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

27-Apr.-2020
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

27-Apr.-2020
http://aoityo.com/en■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Aims of founding the Company and its medium-term policies. ....................................................................

01

2. FY12/19 results overview.............................................................................................................................

01

3. FY12/20 forecast.. .................................. ......................................................................................................

02

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

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

02

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

05■Financial highlights-------------------------------------------------------------------------------------------------------------------------------------------------- 06
1. FY12/19 results............................................................................................................................................

06

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

08

3. FY12/19 performance summary. . .................................................................................................................

09■Main Topics---------------------------------------------------------------------------------------------------------------------------------------------------------------------- 10
1. Joint venture established with Cyber Communications................................................................................

10

2. Implemented systems integration and reorganization of subsidiaries..........................................................

10

3. Shift to a new management structure..........................................................................................................

10■Business performance outlook-------------------------------------------------------------------------------------------------------------------- 11
1. FY12/20 forecast.. .................................. ......................................................................................................

11

2. Segment forecast and activity policy..... ......................................................................................................

11■Growth strategy----------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. Direction of business initiatives.............. ......................................................................................................

13

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

13

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

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

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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

27-Apr.-2020
http://aoityo.com/en█ SummaryIn FY12/19, profits decreased and were below forecast, despite
higher sales.
Under a new management structure, the Company aims to shift tomanagement with priority on “quality over quantity”
1.Aims of founding the Company and its medium-term policies
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. AOI TYO Group mainly plans and creates TV commercials and also focuseson 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. Recently, the Company’s businessperformance has leveled off due to factors such as the impacts of the growing shift to printless delivery andwork-style reform, along with Group company reorganization and system integration. However, the Company haslargely brought these major management issues to a successful conclusion. Accordingly, it has now shifted to a
new management structure. By advancing to the next step, the Company intends to accelerate its activities further
in line with its medium-term policies.
*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. FY12/19 results overview
In FY12/19, the Company reported lower profits despite higher sales. Net sales were ¥65,229mn (+0.7% YoY),
and operating income was ¥2,118mn (-38.3%). Net sales increased across all businesses except for the Overseas
Business, where overseas subsidiaries were reorganized. Notably, the mainstay Video Advertising Business saw
sales return to positive growth due to an increase in online video production sales, while the Solutions Business saw
steady growth in direct business with advertisers. On the profit front, the impact of a decline in high-margin print
sales was within the expected range. However, profits declined and were below forecasts, due to factors such as adecrease in the effective profit margin associated with increased order volume, which was compounded by higher
costs associated with work-style reform and new enterprise systems implementations. Moreover, the Company
recorded extraordinary losses. The main components were a loss on the reorganization of unprofitable subsidiaries
and an impairment loss on software in preparation for systems integration. On the other hand, qualitatively-speaking,significant progress was made on initiatives to expand growth fields, such as the establishment of a joint venturewith strategic partner Cyber Communications, Inc.

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

27-Apr.-2020
http://aoityo.com/en

Summary

3. FY12/20 forecast
For its FY12/20 forecast, the Company foresees substantial improvement in profitability despite mostly flat net
sales. Net sales are forecast to decline 0.4% YoY to ¥65,000mn, while operating income is forecast to increase
18.0% to ¥2,500mn. The Company expects lower sales in the Video Advertising Business due to the impact offactors such as the reorganization of unprofitable subsidiaries. However, net sales is projected to grow across allother businesses. On the profit front, the Company plans to strive for a substantial improvement in profitability by
improving the effective profit margin and reducing costs, despite projecting an increase in costs related to hiring
and training more personnel. That said, the impact of the novel coronavirus, which was not factored into the initial
forecasts, warrants caution.
4. Growth strategy
Based on rapid changes in the environment, the Company disclosed new medium-term policies in March 2019. A key
difference with previous policy is the change to management with priority on “quality over quantity.” To ensure that it
continues as a powerful group capable of responding to any era, the Company calls for development of businesses
that meet needs and changes, full utilization of human resource capabilities, and continuation of healthy profits. It
also continues to emphasize sustainability and shareholder return and wants to generate ROE that exceeds COE.
Key Points
In FY12/19, profits decreased and were below forecast, despite higher sales
The Company has largely brought its major management issues to a successful conclusion, despite somepressure on profits from costs related to the reorganization of subsidiaries and systems integration• In FY12/20, the Company plans to strive for a substantial improvement in profitability under a new management
structure• Based on the new medium-term policies announced in March 2019, the Company has shifted to a management
approach emphasizing “quality over quantity” and is aiming for sustainable growth••█ Company profile
Joint holding company established for the integration of AOI Pro.
and TYO.
Holds a top industry share for TV commercial production
1. Business overview
AOI TYO Holdings is a joint holding company that owns AOI Pro. and TYO. AOI TYO Group plans and creates TVcommercials and also handles Solutions Business that includes direct 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 65%
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).

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

27-Apr.-2020
http://aoityo.com/enCompany profile

Sales mix by customer was well balanced with 19.8% to the Dentsu <4324> Group, 27.7% to the Hakuhodo(Hakuhodo DY Holdings Inc. <2433>) Group, 32.3% in direct transactions, and 20.1% to others. Additionally, sales
composition by media type is TV commercial production at 58.2%, entertainment contents at 3.9%, digital contents
at 19.3%, overseas at 4.4%, and other at 14.2%. “Digital contents” is growing rapidly along with expansion in online
video advertising demand as a trend.

S a l es c ompos iti on b y bus i ness (F Y12/19 r es ul t)Overseas Business
5.2%

AdvertisementRelated Business
15.1%

Solutions Business
12.5%

Video Advertising
Business
67.2%

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

S a l es r ati o by c us tomer (F Y1 2/19 r esul t)

Other
20.1%

Dentsu Group
19.8%

Direct transactions
32.3%

Hakuhodo Group
27.7%

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

27-Apr.-2020
http://aoityo.com/enCompany profile

S a l es c ompos iti on r ati os by m edium (FY12/19 res ul ts )Overseas
4.4%

Other
14.2%

TV commercial
58.2%

Digital contents
19.3%

Entertainment contents
3.9%
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. As for TV commercials, this was 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 healthyorders 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 the expanding online video market.
(2) Solutions BusinessThis business provides measures for problem solving for customers. It currently is roughly equal to results fromTYO Offering Management Business Unit*1 and AOI Pro.'s subsidiary Quark tokyo Inc.*2.
*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) 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 businessincludes 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 restructuring the businessportfolio to better meet future developments. This included the reorganization of the poorly-performing local
subsidiary in Beijing.

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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

27-Apr.-2020
http://aoityo.com/enCompany profile(4) 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).
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.

(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 (honorary
chairman 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 with the dream of “Creating an
Ideal Company of Creators, by Creators, for Creators.”
The company listed on JASDAQ in 2002. It expanded business by leveraging its creative capabilities of having
been involved in the production of numerous TV commercials that left an impression with consumers, notably one
promoting travel to Kyoto for Central Japan Railway Company (JR Central) <9022>. Upon changing to the TSE
Second Section in October 2013, its listing was reassigned to the First Section in January 2014.
TYO has been involved in various types of content production, including TV commercials, online videos, digitalcontents and events. Its strength is providing optimal, one-stop solutions for advertisers’ advertising promotions
and promotional activities. It led the industry with a sales structure and accumulation of knowledge in dealing
directly with advertisers* and has focused on building long-term relationships with advertisers, expanding projectsizes and capturing sales promotion expenses. Furthermore, it has been actively engaged in overseas expansion.
*	Since starting direct 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.

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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

27-Apr.-2020
http://aoityo.com/enCompany profile(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 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 FY12/19, profits decreased and were below forecast, despite
higher sales.
The Company will work to solidify its foundation for shifting to a highprofit structure
1. FY12/19 results
In FY12/19, the Company reported lower profits despite higher sales. Net sales were ¥65,229mn (+0.7% YoY),
operating income was ¥2,118mn (-38.3%), ordinary income was ¥1,763mn (-47.0%), and loss attributable to ownersof parent was ¥1,280mn (versus profit of ¥1,952mn in FY12/18). Notably, the Company posted a net loss because
it recorded an impairment loss in connection with measures to solidify its foundation. Profits finished the fiscal year
below the Company’s forecasts.
Net sales increased across all businesses except for the Overseas Business. Notably, the mainstay Video Advertising
Business saw sales return to positive growth due to an increase in online video production sales amid a continuing
decrease in print sales, while the Solutions Business saw steady growth in direct business with advertisers. In theAdvertising-Related Business, event-related sales by newly consolidated subsidiaries made a significant contribution.
In terms of net sales by customer, net sales to major advertising agencies ended up decreasing slightly, with asignificant decrease in sales to the Dentsu Group partially offset by an increase in sales to the Hakuhodo Group.
On the other hand, sales from direct business with advertisers, an area of focus, benefited from steady growth inorders for TV commercials, events and other projects from both new and existing customers. It is notable that theshare of sales from direct business with advertisers has increased to more than 30% of overall sales.

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

AOI TYO Holdings Inc.

27-Apr.-2020

3975 Tokyo Stock Exchange First Section

http://aoityo.com/en

Financial highlights

On the profit front, the impact of a decline in high-margin print sales was within the expected range. However,operating income decreased and was below forecast, due to factors such as a decrease in the effective profit margin
associated with increased order volume, which was compounded by higher costs associated with work-style reformand new enterprise systems implementations, and the impact of certain poorly performing subsidiaries. Moreover,
the Company posted a net loss because of the recording of extraordinary losses. The main components were aloss on reorganization of poorly performing subsidiaries, an impairment loss on software in preparation for systems
integration and a loss on valuation of investment securities.
In terms of financial condition, total assets decreased 4.1% from the end of FY12/18 to ¥53,352mn, due mainly toan impairment loss on software and valuation loss on investment securities. Meanwhile, equity capital decreased
substantially by 8.7% versus end-FY12/18 to ¥22,935mn because of the recording of a net loss. Based on this, theequity ratio edged down to 43.0% (versus 45.1% at the end of FY12/18).
FY12/19 results overview(¥mn)
FY12/18

Results

FY12/19

Ratio

Results

ChangeRatio

AmountFY12/19

Changerate

Initialforecast

Revisedforecast(announced
on August 9)

Ratio

Achievement
rate

Ratio

64,792-

65,229

-

437

0.7%

65,000-63,600-102.6%

Video Advertising
Business

43,663

67.4%

43,860

67.2%

197

0.5%

43,400

66.8%

-

-

-

Solutions Business

7,447

11.5%

8,145

12.5%

698

9.4%

8,000

12.3%

-

-

-

Overseas Business

4,038

6.2%

3,378

5.2%

-660

-16.3%

4,500

6.9%

-

-

-

AdvertisementRelated Business

9,644

14.9%

9,846

15.1%

202

2.1%

9,100

14.0%

-

-

-

Cost of sales

52,052

80.3%

53,514

82.0%

1,462

2.8%

-

-

-

-

-

Gross profit

12,74019.7%

11,71518.0%-1,024

-8.0%

-

-

-

-

-

Selling, general andadministrative expenses

9,307

14.4%

9,596

14.7%

289

3.1%

Operating income

3,433

5.3%

2,118

3.2%

-1,314-38.3%

2,600

4.0%

2,300

3.6%

92.1%

Ordinary income

3,325

5.1%

1,763

2.7%

-1,562-47.0%

2,500

3.8%

2,150

3.4%

82.0%

Profit attributable toowners of parent

1,952

3.0%

-1,280-2.0%-3,232

-

1,300

2.0%

1,050

1.7%

-

Net sales

EBITDA

4,777

3,606

-1,171-24.5%

Order backlog

13,191

14,606

1,415

10.7%

Sales ratio by customer
Dentsu Group

15,053

23.2%

12,94119.8%-2,112-14.0%

Hakuhodo Group

17,225

26.6%

18,088

27.7%

863

5.0%

Direct transactions

19,366

29.9%

21,072

32.3%

1,706

8.8%

Other

13,14620.3%

13,125

20.1%

-21

-0.2%

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

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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

27-Apr.-2020
http://aoityo.com/en

Financial highlights

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

ChangeAs of the end of
December 2018

As of the end of
December 201935,93736,00365

0.2%

Cash and deposits

9,836

9,111

-724

-7.4%

Notes and accounts receivable - trade

16,731

16,873142

0.9%Work in process

4,256

4,510

254

6.0%

Non-current assets

19,693

17,348-2,344-11.9%

Property, plant and equipment

7,235

7,084

-150

-2.1%

Intangible assets

5,772

4,275

-1,497-25.9%

Current assets

AmountChange rate

6,685

5,988

-696

-10.4%

Total assets

55,63153,352-2,279-4.1%

Current liabilities-8.8%

Investments and other assets

20,114

18,343-1,770Accounts payable - trade

8,126

8,697

570

7.0%

Short-term loans payable

7,936

6,273

-1,663-21.0%

Advances received

1,136

899

-236

-20.8%

Non-current liabilities

9,837

11,645

1,807

18.4%

Long-term loans payable

4,549

6,672

2,122

46.7%

Long-term deposits received

3,501

3,501

-

-

Total liabilities

29,951

29,98836

0.1%

Net assets

25,67923,363-2,316-9.0%

24,972

22,970-2,001-8.0%

Shareholders' equity
Equity ratio

45.1%

43.0%

Current ratio

178.7%

196.3%

0.50 times

0.56 times

D/E ratio

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

2. Segment performance and activity results(1) Video Advertising Business
Internet advertising spending surpassed terrestrial TV advertising spending*1, making the Internet the top medium
for advertising spending for the first time. In this environment, the Company’s video advertising sales returned topositive growth*2, increasing 0.5% YoY to ¥43,860mn. The decline in print sales (¥430mn) was within the expected
range. As the impact of workstyle reform ran its course, higher sales were generated from an increase in online
video production. Meanwhile, on the profit front, the effective profit margin fell to 32.8% (vs. 35.5% in FY12/18) inconnection with increased order volume, as well as the impact of a decline in high-margin print sales. Naturally,
the Company plans to redouble its efforts to improve the effective profit margin going forward.
*1	According to “Advertising Expenditures in Japan 2019” announced by DENTSU INC., Internet advertising spending in2019 grew substantially to ¥21,048mn (+19.7% YoY), surpassing TV media advertising spending of ¥18,612mn (-2.7%)
for the first time. Meanwhile, moves are afoot to reassess the reach of TV commercials, so it will be increasingly important
to implement a mixed media strategy that gives full play to the advantages of each medium.
*2	In FY12/18, as workstyle reform was introduced progressively, sales decreased as the Company narrowed down
projects with an emphasis on profitability. Meanwhile, the effective profit margin improved significantly. In FY12/19, whileemphasizing profitability, the Company has slightly shifted course to a policy of actively seeking to win projects that will
pave the way for the future.

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

27-Apr.-2020
http://aoityo.com/en

Financial highlights(2) Solutions Business
Solutions Business sales rose steadily by 9.4% to ¥8,145mn. In particular, TYO Offering Management Business
Unit sales (excluding media placement purchases) increased significantly by 27.1% to ¥4,723mn. Orders for
TV commercials, events and other projects increased from both new and existing customers. It appears that
the Company succeeded with its efforts to upgrade and expand the customer base to include not only newcompanies but also clients that have a national reach. Meanwhile, sales at Quark tokyo (and Mediator) declined
6.2% to ¥2,087mn. Sales were sluggish due to a bottleneck in hiring and training personnel, as well as the factthat existing major projects entered an operational phase (causing a contraction in sales). That said, Quark Tokyo(and Mediator) have grown their business offerings* in response to client needs, and this can be seen as a positive
sign for the future.
*	Expanded to upstream offerings such as marketing communication and consulting, beyond planning, production, streaming
and operation of video.

(3) Overseas BusinessNet sales in the Overseas Business declined 16.3% YoY to ¥3,378mn. Naturally, this decline was due mainly
to the reorganization of an underperforming Beijing local subsidiaries and restructuring (temporary downsizing)of subsidiaries in Southeast Asia. These measures can be seen as laying the groundwork for reinforcing theCompany’s business for the future.
(4) Advertisement-Related BusinessNet sales in the Advertisement-Related Business increased by 2.1% YoY to ¥9,846mn. While lower net sales*
were recorded for movie/TV drama and other entertainment content, operations such as event production, PR,digital content and production of sales promotion materials performed favorably, including the benefits of M&As
of event production companies.
*	In FY12/18, the film “Shoplifters,” which was funded and produced by AOI Pro. and directed by Hirokazu Koreeda,
contributed significantly to business results.

3. FY12/19 performance summary
Based on the foregoing, business results in FY12/19 can be summarized as follows. Profits decreased sharply,
including the impact of one-time impairment losses. However, net sales returned to positive growth in the Video
Advertising Business due to an increase in online video production. Direct business with advertisers, an area of
focus, is getting fully on track owing to growth in the customer base. These developments can be described as
positive signs. Also, as will be discussed later in this report, the Company has started to reorganize unprofitablesubsidiaries, including those overseas, and conduct systems integration. These efforts can be assessed positively
because they will help to accelerate future endeavors. Meanwhile, outstanding issues include the bottleneck inaccelerating personnel hiring and training. In particular, securing personnel with expertise in fields such as datautilization, in addition to video production personnel as a matter of course, is a crucial theme for driving growth in
key fields (such as video content marketing) in the future.

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

27-Apr.-2020
http://aoityo.com/en█ Main Topics
Progress on collaboration with other companies and addressing
management issues.
Advancing to the next step by shifting to a new management structure
1. Joint venture established with Cyber Communications
On February 12, 2019, Quark tokyo created a strategic partnership with Cyber Communications, 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 and media. With the collaboration between Cyber Communications, which possesses expertise in digital
media, and Quark tokyo, which boasts strengths in digital-age communications planning and creative direction,Mediator aims to become a media communications agency offering one-stop services in communications andcreative, ad distribution plan design and implementation for the benefit of both media and clients.
*	Ownership ratios: Quark tokyo: 66.6%; Cyber Communications: 33.4%

2. Implemented systems integration and reorganization of subsidiaries
The Company has also begun to unify systems in order to advance management integration further. With a sharedplatform, the Company plans to accelerate Group reorganization, which will pave the way for streamlining operations
and reducing costs. In addition, the Company has worked to reorganize Group companies* and withdraw from
unprofitable businesses, and it recorded extraordinary losses upfront, all at once. As a result, the Company has
removed any hidden negative factors, along with putting a framework in place to shift to a high profit structure.
*	The Company implemented measures such as excluding Beijing subsidiaries from the scope of consolidation (June 2019),
converting Dainichi Co., Ltd. to an equity-method affiliate (December 2019), and conducting the absorption-type mergerof Wasa-be Advertising Inc. into AOI Pro. (January 2020).

3. Shift to a new management structure
In the three years since its management integration, the Company has largely brought its management issues*
to a successful conclusion. For example, it has responded to environmental changes and solidified its foundation. Accordingly, the Company has shifted to a new management structure, thereby advancing to the next step.
Representative director, chairman, and CEO Hiroaki Yoshida resigned from his directorship and assumed the postof honorary chairman. In conjunction with this change, Mr. Yasuhito Nakae was appointed as representative director,
president & CEO, from his former post of representative director, president & COO, and Mr. Hiroaki Uekubo was
appointed as representative director, vice president & COO, from his former post of managing director. As a result,the Board of Directors now comprises Mr. Yasuhito Nakae (representative director, president & CEO), Mr. Hiroaki
Uekubo (representative director, vice president & COO) and Mr. Satoshi Yuzurihara (executive director and CFO), as
well as three external directors. In addition, the Management Committee is the highest body for holding substantial
discussions on management policies. The Management Committee comprises three internal directors and four AOI
TYO Holdings general managers (two of whom are women) as well as the representative directors/presidents of AOIPro. and TYO. With this management structure, the Company intends to accelerate decision-making and execution
speed for a more integrated group organization.
*	M ajor management issues include Group company reorganization and systems integration, as well as responses tochanges in the environment, such as progress on printless delivery and workstyle reform.

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

10 14

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

AOI TYO Holdings Inc.

27-Apr.-2020

3975 Tokyo Stock Exchange First Section

http://aoityo.com/en█ Business performance outlook
In FY12/20, the Company will strive for a substantial improvement in
profitability.
That said, the impact of the novel coronavirus, an unexpected factor,
warrants caution
1. FY12/20 forecast
For its FY12/20 forecast, the Company expects to strive for a substantial improvement in profitability despite mostly
flat net sales. Net sales are forecast to decline 0.4% YoY to ¥65,000mn, while operating income is forecast to
increase 18.0% to ¥2,500mn. Ordinary income is projected to increase 36.1% to ¥2,400mn and profit attributableto owners of parent is forecast at ¥1,400mn (compared with a loss of ¥1,280mn in FY12/19).
Net sales are expected to remain mostly flat from FY12/19 because lower sales are anticipated in the Video
Advertising Business owing to factors such as the impact of the reorganization of underperforming subsidiaries.
Meanwhile, sales are expected to increase steadily across all businesses other than the Video Advertising Business.
On the profit front, the Company plans to strive for a substantial improvement in profitability by improving the effective
profit margin and reducing costs associated with factors such as software and underperforming subsidiaries, despite
projecting an increase in costs related to hiring and training more personnel*. The operating margin is also forecast
to improve to 3.8% (from 3.2% in FY12/19).
*	151 new employees are scheduled to be brought onboard Group-wide in April 2020. In addition, the Company plans tohire approximately 30 mid-career professionals in strategic fields. This hiring will result in an increase in costs of ¥400mn
year on year.

FY12/20 forecast(¥mn)
FY12/19
Results

FY12/20
Ratio

Plan

ChangeRatio

AmountChange rate

65,229-65,000

-

-229

-0.4%

Video Advertising Business

43,86067.2%

42,80065.8%-1,060-2.4%

Solutions Business

8,145

12.5%

8,500

13.1%

355

4.4%

Overseas Business

3,378

5.2%

3,500

5.4%

122

3.6%

Advertisement-Related Business

9,846

15.1%

10,200

15.7%

354

3.6%

2,118

3.2%

2,500

3.8%

382

18.0%

Net sales

Operating income
Ordinary income

1,763

2.7%

2,400

3.7%

637

36.1%

Profit attributable to owners of parent-1,280

-2.0%

1,400

2.2%

2,680

-

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

2. Segment forecast and activity policy(1) Video Advertising BusinessNet sales in the Video Advertising Business are forecast to decrease by 2.4% YoY to ¥42,800mn. The main factors
behind the lower sales forecast are the reorganization of unprofitable subsidiaries, as well as a continued projected
decline in print sales (¥394mn). Turning to profits, the Company plans to strive for a substantial improvement in
profitability mainly by improving the effective profit margin and reorganizing subsidiaries.

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

11 14

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

27-Apr.-2020
http://aoityo.com/en

Business performance outlook(2) Solutions BusinessNet sales in the Solutions Business are forecast to increase 4.4% YoY to ¥8,500mn. The TYO Offering Management
Business Unit is expected to deliver growth as orders for TV commercials, events and other projects continue
to increase. Meanwhile, Quark tokyo (and Mediator) intend to focus on hiring and training personnel in order toexpand their business offerings. As far as business performance is concerned, Quark tokyo (and Mediator) seemto position the current period as an upfront investment phase.
(3) Overseas BusinessNet sales in the Overseas Business are forecast to increase 3.6% YoY to ¥3,500mn. Given that the reorganizationof unprofitable subsidiaries and restructuring are largely complete, the Overseas Business intends to once again
strengthen its businesses, including the establishment of new locations.
(4) Advertisement-Related BusinessNet sales in the Advertisement-Related Business are forecast to increase by 3.6% YoY to ¥10,200mn. In thissegment, event production, public relations and other operations are expected to continue performing favorably.
We at FISCO believe that the Company’s forecasts are reasonable, judging by the Company’s healthy orderbacklog* as of December 31, 2019, and anticipated performance variables at the beginning of FY12/20 (suchas the impact of the reorganization of subsidiaries). That said, the impact of novel coronavirus, which was notincluded in the initial forecast, now warrants caution. In particular, event cancellations and other such decisions
have been made in rapid succession in response to a heightened mood of self-restraint since March. For thisreason, the impact of these factors will need to be watched carefully at quarterly earnings announcements andother key events. Meanwhile, improvement in the effective profit margin, growth in key fields, and progress on
hiring and training personnel bear watching from a long-term perspective. Notably, personnel have become a directdriver of the Company’s future growth potential. Therefore, it will be crucial to pay attention to priorities such as
the number of mid-career professionals hired, as well as the quality of personnel and training plans after hiring.
*	The order backlog as of December 31, 2019 was ¥14,606mn (+10.7% compared to December 31, 2018).

█ 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 new medium-term policies in March 2019 in order to address a variety of environmentchanges two years after the merger. A key difference with previous policy is the change to management with priority
on “quality over quantity.” To ensure that it continues as a powerful group capable of responding to any era, theCompany calls for development of businesses that meet needs and changes, full utilization of human resource
capabilities, and continuation of healthy profits. Because of the switch from quantity to quality and rapid changes inthe 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 8%.

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

12 14

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

27-Apr.-2020
http://aoityo.com/en

Growth strategy

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 to 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).
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 established an overseas strategy
division, held an Asian meeting, and deployed infrastructure and communication tools. Although the Company
recently made the move to reorganize the underperforming Beijing local subsidiaries, benefits appear to be gradually
emerging in some 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 advances in the printless shift
and responses to work-style reform, 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
its corporate structure to expand business fields, such as collaboration with external companies, including M&A
deals, and recruitment of human resources with robust expertise, hence is likely to strongly influence future growthpotential. We have high expectations for the Company’s future business initiatives. With this in mind, we will bewatching the Company closely to see how it accelerates various measures under its new management structure.

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

13 14

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

27-Apr.-2020
http://aoityo.com/en█ Shareholder returns
Aiming for a dividend payout ratio of at least 30%
The Company presented “a dividend payout ratio of at least 30%” as its dividend policy.
For the FY12/19 dividend, the Company paid a full-year dividend of ¥20 per share (¥8 interim, ¥12 period-end), a
decline of ¥10 YoY, as initially planned. With regard to share buybacks, the Company purchased a total of 105,000
shares (the total value of shares purchased was approximately ¥79mn). For the FY12/20 dividend, the Company
plans to pay a full-year dividend of ¥20 per share (¥8 interim, ¥12 period-end), the same amount as FY12/19. (Theconsolidated dividend payout ratio is forecast at 33.6%.)
Moreover, the Company plans to provide shareholder benefits to investors with 500 or more shares of AOI TYO
Holdings, who are listed or registered on the shareholder register as of June 30, 2020. The shareholder benefits
will be conferred according to the number of shares held. They will include original QUO cards and an original gift
catalog, in addition to an AOI TYO Experience for Shareholders (a Group tour invitation). From 2021, the Company
plans to switch to a shareholder benefit program for buy-and-hold shareholders only. Specifically, the eligibility forshareholder benefits will be changed to shareholders who have continuously owned at least 500 shares for at least
one year, and are listed or registered on the shareholder register as of June 30 each year.

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

14 14

Disclaimer
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◾ For inquiry, please contact: ◾

FISCO Ltd.
5-11-9 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (Financial information Dept.)
Email: support@fisco.co.jp