Morningstar Equity Research Report 2021.9.22

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

Recommendation rating（Sep21）

Scala, Inc.

Overweight（4845.TSE 1st）
Stock Price

Unit of Investment

759yen（9/21）

100Shares

Market Cap

52-Week High13.36Bil yen

52-Week Low

883yen（9/21）PER（E）

694yen（21/5/24）

24.3（21/5/13）（9/21）

Rolling out DX support business for public companies and local
councils■ FY2021 saw the anticipated profit decline, as itpressed ahead with strategic investment￥1,500 ～￥2,000

Estimated Share Price Range

Scala, Inc. reported its consolidated business results (non-GAAPbase) for the full fiscal year 2021, ended June 2021 (FY2021). In
the period, sales revenue came to ￥8,734 million (up 14.6% yearon-year) and operating income was ￥282 million (down 16.2%
y-o-y). The increase in sales revenue was driven by the growth of
two newly incorporated businesses (in the scope of consolidation) HR & Education Business and EC Business. However, sales revenue
failed to deliver the target. The impact of the COVID-19 pandemic
exceeded the company’s predicted period and scale, which resulted
in fewer events hosted by the HR & Education Business andsoftened demand for the call center service at the Customer Support
B u s i n e s s . Operating income came within its announced range, thanks

Yen

2,000

1,500
13 WeeksMoving Average

1,135

1,000

mainly to steady performance of its mainstay IT/AI/IoT/DX Business, offsetting costs for strategic investment into the HR & Education as well as
Incubation&Investment Businesses.

9 10

11

12

1

2

13 WeeksMoving Average

In August 2019, Scala formulated its ‘Mid-term Management
Plan COMMIT5000’ (details in ‘Business Environment and Outlook’
noted later). FY2021 ended June 2021 was the period to reshape
management resources and lay the groundwork for the Mid-term
Plan’s success. In FY2022 ending June 2022, Scala continues with
its strategic investment initiative centered on the Incubation &Investment Business. Meanwhile, the company has ample cash
following its sale of shares in the former consolidated subsidiary
SOFTBRAIN Co., Ltd., a marketing support system provider,therefore it is likely that some initiatives will shift into full gear.
These include the development of business schemes (hereinafter‘scheme(s)’) for public companies with annual sales of￥100～ 200
million. For example, on behalf of Cookbiz Co., Ltd. (security code6558), a job placement website operator specializing in the foodindustry, Scala formulated a ‘scheme’ comprising ‘promotionof value-based management by supporting its IR activities’, ‘DX(digital transformation) support’ and ‘capital injection from the AI
Engagement Fund (an investment limited partnership designatedas Scala Co-creating Shared Value No.1, hereinafter ‘SCSV’). Scalaprovides support to Cookbiz in its IR activities in an effort to create
new value, aiming for gains from the sale of Cookbiz shares on along-term basis. As for the DX support, Scala collaborates with Cookbiz

thousand
Shares

16,00013Weeks Moving Average■ Stimulating local council needs with ‘G y a k u P r o p o ’ tocapture new DX projects

694

26 Weeks Moving Average

500

3

4

5

26 WeeksMoving Average

￥750

8,000

Volume

6

7

8

9

0

Volume（13 Weeks Average）￥768

687,208Shares

Gyaku Propo is that it calls on local councils to scheme publicprivate co-creation projects to address social issues such as
SDG promotion, while private sector organizations that plan theactual development of those new projects make a budget andfinance them. Among cases commenced in the previous year,
business organizations sought local councils’ ideas concerning
issues such as assistance for senior drivers or implementationof the next-generation wheelchair. Five local councils regarding
improvement of traffic environment as their pressing issuetendered for these reversed proposals; two of the local councils’
ideas were adopted. Business organizations provide a budget
amounting to a few million yen, part of which is donated to thesuccessful local council. Scala not only receives a commission
for driving the reverse proposal deal but also a service fee forthe development of a DX support platform that fleshes out the
local council’s idea as well as receiving loyal clientele-based
income derived from this business from the relevant council. In
this fiscal year, Scala is likely to leverage the municipality project to extend its local council client base, also obtain more opportunities fromeach successful local councils that tendered ideals.

The company’s approach to prospective businesses withvarious ‘scheme’ proposals is expected to progress further fromthis fiscal year into the next, ending June 2023. For some timeahead, we expect that the IT/AI/IoT/DX Business will secure asolid revenue base which is large enough to absorb the cost of
substantially financing the Incubation & Investment Business.
In addition, Scala’s midterm management plan is highly likely
to be achieved once it newly launches No.2 and No.3 SCSVs andits business growth trajectory rises on the back of increased

to develop the ‘restaurant business DX platform’, on which they promotereconstruction of restaurant operations faced with such challenges as low
labor productivity and dependency on on-site sales/service as well as new
customers. The company is to receive fees for a platform development service and loyal clientele-based income derived from this business.

Meanwhile, the ‘reversed publicly solicited proposal’ (or ‘Gyaku
Propo ’), a service platform combining public-private co-creation
support with DX support, got off to a good start. The feature of

Financial Results （as of Sep 21, 2021）
Revenue（Yen Mil）
2020-62021-62022-62023-6

Past Results
Past Results
Company est.
MS est.
MS est.

Operating Profit

7,624

―

337

―

313

―

8,734

14.6

282

▲16.2

251

▲19.9

12,000～20,000

1.4
～2.3倍

450
～1,200

1.6
～4.3倍

400
～1,1501.6～4.6倍

16,000

1.8倍

825

2.9倍

775

29,500

1.8倍

2,150

2.6倍

2,100

（Yen Mil）

YoY（％）

Income Before
Income Taxes（Yen Mil）

YoY
（％）

YoY
（％）

Net Profit（Yen Mil）

YoY
（％）

EPS
（Yen）

218

―

12.6

121

▲44.3

6.9

300
～800

2.5
～6.6倍

17.1
～45.5

3.1倍

550

4.5倍

31.3

2.7倍

1,570

2.9倍

89.2

※ 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.

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Morningstar Equity Research Report 2021.9.22

Scala, Inc.（4845・TSE 1st）
adoption of ‘scheme’ proposals.
Morningstar (‘MS’) believes that recent share prices appear not
to have duly evaluated Scala’s medium to long-term strategies yet.
Our estimated share price is in the range of ¥1,500 ～ ¥2,000(unchanged from previous estimates). We have set the upward end
price at around ¥2,000. This was calculated by multiplying theindustry average PER of 29 times by MS’s forecast EPS for FY2023(ending June 2023) at ￥89. The downward end price has been set
at its support level of ¥1,500. Our valuation of the company sharesremains unchanged with an ‘Overweight’ rating.(Takahiro Arimura)■Company Overview
Scala, Inc. embarked on an enterprise with the SaaS/ASP business. In
July 2016, the company incorporated a marketing support system provider
SOFTBRAIN Co., Ltd., as its consolidated subsidiary. In March and November
2018, Scala incorporated both Leoconnect, Inc., then a 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, Scala announced that it had consolidated J-Phoenix Research Inc.
which engaged primarily in support and consultation for the implementationof AI/IoT technology. At the same time, it established Scala Partners, Inc., anenterprise 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. Then following
a successful takeover bid by C5-8 Holdings Co., Ltd. for SOFTBRAIN Co., Ltd. in
November 2020, SOFTBRAIN Co., Ltd. and its subsidiaries became discontinued
operations from 2Q FY2021. In August 2021, the company incorporated
readytowork,Inc. as its 100% subsidiary. readytowork supports domesticclients in Nepal in their new business development and DX changeovers,
primarily concerning web systems. This is Scala’s second offshore technology
development base, following the first Scala Next Inc. Mandalay branch(Myanmar) established in December 2018. Combined with the base in Japan,
the company now deploys three technology bases with a view to shortening
DX development time and accumulating expertise.

Scala Inc.ʼs revenue mix by line of business

Incubation&
HR &Education Investment BusinessBusiness\0.03 bn2.83%
EC
\0.21bn
Business
12.93%

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 theother ￥500 billion in sales revenue (operating income of ￥50 billion)
by FY2030. The company plans to develop and commercialize the threecapabilities 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:￥8.73 bn

Incubation & Investment Business
0.96%\0.08bn

EC
Business
15.01%\9.8 bn\1.31 bn

IT/AI/IoT/
DX Business
54.08%

Customer
SupportBusiness
29.66%\4.12 bn

\2.26 bn

HR & Education

Business
15.49%

IT/AI/IoT/
DX Business47.47%\1.25bn\4.14 bn

Customer
SupportBusiness
21.03%

Total sales revenue:￥7.62 bn

※ When Softbrain Group companies became discontinued operations, Scala
reformed its business lines to five segments.
※Figures for FY2020 at the Human Resources & Education business represent
those for April - June 2020 only.

\1.83bn(Source) Created by Morningstar Japan, based on the companyʼs data.

Business segment overview
When Softbrain Group companies discontinued, Scala recomposed its businesses into five.
segments
Reportable segment

IT/AI/IoT/DX

Group company

Provision of SaaS/ASP services

Scala Next Inc.

Development of SaaS/ASP services and offshore development

Connect Agency, Inc.

Cloud-based PBX service

Social Studio Inc.

Customer Support Leoconnect, Inc.

Planning, development and sale of cloud activity management
tools
Support for administrative bodies and local municipalities intheir DX and SDGs programs
Consulting of customer support (call center operation, etc.)

Athlete Planning, Inc.

HR & Education FourHands, Inc.

Incubation &Investment

Description of business

Scala Communications, Inc.
Scala Service, Inc.

Retool, Inc.

EC

■ Business Environment and Outlook
According to the ‘2020 WHITE PAPER: Information and Communications’released by the Japanese Ministry of Internal Affairs and Communications, thepenetration of AI and IoT has shown marked progress, with the number of IoT
devices in use worldwide estimated to increase from roughly 25.4 billion units
in 2019 to 34.8 billion units by the end of 2022. On the back of mounting
needs for further efficiency and labor saving across the board, the speed ofadoption of AI technology appears to accelerate going forward.
Scala, Inc. has formulated its ‘Mid-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 and executing an optimal combination of issues
and resources to maximize value). With the purpose of effectively proposing
these capabilities, the company has newly established the following segmentsthat 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 Mid-term Management Plan, Scala is set to organicallycoordinate the three capabilities with the three business segments to

FY2021 (full-year)

FY2020 (full-year)

Provides support for personnel employment (new graduates andmid-career recruitment) and other services
Provides support for child education, community development
etc.

Sports Stories, Inc.

Operates physical education, sports lessons and others

Scala PLAYce, Inc.

Operation of EC sites to trade matching game cards

Scala, Inc.

Group headquarters, holding company and investment business

Scala Partners, Inc.

Innovation, incubation and investment

J-Phoenix Research Inc.
(JPR)

Support for value-based management(preparation of analyst and integration reports; fundmanagement support)

SCL Capital LLC

Investment fund management

SCSV-1 Investment
Limited Liability
Partnership

Investment fund(Source) Created by Morningstar Japan, based on the companyʼs data.

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

Shareholder Return（As of Sep 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.

¥16

¥16

¥32

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.

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Morningstar Equity Research Report 2021.9.22

Scala, Inc.（4845・TSE 1st）Competitor Comparison（If the number is better than rivals, it's highlighted by red character）（As of Sep 21）
Scala, Inc.
(4845・TSE 1st)
Stock Price
Basic Point

Share Price
Indicator

Profitability

Financial
HealthCybozu, Inc.

(4776・TSE 1st)￥759

￥2,524￥2,544

Unit of Investment

100Shares

100Shares

100Shares

Minimum Investment Amount￥75,900￥252,400￥254,400

Fiscal Year End

June

February

December

PER（E）

24.3

21.9

―

Operating Profit Growth Rate（E）

1.3
4.7%
83.2%
275.0%EPS Growth Rate（E）▲82.1%▲25.5%―

Operating Margin（E）

5.2%

20.5%

1.8%

29.3%

27.6%

0.8%

19.1%

21.5%

50.0%

55.6%

52.3%

PBR
Dividend Yield（E）
Revenue Growth Rate（E）

Growth

PiPEDO HD, Inc.
(3919・TSE 1st)

34.9%

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

4.4

18.2

1.0%

0.5%

11.9%

17.0%

5.1%

▲85.5%

84.4%

39.1%

264.5%

0.0%

221.3%

119.8%

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.
※ Scala’s estimates for FY2021, shown above, represent the median of its guidance ranges.

■Growth Potential■Profitability■ Financial Stability

The consolidated financial results forecast
for the year ending June 2022 shows that
Scala will outperform competitors in termsof growth rate of revenue and operating
income margin. Scala approaches top
management of public companies throughEngagement Funds (SCSV) and proposes
support services concerning DX, business
management, among others. This method is
expected to dramatically drive growth of its
IT/AI/IoT/DX and Incubation & Investment
Businesses.

Scala forecasts that its operating
income margin for FY2022 will be in therange of 3.8% ～ 6.0%. Its profitability
is likely to be under downward
pressure from up-front investment in its
operations, with particular focus on IT/
AI/IoT/DX and Incubation & Investment
Businesses as well as new businesses
and business scheme development
projects. On the other hand, its ROE
is expected to improve significantly
to 34.9% (a 30.4-point increase fromlast year). This is probably due to a
sharp rise in net profit thanks to therecognition of a profit from a noncontinuing operation in FY2021.

S cala’s equity ratio at the end of
FY2021 showed a marked recovery
to 50.0% (a 20.3-point increase fromlast year). In the year, its cash position
soared after it posted an income froma non-continuing operation. Its debt
equity ratio is relatively high, but thecompany management regards M&A(corporate mergers and acquisitions) as
an important business issue therefore,
the effective use of interest-bearing debt
can be viewed as its strategic intent.
On the other hand, the company owns
a large proportion of current assets,with its liquidity ratio being at thehighest position in the competition. We
believe that Scala’s balance sheet is wellcontrolled overall, with no particularconcerns about its financial standing.

Of industry peers, we note Cybozu, Inc.’s forecast of solid revenue growth fromits cloud business for FY2021, ending
December 2021. At the same time, it
expects that its operating income growth
will slide deeply into contracting territorya s it plans to agg ressively invest inadvertising and general publicity programs
to drive future profitability.

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.

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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
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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.