Alpha-Win Company Research Report
LOCKON CO., LTD.
(3690 TSE Mothers)● SummaryIssued:12/18/2018

Research Dept., Alpha-Win Capital Inc.
http://www.awincap.com/

Business Description
・LOCKON CO., LTD. (hereinafter referred to as “the Company”) plans, develops, and sells software related to Internet
marketing. It was founded in 2001 by president Iwata during his college years. The main product is its proprietary
Internet advertising effect measurement system, provided via the cloud to middle-sized and large companies. The
Company's main business can be described as a subscription-based business, meaning that although costs precede
and temporarily cause an overall loss upon the acquisition of new customers, after a certain period of time, the initialcosts are recovered and profit begins to steadily accumulate over time. Going forward, the Company is expected toenter a profitability improvement phase by effectively using its accumulated information assets. The Company
became listed on TSE Mothers in September 2014. It is a leading company in a niche market.
Current Financial Results
・After becoming listed on Mothers, the Company increased sales and stayed in the black. However, since FY 2017
(the fiscal year ending in Sept. 2017), although the Company continued to increase sales, profit has been declining
due to upfront investment for business expansion and expenses related to business restructuring. In FY 2018 (lastFY), its net sales were Y1,804 million (+5.0% YOY), and the Company recorded a net loss of Y88 million (Y72
million earned as profit in the previous fiscal year) and stopped the payout of dividend. As of this point in time, theCompany has not announced forecast figures for FY 2019 (this FY). When the impact of the transfer and acquisitionof businesses is taken into account, sales have essentially been steadily increasing over the last few years, including
the previous fiscal year.
Competitiveness・The Company's strengths are the management skill of the president who has a deep knowledge of advanced
technologies in this field, products with proven and strong functions, and possession of big data that have been
accumulated over the years. The Company’s two main products both have the largest share in the domestic market.
In this recently born industry, the Company aims to secure an extraordinarily large market share by further
strengthening its products.
Business Strategy
・With the Marketing Robot Strategy, which aims to automate and improve the efficiency of Internet marketing, theCompany plans to expand its business domain as a whole from advertising effect measurement to analysis andutilization, as well as overseas development. It plans to achieve Y3 billion in sales in FY 2020 (next FY). Toward
this target, the Company plans to accelerate its growth by actively pursuing M&As and alliances with other companies.
Forecast on Financial Results (Alpha-Win Research Dept.)
・The Company’s business restructuring seems to have been completed for now. Current sales are excellent, and for
FY 2019 we expect sales of Y2,150 million (+19.2% YOY) and a net profit of Y10 million. While “aggressive”
upfront investment may be continued over the medium to long term, we predict that its existing and future businesses,
past and future acquisitions of companies, and various measures conducted so far will bring positive results, creating
a great growth potential and leading to a sales growth of 20% per year. Although profit will depend on the success of
cost control, we believe that the Company can maintain profitability in the future and may achieve a double-digit
profit growth over the medium to long term.
Stock Price
・The Company’s stock value does not seem cheap when comparing valuation indicators between the Company, TOPIX,
and similar companies. However, if the Company bottoms out and improves its financial performance, then it may
1/32
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 thisReport 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 that the 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 theuse 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 Report belongs 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: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

regain attention. Going forward, we should pay attention to the factors that may affect stock price including thechange in monthly sales, quarterly transition in profit and loss (watch out for when a net profit becomes recorded
again), M&A, alliances, and new functions. In particular, the unit price and the number of active accounts of the core
AD EBiS business are key indicators (KPI) directly linked to performance, and should be followed.

Shareholder Return
・In the previous fiscal year, the Company posted a net loss and terminated its dividend payout and shareholder benefit
plan. Currently, because it is in its growth phase, the Company believes that it should raise shareholder value by
recovering its financial performance through investments for growth rather than letting its cash flow out.

 3690 LOCKON CO., LTD.
FY
2016
2017
2018
2019
2019
2020
2021

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 

26.79
11.56
-14.02189.08195.60184.97

5.0
5.0
0.0

1.57
15.11
24.40

186.41201.53225.93

0.0
0.0
0.0

CE
E
E
E

1,612
1,719
1,804

12.2
6.6
5.0

2,150
2,600
3,000

19.2
20.9
15.4

247
92
-98

-29.2
250
-28.9
168
-26.9
-62.6
106
-57.5
72
-56.8
-115
-88
Has not been disclosed at this point
30 To surplus
10 To surplus
10 To surplus
120 300.0
100 900.0
96 860.0
250 108.3
230 130.0
155
61.5(Note) CE = the Company’s estimate; E = estimate by Alpha-Win Research Dept. All fiscal years discussed in thisdocument are September-ending. For example, FY 2018 ends in Sept. 2018. This applies to all parts of this Report.

 Stock Price and Valuation Indicators

3690 LOCKON CO., LTD.Figure B

as of 12/14/2018

Item

Item 

P/E

P/B

Dividend Yield

Dividend Payout Ratio

Stock Price (Y)1,220Last FY (actual)

-

6.6

0.0%

0.0%

Shares Outstanding (thou.)

6,352This FY (est.)

774.9

6.5

0.0%

0.0%

Market Capitalization (Y mil)

7,750

Next FY (est.)

80.7

6.1

0.0%

0.0%

Dilutive Shares (thou.)0

Equity Ratio at Last FY-End

54.5% Last FY’s ROE-(Note) Estimates were made by Alpha-Win Research Dept.
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

Performance
PeriodReturn vs. TOPIX
1 month-0.3%
4.4%
3 months
-3.3%
10.3%
6 months
13.7%
23.6%
12 months-16.7%
-4.9%

0.40
0.30

/1
7
02
/1
8
04
/1
8
06
/1
8
08
/1
8
10
/
1
(M 8
M
/Y
Y

/1
7

12

/1
7

10

/1
7

08

/1
7

06

/1
7

04

/1
6

02

/1
6

12

10

08

/1
6

)

500

(Note) From the fourth week of Aug. 2016 to the third week of Dec. 2018

(Note) Prepared by Alpha-Win Research Dept. The most recent stock price and TOPIX values used for the calculation of performance are
as of 12/14/2018. However, comparison between periods is based on the end-of-the-month stock price for each corresponding month.

2/32
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 thisReport 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 that the 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 Report belongs 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: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

Contents

1．Company Overview .......................................................................................................................... P4
Leading Company in a Niche Market ................................................................................................. P4
Business Philosophy, Mission, and Action Guidelines ....................................................................... P5
2．Business Description and Business Model ...................................................................................... P6
Providing Originally Developed Marketing Robot via the Cloud ..................................................... P6
Restructuring and Strengthening of Business Portfolio .................................................................... P7
Details on the Business Contents ...................................................................................................... P8
Subscription-Based Business Model ................................................................................................. P12
3．Shareholder Composition ............................................................................................................ P15
Change in Composition by Shareholder Type ................................................................................. P15
Major Shareholder Composition ..................................................................................................... P15
4．ESG .................................................................................................................................................. P17
Environment, Society, and Governance ............................................................................................ P17
5．History of Growth ......................................................................................................................... P18
Company History ............................................................................................................................. P18
Transition in Past Financial Results ................................................................................................ P18
6．Business Environment .................................................................................................................. P20
Trends in Japan’s Advertising Industry ........................................................................................... P20
LOCKON CO., LTD.’s Competitors................................................................................................ P21
7．Last Fiscal Year’s Results and This Fiscal Year’s Forecast ..................................................... P22
Full-Year Financial Results for FY 2018 (last fiscal year: 09/2018) .............................................. P22
LOCKON CO., LTD.’s Financial Results Forecast for FY 2019 (this fiscal year: 09/2019) ......... P23
8．Growth Strategy ............................................................................................................................ P24
LOCKON CO., LTD.’s Medium-Term Business Plan and Strategy .............................................. P24
Alpha-Win Research Dept.’s Financial Results Forecast for FY 09/2019 ...................................... P26
Alpha-Win Research Dept.’s Financial Results Forecast for the Medium Term ............................ P27
9．Analyst’s View ............................................................................................................................... P29
SWOT Analysis ................................................................................................................................. P29
Shareholder Return .......................................................................................................................... P29
Stock Price and Characteristic and Factors that May Affect Stock Price ....................................... P30
Note: Upon translating to English, when the page numbers differed from the original Japanese version, they were
adjusted to those of the English version of the Report.
3/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

w As its business, developing
the Marketing Robot that
automates and improves theefficiency of marketing
instead of humans.
Currently, the Internet
advertising effectmeasurement system, which
is a part of this business, is
its main product.
w As its main service, theCompany provides Internetmarketing-related platform
as a SaaS (cloud).
(1) Internet advertising effectmeasurement system: A tool tocomprehensively measure theeffect of and evaluate various
Internet ads and SEO strategies(2) Paid-listing ads: Also
referred to as searchadvertising. A method of
displaying ads related to
keywords searched or browsed
by Internet users. Effectively
displays ads in the users’ areasof interest. A highly effective
method for corporate
advertising.
(3) SaaS (software as a service):
A service where software is used
via the Internet (almost
synonymous with the cloud).
Does not need purchasing of
packaged products. Only thenecessary functions, contents,
and quantity of service are used
via the Internet and paid for.
(4) Programmatic advertising:An advertising method where
optimization of ads is conducted
automatically or supported
immediately. After submitting
an ad, optimization isconducted, leading to better
results.
w Main products are its
proprietary AD EBiS and
EC-CUBE.

1. Company Overview◆ Leading Company in a Niche Market
LOCKON CO., LTD. (hereinafter referred to as "the Company") is a
startup company that plans, develops, and sells software related toInternet advertising and e-commerce. Susumu Iwata, the Company’s
president, started a web design business in Osaka as a college student and,upon business expansion, established the Company in 2001.
The Company has grown through the full-scale development of theMarketing Robot (registered trademark of the Company) business,developing proprietary software to automatize and improve the efficiencyof marketing instead of humans. Until now, it has grown its business in
two areas – the marketing platform and the commercial distribution
platform. The main products are AD EBiS, an Internet advertising effectmeasurement system1, and THREe, an operating platform for paid-listing
ads2. Software is provided as a SaaS3 (cloud) to companies (B2B). The
Company is a leading company and a giant in the niche marketing robot
market. It became listed on TSE Mothers in September 2014. Currently,
the Company has two head offices, one in Osaka and one in Tokyo.
The Company name “LOCKON" (CO., LTD.) comes from "lock on,"which is a military term in English meaning "a missile becoming readyto automatically follow a target." Iwata, the president and founder,
stated that he chose this as the company name because "the military term
‘lock on’ connotes ideas such as reliability, innovation, high speed,
independence, and uniqueness, and illustrates how we are striving torealize the goals of our corporate statement (corporate philosophy),‘Impact on the World.’”
The Company is specialized in providing the Marketing Robot and carries
out the following two businesses (main product names listed after thecolon).
(1) Marketing platform: AD EBiS, THREe, AdRepo (automatic report
generation tool for programmatic advertising4)(2) Commercial distribution platform: EC-CUBE
The corporate group consists of a total of six companies: the Company,
two consolidated subsidiaries, one nonconsolidated subsidiary, and two
affiliates accounted for by the equity method.
Consolidated Subsidiaries
・LOCKON Vietnam Co., Ltd. (Vietnam Socialist Republic. An offshoredevelopment site. Conducts software development outsourced by theCompany. 100% owned by the Company.)
・EC-CUBE Co., Ltd. (Established in Osaka City Kita Ward in October
2018. The Company has a 100% stake. Planned to take over the ECCUBE business from the parent company's commercial distribution
platform business in January 2019）
Nonconsolidated Subsidiary
・LOCKON Marketing of U.S.A (Established for information gathering
purposes – a dormant company)
4/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

Affiliates Accounted for by the Equity Method
・SAI Co., Ltd. (LOCKON CO., LTD. acquired 20% of the shares in
September 2015 and transferred its EC outsourced development business)
・Radical Opti Co., Ltd. (LOCKON CO., LTD. acquired 20% of theshares in May 2017 and, like SAI, transferred its EC outsourced
development business)
w Consolidated-to-parentcompany ratios are about
1 for both sales and profit.

The parent company’s sales and profit make up an extremely large portionof the total for the entire corporate group, with the consolidated-to-parentcompany ratios staying at around 1. Total recurring profit/loss of theconsolidated subsidiaries is also almost zero (Figure 1).

【 Figure 1 】Comparison of Consolidated to Parent Company Recurring Profit(unit: Y mil, %)FY 2013A

Consolidated R.P.

B

Parent company R.P.
Consolidated R.P. - parent
A-BC
company R.P.
Subsidiaries, etc.'s R.P. /C/B
parent company R.P.
Consolidated R.P. / parent
A/B
company R.P.

NA

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

-

234

352

250

106

-115

75

245

359

252

107

-110

75

-12

-7

-2

-1

-5

-

-4.7%

-1.9%

-0.7%

-0.5%

-

0.95

0.98

0.99

1.00

-

(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report, financial results summary, financial results briefing
materials, HP, etc.
(Note) Hereinafter, unless otherwise noted, reference may be omitted if it is the same as above. Also, since we generally round off thedecimal places for the numbers used in this Report, the numbers may differ from those officially disclosed by the Company.

w All fiscal years (FY)
discussed in this Report
are September-ending. For
example, FY 2018 ends in
Sept. 2018.

w The Company’s businessphilosophy

After becoming listed, the Company had been debt-free, but in FY 2018,as investment for the future, the Company raised about Y800 million in
long- and short-term loans. The Company commented that thisinvestment is for the development of the marketing platform and AIrelated fields and in preparation for future M&As. Since the cash anddeposits were about Y1.2 billion as of the end of FY 2018, the Company
is essentially debt-free. In addition, while its total assets and market
capitalization are relatively small – about Y2.2 billion and Y8 billion,
respectively, as of the end of FY 2018 (stock price was Y1,262 at theend of Sept. 2018) – there is no problem with its financial condition,with an equity ratio of 54% and current ratio of 259%.

◆ Business Philosophy, Mission, and Action Guidelines
The Company's business philosophy is "Impact on the World." Thesewords embody the Company’s wish to "create a company with global
influence and give dream and hope to as many people as possible."
As its mission statement, the Company has established the following threepolicies: "For the happiness of all employees," "For the happiness of all
customers," and "For the happiness of all suppliers." The Company has
also set five action guidelines: "reliability," "speed," "uniqueness,""innovation," and "independence."

5/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

2．Business Description and Business Model◆ Providing Originally Developed Marketing Robot via
the Cloudw A B2B business,
providing proprietary
software via the cloud as
its main business.
Developing businesses
for two platforms.
Focused on themarketing platformbusiness.

Based on the concept that a "marketing robot" that solves problems
automatically and efficiently instead of humans is also necessary in thearea of Internet marketing due to the aging and declining population, theCompany provides proprietary Marketing Robot software via the cloud
mainly to companies. The Company's business consists of two businesssegments: (1) the marketing platform business and (2) the commercial
distribution platform business. The former accounts for approximately
85% of total sales and is the driver of sales growth (Figures 2 and 3).
Change in operating profit by business segment is shown below on
Figure 4. Except for FY 2017, the profit of the commercial distribution
platform had underpinned the Company’s performance amidst
fluctuations in the profit of the marketing platform business.

【 Figure 2 】Sales Breakdown
by Business Segment【 Figure 3 】Change in Sales by Business Segment
Marketing Platform
Commercial Distribution Platform

Commercial
Distribution Platform
Business

15.2%

84.8%

477

526

883

911

1,074

FY
2014

FY
2015

FY
2016

465

422

323

Marketing Platform Business

539

545

666

FY
2012

FY
2013

1,255

FY
2017

275

1,530

FY
2018

(Ref) Figures 2-4 were prepared by Alpha-Win Research Dept. from the Company’s securities report, financial resultssummary, and financial results briefing materials.

【 Figure 4 】Change in Operating Profit by Business Segment(Y mil)

Marketing Platform

250

Commercial Distribution Platform

200
150
100
50

-50
-100
-150
FY 2012FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

6/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18◆ Restructuring and Strengthening of Business Portfolio
w Pushing forward withrestructuring of businessportfolio. Concentrating
business resources on
AD EBiS of themarketing platformbusiness.

(5) Cross-Device Function: A
function to visualize user
behavior across devices,
applications, and browsers(6) DMP: A method by whicha corporate client analyzes its
websiteSince FY 2016, the Company has making fast progress with therestructuring and strengthening of its business portfolio, focusing on its
core business (AD EBiS in the marketing platform business) andseparating its non-core business (commercial distribution platformbusiness) (Figure 5). In the marketing platform business, the Internet
advertising effect measurement system AD EBiS accounts for most of thetotal sales (78%). In the future, the Company plans to concentratebusiness resources on this product and related products to develop thisbusiness as an even greater driver of growth. Thereby, the Company plansto acquire an extremely large share in the market.
Specifically, in recent years, the Company has been conducting thefollowing strengthening and restructuring of business.
(i) Strengthened the products of the marketing platform business.
Offering products with enhanced capabilities by adding various
optional functions to the AD EBiS such as the artificial intelligence
functions Cross-Device Function5 (patent-pending; provided startingin August 2018) and Customer Journey Analysis Function(visualizes and evaluates the user's action history; patent obtained).
(ii) Formed 31 new alliances with other companies against the target of30, which had been a high-priority target of the Company’s
development strategy (FY 2018). As a result, with the utilization of
external resources, the Company was able to obtain most of what isneeded for the three components – measurement, analysis, andutilization – crucial to the Marketing Robot.
(iii) Acquired EVERRISE CO., LTD.'s automatic report creation tool
AdRepo business in August 2018 and incorporated it into themarketing platform business.
(iv) Restructured the commercial distribution platform business,transferring the EC outsourced development business (actual sales
were Y246 million in FY 2016) to its two equity-method subsidiaries
and withdrawing from the outsourcing business.
(v) For the same commercial distribution platform business, theCompany also decided to transfer its EC-CUBE division to ECCUBE Co., Ltd., its new consolidated subsidiary, on January 1, 2019by a company split-up. Developed and began providing a newversion, EC-CUBE 4 (October 2018).
(vi) Similarly, the DMP6-related business of the commercial distribution
platform business (previous fiscal year's sales were Y84 million) wastransferred to the Company's marketing platform business in theprevious fiscal year since it is closely related to AD EBiS.
(vii) Reinforced human resources to prepare for growth. From FY 2014
to FY 2018, the number employees were increased from 68 → 71
→ 98 → 122 → 144 (the number of staff at the end of the fiscal
year) through new-graduate and mid-career recruitment. In the last
four years, more than 20 staff were hired each year, doubling thestaff size (increased the number of staff by 22 YOY during thisperiod). In particular, the Company is reinforcing its engineering
team for software development and sales team to strengthen sales
activities.
As a result of the above actions, after the second quarter (Q2) of FY 2019,
the Company (parent company) will concentrate on the marketing
platform business. However, since the company to which EC-CUBE was
7/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

transferred is a consolidated subsidiary, on a consolidated basis, theCompany plans to continue to classify its business into the same twosegments as before. However, the specific businesses within eachbusiness segment whose sales result will be disclosed are undeterminedat this time.

【 Figure 5 】Business Restructuring
Business Segment

Main Product/Service

Business Subcategory

ChangeNote
ParentCompany

1. AD EBiSDMPTransferred from SOLUTION

AdRepoAcquired
To be transferred to EC-CUBE Co., Ltd. on 1/1/2019

Consolidated

EC Outsourced Dev.

Were transferred to SAI Co., Ltd. and Radical Opti Co., Ltd.

Equity method(1) Marketing Platform(2) Commercial
Distribution Platform

2. THREe
1. EC-CUBE
2. SOLUTION(DMP↑)(Ref) Figures 5 and 6 were prepared by Alpha-Win Research Dept. from the Company’s securities report, financial results summary, andfinancial results briefing materials.

◆ Details on the Business Contents（1）Marketing Platform Business
The transition in the sales and profit of the marketing platform businessis as follows.

【 Figure 6 】Change in Sales of the Marketing Platform Businessand Operating Profit of This Business Segment
Sales(Y mil)Marketing Platform
AD EBiS
THREe

FY 2012FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

545
499
46

666
567
81

883
722
161

911
822
89

1,074
1,012
62

1,255
1,200
54

-61
-11.2%

-1
-0.1%

142
16.1%

214
23.5%

210
19.5%

153
12.2%

(DMP)
Segment's O.P.
Segment's O.P. Margin

w AD EBiS is theCompany’s main
product that accounts
for approximately 78%
of the Company’s total
sales (FY 2018).

FY 2018% of Total
1,530
84.7%
1,402
77.7%
43
2.4%
84
4.7%
-121
-7.9%

The marketing platform business consists of 1) AD EBiS (Internet
advertising effect measurement system) and 2) THREe (in-house
operation platform for paid-listing ads). By combining THREe, whichenables automatic optimization and automatic ad submission, and AD
EBiS, which measures and analyzes the effectiveness of Internet
advertising, the Company provides a one-stop platform for the threeelements of marketing automation – from effect measurement to
optimization to purchase/ad-submission.
Increasingly diversified and dispersed consumer behavior of today’s
Internet society has led to more sophisticated and complicated marketing
and advertising, making technology-based operation more important.
Usually, an advertising effect measurement system is involved in theeffect measurement, analysis, and evaluation of ads, and utilization (admanagement) is normally not included. The Company’s characteristic orstrength is its ability to offer, at a reasonable price, software that canaccurately evaluate and utilize the effect of Internet ads using various
8/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

analysis functions and analytical methods, and its capability to provide
excellent support.
w AD EBiS is an Internet
advertising effectmeasurement system.
w Provides services as a
SaaS, adopting thesubscription-based
business model.
(7) Impressions: The numberof times an ad was displayed.
(8) Clicks: The number oftimes an ad was clicked.
(9) Conversions: The numberof times that users, who visited
the site and clicked on an ad,
took actions that the advertiser
considers as achievement,such as product purchase,information request, andinquiry.
(10) Subscription-based
business model: A businessmodel where users pay for theprovided service according to
the duration of use.
w Number one in thedomestic market for threeconsecutive years

w Unit price is increasing
with the transition to thenew pricing system.

 (i) AD EBiSAd EBiS is the Company’s core product and is an Internet advertising
effect measurement system that allows the collective management, effectmeasurement, analysis, and visualization of the effect of Web ads, etc., tohelp assess the cost effectiveness of ads. It comprehensively provides a
one-stop marketing environment for maximizing sales or acquiringprospective customers through proactive marketing by “using” marketing
data accumulated by the "effect measurement" function. AD EBiS makes
possible the visualization of marketing strategy (evaluation, improvement,etc.), letting advertisers measure and understand the series of behavior
from the number of impressions7 of the ads displayed on PCs,
smartphones, etc., and the contacts, interests, and reactions toward theadvertiser’s ads to the number and history of clicks8 for the paid-listing
ads and the final purchase made at the advertiser's website (the number ofconversions9).

The service is provided as a SaaS under a subscription-based businessmodel10 (described in detail later).
Since its release in 2004, AD EBiS has had a total of more than 9,000
installations and has had the largest share in domestic market for Internet
advertising effect measurement system for three years in a row. Moreover,according to the Company's data, it is increasing its share year by year
from 36.0% in 2015 to 40.0% in 2016 and 42.9% in 2017 (forecasted
value). It is a B2B business with its major customers being ECC Junior,
Aiful, Noevir, Zwei, Kobayashi Pharmaceutical, Z-kai, Yazuya, Setagaya
Shizenshokuhin, etc.
AD EBiS allows users to add a variety of optional functions (CrossDevice Function, access history analysis function, etc.) to the basic
function as necessary. In the past, its pricing plan was a pay-as-you-go
based on multiple parameters. However, starting in June 2018, theCompany simplified the plan and set up a pricing table with a flat rate fordifferent upper limits to the monthly number of clicks and PV (page view),
much like a mobile phone pricing plan. In the future, the Company hopes
to make this new pricing system its main system. In the new pricing
system, the implementation-support program and telephone support are
packaged together with the basic functions and three main plans of S, M,
and L (monthly basic charge: 100, 200, and 300 thousand yen,respectively) are offered. Options (various external linkage functions suchas reporting, etc.) can be added to a plan.
Sales of AD-EBiS are determined by average unit price × number ofactive users. Both figures are important indices (KPI) not only for thisbusiness but for the Company as a whole. In Q4 of FY 2018, the averagemonthly unit price was Y84,918, which is Y4,966 or 6.5% greater thanY79,952 in the same period of the previous fiscal year. Similarly, thenumber of active users had also increased from the previous fiscal year;
the number was 1,518 in Q4 of FY 2018, which is 160 users or 11.8%
greater YOY than previous fiscal year’s 1,358 (Figure 8). If new functions
or services are added, the average unit price will rise, generally leading toincreased sales. In October and November of 2018, the average unit priceof AD EBiS for newly acquired contracts had exceeded Y100,000.
9/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18【 Figure 7 】Change in Unit Price of AD EBiS(Y)
85,000

New PlanStarted84,918【 Figure 8 】Change in the Number of Active

Accounts for AD EBiS(# of accounts)

1,518

1600
1500

80,00079,95275,000

1,358

1400

70,0001300

65,0001200

60,0001100

55,0001000

50,000900

45,000800

40,000Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY 2014

FY 2015

FY 2016

FY 2017

Note: There are seasonal variations, as some accounts only exist during campaigns.

FY 2018700
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY 2014

FY 2015

FY 2016

FY 2017

FY 2018(Ref) Figures 7-9 were prepared by Alpha-Win Research Dept. from the Company’s securities report andfinancial results briefing materials.

(ii) THREew THREe's sales are verysmall. The Company plans THREe is also a proprietary product – an operation platform for paidlisting ads. Of the many forms of Internet advertising, programmatic
to reduce businessadvertising is especially rapidly growing and is becoming moreresources used for thiscomplicated and advanced. Consequently, manual operation is becoming
business in order todifficult (about 60% of Internet ads are programmatic ads). Using THREe,
concentrate on AD EBiS.
it is possible to analyze big data accumulated through AD EBiS or various
media, automatically optimize ads, and automatically submit ads. By(11) Human-like Portfolio: A
enabling fully automatic operation (Human-like Portfolio11), including
bidding function thatthe optimal adjustment of bid unit price and addition of keywords, it canalgorithmizes the bidding
shorten the amount of time needed for operation and management andstrategy of the operator. If
realize optimization. It has been used by more than 5,000 users. THREe
budget and efficiency target areis also provided as a SaaS.
set, it will automatically perform
optimal bidding as if operated
However, in FY 2018, THREe accounted for only a little less than 3% of
by a person.
total sales. In order to concentrate business resources on AD EBiS, theCompany intends to shrink this business in the future.
w Moved the DMP businessfrom the commercial
distribution platformbusinessw AdRepo’s customers areadvertising agencies.
Enables automatedcreation of reports for
programmatic advertising.

(iii) DMP Business
The DMP business was transferred from the SOLUTION division of thecommercial distribution platform business to a division of the marketing
platform business in the previous fiscal year since it is closely related to
AE EBiS. DMP is an abbreviation for "Data Management Platform." Theprivate DMP provided by the Company is a method by which a corporateclient can analyze its website. For instance, a client can investigate andverify the behavior history and stay time of users who visited its website.
The Company has several major clients for this business including Lion.
(iv) AdRepo BusinessIn August 2018, the Company acquired the AdRepo business, anautomatic report-generation tool for programmatic advertising, and has
begun to fully develop this business starting this fiscal year. Annual sales
10/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

are estimated to have been a little less than Y100 million in the last fiscal
year. The Company plans to develop this business as a growth business.
Its domestic market share is third place, following ATOM (TechLoCo Co.,
Inc.: not listed) and glu (ATALA LLC: not listed, a partner of theCompany).
AdRepo is a tool to fully automate the generation of reports and is a cloudservice developed to reduce the workload of advertising agencies in report
creation for programmatic ads. By collaborating with key advertising
platforms such as Google AdWords, Yahoo! Promotional Ads, Facebook
Ads, and FreakOut, it can automate data aggregation and report
generation for programmatic ads. In addition, by strengthening its
coordination with AD EBiS, AdRepo enables the integrated managementof all data from data measurement to reporting and automation of digitalmarketing work.
（2）Commercial Distribution Platform Business
The commercial distribution platform business is composed of two divisions:(i) EC-CUBE and (ii) SOLUTION.

【 Figure 9】Change in Sales of the Commercial Distribution Platform Business and Operating Profit ofThis Business Segment
Sales(Y mil)Commercial Distribution
Platform
EC-CUBESOLUTION

FY 2012FY 2013

FY 2014

FY 2015

FY 2016

Segment's O.P. Margin

FY 2018% of Total

323

422

477

526

539

465

275

15.2%

150
174

207
214

245
232

230
296

219
319

254
20

14.1%
1.1%
0

98
30.5%

75
17.8%

107
22.5%

136
25.8%

38
7.1%

208
257
104
-60
-12.9%(DMP)
Segment's O.P.

FY 2017(12) Open source software: The
source code, which is equivalent
to the blueprint of software, ismade available free of charge,
letting anyone improve andredistribute it.
(13) ASP: A service that rents
applications to customers
through the Internet.
(14) Freemium Model:“Freemium” is a coined wordthat combines “free” and“premium.” Refers to a businessmodel that generates revenue byoffering basic services free ofcharge while charging fees formore sophisticated or speciallyadded related services.

22
8.2%

(i) EC-CUBE
EC-CUBE is an open source software12 or platform whereby users cancreate and operate EC (e-commerce) websites on their own. The
Company provides EC-CUBE as free packaged software for web design
to companies who wish to begin selling and providing products andservices on the web. It is characterized by both the user-friendliness as an
ASP13 and the convenience as a software enabling development –companies can directly and freely customize the program source. It has
the largest share in the domestic market. EC-CUBE has features such as
low cost, high customization (it can be changed according to the needs ofusers), and user-friendly interface, and has become a standard platform.
In return for offering EC-CUBE for free, the Company has set up theFreemium Model14 where revenue is earned from peripheral services.
Through this system, the Company makes profit from royalties fromofficial partners in the Internet business (account settlement agent
business, hosting businesses, etc.), function-addition fee from plug-ins(program to add functions to software), sales revenue of commercial
license, etc. Other sales related to sales promotion and events are also
included in the net sales.

11/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

w SOLUTION business
transferred toconsolidated affiliates

w The Company’s main
business is based on a
subscription-based
business model. It lets
the Company acquirecontinuous and stableprofit by charging feesfor every certain period.
w A business model
where there is an
overall loss
immediately after
obtaining a newcontract, but over time
the cost is recovered andprofit is steadily
accumulated.

However, as part of the restructuring of the business domain of theCompany’s group, the EC-CUBE business is planned to be transferred to
the 100% consolidated subsidiary, EC-CUBE Co., Ltd., on January 1,
2019. Because it is a fully consolidated subsidiary, there is no change inthe consolidated financial results, but the Company plans for thesubsidiary to further expand and develop the business as a separate
corporate entity, for instance, through partnerships with other companies.
The development of the new version, EC-CUBE4, has been completed,
and it has been provided since October 2018.
(ii) SOLUTION
Although the SOLUTION business used to be composed of multiple
businesses, with the restructuring of business, its main EC outsourced
development business had been transferred to the two affiliatedcompanies of which the Company owns 20% of shares each. From thisfiscal year and onwards, it seems that this division of business will nolonger exist.

◆ Subscription-Based Business Model
The marketing platform business, which accounts for approximately 85%of the Company's sales, is mostly based on the SaaS (cloud), pay-as-yougo model. It is a subscription-based business where users pay apredetermined fee for the service contents or the use of system services
such as AD EBiS during a certain contract period, such that the Company
can continue to earn revenue until contract cancellation. Althoughexpenses including marketing and sales expenses for customer acquisition
and R&D expenses will precede at the beginning of a new contract, overa period of about three years (the period from the start to the end of atransaction with a customer), revenue can be accumulated continuously
to increase the life time value (LTV: how much cumulative profit isgenerated within a customer’s lifetime). Therefore, it is a business modelthat allows for stable growth.
Figure 10 below shows a model for the change in the Company's
cumulative profit and loss over the average contract period of three years
under the subscription-based business model. In the month that a newcontract is made, all of the expenses are recorded, so that an overall loss
is recorded for that month. However, since the Company then earns analmost fixed amount of sales revenue every month starting in the monthof contract, the cumulative break-even point is reached after eight months.
From the ninth month, the cumulative profit and loss (LTV) turns into asurplus and accumulates until the 36th month when cancellation is
expected. In other words, while the number of contracts is increasing at
an accelerating speed, on the surface level, there would seem to be a timelag, where the contribution to profit in the first year is small but profit
accumulates on a continual and stable basis from the second year until theend of the contract. The Company considers the upper limit of the initialcost to be about 30% of the LTV (the final cumulative profit; therightmost end of the graph in Figure 10) and controls the initial cost
related to new contract acquisition accordingly.

12/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18【 Figure 10 】Model for the Change in a Customer’s LTV (cumulative profit and loss)

LTV

 for
 Change


Model
in LTVper
Customer

1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Time
Second year

First year

Investment phase
Expenses for customer
acquisition precede

Third year

Return phase

After investment payback, profit steadily accumulates over thelong term(Ref) Prepared by Alpha-Win Research Dept. from the Company’s financial results briefing materials, HP, etc.

(15) Inbound marketing: A
marketing concept where therelevant information(contents) are sent out to users
who are already interested inthem to some degree and arepotential future customers of
the advertiser, thereby
encouraging purchase of theadvertiser’s products orservices.

HubSpot, Inc. (hereinafter “HUBS”), listed on the US NASDAQ, is acompany with the same subscription-based model as the Company thatcan be used as reference. HUBS provides integrated software for inboundmarketing15 via the cloud. This company charges a monthly fee based on
the amount of use.
The transition in HUBS 's overall business performance is shown on
Figure 11, and the transition in profit margin, various expense ratios, andthe number of customers is shown on Figure 12. Because of sales andmarketing expenses and upfront investment costs such as research anddevelopment (R&D) expenses incurred during the business’s growthphase, or the phase during which the number of customers rapidly
increases, the operating margin resulted in a large negative percentage of-82% in FY 2010. However, due to the time lag in the number of contracts,
sales, and profit inherent to the subscription-based model as describedabove, the operating margin suddenly improved to -11% in FY 2017.
Along with this, the stock price of HUBS also rose to about four times theprice of its IPO, largely outperforming NASDAQ and S&P500 (as ofDecember 14, 2018).
Similar to HUBS, the profit of the Company (LOCKON CO., LTD.) is
predicted to tend to improve with a time lag as the number of contracts(net sales and active users) increases. Therefore, it would be important tofollow up on the Company over multiple years rather than just a single
year. In that sense, the number of active users and the average unit price
may be considered as leading indicators of the Company’s performance.

13/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18【 Figure 11 】Change in HUBS’ Performance (1)Sales & Operating Profit (left axis): unit = USD mil, O.P. Margin (right axis): unit = %(USD mill)

400

0%

350

-10%

300

-20%

250

-30%

200
-40%
150
-50%
100
-60%

50

-70%
-80%

-50
-100

-90%
FY 2010

FY 2011

FY 2012

Sales (left axis)

FY 2013

FY 2014

O.P. (left axis)

FY 2015

FY 2016

FY 2017

O.P. Margin (right axis)(Ref) Figures 11 and 12 were prepared by Alpha-Win Research Dept. from HUBS’ financial results materials, HP, etc.

【 Figure 12 】 Change in HUBS’ Performance (2)Gross margin & expense ratios over sales (left axis): unit = %Number of customers (right axis): unit = companies or persons(Ratios)

(# of customer:
companies or persons)

100%

45,00090%

40,00080%

35,00070%

30,00060%

25,00050%
20,00040%

15,00030%
20%

10,000

10%

5,000

0%

0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Number of customer (right axis)
Sales & marketing expenses ratio (left axis)
R&D expense ratio (left axis)
General and administrative expense ratio (left axis)
Gross margin (left axis)

14/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

3．Shareholder Composition
w The shareholding ratio
of individuals isoverwhelmingly highat about 95%.

◆ Change in Composition by Shareholder TypeRegarding shareholder composition by shareholder type as of the end of
September 2017 (Figure 13), "individuals, etc." accounts for an
overwhelmingly large portion – about 95% of the total. "Other corporate
entities" is about 3%, "financial instruments business operators" is about
1%, and both the "overseas corporate entities, etc." and "financial
institutions, etc." are small, with less than 1% each. The composition
ratio has not changed significantly.

【 Figure 13 】Change in Shareholder Composition by
Shareholder Type (unit = %)(%)

100.0095.00
Individuals, etc.
90.00

85.00

~

FY 2014

FY 2015

FY 2016

FY 2017

6
Other corporate
entities

5
4

Financial instruments
business operators

3
2

Overseas corporate
entities, etc.

1

Financial institutions,etc.

0
FY 2014

FY 2015

FY 2016

FY 2017

at year-end(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report and financial
results summary(Note) As of the time when this Report was created, the securities report for FY 2018 had not been
disclosed.

◆ Major Shareholder Composition
w The top major
shareholders are active
or former executive
officers. Persons
affiliated with theCompany own approx.
60% of the shares,
including theemployee stock
ownership plan.

The major shareholders are as shown on Figure 14. The following is
supplementary information (the major shareholders at the end of
September 2018 have not been disclosed as of the issue date of thisReport).
· The largest shareholder is Susumu Iwata, the current president, founder,and owner.
· Second largest shareholder is a former executive vice president of theCompany, and the third largest shareholder is the present director andsenior executive officer Ms. Kanako Mataza (planned to retire in
December 2018). The ninth largest shareholder is a former director. The
shares of these former and present executive officers of the Company,
plus the employee stock ownership plan at sixth place, amount to greaterthan 60 percent of the total shares.
· The fourth largest shareholder is Rakuten Securities, Inc.
· The fifth largest shareholder is Hakuhodo DT Media Partners Inc., theCompany’s distributor.
15/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18· The seventh largest shareholder is BNY GCM CLIENT ACCOUNTJPRD AC ISG, an account that is a major shareholder of a total of over
40 Japanese stocks – mainly small caps but also including large caps. Its
investment objective is unknown, but currently there seems to be no
activist-like behavior.
· The eighth and tenth largest shareholders are thought to be generalindividual investors.
As of the end of March 2018, the number of treasury shares owned by theCompany was only 45. It increased this amount to 983 shares at the endof September of the same year, but this is still just slightly less than 0.02%
of the outstanding shares.

【 Figure 14 】Major Shareholders’ Status
Unit for number of shares in the table: thou. shares

Susumu Iwata (president and CEO)Hiroichi Fukuda (former executive vice president)
Kanako Mataza (director and senior executive officer)
Rakuten Securities, Inc.
Hakuhodo DY Media Partners Inc.
LOCKON Employee Stock Ownership Plan
BNY GCM CLIENT ACCOUNT JPRD AC ISG (FE-AC)
Katsuyuki Ito (indiv.)
Kenichiro Wade (former outside director)
Tomonori Yamada (indiv.)
Yoshio Takayama (indiv.)
Kayoko Nagano (indiv.)
SEPTENI CO., LTD
Japan Trustee Services Bank, Ltd.
Matsui Securities Co., Ltd.
Japan Securities Finance Co.,LTD
Yoichi Nishikawa (indiv.)
Akio Shiojiri (former director: audit committee member)(Number of treasury shares)(Ratio of treasury shares over all issued shares)

End of
Sept. 2015

End of
Sept. 2016

2,851
1,071
415
―
60
76
―
―
39
―
―
―
62
―
―
30
34
26
0

2,817
1,021
415
―
60
39
―
―
29
―
―
―
62
59
36
35
―
―
0



End of
End of Mar.
←Shareholding % ←Ranking
Sept. 2017
2018

2,817
1,021
352
―
60
48
60
―
29
28
28
24
―
―
―
―
―
―
45

2,819
961
354
63
60
57
29
29
29
28
―
―
―
―
―
―
―
―
179

0.0007%0.0028%

44.39
15.13
5.58
0.99
0.94
0.89
0.46
0.46
0.45
0.44

1
2
3
4
5
6
7
8
9
10

(Ref) Prepared by Alpha-Win Research Dept. from the Company’s FY 2018 Q2 securities report

16/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

4． ESG◆ Environment

The Company’s business is not the kind that harms the environment. The
Company aims to conserve energy by saving electricity, etc.
w Supporting future
entrepreneurs, nextgeneration human resource
development, and women
working in the technology
industry◆ Society

The Company is engaged in the following social initiatives.
· Osaka Startups: providing a support program for startup companies basedin Osaka and for those aiming to start a company.
· Girls in Tech Japan: supporting the improvement of the status of women
working in the technology industry based on the philosophy of Girls in
Tech (GIT: a nonprofit organization launched in 2007 in San Francisco,
USA).
·Next-Generation Human Resources Development: providing
opportunities for students to learn through actual job experience in orderto foster the young generation of human resources.
In addition, the Company holds a general employee meeting twice a year
as well as holding monthly company parties where all the employees
gather on the last Friday of each month. It also has clubs. Through these
activities, the Company provides the opportunity to exchange informationand strengthen the relationship among employees.

(16) Great Place To Work®
Institute: An organization that
conducts surveys and presents"Great Places to Work" inabout 50 countries around theworld every year.

The Company has also put efforts into enhancing unique employee benefit
programs, such as the “Mountain-Retreat” Leave System where every
employee must take nine consecutive days of leave every year, theTraining Leave Program which allows employees to take leave for up to
two years for self-development, and the LOCK-Off which is a facility (ahouse) for communication among employees and free learning. Becauseof these efforts, the Company has been awarded with the following awards.
· Great Place to WorkⓇ16 Best Workplaces Ranking: Best Companies
Award for companies with 25 ~ 99 employees (awarded for six years ina row)· Selected by the Ministry of Economy, Trade and Industry as a Driving
Company for the Regional Future for Fiscal Year 2017
· The 2nd GOOD ACTION contest sponsored by Rikunabi NEXT: Best
Action Award· The 8th Deloitte Technology Fast 500 Asia Pacific Award· The 7th Japan Technology Fast 50 Award◆ Governance

The Company has adopted a company system with an audit andsupervisory committee and delegates decisions on executions ofimportant business matters to directors to enable quick decision-making.
In addition, by incorporating an executive officer system, the Company
aims to improve management efficiency and speed by separating businessexecution and supervision.
Of the six directors, three are outside directors who are also audit andsupervisory committee members (from Kobe Steel, Ltd. and MUFJ Bank,
Ltd.; certified public accountants). Of the three directors who are not audit
and supervisory committee members, one is a woman.
17/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

5．History of Growth◆ Company History
w Founded by president
Iwata in 2001

w Developed and launchedunique products that canbe differentiated fromother companies
w Listed on Mothers in
September 2014

President Susumu Iwata traveled around the world as a backpacker during
his college days. After returning home, he started a restaurant but
withdrew and then started a travel-related business. Through this business,he acquired the skills and know-how for Internet and web design. He thenindividually started a web design company. This business grew and, inJune 2001, when Mr. Iwata was 21 years old, he founded the Company.
After foundation, upon recognizing the business potential, interactivity,
and real-time nature of the Internet, as well as the importance of data
mining, he began to make a transition to a web integration business.
In September 2004, the Company released the EBis (predecessor of AD
EBiS), a proprietary Internet advertising effect measurement system,
based on the concept of "From a ‘Website to Show’ to a ‘Website toUse.’" Then, in September 2006, it released Japan's first open platform
software EC-CUBE, and released the paid-listing ad management service
THREe in October 2012. Amidst the rapid increase of Internet ads andthe related market needs for adverting effect measurement and EC, theCompany pioneered in the creation of unique products, steadily
expanding its business by cultivating a new market. It became listed on
the TSE Mothers market in September 2014.

◆ Transition in Past Financial Results
w In FY 2015, record-highprofit was recorded. Alltime highs are being
consecutively achieved
every year for sales.

w Since FY 2016, theCompany has been
restructuring its businessand conducting upfront
investment for future
growth as its priority,
rather than focusing on
profit. A net loss wasrecorded in FY 2018.

From FY 2010 to FY 2013, during which account settlement wasnonconsolidated, the Company increased sales for fourth consecutive
fiscal years. Since FY 2014, from which consolidated account settlement
began, consecutive record-highs were achieved for sales for four fiscal
years up to FY 2018 (from what is available in the disclosure material,
we can see that sales have been hitting record-highs for at least eight
consecutive years). During this period, sales increased by about 2.5
times from about Y730 million to about Y1.8 billion. This success wasbrought by the rapid expansion of the marketing platform’s AD EBiS
business and the steady growth of the commercial distribution
platform’s EC-CUBE and SOLUTION businesses.
Meanwhile, for profit, the Company had sustained profitability both on anonconsolidated and consolidated basis until FY 2017. In FY 2015, a
record-high operating profit of Y350 million and a record-high net profitof Y231 million were achieved. However, since FY 2016, theCompany’s focus on business restructuring and upfront investment has
increased the expenses, leading to a continuous decline in profit despite
increased sales. In the previous fiscal year, or FY 2018, the Company
recorded a net loss for the first time since becoming listed on the market(the previous fiscal year’s results are described later) due to the upfront
investment cost mainly for the expansion of human resources fordivisions such as development and sales (increased personnel expenses).

18/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18【 Figure 15 】Transition in Past Financial Results
2000

30.0%
25.0%

1500

20.0%
15.0%

1000

10.0%
500

5.0%
0.0%
-5.0%

-500

-10.0%FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Sales (left axis: Y mil)

R.P. (left axis: Y mil)

R.P. Margin (right axis: %)(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report and financial results summary(Note) Consolidated results starting in FY 2014; nonconsolidated prior to this point.

【 Figure 16 】 Change in the Number of Employees

Development
S&M
SupportAdministration

144

98
68

71

11
8
14

11
10
12

35

38

FY 2014

FY 2015(Unit: persons)

13
15

122

20

18

21

15

29

25

14

56

64

FY 2016

FY 201774

FY 2018(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report and financial results
briefing materials

19/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

6．Business Environment
w The Internet advertisingexpenditure increased byabout fourfold from 2005
to 2017. The averageannual growth rate ishigh at about 12%.

◆ Trends in Japan’s Advertising Industry
Total advertising expenditure in Japan in 2017 (calendar year; the same
applies to this entire chapter) was about Y6.4 trillion. Although there havebeen ups and downs over the last ten years, the market as a whole isgradually becoming smaller (average annual growth rate is -0.5%). Of thisexpenditure, Internet advertising expenditure (total of medium cost andproduction cost) was about Y1.5 trillion (+15.2% YOY), which is about
24% of the total. Its share in the market is steadily increasing by 1-2%
every year, growing close to the share of 30% for television advertising,
the largest among the four types of mass-media advertising (newspaper,magazine, radio, and television). Internet advertising expenditure hasgrown by about four times from 2004 (point of comparison, set at 100) to
2017, rapidly increasing at an average annual growth rate of about 12.2%(Figure 17).

【 Figure 17 】Change in Advertising Expenditure by Medium(index value: year 2005 set at 100)
400%
Internet Ads350%

The Four Mass Media

300%

Sales Promotion

Paper Ads Expenditure

250%
200%
150%
100%
50%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(Ref) Prepared by Alpha-Win Research Dept. from Dentsu Inc.’s “2017 Advertising Expenditures in Japan”

w Internet advertising is
expected to continue its
double-digit growth in
the future.

The Internet advertising expenditure in 2018 is predicted to be about
Y1.44 trillion, an increase of 18% from the previous year; continued
double-digit growth is expected. (Source: Dentsu’s "2017 Advertising
Expenditures in Japan"). Also, the data on the number of Internet users
and population penetration rate disclosed by the Ministry of Internal
Affairs and Communications indicate that 83.5% of Japan's population
already uses the Internet. Especially for the young population in their 20s,
the Internet has become a necessity of life. Since they see Internet ads asoften as or more than television commercials, Internet ads are highly
likely to become the most influential advertising medium in the near
future. As technology becomes more advanced in the future, more people
are expected to use the Internet, leading to growing demand for Internet
advertising. Therefore, for the time being, business environment is
expected to stay favorable for the development of the Company’s Internet
advertising effect measurement and utilization business.
20/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18◆ LOCKON CO., LTD.’s Competitors(17) Google Analytics: A
website access analysis tool
provided by Google
targeting SME users.
Analysis is only conductedwithin Google’s website, andmostly the free version is
popular. The high-spec paidversion seems to be a highend service.
(18) Adobe Analytics: An
access analysis tool that is
installed in many large
websites. It can analyze
complicated and large data,is highly customizable, andhas multiple and high-quality
functions, but the price ishigh.

There seems to be no Japanese listed company that could be directlycompared with the Company. For advertising effect measurement andanalysis tools, the competing products are Google Analytics17 and Adobe
Analytics18 widely used by domestic SMEs (small- and medium-sizedenterprises), ADPLAN (implemented in a cumulative total of over 1,500
companies) offered by the listed company OPT Holding Group (TSE First
Section 2389; hereinafter “OPT HD”), and Web Antenna (implemented
in more than 600 companies, from major companies to venturecompanies) provided by the unlisted company beBit, Inc. However, othercompanies are not specialized in the field, and their product’s functions,
measurement targets, analysis contents, and support system are limited.
In comparison, the Company's products are superior in terms ofspecifications and the development and support systems, which is why
the Company has a large share and is number one in the market. Also, theCompany’s target customer zone is the middle zone, different from thehigh-end zone targeted by the paid versions of Google Analytics and
Adobe Analytics (estimated to be about ten times the Company’s pricesetting).

【 Figure 18】Each Vendor’s Share of Advertising Effect Measurement
Market by Sales Volume (forecast for 2017)

w AD EBiS – No. 1 indomestic share for 3
consecutive fiscal
years

Other

23.6%

LOCKON CO.,LTD.
ADEBiS&M
AD EBiS

Company B

42.9%

15.7%
Company A

17.9%(Ref) The Company’s financial results briefing materials

21/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

7．Last Fiscal Year’s Results and This
Fiscal Year’s Forecast◆ Full-Year Financial Results for FY 2018 (last fiscal year:
09/2018)

w A net loss was recorded
last fiscal year due toupfront investment as apart of the growthstrategy.

Consolidated financial results for FY 2018 (hereinafter “last fiscalyear”) were as follows: sales of Y1,804 million (+5.0% YOY),
operating loss of -Y98 million (last fiscal year, a profit of Y92 million),recurring loss of -Y115 million (last fiscal year, a profit of Y106
million), and net loss attributable to the parent company of -Y88 million(last fiscal year, a net profit of Y72 million). Although record-high sales
were achieved for another consecutive fiscal year, the Company
recorded an operating loss for the first time since becoming listed
because of the upfront investment cost. Sales ended up being about thesame as the forecast made and disclosed by the Company. Meanwhile,
concerning profit, the amount of operating loss was Y52 million smaller
than expected (forecasted loss of -Y150 million) thanks to reduced
personnel expense (seven less employees than planned) and cost cutdown.

w The gross margin has
been stable. No change infundamentals.

The gross margin has been maintained at a high level of around 65%
since FY 2014. Indeed, the value was also stable in FY 2018 at 65.9%.
This shows that there has been no major change in the businessenvironment or fundamentals. On the other hand, although the operating
margin was 24.4% in FY 2015, due to increased SG&A expenses fromthe active upfront investment starting in FY 2016, it decreased to -5.5%
for last fiscal year. The SG&A expenses (and its ratio over sales) havesuddenly increased from Y796 million (49.3%) in FY 2016 → Y1,030
million (59.9%) in FY 2017 → Y1,298 million (71.4%) in FY 2018
(Figure 19). In particular, operating loss was recorded last fiscal year
since, in preparation for medium- to long-term growth strategies, thenumber of staff was increased (by 22) leading to an increase inpersonnel expense by Y188 million, the commercial distribution
platform’s SOLUTION business was transferred to equity-method
companies causing a Y190 million decrease in sales, and advertisingexpenses increased (Figure 20).

w Upfront investment was
focused on increasing
human resources.
Business restructuring
was also conducted.

【 Figure 19 】Transition in Margins and Ratios(unit = %)Gross margin

O.P. margin

SG&A ratio

Factors that Caused Change in Consolidated Operating Profit

80.0
70.0

66.5

63.8

60.0

59.9

50.0
45.4

65.9

18.3

275

FY 2017
Operatingprofit

15.4
5.4

10.0

92

-5.5

0.0

Increasedsales inmarketingPF-10.0
FY 2014

FY 2015

FY 2016

Unit: Y mil

190

42.1
24.4

30.0

Factors for Change in Operating Profit: FY 2017 – FY 2018

49.3

40.0

20.0

71.4

65.3

64.7

【 Figure 20 】Factors Contributing to Change in
Operating Profit in FY 2018 (last FY) (unit = Y mil)

FY 2017

FY 2018

Increased
personnel
expenseDecreasedsales incommercial
dstribution
PF

188

Advertisingexpense:increase infees paid toagencies

72

Increasein otherexpenses

98

15(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report, financial
results summary, and financial results briefing materials

FY 2018
Operating
loss

22/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

However, looking at the quarterly change in operating profit and loss,
from the first quarter (Q1) to Q4 of FY 2018, the value has changed from-48 → -23 → -12 → -16 (unit: million yen), showing that the amount ofloss has already peaked out and is becoming smaller. This trend is
explained by the improvement in gross margin since Q3 and the improved
SG&A expenses ratio since Q2 thanks to cost-cutting efforts.

w Looking at profit and loss
on a quarterly basis, theamount of loss is becoming
smaller.

【 Figure 21 】Quarterly Transition in Operating Profit(Y mil)
120

100

Marketing Platform Business
Commercial Distribution
Platform Business

80

41

60
22
40

24

35

9

33

13
11

22

19

28

35

36

41

35

41

36

Commercial
Distribution Platform
Business

77

4

69

67
20

For quarterly
results, the greatest
loss was recorded in
Q1 of last FY andthe amount of loss
has been shrinking
since then.

43

45

60

50

52
25

-1

-8

15

14

-38

-37

12

-11
-23

-20

-40

-44

-15
-1

Marketing Platform
BusinessAmount of loss is
becoming smaller
every quarter

-3

-60
Q1

Q2

Q3

FY 2014

Q4

Q1

Q2

Q3

Q4

Q1

FY 2015Q2Q3FY 2016

Q4

Q1

Q2

Q3

Q4

Q1

FY 2017

Q2

Q3

Q4

FY 2018(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report and financial results briefing
materials◆ LOCKON CO., LTD.’s Financial Results Forecast for
FY 2019 (this fiscal year: 09/2019)
w This FY's forecast has

not been disclosed.
Currently, excellent
monthly sales arebeing maintained.

The Company plans to continue to actively invest during this fiscal year
(FY 2019), but it has not disclosed the financial results forecast or thedividend schedule, stating that disclosure cannot be made since at thispoint in time it is difficult to accurately predict the outcome of investment.
It plans to make a disclosure when reasonable calculations become
possible. However, the monthly sales for the current fiscal year as
announced by the Company, shown on Figure 22, do indicate that total
sales in both October and November were about 18% greater on a YOY
comparison. While the sales for the commercial distribution platform
declined due to the transfer of business, the sales for the marketing
platform increased by nearly 30%, resulting in strong sales.

【 Figure 22 】Recent Monthly Transition in
Sales (flash report)(upper row: sales, unit = Y thou, decimal places cut off)
(lower row: YOY change, unit = %)(Ref) Prepared by Alpha-Win Research Dept. from the news
release on the Company’s HP. The values shown are
preliminary data before auditing by an auditor and may berevised in the future.

FY 2019 Sales

Oct

Nov

Total

149,201

150,478

299,679

126.9

130.9

128.9

21,83918,68340,522

78.3

67.6

73.0

171,041

169,161

340,202

117.6

118.6

118.1

Marketing Platform

Commercial Distribution
Platform

Entire Company

23/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

8．Growth Strategy

w With the growth strategy
involving the Marketing
Robot, the Company aims
for sales of Y3 billion in FY
2020.

◆ LOCKON CO., LTD.’s Medium-Term Business Planand Strategy

w Actively cooperating withother companies
w Focused on making
progress with thedevelopment of theMarketing Robot andenhancing the marketing &sales division(19) BI (Business Intelligence):
A method whereby businessdata accumulated by businessintelligence companies andothers in information systems
are analyzed and processed byusers as needed and utilized forbusiness and management. Or,
software and information
systems to practice thismethod.
(20) API (Application
Programming Interface): A
protocol that defines
procedures, data formats, etc.,
for accessing and using
functions of computer
programs and data to be
managed from other external
programs.

The Company is developing its business along president Iwata's longterm business plan as described by his words, "By creating acompletely new product that can be differentiated from othercompanies in the field of Internet marketing, we hope to acquire an
extremely large market share in Japan and then develop our businessglobally to become a company with a strong presence." Specifically,
the Company has set the Marketing Robot as the focus of its growthstrategy, aiming for sales of Y3 billion in FY 2020 (+67% comparedto FY 2018). To accelerate business development, the Company has
already created new alliances with 31 other companies (met the initial
target of 30 companies) (Figure 24). Reinforcement of alliance will
increase AD EBiS 's product strength by enhancing its optional
functions, leading to an increase in the number of contracts, anincrease in unit price, and prevention of contract cancellation.
Furthermore, the Company is working on the following measures inorder to achieve its target.
(1) Focus on the development of the Marketing Robot and accomplish
its creation· Conduct big data analysis utilizing artificial intelligence and actively
cooperate with other companies to develop and sell new functions· Move engineers to the core business (AD EBiS) and separate off theother businesses· Increase development staff (especially for the AI, BI 19, and API20
sections)(2) Strengthen the marketing & sales division· Enhancement of the marketing system· Increase the number of experts and sales representatives(Hire 20-30 more people every year by new-graduate and mid-career
recruitment)【 Figure 24 】Progress with the 30 Alliances for
the Marketing Robot

FY 2020: Sales of Y3 billion
Toward global development

Utilization【 Figure 23 】Medium- to Long-TermTargets

Ads

WEB Customer
Service

Access Analysis

MA/CRM

Email Delivery

Other

Enhance dev./sales divisions
Creation of the Marketing Robot

Expand the Group in
Asia
Rapid growth through
M&As

2020
Y3 billion

Measurement


Sales

Analysis8

Strengthen foundation for growth in
Japan

2020

Reporting

DMP
Data Analysis

ChannelAnalysis

User Analysis

BI / Cloud Storage

Research Panel

TV/Offline Strategies(Demographics/interests andpreferences/surveys)

Data Acquisition
View

CLICK

SEARCHLOG

3rd Party Data

2021(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report, financial results summary, and financial results briefing materials

24/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

w Over the medium term, theCompany will strengthen
its domestic businessfoundation. Over the longterm, it will aim for global
expansion.

w Will restructure its
business to concentrate on
its core business(marketing platformbusiness)

Furthermore, for the long-term strategy (FY 2021 to FY 2023), theCompany plans to increase its development and sales sites mainly in
Asia. Also, the Company intends to accelerate its growth not only byorganic growth, but also by M&As, alliances, etc. However, specifictarget figures such as those concerning the breakdown of sales and theactual means for achieving them have not been disclosed. Since theCompany has been raising funds ahead of plan, it may actively conduct
M&As in the futture.
Regarding the cost structure of the core marketing platform business, themedium- to long-term targets are disclosed as ratios (Figure 25).
According to this information, in the future, the Company intends toachieve an operating margin of 10-20%, which had been achieved
during its past growth phase. For the marketing platform business, theCompany had been achieving high operating margins of around 16-24%
since FY 2014. However, since FY 2017, because the Company
increased the amount of investment related to marketing & sales and thedevelopment of software functions, the operating margin has been on a
downward trend. In FY 2018, marketing & sales expenses were 32%
and development expense was 36% of the sales of the marketing
platform business, having increased by 8% and 15%, respectively,
compared to FY 2016.
Over the medium to long term, the Company plans to increase sales andsignificantly lower the expenses for this business. It especially plans tolower the marketing & sales expenses to 30% (-2% compared to FY2018), development expense to 25-30% (-6 to -11%), and other indirect
expenses to 15-20% (-8 to -13%), thus stabilizing the operating marginof this business at around 10-20%. Since this level of operating profit
has been achieved in the past, it seems to be an achievable goal.

【 Figure 25 】Cost Structure of the Marketing Platform (MPF) Business(actual and medium/long-term targets)
Expenses of MPF business -To-Sales Ratio (%)

FY 2016

FY 2017

FY 2018

Medium- to LongTerm Targets

Increased investment

Marketing & Sales

24%

29%

32%

30%

Development

21%

24%

36%

25-30%

Customer Support

11%

11%

11%

10%

Other indirect exp.

24%

25%

28%

15-20%

Operating Profit

20

12%

-8%

10-20%*1 Due to increased allocation of common expenses to the segment following business restructuring which caused thesales of the commercial distribution platform business segment to decrease.

(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report, financial results summary, and financial results
briefing materials

25/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18◆ Alpha-Win Research Dept.’s Financial Results Forecast
for FY 09/2019

w Alpha-Win Research Dept.
forecasts that the Company
will make a small net profit
this FY due to increased
profit brought by greater
sales as well as cost control.

The Company has not disclosed forecast figures for this fiscal year.
Alpha-Win Research Department believes that business restructuring andactive upfront investment have peaked out for now and expects sales ofY2,150 million (+19.2% YOY) and a small net profit of Y10 million for
FY 2019 (Figure 26).
Since we can expect the average unit price to increase over the long termalong with changes in the pricing system of the main product, AD EBiS,
we predict that the gross margin will improve. The marginal profit ratioof this business is estimated to be around 70%, and most of the increasein sales is expected to contribute to an increase in profit, excluding
variable expenses such as fees paid to distributors and server costs. As
described before, due to the nature of the subscription-based business, ittakes about eight months after making a new contract for a contract under
the new pricing system to make actual contribution to profit. Althoughcontribution to profit may be small in the first half, it is expected togradually increase from the second half and into the next fiscal year.

w Rise in the unit price andthe number of contracts for
AD EBiS is expected.
w As of the beginning of the
FY, the earnings forecast is
undisclosed.

【 Figure 26 】Alpha-Win Research Dept.’s Financial Results Forecast for This Fiscal Yearand Over the Medium Term
(Y mil)

FY 2018 actual

FY 2019 CE

Sales
Marketing PF
Commercial Distribution PF
Gross Profit
Gross Margin
SG&A Expenses

1,805
1,530
274
1,190
65.9%
1,289

Not disclosed% over sales
Operating Profit

71.4%
-98

% over sales
Recurring Profit% over sales
Net Profit% over sales
KPI
AD EBiS - # of active accounts% change for the above
AD EBiS - average unit price% change for the above
Sales (YOY change)
Marketing PF
Commercial Distribution PF
Gross Margin (diff. from last FY)
SG&A Expense (growth rate)
Operating Profit (growth rate)
Recurring Profit (growth rate)
Net Profit (growth rate)

FY 2019 E

FY 2021 E
3,000
2,670
330
2,050
68.3%
1,800

65.1%
30

62.7%
120

60.0%
250

-5.5%

1.4%

4.6%

8.3%

-115
-6.4%
-89
-4.9%

10
0.5%
10
0.5%
Annual average
1,670
13.1%
87,315
10.6%
19.1%
22.2%
2.2%
0.6%
8.6%
To surplus
To surplus
To surplus

1,518
84,9185.0%
21.9%-41.1%-0.3%
25.1%
To deficit
To deficit
To deficit

3,000

FY 2020 E
2,600
2,300
300
1,750
67.3%
1,630

Q4

2,150
1,870
280
1,430
66.5%
1,400

FY 2020 CE

100
230
3.8%
7.7%
96
155
3.7%
5.2%
Annual average Annual average
1,837
2,020
10.0%
10.0%
91,92894,863
5.3%
3.2%
20.9%
15.4%
23.0%
16.1%
7.1%
10.0%
0.8%
1.0%
16.4%
10.4%
300.0%
108.3%
900.0%
130.0%
864.3%
61.0%(Ref) Prepared by Alpha-Win Research Dept. CE= the Company’s estimate. E = Alpha-Win Research Dept.’s estimate.

26/32
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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

The difference between the Company's recent financial results forecast(initial version) and the actual results is shown on Figure 27. In recent
years, the Company has not been disclosing its forecast at the beginningof the fiscal year, but has instead been making a disclosure after judging
that a reasonable forecast can be made. Consequently, the difference
between the disclosed forecast and the actual results has been small. For
the current fiscal year, the forecast figures for the full fiscal year may
become disclosed at around the same time as the disclosure of thesecond- or third-quarter results.

【 Figure 27 】Change in Financial Results Forecast
and Actual Results
Sales
FY
2015

2016

N.P.

11/10/2014

1,545

350

350

203

1,437

350

352

230

Difference (%)

-7.0

0.0

0.6

13.3

Difference (Y mil)

-108

0

2

27

5/12/2016

1,600

200

201

130

Actual result (Y mil)

1,612

247

250

168

Difference (%)

0.75

23.5

24.4

29.2
38

5/9/2017
Actual result (Y mil)

12

47

49

1,6501,70010100

-

-

1,719

92

106

72

1.14.2 -8.0820.0--

Difference (Y mil)

1969

892

-

-

2/6/2018

1,800

-150

-

-

Actual result (Y mil)

1,804

-98

-115

-88

Difference (%)
2018

R.P.

(Amount and %)Actual result (Y mil)Difference (Y mil)
2017

O.P.

Forecast release date

Difference (%)

0.2

Difference (Y mil)

452(Ref) Prepared by Alpha-Win Research Dept. from the Company’s financial results summary◆ Alpha-Win Research Dept.’s Financial Results Forecast
for the Medium Termw Alpha-Win Research
Dept. forecasts an annual
sales growth rate ofaround 15 to 20% over the
medium term.

w Business model with ahigh marginal profit ratio.
Alpha-Win Research
Dept. expects the profit
growth rate to be around
20 to 30% per year overthe medium term,
exceeding the sales
growth rate.

Going forward, we expect to see positive effects from the investment
and business restructuring conducted by the Company. In addition, theaddition of functions and changed pricing system for the AD EBiS are
expected to increase the unit price and the number of active users.
Furthermore, the marketing platform business has a large growthpotential and is expected to become a growth driver, leading to anannual sales growth rate of around 15 to 20% over the medium to longterm. We also predict that the Company will continue its active upfront
investment for future growth. Although the final profit and loss will ofcourse depend on the Company's cost control and eagerness to achieve
the bottom line of its target figures, we believe that the Company will
generally be able to maintain a net profit and may achieve a double-digit
profit growth (with regards to evened-out figures) over the medium tolong term. Because the Company’s business has a high marginal profit
ratio, we expect a profit growth rate of 20 to 30% per year over the
medium to long term, exceeding the sales growth rate.
Alpha-Win Research Dept.’s medium-term financial results forecast is
shown on Figure 26 (on page 26, above). The Company's goal of Y3
27/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

w Whether the Company
can achieve its goal forsales – Y3 billion in FY
2020 – will depend on
M&A and tie-up
strategies.

billion in sales for FY 2020 seems to be within an achievable range if
the M&A and alliance strategies are successful. However, since it is ahigh goal, and since we cannot predict at this point whether an M&A
will actually be conducted or how it will contribute to profit, we made asomewhat cautious prediction. The assumptions or estimates used in our
forecast are as follows.
(i)

The average unit price of AD EBiS, which makes up the majority ofthe marketing platform business, is expected to increase since newcontracts should have the effect of raising the unit price and because
about 20% of the existing contracts will be switched to newcontracts under the new pricing system. Also, the number of active
users is expected to increase by 10% per year.
(ii) As a result, sales of the marketing platform business are expected to
grow by about 20% annually.
(iii) In addition, the marginal profit ratio of the platform business isestimated to be 70%, and the gross margin is expected to gradually
improve. The number of staff is assumed to increase by about 20
each year. General and administrative expenses including personnel
expenses are expected to increase by 10 to 20% per year. The ratioof SG&A expenses to sales is expected to gradually decline,
resulting in an improved operating margin.
(iv) Regarding the commercial distribution platform business, its sales
are almost entirely contributed by EC-CUBE. As of this point in
time, the Company has not launched fundamental measures toexpand this business, but we estimated that sales will increase by
about 10% per year due to the new product version.
(v) In making the medium-term financial forecast, we assumed that
there will be no extraordinary profit or extraordinary loss such ascontingent liabilities.
(vi) We anticipate that M&A(s) will expand business and contribute toabout 1/3 to 1/2 of the increase in sales, but we do not expect it tocontribute to profit in the short term.
In terms of the next three to five fiscal years, we believe that dividend
payout may be resumed and record-high profit may be achieved.

28/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

9．Analyst’s View
w The Company's strengths
are the president's
management skills,
product strength, and thepotential to accumulate
and utilize big data.
w Is in a position to be able
to enjoy the benefits offuture market expansion.
Plans to expand into new
business areas andoverseas.

◆ SWOT Analysis
The Company's SWOT analysis result is listed on Figure 28. The
Company’s main strengths are (1) its president’s management skill andexpertise with advanced technologies in the Internet marketing field, (2)its main products and support system with proven and strong functions,and (3) its possession of big data accumulated over many years since thestart of its service and potential for utilization of such data. In particular,
because president Iwata himself has continued to acquire Internet-related
techniques since the foundation of the Company, he has a deep knowledgeof this field – this is considered to be an advantage over other companies.
In addition, since the marketing robot market is still in its early stage, it
has a high growth potential, from which the Company may be able toenjoy benefits. The Company seems to have the potential to accelerate its
growth through overseas development as well as expansion of the scopeof the Marketing Robot business from measurement of ads to analysis andutilization.

【 Figure 28 】SWOT Analysis
Strength・Big data accumulated since foundation; potential for use
・Well-known, strong customer base, experience, product strength (No. 1 share in Internet ad effect system
tool)
・The main marketing platform business is subscription-based so that stable revenue can be expected・Management skill of the president who has a deep knowledge of advanced technologies in the business・Enhanced working environment and high employee retention rate; accumulation of talents and know-how

Weakness

・Specialized in a niche market; small in scale
・Businss management is dependent on the president

Opportunity

・Employee shortage (engineers and sales reps)・Funding power (equity financing risk associated with continued upfront investment and future businessexpansion)・Potential for growth of Internet advertising marketing market and accelerated growth of existing products
・Utilization of resources of external partners; collaboration
・Overseas development

Threat・Development of new products and services
・Release of competing or alternative products/services, emergence of rivals, declining competitiveness ofexisting products・Defects in prducts/services, delays in developing or providing services with new function
・Large system troubles such as computer system stoppage(Ref) Prepared by Alpha-Win Research Dept.

◆

w We expect that there will
be no dividend for thisfiscal year too.

Shareholder Return

In the second fiscal year after becoming listed (FY 2015), theCompany’s dividend was Y4.5 per share. Dividend was then increased
by Y0.5 in FY 2016 to Y5.0 per share. In FY 2017, dividend payout wasmade for the third year in a row, again at Y5.0 yen per share (Figure 29).
However, in FY 2018, no dividend was paid out since a net loss wasrecorded that year, and the Company abolished the shareholder benefit
plan at the same time (Osaka Eh-mon Benefit Plan: specialty products ofOsaka given to shareholders chosen in a draw for the appreciation anddevelopment of the Company’s local region, Osaka). Since theCompany is currently in its growth phase, rather than letting its cash
flow out through dividends and benefit plans, the Company hopes toincrease shareholder value by focusing on investments for future growth
and recovering its financial performance. Dividends for this fiscal year
29/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18(21) AdTech: Abbreviation forad technology. A generic term
for information technology usedin advertising business, it refers
to digital technology used inInternet ads, etc.

are undetermined and, for the short term, dividend payout andshareholder benefit plan are unlikely to be resumed.

【 Figure 29 】Change in Dividend and Dividend Payout Ratio(Y)(22) P/S (Price to Sales Ratio):
Ratio of stock price to sales. A
valuation indicator where
market capitalization is divided
by annual sales. P/S is often
used as an indicator to measure
the stock value of emerging
companies with a high growthpotential or a net loss.
(23) PEG Ratio (Price Earnings
Growth Ratio): A valuation
indicator that measures thestock value while taking into
consideration a company's
medium-term profit growthrate. It is calculated by dividing
the expected price-earnings
ratio (P/E) by the expected
medium-term profit growthrate (%) per share. Generally, a
PEG ratio of less than 1 means
the stock is undervalued, andovervalued if it is more than 2.
w Stock price had been on
a downward trend,
underperforming TOPIX,
but has been stable inrecent months.

w The Company’s stock
value does not seem
cheap. It seems that thecurrent stock pricereflects expectation forsome recovery inbusiness performance.

w Stock price going
forward will be affectedby the expected level ofprofit over the medium
term.

50.0

6.0

45.0

Dividend

44.0

5.0

40.0

Dividend Payout
Ratio

35.0

4.0

30.0
25.0
20.0
15.0

3.0

5.0
4.5

18.6

5.0
2.0

12.9

10.0

1.0

5.0

0.0

0.0

Undetermined

0.0

0.0
FY 2015

FY 2016

FY 2017

FY 2018

FY 2019 (E)(Ref) Prepared by Alpha-Win Research Dept. from the Company’s securities report, financial
results summary, and financial results briefing materials◆Stock Price and Characteristic and Factors that May
Affect Stock Price
The Company’s stock is a small AdTech21-related stock listed on the TSE
Mothers market with a highly volatile stock price. On page 2 (Figure C
on page 2 of this Report), stock prices and relative stock prices withrespect to TOPIX for the past two years are shown. During this period,
the Company's stock price decreased, underperforming the TOPIX. Stockprice may have declined because (1) as seen from the TSE Mothers Index,
the market environment is such that small- and medium-cap stocks in theemerging markets are generally weak and (2) in order to achieve the goalsof the growth strategy concerning the Marketing Robot, the Company has
been restructuring its business and conducting upfront investment to focus
on its core business, resulting in the recording of a net loss, no dividend,abolition of shareholder benefit plan, etc. However, partly in anticipationof recovery of business performance, both the absolute and relative stock
prices have been stable over the last few months.
For reference, we compared the size, business contents, and valuation
indicators of 22 companies listed in the market, including the Company,
under the AdTech category or with a business partly similar to theCompany’s (Figure 30). In this comparison, as far as P/E, P/B, P/S22, anddividend yield are concerned, the Company's stock value is not cheap.
This may be due to the fact that anticipation of future recovery of businessperformance and growth is reflected in the stock price to some extent.
Also, under the condition that a PEG ratio23 of up to 2 is tolerated and the
medium-term growth rate for the normalized EPS is expected to be 20%,
the P/E comes out to be about 40 at maximum (60% if the growth rate is
assumed to be 30%). Calculating back from the current market
capitalization of about Y7.8 billion, we can deduce that the necessary net
30/32

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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18

profit (after income tax) is about Y200 million (Y130 million if P/E is 60).
If business performance recovers, leading to a net profit greater than thislevel, then the stock price may also possibly jump up.
w For the time being, thekey points of interest are
the unit price and thenumber of active
accounts for AD EBiS,
the quarterly profit / loss,
M&A, the timing ofresumed dividend, etc.

【 Figure 30 】
AdTech-Related Companies

Looking ahead, we should pay attention to the Company’s changes inmonthly sales and control of costs such as personnel expenses, andespecially pay attention to when quarterly results return to a net profit orwhen dividend payout is resumed. In addition, as the most importantmanagement indicators (KPI), we would like to continue to watch the unit
price and the number of active accounts of AD EBiS, which makes up the
majority of total sales. It is also speculated that news releases on M&As,
business alliances, new products and services, etc., may also affect thestock price. Over the medium to long term, the Company's Marketing
Robot business, as well as the Internet advertising market, has muchpotential for growth, and the Company is in a good position to be able toenjoy the fruits of growth. Going forward, we hope to see the Company
grow as an AdTech-related growth stock.

Comparison of Similar Companies (AdTech-related companies, etc.)

Markets: TSE1=TSE 1st Section, TSE2=TSE 2nd
Section, TM=TSE Mothers, JQS=JASDAQ Standard

Code

Company NameBusiness Area

Market

2159
2389
2461
2491
3134
3655
3688
3690
3923
4293
4395
4751
4784
6026
6045
6081
6094
6175
6533
6550
6553
6562

Full Speed

Internet marketing, AdTech (Internet Ad delivery tech)

TSE2

OPT Holding

Internet ad agency / ad measurement tool

F@N Communications

Affiliate (pay-per-performance) ad

TSE1
TSE1
TSE1
TSE1
TSE1
TSE1

ValueCommerce

Affiliate (pay-per-performance) ad

Hamee

Mobile accessories / EC cloud support

BrainPad

Internet marketing, data analysis

VOYAGE GROUP

Ad platform

LOCKON CO., LTD.

Internet ad measurement tool

RAKUS

Cloud service, Email delivery, IT engineer dispatching

TM
TM

SEPTENI HD

Internet ad agency, smartphone marketing support

JQS

AccreteSMS delivery service

TM

CyberAgentInternet ad agency, smartphone, games

GMO AD Partners

Internet ad agency and related platform

TSE1
JQS

GMO TECH

App-installation-type charging ad, SEO

Rentracks

Pay-per-performance Internet ad service

Allied Architects

SNS-related marketing support

FreakOut HD

Internet ad delivery (DSP)

Net Marketing

Pay-per-performance ad agency

Orchestra HD

Digital marketing for companies

Fringe81

Internet ad agency, media monetization support

SoldOut

Web marketing support for mid-tier companies/SMEs

GenieeAutomatic trading of media ad space, AdTech biz

22 AdTech-related companies: simple average
TOPIX (closing price of 12/14/2018): average

TM
TM
TM
TM
TSE2
TM
TM
TM
TM

Unit: Y mil
MarketCap
8,766
40,871
50,62050,707
22,58743,53813,531
7,750
92,87328,0495,922
597,366
7,105
1,826
5,855
6,537
19,036
9,733
8,189
8,586
42,13010,28651,027

Sales
21,00091,00038,293
19,81010,214
5,200
ND
2,100
8,601
17,2001,390
470,000
33,6002,829
10,0004,047
19,00014,465
7,204
6,590
15,70015,02638,727%
O.P.
Margin
1,640
7.8
2,100
2.3
4,979
13.0
3,270
16.5
1,403
13.7
750
14.4
ND
30
1.4
1,376
16.0
2,000
11.6
220
15.8
30,000
6.4
600
1.8
-100
-3.5
500
5.0
0
0.0
100
0.5
373
2.6
445
6.2
187
2.8
1,000
6.4
-400
-2.7
2,403
6.6
O.P.

Ratios
P/S

P/E

0.42
0.45
1.32
2.56
2.21
8.37

9.04
28.07
14.44
21.76
23.07
83.72

3.69
774.8910.80
104.33
1.63
19.63
4.26
42.05
1.27
118.930.21
34.95
0.65 Loss - NA
0.59
18.15
1.62 Loss - NA
1.00
35.57
0.67
37.68
1.14
27.88
1.30
35.27
2.68
64.50
0.68 Loss - NA
2.26
82.99
13.43

ClosingPrice(12/14)
Divided
Stock
P/B
Yield
Price
2.70
563
1.29
1,716
2.54
2.89
658
5.67
1.43
1,471
6.39
0.46
1,407
22.27
0.00
6,440
1.59
1,138
6.60
0.00
1,220
23.09
0.20
2,050
1.63
202
7.68
0.00
1,089
7.29
0.70
4,725
1.35
1.44
424
2.63
0.00
1,659
2.87
1.09
736
4.43
466
4.48
0.00
1,429
4.82
0.75
668
7.89
0.31
962
6.13
0.00
875
17.67
4,275
3.47
581
6.57
0.62
1.18 Simple 1.93 1,592.16%(Weighted 2.35)(Ref) Prepared by Alpha-Win Research Dept. from the companies’ securities reports, financial results summaries, and financial results briefing materials.
Generally, each company’s forecasted values were extracted from their latest disclosure of financial results. For the Company, since the Company’s
forecast has not been disclosed, Alpha-Win Research Dept.’s forecast is used. For other companies, values not disclosed are marked by “ND” (notdetermined) or “-“.

31/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.

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

Issued: 12/18/2018

2018/12/1820182018/12/1820152018/12/182018/12/182018/12/18＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊

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shall not be liable for any consequences including direct or indirect loss, lost profit, or damage
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32/32This 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 inthis 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 basedon 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.
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 reportmust make their own decisions on all investment matters and take full responsibility regarding their investment. Intellectual property of this Report belongs to Alpha-Win and no part of thisreport may be copied, photocopied, cited, or translated without our consent.