Nintendo's FY Profit Jumps 77%, Boosts Dividend

Nintendo (NTDOY.PK) reported full fiscal year (ended March) net income jumped 77.2% to ¥174.29 billion ($1.47b), or ¥1,362.61/share, as sales soared nearly 90% to ¥966.53b ($8.15b). It now has a trailing P/E of 27.3, compared to nearly 49 based on '06 fiscal earnings.

The only concern I see so far is with EPS guidance that is mostly flat, negatively impacted by its forex forecast. However, based on the above explanation of its P/E now around 27, there may be more buy interest.

Its FY sales were in-line with its latest forecast revision and net income came in well ahead of prior guidance of ¥120b.

Also, Nintendo is known for its conservative guidance and multiple upward revisions, especially this past year.

Note: Yen values translated into US$ are for convenience and were not provided by Nintendo.

Nintendo increased its planned year-end dividend payout to ¥620, from ¥410, resulting in an annual dividend of ¥690 (44% higher than its prior estimate of ¥480 and 77% more than the ¥390 paid last fiscal year).

Its dividend yield is now 1.85%, based on today's closing price in Japan (JP: 7974) of ¥37,200 (unchanged, $39.08 ADR equiv. at ¥119/$1). Nintendo has a payout ratio of approximately 50%.

Nintendo said it sold 5.84m Wii consoles since its launch: 2.37m in N. America and 2.0m in Japan. It forecasts global sales of 14m units for this fiscal year.

DS handheld sales totaled 23.6m units last year and are expected to come in at 22m units sold globally this fiscal year.

Cash and cash equivalents increased 11.6% to ¥688.74b ($5.8b).

Nintendo offered interim guidance for the period ending in September as follows:

Net sales: ¥460b (+53.9%)
Operating income: ¥85b (+26.7%)
Net income: ¥50b (-8.0%)
EPS: ¥390.92

And for the full fiscal year ending next March:

Net sales: ¥1.14t (+17.9%)
Operating income: ¥270b (+19.5%)
Net income: ¥175b (+0.4%)
EPS: ¥1,368.22

Based on its full FY EPS guidance and today's close in Japan, Nintendo has a forward P/E of 27.2.

Nintendo forecast a ¥/$ exchange rate of 115 and ¥/€ of 150, resulting in an anticipated forex loss of ¥20b ($169m).

Nintendo Investor Relations

NTDOY.PK chart:

Disclosure: The author does not own shares of Nintendo.

Comments

[matthew riva:]

DEAR STEVEN,

First, thank you for covering Nintendo and other Japanese stocks, as no one else seems to take the time to give us timely reports on NTDOY, except for, of course, the GOOD DOCTOR.

Second, I think your point on, "Nintendo is known for its conservative guidance and multiple upward revisions, especially this past year." needs to be emphasized even more than it is, as that will help investors make the decision of buying the stock or not. Nintendo has ALWAYS downplayed their forecasts and based on the current numbers (Pokemon for the DS pre-sold close to 600,000 in the US alone) and the fact that the have many blockbuster software titles slated for release in fiscal '08 they are clearly doing it again.

Yes, I am long on NTDOY

Landman

2007 Apr 26 10:25 AM

[Steven Towns:]

Thank you for your comments Matthew -- Landman.

Regarding Nintendo's guidance, you are probably right. However, I think they have even been surprising themselves in terms of the amount of success they've enjoyed w/ DS and Wii. Reuters quotes a KBC Sec analyst saying, "It's a stunning result. It's phenomenal what they've managed to achieve in the last 12 months."

Nintendo naturally is cautious about forex and you can't blame them with their exposure to $ and euros.

It's really tough to say, or even suggest whether Nintendo is a buy at these levels, basically at all-time highs. For the long-term shareholder, I think there's no question you want to be in and adding on dips. For the person looking to get in on the action, it can really go either way today (Friday) in Tokyo.

Two potentially negative things: sales didn't hit ¥1 trillion, as had been speculated. Also, the EPS guidance as discussed above was weak, essentially flat. That said, I think investors get over the fact it didn't hit 1T, considering what they did in FY06-07. The conservative guidance, as you said, is nothing new.

Something else, for a quick outlook on Japan and NTDOY: Golden Week is coming. The market will be closed for 3 days next week. That, among other things, has had the N225 in a funk. My guess is we see the weakness persist through the week. Nintendo could obviously rally despite, but I’d say there’d be some quick profit-taking and then we see it climb higher.

You probably read this post: "Nintendo Climbs Higher as Analysts Offer Opposing Views," but earlier this month, Macquarie came out with a ¥50,000 target, giving it some 30+% potential upside.

2007 Apr 26 11:09 AM

[Steven Towns:]

I don't think it is clear in the post, but Nintendo reported after the markets closed in Japan, as is typical of most companies.

2007 Apr 26 11:31 AM

[matthew riva:]

Steven,

Thank you for your comments, I really enjoy what you have to say, as you tend keep a level head (maybe slightly bearish, but mostly level) on on your comments. I like the comments about Golden Week as I had no idea about that.

Have you ever read "Game Over"? If not, it is all about Nintendo's history and how they rolled the "trojan horse" ie. the original NES, into America's living room. In the late 80's and early 90's they basically were the only Video Game company in the US. They dominated the industry and they knew it. Since then, they have slowly lost their dominance, but now with the Wii and the DS they are back to take over the Industry. The people behind Nintendo are very coy about what they say, but deep down inside they think they have the "Golden Ticket" ( Charlie and the Chocolate Factory) , and I obviously think they are right.
I am sure The Good Doctor will put it more eloquently than me, but I think they forecasted a weak, essentially flat EPS on purpose, so that they can once again surprise in a BIG WAY.
Also, the price action on NTDOY.PK has been acting very peculiar lately. On most days it follows the price in Japan the night before, but lately it has been a good 50 cents higher. That to me tells me someone thinks that there is a lot of room for this stock to run. I could be wrong, but it seems bullish to me.

2007 Apr 26 02:35 PM

[Steven Towns:]

Real quick, the peculiar price action, or ADRs trading at a premium intra-day, may have something to do with the yen/dollar. I am not necessarily following it closely enough to judge, but that's my best guess. Another thing is that it is trading on the pink sheets and there could be challenges for larger investors to get the shares at the price they want.

I have not read "Game Over," but Nintendo has a long, fascinating history.

By the way, I don't mean to come off as bearish, or bullish, although I'd say I'm more the latter. Ultimately, I want to try and be fair and get out all of the facts.

Lastly, given your interest in the stock and company in general, I'd suggest you visit their IR site I linked in the post and check out the earnings release PDF and read some of their commentary after getting through the financials.

2007 Apr 26 03:33 PM