Weak-Yen plays to fly higher Pan-Asia...

See important disclosures, including any required research certifications, beginning on page 70

18 June 2013

Weak-Yen plays to fly higher

• Daiwa expects a further 3-5% depreciation in the Yen in FY13, with a rate of USD1:JPY:110 likely at some stage in the year

• Beneficiaries include Mitsubishi Heavy, Sumitomo Chem, Toyota, Bridgestone, JFE, Murata, China Eastern, LG Chem

• Hiwin and POSCO could lose market share as their Japan peers regain pricing competitiveness

Pan-Asia Strategy

Strategy / Pan Asia

Pan-Asia Strategy 18 June 2013

- 2 -

Weak-Yen plays to fly higher .................................................................................................................. 5 Weak Yen: Daiwa’s top-10 investment ideas ............................................................................................. 7 Sector impact: summary ........................................................................................................................... 10 Yen outlook: reversal of ongoing pullbacks in store ................................................................................ 11

Weak-Yen benefits for Japan Inc. ....................................................................................................... 12 A strong Won generally accompanies a strong KOSPI ................................................................. 14 Automobiles/auto parts .......................................................................................................................... 17

Japan auto firms ....................................................................................................................................... 17 Japan auto-parts firms.............................................................................................................................. 19 Japan tyre firms ........................................................................................................................................ 21 Korea automakers .....................................................................................................................................22 China automakers .................................................................................................................................... 24 India automakers ..................................................................................................................................... 24 Korea tyre-makers ..................................................................................................................................... 25

Technology ................................................................................................................................................. 27 Japan electronic-component firms .......................................................................................................... 27 Japan hardware firms .............................................................................................................................. 28 Japan SPE firms ...................................................................................................................................... 29 Japan precision instruments firms ......................................................................................................... 29 Korea tech companies ................................................................................................................................ 31 Taiwan tech companies ............................................................................................................................. 31

Materials ..................................................................................................................................................... 33 Japan steel firms ....................................................................................................................................... 33 Japan chemicals firms .............................................................................................................................. 35 Korea steel makers ................................................................................................................................... 38 China steel mills ....................................................................................................................................... 40 India steel makers .................................................................................................................................... 42 Korea chemical companies ...................................................................................................................... 42

Capital goods ............................................................................................................................................ 44 Japan construction-equipment firms ...................................................................................................... 44 Japan machine-tool firms ......................................................................................................................... 45 Japan machinery firms ............................................................................................................................. 45 Japan plant- engineering/heavy-equipment firms ................................................................................. 46 China capital goods .................................................................................................................................. 48 Korea construction-equipment makers and machine-tools makers ...................................................... 49 Taiwan machine-tool makers .................................................................................................................. 50

Transportation .......................................................................................................................................... 52 Japan’s marine-transport firms ............................................................................................................... 52 Japan’s air-transport firms ....................................................................................................................... 52 Asia ex-Japan airlines and shipping companies ...................................................................................... 54

Appendix ..................................................................................................................................................... 56


- 3 -

Weak-Yen plays to fly higher • Movements of the Yen against the US Dollar and major Asian currencies have a significant

impact on Asia-based companies. In addition to an impact on earnings, companies could see structural changes in the competitive landscape.

• We expect the Yen’s trend of depreciation to continue in FY13. Our currency strategist, Mr. Yuji Kameoka, believes the US Dollar will advance to USD1:JPY110 at some stage during FY13.

Impact by sector/market

• Japan companies have improved their ability to enhance their product offerings in the next few years through their current investments in product development. This poses a long-term threat to Asia ex-Japan electronic and mechanical-components makers and Korea auto and high-end steel makers.

• Japan export-oriented companies in the auto, electronic-components (including TFT-LCD), back-end semiconductor-processing-equipment (SPE), construction-equipment, steel, and shipping industries are benefiting the most from the weak Yen. In Asia ex-Japan, a few regional airlines should benefit from a rise in leisure travellers.

• A JPY1 depreciation against the US Dollar and Euro would boost our FY13E recurring profit for Japan’s Daiwa 200 companies by an aggregate 0.8%. In contrast, according to a survey conducted in May by the Institute for International Trade, a 10% appreciation of the Won against the Yen would reduce Korea companies’ 2013 operating profit by 5-6%.

• FY13E capex by the Daiwa 200 companies in Japan should rise by 10% YoY, according to the companies’ combined projections. Japan automakers are stepping up promotional activities to gain market share. Cross-border M&A activity may also increase.

Stock picks

• Japan – our top picks for the Yen depreciation theme are: capital-goods company Mitsubishi Heavy Industries, chemical company Sumitomo Chemical, automaker Toyota Motor, tyre maker Bridgestone, steel maker JFE Holdings, and electronic-components maker Murata Manufacturing.

• Asia ex-Japan – our top picks for the Yen depreciation theme are: China Eastern Airlines, and speciality chemical maker LG Chem. We would avoid Taiwan machine-tool maker Hiwin Technologies, and are cautious on high-end Korea steel maker POSCO.

Weak Yen: Daiwa’s top-10 investment ideas Company Ticker Price Rating TP Price Performance Mkt Cap PER (x) PBR (x) EV/EBITDA (x) Name 14-Jun-13 (LC) 1M 3M 1Y (USDm) FY13/14E FY14/15E FY12/13 FY13/14E FY14/15E

(LC) 2013E 2014E 2012 2013E 2014E

Mitsubishi Heavy Industries 7011 JP 534 Buy 800 (24.6) 1.7 70.8 19,118 16.30 13.80 1.30 7.3 6.6 Sumitomo Chemical Co Ltd 4005 JP 289 Buy 400 (20.9) 2.0 26.4 5,077 13.90 8.70 0.95 6.8 6.0 JFE Holdings Inc 5411 JP 1,954 Buy 3,000 (6.8) 3.6 57.3 12,741 6.20 5.90 0.72 5.3 4.8 Murata Manufacturing Co Ltd 6981 JP 7,050 Outperform 9,000 (15.7) 4.6 71.7 16,854 17.10 15.60 1.73 6.6 6.3 Toyota Motor Corp 7203 JP 5,590 Outperform 6,800 (11.9) 13.5 90.3 204,545 10.70 9.80 1.46 9.4 8.6 Bridgestone Corp 5108 JP 3,065 Outperform 4,100 (11.1) (3.7) 89.8 26,448 9.40 8.30 1.75 4.6 4.1 China Eastern Airlines 670 HK 2.41 Buy 4.1 (21.2) (26.3) (22.0) 3,501 5.22 4.21 1.04 4.7 4.3 LG Chem 051910 KS 259,000 Outperform 300,000 (4.6) (6.7) (21.5) 15,236 11.84 9.77 0.62 6.4 5.2 POSCO 005490 KS 313,500 Hold 320,000 (2.8) (6.3) (10.2) 24,263 10.05 9.29 1.55 6.5 6.5 Hiwin Technologies Corp 2049 TT 180.5 Underperform 180 (7.4) (21.2) (15.3) 1,490 18.61 15.12 0.22 12.7 10.0

Source: Bloomberg, Daiwa forecasts

Note: companies highlighted in gold represent those whose prospects stand to be negatively impacted by the Yen depreciation theme


- 4 -

Contributors:

Strategists/economists

Pranab Kumar Sarmah (852) 2848 4441 [email protected]

Masahiro Kushida (81) 3 5555 7137 [email protected]

Yuji Kameoka (81) 3 5555 7329 [email protected]

Makoto Morita (81) 3 5555 7153 [email protected]

Chang H. Lee (82) 2 787 9177 [email protected]

Alan Chan (852) 2848 4970 [email protected]

Automobiles/auto parts

Eiji Hakomori (81) 3 5555 7072 [email protected]

Shiro Sakamaki (81) 3 5555 7067 [email protected]

Sung Yop Chung (82) 2 787 9157 [email protected]

Jeff Chung (852) 2773 8783 [email protected]

Navin Matta (91) 22 66228411 [email protected]

Jun Yong Bang (82) 2 787 9168 [email protected]

Technology

Takumi Sado (81) 3 5555 7085 [email protected]

Hirokazu Mitsuda (81) 3 5555 7124 [email protected]

Junya Ayada (81) 3 5555 7091 [email protected]

Eric Chen (852) 2773 8702 [email protected]

Jae H. Lee (82) 2 787 9173 [email protected]

Steven Tseng (886) 2 8758 6252 [email protected]

Materials

Jiro Iokibe (81) 3 5555 7047 [email protected]

Hidemitsu Umebayashi (81) 3 5555 7130 [email protected]

Sung Yop Chung (82) 2 787 9157 [email protected]

Felix Lam (852) 2532 4341 [email protected]

Joey Chen (852) 2848 4483 [email protected]

Deepak Poddar (91) 22 6622 1016 [email protected]

Jun Yong Bang (82) 2 787 9168 [email protected]

Capital goods

Hirosuke Tai (81) 3 5555 7069 [email protected]

Hirokazu Miyagi (81) 3 5555 7104 [email protected]

Joseph Ho (852) 2848 4443 [email protected]

Christine Wang (886) 2 8758 6249 [email protected]

Mike Oh (82) 2 787 9179 [email protected]

Transportation

Hajime Hitotsuyanagi (81) 3 5555 7025 [email protected]

Kelvin Lau (852) 2848 4467 [email protected]


- 5 -

Weak-Yen plays to fly higher Pranab Kumar Sarmah (852) 2848 4441 ([email protected]) Masahiro Kushida (81) 3 5555 7137 ([email protected]) Alan Chan (852) 2848 4970 ([email protected]) Where is the Yen headed? The Japan Government’s QE programme, initiated in November 2012, has set the stage for the Yen’s depreciation. The currency has declined by 18% relative to the US Dollar since the QE programme got under way. This trend has benefited the Japan export-oriented companies. Although the Yen has faced a reversal in June 2013 after breaching the USD1:JPY100 mark, Daiwa’s Japan economics and currency strategy teams believe the Yen’s strengthening trend is temporary. Daiwa’s Yuji Kameoka forecasts the US Dollar to advance to USD1:JPY110 in FY13 (year ending March 2014). Meanwhile, our economics team forecasts an average rate of USD1: JPY100 for FY13, implying a further 3-5% depreciation from the current level. Asia: currency movements

Source: Bloomberg

Japan corporates could record historically high profits in FY14 Positively affected. Our analysis reveals that the Japan export-oriented companies in the auto, electronic-components (including TFT-LCD), back-end semiconductor processing equipment (SPE), construction-equipment, steel, and shipping industries are benefiting the most from the weak Yen. Japan’s tourism-related industries are also getting a positive boost from the Yen depreciation, in terms of a pick-up in the number of travellers. Still, only a few regional airlines that have decent exposure to the Japan routes stand to benefit from this rise in travellers. Mild positive impact. Asia-based speciality chemical/component makers, those that rely on raw materials from Japan, and the front-end semiconductor companies that import equipment from the country should continue to derive some benefit from a weak Yen as they should see declining production costs. Negatively affected. The Korea auto, electronics passive component makers, and high-end steel-producing companies, as well as the Taiwan machine-tool makers, look the worst off from the Yen’s depreciation as they face price competition in the near term and stronger product competition in the medium term. Risks to our view. Should the Yen continue to appreciate, our sensitivity analysis of the Daiwa 200 stocks featured in our regular earnings survey suggests that electric/gas utilities, pulp and paper, retail, and passenger transport companies in Japan would benefit the most. In Asia ex-Japan, the Korea auto and steel companies, as well as electronic component makers, would benefit, as would the Taiwan machine tool makers, according to our analysis. By market. Over the six months since the Yen started to depreciate, Korea has seen the most downward revisions to the market’s 2013 earnings forecasts, while Japan has seen a large number of upward adjustments to its earnings forecasts. Our analysts in Japan assume a USD1: JPY100 exchange rate in their FY13 earnings forecasts. The team concludes that the Daiwa 200 stocks should record an aggregate 37% YoY net-profit growth for FY13, on the back of our forecast for a 19% depreciation of the Yen relative to the US Dollar over FY13. Following on from this, we believe Japan’s corporates could record historically high profits in FY14.

90

100

110

120

130

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

CNY/USD KRW/USD TWD/USD SGD/USD

THB/USD IDR/USD JPY/USD


- 6 -

For the Korea corporates, however, the Yen’s depreciation is not such good news. A survey conducted in May by the Institute for International Trade concluded that every 10% appreciation in the Won against the Yen would result in Korea corporates’ earnings for 2013 declining by 5-6%. By sector. Among the various subsectors, we see a significant inverse correlation between the earnings-revision cycles of the Japan and Korea auto companies, and those for the Japan marine and Asia-ex-Japan marine companies (see the charts in the Appendix on pages 56-58). Investors seeking to maximise portfolio returns from earnings volatility caused by currency movements may consider pair trades between the two sectors, in our view. Historical evidence suggests that a weak Yen versus the US Dollar is good for Japan’s stock market, whereas a strong Won (versus the US Dollar) is good for Korea’s stock market. Although both are export-driven economies with positive net external assets, Japan has a large positive Net International Investment Position (NIPP), while Korea has a large NIPP deficit. Earnings-revision cycle for North Asia market

Source: Datastream

Corporate/consumer behaviour: Japan Inc’s long-term competitiveness set to improve, Asia-Japan M&A could increase Though most Japan companies indicated that based on only the six-month Yen weakness trend they have not changed their original business strategies, we believe their ability to improve product offerings in the next few years by investing currently in product development, R&D etc., has improved significantly, which could be long-term threat to the Korea auto, material and Asia (ex-Japan) electronics and mechanical-component makers.

Capex on the rise. We have seen signs of capex among the Japan companies picking up, as some companies are planning to upgrade their domestic facilities and expand their overseas facilities to reduce their production costs, lead times, and import-tariff burdens. The Yen’s 18% depreciation against the US Dollar since November 2012 will not lead to a slowdown in companies migrating their production bases overseas. Capex by the Daiwa 200 firms should advance by 10% YoY for FY13E – up 12% YoY for the manufacturers and 8% YoY for the non-manufacturers – based on the companies’ projections. We forecast the Japan automakers to increase their FY13 capex by 16% YoY in Yen terms, but not in US Dollar terms. The Abe Administration has also positioned an increase in domestic capex as a pillar of its growth strategy for the next three years. Our focus will be on whether it unveils: 1) tax breaks and subsidies on capex, 2) policies to strengthening domestic demand, and 3) initiatives that promote exports. Cross-border M&A. In Asia, we observe that the Korea automakers are sticking with their capacity expansion plans for 2013 as they focus on retaining their market shares globally. According to our industry research, a few of the Asia ex-Japan component makers are exploring the possibility of acquiring stakes in their Japan peers/ suppliers to take advantage of the weak Yen, which might increase M&A activities between Asia ex-Japan and Japan companies. Pricing strategies. We also note that a few Japan companies have lowered prices for components over the past few months to gain market share. Most of the Asia ex-Japan component makers have no choice but to lower prices if they are to maintain their market shares, in our view. Indeed, a few Japan automakers have cut the prices of new models in the US and India in a bid to expand their market shares. Government help in Korea. We have seen some changes in government and consumer behaviour in the past few months. Earlier this June, the farmers in Korea started to receive government subsidies to mitigate the impact of the weak Yen. The number of Japanese tourists travelling to other places in Asia has been declining in recent months, while the number of tourists from Asia to Japan has been rising. According to our market research, in some popular malls in Korea, visits by tourists from Japan have fallen by 30-40% YoY in recent months.

(15)

(10)

(5)

0

5

10

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13

Japan - TOPIX Korea - KOSPI

China - HSCEI Taiwan - TAIEX

(%)


- 7 -

Weak Yen: Daiwa’s top-10 investment ideas

As we expect the Yen’s depreciation to continue into FY14, our top-10 investment ideas feature what we think are the major beneficiaries both in the near and medium term, together with those adversely affected by this trend. Our key stock calls for Japan. Leading automaker Toyota Motor, tyre maker Bridgestone, steelmaker JFE Holdings, electronic-components maker Murata Manufacturing (Murata), capital-goods company Mitsubishi Heavy Industries, and chemical company Sumitomo Chemical. Our stock picks in Japan all stand to benefit from a weaker Yen, in our view. Accordingly, the shared risk to our call for those names would be a meaningful reversal of the recent Yen weakness. A strong Yen would probably be a relatively significant negative for the earnings outlook and share-price performance of the marine transport and steel sectors (including JFE Holdings), in particular, given that profits in those industries are at historically low levels. Our key stock calls for Asia ex-Japan. China Eastern Airlines (CEA) and LG Chem should benefit slightly from the weak Yen, and their valuations are already low, in our view. Our key negative call, with an Underperform (4) rating, is Taiwan machine-tool maker Hiwin Technologies Corp (Hiwin). We are also cautious on Korea high-end steel giant POSCO, which competes directly with Japan peers in the same space.

Mitsubishi Heavy Industries (7011 JP, JPY534, Buy [1], TP: JPY800)

• We expect growth in the power-system segment, which focuses on gas turbines (thermal-power-equipment operations to be integrated with Hitachi in January 2014), as well as increased orders from emerging markets in the nuclear-power-system business.

• The company is making headway in revamping its earnings mix and should see much more noticeable benefits from cost cuts, which had been overshadowed by the negatives associated with Yen appreciation. With this in mind, we forecast the company’s FY14 operating profit to top the FY96 record of JPY198bn.

• We have a Buy (1) rating on Mitsubishi Heavy Industries. Our target price is JPY800 (equivalent to roughly 21x our FY14 EPS forecast), taking into

account the steady improvement in profitability and business strategies, as well as the share price levels when the firm posted a record operating profit in FY96.

Sumitomo Chemical (4005 JP, JPY289, Buy [1], TP: JPY400)

• With bulk chemicals no longer likely be a major driver of profit growth, our focus is on the firm’s growth potential in non-commodity operations, namely IT-related chemicals and health and crop sciences. The firm seems poised to enjoy higher touch-panel sales to the Samsung group in the former and higher soybean-herbicide sales overseas in the latter.

• Thanks in part to weak Yen benefits, the company’s IT-related chemicals, and health and crop science segments should account for more than 30% each, while we expect the pharmaceuticals segment to account for slightly more than 20% of our total FY14 operating profit forecast (before intra-group eliminations). The weighting of bulk chemicals should decline to less than 10% of operating profit for FY14E.

• In our 6 June 2013 report, Focus on growth prospects in non-commodity chemicals, we upgraded our rating on Sumitomo Chemical from Outperform (2) to Buy (1), and set our six-month target price at JPY400. Our target price is based on an FY14 PER of around 12x, on a par with the average multiple for diversified chemical makers.

JFE Holdings (5411 JP, JPY1,954, Buy [1], TP: JPY3,000)

• Yen depreciation is a significant positive for Japan’s major integrated steel mills as it: 1) expands margins on exports, 2) helps improve the earnings of major clients (Japan manufacturers), and 3) works to reduce steel imports.

• We forecast JFE Holdings to post a recurring profit of JPY300bn (up 5.7-fold YoY) for FY13 (ending March 2014), anticipating boosts from an improved spread between material and selling prices, more favourable effects from raw material inventory valuation, and increased steel-product shipments over the year.

• We have a Buy (1) rating on the stock with a target price of JPY3,000, or 10.3x our adjusted FY13 EPS forecast (excluding the impact of inventory valuation).

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/4005Jun06F.pdf#page=1


- 8 -

Murata Manufacturing (6981 JP, JPY7,050, Outperform [2], TP: JPY9,000 )

• We expect Murata’s earnings growth to continue to be driven by increased shipments of smartphones and tablet PCs, increased functionality in end products, and greater use of modular designs for onboard components. Also underpinning its business expansion and stable operations should be a broader client mix that includes Apple, Samsung, and the China manufacturers.

• Fluctuations in the Yen exchange rate have a significant impact on the firm’s earnings, with a JPY1 change vs. the US Dollar affecting its annual operating profit by an estimated JPY3bn. At this juncture, we have not seen any meaningful changes in foreign currency-denominated prices amid Yen depreciation, suggesting the weaker Yen could translate noticeably into earnings growth.

• We have an Outperform (2) rating on Murata with a target price of JPY9,000, or roughly 22x our FY13 EPS forecast. Our target price takes into account the PERs of 20-25x typically afforded to the stock when monthly orders have exceeded historical records and investment themes have coincided with the firm’s business areas.

Toyota Motor (7203 JP, JPY5,590, Outperform [2], TP: JPY6,800)

• Toyota Motor appears to be seeing the biggest boost to earnings from Yen depreciation among the three major Japan automakers, and also boasts the strongest visibility for FY13 earnings growth on a constant-currency basis.

• Over the short term, model changes seem possible this autumn in the US for the mainstay Corolla and CUV Highlander, and sales are likely to stay on an uptrend in the ASEAN region, the Middle East, and other emerging economies where Toyota commands a strong market share. Over the mid-to-long term, we expect efficiency improvements in design and production thanks to Toyota’s new global architecture initiatives.

• We have an Outperform (2) rating on Toyota and raise our six-month target price from JPY6,400 to JPY6,800 (equivalent to 13x our FY13 EPS forecast), reflecting a slight increase in our earnings forecasts.

Bridgestone (5108 JP, JPY3,065, Outperform [2], TP: JPY4,100)

• Yen depreciation generally provides a favourable tailwind for the Japan tyre makers, as the positive

impact it has on the margins on exports beats the blow from higher prices for imported materials. A weaker Yen should be a particular positive for Bridgestone given its relatively high weighting of overseas sales and strength in large tyres for mining machinery produced in Japan.

• We forecast a FY13 recurring profit of JPY407bn. Despite our cautious outlook for its tyre sales volume, our recurring profit forecast is more bullish than the company’s JPY365bn guidance, due mainly to the difference in our currency rate assumptions (USD1:JPY100 compared with the company’s USD1:JPY89). A meaningful pick-up in tyre demand in North America in late 2013 would help boost earnings further.

• We have an Outperform (2) rating on Bridgestone and a target price of JPY4,100 (equivalent to 13x our FY13 EPS forecast). We see a high likelihood of natural rubber prices declining further this year. Given their inverse correlation with Bridgestone’s shares, we are bullish on the firm’s earnings and stock performance in the next six months.

China Eastern Airlines (670 HK, HKD2.41, Buy [1], TP: HKD4.10)

• We believe the Yen’s depreciation will encourage more outbound travellers from China to choose Japan as their holiday destination. Based on our sensitivity analysis, every 1% increase in Japan traffic would increase our 2013 net-profit forecast for CEA by 3%.

• We look for improving relations between China and Japan, in addition to the Yen’s depreciation, to bolster a recovery in passenger traffic from Japan and believe this will be a major catalyst for the China airlines, and notably CEA, in 4Q13, especially given CEA’s low earnings comparison base for 2012.

• CEA’s long-term earnings outlook remains positive, in our view, on the back of stable domestic traffic growth and a potential rapid increase in outbound traffic from China to Japan, Korea, Taiwan and the US.

• The stock is trading currently at a 2013E PBR of 0.8x, which is lower than its past-5-year average PBR of 1.3x, and which we consider undemanding in view of our positive earnings outlook for the company.

• Major risks to our call would be lower-than-expected traffic and yield growth, and higher-than-expected jet-fuel prices.


- 9 -

LG Chem (051910 KS, KRW259,000, Outperform [2], TP: KRW300,000)

• As LG Chem imports electronics materials (we forecast the cost for these imports to amount to KRW1tn for 2013) for its information and electronics (I&E) materials operation from Japan, we believe the weaker Yen will boost the profit margin of this business and offset somewhat the negative impact of the weak demand in China for petrochemical products.

• We expect LG Chem to see stable earnings growth from 2014 and onwards, on the back of its diversified business portfolio, together with the high proportion of specialty chemicals relative to its total output. This should allow it to weather the headwinds from weak petrochemical demand globally, in our view.

• We have an Outperform (2) rating on LG Chem with a six-month target price of KRW300,000, based on our SOTP valuation.

• The main risk to our call would be a slower-than-expected recovery in the company’s battery business.

POSCO (005490KS, KRW313,500, Hold [3], TP: KRW320,000)

• We think POSCO could lose market share this year, especially in Southeast Asia, as its Japan competitors may cut prices on the back of the depreciation of the Yen.

• We do not believe the downward-revision cycle to the Bloomberg-consensus earnings forecasts for the company is over, as we think the weak spread between steel product prices and input costs will persist throughout this year.

• We have a Hold (3) rating with a Gordon Growth Model-based six-month target price of KRW320,000.

• The stock’s risk-reward profile does not look appealing to us at this time, either in terms of its current valuation or our ROE forecast; the shares are trading at a 2013E PBR of 0.6x, and we forecast a 2013 ROE of 6.3%.

• The main upside catalysts to our call would include a significant rebound in global steel prices, while the main downside risk would be weaker-than-expected demand from downstream industries.

Hiwin Technologies (2049 TT, TWD180.5, Underperform [4], TP: TWD180)

• We expect Hiwin to lose either some of its market share to its Japan peers or see net-profit-margin pressure from 2Q13, as we believe its Japan competitors have cut product prices for their main customers by 3-5% in 2Q13, taking advantage of the weak Yen. Our market research indicates that some of Hiwin’s clients will give more orders to its Japan competitors on the back of price cuts.

• Slowing investment in Hiwin’s China manufacturing capacity would also affect any pick-up in the company’s orders going forward. China’s macro indicators, such as the PMI, point to a weaker-than-expected economic recovery in 2Q13, while investors still have high expectations for Hiwin’s China orders.

• We believe Hiwin’s earnings-recovery cycle will be slow due to its high level of channel inventory, which has risen to 200 days currently, from the normal level of 120 days. As we expect a weak recovery in its shipments for 2Q13, as well as a fab utilisation rate of 40-50% for 2Q13, we do not expect the company’s inventory level to fall to its usual level of 120 days any time soon.

• Our six-month target price of TWD180 is based on a PER of 15x (the mid-cycle multiple) applied to our 2014 EPS forecast. Any prolonged Yen weakness could lead to market-share loss, causing more pessimistic long-term growth prospects and a further derating of the stock.

• The key upside risks to our call would be a greater-than-expected depreciation in the Taiwan Dollar against the Yen and larger-than-expected robot orders.


- 10 -

Sector impact: summary

Automobile: improvement in long-term product competitiveness for Japan firms

Over the short term, the benefits we see for the Japan automakers are: 1) improved profit margins on export margins, and 2) a rise in sales from increased marketing/sales promotions. Over the medium- to long-term, we believe the automakers will be able to improve their vehicle line-ups by investing more in product development and design, which will be a key risk factor for the Korea auto makers. Despite the weak Yen, the Korea automakers have not lost market share globally. Sino-Japan joint-venture automakers should not see any meaningful benefits, due to a high degree of component localisation. In India, however, Maruti Suzuki, a subsidiary of Suzuki Motor Corporation, should benefit.

The impact on the Japan and Korea auto-component makers of the lower Yen are smaller than that for the automakers. The Japan tyre makers are in a better position than the other auto-component makers to take advantage of the weak Yen, due to their high proportion of export sales and their presence in the replacement market globally. Technology: Japan component and back-end SPE makers should benefit most

The weaker Yen is positive for the Japan electronic-component makers and LCD-panel makers, while the weaker Yen would be negative for Taiwan- and Korea-based passive-component, printed circuit board (PCB), substrate, crystal (eg, TXC) and LCD-panel makers. We see no meaningful impact on the Asia semiconductor companies and TV/handset makers. Taiwan Semiconductor Manufacturing (TSMC) and Catcher Technology should benefit marginally from the weaker Yen. The Japan back-end semiconductor-equipment manufacturers are also beneficiaries of the weak Yen as they sell their products in US Dollars. Capital goods: positive for Japan construction equipment firms, negative for Taiwan machine-tool makers

Given the high dependence on domestic production and the export market, Japan’s construction-equipment industry is a beneficiary of Yen depreciation. By contrast, the Japan machine-tool makers are unlikely to see much benefit from the weak Yen due to price competition. Heavy-industry companies are involved in various businesses, so will not benefit equally from the weak Yen. We expect Mitsubishi Heavy Industry and Toshiba to be biggest beneficiaries. In China, the problem for the construction-machinery sector is weak demand, which

cannot be addressed by reducing product prices. Despite the weak Yen, the Japan excavator manufacturers have not cut product prices. Meanwhile, Yen depreciation has already had a negative effect on the Taiwan and Korea machine-tool makers such as Hiwin and Doosan Infracore, as their competitors from Japan have started to reduce product prices. Materials: gap narrowing between Japan and leading Korea steel makers Steel. The direct impact on the Japan steel makers’ earnings from Yen depreciation has been negligible, as most input costs are denominated in other currencies. However, there are indirect benefits as they are seeing higher-than-expected orders from major domestic customers and a reduction in processing costs. The Korea steel makers could lose market share, especially in Southeast Asia, which is the largest export destination for both the Korea and Japan steelmakers. We see no direct impact on the China steel mills’ profit from the weaker Yen as the steel export products from the two countries are different. The weaker Yen does not have a direct impact on the India steel companies, as they mostly operate based on the domestic supply-demand dynamics. Chemicals. We do not expect the Japan players to expand their market shares globally merely on the back of Yen weakness, but believe their ability to compete against imports in the domestic market has increased. We estimate that a JPY1 fall in the exchange rate against the US Dollar and Euro would increase the aggregate FY13 operating profit we forecast for the Japan Chemical Sector by 1.7%. We see the weak Yen as mildly positive for the Korea electronic-material producers, such as LG Chem, as they import raw materials from Japan. Transportation: positive for Japan shippers, negative for passenger airlines

From Japan, passenger airlines is the only sector discussed in this report that stands to be negatively affected by the weak Yen, due to rising fuel and hedging costs. The key point to note here is how much international business traveller demand the airlines can attract. Airlines in Asia with high exposure to Japan routes are CEA and Cathay Pacific Airways, which should benefit from an increase in the number of leisure travellers to Japan. We estimate that every 1% increase in Japan passenger traffic would increase our 2013 net profit forecasts for these two airlines by 3%.

The Japan shipping companies benefit from the weak Yen as a result of translation gains and a rise in cargo volumes. The three shipping firms project a combined FY13 recurring profit of JPY125bn, with each JPY1:USD depreciation seen boosting recurring profit by JPY4.9bn, or 3.9% of the total projection.


- 11 -

Yen outlook: reversal of ongoing pullbacks in store

Yuji Kameoka (81) 3 5555 7329 ([email protected])

We forecast the exchange rate to move to USD1:JPY110 in FY13 (year ending March 2014). Thus, we believe the recent pullback in the US Dollar should be short-lived. The pick-up in long rates amid concerns over the Fed’s QE wind-down worked to provide a boost to the US Dollar. Thereafter, beginning in late May, stock markets worldwide pulled back meaningfully, with the currencies of resource-rich and emerging countries stagnating and the Yen climbing with the wind. The lack of additional measures for easy money by the BOJ also served to increase the value of the Yen. In recent days, US Dollar strength amid higher US interest rates and Yen strength amid reduced risk tolerance have developed in sync, changing the situation in the currency market. First and foremost, risk tolerance among market participants, a far-reaching factor, has been fluctuating wildly with no clear-cut trend. Foreign-exchange rates have thus become more susceptible to country-specific factors, such as interest rate movements. Nevertheless, as statistical releases look set to improve worldwide after underperforming consensus expectations recently, risk tolerance appears likely to improve. In the US, tax hikes triggered a slowdown in consumer spending from March-April 2013, negatively affecting May’s business confidence. Meanwhile, we recently witnessed signs of a reacceleration in consumer spending there. Helped by the rise in housing and stock prices, new car sales recorded a gain in May. Higher demand appears likely to positively affect corporate activity from June onward. Elsewhere, European credit concerns receded significantly and interest rates there declined meaningfully, improving Eurozone business confidence in May. Even if long rates head higher, the spike in interest rates, given heightened expectations for a healthy economic recovery, would be unlikely to kindle stock market sell-offs. Meanwhile, as the impact of risk tolerance levels becomes larger, country-specific factors such as interest rate movements will likely have a smaller effect. Notably, despite the lack of weakness in commodity prices, the currencies of resource-rich/emerging countries have recently pulled back against the dollar, probably driven by higher US interest rates. Going forward, an improvement in the global economic outlook would lift commodity prices,

sending the US Dollar lower against the currencies of resource-rich/emerging countries. As a result, we believe we would be more likely to see renewed Yen weakness amid higher levels of risk tolerance rather than US Dollar strength amid the spike in US rates. Yen, currencies of resource-rich/emerging countries vs. USD

Source: Thomson Reuters, compiled by Daiwa

Commodity Price Index, AUD/USD

Source: Thomson Reuters, compiled by Daiwa

75

80

85

90

95

100

105

Jul 12 Oct 12 Jan 13 Apr 13

BA

Basket of 12 countries’ currencies against USD (2 Jul 2012 = 100)

JPY/USD (2 Jul 2012 = 100)

Basket of 12 countries’ currencies against USD represents 2012 nominal GDP-weighted basket of 12 countries’ currencies against USD (12 countries from G20 ex cl. G7, EU).A: dollar strengthB: low risk tolerance

0.90

0.93

0.96

0.99

1.02

1.05

1.08

1.11

1.14

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13

S&P GSCI (total return, left)

AUD/USD (right)


- 12 -

Weak-Yen benefits for Japan Inc. Makoto Morita (81) 3 5555 7153 ([email protected])

FY14 profit to top historical record on weak-Yen benefits Yen depreciation is providing a significant boost for Japan companies. The 4Q FY12 (Jan-Mar 2013) results for the Daiwa 200 (200 major listed names under our coverage, excluding financials) showed a pronounced pick-up in earnings for exporters and some basic materials industries, partly as a result of further Yen depreciation. In our view, this bodes well for the prospect of sharp profit growth in FY13. We forecast the aggregate recurring profit for the Daiwa 200 firms to grow by 37% YoY for FY13 and 13% YoY for FY14. Profit looks set to rise sharply in FY13 thanks to Yen depreciation, as well as the benefits from structural reforms and cost-reduction measures. With an additional boost from increased demand as a result of global economic growth, the aggregate recurring profit for FY14 could exceed the historical record set in FY07, in our view. Japan companies have faced harsh operating environments since the Lehman crisis, with drags from Yen appreciation, the Great East Japan Earthquake, and flooding in Thailand. Amid such conditions, they have worked steadily to tap new growth markets and cut costs. We think corporate earnings will enter a period of meaningful expansion in FY13, as the Yen’s retreat from historically elevated levels of appreciation should accentuate benefits from such efforts. The recurring profit outlook for the Daiwa 200

Source: Daiwa forecasts; Note: previous estimates as at 28 Feb 2013

Each JPY1 depreciation vs. the USD:EUR to boost the FY13 recurring profit by 0.8% We estimate that each JPY1 depreciation against the US Dollar or Euro would lift the aggregate FY13 recurring profit by 0.8%. Based on average rates of USD1:JPY105 and EUR1:JPY135, we estimate YoY growth in recurring profit would rise by 43% YoY for FY13. Even with Yen appreciation to USD1:JPY95 and EUR1:JPY125, we estimate recurring profit growth of 32% YoY would still be achievable. Currency sensitivity is high for the autos, machinery, precision instruments, electronic components, and other industries, where companies employ business models centred on exporting goods produced in Japan. FY13 currency sensitivity by sector (JPYbn)

Rec profit Boost to recurring profit from JPY1depreciation

FY13 E % of recurring profit

USD EUR

A (B + C) /A B CThe Daiwa 200 25,718 0.8 171 41

Manufacturers 15,992 1.2 159 38Basic materials 2,244 0.5 11 1

Textiles 191 0.4 1 0Pulp & paper 76 -1.7 -1 0Chemicals 810 1.2 9 1Glass and ceramics 165 0.4 0 0Steel 760 -0.1 -1 0Non-ferrous metals 242 1.0 2 0

Assembly companies 9,952 1.6 122 35Machinery 1,122 1.3 11 4Electrical/electronics 2,074 1.7 20 15Automobiles 5,644 1.6 80 8Precision instruments 1,112 1.8 11 9

Other manufacturing 3,797 0.7 26 2Foods 1,208 0.3 3 0Pharmaceuticals 903 0.1 1 1Toiletries 227 0.3 0 0Petroleum 1,109 1.4 16 0Shipbuilders/plant equipment 350 1.8 5 1

Non-manufacturers 9,726 0.2 13 3Construction/home fixtures 652 0.1 1 0Trading houses 1,586 1.0 16 0Retailing 1,285 -0.0 -1 0Non-banks 264 0.0 0 0Real estate 385 0.1 0 0Passenger transport 1,167 -0.1 -2 0Freight transport/warehousing 223 1.6 4 0Electric/gas utilities -50 - -10 0Telecommunications 2,806 0.0 0 0Amusement 363 1.8 4 3Software business 205 0.0 0 0Services, broadcasters/ad agencies 841 0.0 0 0

Source: Compiled by Daiwa Notes: 1) Based on assumption of USD1:JPY100, EUR1:JPY130 from April 2013; 2) Impact of Yen depreciation vs. US Dollar:Euro from April 2013. E: Daiwa estimates.

Weak-Yen benefits to vary among firms Currency sensitivity reflects direct weak-Yen benefits, including boosts to overseas earnings and improved margins on exports. Going forward, one notable point will be the extent to which this factor is visible in earnings performances. We think this will depend largely on companies’ competitive environments and business strategies. Yen depreciation is likely to lead to cost increases for companies that curbed promotional and personnel expenses or demanded price cuts from suppliers during earlier periods of Yen appreciation.

60

70

80

90

100

110

120

5

10

15

20

25

30

35

FY05 06 07 08 09 10 11 12 13 E 14 E

Current estimates (left) Previous estimates (left) Y/$ (right)

(Y tril)

Collapse ofLehman Brothers

Great East Japan EarthquakeThai floods


- 13 -

Meanwhile, price wars could partially offset weak-Yen benefits in industries where competition is fierce. For companies whose competitive strength versus overseas rivals is rising as a result of Yen depreciation, we anticipate market-share expansion and other benefits besides direct earnings boosts implied by currency sensitivity. See large benefits for autos, electronic components, steel By industry, we think the auto and electronic components makers will see weak-Yen benefits in line with levels implied by their currency sensitivities, given their significant competitive strength vs. their overseas rivals. For the steelmakers, whose competitive strength vs. overseas rivals appears likely to rise, Yen depreciation should provide other benefits besides direct earnings boosts implied by currency sensitivity. On the other hand, we think heated competition among Japan’s businesses will partially offset benefits from Yen depreciation for machinery and precision-instrument firms. Passing on cost increases crucial for domestic demand-oriented firms Yen depreciation should also inflate costs, especially for domestic demand-oriented firms. This is likely to weigh heavily on earnings for power and air transportation companies through higher fuel costs, and severely suppress earnings for food and toiletries names due to their wide use of imported raw materials. Companies’ earnings levels should ultimately hinge mainly on their degree of success in passing cost increases onto customers. Higher fuel costs are likely to suppress profit for power and air transportation companies, as any price hikes will probably only partially offset such cost increases. Many food and toiletries firms (mainly the majors) should see some benefits from Yen depreciation, as a result of recent overseas expansion. Differing degrees of success in passing on cost increases will probably lead to wider gaps in earnings levels for domestic operations, where some companies have already begun hiking prices and curbing promotional spending. Capital spending to rise Yen depreciation and the consequential improvement in the earnings environment have triggered changes in corporate business strategies. Based on company projections, capital spending by the Daiwa 200 firms is to advance by 10% YoY in FY13 – up 12% for manufacturers and 8% for non-manufacturers. Manufacturers with large appetites for capital spending include the petroleum firms (increasing investment in Australian LNG projects), as well as the automakers and food firms (adding to overseas capacity). Among

the non-manufacturers, capex seems set to increase at the property firms, on the back of the revved-up development of offices and commercial facilities, and at retailers on increased new store openings. No change in shift of production overseas Although an improved earnings environment should support double-digit growth in capital spending among the manufacturers, Yen depreciation has yet to noticeably halt their shift of production overseas. The chief driver of the increased capital spending by manufacturers is capacity additions in North America, Southeast Asia, and other overseas regions where demand is expected to expand, as well as the boost the weaker Yen provides to the Yen-based amount of spending done in foreign currencies. Positive signs in domestic capex However, there have been signs of a pick-up in capex in Japan, with a focus on upgrades, including spending that had been put off due to the Lehman crisis, the Great East Japan Earthquake, and the European debt crisis. These moves have been made possible thanks to: 1) the corporate earnings recovery, 2) signs of a bottoming-out of demand following a decline triggered by a global economic slowdown during FY12 (ending March 2013), and 3) the enhanced competitiveness of domestic production supported by Yen depreciation. Capex has not emerged meaningfully in the form of increased capacity at this juncture, as: 1) a glut production capacity is yet to be eliminated in Japan, and 2) it has not been long since the Yen started weakening. Going forward, we expect domestic production to be boosted by weak-Yen-backed exports, which should increase the utilisation rate and possibly lead to capacity additions. Anticipation for the Abe Administration’s growth strategy The Abe Administration has positioned increased domestic capex as a pillar of its growth strategy, earmarking the next three years for intensive investment. It says it will draw on a mixture of reforms to support this policy. Our focus will be on whether it unveils: 1) blueprints supporting firms with a strong capex appetite, such as tax breaks and subsidies, 2) policies strengthening domestic demand by stimulating corporate manufacturing activities, and 3) initiatives promoting exports, like the Trans-Pacific Partnership Agreement (we recently compiled a report that outlines the trends in overall corporate earnings and identifies the key issues ‘Regular Earnings Survey’, published on 7 June 2013).

https://lzone.jp.daiwacm.com/lzone/cv?LANG=E&cd=(($KOKYAKU_CD$))&id=2013060700042


- 14 -

A strong Won generally accompanies a strong KOSPI Chang H. Lee (82) 2 787 9177 ([email protected])

Contrary to what many investors believe, a strong Won generally goes in tandem with a strong KOSPI The Won is a soft currency and there is only a local forex market for the KRW:USD rate. All the other exchange rates for currencies against the Won are determined through the use of cross-rates. The most important determinants of the Won’s value are the inflows and outflows of direct and equity-portfolio investments in Korea by foreign investors. We have found that in past years, periods of net increases in equity investments in Korea by foreign investors have generally resulted in an appreciation of the Won versus the US Dollar, and that this Won strength, in turn, has led to a strong KOSPI. Our view is supported by the following chart, which plots the KRW:USD trend since 2003 and identifies the periods when the Won appreciated against the US Dollar. The ensuing table quantifies the degree of the Won appreciation and the performance of the KOSPI during these periods. Periods of Won’s appreciation vs. the USD since 2003

Start End Won appreciation vs. USD (%) KOSPI change (%)

Period 1 6-Oct-04 10-Mar-05 13 13Period 2 25-Oct-05 31-Oct-07 15 74Period 3 6-Mar-09 19-May-09 19 35Period 4 13-Jul-09 26-Apr-10 16 27Period 5 10-Jul-10 2-Aug-11 16 28Period 6 25-May-12 11-Jan-13 11 9

Source: Bloomberg, Daiwa

As the preceeding chart and table show, periods of appreciation of the Won versus the US Dollar have been accompanied by a rise in the KOSPI. So why does this counter-intuitive relationship hold? We believe the reason stems from the nature of the Korea economy. Korea is a country with positive net external assets. However, net external assets do not include direct equity investments or portfolio equity investments by foreign investors. When we factor in these two items, we find that Korea turns out to be a country with net liabilities. Thus, changes to equity investments into Korea by foreign investors tend to have a significant impact on changes in the value of the Won. The situation in Japan is entirely different from that in Korea. On an annual basis, Japanese investors generally make larger overseas direct and portfolio investments than the amounts that foreign investors make directly and into portfolio investments in Japan. Thus, on an annual basis, Japan tends to maintain not only a large amount of net external assets, but also a larger net international investment position (NIIP), which includes net direct and portfolio investments made by Japanese investors and foreign investors in addition to net external assets. In our view, this structural difference between Korea and Japan explained above is the key to understanding the movements of the two countries’ currencies and stock markets. Despite history showing us that a strong Won generally accompanies a strong KOSPI, we believe many investors still have difficulty in accepting this, because the basic economics theory makes it difficult to do so. Most investors believe that a strong Won undermines the competitiveness of Korea’s products globally, and that the KOSPI should fall during times when the Won appreciates. We acknowledge that the above line of reasoning based on simple economic theory makes sense and appeals strongly to many investors. However, we believe applying simple economic theory to the relationship between the Won and KOSPI is only one part of the equation. In our view, the other, and more important, part of the equation, is that the exchange rate of the Won against the US Dollar, Yen and other major currencies is highly sensitive to foreign investors’ direct and equity-portfolio investments in Korea, which tend to bring about an appreciation of the Won, thereby driving a rise in the KOSPI, as we have shown above.

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Period 2 Period 3 Period 4 Period 5 Period 6Period 1(KRW/USD)


- 15 -

Turning to the relationship between movements in the KRW:JPY rate and the KOSPI, we have found that since 2003, when the Won has appreciated against the Yen the KOSPI has also gone up and vice versa, with the exception of only one period (from 3 May 2010 to 31 August 2010, when the Won depreciated by 17% against the Yen but the KOSPI rose by 4%: period 4 in the following chart and table). Even though the KOSPI rose by 4% during the above-mentioned period, the Won’s 17% depreciation against the Yen during that period occurred entirely over 3-25 May 2010, and the KRW:JPY rate then moved within a narrow box range until 31 August 2010. The KOSPI actually declined by 9.3% over 3-25 May 2010. We infer from this that there is a relationship between Won weakness against the Yen and a weak KOSPI. As such, we conclude that a strong Won against the Yen generally accompanies a strong KOSPI, and vice versa. History does repeat itself: strong KRW:JPY, strong KOSPI

Start End Won appreciation/

depreciation vs. JPY (%) KOSPI change (%)Period 1 5-May-04 22-Jun-07 33 115Period 2 25-Jun-07 2-Mar-09 (114) (42)Period 3 2-Mar-09 3-May-10 26 69Period 4 3-May-10 31-Aug-10 (17) 4Period 5 31-Aug-10 6-Apr-11 10 22Period 6 6-Apr-11 4-Oct-11 (22) (20)Period 7 4-Oct-11 22-May-13 20 5

Source: Bloomberg, Daiwa

Thus, when the Won has appreciated in the past (even against the Yen), the KOSPI has generally risen, not fallen. Investors would (perhaps naturally) be concerned that periods of Won appreciation against other currencies could lead to fluctuations in the KOSPI. However, we believe the more relevant factor for the KOSPI is the impact of changes in the Won against other currencies brought about by net direct and equity-portfolio investments by foreign investors (as discussed earlier in this section on Korea). That said, why do many investors still get so concerned about Won appreciation? Put simply, we believe it is due to the sharp and rapid depreciation of the Yen against both the US Dollar and the Won since November 2012.

KRW:USD rate compared with KRW:JPY100 rate

Source: Dataguide, Daiwa

The preceding chart plots the trend in the KRW:JPY100 rate and the KRW:USD rate and the correlation between the two since 1994. Between January 2010 and November 2012, the Yen was abnormally strong against the Won as a result of the Yen’s abnormal strength against the US Dollar. This was due to the Yen’s safe-haven status. However, with the advent of the Abe Administration, the Yen has finally started to correct from its position of unusual strength and has depreciated sharply and rapidly against both the US Dollar and Won since November last year. Wide divergence between KRW:JPY and KRW:USD has mostly disappeared As the preceding chart shows, KRW:USD movements have been stable over the past few years, but the Won depreciated sharply against the Yen between 2010 and November 2012. This led to the wide divergence between the KRW:USD rate and the KRW1:JPY100 rate over the period.

Given the historical relationship between the KRW:USD and the KRW1:JPY100, where the KRW1:JPY100 has generally been lower than the KRW:USD rate, we see a high possibility of the Won appreciating further against the Yen over the short-to-medium term, but we believe further Won appreciation against the Yen could be much smaller and take place at a much slower pace compared with that seen between November 2012 until the end of May 2013. As such, we believe investors’ concerns about further substantial Won appreciation against the Yen (similar to that seen since November last year) are overdone and should ease in the coming months. Further, we believe large exporters in Korea would try to adjust to a new environment of a strong Won against the Yen by improving their cost structures, amongst other moves. A potential problem area could be the SME segment, which might not be able to adjust to a

789

1011121314151617

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Period 1 Period 2Period 3

Period 4Period 5

Period 6Period 7

(KRW/JPY)

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

Jan-

12

KRW/USD KRW/100JPY

(KRW)

Correlation:38.9%Correlation:78.3%Correlation:60.1%


- 16 -

new environment, as the SMEs that supply parts to overseas markets might lose their competitive advantage compared with their Japan counterparts. We note that Japan’s experience after the Plaza Accord in 1985, which resulted in a significant appreciation of the Yen against the US Dollar, compelled many companies in Japan, such as Toyota, to transform themselves from good companies into great companies, as they adjusted to a strong Yen. We believe the same could happen in Korea over time. Impact of Yen depreciation on corporates According to a survey of 124 Korea exporters conducted by the Institute for International Trade (IIT) between 1-15 May 2013, about 29% of the companies that responded said they would see their exports decline by more than 10% if the JPY:USD rate were to reach over 110. Exchange rates of USD1:JPY96 and USD1:JPY91 were considered as the rates at which large corporations and SMEs, respectively, could remain competitive with exports. The survey also suggests that a further 10% depreciation of the Yen against the US Dollar would lead to the average operating-profit margin of the manufacturers decreasing by 0.21pp, and to absolute operating-profit levels declining by an average of 5.5% for large corporations and 6.3% for SMEs. Korea’s exports of agricultural items have been suffering recently from a weaker Yen, particularly products such as paprika, strawberries, lilies, and chrysanthemums. The Gangwon Provincial Government in Korea announced on 31 May 2013 that it would partly subsidise the costs of logistics and packaging materials to help Korea’s farmers who export the above-mentioned products. We have found that survey outcomes, like that cited above, sometimes underestimate exporters’ future efforts to adjust themselves to new environments, so such surveys should be interpreted with caution, in our view. Fewer visitors from Japan but Mainland visitors are more than filling the gap Another impact of the weaker Yen is that fewer Japanese tourists are visiting Korea at present. In fact, the number of visitors from Japan has been declining since September 2012, and fell by 32.2% YoY in April this year. Busan, Korea’s second-largest city, recorded a 42% YoY decrease in the number of Japanese visitors in March this year, and now the city has implemented a special financing programme, offering very low financing rates (2.84%) for travel agencies for which the main customers are visitors from Japan and which

are incurring net losses due to the decline in the number of Japanese visitors. According to the Maekyung newspaper, stores in Myeong-dong, Seoul’s main shopping district and well-known to many foreign visitors, are seeing a decline in the number of Japanese visitors and a reduction in total sales of cosmetics products. However, the number of visitors from Mainland China to Korea has risen sharply during 2013, more than filling the gap resulting from fewer visitors from Japan. For 4M13, the number of visitors from Japan to Korea fell by 24% YoY, but those from Mainland China rose by 42% YoY, and overall visitors from Japan and Mainland China combined actually increased by 1% YoY. Therefore, the overall negative impact of the Yen’s depreciation on visitors to Korea should not be overstated, in our view. Conclusion Since Korea exporters compete with Japan exporters in the global market, while the Yen’s depreciation against the Won is regarded as being favourable for Japan exporters, it is perceived almost systematically by many investors as unfavourable for Korea exporters and their share prices. However, we believe this only holds for Korea companies that lack the ability to adjust to a new environment of a weak Yen against the Won, such as SMEs that compete with Japan companies and farmers who export their products to Japan. We believe we should not overestimate the impact of a weak Yen on Korea’s global companies, such as Samsung Electronics and Hyundai Motor, as we believe these companies can rise to the challenge and improve their cost structures, quality and innovation levels, in the way that large Japan corporations did after the Plaza Accord in 1985. Last but not the least, given our analysis that a strong Won (against both the US Dollar and Yen) generally accompanies a strong KOSPI, we believe that periods of strength in the KOSPI are not a reason to short the stocks in the index, but rather they could present an opportunity for investors to take long positions on KOSPI-listed stocks. However, if a Won depreciation were to take place, it would likely be accompanied by a weak KOSPI.


- 17 -

Automobiles/auto parts

Weak-Yen benefits for Japan auto firms

Eiji Hakomori (81) 3 5555 7072 ([email protected])

Earnings environment to improve dramatically Greater sales promotions in the short term, better product offerings in the long term The correction of a strong Yen is a positive for Japan’s automakers. In the short term, benefits should include: 1) an improvement in export margins, which should boost earnings, and 2) the effects of stepped-up marketing/sales promotions, which were curtailed during the period of a strong Yen. In the medium-to-long term, we think the automakers will be able to improve their offerings by strengthening their product development and design. Significant benefit of a weaker Yen through better export margins In FY12 (ended March 2013), the aggregate production volume for Japan’s automakers was 25.37m vehicles (up 10% YoY), of which domestic production accounted for 9.55m, or nearly 40%. Although they have been shifting production overseas, around half (4.66m vehicles) of the domestic production is still for export. In addition, regarding vehicles produced overseas, in many cases the Japan automakers import engines and other main components from Japan.

Japan auto production and export volume

Source: Japan Automobile Manufacturers Association, compiled by Daiwa

Any Yen depreciation has a direct positive impact on the export margins of automakers, and also leads to currency translation gains for their overseas subsidiaries. The aggregate operating profit for the auto sector (excluding Hino Motors, Daihatsu Motor, Yamaha Motor) was JPY2.90tn for FY12. In FY13, each 1% Yen depreciation against all foreign currencies would increase the sector’s operating profit by JPY116bn (4.0% of the FY12 operating profit, 2.5% of the expected FY13 operating profit). Currency sensitivity (JPYbn) Operating

profit Impact on operating profit of a JPY1

change (FY13E) USD EUR CAD AUD Nissan Motor 680.0 15.0 0.0 2.0 3.0 Isuzu Motors 182.0 0.6 - - 0.4 Toyota Motor 2,260.0 40.0 4.0 1.0 4.0 Hino Motors 103.0 0.9 - - 0.3 Mitsubishi Motors 104.0 2.0 1.0 - 1.4 Mazda Motor 180.0 2.5 1.5 1.2 2.0 Daihatsu Motor 139.0 1.2 0.0 - - Honda Motor 840.0 14.0 0.5 0.3 0.2 Suzuki Motor 182.0 0.3 0.6 0.2 0.2 Fuji Heavy Industries 257.0 7.5 0.3 0.5 - Yamaha Motor 68.5 1.7 0.5 0.2 - Total* 4,685.0 81.9 7.9 5.2 11.2 Our currency assumptions (JPY)

100.0 130.0 96.0 100.0

Source: Companies, interviews, Daiwa forecasts * Excl. Hino Motors, Daihatsu Motor, Yamaha Motor Note: Figures include some estimates.

Auto sector operating profit and operating profit margin

Source: Companies, Daiwa forecasts Note: Eight-firm bases excl. Hino Motors, Daihatsu Motor, Yamaha Motor

30%

35%

40%

45%

50%

55%

60%

65%

0

2

4

6

8

10

12

14

FY00 01 02 03 04 05 06 07 08 09 10 11 12

Domestic production (left) Export volume (left)

Export ratio (right)

(mil units)

(2%)

0%

2%

4%

6%

8%

10%

12%

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

FY99 01 03 05 07 09 11 13 E

Op profit margin (right)

(Y bil)


- 18 -

Have struggled to raise shares in the US and other markets in recent years We estimate that Japan’s automakers have a global market share of around 30% on a combined basis. In the US, the most important market, they had a share of 37% in 2012. As the Detroit Three have staged a come-back and Volkswagen (Germany) and Hyundai Motor (South Korea) are aggressively expanding their US operations, the Japan players are no longer seeing their market shares rise every year as they did in the early 2000s, and are facing tougher competition. They are also struggling to increase their presence in China (due in part to the recent deterioration in Japan-China relations) and Europe. Firms not changing business strategies The aggregate capex in the sector is likely to increase by 16% YoY in FY13. On a local currency basis, this will put capex either roughly level with, or in excess of, its previous high. However, this probably consists of additional production capacity in buoyant emerging markets, as well as an upgrade in investment postponed due to the Lehman crisis and the Great East Japan Earthquake. At this juncture, we do not think the automakers are changing their production allocations or investment plans following the start of the Yen’s depreciation. This is partly because it is difficult for them to change decisions at the height of sharp currency movements as their business plans span several years. In terms of production allocation, the automakers intend to steadily shift production overseas rather than pursue the short-term benefits of improving export margins. We think this is because: 1) it is debateable whether a rate of around USD1:JPY100 is attractive for export industries in absolute terms, rather than simply in comparison with periods of Yen strength (the Yen still strikes us as being strong rather than at an appropriate level), and 2) the top priority for companies that have experienced excessive Yen strength will be to reduce currency risks by shifting production overseas. In May, Nissan Motor announced discounts on 7 of the 18 models it sells in the US, but says its decision was not related to currency movements. Nissan Motor refined its marketing after new management for US sales took over at the beginning of 2013. The aforementioned discounts apparently reflect the firm’s post-analysis conclusions that some of its models/grades compared unfavourably with rivals in terms of price. Furthermore, Japan’s automakers are not currently using Yen depreciation boosts to fund higher incentives

per vehicle. In fact, Toyota Motor and Honda Motor recently lowered incentives per vehicle to USD1,500 (they had temporarily exceeded USD2,000) on the back of favourable phases in their model cycles. US: incentives per vehicle (USD)

Source: Autodata, compiled by Daiwa

Options increasing sharply for all firms That said, we think the recent Yen depreciation (earnings expansion) is meaningfully increasing options for the automakers. Under excessive Yen strength, the firms were forced to keep marketing costs abnormally low as well as those relating to spec selection at the vehicle design stage. We think this contributed to the Japan automakers losing some of their competitive edge. We do not expect them to raise incentives across the board given the impact high incentives would have on second-hand prices and brand image. However, the improving earnings environment should allow the automakers to step up advertising and boost sales promotions in some markets and regions. It usually takes automakers at least three years to design a new vehicle. If the recent Yen depreciation boosts product offerings (in terms of vehicle development/design), this should bear fruit several years down the line, and we therefore envisage long-term benefits.

1,000

1,500

2,000

2,500

3,000

3,500

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13

Market avg. Toyota MotorHonda Motor Nissan Motor


- 19 -

Weak-Yen benefits for Japan auto-parts firms

Shiro Sakamaki (81) 3 5555 7067 ([email protected])

Currency sensitivity lower than for automakers; firms likely to expand overseas bases Small direct benefits from a weak Yen Just like for the automakers, the suppliers’ profits are likely to be boosted by the correction of a strong Yen. However, the impact should be less for the parts makers than for the automakers. The following chart shows the operating profit margins for the major automakers and suppliers. As can be seen, the automakers’ profit margins are not always higher than those of the suppliers. There is a correlation between the gap between the automakers’ and suppliers’ profit margins and currency rates (as seen in the subsequent chart), with margins increasing more for the automakers than for the parts makers when the Yen is weak. Operating profit margins for the suppliers, automakers

Source: Companies, compiled by Daiwa Note: Based on the averages for seven suppliers (NHK Spring, Toyota Industries, Exedy,

Denso, Stanley Electric, Keihin, Aisin Seiki) and seven automakers (excl. truck makers)

Currency rate and gap between the operating profit margins

Source: Companies, Bloomberg, compiled by Daiwa

Behind the discrepancy appears to be that the auto-parts makers supply products manufactured at their own domestic plants to the automakers’ plants in Japan on a Yen-denominated sales basis, and the automakers export vehicles with those parts installed. As a result, the suppliers have relatively little direct exposure to the currency fluctuations that affect exports. The table that follows shows the sensitivity of the auto-parts makers’ operating profit to currency fluctuations. As mentioned, suppliers have relatively limited direct exposure to currency fluctuations. However, Yen depreciation does provide a tailwind for profit at each firm through indirect exposure, such as when the earnings of overseas subsidiaries are converted into Yen. In addition, the suppliers’ management teams have pointed out that Yen depreciation should bring indirect benefits from sales/production volume growth for the automakers, whose competitiveness has been boosted by the correction of the strong Yen. We note that the automakers may have opted for low-cost parts at the vehicle-design stage, when the Yen was persistently strong, but may adopt higher-spec parts in designs if Yen depreciation takes root.

(2%)

0%

2%

4%

6%

8%

10%

FY88 90 92 94 96 98 00 02 04 06 08 10 12Suppliers Automakers

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

FY88 90 92 94 96 98 00 02 04 06 08 10 1270

80

90

100

110

120

130

140

150

Y/$ (period avg.; right)Gap between op profit margins (automakers – parts makers)


- 20 -

Sensitivity of operating profit to currency fluctuations (JPYbn) FY13 CP Annual sensitivity FY13 CP (JPY) Op profit USD EUR USD EUR Toyota-affiliated

3116 Toyota Boshoku 30.0 0.2 - 90 120 6201 Toyota Industries 95.0 0.8 0.3 95 125 6902 Denso 285.0 0.3 0.7 90 120 6995 Tokai Rika 24.0 0.4 0.0 95 125 7259 Aisin Seiki 155.0 1.5 0.1 90 120 7282 Toyoda Gosei 40.0 0.5 - 90 120 7283 Aisan Industry 9.0 0.1 - 95 120

Honda-affiliated 7220 Musashi Seimitsu Industry 8.0 0.1 - 90 - 7230 Nissin Kogyo 18.0 0.2 - 96 - 7251 Keihin 16.0 0.6 - 90 - 7296 F.C.C. 12.5 0.2 - 90 - 7313 TS Tech 28.5 0.1 - 90 -

Nissan-affiliated 5949 Unipres 17.0 0.1 - 95 120 7248 Calsonic Kansei 20.0 0.3 0.0 95 122

Independent suppliers 5191 Tokai Rubber Industries 12.0 0.1 - 95 - 5334 NGK Spark Plug 38.0 0.7 0.4 90 115 5991 NHK Spring 38.0 0.3 - 95 - 6923 Stanley Electric 35.5 0.2 0.0 85 - 7238 Akebono Brake Industry 8.0 0.1 - 90 125 7240 NOK 29.7 0.4 - 90 - 7278 Exedy 16.0 0.2 - 91 - 7312 Takata 20.0 0.1 0.0 90 115 7988 Nifco 11.5 0.1 - 85 -

Source: Companies, interviews, compiled by Daiwa Notes: 1) Currency sensitivity shows the impact of a JPY1 change in the JPY:USD and

JPY:EUR rates on annual operating profit 2) Sensitivity to JPY:USD rate affected by other currency movements in some cases 3) “-” indicates either no sensitivity, or non-disclosure by firm 4) Figures for annual sensitivity include Daiwa estimates 5) CP: Company projections

Firms likely to make an effort to expand overseas bases On a combined basis, the auto-parts makers are planning a 17% YoY increase in capital spending for FY13. Planned investments appear to have been inflated by the weak Yen. Nevertheless, some firms plan to spend more than past record levels. The key point would be the content of the investments. Capital spending by suppliers (JPYbn)

Source: Companies, compiled by Daiwa Note: Toyota group = total for eight Toyota group suppliers; Honda group = total for five

Honda group suppliers; Nissan group = total for two Nissan group suppliers; independent = total for seven independent suppliers.

CP: Company projections.

One scenario for Abenomics is for Japan to stage an economic recovery as the weak Yen is helping the domestic manufacturing industry regain competitiveness and capital spending moves from abroad back to Japan. However, management teams have pointed out that: 1) they intend to continue to produce where the demand is (local production for local consumption), 2) expanding domestic production because the Yen has weakened would simply increase currency risks, and 3) there is a mismatch in that vehicle types that sell well in Japan, such as mini-vehicles and mini-vans, are not hot sellers overseas, and popular models in overseas markets, such as the C-segment and D-segment sedans and SUVs, see lacklustre demand in Japan. With the automakers moving to expand production capacity in the emerging markets such as Mexico and Indonesia, some suppliers have said that they want to step up forward-looking spending now, as it should be easier for first-movers to capture market share. In addition, a revival of investments that had been pushed back by the Lehman crisis and Great East Japan Earthquake also appears to have had an impact. All told, the auto-parts firms appear to have incorporated bullish spending plans into their FY13 projections. Medium/long-term integration into mega-suppliers The auto-parts makers are also making moves to expand their overseas bases in response to calls for the supply of parts of the same quality from each global base for assembly on the automakers’ common platforms. The automakers are pursuing similar strategies by developing common platforms such as VW’s MQB (Modularen Querbaukasten), Nissan’s CMF (Common Module Family), and Toyota’s TNGA (Toyota New Global Architecture). Using more common parts in different models allows the automakers to launch models at a reduced cost in each global region. As a result, the mega-suppliers that expand their global operations should end up in the winning group in the long run. The auto-parts makers are likely accelerating investments with this in mind. In focus going forward will be the auto-parts makers’ strategies regarding the positioning of their domestic plants, including the functions of their mother plants.

0

200

400

600

800

1,000

1,200

1,400

FY04 05 06 07 08 09 10 11 12 13 CP

Independent Nissan group Honda group Toyota group


- 21 -

Weak-Yen benefits for Japan tyre firms

Shiro Sakamaki (81) 3 5555 7067 ([email protected])

Benefits from weaker yen outweigh negative The positive outweighs the negative All in all, Yen depreciation provides a tailwind for Japan’s tyre makers, as the positive impact it is having on exports is beating the blow from higher prices on imported materials such as natural rubber. Benefit of a weaker Yen on export margin In 2012, the domestic tyre output (rubber volume basis) was 1,147,000 tonnes (down 5% YoY). Of this, 605,000 tonnes or 53% was exported, indicating that more than half of the tyres produced in Japan were exported on a weight basis. In terms of tyre units, however, the export ratio was limited to 34%. While manufacturers have shifted their production overseas, we think the export ratio on a weight basis was inflated by the fact that production of large tyres for mining machinery was concentrated in Japan. Domestic tyre production and export volume

Source: Japan Automobile Tyre Manufacturers Association (JATMA), compiled by Daiwa

The tyre sector is an export industry, and the Yen’s depreciation boosts its export margins (and also leads to currency translation gains for overseas subsidiaries). The following chart shows the sensitivity of Japan’s major three tyre makers to changes in the Yen exchange rate against the US Dollar and Euro. Note that the firms are also exposed to other currencies that impact their profits on a similar scale. For example, Bridgestone projects its operating profit to rise from JPY286bn in FY12 to JPY382bn in FY13. It forecasts JPY75bn of the expected JPY100bn YoY profit increase to come from changes in currency exchange rates, but the US Dollar and the Euro alone do not account fully

for this boost. The boost from the exchange rate vs. the US Dollar (JPY80 in FY12, JPY89 in FY13) comes to JPY35.1bn (JPY3.9bn × JPY9), while vs. the euro (JPY103, JPY119) it comes to JPY14.4bn (JPY900m × JPY16). The remaining JPY25.5bn boost is likely to stem from Yen depreciation vs. the Australian Dollar and other currencies. Impact of currency rate changes on operating profit (JPYbn)

FY13 CP Annual sensitivity FY13 CP Op profit USD EUR JPY:USD JPY: EUR

5101 Yokohama Rubber 59.0 0.2 0.2 90 120 5108 Bridgestone 382.0 3.9 0.9 89 119 5110 Sumitomo Rubber Industries 80.0 0.2 0.3 92 122 Source: Companies, compiled by Daiwa Note: Figures show the impact of a JPY1 fluctuation on operating profit CP: Company projections

Price decline may be mainly due to lower material prices not currency rate We do not think the tyre makers have made any clear strategic changes regarding pricing overseas. Some company officials have said they want to use the benefits from Yen depreciation to reinforce marketing and enhance brand power rather than to lower product prices. That said, the price of tyre materials and after-market tyres are both on a downtrend amid weakening tyre demand. Yokohama Rubber, which saw its sales volume plunge in January-March 2013 due to the failure of its price strategy, aims for a turnaround going forward. A possible impact of currency exchange rates on tyre prices warrants attention.

0%

10%

20%

30%

40%

50%

60%

70%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

CY00 01 02 03 04 05 06 07 08 09 10 11 12

(mil MT)

Domestic production (left) Export (left) Export ratio (right)


- 22 -

Korea automakers: is a weaker Yen against the US Dollar a real threat?

Sung Yop Chung (82) 2 787 9157 ([email protected])

Perception is not always reality As the following charts show, the weaker Yen against the US Dollar has provided a downward leg for both Hyundai Motor Company’s (HMC) (005380 KS, KRW197,000, Buy [1]) and Kia Motor’s (Kia) (000270 KS,KRW57,000, Outperform [2]) share prices, both over the past six months and since 2006. HMC: JPY:USD rate versus HMC’s share price

Source: Dataguide, Bloomberg, Daiwa

Kia: JPY:USD rate versus share price

Source: Dataguide, Bloomberg, Daiwa

However, despite the Yen’s depreciation year-to-date, HMC does not appear to have lost market share globally. For instance, the company’s retail sales as a proportion of its sales globally rose by 0.2pp YoY to 5.3% for 1Q13 (compared with 5.1% for 1Q12).This is very different from what happened in 2007, when the exchange rate reached USD1:JPY120. This not only ignited a major price war between the Korea and Japan automakers, primarily in the US market, but also led to

HMC’s operating-profit margin declining to 4.5% for 2007. We do not think a depreciation of the Yen against the Won and US Dollar will have a significant impact on either HMC’s or Kia’s market shares globally or their earnings over the next six months. This stems primarily from our belief that the tier-one Japan automakers are unlikely to reduce their transaction prices, as they are probably unwilling to raise dealer incentives significantly. Increasing incentives could damage the automakers’ residual value and brand equity. Global automakers: incentives in the US

Source: Autodata Corporation, compiled by Daiwa HMC’s and Kia’s US market shares have more of a correlation with inventory levels As the following charts show, HMC’s and Kia’s market shares in the US have a high inverse correlation with their inventory levels, with an inverse correlation of 83.2% and 74.8%, respectively, for each company over the past five years. In other words, we believe HMC’s and Kia’s market-share declines in the US market so far this year are a function of lower inventory due to capacity constraints, rather than stemming from the Yen’s depreciation against the US Dollar.

-100%

-50%

0%

50%

100%

150%

200%

250%

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

HMC Share Price JPY/USD since 2006

Correlation : 81.8%

Share price downon weak Yen

Share price reboundedfrom JPY/USD movements and other factors

-100%

-50%

0%

50%

100%

150%

200%

250%

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Kia Share Price JPY/USD since 2006

Correlation : 81.5%

Share price downon weak Yen

Share price reboundedfromJPY/USD movements and other factors

0

1,000

2,000

3,000

4,000Ja

n-12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

HMC Kia Toyota

Honda Nissan VW

GM Ford Average

(USD per vehicle)


- 23 -

HMC: US market share vs. US inventory

Source: Company, WardsAuto, Daiwa

Kia: US market share vs. US inventory

Source: Company, WardsAuto, Daiwa

Potential currency headwinds in US offset by rise in capacity utilisation elsewhere In terms of earnings, although HMC and Kia do not have any net exposure to the Yen, our sensitivity analysis of both the USD:JPY and USD:KRW exchange rate (we assume that HMC’s and Kia’s global unit sales could fall by 2,527 and 1,200, respectively, if the Yen were to depreciate by 1% against the US Dollar) suggests that a 10% depreciation of the Yen against the US Dollar would reduce HMC’s and Kia’s operating-profit margins for 2013E by only 1.8% and 2.0%, respectively. HMC: impact of different USD:KRW and USD:JPY exchange rates on 2013E operating profit

USD:JPY 85 90 95 100 105 110 115 1,100 8.5% 7.5% 6.6% 5.6% 4.7% 3.8% 2.8% 1,090 7.0% 6.1% 5.2% 4.2% 3.3% 2.4% 1.5% 1,080 5.6% 4.6% 3.7% 2.8% 1.9% 1.0% 0.1% 1,070 4.1% 3.2% 2.3% 1.4% 0.5% -0.4% -1.3%

USD:KRW 1,060 2.7% 1.8% 0.9% 0.0% -0.9% -1.8% -2.7% 1,050 2.7% 1.8% 0.9% -1.4% -2.3% -3.2% -4.0% 1,040 -0.2% -1.1% -2.0% -2.8% -3.7% -4.5% -5.4% 1,030 -1.7% -2.5% -3.4% -4.2% -5.1% -5.9% -6.8% 1,020 -3.1% -4.0% -4.8% -5.6% -6.5% -7.3% -8.2%

Source: Daiwa estimates

Kia: impact of different USD:KRW and USD:JPY exchange rates on 2013E operating profit

USD:JPY

85 90 95 100 105 110 115 1,100 12.8% 11.7% 10.6% 9.5% 8.4% 7.3% 5.1% 1,090 10.4% 9.3% 8.2% 7.1% 6.1% 5.0% 2.8% 1,080 7.9% 6.9% 5.8% 4.8% 3.7% 2.7% 0.5% 1,070 5.5% 4.4% 3.4% 2.4% 1.4% 0.3% -1.7%

USD:KRW 1,060 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -4.0% 1,050 0.6% -0.4% -1.4% -2.4% -3.4% -4.3% -6.3% 1,040 -1.9% -2.8% -3.8% -4.8% -5.7% -6.7% -8.6% 1,030 -4.3% -5.3% -6.2% -7.1% -8.1% -9.0% -10.9% 1,020 -6.8% -7.7% -8.6% -9.5% -10.4% -11.3% -13.2%


Given that the tier-one Japan automakers and HMC and Kia compete really only in North America (16% of 2012 global retail sales for HMC and 21% for Kia) in terms of pricing and not in the other major markets, we believe the negative impact of a weaker Yen would be offset by a rise in HMC’s and Kia’s capacity-utilisation rates in other major markets such as China, Europe, Brazil, Russia and India. HMC: impact of different capacity-utilisation rates on 2013E operating profit

Operating-profit

change

Operating-profit margin

change Net-profit

change

Net-profit margin change

EPS change (KRW)

113% 14.1% 0.9pp 8.0% 0.3pp 35,109112% 11.3% 0.7pp 6.4% 0.3pp 34,589111% 8.5% 0.6pp 4.8% 0.2pp 34,068110% 5.7% 0.4pp 3.2% 0.1pp 33,548109% 2.8% 0.2pp 1.6% 0.1pp 33,028108% (base case) 0.0% 0.0pp 0.0% 0.0pp 32,507107% -2.8% -0.2 pp -1.6% -0.1pp 31,987106% -5.7% -0.4pp -3.2% -0.1pp 31,467105% -8.5% -0.6pp -4.8% -0.2pp 30,946104% -11.3% -0.8pp -6.4% -0.3pp 30,426103% -14.1% -1.0pp -8.0% -0.4pp 29,905


Kia: impact of different capacity-utilisation rates on 2013E operating profit

Operating-profit

change

Operating-profit margin

change Net-profit

change

Net-profit margin change

EPS change (KRW)

105% 15.3% 0.8pp 8.2% 0.3pp 11,288104% 12.2% 0.6pp 6.5% 0.2pp 11,117103% 9.2% 0.5pp 4.9% 0.2pp 10,947102% 6.1% 0.3pp 3.3% 0.1pp 10,776101% 3.1% 0.2pp 1.6% 0.1pp 10,605100% (base case) 0.0% 0.0pp 0.0% 0.0pp 10,43499% -3.1% -0.2pp -1.6% -0.1pp 10,26398% -6.1% -0.3pp -3.3% -0.1pp 10,09297% -9.2% -0.5pp -4.9% -0.2pp 9,92296% -12.2% -0.7pp -6.5% -0.2pp 9,75195% -15.3% -0.8pp -8.2% -0.3pp 9,580Source: Daiwa estimates

Over the next three years, however, an increase in the profits of the tier-one Japan automakers (if the weak Yen persists against the US Dollar, as Daiwa expects) could emerge as a threat to the Korea automakers, as this might help the Japan automakers improve their content per vehicle, designs, and cost structures.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0102030405060708090

Jan-

09

Apr-0

9

Jul-0

9

Oct

-09

Jan-

10

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

A pr-1

2

Jul-1

2

Oct

-12

Jan-

13

A pr-1

3

Days' supply (LHS) Market Share (RHS)

Correlation: -83.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0102030405060708090

Jan-

09

Apr-0

9

Jul-0

9

Oct

-09

Jan-

10

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Days' supply (LHS) Market Share (RHS)

Correlation: -74.8%


- 24 -

China automakers: minimal benefits for DFM and GAC from weak Yen

Jeff Chung (852) 2773 8783 ([email protected])

The cost structures of the Japan OEM makers in China this year are consistent with those in 2012 and 2011. Based on what happened over the past two years, we therefore believe that the boost to the earnings of the China joint-venture partners of the Japan automakers from the weak Yen will be minimal.

Dong Feng Motor: limited earnings upside from Yen depreciation The overall percentage of components manufactured domestically by Dong Feng Motor’s (DFM) (489 HK, HKD11.26, Underperform [4]) joint ventures in China is very high, at more than 85%, according to the company. As such, we do not believe the weak Yen will have a material impact on the company’s future earnings. Moreover, DFM produces most of its own engines rather than importing them from Japan (its 2012 in-house engine-production ratios were about 98-100% for both DF-Nissan, the 50:50 joint venture between DFM and Japan’s Nissan Motor, and DF-Honda, the 50:50 joint venture between DFM and Japan’s Honda Motor). As a result, we think the likelihood of any upside earnings surprises from Yen depreciation for DFM for 2013 is low. According to DFM, if the Renminbi had appreciated or depreciated by 1% against the Yen (all other factors being equal), its profit before tax for 2012 would have been CNY2.0m higher or lower compared with the reported figure (and CNY3.0m higher or lower for 2011). Given this, we estimate that a 20% depreciation of the Yen against the Renminbi would have boosted the company’s 2011 and 2012 pre-tax profit by 0.4% and 0.2%, respectively. DFM: increase/(decrease) in profit before tax under different exchange-rate scenarios

2011 2012 (CNYm) (CNYm)If the Renminbi were to appreciate against the US Dollar by 1% 19 35If the Renminbi were to depreciate against the US Dollar by 1% (19) (35)If the Renminbi were to appreciate against the Euro by 1% 11 7If the Renminbi were to depreciate against the Euro by 1% (11) (7)If the Renminbi were to appreciate against the Yen by 1% 3 2If the Renminbi were to depreciate against the Yen by 1% (3) (2)

Source: Company, Daiwa estimates

Guangzhou Auto: also low earnings-upside potential from Yen depreciation According to Guangzhou Auto (GAC) (2238 HK, HKD7.68, Sell [5]), if the Renminbi had appreciated or depreciated by 5% against the Yen (all other factors being equal), the company’s post-tax profit would have been CNY201,000 higher or lower for 2012 and CNY208,000 higher or lower for 2011 compared with the reported figures. Given this, we estimate that a 20% depreciation of the Yen against the Renminbi would have boosted the company’s net profit very slightly by 0.02% for 2011 and 0.08% for 2012.

India automakers: Japan OEMs look to gain market share on back of currency tailwinds

Navin Matta (91) 22 6622 8411 ([email protected])

India has been a more challenging market than expected by the Japan automakers. In the passenger-vehicle segment, players such as Honda, Toyota, and Nissan have not achieved significant market-share gains as yet, despite launching models in the mass-market segment in the past 2-3 years. These companies were put at a major disadvantage by the sharp appreciation of the Yen between the end of 2008 and 3Q12, and were unable to match the cost structures of the India automakers. India is predominantly a value-focused market, and this has deterred the Japan automakers from charging a price premium over domestic offerings. However, the Yen’s sharp depreciation over the past six months has provided a more favourable environment for the Japan automakers in India. We believe they will retain only a portion of the currency benefits and pass on the majority through a combination of lower pricing for their new models and higher discounts, and increase marketing spending to support sales of existing product ranges. The recent launch by Honda of its Amaze model at a price point similar to that of Maruti Suzuki’s Dzire suggests to us that Honda prefers to focus on increasing its market share rather than expanding its profit margins in India. While currency rates have been volatile, we expect the Japan OEMs to use the current favourable rates to pursue strongly market-share improvements. If successful in scaling up volume, these OEMs would be able to mitigate partially adverse currency movements through increased economies of scale.


- 25 -

Among the listed India automakers, Maruti Suzuki should be a significant beneficiary of the weaker Yen given its large payables exposure in the form of component imports (18-19% of net sales) and royalty payments (5-6% of net sales) to its parent, Suzuki Motors (SMC). We believe Maruti Suzuki will follow a strategy of passing on some of the currency benefits to customers so as to achieve its market-share target of 40% over the medium to long term. Passenger vehicles: Japan OEMs’ market shares

Source: Society of Indian Automobile Manufacturers (SIAM), Daiwa

In the two-wheeler segment, the Japan manufacturers, such as Honda Motorcycles and Scooters (HMSI), Yamaha, and Suzuki, are likely to benefit from Yen deprecation. Among these, HMSI has been fairly aggressive since it ended its joint venture with Hero Motocorp in 2010. The company plans to raise its presence in the price-sensitive mass-market segment and is likely to obtain a further boost from currency tailwinds. Some 13-14% of Hero Motocorp’s imports are denominated in Yen, and we believe it will pass most of the benefits from Yen depreciation on to customers as it is facing market-share pressure. India two-wheeler market: Japan OEMs’ market shares

Source: SIAM, Daiwa

Korea tyre-makers: only a marginal negative impact likely from weak Yen

Jun Yong Bang (82) 2 787 9168 ([email protected])

While we believe the Yen’s depreciation is having a positive impact on profitability for Japan’s tyre makers, we expect it to have only a marginal impact on Korea tyre makers’ 2013E earnings. As Korea’s tyre makers (which are heavily dependent on exports) sell only a negligible proportion of their products to Japan, we believe their earnings might only come under pressure if the Japan tyre makers start to cut their prices in the major overseas markets such as the US or EU, as this would probably lead to increased price competition and thus result in reduced sales volume for Korea tyre makers. Still, as noted in our discussion on the Japan tyre companies, Japan tyre companies are not making strategic moves to cut their product prices, so Yen depreciation should not translate into pricing competition or meaningful shipment declines for Korea tyre makers, in our view. (We note that the recent downward trend in Korea tyre makers’ ASP is due to sluggish replacement-tyre demand and lower raw-material prices globally, rather than to the product pricing strategies of the Japan tyre makers.) The solid shipments and high plant-utilisation trends reported by the Korea tyre makers for 1Q13 substantiate our view that the Yen’s depreciation is not having a significant impact on their earnings. Notably, in 1Q13, when the Yen depreciated against the US Dollar from a USD:JPY rate of 86.6 to 94.2, Hankook Tire’s (161390 KS, KRW52,900, Buy [1]) global shipments rose by 1% YoY and its plants continued to operate at full capacity despite weak replacement-tyre demand worldwide.

0%

2%

4%

6%

8%

10%

FY08 FY09 FY10 FY11 FY12 FY13

Honda Cars India Toyota Kirloskar Motors Nissan India

0%

5%

10%

15%

20%

FY08 FY09 FY10 FY11 FY12 FY13

HMSI India Yamaha Motors Suzuki Motorcycles India


- 26 -

Hankook Tire: global shipments vs. JPY:USD rate

Source: Japan Automobile Tyre Manufacturers Association (JATMA), Hankook

We note that the Japan tyre makers tend to offer more high-end products in the developed markets, ie, the US and EU. We estimate that Bridgestone’s (5108 JP, JPY3,065, Outperform [2]) ASP is about 15% higher than that of Hankook Tire, and that such a disparity in prices (as well as pronounced product segmentation) should help the Korea tyre makers avoid competing directly with their Japan peers, even if the Japan firms cut prices. US: retail tyre sales range in the US (for 225 60R 16 tyre type)

Source: Tires-easy

60

65

70

75

80

85

90

95

100

105

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Hankook Tire global volume shipment USD/JPY

('000 units) (correlation: 0.24)

45

65

85

105

125

145

165

185

205

Bridgestone GY/Sumitomo Yokohama Hankook Low-end

(USD)


- 27 -

Technology

Weak-Yen benefits for Japan electronic-component firms

Takumi Sado (81) 3 5555 7085 ([email protected]) Tailwinds from Yen depreciation Major firms project 100% YoY operating profit growth in FY13 (ending March 2014) With overseas sales accounting for more than 70% of total sales, the electronic components sector is a typical overseas demand-oriented industry. On an aggregate basis, 15 major makers project a 100% YoY operating profit increase in FY13 thanks to a boost from Yen depreciation. With companies assuming USD1:JPY90-95, recent currency rates suggest targets could be exceeded. Based on USD1:JPY100, we see 15% upside to the companies’ operating profit targets. Electronic components firms shifted production overseas in the 1990s in order to reduce labour costs and circumvent the strong Yen. That said, their overseas production weighting (less than 50% at most firms) is still low compared to their overseas sales weighting, and most overhead costs are domestic, and therefore Yen-dominated. Yen depreciation is therefore a simple positive. Depreciation of JPY1 against the US Dollar and Euro is estimated to boost aggregate operating profit for 17 major firms (including those with December FY-ends) by JPY15.24bn, which is equivalent to 2.7% of their aggregate FY13 operating profit target and over 5% of their aggregate FY12 operating profit. Given the FY12 rate of USD1:JPY83, and based on a rate of USD1:JPY100, Yen depreciation alone would boost operating profit by more than 80% in FY13.

Sensitivity to currency rate changes Impact on op profit from

JPY1:USD, JPY1:EUR chg (JPYbn, annual)

FY13E operating profit (JPYbn)

USD & EUR combined

Company target

Contribution to growth

USD EUR 4062 Ibiden 0.85 0.70 0.15 18.0 4.7% 6592 Mabuchi Motor 0.16 0.16 0.00 7.0 2.3% 6594 Nidec 0.95 0.75 0.20 70.0 1.4% 6707 Sanken Electric 0.20 0.20 0.00 8.6 2.3% 6762 TDK 1.50 1.50 0.00 30.0 5.0% 6767 Mitsumi Electric 0.20 0.20 0.00 3.0 6.7% 6770 Alps Electric 0.96 0.72 0.24 19.0 5.1% 6779 Nihon Dempa Kogyo 0.05 0.05 0.00 1.5 3.3% 6804 Hosiden 0.10 0.10 0.00 3.0 3.3% 6806 Hirose Electric 0.30 0.30 0.00 25.0 1.2% 6807 Japan Aviation Electronics Industry 0.40 0.40 0.00 11.0 3.6% 6963 Rohm 0.70 0.70 0.00 16.5 4.2% 6971 Kyocera 2.30 1.30 1.00 140.0 1.6% 6976 Taiyo Yuden 0.80 0.80 0.00 20.0 4.0% 6981 Murata Manufacturing 3.00 3.00 0.00 100.0 3.0% 6988 Nitto Denko 2.50 2.50 0.00 96.0 2.6% 6997 Nippon Chemi-Con 0.27 0.27 0.00 5.0 5.4% Total 15.24 13.65 1.59 573.6 2.7% Source: Company materials, compiled by Daiwa

Besides the aforementioned Yen-denominated revenue boost from currency translation, we envisage an impact from changes in price competition with overseas rivals, particularly those based in South Korea. In the past, we thought Korea component makers would benefit from persistent Won depreciation and an increasing market share of Samsung and other Korea end-product manufacturers. The weak Won must have enabled Korea component makers to expand their market share by aggressive discounting, offered not only to Korea end-product manufacturers but also to others. The Korea end-product manufacturers seem to continue to fare well despite sharp Yen depreciation, but price cuts by component makers supported by a weaker Won will probably subside. This would be another positive for Japan component makers. Few firms shifting strategy in response to weak Yen Yen weakness is a major boost to electronic component makers. However, we have not so far seen any changes in their strategies, for instance increasing market share by using the weak Yen to reduce foreign currency-denominated prices or increasing the weighting of domestic production. Given that Japan players are facing more competition with other Japan firms than overseas rivals, price cutting would not be an effective strategy. If the Yen stays weak over the medium term and cash flow expands, we would look for firms use this extra cash flow effectively for future growth or to increase shareholder returns. That said, the Yen has only been depreciating for six months, so it remains to be seen how long this trend will last.


- 28 -

Weak-Yen benefits for Japan hardware firms

Junya Ayada (81) 3 5555 7091 ([email protected])

Weak Yen to boost profit after currency translation, but unlikely to increase competitiveness over short term Currency translation to meaningfully boost profit In hardware fields such as AV and home electronics, the largest benefit from Yen depreciation is likely to be higher profits from overseas subsidiaries following currency translation. Firms have reduced production costs and increased the weighting of total production in regions such as China and Southeast Asia, increasing local production for local consumption. The result has been that Yen depreciation against the Euro represents a plus, but a weaker Yen vs. the US Dollar does not always work as a positive. Key to generating further benefits from Yen depreciation will be whether Japan firms can boost their competitive edge against overseas rivals by accelerating earnings improvement at overseas subsidiaries and implementing agile sales strategies, including stepping up hitherto reined-in marketing spending. Currency sensitivity (JPYbn) Code Company Op profit Currency

sensitivity* % of FY13 op

profit CP FY13E

company assumptions

FY13 CP FY13 E

JPY:USD

JPY:EUR

USD EUR JPY:USD

JPY:EUR

6752 Panasonic 250.0 270.0 1.00 1.70 0.4% 0.7% 85.0 110.0 6753 Sharp 80.0 50.0 0.70 0.50 0.9% 0.6% 95.0 125.0 6758 Sony 230.0 245.0 -3.00 7.00 -1.3% 3.0% 90.0 120.0 6773 Pioneer 15.0 13.0 -0.29 0.37 -1.9% 2.5% 95.0 125.0 6816 Alpine Electronics 5.0 4.5 0.01 0.00 0.2% 0.0% 90.0 117.0 6839 Funai Electric 0.2 -2.0 0.08 0.00 40.0% 0.0% 96.0 -6952 Casio Computer 25.0 25.7 0.00 0.02 0.0% 0.1% 90.0 115.0 Consumer electronics total 605.2 622.7 -1.5 9.6 -0.2% 1.5%

Source: Company materials, interviews; compiled by Daiwa * Annual impact of JPY1 depreciation vs.US Dollar or Euro. Note: Figures include our estimates. E: Daiwa estimates (as of 31 May 2013); CP: Company projections.

Weaker Yen positive for LCD panels, negative for white goods The actual impact of currency movements varies from firm to firm and from product to product according to production regions and sales mixes. However, the following table provides a rough image of positive and negative impacts. From a perspective of competitive advantage, Yen depreciation works as a positive for products with high weightings of domestic production/exports, such as LCD display panels (Sharp) and electronic devices (such as

Sony’s CMOS sensors). In contrast, a weaker Yen works as a negative for products with high production weightings in Southeast Asia and high sales weightings in Japan. Prime examples are white goods (Panasonic, Sharp) and building materials/electrical appliances for Japan homes. Panasonic brought a new solar panel factory on stream in Malaysia at end-2012, but Yen depreciation works as a negative as sales are mainly to the Japan market. We also assume Yen depreciation works as a negative for car-electronics products, a high proportion of which are produced overseas for sale to the domestic market, and for LCD display panels that are procured in US Dollars from regions such as Taiwan. Impact of Yen depreciation by product

Transaction Translation

Positive LCD display panels Profitable overseas businesses

such as Sony’s movies/music Electronic devices (CMOS sensors, batteries, camera modules)

NegativeWhite goods Loss-making overseas businessesBuilding materials/electrical appliances for houses Car electronics (commercial fields)

Neutral TVs — Digital cameras

Source: Company interviews, compiled by Daiwa

TV operations should see only a minor impact from currency movements, as TV sets are generally sold in the same region as they are assembled. There should also be a neutral impact on digital camera operations, as production is outsourced to ODM and EMS providers in Taiwan and rival makers are mostly Japan firms, so the competitive climate is unlikely to change. Meanwhile, Yen depreciation should work as a positive for all profitable overseas businesses thanks to profit boosts from translating overseas subsidiaries’ earnings into Yen. Notably, we forecast a significant boost from translating Dollar-denominated profits at US subsidiaries that preside over Sony’s movies and music businesses into Yen. Short-term focus on strategies for products, regions; production could be revamped if rate of USD1:JPY110 takes hold Over the short term, strategies for overseas markets, where Japan firms have lost competitiveness, will be in focus. Let’s take Sony’s brisk-selling smartphones for example. The bulk of production is done in China, and production costs are mostly Renminbi- or Dollar-denominated. This works as a positive for Europe operations, but further Yen depreciation would be a negative for Japan operations. The firm also appears to be considering meaningfully expanding its smartphone operations in the US market by FY14. However, factoring in marketing expenses, turning an operating profit from the initial FY will be no easy task. The firm will probably need to keep a careful watch on the competitiveness of its own products as well as moves


- 29 -

by rival firms (including the timing of such moves) in order to avert widening losses when US earnings are translated into Yen. Meanwhile, earnings are improving in TV operations now that restructuring moves by each firm have significantly reduced fixed costs. If US and Europe operations look likely to break into the black going forward, Japan firms could seek to increase their market shares by stepping up hitherto reined-in marketing spending. However, for products such as white goods, for which Yen depreciation represents a negative, firms would likely need to hike prices to maintain margins. Although much hinges on domestic demand trends, we are not optimistic on the likelihood of higher prices being realised. Panasonic’s appliances company segment sees benefits emerging for domestic production at a rate of USD1:JPY105-107, even factoring in higher personnel expenses. We believe production could be revamped if a rate of USD1:JPY110 takes hold.

Weak-Yen benefits for Japan SPE firms

Hirokazu Mitsuda (81) 3 5555 7124 ([email protected])

Back-end equipment manufacturers likely the main beneficiaries of Yen depreciation Weighting of US Dollar-denominated transactions high Back-end equipment manufacturers will likely be the biggest beneficiaries of Yen depreciation in the SPE sector. This is because Asian outsourced semiconductor assembly and test (OSAT) providers generally use US Dollars to purchase such equipment, and the main competitors are overseas manufacturers in Asia and the US. Meanwhile, front-end equipment manufacturers will likely see a limited impact from Yen depreciation, since transactions with major manufacturers such as Intel, Samsung Electronics (SEC) and TSMC have primarily been conducted in Yen. The following table shows the impact of a JPY1 change in exchange rates on operating profit at major SPE manufacturers.

Forex sensitivity of major SPE manufacturers (JPYm) Code Company JPY:U

SD JPY:E

UR Notes

6146 Disco 400 0 Back-end equipment largely sold in dollars 6925 Ushio 200 0 Lamps, etc., largely sold in dollars 7735 Dainippon Screen Mfg. 160 0 Almost all production equipment sold in yen 6857 Advantest 400 0 Former Verigy’s testers sold in dollars 6756 Hitachi Kokusai Electric 0 0 Almost all production equipment sold in yen 7731 Nikon 400 1,000 Weak Yen benefits likely in imaging ops 8035 Tokyo Electron 0 0 Almost all production equipment sold in yen 8036 Hitachi High-Technologies 500 200 SPE sales to US in dollars

Source: Company interviews, compiled by Daiwa

Japan SPE manufacturers mostly use domestic facilities for development and production. Since fixed costs are booked in Yen, a weaker Yen gives them a cost advantage over overseas manufacturers. As a result of this, we see a greater likelihood of market-share gains by Micronics Japan’s (6871) probe cards and Shinkawa’s (6274) wire bonders. However, we do not foresee much impact from Yen depreciation on market-leading products such as Tokyo Electron’s coaters/developers and Hitachi High-Technologies’ critical dimension measurement scanning electron microscopes (CD-SEMs). These products are mostly sold in Yen, and there is a dearth of major competing products overseas.

Weak-Yen benefits for Japan precision instruments firms

Hirokazu Mitsuda (81) 3 5555 7124 ([email protected])

Impact of Yen depreciation offset by sales volume decline Digital camera market shrinking The precision instruments subsector has hitherto been one of the biggest beneficiaries of Yen depreciation within the technology sector. While this still remains the case, the impact of Yen weakness is being cancelled out by lower sales volume and price declines in end-markets, delaying the realisation of any positive impact on earnings. The digital camera market has contracted particularly sharply. With smartphones eroding sales, compact digital camera shipment volume fell by a sharp 48% YoY for January-March 2013. Even for interchangeable lens cameras, sales have declined more in value terms than in volume terms, reflecting the growing commoditisation of low-end cameras. The market for office equipment such as copiers and printers has also been shrinking, though not as much as that for digital cameras.


- 30 -

Aside from the impact of Yen depreciation, digital camera manufacturers have also stated that they will achieve profit by focusing on profitability and pursuing high-end niche markets such as premium compact cameras. However, if end-market demand falls short of their expectations, it is possible that proceeds from Yen depreciation would be used for promotional spending, preventing the benefits of Yen depreciation from emerging. Digital camera shipment volume and YoY growth

Source: CIPA, compiled by Daiwa

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan 10 Jan 11 Jan 12 Jan 13

(000 units)

Shipment volume (left) Y/y (right)


- 31 -

Korea tech companies: passive-component and LCD-panel makers stand to be affected by weak Yen

Jae H. Lee (82) 2 787 9173 ([email protected] ) Korea companies’ market-share gains in recent years in the TV and smartphone segments globally have been driven primarily by product innovation, vertical integration, and effective marketing. In addition, as (like their Japan competitors) many Korea TV and handset makers have moved their production lines overseas in the past few years, we do not believe weakness in the JPY:KRW exchange rate alone would change the competitive landscape for Korea tech companies overall. We believe Korea component companies would lose cost competitiveness to their Japan counterparts in the event of further Yen depreciation. However, for semiconductor companies (particularly memory chips), we argue that cost cuts through process migration, not exchange-rate movements, tend to dictate the overall competitiveness of a chip maker, and so we would not expect the semiconductor segment to be affected adversely by Yen depreciation. Hence, we remain positive on the fundamental competitiveness of SEC and SK Hynix, even in a scenario of further Yen weakness. We think Korea LCD-panel makers could be vulnerable to Yen weakness, given that they compete directly with companies in Japan. However, as manufacturing LCD panels is quite a capital-intensive industry and investments have to be made 1-2 years before mass production starts, we expect a limited impact over the near term. We believe passive-component and material suppliers would be affected the most in the Korea tech space. Estimated impact of weak Yen on Korea electronics companies’ 2013E EPS EPS impact (5% against JPY)

Company BBG code Based on financials

(%)With competitive

analysis (%)Samsung Electro-Mechanics 009150 KS (0.6) (3.2)LG Innotek 011070 KS (0.6) (2.7)SK Hynix 000660 KS 0.7 (1.3)Samsung Electronics 005930 KS (0.5) (1.1)LG Electronics 066570 KS 0.4 (0.4)LG Display 034220 KS 3.9 1.1 Samsung SDI 006400 KS 1.8 1.3


Taiwan tech companies: impact of weak Yen should not be significant

Eric Chen (852) 2773 8702 ([email protected]) Steven Tseng (886) 2 8758 6252 ([email protected]) We estimate that the Taiwan tech companies have 3-5% of their revenue denominated in Yen, and as such a weaker Yen would have quite a limited impact on their revenue, gross-profit margins and operating-profit margins overall, in our view. In the Taiwan tech space overall, we would expect a limited loss of market share, as very few Taiwan tech companies compete directly with Japan tech companies. Taiwan upstream tech companies In the semiconductor industry, it is likely that foundry makers, such as Taiwan Semiconductor Manufacturing (TSMC), would benefit slightly, as they should see reduced equipment and material costs, which would result in a slight rise in their gross-profit margins. We calculate that there should be only a limited impact on revenue and profit margins for downstream hardware companies, as most of their revenue and COGS are denominated in US Dollars, Renminbi, and New Taiwan Dollars. Taiwan downstream tech companies Tech companies that sell similar products to those of Japan players would see the most negative impact on revenue, margins and earnings, in our view. For example, passive-component makers, printed-circuit-board (PCB) and flexible printed circuit board (FPCB) suppliers, back-end substrate players, and crystal-component suppliers all compete directly with Japan companies. TXC is the fourth-largest crystal-component supplier globally, while the top-three competitors are all Japan companies. Therefore, TXC would suffer the most from Yen weakness of the Taiwan tech companies under our coverage. On the other hand, Catcher Technology could benefit from reduced equipment costs and its high debt exposure to the Yen.


- 32 -

Estimated impact of weak Yen on Taiwan electronics companies’ 2013E EPS EPS impact (5% against JPY) Company BBG code Based on financials With competitive

analysisUnited Microelectronics

2303 TT 5.9 4.9

Catcher Technology 2474 TT 2.0 2.0Taiwan Semiconductor Manufacturing

2330 TT 1.1 1.0

Siliconware Precision 2325 TT 0.8 0.1Advanced Semiconductor Engineering

2311 TT 0.8 -0.3

TXC 3042 TT 0.0 -3.1Kinsus Interconnect Technology

3189 TT -1.6 -3.2



- 33 -

Materials

Weak-Yen benefits for Japan steel firms

Jiro Iokibe (81) 3 5555 7047 ([email protected])

Japan steelmakers’ competitiveness vs. POSCO sharply improved due to weak Yen Weaker Yen a positive catalyst The recent weakness in the Yen should be of great benefit to Japan’s major steelmakers. We do not think Yen depreciation will have much direct impact on earnings given that the total value of steelmakers’ raw material imports denominated in foreign currencies (eg, iron ore, metallurgical coal) is roughly equivalent to the total value of their steel product exports. However, three other factors should help to boost earnings: 1) better profit margins on steel product exports, 2) secondary benefits from earnings improvement at major customers (higher capacity utilisation at domestic plants, less pricing pressure as earnings improve at Japan manufacturers), and 3) a decline in steel product imports. As for the direct impact on earnings, we estimate each JPY1 rise in the dollar (weaker Yen) would lower recurring profit for FY13 (ending March 2014) by JPY800m at Kobe Steel, but would effectively have no impact at Nippon Steel & Sumitomo Metal and JFE Holdings. Benefits gradually beginning to appear The benefits of the three factors described above are gradually starting to emerge. In US Dollar terms, carbon steel export prices (custom clearance basis) were down 15% YoY (up 2% from end-2012) to USD794/m tonnes in April 2013. However, the drop was only 1% (up 19%) to JPY76,200/m tonnes in Yen terms (Dec 2012 prices: USD779/m tonnes or JPY64,200/m tonnes). Thus, export prices continued to be weighed down by a weak Asian market in Dollar terms, but improved sharply on a Yen basis. Meanwhile, carbon steel imports fell 12% YoY to

1,286,000m tonnes in Jan-Apr 2013. With the weaker Yen squeezing profit margins, South Korea’s POSCO and Taiwan’s China Steel have begun to cut down on steel exports to Japan. This has improved the business environment for Japan steelmakers, which have long struggled against import competition. Export price of Japan steel products

Source: Japan Iron and Steel Federation, compiled by Daiwa

Based on recent interviews with company officials, many steelmakers have seen higher-than-initially projected growth in orders from major domestic customers. Demand is reported to have notably increased for automotive steel sheets/plates, specialty steel, and shipbuilding steel plates – categories that firms initially expected to decline YoY. It appears that Japan automakers are increasing domestic production in response to robust sales in other markets such as North America, and Japan shipbuilders have managed to win new vessel orders on the back of Yen weakness. Japan manufacturers are not likely to reconsider their plans to move more production overseas or change course and move production back to Japan unless they expect the dollar to stabilise above the USD1:JPY100 level over the medium term. While this does not necessarily seem unlikely, Japan manufacturers have yet to reallocate production or revise their investment plans, perhaps because the recent Yen depreciation has been so rapid.

400

500

600

700

800

900

1,000

1,100

1,200

1,300

40

50

60

70

80

90

100

110

120

130

07 08 09 10 11 12 13

Export price (Y000/MT; left) Export price ($/MT; right)

CY


- 34 -

Operating-profit margin for Nippon Steel & Sumitomo Metal, JFE, POSCO, Baosteel

Source: Company, Bloomberg, compiled by Daiwa Notes: 1) Our estimates used for Nippon Steel & Sumitomo Metal, JFE Holdings,

Bloomberg consensus estimates used for POSCO, Baoshan Iron & Steel. 2) Figures for Nippon Steel & Sumitomo Metal those for former Nippon Steel

through FY11, those for merged entity from FY12 (for FY12, only former Nippon Steel for 1H, merged entity for 2H).

E: Estimates.

Japan steelmakers’ cost competitiveness likely in line with POSCO’s based on USD1:JPY110 Thanks to sharp Yen depreciation, manufacturing and selling costs at the major Japan steelmakers are now very close to top-ranked POSCO’s. Back in FY11, non-consolidated manufacturing/selling costs at the major Japan steelmakers (Nippon Steel & Sumitomo Metal, JFE Steel) exceeded POSCO’s by roughly USD200/m tonnes, or 22% (weighted avg. for major Japan steelmakers of USD1,119/m tonnes vs. POSCO’s USD920/m tonnes), reflecting exchange rates of USD1:JPY79, USD1:KRW1,108, and JPY1:KRW14. Excluding material costs, manufacturing/ selling costs came to USD340/m tonnes at the major Japan steelmakers, USD135 above POSCO’s USD205. The gap between the Japan steelmakers’ and POSCO’s FY11 manufacturing/selling costs (excl. material costs) would narrow to USD63/m tonnes (USD269 at the former vs. USD206 at the latter) based on exchange rates of USD1:JPY100, USD1:KRW1,100, and JPY1:KRW11, and to USD17/m tonnes (USD244 vs. USD227) based on USD1:JPY110, USD1:KRW1,000, and JPY1:KRW9.1. Although concrete improvements have yet to materialise, this boost to cost competitiveness could well allow Japan steelmakers to regain share in overseas markets.

Unit costs at Japan steelmakers and POSCO (USD/m tonnes; FY11) Nippon Steel &

Sumitomo Metal JFE Holdings POSCO

Labour 62 60 32 Depreciation 86 90 45 Raw materials 786 768 715 Outsourcing 101 109 51 Others 24 3 22 Factory costs 1,058 1,030 865 Personnel 9 10 4 Depreciation 1 1 1 R&D 14 - 4 Transportation 26 26 22 Others 19 14 17 SG&A 69 52 48 Financial expenses 10 8 8 Total cost 1,138 1,089 920 Excl. raw materials 351 321 205

Note: Based on USD1:JPY79, USD1:KRW1,108

Based on assumption of USD1:JPY100, USD1:KRW1,100

Total cost 1,064 1,022 921 Raw materials 786 768 715 Other 278 254 206

Based on assumption of USD1:JPY110, USD1:KRW1,000

Total cost 1,039 998 942 Raw materials 786 768 715 Other 252 231 227

Source: Company, compiled by Daiwa

0%

10%

20%

30%

FY02 04 06 08 10 12 14 E

Nippon Steel & Sumitomo Metal JFE Holdings

POSCO Baosteel


- 35 -

Weak-Yen benefits for Japan chemicals firms

Hidemitsu Umebayashi (81) 3 5555 7130 ([email protected]) Depreciation by JPY1 lifts aggregate projected FY13 operating profit by 1.7% Yen depreciation works as a positive for the Japan chemicals sector. The following chart shows the operating profit boost for the major chemicals firms from a JPY1 decline in the value of the Yen against the US Dollar. Based on a simple combination of each firm’s FY13 (year ending March 2014) projection, we calculate a 1.7% boost to total FY13 operating profit from a JPY1 depreciation. In addition, many chemicals firms peg their FY13 currency assumptions at USD1:JPY95 and EUR1:JPY125. If we apply rates of USD1:JPY100 and EUR1:JPY130, the boost to combined operating profit would translate to around 9%. Chemicals firms’ sensitivity to changes in the exchange rate & FY13 earnings forecasts (JPYm)

Forex sensitivity (impact of JPY1 Yen

depreciation)

FY13 CP assumptions

FY13 operating profit

Company Code CP Assuming JPY100:USD,

JPY130:Eur

USD EUR JPY:USD

JPY: EUR

Chg % chg

Asahi Kasei 3407 800 100 95 125 130,000 134,500 4,500 3Showa Denko 4004 800 0 83 - 35,000 41,800 6,800 19Sumitomo Chemical 4005 2,000 0 95 - 90,000 100,000 10,000 11Mitsui Chemicals 4183 550 0 95 - 28,000 30,750 2,750 10Mitsubishi Chemical Holdings 4188 1,350 150 95 125 158,000 164,750 6,750 4Ube Industries 4208 100 0 95 - 34,000 34,500 500 1Mitsubishi Gas Chemical 4182 800 0 95 - 16,000 20,000 4,000 25Denki Kagaku Kogyo 4061 200 0 98 - 25,000 25,400 400 2Sekisui Chemical 4204 350 50 90 124 74,000 77,800 3,800 5Sumco 3436 1,000 0 90 - 24,000 34,000 10,000 42Shin-Etsu Chemical 4063 1,600 200 - - - - - -JSR 4185 600 0 95 - 43,000 46,000 3,000 7Tokyo Ohka Kogyo 4186 200 0 92 - 11,100 12,700 1,600 14Sumitomo Bakelite 4203 100 0 95 125 12,000 12,500 500 4Hitachi Chemical 4217 800 0 90 - 31,000 39,000 8,000 26

Total 11,250 500 711,100 773,700 62,600 9

Source: Company, compiled by Daiwa Notes: 1) Showa Denko closes books in Dec.

2) Sumco shifting from end-Jan to end-Dec FY. FY13 will be 11-month period. CP: Company projections.

Improved export revenue the biggest benefit We estimate the Yen depreciation benefits for Japan chemicals firms are largely direct in nature: 1) improved export revenue receipts, and 2) translation gains on earnings of overseas subsidiaries. We also see indirect hits, including rising costs for electric power and other utilities as well as for imports of naphtha and other raw materials, but we think the direct benefits outweigh these costs.

FY13 company projections look more secure Many Japan chemicals companies have factored into their FY13 projections the same foreign currency-based margin assumptions as in FY12. Even if foreign currency-based margins are flat, there is no problem if Yen-based revenues increase. FY12 company earnings projections factored in margin improvement in foreign currency terms, but this ended up being a primary driver of downward revisions. At this point, foreign currency-based margins are somewhat weaker than company assumptions, but their currency assumptions are conservative. On balance, we think that FY13 company projections are more secure than their FY12 forecasts. Export/market share expansion unlikely In volume terms, we do not anticipate Japan players expanding their market shares in Asia or globally solely because the Yen is weakening. However, we believe their ability to compete against imports in the domestic market will increase. The following chart shows domestic production for ethylene (C2), exports/imports of ethylene derivatives (PE: polyethylene, PVC: polyvinyl chloride, etc.), and domestic ethylene equivalent demand (production + imports – exports). Monthly exports of ethylene derivatives (ethylene equivalent) started to turn up on a YoY basis in 2013, while the increase in imports is slowing. Although domestic demand for ethylene derivatives remains soft, exports have basically helped to underpin domestic ethylene production. However, we do not think that the increase in ethylene equivalent exports seen in Jan-Feb 2013 is due to Yen depreciation alone. China companies curbed ethylene production in 2H12, and their inventory levels were low. As a result, exports to China were strong at the start of the calendar year ahead of the Lunar New Year. In addition, the Middle East, a major exporter to China, saw numerous shutdowns of key plants for maintenance/repairs at the beginning of the year, and this apparently opened an opportunity for Japan players to increase their exports.


- 36 -

Japan ethylene-production volume, ethylene equivalent domestic demand/imports

Source: Various materials, compiled by Daiwa

Export competitiveness hinges more on raw materials procurement than currency rates We are not overly optimistic that Yen depreciation will lead to sustained export growth for the reason that in the chemicals industry, price competitiveness based on raw materials cost is a more important determinant of market share than currency rates are. The following chart shows China import prices for high-density polyethylene (HDPE) and polypropylene (PP). If the average Dollar-based import price is 100, import prices for Saudi Arabian products are under the average, while Korea products are above the average, and Japan products are even higher. Middle Eastern polyolefins (PE and PP) are derived from the low-priced upstream material ethane gas, and their supply power is strong. This does not apply to all chemicals of course, but even if the Yen is some 20% cheaper, the price competitiveness of Japan commodity chemicals, which depend largely on naphtha, does not reach that of Middle Eastern products. However, the price gap between Japan and Korea products (Dollar-based) has contracted somewhat since the start of 2013, and Japan has apparently gained some degree of export competitiveness compared to previous levels.

China imports of polyolefins expanded 5% YoY in 2012 to 11.8m tonnes (see the following table). Of this, Middle Eastern products, largely Saudi Arabian, surged 17% YoY, and their share of total China imports reached 42%. At the same time, imports from Korea, Taiwan and Japan decreased, and we believe that price gaps had a major impact on market share changes. China: import prices of polyolefins

Source: Petrochemical News, compiled by Daiwa Note: Annual avg. import prices (dollar based) indexed to 100.

China: import volume of polyolefins (m tonnes)

Region Country 2011 2012 YoY % Share (%)

2011 2012Middle East 4,209,780 4,933,670 17.2 38 42

Saudi Arabia 2,035,245 2,244,509 10.3 18 19Iran 800,315 1,152,150 44.0 7 10UAE 746,456 885,179 18.6 7 8Qatar 422,590 393,812 -6.8 4 3Kuwait 205,174 258,020 25.8 2 2

Asia 4,760,494 4,796,698 0.8 42 41South Korea 1,934,941 1,909,813 -1.3 17 16Taiwan 674,095 555,125 -17.6 6 5Japan 447,440 422,328 -5.6 4 4ASEAN 3 countries* 1,704,018 1,909,432 12.1 15 16

North America US 630,846 518,390 -17.8 6 4Other 1,620,372 1,548,111 -4.5 14 13Total 11,221,492 11,796,869 5.1 100 100

Source: Petrochemical News, compiled by Daiwa Note: *Thailand, Singapore, Malaysia.

Domestic Japan operations likely to gain greater defensive power against imports Japan’s imports of chemicals have increased since the Great East Japan Earthquake in March 2011, and even now, utilisation of imported chemicals is well established. From the perspective of risk diversification, we doubt that import volumes will decline back to pre-disaster levels, but we also think further increases are likely to be contained. Moreover, Japan companies now appear to have an easier time raising product prices in order to pass along higher costs. Even given Yen depreciation, we have seen few signs of Japan chemicals firms raising domestic production (except for some high value-added products). In addition, the companies intend to move ahead with planned moves to shut down/consolidate domestic

(400)

(200)

0

200

400

600

800

110

4 7 10 111

4 7 10 112

4 7 10 113

(000 MT)

Ethylene equivalent exportsEthylene equivalent importsC2 production volumeEthylene equivalent domestic demand

(40%)

(20%)

0%

20%

40%

60%

110

4 7 10 111

4 7 10 112

4 7 10 113

(y/y)

Ethylene equivalent exportsEthylene equivalent importsC2 production volumeEthylene equivalent domestic demand

90

100

110

120

130

2011 2012 Jan-Apr 2013

Japan South Korea

Saudi Arabia

HDPE

90

100

110

120

130

2011 2012 Jan-Apr 2013

Japan South Korea

Saudi Arabia

PP


- 37 -

plants, for two reasons: 1) they see low prospects for domestic demand growth, given limited production recoveries in customer industries including autos and electrical machinery, and 2) they are at a disadvantage in terms of raw materials procurement. In recent years, Japan chemicals firms have made tangible progress in expanding to the Middle East as well as Thailand and other Southeast Asian nations. They are also considering moves to expand into North America over the medium term targeting shale gas as a raw material. While Japan chemicals players pursue domestic production cuts in bulk chemicals, they are refocusing on life sciences, including pharmaceuticals/medicine, agricultural chemicals and functional foods. We anticipate future growth not in the domestic market alone, but fuelled by growing overseas sales as well as acquisitions and alliances in overseas markets.


- 38 -

Yen depreciation could be another headwind for Korea steel makers

Sung Yop Chung (82) 2 787 9157 ([email protected])

Weak product prices and headwinds from Yen provide downward legs Notwithstanding the weak pricing environment possibly persisting throughout 2013 on a combination of a prolonged downturn for Korea’s downstream industries and overcapacity amid more production coming on board, the recent depreciation of the Yen against the US Dollar and Won has also provided a downward leg for Korea steel makers’ share-price performance year-to-date. We believe this has been due primarily to market concerns about: 1) Korea steelmakers losing price competitiveness against Japan steelmakers for exports, and 2) a further depreciation of the Yen against the US dollar resulting in a weaker demand outlook and pricing pressure from customers within various downstream industries (Korea auto and shipbuilding accounted for 50% of 2012 domestic steel products consumption). Korea steelmakers: share price versus JPY:USD rate in 2013 YTD

Source: Bloomberg

POSCO likely to bear the brunt, Hyundai Steel could benefit The two largest blast-furnace producers, POSCO (005490 KS, KRW313,500, Hold [3]) and Hyundai Steel (004020 KS, KRW69,800, Hold [3], both have Yen-denominated exposure on their revenue and COGS. According to our sensitivity analysis, a 10% depreciation of the Yen against the Won would result in POSCO’s operating profit declining by 8.7%. On the contrary, a 10% depreciation of the Yen against the

Won would result in Hyundai Steel’s increasing by 4.9%. Meanwhile, the re-roller for Hyundai Motor Group (HMG), Hyundai Hysco (010520 KS, KRW33,400, Hold [3]), has virtually no Yen-denominated exposure above its operating line. Korea steel makers have sizeable Yen-denominated liabilities (net liabilities of JPY140bn for POSCO, JPY48bn for Hyundai Steel and JPY2.3bn for Hyundai Hysco as at 1Q13). As shown in the following table, although the Yen-denominated liabilities could be positive with further Yen depreciation, leading to an increase in their foreign-exchange translation gains in FY13, we estimate that a 5% depreciation of the Yen against the Won would mostly wipe out the positive impact from a rise in foreign-exchange translation gains throughout this year for POSCO. POSCO: JPY sensitivity analysis (2013E) (KRWbn, unless otherwise specified)

Base case

5% Dep. Chg (%)

10% Dep. Chg (%)

JPY:KRW rate (KRW) 10.5 10.0 (5.0) 9.5 (10.0)Revenue 62,491 62,341 (0.2) 62,191 (0.5)COGS 55,529 55,529 - 55,529 -Operating profit 3,454 3,304 (4.3) 3,154 (8.7)Non-operating (56) 18 n.m 165 n.mInc./Dec. in translation/transaction 74 147 Net profit 2,718 2,657 (2.3) 2,654 (2.3)Balance sheet; Net JPY liabilities (JPYbn) (140)

Source: Company, Daiwa estimates Note: JPY-denominated revenue: 4.8%, JPY-denominated COGS: 0% / n.m = not

meaningful

On the other hand, a 5% depreciation of the Yen against the US Dollar would boost Hyundai Steel’s 2013 EPS by 6.2%. Hyundai Steel: JPY sensitivity analysis (2013E) (KRWbn, unless otherwise specified)

Base case

5% Dep. Chg (%)

10% Dep. Chg (%)

JPY:KRW rate (KRW) 10.5 10.0 (5.0) 9.5 (10.0)Revenue 13,212 13,203 (0.1) 13,194 (0.1)COGS 11,594 11,563 (0.3) 11,533 (0.5)Operating profit 879 900 2.4 922 4.9 Non-operating (129) (104) (19.4) (54) (58.1)Inc./Dec. in translation/transaction 25 50 Net profit 632 671 6.2 731 15.7 Balance sheet; Net JPY liabilities (JPYbn) (48)

Source: Company, Daiwa estimates Note: JPY-denominated revenue: 1.4%, JPY-denominated COGS: 5.3%

55%

65%

75%

85%

95%

105%

115%

Jan-

13

Jan-

13

Jan-

13

Feb-

13

Feb-

13

Mar

-13

Mar

-13

Apr-1

3

Apr-1

3

Ma y

-13

Ma y

-13

Jun-

13

POSCO Hyundai Steel Hyundai Hysco JPY:USD

Avg. correlation with JPY:USD: 82%


- 39 -

Weak Yen could lower Korea steel makers’ price competitiveness overseas In terms of the competitive environment, a further depreciation of the Yen against the US Dollar could result in the Korea steel makers losing price competitiveness against Japan steel makers in key export markets such as Southeast Asia (26.7% of total combined exports of the Korea steel makers). Korea steelmakers: exports by region (2012)

Source: KOSA

Given that: 1) Southeast Asia is the largest destination for both the Korea and Japan steelmakers’ exports, and 2) pricing in the Southeast Asia market is highly competitive among Asia steelmakers (unlike in other Asian markets such as China or Japan, where prices tend to be set by local steelmakers), potential market-share losses for the Korea steel makers could put a dent in their earnings. According to our analysis, a 10% decline in revenue (on our assumption) in the Southeast Asian markets would result in POSCO, Hyundai Steel and Hyundai Hysco’s total revenue declining by 1.1%, 1.0% and 0.3%, respectively. Korea steelmakers: impact of revenue loss in the Southeast Asian markets

(1) % exports to

revenue

(2) % Southeast

Asia to exports

(1) x (2): % Southeast Asia to total

revenue

Impact to total revenue if:

10% dec. in sales in Southeast Asia

POSCO 41.6% 26.0% 10.8% 1.1% Hyundai Steel 20.0% 50.0% 10.0% 1.0% Hyundai HYSCO 29.5% 10.5% 3.1% 0.3%

Source: Companies, Daiwa estimates

Recommendation We reiterate our Hold (3) ratings on POSCO, Hyundai Steel and Hyundai Hysco. With the negative impact from Yen depreciation, we expect the weak earnings outlook for 2013 to persist on the back of steel product prices remaining under

pressure throughout this year due to a combination of: 1) the weaker demand outlook for downstream industries in Korea such as shipbuilding and construction, and 2) capacity additions planned this year (POSCO’s Kwangyang [first] blast furnace to reach 5.7m tonnes this July from 3.7m tonnes currently, and Hyundai Steel’s startup of its third blast furnace [4m tpa] planned in October 2013). We also do not think the downward earnings revision cycle has bottomed out, as we envisage the weaker spread between steel product prices and input costs to persist throughout this year. POSCO: carbon steel prices versus input costs

Source: Daiwa forecasts

Meanwhile, as shown in the following chart, we do not believe Korea steel shares offer attractive risk and return profiles in terms of ROE and PBR, which we believe is the best valuation parameter for the Korea Steel Sector. Korea steelmakers: PBR and ROE (2013E)


Southeast Asia

26.7%

North America12.9%

South America6.9%Middle East

9.9%

China12.9%

Japan11.9%

Southwest Asia7.9%

Europe6.9%

Others4.0%

400

500

600

700

0

200

400

600

800

1,000

1,2001Q

10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

Input price: Iron ore, LHS Input price: Coking coal, LHS

Carbon steel ASP, LHS Spread (ASP - Input price), RHS

('000 KRW) ('000 KRW)

POSCO

Hyundai Steel

Nippon Steel

JFE

Baoshan

Arcelor Mittal

SAIL

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0.0 2.0 4.0 6.0 8.0 10.0

(PBR

, 203

E, X

)

(ROE, 2013E, %)

Undervalued

Overvalued


- 40 -

Very limited impact on China steel mills

Joey Chen (852) 2848 4483 ([email protected])

Felix Lam (852) 2532 4341 ([email protected])

China’s international trade structure for steel products The depreciation in the Yen may weaken the competitiveness of China steel exports because Japan mills might take more market share with lower prices for high quality steel products. However, the impact should be very limited, in our view, as their target markets are quite different. The average steel export price (custom clearance basis) for 4M13 fell by 10% YoY to USD864/tonne, while the import price dropped by 11% YoY to USD1,193/tonne. There is roughly a USD330/tonne price gap between import and export steel product prices, which indicates that China as a country imports high-end steel products while exports comparatively low-end products. What’s more, 90% of China’s steel imports comes from Asia; Japan accounts for 41% of China’s total imports. While Japan’s exports are generally considered high-end products, we believe the target markets for the two countries are quite different, and that therefore they are unlikely to compete head-to-head. China: import/export prices of steel products

Source: Bloomberg, NSB

China: steel products import by region (4M13)

Source: CEIC

China’s net exports growing at a rapid rate China’s net exports of steel grew by 19% YoY for 4M13 following a 14% YoY growth for 2012, despite the significant depreciation of the Yen as well as the appreciation of the Renminbi. In 4M13, the country’s steel imports declined by 1.1% YoY following a 12% YoY decline in 2012. China: steel-product imports and exports

Source: CEIC

More than 70% of China’s total steel exports goes to countries in Asia; notably, 17% of the total heads to Korea. The stronger Won relative to the Renminbi has helped China’s exports to Korea this year. However, its exports to developed countries were lacklustre during the first four months of 2013, including only a 2% YoY increase to Europe, a 1% YoY decrease to North America, and a 29% YoY drop to Oceania. Despite the slow recovery in demand from these regions, the recent investigations by Europe and Australia into China’s exports of hot rolled coil might also have been a headwind (see our China cement and steel weekly report published on 18 February 2013).

0

500

1,000

1,500

2,000

400

2,400

4,400

6,400

8,400

10,400

12,400

14,400

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

Jan-

12

May

-12

Sep-

12

Jan-

13

Import price in CNY (LHS) Export price in CNY (LHS)

Import price in USD (RHS) Export price in USD (RHS)

(CNY/ton) (USD/ton)

Africa0.1%

Europe8.8%

Latin America0.3%

North America0.6%

Oceania0.1%

Japan40.7%

Korea31.7%Taiwan

13.9%

Others3.9%

Other90.1%

(200%)

(150%)

(100%)

(50%)

0%

50%

100%

150%

200%

(3,000)(2,000)(1,000)

01,0002,0003,0004,0005,0006,000

Jan-

09

Apr-0

9

Jul-0

9

Oct

-09

Jan-

10

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

A pr-1

2

Jul-1

2

Oct

-12

Jan-

13

A pr-1

3

Import (LHS) Export (LHS) Net export growth (RHS)

('000 ton)

https://lzone.jp.daiwacm.com/lzone/common/reportDownload?funcKbn=research&condition.reportId=2013021900001&condition.analystCd=&condition.tickerCd=&condition.exchangeCd=&model.tickerCd=&model.exchangeCd=&model.funcTarget=research&model.issueName=&model.tic


- 41 -

China: steel exports by region

Source: CEIC

Overall, we forecast steel exports to increase by 10% YoY for 2013. We expect a steady increase in demand from countries in Asia, including Singapore, Vietnam, and Thailand, to offset the weakness in Europe and Oceania. Impact of weaker Yen/stronger Won on Angang Steel should be limited Based on our market research, we see no direct impact of a weaker Yen and stronger Won on Angang Steel’s (Angang) profit, as all its international trades are conducted in US Dollars. In addition, the impact on the company’s exports should be limited given: 1) only 10% of Angang’s sales revenue comes from exports, 2) the target markets for Angang and the Japan steel companies are different, and 3) the sales channels are relatively stable in international trades. Exports accounted for 10% of Angang’s total sales revenue for 2012. The main export products included hot-rolled coil, cold-rolled coil, galvanised plate, and medium-thick plate. The company’s main export regions were Europe (35% of total), Korea (25% of total), and North America (16% of total). Japan accounted for only 5% of all exports. Over the past five years, the proportion of exports in sales has been shrinking consistently given increased demand from domestic-end users.

Angang: proportion of exports in total sales

Source: Company

Angang: breakdown of export regions (2012)

Source: Company

The indirect risk to Angang of a weaker Yen would be a potential slowdown in end-users switching from Japan’s high-end products to Angang’s high-end products, which has been the case over the past two years, based on our market research.

Africa6.9%

Europe8.6%

Latin America8.8%

North America4.1%

Oceania1.2%

Japan1.0%

Singapore5.7%

Korea17.3%

Tailand5.3%

Vietnam6.7%

Others34.4%

Asia70.4%

25%

21%

17%

5%

8% 9% 10%

0%

5%

10%

15%

20%

25%

30%

2006 2007 2008 2009 2010 2011 2012

Europe35%

North America16%

Korea25%

Japan5%

Hongkong11%

Others8%


- 42 -

Impact of weak Yen on India steel makers

Deepak Poddar (91) 22 6622 1016 ([email protected])

No impact on companies’ cost-competitiveness As India’s steel companies are largely self-sufficient in their iron-ore requirements, while coking-coal imports are mainly from Australia and Brazil, there has been no impact on the companies’ cost-competiveness on account of Yen depreciation. Indirect impact could come from steel imports from Japan India is a net importer of steel and for FY13 it imported about 8m tonnes, equivalent to about 11% of the country’s total steel consumption. It therefore could be argued that the depreciation of the Yen could lead to a rise in cheaper steel imports from Japan, affecting domestic steel ASPs in India. India steel imports: breakdown by country

Source: Company

However, Japan accounted for about 18% of total FY13 steel imports, equivalent to only 2% of total India steel consumption that year, which we regard as too small to have any significant impact on India steel prices. Further, the Rupee has also depreciated against the US Dollar over the past six months which, together with a rise in Japan export steel prices so far this year, largely diluted the impact of Yen depreciation. Overall, we see the impact of Yen depreciation on the India Materials Sector as minimal.

Limited impact on Korea commodity chemical companies

Jun Yong Bang (82) 2 787 9168 ([email protected])

Korea petrochemical companies such as Lotte Chemical (011170 KS, KRW153,500, Underperform [4]) are commodity chemical producers and compete mostly with other ex-Japan Asia players with similar product portfolios, such as Taiwan’s Formosa Group (Not rated). These companies are price-takers, with product prices generally determined by the market’s overall supply and demand dynamics. To varying degrees, we believe the earnings of the Korea petrochemical companies will be under pressure throughout 2013 and into 2014 due to weak demand in China and an increase in supply from the Middle East and China. Meanwhile, we see the weaker Yen as having little impact, as export volume growth and market-share gains by Japan chemicals companies should be limited. We expect a rising naphtha cost in Yen terms to prevent the Japan chemicals companies from offering their products at significantly lower prices than that of the market. Also, as the Japan companies are not increasing their domestic production volume, we do not expect any substantial rise in export volume from the current level. Meanwhile, we note that Japan’s PE export volume has been on a continuous downtrend since 2012, while that for Korea has been more stable. The recent downturn in sales of several key petrochemical products has been the result of sluggish global demand, rather than Yen depreciation. Korea and Japan: PE export volume

Source: KITA

20% 20%

12% 18%

17%19%

51%43%

0%

20%

40%

60%

80%

100%

FY12 FY13

China Japan Korea Others

20%

25%

30%

35%

40%

45%

0

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Japan PE export Korea PE exportJapan export/Korea export (RHS, %)

(m tonnes)


- 43 -

Positive for electronic-material players such as LG Chem While we look for a limited impact on Korea’s pure petrochemical names, we believe the weak Yen should be a positive for the Korea electronic-material producers, such as LG Chem. LG Chem, which produces polarisers and other IT-related components, imports about KRW1tn worth of raw materials denominated in Yen each year. The main import item is TAC film, which is used to produce polarisers. Given the 10% depreciation in the Yen against the Won so far in 2013, we forecast the incremental operating-profit gain for LG Chem to be about 5% of its total annual operating profit for 2013. Meanwhile, given 1) rigid pricing (it is difficult for companies to raise their prices), and 2) the highly spec-in nature of the business (ie, high level of customised product services), electronic-material prices are unlikely to be cut by the Japan companies. Hence, we do not expect any volume-shipment decline or market-share loss for the Korea players.


- 44 -

Capital goods

Weak-Yen benefits for Japan construction-equipment firms

Hirokazu Miyagi (81) 3 5555 7104 ([email protected])

Marked improvement in earnings mix likely on back of price hikes, improved margins on exports Strong exposure to Dollar in particular points to sharp expansion in export margins The construction equipment industry seems set to be the strongest beneficiary of Yen depreciation in the machinery sector, with an earnings improvement likely. A large portion of production is done in Japan, suggesting a strong boost to margins on exports. In addition, it is unlikely to see selling price cuts eating into weak-Yen benefits. In FY12 (year ended March 2013), total shipments of the industry’s mainstay hydraulic excavators reached JPY957.7bn (up 12% YoY), with exports accounting for a high 79% of that amount. The weighting of exports in total shipments has been rising in recent years on the back of increased orders for mining machinery overseas. The correction of the strong Yen should help improve the profitability of exports. Margin expansion seems possible for overseas operations as well, given the reduced costs of procuring parts from Japan. Shipments of hydraulic excavators and weighting of exports

Source: Japan Construction Equipment Manufacturers Association, compiled by Daiwa

Price hikes possible as manufacturers address stricter emission regulations Although major construction equipment makers have used Yen appreciation to defend higher prices on products to date, they plan further price hikes going forward, citing costs associated with meeting stricter regulations on exhaust emissions. Industry players are rolling out models with new engines that satisfy planned Tier 4 emissions standards, especially those in Japan, the US, and Europe. They plan to pass along the higher costs associated with the new engines to customers, drawing on the strong fuel efficiency benefits. Amid these price hikes, a weaker Yen should give Japan players a leg up on the competition on the sales/ promotion front, making it easier to step up marketing. Of particular note is the likelihood of a more favourable sales climate for mining machinery, where Japan firms should be more cost competitive than their European and US rivals. Benefits from Yen depreciation are likely to be limited in China, however, given that the competitive landscape is crowded not only with local manufacturers but also with players from Europe, the US, South Korea, and Japan that are increasing the weighting of production done in China. No major shift in production allocation Against the backdrop of recent Yen weakness, there has been some discussion in the construction equipment industry about the possibility of reshuffling production allocation. Sector players have not stepped away from the general principle of “local production for local consumption”, still placing emphasis on shortening lead times and reducing costs, including costs associated with distribution and customs. They intend to keep mitigating currency risks by stepping up efforts to shift assembly overseas while at the same time preventing the risk of technology leaks by keeping production of key components in Japan.

0102030405060708090

0200400600800

1,0001,2001,4001,6001,800

FY96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

(%)(Y bil)

Hydraulic excavator shipment value (LHS)

Weighting of exports (RHS)


- 45 -

Weak-Yen benefits for Japan machine-tool firms


Strong currency exposure, but weak-Yen benefits likely offset by price cuts Sensitive to exchange-rate changes given strong reliance on exports The machine-tool sector was expected to be the biggest beneficiary of Yen depreciation given the heavy weighting of Japan in the production mix and the extremely strong sensitivity of earnings to currency fluctuations. For example, we estimate that Yen depreciation from USD1:JPY110 would boost annual operating profit at Mori Seiki (6141) by JPY3-4bn. Based on data from the Japan Machine Tool Builders’ Association, FY12 orders for the industry overall reached JPY1,139.8bn, down 12% YoY. A high 68% of that figure represents exports, which should see improved profitability amid a weaker Yen. Machine-tool orders and weighting of exports

Source: Japan Machine Tool Builders’ Association, compiled by Daiwa

Price-cutting war among Japan players likely going forward However, machine-tool makers are likely to capitalise on the weak-Yen benefits to cut selling prices as they try to: 1) compensate sales agencies for the numerous price hikes made amid Yen appreciation, and 2) increase market share even a little in the healthy North American market. Indeed, the impact of these price cuts was a major factor behind FY13 earnings targets checking in below market consensus for some companies. These price cuts should help Japan players regain some of the market share lost in recent years to South Korea and Taiwan firms that took advantage of weak home

currencies to gain market share in mid-range offerings. However, Japan manufacturers are likely to get caught in a price war among themselves in the North American market, where they continue to dominate. No major changes in business strategies The recent Yen depreciation has not triggered significant changes in production allocation among major machine-tool makers. Seeking to shorten the lead time between production and installation, Mori Seiki built a new plant in North America in 2012 and plans to start up another in Tianjin, China, in 2013. It aims to establish a global production system centered on collaborations with German firm Gildemeister. Okuma (6103) has been cutting costs by importing unit components from its Taiwan plant, and it still plans to raise the weighting of overseas parts in the sourcing mix from 20% to 30%. Meanwhile, Yen depreciation has prompted some firms to shift the sourcing of castings and other parts and materials back to Japan from China.

Weak-Yen benefits for other Japan machinery firms


Stronger competitive edge for firms with Yen-denominated transactions Factory automation firms not so sensitive to currency fluctuations, but should enjoy stronger competitive edge Yen depreciation should help boost the profitability of exports in the factory automation (FA) industry as well, although FA firms, including THK (6481) and SMC (6273), are less sensitive to fluctuations in Yen exchange rates than machine-tool makers. While competition mainly arises from European and Taiwan rivals, Japan players have increased local production overseas. As such, currency-rate changes generally have a limited impact on Japan firms’ competitiveness. In addition, many FA makers employ direct sales teams, likely limiting the risk of price erosion, including price cuts for vendors amid Yen depreciation. One exception is Fanuc (6954). Fanuc produces all of its products in Japan and exports chiefly through Yen-

0

10

20

30

40

50

60

70

80

90

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

(%)(Y bil)

FY

Machine tool orders (LHS) Weighting of exports (RHS)


- 46 -

denominated transactions. On that basis, a weaker Yen means lower procurement costs for clients and thus likely an environment more conducive to higher sales of Fanuc products. Note also that its rivals are mostly European, including Siemens for mainstay NC machines and ABB and KUKA for robots. Yen depreciation not impacting competitiveness in power tools Power tools used in housing construction and similar fields differ from other industries under our coverage since Europe accounts for a very large portion of the sales mix and exchange-rate trends have almost no impact on cost competiveness. Makita (6586) saw a significant 40% of its FY12 sales from Europe. Based solely on the impact of currency translation, a weaker Yen against the Euro can provide a huge boost to earnings. From that perspective, the correction of the strong Yen is a boon for Japan power-tool makers. However, Yen depreciation is unlikely to give Japan players that much of a competitive edge. Their rivals are mostly European and US firms, including Bosch and Stanley Black & Decker. However, since all major power tool industry players concentrate production in China, fluctuations in currency exchange rates have a limited impact on the cost competitiveness of individual industry players. China accounted for 66% of Makita’s production mix in FY12, and we estimate other players were at similar levels.

Weak-Yen benefits for Japan plant- engineering/heavy-equipment firms

Hirosuke Tai (81) 3 5555 7069 ([email protected])

Look for profitability to pick up at heavy industry firms, but have low expectations for order competitiveness to improve Heavy industry firms are involved in various businesses, so will not all be equally impacted by the weak Yen. However, we generally see few direct benefits, as the bulk of operations are B-to-B, where it is not so easy to increase market share. Meanwhile, as domestic production accounts for a high proportion of total production for most products, the weak Yen should bring significant benefits from improved profitability on existing project orders. This applies

particularly to the construction of various types of plants, as well as shipbuilding, and non-military aircraft operations. High sensitivity to currency fluctuations resulted in significant deterioration of profitability at most firms when the Yen was strong. Firms restructured their business models in response, slashing costs, revamping business portfolios, and stepping up local production for local consumption. The extent to which firms pursued such reforms is now opening gaps in terms of profit growth amid Yen weakness. We are currently focusing on benefits at Mitsubishi Heavy Industry (7011) and Toshiba (6502). Tepid demand weighing on shipbuilding operations The main rivals to Japan shipbuilding operations are Korea and China firms, and supply appears likely to remain loose for most vessel types. While ship prices remain low, we think benefits from stronger order competitiveness stemming from the weak Yen will be extremely limited. With reversals of reserves for construction losses on already ordered vessels largely booked in FY12, we expect most firms to see profits decline in FY13. Fixed-cost burdens are also a concern for FY13, given a decline in the number of vessel orders on the books. Performance more important than price in power generation operations Nuclear power projects are often swayed more by performance and political decisions than tender prices. We do not expect Yen depreciation to change competitive conditions in this area. Thermal power projects are a similar case. Focal points when competing for orders are power generation efficiency, running costs, and a bidding firm’s capability to propose financing schemes. A weaker Yen should boost profitability for already ordered projects, but is likely to have a limited direct effect in improving competitiveness for winning orders. Currency translation merits for non-military aircraft operations We expect Yen depreciation to boost profitability in non-military aircraft operations, notably for sales to Boeing in the US. However, contributions will not necessarily be linear with currency sensitivity, as Boeing’s suppliers adjust supply prices at times of excessive currency fluctuation.


- 47 -

Plant engineering field should see some benefits in petrochemicals; earnings erosion at Korea firms likely to present business chances The bulk of sales and costs in plant engineering are booked on a local-currency basis, so we see limited merits from margin improvement. We see only moderate benefits for orders in fields subject to competition with Korea firms, such as oil refineries, petrochemicals, and gas chemicals. In these fields, Korea firms suffered margin erosion on projects ordered at low prices in the past. We think the sapped competitiveness of rivals will bring higher benefits than the weak Yen. Meanwhile, weak-Yen benefits are likely to be minor in the LNG field, where there are very few players in the market. Operating-profit weightings by field (based on FY13 company

projections; %) Ship-

building Power

generation -related

Aerospace Rolling stock

Plant engineering

Industrial machinery

Consumer products

Mitsubishi Heavy Industries 2 50 23 - 18 5 1 (7011) Kawasaki Heavy Industries 0 - 32 10 12 30 17 (7012) Hitachi - 3 - 1 12 76 8 (6501) Toshiba - 65 - - - - 35 (6502) Mitsubishi Electric - 38 9 - - 19 34 (6503) JGC - - - - 100 - - (1963) Chiyoda - - - - 100 - - (6366)

Source: Company materials, compiled by Daiwa Notes: 1) Appliances, electronics, motorcycles, and auto parts included in consumer products.

2) For firms that have the business fields shown in the chart but do not disclose profit projections for them (such as Mitsubishi Heavy Industries’ rolling stock business), we have allocated profit to other areas.


- 48 -

Impact of weak Yen on China capital goods sector: no imminent negative effect on construction-machinery makers

Joseph Ho (852) 2848 4443 ([email protected]) Japan makers account for over one-fifth of the excavator market in China China’s construction-machinery industry is dominated by domestic players, which account for more than a 90% share of the core industry sub-segments, ie, concrete machinery and crane machinery. The excavator sub-segment is the only one where the domestic players are competing against a mix of Japan, Korea, US, and Europe rivals, and could be negatively impacted by any price cuts by Japan companies. China: excavator market share (4M13)

Source: CMBOL

No price cuts so far by Japan firms The top-three Japan makers in the sector, Komatsu, Hitachi Construction and Kobelco, had an aggregate, 22.2% share of the China excavator market for 4M13 (4M12: 23.7%). Although the Yen has depreciated by more than 20% against the Renminbi since October 2012, the Japan companies have not reduced product prices, according to our discussions with Komatsu dealers and Sany Heavy Industry (Sany) (Not rated), the market leader in China’s excavator market. We note that excavator shipments in China fell by 35% YoY and 18% YoY for 2012 and 4M13, respectively. In our opinion, price cuts would be unlikely to spur significant new sales, given the following structural reasons that have led to the current weakness in underlying demand for excavators.

• There has been a slowdown in the real-estate market amid tight government policies to control property prices in the country.

• There has been a significant increase in the fleet size of excavators in China since the CNY4tn infrastructure stimulus programme launched by the government in 2008 (there was a rapid rise in shipments in 2010; we estimate the installed base stood at more than 1.4m excavator units at the end of 2012, up from 0.8m units at the end of 2007).

• There has been a significant build-up of excess channel inventory since 2011, as Sany is providing aggressive sales terms (eg, no down-payment) to gain market share from foreign rivals.

China: excavator shipments

Source: CMBOL

China: excavator market shares – major Japan players vs. Sany

Source: CMBOL

Critical-component suppliers in Japan might benefit from Yen depreciation We do not see any significant changes in the pricing and promotional strategies of the China excavator makers in response to the depreciation of the Yen. Instead, we note a tightening of risk control by the China excavators makers, with an increase in down-payment requirements and cuts to sales targets. Nonetheless, in our view, the weaker Yen will work in

Sany14.7%

Komatsu8.1%

Hitachi7.5%

Doosan7.4%

Hyundai7.3%CAT

6.9%Kobelco

5.7%

Volvo3.8%

Yuchai3.3%

Others35.3%

71 83

102

167 178

116

(40%)

(20%)

0%

20%

40%

60%

80%

(100)

(50)

0

50

100

150

200

2007 2008 2009 2010 2011 2012

Excavators ('000 units; LHS) YoY chg (RHS)

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 4M13

Sany Komatsu Hitachi Kobelco


- 49 -

favour of the Japan critical-component suppliers, as the China construction-machinery makers are highly dependent on imports for such parts, including hydraulics, valves, diesel engines, and chassis from European and Japan suppliers (see the following table for a list of the key suppliers). The suppliers in Europe might face a reduction in purchases as the China makers shift procurement to Japan suppliers. List of suppliers of critical components Critical parts Suppliers Hydraulic Bosch Rexroth

Kawasaki KYB Nabtesco

Valves Bosch Rexroth Diesel engines Isuzu

Cummins Mitsubishi

Swing motors Nabtesco Chassis Mercedes-Benz

Isuzu Meck MAN

Source: Daiwa

Impact of weak Yen on Korea construction-equipment makers and machine-tools makers

Mike Oh (82) 2 787 9179 ([email protected]) Korea construction-equipment makers: likely to lose market share in China We believe the Korea construction-equipment makers will find it more difficult to increase their share of the China excavator market as their Japan competitors are better positioned there due to improved price competitiveness. For the first five months of this year, Doosan Infracore’s (DI) (042670KS, KRW12,200, Hold [3]) share of the China excavator market fell to 7.7%, 0.2pp lower than for 2012, while the Japan companies expanded their market share. Consequently, we recently cut our China excavator sales forecast for DI by 5.6% to 8,500 units (down 7% YoY).

DI: China monthly excavator sales

Source: Company, Daiwa

Korea machine-tool makers: weakening pricing power The weaker Yen is also a headwind for the Korea machine-tool makers. As a result of the sharp depreciation of the Yen, DI saw disappointing monthly new orders in 1Q13. Since March 2013, machine-tool demand globally for the Korea makers has picked up, due to stronger-than-expected orders from the auto industry (Korea and the US), and the IT industry (China). As a result, DI saw monthly orders of more than 1,000 machine tools from March to May. However, we believe the Korea makers’ price competitiveness remains weaker than that of their Japan peers in the major export markets, such as the US and Europe. Consequently, we recently lowered our 2013 operating-profit margin forecast for DI’s machine-tool business to 7.5% (from 9%) for 2013, due to an unfavourable product mix and a rising marketing-cost burden. Korea: machine-tool orders (PROD – please change all ‘order’ to ‘orders’

Source: Korea Machine Tool Manufacturers’ Association, Daiwa

0

1,000

2,000

3,000

4,000

5,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 2011 2012 2013

(units)

0

100

200

300

400

500

600

Jan-

10

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

A pr-1

3

Total new order Domestic new order Overseas new order

(KRWbn)


- 50 -

Impact of weak Yen on the Taiwan machine-tool makers

Christine Wang (886) 2 8758 6249 ([email protected]) Price-cutting strategy Given the sharp depreciation trend, our market research suggests that the Japan companies in the automation sector are likely to start to change their attitude towards product pricing, and start cutting prices. Most Japan companies remain focused on products with high entry barriers, while Taiwan companies generally target the mid-range and low-end of the market, so there is a price gap between products from Japan and Taiwan. However, should the Yen continue to weaken as Daiwa expects, and Japan product prices continue to decrease, customers may choose Japan products due to their better quality. THK, a mainstream supplier of medium- to large-sized linear guides used in the automation business, said in mid-1Q13 that the company would not cut its prices solely due to Yen depreciation. However, we believe it is now considering cutting its prices to key customers in order to protect its market share outside Japan. Such a move would be negative for its major Taiwan competitor Hiwin Technologies (2049 TT, TWD180.5, Underperform [4]). Yen depreciation having a negative impact Based on our market research, we believe the depreciation of the Yen will have a net negative impact on the Taiwan machine-tool companies. For those Taiwan machine-tool companies that import materials or components from Japan, the weak Yen is helping reduce their cost of goods sold. On the other hand, it is allowing Japan companies to adjust down their machine-tool prices, leading to fierce competition. Although the target customers for Taiwan and Japan machine-tool makers are different, the decline in Japan product prices is encouraging customers to choose Japan products over those from Taiwan. Most Taiwan machine-tool companies believe that if the Yen were to weaken to USD1:JPY105-110 they would lose considerable market share to the Japan players.

Our market research suggests that prices of materials and components from Japan have been cut by about 3-5% since early 2013, while the price of Japan-made machine tools has dropped by about 5%. However, Japan-imported materials and components account for only less than 20% of the total cost of goods sold for most of Taiwan’s machine-tool companies. As a result, the negatives from the weak Yen outweigh the gains. Export threat from Japan players The Bloomberg Japan Export Index shows that Japan’s machine-tool exports to China are rising gradually. Meanwhile, Taiwan’s machine-tool exports have recorded negative YoY growth since the Yen began depreciating. This supports our view that Taiwan machine-tool companies are facing considerable business pressure as a result of the weak Yen. Index: Japan machine-tool exports to China

Source: Bloomberg

Taiwan: total machine-tool exports

Source: Taiwan Customs Administration

Although Japan products are usually targeted at the high end of the market, our research shows that the mid- to low-end of the market is also affected by the weak Yen. Demand for mid-range and low-end products is stronger in China than in other markets, but there has been a considerable decline in Taiwan’s exports of machine tools to China since October 2012, when the Yen started to depreciate sharply.

0

20

40

60

80

100

120

01/0

6/20

12

01/0

7/20

12

01/0

8/20

12

01/0

9/20

12

01/1

0/20

12

01/1

1/20

12

01/1

2/20

12

01/0

1/20

13

01/0

2/20

13

01/0

3/20

13

01/0

4/20

13

Japan machine tool breakdown- China

(40%)(20%)0%20%40%60%80%100%120%140%

(4,000)(2,000)

02,0004,0006,0008,000

10,00012,00014,000

01/0

9/20

11

01/1

0/20

11

01/1

1/20

11

01/1

2/20

11

01/0

1/20

12

01/0

2/20

12

01/0

3/20

12

01/0

4/20

12

01/0

5/20

12

01/0

6/20

12

01/0

7/20

12

01/0

8/20

12

01/0

9/20

12

01/1

0/20

12

01/1

1/20

12

01/1

2/20

12

01/0

1/20

13

01/0

2/20

13

01/0

3/20

13

(TWDm)

Taiwan machine tool export to worldwide (TWDm) (LHS) YoY (%) (RHS)


- 51 -

Taiwan: machine-tool exports to China

Source: Taiwan Customs Administration

Over the short term, we believe Hiwin will face increased pricing pressure on products that overlap with those of THK’s in markets outside Japan (there should be no impact on its Japan sales as products are already denominated in Yen). Over the long term, such a reduction in prices by THK might stop Hiwin from gaining share, especially in product segments with high entry barriers. Meanwhile, Taiwan components maker Airtac (Not rated), for which SMC is the major Japan competitor, should not see a big impact. The overlap on the two companies’ product ranges is less than 20%, and SMC has cut prices on products that Airtac does not sell. Moreover, Airtac’s pricing is about 40% below that of SMC. Therefore, Yen depreciation is unlikely to affect Airtac’s operation. The Taiwan machine-tool companies will have to change to combat the weak Yen. Hiwin already plans to either build or at least acquire a factory in Japan this year. Nevertheless, the expansion trend may not develop as fast as the company expects, due to limited demand in Japan currently. We believe Taiwan machine-tool companies will expand their operations to Japan to improve their cost structure and competitive advantage.

(105%)(75%)(45%)(15%)15%45%75%105%135%165%195%225%255%

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

01/0

9/20

11

01/1

0/20

11

01/1

1/20

11

01/1

2/20

11

01/0

1/20

12

01/0

2/20

12

01/0

3/20

12

01/0

4/20

12

01/0

5/20

12

01/0

6/20

12

01/0

7/20

12

01/0

8/20

12

01/0

9/20

12

01/1

0/20

12

01/1

1/20

12

01/1

2/20

12

01/0

1/20

13

01/0

2/20

13

01/0

3/20

13

(TWDm)

Taiwan machine tool export to China (TWDm) (LHS) YoY (%) (RHS)


- 52 -

Transportation

Weak-Yen benefits Japan’s marine-transport firms

Hajime Hitotsuyanagi (81) 3 5555 7025 ([email protected])

Earnings highly sensitive to Yen movements Each JPY1 drop should boost FY13 (ending March 2014) recurring profit by 3.9% The correction of the strong Yen is positive for Japan’s shipping companies. Firms should see currency translation gains because they conduct their mainstay marine transport operations largely in US Dollars. Japan’s maritime cluster as a whole should gain stability, with ship owners and shipyards also likely to benefit significantly. Yen depreciation is likely to provide the additional indirect benefit of spurring growth in cargo movements as major customers’ exports become more competitive. However, we only forecast a short-term rise in demand, not a longer-term reversal in the shift of production out of Japan. As for the impact on fleet expansion plans, we note that Japan’s shipping companies are currently downsizing and reconfiguring their fleets, focusing on unchartered vessels, to mitigate excess capacity in the sector. Given their current strategies, we think the Japan shipping companies are unlikely to change their stance on capital spending in response to current forex movements. Earnings seem highly sensitive to Yen movements, based on FY13 company projections (as can be seen in the following table). The three shipping firms project combined FY13 recurring profit of JPY125bn, with each JPY1:USD depreciation seen boosting recurring profit by JPY4.9bn, or 3.9% of the total projection. These calculations exclude the conversion of overseas subsidiaries’ asset values.

Weak-Yen benefits for Japan’s air-transport firms

Hajime Hitotsuyanagi (81) 3 5555-7025 ([email protected]) Negative direct impact, but how much can changes in demand offset this?

The Yen’s depreciation is likely to have a negative direct impact on the Japan airlines. Higher fuel costs are the main issue, as the effects on overseas offices’ sales and costs are likely to balance out somewhat on a dollar basis. Hedges should limit the effects to a certain extent in FY13, but the impact is a concern for FY14 onwards. We believe it is therefore prudent to examine the secondary consequences of a weaker Yen. Likely positives include increased demand for travel to Japan, greater demand for business travel as corporate earnings recover, foreign carriers’ becoming less price-competitive in sales made in Japan, and growth in cargo volume as Japan exports regain competitiveness. However, the currency movements are likely to hurt demand for outbound leisure travel from Japan. Key for Japan airlines’ international routes is how much business demand they can capture. Overall, we expect strong business demand to mitigate the direct negative impact of Yen weakness. The Japan airlines could take advantage of the weaker Yen by tapping rising demand for travel to Japan. Such demand, dented by the March 2011 earthquake, is now recovering. The number of foreigners visiting Japan was up 18% YoY in April 2013. Meanwhile, the low-cost carriers the firms established in 2012 are steadily adding international routes to their networks. Travel to Japan from neighbouring Asian countries is not a promising sector for the major Japan brand carriers, but offers business opportunities for low-cost carriers able to exploit their ability to set competitive fares.


- 53 -

Currency sensitivity Ticker FY13 CP Rec. profit Assumption Sensitivity Impact

(A: JPYbn) (JPY:USD) (B: JPYbn) B/A 9101 Nippon Yusen 40.0 90 1.6 4% 9104 Mitsui O.S.K. Lines 60.0 95 2.0 3% 9107 Kawasaki Kisen 25.0 95 1.3 5%

FY13 CP Op profit Assumption Sensitivity

(JPYbn) (JPY:USD) (unhedged portion; JPYbn)

9201 Japan Airlines 140.0 95 2.5 9202 ANA Holdings 110.0 95 1.9

(extent of hedging) FY13 FY14 FY15 9201 Japan Airlines 80% 10% 5% 9202 ANA Holdings 40% 15% 5%

Source: Companies, compiled by Daiwa Note: Currency sensitivity represents impact of JPY1 appreciation/depreciation. CP: Company projections

International flight passengers

Source: Japan National Tourism Organization; compiled by Daiwa Note: Based on no. of individual passengers × 2.

05

101520253035404550

CY85 90 95 00 05 10

Foreigners visiting Japan Japanese going abroad

(mil)


- 54 -

Weak Yen stands to benefit Asia ex-Japan airlines more than shipping companies

Kelvin Lau (852) 2848 4467 ([email protected])

Positive for Asia outbound traffic We believe further depreciation of the Yen against other Asian currencies would provide a further boost to the number of tourists from Asia travelling to Japan. This would be particularly positive for the North Asia countries (ie, Greater China and Korea), as Japan is a major travel destination. Greater China and Korea combined accounted for 70.1% of foreign visitors travelling to Japan in 2012. For people living in these countries, Japan is relatively closer than, for instance, countries in Southeast Asia. It is also relatively easier for people in these countries to apply for visas for Japan. Top-10 countries in terms of visitors to Japan (2012)

Source: CEIC

The Asia ex-Japan airlines that have high exposure to Japan should also benefit from further Yen weakness. Of the stocks we cover, China Eastern Airlines (CEA) (670 HK, HKD2.41, Buy [1]) and Cathay Pacific Airways (CX) (293 HK, HKD13.44, Hold [3]), which together account for a combined 8% of the passenger revenue from Japan routes, should be the greatest beneficiaries. Based on our sensitivity analysis, we estimate that a 1% increase in Japan traffic would increase the net profit for both airlines by 3%. Proportion of outbound traffic to Japan as % of total (2012)

China Hong Kong Korea Taiwan 5% 7% 15% 15%

Source: CEIC, WIND

Note: China data excludes Hong Kong & Macau; Hong Kong data excludes China.

China outbound traffic to Japan (2012)

Source: CEIC

Hong Kong outbound traffic to Japan (2012)

Source: CEIC

Revenue contribution of Japan traffic to airlines (2012)

AC* CSA* CEA* CX* SIA* AA* CAL EVA Korean

Air Asiana

BBG code 753 HK

1055 HK

670 HK

293 HK

SIA SP

AIRA MK

2610 TT

2618 TT

003490 KS

020260 KS

% revenue contribution from Japan 6-7% 3% 8% 8% <5% minimal 14% 8-9% 9% 15% 1% revenue change from Japan, adj. net profit impact (%) (0.9%) (0.7%) (3.0%) (2.9%) (0.9%) minimal n.a. n.a. n.a. n.a.

Source: Companies, Daiwa

Note: * = companies covered by Daiwa; AC = Air China, CSA = China Southern Airlines, CEA = China Eastern Airlines, CX = Cathay Pacific, SIA = Singapore Airlines, AA = Airasia, CAL = China Airlines, EVA = EVA Airways, Asiana = Asiana Airlines.

Slightly negative for some shipping companies Most of the Asia shipping companies operate a diversified global network, with the main routes being Asia-Europe and transpacific ones. Thus, Yen depreciation is having a very limited impact on the regional shipping companies. The only shipping company under our coverage with high Yen exposure is SITC International Holdings (SITC) (1308 HK, HKD2.72, Buy [1]), as its shipping business focuses on intra-Asia trade. Some 36% of SITC’s 2012 revenue was denominated in Yen; therefore, further Yen depreciation against the US

Korea29.0%

Taiwan20.8%

China20.3%

USA10.2%

HK6.8%

Thailand3.7%

Australia2.9%

UK2.5%

Singapore2.0%

Canada1.9%

(100)

(50)

0

50

100

150

0

50

100

150

200

250

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

(YoY %)('000 people)

China arrivals (LHS) YoY growth (RHS)

(50)

(20)

10

40

70

100

0

15

30

45

60

75Ja

n-12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

(YoY %)('000 people)

Hong Kong arrivals (LHS) YoY growth (RHS)


- 55 -

Dollar would have a negative impact on SITC’s bottom line. In order to minimise any adverse impact, SITC has hedged about 70% of its Yen exposure for 2013E and is seeking to ensure that its costs relating to the

Japan market are denominated in Yen. We estimate that a 1% depreciation of the Yen against the US Dollar would reduce our 2013 net-profit forecast by 3%.

Revenue breakdown by market for shipping companies (2012) (%) OOIL* COSCO* NOL* MOL* CSCL* Hanjin EMC YMM SITC*

Trans-Pacific/Latin America 34 31 51 36 32 50 58 42 Asia-Europe 20 25 22 35 27 29 28 31 Transatlantic 11 3 Intra-Asia/Australasia 35 16 27 15 18 18 2 24 62 Domestic 25 19 11 3 38 Others 4 14 4 0 0 Total % of intra-Asia, transatlantic & domestic 69 71 78 51 69 68 71 69 100

Source: Companies Note1: * = companies covered by Daiwa; Transpacific includes Latin America for NOL; OOIL = Orient Overseas International, COSCO = China COSCO, NOL = Neptune Orient Lines, MOL: Mitsui O.S.K. Lines, CSCL = China Shipping Container Lines, Hanjin = Hanjin Shipping, EMC = Evergreen Marine Corporation, YMM = Yang Ming Marine, SITC = SITC International Holding.


- 56 -

Appendix Exchange rate (end of the period)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014EJapan 108.2 110.1 116.3 117.8 103.4 93.6 87.8 79.7 79.8 98.1 100.0China 8.28 8.08 7.82 7.30 6.82 6.83 6.59 6.30 6.23 6.10 6.00Hong Kong 7.77 7.75 7.77 7.80 7.75 7.76 7.77 7.77 7.75 7.76 7.80Taiwan 32.2 33.3 32.5 32.4 33.1 32.3 30.5 30.3 29.0 29.1 28.7Korea 1035 1012 930 936 1260 1165 1135 1152 1071 1020 1000India 43.6 44.3 43.8 40.1 51.1 45.5 44.9 50.4 54.4 58.0 58.0Singapore 1.63 1.66 1.53 1.44 1.44 1.40 1.29 1.30 1.22 1.20 1.17Indonesia 9290 9830 9020 9419 10950 9400 8991 9068 9637 9600 9400Malaysia 3.80 3.78 3.53 3.31 3.46 3.42 3.08 3.18 3.06 2.98 2.91Philippines 56.3 53.1 49.1 41.4 47.5 46.4 43.9 43.9 41.1 39.0 38.0Thailand 39.1 41.0 36.0 33.7 34.9 33.3 30.2 31.7 30.6 29.5 29.0

Source: CEIC, Daiwa forecasts Note: Annual average for Japan. Fiscal year for India

USD:JPY (YoY%), MSCI Japan Auto & Components Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Korea Auto & Components Index, Earnings Revision Index

Source: Bloomberg, Thomson Reuters Source: Bloomberg, Thomson Reuters

USD:JPY (YoY%), MSCI India Auto & Components Index, Earnings Revision Index

USD:JPY (YoY%), MSCI China Auto & Components Index, Earnings Revision Index


0

20

40

60

80

100

120

(40)

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13

ER Index (LHS) YoY% US$/¥ (LHS) Index (Rebased to 100, RHS)

(%)

0

100

200

300

400

500

(40)

(30)

(20)

(10)

0

10

20

30

40

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

250

300

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

250

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)


- 57 -

USD:JPY (YoY%), MSCI Japan IT Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Korea IT Index, Earnings Revision Index


USD:JPY (YoY%), MSCI Taiwan IT Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Japan Capital Goods Index, Earnings Revision Index


USD:JPY (YoY%), MSCI China Capital Goods Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Korea Capital Goods Index, Earnings Revision Index


0

20

40

60

80

100

120

(40)

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

250

(40)

(30)

(20)

(10)

0

10

20

30

40

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

20

40

60

80

100

120

140

(40)

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

20

40

60

80

100

120

140

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

250

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

250

300

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)


- 58 -

USD:JPY (YoY%), MSCI Japan Materials Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Korea Materials Index, Earnings Revision Index


USD:JPY (YoY%), MSCI China Materials Index, Earnings Revision Index

USD:JPY (YoY%), MSCI India Materials Index, Earnings Revision Index


USD:JPY (YoY%), MSCI Japan Marine Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Asia Pac ex JP Marine Index, Earnings Revision Index


USD:JPY (YoY%), MSCI Japan Airlines Index, Earnings Revision Index

USD:JPY (YoY%), MSCI Asia Pac ex JP Airlines Index, Earnings Revision Index


0

50

100

150

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

A pr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

A pr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

100

200

300

400

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

A pr-0

8Ju

l-08

Oct

-08

Jan-

09A p

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

A pr-1

2Ju

l-12

Oct

-12

Jan-

13A p

r-13


(%)

0

50

100

150

200

250

300

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

A pr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

A pr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

A pr-0

8Ju

l-08

Oct

-08

Jan-

09A p

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

A pr-1

2Ju

l-12

Oct

-12

Jan-

13A p

r-13


(%)

0

50

100

150

200

(40)

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

250

300

(50)

(30)

(10)

10

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

Apr-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13


(%)

0

50

100

150

200

(30)

(20)

(10)

0

10

20

30

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

A pr-0

8Ju

l-08

Oct

-08

Jan-

09A p

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

Jul-1

1O

ct-1

1Ja

n-12

A pr-1

2Ju

l-12

Oct

-12

Jan-

13A p

r-13


(%)


- 59 -

Valuations: key indicators Company Ticker Price (LC) Rating TP Price Performance Mkt Cap PER (x) PBR (x) EV/EBITDA (x) Name 14-Jun-13 (LC) 1M 3M 1Y (USDm) FY13/14E FY14/15E FY12/13 FY13/14E FY14/15E

2013E 2014E 2012 2013E 2014EAuto Kia Motors 000270 KS 57,000 Outperform 69,000 4.6 7.3 0.9 20,510 5.46 5.56 0.73 5.9 5.6 Hyundai Motor 005380 KS 197,000 Buy 270,000 1.8 (7.1) (9.8) 38,520 6.06 5.47 1.10 6.3 5.7 Dongfeng Motor Group 489 HK 11.26 Underperform 11.44 (12.7) 4.6 (5.9) 12,498 8.25 8.42 0.68 3.2 3.0 Geely Automobile 175 HK 3.58 Buy 5.15 (9.1) (7.7) (2.5) 3,453 8.75 6.70 0.51 3.7 2.7 Maruti Suzuki India MSIL IN 1,515.05 Outperform 1,903 (11.1) 6.7 1.8 7,952 13.05 11.02 0.41 6.7 5.4 Tata Motors TTMT IN 296.9 Buy 360 (1.2) (1.3) (5.0) 16,455 6.76 5.93 0.45 4.3 3.6 Bajaj Auto BJAUT IN 1,763.25 Hold 2,015 (1.1) (4.9) (17.3) 8,865 13.82 12.50 0.15 11.0 9.9 Hero Motocorp HMCL IN 1,602.3 Outperform 1,920 (4.2) (4.0) (15.6) 5,560 13.50 10.32 0.17 7.5 6.3 Mahindra & Mahindra MM IN 947.45 Hold 925 (0.3) 3.6 1.9 10,107 15.33 13.91 0.26 11.7 10.5 Eicher Motors EIM IN 3,515.5 Hold 2,278 7.7 27.3 21.1 1,649 21.22 17.51 0.19 11.0 8.5 Ashok Leyland AL IN 22.4 Hold 22.5 0.9 (1.5) (16.9) 1,036 18.91 9.83 0.75 8.6 6.1 Nissan Motor Co Ltd 7201 JP 986 Buy 1,200 (14.0) 1.3 34.9 47,304 8.70 7.40 1.11 8.0 6.9 Toyota Motor Corp 7203 JP 5,590 Outperform 6,800 (11.9) 13.5 90.3 204,545 10.70 9.80 1.46 9.4 8.6 Mazda Motor Corp 7261 JP 352 Hold 360 (11.2) 18.9 258.0 11,204 8.80 8.50 2.12 5.3 4.5 Honda Motor Co Ltd 7267 JP 3,445 Outperform 4,200 (16.4) (8.5) 38.0 66,225 10.10 8.70 1.23 8.8 7.8 Suzuki Motor Corp 7269 JP 2,170 Hold 2,500 (21.7) (2.4) 36.4 12,920 11.40 11.00 1.06 2.9 2.5 Fuji Heavy Industries Ltd 7270 JP 2,164 Outperform 2,200 (9.9) 40.2 268.8 17,979 10.60 9.70 2.84 5.0 4.3 Auto Parts Hyundai Mobis 012330 KS 259,000 Outperform 290,000 (1.0) (13.7) (10.1) 22,380 7.05 6.22 0.68 4.3 3.5 Mando Corp 060980 KS 103,000 Buy 125,000 8.9 (17.6) (19.8) 1,665 7.62 6.48 0.84 5.2 4.4 Hyundai Wia Corp 011210 KS 166,000 Buy 180,000 11.0 (0.3) (4.0) 3,791 8.84 7.45 0.44 5.1 4.1 Hankook Tire 161390 KS 52,900 Buy 62,000 3.1 7.1 12.6 5,817 7.47 6.94 0.49 5.2 4.7 Nexen Tire 002350 KS 16,600 Outperform 19,000 4.7 1.2 3.8 1,399 8.65 7.48 0.43 7.3 6.3 Denso Corp 6902 JP 3,795 Outperform 4,900 (10.6) 2.9 74.1 35,605 13.80 13.10 1.40 4.9 4.4 Aisin Seiki Co Ltd 7259 JP 3,380 Outperform 4,100 (11.8) (2.5) 41.3 10,570 11.20 10.30 1.11 2.8 2.5 Bridgestone Corp 5108 JP 3,065 Outperform 4,100 (11.1) (3.7) 89.8 26,448 9.40 8.30 1.75 4.6 4.1 Sumitomo Rubber Industries 5110 JP 1,463 Outperform 2,000 (16.2) (2.5) 59.5 4,084 8.20 7.70 1.57 5.1 4.9 Technology Samsung Electronics 005930 KS 1,369,000 Buy 2,000,000 (8.7) (9.9) (10.1) 179,000 6.35 5.87 0.58 3.0 2.5 SK Hynix 000660 KS 31,500 Buy 40,000 6.8 9.0 22.3 19,410 9.75 8.42 0.42 4.2 3.5 LG Electronics 066570 KS 73,600 Hold 78,000 (13.9) (8.6) - 10,691 11.65 8.58 1.03 6.3 5.6 Samsung SDI 006400 KS 142,500 Outperform 160,000 12.6 (0.3) (5.6) 5,763 12.37 9.06 1.14 11.6 8.2 LG Display 034220 KS 30,850 Hold 30,000 1.6 (6.7) (0.6) 9,799 12.21 9.23 0.93 2.1 1.8 Samsung Electro-Mechanics 009150 KS 91,800 Buy 130,000 (4.3) (4.1) (7.5) 6,087 12.53 11.08 0.57 6.7 5.9 LG Innotek 011070 KS 96,300 Hold 80,000 0.7 34.5 17.0 1,724 35.84 15.11 0.65 7.8 6.3 Catcher Technology 2474 TT 159 Outperform 173 1.0 21.4 10.4 3,999 10.11 9.28 0.51 5.1 4.3 TXC Corp 3042 TT 39.85 Buy 57 (9.4) (9.8) (16.6) 403 9.81 8.36 0.63 5.2 4.3 Taiwan Semiconductor Manufacturing 2330 TT 106 Hold 101 (8.2) 1.9 9.3 92,603 14.67 14.00 0.26 7.5 6.8 United Microelectronics 2303 TT 13.1 Hold 11.4 1.2 12.9 12.0 5,742 17.24 16.80 1.29 4.6 4.5 Advanced Semiconductor Engineering 2311 TT 24.35 Outperform 27.4 (3.6) (1.0) (3.4) 6,194 12.35 10.64 0.65 5.1 4.3 Siliconware Precision 2325 TT 34.95 Hold 35 (1.7) 2.8 12.7 3,649 16.59 14.55 0.55 6.2 5.8 Kinsus Interconnect Technology 3189 TT 109 Underperform 100 (1.8) 17.7 19.6 1,629 13.69 12.70 0.48 7.4 6.8 Murata Manufacturing Co Ltd 6981 JP 7,050 Outperform 9,000 (15.7) 4.6 71.7 16,854 17.10 15.60 1.73 6.6 6.3 Nitto Denko Corp 6988 JP 5,660 Outperform 8,000 (15.8) 6.3 81.8 10,437 13.00 11.50 1.91 5.3 4.7 Nidec Corp 6594 JP 6,310 Buy 7,500 (8.0) 14.9 (2.4) 9,715 16.40 14.40 2.05 8.5 7.7 Panasonic Corp 6752 JP 718 Hold 850 (15.0) 8.6 30.6 18,691 28.10 24.10 1.31 3.9 3.5 Sharp Corp 6753 JP 417 Underperform 300 (10.2) 34.6 2.9 5,207 243.30 16.20 3.90 7.1 6.7 Sony Corp 6758 JP 1,923 Buy 2,200 (4.7) 16.9 89.5 20,651 34.10 24.30 0.88 2.8 2.4 Tokyo Electron Ltd 8035 JP 4,685 Outperform 5,500 (13.9) 6.5 29.4 8,980 35.00 22.10 1.42 9.8 7.7 Advantest Corp 6857 JP 1,463 Hold 1,490 (12.2) 0.9 25.4 3,098 41.00 20.00 1.80 14.4 8.9 Disco Corp 6146 JP 6,230 Outperform 7,310 (4.7) 14.7 42.7 2,248 18.90 17.80 1.93 8.6 8.0 Canon Inc 7751 JP 3,125 Outperform 3,900 (16.4) (8.7) (0.8) 44,232 12.00 10.90 1.39 4.1 3.9 Nikon Corp 7731 JP 2,381 Hold 2,550 (12.9) 7.6 5.2 10,129 13.90 16.90 1.93 6.9 7.5 Materials - Steel Maanshan Iron & Steel 323 HK 1.73 Hold 1.9 (9.4) (19.2) (26.4) 1,716 N.M 16.58 2.14 6.8 5.9 Angang Steel 347 HK 3.79 Buy 7.9 (22.7) (22.7) (33.3) 3,533 29.36 12.50 2.03 7.5 6.1 Bhushan Steel BHUS IN 462.85 Hold 463 0.7 0.1 (2.2) 1,822 6.52 7.95 0.91 7.5 6.8 Jindal Steel & Power JSP IN 242.4 Buy 404 (20.5) (32.7) (45.8) 3,937 5.46 5.25 0.96 6.3 5.5 JSW Steel JSTL IN 684.85 Hold 703 0.9 (3.3) (15.7) 2,655 7.73 6.60 1.16 4.9 4.6 Steel Authority of India SAIL IN 54.1 Outperform 66 (12.7) (23.3) (40.3) 3,883 6.13 5.88 1.93 6.2 5.5 Tata Steel TATA IN 274.15 Buy 424 (9.8) (23.2) (36.0) 4,627 5.06 4.63 0.85 5.4 4.9 POSCO 005490 KS 313,500 Hold 320,000 (2.8) (6.3) (10.2) 24,263 10.05 9.29 1.55 6.5 6.5 Hyundai Hysco 010520 KS 33,400 Hold 33,000 8.1 (7.7) (26.5) 2,378 10.07 7.79 0.69 4.8 4.1 Nippon Steel & Sumitomo Meta 5401 JP 246 Outperform 320 (5.3) (1.9) 44.8 24,809 9.10 8.20 0.93 5.9 5.5 Kobe Steel Ltd 5406 JP 123 Hold 137 (4.5) 5.0 38.0 4,066 10.30 11.20 0.72 6.8 6.2 JFE Holdings Inc 5411 JP 1,954 Buy 3,000 (6.8) 3.6 57.3 12,741 6.20 5.90 0.72 5.3 4.8

Source: Bloomberg, Daiwa forecasts: Note: companies highlighted in blue represent our top picks on the Yen depreciation theme; we are more cautious on those highlighted in gold


- 60 -

Valuations: key indicators (cont’d) Company Ticker Price (LC) Rating TP Price Performance Mkt Cap PER (x) PBR (x) EV/EBITDA (x) Name 14-Jun-13 (LC) 1M 3M 1Y (US$m) FY13/14E FY14/15E FY12/13 FY13/14E FY14/15E

2013E 2014E 2012 2013E 2014EMaterials - Chemical LG Chem 051910 KS 259,000 Outperform 300,000 (4.6) (6.7) (21.5) 15,236 11.84 9.77 0.62 6.4 5.2 Lotte Chemical 011170 KS 153,500 Underperform 200,000 (15.2) (27.8) (37.5) 4,670 12.28 11.26 1.10 4.3 3.8 Korea Kumho Petrochemical 011780 KS 87,900 Hold 110,000 (12.1) (14.7) (32.6) 2,377 9.53 7.09 0.65 7.6 5.8 Asahi Kasei Corp 3407 JP 620 Outperform 800 (11.7) 1.9 57.2 9,229 11.70 10.00 1.07 5.5 4.9 Sumitomo Chemical Co Ltd 4005 JP 289 Buy 400 (20.9) 2.0 26.4 5,077 13.90 8.70 0.95 6.8 6.0 Mitsubishi Chemical Holdings 4188 JP 439 Hold 470 (14.1) (5.5) 32.4 7,018 14.10 12.20 0.79 5.9 5.5 Sekisui Chemical Co Ltd 4204 JP 989 Outperform 1,400 (16.5) (0.8) 49.7 5,589 12.30 10.90 1.22 4.5 4.0 Shin-Etsu Chemical Co Ltd 4063 JP 6,130 Hold 7,000 (10.4) (0.9) 50.9 28,110 20.00 18.60 1.65 7.6 6.9 JSR Corp 4185 JP 1,842 Outperform 2,600 (17.6) (3.3) 41.6 4,652 12.90 11.40 1.42 5.3 4.5 Hitachi Chemical Co Ltd 4217 JP 1,434 Outperform 1,400 (15.2) 0.8 20.7 3,171 15.30 13.00 0.97 4.4 3.7 Transportation - Airlines Air China 753 HK 5.66 Buy 8.0 (15.5) (10.0) (13.6) 8,850 8.69 7.28 0.84 4.7 4.2 China Southern Airlines 1055 HK 3.28 Outperform 4.6 (19.2) (20.4) (16.1) 4,355 8.61 6.99 1.20 5.3 4.6 China Eastern Airlines 670 HK 2.41 Buy 4.1 (21.2) (26.3) (22.0) 3,501 5.22 4.21 1.04 4.7 4.3 Cathay Pacific Airways 293 HK 13.44 Hold 13.3 (5.6) (4.1) (5.5) 6,811 22.64 14.01 1.08 5.8 4.9 Singapore Airlines SIA SP 10.21 Hold 9.8 (10.4) (6.1) (5.0) 9,599 26.45 20.34 1.09 2.7 2.6 Japan Airlines Co Ltd 9201 JP 5,200 Buy 6,000 2.4 12.3 NA 10,008 6.50 6.37 1.67 3.9 3.8 ANA Holdings Inc 9202 JP 195 Hold 210 (9.1) (6.1) (10.4) 7,277 16.30 15.56 0.89 5.5 5.2 Transportation - Marine Yuexiu Transport Infrastructure 1052 HK 3.94 Outperform 4.68 (7.7) (9.4) 5.1 849 10.40 8.08 1.51 8.0 6.6 Orient Overseas International 316 HK 47.15 Buy 64.0 2.6 (14.1) (6.1) 3,801 10.51 7.30 1.19 8.3 6.6 China Shipping Container Lines 2866 HK 1.8 Buy 2.7 (6.7) (22.7) (19.3) 2,709 23.36 9.53 1.55 9.1 5.8 SITC International Holdings 1308 HK 2.72 Buy 3.3 0.7 (5.6) 4.6 907 7.31 5.11 0.77 5.2 3.9 China COSCO 1919 HK 3.08 Buy 4.0 (8.1) (24.1) (18.9) 4,054 N.M 10.43 0.98 29.5 10.6 Neptune Orient Lines (Singapore) NOL SP 1.05 Hold 1.1 (3.7) (8.7) (8.3) 2,173 14.73 8.01 1.02 8.8 7.3 Nippon Yusen 9101 JP 245 Hold 210 (5.7) (5.7) 18.5 4,421 13.41 10.14 0.64 11.7 10.1 Mitsui Osk Lines Ltd 9104 JP 352 Outperform 270 (11.6) 6.8 26.9 4,506 8.42 6.48 0.79 10.6 9.4 Kawasaki Kisen Kaisha Ltd 9107 JP 182 Hold 140 (14.7) (18.9) 22.5 1,814 10.67 8.53 0.50 8.0 7.1 Capital Goods Samsung Engineering 028050 KS 81,300 Hold 90,000 (18.0) (44.7) (50.9) 2,887 14.17 8.27 0.58 6.7 7.4 Doosan Heavy Industries and Construction 034020 KS 42,800 Outperform 52,000 (4.1) (0.8) (5.3) 4,020 11.57 8.90 1.22 12.7 12.5 Daewoo Engineering & Construction 047040 KS 7,750 Hold 9,000 (3.2) (12.9) (22.1) 2,859 10.74 9.88 1.09 8.8 8.3 Doosan Infracore 042670 KS 12,200 Hold 12,500 (10.0) (19.7) (28.2) 1,826 N.M 9.50 1.19 19.4 12.4 Hyundai Engineering & Construction 000720 KS 60,200 Outperform 74,000 (3.8) (5.6) (14.0) 5,956 9.58 7.62 0.68 5.6 4.0 Samsung Engineering 028050 KS 81,300 Hold 90,000 (18.0) (44.7) (50.9) 2,887 14.17 8.27 0.58 6.7 7.4 Zoomlion Heavy Industry 1157 HK 6.24 Hold 8.24 (22.5) (33.3) (45.4) 6,195 6.04 5.48 1.04 5.0 4.5 Lonking Holdings 3339 HK 1.57 Sell 1.55 (1.9) (15.1) (23.0) 866 8.10 7.61 1.25 7.9 7.3 Hiwin Technologies Corp 2049 TT 180.5 Underperform 180 (7.4) (21.2) (15.3) 1,490 18.61 15.12 0.22 12.7 10.0 Chroma ATE 2360 TT 54.6 Hold 62 (14.7) (25.0) (15.6) 689 15.24 12.16 0.38 14.7 10.7 Advantech 2395 TT 140 Hold 130 (0.7) 11.6 14.3 2,630 18.96 16.55 0.21 14.8 12.7 Komatsu Ltd 6301 JP 2,303 Outperform 3,200 (17.8) 6.6 25.1 24,028 10.70 9.40 1.84 6.7 5.6 Hitachi Construction Machine 6305 JP 2,100 Hold 2,100 (18.2) 7.9 46.0 4,794 13.70 9.90 1.23 6.5 4.7 Hitachi Ltd 6501 JP 643 Hold 700 (15.8) 15.0 38.4 32,982 14.40 12.10 1.49 5.8 5.0 Toshiba Corp 6502 JP 463 Outperform 550 (11.1) (3.3) 58.0 20,821 15.70 13.10 1.90 4.9 3.8 Mitsubishi Heavy Industries 7011 JP 534 Buy 800 (24.6) 1.7 70.8 19,118 16.30 13.80 1.30 7.3 6.6 JGC Corp 1963 JP 3,165 Hold 3,200 1.4 31.0 50.5 8,701 16.00 14.80 2.38 6.1 5.5 Okuma Corp 6103 JP 725 Hold 700 (19.1) 4.1 45.3 1,299 12.50 11.70 1.15 5.5 4.3 Mori Seiki Co Ltd 6141 JP 1,104 Hold 1,100 (12.4) 6.5 75.5 1,388 17.30 13.40 1.18 12.3 9.0 Fanuc Corp 6954 JP 14,390 Outperform 17,000 (9.6) 1.5 10.0 36,576 26.60 22.00 2.59 10.9 8.9 THK Co Ltd 6481 JP 2,007 Outperform 2,600 (17.6) 14.1 35.3 2,851 18.10 14.90 1.36 6.2 5.2 SMC Corp 6273 JP 19,190 Hold 20,000 (12.0) 7.7 49.6 14,025 18.60 16.70 1.91 9.4 8.3 Makita Corp 6586 JP 5,450 Hold 4,800 (3.6) 25.5 103.1 8,098 18.00 16.80 1.98 9.5 8.5


Note: companies highlighted in blue represent our top picks on the Yen depreciation theme; we are more cautious on those highlighted in gold

When a report covers six or more subject companies please access important disclosures for Daiwa Capital Markets Hong Kong Limited at http://www.daiwacm.com/hk/research_disclaimer.html or contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, 88 Queensway, Hong Kong.


- 61 -

Please also see:

Japan Back in Form: Abe's Three Arrows Catalysts for Change

Regular Earnings Survey: June 2013: Aggregate profit to top pre-Lehman crisis peak in FY14

4 March 2013 7 June 2013

Masahiro Kushida (81) 3 5555-7137 ([email protected]) Makoto Morita (81) 3 5555-7153 ([email protected])

Japan strategy team Japan equity analysts DIR economist team

Makoto Morita (81) 3 5555-7153 ([email protected]) Chiho Sato (81) 3 5555-7311 ([email protected])

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/JapanBackinForm130304.pdf#page=1

https://lzone.jp.daiwacm.com/lzone/cv?LANG=E&cd=(($KOKYAKU_CD$))&id=2013060700042


- 62 -

Daiwa’s Asia Pacific Research Directory

HONG KONG

Hiroaki KATO (852) 2532 4121 [email protected] Regional Research Head

John HETHERINGTON (852) 2773 8787 [email protected] Regional Deputy Head of Asia Pacific Research; Regional Head of Product Management

Pranab Kumar SARMAH (852) 2848 4441 [email protected] Regional Head of Research Promotion

Dave DAI (852) 2848 4068 [email protected] Deputy Head of Hong Kong and China Research; Pan-Asia/Regional Head of Clean Energy and Utilities; Utilities; Power Equipment; Renewables (Hong Kong, China)

Kevin LAI (852) 2848 4926 [email protected] Deputy Head of Regional Economics; Macro Economics (Regional)

Christie CHIEN (852) 2848 4482 [email protected] Macro Economics (Taiwan)

Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong Research; Head of Hong Kong and China Property; Regional Property Coordinator; Property Developers (Hong Kong)

Jeff CHUNG (852) 2773 8783 [email protected] Automobiles and Components (China)

Grace WU (852) 2532 4383 [email protected] Head of Greater China FIG; Banking (Hong Kong, China)

Jerry YANG (852) 2773 8842 [email protected] Banking (Taiwan)/Diversified Financials (Taiwan and China)

Leon QI (852) 2532 4381 [email protected] Banking (Hong Kong, China)

Joseph HO (852) 2848 4443 [email protected] Head of Industrials and Machineries (Hong Kong, China); Capital Goods –Electronics Equipments and Machinery (Hong Kong, China)

Winston CAO (852) 2848 4469 [email protected] Capital Goods – Machinery (China)

Bing ZHOU (852) 2773 8782 [email protected] Consumer/Retail (Hong Kong, China); Hotels, Restaurants and Leisure - Casinos and Gaming (Hong Kong, Macau)

Cris XU (852) 2773 8736 [email protected] Household & Personal Products (China)

Eric CHEN (852) 2773 8702 [email protected] Pan-Asia/Regional Head of IT/Electronics; Semiconductor/IC Design (Regional)

Felix LAM (852) 2532 4341 [email protected] Head of Materials (Hong Kong, China); Cement and Building Materials (China, Taiwan); Property (China)

John CHOI (852) 2773 8730 [email protected] Regional Head of Small/Medium Cap; Small/Mid Cap (Regional); Head of Multi-Industries (Hong Kong, China); Internet (China)

Joey CHEN (852) 2848 4483 [email protected] Steel (China)

Kelvin LAU (852) 2848 4467 [email protected] Head of Transportation (Hong Kong, China); Hong Kong and China Research Coordinator; Transportation (Regional)

Jibo MA (852) 2848 4489 [email protected] Head of Custom Products Group; Custom Products Group

Thomas HO (852) 2773 8716 [email protected] Custom Products Group

PHILIPPINES

Rommel RODRIGO (63) 2 813 7344 ext 302

[email protected]

Head of Philippines Research; Strategy; Capital Goods; Materials

SOUTH KOREA

Chang H LEE (82) 2 787 9177 [email protected] Head of Korea Research; Strategy; Banking/Finance

Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

Jun Yong BANG (82) 2 787 9168 [email protected] Tyres; Chemicals

Anderson CHA (82) 2 787 9185 [email protected] Banking/Finance

Mike OH (82) 2 787 9179 [email protected] Capital Goods (Construction and Machinery)

Sang Hee PARK (82) 2 787 9165 [email protected] Consumer/Retail

Jae H LEE (82) 2 787 9173 [email protected] IT/Electronics (Tech Hardware and Memory Chips)

Joshua OH (82) 2 787 9176 [email protected] IT/Electronics (Handset Components)

Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software (Korea) – Internet/On-line Game

SoYoung WANG (82) 2 787 9133 [email protected] Transportation/Logistics

TAIWAN

Mark CHANG (886) 2 8758 6245 [email protected] Head of Research

Steven TSENG (886) 2 8758 6252 [email protected]

IT/Technology Hardware (PC Hardware)

Christine WANG (886) 2 8758 6249 [email protected] IT/Technology Hardware (Automation); Cement; Consumer

Lynn CHENG (886) 2 8758 6253 [email protected] IT/Electronics (Semiconductor)

Rita HSU (886) 2 8758 6254 [email protected] Small/Mid Cap

INDIA

Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of Research; Strategy; Banking/Finance

Navin MATTA (91) 22 6622 8411 [email protected] Automobiles and Components

Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities

Mihir SHAH (91) 22 6622 1020 [email protected] FMCG/Consumer

Deepak PODDAR (91) 22 6622 1016 [email protected]

Materials

Nirmal RAGHAVAN (91) 22 6622 1018 [email protected] Oil and Gas; Utilities

SINGAPORE

Adrian LOH (65) 6499 6548 [email protected] Head of Singapore Research, Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore)

Srikanth VADLAMANI (65) 6499 6570 [email protected] Banking (ASEAN)

David LUM (65) 6329 2102 [email protected] Property and REITs

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India)


- 63 -

Daiwa’s Offices

Office / Branch / Affiliate Address Tel Fax

DAIWA SECURITIES GROUP INC

HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661

Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726

Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129

Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100

Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935

Daiwa Capital Markets Europe Limited 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600

Daiwa Capital Markets Europe Limited, Frankfurt Branch Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, Federal Republic of Germany

(49) 69 717 080 (49) 69 723 340

Daiwa Capital Markets Europe Limited, Paris Representative Office 36, rue de Naples, 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808

Daiwa Capital Markets Europe Limited, London, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441

Daiwa Capital Markets Europe Limited, Moscow Representative Office

Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

(7) 495 641 3416 (7) 495 775 6238

Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain

(973) 17 534 452 (973) 17 535 113

Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621

Daiwa Capital Markets Singapore Limited 6 Shenton Way #26-08, DBS Building Tower Two, Singapore 068809, Republic of Singapore

(65) 6220 3666 (65) 6223 6198

Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia

(61) 3 9916 1300 (61) 3 9916 1330

DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines

(632) 813 7344 (632) 848 0105

Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638

Daiwa Securities Capital Markets Korea Co., Ltd. One IFC, 10 Gukjegeumyung-Ro, Yeouido-dong, Yeongdeungpo-gu, Seoul, 150-876, Korea

(82) 2 787 9100 (82) 2 787 9191

Daiwa Securities Capital Markets Co Ltd, Beijing Representative Office

Room 3503/3504, SK Tower, No.6 Jia Jianguomen Wai Avenue, Chaoyang District, Beijing 100022, People’s Republic of China

(86) 10 6500 6688 (86) 10 6500 3594

Daiwa SSC Securities Co Ltd 45/F, Hang Seng Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai 200120, People’s Republic of China

(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Capital Markets Co. Ltd, Bangkok Representative Office

18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand

(66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Capital Markets Co. Ltd, Hanoi Representative Office

Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417

London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550


- 64 -

LG Chem: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating07/03/13 330,000 Outperform 19/04/13 300,000 Outperform

330,000

300,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13

Target price (KRW) Closing Price (KRW)

Source: Daiwa

POSCO: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating05/01/11 560,000 Outperform 04/07/11 480,000 Hold 30/01/13 320,000 Hold13/01/11 530,000 Outperform 21/10/11 380,000 Hold28/03/11 580,000 Outperform 24/07/12 360,000 Hold

700,000

600,000

560,000

530,000

580,000

480,000

380,000360,000

320,000300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa

Share price and Daiwa recommendation trend


- 65 -

Hyundai Hysco: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating18/04/11 50,000 Buy 14/07/11 63,000 Buy 20/03/13 39,000 Hold27/04/11 58,000 Buy 03/11/11 53,000 Buy 14/05/13 33,000 Hold

50,000

58,000

63,000

53,000

39,000

33,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa

Hyundai Mobis: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating28/10/10 235,000 Hold 27/01/12 350,000 Outperform 27/10/12 290,000 Hold15/11/10 270,000 Hold 16/04/12 310,000 Hold 01/02/13 340,000 Buy27/04/11 450,000 Outperform 12/07/12 310,000 Outperform 26/04/13 290,000 Outperform28/10/11 400,000 Outperform 27/08/12 310,000 Hold

180,000200,000

235,000

270,000

450,000

400,000

350,000

310,000290,000

340,000

290,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa


- 66 -

Hyundai Motor: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating15/11/10 230,000 Outperform 05/01/12 300,000 Buy 14/01/13 290,000 Buy27/04/11 300,000 Buy 09/04/12 330,000 Buy 02/04/13 270,000 Buy28/07/11 330,000 Buy 08/10/12 310,000 Buy

180,000

200,000

230,000

300,000

330,000

300,000

330,000

310,000

290,000

270,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa

Hyundai Steel: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating19/08/10 135,000 Outperform 19/09/11 130,000 Outperform 12/06/12 105,000 Buy12/01/11 150,000 Outperform 13/10/11 110,000 Outperform 02/01/13 100,000 Outperform28/01/11 165,000 Outperform 10/02/12 105,000 Underperform 19/02/13 90,000 Hold28/07/11 150,000 Outperform 27/04/12 105,000 Hold 26/04/13 78,000 Hold

107,000

120,000

135,000

150,000

165,000

150,000

130,000

110,000105,000

100,000

90,000

78,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa


- 67 -

Lotte Chemical: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating07/03/13 200,000 Underperform

200,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa

Hankook Tire: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating26/11/12 57,000 Buy 11/04/13 59,000 Buy 27/04/13 62,000 Buy

57,000

59,000

62,000

40,000

45,000

50,000

55,000

60,000

65,000

Oct

-12

Oct

-12

Oct

-12

Oct

-12

Nov-

12

Nov-

12

Nov-

12

Nov-

12

Nov-

12

Dec-

12

Dec-

12

Dec-

12

Dec-

12

Jan-

13

Jan-

13

Jan-

13

Jan-

13

Jan-

13

Feb-

13

Feb-

13

Feb-

13

Feb-

13

Mar

-13

Mar

-13

Mar

-13

Mar

-13

Apr-1

3

Apr-1

3

Apr-1

3

Apr-1

3

May

-13

May

-13

May

-13

Ma y

-13

May

-13

Jun-

13

Jun-

13


Source: Daiwa


- 68 -

Doosan Infracore: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating24/09/10 26,000 Outperform 10/06/11 28,000 Outperform 15/02/13 16,500 Hold28/10/10 30,000 Outperform 03/11/11 18,000 Hold 28/03/13 15,000 Hold28/01/11 35,000 Outperform 10/04/12 20,000 Hold 13/06/13 12,500 Hold

25,000

22,500

26,000

30,000

35,000

28,000

18,000

20,000

16,50015,000

12,500

10,000

15,000

20,000

25,000

30,000

35,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa

Kia Motors: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating24/09/10 41,000 Outperform 29/07/11 100,000 Outperform 19/09/12 84,000 Outperform25/10/10 47,000 Outperform 05/09/11 100,000 Buy 26/10/12 66,000 Hold29/10/10 52,000 Outperform 05/01/12 90,000 Buy 15/01/13 55,000 Hold15/11/10 58,000 Outperform 27/01/12 81,000 Buy 10/04/13 60,000 Outperform06/01/11 66,000 Outperform 09/04/12 93,000 Buy 31/05/13 69,000 Outperform28/03/11 78,000 Outperform 27/04/12 96,000 Buy27/04/11 95,000 Outperform 20/06/12 100,000 Buy

33,00037,000

41,000

47,00052,000

58,000

66,000

78,000

95,000100,000

90,000

81,000

93,00096,000

100,000

84,000

66,000

55,00060,000

69,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov-

12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13


Source: Daiwa


- 69 -

Japan: Notes concerning market data and investment indicators

Estimates by Daiwa Shares outstanding: Common shares outstanding (excl. treasury stock) Market cap: Based on shares outstanding and closing price as of indicated date EV: Market cap + interest-bearing debt – liquidity on hand EBITDA: Operating profit + depreciation ROE: Net income / average of start-FY and end-FY shareholders’ equity (for SEC-reporting firms net income attributable to shareholders of the parent / average

of start-FY and end-FY shareholders’ equity) Share Price Chart and per-share figures retroactively adjusted to reflect stock splits/reverse stock splits


- 70 -

Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan

Conflicts of Interest: Daiwa Securities Co. Ltd. may currently provide or may intend to provide investment banking services or other services to the company referred to in this report. In such cases, said services could give rise to conflicts of interest for Daiwa Securities Co. Ltd.

Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.: Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc.

Ownership of Securities: Daiwa Securities Co. Ltd. may currently, or in the future, own or trade either securities issued by the company referred to in this report or other securities based on such financial instruments. Daiwa Securities Group has filed major shareholding reports for the following companies ofwhich it owns over 5% (as of 31 May 2013): Komehyo (2780); Septeni Holdings (4293); Seiryo Electric (4341); RaQualia Pharma (4579); Mebiopharm(4580); Nissei ASB Machine (6284); Okada Aiyon (6294); Sansha Electric Mfg. (6882); Astmax (7162); Nihon Flush (7820); Cardinal (7855); Kimoto (7908);Daiko Denshi Tsushin (8023); Money Square Japan (8728); Money Partners Group (8732); Daiwa Office Investment Corporation (8976); Kadokawa Group Holdings (9477); Cerespo (9625); Imperial Hotel (9708).

Lead Management: Daiwa Securities Co. Ltd. has lead-managed public offerings and/or secondary offerings (excluding straight bonds) in the past twelvemonths for the following companies: Tama Home (1419); JAPAN TOBACCO (2914); Samty (3244); Poletowin Pitcrew Holdings (3657); Ateam (3662); Enigmo (3665); TECNOS JAPAN (3666); enish, Inc. (3667); COLOPL, Inc. (3668); Awa Paper MFG Co. (3896); Prestige International (4290); DaitoPharmaceutical (4577); WASEDA ACADEMY (4718); CORONA (5909); Livesense (6054); Trenders (6069); PUNCH INDUSTRY (6165); Nabtesco (6268); EBARA (6361); ELECOM (6750); Imagica Robot Holdings (6879); Sansha Electlic Manufacturing (6882); Financial Products Group Co. (7148); ZENKOKUHOSHO Co. (7164); FALTEC (7215); TAKASHO (7590); FUJIMORI KOGYO (7917); Wakita (8125); Aozora Bank (8304); eGuarantee (8771); TOSHO(8920); Sun Frontier Fudousan (8934); ORIX JREIT (8954); Frontier Real Estate Investment Corporation (8964); HEIWA REAL ESTATE REIT (8966); Daiwa House Residential Investment Corporation (8984); Japan Hotel REIT Investment Corporation (8985); Konoike Transport (9025); Japan Airlines (9201); STEP CO. (9795). (list as of 4 June 2013)

Notification items pursuant to Article 37 of the Financial Instruments and Exchange Law

(This Notification is only applicable to where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with our company based on the information described in this report, we ask you to pay close attention to the following items.

In addition to the purchase price of a financial instrument, our company will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm thecommission for each transaction. In some cases, our company also may charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident.�

For derivative and margin transactions etc., our company may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.�

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by our company.�

Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

* The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with our company.

Corporate Name: Daiwa Securities Co. Ltd.

Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108

Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan,

Japan Investment Advisers Association, Type II Financial Instruments Firms Association Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research. Korea The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party.

Name of Analyst : Chang H. Lee / Sung Yop Chung / Jun Yong Bang / Jae H. Lee / Sung Yop Chung

Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to: 1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets. Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report: 1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of


- 71 -

the total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity. Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release. The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report. "1": the security could outperform the KOSPI by more than 15% over the next six months. "2": the security is expected to outperform the KOSPI by 5-15% over the next six months. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next six months. "4": the security is expected to underperform the KOSPI by 5-15% over the next six months. "5": the security could underperform the KOSPI by more than 15% over the next six months. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next six months. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next six months “Negative” means that the analyst expects the sector to underperform the KOSPI over the next six months Additional information may be available upon request.

Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory . Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.


- 72 -

Bahrain

This research material is issued/compiled by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent. United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in

the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the

amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,

real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association

Weak-Yen plays to fly higher Pan-Asia...

Documents

Transcript of Weak-Yen plays to fly higher Pan-Asia...