Morningstar Equity Research Report 2022.10.4

An packaged service provider supporting business management, DX initiatives, etc.

Recommendation rating（Oct 3）

Scala, Inc.

Overweight（4845. TSE Prime）
Stock Price

Unit of Investment

671yen100Shares（10/3）

Market Cap

52-Week High11.88Bil yen

52-Week Low

789yen（10/3）

PER（E）

17.4timesyen（22/5/30）（22/1/20）（10/3）

Accelerating its M&A strategy to achieve targets■ Business results for FY6/22 were driven by the IT/AI/
IoT/DX and EC businesses￥900 ～￥1,200

Estimated Share Price Range

Scala, Inc. reported its consolidated business results (NonGAAP) for full fiscal 2021 ended June 2022 (FY6/22). In the
period, sales revenue came to ¥10,015 million (up 15.0% yearon-year) and operating profit was ¥99 million (down 78.9%
y-o-y). The Customer Support Business that saw a large accountcancellation in 1H (July 2021 ~ December 2021) suffered a fall inrevenue, posting a segment deficit for the year. The Incubation &Investment Business continued its strategic investment initiative.
It reported higher revenue but widened segment deficit on theyear, while the newly launched Insurance Business remained in
deficit, despite that it began to record revenue from marketing
insurance products. Meanwhile, its mainstay IT/AI/IoT/DX Business, alongside HR & Education and EC Businesses, showed astrong performance, securing revenue growth and operating
profit overall.

（yen）

1,200
1,050
900

13WMA

789

750
603

3,000

volume9 10 11

12

1

3

4

5

6

26 WeeksMoving Average￥727

Scala’s consolidated business results forecast for fiscal 2022
ending June 2023 (FY6/23) are shown in the appended tableon Page 1. In this, the company anticipates a sharp earnings
recovery, bolstered by strong sales revenue growth. Earnings at
the IT/AI/IoT/DX and HR & Education Businesses are expected to
improve significantly, also the highly profitable EC Business islikely to sustain a solid performance. The money-losing Customer
Support Business is forecast to break even, thanks in large part toan accelerated shift towards labor-saving and high profit-oriented call center projects. Consequently, the running deficits fromstrategic businesses are to be absorbed across the company.
With regard to the performance of strategic businesses
for FY6/23, the Insurance Business is likely to see revenue
growth, but it is expected to post a larger net loss due to heavy
insurance claim payments (NB. Scala forecasts that the businesswill post a surplus on a monthly basis during FY6/24). Goingforward, the business plans to broaden and enhance healthcarerelated services and engage in an operation that focuses on
the capability of transferring insurance risks (i.e. a financial
function). Meanwhile, the Incubation & Investment Business is
projected increasingly to achieve revenue growth and cut down
on net losses. These trends are supported principally by two
factors, comprising the winning of more projects on the backof the enhanced service of ‘Reversed Public Offering Proposal’(a private-public co-creation-oriented matching platform;
hereinafter referred to as its Japanese abbreviated name ‘Gyaku
Propo’), and the launch of two new services related to M&As
(mergers and acquisitions). One is a ‘Co-creation-oriented M&A
Advisory’ service in which Scala provides counselling to its
partners in line with the ‘co-creation concept’ and the other isthe ‘Special Appointed Task Force for M&A’ that provides on-site
supports to its M&A partners.

1,500

13WMA

2

13 WeeksMoving Average■ FY6/23 likely to see a marked earnings recovery( thousand
share )

26WMA

600

7

8

9

0

Volume（13 Weeks Average）￥742

261,446SharesStart-up undertakings and projects operated by thesestrategic businesses are unlikely to generate a profit in the
short to medium-term. However, Scala often secures orders
for system development projects related to its services, contributing to higher earnings for the mainstay IT/AI/IoT/DX
Business. Scala intends the M&A initiative as its medium tolong-term growth strategy, thus it conducts research anddue diligence on potential M&A deals on a routine basis.
Although it is inevitable for the Incubation & Investment
Business to incur up-front investment expenses to somedegree, it holds the key to the company’s future consolidated
earnings growth.
In August 2019, Scala formulated its ‘Medium-termManagement Plan COMMIT5000’ (for details, see ‘Business
Environment and Outlook’ shown later); It now eyes to achieve¥100 billion in sales revenue and ¥10 billion operating profit
by FY6/25. Morningstar adheres to the company’s forecasts
for FY6/23, but in the succeeding FY6/24 we believe thatthe company will step up its growth strategy that leverages
M&A deals to accomplish its targets. Our estimated shareprices have been kept as they were reported on April 22nd,in the range of ¥900 ~ ¥1,200. The lower limit of the range
is on a par with the number calculated by multiplying thecompany’s forecast EPS (earnings per share) by the industry’s
estimated PER which is in the 23 times range. Scala plans to
pay increased full-year dividends for 14 years in succession,
making the expected dividend yield for this fiscal year at an
attractively high-level of 5.5%. Our valuation of the company
shares remains unchanged with an ‘Overweight’ rating. (written by Takahiro Arimura)

Financial Results （as of Oct 3, 2022）
Revenue（Yen Mil）

YoY（％）

Operating Profit（Yen Mil）

YoY（％）

Income Before
Income Taxes（Yen Mil）

YoY（％）

Net Profit（Yen Mil）

YoY
（％）

EPS
（Yen）
22.1

2021-6

Past Results

8,712

―

471

―

440

―

387

―

2022-6

Past Results

10,015

15.0

99

▲78.9

81

▲81.6

44

▲88.5

2.5

Company est.

13,000

29.8

1,000

―

970

―

650

―

38.6

MS est.

13,00029.8

1,000 10.1times

MS est.

50,0003.8times

2023-62024-65,000

5.0times

970 12.0times
4,850

5.0times

650 14.8times
3,250

5.0times

38.6
183.6

※ The company prepares its financial information under the IFRS (International Financial Reporting Standards), but the above figures have been reconciled to non-GAAP measures (actual
figures) by excluding adjustments and other items made on adoption of the IFRS.

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

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Morningstar Equity Research Report 2022.10.4

Scala, Inc.（4845, TSE Prime）■ Company Overview
Scala, Inc. embarked on an enterprise with the SaaS/ASP(currently IT/AI/IoT/DX) business. It has rigorously executed
its growth strategy through M&As. In 2018, it incorporated two
firms as its consolidated subsidiaries. The first, in March, was
Leoconnect, Inc., at that time a subsidiary of Hikari Tsushin,Inc. (security code 9435); the next, in November, was Connect
Agency Inc., a sub-subsidiary of Hikari Tsushin. In August
2019, in line with its medium-term plan, Scala announced thatit had consolidated J-Phoenix Research Inc. which engaged
primarily in support and consultation for the implementationof AI/IoT technology. At the same time, it established Scala
Partners, Inc., an enterprise that provides financial assistanceto and develops companies in the AI and other fields. In August
2021, the company incorporated readytowork Co., Ltd. as its
wholly owned subsidiary. The subsidiary supports Japaneseclients based in Nepal in their new business developments
and DX changeovers, primarily concerning website systems.
The Nepal subsidiary is Scala’s second offshore technology
development base, following the first Scala Next Inc. Mandalay
branch (Myanmar) established in December 2018. Combinedwith the base in Japan, the company now deploys threetechnology bases with a view to shortening DX development
time and accumulating expertise. In November 2021, thecompany set up a subsidiary SOCIALX, Inc. to operate‘Gyaku Propo’ programs. In 2022, Scala consolidated two
companies as its subsidiary – Nihon Pet Small-amount Shortterm Insurance Company and EGG CO., LTD. The former is aprovider of low-premium, short-term pet insurance plans andthe latter is a firm particularly excelling in the development ofhometown taxation schemes.

Scala Inc.ʼs Revenue Mix by Business Line
▼ FY6/21
0.96%

According to the ‘2021 WHITE PAPER: Information andCommunications’ released by the Japanese Ministry ofInternal Affairs and Communications, the penetration of AI
and IoT has shown marked progress, with the number of IoT
devices in use worldwide estimated to increase from roughly
25.3 billion units in 2020 to 39.8 billion units by the end of2024. On the back of mounting needs for further efficiency
and labor saving across the board, the speed of adoption of AI
technology appears to accelerate going forward.
Scala, Inc. has formulated its ‘Medium-term Management
Plan COMMIT5000’. The plan outlines the company’s three‘capabilities’ that have been acquired through the operation of
SaaS/ASP services (1. The capability of discovering real issues;
2. The capability of revealing the hidden value of resources;and 3. The capability of proposing and executing an optimal
combination of issues and resources to maximize value). With
the purpose of effectively proposing these capabilities, thecompany has newly established the following segments thatwill assume the objective: 1. An added value-based management
support business; 2. An IT/AI/IoT-related business; 3. A social
issue solution-oriented business. In line with the Mediumterm Management Plan, Scala is set to organically coordinate
the three capabilities with the three business segments tomaximize customer value. With the fulfillment of this vision,
the plan has set dual-period earnings projections. One is toachieve ￥100 billion in sales revenue (operating income of￥10 billion) by FY2025 and the other ￥500 billion in sales
revenue (operating income of ￥50 billion) by FY2030. The
company plans to develop and commercialize the threecapabilities for public companies and others in Japan. It isalso set to expand its markets targeting government-affiliatedenterprises, local authorities and overseas companies.

4.51%

HR & Education
Business
15.28%¥1.33bn

Incubation &Investment Business
2.06%¥0.45bn¥0.2bnIT/AI/IoT/DX
Business

EC Business47.59%

16.52%¥4.14bn¥1.65bn

Customer
SupportBusiness
21.09%

HR & Education
Business
14.66%¥1.83bn¥

1.46bnTotal sales revenue ︓¥8.71bn

IT/AI/IoT/DX
Business

48.68%¥4.87bn

Customer
SupportBusiness
13.55%¥1.35bn※ Insurance Business will be added from the FY6/22(Source) Created by Morningstar Japan, based on the companyʼs information.

Business Segment Overview
Reportable segment

IT/AI/IoT/DX

Customer Support
HR & Education
EC
Insurance■ Business Environment and Outlook

Insurance Business¥0.08bn

EC Business15.05%¥1.31bn

Total sales revenue︓¥10. 01bn▼FY6/22

Incubation & Investment Business

Incubation&
Investment

Group company• Scala Communications, Inc.
• Scala Service, Inc••Scala Next Inc.
••readytowork Co., Ltd.
•Connect Agency, Inc.
•Retool, Inc.
•Social Studio Inc.
•EGG CO., LTD.
•Leoconnect, Inc.
•Athlete Planning, Inc.
•FourHands, Inc.
•Sports Stories, Inc.
•Broncos20 Co., Ltd.
•Scala PLAYce, Inc.
•Nihon Pet Small-amount Short-term
Insurance Company New•Scala, Inc.
•Scala Partners, Inc.
•J-Phoenix Research Inc.

Description of business
Provision of SaaS/ASP services
Development of SaaS/ASP services and offshore development
Cloud-based PBX service
Planning, development and sale of cloud activity management tools
Support for administrative bodies and local municipalities in their DX
programs
System development/system maintenance/network establishment
Consulting of customer support (call center operation, etc.)
Provides support for personnel employment (new graduates and midcareer recruitment) and other services
Provides support for child education, community development etc.
Operates physical education, sports lessons and others
Management of basketball club teamOperation of EC sites to trade matching game cards
Provision of low-premium, short-term insurance plans

Group headquarters, holding company and investment business
Innovation, incubation and investment
Support for value-based management (preparation of analyst andintegration reports; fund management support)•SCL Capital LLC
Investment fund management•SCSV-1 Investment Limited Liability •Scala Communications, Inc.
•Scala Service, Inc.
Partnership•SOCIALX, Inc.
Planning and operating a public-private co-creation platform ‘Gyaku
Propo’(Source) Created by Morningstar Japan, based on the companyʼs data.

Risk Factors
Scala commits to a service level agreement (SLA) with clientsof SaaS/AS services. SLA defines a certain level of assurances
for server operations, care for service failures, notice concerningscheduled maintenance, among others. This indicates that thecompany may face a large amount of indemnity should its
service fail, for whatever reason, to comply with the levels of
assurance defined by SLA. Separately, in November 2018 thecompany established Scala Next, Inc., with the aim of planningand developing SaaS/ASP businesses and services. The subsidiary
develops part of the cost-reduction projects in its Mandalay
branch in Myanmar. In March 2021, the Myanmar nationalarmy launched a coup d'etat and six districts in Yangon (thecountry’s largest city) were placed under martial law. Although
the Mandalay branch of Scala Next, Inc. has incurred no actual
damage, it is necessary to keep a close watch on the heightening
geopolitical risk in the country.

Shareholder Return（as of Oct 3, 2022）■ Dividends■ Shareholder Special Benefits

Dividend Per ShareFirst half

Second half

Annual2021-6

Past Results

¥16

¥18

¥34

2022-6

Past Results

¥18

¥18

¥36

2023-6Company est.

¥18.5

¥18.5

¥37

None

※ Dividends for FY2021 included a ￥2.00 special dividend to commemorate its 30th
anniversary.
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

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Morningstar Equity Research Report 2022.10.4

Scala, Inc.（4845, TSE Prime）

Competitor Comparison（If the number is better than rivals, it's highlighted by red character）（as of Oct 3, 2022）
Scala, Inc.
(4845・TSE Prime)
Stock Price
Basic Point¥2,797¥1,477

100Shares

100Shares

100Shares¥67,100¥279,700¥147,700

June

February

December―

4.0times

10.6times

0.0%

0.9%

EPS Growth Rate（E）

17.4times
1.3times
5.5%
29.8%
910.1%
1,448.6%

24.5times

Operating Margin（E）

7.7%

Unit of Investment
Minimum Investment Amount
PER（E）PBR
Dividend Yield（E）
Revenue Growth Rate（E）

GrowthProfitability

Financial
HealthCybozu, Inc.

(4776・TSE Prime)¥671

Fiscal Year End
Share Price
Indicator

PiPEDO HD, Inc.
(3919・TSE Standard)

Operating Profit Growth Rate（E）

ROE
ROA（Ordinary income/Total
assets）
Equity ratio
Debt-Equity Ratio

18.1%▲120.8%▲19.0%

―

▲5.5%

18.8%
22.1%

-1.4%

▲2.0%

19.5%

11.2%

41.7%

58.7%
27.7%

45.4%

223.3%

111.1%

106.5%

264.5%

Current Ratio

2.5%
▲9.6%

8.6%

34.5%

We selected PiPEDO HD, Inc. (security code: 3919) and Cybozu, Inc. (security code: 4776) as industry peers. Scala competes with these on some operations of
the site assistance service in the SaaS/ASP business field.
※ Estimated data for Scala shown above were calculated by using the actual results (Non-GAAP base) for FY6/22 and MS’s earnings forecasts for FY6/23 (inreference to those announced by the company).

■Growth Potential■Profitability■ Financial Stability

Consolidated business results for
FY6/23 are expected to show a marked
recovery on the back of an approximately 30% growth in revenue. The
mainstay IT/AI/IoT/DX Business is
expected to increase revenue from DX
projects for local governments at anaccelerated pace. Also, the HR & Education Business is likely to be postinghigher revenue from the new graduate
employment support service and theoperation of a professional basketballteam ‘THE SAITAMA BRONCOS’ among
others.
Meanwhile, the ongoing Mediumterm Management Plan COMMIT5000,
formulated in August 2019, sets targets
for FY6/25, the halfway point of thePlan, to achieve consolidated revenueof ￥100 billion and operating profit of￥10 billion. That said, the company isimplementing its management policy
under which it promotes the diversification of its business portfolio, investment in new businesses and rigorous
pursuit of M&A deals, evolving aroundthe core IT/AI/IoT/DX Business which
descended from the founding business. Consequently, in our view, M&A
and other strategies are critical factors
for the accomplishment of its Midterm
Plan.

Operating profit margin for
FY6/23 is expected to come to 7.7%.
In the company projection, the IT/
AI/IoT/DX, HR & Education and EC
Businesses are to maintain a doubledigit segment operating profit
margin. Their profits are expected toabsorb up-front investment expenses
incurred by the Insurance andIncubation & Investment Businesses
whilst the Customer Support Businessis slated to emerge from deficit.

Scala’s equity ratio at the endof FY6/22 fell 8.3 points from theend of the previous year to 41.7%.
The fall in equity ratio reflected therecognition of an IFRS-base net loss
and decreased retained earnings
from the level logged in FY6/21.
Separately, the company recorded
higher long-term debts than thosein FY6/21, this led to its debt toequity ratio (D/E ratio) at 106.5%. We
note that the company’s debts now
exceed its equity. Nevertheless, its
liquidity ratio stood at 264.5%, witha large proportion of current assets,
demonstrating that we should not bemuch concerned about its financial
standing.

Morningstar Japan K.K.
Research & Analysis Department
Analyst Takahiro Arimura+81-3-6229-0078
tarimura@morningstar.co.jp

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（3/3）

How to Read Morningstar Equity Research Report
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We determine upper and lower range of stock price based onfair value estimates from share price indicator, technical factors
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Analysis Points■ Analyst Comment■ Company Overview

most recent earnings trend and businesscompany is engaged in and how revenue

environment. It shows the most importantsources are defined. Also on the basis of

information for stock investment suchour research, it discusses what businesses

as evidence for investment decisions,the company will focus on in years toperspectives on earnings forecasts andcome and how it carries out mid-termbusiness prospects. Also to make sure it

business plan.

Each analyst reports and evaluates theis easy to comprehend, we write in 2-4
paragraphs and use bold to emphasize
important texts.

■ Revenue and Earnings Trend

It explains in detail what businesses the■ Risk factors
It shows the company’s risk factors anddescribes various aspects of risks such as
business, earnings and financials. Typicalstock market risks are also taken into
consideration.

■ Business Environment and Outlook

It discusses current circumstances andgrowth potential of the industry to which
the company belongs. A comprehensive

It reports earnings in past two fiscal years,

report on the industry from different

company forecasts and our forecasts forperspectives is provided through research

the current and next fiscal year. We predict

interviews to competitors. Specific figures

earnings based on research as well as pastof the industry data are also introduced.

quarterly earnings trend and analysis bysegments.

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.