■ Business Overview of System Integrator <3826>

The company is an independent software development company established in 1995, offering package sales and maintenance services for self-developed software, as well as providing cloud services (SaaS). For new products, the company primarily aims for business expansion under the SaaS model. The current main products include the database development support tool "SI Object Browser," the integrated project management tool "OBPM Neo," and the Web-ERP package "GRANDIT." Regarding the E-Commerce business focusing on the EC site construction package "SI Web Shopping," it was transferred to (株) DG Commerce through business segmentation, and then 60.0% of the shares of the subsidiary were transferred to (株) DG Financial Technology in January 2024. As a result, DG Commerce became an associated company subject to the equity method. Furthermore, as of 2022, KEYSTONE SOLUTIONS COMPANY LIMITED, established as an offshore development subsidiary in Vietnam (83% ownership ratio), was made a consolidated subsidiary, and consolidated accounting began in the fiscal year ending February 2025.

* DG Financial Technology is a subsidiary of Digital Garage <4819>, engaged in payment information processing services, collection agency services, and remittance service businesses.

The business segments are classified as the Object Browser business, ERP business, AI business, and other segments including new businesses. Looking at the composition ratio for the cumulative second quarter of the fiscal year ending February 2025, the ERP business accounts for 80.0% of revenue and 69.9% of segment profit, making it the main business. Following that, the Object Browser business accounts for 17.7% of revenue and 35.6% of segment profit. The AI business is still in the stage of advanced investment, with a small scale of revenue and being in the pre-profit stage.

1. Object Browser Business

In the Object Browser business, they develop and offer the database development support tool "SI Object Browser," the database design support tool "SI Object Browser ER" (hereinafter, the "Object Browser" series), as well as developing and providing the integrated project management tool "OBPM Neo" for license sales or as SaaS.

The revenue composition ratio is approximately 30% for the "Object Browser" series and about 70% for "OBPM Neo." Since its release in 1997, the "Object Browser" series has been adopted by approximately 0.02 million companies and has 0.5 million licenses. It has become a de facto standard as it supports almost all major databases, led by Oracle products. Due to its strong brand power, it requires minimal sales expenses, resulting in a gross profit margin exceeding 80% and making it a high-profit product. Although there are competing free software products, there is no direct impact due to differences in functionality. While traditionally only package sales (license sales + maintenance services) were offered, since February 2021, sales in the SaaS model* have also been initiated. Over 30% of the revenue comes from stock income such as maintenance support, leading to relatively stable revenue.

* The contract duration is for 1, 2, or 3 years (including maintenance fees). Version upgrades are free. Limited to Oracle.

On the other hand, "OBPM Neo"※1 is a tool that supports improving the productivity of the development department by integrating the progress of development projects (management of schedule, cost, personnel, quality, profitability, etc.) to prevent unprofitable projects and other, Development and sales of the on-premises version of "OBPM" began in 2008, and the SaaS version "OBPM Neo" was renewed in March 2021. It is the only tool in Japan that has been introduced mainly by medium-sized IT companies due to its compliance with PMBOK※2, and as of the end of February 2024, the accumulated installation record is about 270 companies. Major IT companies have internalized project management tools, but recently the recognition and quality of "OBPM Neo" have been recognized, and the number of companies considering implementation within departments has been increasing. On the other hand, small and medium-sized enterprises often use commercial software such as Excel. While over 30% of existing customers continue to use the on-premises version, they are gradually proceeding with migration while enhancing the functionality of the SaaS version. The gross profit margin is expected to be around 50%.

*1 Monthly usage fees (excluding tax) are 0.105 million yen for 10 licenses, 0.1575 million yen for 20 licenses, 0.189 million yen for 30 licenses, 0.231 million yen for 40 licenses, and 0.2625 million yen for 50 licenses. Consultation is required for over 50 licenses. The contract period is 1 year. There are optional services for integration with various systems.

*2 PMBOK (Project Management Body of Knowledge) is a structured collection of knowledge and methodologies for project management. PMI, a nonprofit organization in America, first published the guidebook titled "A Guide to the Project Management Body of Knowledge" in 1987, gradually becoming known, and it is now widely recognized as the world standard for project management in countries worldwide.

2. ERP Business

In the ERP business, they are developing and selling the Web-ERP package "GRANDIT." "GRANDIT" is an ERP package operated by a consortium consisting of 11 IT companies, and the company has been involved in the planning and development of "GRANDIT" since the formation of the consortium in 2004, contributing to its widespread adoption. The target customers of "GRANDIT" are medium-sized companies with annual sales of several billion yen, but recently there has been an increase in achievements for large enterprises, and the number of adopting companies has expanded to over 1,400 as a whole consortium by 2022. The feature of "GRANDIT" is that it is completely web-based, eliminating the need for client-side maintenance during version upgrades, and it can be used anywhere as long as there is a web-operating environment, as it does not depend on hardware. Furthermore, "GRANDIT" can cater to a wide range of industries due to each of the 11 companies' technical expertise being utilized in product development, making it highly competitive in terms of functionality. Becoming one of the few domestic ERPs that include production management. In November 2022, they released a cloud ERP service for small and medium-sized enterprises called "GRANDIT miraimil", continuing to evolve daily.

The company's implementation track record focuses on the manufacturing industry, with over 200 companies, receiving the "GRANDIT AWARD Prime Partner of the Year", the highest sales record company in 2011. They have received a total of 8 awards since the first award in 2011, including 2 consecutive awards since 2022, demonstrating top performance within the consortium. The company's strength lies in their development capability to provide a wide range of solutions, such as developing add-on modules complementing the basic functions of "GRANDIT" for the manufacturing industry, "production management add-on modules", "construction management add-on modules", and collaborating with software industry by linking with "OBPM Neo" through self-developed "project management template (IT template)". Additionally, they can handle business automation proposals combined with RPA and AI and integration services based on public clouds like AWS and Microsoft Azure.

The domestic market size of ERP has been steadily expanding amid the active digitization of management under the influence of the spread of the new coronavirus infection. SAP, the largest player in ERP, has announced the discontinuation of maintenance support for existing systems by the fiscal year 2027. With large enterprises leading the way in transitioning from existing systems to "SAP S/4HANA" or switching to other ERPs, the ongoing situation of chronic engineering shortages has led the company to start offering support services for introducing "SAP S/4HANA" from April 2024.

ERP vendors are increasingly segmenting their offerings by customer size, with foreign vendors such as SAP and Oracle dominating the large enterprise market, while for mid-sized companies, competing products include 'GRANDIT', Fujitsu <6702>'s 'GLOVIA', and Oki Electric Industry <4684>'s 'OBIC7'. Recently, due to the increasing complexity of multi-functionality and external integration capabilities, the average order unit price is also trending towards 300 to 0.5 billion yen. The gross profit margin varies depending on product composition and specifications, so it cannot be generalized, but on average it tends to be in the late 20% range. On the other hand, if project extensions or renovation work occurs, there is a risk of profit margin decline or becoming an unprofitable project.

(Written by FISCO guest analyst, Jo Sato)