New smoking laws being introduced to ensure Japan’s pachinko parlors offer designated non-smoking areas are unlikely to significantly impact volume, according to Union Gaming analyst Grant Govertsen.
However, headwinds still persist for the industry as it prepares for an impending tax hike and the need to purchase new pachinko and pachislot machines under ever-tightening regulations.
In a research note examining Dynam Japan Holdings’ 1Q19 earnings results, which saw a slight 3.8% fall in revenue to JPY146.4 billion (US$1.3 billion), Govertsen reiterated the tough road ahead for operators but suggested tougher smoking laws requiring pachinko parlors be retro-fitted with designated zones by April 2020 were not yet a major concern.
“We envision primarily an impact on parlor capex rather than on customer volumes since smoking will still be allowed,” he said.
Although the Japanese government is gradually edging towards a more comprehensive ban on smoking in public places, the recently revised Health Promotion Act allows for certain businesses to install sealed smoking rooms while multi-level establishments will allow unrestricted smoking on the upper floor.
Of more immediate concern, according to Govertsen, is an increase in consumption tax from 8% to 10% from 1 October 2019 which he says will negatively impact volumes, while “machine purchases, deferred due to new restrictive regulations, are starting to tick up and we expect materially higher machine purchases going forward.
“At the same time and due to the soft pachinko environment, pachinko manufacturers are attempting to raise prices.”
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