COMPANY RESEARCH AND ANALYSIS REPORT

eGuarantee, Inc
8771
Tokyo Stock Exchange First Section

9-Jul.-2018
FISCO Ltd. Analyst

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

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. FY3/18 results..............................................................................................................................................

01

2. FY3/19 outlook...................................... ......................................................................................................

01

3. Market size............................................ ......................................................................................................

01

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

02■Company overview--------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Company history. . ........................................................................................................................................

03

2. Business overview................................. ......................................................................................................

04

3. Description of business.. ..............................................................................................................................

07

4. Risks...................................................... ......................................................................................................

08■Financial results---------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Summary of FY3/18 results. . ........................................................................................................................

09

2. Financial conditions and indicators..............................................................................................................

11■Business outlook-------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. FY3/19 outlook...................................... ......................................................................................................

12

2. Key policies.. .......................................... ......................................................................................................

12

3. The medium-term target..............................................................................................................................

13■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 14■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 14

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

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/██Summary
The outlook is for the profit growth to continue against the backdropof the strong demand for sales credit guarantee services
The core business of eGuarantee, Inc. <8771> is to provide credit risk guarantee services targeting sales credits
issued by companies to their customers. The Company hedges the credit risk it assumes by transferring theguarantees to financial institutions via reassurance contracts. It follows a recurring revenue business model in which
net sales equates to the product of the balance of outstanding guarantee times the guarantee fee ratio. As thenumber of client companies has increased, the Company’s balance of credit guarantees outstanding has risen. As
a result, eGuarantee has delivered sustained growth.
1. FY3/18 results
In the FY3/18 consolidated results, both sales and profits increased for the 12th consecutive year since the Company
was listed, with net sales increasing 11.5% year-on-year (YoY) to ¥5,105mn and recurring profit rising 7.0% to¥2,302mn. Against the backdrop of its advanced screening capabilities, the Company steadily developed newcustomers through setting detailed guarantee fee ratios and providing services that respond to customer needs, andthe balance of guarantees outstanding rose 15.6% on the end of the previous fiscal year to ¥345.3bn, which was afactor behind the higher sales. The operating margin declined 1.7 percentage points compared to the previous fiscal
year, but this was due to the worsening of the cost ratio from expanding the targets of the credits it underwrites fromthe previous low risk zone to some middle risks. Compared to the initial Company forecasts (net sales of ¥5,200mn
and operating profit of ¥2,270mn), net sales were slightly below their forecast as the underwriting of middle risk wasless than planned, but underwriting in the low-risk zone was more than expected, so on a profits basis, the results
were slightly above forecast.
2. FY3/19 outlook
The outlook for the FY3/19 consolidated results is once again for new record highs, with net sales increasing 11.6%
YoY to ¥5,700mn and recurring profit rising 10.7% to ¥2,550mn. The main reason for these forecasts is that there aremany inquiries from companies that want to increase their sales while also hedging against the risk of uncollectablesales credits by using the Company’s services, so the number of customer referrals from regional banks, which are
its alliance partners, are increasing. In this fiscal period also, its policy will be to develop a diverse range of productand services that meet customer needs and to grow results while aiming to accumulate the balance of guarantees
outstanding.
3. Growth strategy
The Company’s management target for the near future is consolidated recurring profit of ¥5bn, and to achieve thislevel, it will need to increase the balance of credit guarantees outstanding to around ¥700bn to ¥800bn, which isapproximately double the level at the end of the previous fiscal period. If growth continues at around the current
pace of 15%, then the prospect is that it will be able to achieve this target in FY3/23. It is thought that this growth of
the balance of guarantees outstanding of about 15% a year is possible through the Company working to strengthen
the sales structure and improve productivity by increasing operational efficiency, and also by expanding the scope ofcredits it targets (up to middle risk). Moreover, in conjunction with the expansion in the scale of guarantees, for thebuilding of a securitization structure also, it is strengthening its ability to tolerate risk by progressing the formationof new funds.

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

01 14

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

eGuarantee, Inc

9-Jul.-2018

8771 Tokyo Stock Exchange First Section

http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Summary

As the Company plans to achieving recurring profit from expanding the regular guarantee business, in addition tothat, it has positioned as one growth area undertaking the guarantee of risk such as when developing the provisionof financial services, of companies that utilize the Internet and provide matching services that connect companies
and people and outsourcing services. Also, as a company’s strength, that it has guarantee requests from in excess
of 20,000 companies a month, and after the guarantee-request process and actually providing the guarantee, it
has a business model that can ascertain the actual settlement conditions and the detailed information, for example
what kind of transactions are carried out among them. Alongside the business expansion, it is considered to becreating an enormous information database on corporate transactions and to be actively utilizing it in future businessdevelopment.
4. Shareholder return policy
Looking at the shareholder return policy, eGuarantee’s basic policy is to pay dividends in line with earnings while
retaining the internal reserves needed to aggressively expand business and ensure a strong financial position,
targeting a payout ratio of around 30%. In FY3/19, eGuarantee plans to issue an annual dividend of ¥22.5 per share,
representing a dividend payout ratio of 29.3%. If the Company achieves its target, it is likely to continue increasing
its dividend. As for the Company’s shareholder gift program, eGuarantee awards a QUO card worth ¥1,500 to eachshareholder at the end of March every year.
Key Points
It guarantees companies’ risk of irrecoverable sales credits and other credits and provides a service that
contributes to their business expansion• The outlook is for the higher sales and profits to continue in FY3/19 also from the extremely strong demand forsales credit guarantees• Aiming to achieve consolidated recurring profit of ¥5bn as its medium-term target•㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻾㼑㼏㼡㼞㼞㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻔¥㼙㼚㻕

㻣㻘㻜㻜㻜

㻟㻘㻜㻜㻜
㻞㻘㻡㻡㻜

㻢㻘㻜㻜㻜
㻞㻘㻝㻡㻞
㻡㻘㻜㻜㻜

㻠㻘㻜㻜㻜

㻞㻘㻟㻜㻞

㻞㻘㻡㻜㻜

㻝㻘㻤㻡㻣

㻞㻘㻜㻜㻜

㻝㻘㻡㻢㻞
㻝㻘㻡㻜㻜

㻟㻘㻜㻜㻜
㻞㻘㻜㻜㻜

㻠㻘㻜㻢㻠

㻠㻘㻡㻣㻣

㻠㻘㻠㻞㻞

㻡㻘㻝㻜㻡

㻡㻘㻣㻜㻜
㻝㻘㻜㻜㻜

㻡㻜㻜

㻝㻘㻜㻜㻜
㻜

㻜
㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥㻱

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

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

02 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/██Company overview
It guarantees companies’ risk of irrecoverable sales credits andother credits and provides a service
that contributes to their business expansion
1. Company history
eGuarantee can trace its origins to its establishment as a subsidiary of ITOCHU Corporation <8001> by Mr. Masanori
Eto, the current president and CEO of eGuarantee, during his third year as an ITOCHU employee in September
2000. Initially, eGuarantee set out to provide a service to hedge the risk of uncollectible sales credits, such as tradenotes and accounts receivable, for B2B transactions over the Internet. However, demand for these services was
lower than initially anticipated. Therefore, eGuarantee evolved into a provider of credit risk guarantee services forsales credits in real B2B business transactions that do not involve the Internet.
In March 2007, the Company was listed on the JASDAQ Securities Exchange (listing changed to the Tokyo Stock
Exchange 1st Section in December 2012), and using the funds it raised from the listing, in 2008 it formed its first
fund investing in corporate credit risk and started operations through a subsidiary. Previously, it had packaged its
guarantees according to the degree of risk and sold these packages to all financial institutions for them to hedge
risks. But by forming new funds, it is aiming to diversify its opportunities for profits and to expand the risk that it
underwrites, thereby accelerating growth (as of March 2018, the fund association consisted of four consolidated
subsidiaries and one equity-method affiliate).
In January 2012, eGuarantee acquired the factoring business of Coface Japan Finance Co Ltd., the Japanese arm of
Coface Group, which is a leading French credit guarantee group. The purpose of the acquisition was to upgrade andexpand the Company’s business foundations and bolster its product development capabilities by obtaining expertise
related to export credit guarantees. By leveraging the expertise obtained through this acquisition, eGuarantee enteredinto business alliances with local financial institutions in South Korea in December 2013 and China in June 2014,and has commenced export credit guarantee service business in those countries.
Alongside the expansion of its business scope, in 2013 the Company established eGuarantee Solution Inc., as a
subsidiary to carry out sales-related administrative work (contract-related work and data registration services) and in
2014, it established RG Guarantee, Inc., as a subsidiary to be a specialized provider of small-ticket credit guarantee
services. Then 2017, it separated the sales-related administrative work from eGuarantee Solution, Inc. and newly
established eGuarantee Shared Services, Inc.

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

03 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Company overview

Company history
Month/year

Main events

September 2000

Established in Minato-ku, Tokyo as a subsidiary of ITOCHU Corp.’s financial, real estate, insurance and distribution company toguarantee financial credit held by factoring companies mainly as a result of the settlement of electronic commercial transactions

November 2001

Started offering a comprehensive guarantee service to non-financial companies through which it guaranteed the sales credit
accumulated by companies in their normal course of businessFebruary 2004

Started offering an individual guarantee service through which it guaranteed the sales credit accumulated by a single company

August 2004

Started a full-scale guarantee service for financial companies other than factoring companies

March 2007

Listed shares on the JASDAQ Securities Exchange

August 2008

Arranged Credit Creation 1, the company’s first fund for investment in corporate credit risk

November 2009

Arranged Credit Investment 1

December 2011

Listed shares on the Second Section of the Tokyo Stock Exchange

January 2012

Purchased part of the business of Coface Japan Finance Co., Ltd., a member of a leading French credit guarantee group

April 2012

Established Denshi Saiken Acceptance Ltd., a joint venture with NEC Capital Solutions This joint venture purchases electronicallyregistered credits at a discount and engages in factoring and securitization (it was dissolved in 2015)

December 2012

Listed shares on the First Section of the Tokyo Stock Exchange

November 2013

Established eGuarantee Solution, Inc. as a subsidiary to conduct contract-related administration work, data registration services
and other related activities

December 2013

Entered into a business alliance with a leading local financial institution in South Korea and launched export credit guarantee
services in the South Korean market

March 2014

Established RJG Guarantee Co., Ltd. as a subsidiary to provide small-ticket credit guarantee services

June 2014

Entered into a business alliance with the Tokyo Branch of China-based Bank of Communications and commenced export credit
guarantee services in China

September 2014

Arranged the Credit Guarantee 1 fund

April 2015

Arranged the Credit Guarantee 1 fundDecember 2017
March 2018

Established the subsidiary eGuarantee Shared Services to carry out various administrative work
Arranged Credit Guarantee 3

Source: Prepared by FISCO from the Company’s materials

Consolidated subsidiaries (investment stakes, business content)
Company name

Investment stake (%)

Investment stake (%)

100.0

Systems development

RG Guarantee, Inc.

80.1

Small-ticket sales credit guarantee service

eGuarantee Shared Services

100.0

Various administrative duties

Credit Link Fund 1

50.0

Credit risk investment and operation

Credit Investment 1

65.3

Credit risk investment and operation

Credit Guarantee 1

51.0

Credit risk investment and operation

Credit Guarantee 2

55.0

Credit risk investment and operation

eGuarantee Solution, Inc.

Source: Prepared by FISCO from the Company’s materials

A stock-type business model that accumulates net sales fromthe “balance of guarantees outstanding x the guarantee fee ratio”
2. Business overview(1) Description of businesses
eGuarantee’s main business is insuring against the sales credit risk arising through transactions among companies.
This business is illustrated graphically below.

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

04 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Company overview

Business flow

Source: Prepared by FISCO from the Company’s securities report

First, eGuarantee and its client company sign a contract by which eGuarantee promises to pay to the client a fixedamount to compensate for a sales credit from transactions with other companies if it should become irrecoverable
by paying a guarantee fee to eGuarantee, the client company minimizes its risk of loss from an irrecoverable sales
credit. In other words, the client company is able to pay a certain guarantee fee in exchange for minimizing its riskof loss from an irrecoverable sales credit. Most contracts are effective for one year, and the client company pays
the entire guarantee fee on the business day before the guarantee start date in principle. eGuarantee divides thesales proceeds into 12 equal monthly installments and records the sales every month, so month-to-month sales
fluctuations are relatively small and this functions as a recurring revenue business model.
As eGuarantee’s net sales are the product of its balance of guarantees outstanding times its guarantee fee ratio,
the key to driving growth in net sales lies in increasing the balance of credit guarantees. eGuarantee refers tovarious data, including economic indicators published daily, trends in the number of corporate bankruptcies andthe probability of credit default based on past experience, and revises guarantee fees every month based on
this data. When the number of corporate bankruptcies is decreasing, the credit risk is lower. This means that theguarantee fee ratio will also be set lower. The actual guarantee fee ratio is set for individual contracts and basedon the result of eGuarantee’s investigations of risk associated with the companies subject to the guarantee.
eGuarantee is not bound by industry practice in setting its guarantee fee, but sets a fee that justifies the cost ofhedging the risk for the client.
In regard to the credit risk assumed by the Company, eGuarantee packages its guarantees into a portfolio offinancial risk products according to risk. It then transfers the guarantees to financial institutions, investment
funds and other entities (securitization). Upon the transfer of credit risk, eGuarantee pays guarantee fees andcommissions to the entities that accept its guarantee packages. These guarantee fees and commissions constitutethe bulk of eGuarantee’s cost of sales.
We encourage readers to review our complete legal statement on “Disclaimer” page.

05 14

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

eGuarantee, Inc

9-Jul.-2018

8771 Tokyo Stock Exchange First Section

http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Company overview

Therefore, eGuarantee’s gross margin depends mainly on the spread between the guarantee fee ratio agreed uponby the Company and its clients and the reinsurance fee ratio that applies to fees and commissions paid by theCompany to the entities that accept the transfer of credit risk. eGuarantee has been reducing the cost-of-sales
ratio by diversifying and upgrading its methods of transferring credit risk to lower the reinsurance fee ratios andby arranging investment funds at a subsidiary that shrinks the amount of guarantee fees paid to third parties. It
has also benefited from a lower deflation ratio than anticipated. Although the cost of sales ratio has been on adeclining trend in recent years, in the fiscal year ended March 31, 2018 the cost of sales ratio has increased dueto the start of middle-risk credit guarantee services.

㻾㼍㼠㼕㼛㻌㼠㼛㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟（㻑）㻯㼛㼟㼠㻙㼛㼒㻙㼟㼍㼘㼑㼟㻌㼞㼍㼠㼕㼛㻿㻳㻒㻭㻌㼑㼤㼜㼑㼚㼟㼑㼟㻌㼞㼍㼠㼕㼛

㻡㻜㻚㻜

㻠㻡㻚㻜
㻠㻜㻚㻜
㻟㻡㻚㻜

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼙㼍㼞㼓㼕㼚
㻠㻢㻚㻟㻌

㻟㻤㻚㻣㻌
㻟㻡㻚㻥㻌
㻟㻢㻚㻢㻌

㻟㻜㻚㻜

㻟㻡㻚㻢㻌

㻟㻣㻚㻣㻌

㻟㻤㻚㻢㻌

㻟㻡㻚㻡
㻟㻠㻚㻤㻌

㻞㻟㻚㻡㻌

㻞㻟㻚㻞

㻞㻣㻚㻡㻌

㻞㻠㻚㻣㻌

㻞㻜㻚㻜

㻟㻢㻚㻟㻌

㻟㻠㻚㻣㻌

㻟㻣㻚㻤㻌

㻞㻤㻚㻡㻌

㻞㻡㻚㻜

㻠㻠㻚㻢㻌

㻠㻝㻚㻠

㻞㻜㻚㻣㻌
㻝㻣㻚㻟㻌

㻝㻡㻚㻜
㻝㻜㻚㻜
㻡㻚㻜
㻜㻚㻜

㻲㼅㻟㻛㻝㻞

㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

Source: Prepared by FISCO from the Company’s financial results(2) Operational structure
In addition to its head office in Tokyo, eGuarantee has opened branches in Osaka, Fukuoka, Aichi, and Hokkaido in
the course of expanding its network across Japan. The Company plans to maintain its current operational structure
in terms of its business locations for the time being. Meanwhile eGuarantee has efficiently developed customers
by forming business alliances with financial companies, primarily regional banks, trading companies, leasing firms
and other partners. In particular, eGuarantee had entered into business alliances with 51 regional banks as of theend of March 2018, establishing an alliance network spanning nearly all of Japan. Looking at the breakdown of
the number of customer referrals, referrals from regional banks now account for around 80% of the total, followedby referrals via trading companies and those from other channels. Additionally, eGuarantee has been ramping up
business alliances with shinkin banks, which have many local small and medium-sized companies among theircustomers, since FY3/16 and had alliances with seven shinkin banks at the end of March 2018.
eGuarantee had more than 2,000 client companies, ranging from small and medium-sized enterprises to major
corporations. Furthermore, the Company screens the credit of over 20,000 companies every month. eGuarantee’s customers are spread out evenly across a multitude of industries, including the wholesaling, retailing, andmanufacturing sectors, and this means that its business performance is not susceptible to business volatility inany particular sector.

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

06 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Company overview

㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㼜㼍㼞㼠㼚㼑㼞㼟㻌㻔㼞㼑㼓㼕㼛㼚㼍㼘㻌㼎㼍㼚㼗㼟㻘㻌㼟㼔㼕㼚㼗㼕㼚㻌㼎㼍㼚㼗㼟㻕（㼏㼛㼙㼜㼍㼚㼕㼑㼟㻕㻣㻜

信用金庫㻿㼔㼕㼚㼗㼕㼚㻌㼎㼍㼚㼗㼟

地方銀行㻾㼑㼓㼕㼛㼚㼍㼘㻌㼎㼍㼚㼗㼟

㻡㻢㻌

㻡㻣㻌

㻡㻤㻌

㻞

㻡

㻢

㻣

㻡㻝㻌

㻡㻝㻌

㻡㻝㻌

㻡㻝㻌

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻌㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻢㻜

㻡㻟㻌

㻡㻜
㻠㻜

㻠㻞㻌 㻝

㻟㻢㻌

㻠㻡㻌

㻠㻣㻌 㻝

㻝

㻝

㻟㻜

㻞㻜

㻟㻡㻌

㻠㻝㻌

㻠㻠㻌

㻠㻢㻌

㻲㼅㻟㻛㻝㻞

㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻝㻜㻜㻲㼅㻟㻛㻝㻝

Source: Prepared by FISCO from the Company’s materials

The size of the sales credit market exceeds ¥200tn
with robust growth potential
3. Market size
The size of the market for trade receivables (trade notes and accounts receivable) targeted by the eGuarantee’s
mainstay service is estimated to be more than ¥200tn. While not all of these trade receivables will require credit
risk guarantee services, trade receivables guarantee services are used extensively in the US and Europe and haverobust growth potential.
In addition, the number of corporate bankruptcies, which has an impact on the guarantee fee ratio, has continued to
decline since peaking out in fiscal 2008. In fiscal 2017, the number of corporate bankruptcies shifted to an increaseof 1.6% YoY to 8,285, an increase for the first time in nine years. In addition to the ongoing recovery of the Japanese
economy, accommodative loans terms from banks under an ultra-low interest rate policy, and other positive factors
form the backdrop to the declining number of corporate bankruptcies. The fewer number of corporate bankruptcies
has been accompanied by a decline in the guarantee fee ratio, and the guarantee fee ratio currently stands atjust under 2%. A decline in the guarantee fee ratio is a negative factor that pushes down net sales. Meanwhile,
considering that a lower guarantee fee ratio also reduces the fees paid to acceptors of securitized guarantees, adecrease in the guarantee fee ratio is a neutral factor that has no impact on the gross margin. During an economic
recovery, companies tend to see an increase in the number of their new transaction counterparties in step withsales growth, and tend to generate surplus cash that can be used to hedge the credit risk of sales credits. For thesereasons, the balance of credit guarantees outstanding tends to increase in recovery times.

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

07 14

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

eGuarantee, Inc

9-Jul.-2018

8771 Tokyo Stock Exchange First Section

http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Company overview

㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼏㼛㼞㼜㼛㼞㼍㼠㼑㻌㼎㼍㼚㼗㼞㼡㼜㼠㼏㼕㼑㼟㻌㼕㼚㻌㻶㼍㼜㼍㼚㻔㼏㼛㼙㼜㼍㼚㼕㼑㼟㻕㻺㼡㼙㼎㼑㼞㻌㼛㼒㻌㼎㼍㼚㼗㼞㼡㼜㼠㼏㼕㼑㼟㻌㻔㼘㼑㼒㼠㻕㻝㻟㻘㻞㻟㻠

㻝㻠㻘㻜㻜㻜

㻳㼡㼍㼞㼍㼚㼠㼑㼑㻌㼒㼑㼑㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕㻡㻑㻝㻞㻘㻤㻢㻢

㻝㻝㻘㻠㻥㻢 㻝㻝㻘㻠㻟㻡㻝㻝㻘㻟㻟㻟

㻝㻜㻘㻣㻝㻜

㻝㻜㻘㻡㻜㻜

㻝㻜㻘㻝㻜㻞
㻥㻘㻜㻠㻠

㻟㻚㻟㻑
㻞㻚㻥㻑

㻠㻑

㻤㻘㻠㻜㻤

㻤㻘㻝㻡㻟

㻤㻘㻞㻤㻡

㻞㻚㻤㻑

㻣㻘㻜㻜㻜
㻞㻚㻟㻑

㻟㻑
㻞㻚㻟㻑

㻞㻚㻝㻑

㻞㻚㻜㻑

㻝㻚㻥㻑

㻟㻘㻡㻜㻜

㻝㻚㻤㻑

㻝㻚㻢㻑

㻞㻜㻝㻢

㻝㻑
㻞㻜㻝㻣
㻔㼒㼕㼟㼏㼍㼘㻌㼥㼑㼍㼞㻕

㻜
㻞㻜㻜㻣

㻞㻜㻜㻤

㻞㻜㻜㻥

㻞㻜㻝㻜

㻞㻜㻝㻝

㻞㻜㻝㻞

㻞㻜㻝㻟

㻞㻜㻝㻠

㻞㻜㻝㻡

㻞㻑

㻝㻚㻢㻑

Note: Guarantee fee ratio = net sales ÷ (period-start/period-end average balance of guarantees outstanding)Number of bankruptcies examined by Teikoku Databank
Source: Prepared by FISCO from the Company’s materials

4. Risks
We examine the risks that should be taken into consideration when looking at eGuarantee’s business performance.
The following are the three primary risks that could affect the Company’s business results. However, we believe thatthese risks do not present major concerns at this time.
(1) Profit-structure risk
The Company’s profit structure is that it records as net sales the guarantee fees it receives from customers,
and it records as costs of sales the payments to financial institutions and others that transfer risk to it, with thedifference between these two amounts being the Company’s profits. The payments to the customers that transfer
risk to it are determined by the track record in executing guarantees over several years, so even if it temporarily
incurs large costs from the execution of guarantees, this will not become a factor causing costs to rise in the
short term. However, during a period in which the execution of guarantees continues to occur frequently, suchas during an economic recession, the risk-transference cost rises. If the Company cannot transfer this rise in therisk-transference cost to the prices of guarantee fees, it becomes a factor causing profitability to deteriorate. Also,on the one hand it is possible that demand for the Company’s services will increase during an economic recession
due to the rise in the risk of bankruptcy, but on the other hand, it also considered possible that the balance ofguarantees outstanding will decrease due to a decline in the number of contracts from a rise in the guarantee fee
ratio and a fall in the contract-renewal rate. In FY3/09, which was the time of the last economic downturn, thebalance of guarantees outstanding declined 2% on the end of the previous fiscal year, but net sales increased bydouble-digits due to the rise in the guarantee fee ratio. There is also the risk that the Company will be unable toexecute guarantees during an unprecedented economic recession in the event of the management collapse of
the financial institutions and others that transfer risk to it.

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

08 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Company overview(2) Competition risk
There are hardly any other companies like the Company that specialize in providing sales credit guarantee services,
but there are factoring companies affiliated to major financial institutions that provide guarantee factoring as asimilar service, and also property insurance companies that provide transaction credit insurance and other suchservices. However, in terms of the scope of the companies that are targets of the guarantees, the guarantee-limit
amount, and the credits targeted, the Company’s strengths include that it is able to respond flexibly to diverse
customer needs, so at the present time it is considered to have almost no competition risk. However, if in the
future, financial institutions or other companies develop the same services as the Company and launch businesses,
thereby causing competition to intensify, its profitability may decline. The Company does face some competition
from a small-scale provider of a small-ticket sales credit guarantee service, of Trust & Growth Co., Ltd., which
is a subsidiary of Raccoon Co., Ltd. <3031>. But small-ticket sales credit guarantees constitute only a small
percentage of the Company’s total business and the penetration rate of this service is also low, so this competition
has hardly any effect on it.
(3) Legal-regulations risk
Credit risk guarantee services are not subject to legal regulations, such as the Insurance Business Act and the
Financial Instruments and Exchange Act. However, if in the future legal regulations relating to these services are
newly enacted, this may affect the Company’s results, such as changing its business model or changing thecompetitive environment.

██Financial results
For the 11th consecutive fiscal period since its listing,
set new record highs for profits from the growth of
the balance of guarantees outstanding
1. Summary of FY3/18 results
In the FY3/18 consolidated results, net sales increased 11.5% YoY to ¥5,105mn, operating profit rose 7.4% to¥2,276mn, recurring profit grew 7.0% to ¥2,302mn, and net profit attributed to owners of parent increased 9.9% to¥1,468mn. In the context of the steady performance of the Japanese economy, the Company is aiming to expand
the base of its credit risk undertaking business, and as a new channel, it has entered-into business alliances with
the Bank of The Ryukyus, Limited. <8399> and three other companies. In addition, by strengthening consulting
sales, include by setting detailed guarantee fee ratios against the backdrop of its advanced screening capabilities,
re-approaching customers that it came into contact with in the past, and providing services according to customer
needs, at the end of the fiscal period the balance of credit guarantees outstanding had risen steadily, up 15.6% on
the on the end of the previous fiscal year to ¥345.3bn.

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

09 14

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

eGuarantee, Inc

9-Jul.-2018

8771 Tokyo Stock Exchange First Section

http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Financial results

Consolidated financial results for FY3/18(¥mn)
FY3/17

FY3/18

Ratio tonet sales

Forecasts

Results

4,577

-

5,200

5,105

794

17.3%

-

1,056

SG&A expenses

1,663

36.3%

-

1,772

34.7%

6.6%

-

Operating profit

2,119

46.3%

2,270

2,276

44.6%

7.4%

0.3%

Recurring profit

2,152

47.0%

2,300

2,302

45.1%

7.0%

0.1%

Net profit attributed toowners of parent

1,335

29.2%

1,450

1,468

28.8%

9.9%

1.3%

Results
Net sales
Cost of sales

Ratio tonet sales

YoY change

vs. forecast

-

11.5%

-1.8%

20.7%

33.0%

-

Source: Prepared by FISCO from the Company’s financial results and results briefing materials㻮㼍㼘㼍㼚㼏㼑㻌㼛㼒㻌㼏㼞㼑㼐㼕㼠㻌㼓㼡㼍㼞㼍㼚㼠㼑㼑㼟㻌㼛㼡㼠㼟㼠㼍㼚㼐㼕㼚㼓㻌㼍㼚㼐㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻮㼍㼘㼍㼚㼏㼑㻌㼛㼒㻌㼓㼡㼍㼞㼍㼚㼠㼑㼑㼟㻌㼛㼡㼠㼟㼠㼍㼚㼐㼕㼚㼓㻌㻔㼘㼑㼒㼠㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼞㼕㼓㼔㼠㻕㻔¥㼎㼚 㻕
㻠㻜㻜

㻔¥㼙㼚㻕
㻢㻘㻜㻜㻜
㻡㻘㻝㻜㻡㻌

㻠㻘㻠㻞㻞㻌

㻠㻘㻡㻣㻣㻌

㻠㻘㻜㻢㻠㻌

㻟㻜㻜㻟㻘㻝㻡㻢㻌

㻟㻘㻞㻥㻝㻌

㻟㻘㻠㻝㻢㻌

㻟㻘㻢㻝㻣㻌

㻠㻘㻡㻜㻜㻟㻘㻣㻟㻣㻌

㻞㻜㻜

㻟㻘㻜㻜㻜
㻟㻠㻡

㻝㻜㻜
㻝㻜㻜

㻝㻟㻣

㻝㻢㻟

㻝㻤㻝

㻝㻥㻤

㻞㻟㻜

㻞㻢㻞

㻞㻥㻥

㻜

㻝㻘㻡㻜㻜

㻜
㻲㼅㻟㻛㻝㻜 㻲㼅㻟㻛㻝㻝 㻲㼅㻟㻛㻝㻞 㻲㼅㻟㻛㻝㻟 㻲㼅㻟㻛㻝㻠 㻲㼅㻟㻛㻝㻡 㻲㼅㻟㻛㻝㻢 㻲㼅㻟㻛㻝㻣 㻲㼅㻟㻛㻝㻤

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

The cost-of-sales ratio rose 3.4 percentage points compared to the previous fiscal year to 20.7%. But this was
because the re-guarantee fee increased due to the Company not restricting its credit guarantee targets to the
low-risk zone and expanding them to as far as the middle risk zone. From the analysis of customer and other datathat it has accumulated up to the present time, it improved the accuracy of bankruptcy probabilities and judged thatgenerating profits from the middle zone was possible even when providing guarantees for it, and started developing
operations for it in FY3/18. For example, in the past the Company targeted the sales credits of companies with abankruptcy probability of 1% or less, but it has expanded the scope of this to 1.5%. Initially, this will be a factor
causing the cost-of-sales ratio rise, but it seems likely that it be able to set highly precise guarantee fee ratios byaccumulating a track record of results.
Also, compared to the initial Company forecasts, net sales were 1.8% below forecast. But this was because themiddle risk credit guarantees with high guarantee fee ratios were less than forecast, and the balance of guarantees
outstanding achieved its forecast. Conversely, on a profits basis, the low-risk zone credit guarantees were above
forecast, and also the costs ratio improved more than expected, so profits were slightly higher than forecast.

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

10 14

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

eGuarantee, Inc

9-Jul.-2018

8771 Tokyo Stock Exchange First Section

http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Financial results

Is financially sound and building a business modelthat is highly profitable and stable
2. Financial conditions and indicators
Looking at the financial position at the end of FY3/18, total assets were up ¥2,635mn the end of the previous fiscal
year to ¥14,368mn. The main change factors were that in current assets, cash and deposits increased ¥1,825mn
due to the sales of shares (¥1,281mn) held in the ESOP (Employee Stock Ownership Plan) Trust and also from thehigher earnings, and that in non-current assets, tangible non-current assets rose ¥502mn on the acquisition of an
employee dormitory.
Total liabilities were up ¥1,470mn on the end of the previous fiscal year to ¥4,928mn. The main change factors werethat deposits increased ¥1,107mn following the sales of shares held in the ESOP Trust, and also that alongside thegrowth of the balance of credit guarantees outstanding, advances received and income taxes payable increasedby ¥160mn and ¥105mn, respectively. Net assets were up ¥1,164mn on the end of the previous fiscal year to¥9,440mn. Retained earnings increased ¥1,047mn, while treasury shares decreased ¥166mn (an increase factor)
following the sales of shares in the ESOP Trust.
Looking at the financial indicators, the equity ratio, which is an indicator of financial stability, declined 2.4 percentage
points on the end of the previous fiscal year to 58.0%, but this was due to the increase in deposits following the saleof shares held in the ESOP Trust. Moreover, the Company has an abundance of cash and hand and no outstanding
interesting-bearing debt, so it is judged to be highly financially sound. Looking at the indicators of profitability also,
the operating margin fell slightly compared to the previous fiscal year to 44.6%, including due to the start of thestrategic underwriting of middle risk, but even so a high level of profitability is being maintained. Further, both ROA
and ROE declined slightly compared to the previous fiscal year, to 17.6% and 19.0% respectively. But if we look at
the last few years, we see that they are being maintained at high levels, and that highly stable profit is one of thefeatures of the Company.
Consolidated balance sheet and indicators(¥mn)
FY3/15

FY3/16

FY3/17

FY3/18Change

6,801

7,443

8,809

10,918

2,109

4,561

5,403

6,627

8,453

1,825

Fixed assets

2,801

3,202

2,924

3,450

525

Total assets

9,602

10,645

11,73314,3682,635

Current liabilities

3,218

3,389

3,342

4,812

1,470

Fixed liabilities

210

146

115

115

-

126

70

5

-

-5

Total liabilities

3,429

3,536

3,457

4,928

1,470

Net assets

6,173

7,109

8,275

9,440

1,164

Equity ratio

53.8%

56.7%

60.4%

58.0%

-2.4ptInterest-bearing debt ratio

2.4%

1.2%

0.1%

-

-0.1pt

ROA

17.3%

18.3%

19.2%

17.6%

-1.6pt

ROE

18.8%

19.9%

20.4%

19.0%

-1.4ptOperating margin

37.8%

41.4%

46.3%

44.6%

-1.7ptCurrent assets(Cash and deposits)(Interest-bearing debt)(Stability)(Profitability)

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

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

11 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/██Business outlook
The outlook is for the higher sales and profits to continue in FY3/19
also, from the extremely strong demand for sales credit guarantees
1. FY3/19 outlook
The outlook for the FY3/19 consolidated results is for double-digit increases in sales and profits, with net sales
increasing 11.6% YoY to ¥5,700mn, recurring profit rising 10.7% to ¥2,550mn, and net profit attributed to owners ofparent growing 10.3% to ¥1,620mn. The Company’s policy will be to continue to actively underwrite risk, including
undertaking middle risk, while paying attention to the economic climate and bankruptcy trends. On the other hand,
it is also preparing for changes to the risk environment in the future and undertaking risk based on careful risk
assessments. In addition, it is working to develop products and services that meet customers’ needs in new forms,
while also aiming to accumulate the balance of guarantees outstanding through expanding its sales resources.
Demand at the present time continues to be plentiful, and if looking only at the number of inquiring companies, it
has doubled compared to a year and a half ago. Inquiries are increasing from companies that want to develop new
customers and to grow sales while hedging against the risk of sales credit bad debt. For major companies also,
in an increasing number of cases they are deciding that using the Company’s services is more efficient than using
their own in-house human resources to manage sales credits of below a certain level. Furthermore, it seems thatsynergies are being created, of companies entering-into contracts for the Company’s low risk guarantee services in
conjunction with its provision of middle risk credit guarantees. The middle risk balance of guarantees outstanding iscurrently only a few percent of the total balance, but the policy going forward is to gradually increase it.
Other than the above, the progress being made in the revitalization of regional banks with low service utilization
rates (with few referrals) is leading to an increase in the number of customers. Depending on the bank that is thealliance partner, there are banks with low service utilization rates even among the alliance banks. The effects of themeasures for these banks, such as appealing to the merits of the banks’ customer companies using the Company’s
services, started to appear in FY3/18, and this momentum is being maintained in FY3/19 also.
Consolidated results outlook for FY3/19(¥mn)
FY3/18Results

FY3/19Ratio tonet sales

Results

Ratio tonet sales

YoY change

Net sales

5,105

-

5,700

-

11.6%

Operating profit

2,276

44.6%

2,510

44.0%

10.3%

Recurring profit

2,302

45.1%

2,550

44.7%

10.7%

Net profit attributed to owners of parent

1,468

28.8%

1,620

28.4%

10.3%

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

2. Key policies
The Company has set two key policies for FY3/19; expanding the scale of guarantees by increasing sales resources,
and strengthening the ability to undertake risk in preparation for the expansion of the scale of guarantees.

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

12 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Business outlook(1) Expanding the scale of guarantees by increasing sales resources
In order to respond to the plentiful demand, the Company is aiming to strengthen its sales force and education
system. It is also working to improve operational efficiency through a fully-fledged review of sales administrative
work, and to increase the number of contracts and to expand the scale of guarantees.
In terms of the personnel system, the Company had 149 employees at the end of FY3/18 (consolidated basis).
Of these, around 100 were members of the sales department, and it plans to increase the number of employees
in this department by around 20% a year. Also, in the review of sales administrative work, it will clearly distinguishthe staff who are directly involved in sales from the middle office staff who are involved in preparing proposals andother such work, toward establishing a structure that makes it easier for the sales force to concentrate exclusively
on sales activities with customers, thereby improving the productivity of sales.
The Company is also aiming to streamline back office operations by transferring them to a subsidiary, eGuarantee
Shared Services, which it newly established in 2017. In addition, the subsidiary eGuarantee Solution is strengthening systems development in order to improve operational efficiency, and the intention is to improve productivity
in all of the companies through pursuing the systemization of various operations. The Company also has in sightutilizing AI technologies in the future. It recruits around 20 new graduates a year, and going forward it intends torecruit more personnel, including mid-career hires, alongside the growth in results.
(2) Strengthening the ability to undertake risk in preparation for the expansion of the scale of guarantees
In order to build a securitization structure in preparation for the expansion of scale of guarantees, the Company
is establishing a system to stably undertake risk over the long term and strengthening its ability to undertake risk
through forming funds in which the main sponsor is an organization other than the Company itself. Already inMarch 2018, it announced that it will invest as a silent partner in the Credit Guarantee No. 3 joint venture company(investment stake 49%, investment amount, ¥96mn).
As the situation of long-term, low interest rates continues, the yield from fund management by financial institutions
and others is declining, so needs for new investment destinations are strengthening. Therefore, the Company’s
policy going forward is to expand the scale of guarantees by also utilizing fund composition through minority
investments. For the fund’s management period as well, funds are being formed not only of one year, but also of
three years, which is a comparatively long period. So for the credit guarantee period, the Company can provide
a long-term guarantee service of a three-year guarantee, and as the guarantee fee ratio is higher for long-term
guarantees, this will become a factor increasing sales. Also, by expanding the scope of guarantees from low risk
to middle risk, the scope of the financial institutions that are the securitization destinations and the funds are also
widened, which could ultimately lead to an expansion of the scale of guarantees.

Aiming for consolidated recurring profit of ¥5bn
as the medium-term target
3. The medium-term target
As its medium-term management target, the Company is aiming for consolidated recurring profit of ¥5bn. In termsof the standard to achieve this target of ¥5bn, the balance of guarantees outstanding must approximately double on
the end of the previous fiscal period, to approximately ¥700bn to ¥800bn. If growth continues at around the current
pace of 15%, then the prospect is that it will be able to achieve this target in FY3/23.

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

13 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

Business outlook

In order to grow the balance of guarantees outstanding, it is thought that growth of about 15% a year is possible
through, as previously mentioned, the Company working to strengthen the sales structure and improve productivity
by increasing operational efficiency, and also by expanding the scope of credits it targets (up to middle risk and tovarious credits other than sales credits*). Also, currently around 80% of its new customers are referrals from regionalbanks and it has built a network that covers almost all of the country. But it is working to further enhance its sales
network by expanding its alliance partners to other business categories.
* Small-ticket credits, purchase credits, special credits, loan credits, long-term bonds, etc.

In particular, recently, against the backdrop of the expansion of the EC market, needs have been growing fromcompanies that are developing the B2B marketplace on the Internet that want to utilize the Company’s sales credit
guarantee service as one type of financial service. So it is expected that alliances with these companies will increasein the future.

██Shareholder return policy
Aiming to continue to increase the dividend alongside the growth
in profits
The Company’s basic dividend policy is to pay dividends in line with earnings while also considering supplementing
the internal reserves it needs to strengthen its financial structure and to actively develop its business. The standard
for the dividend payout ratio is around 30%. Looking at the trend up to the present time, since the Company starting
paying dividends in FY3/09, it continuously and consecutively increased it up to FY3/18, and it has expressed its
intention to continue to increase the dividend in the future also, if the profit growth is maintained. In FY3/19, it plansto pay a dividend of ¥22.5 (dividend payout ratio, 29.3%), which is unchanged YoY. But at FISCO, we think that it
is highly possible it will increase it, if the results achieve their forecasts.
In addition, the Company has a shareholder gift program. Specifically, eGuarantee uniformly awards a QUO card
worth ¥1,500 to each shareholder who holds 100 or more shares at the end of March every year. Based on theshare price (¥2,123) as of June 20, 2018, the total return on investment for each shareholder holding one unit ofshares was 1.8%.

██Information security
As the Company handles information on its customer companies and others through its guarantee service business,
it is aware that information security measures are an important management issue. Therefore, it is taking various
steps to ensure information security, including updating to the latest security software, restricting access to theinformation management system according to the person in change and the managerial position, and providing
education and training on information management.

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

14 14

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

eGuarantee, Inc
8771 Tokyo Stock Exchange First Section

9-Jul.-2018
http://www.eguarantee.co.jp/english/investor_relationships/greetings/

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

15 14

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock priceand index information. The trademark and value of the “JASDAQ INDEX” are the intellectual
properties of the Tokyo Stock Exchange, and therefore all rights to them belong to the Tokyo
Stock Exchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment or
any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content of
this report are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplications of thereport, without the express written consent of FISCO, is strictly prohibited. Any transmission,
reproduction, distribution or transfer of the report or its duplications is also strictly prohibited.
The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.