Sun* provides consulting, software development, recruiting, and other services to companies that seek to create value or businesses, including startups. In FY12/21, the company had revenue of JPY8.0bn, operating profit of JPY1.4bn, and an OPM of 17.6%. It operates a single segment, Digital Creative Studio, broken down into two service lines: Creative & Engineering (FY12/21 revenue of JPY6.8bn; 85.1% of total revenue) and Talent Platform (JPY1.2bn; 14.9%).
In the Creative & Engineering service line, the company offers creative and engineering services to support the creation of customers’ businesses, ranging from idea generation to product development and continued product growth. Since it was established in 2013, it has successfully completed over 400 projects in this field through processes and approaches that focus on value creation. The company supplies solutions by forming teams of business, technology, creative, and other experts. Its business consultants with expertise in digital transformation (DX) summarize the requirements for business launches. Its lead engineers—who have experience in setting up businesses as CTOs—and its user interface/user experience (UI/UX) designers oversee releases of first products. After a business or service gets off the ground, Sun* provides ongoing development and operational support (DevOps services) in part through its Vietnamese subsidiary, which has assembled a team of over 1,400 IT engineers.
The company in principle favors recurring revenue business (roughly 80% of its total revenue) that is predicated on long-term revenue and tied to the growth of customer businesses, over one-time revenue projects under which a completed product is delivered by a fixed date. It regards the number of recurring revenue customers (defined internally as customers under quasi-mandates contracts of more than three months) and monthly average revenue per user (ARPU) as key performance indicators (KPIs). As of end-FY12/21, the number of recurring revenue customers was 95 (85 at end-FY12/20), and the monthly ARPU was JPY4.5mn (JPY4.0mn).
Sun* adopts a customer-centric design approach in its projects, taking into account questions such as whether a solution will effectively resolve the problems faced by users, what the provided value should be, and whether a solution will be easy to use. In the initial stage of a project (roughly the first three months), the company tries to understand the fundamental problems faced by users, and designs a business by coming up with ideas and exploring business models. This process typically begins with small-scale and low-value products. As customers expand their businesses, their products enter the stages of full-scale development and functional expansion, which drive up fees for the company. Sun* aims to increase its ARPU by contributing to its customers’ businesses over the long term. It uses development approaches such as design thinking, lean startup, agile development, and expedited plan-do-check-act (PDCA) cycles. These are explained in further detail later in this report.
The company’s fees are a function of the monthly billing rate per employee and worker hours. According to the company, it faces little competition in its business field of digitalization and can therefore charge higher than the domestic average (monthly billing rate per employee of about JPY1mn). Its companywide OPM was 17.6% in FY12/21, above the 9.2% average for the top 10 Japanese system integrators (Shared Research estimate based mainly on FY03/21 data).
In the Talent Platform service line, Sun* provides recruiting services for companies including startups. In Japan, it operates a programming school, placing graduates in temporary or permanent positions at Japanese companies. Overseas, the company operates IT programs at nine universities in three countries in Asia (including Vietnam) and three universities in Brazil. It also recruits graduates from such programs for Japanese companies. The company receives success fees of JPY1mn per placement. The company started working with overseas universities in 2014, when it was requested by the Hanoi University of Science and Technology to take over a Japanese Official Development Assistance (ODA) project designed to cultivate advanced IT human resources with Japanese language proficiency. The students enrolled in this program increased from 459 in January 2015 to 2,248 in January 2022, and the company has placed some 400 graduates of the program with over 130 Japanese companies.
As the company’s core management resources are human resources such as IT engineers, personnel expenses account for the bulk of its costs. In FY12/20, labor expenses made up 8.6% of cost of revenue at the parent company and outsourcing costs 89.1%. The latter mainly consist of salaries for the 1,400-plus IT engineers employed by the company’s Vietnamese subsidiary, which represent over 80% of the group’s total workforce. IT staff play an essential role in the creation of businesses, but their recruitment has become difficult in Japan. Vietnam, on the other hand, promotes IT education as a national policy, and produces over 50,000 IT program graduates per year. Sun* regards Vietnamese human resources as essential to the realization of its vision, and has therefore become actively involved in their education.
In FY12/21, revenue was JPY8.0bn (+49.6% YoY), operating profit JPY1.4bn (+59.2% YoY), recurring profit JPY1.6bn (+69.8% YoY), and net income attributable to owners of the parent JPY1.3bn (+61.8% YoY). Revenue in the Creative & Engineering service line was up 57.9% YoY. The number of recurring revenue customers rose to 95 companies (+11.8% YoY), and the monthly revenue per user averaged JPY4.8mn (+22.1% YoY). The monthly churn rate came to 3.45%. Revenue in the Talent Platform service line was up 15.3% YoY thanks to a gradual recovery in corporate hiring appetite.
In FY12/22, the company forecasts revenue of JPY11.4bn (+42.0% YoY), operating profit of JPY1.7bn (+21.2% YoY), recurring profit of JPY1.8bn (+16.2% YoY), and net income attributable to owners of the parent of JPY1.5bn (+15.2% YoY). It expects revenue in the Creative & Engineering service line to grow 47.1% YoY. It looks for recurring revenue customers to rise to 107 companies (+12.6% YoY) and monthly ARPU to increase to JPY5.5mn (+15.6% YoY). It expects revenue in the Talent Platform service line to increase 12.7% YoY on growth in demand for IT talent. The company forecasts an OPM of 15.0% (-2.6pp YoY). While the company expects OPM for existing businesses to remain flat YoY, it plans to invest in post-merger integration (PMI) for Trys (consolidated in September 2021) and in new businesses in the entertainment and other fields.
Sun* does not disclose a medium-term business plan with quantitative targets, but it releases qualitative targets related to KPI growth. To increase its number of recurring revenue customers, the company works to acquire potential customers via alliances with other companies and through its subsidiaries. To expand its ARPU, the company aims to increase the share of its enterprise customers, which have relatively large IT investment budgets. It plans to establish an earnings structure predicated on a revenue sharing model, and is also exploring other earnings streams such as capital gains accompanying exit strategies (such as IPOs, M&A, and MBOs) for the startups it supports.
Sun* has an early mover advantage in the business creation field.
Access to specialists and advanced business and software development approaches enable the company to form teams of experts and charge a high billing rate per employee to existing customers.
The company employs over 1,400 engineers at its development bases in Vietnam, which allows it to develop software at half the cost compared to the costs of Japanese engineers while accumulating expertise.
Personnel expenses account for roughly 90% of cost of revenue, leaving little room for cost reductions to support profit when economic slowdowns depress the top line.
The business does not scale as the company charges per hour (number of workers multiplied by development period).
Sun* lacks experience in handling periods of revenue and profit contraction.
|Gross profit margin||56.8%||52.9%||53.1%||50.6%|
|Operating profit margin||13.6%||10.5%||16.5%||17.6%||15.0%|
|Recurring profit margin||1.2%||0.6%||6.8%||14.7%||10.7%||17.3%||19.6%||16.1%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||-||-||-||31,000||33,104||36,840||37,734|
|EPS (fully diluted; JPY)||-||-||-||-||-||20.8||32.2|
|Dividend per share (JPY)||-||-||-||0.0||0.0||0.0||0.0||0.0|
|Book value per share (JPY)||-||-||-||20||61||136||175|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||-||-||-||773||2,383||5,073||5,729|
|Total current assets||-||-||-||1,303||2,950||5,795||7,108|
|Tangible fixed assets||-||-||-||110||106||72||102|
|Investments and other assets||-||-||-||106||209||269||586|
|Total current liabilities||-||-||-||752||970||1,011||1,516|
|Total fixed liabilities||-||-||-||243||357||188||293|
|Total net assets||35||41||134||626||2,029||5,018||6,586|
|Total liabilities and net assets||225||387||738||1,621||3,356||6,217||8,395|
|Total interest-bearing debt||-||-||-||323||608||362||359|
|Cash flow statement(JPYmn)|
|Cash flows from operating activities||-||-||-||387||462||863||1,188|
|Cash flows from investing activities||-||-||-||-141||-297||-982||-1,388|
|Cash flows from financing activities||-||-||-||251||1,284||1,982||-181|
|Total asset turnover||383.8%||364.6%||262.1%||136.9%||182.0%||112.1%||109.9%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||52.5%||52.2%||51.4%||50.6%||46.8%|
|Operating profit margin||22.9%||21.5%||19.7%||17.6%||11.7%||15.0%|
|Recurring profit margin||21.5%||23.1%||21.1%||19.6%||6.8%||16.1%|
|Gross profit margin||52.5%||51.9%||50.2%||48.4%||46.8%|
|Operating profit margin||22.9%||20.2%||16.6%||12.2%||11.7%|
|Recurring profit margin||21.5%||24.7%||17.5%||15.9%||6.8%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Creative & Engineering||1,525||3,032||4,827||6,833||2,316||23.0%||10,050|
|% of total||83.7%||83.5%||84.3%||85.1%||88.9%||88.2%|
|% of total||62.2%||64.2%||64.9%||64.2%|
|% of total||21.5%||19.2%||19.3%||17.1%|
|% of total||16.3%||16.5%||15.7%||14.9%||11.1%||11.8%|
|Creative & Engineering||1,525||1,508||1,794||2,007||2,316|
|% of total||83.7%||83.3%||85.8%||87.0%||88.9%|
|% of total||62.2%||66.3%||66.2%||62.3%|
|% of total||21.5%||17.0%||19.6%||11.4%|
|% of total||16.3%||16.7%||14.2%||13.0%||11.1%|
Number of recurring revenue customers: 98 companies (+11.4% YoY), of which 26 were enterprise customers (+4.0% YoY) and 72 were small and medium-sized business (SMB) customers (+14.3% YoY)
Monthly ARPU (average for three months): JPY5,244,000 (+19.4% YoY), breaking down into JPY8,670,000 for enterprise customers (+28.3% YoY) and JPY4,000,000 for SMB customers (+14.3% YoY)
Monthly average churn rate: 3.44% (monthly contract cancellations divided by the number of total customers; average for the 87 months from January 2015 to March 2022)
Q1 FY12/22 revenue was JPY2.6bn (+42.9% YoY), hitting a record quarterly high. JPY2.3bn (+51.9% YoY) came from the Creative & Engineering service line and JPY288mn (-3.1% YoY) from the Talent Platform service line.
In the Creative & Engineering service line, orders from existing customers remained stable and strong, and new customers continued to increase. At end-March 2022, the number of recurring revenue customers was 98 companies (+11.4% YoY). The average monthly ARPU for Q1 (three months) was JPY5,244,000 (+19.4% YoY). The company achieved substantial growth by cultivating new customers and raising the ARPU at the same time. Recurring revenue was up 32.3% YoY. Q1 revenue at Trys, Inc., which was made a consolidated subsidiary in September 2021, came to JPY340mn.
Revenue declined YoY in the Talent Platform service line. The booking of xseeds Hub revenue was pushed back (student enrollment was delayed due to restrictions on entry to Japan) and intercompany adjustments increased on a consolidated basis due to a rise in the share of personnel placement to the Creative & Engineering service line.
Operating profit was JPY306mn (-26.7% YoY); OPM was down 11.2pp YoY to 11.7%.
The company recorded a JPY131mn foreign exchange loss under non-operating loss. The loss resulted from the revaluation of JPY-denominated deposits of consolidated subsidiary Sun Asterisk Vietnam (JPY4.06bn at end-March 2022), using the exchange rate at quarter-end.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||FY Est.|
|Cost of revenue||1,251||1,264||2,515||1,737||2,232||3,969|
|Gross profit margin||53.6%||52.7%||53.1%||52.2%||49.3%||50.6%|
|Operating profit margin||20.3%||12.7%||16.5%||21.5%||14.3%||17.6%||15.0%|
|Recurring profit margin||20.9%||13.6%||17.3%||23.1%||16.7%||19.6%||16.1%|
The company’s forecast for FY12/22 is as follows.
The company targets the following KPIs.
Number of recurring revenue customers: Total of 107 companies (+12.6% YoY), of which 30 enterprise customers (+15.4% YoY) and 77 small and medium-sized business (SMB) companies (+11.6% YoY).
Monthly ARPU: JPY5,490,000 for all customers (+15.6% YoY), of which JPY9,210,000 for enterprise customers (+17.2% YoY) and JPY4,090,000 for SMB customers (+14.2% YoY).
The company forecasts revenue of JPY11.4bn (+42.0% YoY), breaking down into JPY10.1bn (+47.1% YoY) for the Creative & Engineering service line and JPY1.4bn (+12.7% YoY) for the Talent Platform service line.
In the Creative & Engineering service line, the company looks for increases in the number of recurring revenue customers and monthly ARPU. After excluding revenue from Trys, Inc., which was made a consolidated subsidiary in September 2021, the company forecasts revenue of JPY8.5bn (+30.2% YoY). It looks for revenue of JPY1.6bn from Trys (versus JPY306mn booked for October–December 2021 in FY12/21).
In the Talent Platform service line, the company plans to continue scouting and educating IT talent in Japan and overseas, and support the promotion of digitalization at customers through recruiting services. Demand for IT labor has been increasing, and the company expects this trend to continue in FY12/22.
The company forecasts operating profit of JPY1.7bn (+21.2% YoY), and sees OPM rising 2.6pp YoY to 15.0%. It expects OPM in its existing businesses to remain on par with FY12/21 levels. It plans to invest in post-merger integration (PMI) for Trys, which was made a consolidated subsidiary in September 2021, and in new businesses in the entertainment and other fields. For Trys, the company expects operating profitability after goodwill amortization.
The company does not disclose its target number of recruits, but plans to hire the largest number of employees both in Japan and Vietnam in FY12/22.
Sun* does not disclose a medium-term business plan with quantitative targets, but it releases qualitative targets in the form of business strategies to increase its number of recurring revenue customers and ARPU, which are both KPIs. Its main strategies by service line are as follows.
Creative & Engineering: The company aims to increase points of contact with customers it has thus far been unable to approach (especially, large companies that are likely to need high-value projects).
Talent Platform: The company aims to enhance and expand its proprietary data platform, and further step up industry-academia collaboration.
In addition, although its Startup Studio* program had yet to generate sufficient profit as of FY12/21, Sun* will continue to invest in the program, and work to build new business models.
The company plans to explore revenue sharing or capital gains models to generate additional earnings from business growth at its investment targets.
* A startup studio refers to an organization or method that aims to create businesses simultaneously and successively. It provides a comprehensive range of functions (including business ideas, management personnel, capital, user experience and user interface [UX/UI] design, installation, and marketing) needed by entrepreneurs and innovators to create concepts.
Sun* is implementing the following measures as growth strategies to acquire customers and drive up ARPU.
Alliances and business tie-ups: The company will expand its customer base through collaboration with major consulting firms and startup studios.
Launch of consolidated subsidiary: Newh Inc. (established in January 2021) provides business incubation and consulting services to large companies.
Investment in its Startup Studio program: The company will aim to bring in more startup customers, increase its ARPU, and expand its earnings (discussed in more detail below).
Sun* collaborates with Microsoft Japan Co., Ltd. and Deloitte Tohmatsu Venture Support Co., Ltd. (DTVS). Both have long supplied services to customers that qualify as enterprise customers* under the company’s definition. By collaborating with these heavyweights, Sun* aims to generate synergies that support earnings growth, and expand its customer base. In July 2021, Sun* also became one of the founding partners of Startup Studio combo.
* Sun* defines an enterprise customer as one of the following: (1) a listed company that is included in the Nikkei 225, the Nikkei 400, or the Nikkei 500, (2) a group member of a company that matches one of the criteria in (1), or (3) a company with a market cap, revenue scale, and workforce equivalent to a listed company.
In June 2021, Sun* became the first Japanese partner in Microsoft Japan’s “Microsoft for Startups” program, which aims to support the growth of early-stage startups by giving them free access to technology platforms such as Azure and GitHub.
Microsoft has formulated a five-year plan (launched in December 2019) that seeks to expand its collaboration with startups to 500 companies by 2025, and increase the scale of its cloud business for startups 10-fold from 2021. It also intends to match startups and enterprises.
While startups normally need to undergo a screening by Microsoft to become eligible for free usage of Azure and other platforms, startups that receive support services from Sun* (i.e., those that have signed quasi-mandate contracts with the company) qualify for the Microsoft for Startups program on a priority basis. As a partner in the program, the company explains that it can promote the growth of customers it supports, and it also expects to reap benefits in the form of lead acquisition.
DTVS has developed Startup Compass, a digital tool that supports the development of businesses. Under its collaboration with DTVS, Sun* helps customers verify hypotheses* related to business creation. Startup Compass is an online service that offers support for the many challenges faced by startups in the process of building a businesses.
Startup Compass divides the process of business development into five phases: idea creation, customer/issue verification, product/solution verification, product market fit (PMF: market suitability) verification, and growth verification. It presents specific items to be confirmed or verified as well as points of emphasis for each phase. It guides users by helping them move forward while confirming and verifying each step and thus preventing mistakes. Sun* supports the creation of hypotheses that need to be verified in each phase, and it presents concrete methods to verify such hypotheses. It also introduces specialized companies that can help verify hypotheses.
* Hypotheses for a new business are verified at the conceptual or planning stage of the business. The aim is to confirm certain assumptions such as the existence of a new market or existing demand among users. If a hypothesis is proven to be true, this increases the probability that a business will be successfully developed. On the flipside, if a hypothesis is revealed to be flawed during the planning phase, this can help reduce losses to a minimum.
Sun* was selected by DTVS as a partner because it has accumulated a greater range and depth of knowledge and expertise in the process of business development than DTVS. The company has insights and resources in back-end operations that follow idea creation, such as UX design, UX research, minimum viable product (MVP) development, and product development. Through Startup Compass, Sun* supports business development in the areas of MVP-based hypothesis verification and UI/UX.
Startup Compass is designed for managers or supervisors of new businesses at major companies and startups. Through its alliance with DTVS, Sun* hopes to acquire new leads (prospective customers).
Startup Studio combo is an organization founded by Party Inc. (unlisted) in July 2021. It has eight partners, including Sun*. The company decided to join as a partner as it felt aligned with the founding vision (described below) of Startup Studio combo, and because it saw opportunities to utilize its expertise, experience, and resources. Through its own Startup Studio program, Sun* provides similar business support services as Startup Studio combo. The main advantage of joining Startup Studio combo is that it will be able to increase its points of contact with customers that would have been difficult to approach independently.
Founding vision of Startup Studio combo: Startup Studio combo helps startups expand not only by supplying funding like a venture capital firm, but also by providing non-financial support. Specifically, it aims to offer promotional and branding support to startups, execute various business ideas, and swiftly implement high-quality prototypes. To this end, it relies on the marketing, UI/UX, implementation (incorporation of software and functions), and public relations (PR) capabilities of its partners, as well as on creative contributions from Party (specifically, content designed and produced by creators at Party).
Eight partners: The eight Startup Studio combo partners are Party, Sun*, Toppan Inc. (TSE1: 7911), Geek Pictures Inc. (unlisted), Vector Inc. (unlisted), for Startups, Inc. (unlisted), Uzabase, Inc. (TSE1: 3966), and Unicorn Financial Advisory (unlisted).
Founded in January 2021, Newh is a consolidated subsidiary of Sun* that offers consulting services to large companies with a focus on the development of businesses and services (business incubation). It consults on all processes needed to launch a business ranging from the formulation of project strategies to idea creation, proofs of concept (PoC), and earnings plans.
Sun* says it looks to expand its points of contact with hitherto hard-to-reach major (enterprise) customers by strengthening its business incubation systems. It takes over the projects that have been formulated by Newh for customers, and translates these into actual development processes. As of September 2021, Newh had already begun supporting the development of businesses at multiple enterprise companies.
Newh is providing support to a major cosmetics manufacturer (product and brand development), a leading insurance company and a major entertainment company (platform services development), a major electronics manufacturer (design of new services, community research), a major beverage manufacturer (rebuilding of services), a major payment settlement provider (product brand development), and a major construction company (digital transformation [DX] support for a municipality).
In the Talent Platform service line, the company has accumulated expertise and insights on digitalization (creating value and developing businesses with digital technologies), and captured related data. By continually sharing this data with its engineers and creatives, the company enhances its ability to reproduce business successes.
The company believes it can continue to grow this service line by further expanding and polishing the five data platforms below.
Rubato is a system that facilitates skillset management for engineers and creatives, personnel evaluation, the formation of an HR portfolio, and project operation management for the Sun* group. When building teams for new projects, the company deploys the optimal human resources based on the data stored in Rubato. In this way, it aims to increase the reproducibility of business successes.
Sun* CI is a system that supports DevOps, and therefore creates an environment in which engineers can concentrate on business growth. It automates tasks such as source code review, security checks, function testing, and product builds.
* DevOps: A development process predicated on collaboration between development and operations team. It increases the value of a business through systems and software, and ensures such value is delivered reliably and rapidly to end users.
Viblo is a free social media service operated by the company. It allows engineers and creatives (including those not affiliated with Sun*) in Vietnam to share their insights and knowledge. In addition, Sun* distributes the knowledge it has accumulated and other information on the platform to enhance the capabilities of engineers working in Vietnam.
As of June 2021, the platform had over 330,000 monthly active users (MAU).
The service is comparable to the Japanese Qiita platform operated by Qiita Inc., an unlisted subsidiary of Ateam Inc. (TSE1: 3662).
xseeds Hub is an online database system that manages the resumes of students and supports their employment. The students registered in the database are enrolled in a curriculum operated by Sun* (industry-academia program xseeds) at universities in three countries, including Vietnam. The system allows Japanese companies to recruit human resources online from Japan.
Process through job offer: After registering for the system, a company can search for students and send out job offers on the system. If a student expresses interest in a position, the company holds an online screening (with interpretation). If the student meets the requirements, the company extends a formal job offer. The student then decides whether or not to accept the offer.
Affiliated universities (and number of participants): Hanoi University of Science and Technology (five-year program: 750 students), Da Nang University of Science and Technology (four-year program: 250 students), Vietnam National University Hanoi College of Technology (three-year program: 190 students), VNUHCM University of Information Technology (two-year program: 190 students), Gadjah Mada University (Indonesia), and University of Technology Malaysia (Malaysia).
Schooler is a platform that helps systemize and visualize university education systems. It provides functions to manage classes, schedules, attendance and academic performance, and course contents, and also offers support for report creation and output. The company has rolled out the platform at eight overseas universities in three countries. It is used by more than 2,000 students.
In June 2019, Sun* launched its Startup Studio program. A startup studio refers to an organization—typically a shareholder—that provides financing to startups, which generally lack capital and engineers at the time of their launch, alongside a comprehensive range of resources (including human resources, goods, funds, and expertise) necessary to launch a business. It can also refer to the method used to achieve this. Rather than simply receiving and placing orders, Sun* co-creates businesses with its customers. Over the medium to long term, it aims to promote further collaboration with the startups it invests in under a revenue sharing model, or target capital gains. As of end-June 2021, the company had invested in 21 companies.
Through Startup Studio, Sun* operates two investment programs that are distinguished by the growth stage of the investee. The first is Build, a program that provides support to startups that start a business from scratch. The second is Boost, a program that aims to accelerate business growth.
The purpose of the Build program is to invest in startups that have yet to be incorporated or are 100% independently funded. Through the program, Sun* co-creates startups with entrepreneurs, and provides support in the following areas.
Polishing business ideas
Advisory services related to business strategy and capital policy
Free provision of development resources
Free provision of proprietary DevOps tools
Free provision of office environment
Provision of public relations, advertising, recruiting, and business analytics and optimization (BAO) functions
Office welfare services equivalent to Sun*
Capital participation (maximum of 20%) at time of incorporation or first-round investment in Japanese keep it simple securities (J-KISS)
|tenanta inc.||Apr 2019||Matches tenants looking for commercial properties with real estate companies that provide such properties.||Sun* dispatched an individual with experience in launching and selling startups to serve as acting CTO.|
|Zenkigen, Inc.||Oct 2017||Plans and operates the online interview service Harutaka, and operates the HR event service Next HR Conference.||System development is handled by a team of nine people, including three Japanese members dispatched by Sun* (project manager/tech lead, etc.) and six overseas engineers. Launched service (beta version) within five months.|
|Tent Inc.||Jul 2017||Operates a rental service for outdoor equipment, develops and operates rental platforms and RFID inventory management systems.||Sun* has provided support from the specification design stage, before the development structure was put in place.|
The purpose of the Boost program is to provide funds to early to middle-stage startups that are in the process of raising capital and wish to make use of the company’s resources. Through the program, Sun* provides capital and resources to startups in an effort to support their growth. It provides support in the following areas.
Advisory services related to business strategy and capital policy
Provision of development resources at a discount
Free provision of proprietary DevOps tools
Provision of public relations, advertising, recruiting, and BAO functions
Investment of up to JPY50mn per company
|Liver Bank K.K.||Dec 2020||Livestream communication production business, livestream-based fan community production business||Sun* acquired a small number of shares from Liver Bank through a third-party allocation (stake undisclosed). It has also entered a business alliance with Liver Bank to develop the fan community platform Mooos.|
|K.K. Flare||Jan 2017||Develops and operates mobility-related businesses in Thailand.||Sun* acquired shares through a third-party allocation (stake undisclosed).|
|Tryeting Inc.||Jun 2016||Augmented intelligence (AI) technology R&D and license selling business||-|
|Japan Cloud Capital, inc.||Nov 2015||Operates Fundinno, a crowdfunding platform that allows backers to invest in a company in exchange for shares.||Sun* invested in Japan Cloud Capital (stake undisclosed).|
|lafool Inc.||Nov 2011||Mental health tech business, sleep tech business, and childcare business||Sun* provided resources mainly in the form of engineers (in Vietnam) to resolve a shortage of development resources at lafool.|
In June 2021, Sun* released the proprietary app Mooos and started collaborating with Avex Management Inc. Mooos is a fan community platform for artists, and Avex Management is an entertainment company that manages numerous artists.
Sun* develops customized apps that stream content for specific artists to core fans. Avex Management and the company generate revenue by offering paid services such as livestreams through the app. Fans can access these services by either purchasing a monthly subscription or paying per use. The two companies split the revenue under a revenue sharing model.
According to the company, major social media and video streaming platforms tend to be open communities that are also used by casual fans and critics. When designing a monetization strategy for artists or management companies for such platforms, the streamed content must comply with the rules of the platform. Another challenge is that unilateral changes in specifications for a platform can complicate the design of a medium- to long-term strategy for artists. The company believes that Mooos resolves such issues.
Sun* aims to create value by supporting the launch of startups and business development for existing companies. Its services create value by promoting digitalization in various industries and accordingly revitalizing society (by, for example, resolving social issues). The company refers to these practices as Digital Creative Studio operations.
Sun* aims to digitalize existing industries mainly by “co-creating businesses while taking advantage of technology and creatives” and by “scouting and educating fresh IT talent.”
The company’s goal is to use digital technologies not to enhance the efficiency of existing businesses, but rather to tackle a broad range of social issues. Sun* works with entrepreneurs such as startup founders and business developers to address social issues via new businesses with the help of digital technologies.
According to the company, the lion’s share of IT investment to date has been geared toward improving the efficiency of existing business processes through digital technologies, and IT education has therefore historically concentrated on cultivating expertise in system operation and maintenance to support the continuation of existing businesses. However, Sun* believes that society will need IT investment that transforms business models through digital technologies (digital transformation [DX]).
Sun* specializes in software development that supports startups and business development. Consequently, it does not develop or update conventional business software (business management software for production, sales, inventory, finances, or accounting; or related Software as a Service [SaaS]). It also does not provide operation and maintenance services for large-scale existing systems, nor does it sell general-purpose software to a larger number of unspecified customers.
Sun* provides consulting, software development, recruiting, and other services that help create businesses or value. It offers these services to companies that seek to create businesses, including startups. The company operates in a single segment: Digital Creative Studio. In FY12/21, it reported revenue of JPY8.0bn, operating profit of JPY1.4bn, and an OPM of 17.6%.
The Sun* group comprises the parent company and the following four wholly-owned consolidated subsidiaries.
Sun Asterisk Vietnam Co., Ltd. (unlisted): Employs over 1,400 engineers at development bases in Vietnam (Hanoi, Da Nang and Ho Chi Minh City).
Groove Gear, Inc. (unlisted): Operates programming education, IT staff recruiting and dispatch, corporate training, and other businesses in Japan.
Newh Inc. (unlisted): Established in January 2021, Newh is a design and consulting studio that specializes in the development of businesses and services for large companies.
Trys, Inc.: A team of creators based in Japan that specializes in the production of digital content and the development of apps for social media platforms and smartphones.
Sun* operates in a single segment: Digital Creative Studio. The segment name embodies the company’s aspiration to develop, grow, and monetize businesses through digital technologies (mainly software development).
The company’s operations are divided into two service lines: Creative & Engineering (FY12/21 revenue of JPY6.8bn; 85.1% of the total) and Talent Platform (JPY1.2bn; 14.9%). The former mainly encompasses consulting and software development, and the latter the recruiting of engineers trained by Sun* for Japanese companies.
In its Creative & Engineering service line, Sun* mainly supports Japanese customers through creative and engineering (digital technologies) services in the stages of idea generation, product development, and continued product growth. It also provides startups with financial support as a startup studio. It puts together teams with the optimal skillset for each project, with members including IT engineers, business consultants, directors, web designers, former CTOs, and entrepreneurs.
In its Talent Platform service line, the company supports the creation of businesses through recruiting services. It trains, recruits, and dispatches IT staff in Japan and overseas. It is involved in industry-academia collaboration projects in eight universities in three overseas countries, including Vietnam. It operates university courses for overseas students who wish to work as an engineer in Japan (open to selected students only), and introduces the IT talent it has trained to Japanese companies at its own job fairs. In Japan, Groove Gear operates Geek Job programming school, placing graduates in temporary or permanent positions at Japanese companies.
Projects under which a completed product is delivered by a fixed date, i.e., one-time revenue businesses, account for a small share of the company’s total orders. The revenue generated by the company in this service line is not a reflection of compensation for delivered work, but rather a function of the work hours of the company’s engineer team. This is because the purpose of the company’s operations is not to deliver completed software, but to help customers create businesses. As a result, revenue corresponds to the contract fees for each stage of the business creation process (namely, strategy formulation, business development, product development, and business growth). Contract fees are not based on the delivery of completed work (hardware or software), but determined by the number of engineers deployed by the company in the process of creating value, their monthly billing rate, and work hours (development period).
The company’s development approach is based on a user-centric design (see the Value chain section). It does not seek to roll out functions that its customers (or their users) will need to become familiar with over time, but rather considers questions such as whether a proposed solution will effectively resolve a customer’s problem, what the provided value should be, and whether a solution will be easy to use. As a result, revenue (contracted fees) tends to be low during the initial stage of a project, but rises as contracts are renewed in tandem with business (user) growth.
The company generates revenue under quasi-mandate contracts (“jun-inin”)* and contracts for work (“ukeoi”)**. As a rule, it books revenue on a monthly basis (following monthly inspections) regardless of the contract period.
* Quasi-mandate contracts (“jun-inin”) are agreements that guarantee a certain amount of administrative processing or work, rather than the completion of work. The contractor receives compensation if the work is conducted appropriately, even if the system or software is not completed.
** Contracts for work (“ukeoi”) are agreements that guarantee the work concerned will be completed. The party ordering the work pays compensation for its completion. Payment is made upon delivery of the completed system or software. Many of the projects handled by Sun* under contracts for work span roughly three months.
The company regards projects under quasi-mandate contracts that span more than three months as recurring revenue projects, and projects under quasi-mandate contracts that span less than three months and projects under contracts for work as one-time revenue projects. In FY12/20, it generated recurring revenue of JPY3.6bn (83.8% of its total revenue) and one-time revenue of JPY703mn (16.2%).
In the Creative & Engineering service line, Sun* supports the development of businesses and the launch of startups. It enters into contracts with customers on condition that it will not only get involved in the launch stage of a business, but consistently provide support through all growth phases of a business on a medium- to long-term basis. For this reason, it seldom undertakes projects that need to be completed and delivered in a short period such as three months. Since its founding, the company has provided support for roughly 400 projects, accompanying its customers from the launch stage of their business, which entails high risk, to the growth stage. In the process of supporting business launches, the company gains expertise, and it has therefore created a virtuous cycle whereby it can help an increasingly larger number of businesses get off the ground and become successful.
At the same time, Sun* handles some one-time revenue projects that are delivered within about three months. According to the company, such projects make up just below 20% of total revenue. It regards the first three months of a contract as a trial period in which it can gauge the feasibility of a business. In some cases, companies may alter their management policy during this period or reach the conclusion that their business idea has little marketability.
The company’s order prices are determined by the monthly billing rate per employee (engineer) and the number of worker hours (number of engineers multiplied by development period). Its monthly billing rate per employee is roughly JPY1–2mn, which is high compared with the average rate of roughly JPY1mn at general system integrators (Shared Research estimate), according to the company. Sun* believes that providing specialized solutions that support value creation in the field of digitalization, where it faces little competition, enables the company to charge higher rates than the domestic average.
Sun* says some overseas consulting firms charge monthly billing rates of several million yen per employee, which exceed its own rate. However, Shared Research understands that many of these companies handle large projects for major companies such as the development of core systems used across an entire company, which inevitably pushes up their rates.
Although Sun* frequently handles projects for large (enterprise) companies, Shared Research understands that these involve businesses undertaken by individual divisions rather than operations that span an entire company.
Projects are undertaken by teams composed of business, technology, and creative experts. The company selects the optimal team members for each project, taking into account the scale of the work and phase of the development. For example, one team may comprise a director, a UI designer, and an engineer, while another team may consist of a project manager and five engineers in Vietnam. Project costs are calculated as follows.
For a project with three engineers (monthly billing rate per employee of JPY1,760,000 / monthly deployment of 0.5) and a development period of three months, the cost would come to JPY7,920,000 (= 1,760,000 x 0.5 x 3).
For a project that requires five engineers of the Vietnamese development bases working under the supervision of a project manager appointed by the customer company, the cost would come to JPY2,430,000 per month (Shared Research estimates the average monthly billing rate per engineer at JPY486,000).
Only a low share of the company’s orders is completed or delivered by a fixed date. Consequently, the development period agreed to by Sun* under contracts with customers does not refer to the completion period (deadline) for a business or project, but rather to the deployment period for its team, which is set based on the development, expansion, and other phases of the customer’s business. For example, Sun* allocates a development period of roughly three months to allow its user-experience (UX) designers and engineers to translate a business idea into a business model. Thereafter, it allocates another three months to develop a software prototype that crystallizes the business model, and reshuffles the project team accordingly.
Once it has confirmed that the business can be feasibly monetized through the prototype development, the company and its customer advance to the full-scale development. At this stage, it concludes an agreement with the customer for development and operation geared toward business expansion. On the whole, therefore, the continued transactions with the customer span from six months to a year. For the bulk of its projects, the company renews its contracts with the customer based on the growth of the business or product.
Personnel expenses for engineers and other employees make up the lion’s share of the company’s cost of revenue. In FY12/20, labor expenses accounted for 8.6% of cost of revenue at the parent company and outsourcing expenses (mainly salaries for engineers at the Vietnamese subsidiary) for 89.1%.
Sun* targets a project GPM of around 50¬–60%, and it has managed to keep its GPM steady regardless of the order price. It says it does not strategically set order prices to expand its customer base. When handling ad-hoc orders or the initial stage of a project, profitability can be affected by sales-related costs or a higher number of worker hours than initially anticipated, according to the company. However, Sun* explains that it is able to reduce costs and increase profitability as the relationship with a customer lengthens.
|(JPYmn)||Parent||Parent||Parent||% of total|
|Cost of revenue||1,745||2,555||3,368||100.0%|
|Beginning work-in-process inventories||-||30||53||1.6%|
|Ending work-in-process inventories||30||53||10||0.3%|
|Cost of revenue||1,745||2,555||3,368||100.0%|
|(JPYmn)||Cons.||Cons.||Cons.||% of total|
|Salaries and allowances||425||880||946||48.1%|
|Provision for bonuses||6||16||28||1.4%|
|Provision for doubtful accounts||0||22||8||0.4%|
Sun* regards the number of recurring revenue customers and monthly average revenue per user (ARPU) as key performance indicators (KPIs) for its operations. It considers increases in these KPIs as growth indicators.
Increases in ARPU function as an indicator of growth because they demonstrate clearly that a startup or new business supported by the company has gained traction and is generating revenue.
Because the company’s work in the initial stage (three to six months) of a project only produces small outcomes (products), the order price tends to be low during this period. When a customer’s business gets off the ground and starts to expand, the project undertaken by the company transitions to the stages of full-scale development and functional expansion, leading to an increase in contract fees (order price).
At end-FY12/21, the number of recurring revenue customers stood at 95 (85 at end-FY12/20), and monthly ARPU was JPY4.8mn. The customer base broke down into 26 enterprise companies (i.e., companies included in the Nikkei 225, the Nikkei 400, or the Nikkei 500) with ARPU of JPY7.9mn, and 69 small and medium-sized business (SMB) customers with ARPU of JPY3.6mn. SMB companies mainly include medium-sized companies and startups that operate on a small scale.
|(companies)||End-FY02/16||End-FY02/17||End-FY02/18||End-FY12/18 (change in year-end)||End-FY12/19||End-FY12/20||End-1H FY12/21||End-FY12/22 Est.|
|(JPY'000)||FY02/16||FY02/17||FY02/18||FY12/18 (change in year-end)||FY12/19||FY12/20||FY12/21||FY12/22 Est.|
In addition to the KPIs above, Sun* also discloses a net promotor score (NPS) and churn rates.
NPS is a metric that quantifies and measures customer loyalty (customer or user attachment to and trust in a company or brand) on a scale of 0 to 10. It assigns a score based on single survey question asking customers or users to rate the likelihood that they would recommend a company (or product or service) to an acquaintance, and calculates the share of responses for each score.
The NPS is calculated by subtracting the share of respondents that are least likely to promote a company, product, or service (ratings of 0–6) from those that are most likely to do so (ratings of 9–10). In FY12/20, Sun* had a NPS of 25%, indicating that its promoters exceed its detractors.
Classification of respondents: Detractors: rating of 0–6, passives: ratings of 7¬–8, and promotors: ratings of 9¬–10.
Th monthly churn rate is calculated by dividing the number of monthly contract cancellations by the number of total customers at the end of the month. As of June 2021, it was 3.55%. The churn rate disclosed by the company represents the average since January 2015.
The main reason for contract cancellations is customers deciding to withdraw from a business after failing to commercialize it (for example, when market assumptions are proven to be inaccurate).
The company adopts a user-centric design approach for its projects, taking into account questions such as whether a proposed solution will effectively resolve the problems faced by users, what the provided value should be, and whether the solution will be easy to use. In the initial stage of a project (roughly the first three months), it tries to understand the fundamental problems faced by users, and designs a business by producing ideas and exploring business models. Each project starts off with a small scale and low-value product. As customers expand their businesses, their products enter the stages of full-scale development and functional expansion, driving up the contract fees for the company. Sun* aims to increase its ARPU by contributing to its customers’ businesses over the long term. It uses development approaches such as design thinking, lean startup, agile development, and expedited plan-do-check-act (PDCA) cycles.
The company provides solutions in three broad stages in line with its business development process. It sets goals and forms separate development teams for each stage under contract with its customers (generally quasi-mandate contracts). Its solutions range from short projects (business or contract period of one to three months) to minimum viable product (MVP) development (three to six months) and full-scale development (more than six months, with continued investment to drive service growth).
|Business development process||Strategy formulation||Business and product development||Business growth|
|Objectives by process||Gauge consumer and market potential||Clarify customer needs (issues to be resolved)||Explore methods to resolve customer issues, and verify their effectiveness||Verify market potential (whether the product is likely to be purchased) through prototypes||Conduct marketing and sales, obtain user feedback, and continually improve product|
|Solution||Short project (issue extraction, planning)|
|Minimum viable product (MVP) development and proof of concept (PoC) (prototypes, trials)|
|Boost (full-scale development, functional expansion)|
|Development approach||Design thinking||Lean startup||Agile development|
In this stage, the company’s user-experience (UX) designers and engineers translate a rough business idea into a business model.
Customer issues: Unsure how to start the development of a business. Unable to prepare plans and materials that can receive internal sign-off. Lacks engineers.
Role of Sun*: Summarize and visualize the business plan through facilitation by in-house UX designers (consensus building and confirming everyone is on the same page).
Outcomes: Prepare summary materials and key visuals (website design and graphics, etc.).
Period: One to three months
Development approach: Design thinking (discussed below)
Minimum viable products (MVPs) are essentially prototypes. In this stage, Sun* develops an MVP, and releases it with minimal functionality. In this way, it can reduce costs, and gauge user feedback, outstanding issues, and needs before moving to full-scale development. Its lead engineers—who have experience in setting up businesses as CTOs—and user interface (UI)/UX designers supervise releases of first products.
Customer issues: Unclear about the scope of an MVP. Needs a partner that can provide agile development.
Role of Sun*: MVP development
Outcomes: MVP and related materials
Period: Three to six months
Development approach: Lean startup (discussed below)
In this stage, Sun* starts developing the systems or software that will be rolled out to users based on its understanding of the issues faced by the customer gained through the prototype. It also provides ongoing development and operational support in large part through its Vietnamese subsidiary and IT teams, which have a global track record and possess related experience.
Customer issues: MVP and business plan completed, but shortage of engineers to engage in full-scale development.
Role of Sun*: Support the development of businesses by also involving the development bases in Vietnam. Conduct agile development and improve product UI and UX with proprietary DevOps* tools.
Outcomes: Programs, specifications, etc.
Period: More than six months with investment continuing to drive service growth
Development approach: Agile development (discussed below)
*DevOps: A development process predicated on collaboration between development and operations team. It increases the value of a business through systems and software, and ensures such value is delivered reliably and rapidly to end users.
Design thinking is a systematized thought process used in the design process. It is an approach used by companies to clarify the location or root of a problem when pursuing non-linear innovation.
The five stages of design thinking that power innovation are empathize, define, ideate, prototype, and test. Designers advance through these stages in a non-linear fashion, always maintaining the freedom to go back and make revisions. This allows them to discover problems, and clarify optimal solution strategies. Design thinking enables companies to develop services with a higher degree of originality, and to create value.
During the different stages of design thinking, Sun* gathers facts from—and conducts interviews with—decision-makers at various divisions as well as stakeholders of the customer to accurately grasp the relevant issues. It also believes facilitation (consensus building or confirming that everyone is on the same page) is a part of the design thinking process.
Business co-creation involves creating value through a collaboration between a company and its various stakeholders. Sun* has collaborated with its customer companies since its founding. In the short project stage, the company extracts issues and prepares plans for a new business, creating value through design thinking in collaboration with its customers.
Lean startup is a management approach to launch companies or businesses. It involves formulating a hypothesis, rapidly developing a prototype service with the minimum functionality needed to test the hypothesis, and providing the service to users to elicit feedback. The service is subsequently improved and expanded with new functions based on interactions with the users to determine whether a viable market exists for the service. By rapidly repeating the cycle of user feedback, service improvement, and functional expansion, the approach aims to increase the success rate for startups and businesses.
Under the lean startup approach, its revenue per customer (contract fees under quasi-mandate contract) expands gradually in tandem with development progress and corresponding growth in the product or service.
During the initial stage of development, Sun* creates a prototype (beta version) equipped with the minimal functionality in an effort to keep costs as low as possible. It then collects user feedback, and reflects this during the full-scale development stage. Through this process, it not only lowers the initial investment in a business, but also confirms the market response (i.e., the viability of the business).
In the full-scale development stage (discussed below) that follows the prototype stage, customers often raise their IT investment (product development) budgets in tandem with earnings growth, and this gradually drives up the average revenue per user (ARPU) for the company.
In projects for which the budget has been fixed at the start, or in projects in which software is developed to upgrade or maintain existing systems (i.e., projects that do not involve business launches), it is common for the service vendor to record revenue as a lump sum at the start of the project, with subsequent revenue being derived from maintenance contracts. Although such projects also generate recurring revenue, they are typically not conducive to growth in ARPU as their scale does not expand over time.
Agile development is an approach to develop systems or businesses. The approach assumes market environments and needs are in constant flux, and involves rapidly cycling through the process of formulating specifications, development, testing, and releasing, starting with high-priority functions. The goal is to improve products or services iteratively. Agile development not only expedites the launch of businesses, but also allows developers to flexibly accommodate changes in specifications and requirements. It prioritizes the needs of users, and enables efficient and rapid development and operation of products with a higher quality.
Sun* uses this approach from the minimum viable product (MVP) development stage to the full-scale development stage. Specifically, it uses proprietary DevOps* tools to facilitate collaboration between development and operational teams. This contributes to swift development while ensuring system quality. Because the company also employs 1,400 engineers in Vietnam, it can form teams and provide support to meet different development scales ranging from system development to design.
* DevOps: A development process predicated on collaboration between development and operations team. It increases the value of a business through systems and software, and ensures such value is delivered reliably and rapidly to end users.
The engineers at the company’s development bases in Japan and Vietnam have expertise in development projects ranging from server-side to front-end development, and are well-versed in a variety of programming languages such as Ruby, Phyton, php, and Java.
The company forms development teams for each stage (for each contract) of the business development process. It hires human resources that possess the expertise to develop businesses and also trains such people. Its ultimate goal on the recruiting front is to contribute to software development. The company also recruits personnel that can gauge the customer needs prior to development, as well as experienced business consultants to help develop business model concepts. It aspires to be a one-stop provider of support services for startups and companies that look to develop businesses.
|Business consultants||Business development directors||Business designers|
|CTOs||Project managers||Front-end engineers|
|Back-end engineers||Infrastructure engineers||QA engineers|
|User interface/user experience (UI/UX) designers||Public relations (PR) and advertising||Recruiters|
From FY12/19 to FY12/20, over 80% of the new hires by the parent company were mid-career hires. In addition, some 60% of the new hires were referred to the company. The company says referral-based recruitment confers benefits such as lower expenses to gauge the affinity between candidates and its corporate culture, and a higher matching accuracy with candidates. It has mainly recruited people through referrals since its establishment.
Referral-based recruiting refers to recruiting activities that are based on referrals or recommendations from existing employees. Employees who refer qualified candidates to a company tend to be highly engaged in its operations, and their input therefore contributes to meaningful hires.
|New graduate hires||3||11|
Of the company’s consolidated workforce of roughly 1,500 employees (including the average number of temporary workers), some 1,200 are engineers affiliated with its Vietnamese subsidiary. To conduct offshore development, Sun* mainly hires human resources in Vietnam, a country that promotes the education of IT engineers as a national policy.
Since its founding, Sun* has regarded Vietnamese engineers as an important management resource. It has become increasingly difficult to recruit new IT staff in Japan due to worker shortages driven by a declining birthrate. The country is currently facing a notable shortage of IT engineers.
Vietnam, on the other hand, has promoted IT education as a national policy for many years. Taihei Kobayashi, the current representative director of Sun*, and his team recognized this skillset in Vietnam, and believed these human resources could help resolve the shortage of IT engineers in Japan. This was one of the reasons that prompted them to establish the company.
The benefits of recruiting staff in Vietnam are twofold. The country not only has a larger supply of IT labor, but its IT engineers also command lower wages than their Japanese counterparts. Vietnam has a population of 97mn, which is smaller than Japan’s population of 126mn. By age bracket, however, it has a larger number of young adults in their 20s (15mn compared with 12mn in Japan) and 30s (16mn compared with 14mn in Japan).
|70 or older||4,645||27,537|
The Vietnamese government has long promoted science, technology, engineering and mathematics (STEM) education, and over 50,000 Vietnamese students graduate from specialized IT programs in the country each year. According to Sun*, IT engineering is a popular career path in Vietnam, and many IT graduates wish to put their IT skills to use at a Japanese company.
According to a survey by the Vietnamese research organization TopDev, the number of students graduating from IT programs in the country was 50,000 in 2019 and 53,000 in 2020. The same survey estimates 400,000 IT engineers worked in the Vietnamese software industry in 2019, and 430,000 in 2020.
The number of IT workers in the Japanese IT industry is estimated at roughly 1mn (according to a survey by the Ministry of Economy, Trade and Industry [METI], discussed below).
Sun* deploys Vietnamese engineers in various processes of its value chain ranging from full-scale business and product development to functional expansion when a customer’s business has entered a growth phase.
In the initial stage of business development, the company forms a team composed mainly of Japanese engineers. This is because the main focus in this stage is to extract issues for the business and verify hypotheses, which requires Japanese language proficiency and business development experience in Japan.
Vietnamese wages on average are lower than corresponding Japanese wages. For example, in 2020, the monthly average wage for middle management positions in the manufacturing industry in Vietnam was about USD1,000, compared with USD3,500 in Japan (after also including non-management positions). In the same year, the monthly average wage for management positions in non-manufacturing industries in Vietnam was about USD1,200. In contrast, the average wage in the overall food service sector (after including non-management and part-time positions) in Japan, commonly regarded as a comparatively low-wage industry within the country, was about USD1,100.
|(JETRO survey)||(MHLW survey)|
|Manufacturing industry workers (general engineering)||241||25,562||Manufacturing industry||3,537||377,584|
|Manufacturing industry engineers (mid-tier engineers)||471||49,947||Construction industry||3,910||417,398|
|Manufacturing industry middle management (section manager level)||1,025||108,703||Information and communication industry||4,601||491,153|
|Non-manufacturing industry staff (general staff)||595||63,100||Wholesale and retail industries||2,646||282,486|
|Non-manufacturing industry managers (section manager level)||1,249||132,403||Food service industry||1,101||117,574|
Vietnamese wages for IT positions similarly tend to be lower than their Japanese counterparts. In 2020, tech management officers (such as CTOs and CIOs) earned the highest monthly average wage in Vietnam, at USD5,776. While many job categories in Japan have a lower average monthly wage, the bulk of the overall IT workers in Vietnam earn less than USD4,000 per month. Shared Research understands that, on the whole, Vietnamese wages are lower than Japanese wages (see the table below). Sun* explains that the wages of Vietnamese engineers on average are about half those of Japanese engineers. However, for Vietnamese engineers that are proficient in Japanese and have extensive IT expertise and experience in developing businesses, the company says it pays wages that are commensurate with their abilities.
|(TopDev survey)||(METI survey)|
|Tech management (CTO, CIO)||5,776||606,357||Consultants||7,248||773,750|
|Technical directors/engineering managers||4,165||437,236||Project managers||6,959||742,917|
|Solutions architects||4,069||427,158||Senior systems engineers or IT engineers (core design, IT architecture)||6,075||648,500|
|Technical architects||3,959||415,610||Systems engineers, programmers (development and implementation of systems for customers)||4,635||494,750|
|IT managers||3,768||395,559||Systems engineers, programmers (development and implementation of software products)||4,438||473,750|
|Cloud architects||3,121||327,638||Systems engineers, programmers (development and implementation of embedded software)||4,714||503,250|
|Machine learning/AI engineers||3,054||320,605||IT specialists (specified technologies)||5,919||631,833|
|Bridge system engineers||2,234||234,522||IT operation or administration (operation of information systems for customers)||4,751||507,167|
|DevOps engineers||2,057||215,941||IT maintenance (maintenance and support for information systems for customers)||4,623||493,500|
|Data scientists||2,032||213,317||IT education (IT-related lecturers, instructors, etc.)||5,082||542,500|
|Scrum masters||1,927||202,294||Sales or marketing in any of the fields above||6,115||652,750|
|Data engineers||1,737||182,348||(Internet-related companies)|
|Cybersecurity engineers||1,736||182,243||Sales, marketing||5,325||568,417|
|Embedded developers||1,715||180,038||Producers, directors||6,190||660,750|
|Database developers||1,701||178,569||Content creators||3,208||342,500|
|Big data engineers||1,695||177,939||Engineers, programmers||4,623||493,500|
|Fullstack developers||1,348||141,511||Customer support (help desk)||3,051||325,750|
|IT business analysts||966||101,409|
In development stages that rely in part on Vietnamese engineers, the company deploys bridge system engineers (i.e., engineers proficient in Japanese and Vietnamese) to mediate between IT engineers hired in Vietnam and project managers in Japan in an effort to reduce miscommunications stemming from the language barrier. The company’s offshore development does not involve outsourcing mechanical tasks at low rates, but rather entails the development of businesses and software. This type of work necessitates smooth communication between engineers, as is also the case for development that is handled exclusively in Japan.
Bridge engineers are system engineers that can communicate with customers and development teams in both languages, and possess expertise as an engineer. In addition to their language proficiency, the company’s bridge engineers are evaluated on criteria such as technical knowledge and the ability to communicate, analyze system requirements, and manage processes.
Many of the startups seek the support of Sun* after completing their Series A* funding round. The company helps them develop a service prototype and explore business expansion possibilities. The company has increased such customers through referrals from its existing customers and the startup community. The cross-industry network of a startup community has proved particularly effective in securing projects for business development. The company plans to further push ahead with community building, and strengthen its support for startups.
As part of this effort, it decided to become a partner in the Startup Studio combo initiative launched by Party Inc. (unlisted) in July 2021 (see the Medium-term business plan section).
* Series A funding round: One of the funding stages startups go through to procure capital. In accordance with their growth stage, startups raise increasing amounts of capital starting from the seed round (smallest amount), and proceeding through the Series A funding round (early stage), Series B funding round (middle stage), and Series C funding round (late stage).
Sun* defines enterprise customers as one of the following: (1) a listed company that is included in the Nikkei 225, the Nikkei 400, or the Nikkei 500, (2) a group member of such a company, or (3) a company with a market cap, revenue scale, and workforce equivalent to a listed company.
To increase points of contact with enterprise customers, Sun* believes it is more effective to collaborate and build alliances with other companies and invest in advertising than to build up a community as is the case for startups. In particular, it intends to strengthen alliances with companies that provide services to enterprise customers. In this context, the company has partnered with Microsoft Japan Co., Ltd. and Deloitte Tohmatsu Venture Support Co., Ltd. (see the Medium-term business plan section).
In the Talent Platform service line, the company operates the Geek Job programming school in Japan, placing graduates in temporary or permanent positions at Japanese companies. Overseas, it operates programs that cultivate advanced IT talent (open to selected students only) at 12 universities in four countries, including Vietnam, and recruits graduates of the programs for Japanese companies. It also utilizes its proprietary human resources database to refer candidates for executive positions such as CTO and CFO to its customers (primarily startups).
Revenue in this service line is in principle derived from success fees. In Japan, the company mainly generates revenue under recruiting/dispatching contracts or outsourcing contracts, which account for roughly 30–35% of annual revenue.
In its overseas recruiting business (placement of Vietnamese talent with Japanese companies), Sun* records participation fees for job fairs it organizes (JPY300,000 per company) and success fees for placements (JPY1mn per placement) as revenue. It does not disclose annual data on the number of placements, the number of job fairs, or the number of companies participating in job fairs. Between 2014, when the business was launched, and FY12/20, the company placed a total of roughly 400 human resources with 133 companies.
|Screening setup fees||Held online; JPY300,000 per company|
|Success fees upon confirmation of placement||JPY1mn per placement|
As of April 2020, the overseas education business was operated by 50 group employees, who mainly work as instructors or job fair operators. The team includes 10 Japanese and 24 Vietnamese instructors who teach Japanese at universities in Vietnam and other countries, and two Japanese and three Vietnamese instructors who teach IT (see table below). All instructors have received professional education in their fields of expertise and have related experience.
|Japanese language instructor team||Japanese instructors||10||Individuals who majored in Japanese language education at university, individuals who have passed the Japanese Language Teaching Competency Test|
|Vietnamese instructors||24||Graduates from a teachers’ college, graduates from Japanese language department instructor course|
|IT instructor team||Japanese instructors||2||Former supervisors and project managers of IT companies|
|Vietnamese instructors||3||Graduates from IT departments, individuals who have worked as a system engineer at a Japanese IT company|
|Student management team||Team that manages hiring-related matters (undecided/confirmed) and job fairs||8||Individuals who have studied in Japan as international students, individuals who have acquired the N1 level of the Japanese Language Proficiency Test (JLPT), individuals with work experience at Japanese companies|
Sun* operates IT engineering and Japanese language courses for students who aspire to work in Japan as an IT engineer at 12 universities in four countries. It dispatches its own employees as instructors to teach related subjects.
The company’s industry-academia collaboration activities began when it took over the Higher Education Development Support Project on ICT (HEDSPI) educational project at the Hanoi University of Science and Technology. The project was implemented as an Official Development Assistance (ODA) project funded by the Japanese government and as a Technical Cooperation project promoted by the Japan International Cooperation Agency (JICA) from 2006. It aims to “cultivate advanced IT human resources that are proficient in Japanese,” and has been established as an official department at various universities. When JICA’s support came to an end in 2014, the Hanoi University of Science and Technology requested that Sun* take over the project.
|Hanoi University of Science and Technology||Gadjah Mada University|
|The University of Danang-University Science and Technology||University of Indonesia|
|Vietnam National University Hanoi-University of Engineering and Technology|
|Vietnam National University HCMC-University of Engineering and Technology||Malaysia|
|Vietnam National University Hanoi-University of Science||Malaysian-Japan International Institute of Technology|
|Universities that offer the program|
|University of Campinas|
|Federal University of Minas Gerais|
|University of São Paulo|
The number of students enrolled in the programs operated by Sun* has increased each year, and was 2,248 as of January 2022 (+480 YoY). In 2020, roughly 500 students graduated from these programs. As of FY12/20, the company had successfully placed a total of 390 graduates from its programs with 133 Japanese companies.
|Jan 2015||Jan 2016||Jan 2017||Jan 2018||Jan 2019||Jan 2020||Jan 2021||Jan 2022|
The curriculum offered by Sun* provides practical instruction to prepare students for work life in Japan, and includes general Japanese language courses, IT engineering-related Japanese language courses, and courses for students who have secured a job at a Japanese company (covering topics such as Japanese business practices and etiquette). The IT education in the curriculum incorporates the expertise gained by the company in its startup support projects. The content was prepared independently by Sun* without input from a Japanese governmental organization (such as JICA) or from the Vietnamese government.
The company says that, as of December 2020, it provided a total of 1,220 hours of instruction to students at the Hanoi University of Science and Technology during the course of the five-year program, breaking down into 650 hours of general Japanese language instruction, 250 hours of IT-related Japanese language instruction, and 320 hours of instruction for students that have secured a job in Japan.
Sun* divides IT investment into the categories of digitization and digitalization based on the underlying purpose. It believes its own business area falls in the category of digitalization.
The company thinks of digitization as IT investment geared toward optimizing operational efficiency. The goal is to streamline expenses by digitizing business processes. Sun* sees digitization as a form of investment to maintain and operate an existing business. Prime examples of digitization are projects to upgrade the core system of a company.
Under this type of investment, a system integrator and a user company define requirements (envision the completed system), and the system integrator generates earnings by delivering the completed system by a set deadline. Accordingly, the system integrator and user company typically enter into a contract for work.
The company regards digitalization as investment in new IT businesses. The goal is to create a business with the help of digital technologies, or achieve earnings growth through digital technologies. Sun* considers digitalization a form of investment to develop new business strategies that enhance value.
This type of investment often deals with the development and growth of businesses whose ultimate shape has yet to be clearly defined. Due to the absence of rigidly defined requirements and a clear vision for the completed business, the customer pays the solutions provider once a predetermined part of the work has been completed. Sun* undertakes this type of work under quasi-mandate contracts with its customers.
The Yano Research Institute estimates the value of private-sector IT investment in Japan at JPY13.3tn in FY2021. The company estimates this breaks down to digitization investment of JPY8.8tn and digitalization investment of JPY4.5tn (33.7% of total IT investment).
|IT investment (Japan; private-sector)||11,556,000||11,880,000||12,153,000||12,493,000||12,918,000||13,124,000||13,320,000|
|Digitalization share of IT investment||22.5%||33.7%|
Sun* believes that once companies have improved the efficiency of their businesses through digitization, investment budgets geared toward digitization will decline, freeing up capital that can be diverted toward digitalization. If that happens, the company explains that the market for digitalization and its share within overall IT investment are likely to expand in a non-continuous fashion.
Sun* expects IT workers, who drive software development, to remain in short supply as the software market continues to expand.
Based on the results of the IT Labor Supply-Demand Survey (March 2019) commissioned by the Ministry of Economy, Trade and Industry (METI), the company believes Japan had a shortfall of about 260,000 IT workers (approximate range of 210,000–310,000) in 2019, and it expects this gap to rise to 160,000–790,000 by 2030. Sun* believes that persistent shortages in IT labor in the future will continue to expand its business opportunities.
|Supply of IT human resources||1,031,538||1,045,512||1,059,876||1,110,122||1,133,049|
|IT demand growth rate: annual 1%|
|Demand for IT human resources||1,231,538||1,255,266||1,259,006||1,277,873||1,297,020|
|IT demand growth rate: annual 2–5%|
|Demand for IT human resources||1,231,538||1,306,347||1,363,556||1,474,192||1,581,645|
|IT demand growth rate: annual 3–9%|
|Demand for IT human resources||1,231,538||1,357,427||1,472,276||1,694,140||1,920,154|
The assumptions underlying the estimates above are as follows.
The survey in question estimated the IT labor supply-demand gap in 2018, and envisaged three growth scenarios for IT demand from 2019: CAGR of 1%, CAGR of 2–5%, and CAGR of 3–9%.
It assumed the labor productivity in the IT (information services) industry will increase at a CAGR of 0.7%, which is the historical growth rate for 2010–2018 (METI estimate).
The IT labor cited in the METI-commissioned IT Labor Supply-Demand Survey corresponded to “system consultants and designers,” “software creators,” and “other information processing and communication engineers.” These categories follow the classification used in census data. Companies and businesses that hire IT labor are mainly defined in the survey as IT services companies, Internet-related services providers (mainly companies that provide IT services or software), and IT system divisions of companies that use IT services provided by third parties.
Shared Research understands that, as of October 2021, there were no other Japanese listed companies that operated under the same business model as Sun*. The company is a one-stop provider of value-creation processes ranging from business conception (consulting and other services) to development and operation. It mainly targets the digitalization market, which is populated by few companies. However, in subsegments of the company’s businesses such as consulting, user interface and user experience (UI/UX) design, and marketing, Sun* competes with foreign-affiliated consulting firms, venture capital firms, and other companies. In software development, Shared Research understands that Sun* competes with some domestic and overseas systems integrators.
Sun* provides consulting, software development, recruiting, and other services that support customers in the creation of businesses or value. It offers comprehensive support to companies (including startups) that seek to develop businesses, guiding them in the process from business creation to growth. While it qualifies as a “custom software services provider” under the Japan Standard Industrial Classification, the company believes it operates in a different business category than conventional system integrators and software developers.
Sun* specializes in the creation of value through digital technologies, a field it refers to as digitalization*1. It does not operate or maintain core systems, nor does it use digital technologies to enhance the efficiency of existing business operations, i.e., digitization. Since its founding, it has successfully completed around 400 value creation projects. In FY12/21, its companywide OPM reached 17.6%, exceeding the 9.2% average for the 10 leading Japanese system integrators (Shared Research estimate based mainly on FY03/21 data). The company predicts IT engineer shortages will persist in the digitalization market, its main business field, and it estimates Japan will face a shortfall of 430,000 IT engineers by 2025. As a result, it believes this market has significant room for growth.
*1 Digitalization: Sun* defines “digitalization” as the use of digital technologies to create business models. It contrasts this term with “digitization,” which, according to the company, refers to the use of digital technologies to increase the efficiency of existing business processes.
Sun* supports its customers develop businesses by forming teams of business, technology, creative, and other experts. When its customers wish to launch startups or businesses, the company first deploys business consultants with expertise in digital transformation (DX) to summarize the requirements. In the next stage, its lead engineers—who have experience in setting up startups or businesses as CTOs—and user interface/user experience (UI/UX) designers supervise the business creation process until the release of the first product. After a business or service gets off the ground, the company provides ongoing development and operational support in part through its Vietnamese subsidiary, which has assembled an IT team with a global track record and corresponding expertise.
The company uses development frameworks such as design thinking*2, lean startup*3, and agile development*4 to swiftly improve products in accordance with user needs. It excels in development processes for business creation, and secures high order prices by co-creating businesses with its customers. Shared Research estimates the monthly billing rate per employee charged by the company is about JPY1.5–2.0mn, which exceeds the JPY1mn average rate at the leading Japanese system integrators.
*2 Design thinking: An approach used by companies to clarify the location or root of a problem (rather than to resolve a problem) when pursuing non-linear innovation. The five stages of design thinking that power innovation are empathize, define, ideate, prototype, and test. Designers advance through these stages in a non-linear fashion, always maintaining the freedom to go back and make revisions as the situation demands.
*3 Lean startup: A management approach to support company or business launches. It involves formulating a hypothesis, rapidly developing a prototype service with the minimum functionality needed to test the hypothesis, and providing the service to users to elicit feedback. The service is subsequently improved and expanded with new functions based on interactions with the users to determine whether a viable market exists. The goal is to increase the success rate for startups and new businesses by rapidly repeating the cycle of user feedback, service improvement, and functional expansion.
*4 Agile development: An approach to develop systems or businesses. It assumes market environments and needs are in constant flux, and aims to improve functions iteratively by rapidly repeating the process of formulating specifications, development, testing, and releasing, starting with highly precise functions. Agile development expedites the launch of businesses, and helps developers to flexibly accommodate changes in specifications and requirements. It prioritizes the needs of users, and enables efficient and rapid development and operation of products with a higher quality.
Sun* provides offshore development for value creation through its Vietnamese subsidiary. The benefit of working with two teams is that the company can accumulate in-house expertise not only in Japan (about 200 employees) but also in Vietnam (over 1,400 employees). The extensive knowledge and competence the company has built in value creation has allowed it to maintain high billing rates.
The company is able to charge high billing rates while keeping its development costs low. In FY12/20, its employees received an estimated average annual salary of JPY2,537,000, calculated by dividing the total labor expenses and outsourcing costs (mainly salaries paid to the Vietnamese subsidiary) at the parent level—which approximate the company’s personnel expenses—by the total number of employees at the consolidated level. This was below the average annual salary of JPY8,342,000 for the leading 10 Japanese system integrators. In sum, the company’s highly profitable earnings structure is underpinned by high billing rates and low costs. In FY12/20, its OPM of 16.2% exceeded the 9.2% for the top 10 Japanese system integrators (average for the most recent fiscal year).
Personnel expenses account for the bulk of the company’s costs. At the parent level, combined labor costs and outsourcing costs paid to the Vietnamese subsidiary (nearly entirely allocated toward personnel expenses for engineers) make up 97.8% of cost of revenue. Consolidated expenses also mostly consist of personnel expenses. Shared Research therefore infers that, in the event of sharp downturn in its top line, the company would have little leeway to absorb the resulting profit decline under its present cost structure, which only has a low share of variable costs.
Sun* achieved YoY revenue growth of 18.5% YoY in FY12/20, even as real GDP fell 4.6% YoY due to the COVID-19 pandemic. However, in 2009, the year after the global financial crisis erupted, capital procured by Japanese startups contracted 39.4% YoY (Shared Research estimate based on data released by the Japan Venture Capital Association [JVCA]). Shared Research thinks that financial crises that dramatically reduce the number of startups could erode the company’s earnings.
Sun* generates the bulk of its revenue under quasi-mandate contracts and contracts for work, which determine its compensation at the start of a project. This leaves it dependent on increases in worker hours (number of workers multiplied by development period) to expand its revenue. As a result, it is unable to benefit directly from unexpected business growth at customers through performance-based compensation that increases in proportion with such growth. The company has launched a revenue sharing model under which it becomes a partner (shareholder) of its customers, but such operations have yet to reach a scale that can affect its overall earnings.
The company was founded in 2013, and has since consistently expanded its revenue and profit by specializing in—and capturing demand for—business creation. It has established itself as a pioneer in the field of digitalization, accumulated a track record of over 400 projects and related expertise, and generates higher profit margins than conventional system integrators. While it has enjoyed success since its establishment by keeping revenue and profit on a growth trajectory, the company has not experienced periods of revenue or profit decline.
Sun* has continued to expand its workforce in tandem with earnings growth. From FY12/19 to FY12/21, the parent company roughly tripled its personnel from 64 to over 200 employees. Shared Research thinks that this organizational growth may give rise to communication issues between different divisions or between executives, or to diverging perceptions between management and employees in the field. In this sense, the company faces the risk of a structural slowdown in its business.
|Income statement||FY02/16||FY02/17||FY02/18||FY12/18||FY12/19||FY12/20||1H FY12/21|
|Cost of revenue||959||2,133||2,515||3,969|
|Gross profit margin||-||-||-||56.8%||52.9%||53.1%||50.6%|
|Operating profit margin||-||-||-||13.6%||10.5%||16.5%||17.6%|
|Foreign exchange gains||-||21||11|
|Foreign exchange losses||-||7||-||-|
|Share issuance expenses||-||-||6||-|
|Recurring profit margin||1.2%||0.6%||6.8%||14.7%||10.7%||17.3%||19.6%|
|Implied tax rate||0.0%||0.0%||0.0%||15.1%||15.5%||13.2%||16.6%|
|Net income attributable to owners of the parent||7||7||93||277||411||804||1,302|
FY12/18 was an irregular 10-month period as the company changed its fiscal year-end from February to December.
In FY12/19, the growth in earnings was attributable to the two additional months compared with FY12/18, which was an irregular 10-month period, and the impact from the conversion of Groove Gear, Inc. into a wholly owned subsidiary in December 2018.
|Salaries and allowances||425||880||946|
|Provision for bonuses||6||16||28|
|Provision for doubtful accounts||0||22||8|
|Cost of revenue||1,745||2,555||3,368|
|Beginning work-in-process inventories||-||30||53|
|Ending work-in-process inventories||30||53||10|
|Cost of revenue||1,745||2,555||3,368|
Outsourcing expenses mainly comprise personnel expenses for IT engineers and other workers employed by the Vietnamese subsidiary Sun Asterisk Vietnam Co., Ltd. These are recorded as labor expenses under cost of revenue in the consolidated income statement.
|Balance sheet (JPYmn)||FY02/16||FY02/17||FY02/18||FY12/18||FY12/19||FY12/20||FY12/21|
|Cash and deposits||773||2,383||5,073||5,729|
|Notes and accounts receivable||352||399||584||989|
|Allowance for doubtful accounts||-||-6||-10||-18|
|Total current assets||1,303||2,950||5,795||7,108|
|Buildings and structures||85||70||29||42|
|Tools, furniture, and fixtures||25||36||43||60|
|Total tangible fixed assets||110||106||72||102|
|Total intangible assets||102||91||81||600|
|Deferred tax assets||7||22||9||34|
|Allowance for doubtful accounts||-||-16||-20||-25|
|Investments and other assets||106||209||269||586|
|Total fixed assets||318||406||421||1,287|
|Notes and accounts payable||166||137||142||300|
|Income taxes payable||27||63||70||208|
|Provision for bonuses||11||16||28||51|
|Total current liabilities||752||970||1,011||1,516|
|Asset retirement obligations||30||36||20||33|
|Total fixed liabilities||243||357||188||293|
|Accumulated other comprehensive income||-5||-12||-55||140|
|Share subscription rights||0||0||0||0|
|Total net assets||35||41||134||626||2,029||5,018||6,586|
|Total liabilities and net assets||225||387||738||1,621||3,356||6,217||8,395|
|Total interest-bearing debt||-||-||-||323||608||362||359|
|Cash flow statement||FY02/16||FY02/17||FY02/18||FY12/18||FY12/19||FY12/20||FY12/21|
|Cash flows from operating activities (1)||387||462||863||1,188|
|Amortization of goodwill||-||10||10||25|
|Change in provision for doubtful accounts||-||22||8||11|
|Change in provision for bonuses||0||5||12||21|
|Change in working capital||-47||-98||-101||-262|
|Change in other assets||85||2||-47||-75|
|Change in advances received||2||60||3||62|
|Change in accounts payable–other||50||-87||-9||-88|
|Change in accrued expenses||32||32||40||27|
|Change in other liabilities||-13||32||61||-20|
|Income taxes paid||-69||-54||-100||-137|
|Cash flows from investing activities (2)||-141||-297||-982||-1,388|
|Payments into time deposits||-||-165||-1,248||-4,211|
|Proceeds from withdrawal of time deposits||-||-||387||3,369|
|Purchase of tangible fixed assets||-61||-44||-33||-52|
|Purchase of investment securities||-14||-72||-86||-239|
|Proceeds from sale of investment securities||-||-||-||10|
|Purchase of shares of subsidiaries resulting in change in scope of consolidation||-68||-||-||-275|
|Free cash flow (1+2)||245||165||-119||-200|
|Cash flows from financing activities||251||1,284||1,982||-181|
|Net change in short-term borrowings||-||100||-70||-30|
|Net change in long-term borrowings||170||185||-176||-222|
|Proceeds from issuance of, and redemption of, bonds||-||-||-||-|
|Proceeds from issuance of shares||80||999||2,228||71|
|Proceeds from issuance of share subscription rights||0||-||-||-|
|Change in cash and cash equivalents||498||1,445||1,852||1,852|
Number of recurring revenue customers: 95 companies (+11.8% YoY), of which 26 enterprise customers (+18.2% YoY) and 69 small and medium-sized business (SMB) customers (+9.5% YoY)
Monthly ARPU (average for three months): JPY5,110,000 (+25.2% YoY), breaking down into JPY8,670,000 for enterprise customers (+46.2% YoY) and JPY3,740,000 for SMB customers (+8.1% YoY)
Monthly average churn rate: 3.45% (monthly contract cancellations divided by the number of total customers; average for the 84 months from January 2015 to December 2021)
In FY12/21, the company reported revenue of JPY8.0bn (+49.6% YoY), breaking down into JPY6.8bn (+57.9% YoY) for the Creative & Engineering service line and JPY1.2bn (+15.3% YoY) for the Talent Platform service line.
In the Creative & Engineering service line, orders from existing customers remained stable and strong, and new customers continued to increase. At end-December 2021, the number of recurring revenue customers was 95 companies (+11.8% YoY). The average monthly ARPU for the full-year (12 months) was JPY4,752,000 (+22.2% YoY). Revenue in October–December 2021 at Trys, Inc., which was made a consolidated subsidiary in September 2021, came to JPY306mn.
The company was unable to keep up with robust demand for its human resources. Accordingly, it prioritized projects that were likely to generate long-term recurring revenue and received orders for such projects instead of one-time revenue projects that would increase revenue in the short term.
In the Talent Platform service line, revenue increased on a gradual recovery in corporate hiring appetite.
Operating profit was JPY1.4bn (+59.2% YoY), and OPM was up 1.1pp YoY to 17.6%.
Number of recurring revenue customers: 92 companies (77 in cumulative Q3 FY12/20), of which 26 enterprise customers (17) and 66 small and medium-sized business (SMB) customers (60)
Monthly ARPU (average for three months): JPY5,010,000 (+25.3% YoY), breaking down into JPY8,490,000 for enterprise customers (+13.4% YoY) and 3,640,000 for SMB customers (+23.0% YoY)
Monthly average churn rate: 3.47% (3.55% in Q2 FY12/21; the monthly average churn rate for Q3 is calculated by dividing the monthly contract cancellations by the number of total customers, and reflects the average for the 81 months from January 2015 to September 2021; the monthly average churn rate for Q2 reflects the average for the 78 months from January 2015 to June 2021)
In cumulative Q3 FY12/21, the company reported revenue of JPY4.8bn for the Creative & Engineering service line (+51.5% YoY) and JPY897mn for the Talent Platform service line (+14.7% YoY).
In the Creative & Engineering service line, revenue growth accelerated from 1H FY12/21 (+41.2% YoY), driven by an increase in orders from existing customers, particularly enterprise customers (26 companies as of end-Q3 FY12/21).
Sun* says it has earned the recognition of existing (recurring revenue) customers through the smooth execution of their projects, and this has led to not only additional investment in ongoing projects but also growth in inquiries for business launches. As a result, its companywide ARPU for recurring revenue customers reached JPY5,010,000 (three-month average for Q3, +25.3% YoY).
In cumulative Q3 FY12/21, one-time revenue was JPY1.1bn (+JPY404mn YoY, +95.9% YoY) and recurring revenue was JPY3.7bn (+JPY91mn YoY, +41.8% YoY). The growth in one-time revenue outpaced the rise in recurring revenue. As the company records revenue in the initial stage of a business (contract period of three months or less) as one-time revenue, the growth in one-time revenue signaled strong momentum in business launches.
Sun* says that the growth in the number of projects at end-Q3 FY12/21 exceeded its expectations. The company has increased its domestic personnel to meet robust demand from existing customers. However, this has proved insufficient, and it was unable to keep up with inquiries of new customers.
Number of recurring revenue customers: 92 companies (77 in 1H FY12/20), of which 26 enterprise customers (20) and 66 small and medium-sized business (SMB) customers (57)
Monthly ARPU (average for three months): JPY4,470,000 (+12.0% YoY), breaking down into JPY7,290,000 for enterprise customers (-2.8% YoY) and 3,380,000 for SMB customers (+21.1% YoY)
Monthly average churn rate: 3.55% (3.63% in Q1 FY12/21; the monthly average churn rate for Q2 is calculated by dividing the monthly contract cancellations by the number of total customers, and reflects the average for the 78 months from January 2015 to June 2021; the monthly average churn rate for Q1 reflects the average for the 75 months from January 2015 to March 2021)
In the Creative & Engineering service line, revenue came to JPY3.0bn (+41.2% YoY). Orders from existing customers remained stable and strong, and new customers continued to increase. One-time revenue and recurring revenue both increased YoY (but the company did not disclose the breakdown).
The influx of new customers drove a decline in monthly ARPU for SMB customers from the JPY3,500,000 recorded in Q1 FY12/21. This was because contract fees tend to be low for new contracts.
In the Talent Platform service line, revenue came to JPY600mn as corporate hiring appetite remained soft due to the lingering impact from the COVID-19 pandemic.
Number of recurring revenue customers: 88 companies (75 in Q1 FY12/20), of which 25 enterprise customers (19) and 63 small and medium-sized business (SMB) customers (56)
Monthly ARPU (average for three months): JPY4,391,000 (+27.3% YoY), breaking down into JPY6,760,000 for enterprise customers (+15.4% YoY) and JPY3,500,000 for SMB customers (+30.6% YoY)
Monthly average churn rate: 3.63% (3.63% in Q4 FY12/20; the monthly average churn rate for Q1 FY12/21 is calculated by dividing the monthly contract cancellations by the number of total customers, and reflects the average for the 75 months from January 2015 to March 2021; the monthly average churn rate for Q4 FY12/20 reflects the average for the 72 months from January 2015 to December 2020)
In the Creative & Engineering service line, revenue came to JPY1.5bn (YoY change not disclosed). Orders from existing customers remained stable and strong, and new customers continued to increase.
In the Talent Platform service line, revenue came to JPY298mn as corporate hiring appetite remained soft due to the lingering impact from the COVID-19 pandemic.
Sun* traces its roots to Framgia Japan Inc., which was founded by entrepreneur Makoto Hirai in July 2012. In October 2012, Mr. Hirai founded the subsidiary Framgia Vietnam Co., Ltd. in Vietnam, and appointed Taihei Kobayashi as COO of the subsidiary. In December 2017, Mr. Kobayashi replaced Mr. Hirai as representative director of the company, and he has since continued to serve in that position.
Mr. Hirai is currently a director at Sun* (in charge of recruiting as of December 2020), and remains a major shareholder of the company with a stake of 35.36% as of end-December 2020. In 2003, Mr. Hirai established I&G Partners, Inc. (currently Atrae, Inc., TSE1: 6194). He served as director of that company (retired as of December 2020).
Framgia Japan established a business in Vietnam with the aim of training local engineers who could offer development support for startups. Current Representative Director Kobayashi relocated to Vietnam as an engineer in 2012, and assumed the position of COO at Framgia Vietnam Co., Ltd. when it was established in October of the same year.
The name Framgia was derived from the words “From Asia,” and embodied the idea of creating value from Asia.
According to Mr. Kobayashi, the Vietnamese government has long promoted science, technology, engineering and mathematics (STEM) education, and its policies have driven growth in the number of IT engineers in the country. However, the bulk of these mainly handled core system operation and maintenance work under contracts for overseas companies that sought to reduce their cost burdens through offshore development. As Sun* developed software for businesses in Vietnam, Mr. Kobayashi explains it was able to hire Vietnamese IT talent that found little satisfaction in contracted system operations for overseas companies.
In 2014, the company started offering IT engineering and Japanese language courses at the Hanoi University of Science and Technology to Vietnamese students who aspire to work as an IT engineer in Japan. This initiative evolved out of the Higher Education Development Support Project on ICT (HEDSPI) educational project implemented at the same university since 2006 as an Official Development Assistance (ODA) project funded by the Japanese government and as a Technical Cooperation project promoted by the Japan International Cooperation Agency (JICA). The HEDSPI project came to an end in 2014, at which time it was taken over by the company.
Through its industry-academia collaboration projects, the company has built a business model under which it introduces trained human resources (students at affiliated overseas universities) to Japanese companies at job fairs, and receives success fees for placements. At the same time, it aims to contribute to a medium to long-term resolution for the shortage in senior IT workers in Japan.
In 2014, Singapore-based Framgia Holdings Pte. Ltd. (founded in June 2014) made IP’s K.K. (founded in 2013) a subsidiary as it operated in the same recruiting field. Framgia Vietnam helped place Vietnamese graduates with Japanese companies, while IP’s provided recruiting services in Japan.
In December 2017, the company restructured its group companies. Along with the reforms, Mr. Kobayashi replaced Mr. Hirai as representative director. The company also conducted a capital increase in June 2018, and made Groove Gear, Inc. (founded in 2008; unlisted) a wholly owned subsidiary in December 2018. Groove Gear provides programming education and IT staff dispatching and recruiting services, so its operations were deemed compatible with the company’s own recruiting business.
In March 2019, the company renamed Framgia Inc. and Framgia Vietnam Co., Ltd. to Sun* Inc. and Sun Asterisk Vietnam Co., Ltd., respectively, as part of a rebranding effort. While it had already to a certain extent built a name and reputation as an offshore software developer, the company was in the process of diversifying its operations, expanding into startup studio and acceleration services, the promotion of digital transformation (DX), and the education of IT workers. It decided to change its company name to revamp its old corporate identity as a software developer.
“Sun” is a reference to the central body of our solar system that is the source of all life on planet earth. It embodies the company’s aspiration to be a presence that creates groundbreaking services and innovation. The “*” symbol in the company name is used as a multiplication operator in many programming languages. Sun* therefore expresses the idea of collaborating or interacting with various people, intangibles, and locations in an effort to resolve a large number of problems, and accordingly “update” society in a positive way (i.e., create value that contributes to the resolution of problems).
In December 2020, Sun* listed on the TSE Mothers market. It has since worked to improve its profile in the stock market and build recognition and trust among (prospective) customers. It intends to disseminate information about its operations for investors to promote the digitalization of various industries and companies.
|Year and month||History|
|Jul 2012||Established the former Framgia Japan Inc. in Chuo-ku, Tokyo.|
|Oct 2012||Established Framgia Vietnam Co., Ltd. in Vietnam.|
|Mar 2013||Established IP’s K.K. (currently Sun* Inc.) in Chiyoda-ku, Tokyo.|
|Jun 2014||Established Framgia Holdings Pte. Ltd. in Singapore.|
|Dec 2014||Framgia Holdings Pte. Ltd. acquired all shares in IP’s K.K., made it a subsidiary, and renamed IP’s K.K. to Framgia Japan Inc.|
|Nov 2015||Framgia Holdings Pte. Ltd. acquired all shares in Framgia Vietnam Co., Ltd., and made it a wholly owned subsidiary.|
|Dec 2017||As part of a group restructuring, the management team acquired shares in Framgia Japan Inc. from Framgia Holdings Pte. Ltd., and renamed Framgia Japan Inc. to Framgia Inc.|
|Feb 2018||Acquired all shares of Framgia Vietnam Co., Ltd. from Framgia Holdings Pte. Ltd., and made it a wholly owned subsidiary (transaction completed in October 2018).|
|Dec 2018||Acquired all shares in Groove Gear, Inc., and made it a subsidiary.|
|Mar 2019||Changed the names of Framgia Inc. and Framgia Vietnam Co., Ltd. to Sun* Inc. and Sun Asterisk Vietnam Co., Ltd., respectively.|
|Jul 2020||Shares listed on the Tokyo Stock Exchange’s Mothers market.|
|Jan 2021||Established Newh Inc. as a consolidated subsidiary.|
|Sep 2021||Acquired all shares in Trys, Inc., and made it a subsidiary.|
|Form of organization and capital structure|
|Form of organization||Company with Audit and Supervisory Committee|
|Directors and Audit & Supervisory Committee members|
|Number of directors under Articles of Incorporation||14|
|Number of directors||7|
|Directors' terms under Articles of Incorporation||1 year|
|Chairman of the Board of Directors||President|
|Number of outside directors||2|
|Number of independent outside directors||2|
|Number of members of Audit & Supervisory Committee under Articles of Incorporation||3|
|Number of outside members of Audit & Supervisory Committee||3|
|Voluntary establishment of committee(s) equivalent to Nominating Committee or Remuneration Committee||None|
|Participation in electronic voting platform||None|
|Providing convocation notice in English||None|
|Implementation of measures regarding director incentives||Stock option plan|
|Eligible for stock option||Inside directors, outside members of Audit & Supervisory Committee, employees; directors and employees at subsidiaries|
|Disclosure of individual director's compensation||None|
|Policy on determining amount of compensation and calculation methodology||In place|
|Corporate takeover defenses||None|
After dropping out of the Waseda Jitsugyo High School, Mr. Kobayashi played in a band while being homeless, and eventually started working at a club in Shinjuku. Thereafter, he became an IT engineer and joined a software development company in 2010, where he worked on social app development projects and accumulated experience in global development with Chinese and Vietnamese engineer teams. In July 2012, he relocated to Vietnam to help get Framgia Vietnam Co., Ltd. (currently Sun Asterisk Vietnam Co., Ltd.) off the ground as COO. He has served as the representative director of the company since December 2017.
Mr. Hattori graduated from the Graduate School of Economics at Nagoya University, majoring in Industrial Management Systems. In 1998, he joined Intelligence Co., Ltd. (currently Persol Career Co., Ltd.), where he gained experience by launching a recruiting business, promoting business process re-engineering (BPR) projects, developing businesses, and engaging in M&A deals in Japan and overseas. He subsequently promoted overseas business as general manager of the strategy department and executive officer in charge of overseas operations. In 2013, he founded IP’s K.K. (currently Sun*). He oversees the management of the Sun* group as director and general manager of the corporate administration division.
After graduating from a finance and investment program at Baruch College of The City University of New York, Mr. Umeda worked as a securities broker at an investment bank in New York, as a proprietary dealer in Japan, and as CFO at a startup from September 2014. In April 2018, he joined Sun* as Startup Studio manager. After serving as an executive officer, he became a director in December 2019. At present, he oversees overall business promotion.
After graduating from the Graduate School of Science and Technology at Sophia University, Mr. Hirai joined Mitsubishi Corporation in 2000, where he oversaw a new space satellites business in the information industry group. Thereafter, he established group companies, and oversaw marketing, management planning, and other areas at Intelligence Co., Ltd. He subsequently founded Atrae, Inc., and became a director (2003). In 2012, he established Framgia Japan Inc. (currently Sun*), and served as its CEO. He oversees startup scouting and business support in various areas, utilizing his knowledge as a serial entrepreneur.
Sun* has not paid dividends since its founding. Because its businesses are still in their growth phase, the company aims to strengthen its financial position and increase retained earnings to expand its businesses. It believes that channeling its retained earnings into investment and accordingly supporting the growth of its businesses is the best way to provide returns to shareholders.
|Major shareholders||Shares held ('000)||Shareholding ratio|
|Custody Bank of Japan, Ltd. (Trust account)||707||1.91%|
|Innovation Growth Fund I L.P.||620||1.68%|
|Free Style LLC||400||1.08%|
|Number of employees (consolidated)||990||1,263||1,298|
|No. of temporary employees (annual average, not included above)||117||270||219|
|No. of temporary employees (annual average, not included above)||1||1||1|
|Sun Asterisk Vietnam Co., Ltd.||893||1,122||1,095|
|No. of temporary employees (annual average, not included above)||95||250||205|
|Groove Gear, Inc.||54||77||78|
|No. of temporary employees (annual average, not included above)||21||19||13|