June 7, 2023

Estore Corporation (TSE Standard/4304) UPDATE !
Digital Transformation (DX) is a great business opportunity that is approaching. With aneye to the future, the company is modifying its revenue model from e-commerce support toincubation.
The company is expected to make a big leap in the next fiscal year and beyond.

Executive Summary

KAsset Representative
Market analyst＊ In FY 3/2023 the company reported net sales of 9.45 billion yen (up 64.4%
YoY) and operating income of 900 million yen (down 14.5% YoY). In addition
to steady growth in its existing businesses, M&A in the newly launched HOI(hands-on incubation) business led to a significant increase in sales. On theother hand, income declined due to increased strategic upfront investment
aimed at strengthening its existing EC support services.

Kenichi Hirano
Corporate profile
Location
Representatives

Toranomon, Minatoku, Tokyo
Kenichi Ishimura,President and CEO
Yoichi Yanagida,
President and COO

Established1999

Capital

768 million yen

ListedSeptember 19, 2001

URL

https://estore.co.jp/

Business

Information &communication

Stock price data(closing price as of June 5)
Stock price

1,165

Number of shares
outstanding

5,636,636 shares

Market cap

6,567 million yen

Dividend per share(est.)－PER (est.)－

Actual PBR

2.1x＊ The Estore group is a pioneer in EC support, has many national brandcompanies for clients and boasts the top share in the corporate EC site
development market. With increasing its client companies' revenues as its
mission, the company has grown by constantly anticipating market changes
and providing timely services. It is currently expanding its upfront investment
as a great business opportunity.
＊ The changing work styles and lifestyles brought about by the Covid-19
pandemic have increased the attention given to digital transformation (DX)and companies are eager to invest in DX. While the business environment isfavorable, competition is also intensifying. With an eye to the future market,
the company has launched an HOI business, which will significantly change
its future revenue model. Nevertheless, as incubation is an extension of theEC support that the company has cultivated to date, it is a business in which
the company can take advantage of its strengths. The company is aiming for
growth in the group as a whole by using the EC support business as a cash
cow and redirecting management resources to the HOI business.
＊ In FY 3/2024 the company forecasts net sales of 12.50 billion yen (up 32.3%
YoY) and operating income of 840 million yen (down 7.2% YoY). Sales are
growing steadily on the back of robust EC consumption and active corporate
investment in DX. On the other hand, the company will continue to makeupfront investments in EC systems to enhance customer convenience, andthus expects to post decline in income for a second consecutive fiscal year.
However, this is a strategic investment for growth that is planned to be largely
completed in the current fiscal year, and the results of this investment will
become apparent from the next fiscal year onward. Operating income for FY
3/2025, the final year of the medium-term management plan, is forecast to be
2.0 billion yen. The company is expected to make great strides in the next
fiscal year and beyond by maximizing group synergies and capturing the
major trend in DX.

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Overview/Financial Summary◼

Overview
The company is a pioneer in EC support. Consisting of Estore, which is a holding company, and four
consolidated subsidiaries, the company provides support for "companies' own e-commerce sites" withthe mission of increasing clients' income. The services offered are (1) EC systems, (2) payment
settlement services, and (3) marketing services. The company’s strength lies in its ability to provide onestop services to increase the competitiveness of customers’ own EC sites. In order to increase its own
profitability, the company launched a hands-on incubation (HOI) business in 2022.

Estore Group

Medium-sized EC System

Large-scale EC
system(100% owned)

Marketing(100% owned)

Apparel productplanning,
manufacturing andsales(50% owned)

System development(100% owned)

EC Support

HOI◼

Summary of Financial Results for FY 3/2023
In FY 3/2023 the company reported increased revenue and decreased income, with net sales of 94.5
billion yen (up 64.4% YoY) and operating income of 900 million yen (down 14.5% YoY). Sales grewsignificantly through making SHIFFON a consolidated subsidiary and the launch of the HOI business inAugust 2022.

2019.3
4,932
515

2020.34,852
478

2021.3
10,504906

2022.3*5,746
1,051

2023.39,449
899

Operating income
margin (%)

10.4

9.9

8.6

18.3

9.5

Ordinary income
Net income

582
409

526
367

1,073
482

1,078
677

751
307

(Million yen)

Net sales
Operating income＊ Sales for FY 3/2022 appear to be declining due to the change in presentation of transactions from gross tonet, but in fact it is up 6%.

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Financial Summary
On the other hand, income declined because upfront investments in the EC support business weregreater than initially planned. The company is strengthening its personnel structure, including system
function development and recruitment, with the aim of improving customer convenience.
(Million yen)

Increase due toconsolidation of SHIFFON

Increase inoutsourcing costs
for specific projects

M&A related
expenses

Development of features
to increase customers’
revenues (including
subcontracting costs)
Personnel costs forincreasing
customers’ revenues

Strengthening
the sales force

Other

Upfront
investment

2023.32022.3

 Business Segments and Sales Trends
With the M&A of "SHIFFON" providing the opportunity to launch the HOI business, the company now
consists of two segments, the EC support business and the HOI business. Although sales in the EC
support business are growing due to market expansion, the growth rate is slowing due to intensifying
competition.
(Million yen)2020.32021.3

YoY(%)

2022.3

YoY(%)

2023.3

YoY(%)EC Business

EC Systems

1,935

3,900

101.6

4,293

10.1

4,541

5.8

Payment
settlements

582

835

43.5

854

2.3

868

1.6

Marketing

396

678

71.2

599

-11.7

522

-12.9

HOI
Business
Total

3,516 4,852

5,415

11.6

5,746

6.1

9,446

64.4

 Strengths
In the EC support business, the company has provided EC systems, payment settlement services,
sales promotion proposals and sales promotion agency services. By engaging in the development of EC
systems, the company can provide a one-stop service from the sales domain, such as market analysis
and system development, to the sales promotion domain based on payment and purchasing data
analysis. The company's greatest strength is its comprehensive ability to accurately respond to
customers’ needs to expand revenue.

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Position in the IndustryMarket Environment and Business Model of the EC Support BusinessAs shown in the Ministry of Economy, Trade and Industry statistics in the table below, Japan's B2C-EC
market grew significantly in 2020, driven by growing demand due to people staying at home during the Covid19 pandemic, and has steadily expanded since then, with the EC adoption rate rising to the high 8% range.
Yet, it still lags far behind the global EC adoption rate of 17.8% (2020). Although EC consumption is
becoming more established, it is thought that there is still plenty of room for growth.

物販系B2C EC市場規模及びEC化率の推移

Changes in the size of the B2C-EC market for goods sales and EC adoption rate
(Unit:
100 million yen)（億円）

140,000
120,000
100,000
80,00060,00040,00020,0000132,865

10
9
8.78
8
100,515
8.08
92,992
7
86,0086.76
80,0436
6.22
68,043 72,398
5.79
5.43
5
59,931
4.75
4
4.37
3
3.85
2
1
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
122,333

Market
size
市場規模

EC
adoption rate (%)
EC化率(%)

Source: Ministry of Economy,
Trade and Industry FY2021 Survey on Electronic Commerce
出所：経済産業省
令和3年度電子商取引に関する市場調査
The company has continued to expand the services it offers ahead of market trends. The cross-selling ofthese products has increased the earnings of customer companies, and the company has also become a top
leader in the support of corporate EC site development. As D2C accelerates in the future, "corporate EC" is apromising market. Therefore, competition is intensifying as more and more new participants enter the market.
Since the business model was originally low-risk, low-return, it is becoming harder to expect the kind of profit
growth that has been seen in the past. The company is modifying its business model in light of these changes
in the external environment.

1. As EC support has become a red ocean, the company has decided to focus on serving large, profitablecustomers. The company has many national brand companies as its main customers, and there is still
plenty of growth potential in EC support for large customers. Therefore, the company is currently focusing
on the development of systems that are indispensable for customers' to expand their payment settlement
revenues (auto-scaling: a system to prevent missed sales during peak periods; CRM: enhanced
distribution of email newsletters). While priority has been given to upfront investments in the previous andcurrent fiscal years, the business is expected to become a cash cow from the next fiscal year onward.
2. The company intends to shift the management resources gained from the EC support business to the HOI
business and shift its focus in the future. The HOI business will drive future growth by turning companies
with promising commercial products into group companies through direct investment such as JVs andM&As, and capturing their business profits.

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Business Model

Potential of HOI Business
While the normalization of economic activity has led to increased human flows and consumption, the disparities in income
and assets have also widened. In addition, as consumers' values diversify, "premium consumption," in which consumers will pay
for what they take an interest in, is expected to expand. In other words, companies must have products that people will findworth buying. Furthermore, even if a company has valuable commercial products, it won't be able to survive if it doesn't haveknowledge and financial resources concerning DX. There are many small and medium-sized companies that have valuable
products but are unable to promote them on their own EC site. The HOI business is the business of making direct investments insuch companies and maximizing earnings by providing the company’s accumulated expertise. The company is expected tomake a great leap forward with this business model, in which it develops its business as a partner and enjoys business profits
together with these companies.

Business Model(Image)Business investment(including EC support)

EC Support

Customer income
Estore income

Mass company

Mass company

Mass company

Unique company

Unique company

Unique company

From the company's financial results presentation materials
As mentioned above, the HOI business is a business that uses M&A to acquire companies which are expected to make
rapid progress if their EC operations are strengthened, and captures the business income from the increased value. Sourcing
ability* is essential, but the company believes it can mitigate risk because of its discerning eye cultivated through EC supportand its ability to propose and negotiate income improvement proposals. Furthermore, it can increase corporate value beyond
improvements to EC.
* Sourcing = In M&A, selecting and further negotiating with a target company.
 Future Performance
Although income has fluctuated due to development investments and M&A, the company has achieved steady growth overthe long term as an industry leader. In FY 3/2024 the company forecasts net sales of 12.50 billion yen (up 32.3% YoY) andoperating income of 840 million yen (down 7.2% YoY). Sales are growing steadily on the back of robust EC consumption andactive corporate investment in DX. On the other hand, the company will continue to make upfront investments in EC systems toenhance customer convenience, and thus forecasts to post decline in income for a second consecutive fiscal year. However,this is a strategic investment for growth that is planned to be largely completed in the current fiscal year, and the results of thisinvestment will become apparent from the next fiscal year onward.
(Million yen)

Net sales
Operatingincome2020.32021.32022.32023.32024.3 (forecast)

4,852

10,504*5,746

9,449

12,498

478

906

1,051

899

835

Operating income
margin (%)

9.9

8.6

18.3

9.5

6.7

Ordinary income
Net income

526
367

1,073
482

1,078
677

751

－

307

－

* Sales for FY 3/2022 appear to be declining due to the change in presentation of transactions from gross to net, but in fact it is up 6%.
* Non-operating income/loss has not been disclosed due to the difficulty of reasonably predicting foreign exchange rate fluctuations
and other factors at this time.

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Business Model
Operating income for FY 3/2025, the final year of the medium-term management plan, is forecast to be 2.0 billion yen. While
the target figures remain unchanged from the original plan, the income composition of the segments has changed significantly,
with the HOI business accounting for 75% and the EC support business accounting for 25%. The EC support segment has
almost completed the upfront investment and is growing through services towards large customers. In the HOI segment,
SHIFFON's operating income is forecast to be around 600 million yen, and in addition, one or two of the multiple M&A deals
currently in progress are expected to be concluded.
At the time of publication

Forecast

HOI Business

EC Support Business

From the company's financial results presentation materials
After that, the company plans to expand its operating income to 5 billion yen in FY 3/2031 through the shift to the HOI
business.
investment

2020.32021.32022.32023.3Results2024.3
Forecast

2025.3
Forecast

2031.3Image

From the company's financial results presentation materials
The DX wave is a great opportunity for growth. The company is actively pursuing business alliances and M&As. By
maximizing group synergies, the company aims to make further progress as a total solution company for EC support.

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Capital Policy and Shareholder Returns/Challenges and Risks
 Capital Policy and Shareholder Returns
Assets and liabilities increased significantly with the consolidation of SHIFFON. The 2022
stock acquisition (50%) was supplemented by bank borrowings, and as the company plans toacquire an additional 20% in June, both short- and long-term borrowings are expected toincrease. The company's policy for the moment is to prioritize investment in the HOI business inorder to maximize corporate value, but it is open to returning profits to shareholders once it thenecessary internal reserves have been secured.
Annual dividend per share (yen)

81.7

37.6

31.9

29

32

2020.32021.350

Not decided

Dividend payout ratio (%)

2023.32024.329.7
402022.3

 Challenges and Risks
The growth of the EC market will accelerate as society undergoes a rapid paradigm shift andDX becomes inevitable. In the IT market, with its fast rate of technological innovation, systemdevelopment is a necessity. Securing and developing system engineers and sales personnel is achallenge. Achieving the TSE Prime listing criteria is also a challenge, as is capital policy. If thecompany is unable to secure and develop sales personnel, or if the results of alliances andM&As are less than expected, the balance sheet will not improve as forecast. The rapidlychanging world of IT is a tough world to be in.

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Stock price approach
Foreign investors' view of Japanese stocks has changed dramatically, resulting in large purchases of Japanese stocks. The
Nikkei is at its highest level in 33 years, and further upward momentum is expected. However, the large-cap and high-priced
stocks bought by foreign investors, as well as index-based stocks, are leading the increases, while small-cap stocks belonging
to the standard and growth markets have been relatively sluggish. The stock price of the company, which belongs to thestandard market with a market capitalization of 6.5 billion yen, has also been stagnant. However, until now, foreign investors'
style of reviewing and buying Japanese stocks has been to buy large-cap and mainstay stocks with large market capitalizationand then gradually reach for small-cap growth stocks. On the other hand, individual investors have been accumulating cash on
hand by selling to the foreign investors' purchases up to this point, but both domestic and foreign investors are expected to turntheir funds towards lagging stocks in the future.
The stock price has fallen sharply since the announcement of the company’s financial results (May 15), as the company's
earnings for the fiscal year ended March 2023 was down 14.5% in operating income and 30.3% in ordinary income due to theforward-looking strategic investments. Moreover, while on the surface the company's sales are expected to increase significantlyin the fiscal year ending March 2024, income recovery is uncertain and the recovery of the stock price is also sluggish.
However, the upfront investment that is the source of this decline in earnings could significantly change the company's
income model going forward, and we believe that this decline in the stock price is a good time for investors to enter the market.
More than anything, the company has not reduced its dividend once in the past, which is noteworthy for a company of this typethat is usually prone to fluctuations, and the company increased its annual dividend by 10 yen, to 50 yen in the previous fiscal
year, even though income had declined. The shift to DX in the corporate sector is expected to accelerate in the future. The trend
toward B2C "corporate headquartered EC", which provides customers with all of the necessary EC solutions (systems,
marketing, and payment settlements) needed to increase their income, is also expected to increase further. DX has entered the"era of advanced generalization". In the future, the company will shift its focus to the HOI (hands-on incubation) business, where
it will make direct investments in companies that provide unique products and services, and capture their entire businessincome. Will the upfront investment to build the "Estore era" pay off? The future stock price will be the evidence of this, but thismay be the place to cast a vote first.

Stock price (historical)
1,513

Year-to-date
low

1,066

All-time high590,000

All-time low

620

2,500
2,000

1,500
1,000
500
0

2021年6月7日
June 7, 2021
2021年7月5日
July 5, 2021
2021年8月2日
August 2, 2021
2021年8月30日
August 30, 2021
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27, 2021
September
2021年10月25日
October 25, 2021
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22, 2021
November
2021年12月20日
20 , 2021
December
2022年1月17日
17, 2022
January
2022年2月14日
February 14, 2022
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March 14, 2022
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April 11, 2022
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May 9, 2022
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June 6, 2022
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August 29, 2022
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September 26, 2022
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October 24, 2022
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November 21, 2022
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December 19, 2021
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January 16, 2023
2023年1月16日
February 13, 2023
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March 13, 2023
2023年3月13日
April 10, 2023
2023年4月10日
May 8, 2023
2023年5月8日
June 5, 2023
2023年6月5日

Year-to-datehighStock Price Trend (weekly)

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Disclaimer
This report was produced by an analyst of KAsset Co., Ltd., as entrusted by FinanTec Co.,
Ltd. The analyst interviewed the target company to collect information, but the hypotheses andconclusions included in this report are not derived from that company, but based on theanalysis and evaluation of the analyst who was entrusted with the production of this report.
This report was produced for the only purpose of providing reference information forinvestment, not for soliciting or inducing any transactions of securities or the like.
In any case, a final decision about investment should be made by each investor on his/herown judgment and responsibility. Neither FinanTec Co., Ltd. nor the analyst who was
entrusted with the production of this report will assume any responsibility. In addition, thecontents of this report are all based on information that was available when it was produced,
so they may be revised without notice.
The copyright of this report belongs to FinanTec Co., Ltd. and KAsset Co., Ltd. Law prohibits
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