Nintendo announce earnings next week (24 April)

News last night:
NPD data for March in the US was released showing video game software sales +63% YoY to US$0.95bn, hardware sales +46% YoY to US$0.6bn and accessories sales + 58% YoY to US$0.2bn.
Wii sold 721k, Xbox360 262k, PS3 257k, PS2 216k, Nintendo DS 697k and PSP 297k.
The biggest selling title was Smash Bros on Wii selling 2.7m, miles ahead of second placer Tom Clancy's Rainbow Six: Vegas 2, which sold 0.7m.

As usual, I am probably the biggest bull in Nintendo. Nintendo has range bound for quite a while since coming down from the high point 70000 yen in Nov. I expect the result to be better than expected but forecast will be conservative as usual. I feel that the market is less bullish than the sell side analysts and hence there will be positive surprise even if the forecast of 2009 is lower than the analysts.

The main overhang in the share price is the FX rate, Nintendo has over 1 trillion yen in cash and much of that is in USD and Euro (not clear on the exact breakdown). The FX loss is not really an "expense" and will disappear as long as yen does not go too far from 100 yen/usd.
However, even factoring that in, they will still see over 50% Net Profit growth this year and next year, before slowing down to 20% in FY2010.
The president hint a new NDS coming up, but it will probably not be announcement officially until the end of Q1 (June), which is 1 quarter later than I originally expected. That will not affect earnings this year too much, as the NDS is still selling well outside of Japan.
Growth will be driven by margin expansion: form 17% net profit margin to over 32% in 2010. The reason is that the cost of making the Wii will go down and sales mix will change towards more software sales (much higher margin). [For reference: own brand software is estimated to have over 75% GP margin, for 3rd party software, around 500 yen profit per software unit.] All in all, hardware GP margin is around 30% and software (include own brand and 3rd party) is around 65%. Goldman's estimates are ridiculus, assuming the margin will stay at 17~20%.

The software sales will increase because tie ratio will be better than other consoles histroically. The main driver behind this is the number of users per household is increasing. The reason is simple: sisters and moms are now playing the Wii, and we all know women buy more often than men.

Don't forget the WiiWare, where users can buy and sell simple games online. Nintendo can sell so many old games on it with basically no cost. This is another income that was not in the price yet.

Last but not least, don't forget this news earlier this month:
LONDON, April 9 (Reuters) - More than 42 million programmes
have been watched or downloaded via the BBC's iPlayer
Internet TV catch-up service since it was fully launched on
Christmas Day, the corporation said on Wednesday.
The corporation also said it had agreed a deal to allow
Nintendo Wii users to watch BBC iPlayer programmes on
their televisions through their Nintendo consoles.

Others:

China Yurun (1068 HK): although I really like the company, it had rsien too fast and seems "toppy". Take profit now and buy back later at a price lower than 11 HKD.