Alpha-Win Company Research Report
CUBE SYSTEM Inc.
(2335 TSE First Section)● SummaryIssued: 2/1/2019

Research Dept., Alpha-Win Capital Inc.
http://www.awincap.com/◆ Independent, mid-tier system integrator with 46 years of history in the industry andstable growth over the long term
・CUBE SYSTEM Inc. (hereinafter “the Company”) is an independent, mid-tier system integrator listed on theFirst Section of the TSE. Its main customers include Nomura Research Institute and Fujitsu Group. It provides
services and develops systems mainly for the finance, distribution, and telecommunications industries. Its
strengths are its excellent customer base, high experience, excellent customer trust, and technological skill andknow-how that it has accumulated over the years. Founded in 1972, it has 46 years of history in the industry.
・With the exception of one fiscal year, the Company has been continuously increasing sales YOY for the past 17
years (note that all fiscal years or FY in this document are March-ending; e.g. FY 2019 ends in March 2019).
During this period, its sales growth rate (simple average increase in sales) was +6.5% per year and its recurring
profit growth rate (simple average) was +5.9% per year; the Company has been steadily expanding its businessand keeping its business in the black over the long term. Recurring margin has been stable at around 7% and theincrease in sales has been contributing directly to increases in profit, dividend, and market capitalization.

◆ This FY’s Q3 financial results (cumulative): sales rose by 9.0% YOY and operating
profit increased significantly by 36.6% YOY. Excellent fundamentals maintained.
・For the third quarter of FY 2019 (cumulative from Apr. through Dec. 2018; hereinafter “Q3”), the Company’s
financial results were excellent: Y10,404 million (+9.0% YOY) for sales, Y605 million (+36.6% YOY) for
operating profit, Y632 million (+40.4% YOY) for recurring profit, and Y383 million (+48.4% YOY) for net profit
attributable to owners of the parent (hereinafter “net profit”) (Figures 1 and 2). Progress with both sales and profit
was mostly in line with the Company’s target (internal targets; not disclosed). In Q3 (Oct. through Dec.), sales
grew by 16.3% YOY and operating profit increased significantly by 79.6% YOY (due to the drop in retirementbenefit-related expenses recorded last FY, improved human resource utilization rate, etc.).
・The Company’s business environment and fundamentals have not changed since the disclosure of its Q2 financial
results and business conditions remain great.
・With regards to Q3 financial results by industry type, for the finance industry, sales declined by 10.4% YOY andgross profit decreased by 23.7% YOY due to the shrinkage of system development businesses with banks and life
insurance companies. However, this decline was offset by the contribution to both sales and profit by the “otherindustries” category, along with the telecommunications industry. The “other industries” were able to make thislarge contribution due to the expansion of the Cloud consulting business as well as the expansion of systemdevelopment businesses with manufacturers such as construction machinery and food manufacturers thanks tocontinued sales efforts. For telecommunications too, infrastructure development business for telecom carriers had
continued to expand.
・In Q3, the ”other industries” made the largest contribution to both sales and gross profit, beating the financeindustry, with its large sales and profit increase (Figure 3; in the order of % composition for sales and %composition for gross profit; 34.9% and 32.6% for “other”; 27.4% and 25.1% for finance).
・Also, the amount of orders received up through Q3 was Y10,522 million, 8.5% greater (+Y823 million) compared
to last year’s Y9,699 million. The Professional Service segment that includes the consulting business was thebiggest growth driver, since the amount of orders for this segment had increased by 55.3% (+Y749 million).
・Meanwhile, with regards to profit, quarterly gross margin improved during this FY from Q1:16.1%→Q2:16.9%→Q3:17.4%. Also, since SG&A expenses were held down and stayed about the same on a quarterly basis,
operating margin also rose from 3.6%→6.5%→6.9% (Figure 4). This improvement of both profit margins may
have been caused by the gradually increasing effects of various measures that the Company has been pushing
forward, such as the improvement in productivity, optimization of personnel placements, and cost control. Withno large factors such as non-operating income/expense or extraordinary gain/loss, net profit increased significantly
by 48.4%.
Financial Performance Report

1/5This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitationof 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 shallnot be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors who read thisreport must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs toAlpha-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: 2/1/2019

・Q3-end balance sheet does not indicate a large change. Liquidity is high with cash and deposits of Y3.2 billion
and financial condition is sound with an equity ratio of 68.5%.
【Figure 1】Quarterly Change in Sales (unit: Y mil)【Figure 2】Quarterly Change in Operating Profit (unit: Y mil)

5,000

450

4,500

400

4,000

350

3,500

300

3,000

250

2,500

200

2,000
1,500

150

1,000

100

500

50

0
FY 2014

FY 2015

FY 2016

Ｑ1

Ｑ２

FY 2017Ｑ３

FY 2018

FY 2019

0
FY 2014

FY 2015 FY 2016 FY 2017
Ｑ1

Ｑ４

Ｑ２

Ｑ３

FY 2018 FY 2019

Ｑ４

(Ref) All figures were prepared by Alpha-Win Research Dept. based on the financial results summary and financial results presentation
supplementary material. (Note) Forecast for FY 2019 Q4 was calculated back from the Company’s full-year plan.

【Figure 3】Sales Breakdown by Industry for FY 2019
Q3 Cumulative (unit: %)【Figure 4】Quarterly Change in Operating Margin(unit: %)12.0%

Other

Finance
27.4%
25.1%

34.9%

Sales
Composition(outer circle)

32.6%

Gross ProfitComp.
(inner circle)
19.2%

8.0%
6.0%
4.0%

23.2%
20.6%

17.1%

Telecommunications

10.0%

2.0%
0.0%

Distribution

FY 2014Ｑ1

FY 2015Ｑ２

FY 2016

FY 2017Ｑ３

FY 2018

Ｑ４

FY 2019FY◆ Progress rate in terms of full-year financial forecast was also mostly great, raising
likelihood of achieving target.
・As with last FY, sales and profit increases are also expected to for this FY. The Company plans to achieve newrecord-high sales and profit for this FY’s results. The Company has not changed the full-year forecast for sales or
profit for this FY from the initial forecast made at the beginning of the FY. Progress in Q4 is expected to be in linewith the Company’s plan.
・Q3’s progress rate in terms of the Company’s full-year financial results forecast for this FY was 70.8% for sales
and 59.9% for operating profit. In comparison, progress rate in terms of full-year financial results for the same
period during last FY was 70.4% for sales and 51.7% for operating profit. Similarly, the simple average for thelast five fiscal years’ Q3 progress rates (including last FY) is 72.0% for sales and 64.4% for operating profit; thisFinancial Performance Report

2/5This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitationof 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 shallnot be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors who read thisreport must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs toAlpha-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: 2/1/2019

FY’s progress rates are below average. However, in recent years, the percent contribution of fourth quarter results(Q4: Jan – Mar) to full-year financial results has been gradually increasing, and the YOY growth rates for sales
and operating profit in Q3 (cumulative) are greater than the Company’s estimates of +8.4% and +18.1% YOY,
respectively, for the full fiscal year; therefore, the Company seems to be making steady progress.
・Alpha-Win Research Department believes that the Company’s full-year sales and profit targets should mostly beachievable for the following reasons and has not made any revision to this FY’s financial results forecast at thispoint.
1. With orders for new projects and the expansion of the consulting business, Q3’s cumulative sales and profit areboth growing as expected and the fundamentals are excellent.
2. The Company is making progress with productivity improvement and cost control mostly in line with its plan;going forward, further improvements are expected.
3. The Company is making steady acquisition of orders for new projects and product delivery.
・Since the expansion of the enhancement business, acquisition of new customers, development of new or overseas
businesses, and productivity improvement through various measures are expected, Alpha-Win Research Dept.
believes that over the medium to long term the Company’s sales and profit will continue to steadily grow at about
10% per year.

◆ Stock price and characteristics: stock value does not seem cheap, but it is a domesticallyoriented, defensive stock. Stock price rose in response to Q3 results and share buyback.
・Since last year’s October, the Company’s stock has been underperforming the TOPIX amidst a large-cap-oriented
market environment. However, upon disclosure of information on Q3 results and share buyback (upper limit of
400 thousand shares; upper limit of Y300 million for the value of acquired stock; equivalent to 2.8% of all
outstanding shares excluding treasury shares), the stock price was positively affected and rose significantly. 400
thousand shares, the upper limit, is about twelve days’ worth of the average daily trading volume during 10/1/2018
to 1/30/2019 (approx. 33 thousand shares). This share buyback, realizing the “improvement of asset efficiency andexpansion of shareholder benefit” declared in the medium-term plan, is a good indication that the Company is true
to its word.
・Compared to the average of the First Section of the TSE (based on the closing price on 2/1/2019: P/E=13.4,
P/B=1.17, and dividend yield [simple average] = 2.02%) and the Company’s competitors (HIMACS and Toho
System Science; Figure 5), the Company’s stock does not seem cheap, which may be reflective of the Company’s
stable growth.
・The Company’s stock is a domestically-oriented, defensive, and stable growth stock with a low volatility in pricewith respect to index values. In the past ten years or so, stock price has increased by about four times and has beensignificantly outperforming the TOPIX. Regarding stock price, we should continue to keep a close eye on this FY
and next FY’s financial results as well as the development of new technologies or new business domains andshareholder return (dividend hike and enhancement of shareholder benefit program).
【Figure 5】Comparison of Valuation Indicators with Competitors
Company Name
Code
Stock Price (at 2/1 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)

CUBE SYSTEM(CS: consolidated)

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

2335

4299

4333

736
11,246
16.1
1.9
2.2
9.2
0.8

1,785
11,079
12.8
1.2
2.8
6.2
0.8

911
12,632
16.1
1.7
2.2
6.1
1.0

Market cap=(shares outstanding) x (market share price [at 2/1/2019 closing])
EV/EBITDA=(market cap + interest bearing debt - cash & deposits) / (O.P. + depreciation + intangible fixed asset amortization), based on FY 2018
P/S=market cap / sales [the companies' estimate for FY 2019], BPS reflects actual value at end of Q3 of FY 2019.
P/E and the EPS and forecasted dividend used in dividend yield calculation are all from the companies' plans for FY 2019.

(Ref) Prepared by Alpha-Win Research Dept. based on each company’s financial results summary

Financial Performance Report

3/5This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitationof 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 shallnot be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors who read thisreport must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs toAlpha-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: 2/1/2019

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

2016
2017
2018
2019
2019
2020
2021
2018
2019

Sales

YOY

O.P.

YOY

R.P.

YOY

N.P.

YOY

EPS

BPS

Dividend(Y mil)%

(Y mil)%

(Y mil)%

(Y mil)

%

(Y)

(Y)

(Y)

5.8
-12.3
2.9
12.9
12.0
15.0
16.6
-20.3
48.4

43.22
39.15
40.59
45.80
47.03
54.06
63.02
18.48
27.74

322.76346.47372.23

14.0
14.0
16.0
16.0
16.0
17.0
18.0
-

12,622
12,89913,55914,70014,60015,80017,3009,540
10,404

CE
E
E
E
Q3
Q3

0.8
2.2
5.1
8.4
7.7
8.2
9.5
2.1
9.0

949
781
855
1,010
1,000
1,150
1,340
442
605

-1.5
-17.7
9.5
18.1
17.0
15.0
16.5
-6.5
36.6

960
811
892
1,010
1,000
1,150
1,340
450
632

-2.1
-15.5
10.0
13.1
12.1
15.0
16.5
-7.9
40.4

628
551
567
640
635
730
851
258
383

388.74425.80470.83372.23388.72(Note) CE = Company forecast, E = Alpha-Win Res. Dept.’s forecast. EPS estimated by Alpha-Win Res. Dept. reflects the planned
additional share buyback of 400 thou. shares.

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

As of 2/1/2019

Item

736

Last FY (actual)

18.1

Shares Outstanding (thou.)

15,280This FY (est.)

Market Capitalization (Y mil)

11,246

Next FY (est.)

Stock Price (Y)Dilutive Shares (thou.)

0

P/E

P/B

Dividend Yield

Dividend Payout Ratio

2.0

2.2%

39.4%

15.7

1.9

2.2%

34.0%

13.6

1.7

2.3%

31.4%

68.1% Last FY's ROE

Equity Ratio at Last FY-End

11.4%(Note) Forecasts were made by Alpha-Win Res. Dept.

Stock Chart (end-of-week prices): 2335 CUBE SYSTEM

Figure C

(Y)

1,200

1.50
1.45
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
0.60

Stock price (left axis)
1,100
Price relative to TOPIX (right axis)
1,000
900
800
700
600

(Note) From the first week of Sep 2016 to the first week of Feb 2019

Y
/Y
M
(M

01
/1
7
03
/1
7
05
/1
7
07
/1
7
09
/1
7
11
/1
7
01
/1
8
03
/1
8
05
/1
8
07
/1
8
09
/1
8
11
/1
8
01
/1
9

11
/1
6

09
/1
6

)

500

Performance
PeriodReturnvs. TOPIX
1 month24.8%
19.0%
3 months-13.6%-9.3%
6 months-19.1%-9.5%
12 months-10.9%
4.4%(Note) The graph reflects stock price and index values up to the closing price of Feb 1, 2019. However, performance was calculated
based on the closing price at the end of Jan 2019.

Financial Performance Report

4/5This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitationof 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 shallnot be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors who read thisreport must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs toAlpha-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: 2/1/2019＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊

Disclaimers
This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-WinCapital Inc. (Alpha-Win, hereinafter) 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 be liable for any consequences including direct or indirect loss, lost profit, or damage
resulting from the use of or reliance on this Report. Investors who read this report must make theirown 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. AlphaWin, the writer, and/or other persons involved in the publication of this Report may already hold, or buy
and sell in the future, the stock of the company presented in this Report.
Contents of this Report are based on information current as of the issue date and are subject tochange without notice. We do not warrant or represent that the information in this Report isaccurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibility
or liability.
Copyright of this Report belongs to Alpha-Win and no part of the publication may be copied, photocopied,cited, or translated without our consent.
For inquiries regarding this Report, please send us an e-mail to info@awincap.com. However, Alpha-Win
and the writer of this Report do not have any obligation to reply to inquiries.
PSV20190205

Financial Performance Report

5/5This Alpha-Win Company Research Report (this Report, hereinafter) has been prepared by Alpha-Win-Capital Inc. (Alpha-Win, hereinafter) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitationof 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 shallnot be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors who read thisreport must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs toAlpha-Win and no part of this report may be copied, photocopied, cited, or translated without our consent.