Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

26-Sept.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪In 1Q FY3/17, the Company started reorganizing toachieve continuous growthStartia <3393> provides one-stop information technology (IT) services, from selling hardware toconstructing, operating, and maintaining systems, for smaller companies, those with 300 or fewer
employees, which cannot afford to hire an IT manager and which are not served by large systems
integration (SI) companies and dealers in network equipment.
In the first quarter of the fiscal year through March 2017, i.e., in 1Q FY3/17, the Company’s
consolidated net sales grew year on year (YoY) to ¥2,315mn, but the Company suffered an operating
loss of ¥177mn, which was larger than its operating loss in 1Q FY3/16. From FY3/17, the Company
reorganized its business segments into two segments: digital marketing and IT infrastructure. In 1Q
FY3/17, the digital marketing segment developed somewhat more slowly than the Company hadplanned, but this setback was offset by the performance of the IT infrastructure segment, which
receives a large portion of its revenue from services that provide steady revenue. Thus, overall
results in 1Q FY3/17 were generally in line with the Company’s plan.
From FY3/17, Startia is broadly restructuring, including reorganizing and changing its sales strategy.
The aim of this restructuring is to achieve continuous growth by evolving from a company that sells IT
products separately to one that sells integrated IT services. As mentioned previously, the Company
has reorganized its businesses into two segments, digital marketing and IT infrastructure, and has
substantially altered the sales strategy of both segments.
The digital marketing segment is partnering with other companies to pursue the majority of companies
in creative industries as customers. In 1Q FY3/17, this segment was busy retraining its employees
for their new mission, so it made only modest progress, but the Company considers this segment tobe a key to continuous growth over the medium-to-long term. Time will be required for this segment
to succeed because it must first raise the skills of its employees and change their mind-set, but
FISCO has expectations of the segment and will watch over developments.
The IT infrastructure segment is undergoing the large change from a product orientation to a customer
orientation and from a vertical orientation to a horizontal one. The segment appears to be making thistransition smoothly, probably because its equipment has always been highly compatible and it has
grown through cross-selling. Since a large part of its revenue is predictable (recurring), its profits arealso steady. Until the digital marketing segment achieves commercial viability, the IT infrastructure
segment should be able to support the Company’s overall sales and profits.

伪伪Check Point• Startia is evolving from a seller of separate IT products to a provider of integrated IT services• It has rearranged its businesses into two segments: digital marketing and IT infrastructure• The Company values its individual shareholders and is raising its dividend payout ratio

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

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STARTIA, INC.

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3393 Tokyo Stock ExchangeFirst Section

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26-Sept.-16

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Important disclosuresand disclaimers appear
at the end of this document.

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㻲㼅㻟㻛㻝㻠FISCO Ltd. Analyst
Hiroyuki Asakawa㻝㻘㻞㻜㻜㻲㼅㻟㻛㻝㻡

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伪伪1Q FY3/17 results
Recurring revenue increased
In 1Q FY3/17, consolidated net sales increased 2.8% YoY to ¥2,315mn, while the Company sufferedan operating loss of ¥177mn, compared with an operating loss of ¥107mn in 1Q FY3/16, an ordinary
loss of ¥189mn, versus an ordinary loss of ¥85mn in 1Q FY3/16, and a net loss attributable toshareholders of the parent company of ¥43mn, which was less than the net loss of ¥80mn seen in
1Q FY3/16. The Company had originally projected an operating loss for 1Q FY3/17, but the operating
loss it reported was smaller than the loss it had forecast.
1Q FY3/17 consolidated results versus 1Q FY3/16 consolidated results
FY3/16
1Q

Full year

Net sales
2,253
10,171Gross profit
982
4,609
Gross profit margin
43.6%
45.3%
SGA costs
1,089
4,106
Ratio of SGA costs to sales
48.3%
40.4%
Operating income-107503
Operating income margin
5.0%
Ordinary income-85544
Net income attributable to-80
253
shareholders of parent company
Source: Prepared by FISCO from Company materials(¥mn)
FY3/17
Absolute
Absolute change
1Q Co. f 1Q result change between 1Q result andYoY
1Q Co. f
2,291
2,315
62
24
931
-51
40.2%
1,108
19
47.9%
-201
-177
-70
24
-189
-104
-

-43

36

-

Net sales in the digital marketing segment fell 23.6% YoY in 1Q FY3/17 to ¥345mn, and the segment
reported an operating loss of ¥99mn, compared with an operating loss of ¥10mn in 1Q FY3/16. The
sales decline stemmed from a temporary weakening of operations due to the Company’s overhaulof sales strategy. Sales dropped sharply in April and May but appear to have in June. The increasein the segment’s operating loss was due to the sales decline and to an upturn in personnel cost andother costs reflecting the addition of employees to the support department in April and a rise in theoutsourcing of product development.

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■1Q FY3/17 results

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

In the IT infrastructure segment, net sales were ¥1,970mn, an increase of 9.2% YoY relative tothe combined sales of the two segments that merged to form the IT infrastructure segment, andthe segment operating loss shrank to ¥69mn from ¥88mn a year earlier. Sales growth was led bysales of the Startia Hikari service, which sells fiberoptic telecommunications service to consumers incollaboration with the FLET’s Hikari fixed broadband fiberoptic service offered by Nippon Telegraphand Telephone Corp. (NTT), and by steady revenue of counter fees. The Company had originallyforecast an operating loss for the IT infrastructure segment, primarily because of the organizational
reform that created the segment, the costs of training segment employees, and a rise in personnel
costs reflecting an increase in the number of new employees. Therefore, the segment’s operating
loss in 1Q FY3/17 was smaller than the Company had expected.

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Important disclosuresand disclaimers appear
at the end of this document.

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FISCO Ltd. Analyst
Hiroyuki Asakawa

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Source: Prepared by FISCO from Company materials㻯㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㼎㼥㻌㼟㼑㼓㼙㼑㼚㼠㻘㻌㻝㻽㻌㻲㼅㻟㻛㻝㻠–㻝㻽㻌㻲㼅㻟㻛㻝㻣㻔¥㼙㼚㻕㻵㼀㻌㼕㼚㼒㼞㼍㼟㼠㼞㼡㼏㼠㼡㼞㼑㻰㼕㼓㼕㼠㼍㼘㻌㼙㼍㼞㼗㼑㼠㼕㼚㼓㻻㼠㼔㼑㼞㻌㼎㼡㼟㼕㼚㼑㼟㼟㼑㼟

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Source: Prepared by FISCO from Company materials



FISCO finds the Company’s 1Q FY3/17 results to be in line with its forecasts for FY3/17. As detailed
hereafter, FY3/17 is a year of complete makeover for the Company, as it reconstructs its sales
strategy, organization and personnel system to achieve continuous growth. One quarter of results is
not adequate to appraise the new sales strategy and reorganization, so we will continue to observe
this transformation. However, the Company probably saw unexpected cost rises and other events in
1Q FY3/17, yet results for sales and operating income were better than had been forecast.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■1Q FY3/17 results

A positive achievement in 1Q FY3/17 was a continued increase in steady or recurring revenue, which
is an important objective of the Company as it seeks continuous growth. For FY3/17, the Company
projects total consolidated net sales of ¥10,860mn. Of this, it expects steady revenue of ¥4,407mn.
In 1Q FY3/17, steady revenue amounted to about ¥1,100mn, accounting for a proportion of total
sales in line with the Company’s forecast for the full fiscal year.

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section㻾㼑㼏㼡㼞㼞㼕㼚㼓㻌㼟㼍㼘㼑㼟㻌㼍㼚㼐㻌㼛㼚㼑㻙㼠㼕㼙㼑㻌㼟㼍㼘㼑㼟㻘㻌㻲㼅㻟㻛㻝㻟–㻲㼅㻟㻛㻝㻣㻱㻔¥㼙㼚㻕㻻㼚㼑㻙㼠㼕㼙㼑㻌㼟㼍㼘㼑㼟㻾㼑㼏㼡㼞㼞㼕㼚㼓㻌㼟㼍㼘㼑㼟㻝㻞㻘㻜㻜㻜
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26-Sept.-16

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Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

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Source: Prepared by FISCO from Company materials伪伪Progress in measures to achieve continuous growth
Evolving from a seller of separate IT products to a supplier ofintegrated IT services(1) Background for new measures
In FY3/17, the Company is starting a major restructuring to change from a seller of individual IT
products to a provider of comprehensive IT services in order to achieve continuous growth.
The motivation for this restructuring was the poor performance in FY3/16 by the web solutions
segment. This segment handles software produced in-house, which provides high profit margins.
Startia started out selling business telephones, then branched into software and general IT services.
During its history, it has thought about advancing into the next stage of its business model, but since
its sales and profits were growing under the original model, it did not consider the risks of changing
the model to be worthwhile. However, its performance in FY3/16 convinced the Company that majorchanges in business structure, organization, and sales strategy were necessary.
The phrase “changing into an integrated IT services provider” is not literally correct because theCompany has considered itself a provider of IT services since its inception. Perhaps, it was awarethat it had only gone some way toward the direction it had initially targeted. Despite this, FISCO
sees the above statement to mean that it had been basically selling IT products (network equipment,
software, cloud services, etc.) separately and now is reorganizing to become a true provider ofintegrated IT services with a stress on a “customer first” mindset.
(2) Reorganization
The Company has regrouped its businesses into two domains. One of these domains is marketing
support businesses, which improve the efficiency of marketing by customer companies andcontribute to their increased sales using application software and tools developed by the Startia
group of companies. The Company’s marketing support tools are not limited to Web marketing ande-commerce, but include e-mail marketing, omni-channel measures, and customer databases. Mostof these businesses were previously undertaken by the Company’s Web solutions segment, but thissegment has been renamed the digital marketing segment.

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Progress in measures to achieve continuous growth

The other new domain is systems integration businesses. Most of these businesses were previously
undertaken by the network solutions segment and the business solutions segment. In the neworganization, these two segments have been integrated to form the IT infrastructure segment.

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

The Company’s reorganization is a substantive change in its sales structure. As detailed below, thisis not just a formal change in sales structure, but a significant, real change in the Company’s systemof evaluating employees. We applaud the Company for aligning substantive change with the change
in form, which should contribute to achieving the desired results. However, we expect that such alarge reorganization will take some time to yield results. Looking ahead it will be the focus of muchattention to see the status of progress, including 1Q FY3/17 results.
The Corporate Venture Capital Business Promotion Office established in FY3/16 will continue as theother businesses segment. Thus, the Company now has three business segments for IR disclosure.

26-Sept.-16

Startia’s organizational change

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Source: Company materials

Shift to a two segment system for digital marketing and IT
infrastructure(3) Digital marketing segment
The main product of the digital marketing segment is software developed by subsidiary Startia
Lab, Inc., such as the e-book production tool ActiBook and the augmented reality (AR) content
production tool ActiBook AR COCOAR (COCOAR). These software support customer acquisition
and the electronic processing of administrative procedures and is generally sold to companies increative industries, such as the advertising agencies and printing companies. This marketing support
software enhances the IT function of companies in creative industries and their customers, generalcompanies, assisting both to acquire more business.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■■Progress in measures to achieve continuous growth

Main products in the digital marketing segment
Name

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

Function

Distinguishing characteristics

ActiBooke-book production tool

Security function that blocks forwarding to other users, log analysis into
depth of content is possible

ActiBook AR
COCOAR

Tool for producing
augmented reality (AR)content

Increases the effective use of flyers, directing routes cannot becompared, measures the effect of flyers

ActiBook Docs

Document management
tool

Shares materials among all sales people, allows materials to be
improved based on data, enables viewing of on-site negotiations withcustomers

Content management Tool for the production
system (CMS) Blueand management ofMonkeywebsites

Provides long-tail search engine optimization (SEO) function, offers work
flow function with updating rights for page setting

PlusdbTool for producing andmanaging databases

Enables the generation of product databases, can be installed on
existing websites, allows searches based on complex (detailed)conditions

AppGoose

Tool for producing
application software
programs

Simplifies online-to-offline marketing

Bow Now

Marketing automation(MA) tool

Enables the management of information on prospective customers andthe nurturing of these customers, allows the configuration of one-to-one
email contacts, produces content for limited parties

26-Sept.-16

Source: Prepared by FISCO from Company materials

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Up to now, the Company has sold its software individually as package software (a one-time sale) or
as part of a cloud computing service paid for in monthly fees. Most of the sales were in packages
and to early adopters of new products. However, FY3/16 results revealed that the Company’s
software sales to early adopters had peaked. The Company will therefore target the majority ofcompanies expected to form the next customer group, but many of this group is cautious in adopting
the products. The main aim of the Company’s reorganization and change of sales strategy is to better
serve this majority.
There are two main points to make about the concrete measures being taken by the Company. The
first is that the Company has launched a new product called Cloud Circus as a cloud computing
service offering many of the Company’s software programs for a fixed fee and as a software
package. For general companies, which tend to be light users of marketing support software, theCloud Circus service is cheaper than buying all the component software programs. This service isalso being offered to companies in creative industries, but such companies tend to be heavy usersof marketing support software, so buying the software package is cheaper for them than subscribing
to the service. Users can choose the service or the package depending on their frequency of use.
The second point is that the Company has adopted a new partnership approach to selling its marketing
support software. According to this sales strategy, the Company forms partnerships with the majority
of companies in creative industries that has not introduced the Company’s software products to sell
these products to general companies that could be potential customers of the majority of companies
in creative industries. Many of the majority of companies in creative industries is reluctant to invest in
software without the prospect of receiving concrete revenue. The Company has a strategy of forming
partnerships with potential customers from among the majority of creative companies and getting
general companies to install the Company’s various types of marketing tools.
Diagram of digital marketing sales strategy

Source: Company materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■■Progress in measures to achieve continuous growth

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

26-Sept.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

FISCO estimates that the change in sales strategy in the digital marketing segment was implemented
slightly less than the Company had planned in 1Q FY3/17. In order for partnership sales tosucceed, organizational changes at Startia alone are insufficient. Cooperative relationships mustbe established with the companies in creative industries that are potential customers for Startia.
Few of such relationships were probably formed in the first two months of FY3/17, i.e., in April andMay 2016, and this delay probably hurt profits in the segment. The Company claims that segment
business recovered somewhat in June, compared with the previous two months, but we suspectthat the new sales structure will not become operational until 2Q FY3/17, in line with the Company’s
expectation.
We believe that the delayed performance of the digital marketing segment in 1Q FY3/17 was not
unexpected by the Company. As mentioned earlier, the IT infrastructure segment performed wellenough to counter the shortfall in the performance of the digital marketing segment. The digitalmarketing segment is still in the “do” phase of the plan-do-check-act (PDCA) cycle for its partnershipsales operation, and it will have to continue to implement the operation for some time before reachingthe “check” phase.
FISCO believes that the launch of the Cloud Circus multiple software product and the introductionof partnership sales operations theoretically match the Company’s desired direction for its digitalmarketing segment and expects these actions to bear fruit. A possible issue is that the Company’ssales people may need different skill sets and mindsets than they have held previously to succeed atpartnership sales. If so, time and expense will be needed to train and optimally reassign personnel.
The Company’s planned quarterly performance for FY3/17 reflects this probability, so we will monitor
its performance versus its plan in coming quarters.
(4) IT infrastructure segment
The IT infrastructure segment is comprised of the former network solutions segment and businesssolutions segment. FISCO considers this merger to be very effective in rationalizing operations
because the Company can function better as a systems integrator by combining the goods andservices of the former two segments.
As a provider of IT services, Startia wants to strengthen its ability to offer high-value-added systems
integration services to medium-sized offices more than any other capability. Among such systems
integrations services are the replacement of obsolete infrastructure servers, the implementation ofhigh-speed network environments, the migration of all services to a cloud computing environment,
and the construction, maintenance and operation of networks based on the Amazon Web Service(AWS). To promote this business model, the Company must reorganize and change the skill sets andmindsets of its sales people.
Therefore, it is changing its structure and sales approach from a vertical organization selling individual
products to a horizontal organization selling all of its products and changing the mindset of its sales
people from being sellers of products to being subcontractors for systems construction.
Diagram of business model for IT infrastructure segment

Source: Company materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■■Progress in measures to achieve continuous growth

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

26-Sept.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Until this fiscal year, the Company’s sales organization had focused on products, and it had trained
and assigned product specialists as sales people. Accompanying the spread of SI business,
however, it has become important to concentrate on the needs of each customer and assign an
account manager as a one-stop provider of all the equipment and systems needed by the customer.
The Company’s potential customers are small and medium-sized companies that cannot afford theirown IT managers. For these companies, Startia becomes the external IT manager. Thus, it is naturalfor Startia to change the orientation of its sales people to their customer’s overall needs.
In 1Q FY3/17, the IT infrastructure segment seems to have made the transition to a new structure
more than the digital marketing segment. This may have been due to the fact that the Company
had previously used product specialists as sales people and had encouraged cross selling as animportant sales strategy. Thus, its sales people were knowledgeable about many products, making
it easier for sales people in the IT infrastructure segment to change to an orientation on customers.
In addition, the products in this segment tend to be related, which may have facilitated the change.
One of the products that sold well in 1Q FY3/17 was the Startia Hikari fiberoptic telecommunications
service. FISCO believes that Startia’s sales people took advantage of sales of this service to crosssell business telephones, multifunction printers (MFPs) and network security services with the aim of
reducing total costs for their customers.
A large portion of the goods and services in the IT infrastructure segment are sold according torecurring revenue contracts, which tend to secure customers. FISCO believes that these contracts
supply regular sales and profits to the Company and allow it to concentrate on developing andpromoting new products. On the other hand, such contracts may make the Company conservative
and unwilling to assume risks. In 1Q FY3/17, the positive aspects of these contracts were moreevident than the negative aspects. However, one quarter is not enough to fully appraise this approach,so we will continue to monitor it along with the performance of the IT infrastructure segment overall.

Restructuring of businesses and group for continuous growth(5) Restructuring of businesses and group in 1Q FY3/17
From 1Q FY3/17 into the first half of 2Q, Startia restructured its businesses and group companies totransform itself. These measures all abide by the aforementioned corporate vision that the Company
is aiming for, and FISCO believes that these were rational decisions.
a) Converted Crosscheck, Inc. from a consolidated subsidiary to an affiliate accounted for by
the equity method
Crosscheck, Inc. had been a wholly-owned subsidiary of Startia, but Startia sold part of its holdingsin this subsidiary to a third party on June 30, 2016, and the subsidiary also allocated new shares to athird party. Thus, Startia now owns 42.31% of Crosscheck, which has become an affiliate accounted
for by the equity method.
Crosscheck operates a one-stop invoicing service that allows customers to consolidate theirexpenses and consults about the use of such a service. Startia, which provides business phones,
MFP, various types of telecommunication lines and cloud services, established Crosscheck todeepen its relations with customers by providing one-stop invoicing. Crosscheck’s business grew toinclude invoicing for not just the IT field, but other fields, as well. Furthermore, Crosscheck wanted
to strengthen its financial base. These developments led to the changes in Crosscheck’s ownership.
FISCO believes that these decisions by Startia and Crosscheck were a natural development. To
grow faster, Crosscheck needed to expand its business beyond the IT product invoicing for Startia.
At the same time, Startia can better select and concentrate its resources on businesses other than
Crosscheck.
b) Sold hosting business
On July 1, 2016, Startia sold its hosting (server rental) business to A.T. Works, Inc., which isheadquartered in Toyama City. In FY3/16, the hosting business generated sales of ¥270mn andgross profit of ¥12mn. Startia sold the business for ¥70mn.
Startia had previously taken an equity stake in A.T. Works and consigned to that company the
repair and maintenance of rented servers. Startia decided to sell its hosting business because it
has decided to concentrate on its strength in selling general IT services, including hosting. FISCO
believes that this was a wise decision because it clarifies the role of both companies and should
improve their management efficiency.

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■■Progress in measures to achieve continuous growthc) Bought BCMEDIA Co., Ltd.
On July 29, 2016, Startia purchased BCMEDIA Co., Ltd., which is headquartered in Sakai City,
Osaka Prefecture, making it a wholly-owned subsidiary. BCMEDIA sells, supports and maintains
office automation (OA) equipment. In its fiscal year through July 2015, it generated sales of ¥328mn
and operating income of ¥6mn.

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

FISCO believes that this purchase bolstered Startia’s sales and support capabilities in the Osaka
area. Startia has a branch office in the Umeda area of Kita Ward, Osaka. Part of Startia’s sales
strategy is to focus on customers within an hour to an hour and one-half from its offices, so theCompany can respond to customer requests quickly and increase customer satisfaction. Sakai City
is about one hour south of Startia’s Osaka branch office, enabling Startia to serve more customers
quickly. BCMEDIA’s business also overlaps with the business of the IT infrastructure segment, so
FISCO expects this purchase to contribute to Startia’s sales and profit growth quickly.

26-Sept.-16

Important disclosuresand disclaimers appear
at the end of this document.

伪伪Business Trends
A year to embed reorganization(1) Company forecasts for FY3/17

FISCO Ltd. Analyst
Hiroyuki Asakawa

For FY3/17, Startia projects a 6.8% YoY rise in consolidated net sales to ¥10,860mn, a 17.0%
decrease in operating income to ¥418mn, a 23.3% fall in ordinary income to ¥418mn, and a 21.0%
drop in net profit attributable to shareholders of the parent company to ¥200mn. The Company has
not revised its initial forecasts.
Company forecasts for FY3/17 versus its FY3/16 results
FY3/16
1H

Full year

Net sales
4,761
10,171Gross profit
2,176
4,609
Gross profit margin
45.7%
45.3%
SGA costs
2,089
4,106
Ratio of SGA costs to sales
43.9%
40.4%
Operating income
86503
Operating income margin
1.8%
5.0%
Ordinary income
107544
Net income attributable to-5
253
shareholders of parent company
Source: Prepared by FISCO from Company materials

1Q

1H Co. f

2,315
931
40.2%
1,108
47.9%
-177
-189

4,865
-129
-2.7%
-129

FY3/17
YoY %change
2.2%
-

-43

-132

-

(¥mn)
Full-year
Co. f
10,860
418
3.8%
418

YoY %
change6.8%-17.0%-23.3%

200-21.0%Startia forecasts a steady quarter-on-quarter increase in its net sales and operating income in
FY3/17. In 1Q, the Company suffered an operating loss, but this loss was smaller than the Company
had foreseen.
As mentioned earlier, in the first two quarters of FY3/17, the Company will concentrate on investingin reorganization, so it projects lower sales and profits than normal for those quarters. However, it
foresees an upturn in sales and profits in the final two quarters of FY3/17 to normal levels.

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■■Business Trends㻯㼛㼙㼜㼍㼚㼥㻌㼒㼛㼞㼑㼏㼍㼟㼠㼟㻌㼛㼒㻌㻲㼅㻟㻛㻝㻣㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼍㼚㼐㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㼎㼥㻌㼝㼡㼍㼞㼠㼑㼞㻌㼣㼕㼠㼔㻌㻝㻽㻌㼞㼑㼟㼡㼘㼠㼟㻔¥㼙㼚㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕

㻟㻘㻡㻜㻜

㻔¥㼙㼚㻕
㻠㻝㻤

㻠㻡㻜

㻟㻘㻜㻜㻜

㻟㻡㻜

STARTIA, INC.

㻞㻘㻡㻜㻜

㻞㻡㻜

3393 Tokyo Stock ExchangeFirst Section

㻞㻘㻜㻜㻜

㻣㻝

㻝㻘㻡㻜㻜

26-Sept.-16

㻝㻘㻜㻜㻜
㻡㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

㻞㻘㻡㻣㻟

㻞㻘㻟㻝㻡

㻞㻘㻞㻥㻝

㻝㻜㻟
㻞㻘㻤㻡㻠

㻝㻡㻜
㻟㻘㻝㻠㻝

㻙㻡㻜

㻙㻝㻣㻣

㻙㻞㻜㻝

㻡㻜

㻙㻝㻡㻜

㻜

㻙㻞㻡㻜
㻝㻽

㻝㻽㻌㼞㼑㼟㼡㼘㼠㼟

㻞㻽

㻟㻽

㻠㻽

㻲㼅㻟㻛㻝㻣
Source: Prepared by FISCO from Company materials


FISCO believes that Startia is likely to achieve its forecasts for FY3/17 because these forecasts
incorporate a conservative projection of the recurring sales base that the Company has built. More
important than the Company’s results in FY3/17 is the completion of its reorganization to enableprofit growth from FY3/18. This will be a major change, and it would be unwarranted to get overoptimistic about its prospects.
From 2Q FY3/17, FISCO will be most interested in the success of the partnership sales structure
and the progress of consulting sales in the digital marketing segment. Specifically, we will focus on
the segment’s sales of mainline software and new services, as well as the rate of increase in thenumber of segment customers. For the IT infrastructure segment, we will monitor the implementationof the customer-specific sales orientation. Specifically, we will track the rate of change in sales per
customer and the change of recurring sales as a proportion of total segment sales.
(2) Prospects for FY3/18 and beyond
With the completion of 1Q FY3/17, FISCO’s outlook for FY3/18 has not changed. We summarize thisoutlook on a quarterly basis below.
In the past, Startia’s sales and profits have been quite seasonal, being weakest in 1Q and strongest
in 4Q. In the first half of FY3/17, this pattern is likely to be exacerbated by the additional expenses
incurred for reorganization, such as the cost of retraining personnel. Results in the second half of
FY3/17 are likely to be closer to normal.
In 1H FY3/18, Startia is unlikely to incur costs similar to the additional costs it will bear in 1H FY3/17.
We estimate these costs at ¥200–300mn. Thus, profits should increase by this amount YoY in 1H
FY3/18 even if sales do not grow. If sales increase YoY in 1H FY3/18, profit would grow by more than
¥200–300mn YoY, and for all of FY3/18, operating income could surpass the Company’s operating
income in FY3/14. However, profits in FY3/18 will depend on the success of restructuring in FY3/17.

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■■Business Trends㻯㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㼎㼥㻌㼝㼡㼍㼞㼠㼑㼞㻘㻌㻲㼅㻟㻛㻝㻟–㻲㼅㻟㻛㻝㻣㻱
㻔¥㼙㼚㻕

㻝㻽

㻡㻜㻜

㻠㻢㻡

㻠㻜㻜

STARTIA, INC.

㻟㻜㻜3393 Tokyo Stock ExchangeFirst Section

㻞㻜㻜

㻟㻽

㻠㻽
㻠㻡㻝

㻠㻝㻤

㻟㻞㻡

㻟㻜㻥
㻞㻡㻞

㻞㻠㻣
㻝㻥㻠

㻝㻤㻞
㻥㻟

㻝㻜㻜

㻞㻽

㻝㻞㻣

㻝㻜㻣

㻡㻠
㻢

㻝㻜㻟
㻣㻝

㻠㻝

㻜

26-Sept.-16

㻙㻝㻡

㻙㻝㻜㻜

㻙㻝㻜㻣

㻙㻞㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻙㻝㻣㻣

㻙㻟㻜㻜
㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣㻱

Note: 1Q FY3/17 is actual operating income.

Source: Prepared by FISCO from Company materials

FISCO Ltd. Analyst
Hiroyuki Asakawa

Condensed consolidated income statement and per-share data, FY3/15–FY3/17E
FY3/15Net sales
YoY % change
Gross profit
YoY % change
Gross profit margin
SGA costs
YoY % change
Ratio of SGA costs to sales
Operating income
YoY % change
Operating income margin
Ordinary income
YoY % change
Net income attributable toshareholders of parent company
YoY % change

FY3/16(¥mn)
FY3/17
1H Co. f
Full-year Co. f
4,865
10,860
2.2%
6.8%
-129
418
-17.0%
3.8%
-129
418
-23.3%
-132
200

8,682
6.3%
4,356
2.6%
50.2%
3,609
5.7%
41.6%
747
-10.0%
8.6%
878
2.6%
592

10,171
17.1%
4,609
5.8%
45.3%
4,106
13.8%
40.4%
503
-32.6%
5.0%
544-38.0%
253

1Q
2,315
2.8%
931
-5.2%
40.2%
1,108
1.7%
47.9%
-177
-189
-43

37.2%

-57.3%---21.0%-4.28--13.23
3.00
-

20.04
9.00
-

Adjusted EPS (¥)
58.09
24.82
Adjusted DPS (¥)
10.00
9.00
Adjusted BPS (¥)
389.90400.57
Note: The Company made a 2-for-1 share split on October 1, 2015.

Condensed consolidated balance sheet, FY3/15-end–1QFY3/17-end

Current assets
Cash and deposits
Notes and accounts receivable
Non-current assets
Tangible non-current assets
Intangible non-current assets
Investments and other long-term assets
Total assets
Current liabilities
Trade accounts payable
Short-term borrowings, etc.
Non-current liabilities
Long-term borrowings
Shareholder’s equity
Capital stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income
Subscription rights to new shares
Net assets
Total liabilities and net assets

FY3/15-end
4,057
2,335
1,319
1,604
150
811
642
5,662
1,684
565
0
0
0
3,960
824
965
2,208
-38
15
2
3,977
5,662

FY3/16-end
4,700
2,638
1,597
1,828
172
927
728
6,529
1,878
640
333
561
559
4,095
824
965
2,344
-38
-11
2
4,088
6,529

(¥mn)
1Q FY3/17-end
4,164
2,519
1,204
1,834
158
898
777
5,999
1,533
495
346
461
460
4,001
824
965
2,249
-38
-5
0
4,004
5,999

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■■Business Trends

Consolidated cash flow statement

STARTIA, INC.
3393 Tokyo Stock ExchangeFirst Section

26-Sept.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Cash flow from operations
Cash flow from investing
Cash flow from financing
Changes in cash and cash equivalents due tocurrency exchange fluctuations
Absolute change YoY in cash and cash equivalents
Balance of cash and cash equivalents at start of fiscal year
Balance of cash and cash equivalents at end of fiscal year

FY3/15
768
-595
-82
48

FY3/16
366
-762
705
-24

(¥mn)
1Q FY3/17
59
-135
-17
-27

139
2,195
2,335

284
2,335
2,620

-120
2,620
2,499

伪伪Shareholder returns
Startia values its individual shareholders and is raising its
dividend payout ratio
Startia values its individual shareholders and rewards them accordingly with ample dividends after
retaining enough profit to invest in future growth. In September 2015, the Company decided to
implement the following dividend policy. It would pay interim dividends equivalent to one-third of 20%of the Company’s forecast of consolidated net income attributable to shareholders of the parent.
It would then pay year-end dividends equivalent to 20% of consolidated net income attributable toshareholders of the parent company minus the interim dividends.
For FY3/17, the Company has announced that it will pay total dividends of ¥9 per share (interim
dividends of ¥3 per share and year-end dividends of ¥6 per share), unchanged from its dividends for
FY3/16. Based on the Company’s forecast of consolidated EPS for FY3/17, of ¥20.04, the dividend
payout ratio should rise to 44.9% in FY3/17. The Company made no changes to its forecast of
dividends for FY3/17 after the end of 1Q.
As described in this report, Startia is changing its business model in FY3/17 and therefore projects asecond straight year of YoY declines in operating income. However, it is maintaining its dividends per
share unchanged YoY for FY3/17. FISCO believes that this shows that the Company is confident of a
return to profit growth from FY3/18. Thus, FISCO will monitor the Company’s progress in overhaulingits business model and recouping profit growth from 2Q FY3/17.

㻱㻼㻿㻘㻌㼐㼕㼢㼕㼐㼑㼚㼐㼟㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑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㻘㻌㻲㼅㻟㻛㻝㻞㻌–㻲㼅㻟㻛㻝㻣㻱㻱㻼㻿㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟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㻌㼍㼤㼕㼟㻕

㻔¥㻕
㻢㻟㻚㻜㻜

㻰㼕㼢㼕㼐㼑㼚㼐㼟㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕

㻟㻢㻚㻟㻌

㻠㻥㻚㻜㻜

㻟㻡㻚㻜

㻟㻜㻚㻜
㻞㻡㻚㻜

㻞㻤㻚㻝㻞

㻝㻣㻚㻡㻌

㻞㻤㻚㻜㻜

㻝㻣㻚㻞㻌

㻞㻠㻚㻤㻞

㻞㻜㻚㻜
㻞㻜㻚㻜㻠

㻝㻜㻚㻜㻌

㻝㻡㻚㻜

㻝㻜㻚㻜㻌

㻝㻠㻚㻜㻜
㻣㻚㻜㻜

㻠㻡㻚㻜

㻠㻜㻚㻜

㻠㻞㻚㻣㻡

㻟㻥㻚㻟㻝

㻠㻞㻚㻜㻜

㻞㻝㻚㻜㻜

㻠㻠㻚㻥㻌

㻡㻤㻚㻜㻥

㻡㻢㻚㻜㻜

㻟㻡㻚㻜㻜

（㻑）

㻞㻚㻤㻝

㻟㻚㻥㻟

㻲㼅㻟㻛㻝㻞

㻲㼅㻟㻛㻝㻟

㻣㻚㻡㻜

㻝㻜㻚㻜㻜

㻥㻚㻜㻜

㻥㻚㻜㻜

㻝㻜㻚㻜
㻡㻚㻜

㻜㻚㻜㻜

㻜㻚㻜
㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣㻱

Note: The Company made a 2-for-1 share split on October 1, 2015.

Source: Prepared by FISCO from Company materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

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
price and index information. The trademark and value of the “JASDAQ INDEX” are theintellectual 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 duplicationsof the report, without the express written consent of FISCO, is strictly prohibited. Anytransmission, 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.