Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

BSP
3800 JASDAQ

17-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata

伪伪Accelerating growth via expanding the business domains
to strategic areas where increased demand is expected
BSP Incorporated [3800] focuses on development, sales and services for package operation
control software for backbones systems for a diverse range of industries, including the financial
and manufacturing industries. By contributing to the automation of systems operation including
job management and form control, it has realized steady sales growth and high profitability.
BSP's FY3/14 results showed sales up 6.9% YoY to ¥4,203mn, operating income up 10.0% YoY
to ¥1,181mn (an OP margin of 28.1%), and ordinary income up 13.3% YoY to ¥1,241mn (an RP
margin of 29.5%), setting new record highs for sales and recurring profit.
BSP has initiated reforms to its business structure by taking advantage of changes in theexternal (operating) environment to expand business, such as the shifts to open architecture
in systems, downsizing and the shift in expectations on IT departments to being areas that
contribute to creating corporate value, as well as the consolidation of Beacon Information
Technology Inc. (herein "Beacon IT”), in the fields supporting strategic (information-related)systems, such data utilization. Its policy is to accelerate growth by expanding its businessdomains into areas where expansion in demand is expected.
In respect of FY3/15 results forecasts, despite assuming that its high profitability will havea period of marking time, including the impact from consolidating Beacon IT and under its
policy of giving priority to growth via structural operational reforms, BSP expects a significant
increase in both sales and earnings, with sales up 78.4% YoY to ¥7,500mn, operating income
up 16.8% YoY to ¥1,380mn (an operating income margin of 18.4%) and ordinary income up 17.6%
YoY to ¥1,460mn (an ordinary income margin of 19.5%); and (thus) plans to again set record
sales and earnings.

伪伪Check Point
・Maintaining steady sales growth & high profitability
・New record sales & ordinary income highs from Product Division growth・Significant sales & earnings growth forecast with the added impact from consolidating
Beacon IT

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

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BSP

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3800 JASDAQ

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17-Jul.-14（¥mn）

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FISCO Ltd. Analyst
Ikuo Shibata

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Important disclosuresand disclaimers appear
at the end of this document.

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伪伪Corporate Overview
Products for mainframes have been a stable income source since
establishment & boast high profitability(1) Scope of Operations
BSP Incorporated (herein "BSP") focuses on development, sales and services for operations
control package software for backbones systems for a diverse range of industries, including thefinancial and manufacturing industries. In addition to peripheral activities such as operational
consulting and human resource development where it utilizes its proprietary know-how, BSP
has also commenced administration services as a new business. Products aimed at mainframes,
chiefly for financial institutions and large scale corporations, have since establishment been astable source of income, and boast high profitability. Through contributing to automation andenhanced efficiency in IT operating systems, including job management and form control, BSP
has achieved steady growth.
At the same time, BSP has initiated reforms to its business structure by taking advantage
of changes in the external (operating) environment to expand its business, such as shifts toopen architecture in systems, downsizing and the proliferation of cloud computing. In addition
to automation and enhancing efficiency in IT systems operation, by expanding its businessdomains to areas that are able to contribute to corporate value creation, BSP's policy is toaccelerate growth.
Its operations up to FY3/14 may be divided into 4 segments.
(a) Product Division
Within operations control for backbone systems BSP handles open architecture products. As
well as undertaking development, sales and support services for proprietary products in the 3
fields of operations automation, forms and IT Service Management (ITMS), BSP also handles
certain products from other companies. Royalties on product usage rights (license fees) andmaintenance services that are a fixed ratio of the product cost form the sources of income.
Also, BSP commenced the cloud service Be.Cloud for which demand is growing from FY3/13.

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■Corporate■
Overview(b) Mainframe Division
Within operations control for backbone systems, BSP handles proprietary mainframe products,
chiefly for financial institutions and large scale corporations. From the year following the sale
BSP receives from mainframe product users, as a maintenance service fee, a fixed ratio of
the product cost. This has been BSP's flagship business since its establishment and forms astable source of income.

BSP
3800 JASDAQ

17-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata(c) Solutions Division
BSP engages in services that provide solutions such as solutions in the IT services domain(including systems development consulting and human resource development), its membershipsystem-based "Sys-Doc” service (providing expert advice on IT systems operation via
periodic client visits), and a service offering solutions utilizing the ASMO method aimed atdeveloping operations divisions that contribute to management (including corporate value
analysis, organizational reform and human resource development).
(d) BPO Operations Group
This is an administrative service launched from FY3/14 (October 2013) based on the"Operation-less” concept for IT divisions to contribute to corporate value creation advocatedby BSP. Specifically, it undertakes support for activities from proposals for reforms in relation
to IT system operation, system development, systems migration, project management andestablishing a service desk.
As well as representing 56.1% of Mainframe Division sales in FY3/14 actual results, it delivered
almost all of the operating income, and supported BSP's high profitability.
Client numbers (the number of companies that have installed BSP products) exceed 800
companies, with a track record of numerous cases of installations by large scale corporations
noticeable. The composition of sales by industry type reveals application in a diverse range ofindustries, with the ratios for manufacturing, retail and distribution, and finance being relativelyhigh.

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Direct sales form the main sales channel, with some (forms etc.) via partners.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■Corporate■
Overview

There are 2 consolidated subsidiaries, BSP Solutions Incorporated, that operates the solution
business, and BSP (Shanghai), Inc., that is the base for sales in China.
As part of its structural operational reforms, in January 2014 BSP consolidated (with ashareholding of 53.55%) Beacon IT (it being the parent company when BSP became independent
in July 1993). From FY3/15 the operating segments will alter as set out below.

BSP
3800 JASDAQ(a) Systems Operations BusinessThis will combine what have been the Product, Solutions and BPO Operations Divisions todate.

17-Jul.-14(b) Mainframe Business
What has been the Mainframe Group to date will continue in the same form.

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata(c) Data Utilization BusinessThis is a new business acquired through the consolidation of Beacon IT. It will undertake
activities such as software development and sales for data utilization, including increasing dataprocessing speeds and strengthening operating functions, as well as consulting in relation todata utilization.
(d) Other Business
These are also new businesses acquired through the consolidation of Beacon IT. They comprisethose businesses of Beacon IT apart from those in (c) above, including business continuity
plan development, administration and maintenance support, as well as an HR outsourcing
management SaaS.

Track record in backbone systems (mainframes) for financial andother institutions(2) Corporate History
BSP's former incarnation Three-B was established in 1982 in Tokyo's Chuo Ward as a subsidiaryof KK Business Consultant, a provider of programs for HR and organizational development. The
origins of Business Consultant were in Software Age of Far East (the current Beacon IT), which
had been selling A-Auto (software for automating the scheduling of complicated computer
systems jobs and achieving enhanced efficiency in IT systems administration) domestically, andtargeted selling in the US market.
Subsequently, in 1987 it changed the company name to BSP. The turning point for BSP waswhen it took over the operations relating to systems management from SoftwareAG of Far Eastin 1993 and commenced full-scale operations as a specialist systems administration software
company. Following that, while steadily seeking to strengthen its operating platform, and withexpansion in IT systems investment as a tailwind, it built-up a track record chiefly in backbone
systems (mainframes), including those for financial institutions and large scale corporations.
In 2011 it established BSP Solutions and commenced full-scale consulting solutions operations.
In 2006 it listed on the JASDAQ Securities Exchange (currently JASDAQ ).

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■Corporate■
Overview

In 2008 it expanded into China by establishing BSP Shanghai. In 2013, based on the "Operationless” concept, it commenced the Be.Cloud cloud service and administrative BPO Operations
Service.
In January 2014, by consolidating Beacon IT, as well as tackling growth areas such as datautilization, BSP initiated structural operational reforms.

BSP
3800 JASDAQIn May 2014 for handling products in the big data and business process management area, BSP
entered into a business alliance with Software AG, Inc. (herein Software AG), with this being
its opening gambit for operational expansion into the big data field.

17-Jul.-14
BSP Corporate History Schematic (to Jan 24 2014)

Beacon Group
Important disclosuresand disclaimers appear
at the end of this document.

Established 1964 (Year 39 Showa Era)

Business Consultant
Spun-off 1970 (Year 45 Showa Era)

FISCO Ltd. Analyst
Ikuo Shibata

Lincrea (formerly Beacon Systems)
Established1982 (Year 57 Showa Era)

Three BBSP Group

Spun-off 1976 (Year 51 Showa Era)

Beacon Information
Technology

Changed company name1987 (Year 62 Showa Era)

Took over transport-related operations
1993 (Year 5 Heisei Era)

BSP
Source: Company materials

Establishing a business portfolio with a balance between stability& growth(3) Corporate Characteristics
BSP advocates as corporate philosophy of "Using flexible IT, we aim to be a company that
contributes the development of society and the creation of a better future”.
We may cite as BSP's distinguishing characteristics: (a) it is an independent software vendor
specializing in IT systems operation, (b) it secures high profitability, with mainframe operations
being the stable income source, and (c) through structural operational reforms associated withthe consolidation of Beacon IT it has achieved a structure that allows it to provide support forcustomer businesses in both the attack and defense aspect.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■Corporate■
Overview

BSP
3800 JASDAQ

17-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata(a) Independent software vendor specializing in IT systems operation
BSP's products are not restricted by, for example, the scale of a computer or manufacturer,
with the strength being in the fact that it allows for smooth system operation. Given that
manufacturer-related products that compete with BSP products do not allow the hardware
component to be replaced by those of another manufacturer, there is a clear distinction in thatfor customers it becomes a factor hindering flexible systems development. Further, because
BSP's offering price is defined by the extent to which it is able to contribute to automation andenhanced efficiency in IT systems, the track record and know-how it has amassed specializingin this field are reflected in the high degree of detail and performance in its products andservices and precision of its proposals. In installing systems, amidst the trend amongst many tooutsource to agents, the fact that BSP's products are provided through direct sales to mainly
financial institutions and large scale corporations, and when updating systems that there aremany cases where they are adopted as replacements, is arguably proof thereof. Further, in the
System Managers Club in which BSP is contracted to operate (systems), being on the largest
scale of system manager networks in Japan, boasts over 13,000 members (and 139 endorsing
companies), and demonstrates that BSP is the driving force in this field.
(b) Investment from the stable mainframe income source in the next growth areas
As well as BSP's mainframe business segment profitability being an astoundingly high 71.9%(FY3/14 actual results), it has supported its results as a stable source of income. What makes
this possible, as well as there being also confidence in BSP's products and services, lies we feelin the high customer switching cost (the costs that arise due to replacing systems). Despite themainframe business gradually shrinking, it is expected that for some time it will fulfill the roleof the cash cow, and we feel that for BSP, being able to earmark those funds for investment in
the next growth areas (e.g. cloud services, data utilization), is a significant advantage.
(c) Achieving a structure that allows customer support from both the aspects of attack & defense
Through the current structural operational reforms, not only will there be contributions to IT
systems operation and enhanced efficiency, by expanding its business domains to include areas
where customers will reallocate management resources (staffing, budget etc.) after that (i.e.
areas that create corporate value), it will enable more persuasive proposals and developmentof a diverse array of solutions, which we feel will define BSP's superiority.

伪伪Industry Environment
While sound systems operation software faces changes in its
operating environment
According to a survey by IDC Japan, the domestic software market in 2013 was ¥2.3988tr(+6.0% YoY), with the market in BSP's field of "systems/network management software”
being in the order of ¥291.3bn. The main reason that this market is growing, apart from a
review of the operating process in line with system upgrading and virtualization, is that (themarket for) job management and automation software is growing. It is thought that this trend
will continue for the time being, however, on the other hand, along with a shift from theconventional mainframe focus to open architecture (systems), the industry is facing changes
in the operating environment due to technological advances in IT, such as an increase in theusage of cloud services.

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■Industry■
Environment

The main players are centered on domestic manufacturer-related vendors (Hitachi Corporation[6502], Fujitsu [6702] etc.), with foreign players such as IBM and HP also represented in the
top tier. However, if we limit this to mainframe operations, BSP represents a large share, and isarguably in a position where it is benefiting from being the last man standing. Further, amongst
listed companies there are no software vendors specializing in IT systems operation.

BSP
3800 JASDAQ

17-Jul.-14

伪伪Operating Results Trends
Maintaining steady sales growth & high profitability(1) Previous results performance

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata

Reviewing BSP's results, despite sales showing a decline from FY3/09 to FY3/10 from theimpact amongst other things of the Lehman Shock, from FY3/12 onwards amidst a shift toopen architecture systems, there is a pattern of growth in product business driving BSP's sales
growth, with underlying earnings growth continuing.
From a profit perspective, despite there still being a high degree of reliance on the mainframe
business, with progress also in improvement in profitability in the product business, theoperating income margin is in an uptrend, reaching 28.1% in FY3/14.

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Further, from a financial perspective along with the high level of shareholders' equity, which
is an indicator of the stability of BSP's financial platform, its quick ratio also, which indicates
its ability to make short-term payments, is at high level (420% as of the term-end FY3/14)
reflecting its ample balance of cash and near cash, marking arguable a highly conservative
financial strategy. However, at the stage it becomes necessary to invest in the next growthareas, one can take the view that the strength of the financial platform will become the driving
force for BSP's growth. ROE, which indicates capital efficiency, has improved in lock step withthe rise in BSP's operating income margin, reaching a level exceeding 10% in FY3/14.

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■Operating■
Results Trends

Moreover, in FY3/14, March 31 of that year being the deemed acquisition date, only Beacon
IT's balance sheet has been consolidated.

Shareholders’ Equity & ROE Trends㻾㻻㻱㻌㻔㻾㼕㼓㼔㼠㻕

Shareholders’ Equity (Left)

BSP㻝㻜㻜㻚㻜㻑

3800 JASDAQ

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17-Jul.-14

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Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata

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Record high sales & ordinary income set by growth in the ProductBusiness(2) Overview of FY3/14 Results
FY3/14 results set new record highs for sales and ordinary income with sales up 6.9% YoY
to ¥4,203mn, operating income up 10.0% YoY to ¥1,181mn, ordinary income up 13.3% YoY to¥1,241mn, and net income up 12.7% YoY to ¥799mn.

*	A point of liaison that responds
to incident management andinquiries from internal BSP
system users. The configuration
function possessed by BSP’s
IT management tool LMIS on
cloud that responds flexibly tocustomer systems environments
is rated highly, and the number ofcompanies that have installed it is
growing, including replacementsof other companies’ (products).

Looking at sales by segment, despite a slight decline in the mainframe business, growth
in product business, and the addition of the BPO operations business which started fromthis term, contributed to revenue growth. Moreover, growth in product business was due tosignificant increases in the IT management area (ITSM) in line with expansion in Service Desk*development needs and big-ticket orders.
From a profit perspective, there is no significant change from the earnings structure that
relied on mainframe business, however, due to improved profitability in product business, cost
reductions and other factors the operating income margin rose to 28.1%.

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■Operating■
Results Trends

FY3/14 Results Overview

BSP
3800 JASDAQ

17-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata

FY3/13
FY3/14
Change YoY
Sales
%
Sales
%
Sales
3,931
4,203
272
6.9%
Product Group
1,345
34.2%
1,524
36.3%
179
13.3%
Operations automation
580
14.8%
569
13.5%
-11
-1.8%
Forms
615
15.6%
622
14.8%
7
1.1%
ITSM
124
3.2%
251
6.0%
127 102.5%
Other
25
0.6%
79
1.9%
54 216.0%
Mainframe Group
2,410
61.3%
2,359
56.1%
-51
-2.1%
Solutions Group
175
4.5%
188
4.5%
13
7.4%
BPO Operations Group
0
131
3.1%
131
COGs
280
7.1%
513
12.2%
233
83%
Gross profit
3,650
92.9%
3,690
87.8%
40
1%
SG&A
2,576
65.5%
2,509
59.7%
-67
-3%
Operating income
1,074
27.3%
1,181
28.1%
107
10.0%
Product-502-443
59 -11.8%
Mainframe
1,731
71.8%
1,697
71.9%
-34
-2.0%
Solutions
5
2.9%
16
8.5%
11 220.0%
BPO operations
-38
-38
Other
-160
-51
109
Adjustments
Ordinary income
1,096
27.9%
1,241
29.5%
145
13.3%
Net income
709
18.0%
799
19.0%
90
12.7%
The operating income by segment ratios represent segment profit margins(Unit: ¥mn)
FY3/14 Initial Forecast
Sales%
vs Plan
4,200- 100.1%
1,810
43.1%
84.2%
2,160
51.4% 109.2%
230
5.5%
81.7%
0
0.0%
1,160
27.6% 101.8%
-290
1,427
66.1% 118.9%
23
10.0%
69.6%
1,200
28.6% 103.4%
750
17.9% 106.5%

Significant sales & earnings growth forecast including the impact
from consolidating Beacon IT(3) FY3/15 Operating results outlook
BSP's FY3/15 forecasts anticipate significant growth in both sales and earnings, with sales up
78.4% YoY to ¥7,500mn, operating income up 16.8% YoY to ¥1,380mn, ordinary income up 17.6%
YoY to ¥1,460mn and net income up 11.3% to ¥890mn.
As noted above, BSP has reorganized its business segments due to expansion in its businessdomains in line with the consolidation of Beacon IT. Looking at sales by segment following
the reorganization, in addition to growth in systems operation business, the plan is for thedata utilization and other businesses, which have been newly added due to the consolidationof Beacon IT, to contribute to a significant increase in income. Further, in the mainframe
business, aside from a round of systems upgrades and back-up projects which were solid
performers in FY3/14, amidst the tide of transition to open architecture and downsizing, BSP
has conservatively forecast a decline in revenues.
From a profit perspective, due to consolidation of Beacon IT which has low profitability anddecline in mainframe business, BSP are expecting deterioration in the operating income margin.
However, through improvement in profitability in the systems operation business and utilizing
cost synergies with Beacon IT, the plan is to secure an increase in (absolute) profits. Basedon a policy of giving priority to growth via the structural operational reforms, the scenario
envisioned is for BSP to enter a phase of marking time with respect to the profit margin.

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■Operating■
Results Trends

FY3/15 Results Outlook

BSP
3800 JASDAQ

17-Jul.-14

FY3/14 (Actual)
Sales
%
4,203
1,843
43.8%
2,359
56.1%
513
12.2%
3,690
87.8%
2,509
59.7%
1,181
28.1%
1,241
29.5%
799
19.0%

Sales
Systems operation
Mainframe
Data utilization
Other
COGs
Gross Profit
SG&A
Operating income
Ordinary income
Net income

FY3/15 (Forecast)
Sales
%
7,500
2,500
33.3%
2,000
26.7%
2,500
33.3%
500
6.7%
1,380
18.4%
1,460
19.5%
890
11.9%

(Unit: ¥mn)
Change
Sales
%
3,296
78.4%
657
35.6%
-359
-15.2%
2,500
500
199
16.9%
219
17.6%
91
11.3%

Important disclosuresand disclaimers appear
at the end of this document.

伪伪Mid-term Results Outlook
FISCO Ltd. Analyst
Ikuo Shibata

Aiming to accelerate growth through expanding business domains
into growth areas(1) Mid-term Management Plan Progress
BSP has been proceeding with a Mid-term Management Plan that has FY3/15 as its ultimate
fiscal term. BSP adopted "Operation'less2.0” as a business concept, which contributed
to operational reform through automation of customers' IT departments and efficiency
enhancements, targeting FY3/15 sales of ¥5,000mn, and an operating income of ¥1,800mn(an operating income margin of 36.0%). Although, with contributions from the BPO operations
business and consolidation of Beacon IT, there is a strong probability that BSP will exceed
the plan significantly, from a profit perspective it is forecast to fall below plan due to delays inprogress in the product business and the consolidation of Beacon IT.

Increasing growth & income sources by expanding the businessdomains to high-value-added areas(2) Growth Strategies
BSP's policy is, as demands by management to IT departments become increasingly sophisticated,to seek to accelerate growth and expand sources of income, not only by automating systems
operation and promoting efficiency, but by also expanding its business domains to highvalue-added areas (areas that contribute to corporate value) where customers' management
resources (budget, staff etc.) will then be reallocated.

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■Mid-term■
Results Outlook

BSP
3800 JASDAQ

17-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Ikuo Shibata

As part of that, BSP consolidated Beacon IT which possesses strengths, including in
consultation by way of data utilization and data modeling. Through the combination of BSP
in field of core banking systems support and Beacon IT in the field of strategic (information)systems support, at the same time as enabling business opportunities to be embraced fromboth aspects of customer defense and attack, it seeks to achieve a balance in BSP's businessportfolio between stability and growth (investment and return). Further, the business alliancewith Software AG, which is engaged in global expansion, is the opening gambit aimed atstrengthening the ability to provide solutions in the field of big data utilization that it expected
to expand going forward.
BSP, based on its Group message to "Empower Your Business & Change Your Work style（～supporting reform in customers' businesses work practices through flexible IT～”, has
initiated reforms to its operational structure in the 6 business domains of data utilization, system
operation, cloud services, BPO (Business Process Outsourcing), BCP (Business Consultation
Planning), and consultative human resource development, and will tackle strengthening its
operational base via the early fusion of management resources with Beacon IT in FY3/15.
Further, going forward also its policy is to proactively promote utilization of external resources
also, including by commercial alliances and M&A. BSP plans to publicly announce specificmanagement targets in its next Mid-term Management Plan.

お客さまの期待に応える６つの事業領域
6 Business Domains

Big Data Utilization(Internet of Things)↓
Strategy optimization

Data
Utilization

Systems
Operation

ConsultativeHR
Development

Enhance Organizational
Capabilities↑
IT Governance

BCP

Optimization &Automation↓
Enhancing Degreeof Saturation

Cloud
Services

BPO

Agile management↑
Ecosystem

Source: Company materials
Copyright (c) BSP Incorporated All rights reserved.

2

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

伪伪Shareholder returns
FY3/15 dividend to be increased to ¥70 & shareholder incentive
scheme to be introduced

BSP
3800 JASDAQ

BSP's shareholder reward policy aims for a 30% consolidated dividend payout ratio. It was
decided that dividend would be ¥60 in FY3/14 (¥30 mid-year, ¥30 year-end), a payout ratioof 29.3%. BSP is planning to increase the dividend to ¥70 in FY3/15 (¥35 mid-year, ¥35 yearend), a payout ratio of 30.1% against their forecast earnings). In the mid-term also, we feel thatthe likelihood of dividend increases in line with earnings growth is high.

17-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.

Further, on May 8, 2014, BSP introduced a shareholder incentive scheme, targeting an increasein the number of its individual shareholders (and enhanced liquidity). On March 31 every year
current shareholders will be presented with JCB gift cards corresponding to the amount ofshares they hold, with the first target group being March 31, 2015 shareholders.

FISCO Ltd. Analyst
Ikuo Shibata

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

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