High Expectation for 2022 Pipeline Is Priced In; Raise Nintendo’s FVE to JPY 65,000

We raise Nintendo’s fair value estimate to JPY 65,000 from JPY 60,000 as we lifted our game shipment forecasts, driven by the attractive first-party pipeline. We also slightly revised our foreign exchange assumptions. Given the robust launch of Pokemon Legends Arceus in January, followed by Kirby: Discovery of the Stars, Splatoon 3, and the sequel of the Legends of Zelda in the rest of the year, we forecast that Nintendo’s game shipments in fiscal 2022 will reach 250 million, up from 240 million in our previous forecast, surpassing its historical high number for the single platform. In addition, we raised the digital sales assumption due to the launch of the Mario Kart 8 deluxe booster course pass. Mario Kart 8 Deluxe is the best-selling game on the Switch, having shipped more than 40 million in the five years since its release, and thus, its add-on content should be widely accepted by the users. As a result, we raise our fiscal 2022 operating income forecast to JPY 630 billion from JPY 590 billion, and we maintain our view that fiscal 2022 will be the peak of Switch’s game shipment and Nintendo’s profits. Our new fair value estimate of JPY 65,000 yields 17 times 2022 price/earnings and 4.5 times 2022 price/sales. We believe Nintendo’s shares are currently fairly valued.