,004 -1,447 -207.53 0.00
December 2016 4,970 -361 -401 -340 -45.13 0.00
* As of FY12/16, the definition of net profit is changed to net profits attributable to parent shareholders (Abbreviated as parent net profit)
* 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 2016 earnings results and other information about enish, inc.
 
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 others. 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, the de facto founder of the company, 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.
 
 
<Business Description>
enish maintains only a single business segment entitled game business. 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.
 
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.
 
<Main Titles>
The two main themes of enish's business strategy include growth in native applications and strengthening of operations for browser applications (Selection, concentration and maintenance of profitability). (Images are from enish's website)
 
 
 
 
Fiscal Year December 2016 Earnings Results
 
 
4Q Sales Fell 7.2% Quarter-On-Quarter, Operating Loss of ¥106 Million Incurred
The influence of lower sales caused by the transfer of business and higher labor and outsourcing expenses resulted in a large decline in gross profit and rise in operating loss over the third quarter though sales, general and administrative expenses including advertising are declined. However, enish was able to record a net profit of ¥24 million due to the booking of an extraordinary profit of ¥150 million on the transfer of business. This profits arose from the transfer of the browser game "Dragon Tactics" to C&M Games Co., Ltd. (Minato Ward, Tokyo, CEO Jin Uehara).

While operating loss on a quarterly basis increased, success is being achieved in cost reduction efforts. While sales fell by 8.1% on a year-on-year basis, gross profit margins improved by a large margin. And while sales, general and administrative expenses rose on the back of fortification of promotions for "Twelve Odins", which sees a steady increase in downloads, the margin of operation loss contracted by a large margin.
 
 
 
"Twelve Odins" Achieves 2.00 Million Downloads
In addition to fortification of promotions, collaborations with "Valkyrie Profile" were effective in contributing to the achievement of 2.00 million downloads of "Twelve Odins" by its first anniversary in January 2017. In preparation for the large scale update in spring 2017, renovation work is currently being conducted. In addition, Funmily Co., Ltd. has been chosen as the sole distributor licensee in Taiwan, Hong Kong, and Macau.
 
Browser Game Selection and Concentration
"Dragon Tactics" was transferred in order to be able to concentrate resources upon the browser games "Bokuno Restaurant II" and "Galsho☆".
 
Registered Users of EDIST, CLOSET Steadily Rise
The number or registered users of EDIST, CLOSET is steadily rising, with the number rising to double the end of the previous term from the end of the second quarter. enish will continue to conduct aggressive influencer promotions and exhibitions. Moreover, EDIST. CLOSET is a fashion coordination service collaborating with popular stylists provided on a fixed monthly rate basis within the new realm that merges "social with fashion". Knowhow cultivated in the development and operations of "Bokuno Restaurant II" and "Galsho☆" will be leveraged in this business.
 
 
Successful Cost Reductions Allow Operating Loss to Contract by Just Under 60%
While the decline in sales continued, gross profit rose from ¥41 million in the previous term to ¥677 million in the current term (Cost of sales declined from ¥5.440 to ¥4.293 billion over the same period) on efforts including title closure and transfers and other cost management measures arising from reductions in the number of development lines and optimization of the business portfolio. Increases in advertising expenses (From ¥77 to ¥522 million) arising from aggressive promotion activities caused sales, general and administrative expenses to rise, but other expenses were reduced. Consequently, operating loss was reduced by 63% year-on-year from ¥964 million in the previous term to ¥361 million in the current term.
 
 
Total assets is ¥2,177 million, declined by ¥75 million from the end of the previous term. Capital sourced through the exercise of stock options and improvements in operating cash flow allowed the decline in cash and equivalents to be kept to a minimum. Capital adequacy ratio rose from 71.6% at the end of the previous term to 77.4% at the end of the current term.
 
 
 
Fiscal Year December 2017 Earnings Estimates, Medium Term Strategy
 
(1) Fiscal Year December 2017 Earnings Estimates
"Given the severe changes in the operating environment surrounding the social game business, enish recognizes the potential for large fluctuations in near term earnings making it difficult to produce accurate earnings estimates for the coming year". Therefore the Company has decided to forego issuing estimates for its earnings. "
In addition to a large update of "Twelve Odins" during spring 2017, distribution is expected to be started in Taiwan, Hong Kong and Macau. Resources will be devoted to development of the two tiles of "Bokuno Restaurant II" (Released 6 years and 8 months ago) and "Galsho☆" (Released 6 years and 4 months ago) in an effort to limit declines in sales. Aside from these developments, a new game application title targeting female users is expected to be launched during the second half.
 
(2) Medium Term Strategy
Non-game business cultivation and expansion activities will be conducted to establish a stable earnings generating structure. Currently, "EDIST. CLOSET", "metune" and game related business are being developed as three non-game business realms. Efforts including the hosting of exhibitions will be made to raise the recognition of "EDIST, CLOSET" to expand its users, along with other efforts to review product lineup and improve websites. With regard to "metune",a marriage application completely overseen by the highly popular fortune teller "eve lourdes haruka"is expected to be released in spring 2017. The game related business is expected to be released during the first half of the coming year but details of this business cannot yet be disclosed out of consideration for the collaborating partner.
 
 
Conclusions
 
Along with cost reduction efforts and measures to bring about an end to the decline in sales, enish should be able to record operating profits as long as advertising expenses are kept in check. With regard to sales, declines in sales of the two browser game applications that have been provided for over 6 years is unavoidable. However, "Twelve Odins" has been able to record 500,000 downloads in every quarter since its release and continues to contribute to sales. Furthermore, the potential for this game to record better results in the first quarter of the coming fiscal year should be watched closely. From the second quarter onwards, the release of a largely updated version of "Twelve Odins" expected during the spring, the release of a game application title during the second half, and the start of provision of "Twelve Odins" in Taiwan, Hong Kong and Macau could become positive factors.

The launch of non-game businesses is an integral part of the strategy of diversifying earnings sources, and increases in the recognition of "metune" is expected to gradually contribute to earnings. While details of the game related business have not yet been disclosed, they are expected to become clear in a few months, given the anticipated release during the first half of the current fiscal year. Along with the growing numbers of registered users of "EDIST, CLOSET", the market is expected to keep a close watch on the impending release of this new business.
 
 
<Reference: Regarding corporate governance>
 
 
◎ Corporate Governance Report
Updated on March 28, 2016
<Disclosure Based on the Principles of the Corporate Governance Code(Excerpts)>
Principle 1-4 So-called strategically held shares
In order to focus our business on the social game development, the Company will not hold shares of the other listed companies for the time being. If the time comes when the Company may strategically hold such shares in the future, it will determine the pros and cons on a case-by-case basis from the perspective of a medium- to long-term corporate value enhancement.
 
Principle 5-1 Policy for constructive dialogue with shareholders
The Company makes efforts to promote constructive dialogue between managerial executives and shareholders using various occasions.
Furthermore, for a wide range of IR activities, the Company assigns the Director and Executive Manager of the corporate administration group as the executive officer in charge of IR. This person leads administrative headquarter corporate planning at the IR department. The IR department also makes organic collaboration with relevant departments such as the accounting department and general affairs department.
The Company makes efforts to provide information in a timely manner to analysts, investors, and shareholders. It also ensures management of insider information during dialogues, while making efforts to promptly and appropriately respond to inquiries. The opinions and concerns from shareholders are reported to the senior management and the board.
 
Disclaimer
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.
Copyright(C) 2017 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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