Alpha-Win Company Research Report
CUBE SYSTEM INC.
(2335 TSE First Section)● SummaryIssued: 7/1/2020

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

Business Description
・CUBE SYSTEM INC. (hereinafter, the “Company”) is an independent, mid-tier system integrator (SI) listed on
the First 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 telecommunications industries. Founded
in 1972, it has 48 years of history.
Current Financial Performance・With the exception of one fiscal year, the Company has been continuously increasing sales YoY for the past 22
years (including the period when its results were nonconsolidated). During this period, its annual sales growth rate
(simple average of the rate of increase in sales) was +7.0% and its annual recurring profit growth rate (simple
average) was +8.3%; the Company has been steadily expanding its business and keeping its business in the blackover many years. Thanks to its committed efforts in business development and management reform, the recurring
margin has been stable at around 7% (7.2% on average) and the increase in sales has been contributing directly toincreases in profit, dividend, and market capitalization.
・Last fiscal year (FY 2020; note that the Company’s fiscal year is March-ending), sales and operating profit wereabout 5% and 12% lower than the Company’s initial forecast, respectively, but sales grew by 2.7% to Y14.7 billion
and operating profit grew by 4.1% to Y960 million. Record-high sales were achieved for the seventh consecutive
year and both the operating profit and recurring profit came close to their record highs. However, due to the postingof an extraordinary loss, net profit decreased by 11.9%. Dividend was raised by Y2 so that Y18 was paid per share.
・This fiscal year (FY 2021), the Company plans to achieve sales of Y16 billion (+8.8%), operating profit of 1.12
billion (+16.8%), and net profit of Y700 million (+33.3%). It is planning to achieve record highs for sales and eachof its profits. It plans to keep dividend at Y18. The impact of COVID-19 on the business environment is uncertain,
but it plans to increase sales through strengthened sales efforts toward its main accounts (clients) and ITinvestment-related areas and through the development of new DX businesses. In addition to sales growth, by
working on improving profitability and productivity, the Company plans to achieve a significant profit growth.
・Given the risk of COVID-19 and the Company’s assumptions, Alpha-Win Research Department made a somewhat
more cautious forecast than the Company. However, we believe that sales and profits may potentially reach theirrecord highs.
Competitiveness・Its strengths are its excellent customer base, extensive experience, strong trust from its customers, and the skill andknow-how that it has built up over the years. Along with the expansion of business content and domain, theCompany has been improving its capacity to meet project needs and gaining more competitive advantage as well.
Business Strategy
・In the medium- to long-term management vision V2020, for its final year or this fiscal year, the Company hadplanned to achieve sales of Y18.5 billion, operating profit of Y1,776 million (margin of 9.6%), and ROE of 13%.
Currently, though, the values described above have been announced as forecast values. While working on
expanding business and improving its earning power mainly through its Enhancement business, it has also been
putting efforts into new areas of growth such as DX, cloud, agile development, blockchain, AI, and IoT, thus
preparing itself for future business development. Going forward, the key points will most likely be the improvementof project management skills, continued improvement of profit margins, monetization of businesses in new
business domains, acquisition of new customers, acquisition and training of employees, M&As and alliancestrategies, globalization, and incorporation of new technologies.
・In June 2020, Mr. Nakanishi was newly appointed as Representative Director, President, and CDO (former
Executive Managing Officer; used to work at Nomura Research Institute). In the next medium-term management
plan (V2026), which will start next fiscal year, the Company plans to actively work on developing its proposal1/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

based businesses in addition to its contract-based businesses, as well as strengthening the SI business based on the
Enhancement business and enhancing the digitalization business. Going forward, the announcement of specificmeasures and the new president’s skills and achievements will be the points of interest.

Forecast on Medium-Term Financial Results
・The Company’s business is affected by the financial performance and system investment trends of its domestic
corporate customers. However, Alpha-Win Research Department believes that the Company will be able tocontinue to steadily increase both sales and profit by about 6-10% per year over the medium to long term due tocontinuous expansion of IT investment by its corporate users, the expected growth of the Enhancement business(the Company’s strong point), acquisition of new customers, new business development, and productivity
improvement.
Shareholder Return
・The Company has been proactively returning profit to shareholders through share buybacks, stock splits, andgradual dividend hikes. When benefits from the shareholder benefit program are added to the dividend, the actual
dividend yield comes out to be about 2.5% at maximum. The forecasted dividend payout ratio is about 35%, which
is about average for its industry, but its DOE (recent actual value) is high at 4.5%. With great financial performanceand ample cash, shareholder return measures such as share buybacks, dividend hikes, and enhancement of theshareholder benefit program can be continued to be anticipated.
Stock Characteristics and Stock Price
・The Company’s stock is a domestic-demand-related, defensive, stable growth stock, most likely seen as a mediumto long-term investment target. Its financial forecast for this fiscal year is relatively good compared to othercompanies in the industry. Valuation is somewhat cheap regarding P/E and P/S. Over the past 11 years or so, its
stock price has increased by about four times and has been largely outperforming the TOPIX. Regarding stock
price, we should watch the progress with this fiscal year’s financial performance, financial performance in the next
fiscal year and onward, development of new technologies and areas such as those related to DX and AI, allianceswith other companies, M&As, and increased shareholder return.

 2335 CUBE SYSTEM Sector: Information & Communication Figure A
FY

2018
2019
2020
2021
2021
2022
2023

CE
E
E
E

Sales

YOY

O.P.

YOY

R.P.

YOY

N.P.

YOY

EPS

BPS

Dividend(million yen)（%）(million yen)（%）(million yen)（%）(million yen)

(%)

(Y)

(Y)

(Y)

2.9
5.1
-11.9
33.3
24.8
7.6
6.4

40.59
43.25
38.69
51.56
48.21
51.89
55.20

372.23393.29411.96442.12476.01511.2013,55914,325
14,70816,00015,30016,30017,200

5.1
5.6
2.7
8.8
4.0
6.5
5.5

855
921
959
1,120
1,050
1,130
1,200

9.5
7.8
4.1
16.8
9.5
7.6
6.2

892
959
976
1,120
1,050
1,130
1,200

10.0
7.5
1.7
14.7
7.6
7.6
6.2

567
596
525
700
655
705
750

16.0
16.0
18.0
18.0
18.0
20.0
20.0

(Note) CE = the Company’s estimate/forecast. E = Alpha-Win Research Dept.’s estimate/forecast. The Company’s fiscal year is March-ending.

 Stock Price and Valuation Indicators: 2335 CUBE SYSTEM Figure B
Item

6/26/2020

Item

P/E

P/B

Dividend Yield

Dividend Payout Ratio

932

Last FY (actual)

24.1

2.3

1.9%

46.5%

Shares Outstanding (thou.)

15,280This FY (est.)

19.3

2.1

1.9%

37.3%

Market Capitalizatoin (million yen)

14,241

Next FY (est.)

18.0

2.0

2.1%

38.5%

Stock Price (Y)Dilutive Shares (thou.)0

Equity Ratio at Last FY-End

69.6% Last FY's ROE

9.6%(Note) Estimates/forecasts were made by Alpha-Win Research Dept.

2/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020【 Stock Chart (end-of-week prices): 2335 CUBE SYSTEM 】 Figure C
(Y)
1,200
1,100

1.50

Stock Price (left axis)

1.40

Price Relative to TOPIX (right axis)

1.30

1,000

1.20

900

1.10

800

1.00
0.90

700

0.80

600

0.70
0.60

9 /1
11 6
/ 16
1 /1
7
3 /1
7
5 /1
7
7 /1
7
9 /1
11 7
/ 17
1 /1
8
3 /1
8
5 /1
8
7 /1
10 8
/1
12 8
/ 18
2 /1
9
4 /1
9
6 /1
9
8 /1
10 9
/1
12 9
/ 19
2 /2
0
4 /2
0

(M
M
/Y
Y)

500
(Note) From the first week of September 2016 to the fourth week of June 2020

【Performance】
PeriodReturn vs. TOPIX
1 month20.7%
19.7%
3 months
57.4%
40.0%
6 months
17.1%
27.8%
12 months
18.7%
16.8%
(Note) Reflects stock price and index
values up through the closing price on
6/26/2020. Return for the 1-month
period is the comparison of closing priceat the end of May and on June 26. The
same applies to the other periods.
Prepared by Alpha-Win Research Dept.

＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊

Disclaimers
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital
Inc. (hereinafter “Alpha-Win”) on the request of the company presented in this Report.
This Report is not to be construed as a recommendation or solicitation of investment. Alpha-Win shall not beliable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use ofor 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.
This Report has been prepared with a focus on objectivity and neutrality based on the analysis of generally 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, thestock of the company presented in this Report.
Contents of this Report are based on information current as of the issue date and are subject to change
without notice. For the latest (updated) report, please see our website (http://www.awincap.com/). We also 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.
Copyright of this Report belongs to Alpha-Win and no part of the publication may be copied, photocopied, cited, ortranslated without our consent.
For inquiries regarding this Report, please send us an e-mail to info@awincap.com. However, Alpha-Win and thewriter of this Report do not have any obligation to reply to inquiries.
PFV20200701-9002

3/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

Contents
1．Company Overview ........................................................................................................................ P5
Independent, Mid-Tier System Integrator ......................................................................................... P5
Business Philosophy and Basic Management Policy ........................................................................ P7
2．Business Description and Business Model .................................................................................... P8
Three Lines of System Service .......................................................................................................... P8
Labor-Intensive Business Model Where Human Resources Are the Key ....................................... P10
Sales Composition Well-Balanced by Industry ............................................................................... P11
Stable Customer Base and Business with High Continuity ............................................................. P12
Future Areas of Growth and Foundation for Next-Generation Technologies ................................. P14
3．Shareholder Composition ............................................................................................................ P16
Change in Composition by Type of Shareholder ............................................................................ P16
Major Shareholder Composition ..................................................................................................... P16
4．ESG .................................................................................................................................................. P19
Environment, Society, and Governance .......................................................................................... P19
5．History of Growth ......................................................................................................................... P20
Company History ............................................................................................................................. P20
Past Transition in Financial Results ................................................................................................ P20
6．Business Environment .................................................................................................................. P23
History of the System Integration Business .................................................................................... P23
Structure of the System Integration Industry ................................................................................... P23
Trends in Japan’s System Integration Market ................................................................................. P25
CUBE SYSTEM’s Market Position and Comparison with Competitors ........................................ P26
7．Last Fiscal Year’s Results and This Fiscal Year’s Forecast by the Company ........................ P28
Full-Year Financial Results for FY 2020 (last fiscal year) ............................................................... P28
CUBE SYSTEM’s Financial Forecast for FY 2021 (this fiscal year)............................................... P31
8．Growth Strategy ............................................................................................................................ P33
Medium- to Long-Term Management Vision VISION 2020 ............................................................ P33
Management Indicator Targets and Areas of Focus ........................................................................ P33
Medium- to Long-Term Management Vision VISION 2026 .......................................................... P34
Alpha-Win Research Dept.’s Financial Forecast for FY 2021 (this fiscal year)............................... P36
Alpha-Win Research Dept.’s Financial Forecast for the Medium Term ......................................... P38
9．Analyst’s View ............................................................................................................................... P40
SWOT Analysis ............................................................................................................................... P40
Shareholder Return and Shareholder Benefit Program ................................................................... P41
Stock Characteristics/Price and Factors that May Affect Stock Price ............................................. P42
Note: 1) Upon translating to English, when the page numbers differed from the original Japanese version, they were
adjusted to those of the English version of the report. 2) The Company’s fiscal year is March-ending; i.e. FY 2021
ends in March 2021.
4/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

1. Company Overview◆ Independent, Mid-Tier System Integrator
w An independent system
integrator with 48 years ofhistory in the industry.
Specialized and mid-tier.
Stable customer base withseveral 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, andprovide other solutions for the IT
operation systems of customers
including companies and thegovernment.

w The Company’s group ismade of the Company andthree subsidiaries.

(2) Offshore development:
providing services that meetcustomer needs, from systemdevelopment to maintenance, at alow cost using overseas/offshore
sites

CUBE SYSTEM INC. (hereinafter, the “Company”) is an independent
system integrator1 (a.k.a. SI). It is listed on the First Section of the TSE andis a mid-tier player in the system integration industry. Often as a
subcontractor for major SIs, the Company mainly develops the systems oflarge companies in the finance, telecommunications, and distribution
industries, as well as of the government. Its customer base is firm, having
expanded its business with its main customers over many years. The
Company has technological expertise and has earned strong trust from its
customers, with the four corporate groups Nomura Research Institute, Fujitsu,
Aeon, and Mizuho as its main customers and receiving outsourced jobs fromthe Tokyo Stock Exchange as well.
Founded in 1972 at the outset of the software industry, the Company has 48
years of history. Mr. Sakiyama, who became Chairman and Representative
Director (was President and Representative Director since 1989) upon theappointment of a new president, is one of the founding members. Mr.
Nakanishi was promoted to Representative Director, President, and CDO(Chief Digital Officer) in June 2020 after experiencing Executive Managing
Officer. He graduated from Kyoto University at the age of 61. After working
as vice manager of Nomura Research Institute’s Chubu Branch, he joined theCompany in 2017. He also has experience working for a consulting company,
and as one of the Company’s officers, he is also the top salesperson for DX
projects.
The Company’s group consists of four companies: the Company and three
consolidated subsidiaries. The consolidated subsidiaries are as follows(Figure 1).
1. HOKKAIDO CUBE SYSTEM INC.
(Located in Sapporo, Hokkaido; founded with 90.9% of the shares owned;
for system development and sales reinforcement in the Tohoku and Hokkaido
regions)
2. CUBE SYSTEM VIETNAM CO., LTD.
(Ho Chi Minh City, Socialist Republic of Vietnam; founded by the Company
as a 100% owned subsidiary)
3. CUBE SYSTEM SHANGHAI CO., LTD.
(Shanghai, China; the Company established a joint company and thenacquired all shares in 2017)
The Company established its overseas subsidiaries mainly for the purpose of
conducting offshore development2.
HOKKAIDO CUBE SYSTEM INC.

[Figure 1] Locations of CUBE SYSTEM
Group’s Subsidiaries and Offices● Head office: Chuo-ku, Sapporo City
● Founded: December 1990
Sapporo

CUBE SYSTEM INC.

● Head office: Shinagawa-ku, Tokyo● Founded: July 1972
Tokyo
NagoyaOsaka

CUBE SYSTEM INC. Nagoya Office● Location: Naka Ward, Nagoya City

Shanghai

CUBE SYSTEM INC. West Japan Solutions
Headquarters● Location: Chuo-ku, Osaka City

CUBE SYSTEM SHANGHAI CO., LTD.
Ho Chi Minh

(Ref) The Company’s materials and data

● Location: Tianzan Road, Shanghai, China● Founded: July 2009

CUBE SYSTEM VIETNAM CO., LTD● Location: Dist. 12, Ho Chi Minh City, Vietnam● Founded: March 2008

As of June 6, 2020

5/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

The consolidated-to-parent-company sales ratio has stayed around 1.1 for the
past 18 years, indicating that a large weight is placed on the parent company’s
results (Figure 2). Although the individual subsidiary’s profit and loss are notdisclosed, the consolidated-to-parent-company recurring profit ratio has beenaround 0.98-1.17 during the same period. Moreover, the total profit or loss ofthe three subsidiaries, calculated by subtracting the parent company’srecurring profit from the consolidated recurring profit, has been a surplus withthe exception of the two periods FY 2011 and FY 2012 (Figure 3). During
the three fiscal years from FY 2017 to FY 2019, sales and profit of thesubsidiaries (= consolidated minus parent company) grew. Most recently in
FY 2020, due to the completion of the subsidiaries’ major systemdevelopment projects, their sales and profit declined.

w For consolidated

financial results, sales
and profit have been
rising. Consolidated
subsidiaries have been
staying in the black.
Consolidated-toparent-company ratios
have been a little over
1 for both sales andprofit.

[Figure 2] Ratio of Consolidated to Parent Company Sales (ratios shown on upper portion of graph)
Sales of parent company(million yen)

16,000

1.08

1.08

1.08

1.07

1.11

1.10

1.10

1.08

Consolidated sales minus parent company's sales
1.06

1.06

1.08

1.08

1.08

1.07

1.09

14,000857

921
12,000

1,151

1.13
1,601

785

10,000
8,000
6,000

1,084

1.09

439

478

534

504

784

751

777

679

506

Consolidated

to parent
1.09
company ratio
1,179

13,52912,724678

12,409458
11,815
11,766
11,606

4,000

6,566
5,805 6,097

8,027
7,172 7,139 7,358 7,730

8,660

7,974 8,564

FY
2011

FY
2012

10,432

2,000
0
FY
2003

FY
2004

FY
2005

FY
2006

FY
2007

FY
2008

FY
2009

FY
2010

FY
2013

FY
2014

FY
2015

FY
2016

FY
2017

FY
2018

FY
2019

FY
2020

[Figure 3] Ratio of Consolidated to Parent Company Recurring Profit (ratios shown on upper portion of graph)(million yen)

1,200

1.06

1.07

R.P. of parent company

Consolidated R.P. minus parent company's R.P.

1.07

1.03

1.06

1.07

1.03

1.03

0.99

0.98

1.01 1.03

1.05

43

1,000

1.02 1.04

21
31

800

600

33

35

33

39

22

938

200

409

518

545

621

578

639

0

1.07

140

61

Consolidated
to parent
company ratio

48

7

19

23

516

1.17

19

21

939

400

467

1.06

680
542

-8

-9

FY
2011

FY
2012

599

781

683

845

819

FY
2018

FY
2019

915

-200
FY
2003

FY
2004

FY
2005

FY
2006

FY
2007

FY
2008

FY
2009

FY
2010

FY
2013

FY
2014

FY
2015

FY
2016

FY
2017

FY
2020

(Ref) Both Figures 2 and 3 were prepared by Alpha-Win Research Dept. based on the securities report.
(Note) The estimates/forecasts are, unless otherwise noted, generally from the Company’s plan/forecast. Since we generally round off
decimal places, certain values may slightly differ from the Company’s official disclosed values, etc. These apply to the rest of thisdocument.

6/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

w 社名に込められた想い。

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

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 aspiration
to grow as a company with a cube-like multi-dimensionality (the six faces areinnovation, humanity, vitality, internationality, technology, andyouthfulness).

w Origin of its namew Essentially debt-less,firm management. Richin cash.

The Company’s finance is strong with essentially no debt. Its free cash flow(FCF) has also been stably positive, and cash and deposits have been
gradually accumulating (Figure 4). The Company has approximately Y3.6
billion in cash and deposits in addition to more than Y800 million in highliquidity stocks and bonds, totaling about Y4.4 billion in highly liquid assets.
In comparison, its debt is Y240 million (total assets of Y8 billion, market
capitalization of Y9 billion, and sales of Y14.7 billion). Its financial ratios arealso high and stable, with an equity ratio of 70% and current ratio of 333%
(all are values as of the end of March 2020).

[Figure 4] Transition in Cash Flow (CF)
Unit: million yen
Operating CF ①
Investing CF ②
Financing CF
FCF ( ① +② )Cash and Cash Equivalents

FY 2010
283
-1
-144
282
1,619

Issued: 7/1/2020

FY 2011
622
309
-173
931
2,376

FY 2012
101
54
-125
155
2,405

FY 2013
451
-321
-151
130
2,383

(Note: FCF stands for free cash flow. Unit = million yen)
FY 2014
317
-172
-188
145
2,339

FY 2015
503
-307
-439
196
2,099

FY 2016
534
25
-241
559
2,408

FY 2017
936
94
-610
1,030
2,822

FY 2018
388
28
-392
416
2,846

FY 2019
773
46
-531
819
3,131

FY 2020
747
25
-339
772
3,557

(Ref) Prepared by Alpha-Win Research Dept. based on the financial results summary(Note) “Cash and cash equivalents” are not equivalent to “cash and deposits” in the B/S but are from the “Statements of Consolidated Cash
Flows” in the financial results summary.

w The businessphilosophy / goal is to“create a world-classcompany.”
w The basic management
policies are “Customer
First,” “Focus,” and“All-Employee Sales.”(3) All-employee sales system: asystem where there is no
dedicated department for sales
but instead each project ismanaged as a whole fromreceiving an order to delivering
the product and confirming
payment. The system engineer,
who is in charge of responding
to customers, will materialize
the systemization needs ofcustomers through dialogues
and carry out projects withresponsibility and authority
under a sales goal.

◆ Business Philosophy and Basic Management Policy
The Company’s business philosophy is as follows:
・A company flourishes with the people’s support. We must continue toexist to promise the well-being of people including our employees. Root ofcontinuity and development is profit, and profit is brought by customers.
Under this philosophy, we will “create a world-class company.”
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 people, assets, money, andtime. In order to maximally utilize these elements, we will focus our businessresources on the most important matters that have been 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)
Moreover, targets such as sales, profits, and progress for the entire company
as well as for each department are disclosed to all employees. Thus,
information is being shared in an open management system.

w Shares managementtargets/results with all
employees
7/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

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 thetotal sales. Profit
margins of the three
categories are about thesame.

(4) System solution: solving issues
related to systems throughhardware, software, and services

As its business, the CUBE SYSTEM Group provides system solutions4.
Specifically, the Company provides a series of services from developing
systems through planning/proposal, design, and manufacture (byprogramming) to testing, operating, and evaluating systems for othercompanies or the government. Since this is the Company’s single business,the business is further 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 5] Overview Diagram of the Processes in Each Service
System Solutions/Services
Planning/Proposal
Systematization
Plan

System Operation/Evaluation

System Development

Requirement
Definition

Basic
DesignSystemProgramming

Testing

1. System Integration Service(5) Requirement definition:
defining the scope and target ofsystemization(6) Basic design: also called
external design, a part of the
upstream process where thebasics of the functions necessary
for a system 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).

w Projects are diversified.

SystemOperation/Evaluation

Migration

2. System Outsourcing Service

Business System Design/Development Services

Business Application Management

System Migration / Downsizing

System Operation/Management

Offshore Development

Offshore Enhancement

3. Professional Service
System Migration
System Consulting

On-Site Consulting
Database Management

IT Infrastructure Development / Private Cloud Development(Ref) Prepared by Alpha-Win Research Dept. based on the securities report

1. System Integration Service (SIS)
・The Company’s main business. Develops business operation systems thatmeet the needs of end users such as companies and the government(hereinafter collectively referred to as “corporate users”). Includes
requirement definition5, basic design6, programming, and testing (Figure 5).
・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, most projects
are completed in the order of a few months. Most orders are received anddelivered during the same fiscal year. The price can also range from several
million yen to several hundred million yen, but projects priced less than Y50
million are by far the most common.
・In general, engineers are stationed at the corporate user’s site and conduct
system development for each project in teams. However, to cut down on costand secure the necessary number of engineers, a part of the development is
outsourced to domestic and overseas subsidiaries or other companies in thesame business under the supervision of the Company’s project manager.
・Since the system development business is, in general, based on contract
agreements, the SI (the Company), who is the contractor, bears responsibility
8/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)
w System Integration

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

(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
through these means. For theCompany, this service means
continued business with thecustomer.
(9) Business related to Oracle
Cloud: Cloud-related services
and proposals based on Oracle’s
database. The Company plans tocontinue to strengthen thisbusiness by increasing thenumber of certified employees.
Current annual sales are several
hundred million yen.

[Figure 6] Breakdown of Sales (outercircle) and Gross Profit (inner circle) by
Service Category in FY 2020
Professional
Service
System Integration
Service

12.7%
14.6%

SystemOutsourcing
Service

16.3%
16.0%

Sales composition(outer circle)
Gross profit comp.
(inner circle)
69.3%
71.0%

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

Issued: 7/1/2020

for the products (systems). Therefore, management of the risks 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 a 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 the risk and improve
quality, profitability, and efficiency.
・Since unexpected changes in specifications, additional work exceeding theinitial estimate, etc., negatively affect profitability and may make a project
unprofitable, the Company is especially keen on improving its project
management skills. The Company has also been actively providing theEnhancement Service8, where the Company works closely with corporate
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 new challenges
found and proposed during system maintenance and operation (SOS) can leadto 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, and developing
infrastructure to operating/monitoring systems,
such as consulting,database improvement for greater efficiency, system monitoring,
management support, and IT strategies. High performance is realized throughdevelopment tools and the skills of certified experts. The Company isespecially strong 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 in Figures 6-8. 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 6). Over the past 18
years, total sales grew by 2.6x. Specifically, sales of SIS grew by 3.3x, SOS
grew by 2.3x, and ProS grew by 1.4x; SIS has been the main driver ofbusiness growth (Figure 7).
Breakdown of gross profit is shown in Figure 6 (inner circle). The breakdown
is not very different from that of sales. Also, as indicated by the transition ingross margin shown in Figure 8 on page 10, although some years weremarked by a 5% deviation at maximum, each category has generally stayed
within the range of 15% to 17%. However, the gross margin of ProS, which
has high added-value, has been increasing and is 4-5 points higher than theother two categories. The overall gross margin, though, depends on the grossmargin of SIS since SIS accounts for an extremely large percentage of thetotal sales.
9/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020[Figure 7] Sales by Service Category[Figure 8] Transition in the Gross Margin of Each Service Category(million yen)

25.0%

16,00014,00020.0%

12,00010,000
8,000

15.0%

6,000
4,000

10.0%

2,000
0

SIS

SOS

ProS

Total

FY

2
F Y 00 2
2
F Y 00 3
2
F Y 00 4
2
F Y 00 52
F Y 00 6
2
F Y 00 7
2
F Y 00 82
F Y 00 92
F Y 01 0
2
F Y 01 1
2
F Y 01 2
2
F Y 01 3
2
F Y 01 4
2
F Y 01 5
2
F Y 01 6
2
F Y 01 7
2
F Y 01 8
2
F Y 01 9
20
20

5.0%

ProS (Professional Service)
SOS (System Outsourcing Service)

0.0%
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

SIS (System Integration Service)(Ref) Figures 7 and 8 were prepared by Alpha-Win Research Dept. based on the financial results briefing materials.

◆ Labor-Intensive BusinessResources Are the Key

w Labor-intensive

business. Acquisition
and training of talented
employees are the key
to growth.

Model

Where

Human

Since most of the Company’s business is based on made-to-order, contractdevelopment of systems, its business is strongly characterized as a laborbased, single-product production model. Therefore, the acquisition andtraining of talented personnel are key factors since human resources are thesource of competitive advantage and growth potential. Especially sincesystems are becoming more advanced and complex, talented employees forroles such as project managers for 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 due
to the recent years’ labor shortage, it has not been able to secure enoughmanagers for its business expansion. This shortage has been a bottleneck tofurther growth. The Company’ challenge will be to increase new recruitment
as well as improving the retention rate of its employees.
The change in the number of employees for the entire CUBE SYSTEM Groupis shown in Figure 9. Every year, the Company has been adding a few dozen
new employees in preparation for business expansion. In recent years, mostof the new employees have been assigned to system engineer roles (in new
areas such as DX).
[Figure 9] Change in the Number of Employees in the Group(persons)

Number of employees in Japan
Number of overseas employees

800
700
600
500

501
（+59）

498
（-3）

511
（+13）

539
（+28）
58

559
（+20）
63

588
（+29）

638
（+50）
(+14)

38

(+6)

(+20)

(+4)

473

466

473

481

(-7)

(+7)

(+8)

(+15)

(+22)

(+36)

FY 2011

FY 2012FY 2013

FY 2014

FY 2015

FY 2016

32

720
（+26）

737
（+17）

93

( -8)

(+11)

85

85

(-3)

571

(+41)

(+15)

(+25)

FY 2017

FY 2018

FY 2019

FY 2020

(+1)

(+7)

(+19)

28

694
（+38）
82

84

70

656
（+18）

(+5)

400
300
200

(+40)

496

518

554

(+17)

612

627

652

100
0

FY 2010(Ref) Prepared by Alpha-Win Research Dept. based on the financial results briefing materials

10/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

With regards to cost structure, labor cost and subcontracting cost paid tobusiness partners (basically, mostly personnel expense) account for over 90%of the cost of sales (stand-alone percentage for FY 2020; percentage of eachcost over sales is 25% and 51%, respectively). Therefore, the Company’s skill
in controlling these two costs may affect profitability, making project
management crucial.

(10) Agile development: anapproach to project
development. Unlike theconventional 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.

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, currently there is alimit to improving productivity due to the reliance on manpower. The
difficulty with 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 margins by carrying out various measures that
do not rely heavily on manpower such as the adoption of agile development10,
use of a standard platform, company-wide strengthening of project
management, utilization of overseas subsidiaries (offshore development), andreviewing of contracts (negotiating and proposing to change from payment
based on the number of staff and months to payment in return for services).

w Sales breakdown by◆ Sales Composition Well-Balanced by Industry

industry shows that
other > finance >distribution >telecommunications.
The “other” industries
beat finance as thelargest.

w Acquisition of new
customers anddiversification ofindustry are in progress.

[Figure 10] Sales Breakdown by Industry in
FY 2020

Finance

Distribution

33.9%

12.8%

Telecommunications

Other

30.5%

22.8%

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

Sales breakdown by industry is shown below (Figure 10). Sales for thefinance industry, which must process a massive amount of data and must to
be secure and reliable, had been the largest by industry type. However, while
the sales for the finance industry declined, sales for the “other” industries(industries excluding the three industries of finance, distribution, andtelecommunications) grew significantly, switching places with finance in its
contribution to total sales starting in FY 2019 (Figure 11 on page 12).
Following these two industries, the distribution industry and then thetelecommunications industry is the next largest with regards to the percentage
of total sales. HIMACS (TSE First Section: 4299) and Toho System Science(TSE First Section: 4333), competitors whose business is especially similar
to the Company, specialize in business for the finance industry, with sales forthe finance industry being over 70% or 80% of the total, respectively. On thecontrary, the Company is becoming more diversified through the expansionof business with non-finance industries.
Concerning business for the finance industry, systems demand from mostly
megabanks had been the financial growth driver for many years, but in thelast few years, this demand has been beginning to level off due to weakearnings and the completion of consolidations and alliances in the financeindustry. Instead, there has been brisk demand from areas related to credit
cards, cashless payment, and insurance, which is beginning to help businessfor this industry bottom out. Meanwhile, sales for telecommunications havebeen generally increasing over the long term, although with some fluctuations,
under the influence of the system investment cycle of telecom carriers, etc.
In the past few years, the “other” industries have become the most significant
growth driver since business with manufacturers, the government, energyrelated industries such as electricity, and the cloud-consulting-relatedindustry grew largely with the acquisition of new customers and newcontracts. As a result, the Company appears to have become more balanced
and diversified with regards to industry type, leading to greater businessstability.
11/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

The breakdown of gross margin by industry changes somewhat every year.
Gross margin was somewhat high for the finance and telecommunicationsindustries in the most recent fiscal year, but there is no significant trend orchange in margin (Figure 12). We believe that this is because the differencesin the profitability of each individual project, rather than the differences in
the characteristics of each industry, are reflected in the gross margin.
[Figure 11] Transition in Sales of Each Industry(million yen)

7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
FY
2002

FY
2003

FY
2004

FY
2005

FY
2006

FY
2007

FY
2008

Finance

FY
2009

FY
2010

Distribution

FY
2011

FY
2012

FY
2013

FY
2014

Telecommunications

FY
2015

FY
2016

FY
2017

FY
2018

FY
2019

FY
FY
2020 2021 E

Other(Ref) Figures 11 and 12 were prepared by Alpha-Win Research Dept. based on the securities report and financial results briefing materials[Figure 12] Transition in Gross Margin by Industry
22.0%

20.0%
18.9％
18.0%

18.1％

16.0%

16.3％
15.3％

14.0%

12.0%

10.0%
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Finance
Telecommunications

Distribution
Other◆ Stable Customer Base and Business with HighContinuity
w Stable business where

repeated contracts withthe existing customers
comprise a majority ofthe business

Since the Company’s customers and end users are Japan’s leading corporategroups and its business deals with mission-critical operations, the Company
must be reliable, stable, user-friendly, secure, and have continuity. Moreover,for system development and operations, the Company must accumulate
business knowledge and know-how. Consequently, the Company has a highcontract continuity with its existing customers. The prime ratio (percentage
12/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)
w Sales breakdown by

customer shows that
Nomura ResearchInstitute is the largest,
followed by Fujitsu,
Aeon, and Mizuho.
These four groups
account for a little lessthan 80% of the total.

Issued: 7/1/2020

of direct contracts made with end users in system development) is 20 to 30%
and many projects are outsourced from major SIs.
[Figure 13] Sales Breakdown by Customer Group in FY 2020

Other
23.1%

NRI
44.2%

Mizuho4.5%(Ref) Prepared by Alpha-Win Research
Dept. based on the securities report.

Aeon
6.9%
Fujitsu
21.3%

As shown by the sales breakdown by customer group in FY 2020 (Figure 13),
Nomura Research Institute (hereinafter, “Nomura Res. Inst.” or “NRI”) is thelargest customer, followed by Fujitsu, Aeon, and Mizuho. These four
corporate groups account for a little less than 80% of the total. Thanks to thesuccess of the “account” strategy (a strategy where marketing activities are
conducted in a concentrated manner by a person in charge) toward the fourmain client groups, an upward trend has been seen for the total sales of thefour groups, increasing by 2.8% YoY to Y10,351 million (+Y281 million) in
FY 2019 and by 9.3% YoY to Y11,316 million (+Y965 million) in FY 2020 .
Over the past ten years, the sales growth rate for clients other than the fourmain groups had been high, and the percentage of the sales of the four groups
over the total had been gradually decreasing. However, in FY 2020, theproportion of the four groups increased (Figure 14 on page 14).
(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
specific projects but also in thecooperative promotion of
innovative activities in the
Enhancement 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 its e-e Partners.

Looking at long-term changes, we can see that the sales for Nomura Res. Inst.
Group had increased by approx. Y5.6 billion from approx. Y900 million in
FY 2002 to approx. Y6.5 billion in FY 2020 thanks to the expansion ofbusiness field from the initial focus on the distribution industry to otherindustries such as finance. During this period, the Company’s overall sales
grew by approx. Y9.1 billion from approx. Y5.6 billion to approx. Y14.7
billion, with the NRI Group contributing to a majority of this growth (62%).
Similarly, Fujitsu Group contributed Y1.4 billion to sales, which is 15% of
the total increase in sales, thanks to its expansion of telecommunications,electrical power infrastructure, and government-related businesses. Having
raised sales over the long term for each of the major corporate groups, theCompany has excellent trust from its 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, the Company
is in a close relationship with NRI, partnered not only in business but also
making mutual investments and exchanging human resources. Looking at thetransaction with each company, we can see that NRI is also the largest bytransaction size, at approx. Y5.3 billion or 36.2% (percent of total sales in FY2020). The second largest is the transaction with Fujitsu at Y2.6 billion or
17.8% (percent of total sales in FY 2020).
13/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

In addition, in February 2019, the Company was awarded the Best Partner
Award by AEON IBS, with whom the Company has been in a business
relationship for 30 years. As seen from this, the Company’s customer
satisfaction level is high.
[Figure 14] Transition in Sales by Customer Group (G) and Share of the Top 4 Groups(Note: information on sales of Mizuho G before FY 2003 and of Aeon G before FY 2007 is not disclosed)(million yen)（％）

16,00082

14,00080
78

12,00076

10,000

74

8,000

72

6,000

(12) DX (Digital
Transformation): Thetransformation brought about by
the penetration of IT(information technology)
everywhere in the society. Not
only the businesses, but theindustrial structure and social
infrastructure are said to also
become affected. For companies,
the use of digital technologies
can bring reform to its businessmodel, operation, processes,organization, and culture.
(13) Cloud solution service: atype of service whereapplications are used as a“service” via web browsers, etc.
(14) Blockchain: distributed
network where information is
synchronized, recorded, andaccumulated among many
computers(15) AI: artificial intelligence(16) IoT: Internet of things. A
system that connects all devices
around us by the Internet.

2,000

66

0

64

2
F Y 00 2
2
F Y 00 3
2
F Y 00 4
2
F Y 00 52
F Y 00 6
2
F Y 00 7
2
F Y 00 82
F Y 00 92
F Y 01 0
2
F Y 01 1
2
F Y 01 2
2
F Y 01 3
2
F Y 01 4
2
F Y 01 5
2
F Y 01 6
2
F Y 01 7
2
F Y 01 8
2
F Y 01 920
20

w Upfront investment ingrowth areas of focus
such as cloud,blockchain, agile
development, AI, and
IoT

68

FY

w Focused on DX projects

70

4,000

NRI G
Aeon G
Other

Fujitsu G
Mizuho G
TOP 4G share (right axis)(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial
results briefing materials◆ Future Areas of Growth and Foundation for NextGeneration Technologies
Alongside its own R&D activities, the Company has been forming allianceswith companies with advanced, new technologies and has become awardedor certified by various major companies as their partners (Figure 15 on page15). It has been conducting investments and preparing for the developmentof businesses that utilize next-generation technologies. Since DX12-related IT
investment of corporate users are expected to rapidly increase, the Company
plans to put company-wide efforts into this area as its area of growth, actively
make proposals, and respond to needs. The total R&D cost in FY 2020 was
Y32 million, which may appear small since it is only approx. 0.2% 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 in cloud
solution services13 including Oracle-related services; participation in proof
experiments of the Blockchain14 Collaborative Consortium; capital andbusiness alliances with companies with expertise in AI technology15, IoT
technology16, and blockchain; alliance in agile development; development ofcorporate currency platform using blockchain technology; and creation of
new solutions. These are aimed at acquiring and sharing expertise andinformation on advanced technologies, developing human resources, making
joint development and proposals, and creating new businesses.
14/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

Furthermore, it created the Technology Strategy Office within the company
in 2016. In the Office, there are both dedicated members and members who
also work for the marketing department. The role of the Office is to catch up
to leading-edge technologies and conduct R&D and business development
based on the newest core technologies. Furthermore, it has been working on
strategically collecting information on new technologies and developing
relationships with new, promising companies through an investment
partnership (outstanding balance on the B/S at the end of March 2020: Y183
million) and investment in private companies (similarly, Y34 million).
Although it will probably take at least several years for those technologies
and new businesses to begin to make a substantial contribution to thefinancial results, their progress is an important point to watch.
[Figure 15] Summary of Recent Alliances, Awards, and Key Points
Date

Annoucement

Details

April 2019

Created Sustainability Promotion
Committee

Created the Sustainability Promotion Committee to accelerate progress with solving
societal issues such as SDGs.

April 2019

Certified as Cybozu, Inc.'s official
partner

The Company was certified as Cybozu's official partner. Reason for certification: inorder to meet the customer needs for cloud-based business solutions, which are rapidly
becoming popular, the Company provides solution services to its customers thatmerge a new business scheme based on Cybozu's cloud service kintone (cloud service
for creating business apps) with the Company's Enhancement Service (its strong
point) and offshore service based on overseas sites of the Company's group.

May 2019

Established Nagoya Office

Established the Nagoya Office in Nagoya Citiy, Aichi Prefecture, to further enhancesolution services and expand business in the Chubu region. Will strengthen sales
activities mainly toward the automobile, electricity, and machine sectors.

August 2019Awarded by Oracle Japan

November 2019

Demonstration experiment of facerecognition-based entrance control
service with Tripleize Co., Ltd.

December 2019

Certified as AWS Partner Network
Select Consulting Partner

In the Oracle Excellence Awards 2019 that Oracle Corporation Japan gives to its
partners that have achieved especially remarkable results, the Company was awarded
Oracle Excellence Award Specialized Partner of the Year: Consulting - Japan . It wasrecognized for its expansion of Oracle businesses (Oracle Database, Oracle Cloud,etc.) over 20 years.
Conducted a demonstration testing of the face-recognition-based entrance control
service Future Pass (trademark registration pending) with Tripleize and achieved
some positive results.
Certified by Amazon Web Services ("AWS") as AWS Partner Network (APN) SelectConsulting Partner (SI). APN is a global partner program of AWS. SI is acertification given to companies with sales and technology systems for AWS.

(Ref) Prepared by Alpha-Win Research Dept. based on the news release on the Company’s website

15/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

3．Shareholder Composition◆ Change in Composition by Type of Shareholder
With regards to shareholder composition by type of shareholder as of the endof March 2020 (Figure 16), “individuals, etc.” is by far the largest, owning
approx. 78% of the total. Second to this is “financial institutions, etc.,”
owning 18%. Together, these two types of shareholders own 95%, which ismost of the outstanding shares. “Foreign corporate entities, etc.” is small,
owning 1.1%. Over the years, shares of “individuals, etc.” have somewhat
decreased and shares of “financial institutions, etc.” have increased.

w “Individuals, etc.” ownslightly less than 80% of
all shares.

[Figure 16] Change in Shareholder Composition by Type of Shareholder (unit: %)
（％）

100
90
Individuals, etc.

80
70

～

FY 2012FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

25
20

Financial institutions, etc.

15

Financial instrumentbusiness operators
Other corporate entities

10
50

FY 2012FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

Overseas corporate
entities, etc.
at year-end(Ref) Prepared by Alpha-Win Research Dept. based on the securities reportuMajor Shareholder Composition

The Company’s major shareholder composition has been stable and has not
greatly changed. The major shareholders as of the end of March 2020 are
shown in Figure 17 on page 17. The following is supplemental information.
w The employee stock
ownership plan andcurrent and former
directors are the mostprominent among the
major shareholders.

w Increase in investments

under the name of trustbanks. Incorporated inseveral investment
funds.

・Since the amount of shares owned by the Employee Stock Ownership Plandecreased, in March 2019, its ranking among major shareholders became
switched with chairman Sakiyama (previously president), who became thelargest shareholder instead. Possessing a little less than 12% of all shares asof the end of March 2020, he owns slightly more than the Employee Stock
Ownership Plan at second place.
・The new president Mr. Nakanishi owns 24.2 thousand shares (0.17% of allshares).
・The Master Trust Bank of Japan (trust account) rose to third place among
the major shareholders. The name of its final investors and its purpose areunknown (note that Mitsubishi UFJ Trust and Banking Corporation owns
more than 40% of the shares of this trust bank). The final investors andpurpose of the tenth largest shareholder Japan Trustee Services Bank (trust
account 5) are also unknown (note that Sumitomo Mitsui Trust Holdings,
Mizuho Financial Group, etc., own shares of this trust bank). The Company’s
stock is incorporated in funds such as the Open-End Low-Price Equity Fundmanaged by Nikko Asset Management (parent company: Sumitomo Mitsui
16/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

Trust Bank), several funds managed by Mitsubishi UFJ Kokusai AssetManagement (part of Mitsubishi UFJ Group), and the Japan Equity Index
Fund managed by Nomura Asset Management. Considering the hierarchy ofcapital, a part of these funds is likely invested under the name of each trustbank.
w The largest individual

shareholders are thoseaffiliated with theCompany.

w With share buyback,treasury shares rose toabout 11% of all shares.

・The fourth largest shareholder Mr. Onuki is one of the Company’s previous
presidents. The fifth largest Mr. Uchida is the Company’s current director.
・The sixth largest shareholder The Master Trust Bank of Japan is the BIP
trust account for the Company’s director remuneration (stock-remunerationtype director incentive plan).
・The eighth largest shareholder Mr. Sato is the Company’s former executive
managing director.
・The ninth largest shareholder MUFJ Bank is a correspondent financial
institution.
・Of the top ten shareholders, the Employee Stock Ownership Plan, thedirectors/employees (including former members), and the treasury shares add
up to about 40% of the total. The Company has been actively buying back its
shares, and its treasury shares including the BIP trust account were 15,276
thousand shares as of the end of FY 2020, which is about 11% of the total
number of shares (treasury shares plus all outstanding shares). Thisessentially places the Company at third place in the shareholder ranking.

[Figure 17] Current Major Shareholders
Shareholder Name

(unit: thou. shares)

FY 2015
year-end

FY 2016
year-end

FY 2017year-end

FY 2018
year-end

FY 2019
year-end

Osamu Sakiyama (indiv.): CUBE SYSTEM's president
1,775
1,675
1,655
1,646
1,638
CUBE SYSTEM Employee Stock Ownership Plan
1,641
1,672
1,663
1,668
1,565
The Master Trust Bank of Japan, Ltd. (trust account)
321
394
Akemi Onuki (indiv.): CS's former president
401
401
401
401
401
Toshio Uchida (indiv.): current director
475
415
403
393
376
The Master Trust Bank of Japan
270
270
262
369
(director renumeration BIP trust: 75,824 account)
Masatsugu Sakurai (indiv.): general individual investor
316
316
316
316
316
Toshikuni Sato (indiv.): CS's former exec. managing director
380
340
300
300
304
MUFJ Bank, Ltd.
258
258
258
Japan Trustee Services Bank, Ltd. (trust account 5)348
324
Nomura Research Institute, Ltd.
Mizuho Bank, Ltd.
276
276
276
276
276
CUBE SYSTEM INC.
682
458
1,035
1,236
1,356
Resona Bank, Limited
241(CUBE SYSTEM's Actual Treasury Shares)
682
728
1,306
1,498
1,725
(Percentage of Treasury Shares)
4.5%
4.8%
8.5%
9.8%
11.3%
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.

FY 2020year-end% of Total
SharesRanking

1,632
1,602
485
401
369

11.70
11.49
3.48
2.88
2.65

1
2
3
4
5

358

2.56

6

316
304
258
219

2.27
2.18
1.85
1.57

7
8
9
10

1,692
11.1%

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

w Uses a portion oftreasury shares as anincentive for directors

Three times in the past, the Company had issued a portion of its treasury
shares to its directors as an incentive. In FY 2016, the Company terminatedits previous director retirement benefit plan and instead started the stockremuneration type (BIP trust) director incentive plan where the Company’streasury shares are issued and granted according to his or her position andachievement rate with 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 vesting occurs upon a director’s retirement.
Also, in September 2018 and September 2019, it issued a portion of thetreasury shares to its directors and executive officers as limited-transfer,
17/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

stock-based remuneration as part of the new system created in the transition
to a new step in the medium-term management plan. Prior to this, directownership of shares by members of the current management team waslimited. Therefore, the introduction and continuation of this new stock
remuneration system should be effective in raising the incentives of directors
with regards to management and financial results and aligning theirdirections with the shareholders’ profit.
w Bought back sharesworth approx. Y300
millionIn addition, in February 2019, the Company bought back approximately 348
thousand shares (equivalent to 2.8% of outstanding shares excluding treasury
shares) for a total of approximately Y300 million (average acquisition price:Y863). The purpose of this buyback was to improve capital efficiency andmargins and to maintain the ROE at 10% or greater. The total return ratio
was 91.3% in FY 2019 and 46.5% in FY 2020, including the share buybackand dividend.
The Company has not decided on how to make use of the remaining treasury
shares, but some possibilities include using them for stock remuneration as
another director incentive, stock cancellation, or a stock-swap in a tie-up or
an M&A.

w 取締役と監査役に事後交付型リストリクテッ
ド・ストックを導入。約11％を占める自社株の一部を活用。
（注 6）リストリクテッド・
ストック【Restricted stock】：
自社の現物株式を役員等に直接付与する株式報酬制度
の一種。

18/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

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

Although the Company’s business does not harm the environment, under thepolicy to “practice environment-friendly management through continual
improvement in environmental performance (energy/resource conservation),”the Company engages in environment-friendly activities (obtained ISO14001
certification). Specifically, the Company works on reducing electricity andpaper usage, reducing waste, implementing “cool biz” and “warm biz,”promoting green purchasing, and planting trees in Vietnam.

◆ SocietyAs a key industry necessary for the infrastructure supporting economy andsociety, the CUBE SYSTEM 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
the education of nextgeneration talents

It has been supporting the education of next-generation talents in Japan andoverseas. In Vietnam, it started a scholarship for students enrolled inengineering universities. It is also engaged in cleaning and beautification
activities.

◆ 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, the Working Style Reform Committee,
and other committees). The Company has also adopted the executive officer
system in order to reinforce corporate governance. To deliberate on importantmatters related to the general management of the Company, a management
meeting is held every week. The deliberated matters are communicated toeach department by the managing officers. The Company has also set up aninternal hotline system for compliance-related matters. It has not adopted any
anti-takeover measures.
w Of the 10 directors andauditors, 6 are fromoutside the Company.

(17) SDGs (Sustainable
Development Goals):International goals for theperiod from 2016 to 2030
described in “The 2030 Agenda
for Sustainable Development”
that was adopted at the UN
Summit in September 2015.
Consists of 17 goals and 169
targets and pledges to “leave noone (on earth) behind.”

The management team is made up of seven directors (of which three areoutside directors) and three auditors (all are outside auditors from Mitsubishi
Corporation and have overseas working experience). Two of the directors are
dedicated members, including the new chairman. Three are from Nomura
Research Institute, including the new president (additionally, one is an
outside director). Of the remaining two outside directors, one is a lawyer and
one is a doctor (female doctor; newly appointed). Since all directors as well
as executive officers used to be men, this is the first time that the Company
has a female director.
Also, under the health management policy, the Company is working on
improving and maintaining the mental and physical health of its employees
and creating a comfortable working environment (won a silver award as a
Health Management Outstanding Organization in May 2018). Since theworkstyle reform will be the next important challenge, the Company has
recruited an occupational health physician as director so that she can help
create specific measures with her expertise in nursing care and mental health.
In April 2019, it newly created the Sustainability Promotion Committee andhas been working on social issues such as the SDGs17.
19/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

5． History of Growth◆ Company History
In 1972, the Company was founded as Customer Engineers Corporation by
its founding members, which included the current chairman, 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 became specialized in the system integration
business and built its trust and track record. One after another, it increased
the number of contracts with leading Japanese companies – its current main
customer groups. As those companies increased their IT investment andoutsourcing of system development/operation, the Company expanded its
business domain as well as business in general at a steady pace.

w Founded under the
anticipation that theimportance andpotential of computer
systems will grow.
Specialized in thesystem integration
business.
w Its main customers areleading blue-chipcompanies of Japan.

Regarding stock, the initial offering was made in the JASDAQ market in
2002. In 2006, the Company became listed on the Second Section of the TSE,
and then became listed on the First Section on March 2014.

w Changed its listingfrom TSE Second
Section to the First
Section in March 2014

◆ Past Transition in Financial Results
From foundation until now, the Company has been improving its financial
performance as a specialist (SI) in the development and operation of systems
outsourced from other companies and the government. Long-term transitionin financial performance is shown in Figure 18. The following are details on
the financial results in chronological order.
[Figure 18] Long-Term Transition in Financial Results(million yen)
18,000(million yen)

Planning to achieve
record-high profit

Sales (left axis)
Recurring Profit (right axis)

16,000980
Consolidated since FY 2001

960

959

1,120

976

1,200

1,000

893

14,000811
16,00012,000702
660 672643

10,000550 550

583

606

597
533

499

8,000

445 432

12,623
12,527
11,217302 309
4,000

2,000 4,220 4,387

4,806

5,598

6,244

13,5596,575 7,100

7,767 7,923 8,109

8,507 8,706

9,166

8,431

600

12,899

387

6,000

800

14,70814,325

400

9,241

0

200

0
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(E)(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary. E = the Company’s estimate/forecast.

20/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated 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
1 fiscal year during thepast 18 years.
w Rate of change infinancial results has
been low and stable.

Issued: 7/1/2020

・On a consolidated basis, with the exception of only a single fiscal year (FY2012), the Company has being achieving an year-on-year increase in sales
every fiscal year for the past 18 fiscal years (at least 22 years including theperiod when accounting was nonconsolidated). This stable growth trend isnoteworthy.
・During this period, the annual sales growth rate (simple average of theannual rate of increase in sales) was +6.4% and similarly the recurring profit
growth rate was +6.0%, showing how the Company has been steadily
improving its financial performance over the long term (during the period thatits accounting was nonconslidated, the rates were +7.0% and +8.3%,
respectively).
・Although recurring profit decreased in five out of the 18 fiscal years, thelargest annual drop stayed within the range of approx. -20%, and theCompany has been able to always stay in the black with regards to net profit
for the year.
・Analyzed statistically, the Company’s standard deviation for the rate ofchange in financial result and its variation coefficient (= standard deviation /average; shows relative dispersion; also called relative standard deviation)
are small, indicating that the volatility of the Company’s fundamentals is low(see Figure 19 for a comparison with similar-sized competitors for the mostrecent 16 fiscal years).
・Furthermore, because the Company’s operating margin has been stable ataround 7% (Figure 20 on page 22), an increase in sales has been directly
correlated with increases in profit, dividend, and market capitalization.

[Figure 19] Performance Volatility Analysis for the Most Recent 16 Years (% YoY change for sales and R.P.)
Note: non-consolidated for Toho System only; actual values for FY 2005 - FY 2020
Target of Analysis
FY 2005 - FY 2020
Market: TSE 1st Sec.
n=16 fiscal years% Change in Sales (YoY %)% Change in Recurring Profit (YoY %)

Cube
2335
CS

HIMACS
Toho System
Cube
HIMACS
Toho System
4299
4333
2335
4299
4333
HM
TS P
CS
HM
TS P
Standard deviation
6.05
7.79
17.79
13.31
31.65
324.01
Average
5.33
3.11
8.26
5.14
5.82
93.30
Coefficient of variation
1.13
2.50
2.15
2.59
5.43
3.47
(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and financial results summary

w Increased transaction

with the major 4 groups
has helped theCompany growsignificantly.

w Even right after the
Lehman shock, sales
increased for 3
consecutive fiscal years.

External environmental factors, such as active IT investments by Japanesecompanies and the government, have not been insignificant to the Company’s
growth to date. However, much of the Company’s success is thought to havebeen brought by its efforts to improve its expertise, earn trust from its
customers, build a strong customer base, and consistently produce positive
results. Although it is an independent company, it has strengthened its
relationship with the four major groups NRI, Fujitsu, Aeon, and Mizuho andsucceeded in developing long-term business relationships; this success was
its major growth driver.
The financial performance for the most recent 12 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 its sales owing to the continued
business with the existing customers mainly for systems in the finance anddistribution industries, as well as due to the entry of companies into thebanking business leading to projects for operation expansion.
・The economic recession continued into FY 2010 and FY 2011. Systemdevelopment plans continued to be postponed, cancelled, or scaled down,
companies continued to hold off on IT investments, and competition over
21/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated 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 anddigitalization
investments. The
Company 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 7 fiscal
years in a row, but
profit has been
fluctuating within aboxed range due toincreased cost.

Issued: 7/1/2020

price and between companies became intense. However, thanks to thebusiness with the existing customers and the expansion of business with life
insurance companies, banks, and manufacturers, the Company continued toincrease its sales. With increased sales, fluctuation in the operating profit for
the three fiscal years following the Lehman shock stayed within a small range.
･The Great East Japan Earthquake, though, had a large negative impact on
the Company in FY 2012. Amidst the difficult situation, sales decreased byapprox. 8%. Sales of all industries excluding telecommunications declined,with an especially large decline for the business toward manufacturers andthe government. This was the single instance in which sales decreased in thehistory of the Company from FY 2002 to the previous fiscal year. Its
operating profit decreased by -20.9%, the largest drop during the same period,
but a net profit was maintained.
・Then, IT investments by companies and the government recovered fromtheir previous inclination to hold off or postpone thanks to factors such as the
economic recovery brought by Abenomics since December 2012, recoveryof company performance and employment, 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. Due to this recovery,
as well as the full-scale investment in digitalization in recent years, theCompany’s sales growth trend became a more definite one.
・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., a record-high operating profit and recurring profit of Y964 million andY980 million were recorded, respectively (net profit for the year also hit arecord high in the following year or FY 2016, at Y629 million).
・Since then, the Company has been consecutively posting new record-highsales every fiscal year. However, due to increased cost and intensified pricecompetition, the Company’s gross margin and operating margin have been
gradually decreasing over the long term (Figure 20).
・The operating margin decreased especially due to the increased cost of sales(subcontracting cost and labor cost), upfront investment cost, and SG&A
expenses (especially personnel expense; as a reference, the SG&A expenses
ratio 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 → 10.6% in FY 2019 →
10.5% in FY 2020), but it began to improve in FY 2018. In the previous fiscal
year (FY 2020), although neither profit quite reached their all-time highs,
they have recovered to a close level.
・However, even with an improving economic environment, the Company
has not yet been able to improve its profit margins beyond a boxed range.
Gross Margin

Operating Margin

（％）

20.0

[Figure 20] Long-Term Transition in the
Company’s Gross Margin andOperating Margin

18.0

17.1
15.9

16.0

16.6

16.7

17.7

16.7

16.7

16.7
15.5

16.2

15.5

17.3

17.1

17.0

6.1

6.3

6.4

6.5

FY
2017

FY
2018

FY
2019

FY
2020

17.0
15.4

13.9

14.0
12.0
10.0

(Ref) Prepared by Alpha-Win Research Dept.
based on the financial results summary. E = theCompany’s estimate/forecast.

18.3
17.1

8.7

8.2

8.0

7.5

7.9

7.1

7.4

8.0

7.7

7.3

7.2

7.7
6.2

6.5

FY
2012

FY
2013

6.0

7.5

5.9

7.0

4.0
2.0
0.0
FY
2002

FY
2003

FY
2004

FY
2005

FY
2006

FY
2007

FY
2008

FY
2009

FY
2010

FY
2011

FY
2014

FY
2015

FY
2016

FY
2021
(E)

22/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

6． Business Environment◆ History of the System Integration Business
The system integration business is said to have begun in the 1960s when the
US military industry outsourced its system development. In the US, there
used to be a strong tendency for companies (users) to use packaged softwareor, when they needed to develop their own systems, conduct everything fromsystem development to operation in-house. Meanwhile, the system
integration business began 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 and large-scale system development
projects for the government.

w As the outsourcing ofsystem development
became popular, SIs
grew by taking thoseoutsourced systemdevelopment jobs.

w Made-to-order systemdevelopment contract ispopular in Japan.

Previously, the IT system department of 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.
In Japan, the proportion of outsourced system development is much higher
than packaged software compared to the US (Figure 21).
[Figure 21] Ratio of Software Type in Japan and the USA
USA

Japan
Packaged

11.7%

In-house
Development

Outsourced
Development

33.8%

37.2%
Outsourced
Development

88.3%

Packaged

29.0%(Note) Monetary amount of software developed inhouse is not disclosed in Japan’s statistics (System
of National Accounts). Therefore, data fromsoftware providers are used, but these data do notinclude in-house developed software. When the
total of the US’s packaged software and outsourced
development software is set to 100% in order tocompare data between the two countries, US’s
proportion of packaged software comes out to be
46.2%, which is about four times that of Japan.

(Ref) Ministry of Internal Affairs and Communications: “WHITE PAPER Information andCommunications for 2019” (Japan: Ministry of Internal Affairs and Communications and Ministryof Economy, Trade, and Industry) (USA: US Department of Commerce)◆ 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 is instead
often described as being in a mild oligopoly (the top five players by sales
account for about 40% of the total shares). This situation is most likely due
to the fact that since this business deals with made-to-order systemdevelopment, unlike the manufacturing and sales of products (generalpurpose, mass-produced goods), one cannot meet the requirements for amonopoly such as technology protection and differentiation by means ofpatents and expansion of shares through mass production. Additionally,
because of the language 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 the competition is intense, there
should not be large changes in the shares since the demands for system
reliability and continuity make the entry barrier relatively high.
23/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

w The system integrationindustry has avertically layered
structure.

Issued: 7/1/2020

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 being able to exist alongside one
another by taking strong positions in niches differentiated by industry, size,and corporate group of users including companies and the government, or by
the business function of the system. Due to this structure, profitability as wellas risks generally tend to increase as the number of direct contracts with end
customers (prime contracts) increases, as one moves further upstream in thedevelopment process, and as business is conducted in more new areas.
Japanese companies (corporate users) prefer IT systems that are made-toorder and tend to outsource system development to other companies.
Generally, the role of Japanese SI companies is to develop systems based on
the requirements set by corporate users. Consequently, ownership of theintellectual property related to the system developed under an outsourcing
contract belongs to the corporate user. This means that 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.
SI companies may choose to strategically achieve growth by securing humanresources and expanding its scale through M&As and capital/businessalliances among themselves as well as consolidations and mergers following
the carve-out of the systems division of clients. Indeed, M&As are increasing.
System integrators (SIs) can mainly be categorized into the following three
types.

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

1. Independent: Founded as a system integrator. A fully independentcompany. If it is a mid-tier player or smaller, it often works on contractdevelopment projects, 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-chipcustomers is the key 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 ITspecialized 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 that major
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.)
24/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)w Although slowly, thesystem integration market
is growing. Meanwhile,elimination andenlargement of companies
are in progress.
(18) Survey of Selected Service
Industries: Nation-wide survey ofcompanies on the current activity
and business management status ofindustries in the service industry
sector with high needs for statistics
from both govt. and economic
perspectives. Includes the IT
services industry, which is further
divided into software dev. (includes
SI), assigned system management,
etc.

Issued: 7/1/2020◆ 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 of the ”Survey of Selected Service Industries”18 by the Ministryof Economy, Trade, and Industry, we find that the sales of make-to-ordersoftware, as well as the sales of system integration which make up more thanhalf of make-to-order software sales, have been increasing with the exceptionof the few years after the Lehman shock (Figures 22 and 23).
According to the same data, from 2010 to 2019, sales of system integration
had increased by about 3.1% per year on a simple average. The current market
size is about Y5 trillion. The number of establishments (mostly synonymouswith the number of companies) in the IT services business has been gradually
decreasing every year since 2003 (simple average of approx. -1.2% per year).
In contrast, the number of permanent employees has been increasing with the
exception of 2010 to 2012 (from 144 thousand in 1998 → 338 thousand in2019), indicating that the elimination and expansion of companies are theindustrial trend (the number of employees per establishment: 107.2 in 1998
→ 138.7 in 2019).

[Figure 22] Changes in the System Integration Market[Figure 23] Rate of Change in the SI Market(annual sales: unit = 100 million yen)(rate of change in sales: %)（％）

80,00025.0

70,00020.0

60,00015.0

50,000l

40,00010.0

30,000

5.0

20,0000.0

10,000-5.0

Make-to-order software

Of which is system integration

-10.0
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19

19
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
1
20 1
1
20 2
1
20 3
1
20 4
1
20 5
1
20 6
1
20 7
1
20 8
19

0

Make-to-order softwrae

Of which is system integration(Ref) Prepared and reworked by Alpha-Win Research Dept. based on data from the April 2020 Survey of Selected Service Industry by the Ministryof Economy, Trade and Industry. Part of the original data used for market size (sales) in Figure 22 does not have continuity due to changes
in the target size. However, the rate of change in Figure 23 has been adjusted so that there is continuity.

Since large-scale projects in system development (such as businesscombinations by megabanks) have already reached their peak and are
beginning to decline, cost control is becoming a prominent issue andcompetition is starting to intensify. Over the short term, market environmentis starting to become difficult due to the COVID-19 impact. However,structurally inherent lack of manpower, demands for improvement in
operation efficiency, and IT investments by companies and the government
will likely continue to steadily increase. In various industries and fields,companies have been strategically developing new areas and technologies toraise their competitive advantage. As systems become more advanced and thedemand for DX increases, we predict that the market size will grow at about
2-3% per year.
25/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020◆ CUBE SYSTEM’s Market Position and Comparison
with Competitors

w Middle-ranking in theindustry by sales, at
80th to 90th place fromthe top. Its share ofsales in the entire
system integration
market is estimated to
be about 0.3%.

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 be ranked
at around 80th 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 to the Company in market positionand size. Meanwhile, several of the largest SI players such as Nomura
Research Institute and Fujitsu are the Company’s partners and allies rather
than direct competitors.

w Its benchmark

companies are HIMACS
and Toho System. Both
are Nomura ResearchInstitute’s e-e Partners
and their market
positions are very
similar.

Comparison of the long-term transition in the operating margin of the threemajor listed companies including the Company (hereinafter, the Company isabbreviated as CS in the graphs; similarly, HM for HIMACS and TS for Toho
System) is shown in Figure 24. Compared to the other two companies, theCompany’s operating margin is relatively stable and is in no way inferior. A
similar comparison of the ratio of net profit for the year to shareholders’equity (ROE) (Figure 25) shows that the Company’s ROE has been thehighest of the three companies during the past three years. Its ROE has
recovered greatly from one point in time, and since FY 2015, it has beenaround 11-13% for five fiscal years in a row. Last fiscal year, due to atemporary factor (extraordinary loss, etc.), the ROE was 9.6%, which is
below the target of greater than 10%. However, this fiscal year, the Company
is aiming for 13%.

w No significant
difference for each of
the profit margins
between the threecompanies. The
Company’s O.P. margin
has stayed about thesame, but its ROE has
greatly improved.

[Figure 24] Comparison of O.P. Margin for Three Mid-Tier
Listed Companies (the Company, HM, and TS)
（％）

（％）
13.0

CS

11.3

HM
10.1
9.2

8.1
7.3

7.0
5.0

7.7

24.0

TS

5.9

7.3
7.2

4.9

7.7

7.6

8.4
7.7

7.5
7.7

7.7

6.9

6.2

7.6
6.5
5.5

5.9

7.6

7.5

6.1

HM

TS

20.0

9.6
8.3
8.1

7.3
6.3

6.4
6.8

7.9

6.5
6.6

7.0

17.2 16.8
18.0 16.4
15.4 15.5 15.3
16.0
14.2

14.6

14.0

13.2

5.2

8.0
6.0
4.0

1.0

2.0

0.1
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
E

0.0
-2.0

16.3

13.8

12.0 11.1
10.0

3.0

-1.0

CS

22.0

11.0
9.0

[Figure 25] Change in ROE for the Three Companies

11.3

10.9

10.0

12.4

8.6

6.7
5.2
4.3

8.6

8.7

8.8

8.5

9.2
6.2 4.4
5.4

4.3

8.4

7.1

12.1

13.5

11.6

9.1 11.9
8.0

11.4

14.1

10.7
9.0

11.4
9.8

9.8

9.6

9.8

9.6
9.1
8.8

5.3
3.8
-0.9

3.0

FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(Ref) Figures 24 and 25 were prepared by Alpha-Win Research Dept. based on the financial results summary and securities report

26/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020[Figure 26] Company Overview and Management Indicator Comparison for Three MidTier Listed Companies (the Company, HM, and TS)
Company Name

CUBE SYSTEM (CS)HIMACS (HM)Toho System Science (TS)

Code

2335

4299

4333

Characteristics

Independent. Mainly sys. dev. forfinance, distribution, telecom, and otherindustries (makers & gov. excluding theabove 3 industries). Sales for finance area little less than 30% of total sales.
Sharp growth of "other industries"
category.

Began as Toho Mutual Life Insurance
Independent. 70% of sales comes fromCo.'s affiliate but is now indep.
the finance industry. Sales for insurance Specialized in software dev. for financecompanies are espcially high - greater(insurance, securities, etc.) - greater than
than 40%.
80% of total sales. Also develops software
for the telecom industry.

FoundedJuly 1972

May 1976

June 1971

Listed Date (JASDAQ→TSE 2nd→TSE 1st)

10/2002→11/2006→03/2014

03/2001→03/2004→03/2015

06/2001→03/2007→03/2014

Sales Categories/Breakdown (FY 2020)

Director Composition

・System Integration 71.0%
・System Outsourcing 16.3%
・Professional 12.7%

・System Solution 47.6％
・System Maintenance 52.4％

・Directors (7; 3 outside & 1 woman =14.3%)
・Auditors (4; all outside)・Executive officers (12; no woman)

・Directors (7; 3 outside)・Directors (5; 2 outside)・Auditors (4; 2 outside)・Auditors (4; 2 outside)・Executive officers (11; 1 woman = 9.1%) ・Executive officers (9; 1 woman = 11.1%)

1. NRI 6,506 (44.2％)

1. NRI 6,295 (41.0％)

Major Clients/Customers (FY 2020) (million yen; % of sales)

・Software Development 97.1％
・IT System Service, etc. 2.9％

1. NRI 3,361 (28.8％)-

2. Fujitsu 3,135 (21.3％)

2. SCSK 1,336 (11.4％)

Sites (including consolidated subsidiaries)

・Head office: Shinagawa-ku, Tokyo・West Japan Solutions Headquarters:
Osaka & Nagoya
・3 subsidiaries

・Head office: Yokohama, Kanagawa
・Minatomirai Office: Yokohama
・1 subsidiary・Head office: Bunkyo-ku, TokyoManagement Goals (indicators)

・ROE: ≥10% continuously・Consolidated O.P. margin: ≥10.0%
・Consolidated sales per domestic
employee: ≥Y30 mil
・O.P. (same as above): ≥Y2.5 mil

Medium term management plan, final
FY: In FY 2023,
・Sales Y17.75 bil・O.P. margin ≥6%・ROE ≥8%

Medium-term management plan, final
FY: In FY 2023,
・Sales Y20 bil
・O.P. Y2 bil・O.P. margin ≥10%
・ROE ≥15%

Management Policy/Strategy (summary)・As a key industry necessary for
infrastructure supporting economy andsociety, contribute to further dev. of the
IT society and enhancement of thecustomers' competitiveness・Become "a company selected as its
customers' best partner" and create "acorporate culture where employees andthe company grow together and sharehappiness and wealth"・Business dev. in Japan and overseas
・Invest in new businesses and tech・Strengthen business foundation topromote growth・Contribute to the dev. of the IT society
by enhancing the customers'competitiveness as their best partner
・Expand existing contract developmentbiz (core biz)・Actively work on receiving orders for
DX projects responding to technology
innovations and business modeltransformation
・Continue investment in structural
reinforcement
・Increase development staff
・Conduct M&As and create
capital/business alliances to solve issues
with current plan・A company that works together withcustomers to create and realize values
needed by the customers
・Traditional IT business (maintain &expand SI business)
・Digital IT business (a challenge)
・Create-IT business (dev. a serviceproviding business)
・Provide new service with "Using Service
Infrastructure" (general communication
service infrastructure for various
purposes)・Strengthen business foundation (HR,work satisfaction, internal control)

16,00014,50011,700

8.8

-5.5

0.1

Operating Profit (million yen) CE

1,120

758

920

O.P. Growth Rate, YoY (%) CE

16.8
33.3

-25.1
-26.3

0.5
0.1

Sales (million yen) CE for FY 2021
Sales Growth Rate, YoY (%)

CE for FY 2021

EPS (CE) for FY 2021, YoY (%)
DOE (%) Actual

4.5

3.1

4.4

Past 10 Years’ Sales Growth Rate (FY 2020 result div. by
FY 2010 result: %)

68.9

99.4

60.0

50.6
69.6
737
21.7
1.5
9.6
3.6
1.8

124.4
78.4
843
17.2
0.9
8.8
4.5
1.5

157.8
68.7
576
20.3
1.6
9.1
5.4
1.1

1.5

1.3

1.5

12.3
6.6

9.9
6.6

8.9
7.9

1.5

1.1

O.P. Growth Rate (same condition as above)
Equity Ratio (%) Actual# of Domestic/Overseas Employees, Actual
Est. Sales Per Employee (million yen / person)
Est. O.P. Per Employee (million yen / person)
ROE (%) Actual for FY 2020

A=B×C×D

N.P. Margin (N.P. for the year / sales : %)B

Total Asset Turnover Ratio (sales / ave. total asset)

C

Financial Leverage (ave. total asset / ave. owner's equity)
D
ROA (R.P. / total asset : %)R.P. Margin (%) Actual

E=F×G
F

Total Asset Turnover Ratio (sales / ave. total asset) G
1.8
Italics show each company’s estimates/forecasts (CE) for FY 2021. Other values are actual results for FY 2020.

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

27/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

7．Last Fiscal Year’s Results and This Fiscal
Year’s Forecast by the Company
w Last FY’s results wereslightly below theinitial company
forecast and ourforecast, but sales grewfor the 8th consecutive
year and O.P. grew for
the 2nd consecutive
year.

w Hitting record-highsales consecutively.
Profits also came close
to record highs.

w However, results were
below the company
forecast and ourforecast. With aslowdown in theorders received, there
was only a small sales
growth, and with theposting of an
extraordinary loss, net
profit decreased.
w Both the amount oforders received and theorder backlog havestayed about the same.

[Figure 27] Comparisonof Initial Forecast andActual Result for FY 2020
(last FY)
(Ref) Prepared by Alpha-Win
Research Dept. based on thefinancial results summary◆ Full-Year Financial Results for FY 2020 (last fiscal year)
Summary
For the consolidated results for FY 2020 (last fiscal year), sales were Y14,708
million (+2.7% YoY), operating profit was Y959 million (+4.1% YoY),
recurring profit was Y976 million (+1.7% YoY), and net profit attributableto owners of the parent was Y525 million (-11.9% YoY; hereinafter, “netprofit”). Last fiscal year, sales and profits were both below the forecast madeat the beginning of the fiscal year as well as the targets for the second year of
the medium-term management plan V2020 3rd STEP (FY 2019-2021), but
the results were generally solid with increased sales and operating profit.
However, due to an extraordinary loss, net profit decreased for the first timein three fiscal years.
Sales have been increasing for eight years in a row since FY 2013 and a record
high was achieved. In addition, for profit, although the growth rate had
slowed down, a consecutive growth was achieved, and operating profit andrecurring profit came close to their record highs. Compared to the Company’srather ambitious initial plan, sales were 5.1% lower, operating profit was
12.0% lower, and net profit was 23.2% lower (Figure 27).
In our previous report (February 3, 2020), we had forecasted sales of Y15,200
million for last fiscal year, which was a somewhat cautious forecast comparedto the Company’s forecast (Y15,500 million). However, the actual results fell
below our forecast, and similar results were seen for each of the profits too.
The main factors that caused this downward revision in operating profit are(1) sales only increasing by a small amount due to a slowdown in the orders
received and (2) less-than-expected improvement in operating margin. We
had expected the operating margin to improve by 0.6 points from 6.4% in FY
2019 to 7.0% in FY 2020 (the Company’s estimate was also 7.0%). However,
due to the rise in various costs and an unexpected occurrence of unprofitableprojects, it improved only by 0.1 point to 6.5%. In addition, an extraordinary
loss of approx. Y93 million was posted due to the loss on revaluation of
securities concerning a strategic stock investment in a private company. This
caused a double-digit downward revision of net profit and an overall decline
in net profit.
Orders Received and Order Backlog
The amount of orders received during the fiscal year also did not grow as wellas it had been hoped, decreasing from the fiscal year before the previous →last fiscal year by Y8 million (0.1%) from Y14,750 million → Y14,741
million. The order backlog (at the end of each fiscal year) also stayed mostly
about the same, having increased by Y33 million (0.8%) from Y3,996 million→ Y4,029 million in the same order as above.
Unit:: million yen
Sales
Gross Profit
Gross Margin
SG&A Expenses
SG&A Expenses Ratio
Operating Profit
O.P. Margin
Recurring Profit
Net Profit

Company Plan at
Alpha-Win's
Beginning of FY (Initial) Previous Forecast
15,500

1,090
7.0%
1,090
684

15,200
2,610
17.2%
1,540
10.1%
1,070
7.0%
1,080
680

Result

14,708
2,503
17.0%
1,544
10.5%
959
6.5%
976
525

Diff. from
Company Plan

% of Initial Company
Plan Achieved

-792

94.9%

-131

88.0%

-114
-159

89.6%
76.8%

-0.5pt28/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

Sales and Profit by Service Category
The Company's overall increase in sales compared to FY 2019 was Y383
million. By service category, the two categories of SIS (+Y585 million) andSOS (+Y46 million) grew, and ProS (-Y248 million) decreased (Figure 28).
For gross profit, only SI’s increased by Y157 million (Figure 29).

w SIS and SOS’s sales

grew, offsetting
decreased sales in ProS.
The overall grossmargin stayed about thesame.

In terms of gross margin by service category, the SIS’s gross margin
improved by 0.6 point from 16.0% → 16.6%. On the other hand, SOS’s
deteriorated from 17.7%→16.7% and ProS’s worsened from 21.4%→19.6%.
Since SIS’s sales account for about 70% of total sales, the overall grossmargin fell only slightly from 17.1%→17.0%. However, thanks to the sales
growth, gross profit increased by Y55 million (2.2%) from Y2,448 million→ Y2,503 million.
[Figure 28] Contribution of Each Service
Category to Sales in FY 2020 (last fiscal year)[Figure 29] Contribution of Each Service Category toGross Profit in FY 2020 (last fiscal year)(million yen)

16,00014,325

14,708(+ 382)

9,854

10,439(+ 584)

2,352

2,398

(+ 46)

2,118

1,870

(- 248)03/2019

03/2020

14,00012,00010,000Gross Profit(unit: million
yen)

8,000
6,000
4,000
2,000
0

ProS (Professional Service)

SOS (System Outsourcing Service)

SIS (System Integration Service)w By industry, businesstoward the financeindustry recovered andcontributed to sales
and profit growth.

Gross Margin(unit: %)

Total
SIS
SOS
ProS
Total
SIS
SOS
ProS

FY 2019
2,448
1,577
417
453
17.1%
16.0%
17.7%
21.4%

FY 2020
2,503
1,734
401
366
17.0%
16.6%
16.7%
19.6%

Diff.
55
157
-16
-87
-0.1%
0.6%
-1.0%
-1.8%

% Diff.
2.2%
10.0%
-3.8%
-19.2%(Ref) Figures 28 and 29 were prepared by Alpha-Win Research Dept. based on thefinancial results supplemental reference materials

Sales and Profit by Industry
・Similarly, by industry, of the total sales growth of Y383 million (comparedto FY 2019), finance increased by Y478 million (+12.0%), distribution
increased by Y308 million (+10.1%), and the “other” industries increased by
Y69 million (+1.4%), offsetting the decline in telecommunications by Y473
million (-20.1%). In the finance industry, the Company’s business grew fromsystem development projects for credit card companies, internet insurancecompanies, and banks related to the development of cashless payment andnew services. In the distribution industry, projects increased from the need torespond to the reduced consumption tax rate system. In the “other” industries
category, although the completion of projects with construction machinery
manufacturers and the government caused some decline, this was offset by
the increase in system development projects with paper processing companies
and education business companies. On the other hand, due to the completionof projects with telecom carriers, sales of telecommunications significantly
decreased (Figure 30 on page 30).
・Gross profit increased in finance and telecommunications by Y187 million
and Y6 million, respectively, offsetting the decrease of Y100 million intelecommunications and Y39 million in the “other” industries category.
・Comparing actual sales for each industry with the initial forecast, of the net
downward revision in sales by Y792 million, finance exceeded its target by
Y164 million, distribution was Y629 million below its target, andtelecommunications was Y297 million lower. This is because the Company
had made it its priority to deal with the unprofitable projects and could notreceive orders for some DX projects as it had hoped (Figure 31 on page 30).
・ Regarding gross margin by industry, aside from finance whose grossmargin increased by 2.4% YoY, the remaining three industries’ margins
decreased. Last fiscal year (FY 2020), finance had a large positive effect on
both sales and gross profit (Figure 12 on page 12).
29/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020[Figure 31] Difference in Sales of Each Industry in FY 2020
(last fiscal year)[Figure 30] Contribution of Each Industry to Sales in FY
2020 (last fiscal year)(million yen)

16,00014,70814,325(+382)

Finance
Distribution
Telecommunications
Other
Total

14,00012,000

4,002

4,481

(+478)

3,050

3,359

(+308)

2,353

1,879

(-473)

4,918

4,987

(+ 69)

03/2019

03/2020

Finance

10,0008,000
6,000

Distribution

Telecommunications

4,000
2,000

FY 2020
ResultInitial Forecast Diff: million yen Diff: %
4,481
4,317
164
3.8%
3,359
3,988
-629
-15.8%
1,879
2,176
-297
-13.6%
4,987
5,017
-30
-0.6%
14,706
15,498-792-5.1%(Ref) Figures 30 and 31 were prepared by Alpha-Win Research Dept. basedon the financial results briefing materials

Other

0

Analysis of Factors Contributing to Increase/Decrease in Operating Profit
Figure 32 shows an analysis of the factors that caused an increase or decreasein the overall operating profit. A large growth of Y70 million was caused by
the expansion of the Enhancement business mainly for finance and theimprovement of earning power, and with the decrease in R&D expenses andother expenses, these accumulated to a total profit growth of Y111 million.
On the other hand, labor costs increased due to the heavy cost burden ofincreasing SEs and DX-related staff, causing a Y58 million decrease in profit.
Also, although the decline in profitability due to unprofitable projects waspartially alleviated during the fiscal year, it still caused a Y15 million
decrease in profit. In sum, operating profit increased by Y37 million.

w Sales growthabsorbed the increasein labor cost anddecline inprofitability of someof the projects,
resulting in an
operating profit
growth.

Since SG&A expenses increased only by 1.1% YoY, which is less than halfof the sales growth rate of 2.7%, the SG&A expenses ratio improved by about
0.2 point from 10.7% in the fiscal year before the previous to 10.5% in theprevious fiscal year. As a result, the decline in gross margin by about 0.1
point was offset and the operating margin rose slightly from 6.4% to 6.5%.
Combined with the increase in sales, operating profit increased by 4.1%.

w SG&A expenses ratio

slightly improved
with cost control.

[Figure 32] Reasons for Increased Profit in FY 2020 (last fiscal year) (unit: million yen)(unit: million yen)

+70・Increased costfrom worsened
project
profitability
・Quality
improvement
measures・Management
measures

Increase・Increased labor
cost・More systemengineers・More DX staff

+19

-15

921

Decrease-58
Decrease in・HR training
・R&D
investment

・Greater profit frombusiness expansion andimproved earning powerof existing businesses
・Meausres to further
advance Enhancement
・Expansion of existingareas
・Development of new
growth areas

FY 2019

Last FY's Change:

+22

959

Decrease inotherexpenses+37 million yen

FY 2020(Ref) Prepared by Alpha-Win Research Dept. based on the financial results summary

30/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)w This FY, planning forconsecutive sales/profit
growth and recordhigh sales/profit. Fifth
challenge at achieving
Y1 billion each inoperating andrecurring profit.
[Figure 33] Forecast for FY 2021 (this FY)
Unit: million yen
Sales
Gross Profit
Gross Margin
SG&A Expenses

Full-Year
Forecast(FY 2021)% YoY
Change16,0008.8%

Not disclosed

SG&A Exp. Ratio

Operating Profit
O.P. Margin
Recurring Profit
Net Profit

1,120
16.8%
7.0% Improved 0.5pt
1,120
14.7%
700
33.3%

(Ref) Prepared by Alpha-Win Research Dept.

w By industry, sales for“other” industries andfinance are expected tomake a large
contribution.
Telecommunications
will bottom out.

Issued: 7/1/2020◆ CUBE SYSTEM’s Financial Forecast for FY 2021 (thisfiscal year)
Summary
For this fiscal year, the Company is expecting sales of Y16,000 million(+8.8% YoY), operating profit of Y1,120 million (+16.8% YoY), recurring
profit of Y1,120 million yen (+14.7% YoY), and net profit of Y700 million(+33.3% YoY). It plans to achieve a consecutive record high for sales andrecord highs for each of the profits (operating, recurring, and net) (Figure 33).
For operating and recurring profit, it aims to achieve Y1 billion for each forthe first time (this would be the Company’s fifth challenge of this goal).
Impact of COVID-19
Regarding the impact of COVID-19 on the financial results, the Company
commented as follows in the financial results summary: “Regarding theimpact of COVID-19 on our group, we expect there to be postponement of
new development projects by our corporate customers and an impact on oursales activities such as fewer negotiation opportunities. However, we areseeing a trend toward actively incorporating ITC in order to keep the society
moving and overcome this situation. We made calculations (of forecast
figures) based on the assumption that the COVID-19 crisis will settle down
and economic and social activities will gradually recover. Depending on thesituation with the COVID-19 crisis, our financial forecast may be changed.”
The Company did not disclose the financial forecast for the first half of FY
2021 because the impact of COVID-19 is difficult to predict. However, it will
most likely announce the H1 forecast at the same time as the announcementof Q1 results.
Assumptions behind Sales Growth
Overall, the Company plans to make use of its strengths to increase sales
through the following measures.
1. Expand existing business areas (Enhancement business) throughstrengthened sales efforts toward the major accounts (clients)
2. Strengthened sales efforts toward its clients’ strategic IT investment
projects (develop new markets, channels, and areas → incorporate newtechnologies, Chubu region, energy business, industrial sectors, etc.)
3. Development of new DX businesses and creation of new services
・By industry, the Company expects to see a slight sales decrease for the
distribution industry by Y44 million YoY (-1.3% YoY) due to the completionof consumption-tax-related projects. On the other hand, in the “other”
industries category, it anticipates a large sales growth of Y894 million YoY(+17.9%) since strategic investment is expected mainly among manufacturers,
which will bring opportunities for acquiring and expanding DX/AI-related
projects and help develop proposal-based businesses. This growth isequivalent to 70% of the total expected sales growth of Y1,239 million(Figure 34 on page 32).
・Sales for the finance industry are expected to increase by Y356 million(+8.0%, which is 30% of the total sales growth), growing consecutively, due
to increased market share in the cashless payment and Internet banking
businesses and from acquiring and enlarging projects related to credit cardand direct life insurance. In the telecommunications industry, projects fortelecom carriers have been completed, and a slight increase in sales (Y85
million; +4.5%) is expected due to increased demand and new services.
31/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

w Planning to further
improve margins

Issued: 7/1/2020[Figure 34] Predicted Contributions to Sales in FY 2021 (this fiscal year) by Industry(the Company’s plan)(million yen)

5,882

6,000
5,000

4,987

4,838

4,481

4,000

3,359

3,315

3,000
2,000

1,879

1,965

03/2020 (A)03/2021 (P)

1,000
0

03/2020 (A)03/2021 (P)Finance

03/2020 (A)03/2021 (P)Distribution

Telecommunications

03/2020 (A)03/2021 (P)

Other(Ref) Prepared by Alpha-Win Research Dept. based on the financial results briefing
material. A = actual value. P = planned value.

w Planning to improve

operating margin by
0.5% throughimprovement of grossmargin and SG&A
expenses ratio

Assumptions behind Profit Growth
Both gross profit margin and SG&A expenses ratio are expected to improve
during this fiscal year. Operating margin is projected to rise by 0.5 point YoY
to 7.0%. Due to these factors and the growth in sales, the Company anticipates
a double-digit growth in profit (as reference: operating margin was 6.1% in
FY 2017 → 6.3% in FY 2018 → 6.4% in FY 2019 → 6.5% in FY 2020).
Operating profit forecast by service category or industry has not been
disclosed. The Company expects the following factors to contribute to anincrease in profit.
1.

w Will improve

productivity and shift tohigh added-value
businesses to raise its
earning power

2.
3.
4.

5.

w No extraordinary loss

expected this FY

Improved earning power from enhanced efficiency and added-value of
the Enhancement service for its existing businesses
Company-wide functions, per-project quality management, andpreventive measures against unprofitable projects
Providing high added-value services (DX projects and proposal-based
business)
Sales growth, strengthened cost control, improved productivity, and theshift from contracts based on the number of staff and months to serviceproviding business model (expanding consulting business, switching
contracts to service-based payment, etc.)
Improved earning power through sped-up development and adoption ofa development model that involves cooperation with overseas partners.

This fiscal year, no nonoperating profit/loss (net sum of zero) or extraordinary
profit/loss is expected in particular (estimated corporate tax rate: 37.5%).

32/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

8． Growth Strategy
w Declared to expand its
service lineup in thecurrent medium-term
management plan. ThisFY is the final year ofV2020.

◆ Medium- to Long-Term Management Vision VISION2020
The Company has established VISION 2020, a medium- to long-term
management vision for 2012 to 2020. Its target span is divided into threestrategy steps. The Company is currently in the final year of the 3rd STEP
(the three years from FY 2019 to FY 2021).
The goal of the 3rd STEP is to “maximize customer value by contributing to
the growth of the customers’ businesses through the expansion of serviceproviding and SI businesses, creation of a new service lineup, anddevelopment of the service business” and the Company has been developing
its business in line with this goal (Figure 35).

w In the organizational
reform, specialized
departments were
established for the areasof focus.

In order to accelerate business development toward the achievement of its
goals and strengthen its business foundation, in February 2020 the Company
executed organizational changes. It established the DX Promotion Office andthe Overseas Business Management Office under direct supervision of the
President. It also established the Cloud Computing Solution Division and theCenter for Future Human Resources Development (improvement of HR
value) and created a General Administration Office (profitability
management) under each division. Through these changes, the Company has
created a system for allocating its resources to the areas of growth.
[Figure 35] 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 businessmodel reform
Business development in Growth Fields
through company strengths
Global business development focused in Asia

2. New Businesses Development/ Technology Investment
Active Technology Investment toCreate Services that are optiumum unique and new with high added value

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 the financial results briefing material

w 4 management indicatortargets◆ Management Indicator Targets and Areas of Focus
The following are the CUBE SYSTEM Group’s long-term management
indicator targets. Currently, they have not been achieved but are beginning to
improve. The Company plans to improve its productivity and profitability bystreamlining its operation and reinforcing training/education.
・ROE: greater than or equal to 10% (FY 2018 → FY 2019 → FY 2020:
11.4% → 11.4% → 9.6%. The same order for below.)・Consolidated operating margin: greater than or equal to 10% (6.3% → 6.4%
→ 6.5%)
・Consolidated sales per employee in Japan (excludes employees of overseas
subsidiaries): greater than or equal to Y25 million (Y22.2 million → Y22.8
million → Y22.6 million; progress rate of 88.8% → 91.2% → 90.4%)
・Consolidated operating profit for the same condition as above: Y2.5 million
33/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020(Y1.40 million → Y1.47 million → Y1.47 million; progress rate of 55.9% →58.8% → 58.8%)

w Announced a newforecast for this FY, thefinal year of the current
medium-term plan,
apart from the one set
forth in the plan

The Company had disclosed a medium-term financial forecast up through FY
2021, but in taking into account last fiscal year’s results and the current
situation, it announced a new forecast for this fiscal year (Figure 36).
Progress with V2020 is shown in Figure 37. Targets have generally not beenachieved yet, but there has been a certain level of achievement as theCompany has been growing sales and profit (operating profit) through theexecution of measures toward future growth in line with its plan.

w Targets have not beenachieved, butdeveloping businesstoward future growth.

[Figure 36] The Company’s Medium-Term Plan, Actual Results, and Forecast
FY 2019
MediumInitial
Term Plan Company Plan
14,70014,700
8.4%
8.4%
1,010
1,010
6.9%
6.9%
12.1%
-

Unit: million yen,%
Sales
Growth Rate
Operating Profit
O.P. Margin
ROE

FY 2020
MediumInitial
DifferenceTerm Plan Company Plan
14,32516,30015,500
5.6%
10.9%
8.2%
921
1,323
1,090
6.4%
8.1%
7.0%
11.4%
13.0%
-

FY 2021
MediumInitial
Difference
DifferenceTerm Plan Company Plan
14,70818,50016,000-2,500
2.7%
13.5%
8.8%
-4.7%
959
1,776
1,120
-656
6.5%
9.6%
7.0%
-2.6%
9.6%
13.0%
-

(Ref) Prepared by Alpha-Win Research Dept. based financial results briefing material[Figure 37] Progress with the Medium-Term Plan

Expand in new areas

More orders for DX projects(distributions/electricity)(transport / credit card)

New

Development

More orders for AI-related projects and new
development (automoatic order placement /image recognition)

Develop Overseas
Areas of Growth
Launch the
Solutions Business

Area expansion in Chubu
region (est. Nagoya Office)Shift from Existing Businesses

Expand Areas ofStrength

Existing Areas

BIT business / Co-creation model

Expand Areas of Strength and Improve Earnings
Improve profit through moreadvanced Enhancement Service

More orders for dev. projects
derived from existing areas

Existing Domestic Business
System Solutions Services

Existing Services

Provide cloud consulting services

Expand business foroverseas Japanese companies

Expand system consulting services

Receive new orders for platformbased service
Capital/business alliances with companies
with expertise in AI business

New Services

Existing Overseas
Businesses

・Vietnam Ho Chi Minh
・China Shanghai

Existing Areas

New Areas

Development of Domestic Areas of Growth Market×Channel×Area

New Areas

Topics for 2019

Overseas Business(Ref) Prepared by Alpha-Win Research Dept. based financial results briefing material◆ Medium- to Long-Term Management Vision VISION
2026
w The new president
announced the next
medium-term plan
V2026. Plans to actively
develop the proposalbased business basedin additional to its
conventional
businesses.

The new president Nakanishi annouced the general direction of VISION 2026,
a new vision succeeding VISION 2020 for the six years from FY 2022 to FY
2027 (Figure 38 on page 35). With the impact of COVID-19, themes andworkstyles are expected to change as the society makes a transition to the newnormal. To proactively and flexibly respond to these changes, the Company
has set the following two points as its guidelines.
・The employees themselves will have a vision and a business-oriented
mindset, thinking and acting for themselves.
・Achieve business growth through the proposal-based business (a business
34/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

model where solutions developed based on the Company’s technologies andexpertise in its customers’ industries are proposed to its customers/industries
and the corresponding services are provided) and the contract-based business(a business model where the Company conducts contract development of
information systems as requested by its customers).
For the achievement of the above, the Company has declared to work on thesophisticatation of its core technologies (software engineering) andcontribute to society through software engineering. Each employee will aim
to contribute to society through business and improve corporate value.

w Four priority measures:develop the DX
business, improve
quality and HR value,
and improvegovernance.

w Will focus on the SI
business anddigitalization businessbased on the
Enhancement businessover the medium tolong term

The general direction of business is to aim at actively making proposals andcreating new businesses by shifting from the conventional contract-based
business to the proposal & contract based business; to create a stable andsustainable business foundation; and to especially make investments in the SI
and digitalization businesses with the Enhancement business as their basis.
To achieve these goals, four priority measure have been set:
1. Develop the DX business (develop the proposal-based business, IP
technology and platform businesses, and system consulting business)
2. Work on improving quality (thorough review of each process throughsystem development meetings and strengthened monitoring)
3. Raise HR value (established the Future Human Resources Development
Center aimed at raising HR value)
4. Improve governance system (faster decision-making with renewed
management meetings; strengthened reporting system for management
risks such as those related to business strategy and HR strategy; create
new sytem development meetings and HR development meetings;
conduct sustainability management; and improve corporate governanceto prepare itself for a structural transformation of the market)
Categories composing the business model was changed from V2020 and thebusiness model is now divided into the three categories of Enhancement, SI,
and Digitalization. The Company intends to expand the SI (especiallycloudification projects) and Digitalization businesses based on Enhancement
and thus attain growth. As shown in Figure 38, the ratios of the sales of eachcategory in the order of Enhancement to SI to Digitalization are planned to
be improved from the current (FY 2020) 83%, 16%, and 1% to 60%, 30%,
and 10% in FY 2027 through investment and various measures and to 40%,
40%, and 20% over the long term (from now to about 12 years into the future).

[Figure 38] Direction of the Next Medium-Term Plan (V2026)
Business Model

ActionDigitalization Business

Take on challenges with a completely
new approach than before● Work on business transformation theme

New business model using digital technologies
Conduct our first proposal-based business
Cooperation with major SIers

SI Business (Lift & Shift)● Work on process transformation theme

PCI for cloudification of legacy systems
Greater use of packages and platforms
Agile development model

Concept for Sales Breakdown by Business Model
Business Portfolio
Business Portfolio 2026

Proposal-based approach
Alliances
Investment (raise capital efficiency
as much as possible)

6 ： 3 ： 1

Expand share through two approaches
and strengths

10%Large-scale ▶ Cooperate with SIer
Small/Mid-scale ▶ Solution proposals

30%● Enhance enterprise/information systems● System operation support and derivative

development● High-quality, low-price, and effficient resource
utilization

Survive in a shrinking market

In-depth pursuit of highproductivity and high added-value

Per Person
Y30 mil

Model

20%

40%

Digitalization Business
SI Business
Enhancement

1%
16%

Enhancement Business4 ： 4 ： 2

Model

60%

40%

2026

Long-Term Target

83%(high profitability)2019

w 4 つの経営指標。ROE(Ref) Prepared by Alpha-Win Research Dept. based financial results briefing material
はクリアする予想。

35/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020◆ Alpha-Win Research Dept.’s Financial Forecast for FY

2021 (this fiscal year)
Summary of Revision to the Financial Forecast
We reviewed our financial forecast for the current and the next fiscal year
and newly added a forecast for FY 2023 (Figure 39). We had previously
predicted sales to be Y16,500 mllion for the current fiscal year, but revised
this to Y15,300 million in our new forecast (the Company’s forecast for thecurrent fiscal year: Y16,000 million).

w Alpha-Win Research
Dept. reviewed theprevious forecast andmade revisions to thefinancial forecast forthis FY onward.

Consequently, we also revised our previous forecast for profit and somewhat
cautiously predicted that operating profit will be Y1,050 million (theCompany’s forecast for the current fiscal year is Y1,120 million; ourprevious forecast is Y1,200 million). In this revision, we made cautious
predictions that take into account the risks of COVID-19 such as stopped
negotiations with corporate users, stalled sales activities, financial downturnof corporate users, weaker busines environment (see “Currnet Business
Environment” on the next page), and short-term uncertatinties in IT
investment trends.
Also, for the SI industry in general, business must basically be conducted onsite, so the Company’s productivity is expected to decline in remote work. In
addition, since various costs such as personnel costs and logistics costs havebeen remaining high, we revised the effect of improved gross margin and the
SG&A expenses ratio based on a somewhat more cautious analysis. However,
our estimate for operating margin is nearly the same as the 7.0% forecasted
by the Company (previously, we had predicted 7.3%).
[Figure 39] Alpha-Win’s Forecast on Financial Results for This Fiscal Year and Over the Medium Term
Unit: million yen, %Sales
Gross Profit
Gross Margin
SG&A Expenses(% over sales)

Operating Profit(% over sales)

Recurring Profit(% over sales)

Net Profit(% over sales)

Sales (% YOY growth)Gross Margin (% YOY diff.)
SG&A Expense (% YoY growth)

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

FY 2020 A
14,708
2,503
17.0%
1,544
10.5%
959
6.5%
976
6.6%
525
3.6%

FY 2021 CE
16,000FY 2021 New E FY 2022 New E
15,30016,300
2,600
2,780
17.0%
17.1%
1,550
1,650
10.1%
10.1%
1,120
1,050
1,130
7.0%
6.9%
6.9%
1,120
1,050
1,130
7.0%
6.9%
6.9%
700
655
705
4.4%
4.3%
4.3%

2.7%
-0.1%
1.1%
4.1%
1.7%
-11.9%

8.8%

16.8%
14.7%
33.3%

4.0%
0.0%
0.4%
9.5%
7.6%
24.7%

FY 2023 New E FY 2021 Old E FY 2022 Old E
17,20016,50017,800
2,950
2,825
3,060
17.2%
17.1%
17.2%
1,750
1,625
1,740
10.2%
9.8%
9.8%
1,200
1,200
1,320
7.0%
7.3%
7.4%
1,200
1,200
1,320
7.0%
7.3%
7.4%
750
750
825
4.4%
4.5%
4.6%

6.5%
0.1%
6.5%
7.6%
7.6%
7.6%

5.5%
0.1%
6.1%
6.2%
6.2%
6.4%

12.2%
0.1%
5.2%
25.1%
22.9%
42.8%

(Ref) Prepared by Alpha-Win Research Dept. based on the securities report(Note) CE = the Company’s estimate/forecast; E = Alpha-Win Res. Dept.’s estimate/forecast; A = Actual.

Q1 Situation
Normally, it takes at least three months from conducting sales activities for
system development projects to actually receiving orders. COVID-19 has
likely caused sales activities from March to June to become stalled, although
this is not limited to the Company alone. However, in Q1 (April-June), since
the effect of self-restraint and travel restrictions will help suppress costs insome ways, and since the proportion of Q1 in the full-year results is small,the impact on financial results should be limited.
36/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

7.9%
0.1%
7.1%
10.0%
10.0%
10.0%

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)
w Macroeconomic
environment issomewhat uncertain due
to COVID-19. Should
watch the trend in theorders received.

w Predicting that sales
growth, profit growth,and record highsales/profit are possible
this FY

w In the past, a generally
small deviation between
the initial forecast andactual result on averageover the long term, but atendency to announce
somewhat ambitious
forecasts

Issued: 7/1/2020

Full-Year Forecast
The order backlog at the end of March 2020 was Y4,029 million, which was
a 0.8% YoY increase. In general, this fiscal year’s results have been predictedbased on the orders received and sales posted during the fiscal year. Even if
we assume that the effects of COVID-19 will settle down in the next few
months, it is expected that there will be a greater weight placed on the second
half, also causing personnel-related restrictions. In any case, regarding thefull-year results for the current fiscal year, we must analyze the quarterly
number of orders received and order backlog, as well as the Q4 results which
account for a high proportion of the total, more carefully than usual.
If COVID-19, which is presumably the largest risk factor, does not become
prolonged, we believe that there is unlikely to be a significant downward
deviation in actual results from the Company’s initial forecast. Economic
activities are gradually returning to normal, so even if there is some time lag,
we believe that the Company may be able to increase its sales and profits andachieve record-high sales and profits if recovery in Q2 and later goes well.
Track Record of Financial Forecast and Results
Figure 40 shows an analysis of the discrepancy between the Company's initial
forecast and actual results over the long term in the past. During this period,on a simple average, actual sales were 1.5% lower than the initial forecast,and the actual operating profit and recurring profit were 6% and 4.5% lower,
respectively. However, neither profits have ever been more than 30% lower
than the forecast in any fiscal year. The Company has generally tended toannounce targets that are ambitious but within a realistically achievable range.

[Figure 40] Comparison of (the Company’s) Initial Forecast for Consolidated Financial Results with
the Actual Results in Chronological Order
Consolidated
Unit: million yen

Sales
InitialForecast

ActualOperating Profit
InitialForecast

ActualRecurring Profit
InitialForecast

ActualNet Profit Attributable to
Owners of the Parent (N.P.)

InitialForecast

Actual

FY 2001
4,806
387
FY 2002
5,598
485
445
246
FY 2003
6,244
510
432
235
FY 2004
6,900
6,575
491
522
500
284
280
FY 2005
7,000
7,100
558
532
551
287
315
FY 2006
7,800
7,767
549
600
551
340
312
FY 2007
8,300
7,923
590
570
584
330
324
FY 2008
8,300
8,109
605
645
610
643
336
342
FY 2009
8,500
8,507
680
652
685
597
350
308
FY 2010
8,800
8,706
660
637
670
660
350
349
FY 2011
9,200
9,166
675
662
680
672
263
208
FY 2012
9,300
8,431
665
524
675
533
350
118
FY 2013
9,000
9,242
620
601
630
606
350
338
FY 2014
10,00011,217
700
665
700
702
380
387
FY 2015
12,00012,527
840
964
840
981
480
594
FY 2016
13,00012,623
1,000
949
1,020
960
600
629
FY 2017
14,00012,899
920
781
940
811
450
551
FY 2018
14,30013,559
1,060
855
1,080
893
650
567
FY 2019
14,70014,325
1,010
922
1,010
960
640
597
FY 2020
15,50014,708
1,090
959
1,090
976
684
525
FY 2021 E
16,000
1,120
1,120
700
Simple average of diff. (unit: %), calc. for longest period with data on both sales and profits→
Number of times revised up:down from initial forecast →Green highlight: record-high value

Sales

O.P.

R.P.

N.P.

% Diff. from Initial Forecast

Sales

O.P.

R.P.

N.P.

% YoY Change for Actual Result

-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%
-2.5%
-5.1%

6.6%
-4.1%
-3.5%
-1.9%
-21.2%
-3.1%
-5.0%
14.8%
-5.1%
-15.1%-19.3%-8.8%-12.0%

-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%-5.0%-10.5%

-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%-6.8%-23.2%

16.5%
11.5%
5.3%
8.0%
9.4%
2.0%
2.3%
4.9%
2.3%
5.3%
-8.0%
9.6%
21.4%
11.7%
0.8%
2.2%
5.1%
5.7%
2.7%

5.2%
-3.7%
13.6%
-1.6%
7.4%
9.4%
1.1%
-2.3%
4.0%
-20.9%
14.8%
10.6%
45.0%
-1.6%
-17.7%
9.5%
7.8%
4.1%

15.0%
-2.9%
15.7%
10.2%
0.0%
5.9%
10.2%
-7.1%
10.6%
1.8%
-20.7%
13.7%
15.8%
39.7%
-2.1%
-15.5%
10.1%
7.5%
1.7%

-1.5%
5 ： 12-6.0%
2 ： 11-4.5%
5 ： 12-5.5%
6 ： 11

6.2%
4.7%
5.8%
11.1%
↑ Simple average for each FY(Ref) Prepared by Alpha-Win Research Dept. based on the financial results summary

Current Business Environment (various data from the BOJ Tankan, Ministryof Economy, Trade, and Industry, and industry groups)
According to the BOJ Tankan Survey in March 2020, the amount of software
investment in FY 2020 (planned) for small- to medium-sized companies in
all industries is expected to decrease by 1.8% YoY (of which manufacturing
will decrease by 5.0% and non-manufacturing will decrease by 0.4%). In
37/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

-4.4%
18.9%
12.5%
-1.0%
3.9%
5.7%
-10.1%
13.4%-40.4%-43.4%
186.7%
14.5%
53.7%
5.9%
-12.4%
2.9%
5.2%-12.0%

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)
w Currently worsening
market environment

Issued: 7/1/2020

addition, business sentiment of small- to medium-sized companies decreased
from +1 in the December 2019 survey (“recent”) to -7 in March 2020, and“outlook” also decreased from -4 to -23; the market environment has been
worsening over the short term.
In addition, according to the Survey of Selected Service Industries (finalizedin April 2020) by the Ministry of Economy, Trade, and Industry, although thesystem integration sales of make-to-order software had turned positive in
September 2018 based on a year-on-year comparison (%), it became negativein March 2020 to -0.9 for the first time in 19 months and then hit anothernegative consecutively in April, at -1.2.
Similarly, according to the JISA-DI Survey by the Japan Information
Technology Services Industry Association (FY 2020 ending in March 2020),
the expected DI (sales outlook) for the sales of make-to-order software
suddenly changed from positive to negative, from +45.3 in Jan-Mar 2020 to-46.2 in April-June 2020, the largest drop ever. Even by major customer
group, the DI was negative for all industries including manufacturing,
government, finance, and insurance. Although the employment situationindex dropped from 77.6 to 59.6, there is a strong sense of employee shortage.
In particular, there is a shortage of IT engineers both in number and quality,
and system development staff continues to be difficult to secure.
All of these current data indicate that COVID-19 seems to be creating adifficult situation with regards to the current financial performance and shortterm outlook.

◆ Alpha-Win Research Dept.’s Financial Forecast for the
Medium Term
We revised our previous medium-term forecast and made a forecast for thethree fiscal years through FY 2023 (Figure 39 shown previously on page 36).
w Revised our mediumterm financial forecast
based on changes in themacroeconomic
environment and risk
factors

Taking into consideration the following risk factors, we made a somewhat
cautious forecast for the medium term too.
・Regarding the macroeconomic environment, the impact of the US-China
trade war and COVID-19 will likely remain to some extent over the medium
to long term. Other points of concern are the uncertainties in the global anddomestic economy, the economic downturn after the Tokyo Olympics in Julyto August of 2021, and worsening of the financial performance of companies.
・At this point, it is hard to predict what will happen to the Company’s main
final users’ industry trends and IT investment trends, the cost increase rate,
recruitment, etc..
However, we have not changed our forecast that sales and profits willcontinue to increase by about 6-10% per year over the medium to long term
for the following reasons.

w Expecting annual sales
and profit growth rate of
6-10% over the medium
term

Factors and Assumptions in Predicting Increased Sales
・Development of the Enhancement business and businesses for its major
customers based on the technological expertise and trust that the Company
has built up over the years
・Strengthening and development of the capacity to receive orders for largescale projects
・Acquisition of new customers (acquire customers in the “other” industries
such as manufacturers)
38/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

・Development of new businesses and new business areas – specifically, DXrelated, energy-related, consulting, and new solutions (cloud, blockchain,etc.) businesses
・Overseas development (mainly toward overseas Japanese companies)
・However, sales increase from large-scale M&As, etc., is not expected
Factors and Assumptions in Predicting Increased Profit
・The gross margin is expected to gradually improve due to various measures(transition to service-based contracts, improved productivity, reviewing
subcontracting cost, etc.), although at a slower pace than initially expected.
・Rise in profit from the new businesses is not expected to largely contributeto results for the time being.
・Next fiscal year onward, a somewhat high estimate was set for the rate ofincrease in SG&A expenses – about 6% per year, which is about the same as
the sales growth rate. This takes into account the reinforcement of businessfoundation for future growth (expansion of HR, organization, and sites), therise in costs (personnel expense, subcontracting cost, etc.), and continued
upfront investment in new technology and business research.
・Consequently, the operating margin is estimated to improve by about 0.1
point per year starting this fiscal year.
・No expectation for extraordinary profit or loss

39/44
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

9． Analyst’s View
◆ SWOT Analysis
The Company’s SWOT analysis result is shown in Figure 41.
[Figure 41] SWOT Analysis

Strength

Weakness

Opportunity

Threat・ Long history in the industry and extensive experience・ Stable and excellent customer base・ Technological expertise / unique know-how / staff with expertise / organization (business type /project management ）・ Entry barrier essentially 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-strategy products and services to gain momentum
・ Project management (risk of occurrence of unprofitable projects)
・ Specialized in domestic demands; overseas development difficult
・ Increased demand for IT systems due to HR deficit and the need to streamline operation
・ New products, new services, and technology innovations leading to increased strategic demand
for systems
・ Shfiting to upstream processes, niche areas, large-scale dev. projects, direct-contract projects;
reinforce Enhancement business・ Business expansion following the global entry of customers
・ Strengthening alliances
・ Lost business chance due to COVID-19 prolongation
・ Reduced IT investment, less demand for updates, and intensified price competition during
recession
・ Emergence of alternatives (popularization of AI or packaged business software), delayed productdevelopment, and product defects
・ Risk of loss due to 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.
Growth potential islarge since Japanesecompanies are
expected to increase IT
investments.
w Acquisition of talented
employees is thebottleneck to further
growth.
w Challenges: improving

margins, strengthening
project management,
and acquiring new
major corporate groups
as its customers

Describing the strengths listed in Figure 41 in more detail, the Company has
a high business continuity and stability because of its excellent customer baseowing to its long years of business during which it has earned trust and built
technological expertise. Moreover, the Company’s strength lies in the factthat it is in a position close to the end users, such that it can propose related
or derivative systems to customers and obtain new development and service
projects (Enhancement). Since its users or Japanese companies are expected
to continuously and strategically increase IT investment to improve businessefficiency and profitability, the Company’s growth potential is large.
On the other hand, looking at its weaknesses in more detail, for theCompany’s industry in general, the profit margins tend to not change over thelong term, and profit tends to not increase without an increase in sales. New
business domain development and new customer acquisition are necessary toincrease sales, but human resources and especially project managers are in
shortage, becoming 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 will probably take a long time.
The Company as well as the entire SI industry has been strengthening
preventive measures and project management over many years, but someprojects such as development in new areas still sometimes become
unprofitable and cause a temporary decline in profit. Although this could beinterpreted as an investment-like cost, it should be noted as a risk factor.
40/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020◆ Shareholder Return and Shareholder Benefit Program
The Company’s policy is to 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 taking a proactive stance withregards to improving shareholder return, having conducted incremental
dividend hikes, share buyback, stock splits, enhancement of shareholder
benefit program, etc.

w Proactive stance withregards to shareholder
returnw Actual annual(maximum) yield
including theshareholder benefit
program is about 2.5%.

The Company’s consolidated dividend payout ratio was 39.4% in FY 2018,37.0% in FY 2019, 46.5% in FY 2020, and predicted to be 34.9% in FY 2021
(the Company’s forecast), mostly meeting the Company’s target of 35%. The
Company raised its dividend from Y14 to Y16 in FY 2018 and kept it thesame in FY 2019. In FY 2020, it raised dividend by Y2 to a total of Y18 andhas announced that it will keep this dividend in FY 2021 (Figure 42). Since
profit growth is expected over the medium term, we believe that incremental
rises in the dividend at an interval of a few years are possible next fiscal year
and onward.

w Has been gradually
increasing dividend,raising it every few
years

Dividend yield is 1.9% when calculated based on a stock price of Y932
(closing price as of the end of June 26, 2020). The Company conducts IR
activities toward individual investors, one of its major types of shareholders.
It has a shareholder benefit program where JCB Gift Cards are given to
shareholders based on the number of shares they own (Figure 42 on page 43).
When this benefit program is taken into account, the actual dividend yield
increases to approx. 2.5% at maximum (for the optimum number of shares
owned). The Company plans to continue to maintain its stable dividend
payment and raise the EPS to enhance shareholder return. Under the same
conditions, the actual annual yields of its competitors are approx. 2.6% for
HIMACS (no shareholder benefit program) and approx. 2.8% for Toho
System (shareholder benefit program taken into account). Dividend on equity
ratio (= total dividend / shareholder’s equity) in FY 2020 was 4.5% for theCompany, 3.1% for HIMACS, and 4.4% for Toho Systems. The Company’s
is the highest.
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 six sharebuybacks, including the approx. 350,000 shares (Y300 million) bought backin February of last year. As a result, the Company acquired a total of approx.
Y650 million’s worth of shares (acquisition price at the time of acquisition).
Since the Company has a great financial standing and is rich in cash,
depending on the level of the stock price, additional share buybacks are
possible.

w Has also been actively
conducting stock splits
and share buybacks[Figure 42] Change in Dividend and Dividend Payout Ratio
(Y)

（％）

60.0
51.2

50.0

48.9

Commemorative dividend (right axis)
42.7

41.2

40.0

30.0

Dividend

36.3

Dividend payout ratio
35.2

30.1

39.4

35.8

25.0

46.5
38.5
34.9

37.0

36.2

30.0

15.0

20.0
10.0
0.0

20.0

32.4

2.5

2.5
14.0

8.3

8.3

8.3

8.5

8.5

14.0

14.0

16.0

16.0

18.0

18.0

20

20

8.5

FY 2009 FYin
2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
FY 2020 FY 2021 E FY 2022 E FY 2023 E
w Has been proactive
conducting stock
splits(Ref)
Prepared by Alpha-Win Research Dept. Estimate/forecast (E) also made by Alpha-Win.
and share buybacks

10.0
5.0
0.0

41/44

This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020[Figure 43] Shareholder Benefit Program and Actual Net Yield (shareholder benefit vesting date: end of Sept)
Number of Shares
Shareholder Benefit (JCB
Actual Net
Owned (greater(less than)
Dividend: Y
Gift Card: Y)
Yield: %than or equal to)
200
400
1,000
18
2.5
400
1,000
2,000
18
2.5
1,000
3,000
18
2.3
Actual net yield* = (dividend + benefit value) / (stock price)*Calculated for the min. (optimum) number of stock owned in each range
Stock price assumed to be: Y932 (closing price on June 26, 2020)(Ref) Prepared by Alpha-Win Research Dept. based on the Company’s website◆ Stock Characteristics/Price and Factors that May Affect
Stock Pricew A defensive, domestic-

demand-related
growth stock. Stockprice increased byapprox. 4x over the
past 11 years or so,largely outperforming
the TOPIX.

Over the past approximately 11 years, the Company’s stock price rose by
about four times, largely outperforming the TOPIX by 298% (calculated withstock splits taken into account; closing price as of the end of June 26, 2020;
Figure 44). This growth seems to reflect the Company’s strong fundamentals
and firm growth in financial results over the long term.
As strategic IT investment by Japanese companies will generally increase,
the Company is expected to continue to increase profit at a relatively stablepace. Also, the Company is characterized as being defensive. For thesereasons, the Company will likely be recognized as a candidate for mediumto long-term investment.

w Predicted to remain an

attractive investment
target over the
medium to long term

[Figure 44] Long-Term Return on the Company’s Stock (CS) and TOPIX (change in the past 11 years’monthly stock price)
450%
400%

CS％

Past Approx. 11 Years' Growth Rate (%)
CS
TPX
Relative Return
386.3
88.3
298.0

TPX%

350%
300%
250%
200%
150%
100%

End of Apr. 2009
CS＊
192
TPX
837.796/26/2020
CS
932
TPX
1,577.37

Stock-split adjusted
retroactively

50%
0%
-50%
04/2009

04/201004/201104/201204/201304/201404/2015

04/2016

04/2017

04/2018

2019/42020/4

Note: CS stock price and TOPIX at the end of April 2009 set at 0% as the start point(Ref) Prepared by Alpha-Win Research Dept.

The Company has been outperforming the TOPIX this fiscal year as well. It
has most likely gained attention as a domestic-demand-related growth stockwith firm financial results amidst the increasing stock market volatility due
to the anticipated deterioration in companies’ financial performance fromCOVID-19 and the trade war. When the lowest value for this year, which isY483 (closing price) on March 13 during the sharp drop in the market after
COVID-19, is set as the point of comparison, the Company’s stock has been
outperforming the TOPIX by 68% even during the market rebound phase up
through June 26. This rise seems to have been brought by how the Company
42/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)
w Outperforming the

TOPIX since thebeginning of the year

w Valuation is about
average or slightly low
for its industry.
w Looking at thevaluation, we can seethat its stock price isrelatively cheap. Goingforward, points ofinterest are this FY andnext FY’s financial
performance,development of new
businesses, andenhancement ofshareholder return.

Issued: 7/1/2020

was positively evaluated for announcing sales growth, profit growth, recordhigh profit, and same dividend as last year’s after the dividend hike, while amajority of the TSE First Section companies have kept their financial
forecast and dividend forecast for FY 2021 undetermined.
A meaningful comparison of valuation with the average of the TSE First
Section stocks cannot be currently made, since many companies have notdetermined their financial forecast as described above. Therefore, we
compared the major valuation indicators of the Company with its competitorsthat are listed on the First Section. Compared to its similar competitors(HIMACS and Toho System), the Company’s valuation used to be somewhat
expensive. However, although the Company’s stock price has significantly
increased, its current stock price is somewhat cheap in terms of P/E and P/S(Figure 45). In addition, the Company’s liquidity is relatively high(reference: average approximate trading value per day).

[Figure 45] Comparison of Valuation Indicators and Liquidity of Three Same-Business Companies
Company Name
Code
Stock Price (at 6/26 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)
Ave. Daily Traded Amount in Past 6 Months (million yen)

CUBE SYSTEM(CS: consolidated)

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

2335

4299

4333

932
14,241
18.1
2.3
1.9
10.6
0.9
31

2,049
12,717
19.5
1.2
2.4
6.6
0.9
8

980
13,589
18.8
1.7
2.6
6.5
1.2
6

Market cap= (shares outstanding) x (market share price [at 6/26/2020 closing])
The companies' planned EPS and dividend values for FY 2021 were used in all P/E and dividend yield calculations.
Actual BPS values of FY 2020 were used in P/B calculations.
EV/EBITDA=(market cap + interest bearing debt - cash&deposits)/(O.P. + depreciation + intangible fixed asset amortization)
P/S=market cap / sales [the companies' forecasts for FY 2021](Ref) Figures 45 and 46 were prepared by Alpha-Win Research Dept. based on the securities report and stock data.

Relative to a universe of the leading 22 SI companies listed on the First
Section of the TSE (including the Company and the two companies
mentioned above; the total market cap of the 22 companies is Y10.6 trillion),
the Company’s stock valuation seems slightly cheap for the SI sector(Figures 46 on page 44). In the future, we believe that if the Company’s
operating margin improves and its sales increase, then its valuation (P/E, etc.)
may rise in addition to the rise in EPS and the market capitalization may also
increase.
Going forward, we should keep note of the following factors or events that
may affect stock price.
・Quarterly profit/loss trends and achievement rate of full-year targets
during this fiscal year or FY 2021, and financial forecast for the next fiscal
43/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

Alpha-Win Company Research Report
CUBE SYSTEM INC. (2335 TSE First Section)

Issued: 7/1/2020

year (FY 2022) onward (targets of the next medium-term plan: specificbusiness development strategies and announcement of specific numbers)
・Progress with the growth strategy including the expansion of businessdomain, M&As, and alliances
・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 hike, stock split, and enhancement ofshareholder benefit program[Figure 46] Comparison of Major Stocks in the SI Sector(Note: includes companies that have not announced a forecast for this fiscal year)
Code
Company Name
Market Cap. Stock Price
Sales
O.P. O.P. Margin Actual ROE (%) Est. P/E Actual P/B Est. Dividend Yield Est. Dividend Est. EPS Actual BPS
9613
NTT DATA
1,699,830
1,212
ND
ND
8.1
1.8
1.5%
18.00
ND
670.014307 Nomura Research Institute
1,920,000
3,000
540,000
83,000
15.4%
20.5
30.3
6.7
1.1%
34.00
98.96
446.694684
OBIC
1,938,216
19,46084,00045,300
53.9%
15.4
49.2
7.3
0.8%
160.00395.73 2,680.06
4768
Otsuka Corporation
1,103,912
5,810
864,000
63,700
7.4%
17.8
25.3
4.5
2.0%
115.00229.59 1,299.08
4739 Itochu Techno-Solutions
985,200
4,105
500,000
44,600
8.9%
12.6
31.6
4.1
1.5%
63.00
129.85 1,002.76
9719
SCSK
551,1225,290
380,000
41,000
10.8%
15.6
19.0
2.6
2.5%
130.00278.70 2,000.16
3626
TIS
607,0622,305
440,000
44,000
10.0%
12.5
19.5
0.8
1.5%
35.00
117.95 2,890.27
8056
Nihon Unisys
379,436
3,460
320,000
26,000
8.1%
15.5
20.4
2.9
2.0%
70.00
169.38 1,200.33
2327
NS Solutions
280,894
2,966
ND
ND
12.8
1.8
2.2%
65.00
ND 1,633.31
9749
Fujisoft
145,584
4,320
238,000
13,600
5.7%
7.2
16.9
1.2
1.2%
51.00
255.64 3,570.35
1973 NEC Networks & System Int.
322,086
2,157
ND
ND
8.8
2.9
ND
ND
741.124812
ISID
164,260
5,040
105,000
10,500
10.0%
11.8
23.8
3.0
1.7%
86.00
212.11 1,702.64
9759
NSD
172,684
1,870
ND
ND
13.8
3.4
ND
ND
557.46
9682
DTS
114,9632,279
95,00010,700
11.3%
13.8
14.1
1.9
2.4%
55.00
161.49 1,190.71
9692
CEC
66,552
1,770
53,000
6,100
11.5%
12.2
14.7
2.0
2.3%
40.00
120.26891.744674
CRESCO
36,0001,500
40,000
3,400
8.5%
15.0
12.9
1.9
2.4%
36.00
116.72770.729739 NIPPON SYSTEMWARE
33,287
2,234
ND
ND
13.2
1.6
ND
ND 1,434.46
9600
I-NET
24,851
1,530
ND
ND
11.3
1.6
ND
ND
956.894725
CAC Holdings
26,581
1,294
52,000
2,000
3.8%
5.6
15.3
0.9
4.6%
60.00
84.76 1,512.07
2335
Cube System
14,241932
16,000
1,120
7.0%
9.6
18.1
2.3
1.9%
18.00
51.56
411.964333
Toho System
13,589980
11,700
920
7.9%
9.1
18.8
1.7
2.6%
25.00
52.16
584.444299
HIMACS
12,7172,049
14,500
758
5.2%
8.8
19.5
1.2
2.4%
50.00
105.07 1,659.93
Simple Average482,412
11.6%
12.3
21.8
2.6
2.0%
Simple Average (excl. OBIC)
394,311
8.8%
12.2
18.8
2.4
2.1%
Note: Units for market cap., sales, and O.P.: million yen
Sales and O.P. are generally the companies' most recent forecast values
Units for stock price, dividend, est. EPS, and actual BPS: Y Units for P/E, P/B, and P/S: none
Stock prices are closing prices on June 26, 2020
Only valid data included in the averages(Ref) Prepared by Alpha-Win Research Dept. based on the securities report and stock data. ND = not determined.

44/44This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) 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 fromthe 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, or translated without our consent.

P/S
3.6
23.1
1.3
2.0
1.5
1.4
1.2
0.6
1.6
1.2
1.3
0.9
0.5
0.9
1.2
0.9
2.7
1.3