Wealth Advisor Equity Research Report 2023.3.15

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

Recommendation rating（Mar 14）

Scala, Inc.

Overweight（4845. TSE Prime）
Stock Price

Unit of Investment

711yen（3/14）

100Shares

Market Cap

52-Week High12.60Bil yen

52-Week Low

789yen（3/14）

PER（E）

18.4timesyen（22/5/30）（22/1/20）（3/14）

Ready to make great strides under DX and M&A strategies■ IT/AI/IoT/DX business posted a surplus￥870 ～￥1,130

Estimated Share Price Range

Scala, Inc. reported its consolidated business results (IFRSbase) for the first six months (July ~ December 2022) of fiscal
year ending June 2023 (FY06/23). In the period, sales revenue
came to ￥6,504 million (up 52.7% from the same period lastyear), but operating income fell by ¥78 million from a year ago
period to ￥140 million. The IT/AI/IoT/DX business showedsolid performance throughout the period, due in large partto a healthy contribution to its earnings from its subsidiary
EGG Co., Ltd. (incorporated in February 2022), a developer ofhometown taxation programs for local authorities. Also, theHR & Education business delivered higher revenue whilst theEC business continued to grow. The new Insurance business,launched in this period, added to overall earnings too. As
for non-GAAP based segmental earnings, the IT/AI/IoT/DX
business posted ￥556 million in profit (up 11.3% y-o-y). The
business saw large growth in revenue sales from both spot andusage-based charging accounts, while monthly fees increased
at a steady pace. The HR & Education business posted asegment profit of ¥134 million (up 3.5%). In an environment
marked by the increasing resumption of corporate operations,more companies showed interest in hiring, retaining highlevel corporate participants in the joint corporate recruiting
sessions. The EC business posted a segment profit of ¥168
million (up 19.2%). Its online-based service ‘Card shop - YuyuTei -’ increased registered members, which resulted in record
high revenue and profit. Meanwhile, the Customer Support
business suffered shrinking sales revenue and further segment
deficits. The Incubation & Investment business saw larger upfront costs but managed to post a 15.2% increase in revenue
sales and reduced the level of losses.

（yen）

1,100
1,000
900
789

800

13WMA

700

26WMA

( thousand
share )

644

600
13WMA

3

4

5

800

volume400
6

7

13 WeeksMoving Average

89

10 11 1226 WeeksMoving Average

￥722

1

2

3

0

Volume（13 Weeks Average）￥724

219,215Sharesor unmanned hometown taxation programs. Scala aims
to keep an expansion plan for both the EC and HR &Education businesses. The Customer Support businesssuffered sluggish growth in this six-month period.
However, the impact from a legal revision on its service
for certain clients has run its course, so its earnings are
expected to recover going forward. The Incubation & Investmentbusiness pursues M&A deals and promotes business alliances with other companies. Of particular note is its‘Gyaku Propo’ (reversed proposal) program, conducted bya subsidiary SOCIALX, Inc. The program is a service that
benefits both business and public interest by calling on
local municipalities to suggest approaches or ideas for
schemes designed to address social issues identified byprivate sector organizations. This program contrasts withnormal publicly offered programs in which private sector
organizations offer plans or approaches to public projects
administered by local municipalities. There have alreadybeen several successful projects implemented. Scalasupports those projects by offering its IT services.
Scala now aims to achieve ¥100 billion in sales revenueand ¥10 billion operating income by FY06/25. Althoughthese goals appear to be rather audacious, given the levelof its current earnings, the company will proactively aim
to deliver them through M&A deals and business alliancesalongside existing business growth. Our forecast EPS for
FY06/24 is ¥46. This does not factor in new M&A deals. By
applying 19 times PER to this number, we have estimatedthe lower end of the target price range at ¥870. The upper
end of the range is set at ¥1,130. This was calculated byadding a positive M&A effect (i.e. premium) of around 30%■ FY06/23 likely to see a marked P&L recovery
Concerning consolidated business results (IFRS base) for fullyear FY06/23 ending June 2023, Scala forecasts that sales
revenue will stand at ¥13,000 million (up 29.8% y-o-y) andoperating income at ¥1,000 million (it posted a loss of ¥393
million for FY06/22). DX needs are very likely to continue
for the year, serving as a tailwind to its mainstay IT/AI/
IoT/DX business. The business has been working with othercompanies on the co-creative initiative. It has embarked on acollaboration with Otsuka Pharmaceutical Co., Ltd and Sompo
Japan Insurance Inc., with a view to formulating a ‘smart
healthcare platform’ to support the healthcare industry.
Separately, the company completed the development of a dairy
cattle genomic analysis system ‘eG Plus’ and commenced theservice on January 6, 2023. Its hometown taxation operationis also making solid progress in various fields. It now works
with a TIS INTEC Group firm and a subsidiary of USEN-NEXT
Group to conduct demonstration tests for partially automatedFinancial Results （as of Mar 14, 2023）
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

WA est.

13,00029.8

1,000 10.1times

650 14.8times

38.6

WA est.

16,250

25.0

1,280

810

45.8

2023-62024-628.0

970 12.0times
1,220

25.8

24.6

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

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Wealth Advisor Equity Research Report 2023.3.15

Scala, Inc.（4845, TSE Prime）
to the lower end price. We believe that the company sharesare undervalued, therefore we maintain our valuation of
the company shares with an ‘Overweight’ rating.
(written by Souta Suzuki)

Scala Inc.ʼs Revenue Mix by Line of Business▼First six months of FY06/22■ Company Overview▼First six months of FY06/23

1.75%

Incubation & Investment
Business
2.32%

Scala, Inc. embarked on an enterprise with the SaaS/ASP Service.
The company strives to solve social issues and personal mattersby promoting DX that draws upon IT, AI and IoT capabilities.
It manages various services. These include the search engine
within websites ‘i-search’ which have been adopted by morethan 450 major companies and ‘interactive voice response’(IVR). The IT/AI/IoT/DX business makes roughly half of its
consolidated total sales revenue (48.7% in FY06/22 final). The
business provides DX-related services to major companies, local
governments, central government, and other public offices. It
also proposes and provides support for the implementation of
SaaS/APS services. Other businesses include ‘Customer Support’(13.6%) which engages in a call center service, ‘HR & Education’(14.7%) offering specialized new graduate employment supportand ‘EC’ (16.5%), an operator of second-hand e-commerce sites
in which users reuse trading card games. Scala regards direct/
indirect investments along with IT services as its pivotal growth
drivers. In light of this, its ‘Incubation & Investment’ business(2.1%) pursues M&A opportunities and promotes businessalliances with other companies. In addition, SOCIALX, Inc., asubsidiary of the Incubation & Investment business, focuseson the ‘Gyaku Propo’ (reversed proposal) program, a service
platform combining public-private co-creation projects (details of‘Gyaku Propo’ are described in another section). In 2022, Scala
incorporated as its subsidiary Nihon Pet Small-amount Shortterm Insurance Company., and commenced the ‘Insurance’
business (4.5%).

19.14%\0.81bn

IT/AI/IoT/DX
Business
45.67%

HR & Education
Business
16.37%\0.69bn

Customer
SupportBusiness
16.44%\1.94bn\0.11bn

Insurance
Business.
9.72%\0.09bn

EC
Business

Total sales revenue:￥6.50 bn
Incubation &Investment Business\0.63bn
EC
Business

15.91%\1.03bn

IT/AI/IoT/DX
Business
51.01%

HR & Education
Business\3.31bn

12.47%\0.7bn\0.81bn

Total sales revenue:￥4.25 bn

Customer
SupportBusiness
9.09%※ In 4Q of FY06/22, Scala commenced the Insurance Business.

\0.59bn(Source) companyʼs data.

Business segment overview
Reportable segment

IT/AI/IoT/DX

Customer Support
HR & Education
EC
Insurance

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•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)
Investment fund management•SCL Capital LLC•SCSV-1 Investment Limited Liability Investment fundPartnership•SOCIALX, Inc.
Planning and operating a public-private co-creation platform ‘Gyaku
Propo’(Source) companyʼs data.

■ Business Environment and Outlook
According to the ‘2022 WHITE PAPER: Information andCommunications’ released by the Japanese Ministry of Internal
Affairs and Communications, the penetration of AI and IoT has
been showing marked progress, with the number of IoT devices
in use worldwide estimated to increase from 25.3 billion units
in 2020 to 39.85 billion units by the end of 2024. On the backof mounting needs for further efficiency and labor saving acrossthe board, the speed of adoption of AI technology appears toaccelerate going forward. Scala, Inc. has formulated its ‘Mediumterm Management Plan COMMIT5000’. The plan outlines thecompany’s three ‘capabilities’ that have been acquired through theoperation of SaaS/ASP services (1. The capability of discovering
real issues; 2. The capability of revealing the hidden value ofresources; 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 that willassume the objectives: 1. Creation of a value-based management
support business; 2. An IT/AI/IoT-related business; and 3. Asocial issue solution-oriented business. In line with the Mediumterm Management Plan, Scala is set to organically coordinate thethree capabilities with the three business segments to maximize
customer value. With the fulfillment of this vision, the plan has

Risk Factors
Scala’s operations potentially run some risks including –Faced with weakening business conditions, its major clients
may hold down their IT investments; the growth in sizeand complexity of projects may cause delays in project
development or additional costs; the SaaS/ASP services may
face difficulties arising from server down issues and otherchallenges; and the Incubation & Investment business is at
risk of making a loss.

Shareholder Return（as of Mar 14, 2023）■ 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 Wealth Advisor Co., Ltd. Redistribution is prohibited without written permission.

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Wealth Advisor Equity Research Report 2023.3.15

Scala, Inc.（4845, TSE Prime）

Competitor Comparison（If the number is better than rivals, it's highlighted by red character）（as of Mar 14, 2023）
Scala, Inc.
(4845・TSE Prime)
Stock Price
Basic Point¥1,419¥3,020100Shares

100Shares

100Shares¥71,100¥141,900¥302,000

June

March

December―

3.3times

29.9times

1.5%

0.5%

EPS Growth Rate（E）

18.4times
1.4times
5.2%
29.8%
910.1%
1,448.6%

22.3times

Operating Margin（E）

7.7%
―

14.9%

―

8.0%

6.6%

41.5%

28.2%

29.1%

5.3%

101.1%

139.7%

83.1%

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

GrowthProfitability

Financial
HealthCybozu, Inc.

(4776・TSE Prime)¥711

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

81.4%

185.2%

Current Ratio

17.8%

15.5%

7.1%

288.9%

6.7%

―

9.3%

9.3%
1.2%

We have chosen Techmatrix Corporation (stock code: 3762) and Cybozu, Inc. (4776) as industry peers.
※ 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■Profitability■Financial position

Consolidated business results for
FY06/23 are expected to show a substantial improvement in P&L, thanks
to a 30% growth in sales revenue. The
mainstay IT/AI/IoT/DX business is likely to increase revenue from DX projects
for local governments at an accelerated
pace. The HR & Education business is
expected to post higher revenue fromthe new graduate employment support
service and the operation of a professional basketball team ‘The Saitama
Broncos’ among others are all prospective contributors to Scala’s earnings
growth.
Meanwhile, the ongoing ‘Medium Term Management Plan COMMIT5000’ has set targets for FY06/25,
the halfway point of the Plan, of achieving consolidated sales revenue of ¥100
billion and operating income of ¥10 billion. That said, the company is implementing its management policy underwhich it promotes the diversificationof its business portfolio, investment in
new businesses and rigorous pursuit of
M&A deals, evolving around the core
IT/AI/IoT/DX business which descended from the founding business. Consequently, in our view, M&A and otherstrategies are critical factors for the accomplishment of its Midterm Plan.

Operating income margin for
FY06/23 is expected to be 7.7%.
In the company projection, the IT/
AI/IoT/DX, HR & Education and EC
businesses are to maintain a doubledigit segment operating income
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.

At the end of December 2022,
Scala’s equity ratio stood at 41.5%.
Interest-bearing debts total at thesame date was ¥6,826 million, adecrease from the ¥7,377 million
logged at the end of September of theyear. Retained earnings was ¥5,792
million. The company projects to pay
increased full-year dividends for 14
years in succession.

Wealth Advisor Co., Ltd.
Research & Analysis Department
Analyst Souta Suzuki+81-3-6229-0078

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.