COMPANY RESEARCH AND ANALYSIS REPORTAOI TYO Holdings Inc.
3975
Tokyo Stock Exchange First Section

21-May-2019
FISCO Ltd. Analyst

Ikuo Shibata

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

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Business overview................................. ......................................................................................................

02

2. History................................................... ......................................................................................................

05■Financial highlights-------------------------------------------------------------------------------------------------------------------------------------------------- 06■Activity results-------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Advertising Video Production Business.......................................................................................................

09

2. Other Production Business.................... ......................................................................................................

09

3. Solutions Business.. .....................................................................................................................................

09

4. Overseas Business......................................................................................................................................

10■Business performance outlook-------------------------------------------------------------------------------------------------------------------- 10■Growth strategy----------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. Direction of business initiatives.............. ......................................................................................................

12

2. Human resources.........................................................................................................................................

12

3. Overseas Business......................................................................................................................................

13■Shareholder returns------------------------------------------------------------------------------------------------------------------------------------------------- 13

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html██SummarySales and profits declined in FY12/18 due to the printless shift andwork style reforms
Disclosed a medium-term business policy with stronger emphasis
on quality that targets sustainable growth
AOI TYO Holdings Inc. <3975> is a joint holding company established through the management integration of
AOI Pro. Inc. and TYO Inc. AOI TYO Group mainly plans and creates TV commercials and also handles Solutions
Business that includes direct transactions with advertisers, online videos and other digital contents. It holds a top
share in TV commercial production through the management integration of the two leading industry firms.
The decision to proceed with management integration took into account the lack of prospects for major growthin conventional TV commercial production as well as likely expansion of business scope related to advertising,including methodology and structural changes. It comes against a backdrop of diversification of media (primarily
through the Internet) and devices (smartphones, tablets, and others) and major shifts in industry landscape withadvances in technology, such as communications speed, data analysis, VR* 1, and AR*2. This integration aims torealize economies of scale and create synergies and also accelerate the pace of new value creation and businessexpansion through consolidation and effective utilization of business resources.
*1	VR (virtual reality) refers to the technologies and methods to realize various types of experiences, including in virtualworlds, portraying something like the real world that goes beyond time and space.
*2	AR (augmented reality) refers to the technologies and methods to realize an augmented reality by adding some otherinformation to the information that people can perceive in the real world.

The Company reported lower sales and profits in FY12/18 with net sales at ¥64,792mn (-8.1% YoY) and operating
profit at ¥3,433mn (-25.7%). Sales fell substantially in the mainstay advertising video production business. Yet thisoutcome was not surprising because it reflected the impact of advances in the printless shift, income managementwith emphasis on profitability, and orders control related to work style reforms. Profits, meanwhile, slipped due toearnings pressure from weaker sales and higher depreciation costs with operation of a new system. The Company’sefforts to improve effective profit margin* through stricter management of external expenditures limited the size of
decline in operating profit. The Company also made some progress in future business initiatives, including promotionof an investing and alliance strategy and preparation for video advertising in the 5G era.
*	Effective profit is profit obtained by subtracting external expenditures from net sales (details covered below).

The Company’s FY12/19 targets are ¥65,000mn in sales (+0.3% YoY) and ¥2,600mn in operating profit (-24.3%).
It aims to secure sales on par with the previous fiscal year amid likely continuation of the printless shift and other
trends. In profits, it forecasts decline in a second straight year because of responses to work style reforms andinvestments in future growth mainly to cultivate and hire personnel. From FY12/20, however, the Company expects
bottoming out of the profit decline and improvement, thanks to exhausting impact from the printless shift.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Summary

The Company disclosed a new medium-term business policy in order to address a variety of environment changes
two years after the merger. A key difference with previous policy is the change to management with priority on “quality
over quantity.” To ensure that it continues as a powerful group capable of responding to any era, the Company calls
for development of businesses that meet needs and changes, full utilization of human resource capabilities, andcontinuation of healthy profits. It also continues to emphasize sustainability and shareholder return and wants togenerate ROE that exceeds COE.
Key Points
Posted lower sales and profits in FY12/18 due to work style reform responses and impact from the printlessshift• Though lifted effective profit margin and made progress with the investing and alliance strategy and preparations
for video advertising in the 5G era• Profit likely to continue declining through FY12/19 because of the ongoing printless shift and investments ingrowth• Disclosed a new medium-term business policy that switches to management with priority on “quality overquantity” and sustainable growth•██Company profile
Joint holding company established for the integration of AOI Pro.
and TYO
Holds a top industry share for TV commercial production
1. Business overview
AOI TYO Holdings is a joint holding company that owns AOI Pro. and TYO. AOI TYO Group plans and creates TVcommercials and also handles Solutions Business that includes direct transactions with advertisers, online videos
and other digital contents. It was founded in January 2017 through management integration of two leading industry
firms and holds a top share in TV commercial production.
AOI TYO Group has Advertising Business and Video-related Business segments and five sub-segments (Advertising
Video Production, Other Production, Solutions, Overseas, and Video-Related)*. While the conventional mainstay
Advertising Video Production Business generates about two-thirds of overall sales, Solutions Business and Overseas
Business have been expanding substantially recently and is attracting attention as a growth driver.
*	Changed business categories and names as part of the new medium-term business policy from FY12/19 (details covered
below).

Sales mix by customer was well balanced with 23.2% to the Dentsu <4324> Group, 26.6% to the Hakuhodo(Hakuhodo DY Holdings Inc. <2433>) Group, 29.9% in direct transactions, and 20.3% to others. Direct transactions
have been a TYO strength and are still growing after the management integration in correlation with the Solutions
Business. Additionally, sales competition by media type is TV commercial production at 58.9%, entertainment
contents at 4.7%, digital contents at 15.7%, overseas at 6,5%, and other at 14.2%. “Digital contents” is growing
rapidly along with expansion in online video advertising demand as a trend.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Company profile㻿㼍 㼘 㼑㼟㻌㼏㼛㼙㼜㼛㼟㼕㼠㼕㼛㼚㻌㼎㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㻔㻲㼅㻝㻞㻛㻝㻤㻌㼞㼑㼟㼡㼘㼠㻕㼂㼕㼐㼑㼛㻙㼞㼑㼘㼍㼠㼑㼐㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻻㼢㼑㼞㼟㼑㼍㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻞㻚㻝㻑
㻢㻚㻞㻑

㻿㼛㼘㼡㼠㼕㼛㼚㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟㻝㻝㻚㻣㻑㻻㼠㼔㼑㼞㻌㻼㼞㼛㼐㼡㼏㼠㼕㼛㼚㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻝㻟㻚㻝㻑㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㼂㼕㼐㼑㼛㻌㻼㼞㼛㼐㼡㼏㼠㼕㼛㼚㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻢㻢㻚㻥㻑

Source: Prepared by FISCO from the Company’s results briefing materials

Sales ratio by customer (FY12/18 result)㻻㼠㼔㼑㼞㼟
㻞㻜㻚㻟㻑㻰㼕㼞㼑㼏㼠㻌㼠㼞㼍㼚㼟㼍㼏㼠㼕㼛㼚㼟㻞㻥㻚㻥㻑㻰㼑㼚㼠㼟㼡㻌㻳㼞㼛㼡㼜㻞㻟㻚㻞㻑㻴㼍㼗㼡㼔㼛㼐㼛㻌㻳㼞㼛㼡㼜㻞㻢㻚㻢㻑

Source: Prepared by FISCO from the Company’s results briefing materials

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Company profile㻿㼍 㼘 㼑㼟㻌㼏㼛㼙㼜㼛㼟㼕㼠㼕㼛㼚㻌㼞㼍㼠㼕㼛㼟㻌㼎㼥㻌㼙㼑㼐㼕㼡㼙㻌㻔㻲㼅㻝㻞㻛㻝㻤㻌㼞㼑㼟㼡㼘㼠㻕㻻㼢㼑㼞㼟㼑㼍㼟
㻢㻚㻡㻑㻰㼕㼓㼕㼠㼍㼘㻌㼏㼛㼚㼠㼑㼚㼠㼟㻝㻡㻚㻣㻑㻻㼠㼔㼑㼞㼟
㻝㻠㻚㻞㻑㼀㼂㻌㼏㼛㼙㼙㼑㼞㼏㼕㼍㼘㻌㼜㼞㼛㼐㼡㼏㼠㼕㼛㼚㻌㻡㻤㻚㻥㻑㻱㼚㼠㼑㼞㼠㼍㼕㼚㼙㼑㼚㼠㻌㼏㼛㼚㼠㼑㼚㼠㼟㻌㻠㻚㻣㻑
Source: Prepared by FISCO from the Company’s results briefing materials

Below we review each of these business areas.
(1) Advertising Video Production Business
The Company plans and produces TV commercials and other advertising video. This was the main businessfor AOI Pro. and TYO, and integration of these two major industry firms established a top market share. Bothfirms produce numerous excellent TV commercials amid continuation of a healthy orders environment. While theCompany faces concerns about profitability decline because of changes in media value related to the growing
Internet presence and the printless shift as well as the need for income structure reforms and better work efficiency,
it aims to establish a dominant position in high-quality video advertising, its strength, including the expanding online
video market. The new business categories changed the mainstay segment name to “Video Advertising Business.”(2) Other Production Business
Production business other than advertising videos includes movies, dramas, and event planning and production,
Web production, and promotional goods production. In the new segment framework, these activities are combinedwith Video-related Business as the Advertising-related Business.
(3) Solutions BusinessThis business provides measures for problem solving for customers. While it currently is roughly equal to resultsfrom TYO Offering Management Business Unit*1 and AOI Pro.’s subsidiary Quark tokyo Inc.*2, it also contains
SOOTH Inc.*3, which was established on February 1, 2018 as a strategic move for the growth area. No change
in new Business segments.
*1	Supplies one-stop solutions mainly through multi-faceted media activities via direct transactions with advertisers.
*2	Provides services that range from marketing strategy formulation mainly for videos to all PDCA solutions required bycommunications in the digital era.
*3	Provides experience design solutions using vital sign data and other services.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Company profile(4) Overseas Business
The Overseas Business operates sites in Southeast Asia (Thailand, Vietnam, Singapore, Indonesia, Malaysia, andIndia) and China, and seeks to expand transactions with local companies, including Japanese affiliates. Both AOIPro. and TYO have been actively engaged in many regions, and this segment is positioned as a growth driver.
AOI TYO Group has also been actively engaging in M&A. In October 2017, AOI Pro. purchased minority shares of
VIEWFINDER MEDIA JOINT STOCK COMPANY, a leading video production company in Vietnam, which becamea group company (equity-method affiliate). Following this, in March 2018, AOI Pro. acquired majority shares of
Directors Think Tank (DTT) Group, a leading Malaysian TV commercial production company group, which became
consolidated subsidiaries. No change in new Business segments.
(5) Video-related BusinessThis is business other than advertising and includes production of music videos. In the new segment framework,
these activities are combined with other production business as the Advertising-related Business.
2. History(1) AOI Pro.
AOI Pro. goes back to Aoi Advertising Promotion Inc., which was established in 1963 to produce TV commercials,
in Tokyo’s Minato Ward. It solidified a business base as a video production company focused on TV commercials.
In 1990, it listed shares on JASDAQ, taking the lead in this industry, with the aim of making further advances andstrengthening social credibility.
It subsequently created numerous videos that attracted substantial interest, fueling healthy growth and listed on
the Second Section of the Tokyo Stock Exchange in 1998 and on the First Section in 2000. It established a firm
position as one of the major TV commercial production companies.
In September 2011, meanwhile, it launched an overseas site to handle TV commercial production in Indonesia. In
October 2014, it added nakamino Co., Ltd.*, which specializes in online video platform effect measurement andoperation, to the group (equity-method affiliate) through a capital alliance with the aim of full-fledged ramp-up ofvideo contents marketing, a new growth area. These initiatives gave it an edge versus peers in building operations
to address diversifying media, growing demand for online videos and other digital contents, and entry by Japanesecompanies into the fast-growing Asian region.
*	It turned this entity into a consolidated subsidiary at the end of December 2015 through an injection of additional capitaland changed the company name to Quark tokyo Inc. in April 2016.

(2) TYO
TYO was established as a TV commercial production company in April 1982 in Roppongi, Minato Ward, Tokyo. It
was established the latest among other major commercial production companies. Hiroaki Yoshida (Representative
Director, Chairman & CEO of AOI TYO Holdings), and together with five other commercial creators, including
Kazuyoshi Hayakawa (Representative Director, President and CEO of TYO Inc.) established the company withthe dream of “Creating an Ideal Company of Creators, by Creators, for Creators.”
The company listed on JASDAQ in 2002. It expanded business by leveraging its creative capabilities of having
been involved in the production of numerous TV commercials that left an impression with consumers, notably one
promoting travel to Kyoto for Central Japan Railway Company (JR Central) <9022>. Upon changing to the TSE
Second Section in October 2013, its listing was reassigned to the First Section in January 2014.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Company profile

TYO has been involved in various types of content production, including TV commercials, online videos, digitalcontents and events. Its strength is providing optimal, one-stop solutions for advertisers’ advertising promotions
and promotional activities. It led the industry with a sales structure and accumulation of knowledge in dealing
directly with advertisers* and has focused on building long-term relationships with advertisers, expanding projectsizes and capturing sales promotion expenses. Furthermore, it has been actively engaged in overseas expansion.
*	Since starting direct transactions with advertisers in July 2003, the current TYO Offering Management Business Unit has
taken charge of the entire group’s direct transactions with advertisers.

(3) Background to the management integration (January 2017)
In the background to the management integration is the diversification of media and devices (such as smartphones
and tablets) focused on the Internet, and in addition, the major changes to the industry environment, including
communication speeds and data analysis, and also the progress being made in technological innovations, suchas VR and AR. In this environment, major growth in TV commercial production, which had been the mainstay up
to the present time, is unlikely, but advertising-related business areas will expand, with accompanying changes
to their methods and structures.
Based on this sort of awareness of the business environment, the companies judged that integration was to growin the medium to long term to expand market share, strengthen negotiation power, and maintain robust capitalstrength. They also want to build a competitive and advanced business model by newly forming a group to leadthe industry and concentrating and effectively utilizing management resources.

██Financial highlights
Posted lower sales and profits in FY12/18 due to printless shift andwork style reforms
Though achieved some improvement in effective profit margin
The Company reported lower sales and profits in FY12/18 with net sales at ¥64,792mn (-8.1% YoY), operating profit
at ¥3,433mn (-25.7%), recurring profit at ¥3,325mn (-24.3%), and net profit attributable to parent shareholders at¥1,952mn (-29.8%). Compared to its revised guidance (from August 10, 2018), sales reached the target, but profits
missed.
Sales dropped in all businesses other than Overseas Business. Mainstay Advertising Video Production Businesssales fell considerably. Yet this outcome was not surprising because it reflected the impact of advances in theprintless shift (reducing sales by about ¥730mn), income management with emphasis on profitability, and orders
control related to work style reforms. Solutions Business, which is positioned as a growth area, also slumped on
removal of major projects. Overseas Business moved in a positive direction, posting a large increase on acquisitionof a major Malaysian advertising production firm as a consolidated subsidiary.
In the breakdown of sales by customer category, as explained above, while sales to advertising agencies weakened
due to work style reforms, direct transactions with advertisers steadily increased, including video production, events,
and public relations.

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http://www.fisco.co.jp

AOI TYO Holdings Inc.

21-May-2019

3975 Tokyo Stock Exchange First Section

http://aoityo.com/en/ir.html

Financial highlights

Profits, meanwhile, slipped because of earnings pressure from weaker sales (particularly decline in high-margin print
sales) and higher depreciation costs with operation of a new system. The Company’s efforts to improve effective
profit margin* through stricter management of external expenditures limited the size of the decline in operating profit.
Nevertheless, the plan had been expecting further improvement in effective profit margin and this was a reason
for missing the outlook. We think this portion could be viewed as room for improvement from the next fiscal year.
Sales of property and strategic stock holdings aimed at streamlining assets after the merger resulted in ¥509mn
in extraordinary profits, but the Company also booked ¥351mn in extraordinary losses related to reorganization ofunderperforming subsidiaries.
*	Effective profit is the profit obtained by subtracting external expenditures from sales for CM production. The effective profit
margin rose to 35.5% in FY12/18 (vs. 33.4% in FY12/17).

In fiscal conditions, total assets declined 6.9% from the end of FY12/18 to ¥55,634mn, despite an increase in
non-current assets (mainly “investments and other assets”) from aggressive investment activities* and creation of new
systems, because of even larger declines in current assets (such as “cash and deposits” and “notes and accounts
receivable – trade”). Furthermore, shareholders’ equity posted a 1.8% gain versus end-FY12/18 to ¥25,114mn asretained earnings build-up and other items offset a reduction from share buybacks. The equity ratio improved to45.1% (vs. 41.3% at the end of FY12/18) with these changes. While “cash and deposits” fell, the liquidity ratio stayed
at a high level of 180.5% and financial soundness is not a concern.
*	T he increase reflects a ¥500mn investment in Panair, Inc. via a venture fund jointly established by TYO and Field
Management, acquisition of DTT Group, as major advertising production company in Malaysia, as a consolidated subsidiary,
and a purchase of shares in Tagpic Inc. (making it an equity-method affiliate), one of the largest influencer marketingcompanies in Asia.

FY12/18 financial highlights(¥mn)
FY12/17
ResultFY12/18

Ratio

70,473ResultChangeChangerate

Ratio-5,681-8.1%

64,000Advertising Video Production Business

49,27069.9%

43,331

66.9%-5,939-12.1%---

Other Production Business

8,774

12.5%

8,463

13.1%

-311

-3.5%

-

-

-

Solutions Business

8,072

11.5%

7,585

11.7%

-487

-6.0%

-

-

-

Overseas Business

2,912

4.1%

4,038

6.2%

1,126

38.7%

-

-

-

Video-related Business

1,446

2.1%

1,372

2.1%

-74

-5.1%

-

-

-

Cost of sales

56,78880.6%

52,052

80.3%-4,736

-8.3%

-

-

-

SG&A expenses

9,065

12.9%

9,307

14.4%

241

2.7%

-

-

-

Operating income

4,619

6.6%

3,433

5.3%

-1,186-25.7%

3,800

5.9%

90.3%

Ordinary income

4,394

6.2%

3,325

5.1%

-1,068-24.3%

3,700

5.8%

89.9%

Profit attributable to owners of parent

2,781

3.9%

1,952

3.0%

-829

-29.8%

2,300

3.6%

84.9%

Dentsu Group

17,29924.5%

15,05323.2%-2,246-13.0%

Hakuhodo Group

19,18227.2%

17,225

26.6%-1,957-10.2%

Direct transactions

18,35726.0%

19,366

29.9%

1,009

5.5%

Other

15,63322.2%

13,14620.3%-2,487-15.9%Net sales

64,792

FY12/18 revised
guidance (August 10) Achievement
rate
Ratio

Sales ratio by customer

Source: Prepared by FISCO from the Company’s results briefing materials

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101.2%

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Financial highlights

Financial position as of the end of December 2018(¥mn)
As of the end of
December 2017

ChangeAs of the end of
December 2018

Change rate

41,50336,307-5,195-12.5%Cash and deposits

12,5739,836-2,737-21.8%

Notes and accounts receivable – trade

24,021

21,004-3,016-12.6%

Work in process

3,629

4,256

626

17.3%

Non-current assets

18,234

19,327

1,092

6.0%

Property, plant and equipment

7,679

7,235

-444

-5.8%

Intangible assets

5,269

5,772

503

9.6%

Investments and other assets

5,285

6,319

1,033

19.6%

Total assets

59,73755,634-4,102-6.9%

Current liabilities

25,275

20,114-5,161-20.4%

Accounts payable – trade

7,341

8,126

785

10.7%

Short-term loans payable

12,772

7,936-4,835-37.9%

Advances received

758

1,136

378

49.9%

Non-current liabilities

8,756

9,840

1,084

12.4%

Long-term loans payable

3,465

4,549

1,084

31.3%

Long-term deposits received

3,501

3,501

-

-

Total liabilities

34,031

29,954-4,076-12.0%Net assets

25,70625,679-26-0.1%

24,675

25,114439

1.8%

Equity ratio

41.3%

45.1%

Current ratio

164.2%

180.5%

0.63

0.49

Current assets

Shareholders’ equity

D/E ratio

Source: Prepared by FISCO from the Company’s results briefing materials

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html██Activity results
Pursuing improvements in effective profit margin, though continuing
robust investments in new areas
1. Advertising Video Production Business
While the production market for TV commercials and other conventional media advertising is roughly flat, theCompany’s advertising video production sales fell substantially with a 12.1% YoY decline to ¥43,331mn. Sales
were down on stricter income management because of emphasis on profitability, orders control related to work
style reforms*1, and impact from advances in the printless shift*2. Looking at the quarterly sales trend, however,while the Company considerably slowed momentum in 1Q, the trend remained roughly flat from 2Q and we thinkpressure from intended action (such as orders control) largely finished. In profits, effective profit margin (just for
the CM production division) rose substantially to 35.5% (vs. 33.4% in FY12/17) thanks to construction of a sales
management operation with emphasis on profitability (rigorous assessment and selection at the orders acceptancestage, thorough management of external spending, etc.). We think this is an important point.
*1	Work style reforms are affecting business in two ways – 1) work style reform (cutbacks in working hours) at major
advertising agents (customer side) and 2) orders control (deal curtailment) from AOI TYO Group’s own work style reform.
While the latter impact might result in projects that AOI TYO Group did not accept going to other businesses (mid-sized
and smaller firms), temporary market distortion is likely to disappear (be absorbed) because work style reforms are taking
place throughout the industry.
*2	Print sales totaled ¥1,924mn (down ¥730mn YoY). We believe it is necessary to see the remaining portion as a sourceof downward pressure on sales as the printless shift advances.

2. Other Production Business
Other production business sales eased 3.5% YoY to ¥8,463mn. While there was a large setback from selling a web
production subsidiary (lowering sales by about ¥800mn), the Company curtailed the actual sales decline to about¥300mn because of strong growth in events and public relations income and dividend income from a movie* thatthe group invested in and produced (about ¥200mn).
*	“Shoplifters,” which was funded and produced by AOI Pro. and directed by Hirokazu Kore-eda, won the Palme D’Or award(top prize) in the competition division at the 71st Annual Cannes Film Festival. It also received the ARRI/Osram award(grand prize) in the Cinema Masters competition at the 36th Munich International Film Festival in Germany (the first time fora Japanese film to win this award). In Japan, it won the Grand Prize in a total of eight divisions, including the best movie
award, and received the most awards at eight for the 42nd Japan Academy Awards. AOI TYO Group intends to continue
its initiatives with entertainment content and pursue further growth in this business on the prospect of a coming era thatfuses entertainment content and advertising videos. *3. Solutions Business
Solutions Business sales declined 6.0% YoY to ¥7,585mn. However, segment sales were roughly flat excluding TV
commercial media costs from sales. While TYO’s offering management division sales (excluding media costs) rose
by a healthy 6.9% YoY to ¥3,717mn, AOI Pro.’s subsidiary Quark tokyo sales slumped 7.8% to ¥2,226mn. Video
advertising production increased, but non-recurrence of a major project (including planning and consulting) fromthe previous fiscal year undercut sales. The Company sees this as a growth area. However, it needs to strengthen
operations, such as recruiting personnel with strong expertise.

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09 13

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Activity results

In new business initiatives, the Company achieved some progress, including the establishment of SOOTH* 1, a newcompany that provides experience design solutions using vital sensing data and other services, and a businessalliance (overall assistance in planning, public relations, and advertising strategy, etc.) with Panair*2, which manages
electricity using big data. Additionally, Quark tokyo concluded a strategic partnership with Cyber Communications
Inc. (CCI) on February 12, 2019. By combining Quark tokyo, which has extensive results in digital promotion targeted
to young people, and CCI’s media solutions, the Company aims to develop new media contents and bolster services
that build engagement between companies and consumers.
*1	AOI TYP Group established this company on February 1, 2018 to carry on business handled by the AOI Pro. Experience
Design Department. While the division handled 1) planning and production of contents that incorporates VR, AR, MR,
and other latest technologies and 2) knowledge accumulation including new data and emotion data, the new company
creation (spin-off) aims to go further in 3) pursuing comprehensive marketing business (solution provision covering frombrand strategy proposal to effect measuring and analysis) and 4) developing high value-added business through datautilization. This move confirms existence of a basis for business expansion. Although full-fledged earnings contributions
need substantial time, the business has large potential, including the application scope.
*2	Panair supplies the Panair Cloud, which is Japan’s first cloud platform for electric power distribution using AI and big
data researched and developed on its own. It established a new company with TEPCO Energy Partner, Inc. via joint
investment in April 2018 and is pursuing development of energy-related services that harness IT. Panair has attracted
interest in the electric power industry and throughout the energy industry. Along with the alliance, Ad Hack Ventures,a venture fund jointly established by TYO and FIELD MANAGEMENT, invested ¥500mn in Panair. We think the staketargets investment return, including from an IPO, based on evaluation of robust business potential and development ofa stronger partnership.

4. Overseas Business
Sales in the Overseas Business grew significantly with a 38.7% increase to ¥4,038mn from the previous year. Positive
factors were organic growth in Southeast Asia amid expansion of the advertising market and acquisition of DTTGroup, a major Malaysia-based advertising production company group, as consolidated subsidiaries*.
*	AOI Pro. purchased shares of holding-company Reserve Tank Sdn. Bhd., which owns the DTT Group, in March 2018. In
10 years from its establishment, DTT Group expanded video production business to a level that puts it in the top five firmsin Malaysia. It has offices in Kuala Lumpur (Malaysia) and Jakarta (Indonesia) and receives many orders from China andother neighboring countries. We believe this acquisition aims for entry into Indonesia and other neighboring countries, inaddition to expansion of business with Japanese and local companies in Malaysia.

██Business performance outlook
Profit decline likely to last through FY12/19 on continuation of theprintless shift and investments in growth
The Company’s FY12/19 targets*1 are ¥65,000mn in sales (+0.3% YoY), ¥2,600mn in operating profit (-24.3%),¥2,500mn in recurring profit (-24.8%), and ¥1,300mn in net profit attributable to parent shareholders (-33.4%). It aims
to secure sales on par with the previous fiscal year amid likely continuation of the printless shift*2 and other trends.
In profits, it forecasts decline in a second straight year because of investments in future growth and other factors.
*1	The Company changed business categories and names as part of formulating the new medium-term business policy from
FY12/19. Specifically, it renamed “Advertising Video Production Business” as “Video Advertising Business”, combined“Other Production Business” and “Video-related Business” as “Advertising-related Business”, and retained “Solutions
Business” and “Overseas Business” in existing formats.
*2	Projects a sales setback of about ¥900mn from printless shift (roughly ¥700mn in profit downside).

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

10 13

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.

21-May-2019

3975 Tokyo Stock Exchange First Section

http://aoityo.com/en/ir.html

Business performance outlook

In sales, the Company expects to match the FY12/18 level, despite continued orders control related to promotion ofwork style reforms and printless shift, non-recurrence of movie dividend income from FY12/18, and reorganizationof underperforming subsidiaries, because of steady sales growth in solution and overseas businesses that it ispromoting. In profits, it forecasts profit decline in a second straight year, even with ongoing efforts to improve
effective profit margin, due to decline in high-margin print sales, costs from responses to work style reforms, andinvestment in future growth mainly to cultivate and hire human resources. From FY12/20, however, the Company
expects bottoming out of the profit decline and improvement, thanks to exhausting impact from the printless shift.
FY12/19 forecast(¥mn)
FY12/18
ResultFY12/19
Ratio

64,792

Net sales

Initial forecast

ChangeRatio

Change rate

65,000207

0.3%

Advertising Video Production Business

43,331

66.9%

43,400

66.8%

69

0.2%

Advertising-related Business

9,836

15.2%

9,100

14.0%

-736

-7.5%

Solutions Business

7,585

11.7%

8,000

12.3%

415

5.5%

Overseas Business

4,038

6.2%

4,500

6.9%

462

11.4%

Cost of sales

52,052

80.3%

-

-

-

-

SG&A expenses

9,307

14.4%

-

-

-

-

Operating income

3,433

5.3%

2,600

4.0%

-833

-24.3%

Ordinary income

3,325

5.1%

2,500

3.8%

-825

-24.8%

Profit attributable to owners of parent

1,952

3.0%

1,300

2.0%

-652

-33.4%

Source: Prepared by FISCO from the Company’s results briefing materials

We think the Company should attain FY12/19 targets, despite the ongoing printless shift and investment costs,
because the plan conservatively factors in impact values, demand for high-quality video advertising, its strength, isrobust, and Solutions and Overseas businesses, which are growth areas, are likely to expand. In particular, we areclosely monitoring trends in Solutions Business because the Company’s reinforcement of broad proposal activities(digital video, event production and operation, public relations, etc.) is likely to expand direct advertiser transactions
with not only new companies but a wide range of clients and demand for video contents marketing is growing. Whilethe extent of progress by the printless shift, an external factor, might affect income, it is important to note that thisportion is not an indicator of whether the Company’s results are fundamentally healthy or not.

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

11 13

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html██Growth strategy
Disclosed a new medium-term business policy in light of rapidchanges in the environment
Switching to management that emphasizes “quality over quantity”
aimed at realizing sustainable growth
The Company disclosed a new medium-term business policy in order to address a variety of environment changes
two years after the merger. A key difference with previous policy is the change to management with priority on “quality
over quantity.” To ensure that it continues as a powerful group capable of responding to any era, the Company calls
for development of businesses that meet needs and changes, full utilization of human resource capabilities, andcontinuation of healthy profits. Because of the switch from quantity to quality and rapid changes in the environment,
the Company retracted numerical goals that it had been promoting*1 and decided against using sales, profits, andother numerical goals as KPI. However, it still emphasizes sustainability and shareholder return and wants to generate
ROE that exceeds COE*2.
*1	The growth strategy disclosed in December 2016 (just before integration) set FY12/21 goals at ¥8bn EBITDA, at least
12% ROE, and 4% DOE.
*2	AOI TYO Holdings estimates that the cost of shareholder equity is currently about 9%.

1. Direction of business initiatives
The Company wants to solidify an overwhelming position by deepening its production of high-quality video andmovies for branding, its strength, along the lines of existing activities and bolster and “broaden” related solutions(promotions and contents). In particular, for its mainstay video advertising, it hopes to secure market survivor profits
as the No.1 firm in the TV commercial production market, the mainstay up now, and acquire market share, mainly
for higher-priced video, in the online video market that is growing substantially. Additionally, it outlines a strategy
of optimizing video production and distribution (reach) by analyzing and utilizing data and recruiting related market
opportunities (including events, public relations, influencer marketing, video distribution, etc.) by strengthening
various functions and collaborating with other companies. In peripheral solutions, meanwhile, it aims to realize ahigh value-added business model by bolstering video as content (developing IP, etc.), strengthening event and PR
business through M&A and capital alliances, and developing solutions that utilize video.
2. Human resources
The Company wants to cultivate numerous employees capable of proposing and realizing total communications andrecruit professionals in a variety of communication methods. Measures for realizing these goals include hiring people
with qualities needed to handle total communications, forming expert teams (total communication expert team, online
video expert team, etc.), cultivating human resources through seconding and interaction (utilization of rotation/FA
programs, seconding to group companies with different functions, etc.), and strengthening the educational system(classroom lectures and enhancement of on-the-job training for total communication projects).

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

12 13

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-May-2019
http://aoityo.com/en/ir.html

Growth strategy

3. Overseas BusinessIn fast-growing Asia (China, Southeast Asia, etc.), the Company intends to strengthen joint efforts through collaboration among multiple sites, rather than just relying on individual sites, and build a potent income structure basedon unique “products” and rational capital composition (allocation of capital that reflects individual site profitability,
including underperforming reorganization). As examples of “collaboration,” it has already formed an overseas strategy
division (July 2018), held an Asian meeting, and deployed infrastructure and communication tools. These efforts
appear to be producing results as well. In development of unique products, it envisions a strategy of packaging IP
assets and technology developed and obtained through alliances in Japan as solutions. The Company intends tolook at deployment in areas outside of Asia as well.
While the Company currently faces negative impacts from external factors, such as responses to work style reforms
and advances in the printless shift, we believe it has significant opportunities over the longer term from various
structural changes (media diversification, technology advances, etc.). In particular, its business model based on
production of high-quality videos, an important strength, and a strategy that leverages its overwhelming position
constitute unique advantages. A key issue is finding ways to capture more of the overall market while bolstering
peripheral solutions, such as promotions and contents. We think realization of high added value by leveraging newtechnology (VR contents, data utilization, etc.) is an important aspect too. The Company’s approach to reinforcing
operations for business expansion, such as collaboration with external companies, including M&A deals, andrecruitment of human resources with robust expertise, hence is likely to strongly influence future growth potential.

██Shareholder returns
Aiming for a dividend payout ratio of at least 30%, planning sharebuybacks too
The Company presented “a dividend payout ratio of at least 30%” as its dividend policy.
In FY12/18, it paid a ¥30 ordinary dividend for the full year (¥8 interim, ¥22 period-end), in line with the period-start
outlook (36.4% payout ratio). It also advocates buybacks as part of a dynamic capital policy aimed at improving
shareholder return and capital efficiency and purchased 400,000 shares (for ¥531,200,000) on June 7, 2018.
For the FY12/19 dividend, the Company plans to pay ¥20 for the full year (¥8 interim, ¥12 period-end), a declineof ¥10 YoY, in light of its outlook for lower profits (this stance keeps the dividend payout ratio at the same level as
FY12/18 at 36.4%). Furthermore, it announced a share buyback program for 500,000 shares (¥600mn) on February
19, 2019 that extends from March 1, 2019 through February 29, 2020.
The Company is planning gifts too for shareholders listed or registered on the shareholder ledger as of June 30,
2019 (who own 500 or more shares), including an original QUO card, original gift selection catalog*, and tickets toa tour of their animation studio (random selection among applicants).
*	¥3,000 QUO card for 500 shares or more, ¥5,000 QUO card for 1,000 shares or more, and ¥10,000 gift selection catalog
for 2,000 shares or more.

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

13 13

Disclaimer
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