Business Overview 4. DX Regional Collaboration Project Signpost's DX and Regional Collaboration Project started in March 2022 with the establishment of the DX and Regional Collaboration Division. It aims to provide products and services that contribute to regional collaboration by collaborating with local financial institutions nationwide, utilizing its own DX technology and open innovation. In August 2022, it began working with Oita Made Co., Ltd., which was established with the investment of multiple companies in Oita Prefecture, including Oita Bank, to sell original products made in Oita Prefecture to both domestic and overseas markets and to match local companies and Signpost's products and services in order to promote the revitalization of Oita Prefecture's economy. In addition, in April 2024, it started offering DX support services for medium-sized and small businesses. As the first effort, it supports the creation of DX declaration by (The) Fourth Hokuriku Bank, Ltd. (Niigata City, Niigata Prefecture) to deploy DX declaration support services to the market. Furthermore, it will realize new solutions by commercializing its own technology and open innovation and promote regional collaboration through innovation.

TOKAI Holdings (3167) is based in Shizuoka Prefecture and operates businesses mainly centered on LP gas and related residential and energy businesses and information and communication businesses. It aims to become a leading comprehensive living services company representing Japan, providing all services related to daily life at once and deepening connections with customers, the local community, society, the earth's environment, and contributing to people's rich life, development of local communities, and preservation of the earth's environment.

The current business segments are disclosed in six categories: energy, information and communication, CATV, building facility real estate, aqua, and others. Looking at the sales composition ratio by business segment (March 2024), the core energy business accounts for 43.6%, information and communication business accounts for 24.5%, and CATV business accounts for 15.4%, these three businesses accounted for more than 80% of the total, and there have been no significant changes in the past five years.

1. Energy business. In the energy business, LP gas business accounts for about 83% of sales, and city gas business accounts for about 17%. The main LP gas business is sold mainly by Tokai Co., Ltd. for household and industrial use, and some wholesale sales are also conducted. The service areas are mainly Shizuoka Prefecture and the Kanto region, but since 2015, have steadily expanded into new areas such as Southeast Tohoku, Chubu-Tokai, China-Shikoku, and Kyushu regions to expand the customer base. The number of customers at the end of March 2024 was 778,000, and the number of customers has been increasing in both existing and new areas. The composition ratio of new areas has increased from about 4% in the fiscal year ending March 2019 to about 13%. As an industry position, Tokai is ranked third behind Iwatani Industrial (8088) and Japan Gas (8174) in the direct sales division, accounting for about 20% of the market share in the home region of Shizuoka Prefecture and ranked as second with less than 10% in the fiercely competitive Kanto region. The number of LP gas households is about 21 million nationwide. Therefore, the strategy is to expand the share by expanding the sales area and promoting M&A. There are many small and medium-sized businesses in the domestic LP gas sales industry, and consolidation into large companies is progressing year by year due to the severity of the management environment※. We consider that there is still room for share expansion in Tokai. ※The number of LP gas sellers decreased from about21,000 in 2012 to about 15,000 sellers in 2023.

The urban gas business is carried out by Tokai Gas Co., Ltd. which sells gas in Yaidzu City, Fujieda City, and Shimada City in Shizuoka Prefecture, and expands the sales area by taking over the urban gas business operated by local municipalities, following the full liberalization of gas retail in April 2017. Specifically, they have taken over and operated gas businesses in Shimonita-cho, Gunma Prefecture (since April 2019) and Kaho City, Akita Prefecture (since April 2020). The number of customers at the end of March 2024 was 75,000. There are 190 urban gas businesses (172 private and 18 public) nationwide. Except for the top four companies, most of the regional businesses are small and medium-sized, and we plan to consider M&A cases in the future.

In the energy business, LP gas business accounts for about 83% of sales, and city gas business accounts for about 17%. The main LP gas business is sold mainly by Tokai Co., Ltd. for household and industrial use, and some wholesale sales are also conducted. The service areas are mainly Shizuoka Prefecture and the Kanto region, but since 2015, have steadily expanded into new areas such as Southeast Tohoku, Chubu-Tokai, China-Shikoku, and Kyushu regions to expand the customer base. The number of customers at the end of March 2024 was 778,000, and the number of customers has been increasing in both existing and new areas. The composition ratio of new areas has increased from about 4% in the fiscal year ending March 2019 to about 13%. As an industry position, Tokai is ranked third behind Iwatani Industrial (8088) and Japan Gas (8174) in the direct sales division, accounting for about 20% of the market share in the home region of Shizuoka Prefecture and ranked as second with less than 10% in the fiercely competitive Kanto region. The number of LP gas households is about 21 million nationwide. Therefore, the strategy is to expand the share by expanding the sales area and promoting M&A. There are many small and medium-sized businesses in the domestic LP gas sales industry, and consolidation into large companies is progressing year by year due to the severity of the management environment※. We consider that there is still room for share expansion in Tokai. ※The number of LP gas sellers decreased from about21,000 in 2012 to about 15,000 sellers in 2023.

2. Information and communication business. Tokai Communications Corporation's information and communication business conducts ISP (Internet service provider) business, mobile business (mobile phone sales agent business) and corporate business, including communication line services, data center services, cloud services, system development outsourcing, etc. The sales composition ratio for March 2024 is about 43% for consumer business and about 57% for corporate business, and the ratio of corporate business has been increasing in recent years, accounting for most of the operating profits.

Tokai Communications Corporation's information and communication business conducts ISP (Internet service provider) business, mobile business (mobile phone sales agent business) and corporate business, including communication line services, data center services, cloud services, system development outsourcing, etc. The sales composition ratio for March 2024 is about 43% for consumer business and about 57% for corporate business, and the ratio of corporate business has been increasing in recent years, accounting for most of the operating profits.

The ISP business is carried out under two brands: "@T COM" which covers the whole country as the service area, and "TOKAI Network Club (TNC)" which covers Shizuoka prefecture as the service area. It occupies about 20% of the share in Shizuoka prefecture. In addition, in February 2015, it started offering a light collaboration service ("@T COM Hikari" and "TNC Hikari") by receiving wholesale provision of optical fibers from NTT (Nippon Telegraph & Telephone Corp.<9432>) and providing them with their own optical internet connection service. Furthermore, it also provides plans combined with services from major mobile carriers. Since 2017, it has also started selling low-priced SIM/smartphones "LIBMO" using MVNO*. As of the end of March 2024, the number of customers was 393,000 for conventional ISP services, 373,000 for light collaboration services, and 80,000 for "LIBMO," showing a gradual increase due to the increase in light collaboration services and "LIBMO."

*MVNO (Mobile Virtual Network Operator): A company that provides services by borrowing wireless communication infrastructure for mobile phones and other devices from other companies.

In the mobile business, TOKAI operates 14 mobile shops mainly in Shizuoka prefecture as a Softbank<9434> agent, but the number of customers has been declining since reaching a peak of 236,000 in fiscal year March 2016, with 170,000 as of the end of March 2024. It also operates "iCracked Store," which repairs iPhones, with 7 stores in Shizuoka prefecture.

3. CATV Business

The CATV business is gradually expanding its service area through M&A strategy and recently grouped (Okumura Cable Network Co., Ltd.) in October 2022. As of the end of March 2024, it has expanded business in 1 metropolis and 7 prefectures, Shizuoka, Tokyo, Kanagawa, Chiba, Nagano, Okayama, Miyagi, and Okinawa with a total of 11 group companies. The number of customers has been gradually increasing, with 919,000 for broadcasting services and 394,000 for communication services, for a total of 1,313,000. The number of domestic CATV service contracts is increasing gradually with about 27.12 million (as of the end of March 2023) including communication services, of which multi-channel services are about 7.77 million, internet services are about 10.62 million, and telephone services are about 8.73 million. In the industry, the J:COM (JCOM, Inc.) group holds a little over 50% of the share based on the number of viewing households, and the second place and below including the same company have a share of about several percent. Therefore, the strategy is to aim to expand the share through M&A in the future.

4. Construction Facility Real Estate Business

In the construction facility real estate business, TOKAI designs and constructs houses, condominiums, stores, office buildings, and provides building management services, sells residential equipment, develops and sells real estate, and TOKAI and Tokai Gas engage in the renovation business. It is also actively promoting M&A and started with the subsidiary of a comprehensive construction company based in Gifu prefecture, Nissan Kogyo Co., Ltd., in September 2019. This was followed by the subsidiary of Central Denki Koji Co., Ltd. in Aichi Prefecture, which performs electrical facility work in August 2020, the subsidiary of Inoue Technica Co., Ltd. in Shizuoka Prefecture, which performs building maintenance business in November of the same year, the subsidiary of Marco Polo Kaiko Co., Ltd. in the Tokai area, which performs large-scale repair and renovation work on buildings in April 2021, and the subsidiary of Wood Recycle Co., Ltd. in Gifu Prefecture, which manufactures industrial waste and wood chips in May 2022. The strategy is to further expand the business scale as a comprehensive construction business operator in the Tokai area by combining the resources of these group companies.

5. Aqua Business

In the Aqua business (home delivery water service), TOKAI started a returnable system (bottle collection type) "Oishii Mizu no Takuhai Bin (Deliver delicious water)" service in Shizuoka prefecture in 2007, and from 2011 it has been expanding its service under the brand name "Oishii Mizu no Okurimono Urnon" ("Delicious water gift Urnon") in areas outside Shizuoka prefecture with a one-way system (bottle disposable type). As a new initiative, it started selling a water supply type purified water server "Shizukuria"※ that filters tap water with an internal filter in April 2023. As of the end of March 2024, the number of customers was 167,000. The total number of customers in the industry in fiscal year 2023 was 5.24 million, with the company's share at about 3% (about 50% in Shizuoka prefecture).

*The rental fee for water servers is 2,640 yen/month or 3,300 yen/month (tax included), and the filter that needs to be replaced every six months is provided free of charge.

6. Others

Other businesses include the nursing care business of TOKAI Life Plus Co., Ltd., the wedding event business of Tokai City Service Co., Ltd., and the ship repair business of Tokai Zosen Unyu Co., Ltd. The nursing care business started in 2011, and as of the end of March 2024, it operates six day service facilities, short stay facilities, and care center facilities in Shizuoka prefecture, and has also opened two care plan centers. The wedding event business operates Grandeire Bouquet Tokai at JR Shizuoka station's Aoi Tower.

(Written by FISCO guest analyst, Jo Sato)