Palliser Capital Calls for Immediate Action in Keisei’s Forthcoming D2 Plan and Board Reconfiguration with Palliser-Proposed Candidates at its AGM

• Palliser Capital doubles Keisei shareholding since 2024 AGM – now over 4.5%
• Calls to restore market confidence with decisive D2 Plan and re-dimensioning of Board with nomination of four Palliser-proposed independent Japanese candidates
• Preference for Company-led self-help process with EGM as backup

Palliser Capital (“Palliser”), one of the largest shareholders of Keisei Electric Railway Co., Ltd. (9009 JT) (“Keisei” or the “Company”) with a shareholding over 4.5%, today published an open letter and detailed presentation ahead of the Company’s new Medium-Term D2 Plan and 2025 Annual General Meeting.

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Palliser’s letter to Kobayashi-CEO and the current Board calls on them to execute immediately on three measures to stem the ongoing tide of value destruction at Keisei, re-establish market confidence and unlock intrinsic value:

1. D2 Plan: Deliver a set of credible and transparent peer and TSE-aligned D2 Plan measures on 9 May. Measures should include a properly calibrated capital allocation framework with a pathway to right-size Keisei’s stake in OLC, peer-aligned dividend payout ratio and share buyback programme, and performance-linked management compensation.
2. Comprehensive Board reconfiguration: Adopt best-in-class corporate governance parameters to streamline the Board to an overall size of no more than 11 directors, including at least 6 independent outside directors and no more than 5 inside directors with an optimized balance of skills, independence, and experience.
3. Palliser-proposed truly independent outside director candidates: Nomination of four outstanding Japanese candidates identified by Palliser with assistance from a Japan-based leading independent executive search firm as part of the Board reconfiguration.

Palliser’s letter and presentation explain why these urgent measures are critical to breaking the cycle of self-serving inaction that has allowed the Board to rely on grossly inflated performance metrics, enabled by a significant deflation of Keisei’s balance sheet, in order to avoid voting pressure and accountability and facilitate ongoing value-destructive arrangements, such as the egregious cross-shareholding alliance with Aeon.

Palliser recognises the importance for Keisei, under Kobayashi-CEO’s leadership, of regaining market trust through constructive self-help, rather than via shareholder intervention at EGM, and believes there remains sufficient time ahead of the 2025 AGM convocation notice to reach constructive agreement on an optimal path ahead for the Company and all Keisei stakeholders.

Full details relating to Palliser's ongoing engagement are available at KEISEI100.com

24 April 2025

3-3-1 Yawata, Ichikawa City, Chiba Prefecture 272-8510

Keisei Electric Railway Co., Ltd. (“Keisei” or the “Company”)

Dear Kobayashi-CEO and the Members of the Keisei Board of Directors (“Board”)

Time for Urgent Action: Keisei’s D2 Plan and Board Reconfiguration with Palliser-Proposed Candidates¹

Introduction

As you know, Palliser has been a shareholder of Keisei for almost four years. Since last year’s Annual General Meeting (“AGM”), we have more than doubled the size of our investment and now hold in excess of 4.5% of the Company’s outstanding shares. Our firm conviction in Keisei’s strong portfolio and the tremendous latent value opportunity remains steadfast.

Yet, as things stand today, notwithstanding our own strident efforts over multiple years of patient and constructive engagement with the Company, including numerous trips to Japan for meetings with IR and Management, we find ourselves and other shareholders confronting the troubling reality that:

• Keisei remains stuck in a chronic state of deep undervaluation and underperformance across all key metrics - trading at a significant and persistent discount, with transportation-segment operating profit margins and return on assets (ROA), true return on equity (ROE) and true price-to-book ratio (PBR) all significantly below peers;

• Longstanding corporate governance failings remain unrectified by an ineffective Board that is not fit for purpose - through its inaction and resistance to making even the most basic improvements, the Board has demonstrated a lack of understanding and willingness to adopt even the most fundamental measures called for by the Tokyo Stock Exchange’s (“TSE”) policies, even though these initiatives have already been embraced by the vast majority of Japanese issuers, including Keisei’s closest peers; and

• Management continue to pursue a dangerously undisciplined and self-serving approach to capital allocation - the most value destructive example of which is the oversized OLC stake and associated accounting distortion, which (i) hides Keisei’s true PBR and consistently low true ROE - shielding the inside directors from voting pressure against re-election that would otherwise exist and (ii) shines a spotlight on the inability and unwillingness of the outside directors to hold the Board to account and change this harmful dynamic. The egregious new cross-shareholding arrangement with Aeon – an alliance that is seemingly intended to further entrench Keisei’s incumbent Management – is a product of this destructive dynamic.

The situation is unsustainable, shareholders have had enough, and urgent measures are now required. Palliser’s capital allocation-focused proposal at last year’s AGM showcased a groundswell of support for tangible change. This is reinforced through our extensive market outreach efforts since then, which have revealed a clear consensus among both domestic Japanese and international institutional investors, not only that Keisei’s problems run deep, but that its poor corporate governance must now be addressed.

We are therefore writing to you today on an open basis, ahead of the Company’s D2 Plan announcement (anticipated on 9 May 2025) and 2025 AGM, to urge you to take the following immediate steps in order to stem the tide of ongoing value destruction at Keisei and to establish the necessary conditions to regain market confidence and unlock Keisei’s substantial intrinsic value and growth potential:

(1) Seize the opportunity of Keisei’s upcoming D2 Plan to put forward a set of credible, transparent and immediately implementable measures to convincingly address the Company’s persistent underperformance and ongoing chronic undervaluation

- To include, at a bare minimum, the measures described in this letter focused on capital allocation, the OLC stake, shareholder returns, management incentives and market disclosures. This is a pivotal moment for the Company and an opportunity for the current Board under Kobayashi-CEO’s leadership to demonstrate a willingness to take decisive and vitally important action in line with shareholder expectations.

(2) Announce, as a core component of the D2 Plan or otherwise, a reconfiguration of the Board as part of a long-overdue governance overhaul at Keisei

- Based on best-in-class corporate governance parameters and to ensure effective and value-oriented decision-making, Keisei’s Board should include no more than 11 directors comprising (i) at least 6 independent outside directors and (ii) no more than 5 inside directors, together possessing an optimized balance of skills, independence, and experience to lead Keisei forward.

(3) Undertake a thorough and transparent evaluation of the four best-in-class outside director candidates whose details Palliser has forwarded separately to the Company in support of the re-dimensioning of Keisei’s Board

- Each of the outstanding candidates that we have identified through an extensive search using a leading Japan-based and fully independent executive search firm, are ready to serve on the Board as independent outside directors to help transform Keisei’s governance and performance as part of the broader reconfiguration of the Board. We believe that these candidates’ skills, abilities and experiences would be highly additive to Keisei and have the potential to accelerate the Company’s transformation both to a higher standard of conduct and governance, in keeping with the TSE’s guidelines and procedures, and an era of value-optimised development and growth.

Persistent Underperformance and Undervaluation

Keisei remains locked in a state of severe underperformance despite the Company’s unique portfolio of strong profit-generating assets and exciting future opportunities. Notwithstanding our ongoing efforts to engage, the picture at Keisei is no better today than when we first engaged with Keisei’s Management team nearly four years ago. Notably, the Company:

• trades at a significant and persistent discount to intrinsic value, which has continued to grow over time, and today stands at ~40%;
• has the lowest transportation-segment operating profit margin and lowest transportation-segment ROA among Keisei’s closest peers - underperformance that has persisted for years;
• in a watershed development last year, was ejected from the MSCI Japan Standard Index – a stark reminder of the extent of the Company’s underperformance crisis;²
• continues to have no capital allocation framework, no ROE target and sub-optimal shareholder returns; and
• continues to maintain an inappropriate and outsized stake in OLC that lacks synergistic value, is unhelpfully accounted for as an equity associate and, as such, remains significantly undervalued on the Company’s balance sheet. This has resulted in Keisei being grossly over-capitalized and caused it to suffer from true ROE and true PBR metrics that (i) fall significantly below its peers, (ii) languish far below the TSE’s minimum valuation target of 1x PBR, and (iii) fall well short of leading institutional investors’ voting policy thresholds (see below), thereby calling into question the re-election of both Keisei’s inside directors and its executive leadership.

Underpinned by Severely Poor Corporate Governance and an Ineffective Board

Poor performance at Keisei does not persist by accident; ultimately it is the result of the Company’s systemically inadequate corporate governance regime. The clear consensus among both domestic Japanese and foreign investors is that blame lies with a Board that is both inappropriately equipped and unaccountable to stakeholders.

With fifteen directors, the Board is cumbersome, materially larger than peers, and almost 50% larger than the Nikkei 225 average.³ Based on objective ISS and Glass Lewis-applied criteria and other independence red flags, the Board is also insufficiently independent and woefully unbalanced owing to the very small number of directors (two in our assessment) that qualify as genuinely independent outside directors versus an excessive nine inside directors.

Keisei governance is therefore severely handicapped by having too few properly independent outside directors to be an effective check and balance on the inside directors and wider Management team. When combined with an inadequate mix of skills and experience, the result is a dangerously undisciplined approach to capital allocation, a disregard of TSE guidance and reforms, and a failure to make even the most basic changes required to reverse the underperformance and undervaluation crisis that has by now gripped Keisei for far too long. The fact that Keisei is the only one of its peer group⁴ that has been publicly listed by the TSE as having failed to announce appropriate measures under its “Action to Implement Management That is Conscious of Cost of Capital and Stock Price” initiative – a delinquency that has been ongoing for nearly a year - speaks for itself.

Misaligned Interests and Management Entrenchment

In addition to the lack of effective independent outside director oversight and capital allocation discipline, the Company’s multiple ties to OLC are hardly a good starting point for an impartial assessment of the OLC stake. These ties include multiple retired Keisei presidents and CEOs remaining engaged by the Company in “Komon” advisory roles (denoting a close relationship with the Board for the purpose of giving advice and guidance on a range of key matters) while also serving as officers of OLC – giving rise to possible conflicts and competing affiliations when it comes to decision-making about the future of Keisei’s investment in OLC.

We also see a more troubling dynamic stemming from the way in which the OLC stake currently benefits the Board. At a bloated size of over 15%, Keisei is able to account for the OLC stake as an equity associate which, given OLC’s high PBR multiple of 5.4x, causes it to be recorded on the Company’s balance sheet at a massive undervaluation. This perpetuates an accounting distortion that masks Keisei’s significant, persistent and ongoing underperformance based on all key metrics. By way of illustration, as confirmed by an independent expert report of a leading Japanese accounting firm on Keisei’s performance metrics, if the stake was marked to market on Keisei’s balance sheet, the extent of the Company’s underperformance, and by extension the Board’s failings, would be laid bare⁵, showing:

• Keisei’s true PBR at 0.6x⁶ is significantly lower than the 1.4x claimed – falling far short of the TSE’s 1x target and the 1.3x PBR⁷ of the Company’s peers;

• At 56%⁸, Keisei’s true equity to asset ratio is far higher than its peers’ level of 32%⁹; and

• True ROE is currently ~1%¹⁰ and has been below 2.5% consistently for the past 5 years and c. 600 basis points below its cost of equity of ~7%.¹¹

The uncomfortable truth is that Keisei’s overstated performance, underpinned by the oversized and ill-fitting OLC stake, has enabled the Board to evade accountability to the Company’s stakeholders for far too long. It has done this by hiding the fact that Keisei’s true ROE has fallen well below proxy advisor and Japanese institutional investors’ minimum acceptable thresholds consistently over many years, thereby eliminating voting pressure against the re-election of Keisei’s inside directors that would otherwise have been triggered had the sorry state of the Company’s persistently low true ROE been apparent.

Based on our discussions across the market, however, we believe that a tipping point has now been reached as investors see through Management’s reliance on grossly inflated performance metrics resulting from Keisei’s significantly deflated balance sheet in order to satisfy applicable proxy advisors’ and investors’ voting thresholds.

Even so, the picture at this point is clear: to date, the inside directors have been disincentivised to take the necessary remedial action to right-size the OLC stake and fix the Company’s undisciplined approach to capital allocation, and the outside director cohort is too weak and outnumbered to hold them to account. This toxic dynamic has bred a cycle of inaction and malaise, which, in turn, has bred a damagingly long phase of persistent underperformance and undervaluation at Keisei that is, in the most negative sense of the word, unique. Furthermore, without any performance or share-linked pay, Keisei’s opaque management compensation structure does nothing to re-balance incentives or re-align Management and broader stakeholder interests.

Management’s intention to boost this entrenchment mechanism further was made abundantly clear last year with the newly announced and value-destructive capital and business alliance with Aeon – an arrangement requiring Keisei to acquire newly issued Aeon shares at an all-time-high valuation to fund Aeon’s acquisition of deeply discounted Keisei shares from the Company’s existing shareholders. To make matters worse, Keisei appears to have funded this business alliance by disposing of a portion of its OLC shares to OLC via an on-market buyback at a price – to the benefit of OLC and the detriment of Keisei – that was around 30% lower than earlier in the year when we and other shareholders were urging the Board to reduce the OLC stake.

You will recall that we wrote to the Board on 6 December 2024 to set out our detailed concerns about these matters, in which context we raised several questions in order to tease out important clarity on the Aeon alliance. Unsurprisingly perhaps at this juncture, we have yet to receive any form of response to that letter. With no demonstrable commercial benefit to this claimed “alliance”, and no reason to implement such a cross-shareholding regardless of whether a genuine business reason for this tie-up does exist (which we feel strongly it does not), the obvious conclusion to our mind is that the true purpose of this arrangement is the placement of yet more Keisei shares (over and above the significant number held by OLC) in the hands of cross-shareholders who can reliably be expected to support and prop up this toxic cycle of self-serving capital allocation and Management entrenchment.

Urgent Measures to Stem Further Value Destruction and Correct Course

Keisei simply cannot continue forward on this path. In recent months, we have attempted multiple times to engage with you ahead of the Company’s D2 Plan announcement and 2025 AGM but have been rebuffed on every occasion. We have therefore taken steps of our own, which are explained below, and call on Kobayashi-CEO and the Board to now stem the ongoing value destruction at Keisei and to facilitate the conditions necessary for longer-term improvement by undertaking the following three immediate steps:

(1) Ensure that Keisei’s D2 Plan contains a set of credible, transparent and immediately implementable measures to convincingly address the Company’s persistent underperformance and ongoing chronic undervaluation

The long-awaited D2 Plan is a pivotal moment for Keisei and represents a decisive opportunity for the current Board under Kobayashi-CEO’s leadership to demonstrate its willingness to take appropriate remedial action to address the ongoing underperformance and undervaluation crisis at Keisei. To stand any chance of being assessed as a credible MTP that meets high stakeholder expectations, the D2 Plan must explicitly confirm that Keisei will adopt vital peer-aligned measures that conform with TSE best practices. At a bare minimum, the D2 Plan must include:

1. A properly calibrated capital allocation framework encompassing a pathway to right-sizing the OLC stake to below 15% to unlock trapped capital and address the associated accounting distortion discussed above.
2. Peer-aligned dividend payout ratios (bearing in mind that Keisei’s current payout ratio of 10% falls well short of its peers’ payout ratios of 30-40%) and a suitable buyback programme (which most of Keisei’s peers already have in place).
3. Appropriate performance-linked management compensation to align Management with the interests of Keisei stakeholders.
4. Vastly improved market disclosures (including in English) and increased transparency and shareholder engagement.
5. Peer-aligned measures as envisaged by TSE’s Corporate Governance Code and “Action to Implement Management That is Conscious of Cost of Capital and Stock Price” initiative.

(2) Announce, as a core component of the D2 Plan or otherwise, a reconfiguration of the Board as part of a long-overdue governance overhaul at Keisei

To position the Company both to implement the value-optimising form of D2 Plan that shareholders deserve and to properly prepare Keisei for future challenges, we believe that Keisei requires a level of governance reform that is both robust and holistic. For us, this should begin with a comprehensive reconfiguration of the Keisei Board as its key first step. As noted above, our own market outreach efforts confirm that a vast number of shareholders – both domestic and international, retail and institutional, large and small – wish to see robust governance improvements including significant Board change.

We therefore call on the current Board to act in the best interests of the Company’s stakeholders ahead of the AGM by announcing a concrete plan of action to make the changes needed to reduce the Board in size to a much more appropriate, dynamic and market-aligned 11 members, including at least 6 truly independent outside directors and no more than 5 inside directors. We believe that by achieving both an optimised balance of skills and experience and a selection of fresh appointments, the current Board has the chance to foster the creation of a new and revitalised Board benefitting from a truly independent and robust set of outside directors that are able to provide effective oversight and support the Keisei executive team.

For the avoidance of doubt, regardless of the capital allocation and strategic initiatives presented as part of the D2 Plan, the Board as currently configured cannot continue.

(3) Undertake a thorough and transparent evaluation of the four best-in-class independent outside director candidates whose details Palliser has forwarded separately to the Company to support a Company-led Board refresh that meets high stakeholder expectations

We have attempted repeatedly to engage with you on the topic of outside director candidates, having first written to the Board more than 6 weeks ago about our desire to support and facilitate a Company-led appointment process and following up with several requests for a meeting with the members of the Nomination/Compensation Committee. All these requests were rebuffed, which is all the more disappointing when our objective was to obtain more information about the nomination process, Keisei’s perspectives on Board composition and the prospects of a Company-led consensual process to appoint new directors and streamline the Board.

As you know, we have provided the Board under separate cover with full details of a set of four best-in-class independent outside director candidates identified through an extensive search with the assistance of a leading Japan-based international executive search firm. These candidates are truly independent stalwarts of the Japanese business community who have demonstrated measurable success in their respective fields, leadership experience in demanding work environments with significant stakeholder pressures, intimate knowledge of the Japanese marketplace, outside director experience and, more broadly, have a record of success.

These candidates comprise:

• a Japanese expert in business and systems development with significant expertise in the development of global operations and business systems, strategic partnerships, investor relations, corporate restructuring and IT innovation;

• a Japanese industry leader with 40 years of experience as a strategist and investor relations expert at a major Japanese corporation with key expertise in corporate turnarounds, strategic restructuring and M&A, as well as Japanese public company Board experience;

• a senior-level banker with a wealth of leadership experience across a range of Japanese and non-Japanese financial institutions, including as a former COO and APAC leader of a major international financial services company, with expertise in global business strategy, financial analysis and reporting, M&A, compliance and risk management, as well as Japanese public company Board experience; and

• a seasoned Japanese finance professional with over 35 years of investment banking experience at leading Japanese banks, with unrivalled experience in capital markets and institutional banking, debt finance, corporate oversight, strategic decision-making and cross-functional collaboration, as well as Japanese public company Board experience.

Near-term Update to the Market on Candidate Appointments

Our extensive efforts to identify independent outside Board candidates were undertaken with a view to facilitating a governance and Board overhaul at Keisei that we and other shareholders now see as essential for the reasons explained above. Our preference has been that our discussions are both Company-led and consensual and we remain, as ever, open and fully available to discuss the candidates and any other forms of assistance we can provide or solutions the Company sees as tenable.

Although it is deeply disappointing that you have been so reluctant to engage in dialogue with us before now, and despite out multiple requests to meet over the course of many weeks, we are pleased that Keisei has finally indicated a willingness to engage with our proposed candidates. We trust that the Company will embark on this process pro-actively, in good faith and with an open-mind, and that the truly outstanding pedigree, independence and value potential for Keisei of these candidates will be duly recognised.

With around five weeks remaining prior to the issuance of Keisei’s 2025 Convocation Notice, we believe there remains plenty of time for us to reach constructive agreement with you, both on key go-forward governance initiatives and on an optimal slate of director candidates for the AGM. We re-iterate as well our preference to achieve necessary Board-level change consensually, noting in that context the importance of Keisei regaining market trust through a process of constructive self-help rather than by shareholder intervention at an EGM.

Following the strong support for change made clear at last year’s AGM, many shareholders, including those that were unable to support an articles amendment for policy-based reasons, have indicated their support for change within Keisei’s Board. With this in mind, we look forward to receiving your prompt response and to a process of constructive engagement with you, Kobayashi-CEO, and your director colleagues, regarding the aforementioned critical self-help changes and improvements.

Sincerely,

For and on behalf of

Palliser Capital (UK) Ltd

James Smith

Chief Investment Officer

About Palliser Capital

Palliser Capital is a global multi-strategy fund. Our value-oriented investment philosophy is applied to a broad range of opportunities across the capital structure with a focus on situations where positive change and value enhancement can be achieved through thoughtful, constructive and long-term engagement with companies and across a range of different stakeholder groups. Palliser Capital is one of the largest Keisei shareholders with a stake in excess of 4.5%.

¹ This letter is sent to you on behalf of Palliser Capital (UK) Ltd (together with its affiliates, “Palliser”, “we”, “us” or “our”).

² Effective from 25 November 2024.

³ https://www.spencerstuart.com/-/media/2025/02/japanbi/ssbi_japan_board_index_2024_eng.pdf

⁴ Peers mean Keio, Odakyu, Tokyu, Tobu, Seibu and Keikyu.

⁵ Given the size of the OLC stake, Keisei currently applies an equity method of accounting for consolidated accounting purposes. If the stake was right-sized and accounted for as available-for-sale securities, the consolidated accounting treatment would reflect the fair value of the shares.

⁶ Based on Keisei’s share price as at 18 April 2025. Book value per share is calculated based on net assets (except for non-controlling interests) and outstanding shares issued as of 31 December 2024.

⁷ Peers include Keio, Odakyu, Tokyu, Tobu, Seibu and Keikyu. LTM PBR is used.

⁸ As at FY March 2024. Based on net assets (except for non-controlling interests) and total assets.

⁹ As at FY March 2024. Equity to asset ratio is calculated based on net assets (except for non-controlling interests) and total assets. Peers include Keio, Odakyu, Tokyu, Tobu, Seibu and Keikyu.

¹⁰ As at FY March 2024. Based on net profit (or loss) (except for the gain (after tax) arising from the disposition of investments in OLC in FYE2024/03) and net assets (except for non-controlling interests).

¹¹ Cost of equity based on key peers’ cost of equity disclosures.

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