COMPANY RESEARCH AND ANALYSIS REPORT

System Support Inc.
4396
Tokyo Stock Exchange First Section

17-Jun.-2021
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
https://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for 1H FY6/21...................................................................................................................

01

2. FY6/21 forecasts. . .................................. ......................................................................................................

01

3. Growth strategy...........................................................................................................................................

02

4. Shareholder return policy....................... ......................................................................................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. History................................................... ......................................................................................................

03

2. Business description. . ..................................................................................................................................

05■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Outline of results for 1H FY6/21...................................................................................................................

08

2. Trends by business segment. . ......................................................................................................................

09

3. Financial condition and business indicators.................................................................................................

11■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. Outlook for FY6/21.. .....................................................................................................................................

12

2. Growth strategy...........................................................................................................................................

13■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 17

We encourage readers to review our complete legal statement on “Disclaimer” page.

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html█ SummaryAn independent IT company continuously delivering high growth
based on sophisticated technological capabilities in the cloud, ERP
and database sectors
System Support Inc. <4396> (hereinafter “the Company”) is an independent IT company that is continuously
delivering growth centered on the Solutions Business, which includes support for the use of cloud, ERP and
databases, based on technological capabilities at the highest level of the industry. The Company is headquartered in
Ishikawa Prefecture, Japan. However, Tokyo, Nagoya, and Osaka are the primary hubs of the Company’s businessactivities. The Company has a subsidiary in Silicon Valley in the United States. Besides the Solutions Business, theCompany also conducts recurring businesses such as the Outsourcing Business, which revolves around data center
management, and the Product Business, which is mainly focused on providing cloud (SaaS) services. In the Solutions
Business, the Company provides individual contract-based systems development, along with carrying the products
and services of global IT companies, specifically Microsoft Azure, Amazon Web Services (AWS), ServiceNow incloud-related business, SAP in ERP-related business, and Oracle in database-related business. The Company has
been rated highly for its high quality and extensive track record. Through customer referrals from those companies,
the Company has captured stable orders without incurring marketing costs.
1. Outline of results for 1H FY6/21
Looking at consolidated results for 1H FY6/21 (July-December 2020), the Company achieved higher sales andprofits, with net sales of ¥6,917mn, up 5.2% YoY, and operating profit of ¥508mn, up 25.1%. On the basis of profits,
it resulted in surplus over its initial forecasts (net sales of ¥7,004mn and operating profit of ¥410mn). The impactof the spread of COVID-19 (hereinafter, “the COVID-19 crisis”) remained mostly within the anticipated range, andnet sales progressed largely in line with the forecast. Meanwhile, on the profit front, profits were above forecast
mainly because high profit-margin ServiceNow-related sales increased by 80% YoY, marking substantial growth,and progress was made on improving the cost-of-sales ratio and reducing SG&A expenses owing to the adoptionof a work-from-home framework. By business segment, while the Product Business posted a slight decline in sales
and profits, the mainstay Solutions Business and the Outsourcing Business experienced steady growth, postinghigher sales and profits.
2. FY6/21 forecasts
For FY6/21, the Company has kept its initial forecasts unchanged. Net sales are forecast at ¥14,342mn, up 7.2%
YoY, while operating profit is forecast at ¥798mn, up 5.8% YoY.* Although there are no specific concerns about theoutlook at this time in 2H FY6/21, the Company has cited the continuing uncertainty of the impact of the COVID-19
crisis as the reason for keeping its forecasts unchanged. That said, net sales are expected to remain firm in 2H
FY6/21, mainly led by the Solutions Business, and there is no specific reason to expect an increase in costs in 2H.
Based on these factors, FISCO believes that the Company is highly likely to outperform its forecasts on the basisof profits.
*	The FY6/21 forecast is based on information available as of April 15, 2021, the date the Japanese version of the report
was issued.

We encourage readers to review our complete legal statement on “Disclaimer” page.

01 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

Summary

3. Growth strategy
The Company’s medium- and long-term growth strategy is to drive stable growth in the mainstay Solutions Businessand accelerate growth in the Outsourcing Business and Product Business further, with the aim of expanding businessperformance and improving earnings capabilities. In the Solutions Business, the Company will recruit and train humanresources with sophisticated technological capabilities, in order to expand sales in cloud, ERP and database-related
businesses, for which demand is surging. Notably, the Company has earned certification as an “Elite Partner,” thehighest level of partnership, by ServiceNow. ServiceNow is a cloud-based platform solution for which demand is
rapidly growing because it is a tool that will realize the digital transformation (DX) of companies. In ServiceNow-related
business, the Company intends to continue to proactively expand sales by leveraging the strengths of its extensive
track record. With high profit margins, ServiceNow-related business is expected to help improve overall earnings
capabilities, too. Meanwhile, in the Outsourcing Business, the Company plans to capture demand for the use of data
centers as backup capacity for customers’ BCP measures, with the main target being companies building private
clouds. Additionally, in the Product Business, the Company internally develops and supplies various cloud services
that contribute to improved operating efficiency. The Company plans to upgrade and expand its sales agencies
and strengthen web marketing, with the aim of increasing the number of subscribers and achieving sales growth.
Moreover, M&As are also viewed as a growth strategy in the Product Business.
4. Shareholder return policy
With regard to shareholder returns, the Company has indicated that it will distribute profits by continuing to pay
stable dividends while ensuring adequate internal reserves and striving to improve dividend levels according tobusiness results and profit levels. Looking at dividends per share for FY6/21, the Company has announced that it
will increase the dividend from the initial forecast of ¥10.0 to ¥20.0. This will bring the dividend payout ratio to thelevel of nearly 40%. Ultimately, however, FISCO expects the dividend payout ratio to settle down in the lower 30%
range as profits surpass forecasts.
Key Points
An independent IT company that continues to grow by undertaking many projects involving the products andservices of global IT companies, such as Microsoft Azure, AWS, ServiceNow, SAP and Oracle• The Company has kept its initial forecasts for FY6/21 results unchanged, but there is a high probability that
results will finish above forecasts due to surging demand• Based on its sophisticated technological capabilities, the Company aims to achieve high growth and improveearnings capabilities by capturing orders for cloud- and ERP-related projects for which demand is surging, andby building up recurring business•We encourage readers to review our complete legal statement on “Disclaimer” page.

02 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Summary

Results trends
Net sales (left)(¥mn)

Operating profit (right)

(¥mn)
798

16,000800

754
14,342
11,762

12,00013,376
600

9,970
8,865

529

8,000

400
402

4,000

277

200

0

0
FY6/17

FY6/18

FY6/19FY6/20FY6/21 E

Note: The FY6/21 forecast is based on information available as of April 15, 2021, the date the Japanese version of the report
was issued.
Source: Prepared by FISCO from the Company’s financial results█ Company profile
An independent IT company that continues to grow by undertaking
many projects involving Microsoft Azure, AWS, ServiceNow, SAP
and Oracle
1. History
The Company was founded in 1980 in Kanazawa, Ishikawa Prefecture to provide data entry services and systemdevelopment services. In the 1980s, business performance grew steadily against the backdrop of favorable economic conditions. However, business results started to deteriorate following the collapse of Japan’s bubble economy
in the 1990s, putting the Company’s survival at risk. In 1994, management was transferred from the Company’s
founder to the current Representative Director Ryoji Koshimizu. Under Mr. Koshimizu’s leadership, the Company
worked to rationalize management, and four years later it had recovered enough to restore profitability. Subsequently,
the Company developed its technological capabilities, which are said to be at the highest level of the industry for
an independent enterprise, into a core strength. In addition, the Company developed many certified technology
professionals specialized in the products and services of global IT companies, such as Microsoft Azure, AWS, SAP
and Oracle. By doing so, the Company has expanded sales in the usage support fields for those products andservices and has continuously increased its business performance.

We encourage readers to review our complete legal statement on “Disclaimer” page.

03 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

Company profile

Looking at business expansion initiatives since 2000, the Company founded eNet Solutions Co., Ltd., a subsidiarythat conducts data center services, in 2000. In 2004, the Company entered into an Oracle EBS Technical Partner
contract with Oracle Corporation Japan <4716>. With this contract, the Company would go on to proactively
undertake system integration and deployment projects for Oracle products. In addition, the Company launched theProduct Business to sell internally developed software products as a new income-generating business following
systems development and data center services. As its first such product, the Company commenced sales of “TateYakusha”, a construction work information management system, in 2005.
Moreover, in 2009, the Company founded STS Medic Inc., a subsidiary engaged in the development and sales of
specialized software for the medical industry. Thereafter, the Company built a solid business foundation by making
use of M&As. For example, T4C Co., Ltd., a service partner of the major ERP provider SAP, and ACROSS Solutions,Inc., which had been providing system solutions to the distribution industry, were successively converted into
subsidiaries of the Company in 2010 and 2012, respectively. The Company has also entered overseas markets.
Notably, in 2013, the Company established a subsidiary in the United States for the purpose of gathering informationand supplying IT services in the country. Additionally, in 2016 it set up a subsidiary in Canada to provide outsourcing
services (such as accounting services) to Japanese companies in North America. These initiatives have led to theGroup structure in place today. In August 2018, the Company was listed on the Tokyo Stock Exchange Mothers
Market. In August 2019, one year later, the Company achieved the listing of its shares on the Tokyo Stock ExchangeFirst Section.
History
Date Major event
January 1980
November 2020

Founded in Kanazawa, Ishikawa Prefecture, providing data entry and system development services.
Financed and founded eNet Solutions Co., Ltd.

January 2004

Entered into an Oracle EBS Technical Partner contract with Oracle Corporation Japan <4716>

February 2005

Commenced sales of “Tate Yakusha”, a construction work information management system

March 2009

Financed and founded STS Medic Inc.

May 2010

Acquired shares of T4C Co., Ltd. and made it a subsidiary

June 2011

Entered into an SAP Service Partner contract with SAP Japan Co., Ltd.

March 2012

Acquired shares of ACROSS Solutions, Inc. and made it a subsidiary

April 2012

Began providing services for Cloud Koubou powered by Amazon Web Services, a cloud support service

July 2013

Financed and founded STS Innovation, Inc. in the United States

August 2013

Began providing services for PinMap, a customer data mapping service

October 2013

Entered into an APN Consulting Partner agreement with Amazon Japan K.K.

March 2015

Acquired additional shares of T4C Co., Ltd. and ACROSS Solutions, Inc. and made them wholly owned subsidiaries
STS Innovation financed and founded FrontLine International, Inc. in the United States (absorbed through a merger in April 2017)

September 2015

Entered into a basic partnership contract with ServiceNow, Inc.

January 2016

Financed and founded STS Innovation Canada, Inc. in Canada

February 2016

Commenced sales of the cloud-based shift management system “SHIFTEE”

August 2018

Listed on the Tokyo Stock Exchange Mothers Market

August 2018

Commenced sales of the attendance/work management system “Shugyo Yakusha”

August 2019

Listed market changed to the Tokyo Stock Exchange First Section

Source: Prepared by FISCO from the Company’s website and securities reports

We encourage readers to review our complete legal statement on “Disclaimer” page.

04 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

Company profile

Focusing on the Solutions Business as the mainstay business, while
expanding into the Outsourcing Business and Product Business,
which will be recurring businesses
2. Business description
The System Support Group comprises the Company and its six consolidated subsidiaries. The Group provides
disclosure through three segments, specifically the Solutions Business, Outsourcing Business and Product Business.
Looking at the trend in the business segment composition over the past three years, the Solutions Business has
been the Company’s mainstay business with its sales accounting for more than 80% of net sales and its profits
accounting for more than 70% of segment profit (gross profit).

Percentages of net sales by business segment Percentages of profit by business segment■ Solutions Business■ Outsourcing Business■ Product Business■ Others

Solutions Business
Product Business

100%

0.4%
3.3%

0.4%
4.1%

0.2%
4.1%

100%

90%

13.5%

13.0%

12.5%

90%
80%

80%

17.2%

0.7%
9.3%

8.9%

16.7%

14.7%

73.3%

76.4%

70%

70%

60%

60%

50%

50%
40%

0.9%
5.7%

Outsourcing Business
Others

82.8%

82.5%

40%

83.2%

30%

20%

20%

10%

10%

0%

0%

-10%
FY6/18

FY6/19

76.2%

30%

-0.1%
FY6/18

FY6/20FY6/19FY6/20Note: Percentages are calculated using pre-adjusted figures.
Source: Prepared by FISCO from the Company’s financial results(1) Business description for each business segmenta) Solutions BusinessIn the Solutions Business, the Company primarily provides consulting, design, development, and operation andmaintenance for the IT systems of client companies as an independent IT company. It also conducts activities
such as building databases and other infrastructure and providing support for the usage and deployment of cloudservices. Its strengths lie in its wide range of customers across all manner of business sectors and operations,and its ability to support a complete spectrum of development processes on a one-stop basis.

We encourage readers to review our complete legal statement on “Disclaimer” page.

05 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

Company profile

In terms of the sales composition ratio for FY6/20, contract development of IT systems represented nearly 50%
of sales. The remainder was split mostly evenly among three components, namely (1) cloud-related services(deployment and migration support for cloud services such as Microsoft Azure, AWS, ServiceNow), (2) ERP-related
services (such as deployment of SAP ERP and maintenance and operation), and (3) database-related services(design, construction, and maintenance and operation of Oracle databases). In addition, direct transactions withcustomers represented just over 60% of the orders received by the Company, with the remainder comprising
subcontracted orders received via major SI vendors and other partners. Projects undertaken through directtransactions with customers have a relatively high profitability and tend to lead to recurring orders more easily
as closer relationships are developed with customers through such projects. Meanwhile, subcontracted projects
have the feature of tending to lead to stable orders more easily. This is because these projects often cover
longer periods of time as they primarily involve large-scale projects, such as systems for financial institutions andmission-critical systems.
Main features of the order-receipt scheme in the Solutions Business

Source: The Company’s results briefing materials

Moreover, one of the features of the Company is that it is a group of technology professionals, with engineers
representing more than 80% of personnel in the Solutions Business. The Company needs only a relatively small
number of sales personnel because it receives many customer-referred projects from Microsoft, AWS and Oracle.
These projects are referred to the Company based on its abundance of personnel with sophisticated technologicalcapabilities and its extensive development track record in cloud-, database-related and other projects.
Track record of main certifications and awards
Microsoft Azure• Obtained Gold Cloud Platform Competency Certification
Certified as a partner with an outstanding track record in expanding
Microsoft Azure• Obtained Advanced Specialization*1
Obtained certification as a partner with sophisticated expertise in specificsolution fields• Received three consecutive MVP awards
Received consecutive awards in the data platform field since 2017*2

AWS• Obtained Oracle Competency in the AWS Competency Program*3• Received the APN Partner Award “Rising Star of the Year” (FY2014)
Oracle• Received Oracle Database-related awards for 14 consecutive years*4
Received Oracle Certification Award 2020 and other awards from Oracle
Corporation Japan*1 Obtained in the field of migration of Windows Server and SQL Server to Microsoft Azure.
*2 Award received by the Company’s employees*3 A program to identify, validate, and promote Advanced and Premier tier partners in the AWS Partner Network (APN) with demonstrated technical expertise andproven customer success pertaining to AWS.
*4 As of December 31, 2020
Source: Prepared by FISCO from the Company’s results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

06 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

Company profileb) Outsourcing BusinessIn the Outsourcing Business, data centers managed by subsidiary eNet Solutions Co., Ltd. at four locationsin Japan (in Tokyo and Kanazawa) account for around 70% of net sales from management services. These
services are used as infrastructure for the private clouds of companies and for BCP measures and data backup
management. Moreover, in 2017 the Company began providing a service that allows customers to easily use
IBM Japan, Ltd.’s IBM Watson Explorer (an AI-driven search and analysis platform) with a monthly charge plan.
This is offered as a value-added service that acts as a hook for acquiring data center customers. Since 2006,
the Company has also been providing Safetylink24, an emergency notification and safety confirmation service
that automatically distributes safety confirmation messages linked to earthquake information (currently around800 companies are subscribed to this service). Furthermore, the Company started offering ActionPassport, anelectronic work flow system, in 2010. Demand for Action Passport has been increasing amid the COVID-19
crisis. The number of subscribers to Action Passport has reached around 300 companies. These services havea recurring business model based on monthly fees, so revenue increases in line with growth in the number ofsubscribers. As of December 2020, the number of customers using the Company’s data centers amounted toapproximately 1,000 companies.
The Company also has other sources of sales, including operation and maintenance of training and help desk
services for client companies pertaining to systems that the Company was involved in developing in the Solutions
Business, along with data analysis and entry services.
c) Product BusinessIn the Product Business, the Group conducts the development and sales of products (software). It also customizes
products according to customer needs. Many products are sold via sales agencies, in addition to direct sales tocustomers. The Product Business’ current main product is “Tate Yakusha” for the construction industry, which
represents just over 40% of net sales, followed by the “MOS” mobile order receipt and placement system, which
represents around 30% of net sales. Most sales in the Product Business are generated by monthly fees fromcloud (SaaS) services. Therefore, this business has a recurring business model where revenue increases in linewith growth in the number of subscribers.
Outline of major products
Name

ProviderDescription

Number ofsubscribing
companies*

Tate Yakusha

System Support Inc.

A construction work information management system. The monthly charge for the basic
version is ¥36,000 per 5 users (initial cost ¥240,000). The professional version is offered
at a monthly charge of ¥39,800 per 5 users (initial cost: ¥480,000)

607

MOS

ACROSS Solutions, Inc.

A mobile order receipt and placement system. The full version is offered at an initial cost
starting at ¥350,000 with options starting at ¥100,000, and a monthly charge startingfrom ¥20,000. (The exact amounts will depend on the number of accounts of the party
placing orders.)

409

SHIFTEE

System Support Inc.

A cloud-based shift management system. The monthly charge for the full version is¥400 per user (separate charges apply for customization).

73

Shugyo Yakusha

System Support Inc.

An attendance/work management system. The monthly charge for the cloud version is¥200 per user (separate charges apply for the on-premise version.)52* As of December 31, 2020
Source: Prepared by FISCO from the Company’s website and results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

07 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Company profile(2) Group companies and the number of employees
The Company’s subsidiaries specialize in different functions and business sectors so that they can constantly
provide new solutions to customers with proactivity and speed in each company’s specialty area. In addition, thenumber of employees was 1,039 on a consolidated basis as of the end of June 2020. The Group’s workforce
has increased every year in step with growth in the size of its business. Of the total, the number of employeesof the Company on a non-consolidated basis was 870, representing more than 80% of Group-wide employees.
Description of main businesses and number of employees of Group companies
Name of company

Solutions BusinessOutsourcing Business

Product Business

Number of
employees

System Support Inc.

System development, infrastructure
construction support, cloud service
deployment support

System operation and maintenance, Development and sales of “Tatedata entry services
Yakusha”, a construction work
information management system,and other products

870

eNet Solutions Co., Ltd.

Deployment of various solutions

Data centers and related platform
services-60

T4C Co., Ltd.

ERP product deployment consulting

-

-

70

STS Medic Inc.

Sale and installation of medical
devices and other items-

Sales and deployment support for“T-File,” medical image filing system

11

ACROSS Solutions, Inc.

--

Development and sale of “MOS”
Mobile order receipt and placement
system19

STS Innovation, Inc.

-

Outsourcing service formanagement operations-

6

STS Innovation Canada Inc.

-

Outsourcing services for
management operations-

3* Other businesses (overseas information provision service, overseas media business, staff referral business, etc.) are conducted by STS Innovation, Inc. The
number of employees is as of June 30, 2020.
Source: Prepared by FISCO from the Company’s securities reports█ Results trends
In its results for 1H FY6/21, the Company delivered double-digit
earnings growth by improving the cost-of-sales ratio and curtailing
SG&A expenses
1. Outline of results for 1H FY6/21
Looking at consolidated results for 1H FY6/21 (July-December 2020), the Company posted net sales of ¥6,917mn,
up 5.2% YoY, operating profit of ¥508mn, up 25.1%, ordinary profit of ¥517mn, up 38.4%, and profit attributable
to shareowners of parent of ¥344mn, up 43.6%. The impact of the COVID-19 crisis on net sales remained mostly
within the anticipated range, and net sales progressed largely in line with the Company’s forecast. The sales growthtrend continued, as growth in sales in the Solutions Business and Outsourcing Business covered a slight decreasein sales in the Product Business.

We encourage readers to review our complete legal statement on “Disclaimer” page.

08 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Results trends

Meanwhile, on the profit front, the cost-of-sales ratio decreased from 74.5% in 1H FY6/20 to 73.8%, owing mainly toan improved product mix and decreased fixed costs associated with working from home. The SG&A expenses ratio
decreased from 19.3% to 18.9%, due mainly to the cancellation of trade exhibitions and the introduction of online
sales. These factors helped to push up the operating profit margin. Non-operating profitability improved primarily
because of the non-recurrence of listing expenses of ¥17mn recorded in the same period of the previous fiscal year
for the Company’s listing on the Tokyo Stock Exchange First Section, and an increase of ¥20mn in subsidy income.
Results for 1H FY6/21(¥mn)
1H FY6/20

1H FY6/21

Results

vs. sales

Initial plan

Results

vs. sales

Net sales

6,573

-

7,004

6,917

-

YoY
5.2%

vs. plan-1.2%

Cost of sales

4,899

74.5%

-

5,103

73.8%

4.2%

-

SG&A expenses

1,267

19.3%

-

1,305

18.9%

3.0%

-

Operating profit

406

6.2%

410

508

7.4%

25.1%

24.0%

Ordinary profit

373

5.7%

405

517

7.5%

38.4%

27.8%

Profit attributable toowners of parent

239

3.6%

268

344

5.0%

43.6%

28.4%

Source: Prepared by FISCO from the Company’s financial results

The Solutions Business posted a large increase in sales related toServiceNow, a cloud service for companies
2. Trends by business segment(1) Solutions BusinessIn the Solutions Business, net sales rose 4.9% YoY to ¥5,748mn, and segment profit increased 8.6% YoY to¥1,388mn. The main drivers of the higher sales were large growth in sales related to “ServiceNow”*, a cloudservice provided by ServiceNow, in addition to solid trends in ERP deployment projects and cloud migration
support projects. On the profit front, the main drivers of higher profits were an increase in high profit margin“ServiceNow” sales, and a decrease in fixed costs associated with working from home. The profit margin rosefrom 23.3% in 1H FY6/20 to 24.1%. In “ServiceNow” related business, net sales increased by around 80% YoY
to just over ¥500mn, growing substantially. This sales growth was supported by the tailwind of increasingly active
digital transformation (DX) investments by companies.
*	“ServiceNow” is a cloud service for standardizing business processes. It is provided by ServiceNow of the United States.
Looking at examples of usage, the information system departments of companies use the service when they need tointegrate the management of assets, work flows, incidents and so forth for the purpose of streamlining operations. The
Company was one of the earliest Japanese companies to enter into a partner contract with ServiceNow in 2015. The
Company has a top-tier track record in the deployment of ServiceNow in Japan.

We encourage readers to review our complete legal statement on “Disclaimer” page.

09 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Results trends

Performance trends in the Solutions Business(¥mn)

Net sales (left)）

6,000

Segment profit (left)

Profit margin (right)

24.1%

23.3%

22.7%
4,587

30.0%

5,748

5,477

4,000

20.0%

2,000

1,388

1,277

1,043

0

10.0%

0.0%
1H FY6/19

1H FY6/20

1H FY6/21

Source: Prepared by FISCO from the Company’s results briefing materials(2) Outsourcing BusinessIn the Outsourcing Business, net sales were ¥888mn, up 9.3% YoY, and segment profit of ¥297mn, up 18.2%.
Sales from data center services, including AI-related services, increased steadily. The segment profit margin alsorose from 31.0% in 1H FY6/20 to 33.5%, owing to the positive effects of increased net sales.

Performance trend in the Outsourcing Business（¥mn）

Net sales (left)

Segment profit (left)

Profit margin (right)

1,000

50.0%
888

800

813
737
33.0%

40.0%

33.5%

31.0%

600

30.0%

400

243

251

297

200

20.0%

10.0%

0

0.0%
1H FY6/19

1H FY6/20

1H FY6/21

Source: Prepared by FISCO from the Company’s results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Results trends(3) Product BusinessIn the Product Business, net sales were ¥267mn, down 1.1% YoY, and segment profit was ¥138mn, down 11.8%.
The main factor behind the decrease in net sales was a decline in orders received for customized projects for “TateYakusha”, although a build-up in the number of subscribers to “MOS”, “Shugyo Yakusha”, and “SHIFTEE”, helped
to increase net sales. On the profit front, earnings decreased due to the non-recurrence of a large customized
project with a high profit margin for “Tate Yakusha” in 1H FY6/20. The segment profit margin decreased from
58.0% to 51.7%, too. The Company is regaining lost ground in orders for “Tate Yakusha” by strengthening web
sales. The number of subscribers by major product as of December 31, 2020 was 607 companies for “TateYakusha”, (up 24 companies YoY), 409 companies for “MOS” (up 98 companies), 73 companies for “SHIFTEE”,(up 21 companies) and 52 companies for “Shugyo Yakusha” (up 39 companies). The main revenue drivers are“Tate Yakusha” and “MOS”. The Company will also seek to monetize “SHIFTEE” and “Shugyo Yakusha”, which isin its third year since sales commenced, by spurring growth in the number of subscribers going forward.

Performance trends in the Product BusinessNet sales (left)
Profit margin (right)(¥mn)

Segment profit (left)

58.0%
300

51.7%

50.8%

60.0%

270

220

267

200

157

40.0%
138

112
100

20.0%

0

0.0%
1H FY6/19

1H FY6/20

1H FY6/21

Source: Prepared by FISCO from the Company’s results briefing materials

The Company’s financial position is sound, and the operating margin
remains on an upward trend
3. Financial condition and business indicators
Looking at the Company’s financial condition as of end-1H FY6/21, total assets were ¥6,198mn, an increase of¥250mn from end-FY6/20. In terms of the main factors behind this change, under current assets, cash and deposits
decreased by ¥62mn, while notes and accounts receivable – trade increased by ¥263mn. Under non-current assets,
software included in intangible assets increased by ¥33mn.
Total liabilities were ¥3,535mn, a decrease of ¥4mn from end-FY6/20. While interest-bearing debt increased by¥469mn, accrued expenses and accrued consumption taxes decreased by ¥420mn and ¥106mn, respectively. Total
net assets were ¥2,662mn, an increase of ¥254mn from end-FY6/20. Retained earnings increased by ¥243mn,
primarily due to the recording of profit attributable to shareowners of parent and the payment of dividends.

We encourage readers to review our complete legal statement on “Disclaimer” page.

11 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Results trends

Looking at business indicators, the equity ratio, which indicates financial soundness, rose from 40.5% as ofend-FY6/20 to 43.0% in step with earnings growth. Meanwhile, the interest-bearing debt ratio rose from 42.1% to55.7% due to an increase in short-term borrowings. Net cash (cash and deposits – interest-bearing debt) was apositive ¥839mn. Based on these factors, the Company’s financial position is judged to be sound.
Regarding profitability, the ratio of operating margin to net sales has remained on an upward trend, rising from
4.0% in FY6/18 to 7.4% in 1H FY6/21. This is mainly because the Company has eliminated almost all unprofitableprojects as it has strengthened its internal project management system; the profitability of the Solutions Businesshas been improving due partly to changes in the sales composition ratio; and the composition ratio of the highly
profitable Products Business has been rising. The Company has maintained high profitability with an ROA and ROE
marking more than 10%.
Consolidated balance sheet(¥mn)
vs. prior fiscal
year-end

FY6/18

FY6/19FY6/201H FY6/21

3,103

4,223

4,631

4,856

225

1,436

1,881

2,387

2,324

-62

Non-current assets

1,063

1,141

1,316

1,341

24

Net assets

4,166

5,365

5,947

6,198

250

Total liabilities

3,608

3,387

3,540

3,535

-4

1,499

1,145

1,015

1,484

469

558

1,977

2,407

2,662

254

Equity ratio

13.4%

36.9%

40.5%

43.0%

Interest-bearing debt ratio

246.1%

58.0%

42.1%

55.7%

ROA

9.4%

10.6%

12.6%

-

ROE

48.4%

27.2%

20.5%

-

Operating margin

4.0%

4.5%

5.6%

7.4%

Current assets(Cash and deposits)(Interest-bearing debt)
Total net assets(Security)(Profitability)

Source: Prepared by FISCO from the Company’s financial results█ Outlook
The Company has kept its initial forecasts for FY6/21 resultsunchanged, but there is a high probability that results will finish
above forecasts due to surging demand
1. Outlook for FY6/21
For its FY6/21 consolidated results, the Company has kept its initial forecasts unchanged. It is forecasting net salesof ¥14,342mn, up 7.2% YoY, operating profit of ¥798mn, up 5.8%, ordinary profit of ¥785mn, up 10.3%, and profit
attributable to shareowners of parent of ¥518mn, up 15.3%.* Although there are no specific concerns about theoutlook at this time, the Company has not changed its forecasts because the impact of COVID-19 crisis remains
uncertain.
*	The FY6/21 forecast is based on information available as of April 15, 2021, the date the Japanese version of the report
was issued.

We encourage readers to review our complete legal statement on “Disclaimer” page.

12 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html

Outlook

The achievement rates against full-year forecasts through to the end of 1H FY6/21 were 48.2% for net sales and63.7% for operating profit. The average achievement rates over the past two years were 48.3% for net sales and52.9% for operating profit. For 1H, progress was made at mostly same pace for net sales, whereas progress was
faster than the past average for profits. The reduction in fixed costs due to the introduction of working from home
was one of the main reasons for profit surpassing forecast in 1H FY6/21. Fixed costs should continue to decreasesimilarly in 2H FY6/21. Accordingly, FISCO believes the Company is highly likely to outperform its forecasts on thebasis of profits.
Consolidated outlook for FY6/21(¥mn)
FY6/20Results

FY6/21% of net sales

Initial forecast* % of net sales

YoY

Averageachievement
rate through
1H

Averageachievement
rate through1H for the
past 2 years

13,376-

14,342

-

7.2%

48.2%

48.3%

Operating profit

754

5.6%

798

5.6%

5.8%

63.7%

52.9%

Ordinary profit

712

5.3%

785

5.5%

10.3%

65.9%

51.5%

Profit attributable toowners of parent

450

3.4%

518

3.6%

15.3%

66.4%

50.4%

Net sales* The FY6/21 forecast is based on information available as of April 15, 2021, the date the Japanese version of the report was issued.
Source: Prepared by FISCO from the Company’s financial results

Based on its sophisticated technological capabilities, the Company
aims to achieve high growth by capturing orders for cloud
deployment and migration and ERP projects for which demand issurging, and by building up recurring business2. Growth strategy
The Company’s growth strategy for the future is to accelerate revenue growth by working to expand cloud-, ERP-,
and database-related existing businesses in the Solutions Business and to grow operations that will become
recurring businesses, specifically the Outsourcing Business, which includes data center services, and the ProductBusiness. As for human resources to support this growth strategy, the Company plans to recruit at a pace of around
60 new graduates and 90 mid-career employees year-round on a Group-wide basis. The Company recruited locallyin Tokyo, Osaka, Nagoya, and Kanazawa, where its offices are located. In spring 2021, the Company recruited 32
new graduates in Tokyo, 7 in Nagoya, 10 in Osaka and 11 in Kanazawa. The priority measures in each businessare described below.

We encourage readers to review our complete legal statement on “Disclaimer” page.

13 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

OutlookBusiness growth diagram

Source: The Company’s results briefing materials(1) Solutions BusinessIn the Solutions Business, the Company aims to achieve growth by implementing three main measures. First, it will
strengthen orders received for projects to construct database on cloud platforms. In the past few years, companies
have stepped up activity to migrate from existing IT systems to cloud platforms, particularly cloud infrastructure
supplied by global IT companies, such as Microsoft Azure and Amazon Web Services (AWS). The Company willcapture orders for consulting, platform construction, and migration support from such customers, and at thesame time it will develop and provide account resale and option services for each cloud platform. Through thesemeasures, the Company’s strategy is to accumulate revenue from recurring business.
The Company has developed technological capabilities over many years in the database field. Leveraging thesecapabilities as its strengths, the Company has worked on numerous projects related to cloud-based databaseand data analytics platforms, which are highly specialized fields with high barriers to entry. In 2014, the Company
became first in Japan to be certified for Oracle Competency*, an APN partner program of AWS. In database-related business, the Company plans to continue working to capture orders, including cloud migration projects,
as a stable source of revenue. In addition, the Company will continue to proactively invest in the recruitment andtraining of technology professionals and strengthen ties with cloud vendors that have top domestic shares, such
as AWS and Microsoft. By doing so, the Company will continuously secure orders through customer referrals
without incurring marketing costs, with the aim of achieving growth.
*	Oracle Competency is a program where AWS evaluates and certifies partners that have the technologies and track record
needed to provide total support for the design, deployment, management and operation of Oracle-based work loads
implemented on the AWS cloud. As of March 2021, 5 companies have earned this certification in Japan.

The second priority measure is to strengthen deployment and usage support services for ServiceNow, which has
continued to grow rapidly. As described earlier, this service is fitted with a wide range of functions that contributeto the standardization and automation of corporate business processes. In the past few years, ServiceNow has
continued to experience rapid growth globally. In 2020, the COVID-19 crisis accelerated initiatives by companies
to address digital transformation even in Japan. In this environment, ServiceNow can easily realize work flows
and visualization premised on contact-free processes. This functionality has attracted significant interest, leading
to accelerated growth.

We encourage readers to review our complete legal statement on “Disclaimer” page.

14 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

Outlook

The Company gathers information on the latest local IT trends through its North American subsidiary. In theprocess, the Company focused on the growth potential of ServiceNow at an early stage. In 2015, it enteredinto a partner agreement with ServiceNow, and it has worked to proactively expand sales. In recognition of thistrack record, the Company became the first Japanese company to be certified as a Bronze Services Partner*. In
addition, the Company was certified as an Elite Partner* in 2019. Looking ahead, the Company plans to address
surging demand by working to develop technology professionals and build a framework that can provide stable
services. The Company’s competitors are Accenture Japan Ltd. and Hitachi Solutions, Ltd., among others. Net
sales have increased from around ¥200mn in FY6/18 to around ¥400mn in FY6/19 and ¥700mn in FY6/20. Net
sales are growing fast enough to surpass ¥1,000mn in FY6/21. Profitability is also relatively high. The growth of
the ServiceNow business has the potential to push up the profitability of the Solutions Business even further, so
future trends will need to be watched closely.
*	Criteria for certification under the ServiceNow partner program include factors such as customer satisfaction, and trackrecord of sales and deployment. The Company is ranked in second place as of December 31, 2020 in terms of the numberof ServiceNow development certifications it has obtained.

As the third priority measure, the Company will work to expand ERP-related orders centered on SAP ERP. A
decision has been made to terminate product maintenance support for SAP ERP in 2027. Currently, demandis increasing for migration from SAP ERP, which is the current system, to the next-generation solution SAP S/4
HANA. In addition, considering that some companies intend to continue using SAP ERP for the time being,
demand is coming from both of these sources. Moreover, SAP S/4 HANA is provided as an on-premise version
and a cloud (SaaS) version. The on-premise version can be used with AWS, Google’s public cloud, SAP’s private
cloud and other platforms, so there have been many cloud migration support projects. ERP-related demand ispredicted to continue growing by around 10% per annum through to the expiration of the maintenance period
in 2027. With regard to SAP ERP, the Company and its subsidiary T4C have approximately 170 technology
professionals combined, providing support for development in main areas and all levels (infrastructure, middleware,
application). Moreover, the Company and T4C possess technologies and expertise in ERP products other than
SAP. One of their strengths is that they can provide a broad range of stable services according to customer needs.
To address increasing demand in the run-up to 2027, the Company plans to target steady growth by continuing
to work to increase and train technology professionals while building a framework for providing nearshore support
related to the maintenance of existing systems in the Hokuriku area. There is significant competition for ERP
usage support services. For large-scale projects, the Company often does not directly receive orders for suchprojects in consideration of the risks involved. In many cases, Nomura Research Institute, Ltd. (NRI) <4307> andAccenture Japan Ltd. become the primary contractors for such large-scale projects and the Company advancessuch projects together with these partners.
(2) Outsourcing BusinessIn the Outsourcing Business, the Company will continue to focus on building up data center services, which will
be a recurring business. The Company has established data centers in two locations in Kanazawa, an area witha low risk of earthquake activity. It can expect growth in demand for the use of these data centers as backup
capacity for BCP measures. The targeted customers are companies building private clouds. The Company will
provide proprietary value-added services to these customers as a hook to achieve further growth. It still has
more than enough processing capacity at its data centers. By ramping up processing capacity at existing data
centers as needed, the Company can achieve sales growth. As of December 2020, monthly and annual sales ofdata center services, excluding initial costs, are around ¥88mn on a monthly basis, and monthly sales have been
continuously achieving growth in 10% range in comparison to the same months of the previous year. Growth isexpected to continue at a similar pace going forward.

We encourage readers to review our complete legal statement on “Disclaimer” page.

15 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.
4396 Tokyo Stock Exchange First Section

17-Jun.-2021
https://www.sts-inc.co.jp/index_e.html

OutlookPriority measures: Data centers

Source: The Company’s results briefing materials(3) Product Business
The Company’s strategy for the Product Business is to drive revenue growth by increasing the number of subscribers. To this end, the Company will implement measures such as improving the functionality of each product,
strengthening sales via agencies, and conducting web marketing. It will also work to customize products according
to customer needs. “Tate Yakusha” and “MOS” have already become profitable. From here on, any increase insales of these products will start to directly filter through to increases in profit, excluding development costs
incurred to strengthen product functionality. Moreover, inquiries for “MOS” and “Shugyo Yakusha” have been
increasing in response to tailwinds such as wider adoption of work style reforms and working from home. The
Company will need to determine how to increase the number of subscribers by enhancing web marketing andsales channels, and this will hold the key to future revenue growth. In the Product Business, the Company intends
to consider M&As as a strategic option for the future.

Number of companies deploying each product（No. ofcompanies）

Tate Yakusha

MOS

SHIFTEE

Shugyo Yakusha

1200
1000
800
600

1
39

26
64

13
52

52
73

409

311

348

550

583

595

607

19/6

19/12

20/6

20/12

228

400
200
0
（Month/Year）
Source: Prepared by FISCO from the Company’s results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

16 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

System Support Inc.

17-Jun.-2021

4396 Tokyo Stock Exchange First Section

https://www.sts-inc.co.jp/index_e.html█ Shareholder return policy
Policy calls for maintaining stable dividends based on considerationof factors such as earnings levels
The Company regards the return of profits to shareholders as an important management issue. The Company
has indicated that its policy on the distribution of profits is to provide stable dividends based on consideration offactors such as earnings levels, while ensuring adequate internal reserves needed for future business expansion
and strengthening the management structure. It will also strive to improve the level of dividends according tobusiness results and profit levels. The Company revised and announced its dividend forecast on the same daythat it announced 1H FY6/21 results, indicating that it will increase dividends per share for FY6/21 from the initial
forecast of ¥10.0 to ¥20.0. The dividend payout ratio is estimated to be 39.7%. However, given that business results
are progressing at a faster pace than planned, FISCO believes the dividend payout ratio will ultimately settle down
somewhere in the low 30% range.

Dividend per share and dividend payout ratio
Dividend per share (left)

（¥）
25.0

Dividend payout ratio (right)
39.7

20.0

27.0

22.3

10.0

0.0

45.0
36.0

15.0

5.0

（%）

20.0

4.3

10.0

9.0

1.5
FY6/1918.0

0.0
FY6/20FY6/21 E

Note: The Company conducted two-for-one stock splits in April 2019 and June 2020. Figures for FY6/19 have been
retrospectively adjusted to reflect those stock splits.
Source: Prepared by FISCO from the Company’s financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

17 17

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
mentioned herein, regardless of the purpose therefor, such use shall be made based on yourjudgment and responsibility, and FISCO shall not be liable for any damage incurred by you asa result of such use, irrespective of the reason.
This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
The intellectual property rights, including the copyrights to the main text hereof, the data
and the like, belong to FISCO, and any revision, reprocessing, reproduction, transmission,
distribution or the like of this report and any duplicate hereof without the permission of FISCO
is strictly prohibited.
FISCO and its affiliated companies, as well as the directors, officers and employees thereof,
may currently or in the future trade or hold the financial instruments or the securities of issuersthat are mentioned in this report.
Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-13-3 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (IR Consulting Business Division)
Email: support@fisco.co.jp