Company Overview

2. Business content

TradeWorks <3997> discloses its revenue by dividing it into five businesses: financial solutions, FX system, digital commerce, software outsourcing and IT concierge services, and core server and network design and construction as well as system operation consulting services provided by its subsidiary Pegasus System (previously, the security diagnosis service, which had been disclosed separately, was integrated into the digital commerce business starting from the fiscal year ending December 2024). The financial solutions business used to account for about 90% of the revenue, but with the addition of subsidiary companies, it decreased to 64.3% in the cumulative total for the second quarter of the fiscal year ending December 2024. However, it still remains the core business that drives the company's earnings in the future.

(1) Financial Solutions Business

In the financial solutions business, the company mainly provides system development, maintenance, and operation services for securities companies and financial information system service companies. Until the fiscal year ended December 2018, flow-type business (package product sales and contract development) and post-product introduction maintenance and operation services accounted for more than half of the revenue. However, in recent years, there has been an increasing trend in contracts for stock-type business (SaaS-based cloud services that provide only functionality to customers) due to the widespread adoption of cloud services, and since the fiscal year ending December 2019, stock-type business has accounted for more than half of the revenue.

The company's main products and services include the TradeAgent Internet securities trading system for investors, which accounts for the majority of the revenue. In addition, there are dealing systems, securities exchange transaction terminals, unfair trading surveillance systems, and individual defined contribution pension (iDeCo) systems. These products are customized and developed according to customer needs, and maintenance and operation services are provided. The cumulative number of companies that have introduced these products exceeds 40. For SaaS-based cloud services, the balance between initial introduction costs, monthly usage fees, and maintenance fees varies depending on each development project. The current major customers (accounting for more than 10% of the revenue composition) are AU Kabucom Securities, Iwai Cosmo Securities, and Matsui Securities <8628>, which together accounted for 43.9% of the total revenue in the fiscal year ending December 2023. The company is also developing new customers at a rate of 2-3 companies per year.

(2) FX System Business

In the FX system business, the company develops and provides the FX trading system "TRAdING STUDIO" and the FX chart system for FX companies. Hirose Trading <7185>, DMM.com Securities, and SBI BITS are major clients, and the number of trading companies is about 15. It provides services in a SaaS model, and the majority of the revenue comes from recurring income, making it a stable revenue business with low revenue volatility.

(3) Digital commerce business

In the digital commerce business, we provide EC platforms and various solutions based on core technology developed in financial system development. The current main business utilizes the EC platform and OMO (Online Merges with Offline) platform operated by connected commerce partners known as "AZLM". We develop, operate, and manage the entire system (EC, payments, dedicated apps, etc.), and our revenue model includes not only monthly service usage fees, but also sales commissions based on the distribution amount.

※ This refers to a marketing technique that centrally manages customer information collected from physical stores and EC sites, and realizes mutual customer referrals by standardizing the points of various channels.

In the security diagnosis business, we provide services that access the websites and networks of business companies to diagnose the presence of security vulnerabilities. The diagnosis service includes manual on-site or online diagnosis, as well as the provision of an automatic diagnosis tool called "SecuAlive." SecuAlive periodically accesses specified URLs to automatically diagnose the presence of vulnerabilities, providing a relatively simple and cost-effective service compared to manual diagnosis. Our client companies span a wide range of industries, including personnel dispatch companies, EC businesses, and service industries, with contracts with nearly 30 companies.

(4) Software commissioned development and IT concierge service business

In the software commissioned development and IT concierge service business, our subsidiary, Ajo, is engaged in commissioned development of manufacturing/production management systems, sales management systems, and sales support systems, as well as IT system introduction consulting and operation support.

(5) Core server/network design and construction, system operation consulting business

Our subsidiary, Pegasus Systems, is engaged in providing essential ICT solution services, including core server/network design and construction, and operation/maintenance such as SES (System Engineering Services: dispatching of engineers). Approximately 80% of its revenue comes from continuous transactions with major customers such as large electrical utilities, gas, and communications companies.

3. Market trends and company's strengths.

The IT investment amount in the securities industry, which is the company's main market, is estimated to be around 300 billion yen annually. The delivery method is cloud-based, accounting for more than 70% of the total, with the remaining portion being scratch development or packaged products. In recent years, there has been an increase in the spread and expansion of internet transactions and the expansion of handled products such as foreign stocks, investment trusts, derivatives, new NISA, crypto assets, FX, iDeCo, etc. IT investment amount has been steadily increasing, and it is expected to continue to grow steadily at a single-digit annual rate.

※ When developing a product, it means creating it from scratch without relying on existing ones.

The securities trading system has been dominated by system development companies affiliated with major securities firms, with Nomura Research Institute <4307>, the top vendor, and Group of second place Daiwa Institute of Research accounting for about 70% of the total. While it is unlikely that the company will be awarded orders for these major securities firms and their affiliated subsidiaries' trading systems, there have been records of replacing trading systems for comprehensive securities firms, so there is still a possibility. In addition, the number of securities firms introducing internet trading systems has increased from 57 as of the end of March 2013 to 95 as of the end of March 2024, thanks to the increase in internet-based securities firms, and if there are new entrants in the securities market, it would be a chance for the company to expand its customer base.

The company's strength lies in having a large number of engineers with deep knowledge of securities, enabling them to design and develop systems that are optimal for customer needs in a shorter period of time and at a lower cost compared to major competitors. They can be considered an elite group when it comes to developing securities systems. In addition, in the securities industry, there are frequent system renovation needs due to the development of new financial products and revisions of trading rules, but the company can respond to these needs at low cost and in a short period of time. This is believed to be due to the company's focus on training engineers to deepen their financial knowledge and its complete object-oriented approach to system development.

※ One of the software development techniques. It is a development method that groups certain data processing into objects (things) and treats them as components, and builds the entire system by combining these components. It has the advantage of easy reuse and classification of components, and can streamline the development process.

(Written by FISCO guest analyst, Jo Sato)