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

20-Dec.-2017
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

20-Dec.-2017
http://aoityo.com/en/index.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile -------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Business overview ......................................................................................................................................

02

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

04■Management integration ----------------------------------------------------------------------------------------------------------------------------------- 06
1. Background........................................... ......................................................................................................

06

2. Objective. . .............................................. ......................................................................................................

06

3. Effects. . ........................................................................................................................................................

06■Financial highlights-------------------------------------------------------------------------------------------------------------------------------------------------- 07■Activity results-------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Mainstay business conditions and primary initiatives...................................................................................

09

2. Progress with the integration effect. . ...... ......................................................................................................

10■Business performance outlook-------------------------------------------------------------------------------------------------------------------- 11■Growth strategy----------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. Solutions business.......................................................................................................................................

12

2. Overseas initiatives................................ ......................................................................................................

12■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 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

20-Dec.-2017
http://aoityo.com/en/index.html██Summary
Joint holding company established through the management
integration of AOI Pro. and TYO
Healthy start with 1H FY12/17 results exceeding initial forecast
AOI TYO Holdings Inc. <3975> is a joint holding company established through the management integration of AOIPro. Inc. and TYO Inc. AOI TYO Group mainly plans and creates TV commercials and also handles solutions businessthat 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 two the leading industry firms.
The decision to proceed with management integration took into account the lack of prospects for major growth inconventional 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 throughthe Internet) and devices (smartphones, tablets, and others) and major shifts in industry landscape with advancesin technology innovations, 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.

AOI TYO Group had a healthy start in 1H FY12/17 with increases in sales and profits exceeding initial targets at¥33,729mn in net sales (+4.1% YoY) and ¥2,358mn in operating income (+15.1%). Mainstay advertising video
production business and other businesses were relatively upbeat and growth in the solutions business, which is
positioned as a growth area, contributed substantially to higher sales. Furthermore, while SG&A expenses increased
because of costs related to the integration and other items, operating income still expanded thanks to a boost fromstronger sales and production cost savings, and operating margin improved to 7.0% (from 6.3% YoY). Progresswith integration benefits is still just beginning, but we think AOI TYO Group already has some accomplishments withaggressive investments in growth areas, enhanced business efficiency, and other efforts.
AOI TYO Group raised FY12/17 forecast in light of 1H results, recent conditions, and other factors. It expects¥66,000mn in net sales (added ¥1,000mn) and ¥4,100mn in operating income (added ¥600mn). These revisions
factored in 1H upside, and the 2H outlook is fundamentally unchanged. While this stance appears conservative(particularly in earnings) given 1H results, it discounted for negative impact from weaker profitability related to theshift to printless* delivery in the advertising video production business. We think the forecast is attainable given
substantial expansion of demand in the focus areas of video (digital) advertising market and the solutions field, andhealthy accumulation of the order balance at the end of June 2017.
*	TV commercial materials have traditionally been copied to a memory media (printed) for delivery to various broadcast media
and sales and profits from such copies were booked. AOI TYO Group expects decline in printing sales over the next few
years from October 2017 due to the transition to online data submissions.

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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

20-Dec.-2017
http://aoityo.com/en/index.html

Summary

AOI TYO Group envisions longer-term growth driven by solutions business and overseas activities (China andSoutheast Asia). In the existing mainstay advertising video production business, meanwhile, it targets steady growthby promoting rigorous streamlining and efficiency and a lean organization that adapts to a printless model. The
outlook sets FY12/21 goals of at least 12% in ROE and ¥8bn EBITDA (based on 11.2% average growth over four
years with FY12/17 targets as the starting point). We think the “experience design*” business field, which AOI TYOGroup aims to expand through promotion of a solutions-type business model, offers a market with large potential. We
also expect the Company’s experience and knowhow cultivated in video production to provide a differentiating factor
and see a large advantage from its credibility (brand strength) and financial clout. We will be particularly focusing
on new value creation in the context of specific results obtained from management integration and aggressive
investments in growth fields.
*	T his refers to production of all types of contents, including VR, AR, and MR, leveraging technology, knowhow, andresources cultivated in domestic advertising video production, data collection and analysis, and story design using data
analysis.

Key Points
Joint holding company established through the management integration of AOI Pro. and TYO and holds a top
share in TV commercial production• Had a healthy start in 1H FY12/17 exceeding initial targets• Benefited from expansion of solutions business, a focus area, and production cost savings in the advertising
video production business• Raised FY12/17 full-year forecast• Expansion of “experience design business field” through new value creation and overseas initiatives likely todrive longer-term earnings growth•██Company profile
Joint holding company established through the management
integration of AOI Pro. and TYO and holds a top share in TV
commercial production
1. Business overview
AOI TYO Holdings <3975> is a joint holding company that owns AOI Pro. and TYO. AOI TYO Group plans andcreates TV commercials 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 leadingindustry firms and holds a top share in TV commercial production*.
*	The industry’s three major firms controlled a combined 30-40% share with Tohokushinsha Film Corporation <2329> as
the leader and then AOI Pro. and TYO for many years. This management integration moved AOI TYO Group into the top
position.

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 traditional mainstay advertising
video production business generates 73.3% of overall sales, solutions business, a growth area, has been expanding
substantially recently and is attracting attention as a growth driver.

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

20-Dec.-2017
http://aoityo.com/en/index.html

Company profile

Sales mix by customer consists of 25.1% to the Dentsu Group, 30.4% to the Hakuhodo Group, 26.0% in directtransactions, and 18.5% to others. Direct transaction business has been a TYO strength and is still growing after
the management integration in correlation with the solutions business.

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

Sales ratio by customer (1H FY12/17 result)

Others18.5%
Dentsu Group
25.1%
Direct transactions
26.0%

Hakuhodo Group
30.4%

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

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

20-Dec.-2017
http://aoityo.com/en/index.html

Company profile

Below we review each of these business areas.
(1) Advertising video production businessThis business plans and produces TV commercials and other advertising videos. It was also the primary segment
at AOI Pro. and TYO and holds a top share now thanks to integration of the two leading firms. Both companies
have created many excellent TV commercials amid continuation of a robust orders environment. However, thisbusiness is confronting concerns about decline in profitability due to changes in media value amid advances by theInternet and other technologies and the printless shift. It needs business structure reforms and improved efficiency.
(2) Other production business
Production business besides advertising videos includes movies and dramas, event planning and production,
web production, and sales promotional material production.
(3) Solutions businessThis business provides measures for problem solving for customers. While it currently is roughly equal to resultsfrom TYO General Business Division Headquarters*1 and AOI Pro.’s subsidiary Quark tokyo Inc.*2, it also contains
the VR business, which is mainly being promoted by AOI Pro.’s Experience Design Dept., as a growth area.
*1	Supplies one-stop solutions mainly through multi-faceted media activities via direct transactions with advertisers.
*2	Provides PDCA solutions for online content strategy formulation, planning, production, data analysis, and media distribution, centered on videos.

(4) Overseas business
The overseas business operates sites in China and Southeast Asia (Thailand, Vietnam, Singapore, Indonesia,
Malaysia, and India) and seeks to expand transactions with local companies, including Japanese affiliates. BothAOI Pro. and TYO have been actively engaged in many regions. This segment is positioned as a growth driver.
(5) Video related businessThis business covers activities besides advertising, including photo studios for general consumers* and music
video production.
*	Operated by AOI Pro.’s subsidiary Hollyhock Inc. This business started with the first store at Tokyo Midtown in Roppongi
and has been adding other sites. It currently has four stores.

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 listedon the First Section of the Tokyo Stock Exchange in 2000. These gains established a firm position as one of the
major TV commercial production companies.

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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

20-Dec.-2017
http://aoityo.com/en/index.html

Company profile

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 acquired this entity as 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 commercial production company in April 1982 in Roppongi, Minato Ward, Tokyo. It was
the last of the three major commercial production companies to be established. Hiroaki Yoshida (Representative
Director of AOI TYO Holdings), together with five other commercial creators, established the Company with the
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.
TYO has been involved in various types of content production, including TV commercials, digital media (web,etc.) and events. Its strength is providing optimal, one-stop solutions for advertisers’ advertising promotions andpromotional activities. It led the industry* with a sales structure and accumulation of knowledge in dealing directlywith advertisers and has focused on building long-term relationships with advertisers, expanding project sizes
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 General Business Division Headquarters
has taken charge of the entire TYO Group’s direct transactions with advertisers.

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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

20-Dec.-2017
http://aoityo.com/en/index.html██Management integration
Aims to tackle changes in the business environment and build acompetitive advanced business model
1. BackgroundIn 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, it is anticipated that while on the one hand major growth in TV commercial
production, which has been the mainstay up to the present time, is unlikely, on the other hand the advertising-related
business areas will expand, with accompanying changes to their methods and structures. Based on this sort ofawareness of the business environment, the companies judged that integration was to grow in the medium to longterm to expand market share, strengthen negotiation power, and maintain robust capital strength. They also want tobuild a competitive and advanced business model by newly forming a group to lead the industry and concentratingand effectively utilizing management resources.
2. Objective
The management integration seeks to create new sensations worldwide by pursuing an advanced business model
ahead of changes in the environment and merging creativity cultivated from many years of advertising videos withthe latest technologies and diverse data.
3. Effects(1) Strengthening the advertising video production operations
In the advertising video production business, which is the core operations, the Company is pursuing integration
effects in the areas of brand competitiveness, operational efficiency, new technological developments, and costcompetitiveness. In other words, while on the one hand it is aiming to maximize sales opportunities by preserving
the previous competitive relations between the brands, on the other hand it intends to improve operational
efficiency through the sharing of personnel and business streamlining measures, and also to promote costcompetitiveness by joint procurement and mutual utilization of the filming equipment rental departments.
(2) Promoting strategic business areas
The Company is aiming to integrate TYO’s direct transactions with advertisers, which it had been working on
strategically, with the video content marketing that AOI Pro. had been focusing on in the same way. Specifically,
TYO’s strength is in direct transactions with advertisers, for which it has established a sales system and accumulated expertise, but it needs to be also able to provide the solutions that advertisers require for the web andonline video. Conversely, AOI Pro.’s strength is in video content marketing and it is able to provide solutions in
the online video market, which will continue to expand, but it also needs the sales capabilities necessary fordirect transactions with advertisers. It is considered that the two companies will be able to generate synergies bymutually utilizing each other’s respective strengths.

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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

20-Dec.-2017
http://aoityo.com/en/index.html

Management integration(3) Accelerating the development of the overseas business
For the overseas business, AOI Pro. had been developing its video production business while TYO had been
pursuing M&A with advertising companies, so there are no overlapping functions. Therefore, from the fact that
their policies, of expanding clients from Japanese companies to local companies located overseas, are consistent,
they are aiming to accelerate their Asia strategy through the mutual use of both companies’ bases.
Status of overseas bases

Source: Company materials

In addition, it will become possible to efficiently allocate both companies’ management resources in growth fields,
based on a shared management strategy, through utilizing the joint holding company system. It is considered thatin addition to increasing the management agility and efficiency, this will enable them to positively take risks likenever before and enhance their ability to adapt to changes to the industry.

██Financial highlights
Healthy start in 1H FY12/17 exceeding the initial outlook
In the results for 1H FY12/17, net sales increased 4.1%* YoY to ¥33,729mn, operating income increased 15.1%
to ¥2,358mn, ordinary income rose 25.5% to ¥2,305mn, and profit attributable to owners of parent rose 44.1% to¥1,189mn, for an increase in sales and profits and above the initial forecast.
*	Previous-year results use combined amounts for consolidated results of AOI Pro. and TYO on a calendar-year basis (proforma; 12-month basis).

Sales grew at a healthy pace in the mainstay advertising video production business and other areas and also received
a strong boost from the solutions business, a growth area. Additionally, “direct transactions,” which are linked to
growth in the solutions business, are expanding in the customer breakdown. Decline in sales to the Dentsu <4324>
Group, meanwhile, reflects the impact of individual projects, and sales are likely to improve on a full-year basis.

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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

20-Dec.-2017
http://aoityo.com/en/index.html

Financial highlights

In earnings, AOI TYO Group sharply reduced production costs through stricter reviews and selection at the orders
stage and rigorous income management. While SG&A expenses increased considerably due to costs related tothe integration and other items, operating income still moved upward and operating margin improved to 7.0% (vs.
6.3% in the previous year) thanks to the offsetting boost from higher sales and lower production costs. We think
integration-related costs totaled roughly ¥300mn, including amortization of goodwill*, stock purchase costs, andholding company setup costs. Nevertheless, items besides amortization of goodwill and higher rent appear to be
one-time costs.
*	Amortization of goodwill were ¥152mn, including the integration-related portion of circa ¥100mn (annual amount at 20-year
amortization is around ¥200mn).

Regarding the financial situation, total assets are ¥52,269mn and shareholders’ equity is ¥23,218mn. We are
not concerned about stability of the financial basis given the robust 44.4% equity ratio and 171.9% current ratio.
Additionally, interest-bearing debt totaled ¥10,857mn, putting the D/E ratio at just 0.44x. Goodwill (intangible fixed
assets) is ¥4,218mn, or 8.0% of total assets.
1H FY12/17 financial highlights(¥mn)
1H FY12/16 result

1H FY12/17 result

Ratio

Ratio

32,392

Changerate
1,337

Achievement
rate

Ratio

4.1%

32,000

-301

-1.2%

-

-

-

-979

-21.5%

-

-

-

10.9%

2,530

218.7%

-

-

-

1,056

3.1%

-19

-1.8%

-

-

-

1.8%

697

2.1%

104

17.5%

-

-

-

-

-

26,885

79.7%

-

-

-

-

-

-

-

4,484

13.3%

-

-

-

-

-

Operating income

2,049

6.3%

2,358

7.0%

309

15.1%

1,600

5.0%

147.4%

Ordinary income

1,837

5.7%

2,305

6.8%

468

25.5%

1,400

4.4%

164.6%

825

2.5%

1,189

3.5%

364

44.1%

500

1.6%

237.8%

369

14.4%-13.7%Net sales

33,7291H FY12/17 initial
forecast

ChangeAdvertising video production
business

25,02477.3%

24,723

73.3%

Other production business

4,545

14.0%

3,566

10.6%

Solutions business

1,157

3.6%

3,687

Overseas business

1,075

3.3%

593

Cost of sales
SG&A expenses

Video related businessProfit attributable to owners ofparent2,563

EBITDA

2,932

Sales ratio by customer
Dentsu Group

9,814

30.3%

8,473

25.1%

-1,341

Hakuhodo Group

9,536

29.4%

10,258

30.4%

722

7.6%

Direct transactions

7,023

21.7%

8,773

26.0%

1,750

24.9%

Other

6,020

18.6%

6,225

18.5%

205

3.4%

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

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

20-Dec.-2017
http://aoityo.com/en/index.html

Financial highlights

Financial position as of the end of June 2017 (financial ratio)(¥mn)
As of the end of June
2017

Comment

35,025Current assets
Cash and deposits

7,584

Notes and accounts receivable – trade

20,369Work in process

5,861

Non-current assets

17,244

Property, plant and equipment

8,085

Intangible assets

4,886

Investments and other assets

4,272

Total assets

52,269Current liabilities

20,371

Accounts payable – trade

6,169

Short-term loans payable

6,259

Advances received

2,227

Non-current liabilities

7,704

Goodwill ¥4,218mn

2,374Long-term loans payable

3,501

Long-term deposits received
Total liabilities

28,075

Net assets

24,19322,935

Shareholders’ equity
Equity ratio

44.4%

Current ratio

171.9%
0.44 times

D/E ratio

Source: Prepared by FISCO from the Company's financial results██Activity results
Realizing some benefits from aggressive investment in growth areasand improved business efficiency
1. Mainstay business conditions and primary initiatives(1) Advertising video production business
Advertising video production sales dropped by just 1.2% YoY to ¥24,723mn amid a flat (or declining) trend in
the TV commercial and other conventional media advertising production market, but was generally firm. A key
point is the contribution to higher overall profitability from a rise in effective profit margin* to 33.8% (vs. 32.2% in
the previous year). Establishment of sales operations with heightened emphasis on profitability, including stricter
review and selection from the orders stage and rigorous production cost management, paid off.
*	Effective profit is the value obtained by subtracting external spending and production costs from net sales.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

20-Dec.-2017
http://aoityo.com/en/index.html

Activity results(2) Solutions business
Sales in the solutions business, a focus area, rose substantially with a 218.7% YoY increase to ¥3,687mn,
including large increase for the TYO General Business Division Headquarters to ¥2,384mn (+170.0% YoY) andAOI Pro.’s subsidiary Quark tokyo to ¥1,286mn (vs. ¥175mn in the previous year). The former benefited from major
project orders from new advertisers (newcomer growth companies) in direct transactions with advertisers, a corearea, and growth in deals with existing advertisers. The latter started ramping up deal orders in the second yearof full-fledged operations. Direct transactions with large companies, in particular, are growing thanks to expansionof demand in PDCA video contents marketing.
In VR business handled by AOI Pro. (AOI VR), meanwhile, prospects are finally taking shape with the release of
the business-use VR Insight™*1 service line’s prototype of VR ON AIR TEST (VR OAT)*2, the first service.
*1	Launched together with ALTITUDE INC., BlueMeme Inc., FOVE, Inc., NeuroSky Japan Inc, Up-frontier, Inc., and BRYCEN
Co., Ltd. to start development of the VR Insight™ platform in March 2017. This project addresses the subconscious fieldwith sensing technologies and assesses “insights” by quantifying reactions. AOI Pro. plans to proactively design a new
business and develop services based on VR Insight™.
*2	VR OAT is a framework for video evaluation. It enhances research by retrieving data on the vital reactions (eye movement,
brainwave, electrocardiograph, heartbeat, etc.) of the viewer in real time, and then combining that data with a survey filled
out before and after viewing. It is characterized by use of “real reactions” and scientifically ascertains decision-making
and behavior from subconscious processes not recognized by the person (deep psychology and latent awareness). It
aims to understand the “impact of videos on emotions.” AOI Pro. intends to commercialize this process.

2. Progress with the integration effectMeasures geared toward early realization of the integration effect are 1) reorganizing the corporate division, 2)
aggressively investing in growth areas, and 3) lowering external spending. Progress with the integration effect is still
just getting started, but it provided some lift to investments in growth areas (particularly VR) and improved businessefficiency.
(1) Reorganization of the corporate division
While the corporate division is slated for consolidation into the holdings company in January 2018, offices havealready been integrated by divisions. There is also a new R&D team (Pathfinder Room) to develop and research
new businesses and cultivate overseas human resources.
(2) Aggressive investment in new fields
Besides VR OAT mentioned above, other initiatives are developing VR contents*1, establishing a value creative
consortium*2, and forming a venture fund*3.
*1	AOI Pro. announced a beta version of WONDERFUL WORLD – VR Private Tour™ VR contents for experiencing wonderfulplaces around the world and in Japan while holding a virtual guide’s hand.
*2	AOI TYO Holdings is collaborating with amana inc. <2402>, Synergy Marketing, Inc., and DIC Corporation <4631>
to establish a value creative consortium (provisional name) for accumulating and sharing technologies, knowhow, andcreative resources from the participating firms and seeking creative optimization with human “value” as a common
standard.
*3	TYO established Ad Hack Ventures, which aims to invest in venture companies with advertising needs, jointly with Field
Management.

(3) Reduction of external spending
AOI TYO Group achieved some results with efforts to improve business efficiency and build a framework to receive
orders. It also intends to consolidate the filming equipment rental business.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

20-Dec.-2017
http://aoityo.com/en/index.html██Business performance outlook
Raised FY12/17 forecast, steadily expanding the solutions business
AOI TYO Group raised FY12/17 forecast from period-start levels in light of 1H results, recent conditions, and otherfactors. It expects ¥66,000mn in net sales (+¥1,000mn vs. initial forecast) ¥4,100mn in operating income (+¥600mn),¥3,800mn in ordinary income (+¥600mn), ¥1,850mn in net profit attributable to owners of parent (+¥450mn), and¥5,234mn in EBITDA (+¥604mn).
In net sales, it projects a firm trend in advertising video production business throughout the year and counts on
the solutions business, a target area, to drive results growth. In earnings, meanwhile, SG&A expenses are likely tobe higher due to increased costs related to the integration, but operating income should still rise on benefits fromstronger sales and lower production costs and the forecast anticipates 6.2% operating margin.
These revisions factored in 1H upside, and the 2H outlook is basically unchanged. To reach FY12/17 forecast,AOI TYO Group needs 2H results at ¥32,270mn in net sales and ¥1,741mn in operating income. While this stanceappears conservative (particularly in earnings) given the 1H outcome, it discounted for negative impact from weakerprofitability related to the printless trend in the advertising video production business.
We think the forecast is attainable given substantial expansion of demand in the video (digital) advertising market
and solutions field that are being targeted and healthy accumulation of orders to ¥14,016mn at the end of June2017 (with 1H orders totaling ¥33,499mn). It should be noted that earnings might overshoot if the printless trend
occurs later than anticipated.
FY12/17 forecast(¥mn)
FY12/17
Initial forecast

ChangeRevised forecast

Ratio

Ratio

Net sales

65,00066,000Operating income

3,500

5.4%

4,100

Ordinary income

3,200

4.9%

Profit attributable to owners of parent

1,400

2.2%

EBITDA

4,630% change
1,000

1.5%

6.2%

600

17.1%

3,800

5.8%

600

18.8%

1,850

2.8%

450

32.1%

604

13.0%

5,234

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

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

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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

20-Dec.-2017
http://aoityo.com/en/index.html██Growth strategy
Longer-term growth drivers are the solutions business and overseas
initiatives supplying new value
AOI TYO Group depicts a longer-term growth image with solutions business (including related production business)and overseas business (China and Southeast Asia) driving stronger performance. In the existing mainstay advertising
video production business, meanwhile, it targets steady growth by promoting rigorous streamlining and efficiency
and a lean organization that adapts to a printless model. The outlook sets FY12/21 goals of at least 12% in ROEand ¥8bn EBITDA (11.2% average growth over four years with FY12/17 targets as the starting point).
We attribute use of EBITDA as the goal to emphasis on earnings growth and the prospect of M&A activities (since
EBITDA does not count amortization of goodwill). AOI TYO Group aims to realize EBITDA growth by investing
aggressively in projects likely to deliver profitability exceeding the cost of shareholders’ equity and also improveshareholder returns (dividend payout ratio) and capital efficiency (ROE).
1. Solutions business
It aims to expand orders from new and existing advertisers in direct transactions from advertisers, which it has
already been handling. Also, it hopes to provide the general public with new experiences by developing andproducing contents that incorporate the latest technologies, such as VR, AR, MR, IoT, and AI. It also seeks toaccumulate knowledge, including new data and emotion data obtained from these experiences, for applicationin the integrated marketing business (supplying solutions that integrate from brand strategy formulation to effectmeasurement and analysis). Furthermore, it intends to make advances to high value-added businesses utilizing data(such as DMP and strategic consulting). The approach seeks to foster a solutions-proposal business model andshift to knowledge-intensive business while harnessing experiences, knowledge, networks, and other resourcesfrom past advertising video production business. To achieve this, it will focus on reinforcement of operations andpersonnel (communication designers, data specialists, and others), including external people. Additionally, it will
pursue aggressive investments to gather and accumulate data, integrate with external data, and develop and build
schemes for effect measuring and analysis and IT services.
2. Overseas initiatives
AOI TYO Group plans to continue bolstering sites in China and Southeast Asia that the two companies pursued thus
far. In Southeast Asia, it plans to strengthen production capabilities and expand business via M&A. Additionally, it
intends to leverage collaboration and mutual utilization of human networks and resources in the video production
and advertising agency businesses that the two companies have built locally.
We do not see the EBITDA goal (¥8bn) as an easy level in light of decline in profitability from the printless shift andburden from investments in new growth areas amid slim prospect of growth in demand for mainstay TV commercial
production (advertising video production business). Nevertheless, we think the “experience design” business field,
which AOI TYO Group aims to expand through promotion of a solutions-type business model, offers a market withlarge potential. We also expect the Company’s experience and knowhow cultivated in video production to provide
a differentiating factor and see a large advantage from its credibility (brand strength) and financial clout (especiallyfor expansion of business with clients having a nationwide reach and investment strategy including M&A). We will
be particularly focusing on new value creation (such as VR content and data utilization) in the context of specificresults obtained from aggressive investments in business integration and growth fields.

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

20-Dec.-2017
http://aoityo.com/en/index.html██Shareholder return policy
Aiming for at least 30% consolidated payout ratio
AOI TYO Holdings has presented a dividend policy of targeting at least 30% consolidated dividend payout ratio
and dividend hikes accompanying a higher effective profit level. Furthermore, it is adopting DOE (dividend on equity
ratio) as an indicator (with a goal of 4% in FY12/21) and seeks to raise this value from the standpoint of supplying
a continuous and steady dividend.
The FY12/17 dividend target is ¥28 (¥8 interim and ¥20 period-end) and works out to a 35.9% consolidated payout
ratio.
AOI TYO Holdings is promoting share buybacks of up to 400,000 shares (or ¥400mn in total purchase amount)during May 16, 2017 to May 15, 2018 and had already purchased 261,400 shares as of September 30, 2017.
Furthermore, it provides benefits to shareholders listed or registered in the shareholder register as of June 30 (withownership of 500 or more shares) with an original QUO card* and original photo collection with a photo shooting(40 people selected from applicants in a lottery).
*	¥3,000 for 500 or more shares, ¥5,000 for 1,000 or more shares, and ¥10,000 for 2,000 or more shares.

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

13 13

Disclaimer
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