06 October 2014 Asia Pacific/Japan Equity Research Travel & Leisure (Personal Products (Japan)) / MARKET WEIGHT

Sanrio (8136 / 8136 JP) Rating OUTPERFORM* Price (03 Oct 14, ¥) 3,125 INITIATION

Target price (¥) 3,950¹ Chg to TP (%) 26.4 FY3/16 warm if Sanrio can navigate the cold in FY3/15 Market cap. (¥ bn) 272.36 (US$ 2.50) Enterprise value (¥ bn) 243.75 ■ Initiate coverage: We initiate coverage of Sanrio with an OUTPERFORM rating Number of shares (mn) 87.15 and a ¥3,950 target price (potential return 26.4%). We expect: (1) benefits from Free float (%) 45.0 restructuring in Europe, (2) a projected recovery in the US, and (3) ongoing 52-week price range 6,050 - 2,598 growth in Asia to position profit momentum for a rebound in FY3/16. US-market *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. earnings in FY3/15 could be hit by factors related to the "cold": the chilly first- ¹Target price is for 12 months. quarter weather and the big Disney movie hit, Frozen. Sanrio's saviors have been the yen’s rapid depreciation and firm Asian operations, which we think will Research Analysts help keep full-year OP only 1% short of guidance. Masashi Mori 81 3 4550 9695 ■ Catalysts: We see outcomes for the Christmas sales season in the US as a [email protected] potential near-term catalyst. Considering the success of Frozen, we expect US sales for 2014 to decline 12% YoY in local currency terms (guidance is for a 4% dip). We forecast 1H OP at ¥8.7bn, down 9% YoY and 4% below guidance, and would view any share price weakness following the results announcement as a buy opportunity. In the medium term, we see the future management structure as a possible catalyst. Sanrio is addressing the management disruptions that have persisted since end-2013, and is gradually preparing to go on the offensive. The company could present an outline of its postponed medium-term plan as early as FY3/16. ■ Valuation/risks: Our TP is based on a P/E of roughly 22x and our FY3/16 forecast. Our multiple is the average for the last four years (since 2H 2010, when the business model changed substantially and investors started to take note). Considering: (1) increasing visibility for earnings to improve from FY3/16, (2) the strong likelihood of Sanrio boosting shareholder returns, and (3) considerable longer-term growth potential, we think the current below-average multiple undervalues the stock. Downside risks include waning popularity for the Hello Kitty character and disruptions to the overseas management structure if Rehito Hatoyama (Managing Director) retires.

Share price performance Financial and valuation metrics

Year 3/14A 3/15E 3/16E 3/17E Price (LHS) Rebased Rel (RHS) Sales (¥ bn) 77.0 80.4 85.1 88.0 8000 160 Operating profit (¥ bn) 21.0 21.7 24.2 26.5 6000 Recurring profit (¥ bn) 20.2 21.9 24.4 26.7 110 4000 Net income (¥ bn) 12.8 13.9 15.5 17.0 EPS (¥) 145.2 159.5 177.8 195.1 2000 60 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Change from previous EPS (%) n.a. IBES Consensus EPS (¥) n.a. 166.8 181.9 182.9 The price relative chart measures performance against the EPS growth (%) 2.2 9.8 11.5 9.7 TOPIX which closed at 1282.54 on 03/10/14 P/E (x) 24.0 19.6 17.6 16.0 On 03/10/14 the spot exchange rate was ¥108.9/US$1 Dividend yield (%) 2.3 2.6 2.9 3.2 EV/EBITDA(x) 12.4 10.5 9.2 8.2 Performance Over 1M 3M 12M P/B (x) 4.9 3.9 3.5 3.2 Absolute (%) 4.2 6.8 -46.9 ROE(%) 21.9 21.1 21.1 20.9 Relative (%) 5.7 7.0 -56.2 Net debt/equity (%) net cash net cash net cash net cash

Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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06 October 2014 Key charts

Figure 1: OP and OP margin trend: Conditions difficult in Figure 2: OP by region: Americas struggling in FY3/15, FY3/15, but still set for record profits but offset by firmness in Asia

(JPY bn) (%) Japan Europe Americas Asia 30 35 Operating profits OP margin (RHS) (JPY bn) 25 30 12 25 10 20 8 20 15 6 15 4 10 10 2 5 5 0 -2 0 0

-4

FY3/12 FY3/13 FY3/01 FY3/02 FY3/03 FY3/04 FY3/05 FY3/06 FY3/07 FY3/08 FY3/09 FY3/10 FY3/11 FY3/14

FY3/15E FY3/16E FY3/17E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 3: Chinese market growth: We expect apparel to Figure 4: US sales breakdown by customer: We see account for larger sales weighting in long term potential for sales growth of 2.4%/year Sales Next 5yr CAGR Sales Next 3yr CAGR Category Major customers breakdown sales growth breakdown sales growth Wal-Mart Stores 35% 3.2% Jewellery 20% 16.6% Apparel 5% 11.0% Target 17% 3.3% Other 75% 9.0% Toys "R" Us 8% 0.0% Kohl's 5% 1.1% Sanrio's sales breakdown- Macy's 5% 2.2% weighted top line growth 10.6% Other 30% 2.0% Sales breakdown-weighted growth rate 2.4% Notes: (1) Market growth rates on each category value basis in 2013– Notes: (1) Annual sales growth rate over next three years calculated 17 based on EuroMonitor forecasts.(2) Personal accessories growth by CS based on Bloomberg consensus forecasts.(2) Figures for Toys rate used for Other category. "R" Us based on actual results over past three years, as the company Source: EuroMonitor estimates, Company data, Credit Suisse is unlisted. (3) In calculating sales growth rates based on weighted average sales weightings, we used the apparel market growth rate (our estimate) for the Other growth rate. Source: Bloomberg, Company data, Credit Suisse

Figure 5: Share price and catalysts: Fluctuated sharply over last 12 months on factors other than results (Index) (Yen) Versus TOPIX (LHS) 2Q results announcement: 150 Share price (RHS) full-year CoF revised upward, 7,000 140 DPS forecast raised Raised DPS 1Q FY3/14 OP 130 forecast +14% Vice-president 6,000 passed away 120 Full-year results DPS forecast briefing 110 raised 5,000 100 Announced share 90 buyback 4,000 80 Full-year results announcement: Three companies that are 70 FY3/13 OP +7%, FY3/14 CoF OP major shareholders 3,000 +6%, annual dividend forecast announce sell-off (ca. 7% 60 raised from ¥45 to ¥60 of shares out) 50 2,000 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14

Source: Bloomberg, Credit Suisse

Sanrio (8136 / 8136 JP) 2 06 October 2014 Investment themes Initiate coverage with OUTPERFORM rating and ¥3,950 TP We initiate coverage of Sanrio with an OUTPERFORM rating and a ¥3,950 TP (potential return 26.4%). We expect: (1) benefits from restructuring in Europe, (2) a projected recovery in the US, and (3) ongoing growth in Asia to position profit momentum for a rebound in FY3/16. US-market earnings in FY3/15 could be hit by factors related to the "cold": the chilly first- quarter weather and the big Disney movie hit, Frozen. Sanrio's saviors have been the yen’s rapid depreciation and firm Asian operations, which we think will help keep full- FY3/15 OP only 1% short of guidance. In the medium term, we forecast steady growth for the licensing business centered on the globally popular Hello Kitty character will support annual OP growth of 8% over the next three years. We think there is still considerable room for Sanrio to extend its marketing reach (mainly in emerging markets) as its characters become more widely recognized, and accordingly estimate that its longer-term growth potential remains substantial. Catalysts: Succession plan still unclear Sanrio’s succession plan has been unclear since Senior Executive Vice-president Kunihiko Tsuji passed away in November 2013. President Shintaro Tsuji has stated publicly that it will take more than two years to choose a successor, so we will not be able to form a picture of the future management structure for the foreseeable future. At the same time, the company has adopted a dual management structure whereby President Tsuji mainly oversees domestic operations and Managing Director Hatoyama is responsible chiefly for overseas operations. Although Sanrio’s management team has been the object of considerable conjecture, we think both Mr. Tsuji and Mr. Hatoyama are working diligently to increase the number of Sanrio customers around the world, and estimate that the company’s basic business plans are also oriented to this goal. Some observers believe Mr. Hatoyama may retire (for reasons unknown), but we think the factors just mentioned argue against this happening at this stage. Mr. Hatoyama is seen as a key figure at Sanrio, both inside and outside the company, and we do not think Sanrio would let him go easily. We think Sanrio needs to optimize its management structure to give maximum discretion to Mr. Hatoyama and other key personnel. We believe this would satisfy Sanrio customers and shareholders, and in the end likely also contribute to firm earnings and upside for the share price. With the share price correcting sharply, we think this is the time when management needs to stand united and take action that considers Sanrio’s customers and shareholders (particularly retail shareholders who bought the stock following the public offering at end-2013). We think Sanrio is addressing the management disruptions that have persisted since end-2013, and is gradually preparing to go on the offensive. We expect it to begin a strategy review at end-2014 at the earliest, and thus see some possibility of the medium- term plan being released in FY3/16 or after following the postponement of its originally planned 2014 unveiling. A focus for FY3/16 will be whether the year generates a sense of change in terms of strengthening the management structure. Turning to fundamentals, we expect the big chill in the US and the success of Frozen to result in difficult conditions for FY3/15. However, we think the yen’s rapid depreciation and firmness for Asian operations can offset these negatives, and estimate that full-FY3/15 earnings will likely fall not far short of guidance. We forecast that full-fledged benefits from restructuring in Europe and a projected recovery in the US will return profits to a stable growth path in FY3/16.

Sanrio (8136 / 8136 JP) 3 06 October 2014

We estimate that the shares discount the management disruptions that have persisted since 2H 2013, and think downside will likely be modest. However, we do not see a potential share price catalyst in FY3/15 earnings due to the likelihood of a slight shortfall vs. guidance. At the same time, our projected earnings rebound from FY3/16, together with the possibility of a more settled management structure and a switch to an offensive strategy, suggests to us that the share price’s current level may represent a floor. Sanrio still has capacity for earnings growth in the longer term, high profitability and high ROE, and considerable potential to bolster its shareholder returns. Although pessimism regarding the management structure may persist for the foreseeable future, the death of Senior Executive Vice-president Kunihiko Tsuji triggered action to strengthen the corporate organization, and we thus see no need to be overly bearish. In addition, we think the shares remain attractively valued. Finally, while some at the company may favor shifting emphasis from licensing to product sales, we believe it will maintain its fundamental strategy of focusing on licensing. We also expect it to focus on regions where product sales pull significant customer numbers. Valuation Our TP is based on a P/E of roughly 22x and our FY3/16 forecast. Our multiple is the average for the last four years (since 2H 2010, when the business model changed substantially and investors started to take note). Although the future management structure remains uncertain, we think: (1) increasing visibility for earnings to improve from FY3/16, (2) the strong likelihood of Sanrio further boosting shareholder returns, and (3) considerable longer-term growth potential make the stock look undervalued at the current below-average P/E.

Figure 6: Global service sector company valuations Price MKCP ADTV Stock Performance (%) PER (x) PBR (x) EV/EBITDA (x) ROE(%) Div.yld(%) Div.payout(%) Company Ticker Cur. (03-Oct) (Mil.USD) 1m 3m 6m 1y FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E JP (Service sector) Sanrio 8136 JP JPY 3,125 2,558 29.1 4.2 5.0 -16.9 -46.6 19.0 17.5 4.0 3.6 11.9 11.0 21.0 20.6 2.6 2.8 48.7 49.0 Oriental Land 4661 JP JPY 20,895 17,458 41.2 2.6 17.8 33.4 27.9 26.2 24.2 3.2 2.8 12.3 11.4 12.0 11.7 0.6 0.6 15.1 13.9 Secom 9735 JP JPY 6,369 13,654 35.5 -0.6 2.3 8.4 9.2 17.6 17.4 1.8 1.7 7.5 6.9 10.2 9.7 2.0 2.0 34.5 35.5 Park 24 4666 JP JPY 1,756 2,342 11.9 0.2 -5.3 -8.6 0.3 23.2 19.7 4.3 3.8 7.5 6.4 18.3 19.3 2.6 2.7 59.5 53.3 Benesse HD 9783 JP JPY 3,595 3,385 15.1 -3.9 -17.5 -7.6 3.8 17.3 14.7 1.6 1.5 5.0 4.7 9.1 10.0 2.6 2.6 45.8 38.8 Ave.(MKCP-weighted) 22.2 20.8 2.4 2.2 9.0 8.3 US (license biz) Walt Disney DIS US USD 86.79 148,979 510.3 -4.6 -0.1 6.2 35.6 20.1 18.5 3.3 3.2 11.3 10.6 16.7 17.2 1.0 1.1 19.9 20.1 Mattel MAT US USD 31.11 10,510 108.5 -9.8 -21.8 -22.0 -26.2 14.6 12.4 3.3 3.3 10.1 9.0 22.6 26.3 4.9 4.9 71.5 60.9 Hasbro HAS US USD 55.26 7,045 55.3 3.8 2.1 -0.9 17.6 17.2 15.6 4.3 4.1 - - 25.0 26.3 3.1 3.3 53.1 51.8 Iconix Brand Group ICON US USD 36.27 1,742 20.1 -12.7 -16.0 -9.2 9.8 13.5 12.2 1.7 1.4 10.4 9.8 12.9 11.4 0.0 0.0 0.0 0.0 Ave.(MKCP-weighted) 17.5 16.4 3.0 2.8 10.0 9.4 Index S&P 500 -2.7 -2.0 3.0 15.9 STOXX Europe 600 -3.7 -4.8 -1.5 7.3 TOPIX -1.5 0.3 5.4 9.2 MSCI Asia ex JP -7.7 -4.6 1.3 2.8 Shanghai Index 5.7 15.3 15.5 8.7 Note: Based on median values of Bloomberg consensus estimates; companies with no consensus estimate excluded Source: Bloomberg, Credit Suisse

Sanrio (8136 / 8136 JP) 4 06 October 2014

Figure 7: P/E (12-month forward basis) Figure 8: EV/EBITDA (12-month forward basis) (x) (x) 40 25

35 +2σ 35.0 20 30 +2σ 19.5 +1σ 28.5 25 +1σ 16.2 15 Ave. 22.0 20 Ave. 12.9

10 -1σ 9.7 15 -1σ 15.5 -2σ 6.4 10 -2σ 9.0 5 5

0 0 10/8 11/8 12/8 13/8 14/8 10/8 11/8 12/8 13/8 14/8

Source: Bloomberg, Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates

Risks Downside risks include poorer profits due to waning popularity for the Hello Kitty character, on which Sanrio relies heavily. We also highlight disruptions to the overseas management structure if key figure Mr. Hatoyama retires.

Sanrio (8136 / 8136 JP) 5 06 October 2014

Company overview Core business is character licensing Sanrio’s core business is character licensing, mainly for the Hello Kitty character. Hello Kitty is very popular both in Japan and overseas and is a leading ambassador of Japan’s pop culture abroad. It also counts a large number of foreign celebrities among its fans. Sanrio creates and develops its characters in-house, mainly for young girls. Its main income stream is licensing out its characters to third parties, but it is also involved in theme parks and sales of character-based products at directly-managed stores and general retailers. Although Europe and the US generate the bulk of its profits, we can also look for future growth in emerging markets, mainly in Asia. The core licensing business involves licensing the rights to use Sanrio characters to other companies in exchange for licensing income. Although terms differ among product categories, the licensing fee is typically around 10% of a retailer’s shelf price. Sanrio aims to expand its product portfolio, and to this end acquired Mr. Men (UK) in 2011.

Figure 9: The Hello Kitty character Figure 10: Most popular Japanese characters (2014): Hello Kitty supported by a wide female demographic Ranking Character Total Male Female 1 ONE PIECE 449 375 74 2 Funassyi 376 196 180 3 Pocket Monsters Series 346 265 81 4 Doraemon 324 214 110 5 Rilakkuma 315 40 275 6 Mickey Mouse 291 108 183 7 Hello Kitty 197 11 186 8 Snoopy 177 31 146 9 Kumamon 167 85 82 10 Winnie the Pooh 162 35 127 11 Gundam series 154 150 4 12 Detective Conan 135 99 36 13 Masked Rider Series 131 119 12 14 Aikatsu! 126 0 126 15 Minnie Mouse 113 8 105

Source: Company data Notes: (1) Survey covered 1,200 persons (from children through to men and women in their 40s, numbers equalized by gender and age). (2) Persons surveyed cited their top three favorite characters; the ranking is compiled by giving three points to the top favorite, two to the second-favorite, and one to the third-favorite. Source: Licensed character consumer investigation 2013 (VOICE INTELLIGENCE) Sanrio’s core Hello Kitty character is aimed mainly at young girls. Derived from a kitten, it has a universal cuteness that transcends cultures, and in the longer term we think it has the potential to target girls and women around the world. Products based on the Hello Kitty character are also gradually becoming more widespread in emerging markets outside Asia (Middle East, North Africa, South America). In addition, we note that fewer characters are aimed mainly at girls rather than at boys. Sanrio licenses out rights for the character’s use on a broad range of products including apparel and toys, and as a corporate marketing tool. This business can grow without relying on particular geographical regions, ethnicities, or product categories. Moreover, because high-margin licensing it the core business, we think it can also sustain high profitability and capital efficiency.

Sanrio (8136 / 8136 JP) 6 06 October 2014

Parting from earlier business model based on goods sales Current President and CEO Shintaro Tsuji established the precursor to Sanrio in 1960. Sanrio created the mainstay Hello Kitty character in 1974. It subsequently developed a large number of other characters, and sales of products for young girls helped its top line grow. Waning popularity for characters in Japan into the 2000s prompted the company to shrink costs for what had been mainly a goods sales business (cut staff, recognize losses on disposals of inventory assets). It also took losses related to marketable securities holdings and booked disposal losses for theme park facilities, contributing to substantial net losses in FY3/03 and FY3/05. Mr. Hatoyama, now a key figure and responsible for Sanrio’s overseas operations, joined the company in 2008. His arrival marked a turning point. Mr. Hatoyama had worked in Sanrio’s licensing business when he was with Mitsubishi Corporation, and it was this that prompted his move. He subsequently strengthened the licensing business, mainly in Europe, and turned the company decisively away from a business model based on goods sales. He expanded licensing agreements for Sanrio in a range of industries, including with major global apparel retailers H&M and Inditex. This action also positioned Sanrio’s profits to improve substantially. Although Europe and North America are in stable growth phases, Sanrio has room to grow its licensing business in South America and Asia.

Figure 11: OP composition by region (FY3/14) Figure 12: Share of licensing market by region (market worth about ¥900bn in royalty terms in 2009)

Japan Other Asia 2.4% EU 4.7% 17.7% 4.7% UK South Europe 5.9% America 32.1% 6.2% Japan 14.1%

USA 70.6% North America 41.6% Source: Company data, Credit Suisse Source: "Licensing Business Management" by Fumihiko Kusama (published in 2009)

Figure 13: Company history 1960 Yamanashi Silk Center Co., Ltd. (currently Sanrio) is established 1971 The first "Gift Gate" shop is opened in Shinjuku Ward, Tokyo 1974 The characters Hello Kitty, Patty & Jimmy are created 1974 Sanrio Film Corporation of America (currently Sanrio, Inc.) is established in Hollywood, California 1975 The characters Little Twin Stars, and My Melody are created 1990 Sanrio Puroland theme park opens in Tama City, Metropolitan Tokyo 1991 Harmonyland theme park opens in Hijimachi, Oita Prefecture 2001 The character Cinnamoroll is created 2004 The character Sugarbunnies is created 2008 Joint development of Jewelpet character 2011 Acquired U.K. based Mister Men Limited

Source: Company data

Sanrio (8136 / 8136 JP) 7 06 October 2014

Sanrio's special features and the business climate in its main areas of operation Highly flexible license contract format One of Sanrio's special features is its product portfolio, which includes numerous in-house-developed original characters aimed at girls. The company’s main character is Hello Kitty. Sanrio’s apparel for adults is also popular. According to data concerning the Top 150 Global Licensors supplied by Licensemag.com, in 2013 the global licensing market was worth $252bn on a retail sales basis, up 9.5% YoY. Sanrio's sales were $8bn (3% of the total), putting it in sixth place (as in 2012). Sanrio licenses the use of its characters in a diverse range of products including apparel and toys. The comparatively high degree of freedom licensees (companies licensed by Sanrio) have with regard to how they use the characters is another of Sanrio's special features. Sanrio's head office mainly handles final approval of licensees' character designs. One of the company’s strengths is its structure that allows it to respond flexibly to requests from licensees, who best know the needs of local final consumers. Another strength is that Sanrio can widen its customer base as it has adopted a policy of issuing non-exclusive licenses (in which it concludes contracts with several companies) rather than issuing monopoly licenses to one company in the same product category. Planning to broaden customer base beyond the apparel market We believe sales to the apparel market account for the largest proportion (just over 30%) of Sanrio's licensing business. The remainder comprises a broad range of customers, including the accessory and cosmetics markets. EuroMonitor forecasts that retail sales in the US and China (the world's largest apparel markets) will increase by 2% and 10% per year, respectively, on a retail sales price basis, over the next five years. Sanrio has adopted a strategy of controlled sales expansion to prevent rapid decline in character value due to overexposure. Accordingly, taking sales to the apparel market as an example, we believe growth will be strategically lower than market growth. However, even in Europe and North America, which can be viewed as saturated markets, there is considerable scope for developing customers apart from the apparel market. We expect Sanrio to develop markets for adults in various product categories in industrialized nations. In emerging economies, Sanrio is striving to increase acceptance, especially for infant use, while implementing measures to combat fake products.

Figure 14: Global licensors market share in retail sales of Figure 15: Sanrio's license sales breakdown by product licensed products category Disney Consumer PVH Corp 7% Products Other Clothing 16% 31% 33% Meredith 7% Other Iconix Brand 50% Group 5% Mattel Footwear 4% Personal 6% Collegiate Sanrio Accessories Licensing 3% Toy Company Cosmetics 10% Nickelodeon Major Warner Bros. 10% 2% 10% Consumer League Consumer Products Baseball Products 2% 2% 2% Source: Licensemag.com (2013), Credit Suisse Source: Company data, Credit Suisse

Sanrio (8136 / 8136 JP) 8 06 October 2014

The Americas: Aiming at Hispanics in North America; expect Latin America to be the next growth driver Sanrio steadily expanded business in the North American market due to the favorable climate at the time, which we outline below. First, certain celebrities who influenced young persons' fashion culture wore designer apparel and accessories featuring Hello Kitty designs. It is not surprising that these products were mainly high-price-band goods. Next, Macy's, Forever21 and other stores that are relatively strong in fashion-conscious customers led the introduction of highly fashionable products, boosting customer awareness. Also, low-price products were launched via sales channels such as Target and Walmart, which are strong in low and middle-class wage earners and business grew via expansion of mass market sales. We understand the number of Hispanic celebrities who like Hello Kitty products is increasing. They are therefore advertising the brand, and we estimate that Hello Kitty brand awareness among young Hispanics is growing. In particular, sales (especially apparel sales) have been expanding at Walmart, which has had particular success in marketing to Hispanics, with the result that Sanrio's licensing fees trended upward. From a longer-term perspective, growth in sales to major customers such as Walmart has petered out, but we see adoption potential apart from apparel and toys. We also think there is still scope to develop new customers, such as Walgreens, but we expect Sanrio to continue to control character overexposure. We think it will likely be difficult for Sanrio to achieve its previous double-digit growth, but given its client portfolio and demographic trends, we see top-line growth of around 3% as attainable in the longer term.

Figure 16: US sales breakdown by customer: we see Figure 17: US population projected to grow by 1.5% potential for sales growth of 2.4%/year annually (through 2030) Sales Next 3yr CAGR Major customers (mil. ppl) breakdown sales growth 450 Wal-Mart Stores 35% 3.2% 400 420 Target 17% 3.3% 400 380 Toys "R" Us 8% 0.0% 350 358 Kohl's 5% 1.1% 334 300 321 Macy's 5% 2.2% 309 282 Other 30% 2.0% 250 Sales breakdown-weighted growth rate 2.4% 2000 2010 2015E 2020E 2030E 2040E 2050E 2060E Notes: (1) Annual sales growth rate over next three years calculated Source: US Census Bureau estimates, Credit Suisse by CS based on Bloomberg consensus forecasts. (2) Figures for Toys "R" Us based on actual results over past three years, as the company is unlisted. (3) In calculating sales growth rates based on weighted average sales weightings, we used the apparel market growth rate (our estimate) for the Other growth rate. Source: Bloomberg, Company data, Credit Suisse

Sanrio (8136 / 8136 JP) 9 06 October 2014

Figure 18: US population breakdown: marketing to Figure 19: US resident population by race, Hispanic origin growing Hispanic population key and age: younger segments have higher weightings of Hispanics 100% 100% 90% 90% White (Non- 80% 42.6 80% Hispanic) 46.6 White (Non- 51.0 50.5 55.5 Hispanic) 55.1 70% 61.8 59.7 70% 57.9 All other 65.1 68.3 69.4 All other 60% 60% 77.5 8.2 Asian 50% 7.1 Asian 50% 6.1 8.2 6.7 5.2 7.7 4.6 7.1 40% 4.7 3.4 Black 40% 4.5 5.3 4.1 6.4 14.7 Black 6.5 3.0 5.3 5.7 14.4 14.1 30% 14.6 2.5 30% 2.5 4.6 14.8 3.8 13.7 13.2 4.8 Hispanic 13.2 13.4 1.6 13.1 Hispanic 20% 20% 12.7 12.3 3.9 27.9 30.6 23.5 9.3 10% 21.9 25.0 10% 20.2 19.0 17.8 19.1 12.1 12.6 15.5 7.6 0% 0% <15 15-29 30-44 45-59 60< 2000 2010 2015E 2020E 2030E 2040E 2050E 2060E

Source: US Census Bureau estimates, Credit Suisse Note: Data as of 1 July 2012 Source: US Census Bureau, Credit Suisse In South America, Sanrio's main market used to be Brazil, but its area of operation has now expanded to include Mexico, Peru and other countries. The Mexican market is expanding due to the use of license agents and growing awareness in the country, which has a similar culture, in tandem with rising awareness in sales to Hispanics in the North American market. We believe Sanrio character awareness is lower in the South American market than in other regions. On the other hand, we believe awareness is growing in stages, due to the company holding numerous events and other activities. We see substantial longer-term growth potential for Sanrio as there is considerable scope for boosting awareness and there are few competing characters aimed at women. Europe: Expecting restructuring to start to have a visible impact in 2015 Business in Europe recently has been sluggish. This is due partly to external factors, including macroeconomic deterioration, and partly to an internal factor, namely that Sanrio had not established a management structure that would enable it to skillfully tap customer needs. When Sanrio sharply increased sales to the apparel industry, especially major specialty store retailers of private-label apparel, in the past, over 70% of sales were to the apparel sector. The apparel industry subsequently slumped owing to deterioration in the European economy, and now accounts for only around 30% of sales. However, we think that because it experienced success in the past, Sanrio was unable to escape from its apparel- centered sales structure. As it was too closely focused on the apparel sector, development of other product categories was delayed, and this was the main reason for the delayed recovery. This was an internal factor. However, from the start of 2014, Sanrio revamped this structure and it is now implementing thoroughgoing restructuring. We understand Mr. Hatoyama, who is responsible for overseas business, is putting a great deal of effort into revitalizing European business. We expect the string of structural consolidations to have a visible impact possibly as soon as from 2H 2014. The Hello Kitty character has definitely not become obsolete in Europe, so if internal factors can be resolved, we think that from a long-term perspective, supported by economic recovery in Europe, Sanrio will establish a structure capable of once again aiming for OP of ¥10bn. We also expect the Mr. Men brand, which has high awareness, especially in the UK, and which Sanrio acquired in 2011, to make a full-fledged earnings contribution in the longer term. Mr. Men are national picture book characters in the UK. Prior to Sanrio's acquisition, picture books accounted for the bulk of sales with little in the way of licensing business. A

Sanrio (8136 / 8136 JP) 10 06 October 2014 structure is currently being put in place that will strengthen licensing business leveraging Sanrio's expertise. We expect Hollywood to make a Mr. Men movie, possibly as soon as in 2016, resulting in higher global awareness of the character and increased licensing fees from product sales. Sanrio will bear none of the costs associated with the movie. We also anticipate a boost to brand value, with, for example, sales of products developed in collaboration with famous designer Stella McCartney.

Figure 20: EU Sales breakdown (Credit Suisse Figure 21: Mr. Men characters assumption) : apparel weighting down from over 70% to 30%, developing wide range of product categories Cosmetics Other Publication 5% 5% 5% Apparel Food& 30% Beverage 5% Stationery 10%

Home wear Toy 10% Hobby 15% goods 15% Source: Company data, Credit Suisse (2013) Source: Company data Asia: Strengthening brand by licensing to cafes, etc.; growth accelerating In January 2012, Sanrio concluded a master licensing contract in China (excluding Hong Kong and Macao) with KT Licensing (KTL), a member of the major Hong Kong conglomerate Li & Fung Group. The contract confers monopoly usage rights for Sanrio characters, while Sanrio will receive license fees consisting of a certain amount added to product manufacture and sales. The contract stipulates payments of $85mn over five years as a minimum guarantee. Sanrio previously had licensing contracts with local companies via its local subsidiary, but it has now switched to an agent approach with KTL, which is strong in China, as the master licensee and plans to accelerate the pace of market development. Helped by high awareness of Hello Kitty, sales are steadily increasing, especially to local apparel makers. In the Chinese market, foreign apparel makers are at the stage of expanding their store chains. There is thus little need for characters at present, but we think usage frequency will increase in the longer term, as in industrialized nations. We understand licensing business is expanding in various areas apart from apparel, including toys and daily household necessities. Risk that China will be inundated with fake products is high. Partly due to these kinds of concerns, the company is currently focusing on business that provides value, linking spaces such as cafes with the worldview of Sanrio characters. This is also leading to brand power consolidation and the sale of official products that can be purchased on site. Securing customers in and above the mid-level segment will be the main focus. A Hello Kitty theme park in China's Zhejiang province, which is due for completion in FY14 (Sanrio is only licensing out, with no capex involved), is part of this strategy. We understand there is strong demand for the theme park and that Sanrio has also fielded requests from other companies. The Southeast Asian market appears to be steadily expanding. A theme park featuring characters licensed out by Sanrio was recently opened in Malaysia and this is helping increase awareness.

Sanrio (8136 / 8136 JP) 11 06 October 2014

We see potential in mainland China as follows. Jewelry accounts for just under 20% of sales, apparel for over 5%, and other (toys, etc.) for the remainder. Based on Sanrio's medium-term growth forecasts for key markets in China, we see potential top-line growth in Chinese business of over 10% per year. Also, from a longer-term perspective, we think apparel could grow to account for around 30% of sales, as it does in Europe and the US. However, as foreign apparel makers are at the stage of expanding their store chains in China, character needs are currently low. We think usage frequency will increase in the longer term, as in industrialized nations.

Figure 22: Chinese market growth: we expect apparel to Figure 23: Design licensing for hotels, cafes, etc., is account for larger sales weighting in long term increasing in Asia Sales Next 5yr CAGR Category breakdown sales growth Jewellery 20% 16.6% Apparel 5% 11.0% Other 75% 9.0% Sanrio's sales breakdown- weighted top line growth 10.6%

Note: (1) Market growth rates on each category value basis in 2013– Source: Credit Suisse (photo taken in Taiwan) 17 based on EuroMonitor forecasts.(2) Personal accessories growth rate used for Other category. Source: EuroMonitor estimates, Company data, Credit Suisse Japan: implementing ongoing cost restructuring In Japan, which is a saturated market, Sanrio is currently pushing ahead with cost restructuring. It is pulling out of unprofitable stores and investing in systems to achieve efficiency gains. We think tapping overseas travelers is a key way of achieving top-line growth. Sanrio is rolling out stores in locations that attract customers, such as near famous tourist sights and in airports. Visitors to Japan already account for 10% of visitors to the Sanrio Puroland (SPL) theme park and we expect growth in attendance in tandem with increases in the number of tourists coming to the country.

Figure 24: Rolling out stores in locations that attract Figure 25: Number of visitors to Japan: expect record customers number of visitors to Japan in 2014

(mn ppl) Total Growth rate (RHS) 12 40% 10 30% 20% 8 10% 6 0% 4 -10% -20% 2 -30% 0 -40%

Source: Credit Suisse (photo taken at Tokyo Station) Note: 2014 YoY growth rate based on Jan-Aug accumulated result Source: Japan National Tourist Organization (JNTO)

Sanrio (8136 / 8136 JP) 12 06 October 2014 Earnings outlook

Figure 26: Earnings forecast summary Sales Operating profit Recurring profit Net profit EPS ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) Consolidated 14/3 Actual 77,009 3.7 21,019 4.1 20,180 2.7 12,802 2.1 145.2 2.2 15/3 CS E 80,400 4.4 21,700 3.2 21,900 8.5 13,900 8.6 159.5 9.8 CoE 79,600 3.4 22,000 4.7 22,200 10.0 14,400 12.5 165.2 13.8 IBES E 79,660 3.4 22,433 6.7 22,650 12.2 14,765 15.3 166.8 14.8 16/3 CS E 85,100 5.8 24,200 11.5 24,400 11.4 15,500 11.5 177.8 11.5 IBES E 82,825 4.0 24,356 8.6 24,558 8.4 16,246 10.0 181.9 9.1 17/3 CS E 88,000 3.4 26,500 9.5 26,700 9.4 17,000 9.7 195.1 9.7 IBES E 84,469 2.0 25,666 5.4 24,332 -0.9 16,464 1.3 182.9 0.5 Source: Company data, I/B/E/S, Credit Suisse estimates Outlook for FY3/15: Difficulties in North America partly offset by weak yen, Asian growth We expect OP to rise 3% YoY to ¥21.7bn (guidance ¥22.0bn). In North America, we expect local currency-based sales to drop 12% YoY, falling below the company guidance, due to: (1) struggling retail sales after the cold weather in 1Q and (2) a decline in sales of Sanrio products since Frozen became a massive hit. However, we expect yen weakness to offset some of the decline in sales, particularly in 2H, and expect OP (yen basis) to fall 15% YoY to around 7% below the company guidance. In Europe, the structural reforms to the business in the second half of the year may not be enough to offset the continued slump in sales in 1H (we expect local currency-based sales to fall 12%), so we expect Sanrio to miss its target. Over the full-year, we expect sales to fall 5% YoY (local currency basis). As in North America, the weak yen may result in Sanrio making its yen-based sales and OP targets. In Asia, we expect OP to grow by over 50% YoY, beating guidance, due to the weak yen and strong sales in China and Hong Kong. The strong performance is being driven by an increase in licensee numbers in a broad range of product categories. Medium-term outlook: Recovery in Europe and North America, continued earnings growth in Asia In FY3/16–17, we expect OP to rise by around 10% YoY. In North America, we estimate top-line growth of around 3% on a local currency basis. Although sales to major retail customers like WalMart may tail off, there is still potential for developing business with new customers. We see potential for sales growth over the longer term, aided by local agents. However, Sanrio’s strategy is to grow sales in a controlled fashion, in order to avoid overexposure of its characters and prevent a rapid decline in character value. The company is targeting stable growth, having learned from its experience in Europe where the business expanded rapidly but then went through a reactive decline. Support for earnings may also come from a positive rebound after unseasonal weather and the unusual popularity of rival products in FY3/15. Mexico accounts for 40% of South American sales and Sanrio is making good use of local sales agents to return a strong performance. Macroeconomic factors also look healthy, so we expect continued growth for the time being. Brazil accounts for just under 40% of sales. Sanrio struggled in Brazil in 2013, but we see prospects for a recovery in 2014. Sanrio’s difficulties in 2013 were due to an economic downturn and falling sales at some major customers, but these customers are apparently recovering. Sanrio does not use local agents in Brazil. Note that Sanrio could return to a sales growth trajectory if the company started to use agents with good sales networks and business development capabilities, as it does in other South American countries. Sales are growing steadily in Argentina, Chile, and Peru. If Sanrio makes real inroads into major apparel and food retail chains, the

Sanrio (8136 / 8136 JP) 13 06 October 2014 company’s business could expand rapidly. However, the company is not yet in a position to achieve this, so we expect South American sales and profits to remain smaller compared with other regions. In Europe, as discussed above, reforms to business and sales systems may start to generate results from 2015 and we expect sales growth to recover to around 3%. The sales network was previously weighted towards Southern Europe, but Sanrio has now started to focus fully on Germany and other countries with relatively stronger economies. Looking more broadly at regions, customers, and product categories, we still see room for business development with new European customers and expect the business to move into a second growth phase. In Asia, we expect top-line growth to remain around the 10% mark. We estimate double- digit growth on the Chinese mainland, as Sanrio diversifies its product categories and licensees. In Hong Kong, the business mainly involves product sales. Sanrio is growing sales of corporate promotional items, which has offset weakness in the product sales business due to the global slowdown in economic growth. In Taiwan and South Korea, there are more core fans of Sanrio brands than in other regions and the risk of overexposure appears minimal at this stage, so we see room for further growth. We expect solid growth as Sanrio leverages cafes etc., which it licenses for in Taiwan and South Korea and Chinese tourist numbers increase. We expect profits from the Japanese licensing business to be flat over the medium term. Positives include the full-scale launch of the recently acquired Mr. Men brand in Japan and the growing popularity of relatively new characters like Bonbon Ribbon, but licensees in existing categories continue to struggle. Therefore we assume that top-line growth will be effectively zero. In the product sales business, we expect profitability to improve, but only slightly for the following reasons: (1) Sanrio is taking an aggressive approach to new store openings in areas with high customer traffic, such as the Aeonmall Makuhari urban subcenter and (2) fewer missed sales opportunities and the development of some stores targeted at adults (to date, Sanrio had few stores targeted at adults and few outlets where it was possible for adults to buy the products they desired). The company is also working on having its products exempt from consumption tax for overseas visitors from end-2014. It is too early to realistically estimate the boost to sales from this move, so our estimates do not reflect this. However, we do see the potential for earnings upside. The theme park business may continue to generate losses for the time being and there is a great deal of uncertainty over whether it will reach the breakeven point within the next three years. Sanrio changed its ticket pricing for SPL in April 2014. Tickets are priced according to age, but on a weekend the prices are discounted by around 20% on a simple average basis. Sanrio is also limiting the special discounts for corporate customers and group discounts that previously applied in Japan. In 1Q, the number of visitors entering on discount tickets had fallen, so per customer ticket and product sales rose. Visitor numbers were 790,000 in FY3/14 and we expect this to rise by 10% to just below 870,000 in FY3/15. After this, we expect a boost from overseas visitors and estimate growth of around 5%. However, we expect the theme park business to remain in the red at the operating level as SG&A expense weighs on profits, due to operating costs and depreciation expense.

Sanrio (8136 / 8136 JP) 14 06 October 2014

Finances healthy, expect positive stance on shareholder returns from FY3/16 Sanrio had net cash of ¥26bn at end-FY3/14, so the company is effectively debt free. We expect Sanrio to generate stable free cash flow (FCF) of around ¥15bn each year for the next three years. As a longer-term strategy, Sanrio aims to expand its product portfolio and has suggested it may consider acquiring characters in Japan and overseas. We think M&A activities large enough to threaten its financial position are unlikely, given the recent acquisition of the Mr. Men brand for around ¥3bn and the current healthy finances. Sanrio may also have little capex, as it is shifting its focus to strengthen its licensing business. Sanrio is steadily accumulating cash and we think the company may take an even more proactive approach to improving shareholder returns. We expect stable increases in dividend payments moving forward and see room for ongoing share buybacks.

Figure 27: We assume a 50% dividend payout is Figure 28: Turned to a positive net cash position sustainable

(JPY) (%) (JPY bn) +ve: net debt -ve: net cash 120 DPS (lhs) Dividend payout ratio (rhs) 120 80

100 100 60 40 80 80 20 60 60 0 40 40 -20 20 20 -40

0 0 -60

FY3/08 FY3/13 FY3/01 FY3/02 FY3/03 FY3/04 FY3/05 FY3/06 FY3/07 FY3/09 FY3/10 FY3/11 FY3/12 FY3/14

FY3/03 FY3/08 FY3/13 FY3/01 FY3/02 FY3/04 FY3/05 FY3/06 FY3/07 FY3/09 FY3/10 FY3/11 FY3/12 FY3/14

FY3/15E FY3/16E FY3/17E

FY3/16E FY3/17E FY3/15E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Sanrio (8136 / 8136 JP) 15 06 October 2014

Figure 29: Sales and OP forecasts by region FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15E FY3/16E FY3/17E Sales (JPYm) Japan 76,600 54,200 53,100 50,700 49,000 48,300 48,400 50,300 51,500 52,600 Licensing 28,300 9,100 8,400 9,700 10,700 9,500 9,500 9,500 9,500 9,500 Retail&Wholesale 26,100 25,800 25,400 24,200 21,700 21,200 21,400 22,000 22,500 23,000 Theme parks 7,600 6,200 6,200 6,100 6,100 6,100 6,300 7,000 7,200 7,400 Other 14,600 13,100 13,100 10,500 10,300 11,300 11,100 11,800 12,300 12,700 Europe 9,100 12,100 16,500 20,800 18,300 13,900 13,700 14,100 14,800 15,400 North America 7,700 5,600 6,700 8,200 10,800 14,200 16,700 15,900 17,100 17,500 South America 1,200 900 1,400 1,700 1,600 2,100 2,500 2,700 2,900 3,100 Asia 10,200 6,400 7,800 8,800 8,900 9,600 12,200 14,900 16,800 18,400 Hong Kong 6,200 3,600 5,300 5,600 5,300 5,400 6,400 7,700 8,300 8,700 Taiwan 2,000 1,200 1,300 1,400 1,500 1,600 2,200 2,400 2,600 2,800 South Korea 1,200 600 400 600 500 900 1,400 1,800 2,000 2,200 China 600 700 700 1,000 1,400 1,500 2,100 3,000 3,900 4,700 Elimination, etc -10,900 -9,800 -11,700 -13,900 -13,800 -13,900 -16,800 -17,500 -18,000 -19,000 Total 93,917 69,767 73,875 76,625 74,954 74,233 77,000 80,400 85,100 88,000 Sales (y-y,%) Japan -8.8 -29.2 -2.0 -4.5 -3.4 -1.4 0.2 3.9 2.4 2.1 Europe 167.6 33.0 36.4 26.1 -12.0 -24.0 -1.4 2.9 5.0 4.1 North America -12.5 -27.3 19.6 22.4 31.7 31.5 17.6 -4.8 7.5 2.3 South America 50.0 -25.0 55.6 21.4 -5.9 31.3 19.0 8.0 7.4 6.9 Asia 7.4 -37.3 21.9 12.8 1.1 7.9 27.1 22.1 12.8 9.5 Hong Kong - -41.9 47.2 5.7 -5.4 1.9 18.5 20.3 7.8 4.8 Taiwan - -40.0 8.3 7.7 7.1 6.7 37.5 9.1 8.3 7.7 South Korea - -50.0 -33.3 50.0 -16.7 80.0 55.6 28.6 11.1 10.0 China - 16.7 0.0 42.9 40.0 7.1 40.0 42.9 30.0 20.5 Total -2.8 -25.7 5.9 3.7 -2.2 -1.0 3.7 4.4 5.8 3.4 OP (JPY m) Japan -2,100 -2,500 -3,100 -1,400 700 1,300 500 700 1,000 1,200 Licensing 7,400 6,800 5,900 6,500 7,100 6,700 6,500 6,600 6,600 6,600 Retail&Wholesale 1,100 1,400 1,500 1,400 1,700 2,000 2,100 2,300 2,400 2,500 Theme parks -1,100 -1,300 -900 -500 -500 -400 -500 -400 -300 -200 Other -700 -500 -800 -300 400 500 600 700 800 800 HQ cost center expenses,etc -8,800 -8,900 -8,800 -8,500 -8,000 -7,600 -8,200 -8,500 -8,500 -8,500 Europe 3,600 5,100 8,200 11,100 9,900 7,200 6,700 6,900 7,300 7,800 North America 2,100 1,800 2,300 2,600 5,100 7,500 8,700 7,400 8,200 8,700 South America 600 400 700 700 700 1,000 1,300 1,200 1,400 1,600 Asia 1,900 1,400 1,200 2,200 2,700 2,900 3,700 5,500 6,300 7,200 Hong Kong 700 600 600 900 1,100 1,300 800 1,900 2,100 2,300 Taiwan 500 200 200 400 500 500 1,000 1,200 1,300 1,400 South Korea 500 300 100 300 300 300 500 700 800 900 China 200 300 200 500 700 800 1,200 1,700 2,100 2,600 Total 6,615 6,575 9,289 14,996 18,906 20,198 21,019 21,700 24,200 26,500 OP (y-y,%) Japan - - - - - 85.7 -61.5 40.0 42.9 20.0 Europe - 41.7 60.8 35.4 -10.8 -27.3 -6.9 3.0 5.8 6.8 North America - -14.3 27.8 13.0 96.2 47.1 16.0 -14.9 10.8 6.1 South America - -33.3 75.0 0.0 0.0 42.9 30.0 -7.7 16.7 14.3 Asia - -26.3 -14.3 83.3 22.7 7.4 27.6 48.6 14.5 14.3 Total 6.3 -0.6 41.3 61.4 26.1 6.8 4.1 3.2 11.5 9.5 OPM (%) Japan -2.7 -4.6 -5.8 -2.8 1.4 2.7 1.0 1.4 1.9 2.3 Europe 39.6 42.1 49.7 53.4 54.1 51.8 48.9 48.9 49.3 50.6 North America 27.3 32.1 34.3 31.7 47.2 52.8 52.1 46.5 48.0 49.7 South America 50.0 44.4 50.0 41.2 43.8 47.6 52.0 44.4 48.3 51.6 Asia 18.6 21.9 15.4 25.0 30.3 30.2 30.3 36.9 37.5 39.1 Total 7.0 9.4 12.6 19.6 25.2 27.2 27.3 27.0 28.4 30.1 FX JPY/USD 114.1 102.3 95.3 87.7 79.6 79.9 97.1 104.5 109.0 109.0 JPY/EUR 161.6 153.2 130.4 116.4 111.0 103.3 129.3 139.4 140.0 140.0 JPY/CNY 15.5 14.9 13.7 12.9 12.3 12.7 15.8 17.1 17.7 17.7 JPY/HKD 14.6 13.1 12.1 11.3 10.2 10.3 12.5 13.6 14.0 14.0 Source: Company data, Credit Suisse estimates

Sanrio (8136 / 8136 JP) 16 06 October 2014

Figure 30: Consolidated balance sheet and change in net assets (¥mn) FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15E FY3/16E FY3/17E (Assets) Cash,cash equivalents & securities 12,968 13,891 18,562 21,132 25,893 35,627 52,265 52,914 56,138 56,490 Account receivable 13,120 9,431 11,019 10,411 9,949 10,752 12,770 12,279 13,257 13,203 Inventories 5,301 5,016 4,728 3,647 3,115 3,110 3,544 3,474 3,714 3,716 Other 4,213 2,713 4,528 5,106 5,157 6,272 3,738 3,182 3,182 3,182 Allowance for doubtful accounts -268 -71 -130 -454 -107 -92 -82 -77 -77 -77 Total current assets 35,338 30,983 38,710 39,845 44,009 55,672 72,238 71,771 76,214 76,514 Tangible fixed assets 22,718 20,063 20,353 19,161 18,078 17,648 19,022 19,022 19,022 19,022 Depreciable PP&E 11,152 8,755 9,019 8,343 7,502 7,598 8,718 - - - Land 11,397 11,290 11,307 10,815 10,571 10,035 10,290 - - - Construction in progress 167 17 24 0 4 13 14 - - - Intangible fixed assets 456 448 493 338 3,869 4,000 4,865 4,841 4,841 4,841 Investments & other assets 30,458 27,590 26,207 24,320 22,791 20,104 21,457 24,035 24,035 24,035 Investment securities 7,610 5,841 6,250 6,404 6,523 8,165 9,888 12,318 12,318 12,318 Other 23,767 22,630 21,161 19,137 17,234 12,920 13,552 13,694 13,694 13,694 Allowances -919 -881 -1,204 -1,221 -966 -981 -1,983 -1,977 -1,977 -1,977 Total fixed assets 53,632 48,103 47,054 43,820 44,739 41,753 45,344 47,898 47,898 47,898 Total assets 88,971 79,087 85,765 83,666 88,748 97,425 117,585 119,669 124,112 124,412 (Liabilities) Account payable 8,478 6,453 7,732 6,566 4,486 4,481 4,658 4,771 4,990 5,047 Short-term debt 23,660 19,109 17,636 21,425 17,112 11,852 11,777 11,654 10,752 4,735 Other 6,112 5,402 6,858 6,764 7,028 8,546 12,853 12,853 12,853 12,853 Total current liabilities 38,250 30,964 32,226 34,755 28,626 24,879 29,288 29,277 28,595 22,635 Long-term debt 9,116 12,734 13,378 10,508 13,544 14,261 14,059 12,653 10,122 8,098 Other 8,608 8,544 8,567 9,207 9,499 9,302 12,354 12,354 12,354 12,354 Total fixed liabilities 17,724 21,278 21,945 19,715 23,043 23,563 26,413 25,007 22,476 20,452 Total liabilities 55,974 52,243 54,171 54,471 51,669 48,443 55,701 54,285 51,071 43,087 (Net assets) Capital stock 14,999 14,999 14,999 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Capital surplus 10,095 10,095 8,732 6,147 3,476 3,418 3,423 3,423 3,423 3,423 Retained earnings 12,034 9,189 13,478 20,953 32,624 41,186 49,140 56,068 63,724 72,008 Treasury stock -954 -954 -954 -637 -1,034 -1,884 -1,882 -4,799 -4,799 -4,799 Total shareholders' equity 36,174 33,329 36,255 36,463 45,066 52,720 60,681 64,692 72,348 80,632 Valuation and translation adjustments -3,192 -6,508 -4,692 -7,305 -8,070 -3,942 966 452 452 452 Total equity capital 32,982 26,821 31,563 29,158 36,996 48,778 61,647 65,144 72,800 81,084 Share warrant - - - - 29 119 167 167 167 167 Minority interests 13 22 30 36 52 85 67 74 74 74 Total net assets 32,996 26,844 31,594 29,195 37,078 48,982 61,883 65,385 73,041 81,325 Total liabilities & net assets 88,971 79,087 85,765 83,666 88,748 97,425 117,585 119,669 124,112 124,412

FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15E FY3/16E FY3/17E (Changes in net assets) Beginning balance 36,184 32,996 26,844 31,594 29,195 37,078 48,982 61,883 65,385 73,041 Capital stock 0 0 0 -4,999 0 0 0 0 0 0 Capital surplus 0 0 -1,363 -2,585 -2,671 -58 5 0 0 0 Net profits 1,114 -1,495 4,373 9,380 14,378 12,536 12,802 13,900 15,500 17,000 Dividends from surplus -1,306 -1,351 -1,367 -1,901 -2,701 -3,968 -4,845 -6,972 -7,844 -8,715 Treasury stock 6 0 0 317 -397 -850 2 -2,917 0 0 Valuation and translation adjustments -2,554 -3,316 1,816 -2,613 -765 4,128 4,908 -514 0 0 Minority interests -17 9 8 6 16 33 -18 7 0 0 Other -431 1 1,283 -4 23 83 47 -2 0 0 Final balance 32,996 26,844 31,594 29,195 37,078 48,982 61,883 65,385 73,041 81,325 Source: Company data, Credit Suisse estimates

Sanrio (8136 / 8136 JP) 17 06 October 2014

Figure 31: Consolidated profit and loss and cash flow statements (¥mn) FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15E FY3/16E FY3/17E Sales revenue 93,917 69,767 73,875 76,625 74,954 74,233 77,009 80,400 85,100 88,000 CGS 54,625 32,104 33,140 30,457 26,837 24,778 23,650 24,900 26,400 27,300 Gross profit 39,292 37,663 40,734 46,168 48,116 49,454 53,359 55,500 58,700 60,700 SG&A 32,677 31,088 31,445 31,171 29,210 29,255 32,340 33,800 34,500 34,200 OP 6,615 6,575 9,289 14,996 18,906 20,198 21,019 21,700 24,200 26,500 Interest and dividend income 511 480 347 384 452 423 518 500 500 500 Interest expense 774 696 619 576 515 413 355 300 300 300 Other -1,088 -405 -768 -1,417 -475 -562 -34 0 0 0 RP 5,264 5,954 8,249 13,387 18,368 19,646 20,180 21,900 24,400 26,700 Extraordinary gains 437 16 8 451 119 157 387 0 0 0 Etrtraordinary losses 1,532 3,476 1,313 1,676 453 1,122 58 500 500 500 Pretax profit 4,168 2,494 6,945 12,163 18,034 18,681 20,508 21,400 23,900 26,200 Income taxes 3,069 3,978 2,558 2,766 3,637 6,120 7,673 7,500 8,400 9,200 Minority interests -15 11 13 16 17 24 31 0 0 0 NP 1,114 -1,495 4,373 9,380 14,378 12,536 12,802 13,900 15,500 17,000 Tax rate 73.6% 159.5% 36.8% 22.7% 20.2% 32.8% 37.4% 35.0% 35.1% 35.1% To sales ratio (%) CGS 58.2 46.0 44.9 39.7 35.8 33.4 30.7 31.0 31.0 31.0 Gross profit 41.8 54.0 55.1 60.3 64.2 66.6 69.3 69.0 69.0 69.0 Depreciation expense 1.7 2.4 2.0 1.8 1.7 1.8 1.9 1.9 1.8 1.7 SG&A 34.8 44.6 42.6 40.7 39.0 39.4 42.0 42.0 40.5 38.9 OP 7.0 9.4 12.6 19.6 25.2 27.2 27.3 27.0 28.4 30.1 RP 5.6 8.5 11.2 17.5 24.5 26.5 26.2 27.2 28.7 30.3 Pretax profit 4.4 3.6 9.4 15.9 24.1 25.2 26.6 26.6 28.1 29.8 NP 1.2 -2.1 5.9 12.2 19.2 16.9 16.6 17.3 18.2 19.3 YoY (%) Sales revenue -2.8 -25.7 5.9 3.7 -2.2 -1.0 3.7 4.4 5.8 3.4 Gross profit 1.6 -4.1 8.2 13.3 4.2 2.8 7.9 4.0 5.8 3.4 OP 6.3 -0.6 41.3 61.4 26.1 6.8 4.1 3.2 11.5 9.5 RP -5.6 13.1 38.5 62.3 37.2 7.0 2.7 8.5 11.4 9.4 Pretax profit -30.1 -40.2 178.5 75.1 48.3 3.6 9.8 4.3 11.7 9.6 NP -73.2 - - 114.5 53.3 -12.8 2.1 8.6 11.5 9.7

FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15E FY3/16E FY3/17E (Operating activities) NP 1,114 -1,495 4,373 9,380 14,378 12,536 12,802 13,900 15,500 17,000 Depreciation(+) 1,643 1,704 1,471 1,389 1,279 1,361 1,500 1,500 1,500 1,500 Account receivable(-) -288 3,689 -1,588 608 462 -803 -2,018 491 -978 54 Inventories(-) 391 285 288 1,081 532 5 -434 70 -240 -2 Account payable(+) -3,136 -2,025 1,279 -1,166 -2,080 -5 177 113 219 57 Minority interests(+) -15 11 13 16 17 24 31 0 0 0 Other 4,101 4,729 2,592 1,903 232 3,967 5,390 0 0 0 Operating cashflow 3,810 6,898 8,428 13,211 14,820 17,085 17,448 16,074 16,001 18,608 (Investing activities) Capital expenditures(-) -938 951 -1,761 -197 -196 -931 -2,874 -1,500 -1,500 -1,500 Other -1,458 -2,989 202 -1,923 2,201 446 -5,777 0 0 0 Investing cashflow -2,396 -2,038 -1,559 -2,120 2,005 -485 -8,651 -1,500 -1,500 -1,500 (Financing activities) Debt (+) -2,502 -933 -829 919 -1,277 -4,543 -277 -1,529 -3,433 -8,041 Dividends (-) -1,306 -1,351 -1,367 -1,901 -2,701 -3,968 -4,845 -6,972 -7,844 -8,715 Other -50 -275 -287 -7,572 -6,335 -1,140 -295 0 0 0 Financing cashflow -3,858 -2,559 -2,483 -8,554 -10,313 -9,651 -5,417 -8,502 -11,277 -16,757 (Cash & cash equivalents) Increases -2,444 2,301 4,386 2,537 6,512 6,949 3,380 6,073 3,225 352 Beginning balance 16,796 12,968 13,891 18,562 21,132 25,893 35,627 52,265 52,914 56,138 Final balance 14,352 15,269 18,277 21,099 27,644 32,842 39,007 58,338 56,138 56,490 Adjustments -1,384 -1,378 285 33 -1,751 2,785 13,258 -5,424 0 0 Source: Company data, Credit Suisse estimates

Sanrio (8136 / 8136 JP) 18 06 October 2014

Figure 32: Financial indicators FY3/08 FY3/09 FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15E FY3/16E FY3/17E (Safety) Current ratio (%) 92.4 100.1 120.1 114.6 153.7 223.8 246.6 245.1 266.5 338.0 Quick ratio (%) 68.2 75.3 91.8 90.8 125.2 186.4 222.1 222.7 242.7 307.9 Adjusted quick ratio (%) 54.8 72.7 105.3 98.6 151.3 300.6 443.8 454.1 522.1 1,193.0 Fixed ratio (%) 162.6 179.3 149.1 150.3 120.9 85.6 73.6 73.5 65.8 59.1 Interest-bearing debt (¥mn) 32,776 31,843 31,014 31,933 30,656 26,113 25,836 24,307 20,874 12,833 Average debt interest rate (%) 2.3 2.2 2.0 1.8 1.6 1.5 1.4 1.2 1.3 1.8 Dependence on debt (%) 36.8 40.3 36.2 38.2 34.5 26.8 22.0 20.3 16.8 10.3 Net debt (¥mn) 19,808 17,952 12,452 10,801 4,763 -9,514 -26,429 -28,607 -35,264 -43,657 Equity capital ratio (%) 37.1 33.9 36.8 34.9 41.7 50.1 52.4 54.4 58.7 65.2 D/E ratio (%) 99.4 118.7 98.3 109.5 82.9 53.5 41.9 37.3 28.7 15.8 Long-term debt ratio (%) 27.8 40.0 43.1 32.9 44.2 54.6 54.4 52.1 48.5 63.1 Working capital (¥mn) -2,912 19 6,484 5,090 15,383 30,793 42,950 42,494 47,619 53,879 Net interest expense (¥mn) -263 -216 -272 -192 -63 10 163 200 200 200 Cash plus marketable securities (¥mn) 12,968 13,891 18,562 21,132 25,893 35,627 52,265 52,914 56,138 56,490 Interest coverage ratio (x) 9.21 10.14 15.57 26.70 37.59 49.93 60.67 74.00 82.33 90.00 Financial leverage (x) 2.70 2.95 2.72 2.87 2.40 2.00 1.91 1.84 1.70 1.53 A/R to A/P ratio (%) 154.8 146.1 142.5 158.6 221.8 239.9 274.2 257.4 265.7 261.6 Dividend on equity (%) 3.8 4.5 4.7 6.3 8.2 9.3 8.8 11.0 11.4 11.3 (Profitability) ROE (%) 3.2 -5.0 15.0 30.9 43.5 29.2 23.2 21.9 22.5 22.1 ROA (%) 7.1 7.8 11.3 17.7 21.9 21.7 19.6 18.3 19.9 21.3 Inventory turnover ratio (x) 17.1 13.5 15.2 18.3 22.2 23.8 23.1 22.9 23.7 23.7 A/R turnover ratio (x) 7.2 6.2 7.2 7.2 7.4 7.2 6.5 6.4 6.7 6.7 A/P turnover ratio (x) 9.3 9.3 10.4 10.7 13.6 16.6 16.9 17.1 17.4 17.5 Inventory turnover days (days) 21.4 27.0 24.1 19.9 16.5 15.3 15.8 15.9 15.4 15.4 A/R turnover days (days) 50.4 59.0 50.5 51.0 49.6 50.9 55.7 56.9 54.8 54.9 A/P turnover days (days) 39.0 39.1 35.0 34.1 26.9 22.0 21.7 21.4 20.9 20.8 Sales per employee (¥mn) 70.2 50.4 52.9 55.8 56.1 57.1 59.7 62.1 65.8 68.0 OP per employee (¥mn) 4.9 4.8 6.7 10.9 14.2 15.5 16.3 16.8 18.7 20.5 (Per share data) EPS (¥) 12.8 -17.1 50.1 106.8 162.5 142.1 145.2 159.5 177.8 195.1 BPS (¥) 377.8 307.2 361.5 329.5 418.1 553.3 699.3 747.5 835.3 930.4 Sales per share (¥) 1,075.8 799.2 846.2 872.1 847.4 841.4 873.6 922.5 976.4 1,009.7 Operating cashflow per share (¥) 43.6 79.0 96.5 150.4 167.5 193.6 197.9 184.4 183.6 213.5 DPS (¥) 10.0 10.0 10.0 20.0 40.0 45.0 80.0 80.0 90.0 100.0 Dividend payout ratio (%) 78.4 -58.4 20.0 18.7 24.6 31.7 55.1 50.2 50.6 51.3 (Growth) EPS growth (%) -73.2 - - 113.1 52.3 -12.6 2.2 9.8 11.5 9.7 BPS growth (%) -8.8 -18.7 17.7 -8.9 26.9 32.3 26.4 6.9 11.8 11.4 Total assets growth (%) -7.6 -11.1 8.4 -2.4 6.1 9.8 20.7 1.8 3.7 0.2 Sustainable growth rate (%) 0.7 -7.9 12.0 25.1 32.8 20.0 10.4 10.9 11.1 10.8 (Investment profitability) Capital invested (¥ mn) 50,706 48,099 53,508 48,873 60,039 72,341 88,060 90,151 95,276 101,536 NOPAT (¥ mn) 1,457 -3,671 5,383 10,491 14,714 13,203 12,528 14,095 15,695 17,195 ROIC (%) 2.9 -7.6 10.1 21.5 24.5 18.3 14.2 15.6 16.5 16.9 WACC (%) 3.2 3.1 3.1 3.1 3.2 3.5 3.6 3.6 3.9 4.2 EVA (¥ mn) -153 -5,160 3,707 8,991 12,769 10,695 9,382 10,814 12,024 12,903 EVA spread (%) -0.3 -10.7 6.9 18.4 21.3 14.8 10.7 12.0 12.6 12.7 (Cashflow) EBITDA (¥mn) 8,258 8,279 10,760 16,385 20,185 21,559 22,519 23,200 25,700 28,000 EBITDA margin (%) 8.8 11.9 14.6 21.4 26.9 29.0 29.2 28.9 30.2 31.8 FCF (¥mn) 1,414 4,860 6,869 11,091 16,825 16,600 8,797 14,574 14,501 17,108 Operating C/F to Investment C/F rate (%) 159.0 338.5 540.6 623.2 -739.2 3522.7 201.7 1071.6 1066.7 1240.5 (Other) Employees numbers 1,368 1,398 1,394 1,354 1,316 1,284 1,294 1,294 1,294 1,294 Consolidated subsidiaries numbers 15 16 15 14 17 17 18 18 18 18 Average shares outstanding (mn) 87.3 87.3 87.3 87.9 88.5 88.2 88.2 87.2 87.2 87.2 End-of-period shares outstanding (mn) 87.3 87.3 87.3 88.5 88.5 88.2 88.2 87.2 87.2 87.2 Source: Company data, Credit Suisse estimates

Sanrio (8136 / 8136 JP) 19 06 October 2014 HOLT analysis Our HOLT analysis (DCF model premised on long-term average trendline) yields downside of 44% for Sanrio’s share price (based on analyst forecasts for FY14–16, average trendline for FY17 onward).

Figure 33: HOLT analysis

Source: Company data, Credit Suisse estimates, HOLT estimates

Sanrio (8136 / 8136 JP) 20 06 October 2014

Companies Mentioned (Price as of 03-Oct-2014) Aeon Mall (8905.T, ¥2,069) Forever 21, Inc. (Unlisted) Hennes & Mauritz (HMb.ST, Skr291.0) Inditex (ITX.MC, €21.4) KT Licensing Ltd. (Unlisted) Li & Fung Group (Unlisted) Macy's Inc. (M.N, $59.6) Mitsubishi Corp (8058.T, ¥2,162) Sanrio (8136.T, ¥3,125, OUTPERFORM, TP ¥3,950) Target Corporation (TGT.N, $63.07) Wal-Mart Stores, Inc. (WMT.N, $77.32) Walgreen Co. (WAG.N, $60.77) Walt Disney Company (DIS.N, $88.45)

Disclosure Appendix Important Global Disclosures I, Masashi Mori, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Sanrio (8136.T)

8136.T Closing Price Target Price Date (¥) (¥) Rating 20-Aug-12 2,484 3,100 O * 08-Nov-12 2,748 3,200 16-Nov-12 2,891 NR * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM N O T RAT ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10- 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Sanrio (8136 / 8136 JP) 21 06 October 2014

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 44% (55% banking clients) Neutral/Hold* 39% (50% banking clients) Underperform/Sell* 14% (43% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Price Target: (12 months) for Sanrio (8136.T) Method: Our ¥3,950 target price for Sanrio is based on FY3/16E P/E of roughly 22x, which is the average for the latter half of the preceding decade, during which the company's business model changed radically and the markets began to take note of the stock. Risk: Downside risks to our ¥3,950 target price for Sanrio include poorer profits due to waning popularity for the Hello Kitty character, on which Sanrio relies heavily. We also highlight disruptions to the overseas management structure if key figure Mr. Hatoyama (COO of Sanrio Inc.) retires.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (M.N, WMT.N, WAG.N, 8058.T) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (M.N, WMT.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (8058.T) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (M.N, WMT.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (M.N, WMT.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (8136.T, M.N, TGT.N, WMT.N, WAG.N, 8058.T) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (8058.T) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (M.N, TGT.N, WMT.N, WAG.N, 8058.T).

Sanrio (8136 / 8136 JP) 22 06 October 2014

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (8136.T, M.N, TGT.N, WMT.N, WAG.N, HMb.ST, 8058.T, ITX.MC) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: (HMb.ST, ITX.MC). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (M.N, WMT.N) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited ...... Masashi Mori Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

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Sanrio (8136 / 8136 JP) 23 06 October 2014

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