Agora Hospitality Group Co., Ltd.

Changes in domestic and international political and economic conditions may affect the number of inbound foreign visitors to Japan, intensifying competition in the accommodation market due to new entrants of private lodging (minpaku) operators, and changes in employment and labor legislation may affect the operating costs and occupancy rates of accommodation facilities. For the Group, which relies on inbound demand as a core pillar of its earnings base, fluctuations in the external environment are a risk directly linked to business performance. As a countermeasure, the Group is working to improve profitability by accurately responding to diversifying customer needs.

There is a risk that the number of inbound visitors to Japan could sharply decline due to deterioration in diplomatic relations with neighboring countries or the occurrence of conflicts in surrounding regions. In cases where the customer base structure is dependent on specific countries or regions, fluctuations in the external environment could have a serious impact on hotel occupancy rates and profitability. Given the structure of the accommodation business, which relies on inbound demand as a major source of revenue, geopolitical tensions could be a direct downward factor on business performance.

The global spread of the novel coronavirus (COVID-19) has had a certain impact on the operating performance of the Group's accommodation business in the past. If a similar outbreak of infectious disease occurs in the future, business performance may deteriorate due to a sharp decline in accommodation demand. In addition, as global warming progresses, the risk of epidemics of infectious diseases such as dengue fever and malaria is increasing, raising concerns about the medium- to long-term impact on the business environment.

Large-scale natural disasters such as earthquakes and fires, or accidents, may impede the continued operation of domestic business locations. Since accommodation facilities are places where an unspecified large number of customers stay, the impact of an incident extends beyond business performance to reputational damage. There is no description of specific countermeasures such as a BCP (business continuity plan) in the securities report.

The Group holds real estate for business use and for sale, and if asset value declines due to trends in land prices or the earnings performance of the properties concerned, it may be necessary to record an impairment loss. If an impairment loss occurs, it will have a direct adverse impact on business performance and financial condition. Since fluctuations in the real estate market depend on external factors, this is a risk that is difficult to control.

The Group engages in other investment business, and if there are market fluctuations or sharp changes in the price of held securities, this may adversely affect business performance and financial condition. Since the investment business is a revenue segment alongside the accommodation business, deterioration in market conditions carries the risk of spreading to overall consolidated performance. There is no description of specific hedging measures or other countermeasures in the securities report.

The Group conducts business in overseas markets, including Southeast Asia, and transactions in overseas operations are denominated in local currencies. If significant fluctuations occur in exchange rates, this may adversely affect business performance and financial condition after conversion into yen. Since foreign exchange risk depends on the external environment, exposure increases structurally as overseas business expands.

The Group conducts business in growth markets, including Southeast Asia, but if unforeseen changes in local political, economic, or legal systems, social unrest, natural disasters, or other events occur, there is a risk that invested capital may not be recovered. Institutional opacity and political instability specific to emerging markets constitute structural risk factors for business continuity. There is no description of specific risk mitigation measures in the securities report.

The accommodation business is subject to laws and regulations such as the Hotel Business Act and the Act on the Protection of Personal Information, and changes to these regulations and standards or the introduction of new regulations may force increases in business operating costs or changes to business processes. If a regulatory violation occurs, in addition to a direct impact on business performance, there is also a risk of customer attrition due to reputational damage. As inbound demand expands, the impact of tightened regulations concerning personal information management is drawing particular attention.

In the other investment business, fluctuations such as changes in the market supply-demand balance may affect the Group's business performance. While the Group operates the investment business as a source of revenue outside the accommodation business, the risk of downside earnings surprises becomes apparent in phases of deteriorating market conditions. There is no detailed description of investment targets or management policy in the securities report, and the transparency of the risk management framework is limited.