Wealth Advisor Equity Research Report 2023.9.11

Seeing social challenges as an opportunity

Recommendation rating（Sep 8）

Scala, Inc.

Overweight（4845. TSE Prime）
Stock Price

Unit of Investment

756yen（9/8）

100Shares

Market Cap

year's high13.10Bil yen

814yen（9/8）（23/6/7）

year's low

PER
（E）

694yen31.2times（23/1/4）（9/8）

Its revised medium-term business plan lays out more realistic
targets to drive profitability■ HR & Education and EC showed solid performancefor FY06/23￥870 ～￥1,070

Estimated Share Price Range

Scala, Inc. reported its consolidated business results (non-GAAPbase) for the year ended June 2023 (between July 2022 and June
2023, FY06/23; hereinafter referred to as ‘the fiscal year’). In thefiscal year, sales revenue came to￥12,644 million (up 32.1% from thesame period last year) and operating profit jumped to￥256 million(5.3 times the previous year’s level). On the IFRS basis, sales revenue
stood at ¥12,644 million and operating profit was ¥259 million yen,while the company posted a net loss of￥218 million (back in May, it
forecast sales revenue, operating profit and net income to be ¥13,000
million, ¥300 million and ¥200 million respectively). This is due tobelow-projected performance at its mainstay IT/AI/IoT/DX business.
Meanwhile, the company sold its entire shareholdings in its two
subsidiaries, Connect Agency, Inc. (CA), a provider of cloud-based
PBX services, and an IR support operator J-Phoenix Research Inc.
(JPR).
In the fiscal year, non-GAAP based operating profit for the HR& Education and EC businesses showed solid growth (before thereduction in allocated corporate and other costs, the former posted
an operating profit of ¥295 million compared with ¥227 million in
the previous year while the latter booked ¥379 million comparedwith ¥281 million). Meanwhile, the Incubation & Investment
business reduced its losses from -¥353 million a year ago period to-¥240 million. The HR & Education business enjoyed steady demandfor its employment support services, particularly those specializing
in students belonging to athletics clubs or female students. With
the resumption of corporate operations, more companies showedinterest in hiring, faced with a shortage of manpower. The EC
business delivered all-time high sales revenue and operating profit.
Its service ‘Card shop - Yuyutei -’ (literally meaning ‘playful arbor’)increased registered members to 241,000 (from 188,000 at previous
fiscal year end). In contrast, the IT/AI/IoT/DX posted an increasein operating profit by a mere 1.1% y-o-y. Similarly, the Insurance
business posted an operating loss of ¥160 million (compared witha loss of ¥28 million for the previous fiscal year) as it struggled
to cope with tougher competition and non-current recognition ofclaim reserves. The Customer Support business also suffered a fallin revenue and further segment deficits. For FY06/24 ending June
2024 (between July 2023 and June 2024), Scala, Inc. forecasts that
non-IFRS based sales revenue will be￥12,800 million (up 1.2% y-o-y)and operating profit to stand at￥650 million (2.5 times). On the sales
revenue front, despite a forecast reactionary fall in revenue of ¥1,089
million at its subsidiary EGG CO., LTD., thanks to the termination ofprojects related to the ‘GoTo Travel Campaign’ and ‘Support for
Nationwide Tourism’, the fall is expected to be offset by higher
revenue from existing businesses. The company projects to pay anannual dividend of ¥37.5 per share (the previous year was ¥37.0).

（yen）

1,070
970
870
814

770

13WMA

26WMA

( thousand
share )
1,000

670

644

volume

13WMA

500
0

（month）910 11 121

13 WeeksMoving Average

2

3

4

5

26 WeeksMoving Average

￥748

6

7

8

9

Volume（13 Weeks Average）￥751

379,192 Sharesearnings targets for FY 06/26 (including sales revenue of¥15,500 million and operating profit of￥2,000 million). It alsoannounced a basic policy to ‘establish a human development
platform (PF)’. Specifically, it regards social challenges as theopportunity to grow SDGs businesses and envisions three
PFs comprising: ‘Meta PF’, the nodal point between partners
and other PFs, proactively grappling to identify solutions; ‘Cocreation PF’, striving to establish the optimal PF to address
individual issues through a co-creation initiative; lastly‘Foundation PF’ which promotes other PFs’ contributions tovalue creation while operating individual businesses. On theback of organic cooperation of these three PFs, the company
will apply its attention to the establishment of a foundation
on which the group upgrades its own value and delivers solid
growth.
Scala appears to have revised its medium term business planfor the purpose of laying out more realistic targets. Meanwhile,it has launched a series of actual co-creation initiatives withlocal governments and other business organizations thatmultilaterally approach business opportunities arising fromsocial challenges. This means that it has been progressively
broadening and reinforcing the basis for growth of its operations
particularly the IT/AI/IoT/DX business. The plan sets a target
for operating profit margin at 12.9% (5.1% for FY06/24). Thisbullish target seems to factor in the commencement of earnings
contribution from the Incubation & Investment business. In
light of these circumstances, Wealth Advisor (WA) has revised
Scala’s earnings forecasts for FY06/26 and later years. Given
the macro-economic environment and other factors, we haveproduced more cautious forecasts than the company’s medium
term business plan, with the estimated share price ranging
between ¥870 ~ ¥1,070, the midpoint of which was calculated■ Incubation & Investment is poised to contribute tolong-term earnings
Scala has revised its medium-term business plan and set new

Financial Results （as of Sep 8, 2023）
Revenue（Yen Mil）

YoY（％）

Operating Profit

YoY
（％）

（Yen Mil）

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.

12,8001.2

6502.5times

620

2.7times

420

―

24.2

WA est.

12,8001.2590

2.3times

570

2.4times

360

―

20.8

WA est.

15,700

22.7

1,495

2.5times

1,435

2.5times

860

2.4times

48.6

2024-62025-6※ 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 2023.9.11

Scala, Inc.（4845, TSE Prime）
by multiplying WA’s forecast EPS for FY06/26 by PER 20 times.
(written by Souta Suzuki)

Positioning of the Medium Term Business Plan ➡ Outline of Medium Term Business Plan
Priority measures / Carry through the targets to consolidate the basis for growth;
set out the clear direction of our future path

■ Company Overview

Outline for the Medium Term Business Plan ʻ2024 - 2026ʼ

Scala, Inc. embarked on an enterprise with the SaaS/ASP
Service. The company strives to solve social issues andpersonal matters by promoting DX that draws upon IT, AI
and IoT capabilities. It manages various services. These
include the search engine within websites ‘i-search’ whichhave been adopted by more than 450 major companies and‘interactive voice response’ (IVR). The IT/AI/IoT/DX businessmakes roughly half of its consolidated total sales revenue(48% in FY06/23 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’ (10%)
which engages in a call center service, ‘HR & Education’ (13%)
offering specialized new graduate employment support and‘EC’ (17%), an operator of second-hand e-commerce sites inwhich 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 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. In
2022, Scala incorporated as its subsidiary Nihon Pet Smallamount Short-term Insurance Company., and commenced
the ‘Insurance’ business (10%). Separately, the company
sold its entire shareholdings in its two subsidiaries, Connect
Agency, Inc. (CA), a provider of cloud-based PBX services,
and an IR support operator J-Phoenix Research Inc. (JPR).

■ Business Environment and Outlook
According to the ‘2022 WHITE PAPER: Information andCommunications’ released by the Japanese Ministry ofInternal Affairs and Communications, the penetration of AI
and IoT has been showing marked progress, with the numberof IoT devices in use worldwide estimated to increase from25.3 billion units in 2020 to 39.85 billion units by the endof 2024. Thanks to mounting needs for further efficiency
and labor saving operations across the board, the speedof adoption of AI technology appears to accelerate going
forward. Scala sees social challenges as the opportunity fora SDGs business on the back of its IT technology, setting its
eye on business growth in line with the new medium termbusiness plan (for 2024 - 2026). In this plan, the company
has conceived an appropriate project to address relevantsocial challenges either through a co-created initiativewith its partners or by deploying self-developed services

Basic policy
Establishment of
Human development
platform

Priority measures
Targets

Review of our value and higher profitability.

Redefinition of own values
Qualitative
Enhancement of management control baseQuantitative

Sales revenue ¥15.5 bn
Operating profit ¥2 bn(Source) companyʼs data.

Priority measure Redefinition of own value > Scala Groupʼs own value
Platforms (PFs) that continue to learn and evolve as well as the creation of value throughpartnerships are Scala Group’s own value

The source of value
Scala Group’sPF
Cooperation

Meta PF
Co-creation PF
Foundation PF

partners

Provision of the optimal
service to resolve challenges
through organic cooperation
between PFs rendered according
to the type of social
infrastructure.

Circulated
Social challenges opportunities
to learn

Insights

Withinthe company

Outsidethe company

Those who sympathizewith Scala Group’s VISION

In
Japan

OutsideJapan

Beyond-boundaries generationof value through co-creation
with partners

Own Value

Platforms (PFs)that continue
to learn andevolve as wellas the creationof value throughpartnerships(Source) companyʼs data.

offered by its core businesses, among other means. The
market size of the SDGs business is estimated to be ¥760
trillion, and the company considers an accelerating paceof earnings growth will continue after FY06/26 - the final
year of the medium term business plan (the year’s targets
are for sales revenue of ¥15.5 billion and operating profit
at ¥2.0 billion).

Risk Factors
Scala’s operations potentially run some risks including –Faced with weakening business conditions, its majorclients may hold down their IT investments; the growth insize and 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 other challenges; and the Incubation & Investment
business is at risk of making a loss.

Shareholder Return（as of Sep 8, 2023）■ 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 2023.9.11

Scala, Inc.（4845, TSE Prime）

Competitor Comparison（If the number is better than rivals, it's highlighted by red character）（as of Sep 8, 2023）
Scala, Inc.
(4845・TSE Prime)
Stock Price
Basic Point

Unit of Investment
Minimum Investment AmountFiscal Year End

Share Price
Indicator

Profitability

Financial
HealthCybozu, Inc.

(4776・TSE Prime)¥756¥1,638¥2,108

100Shares

100Shares

100Shares¥75,600¥163,800¥210,800

June

March

December

PER（E）

31.2times

65.1times

PBR

1.7times
5.0%

20.4times
3.4times

9.51times

1.5%

0.7%
15.5%

Dividend Yield（E）

1.2%

35.6%

151.0%

41.9%

EPS Growth Rate（E）▲291.8%153.7%

Operating Margin（E）

5.1%
―

10.7%
16.4%

―

―

6.6%

42.8%

28.9%

29.1%

4.6%

101.1%

143.6%

83.1%

Revenue Growth Rate（E）
GrowthTechmatrix Corporation(3762•TSE Prime)

Operating Profit Growth Rate（E）

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

76.6%

180.2%

Current Ratio

288.9%
2,131.7%
9.3%
1.2%

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

■Growth■Profitability■Financial position

FY06/24 is likely to see a marginalincrease in sales revenue, but it should
maintain the sales growth momentum if
we factor out the impact of non-current
reactionary fall in business activities
such as the ‘GoTo Travel Campaign’.
Operating profit is expected to showa high rate of growth at 2.5 times thelevel recorded a year ago. Meanwhile,the new medium term business plan has
set out targets for FY06/26 of achieving
sales revenue of ¥ 15,500 million andoperating profit of ¥2,000 million.
Scala is implementing its management
policy, under which it promotes thediversification of its business portfolio,
investment in new businesses andrigorous pursuit of M&A deals, evolving
around the core IT/AI/IoT/DX business.

Operating profit margin for
FY06/24 is expected to be 5.1%. The
company’s medium-term businessplan sets its target of 12.9% for
FY06/26. Contribution to earnings
from the Incubation & Investment
business as well as improved
profitability at existing businesses arecoming in sight.

At the end of FY06/23, Scala’s
equity ratio stood at 42.8%. Interestbearing debts on the same date were
¥6,002 million, a decrease from the¥6,951 million logged at the end of
the previous fiscal year. Retained
earnings were ¥5,162 million. The
company projects to pay increased
full-year dividends for 15 years insuccession.

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.

（3/3）

How to Read Wealth Advisor Equity Research Report
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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.