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Japanese Game Maker Nippon Ichi Is Overlooked Winner of Weak Yen

(Bloomberg) -- Nippon Ichi Software Inc. -- a 213-person video game developer based in central Japan -- is an unnoticed winner of the yen’s recent plunge.

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The role-playing game maker is based in Gifu, a mountainous and predominantly rural prefecture, where average wages are 20% lower than in Tokyo, all paid out in yen. But more than half of the company’s sales are in dollars, and that proportion will likely grow further thanks to a Japanese anime boom among US gamers, Nippon Ichi President Sohei Niikawa told Bloomberg News in an interview.

“The ongoing yen’s slide is bringing in huge exchange gains,” he said, adding that North America now accounts for 60% of the company’s group revenue.

The creator of the Disgaea series declined to disclose its assumed yen-per-dollar exchange rate, but the Japanese currency has already fallen roughly 20% against the greenback this year to hit its lowest level in 24 years. The company has stayed pat on its outlook, announced in May, for an annual profit fall.

Shares in Nippon Ichi rose 8.3% after the report on Tuesday, marking the company’s biggest surge in eight months. Shares are still down 20% from the start of the year.

Read more: Yen Edges Toward Closely-Watched 140 Level as Dollar Strengthens

The weak yen’s boost for Japanese hardware manufacturers has dimmed in recent years, because of a shift to build more factories overseas. Game content creators like Nippon Ichi are the rare beneficiaries, with most of their production at home.

Given the surge in the dollar, the company is likely to raise its earnings forecast, said Hideki Yasuda, an analyst at Toyo Securities. “Outlook could rise by at least 7%, if the dollar trends at 135 yen, and 9% if at 140 yen,” based on an assumed rate of 120 yen to the dollar, he said.

Nippon Ichi’s stock is traded at less than 5 times its earnings, which is lower than its peers. The low price is due to a lack of name recognition, Yasuda said. Square Enix Holdings Co. is at 14 times, Bandai Namco Holdings Inc. is at 23 times and Koei Tecmo Holdings Co. is at 22 times.

The company’s low profile stems from its failure to establish a popular franchise beyond Disgaea. More than half of the company’s revenue in the US is from games borrowed from Nihon Falcom Corp. Nippon Ichi is beefing up its budget for young creators to develop new games, thanks to the extra revenue from dollar sales every quarter, Niikawa said.

The company also remains cautious about game subscription services, through which an increasing number of players now access games. Nippon Ichi provided content to Sony Group Corp.’s PlayStation Now and Microsoft Corp.’s Xbox Game Pass membership services, but Niikawa said the model is “dangerous” for software providers.

“The subscription model is good for users and platform owners, but for us, it is difficult to make the business sustainable, especially when the whole catalog has grown too large for players to find our games,” Niikawa said. “I fear cash that would otherwise be ours is flying away from us.”

(Updates with share price in fifth paragraph)

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