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Feb 17, 2023·edited Feb 17, 2023Author

Small update:

DISGAEA 7 is well received in Japan. Fans in the U.S also seem to be very positive. Releasing in the fall in English globally on all platforms. Uptick in JP seems to be a bit slower than DISGAEA 6 which was not as well received. Hardcore fans disliked that installment, but D7 is much more universally liked, so sales will pick up.

They launched Labyrinth of Galleria: The Moon Society globally in English on all platforms. Well received and seems to be doing well! It's one of those games that you can sink hundreds if not thousand plus hours into!

Management maintained their earnings and sales forecast for the year (only 1 quarter left). I think they lowballing it because they held a 30th anniversary sale for their back catalog. Plus the launch of D7 in JP will be included in the Jan-March quarter.

My super conservative estimate for the stock is 1.4x book (NiS is 0.8) which is where Falcom trades at, so over 50% higher. I think Falcom is cheap and own it (but in smaller size). Falcom is the best comparable to NiS.

NiS is a hair over 5% position for me. I'm comfortable owning more and have been sizing in slowly. Will own about 1% of the company soon then just sit and wait. This is my largest single stock position for a JP listed stock. Checks a lot of boxes for me.

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Small update (none of this is really relevant for the longer term hold):

Disgaea 7 launched in Japan a couple days ago and seems to be well received. Fans of the game are universally positive about the game on Reddit, whereas the last installment (Disgaea 6) was disliked by many. PS4/PS5/Switch physical versions all sold out on Amazon.jp, but this doesn't mean much. Most consumers are purchasing games via Nintendo/PlayStation store anyway (higher margin for NiS).

We'll likely get a Western release date on the 30th anniversary NiS stream https://nisamerica.com/event/nis30th/ which should also feature some other new game announcements (mostly on the publishing side of the business for NiS America).

Also in case anyone is curious, I'm at a little over 3% of my portfolio in NiS. I'm comfortable getting it to 5% slowly. As they compound their book value I expect some slow and steady returns with the possibility of an explosion to the upside if they get their act together and develop a good mobile gacha game.

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Small update:

Disgaea 7 launched in the U.S. 2 days ago and is off to a good start. Stronger launch day numbers on Steam/PC than Disgaea 6. Much better reviews/fan reception as well. 2,000 Concurrent players on Steam within 48 hours vs a peak of 629 for Disgaea 6. Disgaea 6 was a controversial title in the series that didn't receive a lot of love.

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Disgaea 7's demo seems to be receiving universal praise from fans of the franchise, at least in the West. It's considered a big improvement over Disgaea 6 which many disliked. Definitely an incremental positive!

See the comments/posts on here. The vast majority of comments are positive:

https://www.reddit.com/r/Disgaea/comments/10a2a6c/very_early_disgaea_7_demo_review/

https://www.reddit.com/r/Disgaea/comments/10cgy3c/disgaea_7_demo_thoughts/

I'm not cherry picking either. Feel free to look around yourself:

https://www.reddit.com/r/Disgaea/

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Do you mind sharing the other companies you have on your gaming basket (apart from Nihon Falcon and Nippin Ichi)?

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I also own some Imagineer (TYO 4644).

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This one already have a better div policy !

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Indeed! I own more NiS though as I see founder returning and embracement of 3D as a potential inflection point. Best to own many of these names though and wait. Historically owning extreme value names in JP has led to outperformance vs indexes.

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This story reminds me of Nihon Falcom Corporation (3723.T). Have you looked into it?

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Yep! Falcom is interesting as well and I own it as a part of the same basket. Excellent writeup for it already on https://mokapucapital.com/nihon-falcom-small-cash-rich-niche-video-game-developer/

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Another fun detail: NiS publishers all of Nihon Falcom's games in the U.S. through their NiS America division. Localizing and publishing niche JP games in the U.S. has been an okay business for NiS.

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Hey good write up. I like the setup of a cheap company with a potential catalyst of value creation (new game and maybe a new dividend or buyback structure)

Is there any Investor Relation in English or is there only Japanese available?

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All th filings are in Japanese, but you can get just the numbers on financial statements through any data aggregator (yahoo finance, WSJ, etc) for free. Google translate on the quarterlies/annual reports works fine though. Formatting is a bit wonky but otherwise good enough!

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The main risk / bear case is that we never see the future earnings in our pockets. Share price can remain low for very long time, even if net cash increases over time.

My possible biggest downside scenarios:

No big change in div / buybacks, earnings are retained. The company will be bought in the future and we just get a small premium. That happens more often in japan than one can think.

How come your conviction that the Founder will change that? He was on board before, and at least from a shareholder perspective nothing changed.

You can manage that risk over position sizing of course. As a hardcore gamer i know their IPs/games very well, i like their niche and i think at least some of their future earnings are predictable. So basically there should be an upside. Still, with japan, those upside could never come to your pocket sadly.

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Nice write up. Any context on why isn't the company returning more cash back to shareholders?

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Culture in corporate Japan is very big on hoarding cash/being ultra conservative. I'd definitely like to see them return some of that cash, but if they were actively doing that, this wouldn't be trading so cheaply. I'm actually happy that they're returning the miniscule amount that they are! Dividend is neglibile but 0.35% divvy + tiny share repurchase of 32,500 shares last 12 months is about 1%. This kind of super conservatism is par for the course in deep value Japanese companies. I'm especially interested in NiS because it's in a more exciting business than a typical Japanese net-net.

Narrative in a name like NiS could flip if they do 1 hit game. That's the bullish scenario. Going from deep value to a growth company is where we see 10-100 baggers. This is super unlikely though, but I actually think their core franchise, Disgaea, lends itself really well to mobile. It's a tactics RPG which is slow paced and strategic. They have a nice roster of characters as well which could be monetized like other gacha games.

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