Sega Sammy Earnings: Results in Line; Full-Year Guidance Unchanged

Sega Sammy’s September-quarter revenue and operating income fell 6% and 22% year over year, respectively, to JPY 106.9 billion and JPY 13.5 billion. The declines in revenue and operating income were within our expectations, which was largely due to the high base of strong pachislot sales a year ago, while the segment’s revenue improved sequentially, following the launch of the firm’s first smart pachinko product “e Hokuto No Ken 10” in August 2024. Meanwhile, revenue for the entertainment content business remained solid, partly offsetting the reactionary decline in pachislot and pachinko sales. Management also released a few new Full Games titles in the second half and plans to launch the movie “Sonic the Hedgehog 3” in December as part of its transmedia strategy. We believe these visible pipelines will continue to support steady sales growth throughout the year and maintain our fair value estimate of JPY 2,680 per share after a minor tweak of our earnings forecasts. We think the shares are currently fairly valued.