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

21-Jan.-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-Jan.-2019
http://aoityo.com/en/ir.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Business overview................................. ......................................................................................................

03

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

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

09

2. Initiatives in video advertising for the 5G era................................................................................................

10

3. Progress in 1H FY12/18......................... ......................................................................................................

11■Business performance outlook-------------------------------------------------------------------------------------------------------------------- 11■Growth strategy----------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. Background to the management integration (January 2017). .......................................................................

12

2. Longer-term growth image. . ................... ......................................................................................................

13■Shareholder returns------------------------------------------------------------------------------------------------------------------------------------------------- 14

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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-Jan.-2019
http://aoityo.com/en/ir.html██SummarySales and profit declines in 1H FY12/18 went beyond guidance
Faced setbacks from the printless shift and work style reforms, but
improved effective profit margin*1 and achieved progress in futureoriented initiatives
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* 2, and AR*3. 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	Effective profit is the value obtained by subtracting external spending and production costs from net sales.
*2	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.
*3	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 posted sales and profit declines in 1H FY12/18 that went beyond forecast at ¥30,864mn in net sales(decreased 8.5% year on year (YoY)) and ¥1,746mn in operating income (decreased 26.0%). While the printless
shift had less impact than expected, Advertising Video Production Business shrank considerably due to stricter
income management with emphasis on profitability, orders control as part of the response to work style reforms,
and delayed sales recognition for some deals. Nevertheless, Solutions Business, which is seen as a growth area,delivered solid performance and Overseas Business grew substantially thanks to the acquisition of a major Malaysiabased advertising production company as a consolidated subsidiary. In earnings, meanwhile, downside from lower
sales caused profit decline, but improvement in effective profit margin through stricter income management withemphasis on profitability enabled AOI TYO Group to limit the setback. AOI TYO Group made progress toward futurebusiness expansion as well in promotion of investment and business alliance strategies and initiatives in online video
advertising for the 5G era.

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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-Jan.-2019
http://aoityo.com/en/ir.html

Summary

AOI TYO Group lowered its FY12/18 forecast from the period-start stance (only net sales). The updated outlook
projects sales and profit declines at ¥64,000mn in net sales (-9.2% YoY; a reduction of ¥6,000mn) and ¥3,800mn
in operating income (-17.7%). While AOI TYO Group already anticipated declines due to impact from the printless
shift, responses to work style reforms, and other factors, further reduction of the sales outlook reflected shortfall
in 1H results and a conservative assumptions for 2H too based on a policy of not overly pursuing sales expansion(instead selectively accepting deals with emphasis on profitability). The earnings outlook, however, stayed the same
because of improved effective profit margin and the prospect of dividend income from movie investments* that was
not expected at the period-start stage.
*	This income includes the film Shoplifters (directed by Hirokazu Kore-eda) that won the Palme D’Or award in the competition
division at the 71st Annual Cannes Film Festival.

AOI TYO Group envisions longer-term growth driven by Solutions Business and Overseas Business (China andSoutheast Asia). In the existing mainstay Advertising Video Production Business, meanwhile, it targets steady growthby promoting heightened emphasis on profitability and efficiency and a lean organization that adapts to a printless
shift model. The outlook sets FY12/21 goals of at least 12% in ROE and ¥8bn EBITDA (based on 17.0% average
growth over three years with FY12/18 target of ¥5.23bn as the starting point).
We think the Solutions Business field, which AOI TYO Group aims to expand, offers a market with large potential.
We also expect AOI TYO Group’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. Improvements started to
be seen in effective profit margin and future-oriented initiatives, but we will be particularly focusing on new value
creation, such as VR technology and data utilization, in the context of specific results obtained from management
integration and aggressive investments in growth fields.
Key Points
Sales and profit declines in 1H FY12/18 went beyond forecast
Faced setbacks from the printless shift and work style reforms, but improved effective profit margin andachieved progress in future-oriented investment and business alliance strategies• Lowered FY12/18 forecast (only net sales)• Growth image of the Solutions Business and the Overseas Business will be drivers of earnings growth over the
medium to long term••

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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-Jan.-2019
http://aoityo.com/en/ir.html██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 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*.
*	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 conventional mainstay
Advertising Video Production Business generates nearly 70% of overall sales, Solutions Business, a growth area,
has been expanding substantially recently and is attracting attention as a growth driver. (1H FY12/18 result)
Sales mix by customer in 1H FY12/18 was well balanced with 23.7% to the Dentsu Group, 26.9% to the HakuhodoGroup, 28.2% in direct transactions, and 21.2% 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 61.2%, entertainment contents at 4.4%, digital contents at 17.2%,
overseas at 3.2%, and other at 13.9%. “Digital contents” is growing rapidly along with expansion in online video
advertising demand.

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㻝㻴㻌㻲㼅㻝㻞㻛㻝㻤㻌㼞㼑㼟㼡㼘㼠㻕㻻㼢㼑㼞㼟㼑㼍㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟㻡㻚㻣㻑㼂㼕㼐㼑㼛㻙㼞㼑㼘㼍㼠㼑㼐㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻞㻚㻞㻑㻿㼛㼘㼡㼠㼕㼛㼚㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟㻝㻟㻚㻢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
㻝㻜㻚㻢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
㻢㻣㻚㻥㻑

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-Jan.-2019
http://aoityo.com/en/ir.html

Company profile㻿㼍㼘㼑㼟㻌㼞㼍㼠㼕㼛㻌㼎㼥㻌㼏㼡㼟㼠㼛㼙㼑㼞㻌㻔㻝㻴㻌㻲㼅㻝㻞㻛㻝㻤㻌㼞㼑㼟㼡㼘㼠㻕㻻㼠㼔㼑㼞㼟
㻞㻝㻚㻞㻑㻰㼕㼞㼑㼏㼠㻌
㼠㼞㼍㼚㼟㼍㼏㼠㼕㼛㼚㼟㻞㻤㻚㻞㻑㻰㼑㼚㼠㼟㼡㻌㻳㼞㼛㼡㼜㻞㻟㻚㻣㻑㻴㼍㼗㼡㼔㼛㼐㼛㻌㻳㼞㼛㼡㼜㻞㻢㻚㻥㻑

Source: Prepared by FISCO from the Company’s results briefing materials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㻝㻴㻌㻲㼅㻝㻞㻛㻝㻤㻌㼞㼑㼟㼡㼘㼠㼟㻕㻻㼢㼑㼞㼟㼑㼍㼟
㻟㻚㻞㻑㻰㼕㼓㼕㼠㼍㼘㻌㼏㼛㼚㼠㼑㼚㼠㼟㻝㻣㻚㻞㻑㻻㼠㼔㼑㼞㼟
㻝㻟㻚㻥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㻢㻝㻚㻞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㻠㻑

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

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 earnings structure reforms and improved efficiency.

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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-Jan.-2019
http://aoityo.com/en/ir.html

Company profile(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 Offering Management Business Unit*1 and AOI Pro.’s subsidiary Quark tokyo Inc.*2, it also contains
SOOTH Inc.*3, which was established as a growth area on February 1, 2018.
*1	Renamed from TYO General Business Division Headquarters, the division supplies one-stop solutions mainly throughmulti-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.

(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, and this segment is positioned as a growth driver.
AOI TYO Group has also been actively engaging in M&A. In October 2017, AOI TYO Group purchased minority
shares of VIEWFINDER MEDIA JOINT STOCK COMPANY, a leading video production company in Vietnam, agroup company (equity-method affiliate). Following this, in March 2018, AOI TYO Group acquired majority sharesof Directors Think Tank (DTT) Group, a leading Malaysian TV commercial production company a consolidated
subsidiary.
(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 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.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

21-Jan.-2019
http://aoityo.com/en/ir.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 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 the last of the three major commercial production companies to be established. Hiroaki Yoshida(Representative Director of AOI TYO Holdings), together with four other commercial creators, established thecompany 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, 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.

██Financial highlights
Sales and profit declines in 1H FY12/18 went beyond forecasts
Improved effective profit margin and progressed in investment andalliance strategies
AOI TYO Group posted lower sales and profits in 1H FY12/18 at ¥30,864mn in net sales (-8.5% YoY), ¥1,746mn inoperating income (-26.0%), ¥1,680mn in ordinary income (-27.1%), and ¥1,170mn in profit attributable to ownersof parent (-1.6%). While it expected sales and profit declines in initial forecast because of advances in the printless
shift, responses to work style reforms, and other impacts, actual results were even weaker.

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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-Jan.-2019
http://aoityo.com/en/ir.html

Financial highlights

Sales fell considerably in mainstay Advertising Video Production Business. While the printless shift had less impact
than expected, there was a heavy toll from stricter income management with emphasis on profitability, orders control
as part of the response to work style reforms, and delayed sales recognition for some deals. Nevertheless, Solutions
Business, which is seen as a growth area, delivered solid performance and Overseas Business grew substantiallythanks to acquisition of a major Malaysia-based advertising production company as a consolidated subsidiary.
Main reasons for the shortfall in sales (versus forecast) were delayed recognition of sales on some deals, priority on
improving the effective profit margin over sales expansion, a larger impact from the response to work style reforms
than anticipated, and modest lagging of the ambitious full-year plan in Solutions Business.
According to the sales breakdown by customer category, advertising agent sales declined due to the impact ofwork style reforms and other factors, as explained above, but direct transactions with advertisers expanded on
growth in solutions business.
In earnings, meanwhile, downside from lower sales caused profits to decline, though improved effective profit margin
from stricter income management with emphasis on profitability (such as selectivity in accepting deals and rigorous
cost management) enabled AOI TYO Group to limit the setback.
In fiscal conditions, total assets declined 6.8% from the end of FY12/17 to ¥55,672mn, despite an increase in
non-current assets (mainly “investments and other assets”) from aggressive investment activities*, because of evenlarger declines in current assets (“cash and deposits” and “notes and accounts receivable – trade”). Furthermore,shareholders’ equity posted a slight 0.5% gain versus end-FY12/17 to ¥24,788mn as retained earnings build-up
and other items offset a reduction from share buybacks. The equity ratio improved to 44.5% (vs. 41.3% at the endof FY12/17) with these changes. While “cash and deposits” fell, the liquidity ratio stayed at a high level of 187.7%
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.

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http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

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

Financial highlights

1H FY12/18 financial highlights(¥mn)
1H FY12/17
ResultRatio

33,729Net sales

1H FY12/18
ResultChangeChangerate

Initialforecast-2,865-8.5%

35,000Ratio

30,864

1H FY12/18

Achievement
rate

Ratio

88.2%

Advertising Video Production
Business

24,72373.3%

20,962

67.9%-3,761-15.2%---

Other Production Business

3,533

10.5%

3,264

10.6%

-269

-7.6%

-

-

-

Solutions Business

3,721

11.0%

4,194

13.6%

473

12.7%

-

-

-

Overseas Business

1,056

3.1%

1,766

5.7%

710

67.2%

-

-

-

697

2.1%

678

2.2%

-19

-2.7%

-

-

-

Cost of sales

26,885

79.7%

24,71380.1%-2,172

-8.1%

-

-

-

SG&A expenses

4,484

13.3%

4,405

14.3%

-79

-1.8%

-

-

-

Operating income

2,358

7.0%

1,746

5.7%

-612

-26.0%

2,000

5.7%

87.3%

Ordinary income

2,305

6.8%

1,680

5.4%

-625

-27.1%

1,900

5.4%

88.5%

Profit attributable to owners ofparent

1,189

3.5%

1,170

3.8%

-19

-1.6%

1,300

3.7%

90.0%

EBITDA

2,932

-575

-19.6%

2,690

Video-related Business

2,357

87.6%

Sales ratio by customer
Dentsu Group

8,473

25.1%

7,310

23.7%

-1,163-13.7%

Hakuhodo Group

10,258

30.4%

8,311

26.9%

-1,947-19.0%

Direct transactions

8,243

24.4%

8,699

28.2%

456

5.5%

Other

6,754

20.0%

6,542

21.2%

-212

-3.1%

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

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

ChangeAs of the end ofJune 2018

Change rate

41,50336,216-5,287-12.7%Cash and deposits

12,573

10,462-2,111-16.8%

Notes and accounts receivable – trade

24,021

19,469-4,552-19.0%

Work in process

3,629

5,083

1,453

40.1%

Non-current assets

18,234

19,455

1,221

6.7%

Property, plant and equipment

7,679

7,291

-387

-5.1%

Intangible assets

5,269

5,784

515

9.8%

Investments and other assets

5,285

6,379

1,094

20.7%

Total assets

59,73755,672-4,065-6.8%

Current liabilities

Current assets

25,275

19,291-5,983-23.7%

Accounts payable – trade

7,341

5,990

-1,351-18.4%

Short-term loans payable

12,772

8,209-4,563-35.7%

Advances received

758

1,350

592

78.1%

Non-current liabilities

8,756

10,699

1,942

22.2%

Long-term loans payable

3,465

5,480

2,015

58.2%

Long-term deposits received

3,501

3,501

-

-

Total liabilities

34,031

29,991-4,040-11.9%Net assets

25,706

25,680-25-0.1%

24,67524,788112

0.5%

Shareholders’ equity
Equity ratio

41.3%

44.5%

Current ratio

164.2%

187.7%

0.63 times

0.53 times

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-Jan.-2019
http://aoityo.com/en/ir.html██Activity results
Promoting initiatives in online video advertising for the 5G era
1. Mainstay business conditions and primary initiatives(1) Advertising Video Production Business
Advertising Video Production Business sales were down 15.2% YoY to ¥20,962mn amid a roughly flat (to modest
decline) trend in the advertising production market for TV commercials and other conventional media. While
the printless shift had less impact than expected*1, stricter income management with emphasis on profitability,orders control as part of the response to work style reforms * 2, and delayed sales recognition for some deals
weighed heavily on sales. In earnings, however, the substantial improvement in effective profit margin (only the CM
production division) to 36.4% (vs. 33.8% in the previous year), which was achieved by building sales management
operations that focus on profitability (such as strict scrutiny and selection from the project orders stage andrigorous sales unit cost control), deserves notice.
*1	While the AOI TYO Group expected the printless shift to accelerate from around April 2018 in initial forecast, the actual
pace has been slower. Print sales dropped 20.7% YoY to ¥1,061mn, but the decline margin appears to have been lessthan anticipated. Nevertheless, it is necessary to recognize remaining impact from printless shift as a factor incrementallylowering sales as this shift advances.
*2	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) Solutions Business
Sales in the Solutions Business, which is viewed as a growth area, climbed 12.7% YoY to ¥4,194mn. The TYO
Offering Management Business Unit had robust sales growth with a 24.4% YoY increase to ¥2,965mn.
However, it is modestly trailing in progress toward the ambitious full-year plan. Sales at Quark tokyo, a subsidiaryof AOI Pro., fell 14.9% YoY to ¥1,095mn. While online video advertising production increased thanks to a trendof growing demand, the overall result was lower because of the presence of a major planning and consulting
deal in the previous year.
Efforts in future business expansion, meanwhile, included the establishment of SOOTH*1, a new company thatprovides experience design solutions using vital sign data and other services, a business alliance (full support
in branding, public relations, and advertising strategy) with Panair*2, which realizes electric power management
using AI and big data, and some results in “initiatives in online video advertising for the 5G era” explained below.
*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.

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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-Jan.-2019
http://aoityo.com/en/ir.html

Activity results(3) Overseas Business
Sales in the Overseas Business grew significantly with a 67.2% YoY increase to ¥1,766mn. Positive factors wereorganic growth in Southeast Asia amid expansion of the advertising market and acquisition of DTT Group, a major
Malaysia-based advertising production company, as a consolidated subsidiary*.
*	AOI TYO Group purchased shares of holding-company Reserve Tank Sdn. Bhd., which owns the DTT Group, in March2018. In 10 years from its establishment, DTT Group expanded video production business to a level that puts it in the top
five firms in Malaysia. It has offices in Kuala Lumpur (Malaysia) and Jakarta (Indonesia) and receives many orders from
China and other neighboring countries. We believe this acquisition aims for entry into Indonesia and other neighboring
countries, in addition to expansion of business with Japanese and local companies in Malaysia.

2. Initiatives in online video advertising for the 5G era
Given the prospect of rapid expansion in the video advertising market from 2020 driven by 5G*, AOI TYO Group haspresented three directions and achieved some results toward its aim of establishing a business model that meetsthe needs of high-quality video and providing new value.
*	This refers to new technology for realization of a larger-capacity network system capable of handling anticipated traffic
growth for the information society of the 2020s at low cost and low power consumption. R&D efforts are moving forward
to satisfy requirements of ultra high-speed communications, low latency, and simultaneous connection to a large numberof terminals needed for wider adoption of IoT and IoE.

(1) Fusion of commercials and entertainment“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 for a Japanese film to win this award). 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 of fusionof entertainment content and advertising videos*.
*	Advertising videos are undergoing a functional shift from being a tool to communicate brand information to being a toolthat connects brands and consumers. As a result, video producers need to be content creators capable of handling thefull range from developing to producing high-quality scenes that emotionally move consumers.

(2) Online videos and influencer marketing
In July 2018, AOI Pro. concluded a capital and business alliance with Tagpic, one of the largest influencer
marketing companies in Asia, and adopted it as an equity-method affiliate in August. This move strengthened its
presence in the video and influencer marketing field. With more companies utilizing social media in video marketingin recent years, the alliance hopes to expand business areas and achieve business growth at both companies
by combining Tagpic’s knowhow in influencer casting and utilization and knowledge in the area of Internet video
distribution using the PICFEE branding video distribution network, and AOI Pro.’s video production skills. It also
aims to provide new value leveraging video and influencer marketing in client branding strategies.
(3) Response to creator demand
AOI TYO Group established “MovieBox,” a human resources solution service, in the TYO Offering Management
Business Unit, in order to respond to rapidly growing corporate needs for in-house creators. This strategy aims toacquire business from the tail portion (with smaller project scale) in the long-tail online video advertising market notaddressed in the past, with cultivation of a business model that emphasizes efficiency. AOI TYO Group has alreadystarted provision of group resources (mainly personnel and video production assistance tools) and knowhow via
monthly retainer contracts.

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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-Jan.-2019
http://aoityo.com/en/ir.html

Activity results

3. Progress in 1H FY12/18
Looking at 1H FY12/18 progress in trends described above, despite pressure on earnings from the external environment (printless shift and work style reform responses), we think the AOI TYO Group had successes in improving
effective profit margin, promoting investment and alliance strategies, and preparing for the 5G era. Improved effective
profit margin (leaner organization) and investments in new growth areas demonstrate progress in the management
integration effect (economies of scale).

██Business performance outlook
Lower FY12/18 period-start forecast (only net sales)
AOI TYO Group lowered its FY12/18 forecast from the period-start stance (only net sales). The updated outlook
projects sales and profit declines at ¥64,000mn in net sales (-9.2% YoY; a reduction of ¥6,000mn), ¥3,800mn inoperating income (-17.7%), ¥3,700mn in ordinary income (-15.8%), and ¥2,300mn in profit attributable to ownersof parent (-17.3%).
In sales, while AOI TYO Group should books gains in Solutions Business as a growth area, Overseas Business withan acquisition effect, and Other Production Business from dividend income on movie investments (about ¥200mn),
it forecasts a substantial decline in Advertising Video Production Business, just as in 1H, because of advances in theprintless shift (likely to accelerate from 2H 2018), responses to work style reforms, and other factors. It reduced theperiod-start net sales target to reflect the 1H shortfall (about ¥4bn) and use a conservative assumption for 2H basedon a policy of not overly pursuing sales expansion (instead selectively accepting deals with emphasis on profitability).
AOI TYO Group projects lower earnings (YoY), despite targeting higher effective profit margin (just as in 1H), owing
to profit setback from lower sales and investments in growth areas. Nevertheless, it maintained the existing earnings
outlook because of factoring in dividend income from movie investments (about ¥200mn) not included initially.
To reach FY12/18 targets, AOI TYO Group needs to deliver ¥33,136mn in net sales (-9.8% YoY) and ¥2,054mn inoperating income (-9.2%) in 2H. We think it is capable of attaining the outlook in light of likely growth in online video
advertising demand, steady improvement in effective profit margin, dividend income not included in the period-startview, and additions from the acquisition effect (Malaysian subsidiary).

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

AOI TYO Holdings Inc.

21-Jan.-2019

3975 Tokyo Stock Exchange First Section

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

Business performance outlook

FY12/18 forecast(¥mn)
FY12/17
ResultFY12/18

Ratio

70,473

Net sales

Initialforecast

FY12/18
Revisedforecast

Ratio

70,000

YoY

Ratio

64,000Initialforecast

Revisedforecast

-0.7%

-9.2%

Advertising Video
Production Business

49,33970.0%

45,300

64.7%

-

-

-8.2%

-

Other Production
Business

8,773

12.4%

7,900

11.3%

-

-

-10.0%-

Solutions Business

8,071

11.5%

11,200

16.0%

-

-

38.8%

-

Overseas Business

2,842

4.0%

4,500

6.4%

-

-

58.3%

-

Video-related Business

1,446

2.1%

1,100

1.6%

-

-

-23.9%-

Cost of sales

56,788

80.6%

-

-

-

-

-

-

SG&A expenses

9,065

12.9%

-

-

-

-

-

-

Operating income

4,619

6.6%

3,800

5.4%

3,800

5.9%

-17.7%-17.7%

Ordinary income

4,394

6.2%

3,700

5.3%

3,700

5.8%

-15.8%-15.8%

Profit attributable to ownersof parent

2,781

3.9%

2,300

3.3%

2,300

3.6%

-17.3%-17.3%EBITDA

5,755

8.2%

5,230

7.5%

5,230

8.2%

-9.1%

-9.1%

ROE

11.3%

-

-

8.8%

8.8%

Source: Prepared by FISCO from the Company’s results briefing materials██Growth strategy
Longer-term growth drivers are the Solutions Business andOverseas Business supplying new value
1. 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 has been the mainstay up
to the present time, is unlikely, but advertising-related business areas will expand, with accompanying changes totheir 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 lead theindustry and concentrating and effectively utilizing management resources.

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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-Jan.-2019
http://aoityo.com/en/ir.html

Growth strategy

2. Longer-term growth image
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 heightened emphasis on profitability
and efficiency and a lean organization that adapts to a printless shift. The outlook sets FY12/21 goals of at least
12% in ROE and ¥8bn EBITDA (based on 17.0% average growth over three years with FY12/18 target of ¥5.23bn
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 with 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 application in
the integrated marketing business (supplying solutions that integrate from brand strategy formulation to effect measurement 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
and personnel (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 andbuild schemes for effect measuring and analysis and IT services.
(2) Overseas Business
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.
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
with large potential. We also expect AOI TYO Group’s experience and knowhow cultivated in video production toprovide a differentiating factor and see a large advantage from its credibility (brand strength) and financial clout(especially for expansion of business with clients having a nationwide reach and investment strategy including
M&A). Improvements started to be seen in effective profit margin and future-oriented initiatives, but we will be
particularly focusing on new value creation (such as VR content and data utilization) in the context of specificresults obtained from management integration and aggressive investments in growth fields.

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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-Jan.-2019
http://aoityo.com/en/ir.html██Shareholder returns
Policy targeting at least 30% consolidated dividend payout
Implementing share buybacks too
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.
For FY12/18, AOI TYO Holdings expects to pay an ordinary dividend of ¥30 per share (interim dividend = ¥8 pershare, fiscal year-end dividend = ¥22 per share). This dividend would result in a payout ratio of 31.4% and DOE of
2.8%.
AOI TYO Group purchased 400,000 shares (¥531,200,000 purchase cost) on June 7, 2018 as part of dynamic
capital policy aimed at raising shareholder return and capital efficiency.
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.

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