Measures for Realizing Management withAttention to Cost of Capital and Share Price
Current Situation and Plan

March 22, 2024

Table of Contents
1Current situation
1-1. ROE analysis
1-2. Cost of capital
1-3. Market valuation (share price and market capitalization)
1-4. PBR and PER

1-5. Issues and summary of improvement measures

2

Plan based on current situation
2-1. Improve ROIC
2-2. Improve market valuation
2-3. Overview of the Plan

1

1. CURRENT SITUATION2

1-1. ROE Analysis•••

ROE for FY3/23:‐2.7％
Profit margin and asset turnover decreased with the deterioration of net sales and profits
Financial leverage is decreasing with the decrease in total assets, despite the promotion ofequity optimization (reduction) with capital allocation

ROE=

Profitability(Profit margin)×

Assetefficiency(Asset turnover)×

Financialleverage

Net income

Net income

Net sales

Total assets

EquityNet sales

Total assets

EquityFY3/19FY3/20FY3/21

FY3/22

FY3/23

3.4%

4.0%

2.5%

1.5%

-2.7%

Profit margin

3.4%

4.0%

2.8%

2.1%

-3.7%

Asset turnover

0.72

0.73

0.670.57

0.57

Financial leverage

1.39

1.37

1.34

1.28

1.28

ROE

3

1-2. Cost of Capital•••

Cost of capital is analyzed using cost of equity, which is the required rate of return on
shareholders’ equity, and weighted average cost of capital (WACC)
Cost of capital for FY3/23 was 6.5% cost of equity and 5.8% WACC
However, ROE for FY3/23 was -2.7％, ROIC was -2.5％, resulting in negative equity andROIC spreads

FY3/23••••

FY3/23

ROE-2.7%

ROIC-2.5%

Cost of equity

6.5%WACC5.8%

Equity spread-9.2%

ROIC spread-8.3%

Capital Asset Pricing Model (CAPM) is used for calculating the cost of equity
Beta used for the calculation of monthly data over a period of 5 years
6.0% risk premium was applied to the whole stock market, referencing the TOPIX fluctuation
ROIC was calculated with Operating profit after tax / (Interest bearing debt + Equity capital)41-3. Market Valuation (Share Price and Market Capitalization)••

Share prices have been falling from FY3/19, underperforming TOPIX (from FY3/14,
TOPIX: +93.6% vs DKK Co., Ltd.: -28.7%)
Market capitalization is decreasing along with the share price

Share price and market capitalization (FY3/19 to FY3/23)(million yen)
80,000Market Capitalization(yen)

Share Price at End of Period

3,500

3,330

70,000

3,000
2,716
2,495

60,000

2,255

2,500
2,234

50,0002,000

40,68940,00029,98232,64330,0001,500

26,28023,371
1,000

20,000500

10,00000
FY3/19FY3/20FY3/21

FY3/22

FY3/23*Calculated with the closing price for the last trading date of each fiscal period51-4. PBR and PER•PBR has remained below 1X for the whole of the past decade. Most recently it istrending downwards around 0.5X.
PER has varied during the past decade, ranging from about 15X to 63X. However, it
could not be calculated for FY3/23 due to reporting a net loss.

•PBR (FY3/19 - FY3/23)
BPS (Book-value Per Share)(yen)

PER (FY3/19 - FY3/23)

PBR (Price to Book Ratio)

4,500
3,681

3,761

3,908(X)

(yen)

1.50

160

EPS (Earnings Per Share)

80.00

148.1

3,943

3,939(X)PER (Price Earnings Ratio)

14070.00
124.8

120
3,000

60.00

1.00

96.1

100
80
0.66

1,500

0.69
0.57

0.57

0.50

40.00
59.5

60
4000.00
FY3/20FY3/21

FY3/22

FY3/23*Calculated with the closing price for the last trading dateof each fiscal period

30.00

28.25

26.78

20.00

16.85

20
FY3/19

50.00
37.89

0.91

10.00

00.00
FY3/19FY3/20FY3/21

FY3/22

FY3/23*Calculated with the closing price for the last trading date ofeach fiscal period◼ Latest share price, PBR and PER<Share price>

<PER>

<PBR>

<Market capitalization>

2,126 yen

‐X

0.54

20,719 million yen*Calculated using the share price and figures as of March 21, 20246

1-5. Issues and Summary of Improvement Measures••

Analysis of the results shows that the indicators regarding our cost of capital and share price are at a low
level both in terms of profitability against the cost of capital and market valuation.
Issues and improvement measures towards achieving PBR over 1X can be summarized as follows:

PBR
Market capitalization/Net assets=ROE×PER

Net income/Net assets

Market capitalization/Net income

Return on Invested CapitalMarket valuation

1. Improve return on invested capital•

Low profit margin⇒ Improve profit margin incorporating the spike in material prices and market environment•

Low net sales compared to total assets⇒ Secure orders/net sales with business portfolio optimization based on demand outlook•

Capital structure continues to improve⇒ Enhance assessment of the investment impact and make investment for growth and utilize leverage

Realize ROE and ROIC levels above capital costs

2. Improve market valuation•PER cannot be calculated⇒ Optimizing market valuation requires profit•Improving PER⇒ Improve recognition in the market, create expectation for growth

Improve expectation for growth for the company and businesses72. PLAN BASED ON
CURRENT SITUATION

8

2-1. Improve ROIC
1Improve ROIC

• To improve ROIC, establish measures for improving ROE• Aim for sustaining level of ROE above the cost of equity by improving profitability
and implementing capital allocation

ROE improvement measures

1. Improve profit margin•Improve profit margin incorporating the spike in material prices and market environment

2. Improve asset turnover••

Secure orders/net sales with business portfolio optimization based on demand outlook
Strengthen order/production structure by expanding collaborating/partner companies

3. Realize optimal financial leverage•Enhance assessment of the investment impact and make investment for growth andutilize leverage92-1. Improve ROIC
Approach and initiatives to improve the ROE
Elements

DriverSpecific measures

Profit margin

Increase marginal profit ratio

Optimize business portfolio

Reduce fixed costs

Organizational structurereforms

Secure net sales (orders)

Reinforce sales abilities

Improve asset efficiency(off balance sheet)

Selection andconsolidation of R&D

Optimize capital structure

Capital allocation(Net income/Net sales)

ROEAssetturnover(Net sales/Total assets)

Financialleverage(Total assets/Equity)1010

2-1. Improve ROIC
Specific measures to improve the ROE
Optimize businessportfolio

Select and enhance focus segments corresponding to the medium to long term visionand the market environment• Select Solutions, Fixed Wireless (Defense), and Radio Frequency Business as the focus segments for
optimizing the business portfolio and channel resources intensively including with M&A strategy• For other segments, determine the investment impact and create optimal resource structure

Organizational structure reform to align with the business portfolio

Organizationalstructure reforms•••

Reinforce sales
abilities
Selection andconsolidation ofR&D

Promote business structure reforms by aligning the organizational structure with the businessportfolio
Aim to rationalize organizations through integration of divisions/elimination of offices to lower thebreak even pointContinue to examine Group company reorganization

Reinforce sales abilities with visualization of order activities and sales monitoring•••

Sales structure reform to maximize profits for the sales division
Manage behaviors/targets for the sales force using DX such as SFA (sales support system)
Use order activity analysis data (peer/market/project progress management)

Selection and consolidation of R&D to improve business performance••

Accelerate commercialization through aggressive investment in focus segments
Take medium- to long-term strategies and investment impact into account in selecting R&D targets

Capital allocation aiming at optimal asset and capital structure

Capital allocation•••Execute investment for growth with use of cash and review of asset holdings
Build optimal asset structure using leverage
Continue to enhance shareholder returns with attention to capital structure1111

2-2. Improve Market Valuation
2Improve market valuation••

Establish PER improvement measures to improve market valuation
Reduce earnings volatility and cost of equity by promoting business structure reforms andsecuring stable revenue source
Create expectations for growth through financial and non-financial initiatives and active
information disclosure•PER improvement measures

PERMarket capitalization/Net income= 1 / (r − g)r: Cost of capitalg: Expected growth rate

1. Reduce cost of capital• Reduce beta with stable profit structure and optimal share price formulation
 Promote profit improvement/stabilization to reduce volatility of businessperformance
2. Improve expected growth rate
• Create and promote growth expectation• Eliminate risk factors with non-financial strategy
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2-2. Improve Market Valuation
Approach and initiatives to improve the PER
Elements

DriverSpecific measures

Reduce beta

Business structure reforms

Optimize capital structure

Capital allocation

Create growth expectation

Strengthen PR/IR strategy

Non-financial Strategy

Promote sustainability
management

Cost of capital
(r)

PER

Expected
growth rate(g)1313

2-2. Improve Market Valuation
Specific measures to improve the PER

Businessstructurereforms

Business structure reforms to improve corporate value and strength

Capitalallocation

Capital allocation aiming at optimal asset and capital structure• Promote business structure reforms such as business portfolio optimization, selection andconsolidation of R&D, organizational structure reforms, and human resources strategy to breakaway from order-centric industry and achieve stable business performance improvement• Avoid surprises by improving the accuracy of earnings forecasts••

Reduce WACC with optimal capital structure
Stabilize share price with dividend policy with minimum limit

Aim to create growth expectations by strengthening strategic PR/IR activities

Strengthen
PR/IR strategy

Promotesustainabilitymanagement•••

Improve recognition with strategic PR activity
Accurate information disclosure and improve credibility and retrospectivity of growth byenhancing IR activities
Reduce cost of equity by formulating reasonable share price and lowering share price volatility
with optimal information disclosure

Contribute to the realization of a sustainable society through promotion ofsustainability management•••

Create trust with long-term shareholders by solving social issues
Control discount factors for expected growth rate including by strengthening corporate
governanceControl increase in cost of equity by enhancing ESG measures1414

2-3. Overview of the Plan
Implement initiatives in return on capital and market valuation aspects torealize management with attention to cost of capital and share price
PBR ＞１Improve
PER＝ Improve growth expectation for company and businesses

Improve
ROE＝ Realize return on capital exceeding the cost of capital

Aim to achieve PBR over 1.0X by FY3/27 by improving return on capitalthrough business performance improvement and capital policy, together
with enhanced communication with investors and other stakeholders andPR activities*For details of specific measures including the business structure reforms, refer to the “Medium-Term Business Plan, DKKPlan2025: Rolling Plan” established on March 22, 2024 (https://denkikogyo.co.jp/en/ir/management/dkk-plan/)

1515Cautionary Note about Earnings Forecasts
Figures included in this document that are related to descriptions,
including plans and policies and not past facts, are forecasts
regarding future earnings. They are all calculated based on
management assumptions and views based on information obtainedby the company at the time of writing. Therefore, these forecasts
include risks and uncertain factors, and actual results may differ
from them due to a variety of factors. Such potential risks anduncertain factors include changes in economic situations andproduct demand levels in major markets, fluctuations in the foreignexchange market, changes in regulations in Japan and overseas,
and accounting standards and practices. This document has beentranslated from the Japanese original for reference purposes only. In
the event of any discrepancy between this translated document and
the Japanese original, the original shall prevail.

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