Japanese pachinko hall operator Dynam Japan Holdings Co Ltd is “ripe for strategic investment on the part of an international integrated resort operator,” said a Tuesday note from Union Gaming Securities Asia Ltd, initiating coverage of the Hong Kong-listed firm.
Following the passage on December 14 of an enabling bill to legalise casinos in Japan, a number of investment analysts have mentioned the possibility that foreign firms with expertise in casino operations might link – in likelihood as minority partners – with Japanese firms looking for new growth opportunities at home, in order to bid jointly for a Japanese casino licence.
The major cities of Tokyo, Yokohama and Osaka have been mentioned in media reports and analysts’ notes as leading contenders for large-scale casino resorts.
Profit at pachinko firm Dynam – which specialises in operations outside the Tokyo metropolitan area – fell by 4.4 percent year-on-year in the six months to September 30, according to its interim report filed with the Hong Kong bourse on December 1.
Dynam is nonetheless “well positioned for merger and acquisition opportunities as one of the largest and well-capitalised [pachinko] operators,” said Union Gaming analyst Grant Govertsen.
The Japanese firm had cash and cash equivalents amounting to just over HKD2.51 billion (US$323.7 million) as of September 30, according to its interim report.
“Dynam has one of the largest data sets of gaming-related customers and customer behaviour based on its nearly 50 years of operations and market-leading position in terms of number of parlours operated. Given our belief that Japan integrated resort revenues will be driven primarily by locals it would make sense for a potential integrated resort developer to make a strategic investment in Dynam,” stated Union Gaming.
As of September 30, Dynam operated 444 pachinko halls, according to company data.
The brokerage suggested Dynam also had “option value as a front-runner to win a small-scale regional integrated resort licence in Japan”.
Discussions in Japan have centred on a limited number of licences for large-scale integrated resorts in major metropolitan areas and possibly a few smaller casino resorts in less densely populated regions.
In July 2015, Dynam said in a Hong Kong filing it planned to enter the “resort development business” in Japan.
It added that a target site for development was land that has been used as a training institute by Dynam in Shimonoseki, the largest city of Yamaguchi prefecture on the island of Honshu in Japan.
In April 2014, Reuters news agency quoted Dynam’s then-chairman Yoji Sato saying the firm was seeking a partnership with an Asian casino operator once an initial bill to legalise casino gambling was passed in Japan.
In June 2013, Dynam invested in Macau casino services firm Macau Legend Development Ltd, which runs several Macau casinos under the licence of SJM Holdings Ltd. Dynam cited as one of the reasons for the investment a wish to gain knowledge of casino operations.
Dynam and Macau Legend were also negotiating a possible collaboration on gaming operations, but the partnership talks ended in February 2015 without a deal being struck.
In a December report following passage of Japan’s casino enabling bill, credit rating firm Fitch Ratings Inc said Las Vegas Sands Corp was “best positioned” in terms of balance sheet among the global U.S.-based gaming operators eyeing Japan’s market.
“MGM Resorts is also well positioned to undertake an IR project … Wynn Resorts [Ltd], like Las Vegas Sands and MGM [Resorts], has excellent liquidity but has the highest leverage of the three operators,” it added.
Several Asian-based casino operators are also eyeing the Japanese market, including Genting Singapore Plc, Paradise Co Ltd and Melco Crown Entertainment Ltd.
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