Alpha-Win Company Research Report
LOCKON CO., LTD.
(3690 TSE Mothers)

Issued: 2/19/2019

Research Dept., Alpha-Win Capital Inc.
http://www.awincap.com/● Flash Report on Performance◆ A leading company in Internet advertising effect measurement systems
・LOCKON CO., LTD. (hereinafter referred to as the “Company”) is a leading company in a niche field; its main
product is its proprietary Internet advertising effect measurement system (AD EBiS) provided via the Cloud tocompanies. Over the past few years, the Company has been conducting business restructuring and upfront
investment, temporarily resulting in a net loss in FY 2018 (note that all fiscal years or FY in this Report end in
September; e.g. FY 2018 ends in September 2018). However, thanks to the new subscription-based business modeland its past investments that have begun to produce positive results, record-high sales and improvement fromoperating loss to operating profit are expected for this fiscal year. Going forward, while aiming to expand the salesof its core products, the Company also plans to develop the Internet Marketing Robot business on a global scale
through alliances with other companies and by utilizing the accumulated information assets.

◆This fiscal year’s Q1 results: excellent fundamentals with improved operating loss andsignificant rise in sales
・The Company’s financial results for the first quarter (hereinafter “Q1”) of FY 2019 are as follows: Y519 million insales (+20.0% YOY), -Y26 million in operating loss (last Q1: -47 million), -Y29 million in recurring loss (last Q1:-Y46 million), and -Y36 million in net loss (last Q1: -31 million). Sales were largely pushed up by the marketing
platform business segment. Although there was a net loss, the profits are improving.
・Since FY 2016, the Company has been actively carrying out business restructuring and upfront investment. As aresult, despite increasing sales, the cost burden has been pulling down profit to cause consecutive profit declines.
On a quarterly basis, as shown in Figure 1, although an operating loss has been consecutively posted since Q4 of
FY 2017, it had reached the bottom in Q1 of FY 2018 and has been improving since then.

【 Figure 1 】Quarterly Change in Operating Profit or Loss (Unit: Y mil) (Ref: prepared by Alpha-Win Research
Dept. based on the Company’s financial results summary and financial results briefing materials)
Investment Phase(Y mil)Return Phase

100
35

43
9

75
33

50

11

22
67

25
35

69

41

Marketing Platform

13

4
36

EC Platform

77
45

60

50

52
25

0

-1

-8

14

12
-23

-38

-25
-50

15

-11

-44

-37

-15
-1

-21
-5

-3
Q1

Q2

Q3

FY 2015

Q4

Q1

Q2

Q3

FY 2016

Q4

Q1

Q2

Q3

FY 2017

Q4

Q1

Q2

Q3

FY 2018

Q4Q1

FY 2019

・Regarding the breakdown of Q1 sales by business segment, the marketing platform segment accounts for 89% of
the total. Especially due to the growth of its core business AD EBiS and the acquired business AdRepo, thesegment’s sales increased by about 30% YOY (Figure 2). AD EBiS’s number of active accounts increased by 174(+12.5%) from 1,395 last Q1 to 1,569 this Q1. In addition, its average unit price also increased by Y11,160(+14.8%) from Y75,461 to Y86,621 owing to the change in the pricing system (Figures 3 and 4). As a result, thissegment’s profit improved, with the amount of loss becoming halved from -Y44 million last Q1 to -Y21 million
this Q1 (Figure 2 described previously). Furthermore, in Q2 as well, the average unit price of new contracts seems
Performance Report
1/5This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of
investment. Contents of this Report are based on information current as of the issue date and are subject to change without notice. We do not warrant or represent thatthe information in this Report is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibility or liability.
Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors
who read this report must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Reportbelongs to Alpha-Win and no part of this report may be copied, photocopied, cited, or translated without our consent.

Alpha-Win Company Research Report
LOCKON CO., LTD. (3690 TSE Mothers)

Issued: 2/19/2019

to be maintained at greater than Y100,000 and the number of accounts seems to be increasing by about 20 per
month.
・Meanwhile, in the EC platform segment, sales are declining due to the transfer of the SOLUTION business toaffiliated companies and the transfer of the DMP business between segments. However, since the segment’s sales
are already only about 11% of this Q1’s total sales, the effect of its sales decline on the Company’s overall
performance is becoming smaller. The EC-CUBE business, which remains as part of the segment, has been
continued by a consolidated subsidiary that is 100% owned by the Company and is growing steadily thanks to the
new software version and the growth of the EC market. The segment’s profit has remained about the same, at a net
loss of -Y3 million last Q1 and -Y5 million this Q1 (Figure 2 described previously).

【 Figure 2 】Change in Q1 Financial Results and the Company’s Targets for This Fiscal Year (Unit: Y mil, %)FY 2018
Q1 (Oct-Dec)
433
353
80
286
66.1%
334
77.1%
(48)
(44)
(3)
-11.0%-12.5%
-4.2%
(47)
(32)

(Unit: Y mil)
Total Sales
Marketing Platform
EC Platform

Gross Profit
Gross Margin
SG&A Expenses
SG&A Expenses Ratio
Operating Profit (by seg.)Marketing Platform
EC Platform

Operating Margin
Marketing Platform
EC Platform

Recurring Profit
Net Profit

FY 2019
Q1 (Oct-Dec)
520
460
59
344
66.1%
370
71.3%
(27)
(21)
(5)
-5.1%
-4.6%
-9.2%
(30)
(36)

YOY
Diff.
87
107
(21)
58
37
21
23
(2)

YOY
FY 2019 Full-year% Change Company Target
20.0%
2250-2350
30.5%-26.0%
20.1%
0.0%
11.0%
-5.8%
0-50

5.9%
7.9%
-5.0%

(Ref) Prepared by Alpha-Win Research
Dept. based on or using excerpts from theCompany’s financial results summary andfinancial results briefing materials; same forthe other figures.

0-2.2

Not disclosed
Not disclosed【 Figure 3 】Quarterly Change in the Number ofActive Accounts for AD EBiS

【 Figure 4 】Quarterly Change in AD EBiS’s
Average Unit Price (Unit: Y)(Unit: # of accounts)

1,569(# of accounts)

86,621(Y)

90,000

1,600
1,500

75,461

1,395

1,400

80,0001,300

Seasonal
variation fromQ4 to Q1

70,000

1,200
1,100

60,0001,000
900

50,000800
700

40,000Q1Q2Q3FY 2015

Q4

Q1

Q2

Q3

FY 2016

Q4

Q1

Q2

Q3

FY 2017

Q4

Q1

Q2

Q3

FY 2018

Q4

1Q

FY 2019

Q1

Q2

Q3

FY 2015

Q4

Q1

Q2

Q3

FY 2016

Q4

Q1

Q2

Q3

FY 2017

Q4

Q1

Q2

Q3

FY 2018

Q4Q1

FY 2019

・Regarding profit, this Q1’s gross margin was about 66.1%, which is about the same as last Q1. Meanwhile,
although SG&A expenses increased by 11% YOY from Y334 million to Y370 million due to the increased numberof employees, thanks to increased sales and cost control the SG&A expenses ratio improved by 5.8 points from
77.1% → 71.3% (in the order of last Q1 → this Q1; the same applies below). The increase in the sales of themarketing platform segment (+Y129 million YOY) offset the decreased sales of the EC platform segment (-Y42
million YOY), increased personnel expense (+Y30 million YOY), and increase in other various expenses. As aresult, operating loss was improved by Y21 million from -Y47 million → -Y26 million. Since the disposal of
fixed assets was recorded as extraordinary loss, net loss for the quarter slightly worsened from -Y32 million →-Y36 million.
・The balance sheet has not changed significantly as of the end of this Q1. While cash and deposits decreased due tothe payment of acquisition costs and other factors (in the order of last Q1 → this Q1: Y1,194 million → Y875
million), goodwill was recorded as part of intangible fixed assets (in the same order: Y0 million → Y121
Performance Report

2/5This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of
investment. Contents of this Report are based on information current as of the issue date and are subject to change without notice. We do not warrant or represent thatthe information in this Report is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibility or liability.
Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors
who read this report must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Reportbelongs to Alpha-Win and no part of this report may be copied, photocopied, cited, or translated without our consent.

Alpha-Win Company Research Report
LOCKON CO., LTD. (3690 TSE Mothers)

Issued: 2/19/2019

million). This goodwill comes from the acquisition of AdRepo and is planned to be amortized over eight years on
a straight-line basis (approx. Y16 million per year). Although the Company has raised capital for future businessdevelopment through long- and short-term loans (approx. Y500 million outstanding), it currently has ample
liquidity and its equity ratio was 54.0% at the end of this Q1 such that there should be no issue for the time being.

◆Disclosed full-year financial results forecast: expects a significant rise and a record-highin sales and improvement from operating loss to operating profit
・At the same time as the recent disclosure of Q1 financial results, the Company also disclosed its full-year forecast(range) for the current fiscal year. For the full fiscal year, the Company expects a significant rise in sales and anachievement of a positive operating profit; sales are forecasted to be Y2,250-2,350 million (24.7-30.2% YOY
increase) and operating profit is expected to be Y0-50 million (last FY: -Y98 million). However, in considering the
rapid changes of the Internet-related business, the Company has kept its forecasts for recurring profit and net profit
undisclosed and its dividend undetermined. It also has not disclosed a forecast for the interim results.
・In terms of the breakdown of full-year sales by segment, the main marketing platform segment is expected to serveas the driver of the Company’s overall sales growth since the actively pursued investments are expected to produce
positive results and the AdRepo business acquired last fiscal year is expected to contribute to sales. On the other
hand, for the other segment or the EC platform segment, although sales will be strong with the new version of
EC-CUBE and the expansion of the EC market, the Company expects an overall decrease in sales due to business
transfers, etc. (sales forecast by segment has not been disclosed).
・The Company plans to actively recruit mainly engineers and sales representatives; its plan is to increase thenumber of staff from 144 at the end of FY 2018 → 147 at the end of Q1 of FY 2019 (actual number as ofDecember 2018) → approximately 170 at the end of FY 2019. However, the Company is also executing various
measures toward creating a positive operating profit including suppressing the rate of increase in employees andcost below the rate of increase in sales.
・Progress in Q1with respect to the Company's full-year financial results forecast for this fiscal year was 22.1-23.1%
for sales (last Q1, 23.9%; NA for operating profit since a loss was posted for both periods). Monthly sales
including January 2019 show that this fiscal year’s cumulative sales are growing steadily (Figure 5).

【 Figure 5 】Monthly Changes in Sales (Unit: Y thou, %)2018 (Q1)

MarketingPlatform

2019

Oct

Nov

Dec

Jan

Oct-Jancumulative

149,201

150,478

160,409

158,319

618,407% YOY Change

126.9

130.9

133.7

132.9

131.1

Thou. Yen

21,83918,68318,93625,06084,518

78.3

67.6

76.5

96.8

79.6

171,041

169,161

179,345

183,379

702,926

117.6

118.6

124.0

126.4

121.7

FY 2019 Sales
Thou. YenEC Platform% YOY ChangeThou. Yen

(Ref) Prepared by Alpha-Win Research Dept.
based on the news release on the Company’s
website.
(Note) Values shown are preliminary data before
an audit by an auditor and may be revised in the
future.

Total% YOY Change◆ Financial results forecast for this fiscal year and for the medium term (by Alpha-Win
Research Dept.)・Based on the current situation, we have not changed our previous forecast for both sales and profits. The sales
range of Y2,250-2,350 million (assuming a YOY sales growth of 24.7-30.2%) disclosed by the Company is about
Y100-200 million greater than our forecast. While the Company’s plan seems to include the expectation that M&A
and other factors during the fiscal year will raise the sales growth rate, on top of the approximately +21.7% YOY
in cumulative sales growth rate during this fiscal year’s October to January, we have kept a somewhat conservative
forecast for sales. Since AD EBiS’s number of accounts is increasing by about 20 companies per month and its
average unit price for new customers is maintained at over Y100,000, the sales of the existing businesses are
expected to continue to be strong.
・We have decided to keep our original forecast because the Q1 results show that operating profit is so far mostly inline with our forecast, our estimated full-year operating profit is within the Company's expected range, and it seems
that the Company will continue cost control to achieve its target. Also, it is worth noting that in recent years theCompany has been disclosing its full-year forecast when reasonable estimation becomes possible and therefore its
Performance Report

3/5This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of
investment. Contents of this Report are based on information current as of the issue date and are subject to change without notice. We do not warrant or represent thatthe information in this Report is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibility or liability.
Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors
who read this report must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Reportbelongs to Alpha-Win and no part of this report may be copied, photocopied, cited, or translated without our consent.

Alpha-Win Company Research Report
LOCKON CO., LTD. (3690 TSE Mothers)

Issued: 2/19/2019

forecast has been highly accurate, as indicated by its track record (see Figure 27 on page 27 of the first report).
・In our financial results forecast, we have not included any particular expectation for non-operating profit or loss or
extraordinary gain or loss at this point. However, we believe that if gains or losses from the sales, retirement, or
reevaluation of assets or contingent liabilities arise, the fiscal year may result in a net loss.
・Over the medium to long term, we expect that sales will increase by about 20-30% per year since the Internet
Marketing Robot business, which the Company is focusing on, has a high growth potential. We expect that theCompany will maintain net profit in the future and may also be able achieve a double-digit profit growth over the
medium to long term, although these would depend on the success of cost control (progress with upfront
investment, recruitment, etc.).

◆ Stock Price
・With improvements in the stock market’s overall trend, the Company's stock price made a rebound after hitting thethe bottom in late December of 2018. Especially since the disclosure of Q1 results, the stock price has been risingalong with the trading volume, largely outperforming indexes such as the TOPIX and the TSE Mothers Index. This
rise seems to reflect the announcement of a share buyback and the expectation for operating loss to turn into profit
for the full-year results. Regarding the planned share buyback, the maximum number of shares is 110 thousand
shares (equivalent to 1.7% of outstanding shares) and the maximum value is Y100 million. The buyback is planned
to be conducted on the market during February 7 to April 26. As for the purpose of this buyback, the Company
aims to improve asset efficiency and shareholder value and plans to use the repurchased shares for stockcompensation for its officers and employees and for M&As in the future. The planned number of shares to be
repurchased is equivalent to approximately 9.1 days’ worth of the average daily trading volume during the mostrecent three months (approx.) up to February 6, the date when the share buyback was announced. Additionally, theCompany issued 19,900 new shares (approx. Y22.6 million, which is equivalent to 0.3% of outstanding shares or
1.7 days’ worth of the trading volume for the same period as above) with February 18 as the payment date andallocated them as transfer-restricted stock compensation to its officers and employees, including directors, for the
purpose of creating incentives and sharing shareholder value.
・Although the stock valuation is high based on the financial results forecast for the current and next fiscal year, we
believe that it may be starting to reflect the expectation for the Company to achieve and maintain net profit andreturn to a profit-growing phase. Going forward, we expect that the stock price will reflect the regularly disclosed
monthly sales and quarterly profit, AD EBiS’s average unit price and number of active accounts which areimportant indicators (KPIs) directly linked with financial performance, and revenue over the medium term.
 3690 LOCKON CO., LTD.
FY

2016
2017
2018
2019
2019
2020
2021
2018
2019

CE
E
E
E
Q1
Q1

Sector: Information & Communication Figure A

Sales

YOY

O.P.

YOY

R.P.

YOY

N.P.

YOY

EPS

BPS

Dividend(Y mil)(%)(Y mil)(%)(Y mil)(%)(Y mil)

(%)

(Y)

(Y)

(Y)

1,612
1,719
1,804
2,250-2,350
2,150
2,600
3,000
432
519

12.2
6.6
5.0
24.7-30.2
19.2
20.9
15.4
2.8
20.0

247
-29.2
92
-62.6
-98
0-50 To profit
30 To profit
120
300.0
250
108.3
-47
-26
-

250
106
-115

-28.9
168
-26.9
26.79
-57.5
72
-56.8
11.56
-88
-14.02Not disclosed at this point
10 To profit
10 To profit
1.60
100
900.0
96
860.0
15.34
230
130.0
155
61.5
24.77
-46
-31
-5.05
-29
-36
-5.72

189.08195.60184.97170.60185.94210.71
-

5.0
5.0
0.0
ND
0.0
0.0
0.0
-

(Note) CE = the Company's estimate; E = Alpha-Win Research Dept.'s estimate. Estimated EPS and BPS values reflect the change in the number of shares due tothe issuing of new shares and the share buyback. "ND" stands for not determined. "To profit" indicates a change from loss to profit.

 Stock Price and Valuation Indicators: 3690 LOCKON CO., LTD.Figure B
Item

2/15/2019

Item

P/E

Stock Price (Y)1,264

Last FY (actual)-

Shares Outstanding (thou.)

6,372This FY (est.)

Market Capitalization (Y mil)

8,054

Next FY (est.)

Dilutive Shares (thou.)0

Dividend Yield

Dividend Payout Ratio

6.8

0.0%

0.0%

791.0

7.4

0.0%

0.0%

82.4

6.8

0.0%

0.0%

Equity Ratio at Last FY-End

P/B

54.5% Last FY's ROE-(Note) Estimates were made by Alpha-Win Research Dept.; estimated P/E and P/B values reflect the change in the number of shares due to the issuing of newshares and the share buyback.

Performance Report

4/5This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of
investment. Contents of this Report are based on information current as of the issue date and are subject to change without notice. We do not warrant or represent thatthe information in this Report is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibility or liability.
Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors
who read this report must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Reportbelongs to Alpha-Win and no part of this report may be copied, photocopied, cited, or translated without our consent.

Alpha-Win Company Research Report
LOCKON CO., LTD. (3690 TSE Mothers)

Issued: 2/19/2019

Stock Chart (end-of-week prices): 3690 LOCKON CO., LTD.

Figure C

(Y)
3,000

1.20

 Stock price (left axis)

1.10

Price relative to TOPIX (right axis)

2,500

1.00
0.90

2,000

0.80
0.70

1,500

0.60
0.50

1,000

0.40

(Note) From the fourth week of August 2016 to the third week of February 2019.

)
M

/Y

Y

(Note) Stock price and index values areshown up to 2/15/2019. Performance foreach period compares values on Feb 15
and at the corresponding month-end; e.g.
the 1-month period compares the closing
prices at the end of January and on Feb
15.

(M

/1
7
02
/1
8
04
/1
8
06
/1
8
08
/1
8
10
/1
8
12
/1
8

/1
7

12

/1
7

10

/1
7

08

/1
7

06

/1
7

04

/1
6

02

12

10

/1
6

0.30

/1
6

500
08

Performance
PeriodReturn vs. TOPIX
1 month
16.2%
15.5%
3 months
3.3%
9.2%
6 months
16.3%
27.9%
12 months
-5.0%
6.5%

＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊

Disclaimers
This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc.
(hereinafter “Alpha-Win”) on the request of the company presented in this Report.
This Report is not to be construed as a recommendation or solicitation of investment. Alpha-Win shall not beliable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use ofor reliance on this Report. Investors who read this report must make their own decisions on all investment
matters and take full responsibility regarding their investment.
This Report has been prepared with a focus on objectivity and neutrality based on the analysis of generally
accessible public information and supplemental information including interview(s) by the analyst. Alpha-Win, thewriter, and/or other persons involved in the publication of this Report may already hold, or buy and sell in the future,
the stock of the company presented in this Report.
Contents of this Report are based on information current as of the issue date and are subject to change
without notice. We do not warrant or represent that the information in this Report is accurate, reliable,
complete, appropriate, or fit for any purpose and do not accept any responsibility or liability.
Copyright of this Report belongs to Alpha-Win and no part of the publication may be copied, photocopied, cited, ortranslated without our consent.
We aim to write reports from a neutral position as much as possible based on interviews and objective facts.
Furthermore, we aim to distinguish between forecast or decisions made by the company and forecast or decisions
made by Alpha-Win and clarify the difference in the reports.
For inquiries regarding this Report, please send us an e-mail to info@awincap.com. However, Alpha-Win and thewriter of this Report do not have any obligation to reply to inquiries. SV20190219

Performance Report

5/5This Alpha-Win Company Research Report (hereinafter “this Report”) has been prepared by Alpha-Win-Capital Inc. (hereinafter “Alpha-Win”) on the request of thecompany presented in this Report for the purpose of providing a description of the company. This Report is not to be construed as a recommendation or solicitation of
investment. Contents of this Report are based on information current as of the issue date and are subject to change without notice. We do not warrant or represent thatthe information in this Report is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibility or liability.
Alpha-Win shall not be liable for any consequences including direct or indirect loss, lost profit, or damage resulting from the use of or reliance on this Report. Investors
who read this report must make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Reportbelongs to Alpha-Win and no part of this report may be copied, photocopied, cited, or translated without our consent.