Cyberlinks Co., Ltd. provides cloud services primarily to the retail and government sectors. Because the company started offering cloud services when they were relatively unknown in Japan, it refers to them as “shared cloud” services. The company also operates Docomo stores, which sell smartphones and related products. Founded in Wakayama Prefecture in 1956, the company posted revenue of JPY13.2bn (+3.6% YoY) and recurring profit of JPY959mn (+0.7% YoY) in FY12/21. Cyberlinks has four segments: Distribution Cloud (30.4% of revenue, recurring profit margin of 14.1% in FY12/21), Government Cloud (46.5%, 9.7%), Trust (0.7%, recurring loss of JPY350mn), and Mobile Network (22.4%, 12.9%).

@rms ERP (cloud retail ERP system for supermarkets) is the core product of the Distribution Cloud segment. ERP systems offer comprehensive business processing features such as ordering/purchasing and accounts payable management, inventory management, and sales management. Peripheral systems such as automatic ordering, ledgers creation (revenue management by store or department), merchandising (analysis by product on identifying strong selling items and out-of-stock items), attendance management, and accounts/payroll/HR are offered as optional services.

Large supermarkets usually build their own ERP systems, outsourcing the work to system development companies. Small to mid-size supermarkets use Cyberlinks’ @rms ERP, Toshiba TEC Corporation’s (TSE1: 6588) RX-700, or develop their systems in-house. Japan has roughly 1,000 supermarket companies, of which around 130 use Cyberlinks’ @rms ERP. Supermarkets generally review their systems every five to seven years, giving rise to replacement demand.

In 2005, the company launched Japan’s first cloud service for retailers. As of December 2021, the number of stores using @rms ERP was 1,288 stores versus the total market of around 21,000 stores. @rms ERP mainly targets small and mid-size supermarkets with annual revenue of JPY30.0bn or less. Users pay an initial set-up fee and a monthly fee commensurate with the number of stores they operate. According to the company, a typical mid-size supermarket with 10 stores with annual revenue of around JPY10.0bn pays an initial set-up fee of JPY5.0mn and a monthly fee of JPY700,000–800,000. Users pay additional charges for peripheral services.

According to the company’s research and analysis, assuming that the cost of hardware, software, and labor for the initial setup of a supermarket ERP system is 100 when a company builds its own system (either in-house or through outsourcing), the cost for building a cloud-based system would be 87 and using Cyberlink’s cloud service 45. Similarly, assuming that the cost of operation and maintenance of the ERP system is 100 for a company’s own system, the cost is 81 for using a cloud-based system and 70 for using Cyberlink’s cloud service. Cyberlink’s cloud services help users to keep their costs down, but a drawback is that users must fit their business processes to the services that the company provides.

The Government Cloud segment provides services such as administrative information systems and regional disaster prevention systems mainly to local governments in Wakayama, Osaka, and Nara prefectures. The company was previously a distributor in Wakayama Prefecture for Matsushita Communication Industrial Co., Ltd. (now Panasonic Mobile Communications Co., Ltd.). Matsushita Communication Industrial’s sales policy was prefecture-based, which meant the company could not sell in other prefectures and distributors based in other prefectures could not sell in Wakayama Prefecture. Local governments also tend to order from local companies. Consequently, most users of the Government Cloud business are local governments in Wakayama Prefecture. The company extended its operations to Osaka and Nara prefectures when it made Minamiosaka Computing Center Co., Ltd. a consolidated subsidiary in October 2019.

The Government Cloud business’s administrative information system and regional disaster prevention system businesses engage in system development, operation, and maintenance work. The company also provides cloud services such as Clarinet (a school administration support service for elementary and junior high schools nationwide) and community medical collaboration platforms that link medical information of medical institutions during disaster or emergency situations.

Cloud services provided by the Distribution Cloud and Government Cloud businesses use four data centers (two owned by the company in Wakayama Prefecture and two rented centers in Tokyo and Osaka), which complement and back up each other. System failures at the company would cause serious issues for customers’ operations. The company has not had a single system failure causing a stoppage lasting 30 minutes or longer in the past five years.

The Trust segment, which the company sees as a growth area, provides a time stamping service for electronic data and ID authentication service based on My Number Card (Japan’s social security and tax number system). The business posted a recurring loss of JPY350mn in FY12/21, but targets recurring profit of JPY150mn in FY12/25.

The Mobile Network segment operates seven Docomo stores (NTT Docomo dealers) in Wakayama Prefecture. The company acts as a second-tier reseller, which signs up subscribers and sells smartphones based on a reseller agreement with CONEXIO Corporation (TSE1: 9422), a primary reseller for NTT Docomo, a consolidated subsidiary of Nippon Telephone and Telegraph Corp. (TSE1: 9432). The company had about 35% share among mobile phone sales companies in Wakayama Prefecture. Revenue and recurring profit per store were JPY423mn and JPY55mn, respectively. Revenue is affected by smartphone sales trends and recurring profit by the sales mix, as profit margins vary between smartphone manufacturers. Shared Research understands that the Mobile Network segment is a cash cow business that generates stable profits.

The company regards the recurring portion of its revenue as a KPI. Recurring revenue is revenue earned on an ongoing basis such as information processing and maintenance fees for cloud services and some incentives related to mobile handset sales. The CAGR of recurring revenue is 12.2% in the past five years, and recurring revenue accounted for 50.5% of total revenue in FY12/21.

Earnings trends

In FY12/21, revenue was JPY13.2bn (+3.6% YoY), operating profit was JPY945mn (+2.2% YoY), recurring profit was JPY959mn (+0.7% YoY), and net income attributable to owners of the parent was JPY645mn (+0.1% YoY). Although revenue declined at the Government Cloud segment due to a drop out of contributions from the construction projects for digitalization of disaster prevention communication systems, revenue was up in the Distribution Cloud and Mobile Network segments. The company posted record revenue and profits.

The full-year FY12/22 company forecast calls for revenue of JPY13.3bn (+0.2% YoY), operating profit of JPY1.0bn (+10.4% YoY), recurring profit of JPY1.0bn (+9.1% YoY), and net income attributable to owners of the parent of JPY670mn (+3.8% YoY). The company forecasts revenue and profit growth on robust expansion of the Distribution Cloud business. It looks for lower revenue and profit in the Government Cloud segment due to the dropout of construction projects for digitalization of disaster prevention communication systems and higher revenue and lower profit in the Mobile Network business.

Numerical targets of the medium-term management plan in FY12/25 are revenue of JPY14.5bn (of which recurring revenue accounts for JPY9.0bn), recurring profit of JPY1.6bn, and ROE of more than13%. Key points for attaining these targets are increased market share of the Distribution Cloud business and turn the new Trust business to the black.

Strengths and weaknesses

Shared Research sees the company’s strengths are (1) compatibility of its multiplePOS systems in the ERP system market for small and mid-size supermarkets where there is limited competition; (2) a wealth of retail industry expertise and a menu of peripheral services (thanks to the fact that the company has a long history in retail); and (3) relatively high profit margin of the Mobile Network business compared to peers, due to favorable store locations and operational efficiency, thereby serving as a stable cash cow for the company.

Weaknesses include (1) heavy upfront investment required for cloud services (such as software development costs and data center capex), (2) cyclical nature of earnings in the Government Cloud business due to demand fluctuations associated with central and local government policies, and (3) business areas being limited to Wakayama, Osaka, and Nara prefectures in the administrative information systems and regional disaster prevention systems business. The last point stems from its history as a distributor for Matsushita Communications Industrial, which had a prefecture-based sales policy.

Key financial data

Income statement			FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21	FY12/22
(JPYmn)			Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.	Est.
Revenue			7,106	7,470	8,850	9,296	9,310	9,615	9,685	10,450	12,778	13,241	13,267
	YoY		-	5.1%	18.5%	5.0%	0.2%	3.3%	0.7%	7.9%	22.3%	3.6%	0.2%
Gross profit			2,182	2,138	2,506	2,789	2,798	2,805	2,676	2,712	3,542	3,771
	YoY		-	-2.0%	17.2%	11.3%	0.3%	0.3%	-4.6%	1.3%	30.6%	6.5%
	Gross profit margin		30.7%	28.6%	28.3%	30.0%	30.0%	29.2%	27.6%	26.0%	27.7%	28.5%
Operating profit			298	339	604	735	582	577	504	450	925	945	1,043
	YoY		-	13.9%	78.2%	21.6%	-20.8%	-0.8%	-12.6%	-10.8%	105.5%	2.2%	10.4%
	Operating profit margin		4.2%	4.5%	6.8%	7.9%	6.3%	6.0%	5.2%	4.3%	7.2%	7.1%	7.9%
Recurring profit			330	344	591	727	588	610	514	461	952	959	1,046
	YoY		-	4.5%	71.5%	23.1%	-19.1%	3.6%	-15.7%	-10.3%	106.4%	0.7%	9.1%
	Recurring profit margin		4.6%	4.6%	6.7%	7.8%	6.3%	6.3%	5.3%	4.4%	7.4%	7.2%	7.9%
Net income			154	191	387	429	334	252	320	280	645	645	670
	YoY		-	23.9%	102.0%	10.9%	-22.1%	-24.6%	27.4%	-12.5%	130.0%	0.1%	3.8%
	Net margin		2.2%	2.6%	4.4%	4.6%	3.6%	2.6%	3.3%	2.7%	5.0%	4.9%	5.1%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)			1,211	1,211	4,792	4,843	4,843	4,843	4,843	5,171	5,171	10,558
EPS (JPY)			42.6	52.7	84.6	89.2	34.5	26.0	33.1	28.4	62.4	62.6	64.8
EPS (fully diluted; JPY)			-	-	-	89.1	34.4	25.8	32.8	28.2	60.9	61.1
Dividend per share (JPY)			4.2	5.3	6.5	6.6	6.6	8.0	8.0	8.0	10.0	12.0	13.0
Book value per share (JPY)			392	437	562	649	352	372	397	428	482	516
Balance sheet (JPYmn)
		Cash and cash equivalents	358	223	375	482	476	391	410	1,385	1,863	2,553
Total current assets			1,558	1,722	2,597	2,374	2,278	2,501	2,759	5,011	6,411	5,896
Tangible fixed assets			1,306	1,662	1,669	1,699	1,912	2,085	2,095	2,421	2,535	2,743
Investments and other assets			216	302	355	274	278	319	322	1,284	492	548
Intangible assets			208	246	625	818	951	882	1,019	923	615	495
Total assets			3,287	3,933	5,246	5,165	5,420	5,787	6,196	9,639	10,054	9,683
		Short-term debt	477	664	503	250	250	450	452	506	306	307
Total current liabilities			1,437	1,619	1,914	1,433	1,466	1,703	1,931	2,474	2,682	2,240
		Long-term debt	221	497	403	353	302	252	215	2,395	2,088	1,782
Total fixed liabilities			425	727	639	581	519	448	373	2,690	2,324	2,024
Total liabilities			1,862	2,346	2,553	2,015	1,985	2,150	2,304	5,164	5,006	4,264
		Shareholders' equity	1,425	1,586	2,693	3,139	3,409	3,600	3,843	4,423	4,979	5,340
Total net assets			1,425	1,587	2,693	3,150	3,435	3,637	3,891	4,475	5,048	5,419
Total interest-bearing debt			699	1,161	906	603	553	702	665	2,899	2,392	2,086
Cash flow statement(JPYmn)
Cash flows from operating activities			354	78	321	903	764	616	783	1,116	740	1,965
Cash flows from investing activities			-259	-643	-777	-419	-714	-804	-635	-2,297	334	-685
Cash flows from financing activities			-168	430	428	-461	-139	86	-129	2,156	-596	-591
Financial ratios
ROA (RP-based)				9.5%	12.9%	14.0%	11.1%	10.9%	8.6%	4.8%	9.7%	9.7%
ROE				12.7%	18.1%	14.7%	10.2%	7.2%	8.6%	6.3%	13.7%	12.5%
Equity ratio				40.3%	51.3%	60.8%	62.9%	62.2%	62.0%	45.9%	49.5%	55.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
The company conducted a 3-for-1 stock split in October 2014 and a 2-for-1 stock split in January 2021. EPS, DPS, and BPS are adjusted for the stock splits.

Recent updates

Issuance of new shares as restricted stock compensation

2022-04-18

On April 15, 2022, Cyberlinks Co., Ltd. announced details on issuance of new shares as restricted stock compensation.

Payment date: May 13, 2022
Type and number of shares to be issued: 10,043 common shares
Issue price: JPY1,182 yen per share
Total amount of shares issued: JPY11,870,826
Shares to be allocated: Four directors of the company, 10,043 common shares
Restriction period of transfer: From May 13, 2022 to the date the eligible allottee retires from the company's board of directors

Trends and outlook

Quarterly trends and results

Quarterly results

Earnings (cumulative)		FY12/20				FY12/21				FY12/22				FY12/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	1H Est.
Revenue		3,389	6,393	9,487	12,778	3,936	6,863	9,632	13,241	3,248				50.5%	6,428
	YoY	18.0%	15.5%	18.0%	22.3%	16.1%	7.3%	1.5%	3.6%	-17.5%					-6.3%
Gross profit		927	1,760	2,645	3,542	1,152	1,943	2,806	3,771	1,089
	YoY	28.2%	23.9%	26.1%	30.6%	24.3%	10.4%	6.1%	6.5%	-5.5%
	Gross profit margin	27.4%	27.5%	27.9%	27.7%	29.3%	28.3%	29.1%	28.5%	33.5%
SG&A expenses		643	1,285	1,926	2,617	683	1,364	2,019	2,826	690
	YoY	20.0%	13.0%	17.5%	15.7%	6.3%	6.2%	4.9%	8.0%	1.0%
	SG&A ratio	19.0%	20.1%	20.3%	20.5%	17.4%	19.9%	21.0%	21.3%	21.2%
Operating profit		284	475	720	925	469	579	787	945	398				67.2%	592
	YoY	51.6%	67.5%	56.9%	105.5%	65.1%	21.8%	9.3%	2.2%	-15.2%					2.3%
	Operating profit margin	8.4%	7.4%	7.6%	7.2%	11.9%	8.4%	8.2%	7.1%	12.3%					9.2%
Recurring profit		294	488	735	952	474	583	798	959	400				67.6%	592
	YoY	56.6%	68.4%	56.5%	106.4%	61.0%	19.6%	8.5%	0.7%	-15.6%					1.5%
	Recurring profit margin	8.7%	7.6%	7.8%	7.4%	12.0%	8.5%	8.3%	7.2%	12.3%					9.2%
Net income		197	329	490	645	334	406	538	645	269				70.8%	380
	YoY	55.5%	84.4%	66.1%	130.0%	69.5%	23.4%	9.9%	0.1%	-19.4%					-6.4%
	Net margin	5.8%	5.1%	5.2%	5.0%	8.5%	5.9%	5.6%	4.9%	8.3%					5.9%
Earnings (quarterly)		FY12/20				FY12/21				FY12/22				FY12/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	% of Est.	FY Est.
Revenue		3,389	3,004	3,093	3,291	3,936	2,927	2,769	3,609	3,248				24.5%	13,267
	YoY	18.0%	12.7%	23.4%	36.7%	16.1%	-2.6%	-10.5%	9.7%	-17.5%					0.2%
Gross profit		927	833	886	896	1,152	790	863	965	1,089
	YoY	28.2%	19.4%	30.8%	45.9%	24.3%	-5.1%	-2.5%	7.6%	-5.5%
	Gross profit margin	27.4%	27.7%	28.6%	27.2%	29.3%	27.0%	31.2%	26.7%	33.5%
SG&A expenses		643	642	641	692	683	681	655	807	690
	YoY	20.0%	6.8%	27.7%	11.0%	6.3%	6.1%	2.2%	16.7%	1.0%
	SG&A ratio	19.0%	21.4%	20.7%	21.0%	17.4%	23.3%	23.7%	22.4%	21.2%
Operating profit		284	191	245	205	469	109	208	158	398				38.2%	1,043
	YoY	51.6%	98.6%	39.7%	-	65.1%	-42.8%	-14.9%	-22.8%	-15.2%					10.4%
	Operating profit margin	8.4%	6.3%	7.9%	6.2%	11.9%	3.7%	7.5%	4.4%	12.3%					7.9%
Recurring profit		294	193	248	216	474	109	215	161	400				38.2%	1,046
	YoY	56.6%	90.1%	37.3%	-	61.0%	-43.5%	-13.3%	-25.6%	-15.6%					9.1%
	Recurring profit margin	8.7%	6.4%	8.0%	6.6%	12.0%	3.7%	7.7%	4.5%	12.3%					7.9%
Net income		197	132	161	155	334	72	132	107	269				40.1%	670
	YoY	55.5%	155.2%	38.0%	-	69.5%	-45.1%	-17.8%	-30.9%	-19.4%					3.8%
	Net margin	5.8%	4.4%	5.2%	4.7%	8.5%	2.5%	4.8%	3.0%	8.3%					5.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Quarterly trends by business

By segment (cumulative)			FY12/20				FY12/21				FY12/22				FY12/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	1H Est.
Revenue			3,389	6,393	9,487	12,778	3,936	6,863	9,632	13,241	3,248				50.5%	6,428
	YoY		18.0%	15.5%	18.0%	22.3%	16.1%	7.3%	1.5%	3.6%	-17.5%					-6.3%
	Distribution Cloud		869	1,766	2,749	3,763	923	1,842	2,858	4,022	1,026				49.2%	2,087
		YoY	-	-	-	-	6.2%	4.3%	4.0%	6.9%	11.1%					13.3%
		% of total	25.6%	27.6%	29.0%	29.4%	23.5%	26.8%	29.7%	30.4%	31.6%					32.5%
	Government Cloud		1,665	3,361	4,698	6,238	2,093	3,372	4,483	6,160	1,437				50.6%	2,838
		YoY	-	-	-	-	25.7%	0.3%	-4.6%	-1.3%	-31.3%					-15.8%
		% of total	49.1%	52.6%	49.5%	48.8%	53.2%	49.1%	46.5%	46.5%	44.2%					44.2%
	Trust		4	6	12	14	41	46	52	95	12				30.0%	40
		YoY	-	-	-	-	874.6%	633.0%	345.0%	556.7%	-70.5%					-13.9%
		% of total	0.1%	0.1%	0.1%	0.1%	1.0%	0.7%	0.5%	0.7%	0.4%					0.6%
	Mobile Network		851	1,360	2,028	2,763	879	1,602	2,238	2,964	772				52.8%	1,463
		YoY	-	-	-	-	3.3%	17.7%	10.4%	7.3%	-12.2%					-8.7%
		% of total	25.1%	21.3%	21.4%	21.6%	22.3%	23.3%	23.2%	22.4%	23.8%					22.8%
Recurring profit			294	488	735	952	474	583	798	959	400				67.6%	592
	YoY		56.6%	68.4%	56.5%	106.4%	61.0%	19.6%	8.5%	0.7%	-15.6%					1.5%
	Distribution Cloud		31	129	233	314	105	215	376	566	156				44.4%	351
		YoY	-	-	-	-	238.4%	67.3%	61.6%	80.1%	49.0%					62.9%
		Recurring profit margin	3.6%	7.3%	8.5%	8.3%	11.3%	11.7%	13.1%	14.1%	15.2%					16.8%
	Government Cloud		196	351	480	634	310	370	455	597	237				68.7%	345
		YoY	-	-	-	-	58.2%	5.6%	-5.3%	-5.9%	-23.4%					-6.8%
		Recurring profit margin	11.8%	10.4%	10.2%	10.2%	14.8%	11.0%	10.1%	9.7%	16.5%					12.2%
	Trust		-13	-32	-64	-79	-42	-120	-172	-350	-54				-	-112
		YoY	-	-	-	-	-	-	-	-	-					-
		Recurring profit margin	-	-	-	-	-	-	-	-	-					-
	Mobile Network		139	190	284	349	151	246	322	382	120				70.6%	170
		YoY	-	-	-	-	9.1%	29.5%	13.3%	9.4%	-20.7%					-30.9%
		Recurring profit margin	16.3%	14.0%	14.0%	12.6%	17.2%	15.4%	14.4%	12.9%	15.5%					11.6%
	Company-wide, eliminations		-58	-150	-197	-267	-50	-129	-182	-236	-60				-	-162
		YoY	-	-	-	-	-	-	-	-	-					-
By segment (quarterly)			FY12/20				FY12/21				FY12/22				FY12/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	% of Est.	FY Est.
Revenue			3,389	3,004	3,093	3,291	3,936	2,927	2,769	3,609	3,248				24.5%	13,267
	YoY		18.0%	12.7%	23.4%	36.7%	16.1%	-2.6%	-10.5%	9.7%	-17.5%					0.2%
	Distribution Cloud		869	897	984	1,014	923	919	1,016	1,163	1,026				24.1%	4,261
		YoY	-	-	-	-	6.2%	2.5%	3.3%	14.7%	11.1%					6.0%
		% of total	25.6%	29.8%	31.8%	30.8%	23.5%	31.4%	36.7%	32.2%	31.6%					32.1%
	Government Cloud		1,665	1,696	1,337	1,540	2,093	1,279	1,111	1,677	1,437				24.5%	5,855
		YoY	-	-	-	-	25.7%	-24.6%	-16.9%	8.9%	-31.3%					179.8%
		% of total	49.1%	56.5%	43.2%	46.8%	53.2%	43.7%	40.1%	46.5%	44.2%					44.1%
	Trust		4	2	5	3	41	6	6	43	12				7.9%	151
		YoY	-	-	-	-	874.6%	167.5%	7.3%	1,459.5%	-70.5%					271.4%
		% of total	0.1%	0.1%	0.2%	0.1%	1.0%	0.2%	0.2%	1.2%	0.4%					1.1%
	Mobile Network		851	509	668	734	879	722	637	726	772				48.8%	3,000
		YoY	-	-	-	-	3.3%	41.8%	-4.6%	-1.1%	-12.2%					1.2%
		% of total	25.1%	17.0%	21.6%	22.3%	22.3%	24.7%	23.0%	20.1%	23.8%					22.6%
Recurring profit			294	193	248	216	474	109	215	161	400				38.2%	1,046
	YoY		56.6%	90.1%	37.3%	-	61.0%	-43.5%	-13.3%	-25.6%	-15.6%					9.1%
	Distribution Cloud		31	98	104	81	105	111	160	190	156				21.4%	729
		YoY	-	-	-	-	238.4%	13.2%	54.4%	133.1%	49.0%					28.9%
		Recurring profit margin	3.6%	10.9%	10.6%	8.0%	11.3%	12.1%	15.8%	16.3%	15.2%					17.1%
	Government Cloud		196	155	130	154	310	61	84	142	237				52.2%	454
		YoY	-	-	-	-	58.2%	-60.8%	-34.9%	-7.7%	-23.4%					-23.9%
		Recurring profit margin	11.8%	9.1%	9.7%	10.0%	14.8%	4.7%	7.6%	8.5%	16.5%					7.8%
	Trust		-13	-19	-32	-14	-42	-78	-53	-177	-54				-	-154
		YoY	-	-	-	-	-	-	-	-	-					-
		Recurring profit margin	-	-	-	-	-	-	-	-	-					-
	Mobile Network		139	51	94	65	151	95	76	60	120				35.8%	335
		YoY	-	-	-	-	9.1%	84.9%	-19.5%	-7.5%	-20.7%					-12.3%
		Recurring profit margin	16.3%	10.1%	14.1%	8.8%	17.2%	13.1%	11.9%	8.3%	15.5%					11.2%
	Company-wide, eliminations		-58	-91	-48	-70	-50	-79	-53	-53	-60				-	-318
		YoY	-	-	-		-	-	-	-	-					-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
The company changed its segment breakdown in FY12/21.

Q1 FY12/22 results (out May 13, 2022)

Q1 FY12/22 results

Revenue: JPY3.2bn (-17.5% YoY)

Of which, recurring revenue: JPY1.7bn (+6.6% YoY)

Operating profit: JPY398mn (-15.2% YoY)
Recurring profit: JPY400mn (-15.6 YoY)
Net income attributable to owners of the parent: JPY269mn (-19.4% YoY)

The company applied the Accounting Standard for Revenue Recognition from the beginning of Q1 FY12/22. The change pushed up revenue by JPY98mn compared to the previous standard, and operating profit, recurring profit, and net income attributable to owners of the parent by JPY54mn each.

Progress versus the FY12/22 company forecast was 24.5% for revenue (29.7% of the full-year result in Q1 FY12/21), 24.7% for recurring revenue (23.7%), 38.2% for operating profit (49.7%), 38.2% for recurring profit (49.4%), and 40.1% for net income (51.7%).

Revenue grew 11.1% YoY in the Distribution Cloud segment, but declined 31.3% YoY in the Government Cloud business and 12.2% YoY in the Mobile Network business, for a decline of 17.5% YoY in overall revenue. The Trust business, which the company is focusing on, posted revenue of JPY12mn (versus JPY41mn in Q1 FY12/21), for a still-modest contribution to overall revenue. Recurring revenue (company’s KPI) was up 6.6% YoY.

Operating profit fell 15.2% YoY and the OPM rose 0.3pp to 12.3%. The cost of revenue ratio fell 4.2pp YoY to 66.5%, but the SG&A ratio rose 3.9pp to 21.2%.

Distribution Cloud

Revenue: JPY1.0bn (+11.1% YoY)
Recurring profit: JPY156mn (+49.0% YoY)
RPM: 15.2% (11.3% in Q1 FY12/21)

Progress versus the FY12/22 company forecast was 24.1% for revenue (23.0% of the full-year result in Q1 FY12/21) and 21.4% for recurring revenue (18.5%).

Recurring revenue increased due to expanded offerings of cloud services such as @rms ERP for food retailers’ core business processes and the BXNOAH EDI service for retailers. Non-recurring revenue also increased, such as revenue associated with system installation and customizing to customer specifications. The company worked to expand its service provision by winning orders from major food retailers for C2Platform, an inter-company collaboration platform for digitalizing negotiations in the distribution industry.

Software amortization in cost of revenue declined YoY, partly due to amortization for some features of @rms ERP for medium and large size users coming to an end.

Under the previous accounting standard, sales would have been JPY1.0bn (+9.0% YoY) and recurring profit JPY150mn (+44.1% YoY).

Government Cloud

Revenue: JPY1.4bn (-31.3% YoY)
Recurring profit: JPY237mn (-23.4% YoY)
RPM: 16.5% (14.8% in Q1 FY12/21)

Progress versus the FY12/22 company forecast was 24.5% for revenue (34.0% of the full-year result in Q1 FY12/21) and 52.2% for recurring revenue (51.9%).

Revenue declined YoY as extraordinary demand for construction projects involving digitalization of disaster prevention communication systems and GIGA school-related projects came to an end in FY03/21. The company continued with efforts aimed at future growth. These include the development of Web Contact Service, an online administration service enabling electronic signatures on electronic documents and ID authentication using My Number Cards and MynaTrust electronic Know Your Customer (eKYC) capabilities that the Trust segment provides.

Under the previous accounting standard, sales would have been JPY1.4bn (-35.2% YoY) and recurring profit JPY189mn (-38.9% YoY).

Trust

Revenue: JPY12mn (-70.5% YoY)
Recurring loss: JPY54mn (JPY42mn recurring loss in Q1 FY12/21)

Progress versus the FY12/22 company revenue forecast was 7.9% (42.7% of the full-year result in Q1 FY12/21).

The company started providing CloudCerts, a certificate issuance service using blockchain technology it acquired in December 2021. However, because it concentrated resources in developing the new service, sales declined versus Q1 FY12/21, when it installed existing services.

Meanwhile, the company worked to develop new trust services based on My Number Card. It conducted a demonstration test regarding registering real estate completely online.

Application of the Accounting Standard for Revenue Recognition had no impact on sales or recurring profit.

Mobile Network

Revenue: JPY772mn (-12.2% YoY)
Recurring profit: JPY120mn (-20.7% YoY)
RPM: 15.5% (17.2% in Q1 FY12/21)

Progress versus the FY12/22 company forecast was 25.7% for revenue (29.7% of the full-year result in Q1 FY12/21) and 35.8% for recurring revenue (39.6%).

Revenue declined 12.2% YoY. Handset unit prices were boosted by sales of the iPhone 13 and other high-end products. However, sales volume declined due to a lack of handset inventory amid the global semiconductor shortage. Non-handset revenue also declined on reduced support payments from NTT Docomo from October 2021.

Under the previous accounting standard, sales would have been JPY776mn (-11.7% YoY). Application of the Accounting Standard for Revenue Recognition had no impact on recurring profit.

Full-year company forecast

		FY12/20			FY12/21			FY12/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Est.	2H Est.	FY Est.
Revenue		6,393	6,384	12,778	6,863	6,379	13,241	6,428	6,839	13,267
	YoY	15.5%	30.0%	22.3%	7.3%	-0.1%	3.6%	-6.3%	7.2%	0.2%
Operating profit		475	450	925	579	366	945	592	451	1,043
	YoY	67.5%	170.3%	105.5%	21.8%	-18.5%	2.2%	2.3%	23.1%	10.4%
	Operating profit margin	7.4%	7.0%	7.2%	8.4%	5.7%	7.1%	9.2%	6.6%	7.9%
Recurring profit		488	464	952	583	375	959	592	454	1,046
	YoY	68.4%	170.7%	106.4%	19.6%	-19.0%	0.7%	1.5%	20.9%	9.1%
	Recurring profit margin	7.6%	7.3%	7.4%	8.5%	5.9%	7.2%	9.2%	6.6%	7.9%
Net income		329	316	645	406	239	645	380	290	670
	YoY	84.4%	209.5%	130.0%	23.4%	-24.2%	0.1%	-6.4%	21.2%	3.8%
	Net margin	5.1%	4.9%	5.0%	5.9%	3.8%	4.9%	5.9%	4.2%	5.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

FY12/22 Full-year forecast

Revenue: JPY13.3bn (+0.2% YoY)

Of which, recurring revenue: JPY 6.8bn (+2.5% YoY)

Operating profit: JPY1.0bn (+10.4% YoY)
Recurring profit: JPY1.0bn (+9.1% YoY)
Net income attributable to owners of the parent: JPY670mn (+3.8% YoY)

Forecast by segment:

By segment (cumulative)			FY12/20				FY12/21				FY12/22		FY12/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	1H Est.	% of Est.	FY Est.
Revenue			3,389	6,393	9,487	12,778	3,936	6,863	9,632	13,241		6,428		13,267
	YoY		18.0%	15.5%	18.0%	22.3%	16.1%	7.3%	1.5%	3.6%		-6.3%		0.2%
	Of which, recurring revenue		1,563	3,163	4,826	6,424	1,584	3,265	5,014	6,681				6,849
		YoY	-	-	-	36.1%	1.3%	3.2%	3.9%	4.0%				2.5%
		% of total	46.1%	49.5%	50.9%	50.3%	40.2%	47.6%	52.1%	50.5%				51.6%
	Distribution Cloud		869	1,766	2,749	3,763	923	1,842	2,858	4,022		2,087		4,261
		YoY	-	-	-	-	6.2%	4.3%	4.0%	6.9%		13.3%		6.0%
		% of total	25.6%	27.6%	29.0%	29.4%	23.5%	26.8%	29.7%	30.4%		32.5%		32.1%
	Government Cloud		1,665	3,361	4,698	6,238	2,093	3,372	4,483	6,160		2,838		5,855
		YoY	-	-	-	-	25.7%	0.3%	-4.6%	-1.3%		-15.8%		-4.9%
		% of total	49.1%	52.6%	49.5%	48.8%	53.2%	49.1%	46.5%	46.5%		44.2%		44.1%
	Trust		4	6	12	14	41	46	52	95		40		151
		YoY	-	-	-	-	874.6%	633.0%	345.0%	556.7%		-13.9%		58.6%
		% of total	0.1%	0.1%	0.1%	0.1%	1.0%	0.7%	0.5%	0.7%		0.6%		1.1%
	Mobile Network		851	1,360	2,028	2,763	879	1,602	2,238	2,964		1,463		3,000
		YoY	-	-	-	-	3.3%	17.7%	10.4%	7.3%		-8.7%		1.2%
		% of total	25.1%	21.3%	21.4%	21.6%	22.3%	23.3%	23.2%	22.4%		22.8%		22.6%
Recurring profit			294	488	735	952	474	583	798	959		592		1,046
	YoY		56.6%	68.4%	56.5%	106.4%	61.0%	19.6%	8.5%	0.7%		1.5%		9.1%
	Distribution Cloud		31	129	233	314	105	215	376	566		351		729
		YoY	-	-	-	-	238.4%	67.3%	61.6%	80.1%		62.9%		28.9%
		Recurring profit margin	3.6%	7.3%	8.5%	8.3%	11.3%	11.7%	13.1%	14.1%		16.8%		17.1%
	Government Cloud		196	351	480	634	310	370	455	597		345		454
		YoY	-	-	-	-	58.2%	5.6%	-5.3%	-5.9%		-6.8%		-23.9%
		Recurring profit margin	11.8%	10.4%	10.2%	10.2%	14.8%	11.0%	10.1%	9.7%		12.2%		7.8%
	Trust		-13	-32	-64	-79	-42	-120	-172	-350		-112		-154
		YoY	-	-	-	-	-	-	-	-		-		-
		Recurring profit margin	-	-	-	-	-	-	-	-		-		-
	Mobile Network		139	190	284	349	151	246	322	382		170		335
		YoY	-	-	-	-	9.1%	29.5%	13.3%	9.4%		-30.9%		-12.3%
		Recurring profit margin	16.3%	14.0%	14.0%	12.6%	17.2%	15.4%	14.4%	12.9%		11.6%		11.2%
	Company-wide, eliminations		-58	-150	-197	-267	-50	-129	-182	-236		-162		-318
		YoY	-	-	-	-	-	-	-	-		-		-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Distribution Cloud

Revenue: JPY4.3bn (+6.0% YoY)

Of which, recurring revenue: JPY3.6bn (+7.3% YoY)

Recurring profit: JPY729mn (+28.9% YoY)
RPM: 17.1% (14.1% in FY12/20)

The company forecasts revenue and profit growth in the Distribution Cloud segment, as it expects a rise in recurring revenue on increased uptake of the @rms series and EDI cloud service for wholesalers. The company will pay particular emphasis on service rollout and development of new features for C2 Platform (inter-company collaboration platform for digitalizing negotiations in the distribution industry). It plans to develop a system in preparation for the start of Japan’s new qualified invoice system in October 2023 and the termination of analog lines (PSTN) in 2025.

Government Cloud

Revenue: JPY5.9bn (-4.9% YoY)

Of which, recurring revenue: JPY 2.7bn (-1.9% YoY)

Recurring profit: JPY454mn (-23.9% YoY)
RPM: 7.8% (9.7% in FY12/21)

The company expects lower revenue and profit for the Government Cloud segment due to a decline caused by the falloff of extraordinary demand for construction projects involving digitalization of disaster prevention communication systems and GIGA school-related projects, which made earnings contribution through Q1 FY12/21. The company will focus on increasing uptake of the Clarinet school administration cloud service and development of comprehensive disaster prevention services.

In January 2022, the company released a multimedia distribution service for disaster prevention information, “Open Link for Machi UP!.” The new online administrative service Web Contact Service is scheduled to be released in May 2022.

Trust

Revenue: JPY151mn (+58.6% YoY)

Of which, recurring revenue: JPY121mn (+426.1% YoY)

Recurring loss: JPY154mn (recurring loss of JPY350mn in FY12/21)

Profitability of the Trust segment is expected to improve. The company plans to grow services such as the MynaTrust digital proxy service (launched in August 2021) and CloudCerts, a blockchain certificate issuance service acquired in December 2021. The company also plans to continue investing in the development of trust services based on My Number Card with hopes to contribute to the digitalization of business contracts used by companies, and applications used at government offices.

Mobile Network

Revenue: JPY3.0bn (+1.2% YoY)

Of which, recurring revenue: JPY491mn (-19.2% YoY)

Recurring profit: JPY335mn (-12.3% YoY)
RPM: 11.2% (12.9% in FY12/21)

The company forecasts higher revenue but lower profit in the Mobile Network segment, based on assumptions that delays in delivery of mobile phone handsets will continue amid the global semiconductor shortage and that it will receive less subsidies from the primary dealer. That being said, the company expects to attract new customer demographic, as its Docomo stores began offering OCN Mobile One, a low-cost plan provided by NTT Communications Corporation.

Difference between initial company forecast and results in previous fiscal years

The difference between initial company forecasts and results in previous fiscal years is as follows.

In FY12/21, results exceeded the company’s forecast, which was upwardly revised in May 2021. The company had expected revenue in Government Cloud to decline due to the peak out of construction projects for digitalization of disaster prevention communication systems, but the decline was contained by large system renewal projects in the medical information field and new orders for the Clarinet school administration system. In Mobile Network segment, incentive income exceeded the company’s forecast.

In FY12/20, revenue fell short of the initial company forecast, because orders for construction projects for digitalization of disaster prevention communication systems for local governments came in later than expected. However, profits exceeded the initial forecast owed to higher profit margins attributed to lower labor and travel expenses due to a shift to online meetings and telework.

In FY12/19, the company canceled and terminated the installation of a system in the Distribution Cloud segment following discussions with the customer regarding system specifications, installation schedule, and costs. The company agreed to reimburse the expenses paid by the customer, recording JPY162mn under SG&A expenses.

In FY12/17, the company booked a JPY177mn impairment loss as an extraordinary loss. The impairment loss was on software for the education market, expense calculation software, and automatic product photography device, whose earnings were unlikely to meet initial expectations.

Difference between initial company forecast and results

Results vs. Initial Est.		FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)		Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.
Revenue	Initial Est.	9,101	9,590	9,800	9,957	10,354	13,926	13,161
	Results	9,296	9,310	9,615	9,685	10,450	12,778	13,241
	Results vs. Initial Est.	2.1%	-2.9%	-1.9%	-2.7%	0.9%	-8.2%	0.6%
Operating profit	Initial Est.	640	500	611	602	605	639	649
	Results	735	582	577	504	450	925	945
	Results vs. Initial Est.	14.8%	16.5%	-5.5%	-16.2%	-25.6%	44.7%	45.6%
Recurring profit	Initial Est.	610	530	640	610	610	640	658
	Results	727	588	610	514	461	952	959
	Results vs. Initial Est.	19.2%	11.0%	-4.7%	-15.8%	-24.4%	48.7%	45.7%
Net income	Initial Est.	363	307	387	355	366	392	421
	Results	429	334	252	320	280	645	645
	Results vs. Initial Est.	18.1%	8.7%	-35.0%	-9.8%	-23.4%	64.5%	53.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Medium- and long-term outlook

Medium-term management plan (out February 12, 2021)

In February 2021, the company released its medium-term plan “Transformation 2025,” which runs from FY12/21 to FY12/25. The theme of the plan is “working with industry and customers to improve productivity through digital transformation (DX).” Numerical targets for the final year (FY12/25) are as follows.

Numerical targets

(JPYmn)		FY12/20		FY12/25	Vs. FY12/20
		Results		Est.	Vs. FY12/20
Recurring revenue		6,424		9,000	141.4%
	% of recurring revenue	50.3%		62.5%	+12.2pp
Revenue		12,778	⇒	14,500	113.7%
Recurring profit		952	⇒	1,600	168.1%
	Recurring profit margin	7.4%		11.0%	+3.5pp
ROE		13.7%		13% or more	-

Source: Shared Research based on company data

Segment breakdown

			FY12/20	FY12/25
(JPYmn)			Results	Est.	CAGR
Revenue			12,778	14,500	2.6%
	Distribution Cloud		3,762	5,075	6.2%
		% of total	29.4%	35.0%
	Government Cloud		6,237	5,597	-2.1%
		% of total	48.8%	38.6%
	Trust		14	986	134.2%
		% of total	0.1%	6.8%
	Mobile Network		2,763	2,842	0.6%
		% of total	21.6%	19.6%
Recurring profit			952	1,600	11.0%
		Recurring profit margin	7.4%	11.0%
	Distribution Cloud		318	1,117	28.6%
		Recurring profit margin	8.5%	22.0%
	Government Cloud		631	390	-9.2%
		Recurring profit margin	10.1%	7.0%
	Trust		-80	150	-
		Recurring profit margin	-571.4%	15.2%
	Mobile Network		349	350	0.1%
		Recurring profit margin	12.6%	12.3%
	Company-wide, eliminations		-267	-407

Source: Shared Research based on company data

The company targets CAGRs of 2.6% for revenue and 11.0% for recurring profit over the five-year period. Growth of the Distribution Cloud and Trust segments is key to attaining medium-term plan targets.

Distribution Cloud

The key medium-term management plan strategy for Distribution Cloud is “promote industry digital transformation (DX) by launching an inter-company collaboration platform.” The company plans to expand its market share by increasing the number of stores using the @rms cloud retail ERP service for supermarkets. The company targets an increase in Distribution Cloud revenue from JPY3.8bn in FY12/20 to JPY5.1bn in FY12/25, recurring profit from JPY318mn to JPY1.1bn, and recurring revenue from JPY3.2bn to JPY4.5bn over the same period.

Distribution Cloud medium-term earnings targets

			FY12/20	FY12/21	FY12/22	FY12/23	FY12/24	FY12/25
(JPYmn)			Results	Est.	Est.	Est.	Est.	Est.
Revenue			3,762	3,984	4,220	4,580	4,850	5,080
		YoY	-3.5%	5.9%	5.9%	8.5%	5.9%	4.7%
	Recurring revenue		3,194	3,359	3,630	3,910	4,180	4,460
		% of total	84.9%	84.3%	86.0%	85.4%	86.2%	87.8%
Recurring profit			314	363	430	780	834	1,117
		Recurring profit margin	8.3%	9.1%	10.2%	17.0%	17.2%	22.0%
Software amortization				370	240	160	180	160
		YoY		-	-35.1%	-33.3%	12.5%	-11.1%
Depreciation				150	190	160	170	150
		YoY		-	26.7%	-15.8%	6.3%	-11.8%
R&D expenses				230	130	190	320	390
		YoY		-	-43.5%	46.2%	68.4%	21.9%

Source: Reverse calculated by Shared Research from breakdowns provided in company materials.

Cloud retail ERP service @rms ERP

The company targets an increase in the number of stores using @rms ERP from 1,205 in FY12/20 to 1,765 in FY12/25, and in revenue from JPY2.1bn to JPY2.6bn over the same period. According to the company, the ERP market size for supermarkets is around JPY20.0bn. In the longer term, the company targets a 35% market share or JPY7.0bn.

The company had been selling @rms ERP mainly to small and mid-size supermarkets with revenue of JPY30.0bn or less, but launched a system for larger supermarkets in July 2019. The company aims to expand its market share by adding extensive features to the new system. It expects software amortization expenses to start declining from FY12/22.

Medium-term earnings targets for @rms ERP

	FY12/20	FY12/25
	Results	Est.	CAGR
Revenue (JPYmn)	2,110	2,600	4.3%
Market size (JPYmn)	20,000	20,000
Cyberlinks market share	10.6%	13.0%
No. of stores using @rms ERP	1,205	1,765	7.9%
Market size (No. of stores)	21,000	21,000
Cyberlinks market share	5.7%	8.4%

Source: Shared Research based on company data

Cloud EDI-Platform for wholesalers

The company targets an increase in revenue of Cloud EDI-Platform for wholesalers, from JPY780mn in FY12/20 to JPY1.1bn in FY12/25. Based on the company’s estimate, the food processing and retailing market size was JPY36tn in FY12/20, of which orders placed and received using the company’s Cloud EDI-Platform accounted for JPY8.7tn. The company aims to increase this figure to JPY12.3tn in FY12/25. The company plans to launch a next-generation EDI service in FY12/23.

Medium-term earnings targets for Cloud EDI-Platform

	FY12/20	FY12/25
	Results	Est.	CAGR
Revenue (JPYmn)	780	1,100	7.1%
Market size (JPYmn)	4,000	4,000
Cyberlinks market share	19.5%	27.5%
Value of market (JPYtn)	8.7	12.3	7.2%
Market size (JPYtn)	36	36
Cyberlinks market share	24.2%	34.2%

Source: Shared Research based on company data

C2 Platform, an inter-company collaboration platform

The company targets an increase in revenue in the inter-company collaboration platform C2 Platform, from JPY30.0mn in FY12/20 to JPY400mn in FY12/25. The company estimates that the market size for this business is JPY6.0bn. In FY12/21, it released a feature for preparing price estimates and plans to add more features in stages. The company announced a business alliance with Toppan Inc. (TSE1: 7911) in May 2021.

Medium-term earnings targets for C2 Platform

	FY12/20	FY12/25
	Results	Est.	CAGR
Revenue (JPYmn)	30	400	67.9%
Market size (JPYmn)	6,000	6,000
Cyberlinks market share	0.5%	6.7%
No. of IDs	0	10,000

Source: Shared Research based on company data

Government Cloud

The key strategy for Government Cloud is “support local governments in keeping up with the rapid progress of digitization.” The company projects a fall in segment revenue from JPY6.2bn in FY12/20 to JPY5.6bn in FY12/25 and a contraction in recurring profit from JPY631mn to JPY390mn over the same period. The outlook for lower revenue and recurring profit is due to unusually high revenue in FY12/20, which was buoyed by an extraordinary demand for construction projects involving digitalization of disaster prevention communication systems for local governments and GIGA School Concept-related work.

The medium-term management plan calls for developing a next-generation comprehensive disaster prevention service that the company aims to sell nationwide. It plans to expand its trade area for administrative information systems from Wakayama, Osaka, and Nara prefectures to the entire Kansai region. The company also plans to increase the number of schools using the Clarinet school administration cloud service from 473 in FY12/20 to 2,000 in FY12/25.

Trust

The key theme of medium-term management plan for Trust is “develop business in the Trust field centered on My Number Card.” The company targets an increase in segment revenue from JPY14mn in FY12/20 to JPY986mn in FY12/25 and turn to recurring profit of JPY150mn in FY12/25 versus a JPY80mn recurring loss in FY12/20.

Mobile Network

The key theme of medium-term management strategy for the Mobile Network segment is “boost value of physical stores in the rapidly changing competitive environment.” The company targets Mobile Network revenue growth from JPY2.76bn in FY12/20 to JPY2.84bn in FY12/25, and recurring profit growth from JPY349mn to JPY350mn over the same period. The medium-term plan focuses on strengthening the non-telecom business and sales to corporations as new sources of revenue.

Other

The company plans to invest in growth as follows:

Enhance operational efficiency by investing in DX (ERP systems and other internal systems)

Strengthen M&A activities and capital and business alliances to accelerate growth

Focus on training the next generation of executives

Continuously improve benefits to boost employee satisfaction and attract talented personnel

Reference: Previous medium-term management plan

In February 2016, the company announced a five-year management plan ending in FY12/20. Recurring revenue in FY12/20 exceeded the target by 29.8%, but recurring profit and ROE fell short of their respective targets. This is because software amortization associated with the development of @arms in the Distribution Cloud was booked later than planned.

Previous medium-term management plan results

(JPYmn)		FY12/15	FY12/20
		Results	Est.	Results	% of Est.
Recurring revenue		3,510	4,950	6,424	129.8%
	% of recurring revenue	37.8%	46.1%	50.3%	+4.2pp
Revenue		9,296	10,700	12,778	119.4%
Recurring profit		727	1,100	952	86.5%
	Recurring profit margin	7.8%	10.2%	7.4%	-2.8pp
ROE		14.7%	15.0%	13.7%	-1.3pp

Source: Shared Research based on company data

Business

Business overview

Cyberlinks mainly provides cloud services to the retail and government sectors and operates Docomo stores, which sell smartphones and other products. In FY12/21, the company operated in four segments: Distribution Cloud (30.4% of revenue, RPM of 14.1%), Government Cloud (46.5%, 9.7%), Trust (0.7%, JPY350mn recurring loss), and Mobile Network (22.4%, 12.9%).

The company previously had two segments (IT Cloud and Mobile Network), but changed to the above four from FY12/21.

Earnings trends by segment

Business segment			FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)			Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
Revenue			7,106	7,470	8,850	9,296	9,310	9,615	9,685	10,450	12,778	13,241
	YoY		17.5%	5.1%	18.5%	5.0%	0.2%	3.3%	0.7%	7.9%	22.3%	3.6%
	Distribution Cloud										3,762	4,022
		YoY									-	6.9%
		% of total									29.4%	30.4%
	Government Cloud										6,237	6,160
		YoY									-	-1.2%
		% of total									48.8%	46.5%
	Trust										14	95
		YoY									-	580.0%
		% of total									0.1%	0.7%
	Mobile Network										2,763	2,964
		YoY									-	7.3%
		% of total									21.6%	22.4%
	IT Cloud		3,653	3,776	4,542	4,956	5,167	5,700	5,765	7,036	10,015
		YoY	-	3.4%	20.3%	9.1%	4.3%	10.3%	1.1%	22.1%	42.3%
		% of total	51.4%	50.6%	51.3%	53.3%	55.5%	59.3%	59.5%	67.3%	78.4%
	Mobile Network		3,453	3,694	4,308	4,340	4,143	3,915	3,921	3,414	2,763
		YoY	-	7.0%	16.6%	0.8%	-4.5%	-5.5%	0.1%	-12.9%	-19.1%
		% of total	48.6%	49.4%	48.7%	46.7%	44.5%	40.7%	40.5%	32.7%	21.6%
Recurring profit			330	344	591	727	588	610	514	461	952	959
	YoY		20.4%	4.5%	71.5%	23.1%	-19.1%	3.6%	-15.7%	-10.3%	106.4%	0.7%
	Recurring profit margin		4.6%	4.6%	6.7%	7.8%	6.3%	6.3%	5.3%	4.4%	7.4%	7.2%
	Distribution Cloud										314	566
		YoY									-	80.1%
		Recurring profit margin									8.3%	14.1%
	Government Cloud										634	597
		YoY									-	-5.9%
		Recurring profit margin									10.2%	9.7%
	Trust										-79	-350
		YoY									-	-
		Recurring profit margin									-	-
	Mobile Network										349	382
		YoY									-	9.4%
		Recurring profit margin									12.6%	12.9%
	Company-wide, eliminations										-267	-236
	IT Cloud		107	253	381	506	401	349	307	307	869
		YoY	-	135.9%	50.6%	32.8%	-20.8%	-12.9%	-12.1%	-0.1%	183.4%
		Recurring profit margin	2.9%	6.7%	8.4%	10.2%	7.8%	6.1%	5.3%	4.4%	8.7%
	Mobile Network		330	250	365	418	433	467	405	375	349
		YoY	-	-24.0%	45.6%	14.7%	3.5%	7.9%	-13.3%	-7.4%	-6.9%
		Recurring profit margin	9.5%	6.8%	8.5%	9.6%	10.5%	11.9%	10.3%	11.0%	12.6%
	Company-wide, eliminations		-107	-159	-155	-198	-246	-206	-198	-221	-267

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Recurring revenue

The company regards recurring revenue (including information processing and maintenance fees in cloud services and some incentives associated with mobile handset sales) as a KPI. Recurring revenue accounted for 50.5% of total revenue in FY12/21. By segment, Distribution cloud accounted for 82.4% of recurring revenue, Government Cloud 44.4%, Trust 24.2%, and Mobile Network 20.5%. The company prioritizes the growth rate of recurring revenue. The CAGR for recurring revenue from FY12/16 to FY12/21 was 12.2%. The company forecasts a CAGR for recurring revenue of 7.0% in the current medium-term management plan period during FY12/21 to FY12/25, with a recurring revenue target of JPY9.0bn (62.5% of total revenue) in FY12/25.

Trends in recurring revenue

			FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)			Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
Total revenue			7,106	7,470	8,850	9,296	9,310	9,615	9,685	10,450	12,778	13,241
	YoY		17.5%	5.1%	18.5%	5.0%	0.2%	3.3%	0.7%	7.9%	22.3%	3.6%
Of which, recurring revenue			2,871	2,989	3,169	3,516	3,750	4,240	4,500	4,719	6,424	6,681
	YoY		5.8%	4.1%	6.0%	10.9%	6.7%	13.1%	6.1%	4.9%	36.1%	4.0%
	% of total		40.4%	40.0%	35.8%	37.8%	40.3%	44.1%	46.5%	45.2%	50.3%	50.5%
	Distribution Cloud										3,183	3,315
		YoY									-	4.1%
		% of segment revenue									84.6%	82.4%
		% of recurring revenue									49.5%	49.6%
	Government Cloud										2,606	2,734
		YoY									-	4.9%
		% of segment revenue									41.8%	44.4%
		% of recurring revenue									40.6%	40.9%
	Trust										10	23
		YoY									-	130.0%
		% of segment revenue									71.4%	24.2%
		% of recurring revenue									0.2%	0.3%
	Mobile Network									610	624	607
		YoY								-	2.3%	-2.7%
		% of segment revenue								17.9%	22.6%	20.5%
		% of recurring revenue								12.9%	9.7%	9.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Distribution Cloud

Cloud services provide users with data and software that were previously used on their own computers as a service via a network. The advantages of moving systems to the cloud include reduced initial investment, easy system expansion according to the scale of the business, lower operating costs, and ability to promote decentralization and backup (data is operated and managed in robust data centers).

The company’s cloud service allows customers to share the use of systems it has developed. In addition to the advantages of cloud services described above, the company’s cloud service enables customers to continuously improve system functions (the latest version is always available free of charge), select the functions they need, and lower costs through joint use.

In October 2002 with an initial development budget of around JPY500mn, the company began developing @rms ERP (Japan’s first cloud retail ERP service) and started providing the service in February 2005.

Services

The main cloud services that the company provides in the @rms series include fresh food ordering, automatic ordering, and attendance management systems. The company also provides services such as Cloud EDI-Platform for wholesalers and retailers, which allows users to send and receive various data such as ordering and order receipt data.

Revenue breakdown for the Distribution Cloud segment in FY12/20 by service was @rms ERP (cloud retail ERP service) 62.0%, Cloud EDI-Platform service for wholesalers 23.1%, product image database 2.2%, sales management system for specialty stores (Retail Pro) 11.4%, and others 1.3%.

Main cloud services for retailers and wholesalers

Main customers	Name of service	Service content and features
Food Retailer	＠rms ERP	Cloud service for food retailers (mainly supermarkets) that supports core business processes such as ordering, purchasing and accounts payable management, inventory management, and sales management
	＠rms fresh food	A cloud EDI service that helps to streamline fresh food purchasing by sharing information such as fresh food market prices and confirmation of ordering, delivery, and procurement with intermediate wholesalers
	＠rms automatic ordering	A cloud service (inventory type automatic ordering service) that automatically calculates the number of orders from product sales and inventory trends to help reduce the risk of out-of-stock items and streamline the cost of ordering work
	＠rms time management	A cloud service for attendance management that supports shiftwork management and budget/performance management for revenue per employee and man-hour productivity
	＠rms online supermarket	A cloud service for online supermarkets that supports pickup, packing, and delivery management for ordered product items, trade area analysis, and merchandise and logistics policy
	＠rms MD Go!	A cloud service that supports product item management by analyzing and reporting daily data such as sales and purchases
	Store POWER	A service that optimizes merchandising by preparing shelf allocation, analysis, and ledgers
	BXNOAH	An EDI service that electronically exchanges information relating to commercial transactions such as ordering, shipment, receipt, returns, billing, and payment to help streamline business processes and reduce costs
Wholesalers	Cloud EDI-Platform	A cloud EDI service for wholesalers that receives and consolidates information (orders, shipments, receipts, returns, billing, and payments) received from retailers via various communication methods and passes it on to wholesalers after converting it to a specified format
	C2Platform	A Web service for smooth collaboration between manufacturing, distribution, and sales for online negotiations between wholesalers and retailers, such as product proposals, promotional proposals, and sales performance reports, which were traditionally done by email or fax.
	Shelf POWER	A service that prepares shelf allocation based on the placement of fittings, merchandise, and POP and supports shelf allocation analysis and forecasting based on sales information and preparation of shelf allocation proposals
Food retailers, wholesalers, manufacturers	Mdb (Multimedia Data Base)	Japan's largest food product image database created using product images and data (such as product name and JAN code) of food, confectionery, household goods, and alcoholic beverages that supplies product images for online supermarkets and retail store shelf allocation
Specialty stores	Retailpro	As the sole distributor for US company Retail Pro International, LLC, Cyberlinks engages in the purchase, sales, installation, and operational support for the Retail Pro sales management system for specialty stores

Source: Shared Research based on company data

Distribution Cloud revenue breakdown by service

				FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)				Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
Distribution Cloud				2,012	2,500	3,000	3,500	3,700	3,900	3,762	4,022
			YoY	-	24.3%	20.0%	16.7%	5.7%	5.4%	-3.5%	6.9%
	＠rms ERP			1,100	1,500	1,800	2,000	2,200	2,400	2,332	2,501
			YoY	-	36.4%	20.0%	11.1%	10.0%	9.1%	-2.8%	7.2%
			% of total	55%	59%	61%	57%	60%	62%	62.0%	62.2%
		Shelf POWER			300	300	300	300	300	320	370
			YoY	-	-	0.0%	0.0%	0.0%	0.0%	6.6%	15.7%
			% of total		10%	11%	8%	9%	8%	8.5%	9.2%
	Cloud EDI-Platform			500	600	600	800	800	800	869	997
			YoY	-	20.0%	0.0%	33.3%	0.0%	0.0%	8.6%	14.8%
			% of total	24%	24%	21%	23%	22%	20%	23.1%	24.8%
	Product image database			100	100	100	100	100	100	83	84
			YoY	-	0.0%	0.0%	0.0%	0.0%	0.0%	-17.2%	2.0%
			% of total	6%	4%	4%	2%	3%	2%	2.2%	2.1%
	Retailpro (sales management system for retailers)			300	300	400	600	500	500	429	402
			YoY	-	0.0%	33.3%	50.0%	-16.7%	0.0%	-14.2%	-6.2%
			% of total	15%	13%	13%	16%	13%	14%	11.4%	10.0%
	Other					0	100	100	100	49	36
			YoY	-	-	-	-	0.0%	0.0%	-51.1%	-26.0%
			% of total			1%	2%	2%	2%	1.3%	0.9%

Source: Revenue was reverse calculated by Shared Research from breakdowns provided in company materials.

@rms ERP

@rms ERP is a cloud service that supports all core business processes of the food retail industry (mainly supermarkets), including ordering, purchasing and accounts payable management, inventory management, and sales management. In addition to systems for companies’ core business processes such as creating merchandise ledgers and management of purchasing and accounts payable, @rms ERP offers features of business systems for reporting, communication, and ordering, creating a basic ledger for managing supermarkets’ core management data, and analysis systems such as product ABC analysis*.

* Product ABC analysis is a method for managing products based on selected metrics such as the value of inventory and revenue, then dividing products into three groups (A, B, and C) by total weighting. Among multiple products, each group can be optimized by determining the level of importance and priority to achieve ideal inventory management.

Peripheral @rms services such as fresh food ordering, automatic ordering, attendance management, and online supermarket

The company also offers peripheral services of @rms ERP such as the fresh food ordering system, automatic ordering system, attendance management system, and online supermarket system as cloud services.

Customers

@rms ERP mainly targets small and mid-size supermarkets with annual revenue of JPY30bn or less. As of December 2021, there were 1,288 stores using @rms ERP versus the total market of around 21,000 stores, growing at a CAGR of 8.8% over the past five years.

Large supermarket companies usually build their own ERP systems, outsourcing the work to system development companies. Mid-size and small supermarkets use Cyberlinks’ @rms ERP, Toshiba TEC Corporation’s (TSE1: 6588) RX-700, or develop their systems in-house. Japan has roughly 1,000 supermarket companies, of which around 130 companies use Cyberlinks’ @rms ERP. Supermarkets generally review their systems every five to seven years, when replacement demand arises.

Number of stores using @rms series

						FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
No. of stores using ＠rms series						816	844	967	1,042	1,181	1,205	1,288
	YoY					-	3.4%	14.6%	7.8%	13.3%	2.0%	6.9%

Source: Shared Research based on company interviews.

As of December 2020, there were approximately 1,000 companies operating supermarkets in Japan according to National Supermarket Association of Japan data. Around 130 companies use Cyberlinks’ @rms ERP, but the company does business with around 300 companies if users of peripheral services are included. The company does not sell its services through third-party agencies; it sells directly to companies all over Japan. The management team notes that its sales structure as of FY12/21 covered almost all supermarkets in the country.

@rms ERP mainly targets small and mid-size supermarkets with annual revenue of JPY30.0bn or less, but the company plans to extend its trade area to large supermarkets as well. The reason for this is because there is no cloud service for large supermarkets, which usually uses its own in-house developed systems. Cyberlinks launched @rms ERP for medium and large size users in July 2019, which was adopted by three companies. The company plans to expand the features of these services by 2023.

Pricing

Pricing consists of the initial setup fee and monthly fees. The initial setup fee includes the price of hardware and cost of customization. Monthly fees break down into headquarters fees and store fees. Store fees have a larger weighting, and thus the number of stores using the service is a key earnings indicator. Although the number of headquarters will decrease in a case when supermarket companies merge, there is little or no impact on earnings if the total store count remains the same. A typical mid-size supermarket with 10 stores and annual revenue of around JPY10.0bn pays an initial set-up fee of JPY5.0mn and a monthly fee of JPY700,000–800,000. Users pay extra for peripheral services.

Cancellations

According to the company, there are very few cancellations due to customers switching to a competitor’s system. Customers are satisfied with the company’s system, which is tailored to the supermarket business. Rare cases where cancellations occur are when a supermarket goes out of business or is absorbed by a major supermarket as a result of M&A.

Cloud EDI service for wholesalers

The Cloud EDI*¹ service for the wholesale industry is a cloud service that collectively receives information on order placement, arrival of products, receipt, return, billing, and payment sent from retailers to the wholesalers via various means of communication; converts this information to a specified format; and provides it to wholesalers. The system supports all formats including JCA protocol*², Japanese Bankers Association standard communication protocol*³, and various versions of distribution BMS*⁴, the industry-standard format. The service enables wholesalers to significantly reduce their cost burden for equipment and facilities, management, and operations.

*1 EDI (Electronic Data Interchange): Exchange of business forms used in placing orders, delivery, and invoice electronically via a network using dedicated phone or communication lines. EDI can streamline transactions between companies, reduce ordering and order receipt workload, and speed up settlement processes such as inventory search and confirmation of delivery.

*2 JCA protocol: A communication protocol created by the Japan Chain Stores Association for data exchange in the retail industry. It was developed for the exchange of ordering form data between chain store headquarters and suppliers such as wholesalers.

*3 Japanese Bankers Association standard communication protocol: An online data exchange protocol established by the Japan Bankers Association for online data exchange between the Bank of Japan and private-sector banks such as commercial banks, and between financial institutions and their customer companies. It is also used as an EDI system by business corporations.

*4 Distribution Business Message Standards (BMS): A unified EDI communication standard that can be used by all companies involved in the retail and distribution industries.

In January 2007, the company began providing a Cloud EDI service for wholesalers.

Users include Mitsubishi Shokuhin Co., Ltd. (TSE1: 7451), NipponAccess, Inc. (unlisted), and Kokubu Group Corp (unlisted). Seven of the top 10 companies in terms of food processing and wholesale revenue have adopted the company’s Cloud EDI services.

The company estimates its market share based on FY12/21 revenue of JPY830mn is around 20% of a market worth around JPY4.0bn (Cyberlinks estimate). Gross merchandise value (GMV) handled by the company was JPY8.9tn or 25% of a market worth around JPY36tn (based on the company’s estimate). Shared Research understands that its revenue is based on charging wholesalers a fee of around 0.9bp of GMV.

Sales management system for specialty stores (Retail Pro)

The company is the sole distributor for US company Retail Pro International, LLC, engaged in the purchase, sales, installation, and operational support for the Retail Pro sales management system for specialty stores. Retail Pro offers features such as sales management systems for specialty stores that have overseas stores and tools for communication between headquarters and stores. The company opened a branch office in Singapore with six employees to support Japanese customers using Retail Pro that have expanded operations to other parts of Asia.

Government Cloud

Government Cloud segment provides installation, maintenance, and operation services for administrative information systems and implementation and maintenance services of regional disaster prevention systems mainly to local governments in Wakayama, Osaka, and Nara prefectures. The company also provides cloud services for school administration and community medical collaboration platforms of medical institutions. As a partner of the Fujitsu Group, the company also provides IT&C hardware repair and maintenance services.

Although the segment is called Government Cloud, the administrative information and disaster prevention systems are not cloud services, but entail standard system development, operation, and maintenance work.

Services

The company provides the following services to the government sector.

Main Government Cloud services

Main customers	Name of service	Service content and features
Local government	Administrative information service	Installation, operation, and maintenance service for systems that underpin local government administrative front-office work, such as ERP, networks, and groupware used by local government employees
	Regional disaster prevention cloud service	Sales, implementation, and maintenance service for communication systems used by local governments including disaster prevention government radio, river and erosion control information, dam level warning and monitoring, and air pollution surveillance systems
Elementary/Junior High schools	School administration cloud service (Clarinet)	School administration cloud service that standardizes and simplifies school administration work at elementary and junior high schools, including school register management, preparation and management of students' report cards and guidance records (school performance management), and nurse's office administration and health check records (health information management)
Medical institutions	Community medical collaboration platform	A cloud service that connects medical information (such as a patient's medication history records) held by multiple medical institutions for use in emergencies such as natural disasters. The company is contracted to run the system on behalf of hospitals that participate in community medical collaboration.
Private-sector companies, other	Customer support	A cloud service that connects medical information (such as a patient's medication history records) held by multiple medical institutions for use in emergencies such as natural disasters. The company is contracted to run the system on behalf of hospitals that participate in community medical collaboration.

Source: Shared Research based on company data

Government Cloud revenue by service

			FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)			Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
Government Cloud			2,530	2,400	2,100	2,100	2,000	3,000	6,237	6,160
		YoY	-	-5.1%	-12.5%	0.0%	-4.8%	50.0%	107.9%	-1.2%
	Administrative information		800	1,000	900	1,100	900	1,200	3,349	3,419
		YoY	-	25.0%	-10.0%	22.2%	-18.2%	33.3%	179.1%	2.1%
		% of total	30%	41%	45%	53%	47%	39%	53.7%	55.5%
	Regional disaster prevention		1,300	1,000	800	700	700	1,400	2,264	1,232
		YoY	-	-23.1%	-20.0%	-12.5%	0.0%	100.0%	61.7%	-45.6%
		% of total	53%	40%	40%	34%	35%	46%	36.3%	20.0%
	School administration cloud, medical collaboration		300	300	200	100	200	300	493	1,398
		YoY	-	0.0%	-33.3%	-50.0%	100.0%	50.0%	64.2%	183.8%
		% of total	10%	13%	8%	6%	11%	11%	7.9%	22.7%
	Customer support		200	100	100	100	100	100	131	111
		YoY	-	-50.0%	0.0%	0.0%	0.0%	0.0%	31.0%	-15.3%
		% of total	7%	6%	7%	7%	7%	4%	2.1%	1.8%

Source: Revenue was reverse calculated by Shared Research from breakdowns provided in company materials.

In May 1964, the company began sales, maintenance, and management of government communication control systems as a distributor for Matsushita Communications Industrial, which developed into today’s regional disaster prevention system business. The company began providing an ERP service for government administrative information systems in October 2001, the Clarinet school administration cloud service in April 2012, and the community medical collaboration platform service in April 2013.

The company made Minamiosaka Computing Center Co., Ltd. a consolidated subsidiary in October 2019, consolidating the balance sheet only in FY12/19 and the income statement as well in FY12/20. Revenue growth of administrative information systems and community medical collaboration businesses in FY12/20 was due in part to the consolidation of Minamiosaka Computing Center, which posted revenue of JPY2.5bn and recurring profit of JPY94mn in that year.

Revenue of the regional disaster prevention system increased in FY12/19 and FY12/20 due to an increase in construction projects for digitalization of disaster prevention communication systems. Demand spiked in those two years, as the laws governing radio waves were revised, banning the use of analog disaster prevention government radio facilities from FY12/22, and as projects were subsidized by the government.

Features of government projects

Budgets for government projects consist of local government budgets and central government subsidies. The company’s projects are often affected by central government subsidy trends. Recent examples of subsidized projects are related to digitalization of disaster prevention communication systems and GIGA School Concept. Demand for these projects tends to increase sharply in one to three years and then disappears.

Government projects are also specific to each region. Orders are placed by local governments, not the central government, and local governments tend to place orders with local companies to create employment and revitalize the local community.

For many years, the company was a distributor for Matsushita Communications Industrial, which had a prefecture-based sales policy, which meant the company could not sell in prefectures other than Wakayama and distributors based in other prefectures could not sell in Wakayama Prefecture. As a result, the company is highly competitive in its home base of Wakayama Prefecture, but struggles to make inroads into markets in other prefectures held by local companies. The company gained access to trade areas in Osaka and Nara prefectures by acquiring Minamiosaka Computing Center.

Trust

The Trust segment provides a time stamping service for electronic data and ID authentication service based on My Number Card.

Cyberlinks time stamping service and TsunAG for Time Stamp

Cyberlinks time stamping service adds reliable time and signature information to electronic data as a time stamp*¹ to certify that the data existed before a certain date and time, and that the data has not been altered since that time. In April 2017, the company obtained the Time Stamping Authority (TSA) certification from the Japan Data Communications Association’s (JADAC) Time Stamping Business Accreditation Center under its voluntary accreditation program*².

*1: Time stamp: Technology that contributes to safe use of networks and secure, long-term storage of electronic data together with electronic signature. It proves that data existed before a certain point in time and the content has not been altered since then.

*2: Time Stamping Business Accreditation Center’s voluntary accreditation program: An accreditation program that certifies that a time stamping service is performed correctly in compliance with JADAC’s standards for technology, systems, and operational structure.

TsunAG for Time Stamp is a service that provides seamless time stamping of diverse data that is produced in the work flow process.

Digital proxy authorization service*¹ (MynaTrust Digital Proxy)

Cyberlinks provides a service that utilizes the digital certificate incorporated in My Number Card to authenticate digital data by preventing the alternation of data and identity theft in cyberspace. In December 2017, the company obtained Japanese Public Personal ID Authentication Service certification (My Number Card) from the Minister of Internal Affairs and Communications as a service platform provider, and in July 2020, the company obtained Digital Proxy Authorization Management Service*²certification from the Ministry of Economy, Trade and Industry.

In the company’s digital proxy authorization service MynaTrust Digital Proxy, the delegator (such as a company representative) and authorized party (such as company’s salesperson) use a digital key issued by Cyberlinks to register for the digital proxy service. The recipient of the digital proxy can verify on the Cyberlinks’s digital proxy registration to ensure whether or not the other party to the contract or other formalities (the authorized party) has been delegated the authority necessary for the formalities by the party itself (delegator). Specifically, the system is expected to be used in the below situations. The company’s digital proxy authorization service has been connected to the Government e-Procurement System (GEPS)*³.

Electronic tenders for procurement by central and local governments

Formalities such as electronic applications to government organizations

Electronic contracts, applications, and other formalities between companies

*1: Digital proxy: An electromagnetic record that indicates that a delegator such as a company representative has authorized an authorized party (employee or other person) to act on their behalf.

*2: Digital proxy authorization management service: A service that stores digital proxies for companies and others to present or submit the proxies to interested parties as proof of the transfer of the right of representation

*3: Government e-Procurement System (GEPS): Common system used by central government ministries and agencies for online procurement of goods and services (including procurement for some public works projects)

The company provides two services based on two formats of files; delegator record file and service provider record file. In the former, delegators prepare their own digital proxy using a smartphone app or other tools. In the latter, Cyberlinks prepares the proxy based on required documents provided by the customer. The pricing plan starts from JPY3,000 for a basic plan (preparing one proxy) using the delegator record file format and JPY7,000 for the service provider record file format.

CloudCerts, a blockchain certificate issuance service

The company’s CloudCerts digital certificate issuance service was launched in December 2021. It converts paper certificates and those in image format such as jpg and pdf into secure digital certificates. Today, most certificates in Japan still have paper originals and use authorized stamps or specialty paper for authentication. However, using blockchain technology ensures that they cannot be tampered and that they retain their originality.

CloudCerts uses a system that prevents falsification and identity theft for safe exchange of information using the blockchain technology of LasTrust Inc. (unlisted), whose patent is pending.

Mobile Network

Mobile Network segment runs seven Docomo stores (NTT Docomo resellers) in Wakayama Prefecture. The company is a second-tier reseller, which signs up subscribers and sells smartphones based on a reseller agreement with CONEXIO Corporation (TSE1: 9422), a primary reseller of NTT Docomo.

The company sells NTT Docomo smartphones, mobile phones, and phone accessories. Its services include consultation of pricing plans, signing up of customers for phone contracts, receipt of payment of mobile phone charges, and after-sales services such as receiving handsets for repair. It also acts as an agent for NTT Docomo for its business with corporate customers. Its services here include selling smartphones and other mobile phones, providing consultation of pricing plans, signing up customers for phone contracts, receiving handsets for repair, and proposing and selling mobile systems.

As a second-tier reseller, the company runs Docomo stores through CONEXIO and thus receives a fee from CONEXIO. Terms of trade such as the amount of fees received, content of services for which fees are payable to, and fee rate (percentage of phone charges) vary according to the management policies of NTT Docomo and CONEXIO.

The company’s market share among resellers in Wakayama Prefecture (based on company data) is as follows.

Market share among resellers in Wakayama Prefecture

					FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
Market share of Wakayama prefecture stores							34%	35%	34%	35%	35%	35%	35%	-

Source: Shared Research based on company data
* Market share excludes stores directly managed by primary reseller.

Trends in sales to primary reseller CONEXIO are shown below.

Sales to CONEXIO

		FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)		Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
CONEXIO		3,153	3,451	4,113	4,193	4,008	3,755	3,718	3,147	2,430	2,552
	YoY	-	9.4%	19.2%	2.0%	-4.4%	-6.3%	-1.0%	-15.3%	-22.8%	5.0%
	% of revenue	44.4%	46.2%	46.5%	45.1%	43.1%	39.0%	38.4%	30.1%	19.0%	19.3%

Source: Shared Research based on company data

Revenue per store was JPY423mn (+7.3% YoY) in FY12/21. The company operates seven stores. The store count has not changed since FY12/13, when the company began disclosing stores’ earnings performance. Recurring profit is affected by revenue trends (such as smartphone sales volume) and NTT Docomo’s measures and incentives.

Revenue and recurring profit by store

		FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)		Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
No. of stores			7	7	7	7	7	7	7	7	7
	YoY		-	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
Per store revenue (JPYmn)			528	615	620	592	559	560	488	395	423
	YoY		-	16.6%	0.8%	-4.5%	-5.5%	0.1%	-12.9%	-19.1%	7.3%
Per store recurring profit (JPYmn)			36	52	60	62	67	58	54	50	55
	YoY		-	45.6%	14.7%	3.5%	7.9%	-13.3%	-7.4%	-6.9%	9.4%

Source: Shared Research based on company data

Earnings structure

Recurring revenue trends

Recurring revenue is a key indicator of the company’s earnings. Recurring revenue is revenue earned on an ongoing basis such as information processing and maintenance fees in cloud services and some incentives related to mobile handset sales.

Revenue from cloud services consists of the initial set-up fee and monthly fees. Thus, an increase in the number of users and low churn rate results in stratified revenue growth. For the company’s mainstay service @rms ERP, a typical mid-size supermarket with 10 stores and annual revenue of around JPY10.0bn pays an initial set-up fee of JPY5.0mn and a monthly fee ranging from JPY700,000 to 800,000. As of December 2021, 1,288 stores used @rms ERP versus the total market of around 21,000 stores, growing at a five-year CAGR of 8.8%. According to the company, there are very few cancellations due to customers switching to a competitor’s system. Rare cases where cancellations do occur are when a supermarket goes out of business or is absorbed by a major supermarket as a result of M&A.

Expenses are mainly fixed, such as personnel expenses (labor costs and outsourcing costs) and depreciation associated with software development and operational costs associated with data center (personnel expenses, communications expenses, rent, power, and depreciation). With limited variable expenses, the company has an earnings structure with a high marginal profit rate. This means that profit margins increase once revenue exceeds the breakeven point.

Recurring revenue went up from JPY2.7bn in FY12/11 to JPY6.7bn in FY12/21, growing at a CAGR of 9.4% over the 10 years. In FY12/21, recurring revenue accounted for 50.5% of revenue. Shared Research estimates that recurring revenue accounted for around 80% of Distribution Cloud segment, 40% of Government Cloud, and 20% of Mobile Network. While revenue fluctuates in the Government Cloud business due to one-time demand for construction projects involving digitalization of disaster prevention systems and GIGA School Concept projects, trend in recurring revenue is what is important.

Cost of revenue breakdown

The cost of revenue ratio trended between 69.3% and 74.0% during the period of FY12/12 to FY12/21.

Cost of revenue

		FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)		Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
Cost of revenue		4,924	5,332	6,344	6,507	6,513	6,810	7,010	7,738	9,236	9,470
	Cost ratio	69.3%	71.4%	71.7%	70.0%	70.0%	70.8%	72.4%	74.0%	72.3%	71.5%

Source: Shared Research based on company data

The company disclosed a cost of revenue breakdown in FY12/18. In the former IT Cloud business (corresponds to the total of Distribution Cloud, Government Cloud, and Trust), cost of revenue broke down into labor costs 48.9%, raw materials and supplies 15.8%, outsourcing expenses 15.0%, depreciation 4.5%, communication expenses 2.7%, and others 9.3%. Purchasing costs of smartphones and accessories account for 100% of cost of revenue in the Mobile Network segment.

SG&A expense breakdown

In FY12/20, SG&A expense breakdown was personnel 61.0%, R&D 4.6%, depreciation 2.1%, and others 32.3%. The SG&A expense ratio contracted from 26.5% in FY12/12 to 20.5% in FY12/20. As a percentage of revenue, personnel expenses, depreciation and amortization, and other expenses declined, while R&D expenses rose.

In the Distribution Cloud segment, the company agreed to compensate a customer for expenses incurred after system installation was canceled, which resulted in the company recording a charge of JPY37mn in FY12/18 and JPY162mn in FY12/19 under other expenses.

SG&A expenses

		FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)		Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
SG&A expenses		1,884	1,799	1,902	2,054	2,215	2,228	2,171	2,262	2,617	2,826
	SG&A ratio	26.5%	24.1%	21.5%	22.1%	23.8%	23.2%	22.4%	21.6%	20.5%	21.3%
	Directors' compensations	100	98	100	102	102	104	116	115	207
	Salaries and bonuses	810	830	876	946	969	1,010	896	907	1,180
	Provision for bonuses	11	12	12	15	16	16	14	14	15
	Statutory welfare expenses	126	134	143	153	160	166	148	148	195
	Depreciation	52	57	49	42	47	49	50	47	54
	Amortization of goodwill	0	0	5	49	66	72	57	52	8
	R&D expenses	8	9	17	17	90	15	71	38	121
	Other	778	660	699	729	766	796	820	941	838

Source: Shared Research based on company data

Recurring profit

The company’s CAGR for recurring profit was 12.6% over the past nine years. RPM has trended between 4.6 and 7.8% with an average of 6.1%. Software amortization in the Distribution Cloud segment is a significant factor that affects the change in recurring profit. It is important to estimate the period and amount of software amortization, which begins after initial development of the software is completed. Other factors affecting fluctuations in recurring profit include the reduction of costs and SG&A expenses.

Changes in recurring profit

				FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)				Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Non-cons.	Cons.	Cons.	Cons.
Recurring profit				330	344

Cyberlinks 3683

Executive summary

Business overview

Earnings trends

Strengths and weaknesses

Key financial data

Recent updates

Issuance of new shares as restricted stock compensation

Trends and outlook

Quarterly trends and results

Q1 FY12/22 results (out May 13, 2022)

Q1 FY12/22 results

Distribution Cloud

Government Cloud

Trust

Mobile Network

Full-year company forecast

FY12/22 Full-year forecast

Distribution Cloud

Government Cloud

Trust

Mobile Network

Difference between initial company forecast and results in previous fiscal years

Medium- and long-term outlook

Medium-term management plan (out February 12, 2021)

Distribution Cloud

Cloud retail ERP service @rms ERP

Cloud EDI-Platform for wholesalers

C2 Platform, an inter-company collaboration platform

Government Cloud

Trust

Mobile Network

Other

Reference: Previous medium-term management plan

Business

Business overview

Recurring revenue

Distribution Cloud

Services

@rms ERP

Peripheral @rms services such as fresh food ordering, automatic ordering, attendance management, and online supermarket

Customers

Pricing

Cancellations

Cloud EDI service for wholesalers

Sales management system for specialty stores (Retail Pro)

Government Cloud

Services

Features of government projects

Trust

Cyberlinks time stamping service and TsunAG for Time Stamp

Digital proxy authorization service*1 (MynaTrust Digital Proxy)

CloudCerts, a blockchain certificate issuance service

Mobile Network

Earnings structure

Recurring revenue trends

Cost of revenue breakdown

SG&A expense breakdown

Recurring profit

Digital proxy authorization service*¹ (MynaTrust Digital Proxy)