First-corporation Inc.

The Group's core business is condominium construction, which is strongly dependent on developers' development activities. If consumer appetite for home purchases declines due to economic conditions, interest rates, land prices, the declining birthrate, population decline, or other factors, there is a risk that contracted construction orders and real estate transaction volume will decrease. As a countermeasure, the Group continuously monitors market trends, but structural vulnerability to changes in the external environment remains.

The Group's main business area is concentrated in the Tokyo metropolitan area (Tokyo, Kanagawa, Saitama, and Chiba prefectures), where competition with major and mid-sized general contractors is intense. If a shortage of promising business sites, soaring land prices, rising construction costs leading to higher condominium supply prices, difficulty securing personnel and partner companies, and intensified competition from new entrants occur simultaneously, this could lead to a decrease in the number of orders received. Although the Group opened a Kyushu branch in April 2018 to diversify regionally, its dependence on the Tokyo metropolitan area remains high.

Because construction periods extend over long durations, the Group is exposed to fluctuation risk in building material prices and labor costs. The Group strives to secure profits by making highly accurate cost estimates before entering into contracts and concluding contracts based on the latest price trends; however, if material prices or labor costs rise beyond expectations after contract conclusion, this leads to a decline in profits. Given the recent upward trend in material prices and labor costs, ongoing management is required.

Under the 'build-to-order method,' in cases where the Group acquires business sites and sells them to developers, then constructs and delivers the buildings (types ③ and ④), the land and buildings remain the Group's inventory until delivery is completed. If a sale fails to be concluded due to unforeseen circumstances involving the intended buyer, or if a write-down becomes necessary due to a deterioration in the real estate market, this could have a material impact on the Group's financial position and operating results. In light of the current financial situation, the Group in some cases acquires business sites in advance before selecting a developer, which increases inventory risk.

The Group enters into joint business agreements with developers and participates as a selling business operator in some projects, with the portion corresponding to its business ratio remaining as inventory until sales are completed. If a partner company's business performance deteriorates, real estate prices decline, or a decline in business results or additional costs arise due to unsold inventory, there is a risk that profits will fall below planned levels. The Group seeks to reduce risk by focusing on well-located, popular properties, but the possibility of inventory write-downs remains when market conditions deteriorate.

Due to the nature of the construction business, the Group continues to advance large sums of funds until delivery of the object, which can result in temporary funding shortages. Payment for business site acquisitions is assumed to be financed through borrowings from financial institutions, and changes in the financial environment—such as reductions in credit lines or rises in funding interest rates—could affect fundraising activities. The Group strives to maintain good relationships with financial institutions, but there are limits to how it can respond to changes in the external environment.

The Group is subject to legal regulations such as the Construction Business Act, the Building Standards Act, and the Real Estate Brokerage Act, and holds licenses and registrations such as a specific construction business license, a real estate brokerage license, and registration as a first-class registered architect's office. If renewal is missed, or if a license is revoked or expires, or if administrative sanctions are imposed, this would significantly affect business operations. In addition, revisions or abolition of these laws, as well as changes in new regulations or applicable standards, could affect the Group's financial position and operating results.

In the construction industry, individual contract amounts are large, and payment is often made at the time of delivery of the object or after delivery. If a client or joint construction partner falls into financial distress before payment for construction work is received, or if a partner company faces financial difficulties, there is a risk of failure to collect funds or delays in construction. The Group conducts strict credit investigations, but it may be difficult to respond to sudden changes in the financial condition of business partners.

To expand the business and achieve the targets of the medium-term management plan, securing and expanding excellent personnel and partner companies to respond to the increasing number of construction sites is essential. If, due to intensifying competition for talent with competitors and other factors, the Group is unable to secure sufficient personnel and partner companies to match the number of construction sites, this could affect business operations and operating results. The Group is actively recruiting personnel, but the labor shortage across the construction industry as a whole remains a structural challenge.

Toshiaki Nakamura, the founder and Representative Director and President, plays an important role ranging from determining management policy and business strategy to driving business operations, centered on sales. If any event occurs that impedes his ability to perform his duties, this could affect business operations and operating results. The Group is working to build a business promotion structure through personnel recruitment and delegation of authority, but at present, dependence on this specific individual remains.