Koei Tecmo Holdings Co., Ltd. (3635.T) fair value

ACCE thesis

Koei Tecmo makes the Dynasty Warriors and Nioh action franchises, the Romance of the Three Kingdoms and Nobunaga's Ambition strategy series, and the Ninja Gaiden and Dead or Alive lines, selling both premium console titles and mobile games through its own publishing arm. Its edge is a deep catalogue of owned intellectual property that it can re-release, port and sequel without paying licence fees to third parties, which helps explain a 64.6% gross margin and a 31.1% operating margin. Revenue growth of 17.4% is ahead of most of its Japanese gaming peers, and the next leg depends on how well new releases and back-catalogue sales convert into the same margins. At 11.7 times trailing earnings and 15.1 times forward, the stock trades at a discount to what its 20.6% return on equity would normally command, which is the first thing to test in a deeper look: whether the forward estimates are conservative or whether the release slate is lumpy enough to justify the discount.