DAIHO CORPORATION

Significant changes in the environment surrounding the construction industry, such as substantial cuts to public works spending or a contraction in construction demand due to domestic or overseas economic downturns, could materially affect the Group's business performance. The construction industry is highly dependent on the business cycle and government fiscal policy, making demand volatility a structurally significant risk.

If intensifying competition in public works bidding continues and low bidding recurs, gross profit from government contracts, which accounts for a large proportion of operating profit, could be squeezed. Price competition prioritizing order acquisition directly leads to lower profitability, making profit margin management a critical challenge.

Increases in construction costs due to rising labor costs and prices of key materials could squeeze profits. In the construction industry, contract amounts are often fixed at the time of order receipt, so cost increases during construction directly lead to deteriorating profit margins.

Deterioration in the business performance of business partners could result in uncollected construction payments or construction delays, affecting the Group's business performance. While the Group works to mitigate this through information gathering, credit management, and receivables protection, there is a risk that counterparties' financial conditions could deteriorate rapidly during sudden economic changes.

Losses may arise in overseas construction projects due to foreign exchange fluctuations or the materialization of country risk beyond initial expectations. While the Group seeks to mitigate this risk through appropriate diversification across countries of operation, geopolitical risk and currency fluctuations cannot be fully controlled.

Negative public sentiment toward public works and the image of the construction industry may make it difficult to secure talented personnel. As countermeasures, the Group focuses on employee skills development, education and training, and technical skills transfer, while also promoting 'work-style reforms' such as implementing four-week, eight-day-off schedules at worksites and reducing overtime, in order to improve the working environment.

If a third-party accident or workplace injury occurs during construction, in addition to penalties under the Construction Business Act and the Industrial Safety and Health Act, the Group could face suspension of qualification to bid by the ordering entity, resulting in lost opportunities to receive orders. Since suspension of qualification directly affects the ability to receive public works orders, maintaining a robust safety management system is essential.

Repair costs could increase due to a growing number of completed condominium units and the extension of the contract non-conformity liability period under the Housing Quality Assurance Act. A longer liability period expands potential future cost burdens, meaning financial risk continues over an extended period even after delivery.

The occurrence of natural disasters such as earthquakes, tsunamis, or storm and flood damage, or the outbreak of an infectious disease pandemic, could cause damage to employees or held assets and affect business performance. The occurrence of a major accident poses a similar risk, making the development of a business continuity plan (BCP) important.

If impairment accounting becomes necessary due to fluctuations in the fair value of business-use or rental real estate, securities, and other assets, this could affect operating results and financial position. In addition, changes in the environment surrounding the investment and development business, such as a sharp contraction in the real estate market or intensifying competition, pose a risk of deteriorating profitability due to business plan revisions.