COMPANY RESEARCH AND ANALYSIS REPORT

System Support Inc.
4396
Tokyo Stock Exchange Prime Market

3-Oct.-2023
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

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for FY6/23........................................................................................................................

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 FY6/23........................................................................................................................

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---------------------------------------------------------------------------------------------------------------------------------- 23

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

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06■ Summary
Forecasts continued double-digit growth in sales and profits backed
by the tailwind of cloud market expansion
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 FY6/23
In FY6/23 consolidated results, the Company set record high results. Net sales increased 18.9% YoY (year-on-year)to ¥19,267mn and operating profit rose 21.7% to ¥1,456mn. Amid a shift in company information systems to clouds,
net sales in the Cloud Integration Business grew significantly by 57.0% to ¥5,319mn, driving earnings growth. Net
sales of highly profitable ServiceNow*-related services continued to experience double-digit growth by 21.5% to¥1,857mn, and sales of main cloud-infrastructure related services such as AWS, Microsoft Azure, and Google Cloudgrew significantly, including license resale revenue. The Company’s efforts to hire and train respective technicallycertified personnel have been effective. It has advanced steadily as exemplified by increased sales in all other areas
as well including System Integration Business and Outsourcing 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 forecasts double-digit growth in sales and profits, with net sales toincrease 13.1% YoY to ¥21,784mn and operating profit to increase 21.0% to ¥1,763mn. High growth is expected
to continue as demand remains strong. Azure OpenAI Service*, a deployment support service launched in May
2023, has attracted an incredibly high level of interest from companies, and because it will lead to the expansionof license resale revenue, may help to boost results depending on future trends. All other business segments are
expected to see increased sales as well. In terms of HR recruitment, the Company plans to hire a total of 205 new
graduates and mid-career employees (185 people in the previous period), so increases in personnel, recruitment,
educational training and other expenses are projected to increase, but it appears that they will be offset by theeffect of increased sales.
*	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.

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01 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Summary

3. Medium-term management plan
The Company announced a three-year medium-term management plan in August 2022, but formulated a new rollingplan up to FY6/26 in August 2023. For FY6/26, it is targeting net sales of ¥26,805mn or higher and operating profitof ¥2,407mn or higher. In terms of average annual growth over three years, growth in net sales will exceed 11.6%
and growth in operating profit will exceed 18.2%, with an operating margin in the final year of the plan rising to 9.0%.
The plan reflects the expansion of license resale revenue in Cloud Integration Business, and slightly increases thegrowth rate of net sales in contrast to the previous three-year plan. As key measures, it will promote “expansionof services that form the foundation of DX promotion for customers and society,” “growth and success of diverse
human resources,” and “strengthening ESG management.” By business segment, the Cloud Integration Businessis expected to experience sales growth at an annual rate of 20-30%, and will continue to be the driver of results,
while other businesses are also expected to grow steadily overall. Regarding its policy on shareholder returns, theCompany 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 fourth consecutive period to ¥36.0 (payout ratio of 31.9%), an increase of ¥4.0 fromthe previous fiscal year.
Key Points
Double-digit growth in sales and profits in FY6/23 against the backdrop of active DX investment
Cloud Integration Business expected to lead results with double-digit sales and profits in FY6/24 as well
• Aims for annual double-digit growth in the medium term backed by the tailwind of cloud market expansion••

Results trends
Net sales (left)(¥mn)

Operating profit (right)

25,000

(¥mn)
1,763

1,456

20,000

2,000

1,600

1,196
15,0001,200

931
10,0005,000

754
19,267
13,376

14,431

FY6/20FY6/21

21,784800

16,198400

00FY6/22

FY6/23

FY6/24 E

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

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02 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
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, B-ROCK, Inc., which provides
online marketing services, was made a subsidiary of ACROSS Solutions in April 2022 and was then absorbed by
it in July 2022. The Company was listed on the Tokyo Stock Exchange Mothers Market in August 2018 and waselevated to the Tokyo Stock Exchange First Section in August 2019. The Company has since been transferred to
the Prime Market in conjunction with the TSE’s reorganization of its market segments in April 2022.

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03 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
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 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/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

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)

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 six consolidated subsidiaries. From FY6/23, the Groupreorganized its business segments to more clearly present the progress of cloud integration, an area it will focus
on over the medium term. The previous segments were the Solutions Business, Outsourcing Business, ProductBusiness, and Others. In the new classification scheme, the Solutions Business was split into the Cloud Integration
Business (implementation and support for the use of cloud services, including ServiceNow, Microsoft Azure, AWS
and Google Cloud, and resale of their licenses, etc.) and the System Integration Business (implementation and support for the use of ERP packages, infrastructure construction for Oracle Database, etc. and IT system development).
Non-nearshore operation and maintenance services, which had been included in the Outsourcing Business, weretransferred to the System Integration Business. Accounting process outsourcing services provided by a Canadiansubsidiary were moved to the Overseas Business, a new segment, and sales from overseas subsidiaries (recruitment
services and marketing support services, etc. for local Japan-affiliated companies), which had been in the Others
segment, are now included as part of the Overseas Business. The Product Business remains unchanged.

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04 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Company profile

Looking at the share of each business segment in FY6/23, the System Integration Business accounted for overhalf of net sales, 58.7%, followed by the Cloud Integration Business, which accounted for 27.6%, the Outsourcing
Business, for 9.2%, and the Product Business, for 3.6%. With regard to operating profit, on the other hand, theshare of the Cloud Integration Business was highest, at 54.3%, followed by the System Integration Business at
14.5%, the Outsourcing Business at 14.0%, and the Product Business at 13.1%. The Overseas Business was
minimal. The reason the System Integration Business accounts for a lower share of profit is that the shared portionof SG&A expenses are allocated to each business segment are allocated to each segment in proportion to cost of
sales, so because the System Integration Business has a large amount of sales, the proportion of shared expenses
allocated to the segment is also high. As seen in the distribution of gross profit, there is a not a huge difference inthe composition of net sales with System Integration Business occupying the largest share at 51.2% and Cloud
Integration Business at 28.4%.

Composition by business segment (FY6/23)
Cloud Integration BusinessOutsourcing Business
Overseas Business
0.9%

100.0%
90.0%

System Integration Business
Product Business

9.2%

80.0%

3.6%

4.1%
13.1%

1.7%
8.1%
10.6%

14.0%

70.0%
60.0%

58.7%

14.5%
51.2%

50.0%

40.0%
30.0%

54.3%

20.0%
10.0%

28.4%

27.6%

0.0%
Net sales

Operating profit

Gross profit

Note: Percentages are calculated using pre-adjusted figures
Source: Prepared by FISCO from the Company’s financial results(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 FY6/23, ServiceNowrelated services were highest at 34.9%, followed by AWS at 32.9%, Microsoft Azure at 12.4% and Google Cloudat 10.6%. License resales, which serve as a recurring-revenue business, accounted for 31.0% of sales in thissegment.
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 FY6/23 was 44.5%, surpassing the overallbusiness segment’s margin of 28.1%).

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05 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Company profile

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.
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 (September
2022)
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 FY6/23, IT system development accounted for
55.8%, followed by ERP-related services at 28.2% and database-related services at 15.9%.
For major projects such as system development for financial institutions and ERP construction, the Company does
not receive orders directly; rather, 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 contributeto 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 81.5% of net sales. The remaining 18.5% is taken
up by data analysis and entry and system operation and maintenance on a nearshore basis.

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06 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Company profile

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.
In 2006, for instance, it began providing Safetylink24, an emergency notification and safety confirmation service
that automatically distributes safety confirmation messages for employees linked to earthquake information.
Additionally, in 2010, the Company began offering ActionPassport, an electronic work flow system, and in 2017,
the Company began 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, which
are characterized by their recurring-revenue structure whereby monthly sales increase as a result of growing
customer numbers and greater customer service use, the Company appropriately invests in servers and additional
capacity otherwise in alignment with demand.
(4) Product BusinessIn the Product Business, the Group is engaged in the development and sales of products (software) and the provision of services. It also customizes products according to customer needs. It currently has four main products.
Tate Yakusha, a construction work information management system for the construction industry, and MOS, amobile order receipt and placement system primarily for the wholesale and retail industries, respectively accountfor over 30% of sales, while SHIFTEE, a cloud-based shift management system, and Shugyo Yakusha, an
attendance and work management system, respectively account for over 10% of sales. While the Company does
receive orders for custom development projects from time to time and records sales associated with hardware
when installed, around 57% 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 inline with growth in the number of subscribers. Most sales are direct sales (Tate Yakusha is often sold through the
OEM channel), but the Company is also focusing its efforts on a distributor-based strategy in seeking to enhance
its sales strengths.
Outline of major products
Name

ProviderDescription
A construction work information management system. The monthly charge for the standard
version starts at ¥40,000 per 5 licenses (initial cost: ¥350,000).
The monthly charge for the premium version starts at ¥80,000 per 5 licenses (initial cost:¥580,000).

Number ofsubscribing
companies*

Tate
Yakusha

System Support Inc.

MOS

A mobile order receipt and placement system. For the full version, the initial cost starts at
ACROSS Solutions, Inc. ¥350,000, options at ¥100,000, and the monthly charge at ¥20,000 (with actual figuresdepending on the number of accounts needed by the party placing the order).

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).

118

ShugyoYakusha

System Support Inc.

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

182

712

777

* As of June 30, 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.

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07 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Company profile(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 accountfor 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 amanner that strikes a good balance between regions in order to cope with escalating demand. The Group’s
turnover rate is low, at around 5% in contrast to the industry average of over 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.
Description of main businesses of Group companies
Cloud Integration
Business

Name of company

System Integration
Business

Outsourcing Business

Product Business

Overseas Business

Data entry services,
nearshore operation andmaintenance

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

System Support
Inc.

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

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

eNet Solutions
Co., Ltd.

-

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 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
Total(people)Engineers

Sales and administration, etc.
1,348

1,400

1,233

1,126

1,200
1,000

1,039
956

214
194

177
163

157
800
600
400

799

876

949

FY6/20FY6/21

1,039

1,134

200
0
FY6/19FY6/22

FY6/23

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 23

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

System Support Inc.

3-Oct.-2023

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 FY6/23 against a
backdrop of robust DX investment
1. Outline of results for FY6/23
In FY6/23 consolidated results, the Company achieved double-digit sales and profits increases and recorded
continual record highs, as net sales increased 18.9% YoY to ¥19,267mn, operating profit rose 21.7% to ¥1,456mn,
ordinary profit was up 23.1% to ¥1,465mn and profit attributable to owners of parent was up 28.5% to ¥1,009mn.
Results for FY6/23(¥mn)
FY6/22
Results

FY6/23% of net sales

Company
forecast

Results% of net sales

Achievement
rate

YoY

Net sales

16,198-18,093

19,267

-

18.9%

6.5%

Cost of sales

11,861

73.2%-

14,039

72.9%

18.4%

-

SG&A expenses

3,140

19.4%

-

3,770

19.6%

20.1%

-

Operating profit

1,196

7.4%

1,456

1,456

7.6%

21.7%

0.1%

Ordinary profit

0.9%

1,190

7.3%

1,452

1,465

7.6%

23.1%

Extraordinary profit/losses

-14

-

-

-35

-

-

-

Profit attributable toowners of parent

785

4.9%

982

1,009

5.2%

28.5%

2.8%

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

Amid an increasingly uncertain economic outlook attributable to rising prices and ongoing depreciation of the yen,
all five of the Company’s business segments recorded higher sales. This was led by the Cloud Integration Businessgiven a scenario where the Company has been encountering persistently favorable market conditions, particularly
in terms of increasing momentum toward migration of information systems to the cloud and adoption of new cloudservices undertaken by companies highly engaged in DX initiatives. Net sales results exceeded the Company
forecast by 6.5%, which was mainly attributable to a situation where resale income in particular increased morethan anticipated in the Cloud Integration Business partially due to the depreciating yen.
On the profit front, gross profit increased 20.5% YoY to ¥5,227mn amid a scenario where the cost-of-sales ratio
declined from 73.2% in the same period of the previous fiscal year to 72.9% due to changes in the sales mix andeffects of increased sales. The SG&A expenses ratio rose slightly to 19.6% from 19.4% in the previous fiscal year with
SG&A expenses up 20.1% due to increases in personnel, recruiting, training and other personnel-related costs andoperating costs. Nevertheless, the operating margin marked an all-time high having increased to 7.6% from 7.4%
in the previous fiscal year due to improvement in the gross profit margin. The slightly higher rate of increase in profit
attributable to owners of parent relative to that of ordinary profit is attributable to a situation where the Company
incurred a lower corporate tax burden as a result of it having applied tax credits for wage increases.

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

09 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Cloud Integration Business achieves rapid growth with a 57% YoY
increase in sales
2. Trends by business segment(1) Cloud Integration BusinessNet sales from the Cloud Integration Business increased 57.0% YoY to ¥5,319mn and operating profit increased
46.6% to ¥812mn, so there were large increases in both sales and profits. The operating margin decreased to
15.3% from 16.4% in the previous fiscal year, which is mainly attributable to a situation where the share of sales
associated with ServiceNow-related services*, which have a relatively high profit margin, had also declined to34.9% from 45.1% previously.
*	The gross profit margin of ServiceNow-related services increased to 44.5% from 44.0% in the previous fiscal year.

Looking at a breakdown of net sales, ServiceNow-related services continued to be strong, increasing by 21.5%
YoY to ¥1,857mn, while AWS-related services increased 51.9% to ¥1,748mn, Microsoft Azure-related services
increased 61.6% to ¥662mn, Google Cloud-related services rose 147.2% to ¥564mn, and other services went
up 581.8% to ¥487mn. There was sales growth in all cloud infrastructure-related services. Meanwhile, Oracle
Cloud Infrastructure served as the main contributor to net sales in the others category. The Company has also
received orders for projects associated with migration of services to the cloud with respect to Oracle, which is amajor player in database-related services.
Cloud Solution Business net sales breakdown and profit margin

Operating profit, gross profit margin,

Net sales of Cloud Solution Business

(¥mn)
6,000

ServiceNow-related services
AWS-related services
Microsoft Azure-related services
Google Cloud-related services
Others
5,319
487
564

5,000
4,000

3,388

3,000

409

2,000

1,150

1,000

662
71
228
1,748

Operating profit (left)
Gross profit margin (right)
Operating margin (right)
(¥mn)
1,000

29.0%

28.1%

800
600

30.0%
24.0%

16.4%

15.3%

400

18.0%
12.0%

812

1,527

1,857

FY6/22

FY6/23

200

6.0%

554

0

0

0.0%
FY6/22

FY6/23

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 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Results trends

ServiceNow-related services encountered somewhat of a slowdown in the percent increase in sales from 30.6%
in the previous fiscal year, but still maintained double-digit growth as a result of efforts to train engineers andexpand outside partnerships amid persistently robust demand. According to documents released by ServiceNow
Japan G.K., the number of ServiceNow development certifications obtained by the Company had increased to353 as of July 2023, from 60 in November 2020, thereby putting it at the No. 3 spot in Japan after Fujitsu Limited<6702> and Accenture <ACN>*. The Company has increased the number of ServiceNow partner companies
from 30 to just short of 80 over the past three years in order to address market expansion, but growth in sales
is contingent on resources of the Company and other such top-ranking enterprises given that it is not possible
for a single enterprise to meet all prevailing demand. Whereas the percentage of such certifications obtainedby the Company has decreased to the 7% range from just over 10% previously in part given a more extensive
scope of such certifications, the Company is presumably maintaining its top-tier percentage of certifications as
an Elite Partner, the highest ranking. The customers for these services are major companies and sales appear tohave increased not only in Tokyo and Osaka but at other offices such as those in Nagoya and the Hokuriku area.
*	Fujitsu and Accenture have obtained 522 and 376 certifications, respectively, as of July 2023.

mシ
beョr ンof事
Se業rv売
ic上
eN高
ow築
deve格
lopm
nt 利
ce益
rti及
ficび
at売
ion上
s総
ob利
tai益
ne率
d 、営業利益率
クラウドソリNュuー
営e業
NumSbeerrvoicfeSNeorwv認
ice定
No構
w de資
velo取
pm得
en数
t cとe資
rti格
fic取
ati得
on企
s o業
bt数
ained

and number of certified companies 営業利益（左軸）ServiceNow関連
AWS関連
and nCloud関連
umber of certified com
panies
資格取得企業数（右軸）Microsoft Azure関連システムサポート（左軸）
Google
売上総利益率（右軸）(社）
Systemsupport(left)
Number of certified companies(right) (Companies)（件）(Cases)その他
Systemsupport(left)
Numberofcertifiedcompanies(right) (Companies)
営業利益率（右軸）(Cases)
450
90
（百万円）
（百万円）
79
450
90
29.0%
79
28.1%
400
80
1,000
30.0%
6,000
5,319
400
80
350
70
487
5,000
350
70
800 58
24.0%
58
300
60
564
300
60
4,000
3,388
662 42
16.4%
250
50
15.3%
600
18.0%
71
250
50
42
228
200
40
3,000
409
30
1,748
200
40
353
30
400
12.0%
353
150
30
1,150
2,000
150
30
812
100
20
187
100
20
200 187 554
6.0%
1,000
1,857
109
50
10
1,527
109
60
50
10
60
00
00.0%
0
0
0
November
September
2021
September2022
July23/6期
2023
2020年11月
2021年9月
2022年9月
2023年7月
22/6期
22/6期 2020
23/6期
November 2020
September 2021
September 2022
July 2023

Note: Eligible certifications: CIS, CAD, CTA through to September 2022, with scope extended to CTA, CSA, CAD, CAS-PA,
CIS, Developer Core Skills, Suite (Pro) effective from May 2023 (208 certifications constituting same standards).
Source: Prepared by FISCO from documents released by ServiceNow JapanThe main platforms each encountered substantial growth in cloud infrastructure-related migration and usage
support services other than ServiceNow. The Company leveraged its technical database capabilities cultivatedover many years in achieving growth in projects for migration and construction of cloud-based databases anddata analysis platforms. In particular, the Company achieved substantial growth with respect to Google Cloud,which excels in big data analytics services, thanks in part to its effective focus on cultivating engineers.

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

11 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Results trends

Resale income is associated with recurring-revenue businesses in which cloud service usage fees (primarily AWS
and Microsoft Azure) are collected from customer accounts. As such, net sales increase as more customers
deploy the services. In FY6/23 resale income has increased to account for 31.0% of sales in this segment amid
a significant increase in resale income, up 66.3% YoY to ¥1,648mn, due in part to further yen depreciation on
foreign exchange markets compared to the previous fiscal year. The resale business has a low profit margin, but it
is likely to generate sales on an ongoing business. As such, growth in retail proceeds as a stable revenue sourceis expected going forward.
(2) System Integration BusinessNet sales from the System Integration Business increased 7.8% YoY to ¥11,315mn and operating profit decreased
20.5% to ¥217mn. The decrease in profit despite the increase in sales was mainly due to an increase in SG&A
expenses. As was discussed previously, the shared portion of SG&A expenses are allocated in proportion to costof sales, so when SG&A expenses increase, the burden falls heavily on the System Integration Business because
it has a large amount of sales. Looking on a gross profit basis, it increased, rising by 9.7% to ¥2,695mn, andthe gross profit margin also increased, rising by 0.4 percentage points (pp) from FY6/22 to 23.8%, so the actual
earnings situation can be seen as positive.

Operating profit, gross profit margin,
and operating margin

System Integration Business net sales(¥mn)
12,000

ERP-related services
DB-related services
IT system development
11,315
10,498

(¥mn)
300

5,673

6,315

2,000

23.8%

200

6,000

4,000

30.0%
23.4%

10,0008,000

Operating profit (left)
Gross profit margin (right)
Operating margin (right)

20.0%

273
1,929

1,804

2,895

3,195

FY6/22

FY6/23

217

100
2.6%

1.9%

FY6/22

FY6/23

0

0

10.0%

0.0%

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

Looking at the breakdown of net sales, IT system development performed favorably, increasing 11.3% YoY to¥6,315mn, as did ERP-related services which increased 10.4% to ¥3,195mn, but net sales in database-related
services decreased 6.5% to ¥1,804mn. The decline is attributable to a situation where projects associated withthe main customer Oracle have been undergoing a shift to cloud services where they are accounted for as sales of
the Cloud Integration Business. Sales increased slightly in terms of Oracle-related business overall. In ERP-related
services, business is poised to remain brisk going forward amid a chronic shortage of engineers in conjunction
with a situation where companies continue to migrate to SAP S/4 HANA in anticipation of the end of maintenancesupport (at the end of 2027) for SAP’s existing product.

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

12 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Results trends(3) Outsourcing BusinessNet sales from the Outsourcing Business increased 14.9% YoY to ¥1,772mn, and operating profit rose 11.0% to¥209mn, resulting in double-digit growth for both sales and profits. Gross profit increased 15.8% YoY to ¥559mn
and the gross profit margin gained by 0.2 pp to 31.5%.
Looking at the breakdown of net sales, data center-related services increased 12.4% YoY to ¥1,444mn, andmaintenance services, including data analysis and input and nearshore operation, rose 27.8% to ¥327mn, so
results were strong in both areas. In data center services, the number of new customers held to a modest gain, but
sales increased due to higher monthly usage fees attributable to an increase in usage fees per existing corporate
customer. Monthly usage fees and other proceeds from recurring-revenue businesses increased 11.8% YoY to¥1,294mn.

Operating profit, gross profit margin,
and operating margin

Outsourcing Business net sales(¥mn)

Data center-related services
Data analysis, input, near-shore, etc. (¥mn)

2,000

1,772

1,541
1,500

327

256

240

31.3%

120
1,444

31.5%

200
209
188

12.0%

12.2%

11.8%

40
0

6.0%

0
FY6/22

FY6/23

24.0%
18.0%

80

500

36.0%
30.0%

160

1,000
1,285

Operating profit (left)
Gross profit margin (right)
Operating margin (right)

0.0%
FY6/22

FY6/23

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 3.4% YoY to ¥693mn and operating profit
having climbed 8.2% to ¥196mn. Looking at the breakdown of net sales, the segment encountered a stark
contrast in results depending on the service. Accordingly, steady gains were made by Tate Yakusha, which
increased 11.0% YoY to ¥215mn, and SHIFTEE, which rose 9.2% to ¥78mn. Meanwhile, MOS edged up modestly
by 0.9% to ¥233mn and Shugyo Yakusha decreased 5.5% to ¥70mn.

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13 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Regarding Tate Yakusha, with the impact of the COVID-19 pandemic having nearly run its course, sales increased
given improvement in lead times from negotiations to contracting now that it is possible to hold face-to-facesales talks, and given that the Company has made progress in acquiring new customers upon having resumed
its participation in trade shows. Also, with respect to SHIFTEE, more companies are working to increase theefficiency of shift management, especially in the service industry, which is leading to increased inquiries about
SHIFTEE, which enables shift creation and management to be conducted simply and at a low cost. With respect to
MOS, although there has been an increase in the number of new installations, MOS has incurred sluggish growthin sales due apparently to factors that include a situation where there is a large number of customers with few
users on a per-company basis, which directly affects net sales, and a situation where MOS has been subject toa certain number of cancellations. Regarding Shugyo Yakusha, sales decreased due to a downturn in equipment
sales associated with new installations.
On the profit front, monthly usage fees and other recurring-revenue sales marked a solid gain of 13.1% YoY to¥396mn. The increase contributed to higher profits while changes in the sales mix also prompted an upturn in the
gross profit margin to 61.9% from 59.6% in the previous fiscal year. Net sales excluding recurring-revenue sales
decreased by approximately 7% due to a decline in equipment sales and customization projects.

Operating profit, gross profit margin,
and operating margin

Product Business net sales(¥mn)

Tate Yakusha
SHIFTEE
Others

800
700
600

500

670
98
75
71

MOS
Shugyo Yakusha
693

(¥mn)
280

231

70
78

233

240

60.0%

200

50.0%

160

40.0%

120

27.0%

28.3%

181

196

80

200
100

70.0%

95

400
300

Operating profit (left)
Gross profit margin (right)
Operating margin (right)
61.9%
59.6%

194

215

FY6/22

FY6/23

40

20.0%

10.0%

0

0

30.0%

0.0%
FY6/22

FY6/23

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 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Results trends

Total number of companies deploying each product
Tate Yakusha(No. of companies)

MOS

SHIFTEE

Shugyo Yakusha

2,000

1,800
1,600
1,400
1,200
1,000
800

52
73

26
64

81

75

96
94
531

122
98

160
110

597

677

348

409

457

595

607

636

657

688

696

20/6

20/12

21/6

21/12

22/6

22/12

182
118

777

600

400
200

712

0
23/6
(Year/ Month)
Source: Prepared by FISCO from the Company’s supplemental results briefing materials(5) Overseas BusinessNet sales from the Overseas Business increased 68.3% YoY to ¥166mn and operating profit increased 75.0% to¥61mn. The continued depreciation of the yen provided a boost to results and payroll and accounting outsourcing
services performed well, which led to the increased sales and profits. The operating margin rose from 52.4% in
the previous fiscal year to 53.3%, and gross profit increased 71.4% to ¥88mn.

Equity ratio improves and operating margin maintains upward
trajectory
3. Financial condition and business indicators
Looking at the Company’s financial condition as of the end of FY6/23, total assets were ¥8,870mn, an increase of¥1,055mn from the end of FY6/22. In terms of the main factors behind this change, in current assets, accounts
receivable – trade increased by ¥587mn and cash and deposits increased by ¥314mn. In non-current assets,
property, plant and equipment increased by ¥167mn, which was primarily driven by leased assets, and investments
and other asset increased by ¥131mn, while intangible assets such as software and goodwill decreased by ¥79mn.
Total liabilities increased by ¥352mn from the end of FY6/22 to ¥4,746mn. Interest-bearing debt decreased by¥139mn and income taxes payable decreased by ¥97mn, while accrued expenses increased by ¥155mn and leaseliabilities encompassing both short- and long-term debt increased by ¥138mn. Total net assets were ¥4,124mn,
an increase of ¥703mn from the end of FY6/22. This was primarily caused by an increase of ¥719mn in retained
earnings as a result of having recorded profit attributable to owners of parent and the payment of dividends.

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15 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Results trends

Looking at business indicators, the equity ratio increased from 43.8% at the end of FY6/22 to 46.5%, a new record
level, owing to an increase in shareholders’ equity. The interest-bearing debt ratio decreased from 33.6% to 24.5%
due to factors that include a reduction in interest-bearing debt and an increase in shareholders’ equity. Net cash
(cash and deposits minus interest-bearing debt) increased by ¥454mn from the end of FY6/22, reaching a record
high of ¥2,559mn. As such, the Company has further strengthened its financial base. In terms of profitability, theoperating margin rose by 0.2 pp YoY to 7.6%, ROA increased 1.1 pp to 17.6%, and ROE gained 2.3 pp to 26.8%.
The Company’s persisting focus on recruiting and training engineers propelled by growth of the cloud services
market can be credited with having contributed to improving its profitability and strengthening its financial base.
Consolidated balance sheet(¥mn)
FY6/20FY6/21

FY6/22

FY6/23

Change

4,631

5,319

6,303

7,139

836

2,387

2,697

3,254

3,568

314

Non-current assets

1,316

1,342

1,511

1,730

219

Total assets

5,947

6,662

7,815

8,870

1,055

Total liabilities

3,540

3,669

4,393

4,746

352

1,015

952

1,149

1,009

-139

2,407

2,993

3,421

4,124

703

Equity ratio

40.5%

44.9%

43.8%

46.5%

2.7pt

Interest-bearing debt ratio

42.2%

31.8%

33.6%

24.5%

-9.1pt

ROA

12.6%

15.1%

16.4%

17.6%

1.1pt

ROEROE

20.5%

25.0%

24.5%

26.8%

2.3pt

Operating margin

5.6%

6.5%

7.4%

7.6%

0.2pt

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

Source: Prepared by FISCO from the Company’s financial results■ Outlook
Outlook envisioning double-digit increases in sales and profit driven
by the Cloud Integration Business again in FY6/24
1. Outlook for FY6/24
For its consolidated results in FY6/24, the Company is forecasting continual double-digit increases to sales andprofits, with net sales set to increase 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.
Despite an increasingly uncertain economic outlook due in part to rising prices and waning consumer sentiment,
enterprises continue to actively invest in digital transformation (DX). This suggests an ongoing scenario of substantial
growth driven by the Cloud Integration Business, as was the case in the previous fiscal year. Meanwhile, theoperating margin is poised to increase by 0.5 pp YoY to 8.1%.

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

16 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

Outlook

Outlook for FY6/24 consolidated results(¥mn)
FY6/23Results

FY6/24% of net sales

Company
forecast% of net sales

YoY

Net sales

19,267-

21,784-

Operating profit

1,456

7.6%

1,763

8.1%

13.1%
21.0%

Ordinary profit

1,465

7.6%

1,755

8.1%

19.8 %

Profit attributable toowners of parent

1,009

5.2%

1,167

5.4%

15.6%

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 inhigher personnel costs and investment-related expenses (recruitment-related expenses, training expenses, R&D
expenses), yet the ratio of investment-related expenses to sales is expected to remain at the same level as thatof the previous fiscal year. Meanwhile, the Company is poised to secure new graduate hires largely in line with its
recruitment plan for FY6/24, which calls for it to hire a total of 205 employees, including 111 new graduates (85 in theprevious period) and 94 mid-career employees (100 in the previous period). When it comes to its mid-career hires,the Company seeks to secure its planned number of recruits amid intensifying competition to attract IT professionals
not only by improving salaries and benefits and upgrading its education program, but also by creating a pleasantwork environment in part by engaging in efforts in the realm of health management. The Company is also taking on
new initiatives that entail carrying out training for interview facilitators. The extent to which interviewers accurately
convey the appeal of the Company and leave candidates with a positive impression when conducting interviews
serves as a key factor in decisions of such candidates on whether or not to join the Company.
Number of personnel hired (consolidated)
FY6/20FY6/21

FY6/22

FY6/23

FY6/24 plan

New graduate recruitment

58

60

70

85

111

Mid-career recruitment

97

89

83

100

94

Total number of personnel hired

155

149

153

185

205

Turnover rate

7.7%

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, though it is likely to slow relative
to the 57.0% increase achieved in the previous fiscal year. With respect to ServiceNow-related services, there areconcerns regarding effects associated with an increasing number of partner companies, but double-digit growthin net sales in FY6/24 is likely as the Company continues to encounter inquiries exceeding its available resourcesat this point in time.

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17 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

OutlookServices that support cloud infrastructure migration and use are poised to achieve substantial growth on an
ongoing basis, with respect to AWS, Microsoft Azure, and Google Cloud. On the corporate side, the Company
has been encountering a growing tendency toward use of multiple cloud platforms in order for companies todiversify risk, which has fueled momentum of the Company given that it has established a framework capable ofaccommodating the three major platforms. There is also potential for significant growth when it comes to the Azure
OpenAI Service deployment support service, launched in May 2023. The Company’s seminars for generating leads
for Azure OpenAI Service deployment support service, which enables use of ChatGPT and other AI services while
ensuring robust security with Microsoft Azure, immediately fill to capacity, thereby necessitating that the Company
hold additional sessions. In July 2023, the Company began providing a new monthly plan* so that companies
are able to more readily use the services. Amid a scenario where many companies have been seeking to improve
productivity by using ChatGPT in their business operations, an increase in the number of companies adopting
the ChatGPT service could enable the Company to generate more Microsoft Azure resale income. As such, thissuggests the possibility of net sales upside potential, depending on developments going forward.
*	The monthly plan is available for a monthly fee of ¥50,000 (excluding tax) with not initial setup fee. The plan was originallyoffered on the basis of an initial upfront cost only, with rates starting at ¥1.50mn (tax excluded).

(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, database-related sales are expected to decrease due to the impact of cloud migration
as was the case in the previous fiscal year, but plans call for offsetting the decrease with increased sales from
ERP-related services and other system development projects. The segment’s upward sales trajectory is likely toremain unchanged given favorable trends with respect to orders.
(3) Outsourcing Business
The Outsourcing Business is poised to achieve a gain of approximately 10% in net sales relative to the previous
fiscal year. This increase is attributable to the likelihood of higher recurring-revenue sales derived from data center
usage fees and an increase in business involving system operation and maintenance on 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 has been making progress in enhancing functions of
products to facilitate sales of distributors, in addition to heightening awareness in part through participation in tradeshows and expanding its network of sales agencies. Although distributors had formerly encountered difficulties incarrying out sales due to instances requiring additional features and other forms of customization, a scenario where
functional enhancement precludes the need for customization would apparently make it easier for distributors to
conduct sales, thereby culminating in a greater number of subscribers. By product, the Company is focusing onsales of Tate Yakusha and SHIFTEE.

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

18 23

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

System Support Inc.

3-Oct.-2023

4396 Tokyo Stock Exchange Prime Market

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

OutlookIn July 2023, the Company began offering its Smart Rabbit Food inventory management system for restaurants,
which serves as a new project. Having been developed jointly with Baycrew’s Co., Ltd., which operates 50 to 60
restaurant locations including J.S. BURGERS CAFE, the Smart Rabbit system automates tasks 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 with the order receipt andplacement 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. Target customers include companies
with a wide variety of menu items or with multiple business formats, and also companies that operate more than
50 establishments. Baycrew’s plans to implement the Smart Rabbit system in all of its restaurant locations by
November 2023, and expects to proceed with sales promotion once benefits of the system become evident.
*	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.

(5) Overseas Business
The Overseas Business is likely to achieve a gain of approximately 10% in net sales relative to the previous fiscal
year. The segment enlists an approach that involves extending its accounting outsourcing services by acquiring
Japan-affiliated corporate customers.

Aiming for annual double-digit growth over the medium-termbacked by the tailwind of cloud market expansion
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 both domestically and abroad. Whereas the medium-term theme stated as “Growth and creation offurther innovation” remains unchanged, under the plan, the Company will continue to expand services that form
the foundation of DX promotion for customers and society, promote the growth and success of diverse humanresources, and strengthen ESG management. For 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 to three-year
annual growth in net sales of more than 11.6% and operating profit of more than 18.2%.
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%

Number of consolidated
employees (people)

1,353

1,348

1,466

1,495

1,582

1,633

1,785

* 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

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19 23

9.8%

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

OutlookWith its assessment of the external environment under the medium-term management plan largely unchanged
since that of one year ago, the Company anticipates an ongoing trend of increasing IT investment domestically
due to factors such as mounting DX demand. The Company furthermore anticipates significant growth to persist
with respect to cloud-related services in particular amid a rising need for multi-cloud support in conjunction withdemand for on-premise to cloud migration. On the other hand, the Company recognizes that competition for
talent will remain intense due to a shortage of IT professionals. As for the internal environment, the medium-term
management plan notes that the rising proportion of resale income in the Cloud Integration Business constitutea pivotal change amid a scenario where such resale income, which serves as recurring-revenue sales, has been
increasing more than expected due to depreciation of the yen in currency markets.
With respect to net sales in FY6/23, the initial year of the medium-term management plan, Cloud Integration
Business results exceeded the forecast mainly due to growth in resale income, System Integration Business andOutsourcing Business results aligned with the forecasts, and Product Business results were sluggish. As a result,whereas net sales exceeded the overall forecast, operating profit aligned with the forecast. Based on these results,
the Company has upwardly revised its net sales targets for FY6/25 to ¥24,365mn from the previous target of¥21,892mn, but has left the operating profit forecast unchanged at ¥2,189mn. The decrease in the operating
margin from 10.0% previously to 9.0% is attributable to a situation where relatively low profit margin resale income
will make up a greater proportion of the sales composition. The role of the Cloud Integration Business in driving
results remains unchanged and its significance in that regard has become even more pronounced since releaseof the previous forecasts.

Source: The Company’s medium-term management plan materials

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20 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Outlook(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 increase orders by focusing on growth of existing businesses andexpansion of business areas, while accumulating recurring revenue through resale. 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 arepoised 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 culminate in a lower profit
margin but will further enhance consistency of earnings.
The segment seeks to enhance its human resources through measures to recruit and train talent that serves asa 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 cloud services inparticular, and 3) working to increase pay levels and establish a pleasant work environment (reducing total working
hours, increasing proportion of employees taking childcare leave, increasing the proportion of female employees).
b) System Integration BusinessIn the System Integration Business, the Company will work to recruit and train engineers to expand its mainstay
ERP-related, database-related and RPA-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, itapparently aims to achieve annual sales growth in the single digits. In addition, the Company intends to strengthen
project management from the perspectives of quality, duration, cost and risk control to increase service quality
while preventing the 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, with the apparent aim of achieving annual sales growth in the single digits by acquiring
new customers and generating data usage fees from existing customers. Since 2022, with the rapid depreciationof the yen, the increased burden of service usage charges for clouds has entered the awareness of companies andsome have begun to move toward building private clouds. The Company intends to accommodate 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 riseahead of 2027, so the Company trains nearshore staff in the Kanazawa region and further strengthen its systems.
d) 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 higher
profits. The segment’s approach entails continually enhancing functionality to improve competitiveness against
products of other companies.

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21 23

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

System Support Inc.
4396 Tokyo Stock Exchange Prime Market

3-Oct.-2023
https://www.sts-inc.co.jp/index_e.html#06

Outlooke) 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.
(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 will strengthen the following
initiatives going forward.
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 Force on
Climate-Related Financial Disclosures (TCFD), and respond to the Carbon Disclosure Project (CDP) survey andwork 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 is enhancing initiatives of Microsoft Base Kanazawa,
which opened in August 2022 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. These activities support the expansion of local businesses, the stimulation of economic activity andthe creation of new business opportunities. There has been a total of 450 participants from 56 participatingcompanies since establishment of the facility.

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22 23

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

System Support Inc.

3-Oct.-2023

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 FY6/23, the Company
increased the amount by ¥7.0 YoY to ¥32.0, which marked the fourth consecutive year of dividend increases since
its listing on the stock market, and it furthermore plans to increase the amount again in FY6/24 by ¥4.0 to ¥36.0
per share. It targets a dividend payout ratio in the 30%-35% range, and intends to continue dividend increases
alongside earnings growth.

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

Dividend payout ratio (right)

(¥)

（%）

40.0

40.0
32.1

32.9

32.8

31.9

30.0

30.0
22.3

20.0

32.0
21.0

10.0

36.0

20.0

25.0

10.0

10.0
0.0

0.0

FY6/20FY6/21

FY6/22

FY6/23

FY6/24 E

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

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

23 23

Disclaimer
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◾ 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