Tokyu Construction / 1720

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Tokyu Construction / 1720

COVERAGE INITIATED ON: 2020.05.21

LAST UPDATE: 2021.02.09

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.

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Tokyu Construction / 1720

LAST UPDATE: 2021.02.09 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

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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 --- 20

Business --- 27

Business description --- 27

Segments --- 30

Market and value chain--- 38

Construction market in Japan --- 38

Main competitors --- 43

Strengths and weaknesses --- 53

Notable projects --- 55

Historical performance and financial statements --- 61

Income statement --- 61

Balance sheet --- 62

Cash flow statement --- 63

Historical performance --- 64

Other information --- 70

History --- 70

News and topics --- 74

Corporate governance and top management --- 75

Dividend policy --- 76

Major shareholders --- 77

Employees --- 77

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Executive summary

Business overview

◤ Tokyu Construction is a second-tier general contractor (see paragraph below). A member of the Tokyu Group, Tokyu

Construction is an equity-method affiliate of Tokyu Corporation (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 Tokyo’s 23 wards to northern Yokohama.

◤ 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 Shibuya 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 Shibuya Station. Notable projects include Shibuya Hikarie (completed in 2012), Shibuya Scramble Square (completed in 2019), Shibuya Stream (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

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◤ Key overseas projects include the Jakarta Mass Rapid Transit Project (completed in 2019, Indonesia), the Bangkok MRT

Purple Line (completed in 2014, Thailand), the Vo Nguyen Giap Road (2014, Vietnam), and the Causeway Point Shopping Center (2012, Singapore). 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 Southeast Asia (Thailand, Singapore, Indonesia, Myanmar, 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

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Key financial data

Source: Shared Research based on company 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% Net income 4,087 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%

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Recent updates

Highlights

On February 9, 2021, Tokyu Construction Co., Ltd.announced earnings results for Q3 FY03/21; see the results section for details.

On January 6, 2021, Shared Research updated the report following interviews with the company.

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Trends and outlook

Quarterly trends and results

Note: Figures may differ from company materials due to differences in rounding methods. Cumulative

(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 % of Est. FY Est.

Revenue 61,131 154,697 229,816 331,437 78,722 183,415 248,190 322,170 42,684 95,423 154,667 67.2% 230,000 YoY 11.1% 22.8% 9.9% 3.3% 28.8% 18.6% 8.0% -2.8% -45.8% -48.0% -37.7% -28.6% Gross profit 6,706 17,568 26,330 36,073 10,300 23,928 29,422 36,173 3,563 8,323 12,879 YoY 10.0% 22.0% 3.9% 1.0% 53.6% 36.2% 11.7% 0.3% -65.4% -65.2% -56.2% GPM 11.0% 11.4% 11.5% 10.9% 13.1% 13.0% 11.9% 11.2% 8.3% 8.7% 8.3% SG&A expenses 3,053 6,671 10,057 14,086 3,664 7,608 11,577 15,858 3,529 7,130 10,763 YoY 1.3% 4.2% 4.7% -1.5% 20.0% 14.0% 15.1% 12.6% -3.7% -6.3% -7.0% SG&A ratio 5.0% 4.3% 4.4% 4.2% 4.7% 4.1% 4.7% 4.9% 8.3% 7.5% 7.0% Operating profit 3,653 10,897 16,272 21,987 6,636 16,320 17,845 20,315 34 1,192 2,116 52.9% 4,000 YoY 18.6% 36.3% 3.4% 2.7% 81.7% 49.8% 9.7% -7.6% -99.5% -92.7% -88.1% -80.3% OPM 6.0% 7.0% 7.1% 6.6% 8.4% 8.9% 7.2% 6.3% 0.1% 1.2% 1.4% 1.7% Recurring profit 3,875 11,369 16,995 22,932 7,001 16,972 18,947 21,969 258 1,680 2,739 55.9% 4,900 YoY 21.1% 45.5% 5.9% 3.6% 80.7% 49.3% 11.5% -4.2% -96.3% -90.1% -85.5% -77.7% RPM 6.3% 7.3% 7.4% 6.9% 8.9% 9.3% 7.6% 6.8% 0.6% 1.8% 1.8% 2.1% Net income 2,490 7,659 11,517 15,504 4,838 11,516 12,662 14,903 60 759 1,546 51.5% 3,000 YoY 7.5% 39.1% 1.7% -3.8% 94.3% 50.4% 9.9% -3.9% -98.8% -93.4% -87.8% -79.9% Net margin 4.1% 5.0% 5.0% 4.7% 6.1% 6.3% 5.1% 4.6% 0.1% 0.8% 1.0% 1.3% Quarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Revenue 61,131 93,566 75,119 101,621 78,722 104,693 64,775 73,980 42,684 52,739 59,244 YoY 11.1% 31.9% -9.6% -9.0% 28.8% 11.9% -13.8% -27.2% -45.8% -49.6% -8.5% Gross profit 6,706 10,862 8,762 9,743 10,300 13,628 5,494 6,751 3,563 4,760 4,556 YoY 10.0% 30.8% -20.0% -6.0% 53.6% 25.5% -37.3% -30.7% -65.4% -65.1% -17.1% GPM 11.0% 11.6% 11.7% 9.6% 13.1% 13.0% 8.5% 9.1% 8.3% 9.0% 7.7% SG&A expenses 3,053 3,618 3,386 4,029 3,664 3,944 3,969 4,281 3,529 3,601 3,633 YoY 1.3% 6.7% 5.7% -14.2% 20.0% 9.0% 17.2% 6.3% -3.7% -8.7% -8.5% SG&A ratio 5.0% 3.9% 4.5% 4.0% 4.7% 3.8% 6.1% 5.8% 8.3% 6.8% 6.1% Operating profit 3,653 7,244 5,375 5,715 6,636 9,684 1,525 2,470 34 1,158 924 YoY 18.6% 47.4% -30.6% 0.7% 81.7% 33.7% -71.6% -56.8% -99.5% -88.0% -39.4% OPM 6.0% 7.7% 7.2% 5.6% 8.4% 9.2% 2.4% 3.3% 0.1% 2.2% 1.6% Recurring profit 3,875 7,494 5,626 5,937 7,001 9,971 1,975 3,022 258 1,422 1,059 YoY 21.1% 62.3% -31.6% -2.4% 80.7% 33.1% -64.9% -49.1% -96.3% -85.7% -46.4% RPM 6.3% 8.0% 7.5% 5.8% 8.9% 9.5% 3.0% 4.1% 0.6% 2.7% 1.8% Net income 2,490 5,169 3,858 3,987 4,838 6,678 1,146 2,241 60 699 787 YoY 7.5% 62.1% -33.8% -16.7% 94.3% 29.2% -70.3% -43.8% -98.8% -89.5% -31.3% Net margin 4.1% 5.5% 5.1% 3.9% 6.1% 6.4% 1.8% 3.0% 0.1% 1.3% 1.3%

FY03/19 FY03/20 FY03/21

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Revenue and gross profit (parent)

Revenue Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Total revenue 59,168 147,806 216,282 309,946 74,382 170,452 230,015 296,426 39,542 87,677 144,004 YoY 9.9% 19.4% 5.0% -0.8% 25.7% 15.3% 6.3% -4.4% -46.8% -48.6% -37.4% Construction 58,877 147,247 215,296 308,623 74,057 169,777 228,997 295,034 39,150 86,899 142,836 YoY 10.3% 19.8% 5.2% -0.7% 25.8% 15.3% 6.4% -4.4% -47.1% -48.8% -37.6% Domestic public 10,769 22,029 35,239 52,498 14,025 36,775 51,509 72,393 10,483 25,596 40,532 Domestic private 45,678 120,537 174,785 248,416 55,928 126,738 168,292 210,798 26,055 56,334 95,142 General 30,851 85,230 126,019 178,722 41,499 92,389 124,815 159,227 21,606 46,771 78,167 Tokyu Group 14,826 35,307 48,765 69,693 14,428 34,349 43,476 51,571 4,448 9,562 16,974 Overseas 2,428 4,680 5,271 7,708 4,103 6,263 9,195 11,840 2,611 4,968 7,162 Building Construction 45,833 119,141 171,067 238,241 56,587 126,551 167,577 206,956 26,010 56,360 91,391 YoY 19.1% 26.5% 8.9% 0.6% 23.5% 6.2% -2.0% -13.1% -54.0% -55.5% -45.5% Domestic public 2,982 5,491 7,532 11,596 3,610 7,209 11,431 15,904 3,315 6,731 10,896 Domestic private 42,765 113,476 163,196 226,107 52,651 118,619 155,303 190,174 22,694 49,629 80,464 General 29,679 82,728 122,030 169,148 40,318 89,690 120,404 151,695 19,721 43,448 68,932 Tokyu Group 13,085 30,747 41,166 56,958 12,332 28,929 34,899 38,479 2,973 6,180 11,532 Overseas 85 173 337 537 325 722 842 876 - - 30 Civil Engineering 13,044 28,105 44,229 70,381 17,470 43,226 61,420 88,078 13,139 30,538 51,444 YoY -12.4% -2.2% -7.0% -4.7% 33.9% 53.8% 38.9% 25.1% -24.8% -29.4% -16.2% Domestic public 7,787 16,537 27,706 40,901 10,415 29,565 40,078 56,489 7,167 18,864 29,635 Domestic private 2,913 7,060 11,588 22,309 3,277 8,118 12,989 20,624 3,360 6,704 14,677 General 1,172 2,501 3,989 9,574 1,181 2,699 4,411 7,532 1,885 3,323 9,235 Tokyu Group 1,741 4,559 7,599 12,735 2,096 5,419 8,577 13,092 1,475 3,381 5,441 Overseas 2,343 4,507 4,933 7,170 3,777 5,541 8,353 10,964 2,611 4,968 7,131 Real Estate 290 558 986 1,323 324 674 1,017 1,391 392 777 1,167 YoY -39.2% -32.6% -19.0% -23.3% 11.7% 20.8% 3.1% 5.1% 21.0% 15.3% 14.7% Gross profit Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Total gross profit 6,550 16,825 24,781 33,370 9,866 22,353 27,255 33,087 3,249 7,504 11,786

YoY 9.0% 16.3% -2.5% -5.5% 50.6% 32.9% 10.0% -0.8% -67.1% -66.4% -56.8% Construction 6,412 16,609 24,380 33,316 9,681 21,976 27,056 32,935 3,031 7,086 11,380 Building Construction 5,239 13,062 18,820 23,423 8,168 17,862 21,293 24,717 2,079 4,482 7,245 Civil Engineering 1,172 3,546 5,560 9,892 1,513 4,113 5,763 8,218 951 2,604 4,135 Real Estate 138 216 400 54 184 377 198 151 217 418 405 Revenue Quarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Total revenue 59,168 88,638 68,476 93,664 74,382 96,070 59,563 66,411 39,542 48,135 56,327 YoY 9.9% 26.8% -16.7% -12.1% 25.7% 8.4% -13.0% -29.1% -46.8% -49.9% -5.4% Construction 58,877 88,370 68,049 93,327 74,057 95,720 59,220 66,037 39,150 47,749 55,937 YoY 10.3% 27.1% -16.8% -12.0% 25.8% 8.3% -13.0% -29.2% -47.1% -50.1% -5.5% Domestic public 10,769 11,260 13,210 17,259 14,025 22,750 14,734 20,884 10,483 15,113 14,936 Domestic private 45,678 74,859 54,248 73,631 55,928 70,810 41,554 42,506 26,055 30,279 38,808 General 30,851 54,379 40,789 52,703 41,499 50,890 32,426 34,412 21,606 25,165 31,396 Tokyu Group 14,826 20,481 13,458 20,928 14,428 19,921 9,127 8,095 4,448 5,114 7,412 Overseas 2,428 2,252 591 2,437 4,103 2,160 2,932 2,645 2,611 2,357 2,194 Building Construction 45,833 73,308 51,926 67,174 56,587 69,964 41,026 39,379 26,010 30,350 35,031 YoY 19.1% 31.6% -17.5% -15.8% 23.5% -4.6% -21.0% -41.4% -54.0% -56.6% -14.6% Domestic public 2,982 2,509 2,041 4,064 3,610 3,599 4,222 4,473 3,315 3,416 4,165 Domestic private 42,765 70,711 49,720 62,911 52,651 65,968 36,684 34,871 22,694 26,935 30,835 General 29,679 53,049 39,302 47,118 40,318 49,372 30,714 31,291 19,721 23,727 25,484 Tokyu Group 13,085 17,662 10,419 15,792 12,332 16,597 5,970 3,580 2,973 3,207 5,352 Overseas 85 88 164 200 325 397 120 34 - - 30 Civil Engineering 13,044 15,061 16,124 26,152 17,470 25,756 18,194 26,658 13,139 17,399 20,906 YoY -12.4% 8.8% -14.4% -0.5% 33.9% 71.0% 12.8% 1.9% -24.8% -32.4% 14.9% Domestic public 7,787 8,750 11,169 13,195 10,415 19,150 10,513 16,411 7,167 11,697 10,771 Domestic private 2,913 4,147 4,528 10,721 3,277 4,841 4,871 7,635 3,360 3,344 7,973 General 1,172 1,329 1,488 5,585 1,181 1,518 1,712 3,121 1,885 1,438 5,912 Tokyu Group 1,741 2,818 3,040 5,136 2,096 3,323 3,158 4,515 1,475 1,906 2,060 Overseas 2,343 2,164 426 2,237 3,777 1,764 2,812 2,611 2,611 2,357 2,163 Real Estate 290 268 428 337 324 350 343 374 392 385 390 YoY -39.2% -23.6% 9.7% -33.5% 11.7% 30.6% -19.9% 11.0% 21.0% 10.0% 13.7% Gross profit Quarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Total gross profit 6,550 10,275 7,956 8,589 9,866 12,487 4,902 5,832 3,249 4,255 4,282

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Orders and construction carried forward (parent)

Cumulative (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Construction 44,270 96,834 149,231 263,053 26,679 71,738 115,295 193,315 27,741 122,357 186,066 YoY -45.3% -24.4% -23.4% -9.7% -39.7% -25.9% -22.7% -26.5% 4.0% 70.6% 61.4% Domestic public 10,698 15,202 31,727 50,410 3,892 9,741 19,652 40,818 2,004 20,356 32,758 Domestic private 33,391 60,880 97,224 189,638 21,285 60,477 93,024 144,924 25,135 100,939 151,747 General private 28,176 46,865 74,801 155,028 15,228 48,030 76,304 120,968 18,236 88,717 131,599 Tokyu Group 5,214 14,015 22,423 34,609 6,056 12,447 16,720 23,956 6,899 12,222 20,147 Overseas 180 20,751 20,279 23,003 1,501 1,518 2,618 7,571 601 1,061 1,560 Building Construction 33,763 57,939 99,318 185,287 17,281 43,188 76,914 128,709 24,101 97,608 146,740 YoY -48.7% -45.6% -30.9% -13.6% -48.8% -25.5% -22.6% -30.5% 39.5% 126.0% 90.8% Domestic public 4,791 7,054 18,624 22,225 373 4,203 8,968 9,994 1,065 3,203 5,320 Domestic private 28,975 50,854 80,690 163,046 16,928 39,013 67,972 113,772 22,338 93,968 140,797 General private 27,400 44,636 68,912 142,932 14,584 31,680 57,181 98,966 16,744 83,802 123,869 Tokyu Group 1,574 6,217 11,778 20,114 2,344 7,332 10,790 14,805 5,594 10,166 16,927 Overseas -3 31 3 15 -19 -28 -26 4,942 697 436 623 Civil Engineering 10,507 38,895 49,913 77,766 9,397 28,550 38,381 64,605 3,640 24,748 39,325 YoY -30.4% 79.8% -2.3% 1.3% -10.6% -26.6% -23.1% -16.9% -61.3% -13.3% 2.5% Domestic public 5,907 8,148 13,103 28,185 3,518 5,538 10,683 30,824 938 17,153 27,438 Domestic private 4,416 10,026 16,533 26,592 4,357 21,464 25,052 31,151 2,797 6,970 10,949 General private 776 2,228 5,889 12,096 644 16,349 19,122 22,001 1,492 4,915 7,729 Tokyu Group 3,640 7,797 10,644 14,495 3,712 5,114 5,929 9,150 1,305 2,055 3,220 Overseas 183 20,720 20,276 22,988 1,521 1,546 2,645 2,629 -95 624 937 Quarterly (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Construction 44,270 52,564 52,397 113,822 26,679 45,059 43,557 78,020 27,741 94,616 63,709 YoY -45.3% 11.4% -21.4% 17.9% -39.7% -14.3% -16.9% -31.5% 4.0% 110.0% 46.3% Domestic public 10,698 4,504 16,525 18,683 3,892 5,849 9,911 21,166 2,004 18,352 12,402 Domestic private 33,391 27,489 36,344 92,414 21,285 39,192 32,547 51,900 25,135 75,804 50,808 General private 28,176 18,689 27,936 80,227 15,228 32,802 28,274 44,664 18,236 70,481 42,882 Tokyu Group 5,214 8,801 8,408 12,186 6,056 6,391 4,273 7,236 6,899 5,323 7,925 Overseas 180 20,571 -472 2,724 1,501 17 1,100 4,953 601 460 499 Building Construction 33,763 24,176 41,379 85,969 17,281 25,907 33,726 51,795 24,101 73,507 49,132 YoY -48.7% -40.5% 11.0% 21.4% -48.8% 7.2% -18.5% -39.8% 39.5% 183.7% 45.7% Domestic public 4,791 2,263 11,570 3,601 373 3,830 4,765 1,026 1,065 2,138 2,117 Domestic private 28,975 21,879 29,836 82,356 16,928 22,085 28,959 45,800 22,338 71,630 46,829 General private 27,400 17,236 24,276 74,020 14,584 17,096 25,501 41,785 16,744 67,058 40,067 Tokyu Group 1,574 4,643 5,561 8,336 2,344 4,988 3,458 4,015 5,594 4,572 6,761 Overseas -3 34 -28 12 -19 -9 2 4,968 697 -261 187 Civil Engineering 10,507 28,388 11,018 27,853 9,397 19,153 9,831 26,224 3,640 21,108 14,577 YoY -30.4% 334.3% -62.6% 8.3% -10.6% -32.5% -10.8% -5.8% -61.3% 10.2% 48.3% Domestic public 5,907 2,241 4,955 15,082 3,518 2,020 5,145 20,141 938 16,215 10,285 Domestic private 4,416 5,610 6,507 10,059 4,357 17,107 3,588 6,099 2,797 4,173 3,979 General private 776 1,452 3,661 6,207 644 15,705 2,773 2,879 1,492 3,423 2,814 Tokyu Group 3,640 4,157 2,847 3,851 3,712 1,402 815 3,221 1,305 750 1,165 Overseas 183 20,537 -444 2,712 1,521 25 1,099 -16 -95 719 313 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Total carried forward 384,220 348,414 332,763 353,258 305,879 255,218 239,555 251,538 240,130 286997 294,768

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Q3 FY03/21 results

Summary

In cumulative Q3 FY03/21, revenue came to JPY154.7bn (-37.7% YoY) on lower revenue from completed construction. Operating profit came to JPY2.1bn (-88.1% YoY) and recurring profit was JPY2.7bn (-85.5% YoY). Net income attributable to owners of the parent, after tax expenses, was JPY1.5bn (-87.8% YoY).

Shareholders’ equity as of end-Q3 FY03/21 stood at JPY101.5bn, with the equity ratio improving 5.4pp from end-FY03/20 to 48.3%.

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

Full-year earnings forecast

▷ Revenue: JPY230.0bn (-28.6% YoY)

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

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

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

▷ 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.

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.

▷ 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

(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%

FY03/21

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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)

On February 9, 2021, the company revised down its forecast for parent orders. While it maintained its forecast for Building Construction orders at JPY256.0bn (+98.9% YoY), it lowered the target for Civil Engineering orders from JPY69.0bn to JPY64.0bn (-0.9% YoY) due to delays on the part of ordering parties, e.g., government agencies, amid the COVID-19 pandemic. As a result, the forecast for parent total orders was slightly lowered from JPY325.0bn to JPY320.0bn (+65.5% YoY). The company 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.

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

Parent

(JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. 1H Act. 2H Est. FY Est.

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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 competitive environment and a temporary dip in revenue.

There is little progress that would contribute to FY03/21 revenue, but keeping postponements in mind, the company anticipated a fair amount of project orders coming in and saw reasonable potential to meet its targets.

Consolidated revenue: JPY272bn (-15.6% YoY) Consolidated operating profit: JPY9.6bn (-52.7% YoY) Consolidated recurring profit: JPY10.6bn (-51.8% YoY)

Net profit attributable to owners of the parent: JPY7.1bn (-52.4% YoY) Non-consolidated revenue: JPY246bn (gross profit margin of 9.5%)

Non-consolidated civil engineering revenue: JPY76.7bn (gross profit margin of 11.5%) Non-consolidated building construction revenue: JPY167.5bn (gross profit margin of 8.2%) Non-consolidated orders: JPY325bn

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Received Customer Project Location

City of Komaki Reconstruction work at Komakiminami Elementary School Aichi Nankan Town Construction of Nankan town hall and related work Kumamoto Nomura Real Estate Development Co.,

Ltd.

Construction of Landport Ageo II (tentative name) Saitama Mitsubishi Estate Residence Co., Ltd.

Mitsubishi Logistics Corporation

Construction of Chiyoda-ku Sanbancho 26 Project Tokyo Komazawa University Construction of library at Komazawa University Tokyo Mutsumi Special Alloy Industry Co., Ltd. Construction of Mutsumi Special Alloy Industry head office Tokyo Gotoh Educational Corporation Construction of Tokyo City University Building A Expansion (tentative

name)

Hokkaido Ministry of Land, Infrastructure,

Transport and Tourism

Construction of R2 section of Route 246 Shibuya Station underpass Tokyo Central Nippon Expressway Company

Limited

Construction of Nanasaki elevated bridge and one other bridge (substructure) on Tokai Ring Expressway

Gifu Ministry of Agriculture, Forestry and

Fisheries

Owari Seibu Region 4th round of basic seismic countermeasures at Nikko River Mouth pumping station

Aichi Chiba Prefecture Contract road construction (tentative name: Misato Nagareyama Bridge,

trestle P6, abutment A2)

Chiba Tokyu Railways Co., Ltd. FY2020 regular inspection of structures (civil engineering structures,

station facilities, etc.) (civil engineering work)

Tokyo

Completed Customer Project Location

City of Kawanishi Improvements to refuse collection office Hyogo Mitsui Fudosan Residential Co., Ltd. Construction of residential building in Shibuya Ward Office

Reconstruction Project (tentative name)

Tokyo East Japan Railway Company Main work at Sakuragicho Ekimae Building Complex Kanagawa Fukuoka Jisho Co., Ltd. Construction of Hotel Forza Sapporo Ekimae (tentative name) Hokkaido Nansei Rakuen Resorts Co., Ltd. Renovation of Hotel Breeze Bay Marina main building Okinawa Waseda University Construction of Waseda University Tokorozawa Campus researchers'

quarters (tentative name)

Saitama Tokyu Corporation Shibuya Iconic OOH PJ Tokyo City of Koriyama Construction of public sewerages on the No. 119 Rainwater Trunk Line:

Section 1

Fukushima Tokyo Metropolitan Government Emergency restoration work on Minami Asakawa River Tokyo Tokyo Metro Co., Ltd. Civil engineering work at Ginza Line Shibuya Station East Building Tokyo Osaka Metro Co., Ltd. Seismic reinforcement of elevated structures of Metro lines 1 and 4 Osaka Tokyu Corporation Construction (electrical and mechanical) on underground anti-flooding

facility (Shibuya-ku east entrance)

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Medium-term outlook: 2018‒2020 “Shinka 2020”

(financial target indicators revised on Aug. 6, 2020)

The company is currently following Shinka 2020, the medium-term management plan for 2018‒2020 it announced in March 2018. The plan positions 2020 as the culmination of its corporate vision set in 2011, of being a “general contractor that continues to embody ‘shinka’” (which translates roughly as “deepening and evolving in the pursuit of genuine value”). This year also marks the start of a new plan, Our Ideals for 2026.

External environment

The company expects domestic investment in construction to remain high through FY03/21 due to the Tokyo Olympics. However, it thinks the unit cost of labor will gradually rise as the result of a shortage of skilled workers stemming from a shrinking and aging population. The company also expects materials prices to increase gradually. Meanwhile, Tokyu Construction believes a number of issues will surface, such as the need to shorten long working hours as work-style reforms progress. Furthermore, the company sees an urgent need to respond to the risk of a shrinking post-Olympics market.

Medium- to long-term risk factors

The company has identified four medium- to long-term risk factors: 1) a policy change in the ruling party could cause Japanese government investment in construction to decrease, 2) rapid inflation or deflation could cause the domestic economy to stall and decrease, 3) long working hours and worker shortages are likely to persist, and 4) productivity at construction sites is unlikely to improve without progress in automation technology and the use of ICT.

Target income and expenses

This plan sets performance targets for FY03/21: revenue of JPY312.0bn, operating profit of JPY19.5bn, recurring profit of JPY19.8bn, and profit attributable to owners of the parent of JPY13.9bn. The company also targets ROE of 13% or higher and shareholders’ equity of JPY110.0bn or more at end-FY03/21. In FY03/19, the company posted revenue of JPY331.4bn and recurring profit of JPY22.9bn, but its plans assume business will decelerate once currently favorable construction demand subsides.

Preparing for shrinking market by expanding fields of business, boosting efficiency to enhance the earnings structure

Although revenue has been favorable to date, the company expects the operating environment surrounding the construction industry to worsen after the Tokyo Olympics, with investment in construction falling off. To address this situation, the company will concentrate on winning public-sector civil engineering and overseas projects, and expanding real estate leasing and new businesses. With worker shortages likely to boost labor costs and equipment and materials expenses forecast to rise, the company aims to utilize IT to boost efficiency and enhance profitability.

Fundamental policies

▷ Transform human resources and organization to elicit employee motivation and capabilities: increase operating efficiency, reinforce employee training, make working styles more diverse, optimize the allocation of human resources, step up hiring to attract people with specialized skills.

▷ Reinforce the domestic construction business with a customer-centered perspective and problem-solving skills: reorganize the network of branch offices in the Tokyo metro area and eastern Japan, enact sales strategies based on a customer-centered perspective, promote technology development to meet customer needs, build systems for priority clients and fields and conduct employee training, strengthen the renovation and medium-sized wooden construction businesses.

▷ Promote the diversification of revenue sources by expanding strategic businesses: strengthen the international, real estate, and PPP/concession businesses.

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FY03/21 target indicators (revised August 6, 2020)

Financial KPIs

▷ Consolidated OPM: 2.7% plus (previously 6.3% plus)

▷ Consolidated revenue: JPY244bn plus (previously JPY312bn plus)

▷ ROE: 5% plus (previously 13% plus)

▷ Consolidated shareholders’ equity: JPY104bn plus (previously JPY110bn plus)

Non-financial KPIs

▷ Employee Engagement Survey: BBB (“Motivation Cloud” engagement rating by Link and Motivation Inc. In FY03/19, the

company scored BB, or fifth out of 11 levels. BBB is the next highest rating.)

▷ Number of days work sites are closed: Closed for six to seven days out of four weeks

▷ Customer satisfaction: 100%

▷ Safety index: 0.10 or lower

▷ Reduction in environmental impact: CO2 emissions of 23.2t per JPY100mn in construction revenue (down 22% from FY03/91)

Results (for FY03/20)

Financial KPIs

▷ Consolidated OPM: 6.3% (target met)

▷ Consolidated revenue: JPY322.1bn (target met)

▷ ROE: 15.4% (target met)

▷ Consolidated shareholders’ equity: JPY101.2bn (target missed)

Non-financial KPIs

▷ Employee Engagement Survey: BB (“Motivation Cloud” engagement rating by Link and Motivation Inc. In FY03/19, the company

scored BB, or fifth out of 11 levels. It thus maintained the same level; target missed)

▷ Number of days work sites are closed: Closed for five to six days out of four weeks (target missed)

▷ Customer satisfaction: 97% (target missed)

▷ Safety index: 0.09 or lower (target missed)

▷ Reduction in environmental impact: CO2 emissions of 18.0t per JPY100mn in construction revenue (target met)

Revenue targets by segment (FY03/21)

Targets are undetermined due to the impact of COVID-19.

Investment plans (FY03/19‒FY03/21)

To meet its goals for 2026, the company is investing to reinforce the domestic construction business and expand strategic businesses. As a result, Tokyu Construction aims to grow following the Olympics. In general, the company plans to fund this investment itself. However, it says it will take optimal funding methods into account based on management/financial conditions and the market environment.

▷ Total investment: JPY24.0bn

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▷ New business domains: JPY16.5bn (real estate business, PPP/concession businesses, new businesses, bell pepper business)

▷ Management foundation, organizations, and human resources: JPY1.5bn (employee training, ICT)

Company goals for 2026

Expectation of structural changes in the construction industry

Although it currently has ample construction work on hand, the company understands it faces a shortage of workers who perform specialized functions and needs to allocate human resources strategically. The company also expects the Japanese market to undergo a qualitative shift of demand following the Tokyo Olympic and Paralympic Games, from one-time revenue projects (new construction) to recurring-revenue projects (maintenance and renovation work). Furthermore, Tokyu Construction expects senior workers to exit the work force in large numbers.

One of its goals for 2026 is to be “a corporate group that can cope with the changing environment and embodies true value through a vital corporate culture.” In March 2018, the company formulated financial targets to be achieved by FY03/27 across three medium-term management plans (three years each). Over the medium term, the company expects private-sector construction projects to fall off after the industry finishes digesting the current rush in construction, including Shibuya Station redevelopment work. However, the company expects revenue to remain firm over the long term.

Revenue and expense targets

As part of its long-term vision, the company has set financial targets for FY03/27: shareholders’ equity of JPY150.0bn, ROE of 10%, revenue of JPY350.0bn, and OPM of 7.0% (with operating profit of JPY24.5bn). This revenue figure is 5.6% higher than the level in FY03/19. During this period, Tokyu Construction expects a rise in the number of superannuated structures to lead to expansion of the renovation business. It also intends to focus on the construction of medium-sized wooden structures that make extensive use of domestic materials, as well as civil engineering work, international business, real estate business, and new domains such as the PPP/concession businesses (public‒private partnerships) and the bell pepper business.

Four basic policies

(1) Bolster individual capabilities and make work more rewarding for each member of the Tokyu Construction Group

(2) Hone problem-solving skills to ensure safety, enhance quality, reduce environmental impact, boost profitability, and lower cost of revenue

(3) Take on challenges and amass achievements in new business domains

(4) Learning from past mistakes, shore up management and financial foundations in preparation for changes in the operating environment. At the same time, meet shareholder expectations by steadily increasing corporate value.

Target indicators (FY03/27)

Financial KPIs

▷ Consolidated OPM: 7.0% or more

▷ Consolidated revenue: JPY350.0bn plus

▷ ROE: 10% or more

▷ Consolidated shareholders’ equity: JPY150.0bn or more

Non-financial KPIs

▷ Employee Engagement Survey: Ａ (“Motivation Cloud” engagement rating by Link and Motivation Inc. In FY03/19, the

company scored BB, or fifth out of 11 levels. “A” is two rating levels higher.)

▷ Number of days work sites are closed: Closed for eight days out of four weeks

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▷ Safety index: 0.10 or lower

▷ Reduction in environmental impact: CO2 emissions of 20.0t per JPY100mn in construction revenue (down 32% from FY03/91)

Revenue composition (target)

▷ FY03/18 results: Building construction 63%, renovation 12%, wooden construction 2%, civil engineering 19%, new business domains 4%

▷ FY03/27 targets: Building construction 52%, renovation 14%, wooden construction 4%, civil engineering 22%, new business domains 8%

OPM (target)

▷ FY03/18 result: 6.7%

▷ FY03/27 target: 7.0% or higher

Consolidated GPM targets

▷ Main scenario: Domestic construction business 88.9%, new business domains 11.1% (assumes a gradual decrease in domestic

investment in construction)

▷ Risk scenario: Domestic construction business 82.9%, new business domains 17.1% (assumes a decline in domestic investment in construction)

Investment plans (FY03/19‒FY03/27)

To realize its goals for 2026, Tokyu Construction plans to spend around JPY90.0bn over nine years in domestic construction and new business areas, as well to strengthen management, the organization, and human resources. Mainly, the company intends to use core capital for this investment, considering optimal fund-raising methods based on such factors as the management and financial situation and the market environment.

▷ Total investment: JPY90.0bn

▷ Domestic construction business: JPY17.0bn (civil engineering business, building construction business, building renovation business, medium-sized wooden construction business)

▷ New business domains: JPY70.0bn (real estate business, PPP/concession businesses, new businesses, bell pepper business)

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Management strategy

Strategies in the building construction and civil engineering businesses

Cultivate the core area around Shibuya

The company plans to further cultivate demand around Shibuya* and along the Tokyu lines**. Shibuya Station redevelopment work specifically includes Shibuya Scramble Square Central Tower and West Tower (scheduled for completion in FY03/28). Taken in the broader sense (the communities around Shibuya Station), the company expects redevelopment demand to persist over the medium to long term because the area has a large stock of aging small and medium-sized buildings. Major building redevelopments are opportunities to attract tenants, and the company thinks the Shibuya area has a growing need to add value to existing buildings. Tokyu Construction has created an extensive track record of building construction in the Shibuya area over the past 60 years. The company explains that this history, plus a dedicated sales team that communicates closely with people in this area, have enabled it to build solid relationships with town councils and commercial organizations in the area. By leveraging these strengths, the company is playing a central role in urban development in Shibuya in the broader sense. Further in the future, the company expects to extend its redevelopment business to areas around other major stations on the Tokyu lines, such as Sangenjaya and Mizonokuchi.

*Shibuya: Shibuya is one of Tokyo’s three major sub-centers, along with Shinjuku and Ikebukuro, and is one of the busiest areas in Tokyo. Shibuya Station is also one of the Tokyo’s largest railway stations, allowing passengers to transfer among Tokyu’s Den-en-toshi and Toyoko lines, Tokyo Metro’s Fukutoshin and Ginza lines, JR East’s Yamanote Line, and Keio railway lines. Average daily traffic through Shibuya Station is around 3.3mn passengers, second in the world to Shinjuku Station (FY03/19). The Shibuya district is one of several popular areas for young people. Major shopping facilities include Tokyu Department Store, Shibuya 109, and Shibuya Parco.

**Along the Tokyu lines:

Tokyu Den-en-toshi Line (Shibuya, Ikejiri-Ohashi, Sangenjaya, Futako-Tamagawa, Mizonokuchi, Tama Plaza, Nagatsuta, Minami Machida Grandberry MallーChuorinkan)

Tokyu Toyoko Line (Shibuya, Daikanyama, Nakameguro, Jiyugaoka, Tamagawa, Musashi Kosugi, Hiyoshi, Tsunashima, Yokohama) Tokyu Meguro Line (Meguro, Fudo-mae, Musashi-Koyama, Ookayama, Den-en-chofu)

Tokyu Oimachi Line (Futako-Tamagawa, Jiyugaoka, Ookayama, Hatanodai, Oimachi) Tokyu Ikegami Line (Gotanda, Hatanodai, Kamata)

Tokyu Tamagawa Line (Tamagawa, Musashi-Nitta, Kamata)

Shibuya Scramble Square Central and West Towers and the former Shibuya Station

Many small, older buildings around Shibuya Station

Source: Tokyu website (“Shibuya redevelopment”) Source: Nippon.com website (photo courtesy of Tokyu Corporation)

Growing demand for renovation

The company expects demand for renovation to rise as the number of aging buildings grows. Seismic reinforcement and environmental considerations are driving demand for renovation. The company believes this trend will persist, centered on non-residential buildings. Tokyu Construction plans to cultivate this market through Tokyu Renewal Co., Ltd., a subsidiary that handles this business. Tokyu Construction intends to build a new customer base for commercial facilities and hotels by

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Building maintenance and renovation work Percentage of infrastructure 50-plus years old

Source: Company data

Source: Shared Research, based on MLIT’s “Statistics Survey on Execution of Construction Works”

Urban Solutions business

In addition to enhancing cooperation with other companies in the Tokyu Group, the company says it plans to reinforce earnings by strengthening necessary solutions and building a comprehensive value chain through active personnel hiring, alliances, and M&A. In this area of business, the company collects information about the challenges and needs of local companies and landowners and proposes design, construction, and ways to utilize property, including leasing. Tokyu Construction works with partners on small-scale projects that are difficult for it to handle itself and forms alliances with top-tier general contractors in these areas. Tokyu Construction works with other companies in the Tokyu Group in such areas as tenant leasing and maintenance and management. By handling all aspects of the business, including renovation, the company aims to remain in contact with clients over the long term.

Infrastructure asset management

In this business, the company supports the maintenance, management, and renewal of infrastructure such as railways and roads from a long-term perspective, promoting the social value of efficient maintenance and management technologies. The company uses iTOREL*, a system for inspecting and examining entire cross sections of tunnels using leading-edge robotics and AI technologies.

*iTOREL (a system for inspecting and examining full cross sections of tunnels): This new technology uses testing robots that straddle the roadway inside a tunnel to conduct tests without interfering with vehicle traffic. Autodetection units that check for cracks or bubbles in concrete linings, and hammer testing units can be used to check for quantitative changes over time. Testing results are examined using the company’s expert system. The company uses this information to suggest repair methods that are cost-optimized, taking the tunnel’s life cycle cost into account.

Net zero-energy building (ZEB)

A net zero-energy building (ZEB) reduces energy consumption to nearly zero. The company carried out ZEB renovation on its Institute of Technology, which was completed 25 years ago, and whose energy efficiency was lower than for the most modern buildings. ZEB renovations carried out starting in 2016 were aimed at reducing building CO2 emissions during use. The company lowered the external heat load by employing a double-skin curtain wall, exterior thermal insulation, multilayered glass, and other measures. It also used energy sources other than fossil fuels (solar, geothermal, hydrogen) that it also used to generate power. In the process, Tokyu Construction became the first private-sector company in Japan to install a hydrogen production, storage, and power generation system. The company intends to push forward further to improve technologies, aiming for a truly net zero (100%) energy reduction. In FY03/20, it achieved 78% energy reduction, the highest level in Japan.

Reflecting growing calls to move to a carbon-free society, the company plans to market itself as a ZEB planner.

Tokyo City University Building A

The company has designed a new building that will be one of the largest university buildings in Japan, with total floor area of more than 100,000sqm, using multiple elemental technologies it has developed. Construction began in June 2020.

0 2 4 6 8 10 12 14 Non-residential Residential

(JPYtn) Aging rate (over 50 years) March March March

2013 2023F 2033F

Road bridges 18％ 43％ 67％

Tunnels 20％ 34％ 50％

River management facilities 25％ 43％ 64％

Sewer pipes 2％ 9％ 24％

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Seikitokyu Kogyo head office

The company is working on a ZEB design for this urban office building, even though it is supposed a ZEB format will be difficult due to the limited space available. Construction is scheduled to begin in spring 2021.

iTOREL system for inspecting the full cross sections of tunnels Institute of Technology following ZEB renovations

Source: Company website

Application of environmentally friendly concrete (CELBIC)

Tokyu Construction is one of 13 companies jointly developing environmentally friendly concrete. CELBIC stands for “Consideration for Environmental Load using Blast furnace slag In Concrete.” The concrete uses powdered slag from steel manufacturers, and this is expected to reduce the amount of CO2 generated by concrete production by 40% in the case of the Ginza 5-chome Project (tentative name) where it will be used.

Digital shift

Tokyu Construction aims to accelerate business reforms through a greater uptake of IT, responding to the ongoing digitization of markets and customer needs. To do so, the company intends to forge alliances with the Tokyu Group and other partner

companies, invest in startups, and actively pursue M&A.

Use of BIM and CIM systems

Centralizing three-dimensional information on building shapes and attributes facilitates consensus-building between construction-related players, helping to improve the efficiency of design and construction work.

Building information modeling (BIM) is a solution for utilizing information in a building database produced by adding data regarding attributes, such as cost, finishing details, and management information, to a three-dimensional digital model of a building constructed on a computer during various types of construction processes, including design, construction, maintenance, and management.

To front-load construction work and streamline on-site operations, Tokyu Construction has started distributing a structural model that supports BIM as a “first model” at the start of construction. The distributed model is utilized at the site as a construction BIM, and applied to an examination of the construction plan. Visualizing work procedures and sharing BIM information with employees and on-site skilled construction workers makes it possible to select the best procedures, and helps to improve the efficiency and safety of the operations. BIM can also help ensure consistency among multiple drawings, such as architectural design, structural, and equipment plans, and prevent losses due to operational rework. Furthermore, it is possible to check work in detail and build a consensus with the client and designers in three dimensions, improving the speed of decision-making. The company says it plans to utilize the information provided by BIM to reduce the burden of on-site quantitative calculations. (Source: Tokyu Corporation’s

Integrated Report 2019)

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