■ Future Outlook for Fujimori Co., Ltd. <6257>

1. Industry Trends and Market Share

(1) Industry Trends

In recent years, the number of pachinko halls has been declining due to environmental changes such as the diversification of leisure and strengthened regulations. Especially since 2020, the COVID-19 pandemic has created headwinds, and companies lacking management strength have been withdrawing under increasingly severe external conditions. According to materials published by the National Police Agency, the number of halls at the end of 2023 was 7,083, a 7.6% decrease from the end of the previous year. As the number of pachinko halls decreases, the number of gaming machines installed has also shown a decreasing trend year by year, with pachinko machines at 2.07 million units, a decrease of 5.8%, and 1.34 million units of pachislo machines, a decrease of 0.8% at the end of 2023. This represents a decrease of nearly 20% compared to the end of 2019 before the COVID-19 pandemic (5% decrease on an annualized basis). The trend has not changed in 2024, and the number of halls continues to decrease at a pace of about 6%, while the installation of gaming machines is decreasing at a pace of about 3%.

However, according to the "Specific Service Industry Statistics Survey" announced by the Ministry of Economy, Trade and Industry, the revenue of pachinko halls from July to September 2024 is expected to increase by 6.4% compared to the same period last year, marking a consistent positive growth for ten consecutive quarters since turning positive in April to June 2022. While still at about 85% of the level compared to before the COVID-19 pandemic, the revenue of existing stores is not necessarily decreasing. It can be considered that the oligopolization of major Options Chains is progressing amid a gradual contraction trend in the overall industry.

※ The number of stores surveyed as of September 2024 is 1,111, accounting for approximately 16% of the entire industry.

Amid these circumstances, a notable trend in the gaming machine industry since 2023 has been the emergence of hit models with enhanced gameplay due to internal regulation changes in smart slots. This has led to a recovery trend for pachislo machines, while pachinko machines continue to Stunk. In fact, the installation numbers of pachislo machines in the industry seem to have slightly exceeded last year. It has been cited as a cause that the area for the installation of attractive pachislo machines has continued to expand since 2023. Looking at the recent installation rate of smart gaming machines, it has advanced to just over 40% for pachislo machines, whereas for pachinko machines, it remains at just under 10%. The trend of smart gaming machines is also affecting the number of installed units. Considering this situation, regulatory changes are being promoted by industry associations as measures to promote the adoption of smart pachinko. Specifically, regarding the Lucky Trigger of smart pachinko, it has been made possible to develop machines with more relaxed entry rates compared to before, and the introduction began in July 2024. Furthermore, measures for promoting smart pachinko will not end in 2024, and new considerations specifically focused on expanding gameplay and prioritizing smart pachinko are currently underway, with an expectation that the proliferation of smart gaming machines will accelerate in pachinko machines as well.

※1 Due to internal regulation changes, the maximum number of plays in the advantageous zone has been abolished, allowing for big wins to be expected from any stage. Additionally, the performance of winnings used to cap at an increase of 2,400 tokens from the start of big wins, which has now changed to a limit of 2,400 tokens in difference. For example, if a machine's balance for that day is negative 1,000 tokens, the limit would now be 3,400 tokens, allowing for potentially more tokens to be acquired than before (the difference method has been adopted from the current 6.5 model).

The "Lucky Trigger" is a new feature that was launched in March 2024, designed to create a wave of payouts. After July 2024, the function for generating payout waves will be upgraded and implemented solely in Smart Pachinko (Suma Pachi) as "New LT (LT2.0)".

Regarding the company's market outlook for fiscal 2024, it was initially planned to have 0.9 million units for Pachinko gaming machines, a 3% increase from the previous year, and 0.75 million units for Pachislot gaming machines, a 4% decrease. However, it seems likely that sales will settle at the initial planned levels based on sales conditions up to the interim period. The company anticipates that the recovery period for Pachinko gaming machines will occur in fiscal 2025 when the acceleration of Smart gaming machine adoption is expected. Consequently, although there were no plans to launch new titles for Suma Pachi in the fiscal year ending March 2025, the company is currently progressing with the development of main specs for the next fiscal year and beyond. Moving forward, the ability to create appealing hit models with Smart gaming machines will be key to the company's growth.

(Written by FISCO guest analyst, Jo Sato)