Alpha-Win Company Research Report
Cube System Inc.
(2335 TSE First Section) Issued: 12/12/2018● Summary

Research Dept., Alpha-Win Capital Inc.
http://www.awincap.com/

Business Description
・Cube System Inc. (the Company, hereinafter) is an independent, mid-tier system integrator (SI) listed in thefirst section of the TSE. Its main customers include Nomura Research Institute and Fujitsu Group. It
provides services and develops systems mainly for the finance, distribution, and telecommunicationsindustries. Founded in 1972, it has 46 years of history in the industry.
Current Financial Results・With the exception of one fiscal year, the Company has been continuously increasing sales YOY for the
past 17 years. During this period, its sales growth rate (simple average increase in sales) was +6.5% peryear and its recurring profit growth rate (average) was +5.9% per year; the Company has been steadily
expanding its business and keeping its business in the black over the long term. The recurring margin has
been stable at around 7%, and the increase in sales has been contributing directly to increases in profit,
dividend, and market capitalization.
・This FY, the Company plans to increase and achieve record-highs for its sales and profits. The businessenvironment has been great, and profit for H1 slightly exceeded the target value. Alpha-Win Research
Department predicts the financial results to come out to be about the same as the Company’s plan.
Competitiveness・Its strengths are its excellent customer base, extensive experience and high reliability that it has cultivatedover the years, and its accumulated skill and know-how. Along with business expansion, the Company has
been improving its capacity to meet the needs of more projects, thus becoming more competitive.
Business Strategy
・The Company has established a medium- to long-term management vision. With the “expansion of service
lineup” as its goal, the Company currently aims for management target values of Y18.5 bil in sales, 9.6% in
O.P. margin, and 13% in ROE by FY 2021. Also, it focuses on new business fields such as blockchain,
Cloud, AI, and IoT, as well as steadily laying out the foundation for future business expansion throughalliances, etc. Going forward, the continual improvement of profitability, development of new businessdomains, acquisition of new customers, securing and training of employees, M&A and alliance strategies,
globalization, and adaptation to new technologies should become the key factors.
Forecast on Medium-Term Financial Results
・The Company’s business is affected by the financial results and system investment trends of its domestic
corporate customers. However, Alpha-Win Research Department judges that, over the medium to long term,
the Company will continue to steadily increase sales and profits by about 10% per year thanks to the
expected growth of the enhancement business, acquisition of new customers, development of new andoverseas businesses, and productivity improvement by various measures.
Shareholder Return
・The Company has been buying back its shares, performing stock splits, and raising dividend in stages.
When benefits from the shareholder benefit plan are added to dividend, the actual dividend yield is about
2.7% max. Over the medium term, business is expected to fare well, allowing for dividend hikes.
Stock Characteristics and Stock Price
・The Company’s stock is a domestically-oriented, stable growth stock, relatively low in volatility anddefensive. Its valuation in its industry is about average. Over the past ten years or so, its stock price has
1/40This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

increased by greater than 4 times and has been largely outperforming the TOPIX. Regarding stock price, weshould keep note of the Company’s development of new technologies and businesses and its shareholder
return (share buyback, dividend raise, and shareholder benefit plan enhancement) in addition to its financial
performance.

【 2335 Cube System Sector: Information & Communication 】 Figure A
FY

2016
2017
2018
2019
2019
2020
2021

CE
E
E
E

Sales

YOY

O.P.

YOY

R.P.

YOY

N.P.

YOY

EPS

BPS

Dividend(Y mil)（%）(Y mil)（ %）(Y mil)（ %）(Y mil)

(%)

(Y)

(Y)

(Y)

12,622
12,89913,55914,70014,60015,80017,300

0.8
2.2
5.1
8.4
7.7
8.2
9.5

949
781
855
1,010
1,000
1,150
1,340

-1.5
-17.7
9.5
18.1
17.0
15.0
16.5

960
811
892
1,010
1,000
1,150
1,340

-2.1
-15.5
10.0
13.1
12.1
15.0
16.5

5.8
-12.3
2.9
12.9
12.0
15.0
16.6

43.22
39.15
40.59
45.80
46.07
52.97
61.75

322.76346.47372.23

14.0
14.0
16.0
16.0
16.0
17.0
18.0

628
551
567
640
635
730
851

402.66438.63482.38(Note) CE = the Company’s estimate; E = estimate by Alpha-Win Research Dept. All fiscal years discussed in thisdocument are March-ending.

【 Stock Price and Valuation Indicators: 2335 Cube System 】 Figure B
Item

as of 11/30/2018

Item

P/E

P/B

Dividend Yield

Dividend Payout Ratio

Stock Price (Y)771

Last FY (actual)

19.0

2.1

2.1%

39.4%

Shares Outstanding (thou.)

15,280This FY (est.)

16.7

1.9

2.1%

34.7%

Market Capitalizatoin (Y mil)

11,781

Next FY (est.)

14.6

1.8

2.2%

32.1%

68.1% Last FY's ROE

11.4%

Dilutive Shares (thou.)0

Equity Ratio at Last FY-End(Note) Estimates were made by Alpha-Win Research Dept.

【Performance 】

Period1 month
3 months
6 months
12 months

Returnvs. TOPIX-10.5%-17.8%-11.9%-4.0%-11.6%-14.5%-7.7%
3.2%(Note) Stock prices and index values are asof the end of Nov. 2018.

2/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

Contents
1．Company Overview .................................................................................................................... P4
Independent, Mid-Tier System Integrator ......................................................................................... P4
Business Philosophy and Basic Management Policy ........................................................................ P6

2．Business Description and Business Model ............................................................................ P7
Three Lines of System Service ............................................................................................................ P7
Labor-Intensive Business Model where Human Resources Are the Key ........................................... P9
Sales Composition Well-Balanced by Industry ................................................................................. P10
Stable Customer Base and Business with High Continuity............................................................... P11
Future Areas of Growth and Foundation for Next-Generation Technologies ................................. P13

3．Shareholder Composition ....................................................................................................... P14
Change in Composition by Type of Shareholder ............................................................................ P14
Major Shareholder Composition ..................................................................................................... P14

4．ESG ............................................................................................................................................... P16
Environment, Society, and Governance ............................................................................................ P16

5．History of Growth ..................................................................................................................... P18
Company History ............................................................................................................................. P18
Transition in Past Financial Performance ........................................................................................ P18

6．Business Environment ............................................................................................................. P21
History of the System Integration Business .................................................................................... P21
Structure of the System Integration Industry ................................................................................... P21
Trend in Japan’s System Integration Market..................................................................................... P23
Cube System’s Market Position and Comparison with Competitors ................................................ P24

7．Last Fiscal Year’s Results and This Fiscal Year’s Forecast by the Company ........... P26
Full-Year Financial Results for FY 2018 (last fiscal year) ............................................................... P26
Cube System’s Financial Results Forecast for FY 2019 (this fiscal year) ........................................ P28

8．Growth Strategy ........................................................................................................................ P31
Medium- to Long-Term Management Vision “VISION 2020” ...................................................... P31
Management Indicator Goals and Areas of Focus .......................................................................... P31
Alpha-Win Research Dept.’s Financial Results Forecast for FY 2019 (this fiscal year) .................. P32
Alpha-Win Research Dept.’s Financial Results Forecast for the Medium Term ............................ P34

9．Analyst’s View ........................................................................................................................... P35
SWOT Analysis ................................................................................................................................. P35
Shareholder Return and Shareholder Benefit Program ................................................................... P36
Stock Characteristics/Price and Factors that May Affect Stock Price ............................................ P37
3/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

1. Company Overview
w An independent system
integrator with 46 yearsof history in the industry.
Specialized and mid-tier.
Stable customer basewith several blue-chipcompanies among its
customers.
(1) System integrator: a company
that conducts system integration.
Abbreviated as “SI” or “SIer.” A
general term for companies that
plan, design, develop, operate,
and provide other solutions for
the IT operation systems ofcustomers including othercompanies and the government.

w The Company’s group ismade of the Company
and three subsidiaries.
Consolidated-to-parent-c
ompany sales ratio has
stayed around 1.1. Total
profit/loss of the three
consolidated subsidiaries
has also stably been asurplus.

◆ Independent, Mid-Tier System Integrator
Cube System Inc. (the Company, hereinafter) is an independent system
integrator1 (a.k.a. SI). It is listed in the first section of the TSE and is a
mid-tier player in the system integration industry. Often as a subcontractor
of major SIs, the Company mainly develops the systems of large companies
in the finance, telecommunications, and distribution industries, as well as of
the government. Its customer base is firm, having expanded its businesswith its main customers over many years. The Company has technologicalexpertise and high reliability, with the four corporate groups Nomura
Research Institute, Fujitsu, Aeon, and Mizuho being its main customers andreceiving outsourced jobs from the Tokyo Stock Exchange.
Founded in 1972 at the outset of the software industry, the Company has 46
years of practice in the industry. The current president is one of thefounding members.
The Company’s group is made of four companies: the Company and three
consolidated subsidiaries. The consolidated subsidiaries are the following.
・Hokkaido Cube System Inc.
(Located in Sapporo, Hokkaido; founded in 1990 by the Company, whichowns 90.9% of the shares, for system development and sales reinforcementin the Tohoku and Hokkaido regions)
・CUBE SYSTEM VIETNAM CO., LTD.
(Ho Chi Minh City, Socialist Republic of Vietnam; founded by theCompany in 2008 as a 100% owned subsidiary)
・Cube System Shanghai Co., Ltd.
(Shanghai, China; the Company established Cube Shenya System Shanghai
Co., Ltd., as a joint company in 2009, and then acquired all shares in Dec.
2017 and changed the name to the current one.)(2) Offshore development:
providing services that meet thecustomers’ needs, from systemdevelopment to maintenance, at alow cost using overseas/offshore
sites

The overseas subsidiaries were founded mainly to cut down on cost, acquire
human resources, and function as system development sites (offshoredevelopment2).

w The Company’s wish isembedded in its name.

The company name CUBE comes from the first letters of “CU=Customer(customer first as the motto),” “B=Brain (exert high-level intellect andknowledge),” and “E=Emotional mind (solutions that move the heart). Also,
CUBE also has the meaning of a geometrical cube – it reflects the wish to
grow as a company with cube-like multi-dimensionality (the six faces areinnovation, humanity, vitality, internationality, technology, andyouthfulness).

w Debtless, firmmanagement

The consolidated-to-parent-company sales ratio has stayed around 1.1 forthe past 16 years, indicating that a greater weight is placed on the parent
company’s financial result (Figure 1). Although the subsidiaries’ profits andlosses are not disclosed, the consolidated-to-parent-company recurring
profit ratio has been around 0.98 to 1.07 during the same period. Moreover,
the total profit/loss of the three subsidiaries, calculated by subtracting theparent company recurring profit from the consolidated recurring profit, hasbeen a surplus with the exception of the two periods FY 2011 and FY 2012
(Figure 2).

The Company’s finance is strong with essentially no debt. While theCompany has approx. Y2.9 billion in cash and deposits in addition to more
4/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

than Y800 million total in high-liquidity stocks and foreign bonds, its debt
is Y300 million (total assets = Y7.5 billion, market capitalization = Y13.1
billion, and sales = Y13.6 billion). Its financial ratios such as its equity ratio
and current ratio are also stably high at 68% and 316%, respectively (allvalues are as of the end of March 2018).
[Figure 1] Ratio of Consolidated to Parent Company Sales (ratios shown on upper portion of graph)(Ref) Both Figures 1 and 2 were prepared by Alpha-Win Research Dept. based on the securities report and financial results summary.
(Note) The estimates, unless otherwise noted, are the Company’s planned/target values. Decimal places have been rounded by ourRes. Dept. and therefore the values may slightly differ from the Company’s official disclosed values, etc. These apply to therest of this document.

[Figure 2] Ratio of Consolidated to Parent Company Recurring Profit(ratios shown on upper portion of graph)

5/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018◆ Business Philosophy and Basic Management Policy

w The business philosophy/ goal is to “create aworld-class company.”

The Company’s business philosophy is as follows:
・A company flourishes with people’s support. We must continue to exist to
promise the well-being of people including our employees. Continuity anddevelopment are born from profit, and profit is brought by customers. Under
this philosophy, we will “create a world-class company.”

w The basic management
policies are “Customer
First,” “Focus,” and“All-Employee Sales.”The following are the Company’s three basic management policies:
・Customer First: All decisions are based on our customers’ values and it is
our standard to think from our customers’ perspectives.
・Focus: The four main elements of a company are its people, assets, money
and time. In order maximally utilize these elements, we will focus ourmanagement resources on the most important matters decided based on ourcustomer-first policy.
・All-Employee Sales: In order to provide user-oriented services, each
employee will work toward the development of the Company’s business as
independent business persons. (⇒has established a unique all-employee sales
system3)(3) All-employee sales system: asystem where there is no
dedicated department for sales but
instead each project is managed asa whole from receiving an orderto delivering the product andconfirming the payment. The
system engineer, who is in chargeof responding to customers, willmaterialize the systemizationneeds of customers throughdialogues and carry out projects
with responsibility, authority, anda sales goal.

Moreover, for the entire company as well as for each department, numbers
such as sales, profits, and progress rate toward a goal are disclosed to all
employees. Thus, information is being shared in an open management
system.

w Management goals andresults are shared among
all employees.

6/40This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

2. Business Description and Business Model◆ Three Lines of System Service
w Business is classified

into three categories. The
System Integration
Service, which is mainly
system development,
accounts for 70% of sales.
Profit margins of thethree categories are about
the same.
(4) System solution: solving issues
related to systems throughhardware, software, and services

As its business, the Company’s group provides system solutions4.
Specifically, the Company provides a series of services dealing with theplanning/proposal, design, manufacture (by programming), testing,operation, and evaluation of systems for other companies or the government.
Since this is the Company’s single business, the business is classified by the
informatization cycle of the customer into the following three categories(services lines).
1. System Integration Service (SIS)
2. System Outsourcing Service (SOS)
3. Professional Service (ProS)[Figure 3] Overview Diagram of the Processes in Each Service(5) Requirement definition:
defining the scope and target ofsystemization(6) Basic design: also called
external design, a part of the
upstream process where the basicsof the functions necessary for asystem from the user’s perspective
are designed (screen, method of
operation, security, etc.). The
workflow is as follows: basic
design → internal design →detailed design → manufacture(also called programming or
implementation).
(Ref) Prepared by Alpha-Win Research Dept. based on the securities report

w Projects are diversified.

w System Integration

Services are based oncontracts. Project
management of the risks
and the profit/loss isimportant.

1. System Integration Service (SIS)
・The Company’s main business. Responds to the needs of corporate andother users (defined as end users such as other companies and thegovernment) and develops systems for business use. Includes requirement
definition5, basic design6, programming, and testing.
・While the time it takes from receiving an order to delivering the productcan range from a few months at the shortest to about three years, mostprojects are completed in the order of several months. Most orders arereceived and delivered during the same fiscal year. The price can also range
from several million yens to several hundred million yens, but projects witha price of less than Y50 million are by far the most common.
・In general, engineers are stationed at the corporate and other user’s site andconduct system development for each project in teams. However, to cut
down on cost and secure the necessary number of staff, a part of thedevelopment is outsourced to domestic and overseas subsidiaries or othercompanies in the same business under supervision of the Company’s project
manager.
・Since the system development business is, as a general principle, based oncontract agreements, the SI (the Company), who is the contractor, bears
7/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)(7) Standard development
framework F@CE: The
Company’s unique generalframework for standardizing andstreamlining application
development. A tool for carryingout projects efficiently by
preventing operation errors oromissions.
(8) Enhancement Service:
Providing not just system
maintenance, management, anddevelopment services but also
improving system performanceand quality to increase the valueof the system. Or proposing ideas
for new businesses. Improves
customer satisfaction throughthese means.

(9) Business related to Oracle
Cloud: Cloud-related services andproposals based on Oracle’s
database. The Company plans tocontinue to strengthen thisbusiness by increasing the numberof certified staff.

[Figure 4] Composition of Sales (outer circle)
and Gross Profit (inner circle) byCategory for FY 2018

Issued: 12/12/2018

responsibility for the products (systems). Therefore, management of therisks and the profit/loss of projects and products is important.
・Projects are often obtained through proposals or by bidding. Estimates are
generally calculated based on [number of staff] x [number of months]. After
receiving an order, in developing the system, the Company employs
knowledge, know-how, and fundamental technologies pertaining to various
industries, companies, and businesses that it has accumulated over the years,
as well as its standard development framework F@CE7, to reduce risk andimprove quality, profitability, and efficiency.
・Since unexpected changes in specifications, additional work exceeding theinitial estimate, etc., would negatively affect profitability and may make theproject unprofitable, the Company is especially keen on improving its
project management skills. The Company is also actively engaged in the
Enhancement Service8, where the Company works closely with corporate
and other users to make various proposals that will lead to new businesses(compact system development).
2. System Outsourcing Service (SOS)・Services related to the operation and evaluation of systems. It provides two
solution services: System Operation & Management (development,
management, and evaluation of components of a system such as hardware,
basic software, database, network environment, etc.) and Business
Application Management (maintenance, management, and improvement ofbusiness applications and evaluation of management processes). The
Company also has a seamlessly linked service structure where newchallenges found and proposed during system maintenance and operation(SOS) can lead to a new Enhancement Service project (SIS).
3. Professional Service (ProS)
・Services that utilize the Company’s technologies to solve everything
related to the informatization cycle from planning, designing, anddeveloping infrastructure to operating/monitoring systems,
such asconsulting, database improvement for greater efficiency, system monitoring,
management support, and IT strategies. High performance is realized bydevelopment tools and skills of certified experts. The Company is especiallystrong in database technologies, for which it has expert engineers (business
related to Oracle Cloud9).
Breakdown of sales and gross profit by each of the three categories and theirtransition over the years are shown on Figures 4-6. The sales breakdown
shows that SIS accounts for about 70% of the total, and SOS and ProS
almost equally share the remaining 30% (outer circle of Figure 4). Over the
past 15 years, sales grew by 3.2 times for SIS, 2 times for SOS, and 1.2
times for ProS; SIS has been the main driver of business growth (Figure 5).
Breakdown of gross profit is shown on Figure 4 (inner circle). The
breakdown is not very different from that of sales. Also, as indicated by thetransition in gross margin shown on Figure 6, although some years weremarked by a 5% difference at maximum, each category has generally stayed
within the range of 15% to 17%. However, the gross margin of ProS, which
creates high added-value, is two to three points higher than the other two
categories. The overall gross margin, though, depends on the gross marginof SIS since SIS accounts for an extremely large percentage of sales (Figure
6).

(Ref) Prepared by Alpha-Win Research Dept.
based on the financial results summary

8/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)[Figure 5] Sales by Category

Issued: 12/12/2018[Figure 6] Transition in Gross Margin for Each Category(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary

w Labor-intensive

business. Acquisition oftalented personnel is the
key to growth.

(10) Agile development: anapproach to project development.
Unlike the conventional waterfall
development, it divides a system
into short phases and conducts
repeated implementation(programming) and testing to cut
down on development time.
“Agile” means dexterous andquick.

◆ Labor-Intensive BusinessResources Are the Key

Model

where

Human

Since most of the Company’s business is order-made system development
contracts, its business is strongly characterized as a labor-based,
one-product production model. Therefore, the securing and training oftalented personnel are the key factors since human resources are the sourceof competitive advantage and growth potential. Especially since systems are
becoming more advanced and complex, talented employees for roles such as
project managers in charge of overall project management and systemengineers are crucial in order to manage system quality, cost, deadlines, andprofit/loss. Currently, the Company has about 260 project managers, but thisnumber is somewhat short and is a bottleneck to further growth.
Furthermore, due to the nature of business, it is not rare for project
managers to have to face troubles related to specifications changes
requested by customers and miscommunications; project managers must
consequently be equipped with knowledge, proposal skills, technologicalexpertise, and communications skills.
With regards to cost structure, labor cost and subcontracting cost paid tobusiness partners (mostly personnel expense in essence) account for over
90% of the cost of sales (for the parent company only, 30.3% and 62.9%,
respectively). Therefore, the Company’s skill in controlling these two costs
may have an effect on profitability.
Generally, the system integration business is one where rapid expansion byunique products and services is difficult. Additionally, although the sharing
and utilization of know-how is possible to some extent, there is a limit toimproving productivity due to the reliance on manpower. This difficultywith profit margin improvement is a characteristic of the industry rather
than just the Company. Faced by this challenge, the Company plans tocontinue to improve its profit margin by taking various measures that do not
rely heavily on manpower such as adoption of agile development10, use of a
9/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

standard platform, project management reinforcement by the entire
organization, utilization of overseas subsidiaries, and reviewing of contracts(negotiating and proposing to change from payment based on the number ofstaff and months to payment in return for services).

w Sales breakdown byindustry shows that the
top three industries arefinance > distribution >telecommunications,which account for about
70% in total.
w Diversification ofindustry is steadily inprogress.

[Figure 7] Sales Breakdown by Industry for
FY 2018◆ Sales Composition Well-Balanced by Industry

Sales breakdown by industry is shown below (Figure 7). Sales for thefinance industry are the largest, at 33.7% of the total (FY 2018; same for therest). This industry must process a massive amount of data and is required
to be secure and reliable. Second to finance is the distribution industry at
23.2% and then the telecommunications industry at 17.9% of total sales.
These three industries account for 70% of the total, but compared to othercompanies, this composition is generally seen as diversified to some degree(Figure 23; the competitor HIMACS’s sales for the finance industry is
greater than 70% of total).
The Company’s total sales have been increasing over the long term, with thefinance industry as a significant growth driver industry-wise. Sales toward
the telecommunications industry, although somewhat unstable, are also
generally increasing in line with the system investment cycle oftelecommunications carriers, etc. In recent years, sales for the industries
categorized as “other” – manufacturing, government, and energy-relatedindustries – are also growing and beginning to contribute to thediversification by industry (Figure 8). The breakdown of gross margin byindustry changes somewhat every year, and there is no significant trend ordifference in margin (Figure 9). Alpha-Win Research Department believes
this phenomenon is due to the fact that differences in the profitability ofeach individual project, rather than differences in the characteristics of eachindustry, are being reflected in the gross margin.

[Figure 8] Transition in Sales for Each Industry(Ref) Figures 7 and 8 were prepared by Alpha-Win Research Dept. based on the securities report, financial resultssummary, and financial results briefing materials

10/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018[Figure 9] Transition in Gross Margin by Industry(Ref) Prepared by Alpha-Win Research Dept. based on the securities report, financial resultssummary, and financial results briefing materials

w Stable business withvery many repeatedbusinesses with existingcustomers

w Sales breakdown by

customer shows that
Nomura ResearchInstitute is the largest,and together with
Fujitsu, Aeon, andMizuho, these fourgroups account for
greater than 70% of thetotal.

◆ Stable Customer Base and Business with HighContinuity
Since the Company’s customers and users are Japan’s leading corporategroups and its business deals with mission-critical operations, the Company
must be reliable, stable, user-friendly, secure, and continuous. Moreover,
the accumulation of business knowledge and know-how is a must forsystem development and operations. Consequently, the Company has highcontract continuity with its existing customers. The prime ratio (percentage
of direct contracts made with end users for system development) is 20 to
30% and many projects are outsourced from major SIs.
[Figure 10] Sales Breakdown by Customer Group for FY 2018

(Ref) Prepared by Alpha-Win Research Dept. based on the securities report andfinancial results summary

As shown by the transition in sales breakdown by customer group (Figures
10 and 11), Nomura Research Institute (Nomura Res. Inst. or NRI,
11/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)(11) e-e Partner: an especiallyclose partner among all partnersof NRI. Of the “e Partners”(approx. 150 companies) withhighly specialized businessknow-how and IT skills andhigh-level IT security, e-ePartners cooperate with NRI not
only in the operation of specificprojects but also in thecooperative promotion of
innovative activities in theenhancement business; in thestrategic reinforcement of HR,
quality, and IT security; and in
the creation of a mutuallyprosperous business model thattakes advantage of each other’s
expertise. NRI has only
announced three companies (theCompany, HIMACS, and Toho
System) as being its e-e Partners.

Issued: 12/12/2018

hereinafter) is the largest customer, followed by Fujitsu, Aeon, and Mizuho.
These four corporate groups account for greater than 70% of the total. This
percentage is gradually declining but still remains high. In fact, sales for the
Nomura Res. Inst. Group increased by approx. Y4.3 billion from approx.
Y900 million in FY 2002 to approx. Y5.2 billion in FY 2018 thanks to the
expansion of business field from the initially focused distribution industry
to other industries such as finance. The Company’s overall sales during thisperiod grew by approx. Y8 billion from approx. Y5.6 billion to approx.
Y13.6 billion mostly owing to the NRI Group. Similarly, Fujitsu Group
contributed slightly less than Y1.4 billion to sales, which is 24% of total,
thanks to its expansion of telecommunications, electrical power
infrastructure, and government-related businesses. Having raised sales overthe long term for each of the major corporate groups, the Company can be
judged as having excellent trust from customers and great contract
continuity.
In fact, the Company is one of the few companies that are partnered with
Nomura Res. Inst. (NRI) as an e-e Partner11. In this partnership, theCompany is in a close relationship with NRI, partnered not only in businessbut also making mutual investments and exchanging human resources with
NRI. (Looking at transaction with each company, we can see that NRI is thelargest at 31.3% of the total. Second largest is Fujitsu at 18.8%.)[Figure 11] Transition in Sales by Customer Group (G) and Shares of the Top 4 Groups(Note: information on sales of Mizuho G before FY 2003 and of Aeon G before FY 2007 is not available)(Ref) Prepared by Alpha-Win Research Dept. based on the securities report, financial results summary, and financial
results briefing materials

12/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

w Invests in growth areasof focus such as
blockchain, Cloud, agile
development, AI, andIoT(12) Cloud solution service: a typeof service where applications areused as a “service” via web
browsers, etc.
(13) Blockchain: distributed
network where information is
synchronized, recorded, andaccumulated among many
computers(14) AI: artificial intelligence(15) IoT: Internet of things.
System that connects all devices
around us by the Internet.

Issued: 12/12/2018◆ Future Areas of Growth
Next-Generation Technologies

andFoundation

for

Alongside its own R&D activities, the Company has been forming allianceswith companies with advanced, new technologies (Figure 12). Thus, theCompany is steadily building the foundation for developing businesses thatuse next-generation technologies. The total R&D cost in FY 2018 was Y83
million, which may appear small since it is only approx. 0.6% of sales.
However, the R&D cost is also actually separately recorded as “personnel
expense for developers” under “periodic profit and loss.”
The Company is especially focused on technology investment for Cloud
solution services12 including Oracle-related services; participation in proof
experiments of the Blockchain13 Collaborative Consortium; capital andbusiness alliances with companies with know-how on AI technology14, IoT
technology15, and blockchain; alliance in agile development; developmentof a corporate currency platform using blockchain technology; and creationof new solutions.
Furthermore, the Company created the Technology Strategy Office for its
organization in 2016. Members of the Office are both dedicated members
and members who also work for the sales offices. The role of the Office is
to catch up to advanced technologies and conduct R&D and businessdevelopment based on the newest core technologies. Although it may takeseveral years for these technologies and new businesses to begin to makesubstantial contribution to financial result, their progress should be
followed.

[Figure 12] Summary of News Release Related to Recent New Technologies, Alliances, andEmphasized Businesses
Announced Date

Announced Item

Details

May 2018

Agile development with CA
Technologies Japan

Formed an alliance with CA Technologies Japan, the Japan subsidiary of CA Technologies(NASDAQ: CA) of USA, and began agile development using the products and services of the
CA Group. Will thus establish a more high-speed and high-quality software development
method and create a new service model.

Jul 2018

Cooperation in proposal activities making use of know-how and techniquqes related to AI, IoT,
Capital and business alliance withand blockchain, etc. Through third party allotment, the Company acquired 4.7% of Tripleize's
Tripleize Co., Ltd.
shares.

Aug 2018

The Company achieved 1st place in the "Oracle Cloud Platform (PaaS/IaaS) Certification"section of the 2018 Oracle Cloud Certification Award which acknowledges companies that
Service related to Oracle Cloud made great efforts to acquire Cloud certifications. In addition, for the monitoring of the Oracle
Cloud system, the Company began providing monitoring system development services using
Zabbix.
(Ref) Prepared by Alpha-Win Research Dept. based on the news release on the Company’s website

13/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

3． Shareholder Composition
w “Individuals, etc.” owns

slightly less than 80% of
shares.

◆ Change in Composition by Type of Shareholder
With regards to shareholder composition by type of shareholder as of theend of March 2018 (Figure 13), “Individuals, etc.” is by far the largest,owning approx. 77% of the total. Second to this is “Financial Institutions,etc.,” owning 18%. Together, these two types of shareholders own 95% –most of the outstanding shares. “Foreign corporate entities, etc.” is low,owning 0.9%. Over the years, shares of “Individuals, etc.” have somewhat
decreased and shares of “Financial Institutions, etc.” have increased.

[Figure 13] Change in Shareholder Composition by Type of Shareholder (unit: %)(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summaryuw The major shareholders
are mainly the employee
stock ownership planand current and former
directors.

Major Shareholder Composition

The Company’s major shareholder composition has been stable and has not
greatly changed. The major shareholders as of the end of September 2018
are shown on Figure 14. The following are supplemental information.
・The largest shareholder is the Company’s employee stock ownership plan,owning somewhat less than 12%. This slightly exceeds the amount ofshares owned by the second largest shareholder President Sakiyama.
・The third largest shareholder Ms. Onuki is the Company’s previous
president. The fourth largest shareholder Mr. Uchida is the Company’s
current director.
・The fifth largest shareholder The Master Trust Bank of Japan is the BIP
trust account for the Company’s director remuneration(stock-remuneration-type director incentive plan).
・ The sixth largest shareholder is most likely a general, individual
shareholder.
・The seventh largest shareholder is the Company’s former senior vicepresident Mr. Sato.
・The eighth largest shareholder Mizuho Bank probably owns shares for the
purpose of cross-shareholding.
14/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

・The ninth largest shareholder MUFJ Bank is a correspondent financial
institution.
・The identity and purpose of the shareholder who actually owns the sharesin the name of the trust bank at tenth from the top are unknown.
・Of the top ten shareholders, the employee stock ownership plan and the
directors (including former members), plus the treasury shares, add up to
about 40% of the total. This sum has increased over the years since theCompany has conducted six share buybacks in the past. Treasury shares,
including the BIP trust accounts, are approx. 9.2% of the total as of theend of September 2018.

w Share buyback raised thepercentage of treasury
shares to approx. 9%.

[Figure 14] Major Shareholders’ Status
FY 2015
year-end

Shareholder Name(unit: thou. shares)
Cube System Employee Stock Ownership Plan
Osamu Sakiyama (indiv.)Cube System's president
Akemi Onuki (indiv.)CS's former president
Toshio Uchida (indiv.)current director
The Master Trust Bank of Japan (director remuneration BIP
trust: 75,824 account)
Masatsugu Sakurai (indiv.)general individual investor
Toshikuni Sato (indiv)CS's former senior vice president
Mizuho Bank, Ltd.
MUFJ Bank, Ltd.
Japan Trustee Services Bank, Ltd.trust account 5
Cube System Inc.
The Master Trust Bank of Japan, Ltd.rust account
Resona Bank, Limited(Cube System's Actual Treasury Shares)

FY 2016
year-end

1,641
1,775
401
475
316
380
276
258

End of Sept.
2018% of Total
SharesRanking

1,663
1,655
401
403

1,668
1,646
401
393

1,666
1,638
401
385

11.68
11.48
2.81
2.70

1
2
3
4

270

270

262

369

2.58

5

316
340
276
258

316
300
276

316
300
276

316
304
276
258
221
1,008
1,377

2.21
2.13
1.93
1.80
1.55

6
7
8
9
10

-

458
-

241
682

FY 2018
year-end

1,672
1,675
401
415

682

FY 2017year-end

348
1,035

728

1,306

324
1,236
321
1,498

-

(Percentage of Treasury Shares)
4.5%
4.8%
8.5%
9.8%
9.2%
Note: "-" indicates that there were no data available on the major shareholder in the securities report, and does not necessarily mean zero.
: (Cube System's Actual Treasury Shares) includes the BIP trust account for director renumeration.

(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary

w Uses a portion of treasury

shares as an incentive fordirectors

The Company has issued a portion of its treasury shares to its directors in
two batches as an incentive. In FY 2016, the Company terminated its old
director retirement benefit plan and instead started the stock-remuneration
type (BIP trust) director incentive plan where the Company’s treasury
shares are issued and granted according to position and achievement ratewith respect to the medium-term management goals. The plan is renewed
every three fiscal years, or the span of a medium-term management plan,and the actual right to the shares is granted upon a director’s retirement.
Also, in September 2018, when the Company made the transition to a new
step in the medium-term management plan, it issued another portion of thetreasury shares to its directors as limited-transfer stock-based remunerationas part of the new system. Prior to this, the direct ownership of shares bymost of the current management team members was limited. Therefore, thisnew stock remuneration system should be effective in raising the incentivesof directors with regards to management and financial results and aligning
the directions of shareholders and profit.
The Company has not decided on how to make use of the remaining
treasury shares, but some possibilities including using them for stock
remuneration as another director incentive, for stock cancellation, or for astock-swap in a tie-up or an M&A.

15/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

-

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

4． ESG◆ Environment
w Works on continual
improvement ofenvironmental
performance (energy andresource conservation)

Although the Company’s business does not harm the environment, under
the policy of “Practicing environment-friendly management throughcontinual improvements in environmental performance (energy / resource
conservation),” the Company engages in environment-friendly activities(obtained ISO14001 certification in 2005). Specifically, the Company
works on reducing electricity and paper usage, reducing waste,
implementing “cool biz” and “warm biz,” promoting green purchasing, andplanting trees in Vietnam.

◆ SocietyAs a key industry necessary for the infrastructure supporting the economy
and the society, the Company’s group believes its mission is to contribute to
the further development of the IT society and the strengthening of its
customers’ competitiveness. It aims to create a more prosperous andconvenient society through the power of IT systems.
w Actively engaged in
activities that support thedevelopment of the next
generation of humanresources

In order to support the development of the next generation, the Company
holds the “Donated Seminar on Local Region, IT, and Energy” (ToyoUniversity) to support the development of individuals with problem-solving
skills who can contribute to globalization and the local region. The
Company also holds the “Family Day” as an opportunity for its employees’
family members to learn about companies and careers. Additionally, theCompany supports cleanup and beautification activities and activities wherechildren of the local region can visit the workplace to nurture ideas about
the meaning of work and their future careers.

◆ Governance

As a company with auditors, the Company has set up the Nomination andCompensation Advisory Committee and the Integrated Risk Committee(which directly controls the Compliance Committee, the Internal Control
Committee, the Security Committee, and the Working Style Reform
Committee). The Company has also adopted the executive officer system
and makes efforts to reinforce corporate governance. To deliberate on
important matters related to the general management of the Company, amanagement meeting participated by the President, executive officers, anddirectors who represent the subsidiaries is held twice a month. The
deliberated matters are communicated to each department via the Corporate
Planning Office.
w Of the 10 directors andauditors, 5 are fromoutside the Company.

The management team is made up of seven directors (of which two are
outside directors) and three auditors (all are outside auditors from
Mitsubishi Corporation and concurrently serve as auditors for each of theoverseas subsidiaries). Four of the directors are dedicated members, two arefrom Nomura Research Institute, and one is a lawyer. All directors as well
as executive officers are men, with no member who is female or has foreign
nationality. Going forward, the Company plans to create opportunities for
women and assign appropriate roles to appropriate individuals based on
their skills and abilities.
Also, the Company values health as part of its management policy andworks on improving and maintaining the mental and physical health of its
employees and creating a comfortable working environment. As a result, the16/40This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

turnover rate for the most recent period was approx. 5%, a low value that isabout a half to a third of the industrial average; employee retention rate isrelatively high (as a reference, the turnover rate of its competitor HIMACS
for the most recent period was also about 5%).
The Company does not have anti-takeover measures.

17/40This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

5． History of Growth◆ Company History
w Founded in anticipationof the growing
importance and potentialof computer systems.
Specialized in the system
integration business.
w Its main customers areleading blue-chipcompanies of Japan.

w Changed its listing from
TSE second section to thefirst section in March2014

In 1972, the Company was founded as Customer Engineers Corporation by
its founding members, which included the current president, for the purposeof software development and system operation/management (changed its
name to the current one in 1990). As computers became popular in theJapanese society, IT investments increased and the system development
market grew. The Company has been specializing in the system integration
business and has been building its trust and track record. It has gradually
increased the number of contracts with leading Japanese companies – itscurrent main customer group. As these companies increased their IT
investment and outsourcing of system development/operation, the Company
expanded its business domain as well as business in general at a steadypace.
Regarding stock, the initial offering was made in the JASDAQ market in
2002. In 2006, the Company became listed in the second section of the TSE,
and then became listed in the first section on March 2014.

◆ Transition in Past Financial Performance
From foundation until now, the Company has been improving its financial
performance as a specialist (SI) for the development and operation ofsystems outsourced from other companies and the government. Long-termtransition in financial performance is shown on Figure 15. Details on thefinancial performance are described below in chronological order.
[Figure 15] Long-Term Transition in Financial Performance
Sales (left axis)(Y mil)

(Y mil)

R.P. (right axis)

16,0001,200

14,000980

Consolidated as of FY 2001

1,010
960

1,000
893

12,000811
14,70010,000
660

643
8,000

550

550

672

445

12,527432
11,217

309

4,000

2,000

4,806
4,220 4,387

600

12,623387
302

12,899

533

499
6,000

13,559

606

597

583

5,598

800

702

6,244 6,575

7,100

8,507 8,706
7,767 7,923 8,109

9,166

8,431

400

9,241

200

0

0
FY
1999

FY
2000

FY
2001

FY
2002

FY
2003

FY
2004

FY
2005

FY
2006

FY
2007

FY
2008

FY
2009

FY
2010

FY
2011

FY
2012

FY
2013

FY
2014

FY
2015

FY
2016

FY
2017

FY
2018

FY
2019
(E)

(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary. E = the Company’s estimate.

18/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)
w Has been growing
steadily and continuing
to increase sales overmany years. Profit
margins have stayedabout the same.
w Sales decreased only for
one fiscal year during thepast 17 years.
w Rate of change infinancial result is stably
low.

Issued: 12/12/2018

On a consolidated basis, with the exception of only one fiscal year (FY2012), the Company has achieved an year-on-year increase in sales every
fiscal year for the past 17 fiscal years. This stable growth trend isnoteworthy. During this period, the annual sales growth rate (annual
simple-average rate of increase in sales) was +6.5% and similarly therecurring profit growth rate was +5.9%, showing how the Company has
been steadily improving its performance over the long term. Although
recurring profit decreased in five out of the 17 fiscal years, the largest
annual drop stayed within the range of approx. -20%, and the Company has
been able to always stay in the black with regards to net profit for the year.
Statistically, the Company’s standard deviation for the rate of change infinancial result and variation coefficient (= standard deviation / average;shows relative dispersion; also called relative standard deviation) are low,indicating that the volatility of the Company’s fundamentals is low (seeFigure 16 for the comparison with similar-sized competitors for the mostrecent 15 fiscal years). Furthermore, because the Company’s operating
margin has been stable at around 7% (Figure 17), sales increase has been
directly correlated with increases in profit, dividend, and market
capitalization.

[Figure 16] Performance Volatility Analysis for the Most Recent 15 Years (% YOY change for sales and R.P.)
Note: non-consolidated basis for Toho System only, FY 2005 - FY 2019
(company estimate used for the most recent period in FY 2019)

Target of Analysis
FY 2005 - FY 2019Market: TSE 1st sec.
n＝ 15 fiscal years% Change in Sales (YOY %)
Cube
2335
CS

Standard deviation
Average
Coefficient of variation

6.25
5.69
1.10

HIMACS
Toho System
4299
4333
HM
TS P
8.00
17.88
3.03
9.11
2.64
1.96

% Change in Recurring Profit (YOY %)
Cube
2335
CS
13.84
5.72
2.42

HIMACS
Toho System
4299
4333
HM
TS P
32.66
333.546.13
100.02
5.33
3.33(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary

w Increased transaction
with the major fourgroups has been thegrowth driver.

w Even after the Lehman
shock, sales increase wasachieved for threeconsecutive fiscal years.

External environmental factors, such as active IT investments by Japanesecompanies and the government, were not small with regard to their effects
on the Company’s growth to date. However, much of the Company’s
success is thought to have been brought by its efforts to improve its skill
and trust and make steady progress in building a strong cusomter base.
Although it is an independent company, it has strengthened its relationshipwith the four major groups NRI, Fujitsu, Aeon, and Mizuho and thus
succeeded in developing long-term business relationships; this success was
its major growth driver.
Business performance for the most recent ten years or so is as follows.
・In FY 2009 when the Lehman shock occurred, the economy was sluggish
and customers became more cautious about IT investments. However, theCompany was able to continue to increase sales owing to continued
business with existing customers mainly for systems in the finance anddistribution industries, as well as the entry of companies into the bankbusiness leading to projects for operation expansion.
・The economic recession continued into FY 2010 and FY 2011; systemdevelopment plans continued to be postponed, terminated, or shrunk,companies continued to hold off on IT investments, and competition overprice and between companies became intense. However, thanks to businesswith existing customers and the expansion of business with life insurancecompanies, banks, and manufacturers, the Company continued to increase
its sales. With increased sales, fluctuation in operating profit for the three
19/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

w In FY 2012, due to theGreat East Japan
Earthquake, sales
decreased for the firsttime since becoming
listed. Operating profit
decreased by 20%.
w Business environment
improved thanks to
Abenomics and theCompany began toincrease sales again.

w Record-highs achievedfor both operating profit
and recurring profit in FY
2015

w Sales have been hitting
record-highs for six fiscal
years in a row, but profit
has been fluctuating
inside a boxed range due
to increased cost.

Issued: 12/12/2018

fiscal years following the Lehman shock stayed within a small range.
･On the other hand, the Great East Japan Earthquake had a large negative
impact on the Company in FY 2012. Amidst the difficult situation, sales
decreased by approx. 8%. Sales for the finance industry did not change but
sales for the distribution and telecommunications industries dropped hugely.
This was the single instance in which sales had decreased in the history of
the Company from FY 2002 to this fiscal year. Similarly, a historical drop
rate of -20.9% was recorded for operating profit, but a surplus wasmaintained for the net profit for the year.
・Then, as IT investments by companies and the government recovered fromtheir previous inclination to hold off or postpone thanks to factors such as
economic recovery brought by Abenomics since December 2012, recoveryof company employment and performance, redevelopment of IT
infrastructure due to M&As, smartphone-related telecommunications
infrastructure, business related to the liberalization of electrical power retail,and increased investment in the field of social securities, the Company
became assured that it can continue to increase sales again.
・Regarding profit, in FY 2015, since sales increased due to the developmentof businesses with existing customers and the acquisition of new customers,
and productivity improved due to the reinforcement of project management,
etc., record-high operating profit and recurring profit of Y964 million andY980 million were recorded, respectively (net profit for the year also hit arecord-high next year in FY 2016, at Y629 million). Since then, theCompany has been consecutively posting new record-high sales every fiscal
year. However, a new record-high has not been achieved for profit sincethen (as of last year, FY 2018) because of increased cost of sales(subcontracting cost and labor cost), upfront investment, and SG&A
expense (especially personnel expense; ratio of SG&A expense to sales
changed from 7.9% in FY 2014→8.5% in FY 2015→9.5% in FY
2016→9.3% in FY 2017→11.0% in FY 2018).
・The Company’s gross margin and operating margin have been gradually
decreasing over the long term due to increased cost and intensified pricecompetition with greater competition among companies (Figure 17). The
Company has been having trouble improving its profit margins beyond aboxed range even when the economy is improving.

[Figure 17] Long-Term Transition in the Company’s Gross Margin and Operating Margin(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary. E = the Company’s estimate.

20/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

6. Business Environmentw Order-made systemdevelopment is popularin Japan.

w As system development
outsourcing became
popular, the SIs grew inbusiness as contractors
for the outsourced
system development.

◆ History of the System Integration Business
The system integration business is said to have began in the 1960s when the
US military industry outsourced its system development. In the US,
companies tended to use packaged software or, when they needed todevelop their own systems, do everything from system development tooperation in-house (Figure 18). Meanwhile, the system integration businessbegan in Japan when Nippon Telegraph and Telephone Public Corporation
DATA Communications Bureau (now known as NTT DATA) was founded
in 1967 and conducted system development for the Regional Bank
Association of Japan, large-scale system development projects for thegovernment, etc.
Previously, the IT system department in each company was in charge ofsystem integration. However, as systems became more advanced and wererequired to be more efficient and rational, their in-house operation andmanagement became difficult. Consequently, more companies started tooutsource all or a part of the planning, development, management, andoperation of systems. As a result, system integration outsourcing became
popular and, as the contractor, system integrators (SIs) expanded theirbusiness.
[Figure 18] Ratio of Software Type in Japan and the USA

Japan

USA

Packaged
11.7%

Packaged46.2

Outsourced
development
68.3%

Outsourced
development
53.6%(Source) Ministry of Internal Affairs and Communications: “Report on Current Status ofJapan’s ICT”

◆ Structure of the System Integration Industry
w The industry is in a mild
oligopoly. Entry barrier
is relatively high.

Japan’s system integration industry has no monopolistic player but isinstead often described as being in a mild oligopoly (the top five sellers
account for about 40% of the total shares). This situation is probably due tothe fact that since this business deals with order-made system development,
unlike the manufacturing and sales of products (general-purpose,
mass-produced goods), one cannot meet the requirements for a monopoly
such as technology protection and differentiation by means of patents andexpansion of shares through mass production. Additionally, because of thelanguage barrier and the uniqueness of business, entry of foreign companies
into the Japanese market has been limited. On the flip side, aside from
offshore development, full-scale entry of Japanese companies into foreign
markets is also difficult. While competition is intense, there should not belarge changes in the shares since the demands for system reliability andcontinuity make the entry barrier relatively high.
21/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)
w The system integrationindustry has a verticallylayered structure.

Issued: 12/12/2018

This industry has a vertically layered structure where its players often share
work, cooperate in work, and take contractor- or subcontractor-like roles
among themselves. The players are mostly able to exist alongside one
another by taking strong positions in niches differentiated by industry, size,and corporate group of the users including companies and the government,
or by the business function of the system. Due to this structure, profitability
tends to increase for direct contracts with end customers (prime contract) oras one moves further upstream in the development process.
Japanese companies (corporate and other users) prefer IT systems that areorder-made for them, and tend to outsource system development to othercompanies. Generally, the role of Japanese SI companies is to develop
systems based on the requirements set by corporate and other users.
Consequently, ownership of the intellectual property related to the systemdeveloped by outsourcing belongs to the corporate user; productivity cannot
be easily boosted by selling the system to other customers or reusing it.
Moreover, as described above, since the industry has a layered structure andis labor-intensive, profitability and global competitiveness are generally nothigh.
As a growth strategy, SIs may choose to secure human resources andexpand business by means of M&As, capital and business tie-ups, andM&A following a carve-out of the systems division of clients. Indeed,
alliances and mergers are increasing.

w SIs can be categorized
into three types:
independent (theCompany belongs here),manufacturer, and user.

System integrators (SIs) can be mainly categorized into the following three
types.
1. Independent: Founded as a system integrator. A fully independentcompany. If it is a mid-tier player or smaller, it often takes ondevelopment works, etc., as a subcontractor for other SIs in addition toits own business with end customers. The Company belongs to this type.
Whether or not it can develop a firm relationship with growing
blue-chip customers is crucial to success (company examples: TIS,
Fujisoft, Otsuka Corporation, NSD, etc.).
2. Manufacturer: Manufacturer in the business of producing and selling
hardware such as computers, or a company that was previously suchmanufacturer’s systems division or software development division but
had been separated. Or a company belonging to a manufacturer’s
corporate group (e.g. Fujitsu, NEC, Hitachi, IBM Japan, their
IT-specialized subsidiaries, etc.).
3. User: Founded as a system integrator by major corporate players inindustries such as finance, telecommunications, and trading. Or the IT
systems subsidiary of such major company that was previously thatmajor company’s IT systems division before it become independent.
Sells mostly to capitally tied companies within the corporate group (e.g.
Nomura Res. Inst., NTT DATA, NS Solutions, SCSK, etc.).
(Reference) Other: category for those that do not fit into the above.
・Trading company: Started out as an equipment distributer, etc. Sells
mostly to companies within the corporate group (e.g. Itochu
Techno-Solutions, etc.).
・Telecommunications company: (e.g. NTT Communications, etc.)
・Accounting auditor or consulting company: (e.g. Accenture, etc.)

22/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)w Although slowly, thesystem integration
market is growing insize. Meanwhile,
company elimination andconsolidation are in
progress.
(16) Survey of Selected Service
Industries: Nation-wide survey ofcompanies on the current activity
and business management status
of industries in the service
industry sector with high needs forstatistics from both govt. andeconomic perspectives. Includes
the IT services industry, whichfurther divides into software dev.
(includes SI), assigned systemmanagement, etc.

Issued: 12/12/2018◆ Trends in Japan’s System Integration Market
Looking at ”Sales by category of business, number of establishments, andnumber of permanent employees for the information services industry,” thesurvey result from the ”Survey of Selected Service Industries”16 by the
Ministry of Economy, Trade, and Industry, we find that sales of order-madesoftware, as well as sales of system integration which makes up more thanhalf of order-made software, have been increasing with the exception of the
few years after the Lehman shock (Figures 19 and 20).
According to the same data, during FY 2010 to FY 2017, sales growth rate
for system integration had increased at about 2.1% per year (simple
average). The current market size is about Y4.5 trillion. The number of
establishments (mostly synonymous with the number of companies) in the
IT services business has been gradually decreasing every year since FY
2003 (simple average of approx. -1.2% per year). In contrast, the number ofpermanent employees has been increasing with the exception of FY 2010 to
FY 2012 (from 144 thousand in FY 1998 → 333 thousand in FY 2017),
indicating that the elimination and expansion of companies are the industrial
trend (the number of employees per establishment: 107.2 in FY 1998 →
135.5 in FY 2017).

[Figure 19] Changes in the System Integration Market[Figure 20] Rate of Change in the SI Market(annual sales: Y100 mil)(rate of change in sales: %)(Ref) Prepared by Alpha-Win Research Dept. based on data from 2017 Survey of Selected Service Industry by the Ministry of Economy,
Trade and Industry

Since large-scale projects in system development (such as businesscombinations by megabanks) have reached their peak and are beginning to
decline, cost control is becoming a prominent issue and competition isstarting to intensify. However, IT investments by companies and thegovernment should continue to steadily increase due to the structurally
inherent lack of manpower, demands for improvement in operation
efficiency, and great business conditions. Alpha-Win Research Department
predicts that the market size should grow at about 2 to 3% per year ascompanies strategically develop new businesses and technologies in various
industries and fields in order to increase their competitiveness while theneeds for system advancement and development increase.
23/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)◆
w Middle-ranking in theindustry by sales, at 80th
to 90th from the top. Its
share of sales in theentire system integration
market is estimated to beabout 0.3%.
w Its benchmark companies

are HIMACS and Toho
System. Both are Nomura
Research Institute’s e-ePartners and their market
positions are very
similar.
w No significant differencein each of the profit
margins for the threecompanies. The
Company’s O.P. margin
has not changed, but its
ROE has greatly
improved.

Issued: 12/12/2018

Cube System’s Market Position and Comparison with
Competitors

In the system integration industry, there are about 220 companies defined bygeneral terms as a SI whose sales can be confirmed through disclosed
securities reports, etc. Among them, the Company is estimated to rank ataround 80 to 90th place from the top by sales volume. Additionally, theCompany’s share in the Japanese market is estimated to be approx. 0.3%.
Some of the Company’s competitors are HIMACS (TSE first section; 4299)
and Toho System (TSE first section; 4333), which are similar in size andwhich the Company uses as its benchmark. They are both e-e Partners of
Nomura Research Institute and are similar in market position and size as theCompany. Meanwhile, several of the largest SI players such as Nomura
Research Institute and Fujitsu are the Company’s partners and alliancesrather than direct competitors.
Comparison of the long-term transition in the operating margin of the threemajor listed companies including the Company (the Company isabbreviated as CS in the graphs, hereinafter; similarly, HM for HIMACS
and TS for Toho System) is shown on Figure 21. Compared to the other two
companies, the Company’s operating margin is stable and is not
significantly different. Similarly, comparison of ROE (Figure 22) showsthat the Company’s ROE is around the average of the three companies,
having recovered greatly from one point in time to an ROE of greater than
10%.

[Figure 21] Comparison of O.P. Margin for Three Mid-Tier Listed
Companies (the Company, HM, and TS)[Figure 22] Change in ROE for the Three Companies(Ref) Prepared by Alpha-Win Research Dept. based on each company’s securities report and financial resultssummary. E = estimate by each company.

24/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018[Figure 23] Company Overview and Management Indicator Comparison for Three Mid-Tier Listed
Companies (the Company, HM, and TS)
Company Name
Code
Characteristics
FoundedListed Date (JASDAQ→TSE 2nd→TSE 1st)
Sales Categories/Breakdown (FY 2018)

Director Composition
Major Clients/Customers (Y mil, % of sales)
Sites (including consolidated subsidiaries)

Management Goals (indicators)

Cube System (CS)2335

HIMACS (HM)Toho System Science (TS)

4299

4333

Independent; 70% of sales comes from Began as Toho Mutual Life Insurance
the finance industry. Sales for
Co.'s affiliate but is now indep. Mainly
insurance companies are espcially high dev. software for finance (insurance /- greater than 40% .
securities) and telecom industries.

Independent; mainly system dev. forfinance, distribution, and telecom
industries.
Jul 1972

May 1976

Jun 1971

10/2002→11/2006→03/2014

03/2001→03/2004→03/2015

06/2001→03/2007→03/2014

・System Integration 70.5%
・System Outsourcing 15.3%
・Professional 14.2%

・System Solution 60.1 ％・System Maintenance 39.9 ％・Software Development 97.4 ％・IT System Service, etc. 2.6 ％・Directors (7; 3 outside)・Directors (7; 2 outside)・Auditors (3; 2 outside)
Auditors(3;
alloutside)・・Executive officers (8; 1 woman =・Executive officers (13; no woman = 0% ) 12.5% )1. NRI 4,242 (31.3 ％ )1. NRI 5,382 (39.9 ％ )・Directors (7; 2 outside)・Auditors (4; 2 outside)・Executive officers (15; 1 woman =6.7% )
1. NRI 2,740 (22.9 ％ )2. Fujitsu 2,549 (18.8 ％ )2. SCSK 1,347 (11.2 ％ )-・Head office: Shinagawa-ku, Tokyo・West Japan System Office: Osaka・3 subsidiaries
・ROE: ≥10%
・Consolidated O.P. margin: ≥10.0%
・Consolidated. sales per domestic
employee: ≥Y25 mil
・O.P. (same as above): ≥Y2.5 mil
Mid-term goal: Sales Y18.5 bil, O.P.
margin 9.6% , ROE 13% in FY 2021

・Head office: Yokohama, Kanagawa
・Minatomirai Office: Yokohama
・1 subsidiary・Head office: Bunkyo-ku, Tokyo

Medium term management plan, final
FY: In FY 2023,
・Sales Y2.2 bil・O.P. margin ≥10%
・ROE ≥10%・Gross margin 20%
・R.P. margin 10%
・ROE 15%

Management Policy/Strategy (summary)・Realization of "A company
acknowledged by customers as their best・Develop and expand business withpartner" & "Creation of a businessmajor customers and the 6 major
environment where the employees andindustries
the company can grow together and share・More transactions with end users
prosperity and happiness"
・Expansion of new business andDomestic/overseas
businessdev.
・・ overseas businessNew business/technology investment
・Perform capital tie-up and M&A
・Reinforcement of management system
encouraging growth・" Independent SIer" truly trusted andchosen by customer
・Expand business, improve company
value・Inc. direct contracts with end users ・Develop stronger customer base・Raise quality by employee
encouragement
・Improve product development skill
・Est. new business domain and model

Sales (Y mil) CE for FY 2019
Gross Margin (%) Actual for FY 2018
Operating Profit (Y mil) Est.
Operating Margin (%) Est.
EPS (CE) FY 2019, YOY (%)
DOE (%) Actual

14,700
17.3
1,010
6.9
12.8
4.5

14,700
16.7
1,000
6.8
2.3
3.2

12,300
17.6
1,000
8.1
12.2
3.9

Past 10 Years’ Sales Growth Rate (FY 2018 result div. by
FY 2008 result: %)

84.3

48.1

54.7

O.P. Growth Rate (same condition as above)
38.0
Equity Ratio (%) Actual
68.1# of Domestic/Overseas Full-Time Employees, Actual
694
Sales Per Full-Time Employee (Y mil / person)
21.2
O.P. Per Full-Time Employee (Y mil / person)
1.5
ROE (%) Actual for FY 2018 A=B×C×D
11.4
N.P. Margin (N.P. for the year / sales : %) B
4.2
Total Asset Turnover Ratio (sales / ave. total asset) C
1.8
Financial Leverage (ave. total asset / ave. owner's equity)
1.5
D
ROA (R.P. / total asset : %) E=F×G
12.0
R.P. Margin (%) Actual F
6.6
Total Asset Turnover Ratio (sales / ave. total asset) G
1.8
Italics show each company’s estimates (CE) for FY 2019. Others are actual values for FY 2018.

34.4
75.1
790
18.6
1.3
9.6
4.9
1.5

-0.7
65.2
538
22.9
1.9
9.8
5.1
1.3

1.3

1.5

10.8
7.3
1.5

9.5
7.5
1.3

(Ref) Prepared by Alpha-Win’s Research Dept. based on each company’s securities report, financial results briefing and briefing materials,
HP, and interviews

25/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

7．Last Fiscal Year’s Results and This Fiscal
Year’s Forecast by the Company◆ Full-Year Financial Results for FY 2018 (last fiscal year)

w Last fiscal year, theinitial targets forfinancial results were notachieved, but sales
increased for the sixth
consecutive fiscal year, as
well as hitting
consecutive record-highs.
Profit also increased.

Consolidated results for FY 2018 (last fiscal year, hereinafter) wereexcellent, with Y13,559 million in sales, (+5.1% YOY), Y855 million in
operating profit (+9.5% YOY), Y892 million in recurring profit (+10.0%YOY), and Y567 million in net profit attributable to owners of the parent(+2.9% YOY; net profit, hereinafter). Although sales were 5.2% below thetargets set forth in the initial plan and each of the profits described above
were more than 10% lower than the target, sales and profits had increased
nevertheless. Sales especially grew, hitting record-highs for six fiscal years
in a row since FY 2013. In addition to increased sales, improved grossmargin across all industries contributed to increases in operating profit andall subsequent profit figures. Although not as great as FY 2015 or FY 2016,
this achievement in profit is the third greatest in the Company’s history.
Sales toward supermarkets and telecommunications carriers were great,
offsetting the rise in costs such as subcontracting costs (+Y542 million
YOY) and SG&A expenses (+Y284 million or +23.6% YOY; ratio of
SG&A expenses to sales rose from 9.4% in FY 2017 to 11.0% in FY 2018)(analysis of factors that negatively and positively affected operating profit isshown on Figure 24).

[Figure 24] Reasons for Increased Profit in FY 2018 (last fiscal year) (unit: Y mil)

+980

System dev. forgovt. waswrapped up;
shrinkage ofbusiness witheducations
company
Inc. inengineer andeng. training-319

Inc. insubcontrac
ting cost
Inc. R&D
expense
RPA dev
Agile/DevOps
Blockchain
Cloud service

-62

+121
Inc. in
rent
expense

781
Expansion of
dev. projects forsupermarkets
and systeminfrastructure
proejcts fortelecom carriers

-542

-48

+13

Dec. in otherexpenses

855

Retirement
benefitexpense-68

03/2017
Operating
Profit03/2018YOY Change +Y74
mil

Operating
Profit

RPA Robotic Process Automation - backoffice (indirect) division's operations(Ref) Prepared by Alpha-Win Research Dept. based on the FY 2018 financial result supplemental material

w Medium-term
management plan’starget values for neither
sales nor profits wereachieved.

During FY 2018, the final year of the medium-term management plan
“V2020 2nd STEP” (FY 2015 – 2017), the Company achieved Y13.5 billion
in sales, Y1.5 billion less than its target of Y15.0 billion. Similarly, itachieved an operating margin of 6.3% compared to its target of 9.0%(-2.7pts) and ROE of 11.4% compared to its target of 13.0% (-1.6 pts). The
26/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

target value for sales could not be achieved due to below-expectation
progress in new customer acquisition and new business development, andthe target value for operating profit could not be achieved because of the
failure to improve the profitability of existing projects and increased upfront
investment activities such as R&D and engineer training to start projects innew business domains.
w Systems businesstoward supermarkets,banks, and telecom
carriers has been great.

・Examining why sales increased by Y660 million compared to two fiscal
years ago (FY 2017) by looking at each of the three service categories, we
can see that although sales for SOS (System Outsourcing Service) had
slightly decreased by Y7 million (-0.3% YOY) due to the shrinkage of
projects toward convenience stores in the distribution industry, the othertwo service categories (SIS and ProS) pushed up sales and offset thisdecline. Sales for SIS (System Integration Service) were the greatest
contributor, having increased by Y457 million (+5.0% YOY). Althoughsystem development projects for the government had ended, core systemdevelopment projects for supermarkets in the distribution industry andsystem development projects for banks in the finance industry had expanded.
Sales for ProS (Professional Service) increased by Y209 million (+12.3%
YOY) thanks to increased infrastructure development projects for telecom
carriers in the telecommunications industry (Figure 25).
・Meanwhile, overall gross profit increased by Y358 milion (+18.0% YOY)
thanks to contribution by all three service categories SIS, SOS, and ProS.
Specifically, gross profit increased by Y208 million (+14.7% YOY, 58.1%
contribution; same order for the rest) thanks to SIS, by Y114 million (40.1%,
31.8%) due to ProS, and by Y35 million (12.7%, 9.8%) owing to SOS.
Although sales of SOS slightly decreased, a double-digit growth wasachieved for its profit due to the expansion of highly profitable projects forsecurities exchanges in the finance industry.
Sales and gross profit results by industry type are shown on Figures 8 and 9
on previous pages. Last fiscal year’s sales breakdown by industry typeshows that, aside from industries in the “other” category, sales increased for
all three major industry types – finance, distribution, andtelecommunications (Figure 26). By industry type (of the end user), bothsales and gross profit for the finance industry account for the greatest
percentage of the total (33.7% and 34.4%, respectively). However,
distribution, telecommunications, and the other industries are also growing
to close levels such that industrial distribution is becoming more diversified.

w Sales for the financeindustry decreased,
especially for Mizuho
G, but were offset byincreased sales for its
largest customer NRI G,
its second major
customer Fujitsu G, andindustries in the “other”
category.

・Information on sales by customer group has been disclosed (Figure 10 on aprevious page). The greatest contributor to last fiscal year’s sales increase is
NRI Group, which contributed Y344 million to the increase with its
distribution system projects, and second is Fujitsu Group, which contributed
Y251 million to the sales increase with its projects for telecom carriers.
Meanwhile, sales stayed about the same for the Aeon Group, supported bydevelopment projects and the enhancement business. Sales decreased (byY307 million) for Mizuho Group following a decline in the systeminfrastructure projects.

27/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)[Figure 25] Contribution of Each Service Category to Sales
Increase in FY 2018 (last fiscal year)

Issued: 12/12/2018[Figure 26] Contribution of Each Industry to Sales
Increase in FY 2018 (last fiscal year)(Ref) Prepared by Alpha-Win Research Dept. based on the FY 2019 financial results briefing material◆ Cube System’s Financial Results Forecast for FY 2019
(this fiscal year)
w This FY, the Company
plans to achieveconsecutive increases andrecord-highs in bothsales and profits. Will try
again to attain Y1 bil inboth O.P. and R.P.

The Company expects its financial results for this fiscal year to be as
follows: Y14,700 million for sales (+8.4% YOY), Y1,010 million for
operating profit (+18.1% YOY), Y1,010 million for recurring profit(+13.1% YOY), and Y640 million for net profit (+12.9% YOY). No change
has been made to the initial forecast made at the beginning of the fiscal
year.
The Company plans to increase sales in all industry types and achieve an
increase in net sales for the seventh consecutive fiscal year as well as
record-high net sales (Y1,141 million increase planned). Rate of increase insales is expected to accelerate from 0.8% in FY 2016→2.2% in FY
2017→5.1% in FY 2018→8.4% in FY 2019 (expected). The basis of thisprediction lies in the successful expansion of existing businesses due to the“account strategy” toward the four major customer groups (strategy wherecertain staff members are chosen to be in charge of focused sales activity),
as well as in the successful acquisition of new customers and large-scale
projects as a result of its continued sales efforts. As for sales forecast byindustry type, business toward the finance industry was more difficult than
expected at the beginning of the fiscal year since the bank consolidation
projects, etc., had been wrapped up, so the forecast was revised down by
Y250 million from Y4,850 million to Y4,600 million (+0.8% YOY). On theother hand, since business with the manufacturing industry was great, sales
for the “other” category was revised up by the same amount from Y4,050
million to Y4,300 million (+25.6% YOY). In sum, the overall forecast forsales has not changed (Figure 27).
The profits (operating, recurring, and net) are expected to increase again andhit record-highs. The Company aims to achieve greater than Y1 billion inboth operating and recurring profit for the first time. Profit margins andprofits are expected to improve due to increased sales as well as improved
productivity and the gradual shift from a business model based on
28/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

staff-times-month calculation per project to a service-providing businessmodel (switching to contracts paid as service fee, expansion of theconsulting business, etc.).
[Figure 27] Predicted Contributions to Sales Increase in FY 2019 (this fiscal year) (theCompany’s plan) (unit: Y100 mil)(Ref) Prepared by Alpha-Win Research Dept. based on an excerpt from the FY 2018 Q2 financial
results briefing material. A = actual value. P = planned value.

w In H1 of this FY, sales
were mostly as plannedat the beginning of the
FY, and profit slightly
exceeded the plan.

In the first half (H1) of FY 2019, sales were Y6,852 million (+5.6% YOY),
operating profit was Y358 million (+17.3% YOY), recurring profit was
Y376 million (+23.0% YOY), and net profit was Y225 million (+24.8%
YOY). Compared to the initial targets set at the beginning of the fiscal year,
sales were slightly lower by Y20 million (-0.3% compared to the plan), buteach of the profits exceeded their targets by Y52 million (+17.1%), Y71
million (+23.2%), and Y30 million (+15.6%), respectively. Overall, theseresults indicate that performance in H1 was great (Figure 28). By industry
type, sales toward the finance industry decreased by 11.4% YOY due to theshrinkage of business toward banks and life insurance companies, and sales
for the distribution industry also decreased by 8.1% YOY with reduced
business for supermarkets. These decreases were offset by the 42.7% YOY
increase in sales for the “other” industries, boosted by success in the Cloud
consulting business and business toward manufacturers (construction
machinery, food manufacture, etc.). Overall gross profit also increased by
Y68 million YOY, as the Y93 million drop caused by the finance industry
was offset by the Y142 million rise for the “other” industries. Gross margin
stayed about the same – 16.4% in H1 of last fiscal year to 16.5% in H1 ofthis fiscal year – due to increased productivity. During the same period,
SG&A expenses slightly decreased from 11.7％ to 11.3%, and operating
margin improved by 0.5 point from 4.7% to 5.2%.

w To achieve the full-year

In order to achieve the full-year target for financial results, the Company
must attain Y7,847 million in sales (+11.0% YOY), Y652 million in
operating profit (+18.6% YOY), Y633 million in recurring profit (+7.9%YOY), and Y415 million in net profit (+7.2% YOY) during the second half
(H2).

targets, sales must
increase by 11.0% YOY
and O.P. must increaseby 18.6% YOY in H2.

On a consolidated basis, over the past 17 years, the average ratio of theCompany’s results in H1 to H2 had been 48.2-to-51.8 for sales and44.7-to-55.3 for operating profit. Similarly, the average operating margin
for the same period had been 6.7% for H1 and 7.7% for H2, with the H2
being about one point higher (see Figure 29 for recent transitions in
29/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

half-year operating margins). This may be explained by the fact that many
projects are completed in March, such that H2 sales is on average 7.7%
greater than H1; H2 is more profitable. In addition to this seasonal factor insales, H1 bears more cost such as recruitment expense and upfront
investments including R&D expenses. Due to this early incurrence of cost,
H2 tends to contribute more toward the full-year profit. The reliance on H2
is especially high for this fiscal year, as the H1-to-H2 balance is46.6-to-53.4 for sales and 35.5-to-64.5 for operating profit. The Company
plans to increase H2 sales by 14.5% compared to H1 and increase H2operating margin to 8.3% from 5.2% in H1 (4.7% and 7.8% for last fiscal
year’s H1 and H2, respectively). It plans to strengthen the enhancementbusiness, benefit from new service businesses and large-scale projects, andimprove productivity.
As for the order backlog, the value as of the end of September 2018 was
Y3,833 million, Y162 million higher (+4.5%) than last year. The Company
seems to be expecting more contracts and product deliveries during the restof the fiscal year.
[Figure 28] Comparison of Performance in H1 and H2 (this FY’s H2 values are
the Company’s planned values)
Last
Last
Last Full FY(FY 2018) FY's H1 FY's H2
13,559
6,487
2,344
1,063
17.3% 16.4%
1,489
757
11.0% 11.7%
855
306
6.3%
4.7%
893
306
567
181
Sales ratio: H2/H1

Unit: Y mil

7,072
Sales
1,281 Gross Profit
18.1% Gross Margin
732 SG&A Expense
10.4% SG&A/sales ratio549
O.P.
7.8% O.P. Margin
587
R.P.
387
N.P.
9.0%

This FY's H1:
initial planThis FY's
H1: Actual

Diff. % Diff.

6,873

6,853
1,131
16.5%
773
11.3%
358
5.2%
377
225

-20 -0.3%

306
4.5%
306
195

H2
YOY
Progress Rate (vs.
YOY
Change, %init. plan), %Target Change, %
5.6

46.6%

Full FY Est.
(FY 2019)

7,847

11.0

14,700-0.4pt
17.3
35.5%
652
0.5ｐｔ
8.3%
23.0
37.3%
633
24.8
35.2%
415
Sales ratio: H2/H1 14.5%

18.6
0.5ｐｔ
7.9
7.2

1,010
6.9%
1,010
640

0.1pt

52 17.1%
0.7 ｐｔ71 23.2%
30 15.6%(Ref) Figures 28 and 29 were prepared by Alpha-Win Research Dept. based on the financial results briefing materials, andfinancial results summary[Figure 29] Half-Year Transitions in Operating Profit (this FY’s H2 values are the Company’splanned values) (unit: %)30/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

8． Growth Strategy◆ Medium- to Long-Term Management Vision “VISION
2020”

w Declared to expand its
service lineup in themedium-term
management plan

The Company has established the medium- to long-term management vision“VISION 2020” for FY 2012 to 2020 (Figure 30). This target span isdivided into three strategy steps. The Company is currently in the final stage– the 3rd STEP (the three years from FY 2019 to FY 2021). The 1st STEP
focused on the enhancement of “Strength,” and the 2nd STEP pushedforward the creation of new SI businesses. The goal of the 3rd STEP is to“maximize customer value by contributing to the growth of the customers’
businesses through the expansion of service-type and SI business, creationof a new service lineup, and development of service businesses” (details areshown on Figure 30).
[Figure 30] Summary of the Medium- to Long-Term Management Vision“VISION 2020”: Contents of the 3rd STEP
1. Domestic Business / Overseas
Business
Stronger Earnings Base with a new
business modelBusiness development in Growth Fields
using its advantages

Global business development focused around

2. New Businesses Dev. /Technology Investment
Active Engagement in Technology
Investment to Create Services thatare optiumum - unique, innovative, andhigh in added-valueAsia

3. Business Foundation
Raise customer satisfaction throughInnovation in Business Processes
Promote growth through Improvementof Governance System (Ref) Prepared by Alpha-Win Research Dept. based on an excerpt from the financial results briefing material

w Of the four management

indicator goals, the one
for ROE has beenachieved.

◆ Management Indicator Goals and Areas of Focus
The following are the Company’s long-term management indicator goals forthe entire group. Currently, all but the ROE has not yet been achieved. The
Company plans to improve its productivity and profitability by streamlining
its operation and reinforcing training/education.
・ ROE: greater than or equal to 10% (was approx. 11.4% in FY 2018)

・ Consolidated operating margin: greater than or equal to 10% (6.3% in FY
2018)
・ Consolidated sales per domestic employee (excluding employees ofoverseas subsidiaries): greater than or equal to Y25 million (Y22 million in
FY 2018; achievement rate = 88.6%)
・ Consolidated operating profit for the same condition as above: Y2.5
million (Y1.4 million in FY 2018; achievement rate = 55.9%)
The Company has disclosed its forecast for medium-term financial results
up to FY 2021. As its goals, the Company aims to increase sales by approx.
10% per year and largely increase profit by 30% per year (Figure 31, 32).
The Company has also disclosed its sales goals for each of its three businesssegments – existing businesses, growth field, and new businesses. Sales of
its existing businesses are expected to annually increase by 9.8%; its growth
31/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

w In the medium-term
plan, the Company aims
for consecutive increases
in sales and profits, newrecord-highs, and sales ofY18.5 bil, O.P. margin of
9.6%, and ROE of 13% by
FY 2021, the final fiscal
year of the plan.

Issued: 12/12/2018

field is expected to increase sales by 6% YOY in FY 2020 and 20% YOY in
FY 2021; and sales for the new businesses are expected to annually increaseby about 30%. Operating profit is predicted to increase by at least one point
every year, eventually rising to about 10%, the Company’s current goal, by
the final year of the plan.
[Figure 31] Medium-Term Plan from FY 2019 (this fiscal year) Onward

Unit: Y mil, %Sales
Growth Rate
Operating Profit
O.P. Margin
ROE

FY 2018 FY 2019 FY 2020 FY 2021
Actual
Plan
Plan
Plan
13,55914,70016,30018,500
5.1%
8.4%
10.9%
13.5%
855
1,010
1,323
1,776
6.3%
6.9%
8.1%
9.6%
11.4%
12.0%
13.0%
13.0%

(Ref) Prepared by Alpha-Win Research Dept. based financial results briefing material[Figure 32] Sales Breakdown in the Medium-Term (Company) Plan

(Ref) Prepared by Alpha-Win Research Dept. based on the FY 2019 Q3 financial results
briefing material◆

w This fiscal year, thereliance on H2 is high.
The plan is somewhat
aggressive, but should bewithin an achievable
range with regards to thegoals for increasing
sales/profits andachieving record-highprofits for the full year.

Alpha-Win Research Dept.’s Financial Results Forecast
for FY 2019 (this fiscal year)

Alpha-Win Research Department has prepared a comprehensive forecast for
the Company’s financial results, shown on Figure 33. We made a slightly
more conservative prediction for this fiscal year’s sales (Y14,600 million)
compared to the Company’s prediction (Y14,700 million), but our
predictions for operating profit and all earnings figures that follow aremostly similar to the Company’s.
The Company’s forecast for sales and profits of H2 of FY 2019 (this fiscal
year) seems to be on the somewhat high side. However, the full-year goals
should be mostly achievable when taken into consideration the improved
profit margins in H1 and expectations for more orders and productdeliveries and increased productivity in H2. While delivery schedules andoverall project management may affect the result, we currently believe thatthe actual profits should not end up being too far below the target values
unless the Company experiences an unexpected large deficit in a project.
32/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

We have made evaluation that increases and record-highs in sales andprofits may be achievable, although they may not be entirely on the mark.
We believe that the Company will keep its dividend at Y16, as theCompany predicts, since there is not much room for revision for the EPS
prediction and since the Company has a stable dividend policy with a target
dividend level.
[Figure 33] Alpha-Win’s Forecast on Financial Results for This Fiscal Year and Over the Medium Term
(CE = FYthe 2018
Company’s
E = Alpha-Win
Res.
Dept.’s
Unit: Y mil, %Actualestimate;
FY 2018
CEFY
2019
E estimate)
FY 2020 E
FY 2021 E
14,60015,80017,300Sales
13,55914,700
2,540
2,800
3,100
Gross Profit
2,344
Gross Margin
17.3%
17.4%
17.7%
17.9%
SG&A Expense
1,489
1,540
1,650
1,760
(% of sales)
11.0%
10.5%
10.4%
10.2%
Operating Profit
855
1,010
1,000
1,150
1,340
(% of sales)
6.8%
7.3%
7.7%
6.3%
6.9%
Recurring Profit
893
1,010
1,000
1,150
1,340
(% of sales)
6.6%
6.9%
6.8%
7.3%
7.7%
Net Profit
567
640
635
730
851
(% of sales)
4.3%
4.6%
4.9%
4.2%
4.4%
Sales (% YOY growth)Gross Margin (% YOY diff.)

5.1%
1.9%
23.6%
9.5%
10.0%
2.8%

SG&A Expense (% growth)

Operating Profit (% growth)
Recurring Profit (% growth)
Net Profit (% growth)

8.4%

7.7%
0.1%
3.4%
17.0%
12.1%
12.0%

18.1%
13.1%
12.9%

8.2%
0.3%
7.1%
15.0%
15.0%
15.0%

9.5%
0.2%
6.7%
16.5%
16.5%
16.5%

(Ref) Figures 33 and 34 were prepared by Alpha-Win Research Dept. based on the securities report, financial results summary, andfinancial results briefing materials[Figure 34] Historical Comparison of Initial Forecast (the Company’s) with Actual Result for
Consolidated Financial Results
Consolidated
Unit: Y mil
FY 2001
FY 2002
FY 2003
FY 2004
FY 2005
FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018

Sales
InitialForecast

ActualOperating Profit

Recurring Profit

InitialForecast

InitialForecast

ActualActualNet Profit Attributable toO wners of the Parent(N.P.)

InitialForecast

Actual

4,806
387
5,598
485
445
246
6,244
511
432
235
6,900
6,575
491
522
500
284
280
7,000
7,100
558
532
551
287
315
7,800
7,767
549
600
551
340
312
8,300
7,923
590
570
584
330
324
8,300
8,109
605
645
610
643
336
342
8,500
8,507
680
652
685
597
350
308
8,800
8,706
660
637
670
660
350
349
9,200
9,166
675
662
680
672
263
208
9,300
8,431
665
524
675
533
350
118
9,000
9,242
620
601
630
606
350
338
10,00011,217
700
665
700
702
380
387
12,00012,527
840
964
840
981
480
594
13,00012,623
1,000
949
1,020
960
600
629
14,00012,899
920
781
940
811
450
551
14,300
1,060
1,080
650
13,559855
893
567
Simple ave. % diff. (unit: %), calc. from longest period with data on both sales and profits→
Number of times revised up:down from init. forecast →Green highlight: record-high value

Sales

O.P.

R.P.

N.P.

% Diff. from Initial Forecast
-4.7%
1.4%
-0.4%
-4.5%
-2.3%
0.1%
-1.1%
-0.4%
-9.3%
2.7%
12.2%
4.4%
-2.9%
-7.9%
-5.2%
-1.2%
5：10

6.6%
-4.1%
-3.5%
-1.9%
-21.2%
-3.1%
-5.0%
14.8%
-5.1%
-15.1%-19.3%
-5.2%
2：9

-4.3%
3.5%
-8.2%
2.4%
5.4%
-12.8%-1.5%-1.2%-21.0%
-3.8%
0.3%
16.7%
-5.9%
-13.7%-17.3%
-4.1%
5：10

Sales

O.P.

R.P.

N.P.

Actual YOY % Change
-1.5%
9.7%
-8.3%
-1.8%
1.9%
-12.1%-0.3%-20.9%-66.4%
-3.5%
1.7%
23.8%
4.8%
22.4%
-12.8%
-4.2%
6：9

16.5%
- 15.0%
11.5%
5.4%
-2.9%
-4.4%
5.3%
-3.9% 15.7% 18.9%
8.0% 13.6%
10.2% 12.5%
9.4%
-1.6%
0.0%
-1.0%
2.0%
7.4%
5.9%
3.9%
2.3%
9.4% 10.2%
5.7%
4.9%
1.1%
-7.1% -10.1%
2.3%-2.3% 10.6% 13.4%
5.3%
4.0%
1.8% -40.4%-8.0% -20.9% -20.7% -43.4%
9.6% 14.8%
13.7% 186.7%
21.4%
10.6%
15.8% 14.5%
11.7%
45.0%
39.7% 53.7%
0.8%
-1.6%
-2.1%
5.9%
2.2% -17.7% -15.5% -12.4%
5.1%
9.5% 10.1%
2.9%
6.5%
4.5%
5.9% 12.9%↑ Simple average for each FY(Ref) Prepared by Alpha-Win Research Dept. based on the financial results summary, etc.

33/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

w Average differences
between the past 15
years’ initial forecasts
and actual results are
generally small.

Issued: 12/12/2018

As a reference, the differences between the Company’s initial forecast andthe actual results for the past 15 years have been analyzed and are shown on
Figure 34. Regarding the simple-average values during this period, actual
sales were 1.2% below the initial forecast and both operating and recurring
profits were 4 to 5% below the forecast. However, neither profit was evermore than 30% lower than the forecast. This company normally announces
generally realistic forecast values, so the forecast and the actual result
should not greatly diverge from one another unless there is a drastic change
in the business environment.

◆ Alpha-Win Research Dept.’s Financial Results Forecast
for the Medium Termw Alpha-Win Research
Dept. predicts that inaddition to the existing
businesses, the new
businesses will make acontribution to growth,such that the annual
profit growth rate overthe medium term will be
about 10%.

Alpha-Win Research Department has made a prediction on the financial
results for the three fiscal years up to FY 2021 (Figure 33 shown on aprevious page). We predict that, for the mean time, sales and profits may
increase by about 10% per year due to the following reasons.
Factors and assumptions for predicting increased sales
・Development of the enhancement business with the major customers basedon the technological expertise and trust that the Company has built up over
the years
・Strengthening and development of the capacity to complete large-scale
projects
・Acquisition of new customers (acquire customers in the “other” industries
such as manufacturers)
・Development of new businesses and new business fields – specifically,energy-related, consulting, and new solutions (Cloud, blockchain, etc.)
businesses
・Overseas development (mainly toward overseas Japanese companies)
Factors and assumptions for predicting increased profit
・Gross margin is expected to gradually improve due to various measures(transition to service-based contracts, improved productivity, reviewing
subcontracting cost, etc.)
・General and administrative expenses predicted to annually increase at asomewhat high rate (6 to 7%) due to continued upfront investments for
future growth such as reinforcement of business foundation (HR andorganization), new technology research, and business research・Final annual operating margin expected to improve by 0.4 to 0.5 point
・No expectation for extraordinary profit or loss
Compared to the Company’s medium-term target values, our predictions areconservative. We have made this prediction in consideration of the risk
factors below. However, although the Company’s planned target values are
high, we believe that if its measures are carried out and the conditions are
just right, they are within an achievable range.
・For the macroeconomic environment, we anticipate an economic downturnand decline in the performance of companies after the consumption tax rateis raised as planned in Oct. 2019 and after the Tokyo Olympics in July toAugust of 2020.
・ Currently, we cannot expect what will happen to technologicaladvancements, conditions and trends of the Company’s main users’
industries, M&A strategy, cost increase rate, recruitment, etc., in the future.
34/40

This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

9．Analyst’s View
◆ SWOT Analysis
The Company’s SWOT analysis result is shown on Figure 35.
[Figure 35] SWOT Analysis

Strength

Weakness

Opportunity

Threat・Long history in the industry and extensive experience・Stable and excellent customer base・Technological expertise / unique know-how / knowledgeable staff / organization(business type / project management ）・Entry barrier actually high; business with high continuity
・Firm financial standing
・Consulting-based sales through direct sales activity; enhancement
・Low-cost development system using overseas subsidiaries
・Relies heavily on certain customers
・Needs to secure and acquire more talented personnel
・Industry structure where profit margin is hard to improve・Takes a long time for next-generation growth products and services to gain momentum
・Domestically oriented; overseas development difficult
・Increased demand for systems due to HR deficit and the need to streamline operation
・New products, new services, and technology innovations leading to increased demand
for systems
・Upstream processes, niche areas, and shifting to large-scale dev. projects; reinforce
enhancement business・Business expansion following the global entry of customers
・Strengthening of alliance・Reduced IT investment, less demand for renewed contract, and intensified pricecompetition during recession
・Emergence of alternatives (popularization of AI or packaged software for business use),
lagged product development, and product defects
・Risk of loss in project management
・Information management and leakage risks
・Increased personnel expense and subcontracting cost(Ref) Prepared by Alpha-Win Research Dept.

w Many years’ worth oftrust, track record, andtechnological expertiseare its strengths.
Acquisition of talented
employees is thebottleneck to further
growth.

Describing the strengths listed in Figure 35 in more detail, the Company has
high business continuity and stability because of its excellent customer baseowing to its long years of business during which it had built its trust andtechnological expertise. Moreover, the Company’s strength lies in the factthat it is in a market position close to the end user, such that it can propose
related or derived systems to customers and obtain new development andservice jobs (enhancement).
On the other hand, looking at its weaknesses in more detail, for theCompany’s industry sector in general, profit margins do not change orslightly decrease over the long term, and profits tend to not increase without
an increase in sales. New business domain development and new customer
acquisition are necessary to raise sales, but HR deficit especially for project
managers is creating a bottleneck to further growth. Due to the nature of thesystem integration business, since there are only limited ways to improve
productivity or largely reduce cost, fundamental improvements in the profit
margins would take a long time.

35/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018◆ Shareholder Return and Shareholder Benefit Program
w Actual annual(maximum) yield
including theshareholder benefit plan
is about 2.7%.

The Company believes that it can raise shareholder asset value by
improving its financial results in order to conduct stable dividend payments
and increase market capitalization. So far, it has been actively engaged in
improving shareholder return through incremental dividend raises, sharebuyback, stock splits, shareholder benefit plan, etc.
While the Company’s goal for consolidated dividend payout ratio is 35%,
the actual ratio in FY 2018 was 39.4% and the ratio for FY 2019 is expected(by the Company) to be 34.9%, both exceeding the goal. The Company has
just raised its dividend from Y14 to Y16 in FY 2018, so it will likely keep
the dividend at Y16 per year as planned for this fiscal year (Figure 36).
Over the medium term, since a double-digit growth in profit is expected, anincremental rise in dividend should be possible.
Dividend yield is 2.1% when calculated based on a stock price of Y771
(closing price as of the end of Nov. 2018). The Company conducts IR
activities toward individual investors, one of its major types of shareholders.
It also has a shareholder benefit plan where JCB Gift Cards are given to
shareholders based on the number of shares that they own (Figure 37).
When this benefit plan is taken into account, the actual dividend yield
increases to approx. 2.7% max (for the optimum amount of shares owned).
The Company plans to continue to maintain its stable dividend payment andraise the EPS to enhance shareholder return. Under the same conditions, theactual annual yields of its competitors are approx. 2.8% for HIMACS (noshareholder benefit plan) and approx. 2.8% for Toho System (shareholder
benefit plan taken into account).
Since becoming listed on the market, the Company has performed a total ofsix stock-splits, including a 1-to-2 split in April 2010, a 1-to-1.5 split in
April 2011, and a 1-to-2 split in October 2014. It has also conducted five
share buybacks, acquiring approx. Y350 million of shares in total(acquisition price at the time of acquisition). Since the Company has a great
financial standing and has essentially not debt, we should also keep an eye
out for additional share buybacks in the future.

[Figure 36] Change in Dividend and Dividend Payout Ratio(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results briefing materials

36/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018[Figure 37] Shareholder Benefit Program and Net Yield

Number of Shares Owned(greater than or equal to)(less than)Shareholder Benefit(JCB Gift Card: Y)

Dividend: Y Net Yield: %

200
400
1,000
16
2.7
400
1,000
2,000
16
2.7
1,000
3,000
16
2.5
Actual net yield = (dividend + benefit value) / (stock price) ：calc. for the min. amount of stock owned in each range
Stock price assumed to be at: Y771 (as of the end of Nov. 2018)(Ref) Prepared by Alpha-Win Research Dept. based on the Company’s website

w A defensive,

domestically oriented
growth stock. Stock priceincreased by approx. 4.4
times over the past ten
years, largely
outperforming the
TOPIX.

◆ Stock Characteristics/Price and Factors that May Affect
Stock Price
Over the past ten years, the Company’s stock increased in value by approx.
4.4 times, largely outperforming the TOPIX by approx. 237% (stock splits
taken into account; as of the end of Nov. 2018; Figure 38). This growthreflects the Company’s strong fundamentals and firm growth in financial
results over the long term. The Company is outperforming TOPIX thisfiscal year as well; this may be reflecting how the Company is receiving
appropriate recognition as a domestically oriented growth stock with firm
financial results amidst the rising consumption tax, exchange rate
fluctuations, trade war, and anticipation of a downturn in company
performance leading to an increasingly volatile stock market.

[Figure 38] Long-Term Return on the Company’s Stock (CS) and TOPIX (change in the past ten years’monthly stock prices)(Ref) Prepared by Alpha-Win Research Dept.

w A low-beta stock thattends to have low
volatility in financial
results and stock price

The Company’s stock is characterized as defensive, being relatively low involatility with respect to both financial results and stock price. Relative to
TOPIX, its weekly β (beta) value for about the past three years has been
low at approx. 0.74 (note, however, that since March 2017 the weekly β forthe year has been increasing). This attribute of the Company may become
37/40This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018

highly regarded after consumption is raised or in the post-Olympic
economic downturn.
w Valuation is on the highside relative to theaverage of the 1st sectionof the TSE, but about
average within its
industry.

w Based on valuation, theappropriate evaluation isreflected in the stock
price. Going forward, weshould keep an eye out
for the rate of increase insales and profits anddevelopment of new
businesses.

The major valuation indicators of the Company were compared to theaverages of the first section of TSE and the indicators of its competitors
also listed in the first section. The Company’s dividend yield is 2.1%,
which is about average for the first section (the simple average is 1.8% andthe weighted average is 2.2%). For P/E, the Company’s P/E is approx. 16.8
(based on the Company’s predicted EPS for FY 2019) while the section’s
average is approx. 14.1. The Company’s P/B, which is 2.1, is also greaterthan the average, which is 1.2.
Compared to its competitors (4299 HIMACS and 4333 Toho System), theCompany excels in most indicators and receives appropriate market
evaluation (Figure 39). On the other hand, relative to a universe of theleading 22 SI companies listed in the first section of the TSE (including theCompany), the Company’s valuation is about average within the SI sector(Figures 40, 41, and 42). In fact, since premiums tend to be added to P/E,
etc., for large companies (large by sales volume and market capitalization)in this sector (Figure 42), compared to major SI players, the Company’svaluation is low. Alpha-Win Research Department predicts that if theCompany’s financial results improve and lead to higher market
capitalization in the future, the valuation may jump up.
Going forward, we should keep note of the following factors or events that
may affect stock price.
・Achievement rate of targets for this fiscal year (FY 2019) and businessprogress in next fiscal year (FY 2020) (sales growth rate, profit growth rate,
and profit margins)
・Progress of growth strategy including expansion of business domain,
M&A, and tie-ups
・Progress in increasing new customers
・Fully committed start of new-technology businesses such as blockchain,
Cloud, AI, IoT, and agile development that are currently in the R&D orinvestment phase. The contribution of these businesses to sales and profit.
・Share buyback, dividend raise, stock split, and enhancement ofshareholder benefit plan

[Figure 39] Comparison of Valuation Indicators, Beta, and Liquidity of Three Same-Business Companies(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and the financial results summary

Company Name
Code
Stock Price (at 11/30 closing)Market Cap (Y mil)P/E (price-to-earnings ratio)
P/B (price-to-book ratio)
Dividend Yield (%)
EV/EBITDA
P/S (price-to-sales ratio)
Weekly Beta for the Past 3 Years （β: vs.TOPIX）
Ave. Daily Traded Amount in Past 6 Months (Y mil)Cube System(CS: consolidated)

HIMACS (HM:consolidated)Toho System Science(TS: non-consolidated)

2335

4299

4333

771
11,781
16.8
2.1
2.1
9.8
0.8
0.74
46.5

1,811
11,240
13.0
1.2
2.8
6.5
0.8
0.77
8.3

905
12,549
16.0
1.7
2.2
6.3
1.0
0.70
9.9

Market cap= (shares outstanding) x (market share price [at 11/30/2018 closing])
EV/EBITDA=(market cap + interest bearing debt - cash&deposits)/(O.P. + depreciation + intangible fixed asset amortization)
PSR=market cap / sales [the Company's estimate for FY 2019]
The companies' planned EPS and dividend values for FY 2019 were used in all P/E and dividend yield calculations.

38/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018[Figure 40] Comparison of Valuation Indicators for Major Stocks in the Same Sector (major stocks whose
performance forecast for this FY has been disclosed)
Code
9613
4307
4684
4768
4739
9719
3626
2327
8056
9749
4812
1973
9759
9682
9692
4674
9739
9600
4725
2335
4333
4299

Company Name
Market Cap. Stock Price
Sales
O.P. O.P. Margin Actual ROE (%) Est. P/E Actual P/B Est. Dividend Yield Dividend Est. EPS Actual BPS P/S
NTT DATA
1,851,300
1,320 2,100,000 142,000
6.8%
7.1
20.6
2.2
1.3%
17.00
64.17
594.550.9
Nomura Research Institute
1,252,531
4,985
510,000
70,000
13.7%
12.9
22.3
2.8
1.8%
90.00
223.77 1,760.58
2.5
OBIC
977,076
9,810
71,00035,000
49.3%
14.0
31.8
4.4
1.2%
115.00308.04 2,219.15
13.8
Otsuka Corporation
725,808
3,820
720,000
47,300
6.6%
15.7
22.7
1.7
1.9%
72.50
168.14 2,245.73
1.0Itochu Techno-Solutions
525,3602,189
450,000
35,000
7.8%
11.8
21.1
2.4
2.2%
48.00
103.88894.13
1.2
SCSK
469,340
4,505
345,000
37,000
10.7%
18.2
18.7
2.5
2.2%
100.00240.80 1,822.54
1.4
TIS
460,0145,240
414,000
35,000
8.5%
9.9
18.9
2.0
1.1%
60.00
276.56 2,602.07
1.1
NS Solutions
317,477
2,895
295,000
18,000
6.1%
12.4
23.2
2.8
1.7%
50.00
124.60 1,026.72
1.1
Nihon Unisys
307,318
3,245
258,000
24,000
9.3%
11.6
19.1
2.3
1.7%
55.00
169.63 1,441.29
1.2
Fujisoft
173,2185,140
187,000
10,000
5.3%
5.8
27.3
1.5
0.7%
36.00
188.53 3,340.35
0.9
ISID
125,8292,528
280,000
11,500
4.1%
7.6
16.7
1.3
3.0%
76.00
151.10 2,004.04
0.4
NEC Networks & System Int.
125,149
3,840
88,000
7,000
8.0%
9.6
26.0
2.6
1.5%
56.00
147.56 1,466.16
1.4
NSD
112,835
2,392
61,300
8,440
13.8%
12.1
17.6
2.2
2.4%
57.00
135.70 1,074.17
1.8
DTS
103,158
4,090
87,000
8,700
10.0%
12.9
16.3
2.0
2.0%
80.00
250.73 2,003.23
1.2
CEC
92,3082,455
49,200
4,700
9.6%
10.2
26.8
1.6
1.6%
40.00
91.63 1,527.33
1.9
CRESCO
46,2003,850
35,500
3,280
9.2%
15.2
17.4
2.8
1.7%
64.00
220.84 1,379.38
1.3
NIPPON SYSTEMWARE
36,8632,474
35,000
3,000
8.6%
12.6
17.8
2.1
1.0%
25.00
138.96 1,161.97
1.1
I-NET
27,108
1,669
26,700
2,190
8.2%
10.4
18.6
2.0
2.4%
40.00
89.94
849.551.0
CAC Holdings
23,135
1,074
54,000
1,600
3.0%
3.8
18.0
0.6
3.5%
38.00
59.67 1,720.38
0.4
Cube System
11,781771
14,700
1,010
6.9%
11.4
16.8
2.1
2.1%
16.00
45.80
372.230.8
Toho System
12,549905
12,300
1,000
8.1%
9.8
16.0
1.7
2.2%
20.00
56.46
529.82
1.0
HIMACS
11,2391,811
14,700
1,000
6.8%
9.6
13.0
1.2
2.8%
50.00
138.93 1,455.14
0.8
Simple Average
362,110
10.0%
11.1
20.3
2.1
1.9%
1.7
Simple Average (excl. OBIC)
8.1%
11.0
19.8
2.0
1.9%
1.0
Note: Units for market cap., sales, and O.P.: Y mil
Stocks whose company disclosed estimates this FY and has no large extraordinary profit/loss this FY or last FY
Units for stock price, dividend, est. EPS, and actual BPS: Y Units for P/E, P/B, and P/S: none
Stock price is closing price of Nov. 30, 2018

(Ref) Figures 40 to 42 were prepared by Alpha-Win Research Dept. based on the securities report and financial results summary[Figure 41] Valuation of Major Stocks in the Same Sector: Actual P/B (x-axis) vs. Predicted P/E (y-axis)
35.0

30.0

25.0

20.0

15.0

Cube
System

10.0

5.0

0.0
0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

39/40
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.

Alpha-Win Company Research Report
Cube System Inc. (2335 TSE First Section)

Issued: 12/12/2018[Figure 42] Market Cap (x-axis: unit = Y bil) vs. Predicted P/E (y-axis) for Major Stocks in the Same Sector
35.0

30.0

25.0

20.0

15.0

Cube
System


10.0

5.0

0.0
0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

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Disclaimers
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by
Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport.
This Report is not to be construed as a recommendation or solicitation of investment. Alpha-Win
shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must maketheir own decisions on all investment matters and take full responsibility regarding theirinvestment.
This Report has been prepared with a focus on objectivity and neutrality based on the analysis ofgenerally accessible public information and supplemental information including interview(s) by the
analyst. Alpha-Win, the writer, and/or other persons involved in the publication of this Report may
already hold, or buy and sell in the future, the stock of the company presented in this Report.
Contents of this Report are based on information current as of the issue date and are subject tochange without notice. We do not warrant or represent that the information in this Report isaccurate, reliable, complete, appropriate, or fit for any purpose and do not accept any
responsibility or liability.
Copyright of this Report belongs to Alpha-Win and no part of the publication may be copied,photocopied, cited, or translated without our consent.
For inquiries regarding this Report, please send us an e-mail to info@awincap.com. However,
Alpha-Win and the writer of this Report do not have any obligation to reply to inquiries.
PFV2018120915

40/40This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of the company presented in thisReport for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of investment. Contents of this Report are based on
information current as of the issue date and are subject to change without notice. We do not warrant or represent that the information in this Report is accurate, reliable, complete, appropriate,or fit for any purpose and do not accept any responsibility or liability. Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make their own decisions on all investment matters and take full
responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of this report may be copied, photocopied, cited, ortranslated without our consent.