Tokyu / 1720

COVERAGE INITIATED ON: 2020.05.21 LAST UPDATE: 2021.01.06 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Executive summary ------3 Key financial data ------6 Recent updates ------7 Highlights ------7 Trends and outlook ------8 Quarterly trends and results ------8 Management strategy ------21 Business ------28 Business description ------28 Segments ------31 Market and value chain------39 Construction market in ------39 Main competitors ------44 Strengths and weaknesses ------54 Notable projects ------56 Historical performance and financial statements ------62 Income statement ------62 Balance sheet ------63 Cash flow statement ------64 Historical performance ------65 Other information ------71 History ------71 News and topics ------75 Corporate governance and top management ------76 Dividend policy ------77 Major shareholders ------77 Employees ------78 Profile ------78

02/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Executive summary

Business overview

◤ Tokyu Construction is a second-tier general contractor (see paragraph below). A member of the , Tokyu Construction is an equity-method affiliate of (TSE1: 9005), which owns a 15.1% stake in the company. Most revenue comes from private-sector construction projects. In FY03/20, the Building Construction segment accounted for 71.9% of revenue. The Civil Engineering segment, which includes railway construction, accounted for 27.5%, and the Real Estate segment provided 0.6%. Nearly 20% of construction orders come from other companies in the Tokyu Group. Tokyu Construction focuses on areas along Tokyu train lines, from the southwestern part of ’s 23 wards to northern .

◤ A general contractor is a construction company that accepts all-in contracts for building construction and civil engineering work. After receiving such contracts from companies or government/municipal bodies, general contractors subcontract work to specialized construction companies (subcontractors), managing the overall process. The scale of business is large; revenues from individual projects may run from billions to tens of billions of JPY. Construction periods on office building, railway, or roadway projects typically last from one to three years. Private-sector construction tends to be vulnerable to fluctuations in the operating environment. Public-sector projects tend to be more stable, with government entities continuing to place orders even in economically difficult times. The Japanese construction industry has been growing in recent years, benefiting from increased investment in construction, notably for business related to the Tokyo Olympics. Once this private-sector demand slows down, the company expects general contractors to prioritize relatively solid demand involving public-sector and overseas projects, and expansion of non-building construction business.

◤ Tokyu Construction’s revenue CAGR has been 4.2% over the past five years, buoyed by rapid growth in private-sector construction projects (including redevelopment in Tokyo’s district). By comparison, CAGR for the top 18 general contractors was 3.6% on average over the same period. Tokyu Construction’s profitability is higher, as well. In FY03/20, the company’s adjusted ROE* was 14.5%, compared with an average of 11.1% for the top 18 general contractors. As orders have grown, rising asset efficiency has contributed to increased profitability.

*Adjusted ROE: Recurring profit x (1-30%**) / shareholders’ equity. **30% is a general figure used for the effective tax rate. Indicates ROE excluding the impact of temporary extraordinary gains or losses and tax expenses. ROE for Tokyu Construction was 15.4% in FY03/20.

◤ The Building Construction segment accounted for 71.9% of revenue and 75.2% of operating profit (FY03/20). In this segment, the company constructs buildings throughout Japan, including office buildings, government offices, and schools. Operating in a buoyant construction market, recently the company has constructed a number of major office buildings near . Notable projects include (completed in 2012), (completed in 2019), (completed in 2018), and other high-rise office buildings that are part of a Shibuya Station redevelopment project. The company has a sales team that concentrates specifically on the Shibuya area. This team has been instrumental in such projects as Qfront (1999), which is a landmark near Shibuya’s Hachiko crossing, and Shibuya 109 (1979). The company has also handled projects for educational institutions, such as Tokyu-affiliated Asia and Tokyo City universities, as well as Nippon Sport Science University.

◤ The Civil Engineering segment generated 27.5% of revenue and 25.4% of operating profit (FY03/20). In this segment, the company focuses on businesses characterized by stable demand and good profitability, such as railway and road construction. Tokyu Construction says it has industry-leading technological expertise in these areas. Recent railway construction projects include continuous elevated railway work near (completed in 2016) and subway construction on the Tokyu Toyoko Line between Shibuya and Daikanyama (2014). The company explains that its railway construction technologies allow it to build complex multilevel crossings, and that it has earned a strong reputation for sophisticated technologies that enable new routes to be built at night without interfering in the operation of existing routes. Road construction projects include the Atsugi Minami Interchange on the Shin-Tomei Expressway (2018) and the Ohashi Junction on the Line of the Metropolitan Expressway Central Circular Route (2010).

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◤ Key overseas projects include the Mass Project (completed in 2019, ), the MRT (completed in 2014, ), the Vo Nguyen Giap Road (2014, ), and the Causeway Point Shopping Center (2012, ). Civil engineering work tends to be concentrated on ODA projects. In recent years, the company has focused on obtaining orders for high-rise buildings.

Earnings trends

◤ In FY03/20, revenue was JPY322.2bn (-2.8% YoY), operating profit was JPY20.3bn (-7.6% YoY), recurring profit was JPY22.0bn (-4.2% YoY), and net income attributable to owners of the parent was JPY14.9bn (-3.9% YoY). The dividend was JPY31 per share, flat YoY. Construction profit margins improved, notably in the case of large buildings that were completed, but that was overshadowed by a decline in 2H net revenue from completed construction due to being pushed back and an increase in SG&A expenses driven by higher personnel costs on increased hiring.

◤ The company forecast for FY03/21 calls for revenue of JPY230.0bn (-28.6% YoY), operating profit of JPY4.0bn (-80.3% YoY), recurring profit of JPY4.9bn (-77.7% YoY), and net income attributable to owners of the parent of JPY3.0bn (-79.9% YoY). The forecast for annual dividend is JPY10.00 per share, down JPY20 from FY03/20. Demand for private-sector construction projects has been contracting rapidly amid the COVID-19 outbreak, heating up the competition over orders.

◤ The company has also unveiled a long-term vision for FY03/26. Financial targets include shareholders’ equity of JPY150.0bn+, ROE of 10%+, revenue of JPY350.0bn+, and OPM of 7.0%+ (calculates to operating profit of JPY24.5bn). This revenue figure would equate to a 5.6% increase over FY03/19. The company will focus on expansion of renovation work on superannuated structures, the construction of wooden construction business using domestic materials, civil engineering work, overseas projects, and the real estate business, as well as new areas, such as the PPP/concession and bell pepper businesses.

◤ The company expects previously solid demand for private-sector construction projects to ease somewhat, and anticipates a phase of slowdown in orders as the economic decline due to the COVID-19 pandemic adds to the adverse circumstances. Another consequence of COVID-19 is that as teleworking takes hold, demand for office buildings could decline in the long term. At the same time, though, there are some positive outlooks as well over the long term. First, it anticipates robust demand for business along the Tokyu lines, starting with Shibuya. Development around Shibuya Station is slated to continue, such as the Shibuya Scramble Square Central Tower and West Tower (construction scheduled for completion in FY03/28). Redevelopment work is also scheduled for Sangenjaya, Shin-Tsunashima, and other locations long the Tokyu lines. Second, the company expects demand for renovation work to increase, as buildings in Japan continue to age. A third area of focus is wooden construction and mixed-wooden construction. The company expects increased markets for medium- to high-rise offices, housing, and commercial facilities due to regulatory reforms and mixed reinforced concrete structures.

◤ As strategic business areas, overseas projects are the company’s primary focus. It is pushing forward with construction projects in South and (Thailand, Singapore, Indonesia, , Vietnam, and Bangladesh). Tokyu Construction plans to reinforce its systems for obtaining private-sector building orders from prominent local developers and Japanese companies operating overseas. Stepping up its exposure to some extent, the company plans to expand leasing of office buildings and stores. The company also plans to renovate properties it acquires to boost yields. A third area of strategic business focus is PPPs/concessions (public‒private partnerships). The company plans to focus on its areas of expertise: water and sewerage and airport concessions. With water and sewerage as its main target, the company has collaborated with the Tokyu Group on airport concessions. Fourth, the company plans to develop new businesses. One such development has been the bell pepper business. The company produces and sells bell peppers, using a greenhouse location it set up in Miho-mura, Inashiki, Ibaraki Prefecture in 2012. The company plans to expand this business further. It also plans to concentrate on new business cultivation and development.

Strengths and weaknesses

Shared Research identifies three strengths at Tokyu Construction: 1) nearly 20% of revenue due to business opportunities via the Tokyu Group, 2) a strong track record of projects completed in Shibuya and along the Tokyu lines, and 3) abundant experience with railway construction, which helps ensure stable earnings during economic doldrums. We also see three weaknesses: 1)

04/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

outdone by super general contractors in its record for high-value-added construction work (such as large sports facilities, art museums, and long bridges), 2) a low percentage of revenue from public-sector civil engineering projects, which tend to be more profitable than private-sector construction and feature stable demand, and 3) despite a maturing domestic market, slow to build overseas and real estate businesses.

05/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Key financial data

Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 FY03/21 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Revenue 244,974 227,843 228,570 226,164 262,815 296,393 243,618 320,711 331,437 322,170 230,000 YoY 3.5% -7.0% 0.3% -1.1% 16.2% 12.8% -17.8% 31.6% 3.3% -2.8% -28.6% Construction (completed work) 241,172 222,149 226,784 223,969 260,454 294,063 237,749 318,707 329,548 320,083 Real Estate 3,802 5,694 1,786 2,195 2,360 2,329 5,869 2,003 1,888 2,086 Gross profit 19,159 12,271 12,002 13,241 16,968 31,088 30,344 35,720 36,073 36,173 YoY 10.8% -36.0% -2.2% 10.3% 28.1% 83.2% -2.4% 17.7% 1.0% 0.3% Gross profit margin 7.8% 5.4% 5.3% 5.9% 6.5% 10.5% 12.5% 11.1% 10.9% 11.2% Construction (completed work) 18,208 11,678 11,406 12,480 17,049 30,511 28,648 35,126 35,900 35,885 Real Estate 950 592 595 760 -80 577 1,695 593 172 288 Operating profit 7,584 1,572 1,154 2,630 6,009 18,178 17,211 21,416 21,987 20,315 4,000 YoY 43.6% -79.3% -26.6% 127.9% 128.5% 202.5% -5.3% 24.4% 2.7% -7.6% -80.3% Operating profit 3.1% 0.7% 0.5% 1.2% 2.3% 6.1% 7.1% 6.7% 6.6% 6.3% 1.7% Recurring profit 7,811 1,884 2,301 3,559 8,024 19,768 18,839 22,128 22,932 21,969 4,900 YoY 59.0% -75.9% 22.1% 54.7% 125.5% 146.4% -4.7% 17.5% 3.6% -4.2% -77.7% Recurring profit 3.2% 0.8% 1.0% 1.6% 3.1% 6.7% 7.7% 6.9% 6.9% 6.8% 2.1% Ne t inc o me 4 , 08 7 1,799 -566 2,685 5,805 13,340 13,691 16,118 15,504 14,903 3,000 YoY 115.0% -56.0% - - 116.2% 129.8% 2.6% 17.7% -3.8% -3.9% -79.9% Net margin 1.7% 0.8% - 1.2% 2.2% 4.5% 5.6% 5.0% 4.7% 4.6% 1.3% Per share data (split-adjusted; JPY) Shares issued (year-end; '000) 106,761 106,761 106,761 106,761 106,761 106,761 106,761 106,761 106,761 106,761 Treasury shares ('000) 14 14 14 29 39 44 50 54 148 150 EPS 38.3 16.9 -5.3 25.2 54.4 125.0 128.3 151.1 145.4 139.8 28.1 EPS (fully diluted) 35.4 12.2 ------Dividend per share 10.0 3.0 - 5.0 13.0 25.0 26.0 31.0 30.0 30.0 10.0 Book value per share 283 293 304 329 419 506 620 740 869 949 Balance sheet (JPYmn) Cash and cash equivalents 24,663 17,881 23,097 18,215 18,318 50,674 22,582 28,865 49,145 29,549 Total current assets 115,384 120,738 118,854 131,556 146,079 171,041 155,983 197,473 204,971 171,125 Tangible fixed assets 13,947 14,180 14,174 17,145 18,228 17,756 19,204 21,634 26,163 32,033 Investments and other assets 17,108 19,196 20,849 20,670 27,558 25,311 28,933 29,790 33,017 31,760 Intangible fixed assets 341 327 316 313 359 416 692 858 844 976 Total assets 146,781 154,442 154,195 169,685 192,226 214,526 204,813 249,756 264,996 235,897 Short-term debt 209 8,243 232 7,182 4,131 115 3,130 170 178 25,179 Total current liabilities 107,585 116,340 114,100 127,784 136,838 150,799 130,624 165,688 165,955 127,578 Long-term debt 4,766 2,686 2,513 2,068 4,937 4,843 1,859 1,879 1,752 1,590 Total fixed liabilities 8,907 6,711 7,607 6,643 10,526 9,488 7,808 4,893 6,059 6,614 Total liabilities 116,493 123,052 121,707 134,427 147,364 160,288 138,433 170,581 172,014 134,193 Shareholders' equity 30,241 31,326 32,410 35,153 44,673 54,003 66,152 78,950 92,634 101,215 Total net assets 30,287 31,390 32,487 35,258 44,861 54,238 66,380 79,175 92,981 101,703 Total liabilities and net assets 146,780 154,442 154,194 169,685 192,225 214,526 204,813 249,756 264,995 235,896 Total interest-bearing debt 4,975 10,929 2,745 9,250 9,068 4,958 4,989 2,049 1,930 26,769 Cash flow statement (JPYmn) Cash flows from operating activities 20,540 -11,486 14,264 -9,302 2,111 39,003 -23,545 16,226 29,694 -33,439 Cash flows from investing activities 481 20 -619 -2,072 -1,525 -334 -1,717 -3,383 -5,786 -7,488 Cash flows from financing activities -9,813 4,704 -8,569 6,476 -675 -6,035 -2,788 -6,457 -3,575 21,604 Financial ratios ROA (RP-based) 5.0% 1.3% 1.5% 2.2% 4.4% 9.7% 9.0% 9.7% 8.9% 8.8% ROE 14.1% 5.8% -1.8% 7.9% 14.5% 27.0% 22.8% 22.2% 18.1% 15.4% Equity ratio 20.6% 20.3% 21.0% 20.7% 23.2% 25.2% 32.3% 31.6% 35.0% 42.9% Total asset turnover 158.2% 151.3% 148.1% 139.7% 145.2% 145.7% 116.2% 141.1% 128.8% 128.6% Net margin 1.7% 0.8% -0.2% 1.2% 2.2% 4.5% 5.6% 5.0% 4.7% 4.6% Source: Shared Research based on company data

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Recent updates

Highlights

On January 6, 2021, Shared Research updated the report following interviews with Tokyu Construction Co., Ltd.

On November 9, 2020, the company announced earnings results for 1H 03/21; see the results section for details.

On the same day, the company announced that it had revised its earnings forecast.

On the same day, the company announced that it had resolved to acquire treasury stock.

On the same day, the company announced the fundamental thinking behind its Vision 2030 long-term management plan.

For previous releases and developments, please refer to the “News and topics” section.

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Trends and outlook Quarterly trends and results

Cumulative FY03/19 FY03/20 FY03/21 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2% of Est.FY Est. Revenue 61,131 154,697 229,816 331,437 78,722 183,415 248,190 322,170 42,684 95,423 41.5% 230,000 YoY 11.1% 22.8% 9.9% 3.3% 28.8% 18.6% 8.0% -2.8% -45.8% -48.0% -28.6% Gross profit 6,706 17,568 26,330 36,073 10,300 23,928 29,422 36,173 3,5638,323 YoY 10.0% 22.0% 3.9% 1.0% 53.6% 36.2% 11.7% 0.3% -65.4% -65.2% GPM 11.0% 11.4% 11.5% 10.9% 13.1% 13.0% 11.9% 11.2% 8.3% 8.7% SG&A expenses 3,053 6,671 10,057 14,086 3,664 7,608 11,577 15,858 3,529 7,130 YoY 1.3% 4.2% 4.7% -1.5% 20.0% 14.0% 15.1% 12.6% -3.7% -6.3% SG&A ratio 5.0% 4.3% 4.4% 4.2% 4.7% 4.1% 4.7% 4.9% 8.3% 7.5% Operating profit 3,653 10,897 16,272 21,987 6,636 16,320 17,845 20,315 341,192 29.8% 4,000 YoY 18.6% 36.3% 3.4% 2.7% 81.7% 49.8% 9.7% -7.6% -99.5% -92.7% -80.3% OPM 6.0% 7.0% 7.1% 6.6% 8.4% 8.9% 7.2% 6.3% 0.1% 1.2% 1.7% Recurring profit 3,875 11,369 16,995 22,932 7,001 16,972 18,947 21,969 258 1,680 34.3% 4,900 YoY 21.1% 45.5% 5.9% 3.6% 80.7% 49.3% 11.5% -4.2% -96.3% -90.1% -77.7% RPM 6.3% 7.3% 7.4% 6.9% 8.9% 9.3% 7.6% 6.8% 0.6% 1.8% 2.1% Net income 2,490 7,659 11,517 15,504 4,838 11,516 12,662 14,903 60 759 25.3% 3,000 YoY 7.5% 39.1% 1.7% -3.8% 94.3% 50.4% 9.9% -3.9% -98.8% -93.4% -79.9% Net margin 4.1% 5.0% 5.0% 4.7% 6.1% 6.3% 5.1% 4.6% 0.1% 0.8% 1.3% Quarterly FY03/19 FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Revenue 61,131 93,566 75,119 101,621 78,722 104,693 64,775 73,980 42,684 52,739 YoY 11.1% 31.9% -9.6% -9.0% 28.8% 11.9% -13.8% -27.2% -45.8% -49.6% Gross profit 6,706 10,862 8,762 9,743 10,300 13,628 5,494 6,751 3,563 4,760 YoY 10.0% 30.8% -20.0% -6.0% 53.6% 25.5% -37.3% -30.7% -65.4% -65.1% GPM 11.0% 11.6% 11.7% 9.6% 13.1% 13.0% 8.5% 9.1% 8.3% 9.0% SG&A expenses 3,053 3,618 3,386 4,029 3,664 3,944 3,969 4,281 3,529 3,601 YoY 1.3% 6.7% 5.7% -14.2% 20.0% 9.0% 17.2% 6.3% -3.7% -8.7% SG&A ratio 5.0% 3.9% 4.5% 4.0% 4.7% 3.8% 6.1% 5.8% 8.3% 6.8% Operating profit 3,653 7,244 5,375 5,715 6,636 9,684 1,525 2,470 34 1,158 YoY 18.6% 47.4% -30.6% 0.7% 81.7% 33.7% -71.6% -56.8% -99.5% -88.0% OPM 6.0% 7.7% 7.2% 5.6% 8.4% 9.2% 2.4% 3.3% 0.1% 2.2% Recurring profit 3,875 7,494 5,626 5,937 7,001 9,971 1,975 3,022 258 1,422 YoY 21.1% 62.3% -31.6% -2.4% 80.7% 33.1% -64.9% -49.1% -96.3% -85.7% RPM 6.3% 8.0% 7.5% 5.8% 8.9% 9.5% 3.0% 4.1% 0.6% 2.7% Net income 2,490 5,169 3,858 3,987 4,838 6,678 1,146 2,241 60 699 YoY 7.5% 62.1% -33.8% -16.7% 94.3% 29.2% -70.3% -43.8% -98.8% -89.5% Net margin 4.1% 5.5% 5.1% 3.9% 6.1% 6.4% 1.8% 3.0% 0.1% 1.3% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Revenue and gross profit (parent)

Revenue FY03/19 FY 03/ 20 FY 03/ 21 Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Total revenue 59,168 147,806 216,282 309,946 74,382 170,452 230,015 296,426 39,542 87,677 YoY 9.9% 19.4% 5.0% -0.8% 25.7% 15.3% 6.3% -4.4% -46.8% -48.6% Construction 58,877 147,247 215,296 308,623 74,057 169,777 228,997 295,034 39,150 86,899 YoY 10.3% 19.8% 5.2% -0.7% 25.8% 15.3% 6.4% -4.4% -47.1% -48.8% Domestic public 10,769 22,029 35,239 52,498 14,025 36,775 51,509 72,393 10,483 25,596 Domestic private 45,678 120,537 174,785 248,416 55,928 126,738 168,292 210,798 26,055 56,334 General 30,851 85,230 126,019 178,722 41,499 92,389 124,815 159,227 21,606 46,771 Tokyu Group 14,826 35,307 48,765 69,693 14,428 34,349 43,476 51,571 4,448 9,562 Overseas 2,428 4,680 5,271 7,708 4,103 6,263 9,195 11,840 2,611 4,968 Building Construction 45,833 119,141 171,067 238,241 56,587 126,551 167,577 206,956 26,010 56,360 YoY 19.1% 26.5% 8.9% 0.6% 23.5% 6.2% -2.0% -13.1% -54.0% -55.5% Domestic public 2,982 5,491 7,532 11,596 3,610 7,209 11,431 15,904 3,315 6,731 Domestic private 42,765 113,476 163,196 226,107 52,651 118,619 155,303 190,174 22,694 49,629 General 29,679 82,728 122,030 169,148 40,318 89,690 120,404 151,695 19,721 43,448 Tokyu Group 13,085 30,747 41,166 56,958 12,332 28,929 34,899 38,479 2,973 6,180 Overseas 85 173 337 537 325 722 842 876 - - Civil Engineering 13,044 28,105 44,229 70,381 17,470 43,226 61,420 88,078 13,139 30,538 YoY -12.4% -2.2% -7.0% -4.7% 33.9% 53.8% 38.9% 25.1% -24.8% -29.4% Domestic public 7,787 16,537 27,706 40,901 10,415 29,565 40,078 56,489 7,167 18,864 Domestic private 2,913 7,060 11,588 22,309 3,277 8,118 12,989 20,624 3,360 6,704 General 1,172 2,501 3,989 9,574 1,181 2,699 4,411 7,532 1,885 3,323 Tokyu Group 1,741 4,559 7,599 12,735 2,096 5,419 8,577 13,092 1,475 3,381 Overseas 2,343 4,507 4,933 7,170 3,777 5,541 8,353 10,964 2,611 4,968 Real Estate 290 558 986 1,323 324 674 1,017 1,391 392 777 YoY -39.2% -32.6% -19.0% -23.3% 11.7% 20.8% 3.1% 5.1% 21.0% 15.3%

Gross profit FY03/19 FY03/20 FY 03/ 21 Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Total gross profit 6,550 16,825 24,781 33,370 9,866 22,353 27,255 33,087 3,249 7,504 YoY 9.0% 16.3% -2.5% -5.5% 50.6% 32.9% 10.0% -0.8% -67.1% -66.4% Construction 6,412 16,609 24,380 33,316 9,681 21,976 27,056 32,935 3,031 7,086 Building Construction 5,239 13,062 18,820 23,423 8,168 17,862 21,293 24,717 2,079 4,482 Civil Engineering 1,172 3,546 5,560 9,892 1,513 4,113 5,763 8,218 951 2,604 Real Estate 138 216 400 54 184 377 198 151 217 418

Revenue FY03/19 FY 03/ 20 FY 03/ 21 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Total revenue 59,168 88,638 68,476 93,664 74,382 96,070 59,563 66,411 39,542 48,135 YoY 9.9% 26.8% -16.7% -12.1% 25.7% 8.4% -13.0% -29.1% -46.8% -49.9% Construction 58,877 88,370 68,049 93,327 74,057 95,720 59,220 66,037 39,150 47,749 YoY 10.3% 27.1% -16.8% -12.0% 25.8% 8.3% -13.0% -29.2% -47.1% -50.1% Domestic public 10,769 11,260 13,210 17,259 14,025 22,750 14,734 20,884 10,483 15,113 Domestic private 45,678 74,859 54,248 73,631 55,928 70,810 41,554 42,506 26,055 30,279 General 30,851 54,379 40,789 52,703 41,499 50,890 32,426 34,412 21,606 25,165 Tokyu Group 14,826 20,481 13,458 20,928 14,428 19,921 9,127 8,095 4,448 5,114 Overseas 2,428 2,252 591 2,437 4,103 2,160 2,932 2,645 2,611 2,357 Building Construction 45,833 73,308 51,926 67,174 56,587 69,964 41,026 39,379 26,010 30,350 YoY 19.1% 31.6% -17.5% -15.8% 23.5% -4.6% -21.0% -41.4% -54.0% -56.6% Domestic public 2,982 2,509 2,041 4,064 3,610 3,599 4,222 4,473 3,315 3,416 Domestic private 42,765 70,711 49,720 62,911 52,651 65,968 36,684 34,871 22,694 26,935 General 29,679 53,049 39,302 47,118 40,318 49,372 30,714 31,291 19,721 23,727 Tokyu Group 13,085 17,662 10,419 15,792 12,332 16,597 5,970 3,580 2,973 3,207 Overseas 85 88 164 200 325 397 120 34 - #VALUE! Civil Engineering 13,044 15,061 16,124 26,152 17,470 25,756 18,194 26,658 13,139 17,399 YoY -12.4% 8.8% -14.4% -0.5% 33.9% 71.0% 12.8% 1.9% -24.8% -32.4% Domestic public 7,787 8,750 11,169 13,195 10,415 19,150 10,513 16,411 7,167 11,697 Domestic private 2,913 4,147 4,528 10,721 3,277 4,841 4,871 7,635 3,360 3,344 General 1,172 1,329 1,488 5,585 1,181 1,518 1,712 3,121 1,885 1,438 Tokyu Group 1,741 2,818 3,040 5,136 2,096 3,323 3,158 4,515 1,475 1,906 Overseas 2,343 2,164 426 2,237 3,777 1,764 2,812 2,611 2,611 2,357 Real Estate 290 268 428 337 324 350 343 374 392 385 YoY -39.2% -23.6% 9.7% -33.5% 11.7% 30.6% -19.9% 11.0% 21.0% 10.0%

Gross profit FY03/19 FY 03/ 20 FY 03/ 21 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Total gross profit 6,550 10,275 7,956 8,589 9,866 12,487 4,902 5,832 3,249 4,255 YoY 9.0% 21.4% -27.4% -13.0% 50.6% 21.5% -38.4% -32.1% -67.1% -65.9% Construction 6,412 10,197 7,771 8,936 9,681 12,295 5,080 5,879 3,031 4,055 Building Construction 5,239 7,823 5,758 4,603 8,168 9,694 3,431 3,424 2,079 2,403 Civil Engineering 1,172 2,374 2,014 4,332 1,513 2,600 1,650 2,455 951 1,653 Real Estate 138 78 184 -346 184 193 -179 -47 217 201 Source: Shared Research based on company data

09/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Orders and construction carried forward (parent) FY03/19 FY03/20 FY03/21 Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Construction 44,270 96,834 149,231 263,053 26,679 71,738 115,295 193,315 27,741 122,357 YoY -45.3% -24.4% -23.4% -9.7% -39.7% -25.9% -22.7% -26.5% 4.0% 70.6% Domestic public 10,698 15,202 31,727 50,410 3,892 9,741 19,652 40,818 2,004 20,356 Domestic private 33,391 60,880 97,224 189,638 21,285 60,477 93,024 144,924 25,135 100,939 General private 28,176 46,865 74,801 155,028 15,228 48,030 76,304 120,968 18,236 88,717 Tokyu Group 5,214 14,015 22,423 34,609 6,056 12,447 16,720 23,956 6,899 12,222 Overseas 180 20,751 20,279 23,003 1,501 1,518 2,618 7,571 601 1,061 Building Construction 33,763 57,939 99,318 185,287 17,281 43,188 76,914 128,709 24,101 97,608 YoY -48.7% -45.6% -30.9% -13.6% -48.8% -25.5% -22.6% -30.5% 39.5% 126.0% Domestic public 4,791 7,054 18,624 22,225 373 4,203 8,968 9,994 1,065 3,203 Domestic private 28,975 50,854 80,690 163,046 16,928 39,013 67,972 113,772 22,338 93,968 General private 27,400 44,636 68,912 142,932 14,584 31,680 57,181 98,966 16,744 83,802 Tokyu Group 1,574 6,217 11,778 20,114 2,344 7,332 10,790 14,805 5,594 10,166 Overseas -3 31 3 15 -19 -28 -26 4,942 697 436 Civil Engineering 10,507 38,895 49,913 77,766 9,397 28,550 38,381 64,605 3,640 24,748 YoY -30.4% 79.8% -2.3% 1.3% -10.6% -26.6% -23.1% -16.9% -61.3% -13.3% Domestic public 5,907 8,148 13,103 28,185 3,518 5,538 10,683 30,824 938 17,153 Domestic private 4,416 10,026 16,533 26,592 4,357 21,464 25,052 31,151 2,797 6,970 General private 776 2,228 5,889 12,096 644 16,349 19,122 22,001 1,492 4,915 Tokyu Group 3,640 7,797 10,644 14,495 3,712 5,114 5,929 9,150 1,305 2,055 Overseas 183 20,720 20,276 22,988 1,521 1,546 2,645 2,629 -95 624

FY03/19 FY03/20 FY03/21 Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Construction 44,270 52,564 52,397 113,822 26,679 45,059 43,557 78,020 27,741 94,616 YoY -45.3% 11.4% -21.4% 17.9% -39.7% -14.3% -16.9% -31.5% 4.0% 110.0% Domestic public 10,698 4,504 16,525 18,683 3,892 5,849 9,911 21,166 2,004 18,352 Domestic private 33,391 27,489 36,344 92,414 21,285 39,192 32,547 51,900 25,135 75,804 General private 28,176 18,689 27,936 80,227 15,228 32,802 28,274 44,664 18,236 70,481 Tokyu Group 5,214 8,801 8,408 12,186 6,056 6,391 4,273 7,236 6,899 5,323 Overseas 180 20,571 -472 2,724 1,501 17 1,100 4,953 601 460 Building Construction 33,763 24,176 41,379 85,969 17,281 25,907 33,726 51,795 24,101 73,507 YoY -48.7% -40.5% 11.0% 21.4% -48.8% 7.2% -18.5% -39.8% 39.5% 183.7% Domestic public 4,791 2,263 11,570 3,601 373 3,830 4,765 1,026 1,065 2,138 Domestic private 28,975 21,879 29,836 82,356 16,928 22,085 28,959 45,800 22,338 71,630 General private 27,400 17,236 24,276 74,020 14,584 17,096 25,501 41,785 16,744 67,058 Tokyu Group 1,574 4,643 5,561 8,336 2,344 4,988 3,458 4,015 5,594 4,572 Overseas -3 34 -28 12 -19 -9 2 4,968 697 -261 Civil Engineering 10,507 28,388 11,018 27,853 9,397 19,153 9,831 26,224 3,640 21,108 YoY -30.4% 334.3% -62.6% 8.3% -10.6% -32.5% -10.8% -5.8% -61.3% 10.2% Domestic public 5,907 2,241 4,955 15,082 3,518 2,020 5,145 20,141 938 16,215 Domestic private 4,416 5,610 6,507 10,059 4,357 17,107 3,588 6,099 2,797 4,173 General private 776 1,452 3,661 6,207 644 15,705 2,773 2,879 1,492 3,423 Tokyu Group 3,640 4,157 2,847 3,851 3,712 1,402 815 3,221 1,305 750 Overseas 183 20,537 -444 2,712 1,521 25 1,099 -16 -95 719

FY03/19 FY03/20 FY03/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Total carried forward 384,220 348,414 332,763 353,258 305,879 255,218 239,555 251,538 240,130 286997 YoY -13.8% -17.7% -18.5% -11.4% -20.4% -26.7% -28.0% -28.8% -21.5% 12.5% Building Construction 252,136 203,004 192,458 211,253 171,947 127,889 120,589 133,007 131,097 174,255 Civil Engineering 132,083 145,409 140,304 142,004 133,931 127,328 118,965 118,531 109,032 112,742 Source: Shared Research based on company data

10/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

1H FY03/21 results Summary In the construction market in 1H FY03/21, although public-sector construction investment began picking up, private-sector capex declined as many companies reviewed their business plans, so the company’s earnings decreased YoY. In terms of construction costs, both labor costs and equipment and materials expenses were flat YoY.

Revenue came to JPY95.4bn (-48.0% YoY), about half the record high in 1H FY03/20, as revenue from completed construction declined after some large projects ended. Operating profit came to JPY1.2bn (-92.7% YoY) and recurring profit was JPY1.7bn (-90.1% YoY). Net income attributable to owners of the parent, after tax expenses, was JPY759mn (-93.4% YoY).

Orders rose 70% YoY, mainly on progress in Building Construction orders. 1H orders were at just 37% of the full-year target, but the company thinks the overall environment for orders is robust, since inquiries about large logistics facilities, for example, indicate that some areas have remained relatively solid despite the COVID-19 pandemic.

Parent revenue

▷ Parent revenue was JPY87.7bn (-48.6% YoY).

▷ Civil Engineering revenue from completed construction came to JPY30.5bn (-29.4% YoY), with the decline mainly due to absence of revenue from a large joint venture subcontracting work booked in 1H FY03/20.

▷ Building Construction revenue from completed construction was JPY56.4bn (-55.5% YoY) as large projects such as Shibuya redevelopment ran their course and some orders were delayed in FY03/20.

▷ Real Estate revenue came to JPY777mn (+15.4% YoY) with the accumulation of old rental properties—in central Tokyo and areas along the Tokyu railway lines, where the company has strengths—that can be expected to generate synergies with construction business.

Parent gross profit

▷ Parent gross profit was JPY7.5bn (-66.4% YoY).

▷ Civil Engineering gross profit from completed construction was JPY2.6bn (-36.7% YoY), with the decline caused by the pandemic’s impact on some overseas projects and lack of improvement on additional construction due to the small number of projects being completed.

▷ Building Construction gross profit from completed construction was JPY4.5bn (-74.9% YoY). GPM of completed construction fell 6.1pp YoY in an unfavorable comparison with 1H FY03/20 when there was substantial improvement in GPM of large projects that reached their conclusion.

▷ Real Estate gross profit was JPY418mn (+10.9% YoY).

Factors affecting net income

▷ Increase in real estate profit: +JPY59mn impact on net income

▷ Decrease in SG&A expenses: +JPY477mn

▷ Decrease in taxes expenses: +JPY4.8bn

▷ Decrease in gross profit from complete construction: -JPY15.7bn

▷ Extraordinary losses (loss on valuation of investment securities): -JPY284mn

▷ Decrease in equity-method profits: -JPY107mn

▷ Other: -JPY7mn

11/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Income and expenses at consolidated subsidiaries (net income/loss)

▷ Tokyu Renewal: JPY304mn

▷ Plantaardig farm: JPY11mn

▷ Firefighting Private Financial Initiative (PFI): JPY7mn

▷ Tokyu Industry: -JPY21mn

▷ Golden Tokyu Construction: -JPY36mn

▷ PT Tokyu Construction Indonesia: -JPY58mn

Income and expenses at equity-method affiliates (equity-method profit/loss)

▷ Seikitokyu Kogyo: JPY426mn

▷ Ch. Karnchang-Tokyu Construction: JPY59mn

▷ Asuka Soken: JPY45mn

▷ Tokyo Green System: -JPY9mn

Financial status Shareholders’ equity as of end-1H FY03/21 declined to JPY100.0bn following the payment of dividends from surplus. The equity ratio improved 3.6pp from end-FY03/20 to 46.5%, due mainly to a decrease in accounts payables accompanying the fall in revenue.

Civil Engineering orders (parent)

▷ Domestic public: JPY17.2bn (+209.7% YoY), including an order for a Ministry of Land, Infrastructure, Transport and Tourism (MLIT) project

▷ Domestic private: JPY7.0bn (-67.5% YoY), with the decline caused by a drop in railway construction as construction related to safety measures ran its course and railway companies restrained their investment due to the COVID-19 pandemic

▷ Overseas: JPY624mn (-59.6% YoY)

Building Construction orders (parent)

▷ Domestic public: JPY3.2bn (-23.8% YoY)

▷ Domestic private: JPY94.0bn (+140.9% YoY), with the increase caused by substantial growth in general private-sector construction, including university buildings and logistics warehouses (logistics-related work accounted for 40% of orders due to increased e-commerce business)

▷ Overseas: JPY436mn (flat YoY)

Construction carried forward (parent; as of end-September 2020)

▷ Total: JPY287.0bn (+12.5% YoY)

▷ Civil Engineering: JPY112.7bn (-11.5% YoY)

▷ Building Construction: JPY174.3bn (+36.3% YoY)

For details on previous quarterly and annual results, please refer to the Historical financial statements section.

12/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

FY03/21 full-year company forecast (out November 9, 2020)

FY03/19 FY03/20 FY03/21 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. 1H Act. 2H Est. FY Est . Revenue 154,697 176,740 331,437 183,415 138,755 322,170 95,423 134,577 230,000 Gross profit 17,568 18,505 36,073 23,928 12,245 36,173 8,323 Gross proift margin 11.4% 10.5% 10.9% 13.0% 8.8% 11.2% 8.7% SG&A expenses 6,671 7,415 14,086 7,608 8,250 15,858 7,130 SG&A ratio 4.3% 4.2% 4.2% 4.1% 5.9% 4.9% 7.5% Operating profit 10,897 11,090 21,987 16,320 3,995 20,315 1,192 2,808 4,000 Operating profit margin 7.0% 6.3% 6.6% 8.9% 2.9% 6.3% 1.2% 2.1% 1.7% Recurring profit 11,369 11,563 22,932 16,972 4,997 21,969 1,680 3,220 4,900 Recurring profit margin 7.3% 6.5% 6.9% 9.3% 3.6% 6.8% 1.8% 2.4% 2.1% Net income 7,659 7,845 15,504 11,516 3,387 14,903 759 2,241 3,000 Net margin 5.0% 4.4% 4.7% 6.3% 2.4% 4.6% 0.8% 1.7% 1.3% Source: Shared Research based on company data

Full-year earnings forecast (after downward revision announced on November 9)

▷ Revenue: JPY230.0bn (-28.6% YoY; previous forecast of JPY244.0bn)

▷ Operating profit JPY4.0bn (-80.3% YoY; JPY6.8bn)

▷ Recurring profit: JPY4.9bn (-77.7% YoY; JPY7.7bn)

▷ Net income attributable to owners of the parent: JPY3.0bn (-79.9% YoY; JPY5.1bn)

▷ Dividend forecast: JPY10 per share

Tokyu Construction forecasts substantially lower revenue and profit YoY now that large projects such as Shibuya redevelopment have run their course and the negative impact of the COVID-19 pandemic continues. In the construction market, it expects firm demand for some applications, even as the pandemic has a negative impact on private-sector construction investment overall. The company expects a certain level of construction demand when combined with strong public-sector construction investment related to disaster prevention and mitigation. As for its dividend policy, the company is maintaining the planned year-end dividend as it seems unlikely performance in the short term will fall short of this latest forecast revision, even though uncertainty remains in light of the pandemic. In addition, the company plans to purchase treasury shares up to JPY1.0bn and already purchased 563,600 shares for JPY279mn between November 10 and November 30, 2020.

Reasons for the downward revision

The company revised downward the forecast announced on August 6, 2020 to incorporate the impact of the COVID-19 pandemic that had since become apparent. Revenue is now expected to finish JPY14.0bn below the previous forecast due to a decline in completed construction and delays in the timing of orders. Versus the previous forecast, operating profit is expected to finish

JPY2.8bn lower, recurring profit JPY2.8bn lower, and net income JPY2.1bn lower. This is due to a decline in completed construction, loss of prospects for increasing profit by acquiring additional construction work on projects nearing completion, loss of prospects for acquiring additional work during FY03/21 due to delays in the progress of civil engineering work, and increased expenses on overseas development assistant (ODA) projects.

Outlook in revenue and gross profit from completed construction All construction at parent

▷ The company forecasts JPY212.4bn (-28.0% YoY) in revenue from completed construction.

13/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

▷ It projects JPY17.5bn (-46.8% YoY) in gross profit from completed construction.

▷ It expects an 8.2% margin on construction (GPM), versus 11.2% in FY03/20.

Civil Engineering at parent

▷ The company forecasts JPY72.6bn (-17.6% YoY) in revenue from completed construction, with the decrease caused by large joint venture subcontracted construction work having run its course in FY03/20, the pandemic delaying bidding and the completion of some construction, and restraints being placed on investment in railway-related construction.

▷ It projects JPY6.6bn (-19.7% YoY) in gross profit from completed construction.

▷ It expects a 9.1% margin on construction (GPM) versus 9.3% in FY03/20, with the decline due to reduced profitability on large ODA projects and the completion of several large construction projects being pushed back to FY03/22.

Building Construction at parent

▷ The company forecasts JPY139.8bn (-32.4% YoY) in revenue from completed construction. This drop in revenue is due to large projects such as Shibuya redevelopment running their course and orders and construction starts for large new projects being delayed by the pandemic.

▷ It projects JPY10.9bn (-55.9% YoY) in gross profit from completed construction due to lower profits in the face of competition.

▷ It expects a 7.8% margin on construction (GPM) versus 11.9% in FY03/20 as the number of large projects nearing completion falls.

Order outlook at parent

Order forecast (parent)

Parent FY 03/ 19 FY 03/ 20 FY 03/ 21 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. FY Est. Total orders 96,834 166,219 263,053 71,738 121,577 193,315 325,000 YoY -24.4% 1.8% -9.7% -25.9% -26.9% -26.5% 68.1% Construction 57,939 127,348 185,287 43,188 85,521 128,709 256,000 YoY -45.6% 17.8% -13.6% -25.5% -32.8% -30.5% 98.9% Civil Engineering 38,895 38,871 77,766 28,550 36,055 64,605 69,000 YoY 79.8% -29.5% 1.3% -26.6% -7.2% -16.9% 6.8% Source: Shared Research based on company data

Tokyu Construction has maintained its initial projection for parent orders, a key performance indicator. It considers FY03/21 to be an off year for orders, as the number of projects is declining throughout the industry. In addition, demand related to hotels, resorts, and transportation are sluggish in light of the pandemic. On the other hand, there has been an increase in inquiries about logistics warehouses due to expansion of e-commerce business. The company expects a large number of redevelopment projects in the vicinity of train stations.

Orders to be carried forward to FY03/22 Since it expects orders to increase in FY03/21, the company also expects orders carried forward to FY03/22 to increase.

▷ Civil Engineering orders carried forward: JPY114.9bn (-3.0% YoY)

▷ Building Construction orders carried forward: JPY249.2bn (+87.4% YoY)

(Reference) Views on consolidated results for FY03/21 (based on the previous forecast announced August 6, 2020)

Factoring in building construction orders pushed back from FY03/20, the company forecasts parent orders in FY03/21 of JPY325.0bn (+68.1% YoY). The company also notes the risk that the economic slowdown brought on by the COVID-19 pandemic could result in demand on an overall basis being pushed back to FY03/22 or further.

14/79 Tokyu Construction / 1720 RCoverage LAST UPDATE: 2021.01.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

The COVID-19 pandemic is also generating momentum for reductions in private-sector capex. Moreover, there appears to be a growing trend among real estate developers to delay investment decisions given the uncertainty of trends in tenant demand. There are already concerns over private-sector construction starts on newly planned projects being delayed and freezes on operations. Projects for the Tokyo Olympics are also playing out, and price competition in the domestic construction market has been heating up since 2H FY03/20 amid a cooling in demand, particularly in urban areas. Amid such an environment, the company expects the competition for orders to remain severe in FY03/21. In building construction orders, the postponement of several large projects from FY03/20 to FY03/21 will be a factor for YoY growth. The company believes the spread of COVID-19 may lead not only to a deterioration in the overall economy, but also a narrowing in building construction demand as people refrain from going outside and telecommuting becomes increasingly common. Moreover, as the vacancy rate in the Shibuya area rises, there is growing uncertainty over demand to address the deterioration in small to medium-sized office buildings. The company nevertheless believes this likely to be a high-growth field over the medium to long term, as the rapid expansion in e-commerce on the back of stay-at-home demand has contributed to the company receiving an increased number of logistic and refrigerated warehouse-related inquiries. It also believes that the increased prevalence of telecommuting could increase demand for the construction of buildings in suburban areas as well as demand for shared offices. There are also a number of large development projects planned along the Tokyu railway lines over the medium term, including in Sangenjaya and Shin-Tsunashima. Orders for railway-related projects are expected to decline in FY03/21. The company thinks that declining passenger volume may suppress railway company capex in the medium term, but it thinks investments required for the replacement of grade separated crossings, safety measures and maintenance will be firm. In public-sector civil engineering, there have been delays in local explanatory meetings and the public notice and bidding process for projects due to the COVID-19 pandemic, but the company expects public-sector demand to be basically strong. In overseas construction work, some projects currently underway have experienced delays in procuring materials and equipment due to COVID-19, but that it is not to say that they have been halted. Japanese personnel, including employees and consultants of the company have temporarily returned home, which, combined with travel restrictions, has caused procedural delays. A number of rental property tenants have requested delayed rent payments, and the company is currently negotiating with them. The company forecasts FY03/21 revenue of JPY244.0bn (-24.3% YoY), factoring in an expected drop in revenue from completed construction due to order and construction start delays, revisions to customer business plans as a result of COVID-19, and the year being an off-year, particularly in building construction following the recent completion of several large projects. Factoring in a decline in revenue as well as a drop in gross profit on completed construction due to the severe competitive environment eroding gross profit margins, the company forecasts FY03/21 operating profit of JPY6.8bn (-66.5% YoY), recurring profit of JPY7.7bn (-65.0% YoY), and net income attributable to owners of the parent of JPY5.1bn (-65.8% YoY). The company forecasts a decline in both revenue and profit in FY03/21 and has accordingly established an annual dividend forecast of JPY10.0 per share, down JPY20.0 per share from FY03/20. The medium-term business plan, under which FY03/21 is the final year, sets a policy focused on strengthening the company’s financial base through equity capital enhancements as soon as they can be made, and factors in the uncertainties in the business environment brought on by the spread of COVID-19. The company intends to revise its shareholder returns policies for FY03/22 and years following in the next medium-term business plan, which is currently being formulated. The company expects ZEB and other energy efficiency related construction to grow thanks to rising environmental consciousness. Demand in this area appears relatively unaffected by COVID-19. In fact, demand is becoming increasingly apparent, with the company receiving project orders for new construction at Tokyo City University and new construction in the rebuilding of the Seikitokyu Kogyo headquarters building. In overseas projects, it expects ongoing growth in railway infrastructure demand, an area of strength for the company. At the same time, though, it sees the potential for a slowdown in domestic office building demand as the teleworking takes hold due to the COVID-19 pandemic.

(Reference) FY03/21 company earnings forecast anticipated prior to the COVID-19 pandemic

Work carried over at the start of the year was low, largely due to delays in building construction orders obtained in FY03/20. The company projected that the gross profit margin on building construction work would fall to 8.2% in FY03/21, down from 11.9% in FY03/20 due to changes in the