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					Ticker: NTDOY.PK
Sector: Consumer Goods
Industry: Toys

Recommendation:
Don’t Buy
Pricing: 11-30-07
Closing Price $76.10
52-wk High     $78.50           Nintendo Co., Ltd., headquartered in Kyoto, is a Japan-based company
52-wk Low      $29.10
                                engaged in the leisure equipment business. The Company has two
Volume (3m) 210,126
                                business segments. The Leisure Equipment segment is engaged in the
Market Data                     development, manufacturing and sale of portable and home use game
Market Cap      $86.25B         machines as well as game software. The Others segment is engaged in
Total assets    $14.2B          the manufacture and sale of poker cards and karuta (Japanese-style
                                playing cards), the sale of Pokemon (A Japanese animation character)
                                goods, the management of intellectual property rights, the provision of
Valuation                       electronic registration services of domestic machines, and others.
EPS (ttm)       $1.38           Headquartered in Kyoto, the Company has 21 subsidiaries and eight
P/E (ttm)       55.15           associated companies. On October 25, 2007, Nintendo announced that it
PEG             3.53            will dissolve its United States-based subsidiary, Nintendo Research, Inc.
Div Yield       NA
                                by December 2007.1
Profitability &
Effectiveness (ttm)
ROA             13%
ROE             17%             In 2006 Nintendo released its new gaming console, Wii. The initial
Profit Margin 18%               sales forecasts have been revised twice during 2007 with unexpected
Oper Margin 23%                 demand cited as the main cause. The company has recently announced
Debt/Equity 0.00                anticipated shortages for the 2007 holiday season with retailers selling
                                them faster than they can stock them. The company also announced this
                                year plans to start distribution of the Wii in the Chinese and South
                                Korean markets by 2008. They anticipate the same favorable response
                                from consumers as they have enjoyed in Japan and the United States.
                                The company also has broken records for handheld console sales with
Matthew J Wagner                the introduction of the Nintendo DS (Dual Screen). With its integrated
mjw7m8@mizzou.edu               dual touch screen layout and Wi-Fi capabilities it has blown out all
                                competition in the handheld arena.

                                Currently, sales have been focused in the Japanese market with the
                                American market just starting to emerge. Analysts forecast a 89%
                                growth in sales next year primarily due to China but also to excess
                                unmet demand in the American markets. Below is a chart of sales by
     region in 2006.
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                                                                                                        1
Sales:

                                         Sales by Region 2006




                                Other 2%                       Japan 58%
                               Europe
                                17%


                                        Americas
                                          23%

                                                                                       2



With a population greater than both the US and Japan analysts are very excited about the move
into the Chinese market. Sales forecast are around 14 million units by March of 2008 with no
word to what China and S Korea demand may be. As of September of 2007 the company had
posted 7.3 million units sold.




                                                                       Life to Date   FY 2007




3




2
    2006 Annual Report (Labeled 2007 Annual Report) Nintendo
3
    2006 Annual Report (Labeled 2007 Annual Report) Nintendo


                                                                                                2
Competition:


                                       NTDOY.PK        MSFT          SNE       Industry
                Market Cap:               86.25B       314.34B       54.13B    121.35M
                Employees:                  3,373           79,000   163,000       325
                Qtrly Rev Growth
                (yoy):                    66.25%        27.30%       12.30%     15.20%
                Revenue (ttm):               8.7B       54.07B       78.79B    276.15M
                Gross Margin (ttm):       41.20%        78.41%       22.57%     33.85%
                EBITDA (ttm):                2.6B       22.07B        5.28B     29.70M
                Oper Margins (ttm):       23.40%        37.87%        2.49%      2.34%
                Net Income (ttm):          1.56B        14.88B        2.09B      2.00M

                EPS (ttm):                    1.38           1.524      1.99       0.16

                P/E (ttm):                  55.15         22.05        27.12     17.41
                PEG (5 yr expected):         3.53          1.49         1.11      1.26
                P/S (ttm):                    N/A          5.81         0.69      1.27
                ROE                       16.80%        43.60%        6.89%



                Q Rev Growth is 6 mos yoy divided in half

                Competitors from finance.yahoo Nintendo from
                finance.google

Nintendo is almost in a league of its own as the only pure gaming company. It does derive a part
of its revenue from its card and merchandise business but I was unable to determine amounts for
each segement in the FY 06.

                                         1 Year Performance




                                                                                          4




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                                                                                               3
                                         5 Year Performance




                                                                                             5



Since the start of 2006, corresponding with the release of the Wii, NTDOY.PK has had
substantial gains in share price. Sales, however have not increased by the same token that share
price has risen. While the company has just begun to sell the Wii in new markets, without
continued innovation and some diversification of business lines, Nintendo is open to a lot of risk.

Valuation:
Analysts predict revenue growth around 90% for fiscal year 08, partly due to the entry into China
and S Korea and also due to unmet demand in the US. Using these growth estimates I did an
analysis using the Owner Earnings model. I assumed a market return of 10.21% and the going
rate on 3 month t-bills of 3.51% for the risk free rate. Beta on Google finance was .03, which I
thought was quite an understatement so I ran a regression analysis which yielded .33 but the R
squared was very low, suggesting an insignificant beta. These estimates gave me an extremely
low discount rate. I decided to stick with the 10% rate which in my mind is the most appropriate
and conservative factor. Since the gaming industry in general experiences product life cycles
that are very short, I don’t see Wii sells sustaining high growth rates for numerous years into the
future. This being said I used an 80% growth rate for FY08 and 5% for the next 4 years. For
sake of the spreadsheet I used 4% terminal growth into perpetuity. This gave me an intrinsic
value of 74.26. I used the current exchange ratio of Yen to Dollars of .009Yen/1$. See below
for spreadsheet.




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                                                                                                  4
Appendix A:
                                11/18/06 - 11/01/07

                                       Regression Statistics
                                Multiple R           0.148818166
                                R Square             0.022146847
                                Adjusted R Square     0.01456659
                                Standard Error       0.095610648
                                Observations                 131

                                ANOVA
                                                           df             SS         MS
                                Regression                        1    0.026707946 0.026708
                                Residual                        129    1.179240076 0.009141
                                Total                           130    1.205948022

                                                       Coefficients Standard Error t Stat
                                Intercept              0.019413115    0.008446762 2.298291
                                NTDOY                  0.333838051    0.195308819 1.709283




Owner's Earning Model
assuming discount rate (k) of                10.00%                   (k) Sensitivity     7,436.16
                                                                                 3%     -43,757.59   $ (393.82)
Owner Earnings                                                                   4%     437,853.73   $ 3,940.68
Net Income                        ¥      174,920.00                              5%      43,842.26   $ 394.58
Depreciation                      ¥        5,968.00                              6%      21,969.24   $ 197.72
Amortization                      ¥             -                                7%      14,688.88   $ 132.20
Change in NWC                     ¥       89,781.00
Non Cash Items                                                        Exchange Rate of .009$/JPY (as of 11/30/07)
Capital Expenditures              -¥       6,144.00
Owner Earnings                     ¥     264,525.00

                                          Year:
                                                2008           2009           2010            2011         2012
Prior Year Owner Earnings                 264,525.00     476,145.00     499,952.25      524,949.86   551,197.36
First Stage Growth Rate (add)                 80.0%           5.0%           5.0%            5.0%         5.0%
Owner Earnings                            476,145.00     499,952.25     524,949.86      551,197.36   578,757.22
Discounted Value per annum                476,145.00     454,502.05     433,842.86      414,122.73   395,298.97

Sum PV owner earnings                   ¥2,173,911.6

Residual Value
Owner Earnings in year 10           578,757.22
Second Stage Growth Rate (g) (add)      4.00%
Owner Earnings in year 2011         601,907.51
Capitalization rate (k-g)               6.00%
Value                           ¥10,031,791.87

Present Value of Residual              ¥6,228,953.48
Intrinsic Value of Company             ¥8,402,865.09
Current Equity                           ¥921,095.00 (Current Assets less Total Liabilities)
Shares Outstanding                             1,130 (ADR shares traded OTC in US)
Intrinsic Value per share                  ¥8,251.29 x .009$/Yen= $        74.26

Matthew J. Wagner
NTDOY.PK




                                                                                                                    5
Nintendo
Ratio Analysis
Input Worksheet
12/2/2007
2007 Annual Report Numbers


                                                   Beginning of
              Line Item
                                                       Year
Inventory                                                ¥88,609
Total assets                                          ¥1,160,703
Owners' equity                                          ¥974,091
Number of common shares                                    1,130 (ADR shares traded OTC in US)


              Line Item              Ended 3/07       Annual      (millions of Yen)
Current assets                         1,394,673      ¥1,394,673
Fixed assets                             180,924        ¥180,924
Total assets                           1,575,597      ¥1,575,597
Average total assets                   1,368,150      ¥1,368,150
Cash and cash equivalents                688,737        ¥688,737
Inventory                                 88,609         ¥88,609
Average inventory                         88,609         ¥88,609
Current liabilities                      468,436        ¥468,436
Total liabilities                        473,578        ¥473,578
Owners' equity                         1,086,549      ¥1,086,549
Number of common shares                    1,130           1,130 (ADR shares traded OTC in US)
Average number of common shares            1,130           1,130
Average owners' equity                 1,030,320      ¥1,030,320
Market price per share                  3,611.72          ¥3,612
Cash flow                                 49,858         ¥49,858
Cash flow per share                        44.12             ¥44
Dividends paid                            88,253         ¥88,253
                                                              ¥0
Total sales                              966,534        ¥966,534
Operating expenses                       740,509        ¥740,509
Operating income                         226,025        ¥226,025
Advertising expense                                           ¥0
Marketing expense                                             ¥0
Earnings before interest and taxes       263,403        ¥263,403
Interest expense                               0              ¥0
Net income                               174,290        ¥174,290




                                                                                      6
Nintendo
Ratio Analysis

Asset Ratios                                                Annual
Definition:

       Inventory Turnover =        Total Sales      10.91     =   ¥966,534
                    Ratio       Average Inventory                  ¥88,609

        Industry Average                            2.00
                Variance                            8.91
  Quarter Growth/Decline

               Fixed Assets =      Total Sales      5.34      =   ¥966,534
              Turnover Ratio      Fixed Assets                    ¥180,924

        Industry Average                            2.00
                Variance                            3.34
  Quarter Growth/Decline

       Total Assets Ratio =       Total Sales       0.61      =    ¥966,534
                                  Total Assets                    ¥1,575,597
        Industry Average                             2.00
                Variance                            (1.39)
  Quarter Growth/Decline

          Asset to Equity =       Total Assets      1.45      = ¥1,575,597
                    Ratio        Owners' Equity                 ¥1,086,549
        Industry Average                             2.00
                Variance                            (0.55)
  Quarter Growth/Decline




                                                                               7
   Nintendo
   Ratio Analysis

   Liquidity Ratios                                                Annual
   Definition:

           Current Ratio =           CA               2.98     = ¥1,394,673
                                     CL                           ¥468,436
        Industry Average                              2.00
                Variance                              0.98
Quarterly Growth/Decline

            Quick Ratio =       CA – Inventory        2.79     = ¥1,394,673 - ¥88,609
                                      CL                          ¥468,436
        Industry Average                              2.00
                Variance                              0.79
Quarterly Growth/Decline

           Net Working =          CA – CL             0.59     = ¥1,394,673 - ¥468,436
           Capital Ratio         Total Assets                          ¥1,575,597

        Industry Average                               2.00
                Variance                              (1.41)
Quarterly Growth/Decline

                 Current =           CL               5.29     =   ¥468,436
             Liabilities to       Inventory                         ¥88,609

        Industry Average                              2.00
                Variance                              3.29
Quarterly Growth/Decline

             Cash Ratio = Cash and Cash Equivalents   1.47     =   ¥688,737
                              Current Liabilities                  ¥468,436
        Industry Average                               2.00
                Variance                              (0.53)
Quarterly Growth/Decline

         Operating Ratio =    Operating Expenses      3.28     =   ¥740,509
                               Operating Income                    ¥226,025
        Industry Average                              2.00
                Variance                              1.28
Quarterly Growth/Decline




                                                                                         8
 Nintendo
 Ratio Analysis

 Profitability Ratios                                                    Annual
 Definition:

 Return on Assets Ratio =               Net Income               0.13     =    ¥174,290
                                    Average Total Assets                      ¥1,368,150
       Industry Average                                          2.00
               Variance                                         (1.87)
 Quarter Growth/Decline

  Return on Equity Ratio =              Net Income               0.17     =    ¥174,290
                                   Average Owners' Equity                     ¥1,030,320
       Industry Average                                          2.00
               Variance                                         (1.83)
 Quarter Growth/Decline

      Profit Margin Ratio =             Net Income               0.18     =       ¥174,290
                                        Total Sales                               ¥966,534
       Industry Average                                          2.00
               Variance                                         (1.82)
 Quarter Growth/Decline

         Basic Earnings = Earnings Before Interest and Taxes     0.17     =    ¥263,403
           Power Ratio              Total Assets                              ¥1,575,597

       Industry Average                                          2.00
               Variance                                         (1.83)
 Quarter Growth/Decline

Earnings per Share Ratio =              Net Income              154.24    =       ¥174,290
                              Average Number of Common Shares                      ¥1,130
       Industry Average                                          2.00
               Variance                                         152.24
 Quarter Growth/Decline




                                                                                         9
Nintendo
Ratio Analysis

Market Ratios                                                             Annual
Definition:

     Earnings per Share =                Net Income              ¥154.24     =     ¥174,290
            (EPS) Ratio        Average Number of Common Shares                       1,130

       Industry Average                                           2.00
               Variance                                          152.24
 Quarter Growth/Decline

  Price to Earnings Ratio =         Market Price per Share       23.42       =      ¥3,612
                                     Earnings per Share                              ¥154
       Industry Average                                           2.00
               Variance                                          21.42
 Quarter Growth/Decline

      Price to Cash Flow =          Market Price per Share       81.86       =      ¥3,612
                   Ratio             Cash Flow per Share                             ¥44

       Industry Average                                           2.00
               Variance                                          79.86
 Quarter Growth/Decline

              Payout Ratio =            Dividends Paid            0.51       =      ¥88,253
                                         Net Income                                ¥174,290
       Industry Average                                           2.00
               Variance                                          (1.49)
 Quarter Growth/Decline




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