Cybernet : FY2022 FISCO Company Research and Analysis Report

COMPANY RESEARCH AND ANALYSIS REPORT

Cybernet Systems Co., Ltd.

4312

Tokyo Stock Exchange Standard Market

26-Apr.-2023

FISCO Ltd. Analyst

Yuzuru Sato

FISCO Ltd.

https://www.fisco.co.jp

■ Index

We encourage readers to review our complete legal statement on "Disclaimer" page.

• Summary

Earnings to resume growth trajectory in FY12/23

1. FY12/22 results overview

• Tools used in R&D settings to obtain a more accurate understanding of phenomena by analyzing combinations of multiple physical phenomena. In the real world, multiple physical phenomena (structure, magnetic field, electrical current, fluid, heat transfer, etc.) interact simultaneously. When those physical phenomena are analyzed separately, it may not be possible to accurately predict the behavior of the development subject.

2. Outlook for FY12/23

For consolidated results in FY12/23, the Company forecasts sales and profit growth, targeting net sales of ¥22,000mn (up 10.4% YoY) and operating income of ¥1,850mn (up 5.2%). For several reasons, we at FISCO think sales and profit growth is possible despite concerns that companies may become cautious about capital investment due to weaker earnings. Its business areas of R&D and IT security are high priority, and thus less likely to suffer budget cuts. As well, license renewal fees, which provide recurring revenue, account for slightly less than 60% of net sales on a stand-alone basis, and the number of companies and research institutes adopting the Company's AI and AR/VR solutions is on the rise. Recent order trends have been firm, showing a steady start to the fiscal year. The Company expects profit margins to drop due to an increase in personnel expenses, including recruitment and education costs, and plans an increase in depreciation accompanying the start of operation of its new core system.

We encourage readers to review our complete legal statement on "Disclaimer" page.

COMPANY RESEARCH AND ANALYSIS REPORT

FISCO Ltd. https://www.fisco.co.jp

Summary

3. Medium-term business plan

The Company started a medium-term business plan lasting five years from FY12/22 to FY12/26. As a growth strat- egy, it will strive for topline growth by working on initiatives such as enhancement of in-house product development, expansion of business in Asia, DX promotion of manufacturing, and utilization of simulation technology in fields such as SDGs. At the same time, it will aim for high-level profit margins while balancing enhancement of businesses with high added value and growth investment. For numerical management targets, in FY12/26, the Company will aim for net sales of ¥30,000mn (up 50.5% compared to FY12/22), EBITDA (operating income + depreciation and amortization) of ¥3,800mn (up 23.7%). In-house developed products and services hold the key to attaining targets; the Company plans to increase the net sales share of these products and services from 30% in FY12/22 to 40% in FY12/26. To this end, the Company plans an aggressive M&A strategy in Japan and overseas. With ample financial assets (cash and deposits + short-term investment securities + short-term loans receivable) of ¥15.3bn at end-December 2022, there are no financial concerns.

4. Shareholder return policy

Regarding a shareholder return policy, the Company targets a DOE (Dividends on Equity) at 6.0% with the objective of paying stable dividends even during short-term profit declines, based on the principle of being within the scope of profit attributable to owners of parent. In FY12/23, the Company plans to pay a dividend per share of ¥29.0, unchanged from the previous fiscal year. It also intends to implement flexible treasury share acquisitions, comprehensively taking into account cash reserves, stock price levels, and other factors.

Key Points

• Has supported manufacturing in Japan for more than 37 years as a leading CAE company
• In FY12/22, sales and profit declined due to the termination of the distributor agreement with Synopsys, but both turned positive in 4Q
• Forecasts sales and profit growth while investing for growth in FY12/23
• The Company aims for net sales of ¥30,000mn and EBITDA of ¥3,800mn in FY12/26 by leveraging M&A to grow in-house developed products and services and business in Asia

Results trends

Source: Prepared by FISCO from the Company's financial results

We encourage readers to review our complete legal statement on "Disclaimer" page.

• Company overview

Has supported manufacturing in Japan for more than 37 years as a leading CAE company

1. History

Cybernet Systems Co., Ltd. was established independently in April 1985 after Nihon CDC K.K., the Japanese subsidiary of Control Data Corp. (hereafter, CDC), a US-based pioneer in supercomputers, spun off its cybernet services business. Cybernet is a word made up by combining "cybernetics" (cyber) and "telephone network" (net), and refers to the computer service CDC provided globally from the 1970s to 1990 that allowed people to rent remote access to a computer by the hour. At that time, computers were expensive, so companies and research institutes used this service to carry out tasks such as scientific and technological calculations and simulations.

From 1990, the performance of computers improved dramatically and they became inexpensive, so these users have come to own their own computers, in which they have installed dedicated software to conduct design devel- opment, R&D and other tasks. Due to this change in use, as demand for cybernet services declined, the Company concluded sales distributor agreements with leading overseas software vendors, and converted to a business model of conducting sales and providing installation support services for these companies, thereby expanding its business.

In 1989, the Company became a subsidiary of Kobe Steel, Ltd. <5406>, and then in 1999, FUJISOFT ABC Incorporated (currently, FUJI SOFT INCORPORATED <9749>) acquired all of its shares and made it a wholly owned subsidiary, and it is currently FUJISOFT's subsidiary. In October 2001, the Company's shares were listed on the JASDAQ market (currently listed on the Tokyo Stock Exchange (TSE) Standard Market), and since 2005, it has actively progressed an M&A strategy with the aim of expanding its business area in the CAE field. Domestically, in 2005, it made subsidiaries of KGT Inc. (has advanced visualization technologies and network-related software) and PLAMEDIA CORPORATION (specializes in a plastics CAE business) in succession, and then in 2006, it acquired the business rights of Keihin Artwork, Inc. and EDA Connect Co., Ltd. and expanded its business areas. Also, recently in January 2020, it established CYBERNET MBSE Co., Ltd., which mainly provides engineering services related to MBSE*, including outsourced analysis and consulting.

• MBSE (Model-Based Systems Engineering) refers to a method for efficiently conducting analysis, design, and verification of system requirements from various perspectives using models for systems targeted for development. Alongside the high-functionality, and multi-functionality of systems, the process from requirement definitions through to design and verification has become increasingly complex, and MBSE makes possible efficient development through the modelling of these elements. MBSE is mainly used at development sites in the automobile industry.

Conversely, alongside the entry into Asia of Japanese companies and the growth of Asian companies, centered on China, the Company has also been establishing sales subsidiaries in various Asian countries. In 2004, it established CCA ENGINEERING SIMULATION SOFTWARE (Shanghai) CO., LTD. in order to prepare an environment to provide technological services in China at the same level as in Japan, and it began providing technological services relating to CAE, including consulting, outsourced analysis, and education. Next, in 2008, it established CYBERNET SYSTEMS TAIWAN Co., Ltd. in Taiwan to provide CAE Solution Services, including those related to optical, control, and formula processing. Then in 2017, it established CYFEM Inc. in South Korea, which provides optical-related CAE solution services, and in 2018, CYBERNET SYSTEMS MALAYSIA SDN. BHD. in Malaysia which provides machinery- and optical-related CAE solution services. In these ways, the Company has been strengthening its business development in the Asia region. Based on the termination of the distributor agreement with Synopsys (dated October 1, 2021), the Company dissolved CYFEM in South Korea on December 31, 2021.

We encourage readers to review our complete legal statement on "Disclaimer" page.