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Public company info - Okura Holdings Limited , 01655.HK

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Okura Holdings Limited, 01655.HK - Company Profile
Chairman Katsuya YAMAMOTO
Share Issued (share) 500,000,000
Par Currency
Par Value -0.0
Industry Gamble
Corporate Profile Business Summary: The Group is a pachinko hall operator in Japan. Performance for the year: The group's total revenue decreased by 8.5%, from ¥10,098 million for the year ended 30 June 2016, to ¥9,238 million for the Year. Profit for the year attributable to shareholders of the Company decreased by ¥335 million, or 55.5%, from ¥604 million in the year ended 30 June 2016 to ¥269 million in the Year. Business Review: The group is a pachinko hall operator in Japan, operating mainly pachinko and pachislot machines. As at 30 June 2017, the group operated 18 pachinko halls under the trading names “Big Apple.”, “K’s Plaza”, “Big Apple”, “Big Apple. YOUPARK” and “Monaco”. During the Year, the pachinko and pachislot industry had been affected by the continuous decline in pachinko and pachislot players with more forms of entertainment, such as horse racing, web-based gaming, online social gaming through mobile phones or other mobile entertainment services and potentially interactive gaming channels available in the market. Such continued decline is reflected by the Group’s continued decrease in gross pay-ins and revenue from ¥42,988 million and ¥10,098 million, respectively, for the year ended 30 June 2016 to ¥37,740 million and ¥9,238 million, respectively, for the Year. In addition, the Association for Pachinko Machine Manufacturers in Japan (the “Association”) published announcements in the first half of 2016 (the “2016 Announcements”) to enforce certain amended voluntary regulations (the “Amended Voluntary Regulations”) as part of the pachinko industry’s effort to curb the gaming element in the pachinko and pachislot game and to mandate a reduction in jackpot size of pachinko machines and pay-out ratios of pachislot machines. Pursuant to the 2016 Announcements, a collection of 138 types of machines were required to be withdrawn from pachinko halls, and more than 700,000 machines were withdrawn from the market by the end of December 2016. The aforesaid withdrawal and the resulting replacement of machines in the group's pachinko halls gave rise to an increase in the amount of pachinko and pachislot machines expenses incurred from ¥3,330 million for FY 2016 to ¥3,409 million for the Year. Together with the establishment of the new Chugoku hall as further detailed below, the group's hall operating expenses increased from ¥8,129 million for the year ended 30 June 2016 to ¥8,278 million for the Year. The new Chugoku hall, being the group's first pachinko hall in the Chugoku region, operates a total of 642 machines, of which 372 are pachinko machines and 270 are pachislot machines. While the Group had to recognise significant machine expenses in the Year, the Group had gradually built up customer traffic for the Chugoku Hall. Since its opening, the Chugoku Hall had recorded stable growth in revenue and had strengthened the group's presence outside the Kyushu region. In addition to the new Chugoku Hall, the group acquired a property at a prime locataion for pachinko hall operations in Nagasaki in February 2017 to establish a new flagship hall. This new Nagasaki hall is expected to be one of the largest pachinko halls in the centre of Nagasaki, the group's headquarter and largest base of operations. As disclosed in the group's Prospectus, the group's Directors had expected that the new Nagasaki hall to commence operations in the third quarter of 2017. As at the date of this announcement, the new Nagasaki hall is expected to commence operations by the end of September 2017. The group also expect the hall to house approximately 670 pachinko and pachislot machines. The group's experience is that a new large scale pachinko hall generally draws in strong customer awareness and players who habitually visit small scale pachinko halls in the surrounding area, and thereby strengthen the group's corporate image in the area. As such, the group's Directors expect the new Nagasaki hall to contribute to the group's business results and consolidate the group's position as the market leader in the Nagasaki prefecture significantly from October 2017 onwards. The aforesaid factors, together with the listing expenses incurred during the Year for the listing of the group's ordinary shares (the “Shares”) on the Main Board of the Stock Exchange (the “Listing”), resulted in a decrease in profit before income tax from approximately ¥1,028 million for the year ended 30 June 2016 to approximately ¥437 million for the Year. Excluding the non-recurring listing expenses of approximately ¥370 million (FY 2016: ¥379 million), the Group’s profit before income tax would be approximately ¥807 million for the Year (FY 2016: ¥1,407 million). Despite the deterioration in financial performance during the Year, the group remain prudently optimistic about the long term growth potential of the Group amidst the current industry-wide transition in light of the group's proven management capability and the market consolidation opportunities in the contracting markets of the pachinko industry in Japan as further detailed below. The group's Shares were successfully listed on the Main Board of the Stock Exchange on 15 May 2017 and the net proceeds from such Listing totalled approximately HK$74.0 million. The group intend to apply such proceeds to facilitate the group's growth through business expansion and acquisition. Prospects: The pachinko industry in Japan has been contracting since 2005 due to the increasing competition from other forms of entertainment in Japan and the introduction of measures by the pachinko industry to curb the gaming element in the pachinko and pachislot games. In December 2016, the Act Concerning Promotion of Development of Integrated Resort Areas (the “IR Act”) was passed into law by the Japanese parliament, the Japanese National Diet. Although the IR Act does not on its own legalise casino operations in Japan, the Japanese government is required to implement anti-gambling measures to curb gambling and associated negative social behaviour. In August 2017, the National Public Safety Commission issued the “Draft Regulations to Amend Partially Regulations on the Entertainment and Amusement Trades Rationalizing Act and Regulations on Certifying Machines and Conducting Type Test on Machines” (the “2018 Draft Regulation”). According to the 2018 Draft Regulation, the pay-out ability of both pachinko and pachislot machines will be further limited, and the market expects such regulation to be passed and implemented by February 2018 with little change to its current draft. As a result, it is likely that the attractiveness of the pachinko and pachislot machines to customers, especially young customers, and the profitability of the operation of such machines will be adversely affected from February 2018 onwards. Coupled with the continued immense competition of other forms of entertainment and the continuing aging population, the market contraction of the pachinko industry is expected to continue and profitability of pachinko hall operation may further deteriorate in the near future. Pachinko hall operators in Japan had, over the past 10 years, installed a higher proportion of low playing costs machines given the general popularity with such machines among customers. In light of the 2018 Draft Regulation, which is likely to further reduce pay-out ratio and attractiveness of low playing costs machines, certain hall operators, including the Group, has, since August 2017, begun adjusting its business strategies to increase the proportion of high playing costs machines at strategically selected halls to maintain customer traffic, where customers prefer playing with machines with higher gaming element. For instance, the Group currently expects to install a higher proportion of high playing costs machines in the new Nagasaki hall to enhance customer traffic in the long run. Furthermore, in light of the continued market contraction, the group's management has, in line with the group's multistrategy approvals of enhancing customer experience, been constantly reviewing the performance of each individual hall, as well as the growth potential or market saturation risks of various geographical regions. For instance, The group is closely monitoring the performance of the group's pachinko halls in Tokyo, which competition has intensified recently with more notable adverse impact on profitability when compared to the group's pachinko halls in other regions. The group's management has conducted operational review and will implement measures necessary to improve the performance of such halls. the group's halls in Nagasaki, on the other hand, have on an overall basis demonstrated more promising performance. The group's management will undertake further studies to align its business strategies in terms of regional spread to ensure the Group can capture market opportunities in the most effective and profitable manner. Although the pachinko industry continues to face significant threats, it remains as the largest contributor to the Japanese entertainment market in terms of market share while highly fragmented. This continues to present consolidation opportunities for larger market players. For instance, any further enforcement of the Amended Voluntary Regulations and the constantly changing market trends and customer preference on machine types and playing costs are likely to demand that pachinko hall operators replace machines more frequently and strategically. The expenses in relation to machine replacement are burdensome for small-sized pachinko hall operators operating less than 15 halls (the “Small-sized Pachinko Hall Operators”) as most of these halls do not have the financial resources to enable frequent machine replacement. Thus the pachinko industry remains relatively favourable for mid-sized pachinko hall operators operating 15 to 19 halls (the “Mid-sized Pachinko Hall Operators”) and large-sized pachinko hall operators operating 20 halls or more (the “Large-sized Pachinko Hall Operators”) as they may further develop their business by absorbing the market share of Small-sized Pachinko Hall Operators. Together with the group's enhanced equity base and public credibility following the Listing, The group is optimistic that the group can continue to tap into the potential acquisition opportunities of Small-sized Pachinko Hall Operators to achieve economies of scale in operations. Furthermore, as long as the group's management remains responsive to the changes and flexible in adjusting the group's strategies to ensure the group's operations remain efficient and the mix of machines types in each of the group's halls remain optimal for each operating location, the group's Directors reasonably believe that the group can operate and expand the group's business sustainably notwithstanding the continued contraction of the pachinko industry and the competition with other forms of entertainment in Japan.

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