February 15, 2021

Sector: IT / Telecoms

Drecom (3793)

Initiation Report

GIR View
Japan's mobile gaming market – consisting mainly of games
played on smartphones – is huge, valued at more than ¥1.3
trillion. Globally, the mobile gaming market is thought to have been
worth about ¥8 trillion in 2020. The Japanese market is the third largest
in the world after those in China and the US, and is not significantly
smaller than either. With the wide uptake of smartphones, theJapanese mobile gaming market grew rapidly until 2017, to over
¥1 trillion. Since then it has continued to expand, at a slower pace,driven by the enjoyable gaming experiences offered by companies inthe sector. Market growth is likely to have accelerated with thecoronavirus pandemic.
In the fiscal year to March 31 2021, more than 90% of Drecom’s
revenue will come from mobile gaming, and the company expects
to achieve record sales and operating profit. The company was
founded in 2001 and was listed on the Tokyo Stock Exchange’s
Mothers market in 2006. Several times in the past it has run at a loss,
but Global IR, Inc. (GIR) believes that this has given it the knowledgeof how to be profitable and to manage itself in a way that controls its
profitability. One of Drecom's strengths is that since the era of featurephone games (on traditional mobile phones) nearly a decade ago, it
has had a distinctive game management style that emphasises
continuous usage by players. It has also built a relationship of trust withleading IP1 holders. Drecom’s game management style fits well withIP, which emphasizes long-term value such as brand and user
engagement.
Aiming at a stock-based business model, Drecom has set up arevenue structure that grows sales and profits through having
multiple game titles. In particular, it releases IP-based games, on a
Free-to-Play basis but in which players choose to make in-gamepayments, over long periods, with good game management in place.
Games that sell less well point to the timing of reductions in operating
costs and the termination of operations, allowing preparation for the
release of new titles. The Japanese mobile gaming market has
increasing barriers to entry, but Drecom is one of the companies able
to clear them. The market continues to grow, and the mobile gaming
business has become the company's cash cow. In our view, Drecom
is entering a period in which it will be able to create new revenue
streams.

1

Intellectual Property

See page 32 for important disclosures. 1

February 15, 2021
Global IR, Inc.

GIR View (continued)

The first reason for the increasing barriers to entry isrising development costs. These have risen to more than¥100 million per title, and sometimes more than ¥1 billion. The
second issue is finding personnel with the right skills. The
mobile gaming business involves two different functions:development, and also management, because the revenue
that players are charged comes from post-release gamemanagement. These two functions require different skills andmindsets. Game companies have to develop and retain theright human resources.

Third, there is a barrier to entry in the form of IP-centric
inner circles within the industry, known as ‘value circles,’based on abilities and relationships. IP has been adopted formost game titles as the mobile gaming market has expanded.
Intellectual Property (IP) in a game refers to well-known game
titles or characters. The use of this kind of IP extends acrossmagazines, merchandise, games, and industries, further
enhancing its value. Companies that use the IP therefore haveto be part of the circle to be able to contribute to the improvementin the IP’s value, and the interests of each industry stakeholder
must be carefully taken into consideration.

As mobile games have become cash cows, on aconsolidated basis there is the prospect of retained earnings
moving into positive territory. Medium-term, Drecom aims tobuild new revenue streams in entertainment by deploying themanagement skills it has acquired in the gaming businessand making the most of its management strengths.

Financial Data
Fiscal Year2017/3

Share price: ¥872 (as of February 12, 2021)
Sales
(¥m)
8,388

YoY
(%)
28.3

Operating
Profit (¥m)
932

YoY
(%)
NA

Net Profit
(¥m)
844

YoY
(%)
NA

Recurring
Profit (¥m)
814

YoY
(%)
NA

EPS
(¥)
29.7

PER
(x)
-

2018/3

13,192

57.2

190

-79.7

-29

NA

-204

NA

-7.2

2019/3

10,720

-18.8

-577

NA

-1,349NA-1,712

NA

-60.5

-

2020/3

10,150

-5.4

617

NA

635

NA

711

NA

25.0

32.6

2021/3 (Co. est.)

11,700

15.3

1,900

207.9

1,800

183.1

1,400

96.8

49.1

16.6

in Millions of JPY

Drecom (3793)

2

February 15, 2021
Global IR, Inc.

FAQs from Meetings with Investors
Drecom holds meetings with overseas institutional investors on an
ongoing basis. Below we reproduce some common questions andresponses from these meetings. The responses are based on thecompany's answers and include GIR commentary and additional
information. The questions are ordered according to issues that were ofparticular interest. For more information on the answers, click “Answer”
at the end of the question.

Drecom's Financial Performance
Q1: Why was there a loss in the year to March 31, 2019? ---- <Answer>
Q2: However, Drecom turned a profit of ¥690 million in the fiscal year
to March 31, 2020. What was the background to this turnaround?
------------------------------------------------------------------------------ <Answer>
Q3: In the fiscal year to 31 March, 2021, sales and operating profit are
expected not just to have turned up, but to be at record highs. Can
you explain why? ------------------------------------------------------- <Answer>
Q4: Please share your thoughts on the possible financial results forthe fiscal year ending March 31, 2022, and beyond ------------ <Answer>

About Drecom
Q5: Please tell us about the trends in revenue contribution from each
title ------------------------------------------------------------------------- <Answer>
Q6: Are trends in billing and ARPU much affected by seasonal factors
or entertainment events? -------------------------------------------- <Answer>
Q7: What is the difference between the revenue structure of in-house
IP and third-party IP? -------------------------------------------------- <Answer>
Q8: Can you explain why the billing amount and sales are different?
------------------------------------------------------------------------------ <Answer>
Q9: Please tell us how the differences beween the Apple, Google andEnza platforms impact your earnings ------------------------------ <Answer>
Q10: Please tell us about your relationship with Bandai Namco
Entertainment (7832) ----------------------------------------- ---------<Answer>
Q11: Please give your thoughts on new businesses, investment suchas M&A, etc. ------------------------------------------------------------- <Answer>
Q12: Please explain your views on shareholder returns ------ <Answer>

About the Gaming Market
Q13: How large is the market? -------------------------------------- <Answer>
Q14: Please outline the trends in the market. -------------------- <Answer>

Drecom (3793)

3

February 15, 2021
Global IR, Inc.

Table of contents
FAQS FROM MEETINGS WITH INVESTORS....................................................................................... 3
Drecom's Financial Performance .............................................................................................................. 3
About Drecom ........................................................................................................................................... 3
About the Gaming Market ......................................................................................................................... 3

THE MOBILE GAMING MARKET ......................................................................................................... 6
TRENDS IN THE MOBILE GAMING MARKET .............................................................................................. 6
The domestic mobile gaming market expanded rapidly until about 2017 .................................................. 6
Continued Moderate Growth in 2017 and Beyond .................................................................................... 8

FEATURES OF THE MOBILE GAMING MARKET, HIGH BARRIERS TO ENTRY ................................................ 11(1) High development costs; (2) The need to find personnel with different skill sets; (3) The existence of‘value circles’ based on capabilities and relationships ............................................................................ 11
Mobile gaming moving towards a stock-based business model.............................................................. 13

DRECOM (3793) ................................................................................................................................. 14
CLEARS THE BARRIERS TO ENTRY, ALLIED WITH ‘VALUE CIRCLES’ ........................................................... 14
Company Profile ..................................................................................................................................... 14
Revenue structure................................................................................................................................... 15

DRECOM’S STRENGTHS ...................................................................................................................... 17
Strengths nurtured since the company’s inception .................................................................................. 17
1. Management experience with powerful IP and a relationship of trust with its users ............................ 17
2. Building an organization that can successfully develop and manage multiple games, and establishinga stock-based business model ................................................................................................................ 18
Drecom has relationships with leading companies, including Bandai Namco (BNE) .............................. 19
3. Sustainable and reproducible management practices gained from experience, including setbacks ... 20
4. Potential for further business development, not only in the game business. ....................................... 21

DRECOM'S BUSINESS PERFORMANCE.................................................................................................. 21
Through conscious optimization of revenue, record profits likely for the fiscal year to March 31, 2021 .. 21

DRECOM'S GROWTH STRATEGY .......................................................................................................... 25
1. Moving into entertainment fields other than mobile games ................................................................. 25
2. Acquisition, Creation and Development of IP ...................................................................................... 25
3. Taking existing titles into overseas markets: increased revenue from overseas ................................. 26
4. Diversification of the Revenue Model: Moving Away from Dependency on Free-to-Play.................... 27

DRECOM AND ESG ............................................................................................................................ 28
S: Social .................................................................................................................................................. 28
G: Governance........................................................................................................................................ 29

FINANCIAL RESULTS ........................................................................................................................ 31

Drecom (3793)

4

February 15, 2021
Global IR, Inc.

CHART AND TABLES

Figure 1. 2020 Global Gaming Market By Segment, 2020 _______________________________________ 6
Figure 2. 2020 Global Gaming Market By Region, 2020 _________________________________________ 6
Figure 3. Smartphone Gaming Market Grew with the Uptake ofmartphones _________________________ 7
Figure 4. Growth of the Domestic Gaming Market (Household & Online Platforms) ____________________ 8
Figure 5. Gender Balance of Players________________________________________________________ 9
Figure 6. Age Breakdown of Game Players, in Years (Japan) ____________________________________ 9
Figure 7. Game Apps in Japan: Players, Time and Revenues (weekly averages) _____________________ 9
Figure 8. Changes in entertainment activity due to the effects of the coronavirus _____________________ 10
Figure 9. History of the Domestic and Home Video Game Market ________________________________ 11
Figure 10. Comparison of Revenue Structures: In-House versus Third-Party IP _____________________ 16
Figure 11. Which Games are In Service, Which are Terminated __________________________________ 19
Figure 12. Financial performance _________________________________________________________ 22
Figure 13. Profitablity of games in service ___________________________________________________ 22
Figure 14. Trend in fixed costs ___________________________________________________________ 24
Figure 15. Comparable companies ________________________________________________________ 30

Drecom (3793)

5

February 15, 2021
Global IR, Inc.

The Mobile Gaming Market

Trends in the Mobile Gaming Market
The domestic mobile gaming market expanded rapidly until
about 2017
The Japanese mobile gaming
market is huge – worth as muchas ¥1.3 trillion.

The global mobile gaming market is estimated to have been worth
about ¥8 trillion in 2020, and the Japanese market about ¥1.3 trillion,
making it the third-largest in the world after China and the United States.
However, the difference in size is relatively small: Japan’s mobile
gaming market is huge.
Figure 1. 2020 Global Gaming Market By Segment, 2020

Source: Newzoo

Figure 2. 2020 Global Gaming Market By Region, 2020

Source: Newzoo

Drecom (3793)

6

February 15, 2021
Global IR, Inc.

Japan's mobile gaming market
grew to more than ¥1 trillion by2017.

The domestic mobile gaming market expanded rapidly until around2017 with the uptake of smartphones. Since then, although growth has
slowed, the market has continued to expand moderately. According to
the Famitsu Game White Paper, the domestic mobile gaming market
exceeded ¥1 trillion yen in value in 2017, and has continued to growmoderately since then.
Figure 3. Smartphone Gaming Market Grew with the Uptake ofmartphones
90

6,000

80

5,000
70

60

4,000

50
3,000
40
30

2,000

20
1,000
10
0

0
2010

2011

2012

2013

2014

2015

Household ownership of smartphones, %

2016

2017

2018

2019

Downloads (cumulative)

Source: GungHo Online Entertainment Co.; Survey of Trends in Communications Usage(通信利用動向調査), Ministry of Internal Affairs and Communications

Smartphone gaming increased
with the spread of smartphones
in the early 2000s.

Downloads of Puzzle & Dragons (Pazdora), a game released by
GungHo in January 2012, rose almost in line with the increase in thenumber of smartphones, and the overall market for smartphone gamesin the early 2000s expanded with the uptake of smartphones.

Drecom (3793)

7

February 15, 2021
Global IR, Inc.

Figure 4. Growth of the Domestic Gaming Market (Household & Online Platforms)
Unit:¥bn
2,000

1,500

1,351.4 1,358.8
1,127.2

1,000

296.3

364.8

339.97303.14

494.3

999.4

1,038.6

261.70230.11226.93

698.3

788.6

291.16

1,236.1 1,296.2

500
305.41294.00191.00195.00263.21

277.30202.37170.09159.54201720182019 2020 E 2021E

Software in households, inc. online (¥bn)

Online platforms (¥bn)

175.59179.74177.98155.31

142.15130.05117.05

2010

2011

2012

2013

2014

2015

2016

0
Hardware in households (¥bn)

292.00244.08Source: Famitsu Game White Paper, 2020
Note: Data period: Dec 28, 2009 to Dec 29, 2019
Accurate figures for 2020 and 2021 are unavailable; from May 2020 they are
estimates.

Continued Moderate Growth in 2017 and Beyond
There are three factors driving
continued moderate growth.

As noted above, the mobile gaming market continues to expand, albeit
at a more moderate pace. This is for a number of reasons, including:(1) the appeal of a variety of mobile gaming experiences, as a result ofgame companies’ efforts; (2) the acceleration of existing trends in life
and work, as a result of the coronavirus pandemic, and thus an increasein the number of gaming hours played; (3) the expansion of the base ofusers who have gaming experience, and the gaming generations’transitioning into adulthood.

(1) Improvement of the appeal ofgames, through the efforts ofgame companies.

As smartphones became more widespread, users grew accustomed tousing them for various functions, and they became a familiar gadget ineveryday life – that is, they became commoditized. At the same time,
gaming companies have optimized their smartphones for screen use,
resolution, operability, and behavior when games are played, whileproviding users with a variety of gaming experiences. In this way, as
the appeal of smartphone games is improved, a virtuous cycle isgenerated in which these games attract more users.

The user base of game players
is expanding.

Figures 5 and 6 show that there is little difference in the gender and age
composition of players. Overall. it can be inferred that the market ofmobile game players is growing.

Drecom (3793)

8

February 15, 2021
Global IR, Inc.

Figure 5. Gender Balance of Players

Female45%

Unit:%

Male
55%

Source: Famitsu Game White Paper, 2020
Note: Data period: Dec 31, 2018 – Nov 3, 2019

Figure 6. Age Breakdown of Game Players, in Years (Japan)

Unit:%

60 – 69: 5% 5 – 9:5%
50 – 59: 9%

10 – 19:19%
40 – 49:
19%

20 – 29:23%
30 –39:20%

Source: Famitsu Game White Paper, 2020
Note: Data period: 31 Dec, 2018 – 3 Nov, 2019

Figure 7. Game Apps in Japan:
Players, Time and Revenues (weekly averages)
Average no. of players
weekly (million)
2.563

Average weekly
playing time
(million hrs)
8.485

Source: Famitsu Game White Paper, 2020
Note: Data period: 31 Dec, 2018 – 3 Nov, 2019

Drecom (3793)

9

Average weekly
billing (¥m)

ARPU /
week (¥)

719.718280.80February 15, 2021
Global IR, Inc.

(2) Coronavirus acceleratingchanges in life and work trends.

Furthermore, the constraints resulting from the coronavirus since
Spring 2020 have accelerated changes in life and work patterns thatwere already occurring. As a result, it appears that more time is being
spent on playing games (see Figure 8 below). This is increasingly
driving the mobile gaming market.

Figure 8. Changes in entertainment activity due to the effects of the coronavirus

Q. Please tell us about changes in the time you spent on entertainment activities in March.

Source: Famitsu Game White Paper, 2020
Note: Percentage of respondents who answered that they had increased their activity. Video items include recording and viewing.
Eb-i Survey; survey date: April 6, 2020. n = 7.801

3) The expansion of the base ofusers who have gaming
experience, and the gaming
generations’ transitioning into
adulthood.

3) Concerning point 3 above, as shown in Figure 9, Nintendo's Family
Computer was launched in Japan in 1983. Following this, in 1989 camethe Gameboy. The Playstation, which appeared in 1994, appealed toan older user base, and in recent years these players have become
more interested in mobile gaming. In addition, many users started to
become familiar with games for the first time around 2010, throughsocial network service (SNS) mobile games. The commoditization ofsmartphones and the increase in disposable income as players became
adult members of society also helped to establish a lifestyle in which

Drecom (3793)

10

February 15, 2021
Global IR, Inc.

interaction with mobile games became part of everyday leisure. The
younger generation now own smartphones from an early age, become
paying users from about high-school age, and start to take part in themobile game market.
Figure 9. History of the Domestic and Home Video Game Market

Source: Global IR, Inc.

Features of the mobile gaming market,
high barriers to entry(1) High development costs; (2) The need to find personnel
with different skill sets; (3) The existence of ‘value circles’
based on capabilities and relationships(1) High development costs:
More personnel needed, longlead times.

Developing mobile games is increasingly expensive. Development
costs for feature phone games typically ran to a few tens of millions ofyen, but for mobile games they are usually in excess of ¥100 million,
and for some titles are estimated to be more than ¥1 billion. The reason
is that users have been used to high graphics performance, 3D images,
etc. since the days of packaged software for home video-gameconsoles, so user expectations are high.

Development costs exceed ¥100
million per game.

To give a clearer picture of the increase in development costs:
developing feature phone games required 10 to 20 people and took
Drecom (3793)

11

February 15, 2021
Global IR, Inc.

about six months to complete. For mobile games, it requires 50 to 100,and the lead time from planning to completion rises to 1.5 to 2 years.
During this period, labor costs are very high.
(2) Development andmanagement in the mobile gamebusiness are completely different
functions, requiring personnel …

Mobile games are first developed, then – after release – managed.
Sales are realized through users choosing to make in-game payments.
Game management involves planning in-game events, promoting
engagement through interesting features or additions, responding tousers' requests and complaints, and addressing problems such as
defects and bugs.

…with very different skill sets.

Development and management of games being completely different
types of business, mobile gaming companies need to nurture personnel
with different mental and other skill sets. Games are developed by
specialized personnel – game creators – who design the games andadd sound, graphics, etc. Knowledge is built up not only by individual
creators, but also as a team. By contrast, game management requires
close communication with users, focusing on engagement throughdialogue.

With the expansion of the mobile
gaming market, IP has become
standard. The use of IP canbring in new players andincrease customer stickiness.

Mobile games have become a huge, ¥1 trillion-plus market, and the useof IP has become standard. Intellectual Property in a game means theinclusion of a well-known game title or character. The addition of IP tomobile games increases the value of that IP, and at the same timebrings in users and gets them involved. For mobile games, the key tosuccess is how long the player can continue to enjoy a game after it
has been released – that is, whether the players will continue to choose
to make in-game payments.

(3) The existence of ‘value
circles’ in the industry, consistingof abilities and relationships.

The same IP might be used across a number of media other thangames, including magazines, videos, etc., so there are many
stakeholders involved. Companies that use the IP have to be able tocontribute to the value of that IP, so there is an informal inner circle of
IP users known as a ‘value circle’. Membership requires IP users not
only to contribute to raising the value of the IP, but also to consider theother stakeholders in each industry.

Performance and credibility areimportant for the use of IP.

The requirements for being in the game industry have expanded toencompass not just development capabilities, but also successful
management and marketing, as well as being in a ‘value circle’ basedon abilities and human relationships. The requirements not only for
financial strength, but also a track record and credibility as a member

Drecom (3793)

12

February 15, 2021
Global IR, Inc.

of the circle, form barriers that make it hard for prospective new entrants
to the market

Mobile gaming moving towards a stock-based business
model
Cost, human resources andvalue circles are barriers to entry
into mobile gaming.

As tangible and intangible barriers to entry arise in the mobile gaming

Strategies of mobile gamecompanies.

(1) Trying to create games that are big hits, using their own IP;

market, companies are increasingly adopting one of the following
strategies to increase revenue:(2) Building up billing revenue in multiple layers by releasing multiple
titles using other companies' IP, without focusing too much on one’s
own.
Cleared barriers to entry, stocktype business model point tostable and rising earnings.

With the second option, the release of a new game is very likely tosecure a certain amount of sales over a given period of time throughthe use of IP. And in addition to the release of new games asappropriate, billing sales will be accumulated for each title. We believethat in this way it has become possible to build a stock-type businessmodel in the mobile game business.
In other words, while barriers to entry have risen in the mobile gaming
market, business models have been shifted to stocking. Companies
that can clear the barriers to entry and optimize stock-based businessmodels are therefore more likely to achieve relatively stable revenue
growth.

Drecom (3793)

13

February 15, 2021
Global IR, Inc.

Drecom (3793)

Clears the barriers to entry, allied with ‘value
circles’Company Profile
Founded in 2001; entered the gaming market in 2009
Drecom is a gaming company
that clears the high barriers toentry.

Drecom is a gaming company that clears the high barriers to entry inthe current mobile gaming market. The company is now expected toachieve record operating profit in the fiscal year to March 31, 2021,
which we believe testifies to its recognition in the mobile gaming market
and its experience over the past few years, as well as its ability tocontrol the market duration of its game titles and to optimize its revenue.

Founded in Kyoto in 2001. Blog
service marketed in 2003;
Drecom was listed on the‘Mothers’ Section of the TSE in2006.

Drecom was founded by Yuki Naito, the current president. Whileattending Kyoto University, he set up Drecom with a group of university
students centered on Kyoto University, and in November 2001
established it as a company.
Ever since it was founded, the company has been involved withentertainment services based on people-to-people connections on theInternet. In 2003 it developed a blog service, and in 2006 it was listedon the Tokyo Stock Exchange ‘Mothers’ section, with businessdevelopment centered on this service. At that time, Web 2.0, whichallows users to create and collaborate online, was a major new trend.
Drecom’s IPO was in tune with the times.

The blog business fell short of
expectations. In 2008 there wasa tie-up with Rakuten to expand
into mobile phone-related
business.

The number of users of the blog service rose, but it proved hard to makeprofitable. The business fell significantly short of Drecom's expectations,and it was forced to rebuild from its management foundations. Rakuten(4755) provided support, and after a capital and business alliance in2008, including a third-party allotment, Drecom expanded into mobile
phone-related business.

2009: Moved into games onsocial network services. 2010:
Offered games for mobile
phones; established its position.

On the other hand, entertainment services based on interpersonalconnections – the focus of Drecom’s business since its inception –emerged from several social networking platforms, such as Faceook
and Mixi, around 2007-2008. These typically had an open-door policyon the provision of games – that is, anyone could become a gameprovider. In 2009, Drecom offered games on social media. The
following year, it also started offering games for mobile phones.

Onmyoji Heian Yokitan and Chokoto Farm won acclaim and established
Drecom (3793)

14

February 15, 2021
Global IR, Inc.

a position in the social game market. Chokoto Farm was launched in
January 2011, has been on the market for 10 years and is still available.
Social gaming market moves
beyond the ‘Kompu Gacha’
problem, becomes smartphonebased.

During this period, the social gaming market expanded rapidly byproviding new gaming experiences using people-to-people connections
on the more popular feature phones. However, with the use of ‘Gacha’,which is a way of making purchases within games through paid
electronic draws, sometimes in sequence, some game providers wereviewed as having caused a social problem by unduly raising the
expectations of players in games requiring payments. In 2013, theConsumer Affairs Agency alerted game providers to potential violations
of

the

Act

againstUnjustifiable

Premiums

andMisleading

Representations. The event is commonly referred to as the ‘Illegal
Kompu Gacha problem’. The effect was to dampen the rapid market
growth, but lowering the risks arising from gamers’ highs and high billingturned into a pathway to more smartphone-based gaming. In otherwords, the ‘Illegal Kompu Gacha problem’ prompted the industry toaccelerate its move into the smartphone gaming market.

Revenue structure
Billed sales of the company's
own titles = Drecom sales.

The revenue structure of mobile game sales at Drecom differs for inhouse and third-party titles.
For in-house games (in-house IP), as shown in Figure 10, billed sales
are accounted as Drecom sales. From these are deducted fixed costs,
and also variable costs in the form of fees paid to platforms andcopyright fees. The remainder is operating income.

Revenue share in othercompanies' titles.

Sales are handled differently in the revenue structure of IP distributedby third parties. In this case, billed sales are revenue-shared with thepartner company, and Drecom’s share is accounted as its sales. In thiscase there are no variable costs in the form of fees paid to platforms
and copyright fees. Drecom’s operating income from this source iscalculated by deducting its fixed costs.
The operating profit margin on IP distributed by third parties is therefore
high, but the actual billed sales of the company's titles distributed bythird parties are larger than the sales recorded by Drecom. GIR
estimates that actual billed revenue from Drecom’s IP distributed bythird parties is approximately four to five times higher.

Drecom has been involved with
Enza since its launch.

Third-party platforms distributing Drecom’s IP include Bandai Namco
Entertainment (BNE)’s Enza. Drecom has been involved with BNE
Drecom (3793)

15

February 15, 2021
Global IR, Inc.

since the launch of the Enza platform (details on Page 19), and webelieve it is responsible for managing both the platform and games. Thismeans that Drecom may effectively have two sources of income fromits distribution via Enza. If so, the company's profit margins from thisrelationship may be higher than those from other platforms.
Business models of in-houseand third-party IP.

The business models for in-house (owned) IP and third-party (othercompanies’) IP are different. In-house IP is a high-risk, high-return
product for which it is relatively hard to acquire users, because it does
not have the name recognition of other companies’ IP. However, once
it has been adopted by players and becomes a hit, it is profitablebecause there are no copyright fees to be paid out. On the other hand,
while other IPs are low-risk, low-return, powerful IPs have a number ofstakeholders, and unpredictable events can incur intangible costs in the
short term. For example, if the title does not become a hit, but cannot
be terminated easily, this is regarded as a hidden cost.

Figure 10. Comparison of Revenue Structures: In-House versus Third-Party IP

Source: Global IR, Inc.

Drecom (3793)

16

February 15, 2021
Global IR, Inc.

Drecom’s strengths
Strengths nurtured since the company’s inception
Four strengths.

1. Management experience with IP and a relationship of trust with its
users;
2. Building an organization that can successfully develop and manage
multiple games, and establishing a stock-based business model;
3. Sustainable and reproducible management practices gained fromexperience, including setbacks;
4. Potential for further business development, not only in the gamebusiness.

Experience and trust withleading IP holders since the eraof feature phone games nearly
10 years ago, using a distinctive
management style thatemphasizes continuous use.

1. Management experience with powerful IP and a
relationship of trust with its users
In the gaming market nearly 10 years ago, Drecom offered several
games, mainly for feature phones, including the aforementioned
Onmyoji Heian Yokitan and Chokoto Farm, along with powerful IP.
From the beginning the company's games were not intended topersuade people to gamble; rather, the focus was on continuous use.
This meant that Drecom was not the kind of company that would growso fast that its revenues would shoot up tenfold in a short period. But in
addition to gaining a solid financial base to develop games for
smartphones, the company has established a track record in business,and strong relationships with leading IP holders such as Bandai Namco
Entertainment (BNE).

Game management using thirdparty IP requires experience andknowledge including crossindustry cooperation with otherparties.

In game management, the focus on continuous use is player-oriented,
but it also fits with IP that emphasizes increases in value long-term,such as brand and royalties. In our view it was this that gave Drecom
its strengths and competitive advantages in a mobile game market thatwas heading for rapid expansion
In managing games using third-party IP, it is essential to have certain
types of knowledge that can only be obtained from experience – suchas maintaining appropriate communication across industries. It is also
vital that individual skills and abilities be shared with the organization orcommunity as a whole.

Successful transition tosmartphone gaming.

Drecom began full-scale support for mobile games for smartphones in2012. After several transitional products, in 2014, Full Bokko Heroes,
as well as JoJo's Bizarre Adventure Stardust Shooters (from BNE), and

ONE PIECE Treasure Cruise (from BNE) were released andsuccessfully converted for smartphones.
Drecom (3793)

17

February 15, 2021
Global IR, Inc.

2. Building an organization that can successfully develop
and manage multiple games, and establishing a stockbased business model
After a number of setbacks in
2012–2013, gained experienceand created an organization thatcan produce multiple game titles
using other companies' IP.

During the emergence of smartphone games, the game market
featured blockbuster titles by other companies, such as Puzzle &Dragons (GungHo Online Entertainment (3765); released in February2012) and Monster Strike (Mixi (2121); released in October 2013).
Drecom followed this by working on games using both its own and thirdparty IP. Fifteen smartphone games were developed and released,
under titles including Derby Stallion Masters and Mingol (nowdistributed by ForwardWorks). Three of these are Drecom’s own games,
while 12 use other companies' IP (not including the Enza titles
mentioned below).
Many of these games proved disappointing in terms of revenue.
However, the process brought Drecom a wealth of experience andlearning and resulted in an organization that can develop and manage
multiple games. This point can now be identified as a factor in thecompany's strengths and competitive advantages.

Creating a stock-type businessmodel/

Figure 11 shows how Drecom is accumulating sales from multiple
games using a series of revenue optimization methods, including cost
control, careful timing of withdrawal from service, and, based on thesales situation after a release, preparation for releases of new games.
GIR believes that Drecom is putting together a stock-type businessmodel.

Drecom (3793)

18

February 15, 2021
Global IR, Inc.

Figure 11. Which Games are In Service, Which are Terminated
Ｔitle

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Onmyoji
Chocotto Farm
Bikkuriman
Kamen Rider Legend
Reign of Dragons
Fantasista Doll Girls Royale
Full Bokko Heroes
jojo's bizarre adventure stardust shooters
ONE PIECE TREASURE CRUISE
ONE PIECE TREASURE CRUISE (ENG/FRE Version)
Gakeppuchi Busters
ONE PIECE TREASURE CRUISE (KRN version)
Derby Stallion Masters
MINGOL
Weekly Shonen Jump ORE COLLECTION
LayereD Stories 0
Kirara Fantasia
World of Final Fantasy: Meli-Melo
THE IDOLM@STER SHINY COLORS
Digimon ReArise
Dragon Ball Z Bucchigiri Match
Pro Baseball: Famista Master Owners
Super Robot Wars DD
Jump Hero Taisen Ore Collection 2
DISGAEA RPG
Naruto X Boruto Ninja Tribes

Terminated

In Service

Source: Global IR, Inc. from company materials

Drecom has relationships withincluding Bandai Namco (BNE)BNE has developed various
games, among them ONE
PIECE and Leisure Cruise. In
addition, it launched the gameplatform ‘Enza’ on which it
operates 5 games.

leadingcompanies,

Drecom has good relationships with leading companies such as BNE,
ForwardWorks, and Aniplex, a wholly-owned subsidiary of Sony MusicEntertainment, which itself is 100% owned by Sony (6758). In addition
to developing and managing multiple games, including ONE PIECE

Treasure Cruise, Drecom was involved in the launch of a joint venture
on the game platform ‘Enza’, which was started in April 2018. While thejoint venture will become 100% owned by BNE in March 2020,
Drecom’s involvement with Enza will continue.

In 2018, BNE took over Drecom
shares from Rakuten, becoming
the company's second largest
shareholder.

So far, 12 games using BNE’s IP have been developed and managed
by Drecom, and five are still in service. Bandai Namco Holdings (7832),
the holding company of BNE, held 19.1% of Drecom’s shares (as of
September 30, 2020), making it the company's second largest
shareholder; these shares were transferred from Rakuten in September
2018. The shareholding demonstrates the good relationship between
Drecom and BNE, and is likely to strengthen it.

ForwardWorks: subsidiary ofSony Interactive Entertainment.

ForwardWorks is responsible for the mobile business under SonyInteractive Entertainment, a multinational video game and digitalentertainment company that is a 100% subsidiary of Sony. Drecom is
involved in ForwardWorks’ Mingol and Makai War Record Disgaea

RPG. Mingol is a mobile version of Minnan no Golf, the main game on
Drecom (3793)

19

February 15, 2021
Global IR, Inc.

the Playstation, and for Makai War Record Disgaea RPG, Drecom wasinvolved in repairing defects and improving game management. Bothgames are good examples of the relationship of trust between the twocompanies.
Relationships with Square Enix,
Aniplex – subsidiaries of SonyMusic Entertainment.

Drecom is also responsible for developing and managing Ira Fantasia,
distributed by Aniplex, and has a track record of more than three years
since this game was released. Drecom was also in charge of World ofFinal Fantasy Merimero, distributed by Square Enix (9684), though theservice of this game has now been terminated.
Drecom's strengths:(1) Managing IP, relationships
with IP holders(2) Establishing a stock-based
business model that can develop
and manage multiple titles.

These specific development and management results – (1) managing
powerful IP and the relationship of trust with its holders, and (2) creating
an organization that can develop and manage multiple titles, and withthis the establishment of a stock-based business model – function as
strengths and competitive advantages for Drecom.

3. Sustainable and reproducible management practices
gained from experience, including setbacks(3) Sustainable and reproducible
management practices gained
from experience, including
setbacks.

The first setback that Drecom faced was the failure of its blogging
business immediately after the IPO. In addition the company was facedwith the effects of its financial difficulties, as well as organizational
challenges due to employees being insecure about their futures.

Quick recovery of profitability
without falling into consistent
deficit.

Drecom recovered from these difficulties with the help of a capital
injection from Rakuten. The company’s various responses to the crises
it went through seem to have become transmuted into management
expertise. Even after focusing on the game business, the company was
confronted with operating losses – during the market transition fromfeature phones to smartphones (2013); the failure of its original titles(2015); and in the rush to release multiple IP titles (2018) – but deficits
did not become the norm, and the company quickly recovered its
profitability.

Know-how for optimizing
revenues.

The upside of not having much cash is that financial constraints force
an early response to any crisis. Drecom is very conscious of optimizing
revenue by accurately gauging timing, monitoring failures, cutting costs
by controlling outsourcing costs, withdrawing if it cannot keep up, andpreparing to launch new titles.

Cost control system according to
demand.

Drecom’s experience in developing and managing multiple game titles
has enabled it to build a rich outsourcing network. It has effectively set
up a system that enables it to double its development and game
Drecom (3793)

20

February 15, 2021
Global IR, Inc.

management capacity just by using outsourcing, or shrink it in the sameway. With timely use of this system, Drecom can stay in control of costs
and link these to demand.

4. Potential for further business development, not only in thegame business.
(4) Potential for development inother business areas.

Drecom’s history is generally described with a focus on gaming, but thecompany has not limited itself to this business. In addition to the blog
business it was working on at the time of the IPO, other major examples
are ringtones for feature phones and the educational content businessthat led to a joint venture with Rakuten. The company has also worked
on music distribution, anime distribution, SNS services using location
information, and other areas. Given the size of the company, this is awide variety of activities. Drecom does not yet have a business with
continuity in addition to its game business, but it refers to itself as "anInternet shop before it is a game shop," so can be expected to work onsome kind of new business in the future. It is likely to apply the strengths
it acquired in the game business to other fields in the entertainment
industry, with the potential to create a second strong revenue stream.

For new businesses, risk control
tighter, investment initiallylimited.

Although developing new businesses is always a risk, we believe thatrisk controls are in place more than they were for the game businesses
described above. Until the growth potential is confirmed, the scale ofany investment is likely to be limited. As with the game business, thecompany will be looking to start small and grow from there.

Drecom's Business Performance
Through conscious optimization of revenue, record profits
likely for the fiscal year to March 31, 2021
Errors made in 2018.

In 2016–2018, as the rapid growth in the mobile gaming market wascoming to an end, the company released 10 titles with the aim of
expanding its market share. However, competition was fierce, and salesof many games fell short of expectations. At this period in mobile
gaming, gamers were looking for a new type of experience in addition
to IP.

Withdrew non-monetizing titles,
became profitable the following
year.

Drecom acknowledged this error and after 2018, withdrew titles thatwould not monetize. For this reason, it recorded a net loss of ¥1.96
billion in the fiscal year to March 31, 2019, but posted a net profit of¥690 million in the fiscal year to March 31, 2020.

Drecom (3793)

21

February 15, 2021
Global IR, Inc.

Figure 12. Financial performance

Unit: ¥m

13,00013,00011,00011,000

9,000

9,000

7,000

7,000

5,000

5,000

3,000

3,000

1,000

1,000

-1,000-1,000Mar-16

Mar-17Mar-18
Sales (L)Mar-19Mar-20Mar-21

OP (R)

Source: Global IR, Inc. from company materials
Note: Mar-21 figures are Drecom forecasts

Profitability differs by title; cost
control is tight, based on
experience.

Drecom outlines the earnings situation for each title in its results briefing
materials, though the exact details are not disclosed. In the third quarterof the fiscal year to March 31, 2021 (October-December), 11 of the 12
games in service were in profit, and operating profits piled up.
Figure 13. Profitablity of games in service

Only one title is unprofitable.
The extent of losses has also decreased
compared with Q2.
The aim is to break even or move into
profitability in the first half of next year.

Loss

ProfitSource: Global IR, Inc. from company materials
Note: Series games are counted under one title. The 3 Enza titles are under Boku &Dragons.

Drecom (3793)

22

February 15, 2021
Global IR, Inc.

Event effects level out the trend
in the company's game sales.

In addition, billings tend to increase during the New Year, when users
in the entire market have more time to play games, while they tend to
decrease in March and April, in July and August, during the summer
vacation, and toward the end of the year, when people are busier withlife and leisure actvities related to the end of school terms and tocompany activities. On the other hand, for Drecom, the releaseanniversaries of games currently in service are concentrated in the
April-July and October-December quarters. Holding anniversary andhalf-year anniversary events at these times makes it possible toincrease billings, and thus to smooth out fluctuations in sales to someextent.

January-March quarter sales arelikely to decline compared withthose in the October-December
quarter…

In addition to there being relatively few sales days in the January-March
quarter, there were no major events other than New Year's events.
Furthermore, user in-game payments will not be made until April andMay for the anniversary events of the flagship titles. Therefore, JanuaryMarch quarter sales are expected to have fallen compared with thosein the October-December quarter. October-December quarter sales
were in any case strong, driven by the anniversary and year-end eventsof the game Davimus.

…though costs are also
declining.

On the other hand, costs have continued to decline since the April-Junequarter, as shown in Figure 14. This is due to management with anemphasis on efficiency and efforts to review and control costs – mainlyin the administration department – as the development of multiple game
titles takes off and the capitalization of development costs progresses.
Therefore, costs in the January-March are also expected to decline
compared with those in the October-December quarter.

As a result, we expect sales and
OP to reach record highs in thefiscal year to March 2021.

Drecom releases its earnings outlook only for the following quarter. Thisis because of factors that cannot be determined, such as the timing ofgame title releases. The company announced its full-year earnings
forecast for the year to March 2021 when it released its OctoberDecember figures on January 28. It expects full-year sales to increase
15.3% to ¥11.7 billion and operating profit to be up 307.9%, to ¥1.9
billion. Although revenue is expected to have declined quarter-onquarter from the October-December quarter to the January-March
quarter, it had already grown 31.3% in the nine months through the
October-December quarter. Both Drecom and GIR therefore expect
sales and operating profit to reach record highs in the fiscal year to
March 31, 2021.

Drecom (3793)

23

February 15, 2021
Global IR, Inc.

Figure 14. Trend in fixed costs, FY to March 2021

Unit: ¥m

2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
Q1

Q2

Q3

Q4
FY2021/3

Fixed costs

Source: Global IR, Inc. from company materials

Higher profits likely in the next
fiscal year.

In the fiscal year to March 31, 2022, GIR believes that Drecom is likely
to achieve higher profits. First, looking at the sales side: 11 of the 12
titles already in service in the fiscal year to March 31, 2021 havecontributed to earnings, and it is almost inevitable that sales from aging
existing game titles will fall in the next fiscal year. However, according
to the earnings briefing on January 28, Drecom’s pipeline has 10 titles
under development through to March 2023. If so, at least one title canbe expected to be released in the fiscal year to March 31, 2022. Thereis a good chance that this will compensate for the aging of existing titles
and lead to a net increase in sales. Moreover, on the cost side, thecompany will continue to focus on operational efficiency and cost
optimization. In addition, the amortization of goodwill generated by theacquisition of the BlasTrain game development company ends during
the current fiscal year. GIR believes that the costs in the fiscal year to
March 31, 2022 are likely to be flat or less than those on a quarterly
basis in the January-March quarter of the current fiscal year.

Stable profit growth likely overthe medium term through stockbased business model.

Although there are differences in the profit contribution from each title,
Drecom takes its risk management very seriously. By accumulating
multiple titles, the company appears to be putting into place a stocktype business model.
Consequently, it is therefore very likely that the company will be able tomaintain a relatively stable trend of increasing sales and profits over the
medium term.

Possibility of dividends within a
few years.

Though retained earnings posted a loss of ¥1.47 billion as of March 31,
Drecom (3793)

24

February 15, 2021
Global IR, Inc.

2020, as noted, the company is likely to post record high profits in the
period to March 31, 2021. If it does, in GIR’s view the deficit in retained
earnings is on course to be eliminated and the company will be in aposition to consider paying dividends within a few years.

Drecom's Growth Strategy
Addressing four key areas for
medium-term growth.

In the results meeting materials for the July-September quarter of 2020
Drecom gave an indication of its future direction. In addition to further
increasing its strengths in developing and managing IP games, andexpanding its core game business, the company set out the following
four areas to focus on in terms of growth:
1. Moving into entertainment fields other than mobile games
2. Acquisition, creation and development of IP
3. Taking existing titles into overseas markets
4. Diversification of the revenue model

1. Moving into entertainment fields other than mobile games
Moving into other entertainment
fields using the know-how
acquired through gamemanagement.

Over the next three years, Drecom aims to transform itself from a“mobile gaming company with strengths in developing and managing
IP games” to a "comprehensive entertainment content company
centered on IP.” Currently, the company's offering consists mainly ofmobile games, but it has announced that it intends to develop andprovide entertainment services in other fields, such as music, comics,
and light novels, utilizing its own IP. In addition to being able to utilize
its know-how from IP game management to acquire fans and form fan
communities in each field, in the past it has developed and provided
music streaming apps and manga apps, so it has long experience ofbusiness development in these areas. In September 2020 it released

AKROGLAM, IP in the form of a musical drama, developed in-house.
The service is growing – it had more than 10,000 followers on Twitterby the end of September – and sales of CDs and other related items
started in January 2021.

2. Acquisition, Creation and Development of IP
Expanding in-house IP.

To become a "comprehensive entertainment company", Drecom needs
to increase its in-house IP. The company has worked with other IP
holders in the past to develop and provide content, but in the future, in
addition to creating and developing its own IP in-house, it plans to

Drecom (3793)

25

February 15, 2021
Global IR, Inc.

increase the number of IPs it owns by means including acquisitions
from other companies. In the fiscal year to March 31, 2020, Drecomacquired Boku & Dragons (and other properties) from Ignis Co. (3989).
When Ignis was choosing a company to sell to, Drecom’s development
and management of IP games, and its attitude regarding IP, were rated
highly. Drecom’s integrity in matters concerning IP and the recognitionof its value are well-known within the industry, and this reputation canbe expected to work in its favor when it acquires IP from other parties.
In November 2020, it won a part of the copyright and trademark of thepioneering role-playing game Wizardry, and the music drama IP

AKROGLAM mentioned earlier was released. Titles utilizing thecompany's in-house IP are currently under development in mobile
games, and in addition to games that utilize IP owned by othercompanies, the number of Drecom mobile games using its in-house IP
can be expected to increase.

3. Taking existing titles into overseas markets: increased
revenue from overseas
Domestic hit titles to be madeavailable overseas.

Drecom currently obtains most of its revenue from the domestic market,
but in future it aims to increase revenue from abroad by offering
successful Japanese titles in overseas markets, particularly the rapidly
growing Chinese market. ONE PIECE Treasure Cruise (distributed byBandai Namco), developed and managed by Drecom, has been
distributed worldwide since 2015, and the company has an excellent
track record in management for overseas users. Worldwide distributionof Derby Stallion Masters and Makai War Record Disgaea RPG(distributed by ForwardWorks) has already been announced for the
fiscal year to March 31, 2022. In addition to this previous experience,
Drecom has close relationships with leading marketing companies
overseas. These should prove to be strengths in the company's
overseas expansion.

Drecom (3793)

26

February 15, 2021
Global IR, Inc.

4. Diversification of the Revenue Model: Moving Away from
Dependency on Free-to-Play
Introducing a subscription
business model in areas otherthan mobile gaming.

Drecom will also focus on diversifying its revenue model. Currently,
almost all revenue comes from in-game purchases within games that
follow a Free-to-Play (F2P) model, but in future the company intends tointroduce a subscription model for areas other than mobile gaming. Thisshould increase revenue stability by moderating the volatility inherent
in the F2P model. In addition to a subscription model being expected to
be introduced for the augmented reality (AR) app construction platform‘AROW’, mail-order sales of related goods such as CDs have also
started for the music drama IP AKROGLAM mentioned above. Drecom
aims to generate the same level of revenue as F2P in the next five years
from business models other than the F2P model.

Drecom (3793)

27

February 15, 2021
Global IR, Inc.

Drecom and ESG
With respect to ESG, Drecom is improving its non-financial disclosures
to help improve corporate value in the future. Its current initiatives are
set out below.

S: Social
Creating a working environment that takes into account human rights,
diversity and flexibility
In addition to prohibiting discrimination in the workplace andimplementing appropriate labor management measures, Drecom isfocusing on maintaining the health of its employees, respecting
employee life events and life stages – such as introducing remote
working – and recommending that male employees take parental leave.
Promoting employees’ health,developing their skills.

Promoting employees’ health and nurturing their skills
The company tries to ensure that the working environment is one thatenables employees to stay healthy and fulfil their potential.

For example, it has rooms where employees can receive a lowcost massage:<https://newswitch.jp/p/17425>…and a café space, run in partnership with a popular caféchain:<https://www.wantedly.com/companies/drecom/post_articles/1
73575>…as well as support for events that share knowledge anddisseminate technical information<https://tech.drecom.co.jp/>
Promoting an entrepreneurial community
Drecom seeks to be a pioneer of student entrepreneurship and ITrelated ventures., The company is working on initiatives to contribute to
the development of younger entrepreneurs and the further revitalizationof entrepreneurship in Japan. These include:

Free lending of office space for study sessions and seminars"Shea Spe" (Share Space!)<https://drecom.co.jp/recruit/room/>

Drecom (3793)

28

February 15, 2021
Global IR, Inc.

G: GovernancePresident is the founder, CFO
worked at major securities
companies

The founding president is Yuki Naito. He has steered the business andmanagement since it was founded. Drecom’s CFO is Hideki Goto, who
has experience as an analyst and investment banker at major securities
companies. Both the CFO and Hiroyuki Kono, a former investmentbanker in foreign securities and Head of the IR Office, can communicate
with overseas investors in English without the need for interpreters. In
addition, around half the company's employees are entitled toparticipate in a corporate share ownership scheme. This has proved a
success in that they are very keen to participate in the improvement ofoperations and corporate value.
Further, to ensure that management functions soundly from agovernance perspective, Drecom is focusing on appointing a number of
independent outside directors from different professional backgrounds,
on appointing women as directors, and on holding regular meetings ofthe Board of Directors, along with lively discussions.

Appointment of female directors – Female directors: 20%
Inside directors vs. independent external directors – External
directors: 60%
Independent directors have diverse expertise – Backgrounds inaccountantcy, law, academia
Frequency of Board of Directors meetings – 28 meetings in theyear to March 2020; 24 in the year to March 2019

Drecom (3793)

29

February 15, 2021
Global IR, Inc.

Figure 15. Comparable companies
CompanyCountry

DrecomSony
Nintendo
Konami Holdings
CapcomSquare Enix Holdings
DeNA
GungHo Online Entertainment
Mixi
ColoplAkatsuki
Klab
Gumi
DrecomMicrosoft
Activision Blizzard
Electronic Arts
Zynga
Tencent
NetEaseNexon
NCSoftNetmarble

Japan
3793
Japan
6758
Japan
7974
Japan
9766
Japan
9697
Japan
9684
Japan
2432
Japan
3765
Japan
2121
Japan
3668
Japan
3932
Japan
3656
Japan
3903
Japan
3793
US
MSFT
US
ATVI
US
EA
US
ZNGA
China
700_HKG
China
9999_HKG
Korea (Japan)
3659
Korea A036570_XKRX
Korea A251270_XKRX

Source: Global IR, Inc. from interviews with Drecom
Note: As of 12 February, 2021

Drecom (3793)

30

Stock code

MarketCap ($bn)
231
144,560
81,007
10,134
9,307
8,349
2,608
2,431
1,937
1,186
587
346
282
231
1,843,996
79,78942,375
12,926
936,841
457,699
28,05820,313
10,677

February 15, 2021
Global IR, Inc.

Financial Results

Mar-2016

Mar-2017

Mar-2018

Mar-2019

Mar-2020

Japanese
GAAP
6,534

Japanese
GAAP
8,388

Japanese
GAAP
13,192

Japanese
GAAP
10,720Japanese
GAAP
10,150

Unit:¥m
Mar-2021
Co. est.
Japanese
GAAP
11,700Change-10.5%

28.3%

57.2%

-18.8%

-5.4%

15.3%

Gross Profit

1,795

3,055

3,095

1,434

2,192

-

Operating Income

-206

932

190

-577

617

1,900

-

-

-79.7%--

207.9%

Operating Profit Margin

-3.2%

11.1%

1.4%

-5.4%

6.0%

16.2%

Ordinary (Pre-Tax) Profit

-217

844

-29

-1,349

635

1,800

-

-

-

-

-

183.1%

-537

814

-204

-1,712

711

1,400

-

-

-

-

-

96.8%

Year Ending
Accounting Standard
Sales

ChangeChangeNet Income
ChangeUnit:¥
Per-Share Data
Mar-2016

Mar-2017

Mar-2018

Mar-2019

Mar-2020

Mar-2021
Co. est.

-39.38

59.44

-7.21

-60.46

25.02

49.05

BPS

101.76226.48106.74

47.88

74.22

-

DPS

0

0

0

0

0

0

Year Ending
EPS
Fully diluted EPS

Unit:¥m
Balance Sheet (Consolidated)Year Ending

Mar-2018

Mar-2019

Mar-2020

Mar-2021
Co. est.

5,660

6,192

5,190

4,571

-

1,158

2,905

1,755

1,851

-

90

108

300

251

171

-

352

665

1,016

773

906

-

530

384

1,588

730

773

-

Mar-2016

Mar-2017

Current Assets

2,326

Fixed Assets

973

Tangible Fixed Assets
Intangible Fixed Assets
Investment and Other Assets
Total Assets

Current Liabilities
Fixed Liabilities
Net Assets

3,300

6,819

9,097

6,946

6,423

-

1,336

3,202

3,239

3,873

3,594

-

310

252

2,596

1,649

660

-

1,653

3,364

3,261

1,423

2,168

Unit:¥m

Cash Flow (Consolidated)Year Ending

Mar-2016

Mar-2017

Mar-2018

Mar-2019

Mar-2020

Mar-2021
Co. est.

54

845

-79

78

691

-

Investment Cash Flow

-548

-455

-1,958

-122

-100

-

Financial Cash Flow

-574

1,345

2,287

-271

-1,188-

Sales Cash Flow

Source: Global IR, Inc. from interviews with Drecom

Drecom (3793)

31

February 20, 2021

Disclaimer
This report has been prepared by Global IR, Inc. (GIR) under a contractual arrangement with the company
described in this report (“the company”). The report is provided for informational purposes only. It is notintended to solicit or recommend investment in the company’s securities. While the information and views
contained in this report have been obtained from sources that GIR believes to be reliable, or created on
the basis of publicly available information, no guarantee is offered with regard to their accuracy orcompleteness. Our analysis is in any case provided with an emphasis on accuracy and objectivity, andpays the utmost attention to neutrality and independence. In addition, based ondiscussions with therelevant business owners, and others, and original on research, perspectives that we consider important
to investors have been provided, on the basis that they are GIR's own opinions. GIR is not responsible
for any loss or damage resulting from the use of this report. Investment decisions in the relevant corporate
stock are at the reader's own judgment and responsibility.

32