MP

Analyst Reports

November 20, 2017

M C J（6670）

TSE 2nd Section

Do you know who We are?
■High-spec PC manufacturer with core fans
Operates an integrated business handling the development,purchasing, manufacturing, sales, and after-service of PCs,
PC parts, monitors, peripheral equipment for PCs, etc.
Provides brands which target various usages such as thegaming PC "G-Tune," PC for corporate users "MousePro," andthe PC for creators "DAIV."
Through M&As, has established the group power to perform
any business independently. Currently investing in leading
venture corporations in new fields but complementary to
existing business domain such as VR.
Leads other companies in launching products on the VR
market where actual demand already exists. Has positioned
itself to fully receive the benefits of an expansion in the VR
market.

Yuya Okamura, Analyst

Company profile
Location

Chuo-ku, Tokyo

President & COO

Motoyasu Yasui

Established

August 1998

Capital¥3,854 million

ListingJune 2004

URL

http://www.mcj.jp/

SectorElectric Appliances

Stock price data（closing price on November 17)
Stock price¥1,037

Outstanding shares

50,870,600
sharesTrade unit

100shares

Market cap¥52.75billion

PER (est.)

9.2 times

EPS (est.)

112.47 yen

PBR (actual)

1.69x■Midterm results show a steady growth which exceeds
the Company plan
Forecasted results for the period ending March 2018 are as
follows: net sales of ¥114,953 million (up 5.7% YoY), operating
profit of ¥8,000 million (up 7.2% YoY), and net income of¥5,470 million (up 8.8% YoY). Results until the midterm show
an increasing top line and record sales. The decrease in profit
items is as planed and announced by the Company
beforehand due to intentional prior investment aimed atincreasing brand awareness in the mass market. Results show
a steady pace that exceeds the Company plan.
■The current low level of recognition for MouseComputerand MCJ is actually appealing
Stock price has increased dramatically due to enhanced IR
since last year.
Even so, the forecasted PER of slightly more than 9 times issignificantly behind the industry average. There is sufficient
potential for improvement depending on such actions asimproving liquidity.
As the PC market contracts, the Company is labeled with theimage of low growth. However, the high-spec PC market thatis the strategic field of the Company continues to grow eventoday.
Furthermore, since the Company currently holds a small
overall share in the enormous PC market, there is potential for
the Company to grow through improved brand awareness totake shares away from other companies. The direction to betaken by management is clear, and the Company is a classic
example of reasonably-priced stock of a small- to mid-size
company being buried in the market.

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Analyst Reports

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Company Information
Operates an integrated business handling the development, purchasing, manufacturing, sales,
and after-service of PCs, PC parts, monitors, peripheral equipment for PCs, etc. Sales channels
include direct sales via EC sites and brick-and-mortar stores, via major electronics retailers,
OEM supply, and direct corporate sales and indirect sales through distributors.
Overseas, possesses sales channels for monitors in Europe. The Company’s unique and highspec PCs are popular among knowledgeable users, and the Company has utilized group powerthat encompasses a variety of services to supply these PCs to the market. However, today, theCompany is simultaneously expanding sales to mass consumers.

● What is the source of uniqueness and originality?
The PCs offered by the Company target consumers with a high level of computer literacy; in otherwords, consumers for whom normal PCs are insufficient or unsatisfying. Since the Company's
computers are not intended for the general public, the absolute number of the target group issmall. Even so, the Company has moved forward with the firm belief that "strong demand exists"and has steadily expanded its business operations.
The Company was established in February 1998 when current
Chairman & CEO Yuji Takashima incorporated his PC businessunder the name Mouse Computer Japan.

Easy‐300(1999)

PCs had just started to spread at that time, and the market was
dominated by major domestic manufacturers such as NEC and
Fujitsu. Conversely, as a venture corporation, the Company
devised a strategy to differentiate itself from other companies.
The first computer released by the Company was the Easy-300
PC (300 dollar PC) in March 1999. At that time, the exchange
rate for yen to U.S. dollars was around ¥120, about the same as
it is now. Consumers were surprised by the release of thisreasonably-priced PC.

Furthermore, the PCs of major manufacturers that dominated the market at that time were equippedwith various functions as standard installation. Consequently, there was a gradual increase in demandfor PCs that allowed users to select their own preferred functions. In order to meet this demand, there
was an increase in non-branded PCs (then called white box = generic term for PCs produced bymanufacturers other than national brands) such as those offered by the Company. Amidst thesecircumstances, the Company chose a business model of creating customized PCs in accordance withspecifications desired by the user.
This was the start of the BTO (Built To Order) style. One advantage of BTO is that inventory is notaccumulated. The Company pursued the strategy of carving a market niche by targeting "computer
enthusiasts."
This strategy was successful and still forms the core of the Company's business strategy even today.

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Analyst Reports

November 20, 2017

Product history●Pursuing originality

As business began to take off, the Company released theoriginal PC "Easy-Cube 51C" in June 2003. It immediately
became a hit as a cube PC. In November 2003, theCompany changed its name to MCJ, its current name today.

『Easy-Cube51C』（2003）

G-Tune initial version（2004）At that time, online PC games were extremely popular. In
response to trends of the time, the Company started tohandle PCs targeting gamers; in other words, video gameplayers who were engrossed in MMORPG (Massive
Multiplayer Online Role Playing Games). In January 2004,
the Company released "G-Tune," a brand which continues todrive the Company's business even today.
In 2005, the Company announced the release of the lowpriced notebook PC “LuvBook” series. In June 2008, theCompany entered the netbook market by releasing LuvBook
U100, and then released its first tablet “LuvPad AD100” inSeptember 2010.
In November 2014, the Company released “m-Stick,” one of
the world’s smallest stick PCs. “m-Stick” is a ultra-lightweightstick PC that fits in the palm of a hand and makes it possible
to use Windows on LCD televisions and monitors via HDMI
connection. m-Stick attracted great attention as arevolutionary product that is widely used at meetings,
presentations, and events.
In the past few years, the Company has frequently released
high-spec PCs focused on the targeted consumers. In
February 2016, they released “DAIV,” a PC for creators. This
PC features high image editing capability in response to suchdemand as uploading personally photographed images toYouTube.

G-Tune latest model
Slim model gaming PC『NEXTGEAR-C』（2017）

Also, the group company UNIT.COM has developed a PC
especially for traders of financial securities. UNIT.COM
released the “Kabu Paso” series through collaboration withthe major online trading company kabu.com Securities Co.,
Ltd. This provides an optimal environment for full-scale online
trading.

『kabu Paso』（2013）『m-Stick』（2014）

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Analyst Reports

November 20, 2017

Overview of MCJ Group Companies(1) MouseComputerThis company was born at the founding of MCJ. Business activities
include the development, manufacturing, and sales of PCs andperipheral equipment. Offers target-specific brands for specific uses
such as the gaming PC “G-Tune,” the corporate PC “MousePro,”and the PC for creators “DAIV.”
Currently, the company is focused most on increasing brandawareness. Although MouseComputer is famous among the market
niche of users with a high level of computer literacy, the company
must increase appeal to mass consumers in order to increase its
market share. The company is actively broadcasting TV「G-Tune」Gaming PC
commercials from 2016.
MouseComputer is also working hard to further enhance its customer support. In addition to a callcenter that operates 24 hours a day, 365 days a year, the company also possesses its own repair
center. MouseComputer provides a 96-hour Repair Completion Service in which repairs arecompleted within 96 hours after the customer PC arrives at the Saitama Service Center. As an easy-touse service, the company has established the PC industry’s first LINE support system to enable evenfaster response to client enquiry. By further improving customer support following the purchase of aPC, MouseComputer seeks to increase the number of fans for its products and is focused onheightening its repeater rate.

(2) UNIT.COM「VIVE」
Recommended PC specifications
LEVEL-R027-i7-VNR

AKRacing Premium
Office Chair

Sells original PCs, PC parts, peripheral equipment, and other devices.
Handles an increasing amount of VR products. Also conducts salesof sets consisting of the VR product VIVE manufactured by HTC in
Taiwan together with PC recommended for VR (a high price can be
set at around ¥200,000). Operates more than 70 shops (PC Koubou)
in Japan. Also focuses on services such as IT support and inspection
services for individual users utilizing its shops (assets).

(3) Tekwind
Conducts wholesaling and retail sales of PC peripheral equipment,
and parts. Handles products from a wide range of more than 50
companies including Microsoft, Intel, and ASUS. In 2015, released agaming chair designed to reduce fatigue when sitting for long periodsof time. The price range is from ¥40,000 to ¥50,000, which is areasonable price when compared to similar products from othercompanies (the market price is around ¥100,000).

(4) iiyama
A corporation with high growth and high profit. Company headquarters
are located in the Netherlands. iiyama conducts development andsales of PC monitors. Main countries for sales are major European
countries such as Germany, France, and England. In addition to
ordinary PC monitors, the company also focuses on touch monitors
and high-end digital signage such as large-screen displays.

iiyama Monitor

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Analyst Reports

November 20, 2017

M&A Utilization and VB Investment●M&A

In June 2004, launched its initial public offering (IPO) on the Tokyo Mothers Stock Exchange.
Until then, the Company had been a fabless manufacturer that also outsourced operations suchas its call center.
However, the Company changed its policy upon its IPO. In October 2005, the Company started
a free 24-hour telephone support service, the first for any gaming PC brand. In 2006, through abusiness transfer from iiyama, acquired a factory in Iiyama City, Nagano Prefecture and started
independent operation of the factory to manufacture PCs. In January 2010, the Company
opened its own call center in Okinawa Prefecture. In December 2016, started a talk support
service for LINE consultation using LINE Talk. The Company is expanding its business byusing M&As to shift to more integrated business for PCs.
○R-Logic
In the Asia region, acquired 60% of shares in Asia's largest company providing repair andtechnical support of IT-related products with a focus on PCs, monitors, and smartphones. Plans
to make R-Logic into a consolidated subsidiary.

●VB Investment

Currently, the Company is broadening its horizon to include long-term growth and is engaging instrategic venture (VB) funding. The three most recent cases of VB investment are listed below.
The investment structure is designed to receive benefits from multifaceted market growth in thefields of hardware and contents.
(1) Nain
A venture corporation developing "hearable devices" that utilize voicerecognition technology. Invested
in November 2016. The company's
earphones "Aplay" were developed under the concept of "being wearable(hearable) for ears" and are sold at major home appliance stores.
Aplay N1L
Nain Inc.

CHAINMAN
Ouka-ichi-mon.inc(2) Ouka-ichi-mon
A venture corporation developing VR game content. Invested in November
2016. Specializes in VR games. In August of this year, released the game
"ChainMan: Terror from the Darkness" for VIVE. Develops horror games
which are a good fit with VR. If a hit game for VR is developed, it will have apositive effect on increasing sales for high-spec PCs recommended for VR
HMDs.

(3) Immersv, Inc. (U.S.)
Based in the United States, this venture corporation develops advertisement distribution
platforms for smartphone-based VRs and mobile 360. Invested in July 2017. Provides aplatform enabling the display of advertisements using 360-degree video when the user wears ahead-mounted display. Advertisements using VR have not yet spread widely. There is great
potential for future growth. In addition to MCJ, HTC (Taiwan), GREE (Japan), and Metaps(Japan) also invest in this promising venture corporation.

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Analyst Reports

November 20, 2017

Considerations for Business Model● Future growth identified by M&A experts

When conducting M&As after having its stock listed, the Company has focused on "expanding its
scope of independence" by incorporating procurement, manufacturing, sales, and after-service into
the Group. As a result, the Company has established a system capable of providing integrated
domestic service.
One surprising business partner is the multifaceted cafe "aprecio." The clear intent behind thispartnership is to link the Company's gaming PCs with end user by incorporating internet cafes, thus
making it possible to develop new products that reflect the needs of users.
Now that the Company has established a system of comprehensive independence, it is seeking touse M&As in order to supplement insufficiencies in "higher added value elements." In this context,"higher added value elements" refer to new fields such as VR, AR, and IoT. The Company issolidifying a new M&A strategy in the form of new funding for outstanding venture corporations. In
particular, actual demand already exists for VR (manufacturing sites for corporate VR content, etc.).
The Company has released products into growth markets as quickly as possible and has
established a system to receive full benefits from the growth of the VR market.
Integrated system established by MCJ Group
Development

Procurement

Manufacturing

Long record of
performance forindependentlydeveloped
products

Uses its global
network for
procurement at
the optimum
timing

Performs
manufacturing atcompany-owned
domestic factories
using a BTO (Built
To Order) system

Sales

After-service

Possess avariety of sales
channels for
B2B and B2C

Operates
company owned
call-centers andrepair centers thatprovide support
24-hours a day,365-days a year

● Reason for high growth potential in a shrinking market

For PC manufacturers, the shrinking of the market itself is a source of concern. However, even within thisshrinking market, the Group is steadily increasing the number of PCs shipped and is outperforming themarket.
This performance actually originates from the Company's weakness; that is, still holding a small share in
the PC market. The PC market itself is enormous, and it is very interesting that the Company's weakness
in products aimed at mass consumers is the basis for its future growth potential. The Company
has sufficient potential for growth by taking market share from other companies in the PC market. The
Company is actively broadcasting TC commercials in order to increase its name recognition and, as aresult, is steadily increasing its number of PCs shipped. Furthermore, the high-spec PC market which isthe core strategy of the Company is a strong growth market, partly due to the rise of VR. The
Company is positioned to continually receive the full benefit from this market expansion.
Change in increase/decrease rate for number of PCs shipped

Release of
Windows 8.1

Second nationwide
TV commercial inJapan

End of support
for Windows XP

Third nationwide
TV commercial
in JapanFirst nationwide
TV commercial inJapan

Release of
Windows 10

FY2014/3

FY2015/3
MCJ Group

FY2016/3

FY2017/3

FY2018/3

Domestic PC shipments (JEITA statistics)*The graph above compares shipping in each quarter (accounting period) to the same quarter of the previous year.

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Analyst Reports

November 20, 2017

Results of Operations
Performance（million yen）
Fiscal year end

Net sales

YoY

OperatingprofitYoYProfit attributableto owners ofparentYoY

EPS(¥)March 2014

104,003

21%

4,061

166%

1,812

71%

36.38

March 2015

102,889

-1%

5,068

24%

2,627

45%

53.83

March 2016

103,288

0%

5,167

2%

3,087

17%

63.48

March 2017

108,727

5%

7,463

44%

5,030

62%

103.44

March 2018
(interim period)

55,964

10%

3,511

-15%

2,384

-24%

49.02

March 2018 (est.)

114,953

5%

8,000

7%

5,470

8%

112.46●For the midterm period ending March 2018, net sales were ¥55,964 million (up 10.7% YoY),
operating profit was ¥3,511 million (down 15.2% YoY), and net income was ¥2,384 million (down
24.3% YoY). The top line continues to increase and net sales for this period were a historical
record. Revenues at MouseComputer were up 16% due to strong sales of gaming PCs and otherhigh-added value products. Revenues at iiyama were also up 18% due to increased sales for
products such as touch panel monitors.
Conversely, profit items have decreased by double digits. SG&A expenses for the current period
reach ¥9,100 million, an increase of ¥1,100 million from the same period last year. This is due tointentional and planed advance investment (sowing seeds) with the aim of increasing
brand awareness among mass consumers. It is reasonable to positively interpret thisdecrease in profit margin due to forward-looking business policy.
Moreover, operating profit was ¥1,518 million in the 2nd quarter alone. This is equivalent to thepeak profit on a quarterly basis (¥1,567 million in the 3rd quarter of the period ended March 2016)prior to starting TV commercials in January 2016. Even when including the cost of TV
commercials, quarterly operating profit exceeded ¥1,500 million. Accordingly, it can be said that
the Company is successfully increasing the base profit level by leveraging the effect ofincreased revenue.
●For the period ending March 2018, the Company expects net sales of ¥114,953 million (up5.7% YoY), operating profit of ¥8,000 million (up 7.2% YoY), and net income of ¥5,470 million (up8.8% YoY). Performance until the midterm (halfway point) exhibited a strong pace that exceeds
the Company plan (net sales of ¥54,190 million and operating profit of ¥3,361 million). However,the full-term forecast is not added at the midterm point.
In the first place, in its Mid-term Management Plan, the Company has set a goal for net
sales of "¥112,000 million to ¥120,000 million" for the period ending March 2019. The
Company's stance is to prioritize achieving the upper limit of the sales goal (¥120,000
million) in its Mid-term Management Plan, and also to seek "constant increase in profits"(in other words, a new profit record) through operating profit. It can be inferred that theCompany is acting in accordance with this strategy and is not revising numerical targets which
can be easily achieved through immediate business performance.
The Company is covered by two brokerage firms. The average forecasted performance by these
two firms for the period ending March 2018 is ¥116,000 million for net sales and ¥8,250 million for
operating profit. There is only a slight difference from the Company plan, and the expected value(hurdle) by the market in contrast to actual business performance is not overly high.

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Analyst Reports

November 20, 2017

Investment appraisal (1)Stock Price (historical)
Year high¥1,355

Year low¥983

Highest since the IPO¥2,863Lowest since the IPO¥28*Considered with stock split●The Company's stock price has increased significantly since lastyear. The yearly high was ¥1,355 on May 12, 2017. One year
earlier, at the end of May 2016, the price was ¥477. The catalyst
for the stock price increasing so dramatically in such a short periodof time was the appointment of Motoyasu Yasui as President &COO in April of this year.
Yasui first became involved with the Company as an Executive
Officer in March 2016. In May 2016, the Company released its first
Mid-term Management Plan after being listed. From June, Yasui
was appointed as head of IR and led a movement to enhance IR
initiatives. Immediately from this point, the Company's namerecognition in the market increased, the Company went from being
undervalued to being the target of significant interest, and thestock price rose.
Revision of the Company system through enhanced IR was inresponse to how the Company had failed to show a future vision toinvestors despite having grown into a corporation with net sales
exceeding ¥100,000 million for the period ended March 2008. For
the first time ever, the Company informed investors of financial
policy when formulating the Mid-term Management Plan.
Specifically, the Company set a goal of "an operating profit ratioof approximately 5%, ROE of 10% or higher, ROIC of 10% or
higher, and a dividend payout ratio of 20% or higher." The
Company cleared all of these goals in the period ended March
2017, which was the first fiscal year of the Mid-term Management
Plan.
However, this does not mean that investors had a high opinion of
how the Company achieved these goals. Instead, the increase instock price up until this point can be explained by how the
Company had grown close with investors through enhanced
IR. It is not uncommon for a brand with low market recognition torise significantly due to enhanced dialogue with investors. The
Company is a typical example of this phenomenon.

* Shareholder Incentive Product Catalog ofthe previous year

Most likely, the Company's ultimate aim for enhanced IR is to belisted on the First Section of the Tokyo Stock Exchange. It has
already been more than two years since the Company was listedon the Second Section of the Tokyo Stock Exchange. During thistime, the Company has implemented a shareholder benefit
plan. Individual investor has shown high acclaim for the"Shareholder Incentive Product Catalog" from which investors
owning more than 1,000 shares can select a product with value ofabout ¥10,000.
If the Company succeeds in raised to the First Section of theTokyo Stock Exchange, there will probably be high purchasedemand via TOPIX-link passive funds due to how theshareholder benefits attract many long-term shareholders(low level of floating stock) and to how there is a low level ofliquidity.

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Analyst Reports

November 20, 2017

Investment appraisal (2)●There is a common element between the Company's business growth strategy and share price.
MouseComputer has a low level of recognition among mass consumers. Therefore, the Company isactively investing in order to increase recognition for MouseComputer. This is done because increased
recognition will lead to business growth. The same is true for recognition of the Company's stock in themarket. It is still unknown. This is demonstrated by how the forecasted PER for stock price is still
between 9 and 10 times even after a significant increase in stock price. The average forecasted PER for
stocks listed on the Second Section of the Tokyo Stock Exchange is 24.7 times. The average forecasted
PER for stocks listed on the First Section of the Tokyo Stock Exchange in the Nikkei industry category of"Electrical Equipment" is 24.2 times. The forecasted PER for the Company's stock falls well short ofthese averages.
●The Company's stock seems relatively inexpensive due to their forecasted PER of 9 to 10 times. It
cannot be denied that one reason for this discount is the preconceived image that PC manufacturers
do business in a low-growth industry.
However, we must not forget that the Company is intentionally incurring advertising and promotional
expenses that have decreased the profit ratio. The forecasted PER of between 9 and 10 times for theforecasted base in the current term with a temporary decrease in the profit ratio is proof that theCompany's growth strategy (expand share in PC market through increased name recognition) is
proceeding as planned. It can be said that the Company's stock is reasonably priced.
Furthermore, the Company specializes in high-spec PCs which are a growth niche that defies the trend of
the shrinking PC market. The spread of smartphones and tablets has negatively affected the PC market.
However, it is impossible to use smartphones in place of gaming PCs and programming PCs which
require a high level of specifications. Another example of the same phenomenon is how demand forsingle-lens reflex cameras and mirrorless cameras has increased even while the camera market has
shrunk due to the advancement of smartphones. Furthermore, if VR and e-sports gain popularity in Japanin the future, gaming PCs will also expand concurrently and the market will grow.
●PCs are hardware. It is thought that hardware itself will continue to be a growth market. The
recently popular smart speakers (Amazon Echo, Google Home, etc.) are also hardware. Even if
revolutionary and outstanding applications are developed, those applications can only be used throughinstallation in hardware. Hardware is also the bases for VR, IoT and other new fields which are expected
to grow in the future. There are high expectations for providing hardware by utilizing the advantagesof connection with the end user through multiple channels including sales, call centers, and repair
centers.
A point requiring long-term attention is how the Company will utilize M&As and VB investment inorder to be able to complement its existing business and receive the benefits of software that is
produced after hardware.
The market capitalization of the Company is ¥52,700 million, which is less than half of its net sales(forecasted at ¥114,900 million for this period). There are very few listed electronic equipment
manufacturers with a PSR below 0.5 times. It would not be surprising if the share price was changed withthe goal of achieving a PSR of 1 time.
To start, the Company's goal is to achieve market capitalization of ¥100,000 million. This will cause theestimated stock price to reach ¥1,965. Even at this price, the forecasted PER will be 17.4 times, making it
a very reasonable goal.
（Okamura）

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Analyst Reports

November 20, 2017

Disclaimer
This report incorporates information that was received from the company covered at interviews at thecompany and other sources by analysts who are doing work for Magical Pocket Corporation Assumptions
and conclusions included in this report represent the analysis and assessments of analysts who preparedthis report and are not the positions of the company or companies covered in this report.
This report was prepared solely for the purpose of providing information that is useful for reachinginvestment decisions. This report is not a solicitation or other inducement regarding securities transactions
or any other activities.
Investors are always responsible for making judgments required to reach final investment decisions. Magical
Pocket and the analysts that prepared this report under contract for Magical Pocket have no responsibility
whatsoever regarding these investment decisions. All information in this report is current at the time thisreport was prepared and may be revised without prior notice.
This report is copyrighted material of Magical Pocket Copying, selling, using, releasing to the public and/or
distributing this report to others without permission is prohibited by low.

Publisher of this report：
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TEL:03-5226-5433
FAX:03-5226-5434※Please be aware that Magical Pocket cannot answer the questions regarding the information ofthis analyst report.

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