BRIDGE REPORT
(3967)

グロース

Eltes Co., Ltd. (3967)
Representative director Takahiro Sugawara
Representative
director
Takahiro Sugawara
Corporate Profile
Company
Eltes Co., Ltd.
Code No.
3967
Exchange
TSE Mothers
Industry
Information and communications
Representative director
Takahiro Sugawara
Address
Kasumigaseki Building 6F, 3-2-5 Kasumigaseki, Chiyoda-ku,Tokyo
Year-end
February
URL
Stock Information
Share Price Number of shares issued
(excluding treasury shares)
Total market cap ROE (Actual) Trading Unit
¥2,039 5,088,000 shares ¥10,374 million 2.0% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥0.00 - ¥11.80 172.8 times ¥322.52 6.3 times
*The share price is the closing price on April 19. The number of shares issued was obtained by subtracting the number of treasury shares from the number of outstanding shares as of the end of the latest quarter. ROE and BPS are the actual values as of the end of the previous term.
 
Earnings Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net
Income
EPS DPS
Feb. 2015 (Actual) 649 -151 -153 -118 - 0.00
Feb. 2016 (Actual) 960 135 131 88 23.96 0.00
Feb. 2017 (Actual) 1,379 183 170 104 23.13 0.00
Feb. 2018 (Actual) 1,608 71 71 31 6.27 0.00
Feb. 2019 (Forecast) 1,800 100 100 60 11.80 0.00
*The forecasted values are from the Company.
*From the FY 2/18, net income is profit attributable to owners of the parent. Hereinafter the same shall apply.
*1:100 stock split in July 2016; 1:2 stock split in May 2017 (EPS adjusted retroactively).
 
In this bridge report, we will provide a company profile of Eltes Co., Ltd, which is listed in the Mothers of TSE, along with its financial results for the term ended Feb. 2018, and the forecast for the term ending Feb. 2019.
 
Key Points
 
 
Company Overview
Eltes is proficient in consulting and data analysis technology specifically geared towards risk detection, and cultivates many services, including internal threat detection, financial crime prevention, event safety, and digital credit inquiries, with a focus on businesses involving social risk, such as web-based big data analysis, risk detection, and managing damage caused by online flaming. In the social risk business, the company utilizes highly-precise technology and databases to detect risks from gathered big data and provides a one-stop solution to clients' problems through services including the solution to prevent online flaming, consulting for how to respond to crises, and restoring damaged reputation. In addition to Eltes, the company group includes two consolidated subsidiaries: Eltes Security Intelligence Co., Ltd., which provides support services for crisis management, and Eltes Capital Co., Ltd., an investment subsidiary which invests in ventures in the digital analysis domain. Goal - to create a social infrastructure that manages risk While the widespread use of the Internet and the evolution of digital devices improve convenience, they also come with various risks. Risk eventually leads to "regulation," which may hinder the development of technology and the economy. Eltes becomes a shield that blocks block such risks and contributes to a healthy digital society and the free development of technology. *The former Eltes Corporation, which had been developing social business, was absorbed by the company, who took control of assets in 2014. The figures shown for FY 2/12 to FY 2/14 represent the sales of the former Eltes Corporation. Business contents Although the business segment is only the social risk business that handles SNS and online media-related risks, the company is developing services such as risk intelligence service for the early detection and prevention of internal threats such as information leakage and internal fraud; event safety service, which predicts possible sabotage at large-scale events and is useful for security planning; and digital credit inquiries, with the goal of making them a second or third main source of profit. They also conduct venture investment through subsidiaries. The company provides its services to more than 600 companies, principally large companies. Social Risk Business The company provides multiple solutions ranging from prevention to countermeasures after crises occur. Its monitoring service detects and identifies cases of social risk early-on. The service uses a system that combines AI and professional analysts to analyze posts on social media such as SNS (e.g. Twitter) and online bulletin boards 24 hours a day, 365 days a year, and predicts risk. If a potential risk is discovered, emergency notifications and advice for dealing with the risk are provided, and if there is no risk, it will be stated so in a daily report. In addition to preventing risks early-on with constant year-round system monitoring, in the case a risk is actually found, a professional consultant will offer advice on how to proceed. From monitoring to consulting, the company consistently meets customers' risk management needs by monitoring social media, providing emergency support, and post-crisis measures. Clients gain a proper understanding of risks and learn how to respond quickly and appropriately, and can accumulate knowledge through daily and monthly reports. The company concludes an annual contract consisting of an initial cost plus a monthly fee with a client. Because risk intelligence services, etc. are introduced from a risk prevention standpoint, contracts are extended over a long period of time. For this reason, the company's business is a recurring revenue model based on the accumulation of contracts (although there are also spot transactions that are paired with consulting, such as analysis reports). Other services The company provides services such as internal threat detection, which collects PC log data and detects signs of information leakage; financial crime prevention, by utilizing Cybernetica's (Estonia) personal identification system "SplitKey" that detects illegal money transfers and unauthorized access; event safety, by utilizing OSINT to predict acts of terrorism; and digital credit inquiries. They are also engaged in venture investment in the digital analysis domain. Using a "unique behavioral analysis system that incorporates AI," and "re-analysis by professional analysts," information leakage services detect potential risks in people using an enormous amount of log data such as file server accesses, website browsing history, and email history. The company supports building advanced risk management systems that use a preventative approach in detecting signs of internal fraud risk. OSINT, which stands for "Open Source Intelligence," is a domain specializing in the collection and analysis of publicly released information. Developing an application using Cybernetica's personal identification technology "SplitKey" Cybernetica is based in Estonia, a country with developed ICT and an advanced e-Government that incorporated a national ID system early on, after which Japan's Social Security and Tax Number system was modeled. Cybernetica is an ICT company that has made great achievements in e-Government projects, such as developing electronic voting software, and establishing the e-Government's base system "X-Road," a security system linked with government agency databases. In Mar. 2017, Eltes Co., Ltd. entered into a business partnership with Cybernetica, and in Jan. 2018, they began development of an application utilizing "SplitKey," an integrated personal identification system in the EC service. Strong security is essential for services such as internet banking and internet trade, but when using multiple services, it becomes more difficult to manage IDs and passwords. This application relieves the user of this burden and serves as a platform to connect one user with multiple online services. It can also detect cases of identity theft by applying big data analyzed by AI to logs gathered through the application. In addition to developing its own unique solutions, the company plans to adopt the application to be used in Social Security and Tax Number authentication and anticipates the widespread use of this safe and secure a personal identification system. Main clients Shiseido, ANA, Asahi, Mazda, Sapporo, JAL, Sumitomo Life Insurance, Suntory, Kikkoman, Seven-Eleven Bank, House Foods, Nagatanien, Torikizoku, Skylark G, Glico, NTT Docomo, Itoen, Daikin, Fujikyu, Nomura Securities, Marumiya Foods, Denso, Century 21, YKK ap, Persol, Imuraya, Maruha Nichiro, Tokyu Real Estate Holdings, SBS Holdings, JFE System, Daiichi Sankyo Healthcare, Aoki International, Imperial Hotel, Marubeni, Tokyo Metropolitan Television, Shinryo Corporation, and Hokuriku Bank (in no particular order). Corporate history In Mar. 2014, N.R.P. Co., Ltd. merged with the former Eltes Corporation, becoming Eltes Co., Ltd. The former Eltes Corporation was founded in Apr. 2004 to support online brand development, but then shifted to "social risk consulting services" such as restoring damaged reputation and consulting for online flaming. Since Apr. 2010, the company also worked to collect and accumulate data on social risks such as online flaming, and started a "social risk monitoring service" in Mar. 2011 for the purpose of detecting social risk at an early stage. In Sept. 2013, they released the social risk management cloud service "Eltes Cloud." Meanwhile, N.R.P. Co., Ltd. was founded in Apr. 2012 for the purpose of developing, maintaining, and operating web monitoring systems, and strengthened business relations with the former Eltes Corporation through contracts for website creation. In Mar. 2014, the company entered into a business partnership with Dentsu Inc. In Oct. 2015, they strengthened their financial base by issuing third-party shares to the Innovation Network Corporation of Japan (INCJ), etc. The company began an internal threat detection service dealing with the early detection of and preparation for potential risks in Feb. 2016, and in March of the same year, they began offering a social risk detection service by collaborating with NTT Communications Online Marketing Solutions Co., Ltd. In May, they partnered with Sompo Risk Management & Health Care Inc. regarding SNS risk countermeasures. The company was listed on the Mothers of TSE in Nov. 2016, and in Aug. 2017, they established two subsidiaries: Eltes Security Intelligence Co., Ltd. (wholly owned), which provides event safety services that predict sabotage at large events, and Eltes Capital Co., Ltd., an investment subsidiary which invests in ventures in the digital analysis domain.
 
 
Fiscal Year February 2018 Earnings Results
In Aug. 2017, the company established Eltes Security Intelligence Co., Ltd. to respond to an increase in demand for event security surrounding the Olympic Games, as well as the investment subsidiary Eltes Capital Co., Ltd. to improve technology and expand services in the digital risk field. With the establishment of these subsidiaries, the company has shifted to consolidated accounts from the second quarter. Mr. Yoshiyuki Kaneshige, former security director of the National Police Agency, was offered the position of president at Eltes Security Intelligence Co., Ltd., and is scheduled to take office after being approved at the company's 7th Ordinary General Meeting of Shareholders, which will be held on May 24, 2018. Sales rose 16.6% year on year, operating income fell 60.9% year on year Consolidated sales were 1,608 million yen, up 16.6% from non-consolidated results in the previous term. The increase in sales was driven by the social risk business and internal threat detection service. In the social risk business, sales grew due to continuous orders from existing customers and by building up contracts through new customer acquisition. The company also steadily accumulated contracts for the internal threat detection service, thanks to an alliance with another company offering log management software. However, due to changes in the business's organizational structure, business activities were temporarily delayed, and the initial unconsolidated sales forecast fell below 2 billion yen. Consolidated operating income was 71 million yen, down 60.9% year on year. With the installation of an AI that automatically assesses risk, the efficiency of risk assessment was improved, but sales fell short of estimates. Accordingly, fixed costs became relatively high, and gross profit margin deteriorated. Upfront investments, such as expenses related to establishing new businesses and subsidiaries (80 million yen) as well as accounting system replacement and office relocation (67 million yen), were also financial burdens. Consolidated subsidiary Eltes Security Intelligence Co., Ltd. conducted service development and demonstration experiments (at venues such as large fashion events and sports events). Accordingly, costs exceed revenues. Furthermore, as a sincere acceptance of responsibility for the unsatisfactory results of the revised earnings forecast and to clarify managerial responsibilities, monthly remuneration received by the President will be reduced by 20%, and other directors by 10% (excluding part-time directors). The reduction period will last from Mar. 2018 to Feb. 2019. Separated by service type, sales in social monitoring services, which is a stock-type business, grew steadily, but sales in social consulting, a flow-type business, declined. (2) Progress of new business Treating them as new businesses, the company has achieved certain results in "internal threat detection," "event safety," and "digital credit inquiries." Clients continue to increase for "internal threat detection," which predicts human behavior using businesses' log data and meets needs regarding internal fraud and information leakage, as well as mental health and hidden overtime (which are in high demand as part of working reforms). Data analysis targets are being expanded. "Event safety" is the business domain of a company subsidiary, and is a service that uses AI to detect and predict, in real time, dangerous acts and acts of sabotage from open data such as SNS. The company continues to conduct demonstration experiments at large fashion events and sports events. They also aim to convert the "digital credit inquiries" business, which analyzes the credit status of business partners using open data, into a service during FY 2/2019. In May 2018, at the "2018 Virtual Currency Block Chain Forum," which was sponsored by the generally incorporated "New Media Risk Association," they worked with Estonian companies to conduct a demonstration experiment using the personal identification system "SplitKey." Total assets at the end of the term were 1,801 million yen, down 125 million yen from the end of the previous term. Noncurrent assets increased due to replacement of the accounting system, office relocation, etc., while cash deposits decreased due to these and other upfront investments. However, it is highly fluid as cash and equivalents account for 68% of total assets. Accordingly, the company has an excellent financial structure that are stable in the long-term. Equity ratio was 89.1%. Operating CF turned negative due to corporate tax burdens, and the deficit of investing CF grew larger due to replacement of the accounting system, office relocation, etc.
 
 
Fiscal Year February 2019 Earnings Estimates and Growth Strategies
Sales are estimated to increase 11.9% year on year, and operating income 39.5% year on year. Sales are estimated to be 1.8 billion yen, up 11.9% year on year. Increases in sales will be driven by the social risk business, which will acquire new customers by creating social monitoring contracts and stronger proposal-based sales to client groups with latent needs. Meanwhile, as for new businesses, the company will work on improving usability in the "internal threat detection" business by creating visualizations for risk detection (dashboard development) and expanding data sources used for digital risk analysis, such as information leakage and work style security. They will also focus on building a business structure for digital credit inquiries. Operating income is estimated to increase by 39.5% year on year to 100 million yen. In addition to upfront investment in the new business mentioned above, operating expenses will rise due to increased sales staff for the social risk business, enhancement of training to improve quality, and strengthening the internal security system, but will be offset by an increase in sales and productivity gains due to greater coverage rates by the risk monitoring AI. The company will also simultaneously proceed with human resource policies, such as reviewing the evaluation system. (2) Growth strategy Financial crime accompanying the development of Fintech, cyber terrorism in IoT, and cyber intelligence regarding the digitization of information (for example, the Social Security and Tax Number system) are a few examples of how technological developments give birth to new digital risks, for which new security measures are required each time. For this reason, the company believes that "there are many possibilities for big data analysis solutions geared towards risk detection, which is our strong point." They plan to expand operations by working to create new businesses that manage serious risks affecting companies' competitiveness. In fact, the company began by collecting and analyzing open data from SNS, in order to provide consulting for improving reputation and countermeasures for online flaming. Since then, the company expanded its service domain to include organizational log data and attendance/entry data (for internal threat detection), which are more confidential and have a wider range of influence. Currently, in addition to providing open data collection services as part of anti-terror measures, the company has also opened discussions with financial institutions regarding joint projects that utilize the blockchain technology. Eltes Data Intelligence concept The "Eltes Data Intelligence Concept" summarizes the above strategy from a medium-to long-term perspective. While technological innovations and the dissemination of new technology contribute to economic development, they also create new risks. The company collects data regardless of type, including SNS, log collection, attendance data, POS data, and accounting data to name a few, as well as new types of data that appear in the future. They will continue to develop big data analysis solutions based on a unique risk analysis algorithm that detects new risks.
 
 
Conclusions
The company's business domain is the increasing digital risk that accompanies technological development. Each time a new technology comes out, a new digital risk arises. The company intends to expand its business by providing solutions to manage those digital risks. In recent years, in addition to handling more confidential data, the business domain has expanded. Transactions and inquiries by government offices are also increasing. Although the company cannot give concrete explanations for the highly confidential cases and transactions with government offices, they are improving internal structure and increasing upfront investment. President Sugawara accompanied Prime Minister Shinzo Abe 's visit to Estonia in January 2018. Estonia is called "the world's most technologically advanced nation," and has an advanced e-Government that incorporated a national ID system early on, after which Japan's Social Security and Tax Number system was modeled. The company Cybernetica (Estonia), which is one of the company's partners, played an important role in e-Government projects such as establishing a security system linked with government agency databases and developing electronic voting software. Currently, the Social Security and Tax Number card has a low usage rate in Japan, but it seems like the company will gain a presence in the future as it makes efforts to improve the rate of use.
 
 
<Reference: Regarding Corporate Governance>
◎ Corporate Governance ReportUpdated on May 24, 2018 Basic policy We believe that by improving the efficiency of management while also enhancing its soundness, transparency, and compliance, corporate value will rise over the long term, enabling us to return profits to many stakeholders, including shareholders. In order to enhance management soundness, transparency, and compliance, we believe it is important to build an organizational structure that can respond swiftly and flexibly to changes in the business environment while also improving corporate governance. We conduct management in an efficient manner based on the views of shareholders, who are also owners of the company. <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> We adhere to all of the basic principles.
 
Disclaimer
This report is intended solely for informational purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright (C) 2018 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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