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

14-Apr.-2021
FISCO Ltd. Analyst

Ikuo Shibata

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

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Company overview and history since establishment....................................................................................

01

2. FY12/20 results overview.............................................................................................................................

01

3. Direction going forward. . ........................ ......................................................................................................

02

4. FY12/21 forecasts.................................. ......................................................................................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Business overview................................. ......................................................................................................

03

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

05■Financial highlights-------------------------------------------------------------------------------------------------------------------------------------------------- 06
1. FY12/20 results............................................................................................................................................

06

2. Segment performance and activity results. ..................................................................................................

09

3. Quarterly performance trends................ ......................................................................................................

09

4. FY12/20 performance summary. . .................................................................................................................

10■Main activity results------------------------------------------------------------------------------------------------------------------------------------------------- 11■Direction going forward--------------------------------------------------------------------------------------------------------------------------------------- 11
1. Medium-term management plan............ ......................................................................................................

11

2. Environmental awareness that forms the assumptions. ...............................................................................

12

3. Priority measures.........................................................................................................................................

12

4. Key performance indicators (KPI) and results targets...................................................................................

14■Business performance outlook-------------------------------------------------------------------------------------------------------------------- 14
1. FY12/21 forecasts.................................. ......................................................................................................

14

2. Business performance outlook of each business segment and action plans. ..............................................

15

3. Opinion of FISCO’s analyst..........................................................................................................................

15■Shareholder returns------------------------------------------------------------------------------------------------------------------------------------------------- 16

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en█ SummaryIn FY12/20, results ultimately outperformed revised forecasts amid
rapid recovery in 4Q, and despite substantial setbacks due to thecoronavirus. Meanwhile, the Company engaged in business andorganizational restructuring to address changes in the businessenvironment
1. Company overview and history since establishment
AOI TYO Holdings Inc. <3975> is a joint holding company established in January 2017 through the management
integration of AOI Pro. Inc. and TYO Inc. The AOI TYO Group mainly plans and creates TV commercials and also
focuses on its Solutions Business that includes direct business with advertisers and video content marketing. It holds
a top share in TV commercial production through the management integration of the two industry-leading companies.
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 the industry landscape withadvances in technology, such as communications speed, data analysis, VR* 1, and AR*2. This integration aims torealize economies of scale, create synergies and accelerate the pace of new value creation and business expansion
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 but one that goes beyond time and space.
*2	AR (augmented reality) refers to the technologies and methods to realize an augmented reality by adding some othercontent to the information that people can perceive in the real world.

2. FY12/20 results overview
In FY12/20 results, net sales decreased 21.7% YoY to ¥51,087mn and operating loss was ¥727mn (compared tooperating income of ¥2,118mn in the previous fiscal year). The Company’s earnings results turned negative amid
a substantial decrease in revenue attributable to the impact of the coronavirus. This is particularly a result of sales
revenues having declined significantly in the Video Advertising Business largely due to a downturn in advertisingdemand amid cancellations and postponements of filming services associated with Japan’s first state of emergency
declaration. Meanwhile, the Advertisement-Related Business also encountered a substantial drop in sales revenues
largely due to cancellations and postponements of various events. However, the Company ultimately managed toachieve results at levels outperforming its revised forecasts given that 4Q sales of its Video Advertising Businessand Solutions Business recovered to levels nearly on par with those of the same period of the previous fiscal year. In
profits, the Company shifted to an operating loss with the decline in sales having weighed on profits. Looking only at
2H FY 12/20, however, it achieved positive operating income results due to recovering net sales and cost reductions.

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Summary

3. Direction going forward
In March 2019, the Company formulated its medium-term management policies and it has progressed changing
to management that emphasizes “quality over quantity.” However, due to the impact of the coronavirus, majorchanges to lifestyles have caused the speed of environmental changes to further accelerate and responding toadvertisers’ new needs has become an urgent task. Therefore, the Company has announced a new five-year
medium-term management plan to accelerate its medium-term management policies (announced on August 24,2020). Nevertheless, there has been no major change in direction going forward. Under the theme of “Group-wide
update of production functions,” the aim is to implement a major reorganization of the Group to respond to an eraof reforms. The targets for the plan’s final fiscal year (FY12/25) are consolidated net sales of ¥68bn, consolidated
operating income of ¥4.4bn, EBITDA of ¥5.7bn, and ROE of at least 10%. In particular, the results targets are
premised on emphasizing an improvement in profitability, including through cost reductions. Meanwhile, the reorganization has involved transitioning to a two-business structure consisting of the Content Production Business andthe Communication Design Business since FY12/21.
4. FY12/21 forecasts
For the FY12/21 results forecasts, net sales are expected to increase 3.7% YoY to ¥53,000mn and operating income
to ¥900mn (compared to an operating loss of ¥727mn in the previous fiscal year) as the Company anticipates areturn to positive earnings amid an increase in sales and substantially higher profits. Under the assumption thatJapan’s advertising market is bound to mount a gradual recovery, the prospect of growth in net sales seems likely
amid a scenario that has the Communication Design Business achieving recovery in the wake of effects of thecoronavirus in FY12/20 while serving new advertiser needs, and despite the prospect of net sales remaining nearly
unchanged in the Content Production Business. In profits as well, the Company is poised to generate substantiallyhigher earnings due to higher sales and ongoing cost reductions.
Key Points
In FY12/20, the Company posted a substantial downturn in sales and an operating loss due to the coronavirus.
However, results ultimately outperformed revised forecasts amid rapid recovery in 4Q• The newly announced five-year medium-term management plan has set the theme of “Group-wide update ofproduction functions” and implemented a major reorganization of the Group to respond to an era of reforms• The targets for the plan’s final fiscal year (FY12/25) are consolidated net sales of ¥68bn and consolidated
operating income of ¥4.4bn, and the Company will work to improve profitability through cost reductions• In FY12/21, a return to positive earnings amid a substantial increase in profits seems likely due to factors that
include recovery in the wake of FY12/20 results, the Company serving new advertiser needs, and ongoing cost
reductions•

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en█ 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. The AOI TYO Group plans and creates
TV commercials and is engaged in its Solutions Business that includes direct business with advertisers and video
content marketing. It was founded in January 2017 through management integration of two industry-leading companies and holds a top share in TV commercial production.
The AOI TYO Group consists of a single Advertising Business segment and four sub-segments (Video Advertising,Solutions, Advertisement-Related, Overseas). While the mainstay Video Advertising Business generates about
70% of overall sales, the Company is focusing on the Solutions Business to meet new advertising needs as a
growth driver. In FY12/21, the Company began transitioning to a two-business structure consisting of the Content
Production Business and the Communication Design Business, in alignment with its reorganization (more details
later in this report).
Sales mix by customer was well balanced with 20.7% to the Dentsu Group <4324>, 25.6% to the HakuhodoGroup (Hakuhodo DY Holdings Inc.) <2433>, 31.8% in direct transactions, and 21.9% to others. Additionally, sales
composition by media type is TV commercial production at 56.8%, entertainment content at 4.5%, digital content
at 23.0%, overseas at 4.1%, and other at 11.6%. “Digital content” is growing rapidly along with expansion in online
video advertising demand as a trend.

Sales composition by business (FY12/20 result)
Overseas Business
4.6%

AdvertisementRelated Business
12.7%

Solutions Business
13.8%

Video Advertising
Business
68.9%

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

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/enCompany profile

Sales composition ratios by customer (FY12/20 result)

Dentsu Group
20.7%

Other
21.9%

Hakuhodo Group
25.6%

Direct transactions
31.8%

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

Sales composition ratios by medium (FY12/20 result)

Overseas
4.1%

Other
11.6%

TV commercial
production
56.8%

Digital content
23.0%Entertainment content
4.5%
Source: Prepared by FISCO from the Company’s results briefing materials

Below, we review each of these business areas.
(1) Video Advertising Business
The Company plans and produces TV commercials, online video and other advertising video. TV commercials werethe main business for AOI Pro. and TYO, and integration of these two industry-leading companies established
a top market share. Both companies produce numerous excellent works amid continuation of a healthy orders
environment. While the Company faces concerns about profitability decline because of changes in advertising
media related to the growing internet presence and the printless shift as well as the need for income structurereforms and better work efficiency, it aims to establish a dominant position in high-quality video advertising, its
strength, including in the expanding online video market.

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/enCompany profile(2) Solutions BusinessThis business provides measures for problem-solving for customers. Its results currently roughly equate to the
combined results of the TYO Offering Management Business Unit*1 and AOI Pro.’s subsidiary Quark tokyo Inc.*2(including its subsidiary Mediator Inc.*3).
*1	Supplies one-stop solutions mainly through multifaceted media activities via direct business 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	A joint venture between Quark tokyo and Cyber Communications Inc. of the Dentsu Group (established August 20, 2019)..

(3) Advertisement-Related BusinessThis business includes planning and production of movies, TV dramas and events, as well as production of digitalcontent, promotional content and music videos. The Company’s strategy is to enclose the market by building up
its track record by entering areas that have a strong affinity with the mainstay business and bolstering peripheral
solutions (promotions and content).
(4) Overseas Business
The Overseas Business operates sites mainly in Southeast Asia (Thailand, Vietnam, Singapore, Indonesia,
Malaysia, and India), engaging in business with both Japanese-affiliates and local companies. This businessincludes video production orders received from overseas. These are the main areas that both AOI Pro. and TYO
have been actively engaged in.
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 measurement and operation of online video
platform effects, to the group (equity-method affiliate) through a capital alliance with the aim of a full-fledged
ramp-up of video content 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 content, and entry
by Japanese companies 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 after other major commercial production companies had been formed. Five commercial creators,
including Hiroaki Yoshida the honorary chairman of AOI TYO Holdings, established the company with the dreamof “Creating an Ideal Company of Creators, by Creators, for Creators.”

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/enCompany profile

The company listed on JASDAQ in 2002. It expanded business by leveraging its creative capabilities 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 the market being changed to the Second
Section of the Tokyo Stock Exchange in October 2013, the Company’s listing was reassigned to the First Sectionin January 2014.
TYO has been involved in various types of content production, including TV commercials, online videos, digitalcontent 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 business with advertisers in July 2003, the TYO Offering Management Business Unit has currently
taken charge of the entire group’s direct business 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, in addition to dramatic changes to the advertising industry environment,
including communications speed and data analysis, and the progress being made in technological innovations,such as VR and AR. In this environment, major growth in conventional TV commercial production, which had
been the Company’s mainstay, is unlikely, but advertising-related business areas is expected to expand, withaccompanying changes to their methods and structures.
Based on this sort of awareness of the business environment, the companies judged that integration was necessary to grow in the medium to long term to expand market share, strengthen negotiation power, and maintainrobust capital strength. They also wanted to build a competitive and advanced business model by newly forminga group to lead the industry and concentrating and effectively utilizing management resources.

█ Financial highlights
In FY12/20, the Company recorded an operating loss amid asignificant decrease in sales and profits. However, results ultimately
outperformed revised forecasts amid rapid recovery in 4Q
1. FY12/20 results
In FY12/20 results, net sales decreased 21.7% YoY to ¥51,087mn, operating loss was ¥727mn (operating income of¥2,118mn in the same period in the previous fiscal year), ordinary loss was ¥1,149mn (ordinary income of ¥1,763mn),
and loss attributable to owners of parent was ¥2,552mn (loss attributable to owners of parent of ¥1,280mn). The
Company incurred an operating loss amid a substantial decrease in sales due to the coronavirus. However, net
sales and operating loss results ultimately outperformed the revised forecasts announced on August 24, 2020,
amid rapid recovery in 4Q.

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Financial highlights

Net sales decreased in each business segment due to the coronavirus. This is particularly a result of sales revenues
having declined significantly in the Video Advertising Business largely due to a downturn in advertising demand amidcancellations and postponements of filming services associated with Japan’s first state of emergency declaration.
Meanwhile, the Advertisement-Related Business also encountered a substantial drop in sales revenues largely due
to cancellations and postponements of various events. However, the Company ultimately managed to achieve results
at levels outperforming its revised forecasts given that 4Q sales of its Video Advertising Business and Solutions
Business recovered to levels nearly on par with those of the same period of the previous fiscal year. Orders received
also increased in 4Q, upon having shifted to an upward trajectory beginning in 3Q subsequent to the government’s
lifting of the state of emergency declaration. Accordingly, although not at levels achieved as of the end of FY12/19,
backlog of orders is at the adequate level of ¥13,306mn (down 8.9% YoY) as of the end of FY12/20.
Net sales by customer declined for every channel, and the decreases were particularly large for major advertising
agencies like the Dentsu Group and Hakuhodo Group.
In terms of profits, the Company shifted to an operating loss with a decline in sales having weighed on profits,
despite efforts to cut costs including travel expenses and entertainment expenses with the aim of achieving the
medium-term management plan target of reducing costs by as much as ¥2.0bn ahead of schedule. Based on its
performance solely in the 2H FY12/20, however, the Company achieved positive operating income results alongwith recovering net sales. On the other hand, the Company’s large extent of loss attributable to owners of parent
is because of factors that include its posting of extraordinary losses such as ¥300mn impairment of goodwill dueto the coronavirus and ¥86mn in loss on valuation of investment securities, in addition to ¥946mn in businessrestructuring expenses largely associated with office consolidations and reductions amid a substantial reductionin the number of consolidated subsidiaries and efforts to encourage employees to work from home, under the
medium-term management plan.
Regarding financial condition, total assets decreased 8.8% compared to the end of the previous fiscal period to¥48,682mn, mainly due to the decline in notes and accounts receivable - trade following the reduction in sales.
Meanwhile, shareholders’ equity decreased 13.1% to ¥19,925mn because of the recording of loss attributable toowners of parent, and therefore the equity ratio fell to 40.9% (43.0% at the end of previous fiscal period). Conversely,
this is in part because cash and deposits increased 18.7% to ¥10,813mn, and also because the Company has
achieved a current ratio at the high level of 223.9% and has established a commitment line (a borrowing framework)of ¥12bn with multiple financial institutions, so there are seemingly no concerns regarding liquidity or otherwise froma financial standpoint.

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Financial highlights

FY12/20 results overview(¥mn)
FY12/19
Results

FY12/20

vs. net sales

65,229Net sales

Results

vs. net sales

51,087

ChangeYoY-14,142-21.7%

Video Advertising Business

43,86067.2%

35,19468.9%-8,666-19.8%

Solutions Business

8,145

12.5%

7,074

13.8%

-1,071-13.1%

Advertisement-Related Business

9,846

15.1%

6,488

12.7%

-3,358-34.1%

Overseas Business

3,378

5.2%

2,331

4.6%

-1,047-31.0%

Cost of sales

53,51482.0%

43,86785.9%-9,647-18.0%

Selling, general and administrative expenses

9,596

14.7%

7,947

15.6%

-1,649-17.2%

Operating income

2,118

3.2%

-727

-1.4%

-2,845-

Ordinary income

1,763

2.7%

-1,149-2.2%-2,912-

Loss attributable to owners of parent-1,280-2.0%-2,552-5.0%-1,272-

EBITDA

3,606

422-3,184-88.3%

Order backlog

14,606

13,306-1,300-8.9%

Sales ratio by customer
Dentsu Group

12,941

19.8%

10,58320.7%-2,358-18.2%

Hakuhodo Group

18,08827.7%

13,07425.6%-5,014-27.7%

Direct transactions

21,072

32.3%

16,25931.8%-4,813-22.8%

Other

13,125

20.1%

11,16921.9%-1,956-14.9%

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

Financial position as of the end of FY12/20
(¥mn)
YoY

As of the end of
FY12/19

As of the end of
FY12/20

Change36,00333,014-2,988-8.3%

Cash and deposits

9,111

10,813

1,702

18.7%

Notes and accounts receivable - trade16,873

13,222-3,651-21.6%

Work in process

4,510

4,331

-178

-4.0%

Non-current assets

17,34815,667-1,680-9.7%

Property, plant and equipment

7,084

6,257

-827

-11.7%

Intangible assets

4,275

3,601

-673

-15.8%

Investments and other assets

5,988

5,808

-179

-3.0%

Total assets

53,352

48,682-4,669-8.8%

Current liabilities

18,343

14,743-3,599-19.6%

Accounts payable - trade

8,697

7,144

-1,552-17.9%

Short-term loans payable

6,273

4,374

-1,899-30.3%

Advances received

899

720

-179

-19.9%

Non-current liabilities

11,645

13,707

2,062

17.7%

Long-term loans payable

6,672

8,774

2,102

31.5%

Long-term deposits received

3,501

3,501

-

-

Total liabilities

29,98828,451-1,537-5.1%

Net assets

23,363

20,231-3,132-13.4%

22,93519,925-3,009-13.1%

Equity ratio

43.0%

40.9%

Current ratio

196.3%

223.9%

0.56x

0.66x

Current assets

Shareholders’ equity

D/E ratio

Change rate

Source: Prepared by FISCO from the Company’s financial results

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Financial highlights

2. Segment performance and activity results(1) Video Advertising BusinessNet sales fell significantly, declining 19.8% YoY to ¥35,194mn. Following the declaration of a state of emergency(April 7 to May 25) due to the coronavirus pandemic, sales were affected by various measures, mainly due tofilming almost entirely stopping and requests to postpone TV commercial production. In 4Q, the Company
achieved recovery on a quarterly basis back to nearly the same level as that of the same quarter in the previous
fiscal year. This is attributable to factors that include resumption of economic activity along with the Company’s
flexible approach in terms of restarting business operations upon having created proprietary guidelines* and its
introducing of video production methods with respect to remote work. Meanwhile, it is worth noting the view thatstructural change is evident in that the Video Advertising Business has come to account for a higher proportionof the segment’s sales mix amid a scenario where sales of digital content including online videos decreased
little relative to those of television commercials. As for profits as well, in 2H FY 12/20, the effective profit margin
improved greatly to 34.5% (compared to 32.1% in the same period of the previous fiscal year) mainly due to arecovery in sales and a reduction in projects with a low profit margin, despite a scenario in 1H FY 12/20 where theeffective profit margin decreased to 31.4% (33.5% in the same period of the previous fiscal year). The decreaseis largely attributable to actual-costs claims stemming from cancellations and postponements of projects due tothe coronavirus, in addition to external factors involving a decline in highly profitable print sales.
*	Refers to concluding an advisory contract with a medical coordination company and creating proprietary guidelines for
production operations. The aim is to thoroughly implement measures to prevent the infection from the spread of thecoronavirus, such as taking a team when filming to manage hygiene measures, including medical practitioners, andconducting health checks and regularly implementing and confirming disinfection and ventilation.

(2) Solutions BusinessNet sales decreased 13.1% YoY to ¥7,074mn, but greatly outperformed revised forecasts. The TYO Offering
Management Business Unit achieved significant recovery in 4Q amid heightening demand from successful online
companies and other such enterprises. Meanwhile, 4Q net sales of Quark tokyo (and Mediator) increased YoY as
a result of the company having extensively cultivated business dealings with online-related companies and othersuch enterprises serving the youth demographic, and despite adverse effects from budget cuts among advertisers.
(3) Advertisement-Related BusinessNet sales decreased 34.1% YoY to ¥6,488mn, but were largely on par with revised forecasts despite the significant
downturn. Whereas the decline was caused by cancellations and postponements of various events due to thecoronavirus, the Advertisement-Related Business mounted a recovery in 4Q due to expansion of the customer
base amid emergence of a new mainstream format involving hybrid events combining online and live formats.
(4) Overseas BusinessNet sales significantly decreased 31.0% YoY to ¥2,331mn, but were on par with revised forecasts. However,the coronavirus continues to affect results given that the pandemic continues in certain areas of Southeast Asia.
3. Quarterly performance trends
Looking at performance trends on a quarterly basis, net sales mounted a rapid recovery during 4Q despite having
fallen significantly over 2Q FY12/20 and 3Q due to the coronavirus. The two segments of the Video Advertising
Business and Solutions Business in particular returned to levels nearly on par with those of the same period of theprevious fiscal year. In terms of profits as well, the Company recorded operating losses in 2Q and 3Q. However, itmarked progress in shifting to a profit-generating earnings structure by achieving substantially better profitability in
4Q due to recovery in net sales and effectiveness of cost-cutting.

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

AOI TYO Holdings Inc.

14-Apr.-2021

3975 Tokyo Stock Exchange First Section

https://aoityo.com/en

Financial highlights

Quarterly trends in net sales by business segment
Video Advertising Business
Advertisement-Related Business（¥mn）

18,42520,00018,00016,00014,00012,000

Solutions Business
Overseas Business

16,168

854

1,030
1,998

3,526

15,47015,166

817
2,273

677
2,049

1,611

1,774

2,308

10,76910,666

10,832

2,452

10,00013,049
780
1,940
1,605

8,000

6,000

16,637573
2,313
11,318

2,390

439
935
1,786

10,083
539
1,300
1,293

11,5934,000

11,361
8,724

8,158

6,951

1Q

2Q

3Q

2,000
0
1Q

2Q

3Q

4Q

FY12/194Q

FY12/20

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

Quarterly trends in operating income

(¥mn)
1,500

965

1,000

633

533
337

500

183

116

0
-500

-379

-1,000-997-1,500
1Q

2Q

3Q

4Q

1Q

FY12/19

2Q

3Q

4Q

FY12/20

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

4. FY12/20 performance summary
Summarizing FY12/20, coronavirus has dealt a severe blow to the Company’s operating results. But if looking at thesituation from a different perspective there are positive signs looking ahead. For instance, the Company is capableof taking action in terms of rapidly implementing business and organizational reforms and transforming its earnings
structure, particularly when it comes to addressing structural changes in the advertising market (changing advertiser
needs, momentum toward new business channels, etc.). Moreover, the Company created proprietary guidelines amid
unanticipated circumstances posed by the coronavirus and otherwise managed to resume operations while implementing thorough measures to prevent transmission of the virus. This has culminated in recovery of its financial results
beginning in 4Q, which seemingly suggests that the Company deserves credit for its high capacity to address risk.

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10 16

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en█ Main activity results
Increasing volume of direct business with successful online-relatedcompanies and other such entities
The Company has landed business directly serving flea market app operator Mercari <4385> involving its televisioncommercials, out-of-home (OOH) media, web services and PR. Mercari selected the AOI TYO Group’s services
proposal over those of multiple competitors. Meanwhile, the AOI TYO Group directly takes charge of televisioncommercials for Amazon Prime Video offered by Amazon.com, Inc <AMZN>. The company has furthermore gainedorders involving campaigns entailing promotions beyond video. This has included promotions for LOTTE (including
Painomi × Uber Eats tie-ins and various events) as well as achieving results in online video, events, graphics andsocial media for BMW. The Company deserves credit for instances where it has addressed changing advertiser
needs amid a scenario of new business channels.

█ Direction going forward
Has announced a new five-year medium-term management plan
based on the theme of “Group-wide update of production functions”
and measures include business and organizational structuralreforms
1. Medium-term management plan
To respond to rapid environmental changes, the Company formulated medium-term management policies in March
2019. Setting its basic policy to “be a powerful corporate group capable of responding to any era,” it has changed
to management that emphasizes “quality over quantity.” In particular, in addition to further deepening its productionof high-quality video and movies for branding, which is one of the Company’s strengths, it has indicated a directionof strengthening peripheral solutions and widening the business scope. But since entering 2020, results have been
declining significantly due to the impact of the coronavirus, while major changes to ways of living are causing the
speed of environmental changes to further accelerate and responding to advertisers’ new needs has become anurgent task. Based on this situation, to accelerate the medium-term management policies, the Company announced
a new five-year medium-term management plan on August 24, 2020. However, there will be no major change ofdirection going forward. The key points are to further accelerate the realization of the medium-term management
policies by setting “Group-wide update of production functions” as a theme and implementing a major reorganizationof the Group to respond to an age of reforms.

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Direction going forward

2. Environmental awareness that forms the assumptions
It is forecast that the TV commercial market will shrink at a maximum pace of around 2% a year, but that the online
video advertising market will grow by around 20% a year due to the acceleration of the shift to digital. In this sortof environment, brand videos with high unit prices, which are one of the Company’s strengths, will continue togrow, but this growth will be limited and it seems that low- to medium-priced videos will grow significantly. On
the other hand, when it comes to trends among advertisers, the Company is encountering growing needs withrespect to advertisers seeking to directly order only creative functions deemed necessary as they progressively shift
to developing strategic advertising planning functions in-house. Meanwhile, an increasing number of SMEs andventure companies with annual advertising budgets ranging from ¥100mn to ¥1bn require a structure that makes it
possible for them to provide one-stop services extending from marketing-orientated communication design throughto planning, production, and management. Accordingly, it is apparent that there are growing needs in either casefor business dealings directly with production companies like AOI TYO Holdings.
3. Priority measures(1) Business and organizational structural reforms
The Company’s business structure has focused on advertisement video production so far, but has changed
to a two-business structure: The Content Production Business, responsible for the conventional advertising
video production centered on consignment work from advertising agencies; and, the Communication Design
Business, responsible for work from communication design through to execution centered on direct transactions
with advertisers. Also, it reduced the number of consolidated subsidiaries from 33 companies to 23 companies.
Group structure

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

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12 16

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Direction going forward(2) Overview of respective business segments and direction going forward
1) Content Production Business
The Content Production Business mainly encompasses entities such as AOI Pro. and TYO, and engages in an
extensive range of content production including advertisement video production in Japan and abroad, post-production business, and xR content production. This business consolidates the work of the production subsidiaries
in the former Video Advertising Business and the former Overseas Business and part of the work of the former
Advertisement-Related Business. Going forward, the Content Production Business is set to pursue high quality
and productivity by leveraging its strengths in the form of its industry-leading market share and expertise amassed
thus far. It will also set its sights on expanding its coverage in the digital video market’s low- to medium-priced
segment, which is poised for growth. It is also focusing on content planning and production harnessing diversified
post production (including sound editing and computer graphics work) as well as virtual reality, augmented reality,
and other such immersive technologies.
2) Communication Design BusinessIn the advertising and marketing solutions domain, the Communication Design Business provides omnichannel execution particularly involving video, digital solutions, PR, events, and spatial design. The business willconsolidate the operations of the former Solutions Business, Advertisement-Related Business, and Overseas
Business, excluding production subsidiaries. With the business segment centering on new subsidiary xpd Inc.,it will maintain a future policy aiming to strengthen the customer base while also providing higher value-added
integrated marketing and communication services and expanding its range of services with respect to executing
omnichannel promotions.
New business segment classifications

Source: Prepared by FISCO from the Company’s results briefing materials(3) Deeping and strengthening Group management and reducing costs
Based on the newly formulated human resources management policy, the Company is strengthening recruitment of
new graduates (including unifying selection management), reviewing the evaluation and remuneration systems andworking on measures to bring together all the human resources in the Group, including by constructing a humanresource development environment. It is also aiming for cost reductions of a maximum amount of ¥2bn, suchas by consolidating offices, encouraging remote work, and improving productivity through digital transformation.

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13 16

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Direction going forward

4. Key performance indicators (KPI) and results targets
The Company’s targets for the medium-term management plan’s final fiscal year (FY12/25) are consolidated net
sales of ¥68bn, consolidated operating income of ¥4.4bn, EBITDA of ¥5.7bn, and ROE of at least 10%. However,results in FY12/20 are greatly declined temporarily due to the impact of the coronavirus, but it is still aiming forsustainable growth from FY12/21 onwards. In particular, the targets are premised on emphasizing an improvement
to profitability through cost reductions. Also, breaking down the net sales target of ¥68bn, the plan is to increase
sales from the Content Production Business to ¥47bn (up ¥7.7bn from the FY12/20) and from the Communication
Design Business to ¥21bn (up ¥9.1bn). Moreover, its policy is to work to improve employee engagement and tocontribute to the SDGs.

█ Business performance outlook
In FY12/21, the Company is poised for a return to profitability amid
the prospect of substantially higher earnings. Meanwhile, it isaddressing changes in advertiser needs while also strengthening its
earnings structure through ongoing efforts to cut costs
1. FY12/21 forecasts
For the FY12/21 results forecasts, net sales are expected to increase 3.7% YoY to ¥53,000mn, operating income of¥900mn (compared to an operating loss of ¥727mn in the previous fiscal year), ordinary income of ¥800mn (ordinary
loss of ¥1,149mn), and profit attributable to owners of parent of ¥400mn (loss attributable to owners of parent of¥2,552mn). Accordingly, the Company is likely to return to profitability due to the prospect of increased sales andsubstantially higher earnings.
Under the assumption that Japan’s advertising market is bound to mount a gradual recovery, the prospect of growthin net sales seems likely amid a scenario where sales remain nearly unchanged in the Content Production Businesswhile the Communication Design Business serves advertiser needs in addition to recovering in the wake of theeffects of the coronavirus in FY12/20.
In profits as well, the Company is poised to achieve substantially higher earnings resulting from higher sales anda continuation of cost-cutting efforts that began in FY12/20. In terms of costs, the Company has been lowering
office-related expenses (land rent, consumables expense, utilities expense, etc.) by reducing the number of its
consolidated subsidiaries and cutting back on offices by encouraging employees to work from home. It is furthermore
poised to incur lower expenses, particularly in terms of decreasing personnel expenses, which are closely linked
to financial results, ongoing efforts to curb entertainment expenses, travel expenses and other outlays that werereduced in FY12/20, and reducing outsourcing expenses and commission expenses.

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14 16

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en

Business performance outlook

FY12/21 forecasts(¥mn)
FY12/20
Results

FY12/21

vs. net sales

51,087

Net sales

Forecasts

vs. net sales

53,000Content Production Business

11,82823.2%

14,00026.4%

Communication Design BusinessChange

YoY

1,913

3.7%

2,172

18.4%

39,25876.8%

39,000

73.6%

-258

-0.7%

Operating income

-727

-1.4%

900

1.7%

1,627

-

Ordinary income-1,149

-2.2%

800

1.5%

1,949

-

Loss attributable to owners of parent-2,552

-5.0%

400

0.8%

2,952

-

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

2. Business performance outlook of each business segment and action plans(1) Content Production BusinessNet sales are forecast to decrease 0.7% to ¥39,000mn. Although the Content Production Business is poised tomount a gradual recovery in the advertising market, its results are expected to remain largely unchanged, partiallyas a result of shifting some production employees to the Communication Design Business. The segment’s action
plan involves: 1) consistently securing orders from Dentsu and Hakuhodo, 2) expanding the customer base (thisincludes the ADK Group, foreign advertising companies, online advertising companies, and consulting companies;
and involves gaining direct orders from platform providers), and 3) setting the stage for the full-scale launch oflow- to medium-priced video production (from 2022 onward).
(2) Communication Design BusinessNet sales are forecast to increase 18.4% to ¥14,000mn, which constitutes substantial growth as a result of
the segment addressing changing advertiser needs. The action plan for the segment lists efforts that include:1) engaging in initiatives to strengthen coordination among departments (in areas that include the managerial
framework, employee evaluations, and compensation plans), and 2) enhancing functions that are insufficient(coordinating with PR companies and planning companies and accepting secondments of personnel, while also
hiring new strategic planners).
3. Opinion of FISCO’s analyst
At FISCO, we deem the Company to be sufficiently likely to achieve its results forecasts due to various factors suchas the Company being off to a good start amid rapid recovery in 4Q FY12/20, completing measures to address thecoronavirus, which consequently is not now affecting services such as filming and editing, and gradual recovery
is anticipated in the overall advertising market. Although the Company endured a temporary setback in financial
results in FY12/20 due to the coronavirus, we deem that structural changes offer substantial opportunities over the
medium- to long-term. Going forward, the Company is bound to encounter challenges that entail swiftly addressingchanges brought about by the coronavirus and positively making the best of the situation. In that sense, we expect
the Company’s return to a growth trajectory, given that the situation is perfect timing for the Company to take on its
current business and organizational structural reforms.
In the medium-term management plan as well, targets are at levels that are fully achievable through thorough cost
reductions. Rather, focus should be on how the Company can improve by adding value. In particular, starting fromthe axis of the new strategy, or in other words, the provision of a full line of services through direct transactions
with SMEs and venture companies, we shall be closely following how the Company will increase its competitive
advantage through the provision of new value, including the planning and production of content that utilizes thelatest digital technologies and the provision of integrated marketing planning, and also what effects this will haveon results (particularly on profitability).

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15 16

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

14-Apr.-2021
https://aoityo.com/en█ Shareholder returns
Aiming for a consolidated dividend payout ratio of at least 30%
Going forward, the Company’s basic dividend policy is to continue with a “consolidated dividend payout ratio of atleast 30%.” Based on this and the viewpoint of continuing to stably pay dividends, it has indicated that its policy is
to return profits to shareholders appropriately according to results.
In FY12/20, the Company once again paid a period-end dividend of ¥12.0 per share, which is the same amountas FY12/19, despite having recorded a loss attributable to owners of parent. Whereas it did not pay out an interim
dividend for FY12/19, it paid the period-end dividend from the viewpoint of maintaining stable dividend payments to
the greatest possible extent. The Company plans to pay a period-end dividend of ¥12.0 per share again in FY12/21.
Also, with the aim of promoting medium- to long-term shareholding, the Company has introduced a shareholder
benefits program. Specifically, it plans to provide shareholders listed or recorded in the shareholders’ register onJune 30 of each year that have held at least 5 units (500 shares) of the Company’s shares continuously for at least
1 year with gifts depending on the number of shares held, including original QUO cards and perks from its original
benefits program catalog.

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16 16

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
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This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
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Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-13-3 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (IR Consulting Business Division)
Email: support@fisco.co.jp