Business Risk

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Business Risk

The following are factors that could have a major impact on the decisions that investors make with regard to the Daito Group’s performance in terms of its management results, financial situation, and cash flow. (As of March 31, 2021)

Rise in Unit Cost and Drop in Profit Ratio Due to Sharp Rise in Raw Material Costs

When constructing rental buildings, the Daito Trust is the prime contractor. Our site managers (construction and installation engineers) allot work directly to partner construction companies in an effort to limit the unit cost of the finished construction. However, a rise in prices for construction materials and for labor would increase the cost of work ordered from these construction subcontractors. As a result, unit costs would rise and net sales and net earnings decline.

Effect on Performance Due to Tax Law Amendment

The Daito Trust carries out consulting work in which we propose that landowners build rental condominiums or housing for effective use of limited land, and we take building construction orders from these landowners. However, tax law amendments could result in fluctuating tax burdens in the rental housing business. This would affect the amount we receive from construction orders and thus alter our business performance

Sudden Cancellations Due to Sharp Rises in Interest Rates

When landowners conduct a rental housing business, they usually borrow money from a financial institution to pay for building construction. On occasion, however, landowners cancel their building construction orders because of a sudden rise in interest rates, owing to a fear of lower earnings from the building they intended to construct. At times landowners may also need to revise their construction plans. In such cases, the Daito Group may not be able to achieve the targeted sales from the initial order and the finished construction.

Increased Expenses Due to New Laws and Law Amendment

To conduct its business, the Daito Group needs to acquire approvals and licenses from construction industry organizations, registration through architectural offices, and approval from the relevant governmental building and land department. In doing so, we must abide by the laws under which these organizations operate. We constantly update our systems for corporate governance and compliance to ensure we are abiding by all applicable laws, but there may be times when new laws are enacted that involve added expenses that may affect our financial performance.

Risk of Personal Information Leaks

The Daito Group is in possession of personal information on landowners and building tenants. Measures are in place to protect personal information, but there is a risk that information leaks may occur. Such leaks would harm our reputation and negatively impact our performance.

Risk of Natural Disasters

In the event of a natural disaster such as an earthquake or typhoon, the Daito Group could incur a range of expenses for repair of damaged buildings, offices, and information facilities; for inspections of affected customers’ buildings; and for financial support to help affected customers. Moreover, social infrastructure in stricken areas could incur large-scale damage; manufacturing and distribution could be interrupted for an extended period, resulting in the temporary unavailability of construction materials and parts; many disaster-stricken employees might have to stop working; there could be cancellations of contract signings; construction could be suspended or delayed; and customer recruiting activities might have to be put on hold. All of these would affect management performance and our financial situation.

Risk of Quality Management

The Daito Group strives to ensure quality by confirming the quality assurance stipulated in the construction standards by the contractor, construction supervisor, and designer (construction supervision). At the time of inspection, we especially check the concealed part of each process, and at the time of completion, we summarize the construction status in the construction quality record and submit a "self-inspection report" to the customer. However, if unforeseen circumstances cause serious quality problems, these would affect our financial situation.

Risk of Decrease in Construction Skilled Workers

The number of construction skilled workers is declining year by year, and is projected to decrease to 2.86 million by 2025 (down 16% from 2015). As measures in anticipation of a decrease in the number of construction skilled workers, labor saving in on-site work, automation of on-site work using construction robots, and support for accepting technical intern trainees to cooperating companies through the foreign technical intern training system And so on. However, if the decrease in construction skilled workers exceeds expectations, and if work productivity declines or the construction period becomes longer, it would affect our financial situation.

Risk of COVID-19 Infection Disease

1.About the current situation

The Daito Group has set up COVID-19 countermeasures headquarters based on its own business continuity plan (pandemic edition), and is working to prevent infection and spread. Currently, we are implementing business activities after taking measures to reduce the risk of infection, such as teleworking and staggered commuting. In the future, if the convergence period of the COVID-19 infection disease is further extended, restrictions on business activities will continue, which would affect our financial situation.

2.About the financial impact

At present, we have sufficient working capital such as cash and deposits, and we do not believe that it will have a significant impact on our business activities for the time being. However, we have entered into a syndicated commitment line agreement in case the spread of COVID-19 infection disease has a long-term impact on our business performance.