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

13-Nov.-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

13-Nov.-2019
http://aoityo.com/en/ir.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Company profile.. ................................... ......................................................................................................

01

2. 1H FY12/19 financial highlights. . ..................................................................................................................

01

3. FY12/19 forecast.. .................................. ......................................................................................................

02

4. Growth strategy...........................................................................................................................................

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

03

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

05■Financial highlights-------------------------------------------------------------------------------------------------------------------------------------------------- 06■Activity results-------------------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Video Advertising Business. . .................. ......................................................................................................

08

2. Advertisement-Related Business........... ......................................................................................................

09

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

09

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

09■Main Topics---------------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Joint venture established with Cyber Communications................................................................................

09

2. Production of Netflix original series Rilakkuma and Kaoru. ..........................................................................

10

3. Capital and business alliance with design incubation team Any Projects.....................................................

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

12

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

12

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

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

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

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

13-Nov.-2019
http://aoityo.com/en/ir.html██Summary
In 1H FY12/19, the Company posted a decline in both sales andprofits due to the shift to printless delivery and the reorganizationof unprofitable subsidiaries. The Company downwardly revised the
FY12/19 full-year earnings forecasts. Some positive results haveemerged with the establishment of joint venture with CCI.
1. Company profile
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 business with advertisers and video content marketing. It holds a top share in TV
commercial production through the management integration of the two leading industry firms.
The decision to proceed with management integration took into account the lack of prospects for major growthin conventional TV commercial production as well as likely expansion of business scope related to advertising,including methodology and structural changes. It comes against a backdrop of diversification of media (primarily
through the Internet) and devices (smartphones, tablets, and others) and major shifts in industry landscape withadvances in technology, such as communications speed, data analysis, VR* 1, and AR*2. This integration aims torealize economies of scale and create synergies and also accelerate the pace of new value creation and businessexpansion through consolidation and effective utilization of business resources. In addition to external factors suchas the impacts of the progress in the shift to printless delivery and work-style reform, and due to the strengtheningof the order management system as well as the reorganization of unprofitable subsidiaries, results have temporarily
leveled off, but the Company is proactively working on efforts targeting the future, such as collaborations with othercompanies and investments in new technologies.
*1	VR (virtual reality) refers to the technologies and methods to realize various types of experiences, including in virtualworlds, portraying something like the real world that goes beyond time and space.
*2	AR (augmented reality) refers to the technologies and methods to realize an augmented reality by adding some otherinformation to the information that people can perceive in the real world.

2. 1H FY12/19 financial highlights
In 1H FY12/19, the Company reported lower sales and profits, with net sales of ¥30,636mn (-0.7% YoY) andoperating income of ¥816mn (-53.2%). Both sales as well as all profit lines fell short of the Company’s initial forecasts.
Although sales in the mainstay Video Advertising Business were on par with the same period of the previous year
amid the continued decline in print sales, the decline in sales was due to the drop in spot media sales in the strategic
Solutions Business, as well as the reorganization of unprofitable subsidiaries in the Overseas Business. Operating
income declined significantly, due to the impact of the drop in high-margin print sales, the increase in outsourcing
costs associated with work-style reform, as well as higher depreciation in conjunction with the operation of newenterprise systems. On the other hand, qualitatively-speaking, significant progress was made on initiatives targeting
future growth, such as the establishment of a joint venture with strategic partner Cyber Communications, Inc. (“CCI”).

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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

13-Nov.-2019
http://aoityo.com/en/ir.html

Summary

3. FY12/19 forecast
Based on the 1H results, the Company downwardly revised its forecasts for FY12/19. The revised forecasts are fornet sales to decline 1.8% YoY to ¥63,600mn (lowered ¥1,400mn) and operating income to fall 33.0% to ¥2,300mn(lowered ¥300mn). The magnitude of the downward revisions generally reflects the 1H underperformance, while theCompany expects 2H performance to be on par with the initial forecasts. The forecast for lower net sales is due toorder control in conjunction with work-style reform, the ongoing shift to printless delivery, as well as the reorganizationof unprofitable subsidiaries. The forecast for a decline in profit is due to the decline in high-margin print sales, costs
to handle work-style reform, as well as up-front investments targeting future growth, particularly with respect tohuman resources development and hiring. Attention should be paid to the path towards profit growth from next fiscal
year onward, when the impacts of the shift to printless delivery will exhaust. We believe that the keys to successwill be: 1) video advertising for branding purposes; and 2) handling video content marketing (solutions). The former
is an area that the Company can leverage its strengths, so the key points will be to what extent the Company cancapture the growing demand and how it can increase profitability (added value).
4. Growth strategy
The Company disclosed a new medium-term business policy in March 2019 in order to address a variety ofenvironment changes two years after the management integration. A key difference with previous policy is the change
to management with priority on “quality over quantity.” To ensure that it continues as a powerful group capable ofresponding to any era, the Company calls for development of businesses that meet needs and changes, full utilizationof human resource capabilities, and continuation of healthy profits. It also continues to emphasize sustainability andshareholder return and wants to generate ROE that exceeds COE.
Key Points
Posted lower sales and profits in 1H FY12/19 due to the shift to printless delivery, the reorganization of
unprofitable subsidiaries, and other factors.
• As a result, the Company downwardly revised FY12/19 results forecasts (expects a decline in both net sales
and operating income)• On the other hand, significant progress was made on initiatives targeting the future, such as the establishmentof a joint venture with strategic partner CCI• Based on the new medium-term business policy announced in March 2019, the Company has shifted to a
management approach emphasizing “quality over quantity” and is aiming for sustainable growth•

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

13-Nov.-2019
http://aoityo.com/en/ir.html██Company profile
Joint holding company established for the integration of AOI Pro.
and TYO
Holds a top industry share for TV commercial production
1. Business overview
AOI TYO Holdings is a joint holding company that owns AOI Pro. and TYO. AOI TYO Group plans and creates TVcommercials and also handles Solutions Business that includes direct business with advertisers and video content
marketing. It was founded in January 2017 through management integration of two leading industry firms and holds
a top share in TV commercial production.
AOI TYO Group consists of a single Advertising Business segment and four sub-segments (Video Advertising,Advertisement-Related, Solutions, Overseas)*. While the mainstay Video Advertising Business generates about 70%
of overall sales, Solutions Business and Overseas Business are attracting attention as a growth driver.
*	Changed business categories and names from FY12/19 (details covered below).

Sales mix by customer was well balanced with 22.6% to the Dentsu <4324> Group, 29.6% to the Hakuhodo(Hakuhodo DY Holdings Inc. <2433>) Group, 27.8% in direct transactions, and 20.0% 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 composition by media type is TV commercial production at 58.6%, entertainment
contents at 3.4%, digital contents at 20.6%, overseas at 4.8%, and other at 12.6%. “Digital contents” is growing
rapidly along with expansion in online video advertising demand as a trend.

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㻥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㻠㻚㻥㻑㻿㼛㼘㼡㼠㼕㼛㼚㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟㻝㻝㻚㻜㻑㻭㼐㼢㼑㼞㼠㼕㼟㼑㼙㼑㼚㼠㻙㻾㼑㼘㼍㼠㼑㼐㻌㻮㼡㼟㼕㼚㼑㼟㼟㻝㻠㻚㻝㻑㼂㼕㼐㼑㼛㻌㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻣㻜㻚㻜㻑

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

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

03 13

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

13-Nov.-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㻥㻌㼞㼑㼟㼡㼘㼠㻕

㻻㼠㼔㼑㼞
㻞㻜㻚㻜㻑

㻰㼕㼞㼑㼏㼠㻌
㼠㼞㼍㼚㼟㼍㼏㼠㼕㼛㼚㼟㻞㻣㻚㻤㻑㻰㼑㼚㼠㼟㼡㻌㻳㼞㼛㼡㼜㻞㻞㻚㻢㻑㻴㼍㼗㼡㼔㼛㼐㼛㻌㻳㼞㼛㼡㼜㻞㻥㻚㻢㻑

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㻥㻌㼞㼑㼟㼡㼘㼠㼟㻕㻻㼢㼑㼞㼟㼑㼍㼟
㻠㻚㻤㻑

㻻㼠㼔㼑㼞
㻝㻞㻚㻢㻑

㻰㼕㼓㼕㼠㼍㼘㻌㼏㼛㼚㼠㼑㼚㼠㼟㻞㻜㻚㻢㻑㼀㼂㻌㼏㼛㼙㼙㼑㼞㼏㼕㼍㼘㻡㻤㻚㻢㻑㻱㼚㼠㼑㼞㼠㼍㼕㼚㼙㼑㼚㼠㻌㼏㼛㼚㼠㼑㼚㼠㼟㻟㻚㻠㻑

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 and other advertising video. As for TV commercials, thiswas the main business for AOI Pro. and TYO, and integration of these two major industry firms established a top
market share. Both firms produce numerous excellent works amid continuation of a healthy orders environment.
While the Company faces concerns about profitability decline because of changes in media value related to thegrowing Internet presence and the printless shift as well as the need for income structure reforms and better
work efficiency, it aims to establish a dominant position in high-quality video advertising, its strength, including
the expanding online video market.

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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

13-Nov.-2019
http://aoityo.com/en/ir.html

Company profile(2) Advertisement-Related BusinessThis business includes the planning and production of movies, TV dramas, and events; 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 an affinity with the mainstay business*, and by bolstering peripheral
solutions (promotions and content).
*	Shoplifters, a movie directed by Hirokazu Koreeda and invested in and produced by AOI Pro, won the Palme d’Or, whichis the highest award in the In Competition category at the 71st Cannes Film Festival. The Company intends to continue
working on entertainment content and further expand its business in anticipation of an era when entertainment content
and advertising video merge together.

(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.
*1	Supplies one-stop solutions mainly through multi-faceted 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	Provides experience design solutions using vital sign data and other services.

(4) Overseas Business
The Overseas Business operates sites centered on Southeast Asia (Thailand, Vietnam, Singapore, Indonesia,
Malaysia, and India), engaging in business with both Japanese-affiliates and local companies. This business includes
video production orders received from overseas. Both AOI Pro. and TYO have been actively engaged in many
regions, and this segment is positioned as a future growth driver. AOI TYO Group has also been actively engaging
in M&A. In July 2019, K&L ISC, a joint venture with Malaysian advertising company ISC Innovators, was turned into
a consolidated subsidiary. Meanwhile, the Company also worked on restructure the business portfolio to better
meet future developments. This included the reorganization of the poorly-performing local subsidiary in Beijing.
2. History(1) AOI Pro.
AOI Pro. goes back to Aoi Advertising Promotion Inc., which was established in 1963 to produce TV commercials,
in Tokyo’s Minato Ward. It solidified a business base as a video production company focused on TV commercials.
In 1990, it listed shares on JASDAQ, taking the lead in this industry, with the aim of making further advances andstrengthening social credibility.
It subsequently created numerous videos that attracted substantial interest, fueling healthy growth and listed on
the Second Section of the Tokyo Stock Exchange in 1998 and on the First Section in 2000. It established a firm
position as one of the major TV commercial production companies.
In September 2011, meanwhile, it launched an overseas site to handle TV commercial production in Indonesia. In
October 2014, it added nakamino Co., Ltd.*, which specializes in online video platform effect measurement andoperation, to the group (equity-method affiliate) through a capital alliance with the aim of full-fledged ramp-up ofvideo 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 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.

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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

13-Nov.-2019
http://aoityo.com/en/ir.html

Company profile(2) TYO
TYO was established as a TV commercial production company in April 1982 in Roppongi, Minato Ward, Tokyo. It
was established the latest among other major commercial production companies. Hiroaki Yoshida (Representative
Director, Chairman & CEO of AOI TYO Holdings), and together with five other commercial creators, including
Kazuyoshi Hayakawa (Representative Director, President and CEO of TYO Inc.) established the company withthe dream of “Creating an Ideal Company of Creators, by Creators, for Creators.”
The company listed on JASDAQ in 2002. It expanded business by leveraging its creative capabilities of having
been involved in the production of numerous TV commercials that left an impression with consumers, notably one
promoting travel to Kyoto for Central Japan Railway Company (JR Central) <9022>. Upon changing to the TSE
Second Section in October 2013, its listing was reassigned to the First Section in January 2014.
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 business with advertisers in July 2003, the current TYO Offering Management Business Unit has 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, and in addition, the major changes to the industry environment, including
communication speeds and data analysis, and also the progress being made in technological innovations, suchas VR and AR. In this environment, major growth in TV commercial production, which had been the mainstay up
to the present time, is unlikely, but advertising-related business areas will expand, with accompanying changes
to their methods and structures.
Based on this sort of awareness of the business environment, the companies judged that integration was to growin the medium to long term to expand market share, strengthen negotiation power, and maintain robust capitalstrength. They also want to build a competitive and advanced business model by newly forming a group to leadthe industry and concentrating and effectively utilizing management resources.

██Financial highlights
Posted lower sales and profits than forecasted in 1H. Impacted
by the shift to printless delivery, the reorganization of unprofitablesubsidiaries, and other factors
The Company reported lower sales and profits in 1H FY12/19, with net sales of ¥30,636mn (-0.7% YoY), operating
income of ¥816mn (-53.2%), ordinary income of ¥637mn (-62.1%), and profit attributable to owners of parent of¥257mn (-78.0%). Net sales and all profit lines fell short of forecasts.

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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

13-Nov.-2019
http://aoityo.com/en/ir.html

Financial highlights

The mainstay Video Advertising Business recorded net sales on par with the previous year due to an increase inorders from major advertising agencies, even though print sales decreased. The Advertisement-Related Businessrecorded significantly higher sales year on year, mainly due to the contribution of event-related sales by newly
consolidated subsidiaries. However, the overall decline in net sales was the result of the large decline in media
sales in the strategic Solutions Business, as well as the reorganization of unprofitable subsidiaries in the Overseas
Business. Poor performance by subsidiaries was a major reason why net sales fell short of the Company’s forecast.
In terms of net sales by customer, net sales to major advertising agencies increased year on year, as the significant
increase in sales to Hakuhodo Group offset the decline in sales to Dentsu Group. The impact of work-style reformin the industry appears to have plateaued. Also, sales from direct transactions grew year on year, excluding thedecline in spot media sales (approximately ¥900mn).
Operating income declined significantly, due to the impact of the decline in high-margin print sales, the increase inoutsourcing costs associated with work-style reform, as well as higher depreciation in conjunction with the operationof new systems. The main reasons that operating income fell short of the forecast were the fact that net sales werelower expected along with the additional expenses related to new enterprise systems. Also, although the Company
posted extraordinary losses (approximately ¥279mn) due to the reorganization of unprofitable subsidiaries, theCompany also posted extraordinary income (approximately ¥281mn) in conjunction with the sale of strategic stock
holdings with unrealized gains.
In terms of financial conditions, total assets increased 2.0% from the end of FY12/18 to ¥56,717mn, due toan increase in cash and deposits based on long-term loans, despite a decline in non-current assets due to theplateauing in system investment and the start of depreciation. Meanwhile, shareholders’ equity fell 2.1% versus
end-FY12/18 to ¥24,590 due to the payment of dividends and other factors. Based on this, the equity ratio wasroughly flat at 43.4% (versus 45.1% at the end of FY12/18).
1H FY12/19 financial highlights(¥mn)
1H FY12/18
ResultRatio

30,864

Net sales

1H FY12/19
ResultChangeChangerate

Initialforecast

-227

-0.7%

32,000Ratio

30,636

FY12/19

Difference
Achievement
rate

Ratio
-1,364

95.7%

Video Advertising
Business

21,08368.3%

21,435

70.0%

352

1.7%

-

-

Advertisement-Related
Business

3,944

12.8%

4,322

14.1%

378

9.6%

-

-

Solutions Business

4,072

13.2%

3,385

11.0%

-687

-16.9%--

Overseas Business

1,766

5.7%

1,494

4.9%

-272

-15.4%--

Cost of sales

24,71380.1%

24,900

81.3%

187

0.8%

-

-

-

SG&A expenses

4,405

14.3%

4,919

16.1%

514

11.7%

-

-

Operating income

1,746

5.7%

816

2.7%

-930

-53.2%

1,100

3.4%

-284

74.2%

Ordinary income

1,680

5.4%

637

2.1%

-1,043-62.1%

1,000

3.1%

-363

63.7%

Profit attributable to ownersof parent

1,170

3.8%

257

0.8%

-913

-78.0%

500

1.6%

-243

51.4%

EBITDA

2,357

1,531

825

-35.0%

Order backlog

14,331

15,119

788

5.5%

-5.3%

Sales ratio by customer
Dentsu Group

7,310

23.7%

6,920

22.6%

-390

Hakuhodo Group

8,311

26.9%

9,066

29.6%

755

9.1%

Direct transactions

8,699

28.2%

8,517

27.8%

-182

-2.1%

Other

6,542

21.2%

6,132

20.0%

-410

-6.3%

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

13-Nov.-2019
http://aoityo.com/en/ir.html

Financial highlights

Financial position as of the end of June 2019(¥mn)
ChangeAs of the end of
December 2018

As of the end ofJune 201835,93737,290

1,353

3.8%

Cash and deposits

9,836

11,860

2,024

20.6%

Notes and accounts receivable - trade

21,00420,022

-982

-4.7%

Work in process

4,256

4,583

327

7.7%

Non-current assets

19,693

19,427

-266

-1.4%

Property, plant and equipment

7,235

7,205

-30

-0.4%

Intangible assets

5,772

5,533

-239

-4.1%

Investments and other assets

6,685

6,687

2

0.0%

Total assets

55,631

56,717

1,086

2.0%

Current liabilities

Current assets

Change rate

20,114

18,250-1,864-9.3%

Accounts payable - trade

8,126

7,035

-1,091-13.4%

Short-term loans payable

7,936

7,604

-332

-4.2%

Advances received

1,136

1,401

265

23.3%

Non-current liabilities

9,837

13,316

3,479

35.4%

Long-term loans payable

4,549

8,220

3,671

80.7%

Long-term deposits received

3,501

3,501

0

0.0%

Total liabilities

29,951

31,567

1,616

5.4%

Net assets

25,67925,150

-529

-2.1%

25,114

24,590

-524

-2.1%

Shareholders' equity
Equity ratio

45.1%

43.4%

Current ratio

178.7%

204.3%

0.49

0.64

D/E ratio

Source: Prepared by FISCO from the Company's results briefing materials██Activity results
1. Video Advertising Business
While the production market for TV commercials and other conventional media advertising is roughly flat, the video
advertising market (videos on the Internet) is expanding, and the Company’s video advertising sales increased 1.7%
YoY to ¥21,435mn. The decline in print sales due to the shift to printless delivery* 1 (approximately ¥300mn) was
within the expected range. While continuing order control related to work-style reforms, a small increase in sales
was secured due to the increase in orders/sales from major advertising agencies. Meanwhile, the effective profit
margin (just for the CM production division) fell to 33.5% (vs. 36.4% in 1H FY12/18) due the impact of receiving
orders for projects with low effective profit margins*2, in addition to the impact caused by the decline in high-margin
print sales, despite ongoing efforts to thoroughly control external expenditures.
*1	Historically, television commercial content had been copied to media (“printed”) and delivered to broadcast stations. The
AOI TYO Group has recognized the sales and profits of this activity in its accounting records. Since October 2017, thiscontent can be delivered via online data transmission, which has resulted in a gradual decline in related sales and profits.
*2	Effective profit is the profit obtained by subtracting external expenditures from sales for CM production.

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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

13-Nov.-2019
http://aoityo.com/en/ir.html

Activity results

2. Advertisement-Related BusinessNet sales in the Advertisement-Related Business increased significantly by ¥9.6% YoY to ¥4,322mn. Event-related
newly consolidated subsidiaries contributed to the increase in sales.
3. Solutions Business
Solutions Business sales declined 16.9% YoY to ¥3,385mn. However, sales are actually increasing steadily if
excluded the impact of the decline in spot media sales (approximately ¥900mn decline). In particular, TYO Offering
Management Business Unit sales (excluding media costs) rose 14.0% YoY to ¥2,073mn. The increase in orders
for television commercials and events for new customers contributed to the increase in sales. Meanwhile, sales at
Quark tokyo declined 5.8% YoY to ¥1,032mn. Although sales declined due to the contraction in the size of existing
major projects, online video production and promotion planning sales increased. Still, although this is positioned asa growth field, securing personnel with high levels of expertise is a challenge. On August 20, 2019, a joint venturewith CCI was established (details discussed below). The collaboration with CCI is expected to help expand thecustomer base as well as have a positive impact on personnel recruitment going forward.
4. Overseas BusinessNet sales in the Overseas Business declined 15.4% YoY to ¥1,494mn. This was due to the reorganization of theunderperforming Beijing local subsidiary and other factors, laying the groundwork for profit growth from next fiscal
year and beyond.

██Main Topics
Progress in collaboration with other companies and other activities
targeting the future
1. Joint venture established with Cyber Communications
On February 12, 2019, Quark tokyo created a strategic partnership with CCI, and on August 20, 2019, the joint
venture Mediator, Inc.* was established. Mediator provides communications planning and content production
for various media attributes, advertising formats, and targets, providing consulting services between clients andmedia. With the collaboration between CCI, which possesses expertise in digital media, and Quark tokyo, whichboasts strengths in digital-age communications planning and creative direction, Mediator aims to become a media
communications agency offering one-stop services in communications and creative, ad distribution plan design andimplementation for the benefit of both media and clients.
*	Ownership ratios: Quark tokyo: 66.6%; CCI: 33.4%

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

09 13

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

13-Nov.-2019
http://aoityo.com/en/ir.html

Main Topics

2. Production of Netflix original series Rilakkuma and Kaoru
On April 19, 2019, Netflix began global exclusive distribution of Rilakkuma and Kaoru, the Netflix original series
created and produced by TYO’s Dwarf Studio. This anime has received a lot of attention as Rilakkuma’s firststop-motion anime. Dwarf Studio is a stop-motion animation production studio that is been recognized in Japanand overseas, mainly for its stop-motion animations utilizing advanced skill, and the studio has created numerous
characters and content that have become very popular around the world, including the NHK character DOMO-kun,
and Komaneko, a long-running movie in France. This Netflix series will do a lot to boost the studio’s name recognitionand lead to future growth.
3. Capital and business alliance with design incubation team Any Projects
TYO signed a capital and business alliance agreement with AnyProjects Inc., a design incubation team, aiming tocreate new business value through designs and creative. TYO senior executive officer Shunichi Takano is participating
as a partner, and full-scale operations were launched in August 2019. AnyProjects is a design incubation team consisting of five partners. The company's members perform design consulting, new business development, architecture
and urban design, communications media strategy, branding strategy, investments, art event production, and more
on a global basis, offering integrated consulting and new business support based on cross-discipline expertise.
The entities are already working on several joint projects, building synergies through the skills and experience ofboth companies. In the future, the companies will conduct joint development of design consulting and services
supporting business growth and innovation through new methods that extend beyond traditional frameworks andapplications of visual communications.

██Business performance outlook
Downward revision to FY12/19 results forecasts. Focusing attention
on the path to profit growth from FY12/20
Based on 1H results, the Company announced downward revisions to its FY12/19 results forecasts. The revised
forecasts are for net sales to decline 1.8% ¥63,600mn (lowered ¥1,400mn), operating income to decline 33.0%
to ¥2,300mn (lowered ¥300mn), ordinary income to fall 35.3% to ¥2,150mn (lowered ¥350mn) and for profit
attributable to owners of parent to drop 46.2% to ¥1,050mn (lowered ¥250mn). The magnitude of the downward
revisions generally reflects the 1H underperformance, while the Company expects 2H performance to be on parwith the initial forecasts.
The forecast for lower net sales is due to order control in conjunction with work-style reform, the ongoing shift toprintless delivery, the non-recurrence of movie dividend income in the previous fiscal year, as well as the reorganization of unprofitable subsidiaries. In profits, it forecasts profit decline, even with ongoing efforts to improve effective
profit margin, due to the decline in high-margin print sales, costs to handle work-style reform, as well as up-front
investments targeting future growth, particularly with respect to human resources development and hiring. Results(especially profits) are therefore expected to continue to level off, but this fiscal year should be viewed as a period
for the Company to solidify its foundation targeting profit growth in FY12/20 and beyond, including strengthening
the internal framework, reorganizing unprofitable businesses, and making up-front investments in new growth fields.

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

10 13

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

AOI TYO Holdings Inc.

13-Nov.-2019

3975 Tokyo Stock Exchange First Section

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

Business performance outlook

FY12/19 forecast(¥mn)
FY12/18
ResultFY12/19

Ratio

64,792

Initialforecast

ChangeRevisedforecast

Ratio

63,600

Revisedforecast

Changerate-1,192-1.8%

Video Advertising Business

43,331

66.9%

43,400

66.8%

-

-

-

-

Advertisement-Related
Business

9,836

15.2%

9,100

14.0%

-

-

-

-

Solutions Business

7,585

11.7%

8,000

12.3%

-

-

-

-

Overseas Business

4,038

6.2%

4,500

6.9%

-

-

-

-

Cost of sales

52,052

80.3%

-

-

-

-

-

-

SG&A expenses

9,307

14.4%

-

-

-

-

-

-

Operating income

3,433

5.3%

2,600

4.0%

2,300

3.6%

-1,133-33.0%

Ordinary income

3,325

5.1%

2,500

3.8%

2,150

3.4%

-1,175-35.3%

Profit attributable to ownersof parent

1,952

3.0%

1,300

2.0%

1,050

1.7%

-902

-46.2%Net sales

65,000

Ratio

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

In order to achieve the results forecasts post-revision, in 2H the Company will need to post net sales of ¥32,964mn(-¥964mn YoY) and operating income of ¥1,484mn (-¥203mn). We think the Company can reach these forecasts
based on the fact that it had a healthy order backlog* as of June 30, 2019, the Company’s earnings tend toconcentrate in fiscal second halves, and the forecasts are at levels that rationally factor in the negative factors that theforecasts are predicated on (progress in the shift to printless delivery, the reorganization of unprofitable subsidiaries,etc.). The path towards profit growth from FY12/20 onward, when the impact of the shift to printless delivery will
exhaust out, bears watching. In particular, the surge in advertising right before the 2020 Tokyo Olympics should
provide a boost. We think that the keys to success will be: 1) high-quality video advertisements for branding purposes; and 2) handling video content marketing. The former is an area that the Company can leverage its strengths,
so the key points will be to what extent the Company can capture the growing demand and how it can increase
profitability (added value). Meanwhile, with respect to handling video content marketing, utilizing new technologies
and securing personnel with high levels of expertise responsible for this are challenges facing all companies in theindustry, so we will keep a close watch on the Company’s efforts to bolster its personnel development and hiring,as well as the positive outcomes of collaboration with other companies, including the aforementioned collaboration
with CCI, as well as M&A.
*	The order backlog as of June 30, 2019 was ¥15,119mn (+5.5% compared to June 30, 2018).

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11 13

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

13-Nov.-2019
http://aoityo.com/en/ir.html██Growth strategy
Based on rapid changes in the environment, the Company ischanging to a management with an emphasis on “quality overquantity” targeting sustainable growth
The Company disclosed a new medium-term business policy in March 2019 in order to address a variety ofenvironment changes two years after the merger. A key difference with previous policy is the change to managementwith priority on “quality over quantity.” To ensure that it continues as a powerful group capable of responding toany era, the Company calls for development of businesses that meet needs and changes, full utilization of humanresource capabilities, and continuation of healthy profits. Because of the switch from quantity to quality and rapidchanges in the environment, the Company decided against using sales, profits, and other numerical goals as KPI.
However, it still emphasizes sustainability and shareholder return and wants to generate ROE that exceeds COE*.
*	AOI TYO Holdings estimates that the cost of shareholder equity is currently about 9%.

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

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

12 13

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

13-Nov.-2019
http://aoityo.com/en/ir.html

Growth strategy

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

██Shareholder returns
Aiming for a dividend payout ratio of at least 30%, working on sharebuybacks too
The Company presented “a dividend payout ratio of at least 30%” as its dividend policy.
For the FY12/19 dividend, the Company plans to pay ¥20 for the full year (¥8 interim, ¥12 period-end), a declineof ¥10 YoY, in light of its outlook for lower profits (the interim dividend of ¥8 has been paid). Furthermore, itannounced a share buyback program for 500,000 shares (¥600mn) on February 19, 2019 that extends from March
1, 2019 through February 29, 2020. In addition to increasing shareholder returns and capital efficiency, the aim is
to implement a flexible capital policy addressing changes in the business environment. As of August 31, 2019, theCompany had purchased a total of 105,000 shares (the total value of shares purchased was approximately ¥79mn).

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

13 13

Disclaimer
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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
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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,
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