Prestige : Holistic Company Report by The Stock Reseach Center

Holistic Company Report

Prestige International

4290 TSE First Section

Update Report

March 7, 2014

The Stock Research Center

(General Incorporated Association)

Copyright© 2012 The Stock Research Center. All Rights Reserved. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited in any forms.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

＞ Summary

 Independent BPO Specialized Company

・ As an independent BPO specialized company, Prestige International (the company, hereafter) has grown by taking in the outsourcing demand of non-core businesses within client corporations.

・ In December 2013, the company changed its listing from the TSE 2nd

Section to the 1st Section.

 Profit Estimate for the March 2014 Term to be Revised

・ For the 2Q of the March 2014 term, accumulated results were favorable with sales at Y10,430 mil (down 15.7% yoy), operating profit at Y1,281 mil (up 7.5% yoy), and recurring profit at Y1,187 mil (up 0.2% yoy), compared with the company's estimate of Y10,300 mil, Y1,000 mil, and Y980 mil, respectively.

・ Sales decreased due to the partial operation transfer to the joint company, but profits exceeded the original estimate thanks to the review of client portfolio, improved business efficiency, and further yen depreciation.

・ For the March 2014 term, the company revised the original estimate for the beginning of the term at the announcement of the 1Q results. It revised sales from Y22.3 bil to Y22 bil (down 9.2% yoy), operating profit from Y2.6 bil to Y2.7 bil (up 13.4% yoy), and recurring profit from Y2.65 bil to Y2.75 bil (up 27.4% yoy).

・ The Stock Research Center had previously expected a slightly higher level of performance than the company's original estimate, but revised to the same level as the company's renewed estimate. We expect benefits from improved management, new contract acquisition, and expansion of the existing outsourcing business, and think that its business has been in line with its revised estimate up to the 3Q.

 Points to Consider on Investment

・ Facilities including the call center have expanded smoothly, but the securing of staffs and their training will be crucial in business expansion.

・ Consideration should be made on the impact of foreign exchange (weaker yen is a plus), and of the business performance and business strategies such as outsourcing and internalization of client corporations on the company's business results.

Analyst：J yus aku Mats uo

+81（0）3-6858-3216

inf o@stock-r.org

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

＞ Business Description

◆BPO Specialized Company

Prestige International (the company, hereafter) is a major provider of BPO (business process outsourcing) and has grown by taking in the outsourcing demand of client corporations. It offers a wide range of services such as roadside assistance, accident assistance during overseas travel, customer contact, credit card issuance, and property assistance to the end users (general consumers) of client corporations (Chart 1). While it is a BtoB business, the company provides various services to general consumers through the providing of outsourcing for the non-core businesses within client corporations. It is also keen on global business development, having 17 offices in
14 countries worldwide.
As of the end of January 2014, the company consists of 22 consolidated subsidiaries and one equity method company. These include subsidiaries (specialized in field works) that are limited in area and business such as roadside services, as well as overseas local companies, and consist of seven businesses (counting IT, and temporary workers and other businesses, as two businesses).
In April 2012, the company set up Prime Assistance, a joint company, with NKSJ Holdings, and transferred a part of its roadside assistance operation to the joint company in October 2012. In December 2013, the company changed its listing from the TSE 2nd Section to the 1st

Section.

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

＞ Peformance Overview

◆ Sales Decreased, but Operating Profit Increased by 7.5% for the First Half of the March 2014 Term

Total performance for the 2Q of the March 2014 term (the first half, hereafter) was favorable, with sales at Y10,430 mil (down 15.7% yoy), operating profit at Y1,281 mil (up 7.5% yoy), recurring profit at Y1,187 mil (up 0.2% yoy), and net profit at Y1,004 mil (up 44.3% yoy). The company's estimates were Y10,300 mil, Y1,000 mil, Y980 mil, and Y840 mil, respectively. Sales exceeded the original estimate by 1.3%.

Sales decreased due to the partial operation transfer to Prime Assistance and the deduction of warranty fee from sales in the extended warranty program in the insurance business. However, profits showed successful achievement rate, thanks to the selection and concentration of business (review of client portfolio), improvement of business efficiency (reduction of man-hours for arrangement by system automation), and further yen depreciation. Net profit jumped substantially by including the gain from the sale of stocks upon the merger of its affiliated company with a listed company as extraordinary profit. While the yen/dollar rate for the first half is Y97.75 compared to Y77.60 of the preceding first half, the weaker yen contributed Y365 mil to sales and Y96 mil to operating profit.

◆ Performance by Business

The first half performance in the seven businesses is as follows:
1. In roadside assistance, sales were Y3,562 mil (down 34.4% tot) and operating profit was Y353 mil (down 37.4% tot). Sales and profit dropped sharply from the partial transfer of roadside assistance operation to Prime Assistance.
2. In insurance, sales were Y2,675 mil (down 26.6% tot) and operating profit was Y282 mil (up 35.8% tot). Sales declined due
to the change of the sales inclusion method for the extended

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

warranty fee (in the extended warranty maintenance program for automobile manufacturers and used car dealers), but there is no impact on profit. Rent guarantee contributed to profit increase, with improved profitability from the acquisition of new clients.
3. In CRM, sales were Y1,477 mil (up 8.7% tot) and operating profit was Y185 mil (up 43.7% tot). Sales increase due to the expansion of domestic existing contract operation and acquisition of new contract operation, as well as improved profitability due to the containment of indirect costs, contributed to a large increase in profit.
4. In credit card issuance, sales were Y937 mil (up 33.3% tot) and operating profit was Y282 mil (up 42.2% tot). Increase of credit card membership in the US (3.7% tot) and China (4.6% tot) due to the company's aggressive marketing, as well as the yen depreciation, made a contribution.
5. In property assistance, sales were Y1,230 mil (up 31.4% tot) and operating profit was Y81 mil (up 56.6% tot). In the mainline home assistance of coping with housing-related troubles such as those in the wet area for the customers of real estate companies, expansion of existing contract operation for condominiums and new contract acquisition for rental apartments contributed to sales increase. Systemization of back office operation and review of contract fees contributed to profit. In parking assistance, existing contract operation expanded steadily.

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

6. In IT, sales were Y270 mil (up 28.2% tot) and operating profit was Y48 mil (up 83.9% tot). Existing contract operation was solid, and improved operation efficiency contributed to profit.
7. In temporary workers and other businesses, sales were Y276 mil (up 212.3% tot) and operating profit was Y48 mil (up 309.8% tot). Both sales and profit increased, thanks to the dispatching of staffs to Prime Assistance.

◆ Results for the 3Q of the March 2014 Term

For the 3Q of the March 2014 term, sales were Y5,782 mil (up 1.2% tot), operating profit was Y782 mil (up 66.7% tot), recurring profit was Y727 mil (up 93.9% tot), and net profit was Y441 mil (up 122.7% tot). Sales increased only slightly, reflecting the sales decline in the insurance business (sales at Y1,473 mil, down 22.7% tot) due to the change of the sales inclusion method, while the partial operation transfer to Prime Assistance did not affect sales as it started in October 2012. As with the first half, other businesses remained
steady.

＞ Performance Outlook

◆ The Company's Forecast for the March 2013 Term

For the March 2014 term, the company revised the original estimate at the announcement of the 1Q results. It revised sales from Y22.3 bil to Y22 bil (down 9.2% yoy), operating profit from Y2.6 bil to Y2.7 bil (up 13.4% yoy), recurring profit from Y2.65 bil to Y2.75 bil (up 27.4% yoy), and net profit from Y1.79 bil to Y2.05 bil (up 45.4% yoy).
It revised down sales by Y300 mil due to the anticipated end of contract operation in CRM. Sales decrease will be expected to be mainly caused by ①sales drop (assumed at Y2.4 bil) in roadside assistance from the operation transfer to Prime Assistance in October
2012, and ②sales decline (assumed at about Y2.8 bil) due to the
change of the sales inclusion method in extended warranty program in the insurance business.
The company revised profits upward, assuming benefit from yen depreciation, improved management (improved business efficiency by selection and concentration), and better-than-expected new contract acquisition and expansion of existing contract operations. Profit will be decreased by the pullout and cutback of overseas business in CRM, but will be offset by the cultivation of existing customers and new development (such as those for car dealers) in roadside assistance, large contract acquisition in the health care
program in insurance, and new contract acquisition and expansion of

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

existing contract operation in property assistance. It conservatively assumed the dollar/yen rate to be at Y94.39/USD for the 4Q.

◆ The Center's Forecast for the March 2013 Term

The Stock Research Center (the center, hereafter) also revised the original estimate and expects the same level of performance as the company. We judge that the company's estimated is achievable, given the performance up to the 3Q, the recent trend for new orders, and weaker-than-expected yen. Cost price reduction from IT utilization and improved profitability from the review of client portfolio will contribute to profit more than expected, but upfront investment is emerging in accordance with staff reinforcement for the extension of

BPO facilities which requires hiring in advance (Chart 4).

＞ Medium-Term Outlook

◆ Medium-term Numerical Targets not to be Announced, but

Expecting drastic change in the business model including the establishment of joint company in the existing business, the company thinks that it may mislead investors by announcing the numerical targets as set forth in the medium-term business plan. Thereby, it did not disclose the fourth medium-term bsiness plan (and the numerical targets) and instead announced the medium-term business policy in May 2012.
In the medium term, it plans to develop new business models. In addition to the existing model, in order to respond flexibly to needs, it will promote the business partnership model, where joint company is established for permanent joint management, and the service provider model that offers necessary services. It will especially focus
on the business areas with prospects for high growth, including

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

extended warranty products and health care in insurance and home assistance in property assistance, as its growth drivers. It aims at
10% annual growth in both sales and operating profit, and aims at an operating profit ratio of 13% (12.3% prospect for March 2014 term) for the time being and ultimately 15%.

◆ The Center's Medium-term Outlook

The center expects that contract operation capacity will increase and that stable business expansion is achievable, considering that the operation in Yamagata BPO Garden is advancing smoothly and there is strong customer needs for BPO. Mainstay businesses of roadside assistance and insurance and the focused businesses of credit card issuance and property assistance are all brisk. As Prime Assistance, the joint company, is also expected to fare well and the equity-method profit will likely increase, we revised our medium-term forecast upward. We also forecast that it is possible that profit could hit an all-time high every term from the March 2014 term to the March 2016 term.
Regarding the difference from the original forecast for the two mainstay businesses, we took into consideration that, in roadside assistance, the growth rate will be higher with the steady expansion of operation for car dealers, which is a growth area, and that benefit from the reduction of man-hours for arrangement due to system automation is exceeding expectation. For insurance, we took into consideration that sales will decrease due to the change of the sales inclusion method and that new contract acquisition is on the upswing

in the health care program.

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

From the March 2015 term, the company's business is expected to expand substantially from the full-term contribution of its Yamagata BPO Garden, which opened in November 2013, and the Toyama BPO Town, which is planned to open in February 2015. We forecast that the trend of net profit consecutively hitting an all-time high and of increasing sales and profit will both continue. In the long term, annual sales are expected to double to Y40-50 bil from the current level and
operating profit ratio is expected to remain at over 13%.

＞ Points to Consider in

Investment

◆ Dividend Hike Planned for the March 2014 Term

The company generally follows the stable dividend policy, although it continues to decide the dividend payout by considering the level of profit and cash flow while enhancing internal reserves for future growth. It paid out Y7.5 as annual dividend for the March 2013 term. Total of Y10 payout is planned for the March 2014 term, adding Y0.5 for favorable business performance and Y0.5 for commemoration of its listing on the TSE 1st Section to the originally planned Y9 in real terms. Its payout ratio remains at approximately 15% based on the estimated EPS for the March 2014 term. Since this falls at the minimum of the 15-20% range for the announced standard for the consolidated payout ratio, future dividend hike is anticipated. The company has the policy to distribute profit with dividend and does not hold a special shareholder benefit program.

◆ Staff Hiring, Foreign Exchange, and Client Trend should be

While the physical bottleneck was solved by facilities reinforcement, securing and training of staffs will be key to business expansion in the future. The company is a small cap strongly oriented toward domestic demand with approximately 90% dependence on sales in Japan, but as there is 20% dependence on overseas profit, yen depreciation is basically a plus. It will also be affected by the clients' performance trend and business strategies on human resources, outsourcing, and
internalization.

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

 Discovery of Promising Listed Companies

We attempt to discover distinctive companies that are not covered by analysts and yet own unique technology and products, mainly in the growing markets.

 Evaluation of Hidden Strengths and Growth Potential

We attempt to evaluate the companies' strengths with analysis of intellectual capital in addition to financial analysis and report their growth potentials. Moreover, we offer wide factors for investment judgment by presenting the KPIs, which are important in measuring the future growth.

 Neutral and Objective Analysis from the Third Party's Viewpoint

Analysts in neutral positions conduct the company research and write the reports. We make sure to deliver high-quality and objective corporate information.

Corporate value consists of "financial capital" and "non-financial capital." "Financial capital" is the visible corporate value such as the past results stated in the financial statements, or the performance generated through corporate activities. On the other hand, "non-financial capital" is the invisible corporate value. For instance, "non-financial capital" includes the "management strategy/business model" as the core of corporate activities, "organizational capital" such as intellectual property and operation processes involved in management infrastructure and IT system, "human capital" such as the corporate culture and highly-motivated management and employees, "social capital" that pertains to the relationship with clients and the company's brands, and "ESG" such as the social responsibility and the responsiveness to the environment in coexistence with the society.
We comprehensively analyze and evaluate the true growth potential of a company, focusing on
both the visible "financial capital" and invisible "non-financial capital."

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Contents of this publication are based on the information current as of the issue date of the publication and are subject to change without notice. W e do not warrant or represent that the publication is accurate, reliable, complete, appropriate, or fit for any purpose and do not accept any responsibi lity or liability. The Stock Research Center does not accept liability for any loss, direct or indirect, lost profit, or damage, resulting from use of or reliance on this publication. Investors who read the publication should make all investment decisions and take full responsibi lity regarding their investment. Intellectual property regarding the publication belongs to the Stock Research Center and no part of the publication may be copied, photocopied, or cited wi thout consent of the Stock Research Center. This material is translated from the publication written in Japanese, and the Japanese publication precedes if a discrepancy occurs. The Stock Research Center, the translators, and translation company do not accept any responsibi lity or liability.

Holistic Company Report (Issued by the Stock Research Center)

Prestige International (4290 TSE First Section） Issued: March 7, 2014

P/E （Price Earnings R atio） The ratio is calculated by dividing current share price by earnings per share (EPS). It shows how much a stock is traded in terms of EPS.

P/B（Price To Book Ratio）

The ratio is calculated by dividing stock price by book value per share. It shows how much a stock is traded in terms of book value per share.

 Dividend Yield

The ratio is calculated by dividing annual dividends per share divided by price per share. It shows how much dividend an investor will get for the invested money.

 ESG

Information on Environment, Society, and Governance. Recently, the information is being used as a factor for investment judgment, mainly for overseas pension funds, given the rising interests in environmental issues and importance of corporate social responsibility.

 SWOT Analysis

Comprehensive analysis of a company in terms of four aspects; Strength, Weakness, Opportunity, and Threat.

KPI （Key Performance Indicator） Major evaluation indicator in measuring the achievement of the company's strategic target.

 Intellectual Capital

Hidden management resources such as the relationship with clients, operation scheme, and human resources that are not stated in the financial statements, but generate financial performance.

 Social Capital

Relationship with outside parties, including the relationship with clients and business connections and power of brand.

 Organizational Capital

Internally retained intellectual capital, know-how, operation process, organization, and culture.

 Human Capital

Human resources skills of management and employees.

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