While pachinko industry revenues may have found a “temporary bottom” for the next six months or so, the “numerous headwinds” are likely to begin driving revenues back down in the years ahead—this is the grim forecast issued on Monday by Union Gaming.
The note observes, “Prime Minister Abe has indicated the government will push through the long-delayed sales tax increase to 10 percent, from 8 percent, next October, which we expect to again have a negative impact on the pachinko industry similar to the April 2014 sales tax increase to 8 percent, from 5 percent. At the same time, and while there are some signs of stabilizing revenue within low-cost parlors, the clock is ticking with respect to the new regulations that mandate lower volatility machines, which will necessitate higher volumes of purchases in the out periods that are currently being deferred. At the same time, new lower volatility machines are likely to be less attractive to customers.”
It adds, “Ultimately, we also view the headwinds as a discount M&A opportunity for Dynam in the out years as significant numbers of mom & pop parlors are unlikely to survive. Between now and then we see little M&A activity and a largely stable number of halls in operation.”
Union Gaming believes, however, that the economic headwinds will ensure that even the more successful and aggressive pachinko firms, such as Dynam, will not be able to maintain advances in profitability such as that which they recently reported for the April-September 2018 period as pay-ins fall.