EFTA01039267.pdf

From: Richard Kahn <I To: "jeffrey E." [email protected]> Subject: Re: NINTENDO: 600 MILLION REASONS TO BUY ON WEAKNESS Date: Sun, 10 Jun 2018 09:12:13 +0000 Yes Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Tel Fax Cell On Jun 10, 2018, at 12:58 AM, jeffrey E. icevacation@gmail ram> wrote: AMANDA???? On Sat, Jun 9, 2018 at 10:58 PM jeffrey E. <[email protected]> wrote: Forwarded message From: Paul Barrett Date: Sat, Jun 9, 2018 at 9:40 PM Subject: FW: NINTENDO: 600 MILLION REASONS TO BUY ON WEAKNESS To: jeffrey E. [email protected]> And from ML Paul Barrett Alpha Group Capital LLC 142 W 57th Street, 11th Floor, New York, NY 10019 (o) (c) EFTA01039267 From: Ens, Amanda < Sent: Monday, June 4, 2018 9:28 AM To: Paul Barrett Subject: NINTENDO: 600 MILLION REASONS TO BUY ON WEAKNESS From Arif Imam on our Japan Sales desk EFTA01039268 L.,cid:image001.jpg@0l D27C5D.0DCBD2B0 BUY NINTENDO (PO Y70,000, +55%): POKEMON WILL BOOST SWITCH SALES We've been waiting a long time to see the shake out of those momentum investors crowded into this name and that has finally started to occur, the naysayers and boo birds are back! The Switch console sales momentum has clearly slowed, their new Labo game has not been impressive, and the coming E3 expo has a decent lineup of games but nothing earth shattering leading us to another potential reason to sell down the stock further as momentum seems fleeting. The stock has broken its 200 dma and should settle in nicely at a fairly strong support level of Y36,000 (or PER of 15.7x) which is an excellent re-entry level as some very important catalysts still lie ahead of us. Pokemon Go had 600 mn downloads globally what Nintendo does to convert even a small percentage of these users will have a profound impact on future earnings and the stock will resurrect itself. Never count out this company's management especially with the stock now trading at 17.6x our FY3/19 EPS of Y2,291, <Key Upside Factors> • Pokemon Games and Switch Console Upside: do not lose sight of the Switch tablet being a mobile device. Between now and November's Pokemon launch what if Nintendo: I. develops a new Switch tablet that has both a cellular connection and a camera function ? 2. unveils the true intended purpose of the Poke Ball ? 3. converges smartly those 600 mn smartphones users, a newly designed Switch tablet, and the Switch online portal ? EFTA01039269  • Significant Room for Digital Sales Upside: Digital sales in FY3/18 was only 17% vs over 50% among overseas game software companies. There is a plenty of room for its increase. We project download sales ratio will rise to 40% over the next 3 years. • Smart device revenue/Switch online: Nintendo is getting serious about smart device game business opportunities evidenced by the operation alliance with Cygames (which has the highest ratio of hits of any domestic mobile game developer). We are expecting related sales to grow to Y87.9bn (+123.6%) in FY3/19, Y127.2bn (+44.7%) in FY3/20 and Y219.6bn in FY3/21. Also, Switch online will be launched in Sep 2018. The earnings impact will be limited, we think it will be a source of stable earnings like PS+. d:137979694 Arif EFTA01039270 Global Research Bo rA mL Logo Nintendo (7974) Time to factor in earnings upside on rising demand from casual garners; reiterate Buy Reiterate Rating: BUY PO: 70,000 JPY I Price: 42,400 JPY Equity 1 30 May 2018 Key takeaways • Keep V70,000 PO, Buy; plenty of room to price in positive news • Casual gamer demand from Smash Bros. and Pokemon will drive consensus-beating growth • Focus on new title announcements at E3, initial sales trends for Mario Tennis Aces, Dragalia Lost FULL REPORT Keep ¥70,000 PO, Buy; plenty of room to price in positive news Ahead of the E3 game show next month, we revise our estimates after reviewing FY3/18 results but leave our PO unchanged at (still based on a cash-adjusted PIE of 21x on our FY3/20 FY3/20 EPS estimate). Nintendo's share price has corrected owing to the weak data point after FY3/18 results. We, however, continue to see solid potential for sustained earnings growth, driven by the release of in-house developed titles such as Super Smash Bros. and Pokemon, a robust pipeline of titles from third-party developers in the US and Europe, and digital sales growth. Nintendo's shares look undervalued relative to its global peers, and with valuations looking increasingly attractive, we reiterate our Buy rating. EFTA01039271 Casual gamer demand to drive consensus-beating growth We make modest upward revisions to our OP estimates for FY3/19 from ¥366.4bn to ¥368.9bn (consensus ¥298.2bn) and for FY3/20 from Y4613.3bn to ¥470.4bn (¥389.7bn). The revisions largely reflect our expectation of an improvement in Switch margins, thanks to growth in digital sales. In our view, the consensus outlook fails to sufficiently factor in the impact of digital sales, as well as to fully reflect the potential boost to hardware sales from the release of Nintendo IP titles (such as Mario Tennis Aces) or third-party titles. Our Switch hardware shipment assumptions are unchanged, at 26mn units for FY3/19 and 33mn units for FY3/20. Focus on new titles at E3, Mario Tennis Aces Potential catalysts include (1) positive feedback from this year's E3 (12-14 June) for titles such as Super Smash Bros., (2) announcements on new titles for launch in FY3/19 and beyond (12 June), (3) initial sales for Mario Tennis Aces (scheduled launch 22 June) and (4) the launch of mobile game Dragalia Lost. Clear signs of tight demand for the Switch console could lead to heightened expectations that Nintendo will eventually raise guidance. Longer-term focus points include updates from Nintendo regarding the China business, as well as theme park and movie-related initiatives. Contents Maintain PO at ¥70,QQQ reiterate Buy Reiterate Ruy amid sluggish share-price performance 3DS hardware guidance: is a new handheld on horizon? Key for Switch's second year: Capturing casual gamer demand Prospects for monetizing :mart-device games Sjenifirant room for digital sales ratio to rise potential calalystsLa Mario Tennis Aces new smart-device game apps As 3DS slowshopes turn to introduction of strong new portable hardware platform Activity among existing users waning .2D$ launch lifts performance, but sustainability in doubt Awaiting release of next-g neration handheld Switch: Reaching trend followers could pose a challenge in its second year Brisk start to the first fiscal year Differences between Switch and Wii sales Focus on successor to Nintendo Labo for stimulatingsasuaLgame demand profitability awilysis• Pants on eamiuglimprovement via digital sales expansion Switch launch boosts earnings more than anticipated Digital boost to magnify Analysis of differences between FY3/18 results and our estimates FY3/18 results review EFTA01039272  Raising our estimates following FY3/18 results release Earnings model Hlroyasu Eguchl Se Research Analyst Merrill Lynch (Japan) This report is intended for Masahiro Honda O3ofAML logo Read the research report for complete information including important disclosures and analyst certification(s). The research report and the link to such report are for the use of Bank of America Merrill Lynch customers only or Merrill Lynch Global Wealth Management customers only and all copying. redistribution, retransmission. pubfication, and any other dissemination or use of the contents thereof are prohibited. There may be more recent information available. Please visit one of the electronic venues that carry BofA Merrill Lynch Global Research reports or contact your Bank of America Merrill Lynch representative or Merrill Lynch Global Wealth Management representative for further information. "Bank of America Merrill Lynch' is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Stop or modify the delivery of Research via Broils. Altematively. contact Research Operations: Recipient: Masahiro Honda This message, and any attachments, is for the intended recipient(s) only, may contain information that is privileged, confidential and/or proprietary and subject to important terms and conditions available at If you are not the intended recipient, please delete this message. EFTA01039273  please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to jeevacationagnason, and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected], and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved EFTA01039274