Japanese game maker Nippon Ichi is the overlooked weak yen winner

(Bloomberg) – Nippon Ichi Software Inc. – a 213-person video game developer based in central Japan – is an unnoticed winner from the recent fall in the yen.

The role-playing game creator is based in Gifu, a mountainous and mostly rural prefecture, where average salaries are 20% lower than those in Tokyo, all paid in yen. But more than half of the company’s sales are in dollars, and that proportion will likely increase thanks to the Japanese anime boom among US gamers, Nippon Ichi chairman Sohei Niikawa told Bloomberg News in an interview.

“The continued decline in the yen brings huge currency gains,” he said, adding that North America now accounts for 60% of the company’s group revenue.

The Disgaea series creator declined to disclose his supposed yen-to-dollar exchange rate, but the Japanese currency has already fallen around 20% against the greenback this year to its lowest level in 24 years. The company stuck to its outlook, announced in May, for a year-over-year decline in profits. Its shares have lost 26% this year.

Read more: Yen nears closely watched 140 level as dollar strengthens

The impetus from the weak yen for Japanese hardware makers has eased in recent years, due to a trend to build more factories overseas. Game content creators like Nippon Ichi are the few beneficiaries, with most of their production at home.

Given the surging dollar, the company should raise its earnings forecast, said Hideki Yasuda, analyst at Toyo Securities. “The outlook could increase by at least 7% if the dollar moves to 135 yen, and 9% if to 140 yen,” based on an assumed rate of 120 yen to the dollar, he said. .

Nippon Ichi’s stock trades at less than 5x earnings, which is lower than its peers. The low price is due to a lack of name recognition, Yasuda said. Square Enix Holdings Co. is 14 times, Bandai Namco Holdings Inc. is 23 times, and Koei Tecmo Holdings Co. is 22 times.

The company’s low profile stems from its failure to establish a popular franchise beyond Disgaea. More than half of the company’s revenue in the United States comes from games borrowed from Nihon Falcom Corp. Nippon Ichi is bolstering its budget for young creators to develop new games, thanks to additional revenue from dollar sales each quarter, Niikawa said.

The company also remains cautious about game subscription services, through which a growing number of gamers are now accessing games. Nippon Ichi provided content to Sony Group Corp’s PlayStation Now subscription services. and Microsoft Corp.’s Xbox Game Pass, but Niikawa said the model was “dangerous” for software vendors.

“The subscription model is good for users and platform owners, but for us it’s hard to make the business sustainable, especially when the entire catalog has grown too big for players to find our games. “, said Niikawa. “I’m afraid the money that would otherwise be ours will fly away from us.”

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