COMPANY RESEARCH AND ANALYSIS REPORT

Estore Corporation
4304
TSE JASDAQ

24-Apr.-2018
FISCO Ltd. Analyst

Hiroyuki Asakawa

FISCO Ltd.
http://www.fisco.co.jp

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. The marketing business expanded steadily, recording growth in sales and profits.
The profit target fulfillment rate exceeded 100%. ........................................................................................

01

2. New marketing system product launched. Focus on high profit margin and synergies. ...............................

01

3. Large-scale selection of young people for roles in a focus on earnings growth from FY3/19 onward. .........

01■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Company history and shifts in the focus business. ......................................................................................

02

2. The shift of the business segments and the current revenue structure. .......................................................

04■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 05• Summary of the FY3/17 3Q results........ ......................................................................................................

05■Medium-Term Growth Strategy and Progress------------------------------------------------------------------------------- 07
1. Overall image of the growth strategy...........................................................................................................

07

2. Growth strategy in the marketing business. .................................................................................................

07

3. Large-scale reorganization mainly aimed at rejuvenation. ............................................................................

09

4. Stock business growth strategy...................................................................................................................

10

5. Flow revenue growth strategy................ ......................................................................................................

12■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 13
1. Overview of the FY3/18 forecasts.......... ......................................................................................................

13

2. Approach for FY3/19 . . ........................... ......................................................................................................

14■Shareholder returns------------------------------------------------------------------------------------------------------------------------------------------------- 17■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 18

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

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/██SummaryMarketing business expanding steadily.
The impact of the new sales promotion systems and selection ofyoung people for roles is fueling expectations for growth acceleration
Estore Corporation <4304> (hereafter, also “the Company”) is a comprehensive provider of e-commerce (EC)support services. After starting from the Systems Business for the provision of ASP services as a “framework” forEC, it is currently focusing on consulting and operations management agency services to support revenue growthat customer companies. Going forward, it plans to further strengthen sales of sales promotion systems.
1. The marketing business expanded steadily, recording growth in sales and profits.
The profit target fulfillment rate exceeded 100%
The Company’s FY3/18 3Q results showed growth in sales and profits, with net sales of ¥3,815mn (up 6.8% year on
year (YoY)) and operating profit of ¥419mn (up 27.4%). Within net sales, the Company’s primary focus is on marketing
revenue, which increased significantly by 49.0% YoY and led the Company’s overall performance. In profits, theCompany’s profit through to FY3/18 3Q exceeded the full-year forecast as well as grew significantly YoY. This was
mainly due to investment in human resources and so forth not proceeding as planned, and a reduction in expenses
resulting from bold selection of young employees for roles.
2. New marketing system product launched. Focus on high profit margin and synergies
The Company has grown by repeatedly focusing on business providing the next generation of earnings in a seven-year cycle. Currently, the Company is focusing on developing the marketing business. As described above,
revenue to 3Q in this business increased nearly 50% YoY and is expected to comfortably exceed ¥1.0bn for the full
year. Against this background for the current fiscal year, the Company has launched a new marketing system productin the marketing business. Traditionally, the marketing business has involved a business model with low revenue
potential reflecting high dependence on human input due to the nature of consulting and operations management
agency services. By contrast, the marketing system has the potential to achieve high profit margins due to a low
dependence on human input, and its future development will be followed with interest.
3. Large-scale selection of young people for roles in a focus on earnings growth from FY3/19 onward
Another focus point for FY3/18 is the Company’s bold reorganization. The Company reorganized at the end of August
2017 by selecting young employees in their 30s for key management positions throughout the Company. This measure has unexpectedly boosted profits through to FY3/18 3Q by saving on expenses (personnel, advertising, etc.),
contributing to immediate profit. However, the real target of the reorganization was the top line (sales expansion).
Many will be watching to see how the selection of younger employees from the smartphone native generation willlead to growth in the top line and profits while leveraging new products and services.
Key Points
The marketing systems business started with the launch of a highly profitable sales promotion system
Wide-ranging election of young employees in their 30s for roles. A major impact on expenses is alreadyapparent. Impact on sales growth is expected going forward• Increasing expectations for growth in flow revenue driven by synergies with the marketing business••We encourage readers to review our complete legal statement on “Disclaimer” page.

01 18

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

Estore Corporation

24-Apr.-2018

4304 TSE JASDAQ

https://estore.co.jp/investors/

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Source: Prepared by FISCO from the Company’s financial results██Business overview
Steadily strengthening the revenue base and customer baseby shifting the focus business every seven years.
It is currently focusing on increasing marketing revenue
1. Company history and shifts in the focus business
Since the Company was established in 1999, it has shifted its focus business roughly every seven years. As eachbusiness hit its stride and reached the stage of establishing an earnings base, the Company would use theseearnings to expand into creating a new business to contribute to earnings in a repeated cycle. The process is
described in detail below. As of 2018, the Company is approaching the very middle of its third cycle counting fromits foundation business.

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

02 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Business overview

Estore’s history and the shifts in its business development
Date
February 1999

Event

Revenue type

Business segment

Founded Estore

July 1999

Started providing the shopping cart service storetool

Stock revenue

Systems Business

September 1999

Started providing the web hosting service Siteserve

Stock revenue

Systems Business

March 2000

Sales partnership with Osaka Yusen Broadcasting Co., Ltd. (currently, USEN
Corporation)

Stock revenue

Systems Business /OEM subscriptions

June 2000

Sales partnership with Sony Communication Network Corporation (currently,
So-net Entertainment Corporation)

Stock revenue

Systems Business /OEM subscriptions

July 2004

Business and capital partnership with TELEWAVE, INC. (currently, iFLAG
Co., Ltd.)

Stock revenue

Systems Business /OEM subscriptions

Established a business alliance with Yahoo Japan Corp. <4689>

Stock revenue

Systems Business /OEM subscriptions

Established a business alliance with Kakaku.com, Inc. <2371>

Stock revenue

Systems Business /OEM subscriptions

Started providing the Shopserve comprehensive eCommerce support service
Stock revenue
under its proprietary domain

Systems Business

November 2005
November 2005
January 2006

Launched the product search site Shoppingfeed

Flow revenue

Systems Business

June 2011

Converted Precision Marketing, Inc. into a consolidated subsidiary

Flow / marketing revenue

Marketing Business

July 2012

Established the Sapporo Marketing Factory

Flow / marketing revenue

Marketing Business

October 2012

Established the shopping site PARK, featuring shopping recommendations
issued by “curators” in 34 genres

Flow / marketing revenue

Marketing Business

October 2013

Started providing the Single Hand simple customer acquisition service

Flow / marketing revenue

Marketing Business

January 2016

Removed Precision Marketing from the scope of consolidation

November 2006

Marketing Business

Strengthened the Promotions Business sales force

Marketing revenue

EC BusinessAugust 2016

Shopserve is compliant with Amazon Pay

Flow revenue

EC Business

March 2017

Shopserve includes bitcoin payments as standard (provided to 12,500 stores)

Flow revenue

EC Business

April 2016

Source: Prepared by FISCO from Company materials(1) 1999-2006
The Company’s business first started from shopping cart services. After that, it started the provision of rental
servers that are needed in order to establish a website, and the rental server business became the main support
for the Company’s early days. While retaining the rental server business as its core operation, the Company rolled
out a series of services needed for conducting e-commerce in addition to its shopping cart services. These paved
the way for the Shopserve ASP service providing comprehensive EC support, launched in 2006.
(2) 2006-2012
Over the seven years from 2006, the EC systems business in the form of the Shopserve ASP service providing
comprehensive EC support became an earnings source for the Company. Shopserve is an ASP service thatprovides, as a single service, management of elements such as the store’s website, domain, email, payments,
ordering, and customers. In terms of its revenue model, the Company collects monthly fees for the usage of the
ASP service from customers, so it can be said to be a so-called stock-type model. Stock revenue is very effective
for stabilizing the management foundation. The Shopserve customer base has steadily expanded and contributed
significantly to the Company’s growth and management stabilization.
Once the EC systems business hit its stride, the Company began a parallel project of supporting the growth insales at customer companies and expanding revenue by collecting a fixed percentage of net sales from customers
as payment agency commissions (via store websites on Estore’s Shopserve). This type of revenue is describedas flow-type revenue and is distinguished from the monthly fees from Shopserve (stock revenue) in revenue
management, even though the revenue comes from the same customers.

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

03 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Business overview(3) From 2012 to the present day
The net sales from existing customers (EC system customers) expanded steadily, with a good compositionalbalance between stock revenue and flow revenue. Meanwhile, the Company began strengthening the Marketing
Business with an eye to developing it as the core business for contributing to earnings. This involved commercializing the Company’s sales promotion support expertise for effectively expanding customers’ net sales. The
two main points were 1) “commoditizing” its sales promotion support expertise and policies and acquiring feesfrom consulting and operations management agency services, and 2) selling these services to customers otherthan existing customers (EC system customers).
The Marketing Business initially consisted of two businesses, the “sales promotions business,” which provides
consulting and operations management agency services, and the “media business,” which manages the PARKEC shopping mall. Currently, the business area that the Company is focusing on the most is the sales promotions
business, and it has changed its name to the marketing business (narrowly defined). On the other hand, it has
positioned the media business as a non-focus business, because it has powerful rivals, like Amazon, and it has
fulfilled a certain purpose.

Based on the single EC business segment,
it manages its business by four revenue types
2. The shift of the business segments and the current revenue structure
As previously explained, the Company has changed its business segments and its methods of disclosing information,reflecting the shift in the business field that it is focusing on.
The Company previously adopted a dual business structure comprising the System Business, which included therental server business and the EC systems business, and the Marketing Business, which supported expansion ofcustomers’ sales. However, in FY3/17, the Company merged the two businesses and shifted instead to a single
EC Business segment. The reason for this change was that the objectives of these two previous businesses were
the same, of supporting the growth in sales at customers, so the significance of distinguishing between them had
diminished.
While the Company has shifted to a single business segment, it discloses net sales according to revenue type, of
the four fields of “stock,” “flow,” “marketing,” and “media.” As defined above, stock consists of EC system monthly
usage fees, flow consists of a fixed percentage of customers net sales, marketing consists of commission revenue
related to sales promotion support, and media consists of revenue related shopping mall management. These four
categories simultaneously represent revenue-type and business categories.
If the Company’s businesses are considered in terms of objectives and means, the shift to a single business segment
seems like a natural progression. Although the single segment means that disclosure of segment information
has ceased, the Company discloses a breakdown of its net sales by revenue type based on the four categories.
Furthermore, there is a sense of consistency with the past, so the Company certainly does not seem to haveregressed from a perspective of information disclosure.

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

04 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Business overview

Changes in business segments

Source: Prepared by FISCO from Company materials██Results trends
Growth in sales and profits.
Profit fulfillment rate against full-year forecasts has exceeded 100%
• Summary of the FY3/17 3Q results
Estore reported higher profits and sales in FY3/17 3Q with ¥3,815mn in net sales (up 6.8% YoY), ¥419mn inoperating profit (up 27.4%), ¥446mn in recurring profit (up 38.1%), and ¥305mn in net profit (up 38.3%).
The fulfillment rate on the full-year target for net sales was slightly above three quarters at 76.5%. It exceeded 100%for operating profit and all profit items below that, indicating that the Company has already surpassed its full-year
forecast and is making extremely good progress.
Summary of the FY3/18 3Q results(¥mn)
FY3/17

FY3/183Q cumulative

Full year

3Q cumulative
results

YoY

vs. forecast

Full-year
forecast
4,990

3,574

4,775

3,815

6.8%

76.5%

Operating profit

329

407

419

27.4%

104.1%

403

Operating profit margin

9.2%

8.5%

11.0%

-

-

8.1%

Recurring profit

323

401

446

38.1%

112.6%

397

Net profit

221

285

305

38.3%

111.7%

274

Net sales

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

As explained above, the 3Q fulfillment rate on the full-year operating profit target has already exceeded 100%.
However, the Company has not given itself over to celebration. It has calmly assessed the three main factors forprofit growth in 3Q to be 1) delayed progress on planned investment (mainly expenses for acquiring human resources
and personnel expenses after recruitment), 2) a temporary drop in personnel expenses due to the impact of alarge-scale reorganization, and 3) lower-than planned advertising expenses after reviewing them in conjunction withthe large-scale reorganization. As will be explained in the section on growth strategies, the large-scale reorganization
prominently involved the decisive human resources initiative of rejuvenating key management positions across awide range.

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

05 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Results trends

On the other hand, in net sales, the Company itself is by no means satisfied. The Company announces net sales
broken down into the abovementioned four revenue type categories: stock, flow, marketing, and media. In FY3/18
3Q, stock revenue was ¥1,405mn (down 5.4% YoY), flow revenue was ¥1,543mn, (up 4.2%), marketing revenue
was ¥842mn (up 49.0%), and media and other revenue was ¥26mn (down 40.1%).
Currently, the Company focuses mainly on marketing revenue. Since this has grown by nearly 50% YoY, and full-year
net sales are expected to exceed ¥1.0bn, the Company is in fact progressing as expected. However, it appears thatflow revenue and stock revenue have not reached the levels anticipated by the Company.
Breakdown of net sales by revenue type(¥mn)
FY3/17

FY3/183Q cumulative
results

Full-year
results

3Q cumulative
results

YoY growthrate

Total net sales

3,574

4,775

3,816

6.8%

Stock

1,484

1,967

1,405

-5.4%

Flow

1,481

1,967

1,543

4.2%

Marketing

565

788

842

49.0%

Media

44

54

26

-40.1%

Note: Rounded to the nearest million yen
Source: Prepared by FISCO from the Company’s results briefing materials

We consider that the 3Q result can be taken simply as a favorable result. In net sales, the growth in marketing
revenue amply compensated for the decline in stock revenue. Furthermore, the increase in flow revenue is the resultof synergy effects (or ripple effects) from the marketing business and, considering the business structure, they canbe expected to continue going forward. Looking at profits, the Company itself describes factors 2) and 3) above
to be temporary, but there is the potential for these to become permanent, structural factors, as detailed below.
The favorable results for FY3/18 3Q derive from a change in the earnings base business under the aforementioned
seven-year cycle and the internal development of human resources. Moreover, they include various elements thatwill lead to future growth. We consider them to be strong results that provide much food for thought.

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

06 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/██Medium-Term Growth Strategy

and Progress

Aiming for growth through revenue increase in the stock, flow,
and marketing businesses
1. Overall image of the growth strategy
The Company’s revenue is categorized by business and type into four businesses/types as described above; namely,
stock, flow, marketing, and media. In essence, the Company’s growth strategy is to expand the revenues of its
three mainstay businesses, which are the stock, flow, and marketing businesses. Naturally, the specific details of
the actual growth strategies differ for each business.
As described above, the Company has grown by changing the focus business contributing to its earnings every
seven years. From around 2012, the Company’s main focus was on developing the marketing business. Now, in
FY3/18, the Company has reached a turning point.
The main progress and changes to be observed in FY3/18 have been 1) the start of the marketing systems business(sales promotion system business) in the marketing business with the launch of two specific products and 2) alarge-scale Companywide reorganization mainly aimed at “rejuvenation.”In the stock business and flow business, the Company is quietly striving to make progress based on its prior growthstrategy. The media business has been positioned as a non-focus business and investment has been scaled back.
It continues to shrink as before.

In the marketing systems business,
the Company launched two sales promotion systems.
With their high profit margin,
their future development will bear watching.
2. Growth strategy in the marketing business
The business model of the marketing business involves providing customers with consulting and operations management agency services for sales promotion (marketing), for which the Company receives consideration in the formof fees. The target customer segment naturally includes existing customers of the Shopserve ASP service providing
EC support, but the Company is also developing new customers for the marketing business alone.
A major change in FY3/18 is the start of the “marketing systems business” in the marketing business. The marketingsystems business is broadly included within the marketing business, but its substance and revenue model are very
different from the marketing business to date. Below, the traditional consulting and operations management agency
services will be referred to as the “marketing services business,” and the marketing services business and marketingsystems business will be collectively referred to as the “marketing business.”

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

07 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Medium-Term Growth Strategy and Progress

Changes in business

Source: Prepared by FISCO from Company materials

The marketing systems business refers to the development and sales of sales promotion support systems, which is
to say software. Since the objective of the business is to expand customers’ sales, it is included within the marketingbusiness; however, the revenue model is made up of fixed basic monthly fees and a pay-for-use charge according
to the number of times the services is used. In other words, it is a hybrid of stock and flow revenue.
By autumn of 2017, the Company launched two tools: Estore Compare (“Compare”) and Estore Query (“Query”).
Compare is a tool that helps to increase EC website sales by using A/B comparison testing for an EC website todetermine in real-time which has the higher conversion ratio (CVR), number of conversions, and life time value (LTV).
On the other hand, Query is an email marketing tool for business operators who already have an existing customer
base of a certain size. The main feature of the tool is that it can refine customer characteristics and distributepersonalized email.
The marketing services business and the marketing systems business both aim to promote customers’ sales; asbusinesses however, they have significantly different revenue potential characteristics. The productivity of marketing
services business has a high dependence on human input due to the nature of consulting and operations management agency services. By contrast, the marketing systems business has a low dependence on human input
and is therefore expected to become extremely profitable once the number of subscribing customers exceeds acertain level.
The marketing systems business has only just launched and has only a very few customers. The systems themselves
are also being improved daily at this stage. The business has not yet contributed to sales or profits. However, weconsider the start of the marketing systems business to be an extremely significant step. One of the main reasonsis that it provides products and services that compensate for the low revenue potential of the marketing services
business. Furthermore, it is very significant in terms of providing products and services that are in step with the trendsof the times, such as personnel shortages and work style reforms. Finally, the function of the marketing systems
seems to be highly useful to the Company’s consultants working in marketing services. In other words, the products
and services lend themselves to pursuing synergies between the two businesses. A future merging of the marketing
services and marketing systems may hold potential for significant revenue growth for both.
The Company plans to launch new products in the marketing systems business, and these future developments
will bear watching.

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

08 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Medium-Term Growth Strategy and Progress㼀㼞㼑㼚㼐㻌㼕㼚㻌㼙㼍㼞㼗㼑㼠㼕㼚㼓㻌㼞㼑㼢㼑㼚㼡㼑

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

Decisive large-scale reorganization selecting young employees
in their 30s for roles across a wide range.
Emerging impact on personnel expenses and advertising expenses.
Focus on whether the Company will make the effects permanentand structural
3. Large-scale reorganization mainly aimed at rejuvenation
As of August 31, 2017, the Company conducted its largest ever restructuring. It was not a restructure in the senseof laying off employees, but rather a literal changing the business structure. The main focus of the initiative was a
wide-ranging rejuvenation of the personnel occupying key management positions. In short, employees in their 30s
were selected for positions across the Company that had been occupied by employees in their 40s to 50s.
The reason for this wide-ranging selection of young employees for roles was that the Company has spent the past
5-10 years nurturing these human resources and aims to allow them to exercise their abilities to the full extent andmake use of them over the coming 10-15 years. From another perspective, the move can be seen as a shift from thePC generation (40s-50s) to the smartphone generation (20s-30s). The mainstream device for using various services
today is the smartphone, rather than the PC, so this may be a response to the reality that those who are not of thesmartphone generation are finding it increasingly difficult to provide customer service. We find this selection of young
employees for roles to be a most rational management decision.

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

09 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Medium-Term Growth Strategy and Progress

The selection of young people for roles appears to be having various impacts. Specifically, it has contributed tothe 3Q results in the form of reduced personnel expenses and advertising expenses. In the background, as thelarge-scale personnel changes exposed personnel shortages and caused a temporary halt in advertising, the young
leaders were instrumental in the return of operating performance to pre-personnel change levels by not executing
expenditures (on personnel recruitment and restarting advertising, etc.), or making more efficient expenditures.
It was a serendipitous effect then, but we feel that the most important point is that it has shown the potential forpermanently adopting the streamlined personnel structure and slimmed-down advertising expense budget from
FY3/19 onwards.
For FY3/19, in addition to a reduction in the expense base, the most important point is whether the selection ofyoung personnel for roles will produce an effect in terms of top-line growth (net sales growth). As mentioned above,
we expect the smartphone generation to produce unique strategies that can realize top-line growth, and we willobserve their future developments closely.

Aiming for growth by increasing average spend per customer
in stock revenue
4. Stock business growth strategy
In stock business revenue, the Company is currently taking several measures to increase average spend per
customer. Two conceivable approaches to increasing average spend per customer are changing the compositionof the customers (increasing the ratio of large-scale customers) to increase the average spend and raising the levelof monthly fees by expanding the services used by the existing customers.
The Company is working on both strategies but is focusing on the former. Under a slogan of “shift to good products,
good stores,” the Company is approaching the acquisition of new customers by thoroughly focusing on stores that
handle competitive products, stores with high profit growth potential, or medium-sized companies with large sales
revenue and high monthly fees.
These measures have gradually borne fruit, with the average spend per customer steadily increasing. However, thedeclining trend in the number of customers continues. Stock revenue is calculated as “average spend per customer
× number of customers.” The negative impact of the decline in customer numbers outweighs the positive effect of
the increase in the average spend per customer. Therefore, stock revenue remains on a downward trend.

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

10 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Medium-Term Growth Strategy and Progress

Structural reforms of stock-type revenue

Source: Prepared by FISCO from Company materials㼀㼞㼑㼚㼐㻌㼕㼚㻌㼟㼠㼛㼏㼗㻌㼞㼑㼢㼑㼚㼡㼑

㻔¥㼙㼚㻕
㻞㻘㻡㻜㻜

㻞㻘㻜㻥㻥

㻞㻘㻜㻠㻣

㻝㻘㻥㻢㻣

㻞㻘㻜㻜㻜

㻝㻘㻠㻜㻡

㻝㻘㻡㻜㻜

㻝㻘㻜㻜㻜
㻡㻜㻜
㻜

㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻟㻽㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

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

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

11 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Medium-Term Growth Strategy and Progress

Increased expectations for growth of flow revenue due to synergies
with the marketing business5. Flow revenue growth strategy
The Company collects flow revenue via Shopserve for the ASP services in the form of payment agency commissions
as a fixed percentage of net sales. It has several approaches to its growth strategy for flow revenue, depending on
customer attributes. Its two main initiatives at present are 1) supporting the marketing of existing customers andrealizing their higher sales and 2) changing the customer company mix and increasing the percentage of customers
with large sales.
In approach 1) the Company has made marketing service (sales promotion consulting, operations management
agency services, and so forth) provision agreements with existing Shopserve customers. The result has been an
increase in customers’ net sales, which has led to expansion of the Company’s flow revenue. In essence, thisapproach is to pursue synergies between flow revenue and marketing revenue.
Approach 2) involves a compositional change by company scale in the Shopserve subscriber companies byadvancing the stock revenue structural reform initiative “shift to good products, good stores.” With this initiative theCompany is able to improve both stock revenue and flow revenue together.
The total amount of flow revenue is steadily increasing. While factors 2) above appears to have had a major impact
in this regard, our expectations for growth going forward are focused mainly on approach 1) – the synergy between
marketing revenue and flow revenue.

㼀㼞㼑㼚㼐㻌㼕㼚㻌㼒㼘㼛㼣㻌㼞㼑㼢㼑㼚㼡㼑㼀㼞㼑㼚㼐㻌㼕㼚㻌㼟㼠㼛㼏㼗㻌㼞㼑㼢㼑㼚㼡㼑㼀㼞㼑㼚㼐㻌㼕㼚㻌㼒㼘㼛㼣㻌㼞㼑㼢㼑㼚㼡㼑

㻔¥㼙㼚㻕
㻔¥㼙㼚㻕
㻔¥㼙㼚㻕
㻞㻘㻡㻜㻜
㻞㻘㻡㻜㻜
㻞㻘㻡㻜㻜

㻞㻘㻜㻥㻥
㻞㻘㻜㻜㻜
㻞㻘㻜㻜㻜
㻞㻘㻜㻜㻜

㻝㻘㻣㻟㻣
㻝㻘㻣㻟㻣

㻞㻘㻜㻠㻣
㻝㻘㻥㻝㻡
㻝㻘㻥㻝㻡

㻝㻘㻥㻢㻣
㻝㻘㻥㻢㻣
㻝㻘㻥㻢㻣
㻝㻘㻡㻠㻟
㻝㻘㻡㻠㻟
㻝㻘㻠㻜㻡

㻝㻘㻡㻜㻜
㻝㻘㻡㻜㻜
㻝㻘㻡㻜㻜
㻝㻘㻜㻜㻜
㻝㻘㻜㻜㻜
㻝㻘㻜㻜㻜

㻡㻜㻜
㻡㻜㻜
㻡㻜㻜
㻜㻜
㻜

㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼅㻟㻛㻝㻡
㻲㼅㻟㻛㻝㻡
㻲㼅㻟㻛㻝㻡

㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼅㻟㻛㻝㻢
㻲㼅㻟㻛㻝㻢
㻲㼅㻟㻛㻝㻢

㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼡㼘㼘㻌㼥㼑㼍㼞㻲㼅㻟㻛㻝㻣
㻲㼅㻟㻛㻝㻣
㻲㼅㻟㻛㻝㻣㻟㻽㻟㻽㻟㻽㻲㼅㻟㻛㻝㻤
㻲㼅㻟㻛㻝㻤
㻲㼅㻟㻛㻝㻤

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

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

12 18



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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/██Outlook
Based on progress through to 3Q,
the potential to exceed the forecast has increased
1. Overview of the FY3/18 forecasts
Estore forecasts for a slight profit decline on increased sales in FY3/18 with ¥4,990mn in net sales (up 4.5% YoY),¥403mn in operating profit (down 1.0%), ¥397mn in recurring profit (down 1.1%), and ¥274mn in net profit (down
3.8%). The Company has not changed its forecast from this initial outlook.
Overview of the FY3/18 forecasts(¥mn)
FY3/17

Net sales
Operating profit

FY3/183Q
cumulative

4Q

Full year

3Q
cumulative

4Q E

YoY

3,574

1,201

4,775

3,815

1,174

-2.2%

4,990

4.5%

329

78

407

419

-16

-

403

-1.0%

Full year E

YoY

9.2%

6.5%

8.5%

11.0%

-1.4%

-

8.1%

-

Recurring profit

323

77

401

446

-50

-

397

-1.1%

Net profit

221

64

285

305

-32

-

274

-3.8%

Operating profit margin

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

The fulfillment rate through to 3Q was very high. As a result, in 4Q the Company only needs a 2.2% YoY decline in
net sales and an operating loss of ¥16mn to achieve its full-year target. Considering the fulfillment rate to 3Q andthe recent trends, we consider it extremely unlikely that the Company will report a 4Q operating loss. Therefore, it
is extremely likely that the Company’s full-year operating results will exceeded its initial forecasts.
On the other hand, we are cautious about whether the degree by which the operating results exceed the forecast
will actually reach the standard for announcing a revision (fluctuation of 10% or more for net sales, 30% or more for
profits). For operating profit to reach this standard, 4Q operating profit would need to be up 34% YoY. As discussed
before, the Company carried out a large-scale reorganization at the end of August 2017, but the new structure
does not yet appear to be completely consolidated and related expenses may increase. Moreover, the Company
constantly needs to acquire personnel for consultants and other roles in its marketing business, in addition to which
there will be a voracious demand for funds for growth investments, such as new product development expenses andadvertising expenses to increase awareness and recognition of the products in the marketing systems business. If
the trend through to 3Q continues for the full-year, we see a scenario where full-year operating profits may exceed
the initial forecast by around 10%.

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

13 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

OutlookMain focus on top-line growth, in particular marketing revenue
2. Approach for FY3/19
For FY3/19, we believe the following points should be observed closely.
With regard to net sales, the Company is certainly aiming to increase sales, and we regard a 10% increase as abenchmark. Looking at individual business/revenue types, the progression of the marketing business is naturally
the most important focus point. Marketing business net sales in FY3/18 could certainly exceed the ¥1bn level.
Meanwhile, we see the Company as likely to aim for the same level of growth in FY3/19; that is, an increase ofaround 50% YoY. Starting from a base level of ¥1.0bn, a 50% increase in the marketing business net sales would
substantially achieve a 10% increase in overall net sales for the Company.
For now, the specific target value for marketing business revenue is ¥2.0bn and achieving this target at an earlystage is the Company’s biggest challenge. The target ¥2.0bn is equivalent to about half of the previous EC systems
business net sales; that is, the total of stock revenue and flow revenue. For marketing revenue to reach ¥2.0bn
would signify the establishment of a three-pillar earnings structure together with stock and flow revenue. This isalso a level that would begin to make a visible contribution to profits. A 50% increase in revenue for FY3/19 would
be an important milestone on the road to achieving revenue of ¥2.0bn at an early stage.
Another focus point in the marketing business is the trend in the marketing systems business. As discussed before,
this is the business that has an inherently higher profit margin and is also expected to produce synergies with themarketing services business. We believe that the further development of the marketing systems business, including
expansion of the service menu, will be an extremely important point for the Company over the next two to three
years.
Turning to other revenues, flow revenue is also looking likely to continue increasing, partly due to synergies with themarketing business. Meanwhile, stock revenue may decline if the number of Shopserve subscribers continues tofall. However, the decline in revenue appears to be diminishing and even if stock revenue does experience a dropin revenue, this will be offset by the increase in flow revenue.
On the profit front, the Company decreased its personnel expenses and advertising expenses realized in FY3/18
as a result of a large-scale reorganization, and the point to watch is whether this decrease can occur again in apermanent form in FY3/19. If it can, then there is a good chance that FY3/19 operating profit will exceed ¥0.5bn
by a large margin.
However, even in personnel expenses and advertising expenses to return to their former levels, we certainly wouldn’t
consider this grounds for pessimism. As we mentioned above, the most important challenge for the Company isexpanding its marketing revenue. The Company has long planned to make upfront investments to achieve this, andthe reduction in expenses itself was an unanticipated result of the large-scale reorganization.

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

14 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

Outlook

Simplified income statement and main indicators(¥mn)
FY3/14 full year FY3/15 full year FY3/16 full year

FY3/17Full year

3Q cumulative

Full year (E)Net sales

4,526

4,336

4,660

4,775

3,815

4,990

YoY

0.7%

-4.2%

7.5%

2.5%

6.8%

4.5%

Gross profit

1,728

1,649

1,769

1,548

1,104

-

38.2%

38.0%

38.0%

32.4%

28.9%

-

SG&A expenses

1,214

1,090

1,140

1,141

685

-

SG&A margin

26.8%

25.1%

24.5%

23.9%

18.0%

-

Operating profit

514

559

628

407

419

403

Gross profit margin

YoY-15.3%

8.7%

12.5%

-35.2%

27.4%

-1.0%

Operating profit margin

11.4%

12.9%

13.5%

8.5%

11.0%

8.1%

516

562

628

401

446

397

-17.0%

8.9%

11.9%

-36.1%

38.1%

-1.1%

Recurring profit
YoY
Net profit
YoY

314

330

420

285

305

274

-17.4%

5.0%

27.3%

-32.1%

38.3%

-3.8%

EPS after adjustment for share split (¥)

47.56

55.27

78.66

55.32

59.28

53.09

BPS after adjustment for share split (¥)

162.04

197.18196.74227.30--

Dividend after adjustment
for share split (¥)

15.50

17.00

24.00

24.00

-

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

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

15 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/

OutlookNon-consolidated balance sheet(¥mn)
FY3/14 full year FY3/15 full year FY3/16 full year FY3/17 full year

FY3/18 3Q
cumulative

2,562

2,797

3,058

3,012

3,986

Cash and deposits

1,910

2,155

2,385

2,312

3,106

Accounts receivable

544

528

553

575

698

Other

108

114

120

125

182

Fixed assets

589

511

447

480

422

Tangible fixed assets

159

100

82

129

102

Intangible fixed assets

207

116

108

103

82

Investments & other

223

293

256

247

236

Total assets

3,152

3,308

3,505

3,492

4,408

Current liabilities

2,036

2,098

2,471

2,296

3,028

Accounts payable

178

180

173

190

261

Short-term borrowings

106

102

324

-

-

1,392

1,393

1,559

1,740

2,444

360

423

415

366

323

136

40

18

22

21

Long-term borrowings

124

24

-

-

0

Other

12

16

18

22

21

Shareholders’ equity

978

1,162

1,012

1,173

1,356

Paid-in capital

523

523

523

523

523

Capital surplus

539

539

539

539

539

Retained profits

2,203

2,439

2,759

2,921

3,103

Treasury stock

Current assets

Deposits held
Other
Fixed liabilities-2,287-2,339-2,810-2,810-2,810Total valuation and conversion difference

0

6

3

-0

1

Stock subscription rights

0

0

-

-

-

978

1,170

1,015

1,173

1,358

3,152

3,308

3,505

3,492

4,408

Net assets
Total net assets & liabilities

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

Cashflow Statement(¥mn)
FY3/14 full year FY3/15 full year FY3/16 full year FY3/17 full year

FY3/18 2Q
cumulative

Cashflow from operating activities

443

678

613

465

Cashflow from investment activities

283

-122

-163

-88

122
-62

Cashflow from financial activities-1,197

-252

-376

-449

-124

3

1

0

-0

-0

Change in cash & deposits

-468

305

74

-72

-64

Cash a& deposits at the beginning of
the term

2,473

2,005

2,310

2,385

2,312

Cash & deposits at term end

2,005

2,310

2,385

2,312

2,248

Cash & deposits translation adjustment

Note: Results for Fy3/14-FY3/16 are consolidated
Source: Prepared by FISCO from the Company’s financial results

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

16 18

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

Estore Corporation

24-Apr.-2018

4304 TSE JASDAQ

https://estore.co.jp/investors/██Shareholder returns
The dividend for FY3/18 is expected to be unchanged
from the previous fiscal year
The Company basically returns profits to shareholders through dividends. It pays dividends after taking into accounta comprehensive range of factors, including business results, financial position, and the need to retain sufficientinternal reserves to invest in growth. While it does not formulate an official dividend payout ratio, the foundationof Estore’s thinking on the distribution of profits is its basic philosophy of “dividing profits between three groups;
shareholders, customers, and staff.” In the past also, it has a track record of determining the dividend based on
this basic philosophy.
The Company has not yet disclosed a dividend forecast as usual. This year as in previous years, the determinationand forecast of the dividend seems likely to be announced at the stage of confirming the full-year financial results.
As explained above, the fulfillment rate for the 3Q profits was high, so the full-year financial results are now more
likely to come in higher than the forecast. Having given careful consideration to the year-end dividend in this case,
we believe the basic scenario will be a ¥24, level with the previous fiscal year.
The Company has paid dividends targeting a dividend payout ratio of around 30% in line with its basic philosophyof “dividing profits between three groups.” However, in FY3/17 the Company’s dividend payout ratio reached 43%
as it continued to pay a dividend of ¥24 in line with the previous fiscal year, despite a YoY decline in net profit, froma perspective of paying stable dividends. By contrast, we believe that the Company is likely to return to its baselineof 30% in FY3/18. If earnings per share (EPS) grows significantly and pushes the dividend payout ratio far below
30%, the Company might look at increasing its dividend; however, in the current situation it seems appropriate totake a cautious view.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㻱㻼㻿㻘㻌㼐㼕㼢㼕㼐㼑㼚㼐㻘㻌㼍㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻔㼞㼑㼟㼡㼘㼠㼟㻌㼛㼚㻌㼍㻌㼟㼠㼍㼚㼐㼍㼘㼛㼚㼑㻌㼎㼍㼟㼕㼟㻕㻔¥㻕㻱㻼㻿㻌㻔㼘㼑㼒㼠㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕
㻠㻟㻚㻠㻑
㻣㻤㻚㻢㻢

㻥㻜㻚㻜㻜
㻤㻜㻚㻜㻜
㻣㻜㻚㻜㻜

㻟㻜㻚㻢㻑

㻟㻝㻚㻣㻑

㻢㻜㻚㻜㻜
㻡㻜㻚㻜㻜

㻟㻜㻚㻡㻑

㻟㻝㻚㻤㻑

㻟㻜㻚㻜㻑

㻠㻣㻚㻡㻢

㻠㻠㻚㻣㻤

㻞㻡㻚㻜㻑

㻠㻜㻚㻜㻜

㻞㻜㻚㻜㻑
㻞㻠㻚㻜㻜

㻟㻜㻚㻜㻜
㻞㻜㻚㻜㻜

㻠㻜㻚㻜㻑
㻟㻡㻚㻜㻑

㻡㻡㻚㻟㻞

㻡㻡㻚㻞㻣

㻠㻡㻚㻜㻑

㻝㻠㻚㻜㻜

㻞㻠㻚㻜㻜

㻝㻣㻚㻜㻜

㻝㻡㻚㻡㻜

㻝㻡㻚㻜㻑
㻝㻜㻚㻜㻑

㻝㻜㻚㻜㻜

㻡㻚㻜㻑

㻜㻚㻜㻜

㻜㻚㻜㻑
㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

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

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

17 18

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

Estore Corporation
4304 TSE JASDAQ

24-Apr.-2018https://estore.co.jp/investors/██Information security
In addition to undergoing regular external checks,
the Company has already obtained PCI DSS certification
for card payments
Based on its in-house development of various systems for EC support, the Company is constantly aware ofconstructing systems with high levels of security. Conversely, it has in place a system of checks by third parties forthe level of security of its in-house systems.
The Company also provides a card payment service within its EC support ASP service. As it functions as a payment-receipt agency for this service, it holds consumers’ credit card information. To ensure the security of thisinformation, it has achieved the “PCI DSS” global security standard, which was jointly established by five international
credit card companies and is operated and managed by PCI SSC and acquired the certification for it (the Company
is a member of the Japan Card Data Security Consortium, which is the group managing PCI DSS in Japan).

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

18 18

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