Morningstar Equity Research Report 2022.4.22

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

Recommendation rating（Apr 21）

Scala, Inc.

Overweight（4845. TSE Prime）
Stock Price

Unit of Investment

743yen（4/21）

Market Cap

52-Week High13.14Bil yen

100Shares

52-Week Low

774yen（4/21）

PER
（E）

―

yen

（22/4/6）（22/1/20）（4/21）

Steady increase in co-creation-type programs, promising to evolve
into large projects■ 1H saw sales growth in IT/AI/IoT/DX, HR & Educationand EC Businesses

Yen

1,200
1,050

750
600

4 5

thousand
Shares

8

9

3,000

13Weeks Moving Average

10 11

12

26 WeeksMoving Average

1

2

3

4

1,500
0

Volume（13 Weeks Average）￥684

525,492Sharescompany is set to co-create and enhance convenient services.
With the aim of incorporating them as consolidated
subsidiaries, Scala’s board has passed a resolution to acquire thetotal shares in Nihon Pet Small-amount Short-term insurancecompany and EGG CO., LTD. The former is a provider of lowpremium and short-term pet insurance plans and the latter adeveloper of hometown taxation programs for local authorities(NB. the former company is slated to become a consolidated
subsidiary upon approval from authorities). In consideration of
accounting reclassification in conformity to the IFRS accounting
standards, it has withdrawn consolidated financial results
forecast for FY2022 ending June 2022. In August 2019, Scalaformulated its ‘Medium-term Management Plan COMMIT5000’(detailed in ‘Business Environment and Outlook’ noted later).
The above two M&As (corporate mergers and acquisitions)can be regarded as a driver to expand business domains into
the insurance/financial sectors and further penetrate thelocal government DX field. However, Morningstar predicts
that the two M&As’ contributions to the consolidated businessresults for FY2022 will be limited and the cost of strategic
investment in the Investment & Incubation may accrete further.
Consequently, we have downwardly revised our Scala earnings
forecasts previously reported on September 22 2021. However,up-front investment, posted this fiscal year, is highly likely tocome to fruition in and after the subsequent fiscal years. In
light of this, our business results forecasts for FY2023 remainunchanged.
Following the withdrawal of company forecasts, we haverevised our estimated share price range to ¥900 ~ ¥1,200(previously ¥1,500 ~ ¥2,000). The downward revision in theshare price range also reflects the slumping average share pricelaunched a matching platform entitled ‘Reversed Public Offering
Proposal’ (or ‘Gyaku Propo’). Gyaku Propo is a service that calls on
local municipalities to suggest approaches or ideas for public-private
co-creation schemes designed to address social issues identified byprivate sector organizations; whilst private sector organizations are
to plan and finance actual programs to address those issues. Since
its launch, the service has increasingly embarked on programs.
Scala receives not only commissions for driving Gyaku Propo
deals but also service fees for the development of a DX support
platform that fleshes out the local municipality’s idea, as well as
loyal clientele-based income derived from each of the relevant
municipality programs. In addition, Scala is highly likely to make an
additional investment in its capital and business tie-up partner xID,
Inc. a provider of digital ID solutions using identification number
cards. With the help of a digital solution ‘xID application’, theFinancial Results （as of Apr 21, 2022）（Yen Mil）

7￥700

In addition, the company has seen steady progress in the ‘co-creation’
type programs. These programs have potential to develop into large projects from the fiscal year ending June 2023. Scala has decided to cooperateon ‘U-Medical Support’, a co-creation program initiated by desamis Co., Ltd.
(a provider of support for the implementation of IoT/AI technologies in thehusbandry business) and Mitsui Sumitomo Insurance Company, Limited.
U-Medical Support is the first support service program for farm animal
diagnoses in animal husbandry. Although it is in the development stage,the implementation and further development of its service is expected tocontribute to company earnings. Meanwhile, in January 2021, Scala

Operating Profit

6

13 WeeksMoving Average

recognition at the IT/AI/IoT/DX Business of a number of orders for systemdevelopment projects from large insurers, electronic manufacturers, andpharmaceutical companies, along with additional orders for the real-estate
trust DX platform development. Also, the Customer Support Business islikely to record part of the sales revenue from labor-saving and high profit
call center projects. These projects are expected to offset the declined sales
revenue from unprofitable call center projects recorded in 1H.

13 WeeksMoving Average

603

VolumeScala is likely to post better business results in 2H (January ~June 2022) than 1H. Major factors for this include the expected

YoY
（％）

26 WeeksMoving Average

883

900

■ A number of system development projects and otherprograms are expected to boost earnings for 2H

Revenue（Yen Mil）￥900 ～￥1,200

Estimated Share Price Range

Scala, Inc. reported its consolidated business results (non-GAAPbase) for the first six months of fiscal year ending June 2022 (July~ December 2021, hereinafter ‘1H’). In the period, sales revenue
came to ￥4,268 million (down 0.4% from the same period lastyear) and operating income fell 24.5% y-o-y to ￥63 million. The
company achieved sales growth in the IT/AI/IoT/DX, HR & Education,
EC and Investment & Incubation Businesses, but it suffered a moderate
profit decrease overall, thanks in large part to the effects of alarge Customer Service account cancellation. It also blamed the
profit decline on fewer call center projects at the Customer Support
Business and the cost of up-front investment in the Investment &Incubation Business.

YoY
（％）

Income Before
Income Taxes（Yen Mil）

YoY（％）

Net Profit（Yen Mil）

YoY
（％）

EPS
（Yen）

2020-6

Past Results

7,624

―

337

―

313

―

218

―

12.6

2021-6

Past Results

8,734

14.6

282

▲16.2

251

▲19.9

121

▲44.3

6.9

Company est.

―

―

―

―

―

―

―

―

―

MS est.

14,750

68.9

300

6.4

280

11.6

185

52.9

10.5

MS est.

29,5002.0times

2,150

7.2times

2,100

7.5times

1,570

8.5times

88.8

2022-62023-6※ The company prepares its financial information under the IFRS (International Financial Reporting Standards), but the above figures have been reconciled to non-GAAP measures (actual
figures) by excluding adjustments and other items made on adoption of the IFRS.
※ Sales revenue, operating income and income before taxes for FY2020 and FY2021 are from continuing operations, while net income for these years represents actual figures excluding
those from non-continuing operations.
※ Year-on-year changes for FY2020 have not been disclosed.
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（1/3）

Morningstar Equity Research Report 2022.4.22

Scala, Inc.（4845, TSE Prime）
performance of the telecommunication sector since the issue of ourprevious report. The new share price range represents the yield on
forecast dividend for FY2022 ( ￥36.00) at 4 ~ 3 percent. Judging
by the sector’s average dividend yield hovering at between 2.0 ~2.5 percent, even the upper limit of the estimated share price range
appears to be undervalued. The company projects to pay increased
full-year dividends for 13 years in succession, which is anotherpositive factor. Our valuation of the company shares remains
unchanged with an ‘Overweight’ rating.
(written by Takahiro Arimura)■Company Overview
Scala, Inc. embarked on an enterprise with the SaaS/ASP business.
In July 2016, the company incorporated a marketing support systemprovider SOFTBRAIN Co., Ltd., as its consolidated subsidiary. In Marchand November 2018, Scala incorporated both Leoconnect, Inc., thena subsidiary of Hikari Tsushin, Inc. (security code 9435), and Connect
Agency Inc., a sub-subsidiary of Hikari Tsushin, as its consolidated
subsidiaries. In August 2019, in line with its midterm plan, Scalaannounced that it had consolidated J-Phoenix Research Inc. which
engaged primarily in support and consultation for the implementation of
AI/IoT technology. At the same time, it established Scala Partners, Inc.,an enterprise that provides financial assistance and develops companies
within AI and other fields. In April 2020, the company incorporated
Grid Group Holdings Co., Ltd., a facilitator of regional revitalization
and regeneration programs among other services, as its wholly owned
subsidiary.In September 2021, the company incorporated readytowork
Corp. as its wholly owned subsidiary. The subsidiary supports domesticclients in Nepal in their new business developments and DX changeovers,
primarily concerning web systems. The Nepal subsidiary is Scala’s second
offshore technology development base, following the first Scala Next Inc.
Mandalay branch (Myanmar) established in December 2018. Combinedwith the base in Japan, the company now deploys three technology
bases with a view to shortening DX development time and accumulating
expertise. In November 2021, the company started up a subsidiary
SOCIALX, Inc. to operate ‘Gyaku Propo’ programs.

Scala Inc.ʼs revenue mix by line of business

Investment & Incubation
Business 2.32%

Investment ＆Incubation Business\0.62 bn

HR＆Education
Business
15.33%\0.65 bn

\0.09bn\0.03 bn

EC
Business
14.47%

IT/AI/IoT/
DX Business45.11%\1.93 bn

Customer
SupportBusiness
24.22%EC Business19.10%\0.81bn

HR & Education
Business
16.54%\0.7bn\1.03 bn

Total sales revenue:￥4.28 bn

IT/AI/IoT/DX
Business
45.57%\1.94bn

Customer
SupportBusiness
16.40%※ When SOFTBRAIN Group companies became discontinued operations,
Scala recomposed its business lines to five segments.

\0.7bn(Source) Created by Morningstar Japan, based on the companyʼs information.

Business segment overview
Reportable segment

IT/AI/IoT/DX

Group company• Scala Communications, Inc.
• Scala Service, Inc.
• Scala Next Inc.
• readytowork Corp.
• Connect Agency, Inc.
• Retool, Inc.
• Social Studio Inc.

Customer Support• Leoconnect, Inc.

Description of business
Provision of SaaS/ASP services
Development of SaaS/ASP services and offshoredevelopment
Cloud-based PBX service
Planning, development and sale of cloud activity
management tools
Support for administrative bodies and local municipalities
in their DX and SDGs programs
Consulting of customer support (call center operation, etc.)

HR & Education• FourHands, Inc.
• Sports Stories, Inc.

Provides support for personnel employment (new graduatesand mid-career recruitment) and other services
Provides support for child education, community
development etc.
Operates physical education, sports lessons and othersEC• Scala PLAYce, Inc.

Operation of EC sites to trade matching game cards• Athlete Planning, Inc.

• Scala, Inc.

■ Business Environment and Outlook
A c c o r d i n g t o t h e ‘ 2 0 2 1 W H I T E PA P E R : I n f o r m a t i o n a n dCommunications’ released by the Japanese Ministry of Internal Affairs
and Communications, the penetration of AI and IoT has shown marked
progress, with the number of IoT devices in use worldwide estimated toincrease from roughly 25.3 billion units in 2020 to 34.1 billion units by
the end of 2023. On the back of mounting needs for further efficiency
and labor saving across the board, the speed of adoption of AI technology
appears to accelerate going forward.
Scala, Inc. has formulated its ‘Medium-term Management Plan
COMMIT5000’. The plan outlines the company’s three ‘capabilities’
that have been acquired through the operation of SaaS/ASP services (1.
The capability of discovering real issues; 2. The capability of revealing
the hidden value of resources; and 3. The capability of proposing andexecuting an optimal combination of issues and resources to maximize
value). With the purpose of effectively proposing these capabilities, thecompany has newly established the following segments that will assume
the objective: 1. An added value-based management support business;
2. An IT/AI/IoT-related business; 3. A social issue solution-oriented
business. In line with the Medium-term Management Plan, Scala is set
to organically coordinate the three capabilities with the three businesssegments to maximize customer value. With the fulfillment of this vision,
the plan has set dual-period earnings projections. One is to achieve ￥100 billion in sales revenue (operating income of ￥10 billion) by FY2025
and the other ￥500 billion in sales revenue (operating income of ￥50
billion) by FY2030. The company plans to develop and commercialize thethree capabilities for public companies and others in Japan. It is also set
to expand its markets targeting government-affiliated enterprises, local
authorities and overseas companies.

Total sales revenue:￥4.26 bn

▼ 1H FY2022▼ 1H FY2021• Scala Partners, Inc.
• J-Phoenix Research Inc.

Investment & Incubation • SCL Capital LLC• SCSV-1 Investment Limited
Liability
Partnership• SOCIALX, Inc.

Group headquarters, holding company and investment
businessInnovation, incubation and investment
Preparation of analyst and integration reports; fundmanagement support
Investment fund management
Investment fund
Planning and operating a public-private co-creation platform‘Gyaku Propo’(Source) Created by Morningstar Japan, based on the companyʼs data.

Risk Factors
Scala commits to a service level agreement (SLA) with clientsof SaaS/AS services. SLA defines a certain level of assurances forserver operations, care for service failures, notice concerningscheduled maintenance, among others. This indicates that thecompany may face a large amount of indemnity should its
service fail, for whatever reason, to comply with the levels of
assurance defined by SLA. Separately, in November 2018 thecompany established Scala Next, Inc., with the aim of planningand developing SaaS/ASP businesses and services. The subsidiary
develops part of the cost-reduction projects in its Mandalay branch
in Myanmar. In March 2021, the Myanmar national army launcheda coup d'etat and six districts in Yangon (the country’s largest city)were placed under martial law. Although the Mandalay branchof Scala Next, Inc. has incurred no actual damage, it is necessary
to keep a close watch on the heightening geopolitical risk in the
country.

Shareholder Return（As of Apr 21）■ Dividends■ Shareholder Special Benefits

Dividend Per ShareFirst half

Second half

Annual

2020-6

Past Results

¥14

¥14

¥28

2021-6

Past Results

¥16

¥18

¥34

2022-6Company est.

¥18

¥18

¥36

None

※ Dividends for FY2021 included a ￥2.00 special dividend to commemorate its 30th
anniversary.
This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（2/3）

Morningstar Equity Research Report 2022.4.22

Scala, Inc.（4845, TSE Prime）

Competitor Comparison（If the number is better than rivals, it's highlighted by red character）（As of Apr 21）
Scala, Inc.
(4845・TSE Prime)
Stock Price
Basic Point

Unit of Investment
Minimum Investment AmountFiscal Year End

Share Price
Indicator

GrowthProfitability

Financial
HealthPER（E）

PiPEDO HD, Inc.
(3919・TSE Standard)¥743¥2,305¥1,290100Shares

100Shares

100Shares¥74,300¥230,500¥129,000

June

February

December―

20.0times―

4.0times

9.3times

1.1%

1.0%

1.3times
4.8%

PBR
Dividend Yield（E）

Cybozu, Inc.

(4776・TSE Prime)

17.5%

Revenue Growth Rate（E）

―

11.9%

Operating Profit Growth Rate（E）

―

5.1%

EPS Growth Rate（E）―▲25.5%―

Operating Margin（E）

―

20.5%

1.6%

29.3%

8.6%

0.8%

19.1%

11.2%

50.0%

55.6%

45.4%

34.9%

ROE
ROA（Ordinary income/Total
assets）
Equity ratio
Debt-Equity Ratio
Current Ratio▲76.1%

84.4%

39.1%

264.5%

34.5%

221.3%

111.1%

Note: We selected PiPEDO HD, Inc. (security code: 3919) and Cybozu, Inc. (security code: 4776) as industry peers. Scala competes with these on some
operations of the site assistant service in the SaaS/ASP business field.

■Growth Potential
Scala has withdrawn its initial forecastof the business results for FY2022
ending June 2022. This is due to thenecessary reclassification in conformity
to the IFRS accounting standards
concerning the accounts of the newly
incorporated consolidated subsidiaries,
Nihon Pet Small-amount Short-term
insurance company and EGG CO., LTD.
Meanwhile, the ongoing Medium Term
Management Plan, formulated in August
2019, sets a target for net sales of ￥100 billion and operating income of ￥10 billion. If the company envisages themaintenance of steady linear growth,
it must deliver an annual sales growthrate of 65~70 percent. The growth rate
for FY2022 is likely to underrun thelinear line due to the strain of up-front
investment. That said, the company isimplementing its business policy, underwhich it promotes the diversification ofits business portfolio, investment in new
businesses and rigorous pursuit of M&A
deals, evolving around the core IT/AI/
IoT/DX Business which descended fromthe founding business. Consequently,
for the accomplishment of the Midterm
Plan, M&A and other strategies are
required to provide noncontinuous
contributions to its earnings in thelatter half of the period of the Midterm
Management Plan. We are expecting to
see this fiscal year as a phase in which■ Financial Stability
the company implements a series of
new programs and measures. Thesecomprise co-creation-type programs
and M&A deals among others, which
are promising to come to fruition in andafter the subsequent fiscal years.

■Profitability
Due to the non-disclosure of the
FY2022 Scala forecasts, the company's
forecast for operating profit margin
was also undecided. While the IT/AI/
IoT/DX Business, which is mainly astock business and consistently securesmore than 10% of segment profit, is
expected to support the company's
overall profitability, investment in
new businesses and development of
new business schemes, mainly in theInvestment & Incubation Business, is
expected to accelerate. On the other
hand, its ROE is expected to improvesignificantly to 34.9% (a 30.4-point
increase from last year). This is probably
due to a sharp rise in net profit thanks
to the recognition of a profit from a noncontinuing operation in FY2021.

Scala’s equity ratio at the end of
FY2021 showed a marked recovery
to 50.0% (a 20.3-point increase
from last year). In the year, its cash
position soared after it posted anincome from a non-continuing
operation. Its debt equity ratio isrelatively high, but the company
management regards M&A as animportant business issue, therefore,
the effective use of interest-bearing
debt can be viewed as its strategic
intent. On the other hand, thecompany owns a large proportion ofcurrent assets, with its liquidity ratio
being at the highest position in thecompetition. We believe that Scala’s balance sheet is well controlled
overall, with no particular concerns
about its financial standing.

Morningstar Japan K.K.
Research & Analysis Department
Analyst Takahiro Arimura+81-3-6229-0078
tarimura@morningstar.co.jp

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.

（3/3）

How to Read Morningstar Equity Research Report
Our Uniqueness（1）Emphasize Its Position as an Independent
Evaluation Organization

Morningstar emphasizes its position as an independent
evaluation organization and is committed to providing
objective comparison and assessment in the Morningstar
Equity Research Report. For all stocks covered by us, we
determine investment decisions, estimated share price range
and earnings forecasts based on expertise of an individual
analyst as well as the stock assessment committee consistingof several analysts.

（2）Universe of Covered Stocks

The stock assessment committee selects covered stocks basedon the following criteria.
【Stock Selection Criteria】● Domestic emerging companies that are rarely covered byanalysts●	Stocks that are popular among retail investors(refer to data from online security brokers)● Size of market capitalization (over about 5 billion yen)
● Exclude stocks which are liquidated or trade control, or
stocks with going concern and excessive debt

（3）Investment Decisions Classified intoThree Groups

We determine investment decisions for covered stocks after
consultation with the stock assessment committee based on
research, interview and analysis by each Morningstar analyst.

Each stock is classified into either of three groups according to
the following criteria.

Overweight：Forecasted to go beyond the current stock pricelevel by 15% or more in the next 6 months.

Neutral：Forecasted to fall into the range of -15％~+15％ of the current stock price level in thenext 6 months.

Underweight：Forecasted to go below the current stock pricelevel by 15% or more in the next 6 months.

We flexibly respond to any changes of observations regarding
earnings forecasts, financial situations and stock price trends,
and change investment decisions accordingly. “Under Review”
status may be applied if any new information comes out andextra time is needed to determine investment decisions. Also
we don’t change investment decisions during trading hours.
“Suspension” status may be applied when an analyst leaves ourcompany.

（4）Estimated Share Price Range in
the Medium Term

It shows the price range for a stock price in the next 6 months.
We determine upper and lower range of stock price based onfair value estimates from share price indicator, technical factors
such as chart points, most recent high and low prices, trendline and moving average, trading volume in each price range
and such.

Analysis Points■ Analyst Comment■ Company Overview

most recent earnings trend and businesscompany is engaged in and how revenue

environment. It shows the most importantsources are defined. Also on the basis of

information for stock investment suchour research, it discusses what businesses

as evidence for investment decisions,the company will focus on in years toperspectives on earnings forecasts andcome and how it carries out mid-termbusiness prospects. Also to make sure it

business plan.

Each analyst reports and evaluates theis easy to comprehend, we write in 2-4
paragraphs and use bold to emphasize
important texts.

■ Revenue and Earnings Trend

It explains in detail what businesses the■ Risk factors
It shows the company’s risk factors anddescribes various aspects of risks such as
business, earnings and financials. Typicalstock market risks are also taken into
consideration.

■ Business Environment and Outlook

It discusses current circumstances andgrowth potential of the industry to which
the company belongs. A comprehensive

It reports earnings in past two fiscal years,

report on the industry from different

company forecasts and our forecasts forperspectives is provided through research

the current and next fiscal year. We predict

interviews to competitors. Specific figures

earnings based on research as well as pastof the industry data are also introduced.

quarterly earnings trend and analysis bysegments.

This report is for information purpose only, and should not be considered a solicitation to buy or sell any security. Final decision on which stock to choose and invest rests solely with the reader of this report. The opinions included herein are made based on
the knowledge at the time the report was created and are subject to change without notice. The opinions and data included herein are based on the data and other materials that we considered reliable, but we make no warranties whatsoever regarding theaccuracy, security and such. All rights of copyright and intellectual property right and such in the content are reserved for Morningstar Japan K.K. and Morningstar Inc. Redistribution is prohibited without written permission.