Wealth Advisor Equity Research Report 2024.3.29

Turning social challenges into a business opportunity

Recommendation rating (Mar 28）

Scala, Inc. (4845: TSE Prime)
Stock Price

Unit of Investment¥726（3/28）

NeutralMarket Cap

52-Week High¥12.58 billion

100 shares

52-Week Low¥814（3/28）

P/E Ratio (Est.)¥677（23/6/7）―（24/2/5）（3/28）

A large-scale structural reform in progress■ Rebuilding the DX business

（yen）

820

13WMA

26WMA

720

677

670
volume( thousand
share )
1,000
500

13WMA

0
（month） 3

4

5

6

7

8

13 WeeksMoving Average

9

10 11 1226 WeeksMoving Average

￥739

1

2

3

Volume（13 Weeks Average）￥749

387,792 Shares

year-on-year thanks to the expansion of demandfor event exhibitions as a result of the shift to an
earlier start of job hunting by students. However,profit decreased by 18.2% year-on-year due tothe impact of increasing the number of personnel
for the launch of the new career change support
service.The number of corporate exhibitors atAthlete Planning's key events targeting university
sports club students increased to 630 (up 52 YoY),
with a particularly notable increase in visiting-type
events.Scala PLAYce, Inc.'s EC business continued to
expand, with sales revenue increasing by 10.0% YoY
and operating profit increasing by 8.3% YoY.YuyuTei, an e-commerce site for trading cards, recorded
an increase in memberships to 265,600 at the endof the period under review (up 23.5% YoY).The
Financial Related business, which covers the Nihon
Pet Small-amount Short-term Insurance, incurred
heavy marketing and new product development
costs amid sluggish sales.In contrast, the number of
in-force policies turned upward as the proportion ofcustomers with long-term contracts increased, andthe loss ratio improved.
The competitive environment in the DX market isintensifying, calling for strengthened competitivenessand profit structure.Although the long-term growthpotential of Scala's business performance is still
significant, it is necessary to closely monitor the progressof its business structure reform for the time being.The

Looking at the condition in each business segmentin the period under review, the DX business suffereda large drop in both sales and profit.In addition
to a reactionary decline experienced by Scala's
subsidiary EGG Co., Ltd. in businesses related to
the Go To Travel Campaign and the Nation Travel
Discount Program, Scala Communications, Inc. saw
its projects reduced or delayed due to turmoil in the
non-life insurance industry.In the HR & Education
business carried out by Athlete Planning, Inc. orother affiliates, sales revenue increased by 7.8%
Financial Results （as of Mar. 28, 2024）
YoY（％）

Operating Profit

YoY
（％）

（Yen Mil）

814

770

■ Expecting to turn a profit in FY06/25

Sales Revenue（Yen Mil）￥720 ～￥820

Estimated Share Price Range

Scala, Inc. reported its consolidated businessresults for the first six months (July to December
2023; hereinafter, "the period under review") of the
fiscal year ending June 2024 (FY06/24). In the period
under review, sales revenue stood at \5.694 billion(down 10.1% year-on-year), and operating profit at aloss of \238 million (\136 million in the same periodof the previous fiscal year) on a non-GAAP basis.
On an IFRS basis, sales revenue was \5.694 billion,
and operating profit was a loss of \237 million.By
business segment, the DX business posted a loss of\128 million (\200 million in the same period of
the previous fiscal year), and the Financial Related
business a loss of \ 126 million (a loss of \83 million
in the same period of the previous fiscal year).Profit
in the HR & Education business decreased due tostart-up costs for new businesses.On the other hand,the EC business continued to grow in both revenue
and profit.The Incubation business remained in thered.
Since January 2024, the company has carried out
a large-scale business structure reform to support
the DX business.As a result, the company withdrew
its earnings forecast for FY06/24 (initial forecastof \12.8 billion in sales revenue and \650 million in
operating profit) and left it undecided.In particular,
the company plans to cut fixed costs, such as office
expenses, system usage fees, and professional fees,
as well as to dispose of unprofitable businesses.
The restructuring costs are anticipated to be in
the range of \1 billion to a maximum of \1.5 billion.
Operating profit in FY06/25 is expected to increaseby \200 million due to the business restructuring
and by \600 million due to the fixed cost reduction.

Income Before
Income Taxes（Yen Mil）

YoY（％）

Net Profit（Yen Mil）

YoY
（％）

EPS
（Yen）

2022-6

Past Results

9,569

―

-191

―

-210

―

-526

―

-29.662023-6

Past Results

12,644

32.1

259

―

233

―

-218

―

-12.62Company est.

―

―

―

―

―

―

―

―

―

WA est.

11,300

-10.6

-650

―

-650

―

-650

―

-36.63WA est.

13,300

17.7

200

―

205

―

205

―

11.6

2024-62025-6※ The company prepares its financial information under the International Financial Reporting Standards (IFRS); however, the above figures have been reconciled to non-GAAP measures by
excluding adjustments and other items resulting from the application of IFRS (actual values).
※ The company forecast for FY06/23 is based on IFRS; the percentage change in WA forecast is compared to the results of the previous fiscal year (non-GAAP).
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 Wealth Advisor Co., Ltd. Redistribution is prohibited without written permission.

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Wealth Advisor Equity Research Report 2024.3.29

Scala, Inc. (4845: TSE Prime)
restructuring costs of \1 billion to \1.5 billion that thecompany has indicated may be lower than anticipated.
Attention is also needed on whether the company
will take drastic measures, such as reallocating or
reducing personnel, and curbing hiring.
Wealth Advisor (WA) estimates Scala's operating
profit to be a loss of \650 million in FY06/24 due
to restructuring expenses. However, it expects Scalato return to profitability in FY06/25 and beyond,assuming the structural reform takes effect.In
addition to improving the profit structure of the DX
business, expansion of profits from new services inthe HR & Education business, and profit growth in
the Financial Related business, where new products
have performed well in the recent period, are also insight.Given all the facts, our forecast for the company's
estimated share price is between \720 and \820.WA
gives a "Neutral" rating to Scala as we estimate it willtake time for market confidence to recover.
(Souta Suzuki)■ Company Overview
Scala, Inc. initiated its business by providing the SaaS/ASP
services.The company sees business opportunities in solving
problems to enrich society and improve individual lives
through DX utilizing IT, AI, and IoT.It excels at co-creating
businesses with other companies and actively makes direct
and indirect investments in addition to providing services.
Scala pursues the DX business, which offers DX-related
services, including i-search, an internal site search engine,
and Interactive Voice Response (IVR, a telephone answeringsystem), to major companies, local and national governments,
and public offices. The company also conducts the HR &Education business, such as providing specialized support
for hiring new graduates; the EC business, which operates
an e-commerce site for reusable trading cards; the Financial
Related business, which covers the Nihon Pet Small-amount
Short-term Insurance; and the Incubation business.

Progress of Medium Term Business Plan
! Although there are some delays in the foundation platform, progress in priority strategies
is generally on schedule.
! Continue to take measures to increase the probability of realizing “VISION 2030” based omonitoring results.
SteadyRedefine
Unique Value
Focus

Strengthen
Business
Management
Infrastructure
Focus

Meta Platform

Continued efforts to solve regional and social issues through public-private co-creation, including being selected as a TOKYO SUTEAM partner.

Co-creation Platform

Launched two new services in the liberal arts field that will lead to
growth opportunities: "mid-career job change support" and "career
education for students."

Foundation Platform

Concluded that human growth through the DX business is the top priority for establishingunique value, and created a new system that enables sales and development teams to growdramatically together with customers, and started operation (delayed from the initial schedule).）Restructure Business
Alliance Structure

Started by narrowing down focus services and refining existing profitablebusinesses.

Promote and Enhance
Shared Sectors

Started marketing/branding reform from B2C business.

Systems that Energizea Diverse Workforce

Started to consider the overall concept for the institutional design.

Deepen Monitoring

Thoroughly promote various measures to address issues revealed by monitoring(decisions on strategy changes, business downsizing and exit based on
business profitability assessments, etc.).

※

Medium Term Business Plan 2024-2026 https://scalagrp.jp/pdf/ir/release/midtermplan_20230814s.pdf※

VISION2030：Our group's vision for 2030 and after, beyond the Medium Term Business Plan 2024-2026,"Realize a society where people can always and forever live their lives as they are."Source: Scala, Inc.'s document

local governments increasingly focus on improving thelivability of their residents through their unique measures,
DX initiatives are critical to achieving their goals.Against
this backdrop, Scala sees solving social issues as a business
opportunity and builds up co-creation projects with local
governments through various services developed in-house.
In addition to developing multiple businesses such as
e-commerce (for trading cards) and pet insurance, whosemarkets continue to grow, the company also pursues
investment business.

Risk Factors
Scala's potential risks include major customers curbing
IT investments due to the economic downturn, delays indevelopment progress and additional costs due to larger andmore complex projects, problems with SaaS/ASP services
due to server failures, and the risk of loss in the Incubation
business.

■ Business Environment and Outlook
With the declining birthrate and aging population,
the Japanese government aims to ease the population
concentration in Tokyo by boosting the population andrevitalizing local areas through regional development.As

Shareholder Return（as of Mar. 28, 2024）■ Dividends■ Shareholder Special Benefits

Dividend Per ShareFirst half

Second half

Annual2022-6

Past Results¥18.00¥18.00¥36.002023-6

Past Results¥18.50¥18.50¥37.002024-6Company est.

¥18.75¥18.75¥37.50None

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 Wealth Advisor Co., Ltd. Redistribution is prohibited without written permission.

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Wealth Advisor Equity Research Report 2024.3.29

Scala, Inc. (4845: TSE Prime)（as of Mar. 28, 2024）
Competitor Comparison（Bold red figures indicate superiority to competitors）

Scala, Inc.
(4845: TSE Prime)
Stock Price
Basic Point

Share Price
Indicator

GrowthProfitability

Financial
Stability

Techmatrix Corporation(3762: TSE Prime)

Cybozu, Inc.

(4776: TSE Prime)¥726¥1,816¥1,755100 shares

100 shares

100 shares¥72,600¥181,600¥175,500

Fiscal Year End

June

March

December

P/E Ratio (est.)—

22.7 x41.2 xUnit of Investment
Minimum Investment Amount

1.6 x
5.2%

PBR
Dividend Yield（E）

3.8 x

9.51 x

1.4%

0.9%

13.0%

Revenue Growth Rate（E）

—

7.7%

Operating Profit Growth Rate（E）—

EPS Growth Rate（E）—

4.0%
152.3%

Operating Margin（E）

—

10.7%

ROE

—

16.4%

10.8%
31.3%

—

—

20.4%

40.8%

28.9%

ROA（Ordinary income/Total
assets）
Equity Ratio
Debt-to-Equity (D/E) Ratio
Current Ratio-8.8%-18.6%

76.6%

4.6%

180.2%

58.5%
0.0%

143.6%

146.5%We have chosen TechMatrix (3762) and Cybozu (4776) as comparable entities.

■Growth■Profitability■Financial Stability

Due to the slump in the DX business,
Scala will carry out a large-scalebusiness structure reform in FY06/24.
Despite the temporary restructuringcosts, Japanese local governments havestrong IT needs, and the company isexpanding its customer base through its
unique services.We expect the company
to return to a growth track from
FY06/25 when the anticipated effects
from structural reform will result in
financial benefits.While the company
has yet to withdraw its medium-termbusiness plan targets (sales revenueof \15.5 billion and operating profitof \2 billion) for FY06/26, we deemthe company needs to overhaul thetargets considering its current businessclimate.

Scala has not decided on its
earnings forecast for FY06/24
due to its business restructuring.
The company will likely post a onetime operating loss attributed to
substant ial restructuring costs.
However, the company expects theearnings boost from fixed-cost cuts tostart in FY06/25.

Scala's equity ratio was 40.8%
in FY06/23.Interest-bearing debt
decreased to \6.336 billion from\6.826 billion in the previous fiscal
y e a r. O n t h e o t h e r h a n d , l o s s e sare expected due to businessrestructuring in FY06/24.The
company, however, has maintained
its dividend forecast (annual \37.5
per share) even after withdrawing its
earnings forecast.

Wealth Advisor Co., Ltd.
Research & Analysis Department
Analyst Souta Suzuki+81-3-6229-0078
sotsuzuki@wealthadvisor.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 Wealth Advisor Co., Ltd. Redistribution is prohibited without written permission.

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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 Wealth Advisor Co., Ltd. Redistribution is prohibited without written permission.