Pachinko parlour operator Dynam Japan is betting a Hong Kong listing will help it raise about US$200 million, but it may face a lack of interest from local investors not familiar with the popular Japanese pastime.
Dynam, Japan's second-largest pachinko hall operator as measured by the total value of pachinko balls and pachislot tokens rented in 2010, may have pruned the planned initial public offering (IPO) with earlier speculation pointing to a US$300 million IPO. The company made a pre-listing filing to the Hong Kong stock exchange this week.
'Although the number of IPOs in Hong Kong has picked up since the latter half of the second quarter, IPO sizes are all relatively small,' Kenny Tang Sing-hing, general manager of AMTD Financial Planning, said.
Pachinko is like vertical pinball. Players rent small metal balls and fire them in rapid succession into a playing field.
It's one of the most popular forms of entertainment in Japan, adding up to a 19.4 trillion yen (HK$1.8 trillion) industry and accounting for 28.6 per cent of Japan's entertainment market in 2010, according to the Japan Productivity Centre. But, pachinko has not taken off outside Japan and this may make investors wary of putting their money into the company.
'My interpretation is that Dynam chose Hong Kong because at the moment the markets with the most abundant funding are it and the mainland,' Sun Hung Kai Financial analyst Daniel So.
Last week, mainland authorities cut interest rates for the second time in a month to spur its economy, prompting speculation that the People's Bank of China planned further measures to boost liquidity in the market.
So warned that Hong Kong investors would not be very interested in Dynam because of their limited knowledge of the pachinko business, although some might see pachinko as comparable with Macau gaming stocks.
'If the IPO price is low compared with Macau gaming operators, investors may buy it,' he said.
Tang said Hong Kong investors had generally welcomed gambling-related stocks and the gaming factor in Dynam's business might help lure investors. 'Its stock performance may not be as good as that of the Macau casino operators, but like NagaCorp it's better than average,' he said.
Hong Kong-listed gaming resort operator NagaCorp has operations in Cambodia. Its shares have surged 88.3 per cent this year, compared with a rise of 5.4 per cent in the benchmark Hang Seng Index.
Dynam also provides pachislot games, which are similar to casino slot machines, according to Tang. Players rent pachislot tokens, allowing them to spin reels on the machine in search of a matching sequence of pictures.
Based in Tokyo, Dynam operated 355 pachinko halls in 46 out of 47 prefectures in Japan as of March 31, according to the firm's filing. It posted net profit of 15.9 billion yen (HK$1.5 billion) for the financial year ended March 31, compared with 16.2 billion yen a year earlier, the filing showed.
Revenue for the 2012 fiscal year was 165 billion yen (HK$15.5 billion), slightly less than the previous year's 169.6 billion yen.
That reflects intense competition in the industry crowded with more than 4,000 operators. In Japan, 16.7 million people played pachinko in 2010, according to research firm Yano Research.
Dynam is one of only three operators with more than 100 halls in the country. The company said it would continue to invest in information technology, 'which plays an important supporting role to our daily pachinko operations'. It also said it would continue to 'strategically' expand pachinko operations, and planned to build 75 more halls over the next three years.
Kazuo Okada, a former long-time business partner and friend of Las Vegas billionaire Steve Wynn until their relationship soured and became mired in lawsuits, is also a pachinko magnate in Japan.