COMPANY RESEARCH AND ANALYSIS REPORT

System Support Inc.
4396
Tokyo Stock Exchange Prime Market

1-Apr.-2024
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 Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for 1H FY6/24...................................................................................................................

01

2. Outlook for FY6/24.. .....................................................................................................................................

01

3. Medium-term management plan............ ......................................................................................................

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

03

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

04■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Outline of results for 1H FY6/24...................................................................................................................

09

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

10

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

15■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 16
1. Outlook for FY6/24.. .....................................................................................................................................

16

2. Medium-term management plan............ ......................................................................................................

19■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 22

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 Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06■ Summary
Forecasts continued double-digit growth in sales and profits driven
by Cloud Integration Business
System Support Inc. <4396> (hereinafter, “the Company”) is an independent IT company that continues to grow,centered on supporting the introduction and use of various cloud infrastructure-related services, ERP, databases,
etc., using its strength of industry-leading technological capabilities. The Company is headquartered in Ishikawa
Prefecture, Japan. However, Tokyo, Nagoya, and Osaka are the primary hubs of the Company’s business activities.
Also, the Company has a subsidiary in North America. The Company is also focused on recurring-revenue businesses, including data center services and the Product Business, which mainly consists of providing cloud (SaaS)
services in in-house products.
1. Outline of results for 1H FY6/24
In 1H FY6/24 (July 2023 to December 2023), the Company set consecutive record high results. Net sales increased
15.5% YoY (year-on-year) to ¥10,635mn and operating profit rose 19.0% to ¥883mn, thereby exceeding theCompany’s forecasts (net sales of ¥10,634mn, operating profit of ¥862mn). These gains are primarily attributable tothe mainstay Cloud Integration Business having achieved substantial growth with its net sales having increased by
39.5% to ¥3,340mn given a scenario of steady progress in hiring and training engineers amid ongoing expansion of
corporate DX investment. The favorable results included those of resale income from providing migration and usage
support of the main cloud infrastructure platforms such as AWS, Microsoft Azure, and Google Cloud, in addition
to persisting double-digit growth in net sales of highly profitable ServiceNow*-related services, which increased by
29.0%. The Company achieved sales and profit increases exceeding forecasts also in the Outsourcing Businesscentered on data center-related services, the Product Business, and the Overseas Business.
*	“ServiceNow” is a cloud platform that standardizes and automates business processes and supports improved productivity
by employees and organizations. It is provided by ServiceNow, Inc. of the US. Over the past few years, it has started to
rapidly become widely used as a DX solution not only in the US and Europe, but also in Japan. The Company was one of
the first Japanese companies to enter into a partner agreement with ServiceNow in 2015, and has a top-tier track record
for deploying the service in Japan.

2. Outlook for FY6/24
For FY6/24 consolidated results, the Company’s initial forecasts have been left unchanged in projecting that net
sales will increase 13.1% YoY to ¥21,784mn and operating profit will increase 21.0% to ¥1,763mn. At FISCO, wedeem it highly likely that full-year financial results will somewhat exceed forecasts given a negligible impact of theNoto Peninsula Earthquake on the Company amid an ongoing scenario of robust demand in the cloud integration
sector. Meanwhile, strong interest in the Azure OpenAI Service* deployment support service and other such solutions
enlisting generative AI suggests the likelihood that such solutions will contribute to higher earnings going forward.
The Company managed to hire 106 new graduates in spring 2024, largely as planned, with the intention of hiring a
total of 200 recruits, including mid-career employees (185 people in the previous period). The operating margin ispoised to rise further due to growth achieved in the high added-value Cloud Integration Business, despite a likelihoodof the Company incurring higher personnel, recruiting, and education costs.
*	Azure OpenAI Service is a service provided by Microsoft to companies. User companies are able to use language models
developed by Open AI such as ChatGPT, GPT-3.5, and Codex through Microsoft Azure. Unlike the service environmentof models like ChatGPT, which has been made publicly available for free through OpenAI, Azure offers the advantage ofbeing protected by high-level security.

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

01 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Summary

3. Medium-term management plan
The Company has set targets of ¥26,805mn or higher for net sales and of ¥2,407mn or higher for operating profit in
FY6/26, which serves as the final fiscal year of its medium-term management plan. With this amounting to three-year
average annual growth rates of more than 11.6% in net sales and more than 18.2% in operating profit, the Company
seems to be making progress at a steady pace in that regard. In terms of business segments, the Cloud Integration
Business is poised to achieve sales growth at an annual rate of 20-30% as the Company engages in its priority
measures that involve expansion of services that form the foundation of DX promotion for customers and society,promoting the growth and success of diverse human resources, and strengthening ESG management. At FISCO,
we believe that the Company is sufficiently capable of achieving its performance targets assuming that it makes
steady progress in hiring and training engineers, given the ongoing prospect going forward of mounting demand forcorporate cloud migration and application of AI to business operations. Regarding its policy on shareholder returns,
the Company plans to pay dividends with a payout ratio at the 30-35% level. The per-share dividend for FY6/24 is
expected to increase for the fifth consecutive period to ¥36.0 (payout ratio of 31.9%), an increase of ¥4.0 from theprevious fiscal year.
Key Points
Cloud Integration Business was the driving force in achieving double-digit sales and profits in 1H FY6/24
Consecutive record high results likely amid steady progress achieved toward FY6/24 performance targets• High rate of growth in the cloud services market poised to persist going forward partially given proliferation of
AI solutions; Aiming to achieve double-digit growth over the medium term••

Results trends
Net sales (left)(\mn)
24,000Operating profit (right)

1,763

(\mn)
1,800

1,456
20,000

1,500

1,196
16,0001,200
931

12,000754

900
19,2678,000
13,376

14,431

21,784600

16,198

4,000

300

0

0
FY6/20FY6/21

FY6/22

FY6/23

FY6/24 E

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

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02 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06■ Company profile
An independent IT company that continues to grow led by its Cloud
Integration Business
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 continued to grow steadily against the backdrop offavorable economic conditions. However, business results started to deteriorate following the collapse of Japan’s
bubble economy in the 1990s, momentarily putting the Company’s survival at risk. However, in 1994, the Company
worked to rationalize management under the strong leadership of the current Representative Director Ryoji Koshimizu
who took over management from the Company’s founder. As a result, four years later, its business results had
recovered to the point where profitability was restored. Subsequently, the Company developed its technologicalcapabilities, which are said to be at the highest level of the industry for an independent enterprise, into a corestrength, and has continuously increased its business performance by using the expansion of the domestic cloudmarket as a tailwind.
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 goes on to proactively undertake
system integration and deployment projects for Oracle products. In addition, the Company launched the ProductBusiness 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 Tate Yakusha,
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.
Additionally, in 2013, the Company established a subsidiary in the US for the purpose of gathering information andsupplying IT services in the country. In 2016, it set up a subsidiary in Canada to provide outsourcing services (suchas accounting services) to Japanese companies in North America. More recently, the Company newly establishedSTS DIGITAL, Inc. in October 2023, and the digital marketing business was transferred from ACROSS Solutions, Inc.

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

03 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Company profile

History
Date
January 1980
November 2000

Major event
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 contract with Amazon Japan K.K.

March 2015
September 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)
Entered into a PartnerNow Master Terms agreement with ServiceNow Nederland B.V.

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 and work management system Shugyo Yakusha

August 2019

Listed market changed to the Tokyo Stock Exchange First Section

April 2020
January 2021

Entered into a Google Cloud & Google for Education Commercial Partner Program Agreement with Google Cloud Japan G.K.
Entered into a Subcontractor Agreement with Automation Anywhere, Inc.

June 2021

Commenced provision of ADDPLAT, a next-generation data analysis platform

March 2022

Entered into a Celonis Partner Program Agreement with CELONIS K.K.

April 2022
October 2023

Listed market changed to the Tokyo Stock Exchange Prime Market
ACROSS Solutions, Inc. acquired all shares in B-ROCK, Inc. and made it a subsidiary (absorbed in July 2022)
Financed and founded STS DIGITAL, Inc.

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

Five businesses centering on the Cloud Integration Business
2. Business description
The System Support Group comprises the Company and its seven consolidated subsidiaries. The Group discloses
information based on five business segments, specifically the Cloud Integration Business, System Integration
Business, Outsourcing Business, Product Business, and Overseas Business. Looking at the sales composition in
1H FY6/24, whereas the System Integration Business accounted for 54.4% of sales, the Cloud Integration Businessaccounted for 54.8% of profits with the composition ratio of the System Integration Business lower at 12.3% ofprofits. This is because the shared portions of SG&A expenses are allocated to each business segment in proportion
to cost of sales. Meanwhile, the profit composition ratios are roughly on par with the sales composition ratios whenlooking at distribution of gross profit of which 45.4% is attributable to the System Integration Business and 32.6% isattributable to the Cloud Integration Business. However, developments over the past three years indicate an upward
trend from one year to the next in terms of the proportion of overall results attributable to the Cloud Integration
Business, which is poised to eventually surpass that of the System Integration Business.

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04 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06

Company profile

Composition of net sales by business segment
Cloud Integration Business
Product Business
0.6%
100.0%
3.8%
3.7%
90.0%

9.3%

9.6%

80.0%

80.0%

70.0%
65.8%

60.2%

54.4%

60.0%
50.0%

40.0%

40.0%

30.0%

30.0%

20.0%
10.0%

Outsourcing Business

3.3%

3.4%

15.2%

3.4%

12.0%

10.5%

14.4%

18.9%

21.1%

12.3%

49.1%

54.8%

1H FY6/23

1H FY6/24

70.0%

60.0%
50.0%

Composition of segment profit

System Integration Business
Overseas Business
0.7% 3.6% 1.1%
100.0%
9.5%
10.4%
90.0%

20.2%

26.0%

31.4%

1H FY6/22

1H FY6/23

1H FY6/24

20.0%

31.9%

39.0%

10.0%

0.0%

0.0%

1H FY6/22

Note: Figures presented for composition of segment profit indicate amounts prior to adjustment for operating profit in the
consolidated financial statements
Source: Prepared by FISCO from the Company’s supplemental results briefing materials(1) Cloud Integration BusinessIn the Cloud Integration Business, the Company implements and supports the use of various types of cloudinfrastructure-related services including ServiceNow, AWS, Microsoft Azure, Google Cloud and Oracle Cloud
Infrastructure, and also resells the licenses for them. Looking at the sales composition in 1H FY6/24, ServiceNowrelated services were highest at 35.6%, followed by AWS at 35.0%, Google Cloud at 11.6% and Microsoft Azure at
9.1%. License resales, which serve as a recurring-revenue business, accounted for 33.1% of sales in this segment.
Orders for cloud-related services are often via referrals from cloud providers, so an important element in increasingorders is training large numbers of engineers certified on each of the cloud infrastructure-related services andgaining a track record of development projects with high customer satisfaction. For this reason, the Company
is focused on hiring and training certified engineers, and as a result of its efforts, it has received many awards
related to Microsoft Azure, AWS, Google Cloud and Oracle. Profitability is relatively stable, and with regard toServiceNow services in particular, the Company has amassed a substantial development track record, being thefirst company in Japan to get involved in the platform. In part because of this, its ServiceNow business has thehighest profitability of all its cloud services (The gross profit margin in 1H FY6/24 was 40.1%, surpassing theoverall business segment’s margin of 28.3%).
Regarding resales in terms of usage fees for AWS cloud services, the cloud service provider sends U.S. dollar-denominated invoices to the Company, which in turn converts such amounts to yen, adding a certain margin, andsubsequently bills customers in yen. As such, a scenario of yen depreciation in currency markets would serve as afactor underpinning higher net sales and gross profit, but such a scenario could also diminish use of services givena greater payment burden on the customer side. Meanwhile, given an average settlement period of about one totwo months, there are instances where rapid yen depreciation during that time culminates in foreign exchange
loss related to dollar-denominated debt.

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05 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Company profile

Track record of main certifications and awards
Microsoft Azure• Obtained Gold Cloud Platform Competency
Certification (March 2018)
Certified as a partner with an outstanding trackrecord in expanding Microsoft Azure• Obtained Advanced Specialization (November2020)*1
Obtained certification as a partner with sophisticatedexpertise in specific solution fields• Received five consecutive MVP awards
Received consecutive awards in the data platform
area from 2017 to 2022*2• Received Microsoft Top Partner Engineer Award
Received awards in the Azure field in 2023*2

AWS• Obtained Oracle Competency in the AWS Competency Program*3 (November 2014)• Received the APN Partner Award “Rising Star of the Year” (FY2014)• Selected 2023 Japan AWS All Certifications Engineers*2
Google Cloud• Acquired Data Analytics Specialization in the Partner Advantage Program (September2022) and Application Development Specialization (January 2024)
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 migrating Windows Servers and SQL Servers 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) that have demonstrated
technical expertise and proven customer success pertaining to AWS.
*4 Awards received from 2007 to 2020.
Source: Prepared by FISCO from the Company’s supplemental results briefing materials(2) System Integration Business
The System Integration Business includes consulting, design, development, and operation and maintenance forcorporate IT systems and also technical support for the deployment and use of ERP packages, and infrastructure
construction for Oracle Database and other systems (Oracle Cloud Infrastructure services are included in the
Cloud Integration Business). Regarding the sales composition in 1H FY6/24, IT system development accounted
for 57.1%, followed by ERP-related services at 27.7% and database-related services at 15.1%.
For major projects such as system development for financial institutions and ERP construction, the Company
does not receive orders directly; rather, there are many cases where they are undertaken on a subcontracted
basis in order to prevent the risk of unprofitability caused by delivery delays and other such trouble. Profitability
is lower, but major projects contribute to sales over the long term, so they play a role in maintaining the utilization
rates of engineers at fixed levels.
(3) Outsourcing BusinessIn the Outsourcing Business, management services at data centers in two locations in Japan (Tokyo andKanazawa) managed by subsidiary eNet Solutions account for 80.1% of net sales. The remaining 19.9% is taken
up by data analysis and entry and system operation and maintenance on a nearshore basis.
The Company has more than 1,000 corporate customers with respect to its data centers, which are primarily usedby such customers as infrastructure for private clouds or for business continuity planning (BCP) and data backup
management. The Company also provides added-value services as a strategy for acquiring data center customers
and as an upselling measure. It began providing Safetylink24, an emergency notification and safety confirmation
service that automatically distributes safety confirmation messages for employees linked to earthquake informationand offers ActionPassport, a work flow system, and ActiveAssets, an online storage service, and since 2017 theCompany has been providing Magic Insight, a service that allows customers to use IBM Japan, Ltd.’s IBM Watson
Explorer (an AI-driven search and analysis platform) with a monthly charge plan. In its data center services there
is a recurring-revenue structure whereby monthly sales increase as a result of growing customer numbers andgreater customer service use, the Company appropriately invests in servers and additional capacity otherwise inalignment with demand.

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

06 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Company profile(4) Product BusinessIn the Product Business, the Group is engaged in the development and sales of products (software) and theprovision of services. It also customizes products according to customer needs. Its current four main products
are Tate Yakusha, a construction work information management system for the construction industry, MOS, amobile order receipt and placement system primarily for the wholesale and retail industries, Shugyo Yakusha,
an attendance and work management system, and SHIFTEE, a cloud-based shift management system, which
respectively account for 35.2%, 29.1%, 13.0% and 9.0% of sales in 1H FY6/24. While the Company does receive
orders for custom development projects from time to time and records sales associated with hardware when
installed, around 59% of sales in the Product Business are generated through monthly fees from cloud (SaaS)
services. Therefore, this business has a recurring-revenue business model where revenue increases in line withgrowth in the number of subscribers. Most sales are direct sales (Tate Yakusha is often sold through the OEMchannel), but the Company is also proactively making efforts on a distributor-based strategy in seeking to enhance
its sales strengths.
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 light version
starts at ¥40,000 per 5 licenses (initial cost: ¥30,000). The monthly charge for the standard
version starts at ¥40,000 per 5 licenses (initial cost: ¥350,000). The monthly charge for thepremium version starts at ¥80,000 per 5 licenses (initial cost: ¥580,000).

738

MOS

ACROSS Solutions, Inc.

A mobile order receipt and placement system. MOS Lite is priced at ¥19,800 per month (notcustomizable); MOS pricing varies depending on options and customization.

808

SHIFTEE

System Support Inc.

A cloud-based shift management system. The monthly charge for the light version is ¥200 peruser (separate charges apply for customization).

131

ShugyoYakusha

System Support Inc.

An attendance and work management system. The monthly charge for the cloud version is¥200 per user (separate charges apply for the on-premise version).

222* As of December 31, 2023, on a cumulative basis
Source: Prepared by FISCO from the Company’s supplemental results briefing materials and website(5) Overseas Business
The Overseas Business consists of system integration services and recruitment services provided by a US
subsidiary to Japan-affiliated companies doing business in North America and payroll and accounting outsourcing
services provided by a Canadian subsidiary.
(6) Group companies and the number of employees
The Company’s subsidiaries specialize in different functions and business sectors with the aim of proactively andswiftly providing new solutions to customers on a continual basis. The number of employees was 1,348 on aconsolidated basis at the end of FY6/23, an increase of 115 people from the end of FY6/22. Engineers account for
84% of employees. By region, 52% of employees are in the Tokyo metropolitan area, 20% in the Hokuriku region,
14% in Kansai, 13% in Tokai, and slightly less than 1% overseas. The Company carries out hiring in a mannerthat strikes a good balance between regions in order to cope with escalating demand. The Group’s turnoverrate is low, at around 5% in contrast to the industry average of around 10%. This is seemingly attributable toactive efforts encompassing not only enhancements to salaries and benefits but also improvements to workplaceenvironments in part by fully covering costs of obtaining certifications for developing skills of engineers and by
establishing telework settings.

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07 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06

Company profile

Description of main businesses of Group companies
Name of company

Cloud Integration
Business

System Support
Inc.

Technical support
associated with migration
and use of cloud services,and resale of licenses,
etc.

eNet Solutions
Co., Ltd.

System Integration
Business

Outsourcing Business

Product Business

Overseas BusinessTechnical support for
deployment and useof ERP packages,
infrastructure
construction, and IT
system development

Data entry services,
nearshore operation andmaintenance

Development andsales of Tate Yakusha,
a construction work
information management
system, and otherproducts--

Deployment of various
solutions

Private cloud and otherdata center services--

T4C Co., Ltd.

-Technical support for
deployment and use of
ERP packages

-

-

-

STS Medic Inc.

-

Sale and installation of
medical devices and other
items

-

Sales and deployment
support for T-File, a
medical image filingsystem-ACROSS
Solutions, Inc.

-

Website and online
content planning anddevelopment-

Development and sale of
MOS mobile order receipt
and placement system-

STS DIGITAL, Inc.

-

Digital marketing services

-

-

-

STS Innovation,
Inc.

-

-

-

-

System integration andrecruitment services,media management

STS Innovation
Canada Inc.

-

-

-

-

Outsourcing of payroll andaccounting processes

Source: Prepared by FISCO from the Company’s website

Trend in the number of consolidated employees and turnover rate

（people）

Engineers (left)
Turnover rate (right)

Sales and administration, etc. (left)
Industry turnover rate (right)

2,100

14.0%
11.9%

11.8%
1,800

12.0%
9.6%

1,500
8.1%
1,200

900

157

9.2%

9.1%

7.7%
163

177
5.9%

194
4.9%

600
300

799

876

949

FY6/19FY6/20FY6/21

1,039

10.0%
214

8.0%

5.4%

6.0%

1,134

4.0%
2.0%

0

0.0%
FY6/22

FY6/23

Note: Figures presented for industry turnover rate are according to data on separation rates by industry (information andcommunications industry) of the Ministry of Health, Labour and Welfare “Survey on Employment Trends.”
Source: Prepared by FISCO from the Company’s supplemental results briefing materials

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

08 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06■ Results trends
Double-digit growth in sales and profits in 1H FY6/24 with the Cloud
Investment Business as the driving force
1. Outline of results for 1H FY6/24
In 1H FY6/24 consolidated results, the Company achieved sales and profits increases exceeding Company forecasts
and recorded continual record highs, as net sales increased 15.5% YoY to ¥10,635mn, operating profit rose 19.0%
to ¥883mn, ordinary profit was up 18.7% to ¥899mn and profit attributable to owners of parent was up 20.9% to¥614mn.
Results for 1H FY6/24(¥mn)
1H FY6/23
Results

1H FY6/24% of net sales

Company
forecast

Results% of net sales

YoY

Achievement
rate

Net sales

9,211

-

10,634

10,635

-

15.5%

0.0%

Cost of sales

6,711

72.9%

-

7,734

72.7%

15.2%

-

SG&A expenses

2,499

27.1%

-

2,900

27.3%

16.0%

-

Operating profit

1,756

19.1%

-

2,016

19.0%

14.8%

-

Ordinary profit

743

8.1%

862

883

8.3%

19.0%

2.5%

Extraordinary profit

757

8.2%

856

899

8.5%

18.7%

5.0%

Profit attributable toowners of parent

508

5.5%

567

614

5.8%

20.9%

8.4%

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

The Company has been operating in a favorable business environment even amid persisting future uncertainty
attributable to concerns regarding potential effects of rising prices, ongoing depreciation of the yen, escalating
tensions in the Middle East, and other such developments. For instance, the Company has been encountering
mounting demand for new solutions involving migration of information systems to the cloud and application ofgenerative AI and IoT technologies undertaken by companies highly engaged in DX initiatives with aims of promoting
corporate labor savings and streamlining operations. Net sales of the Cloud Integration Business in particular surged
by 39.5% YoY, thereby serving as a driving force underpinning the Company’s overall financial results.
On the profit front, gross profit increased 16.0% YoY to ¥2,900mn amid a scenario where the cost-of-sales ratio
declined from 72.9% in the same period of the previous fiscal year to 72.7% due to changes in the sales mix
and effects of increased sales. The operating margin rose to 8.3% from 8.1% in the same period of the previous
fiscal year amid a scenario where the increase in sales absorbed higher SG&A expenses, which increased 14.8%
YoY mainly due to personnel, recruiting, R&D, and other such costs. Meanwhile, although results of the System
Integration Business were slightly below the Company forecast, the Company made firm progress toward achieving
the full-year target given that all of its other business segments, especially the Cloud Integration Business, exceeded
forecasts.

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

09 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Business continues to be brisk for Cloud Integration Business2. Trends by business segment(1) Cloud Integration Business
The Cloud Integration Business continued to achieve substantial growth in both sales and profits, with net sales
up 39.5% YoY to ¥3,340mn, and operating profit up 32.8% to ¥497mn. Although higher SG&A expenses resulted
in a decrease in operating margin to 14.9% from 15.6% in the same period of the previous fiscal year, grossprofit margin increased from 28.0% to 28.3%. Whereas the share of sales associated with ServiceNow-related
services declined to 40.1% from 43.3% in the same period of the previous fiscal year due to an increase in the
proportion of low-margin license sales, gross profit margin increased due to a scenario where a downturn in the
proportion of resale sales (down 3.2pp YoY to 51.4%) prompted improvement in profit margins associated withother services for cloud infrastructure migration and usage support.
Looking at a breakdown of net sales, ServiceNow-related services continued to be strong, increasing by 29.0%
YoY to ¥1,189mn, while AWS-related services increased 41.6% to ¥1,168mn, Microsoft Azure-related services
increased 5.6% to ¥304mn, Google Cloud-related services rose 47.9% to ¥386mn, and other services went up
202.1% to ¥290mn. There was sales growth in all cloud infrastructure-related services. Although the growth rateof Microsoft Azure-related services remained low, the Company contends that this is a temporary situation given
strong interest in Azure OpenAI-related services. Meanwhile, the Company has achieved steady expansion withrespect to its Celonis EMS solutions*, which it began handling in 2022, in addition to substantial growth in Oracle
Cloud Infrastructure-related services.
*	In 2022, the Company began handling the Celonis Execution Management System (EMS), which is a process mining
platform offered by Celonis SE (Germany). Process mining is an approach for improving business operations. It involves
assessing various business operations by visually rendering such operations. Celonis EMS has captured a high share of
the market primarily among global enterprises given that such solutions enable enterprises to implement and subsequently
monitor improvement strategies upon having identified root causes of inefficient tasks revealed through dynamic analysis,
above and beyond visually rendering operations. With a strategic partnership having been formed between Celonis andServiceNow in October 2021, we at FISCO believe that this will result in a high likelihood of the Company receiving orders
when enterprises with a track record of implementing Service Now opt to implement the Celonis platform.

CClolouuddIInntteeggrraattioionnBBuussinineessssnneettssaaleless

(\mn)
(\mn)

ServiceNow-related
ServiceNow-relatedservices
services
AWS-related
AWS-relatedservices
services
Microsoft
Azure-related
services
Microsoft
Azure-related
services
GoogleCloud-related
services
Google Cloud-related services
Others

4,000
4,000

3,340
3,340

3,200
3,200
2,394
2,394
2,400
2,400

261
261
288
288

1,600
1,600

96
96

290
290
386
386
304
304
1,168
1,168

825
825

800
800
922
922

1,189
1,189

00

Operating profit, gross profit marginand operating margin
OperatingOperatingprofit
profit(left)(left)
Gross
profitmarginGross profit margin(right)

600
600

(right) margin
Operating(right)
28.3%
28.0%
28.3%
28.0%

480
480

24.0%
24.0%

360
360
240

15.6%

14.9%

15.6%

14.9%

240
120

374

120

374

0

30.0%
30.0%

497
497

18.0%
18.0%
12.0%

12.0%
6.0%
6.0%
0.0%

1H FY6/23

1H FY6/24

1H FY6/23

1H FY6/24

0
1H
1HFY6/23
FY6/23

1H
1HFY6/24
FY6/240.0%

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

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

10 22

(

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Given that the Cloud Integration Business apparently continues to draw many inquiries regarding ServiceNowrelated services, the Company has been seeking to strengthen the framework of the business in part by hiring
and training new engineers and reallocating resources from the System Integration Business. According to
documents released by ServiceNow Japan G.K., the number of ServiceNow development certifications obtainedby the Company had increased to 386 as of November 2023, from 109 as of September 2021, thereby putting
it at the No. 3 spot in Japan after Fujitsu Limited <6702> and Accenture <ACN>*. Whereas the number ofServiceNow partner companies has been increasing in alignment with market expansion, recognition of theimpressive ServiceNow track record and high levels of customer satisfaction have prompted an upward trendwith respect to inquiries received from end customers and consulting firms above and beyond business involving
referrals from ServiceNow, Inc.
*	As of November 2023, there have been 5,390 certifications with Fujitsu and Accenture obtaining 650 and 449 certifications,
respectively.

The Company’s cloud infrastructure-related migration and usage support services other than ServiceNow-related
services constitute a stable revenue source. Accordingly, the Company has been leveraging its technical database capabilities cultivated over many years in achieving growth in projects for migration and configuration ofcloud-based databases and data analysis platforms. In addition, the Company has achieved steady growth inpost-migration resale net sales, which increased 37.4% YoY to ¥1,105mn in conjunction with an increase incustomer numbers. The number of corporate customers stood at 268 companies at the end of 1H FY6/24 foran increase of 61 companies relative to the end of 1H FY6/23. Customer spending per purchase has also been
trending higher due to an expanding range of service usage domains and effects of yen depreciation.

Number of customers and resale net sales（companies）

Number of customers (left)

Net sales (right)

350

（\mn）
653
700

300

600
470

250

424

200

452

400

273

300

216

214

100
50

500

333
287

150

420

172

207

204

150

158

189

146
1Q

2Q

3Q

4Q

1Q

2Q

3Q

230

249

4Q

1Q

268

200
100

0

0
FY6/22

FY6/23

2Q

FY6/24

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

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

11 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06

Results trends(2) System Integration BusinessNet sales of the System Integration Business increased 4.3% YoY to ¥5,784mn and operating profit decreased
30.5% to ¥111mn. The decrease in profitability is attributable to a downturn in gross profit margin (down 1.2pp
from 1H FY6/23 to 22.8%) due to an increase in the percentage of outsourcing costs, and also attributable toan increase in SG&A expenses encompassing corporate overhead costs. The higher percentage of outsourcing
costs is largely attributable to a situation where the Company has been shifting resources through engineer
reskilling in order to address robust demand in the Cloud Integration Business. However, the notion that grossprofit declined only slightly, down 0.9% to ¥1,318mn, seems to suggest resiliency in terms of actual earning powerof the business. It is worth noting that whereas sales of database-related services underperformed in 1H FY6/23
results only with respect to the System Integration Business out of all the business segments, this was primarily
attributable to a situation where its sales of database-related services decreased more than anticipated as aresult of customers migrating to the cloud, with such business accordingly transitioning to the Cloud Integration
Business.
Looking at the breakdown of net sales, IT system development performed favorably, increasing 12.2% YoY to¥3,303mn, as did ERP-related services which increased 2.6% to ¥1,605mn, but net sales in database-related
services decreased 15.5% to ¥875mn. IT system development saw double-digit growth due to the trend toward
larger projects. In ERP-related services, business remained solid in a situation where companies continue tomigrate to SAP S/4 HANA in anticipation of the end of maintenance support (at the end of 2027) for SAP’s existingproduct.

O利
pe益
rat及
inび
g p売
ro上
fit総
, gr利
os益
s率
pro、f営
it m
rgi益
n率
Syス
stテ
em
ntン
egテ
raグ
tioレnーBuシsョ
ines事
s net s上a l es
営業
業a利シ
ムIイ
Numbeンr of業c売
usto高mers and resale net sales
ERP-related services
DB-related
services
a
n
d
o
p
e
r
a
t
i
n
g
m
a
r
g
i
n
DB-related services
営業利益（左軸）

IT system development（companies）

350
（百万円）
（\mn）
6,000
6,000
300

5,543
5,543

470
150
150

250
4,500
4,500

100
1,500
1,500
50
000

3,303
3,303

2,944
2,944

200
3,000
3,000
150

（\mn）
Number of customers (left)
売上総利益率（右軸）Operatingprofit (left)
Net sales(right)653
営業利益率（右軸）
700
（百万円）
（\mn）
Gross profit margin (right)
5,784
5,784
Operating margin (right)
200
200
40.0%
40.0%
600

287

424
420
24.0%
24.0%

333

273

100
100

1,035
1,035
1,564
146 1,564
150

22.8%
22.8%

400

20.0%
20.0%
300
111
111

875
875

172
158 1,605
1,605

500
30.0%
30.0%

160
160

216

214

452

50
50
207
189

204
2.9%
2.9%

230

249

268

1.9%
1.9%

00.0%
0.0%

00

1Q
2Q
3Q1H
4Q
1H
1H FY6/23
FY6/23
1H FY6/24
FY6/24
FY6/22

1Q

200
10.0%
10.0%
100

2Q

1H
1H3Q
FY6/23
FY6/234Q

FY6/23

1QFY6/24
2Q
1H
1H
FY6/24
FY6/24

Source: Prepared by FISCO from the Company’s supplemental results briefing materials(3) Outsourcing BusinessNet sales from the Outsourcing Business increased 17.9% YoY to ¥1,015mn, and operating profit rose 56.3%
to ¥171mn, resulting in double-digit growth for both sales and profits. The gross profit margin rose 2.9 pp YoY
to 34.7%, and gross profit rose 28.7% YoY to ¥351mn due to the effect of higher sales and an order for a data
analysis and input service that was highly profitable.

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

12 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Looking at the breakdown of net sales, data center-related services increased 14.5% YoY to ¥813mn, andmaintenance services, including data analysis and input and nearshore operation and maintenance, rose 34.0% to¥201mn, so results were strong in both areas. Sales in data center services increased mainly due to higher usage
fees per corporate customer associated with greater customer service use. A gradual shift in information systemformats on the customer side from on-premise configurations to private cloud configurations using data centers
has led to an upward trend in customer spending per purchase. In addition, whereas a highly profitable order fordata analysis and input services was made on an ad hoc basis, the business is expected to persist into 2H FY6/24.
The Company’s efforts to strengthen the SAP ERP product maintenance operations structure in its nearshorebusiness prompted an increase in sales. In this business, monthly usage fees and other recurring-revenue sales
steadily increased, up 8.9% to ¥685mn.

Operating profit, gross profit marginand operating margin

Outsourcing Business net sales
Data center-related services（\mn） Data analysis, input, nearshore, etc.

（\mn）

1,200

200
1,015
861

900

201

Operating profit (left)
Gross profit margin (right)
Operating margin (right)
34.7%
31.8%

150

40.0%

30.0%

150
100

600

16.9%

20.0%

171

10.0%

12.8%
710

300

813
50
109
0

0
1H FY6/23

0.0%
1H FY6/23

1H FY6/24

1H FY6/24

Source: Prepared by FISCO from the Company’s supplemental results briefing materials(4) Product Business
Product Business results were strong with net sales having increased 9.7% YoY to ¥378mn and operating profit
having gained 3.5% to ¥94mn. Although gross profit achieved double-digit gains, having increased 22.2% YoY
to ¥254mn as a result of the Company having landed a new highly profitable deployment project involving Tate
Yakusha and also as a result of it having accumulated monthly usage fees and other recurring-revenue sales,
operating profit gains remained incremental given higher SG&A expenses as a result of the Company participatingin trade shows and actively engaging in sales activities to attract new customers. Nevertheless, progress inoperating profit appears to have outperformed the Company forecast.

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

13 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Looking at the breakdown of net sales, the segment encountered a stark contrast in results depending on theservice. Accordingly, in contrast to favorable results achieved by Tate Yakusha, up 22.0% YoY to ¥133mn, andShugyo Yakusha, up 40.0% to ¥49mn, decreases were incurred by MOS, down 2.7% to ¥110mn, and SHIFTEE,
down 15.0% to ¥34mn. With both Tate Yakusha and Shugyo Yakusha, the Company has made steady progressin attracting new customers amid successes achieved with respect to participating in trade shows and engaging
in initiatives involving its distributor-based strategy. With SHIFTEE, the Company has been steadily accumulating
recurring-revenue sales, although fewer customizations at time of service deployment contributed to lower sales.
Monthly usage fees and other recurring-revenue sales were up 14.2% to ¥223mn, with such sales accountingfor 59.0% of the sales composition for an increase of 2.5pp. Equipment sales excluding recurring-revenue sales
and customization project sales decreased slightly.

Product Business net sales
OTate
utsoYakusha
urcing Business neMOSt sales
（\mn）
（\mn）
400
1,200

SHIFTEE
Shugyo Yakusha
Data center-related services
Others（\mn）
Data analysis, input, near-shore,378
160
etc. 345
200
1,015
50
45
861
35
40150

300
900
200
600

113

120
150

110

80
100

813

710

100
300

0
0

49
201
34

109

133

1H FY6/23
1H FY6/23

1H FY6/24
1H FY6/24

Operating profit, gross profit margin
Operatianngdporopfeitr,agtirnogssmparrgoifnit margin
anOperatingd operatiprofit
ng ma(left)
rgin
Operatingprofit(left) (right)
Gross profit
marginGrossprofitmargin
margin(right)(right)OperatingOperating margin (right)
67.4%
34.7%
60.5%
31.8%

60.0%
30.0%
40.0%
20.0%

26.6%
12.8%

16.9%
25.1%

91
109

171
94

1H FY6/23
1H FY6/23

1H FY6/24
1H FY6/24

40
50
0
0

80.0%
40.0%

20.0%
10.0%
0.0%
0.0%

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

Total number of companies deploying main products（No. ofcompanies）
2,000

Tate Yakusha

MOS

SHIFTEE

Shugyo Yakusha

1,800
1,600
1,400
1,200

52

81

1,000

73

800

409

457

607

636

20/12

21/6

75

94

96

122
98

160
110

222
131

777

808

696

712

738

22/12

23/6

597

677

657

688

21/12

22/6

531

182
118

600
400
200

0
23/12
（Year/Month）

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

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

14 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06

Results trends(5) Overseas BusinessIn the Overseas Business, net sales increased 72.8% YoY to ¥115mn and operating profit rose 22.8% to ¥31mn.
The business segment achieved favorable performance with respect to system integration and recruitment services
carried out in North America, as well as payroll and accounting outsourcing services. Meanwhile, whereas grossprofit margin decreased to 43.9% from 53.9% in the same period of the previous fiscal year due to a low profit
margin on previously ordered system integration projects, gross profit marked double-digit gains, up 40.8% YoY
to ¥50mn due to effects of increased sales.

Equity ratio continues to rise and financial position remains sound
3. Financial condition and business indicators
Looking at the Company’s financial condition as of the end of 1H FY6/24, total assets were ¥9,569mn, an increaseof ¥699mn from the end of FY6/23. In current assets, cash and deposits increased by ¥533mn and notes andaccounts receivable - trade, and contract assets increased by ¥156mn. In non-current assets, property, plantand equipment increased by ¥27mn, but intangible assets decreased by ¥23mn and investments and other asset
decreased by ¥3mn.
Total liabilities increased by ¥199mn from the end of FY6/23 to ¥4,945mn. Due to borrowings for working capital,
interest-bearing debt increased by ¥729mn, but accrued expenses decreased by ¥643mn. Total net assets were
¥4,624mn, an increase of ¥499mn from the end of FY6/23. This was primarily caused by an increase of ¥438mn inretained earnings as a result of having recorded profit attributable to owners of parent and the payment of dividends.
Looking at business indicators, the equity ratio increased from 46.5% at the end of FY6/23 to 48.3% due to anincrease in shareholders’ equity. The interest-bearing debt ratio increased from 24.5% to 37.6%, but in a normal
year the ratio tends to decrease heading toward the end of the fiscal year due to borrowing undertaken to secure
working capital at the end of the first half of the fiscal year. Given that there has been substantial improvement in
the interest-bearing debt ratio, which stood at 43.0% as of the end of 1H FY6/23, there is a high likelihood thatat the end of FY6/24 it will have decreased further from its level at the end of FY6/23. At FISCO, we envision a
scenario where net cash at the end of FY6/24 will have increased further relative to that at the end of FY6/23 giventhat net cash (cash and deposits minus interest-bearing debt) remains positive and given that the outlook calls forcontinuance of favorable earnings in 2H FY6/24.
Consolidated balance sheet and management indicators(¥mn)
FY6/21

FY6/22

FY6/23

1H FY6/24

Change

5,319

6,303

7,139

7,892

752

2,697

3,254

3,568

4,102

533

Non-current assets

1,342

1,511

1,730

1,677

-53

Total assets

6,662

7,815

8,870

9,569

699

Total liabilities

3,669

4,393

4,746

4,945

199

952

1,149

1,009

1,738

729

2,993

3,421

4,124

4,624

499

Equity ratio

44.9%

43.8%

46.5%

48.3%

1.8pt

Interest-bearing debt ratio

31.8%

33.6%

24.5%

37.6%

13.1ptNet cash

1,744

2,105

2,559

2,364

-195

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

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

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

15 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06■ Outlook
Consecutive record high results likely amid steady progressachieved toward FY6/24 performance targets
1. Outlook for FY6/24
For its consolidated results in FY6/24, the Company’s initial forecasts have been left unchanged with net sales toincrease 13.1% YoY to ¥21,784mn, operating profit to rise 21.0% to ¥1,763mn, ordinary profit to go up 19.8%
to ¥1,755mn, and profit attributable to owners of parent to increase 15.6% to ¥1,167mn. The Noto Peninsula
Earthquake, which struck on January 1, 2024, appears to have had a negligible effect on the Company’s overallbusiness performance, despite several business partners having been affected by the disaster, yet no humancasualties were incurred. Meanwhile, financial results achieved up through 1H FY6/24 have progressed at a paceslightly exceeding that of the forecasts. Also, the prevailing status of orders has been strong centered on the Cloud
Integration Business, and HR recruitment has progressed largely according to plan. As such, it is highly likely that
the Company will achieve its forecasts again in FY6/24, with consecutive double-digit gains in sales and profits,potentially setting new record highs.
Outlook for FY6/24 consolidated results(¥mn)
FY6/23Results

FY6/24% of net sales

Company
forecast% of net sales

YoY

Achievement
rate through1H

Net sales

19,267-

21,784

-

13.1%

48.8%

Operating profit

1,456

7.6%

1,763

8.1%

21.0%

50.1%

Ordinary profit

1,465

7.6%

1,755

8.1%

19.8%

51.2%

Profit attributable to owners of parent

1,009

5.2%

1,167

5.4%

15.6%

52.7%

Net profit per share (¥)

97.52

112.75

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

In terms of expenditures, efforts of the Company to strengthen its personnel systems are likely to culminate in higher
personnel costs and investment-related expenses (recruitment-related expenses, training expenses, R&D expenses).
Operating expenses are also likely to rise due to efforts to attract customers. However, the operating margin ispoised to increase to 8.1% from 7.6% in the previous fiscal year due to effects of increased sales and changes in thesales composition. Meanwhile, the Company’s recruitment plan for FY6/24 calls for hiring a total of 200 employees,
including 106 new graduates (85 in the previous period) and 94 mid-career employees (100 in the previous period).
The Company has made job offers to 106 new graduates against its initial target of 111 new graduates. When it
comes to mid-career hires, the Company has been making steady progress with respect to its plans for hiring 50
mid-career professionals up through 1H amid intensifying competition to attract IT professionals. This seems toindicate that such candidates appreciate the Company’s active efforts in the realm of health management, as wellas its initiatives that involve improving salaries and benefits and upgrading its education program for the sake ofenhancing employee skills. With human resources serving as a wellspring of business growth, the Company deservesfavorable marks for the steady progress it has achieved with respect to recruitment particularly amid the prevailing
scenario where many companies have been struggling when it comes to recruitment and falling short when it comesto achieving growth, even though a favorable environment persists in the IT industry.

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

16 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Outlook

Number of personnel hired (consolidated)
FY6/21

FY6/22

FY6/23

FY6/24 plan

New graduate recruitment

60

70

85

106

Mid-career recruitment

89

83

100

94

Total number of personnel hired

149

153

185

200

Turnover rate

5.9%

4.9%

5.4%

-

Source: Prepared by FISCO from the Company’s supplemental results briefing materials(1) Cloud Integration Business
The Cloud Integration Business is likely to once again achieve a double-digit increase in net sales relative to theprevious fiscal year. The rate of growth in net sales is likely to remain substantial again in 2H, on par with 1H, amida scenario of robust orders centered on the mainstay ServiceNow-related services, though the rate of growth islikely to slow relative to the 57.0% increase achieved in the previous fiscal year. Services for cloud infrastructure
migration and usage support are poised to mount substantial growth on an ongoing basis, with respect to AWS,
Microsoft Azure, and Google Cloud. The Company has been encountering a growing tendency among enterprises
implementing such solutions toward their use of multiple cloud platforms in order to diversify risk, which has
fueled momentum of the Company given that it has established a framework capable of accommodating thethree major platforms.
Meanwhile, the Cloud Integration Business is likely to expand its range of solutions-based services that enlist AI
technologies. The Company has rolled out a number of services starting with its launch in May 2023 of its solutions
for supporting implementation of the Azure OpenAI Service for enabling use of AI services such as ChatGPT on
the Microsoft Azure platform. In October 2023, the Company launched services to support implementation of
Amazon Bedrock*1 provided by AWS. The Company also launched Smart Generative Chat for Amazon Bedrock,which serves as an Amazon Bedrock-compatible version of the Smart Generative Chat AI assistant chat systemfor enterprises developed by the Company. In January 2024, the Company launched its Generative AI Deployment
Support Service for Google Cloud*2 and its Discovery AI Deployment Support Service for the Retail Sector*3, bothof which enlist Google Cloud AI technology. Enterprises that have been adopting AI technologies with the aims of
streamlining operations and enhancing added value of services are poised to ramp up such efforts in 2024 andbeyond. As such, this serves as an opportunity for the Company to seek business expansion by providing a fullrange of services covering everything from development to use of cloud infrastructure.
*1	Amazon Bedrock is a fully managed service for generative AI released by AWS for general availability in September 2023.
It enables access to foundation models (machine learning models) provided by Amazon and major AI startup companies
through APIs.
*2	The Generative AI Deployment Support Service for Google Cloud is a service that facilitates everything from planningand conceptualizing corporate business application of generative AI solutions to measuring proof of concept (PoC)
effectiveness and conducting operational review.
*3	The Discovery AI Deployment Support Service for the Retail Sector is a service for enterprises in the retail sector such as
those operating e-commerce websites. It enables such enterprises to implement cutting-edge AI technology of Discovery
AI, which is provided by Google Cloud to improve e-commerce website performance with respect to metrics such as
CVR (conversion rate).

(2) System Integration Business
The System Integration Business is likely to achieve a single-digit increase in net sales relative to the previous
fiscal year. Meanwhile, whereas database-related sales are expected to keep decreasing due to the impact ofcloud migration as was the case in 1H, plans call for offsetting the decrease with increased sales from ERP-related
services and other system development projects. Additionally, the percentage of outsourcing costs is bound toremain at high levels as the Company shifts engineers over to the Cloud Integration Business through reskilling,which may result in a decrease in profit as was the case in 1H.

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

17 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Outlook(3) Outsourcing Business
The Outsourcing Business is poised to achieve a net sales gain in the 10% range relative to the previous fiscal year.
This increase is attributable to the likelihood of steadily increasing recurring-revenue sales again in 2H and strong
performance of data analysis and input services as well as services involving system operation and maintenanceon a nearshore basis.
(4) Product Business
The Product Business is likely to achieve a single-digit increase in net sales relative to the previous fiscal year. In
carrying out initiatives to increase sales, the Company will proceed with efforts again in 2H that involve attracting
prospective customers through participation in trade shows and implementing sales distributor-based strategy.
The distributor-based strategy will involve building stronger relationships with distributors by regularly holding
briefing sessions to ensure greater depth of product understanding. This will also entail efforts to facilitate sales of
distributors through future upgrades of features to a level where there is no longer a need for additional featuresand other such customizations, which were previously required on a per-customer basis.
Regarding new products, the Company installed its Smart Rabbit Food inventory management system for restaurants from July 2023, having developed it jointly with Baycrew’s Co., Ltd. The Smart Rabbit system automatestasks that restaurants previously assigned to procurement managers in terms of determining order quantities
by forecasting restaurant inventories and predicting volumes of food consumed in restaurants based on sales
forecasts and previous month-end inventories. The Smart Rabbit system automates ordering by linking withthe order receipt and placement system* currently used by customers. It is anticipated that implementing the
Smart Rabbit system will enable customers to streamline the order process, while also reducing food waste due
to excess inventories and diminishing sales opportunity loss attributable to inventory shortages. Currently, theCompany is in the process of improving its functions while verifying the effectiveness of the introduction of thesystem, and we at FISCO expect that full-scale sales expansion activities will take some time.
*	The order receipt and placement system is integrated as a standard with the BtoB platform for order receipt and placement(provided by Infomart Corporation <2492>). Users of the system who do not use the platform may have it customized foran additional fee.

In January 2024, the Company rolled out new services under its strategy for attracting MOS (Mobile Ordering
System) customers. This included release of the MOS Invoice*1 cloud-based electronic invoicing solution for coping with Japan’s Qualified Invoice System (QIS) and Act on Special Provisions concerning Preservation Methods
for Books and Documents Related to National Tax Prepared by Means of Computers. This also included releaseof the MOS Payment*2 solution that can be readily implemented to enable credit card payments. This strategy for
attracting MOS customers entails gaining customers by heightening convenience through expansion of service
functions.
*1	MOS Invoice automatically converts billing data into invoices, which can be shared with clients (parties placing orders)and stored electronically, as well as downloaded in PDF or CSV format.
*2	MOS Payment is a service that allows for easy credit card payment (2.45% payment processing fee) without the needfor additional system development. MOS Payment employs credit card payment services provided by ZEUS Co., Ltd.

(5) Overseas Business
The net sales forecast of the Overseas Business projects an increase of approximately 10% relative to the previous
fiscal year, with sales centered on accounting outsourcing services. However, progress toward the target has
exceeded the forecast, particularly in terms of growth achieved in 1H with respect to system integration andrecruitment services.

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

18 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06

OutlookHigh rate of growth in the cloud services market poised to persist
going forward partially given proliferation of AI solutions; Aiming toachieve double-digit growth over the medium term
2. Medium-term management plan
(1) Outline of medium-term plan
The Company announced its three-year medium-term management plan in August 2022, then formulated a newrolling plan up to FY6/26 in alignment with changes that have occurred over the past year with respect to market
conditions and in consideration of progress in results up to August 2023. By engaging in the medium-term theme
stated as “Growth and creation of further innovation” and three priority measures of expansion of services thatform the foundation of DX promotion for customers and society, promoting the growth and success of diverse
human resources, and strengthening ESG management, in FY6/26, it has set targets of net sales of ¥26,805mn
or higher, operating profit of ¥2,407mn or higher, and an operating margin of 9.0% or higher. This amounts tothree-year annual growth in net sales of more than 11.6% and operating profit of more than 18.2%. The domestic
cloud services market is expected to continue to grow at double-digit annual rates over the medium term as AI
solutions and other areas of application expand, and we at FISCO believe it is highly feasible for the Company toachieve its performance targets if it makes steady progress in hiring and training personnel.
Medium-term results plan(¥mn)
FY6/23

FY6/24

FY6/25Previous
plan

Results

Previousplan

New planPreviousplan

New plan

FY6/26
New plan

CAGR*

Net sales

18,093

19,267

19,902

21,784

21,892

24,36526,805

11.6%

Operating profit

1,456

1,456

1,763

1,763

2,189

2,189

2,407

18.2%

(profit margin)

8.1%

7.6%

8.9%

8.1%

10.0%

9.0%

9.0%

1,353

1,348

1,466

1,495

1,582

1,633

1,785

Number of consolidated
employees (people)

9.8%* Annual rate of growth over the three years from FY6/24 through FY6/26
Source: Prepared by FISCO from the Company’s medium-term management plan materials(2) Growth strategy by business segmenta) Cloud Integration Business
Underpinned by predictions of an ongoing shift to cloud-based IT systems and continued growth of the cloudservices market, the Company seeks to respond to growth of existing businesses and expansion of businessareas and accumulate recurring revenue through resale to achieve high growth and stability. The segment aims
to increase net sales from ¥5,319mn in FY6/23 to more than ¥10,000mn in FY6/26, of which recurring-revenue
sales are poised to increase from 31% of sales to the low 40% range. The segment seeks to generate approximately 50% of its incremental increase in sales over three years from resale income, which will further enhance
consistency of earnings, but the profit margin will be lower.

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

19 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Outlook

To prompt growth of existing businesses, the Company will engage in initiatives that involve hiring and training
engineers, enhancing development of proprietary services to heighten customer convenience and the Group’s
productivity, and seeking to differentiate itself from competing cloud integrators. Meanwhile, the Company willseek to expand its areas of business by pursuing aggressive investment undertaken with the aim of swiftly
launching new cloud services from overseas in the Japanese market. The Celonis EMS (Execution Management
System) process mining platform solutions have recently begun to gain momentum and are poised to achieve
further growth going forward. There is also a possibility that the Company may encounter explosive growth indemand for the AI-related solutions mentioned previously in this report. We will closely monitor developments inthat regard going forward.
Furthermore, the segment seeks to enhance its human resources through measures to recruit and train talentthat serves as a source of its growth. This will involve 1) taking a functional approach to recruitment through hiring
managers assigned to the Company’s various offices instead of solely hiring through the head office, while also
preventing mismatches between jobs and applicants; 2) enhancing development of engineers while maintaining
and increasing competitiveness in part by actively promoting acquisition of vendor certifications related to cloudservices in particular; and 3) working to increase pay levels and establish a pleasant work environment (reducing
total working hours, increasing proportion of employees taking childcare leave and increasing the proportion of
female employees) while keeping down the turnover rate.
b) System Integration BusinessIn the System Integration Business, the Company will work to steadily recruit and train engineers to expand,centered on its mainstay ERP-related services, and will increase sales by building close relationships with customer
companies to expand existing customer projects and acquire recurring orders. In so doing, it aims to achieve
annual sales growth in the single digits. In addition, the Company intends to strengthen project managementfrom the perspectives of quality, duration, cost and risk control to increase service quality while reducing the riskof occurrence of unprofitable orders, and in this way, it will work to maintain and increase profitability.
c) Outsourcing BusinessIn the Outsourcing Business, the Company will target a different customer segment than major cloud vendors
for its data center services, and aims for annual sales growth in the single digits by acquiring new customers
and expanding usage fees from existing customers. Since 2022, with the continued depreciation of the yen,
the increased burden of service usage charges for large-scale foreign-funded cloud services has entered theawareness of companies and some have begun to move toward building private clouds. The Company intends toaccommodate this demand. It also plans to increase quality and secure profitability by gradually adding capacity
at data centers in line with their operating status. Moreover, with regard to maintenance for SAP’s ERP products,
demand is expected to rise ahead of 2027, so the Company trains nearshore staff in the Kanazawa region of
Ishikawa Prefecture and further strengthens its systems.

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

20 22

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

1-Apr.-2024
https://www.sts-inc.co.jp/index_e.html#06

Outlookd) Product BusinessIn the Product Business, the Company will expand sales channels through distributors and others and strengthen
advertising in seeking to acquire new customers. It will also work to increase the number of users by expandinguser divisions within existing customers. With respect to specific products, the Company aims to steadily achievesales growth by placing focus on promoting sales of the new Smart Rabbit offering, in addition to Tate Yakusha
and SHIFTEE. The Company seeks to increase the segment’s proportion of monthly usage fees and other forms ofrecurring-revenue sales to nearly 70% by FY6/26 from 57% in FY6/23 by decreasing the number of customization
projects, thereby giving rise to a high-profit margin revenue structure where increased sales directly result in stable,higher profits. The segment’s approach entails enhancing functionality continually to improve competitivenessagainst products of other companies.
e) Overseas BusinessIn the Overseas Business, the Company, through its US subsidiary, will provide support services for IT infrastructure, HR recruitment, marketing and other areas for Japan-affiliated companies expanding into North America,
and through its Canadian subsidiary, will provide remote monitoring services for Japanese companies that takeadvantage of the time difference with Japan and also strengthen outsourcing services for accounting processes
and augment the system to earn profits from the Overseas Business independently.
(3) Strengthening ESG management
Through ESG management based on its corporate philosophy (Contributing to Society, Advanced Customer
Service, Sharing Value), the Company is engaged in solutions to social issues and is strengthening the following
initiatives.
In the area of the environment, to realize a decarbonized society, the Company aims to set CO2 emissions
targets and implement further reduction measures, enhanced its disclosure system in line with the Task Forceon Climate-Related Financial Disclosures (TCFD), and responded to the Carbon Disclosure Project (CDP) survey
and worked to improve its score.
For society, the Company will seek to expand local business and stimulate the economy through training DX
personnel. In terms of specific measures, the Company runs Microsoft Base Kanazawa, a facility operating infront of Kanazawa Station and based on the concept of local IT urbanization in Hokuriku starting in Kanazawa.
The facility is providing free DX education for industry-academia-government-private sector DX and also providing
opportunities for communication pivoting on cloud systems that make possible the experience of the latest
technology, and it is used to hold online seminars, as a business meeting space, and as a coworking space.
There has been a total of 850 participants from 120 participating companies since establishment of the facility(including scheduled future participants), where use is steadily increasing.
In regard to corporate governance, the Company actively establishes and engages in corporate governancepractices. It has accordingly established a governance framework as necessary to ensure proper business conduct
with its sights set on maximizing its corporate value, and duly recognizes that proper operation of its governanceframework serves as a key responsibility of management.

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

21 22

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

System Support Inc.

1-Apr.-2024

4396 Tokyo Stock Exchange Prime Market

https://www.sts-inc.co.jp/index_e.html#06■ Shareholder return policy
Sustained dividend increases with a target payout ratio of 30-35%
The Company regards the return of profits to shareholders as one of the important management issues. The
Company has indicated that its basic policy on distributing profits is to strive to improve dividends according
to business performance and profit levels, while providing stable dividends based on consideration of earnings
conditions. Concurrently, the Company will ensure adequate internal reserves needed for future business expansion
and strengthening the management structure. With respect to the dividend per share for FY6/24, the Company
increased the amount by ¥4.0 YoY to ¥36.0, which marked the fifth consecutive year of dividend increases since
its listing on the stock market. It targets a dividend payout ratio in the 30%-35% range, and intends to continue
dividend increases alongside earnings growth.

paayinouptrordauticots
To ta l D
nuivmidbeenrdopf ecrosmhpaarneieasnddedpivloidyeinngd m
Dividend per share and dividend payout ratio（No. of（\）
companies）
（\）
2,000
40.0
40.0
1,800
1,600
30.0
1,400
30.0
1,200
1,000
20.0
20.0
800

Dividend per share (left)
Dividend payout ratio (right)
Dividend
per share
ratio (right)
Tate
YakushaMOS(left)SHIFTEE Dividend
Shugyopayout
Yakusha
32.9
32.9

32.1
32.1

22.3
22.3 52
73
409

81

75

457

94

0
0.0
0.0

607
10.0
10.0
20/12
FY6/20FY6/20

96

597

531

600

10.0
400
10.0
200

122
98

32.8
32.8
160
110

677

182 31.9
118 31.9

222
131

30.0
30.0
808

777

20.0
20.0

36.0
36.0

32.0
32.0

（%）
（%）
40.0
40.0

657

25.0
25.0
688

696

712

21/6
21/12
FY6/21
FY6/21

22/6
FY6/22
FY6/22

22/12
FY6/23
FY6/23

23/6
23/120.0
0.0
FY6/24（Year/Month）
E
FY6/24 E

21.0
636 21.0

738 10.0
10.0

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

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

22 22

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