29 June 2015 Asia Pacific/ Equity Research Major Chemicals (Chemicals/Textiles (Japan)) / MARKET WEIGHT

Chemicals Research Analysts COMPANY UPDATE

Masami Sawato 81 3 4550 9729 [email protected] Corporate Day: , , , Shin-Etsu Chemical, JSR, Zeon, , Chemical, ■ Kuraray (3405, NEUTRAL TP ¥1,650): We forecast 1H FY3/16 OP of ¥29.5bn, beating guidance (¥29.0bn) by ¥0.5bn (the Quick consensus is ¥30.4bn). The company indicated that areas such as Poval products, including optical-use Poval film, isoprene, and methyl methacrylate have been outperforming, while glass laminating solutions (vinyl acetate-related) have been falling short of guidance. Based on firm 1Q shipments, the company expects shipment volume of optical-use Poval film to increase by around 7% YoY for the full year. We think Kuraray will likely leave full-year guidance unchanged. The company indicated that the impact of coated polarizing film among optical-use Poval film will be modest in the near term. ■ Asahi Kasei (3407, NEUTRAL, TP ¥1,200): We forecast 1Q OP of ¥32.0bn, equivalent to 45.4% of 1H guidance (¥70.5bn; Nikkei 1Q forecast ¥32.0bn; Quick consensus ¥32.1bn). The company indicated that profits have been tracking above guidance considering factors including that housing profits are concentrated in 2Q. At the chemicals segment, the company expects higher styrene monomer (SM) margins and functional resin outperformance to offset acrylonitrile (AN) margins, which have been tracking below its assumptions. We understand fibers, electronics, and pharmaceuticals & healthcare have also been firm. Housing orders are firm, but it expects a YoY decline in earnings due mainly to increases in materials and construction costs. We expect 1Q results to beat guidance but think the company will likely retain 1H OP guidance. ■ Tosoh (4042, NEUTRAL, TP ¥730): We forecast 1Q OP of ¥11bn, equivalent to 39.3% of 1H guidance (¥28bn). The company indicated that this is in line with guidance given that 1H profits have previously tended to be concentrated in 2Q. The company said functional products have been beating guidance due to higher margins resulting from the weaker yen, but that chlor-alkali has been missing targets due to lower margins on urethane feedstocks. The company expects urethane feedstock supply-demand to worsen in 2H as BASF is due to bring more capacity (400,000t/year) on line in July. We estimate urethane feedstock demand in Asia was around 2.7mn tonnes in 2014. We expect demand to increase by around 200,000t/year. A 400,000t/year increase in capacity is therefore likely to have a major impact, in our view. We think the company will likely retain 1H OP guidance at 1Q results.

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29 June 2015

■ Shin-Etsu Chemical (4063, NEUTRAL, TP ¥8,400): We forecast 1Q OP of ¥49.5bn, up 1.9% YoY from ¥48.6bn in 1Q the previous year. The Quick consensus is for ¥49.2bn. The company expects OP to decline YoY in the PVC and chemicals segment due to input procurement issues at Shintech in the US. Although we expect consolidated OP to rise YoY in 1Q owing to earnings growth in semiconductor silicon and brisk results from the electronic and functional materials segment to compensate. The issues at Shintech have been largely resolved as of June, and it expects earnings to recover in 2Q. In semiconductor silicon, we expect production cuts in logic chips starting from July to bring a halt to price rise negotiations in 2Q. These are likely to resume around the end of the year. We expect the company to announce new full- year guidance along with 1Q results and estimate this will be limited to about ¥195bn (+5.2% YoY). The I/B/E/S consensus is ¥212.6bn. Management’s basic policy on shareholder returns is to maintain a stable dividend, but it said it is still considering the amount and has not announced a dividend estimate. It is not considering share buybacks. ■ JSR (4185, NEUTRAL, TP ¥2,250): We forecast 1Q OP of ¥7.5bn, 46.9% progress toward 1H company guidance of ¥16bn. We understand management planned for OP of just under ¥8bn in 1Q, but the result has been somewhat weaker, due mainly to elastomers. Market prices for feedstock butadiene, an indicator for synesthetic rubber price trends, are recovering, but did not actually produce a rise in synthetic rubber prices in 1Q, which we understand left profitability below company expectations. Domestic tire production is also weak, which also left synesthetic rubber shipment volume short of target. S-SBR for eco-tires grew a brisk 30% YoY, but this was insufficient to cover the shortfall in commodity rubber. The semiconductor materials segment was also weaker due to the transition from 20nm to 16nm processes at major Taiwanese buyers of ArF immersion resist, sales of which were quite strong last year. We understand sales of LCD materials are going according to plan. For 2Q, while we forecast a synthetic rubber profitability recovery, a potential market correction in semiconductor materials is still a concern. We expect management to reiterate its current 1H OP guidance when it announces 1Q results. ■ Zeon (4205, NEUTRAL, TP ¥1,140): We forecast 1Q OP of ¥7bn, equivalent to 46.7% of 1H guidance (¥15bn). The company indicated that this is broadly in line with its expectations as Zeon's initial guidance called for OP to be concentrated in 2Q. Elastomer volume has been weak due to sluggish synthetic rubber prices in Apr–May. However, as synthetic rubber feedstock butadiene, a synthetic rubber price indicator, is currently priced above $1,400/t, which is higher than the company assumption ($1,100/t), the company expects margins to improve in 2Q. Optical film was impacted by inventory corrections for TV film in Apr–May, but among films for small to midsize devices, shipments of film for smartphones has remained firm. It expects shipments for new-model TVs to increase from 2Q. We look for performance in line with guidance in 1Q, but outperformance in 2Q due partly to higher shipments of optical film and profitability gains in synthetic rubber. However, we think the company will likely retain 1H OP guidance at 1Q results. ■ Ube Industries (4208, NEUTRAL, TP ¥250): We forecast 1Q OP of ¥6bn, equivalent to 42.9% of 1H guidance (¥14bn). Ube Industries' 1Q profits tend to be low as profits are usually concentrated in 2Q due to scheduled maintenance and seasonality. However, this year the company assumes substantial progress toward guidance in 1Q due to a YoY decline of around ¥5bn in scheduled maintenance costs at the chemicals segment in the first quarter. Factoring this in, we think 1Q results will be broadly in line with guidance. At the chemicals segment, it expects margins on caprolactam, used for nylon production, to beat guidance. At the electronic materials business, although electrolytes have been missing guidance, shipments of automotive separators to China have been firm. The company expects full-fledged shipments of coated separators

Chemicals 2 29 June 2015

from 2H. However, we understand pharmaceuticals have been tracking below guidance. We think the company will likely retain 1H OP guidance at 1Q results. ■ Hitachi Chemical (4217, OUTPERFORM, TP ¥3,200): We forecast 1Q OP of ¥11bn, equivalent to 45.8% of 1H guidance (¥24bn). As its initial guidance called for OP to be concentrated in 2Q, the company indicated that this is broadly in line with its expectations. We understand functional materials have been tracking slightly below guidance, but advanced components & systems have been beating expectations. Sales in Apr–May were up 11% YoY, beating 1H guidance calling for a 10% increase. Sales of functional materials were up only slightly YoY in Apr–May (1H guidance +5%), but sales of advanced components & systems rose 20% (15%). Powdered metals moved into profit on a monthly basis, and the company indicated that it has continued to improve margins. At the storage battery devices segment, sales of industrial batteries doubled YoY in May due to a contribution from the consolidation of Taiwanese battery maker CSB. Overall, sales rose 51% YoY. The company expects storage battery devices sales to increase heading into 2H. We think the company will likely retain 1H OP guidance at 1Q results. ■ Nippon Kayaku (4272, OUTPERFORM, TP ¥1,840): We expect the company to report 1Q OP of ¥6.0bn, 50.4% of its 1H OP target (¥11.9bn). Considering that management expected realization of 1H OP to be weighted toward 2Q, this 1Q result would indicate the company is on course to slightly beat its 1H targets. We think the good result has been realized by pharmaceutical segment profits holding even with the previous year level while safety systems turned in a strong performance. In the pharmaceuticals segment, we understand sales of the company’s generic injectable and orally administered agents both increased about 5% YoY. Meanwhile, number of hospitals adopting the company’s Remicade biosimilar expanded to 170. Nonetheless, 1Q sales evidently amounted to only about ¥0.2bn, indicating it will take longer to achieve a significant increase in sales. Up till end-March, the biosimilar was primarily used to treat new rheumatoid arthritis patients, but from April it has begun to be used instead of Remicade by existing patients, thus raising expectations for wider adoption in 2H. Nippon Kayaku expects FY3/16 sales to reach ¥2.4bn. We think management is unlikely to change its 1H OP guidance when it announces 1Q results.

Figure 1: Kuraray (3405) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 14/12 A 411.4 - 40.3 - 40.1 - 21.3 - 60.7 - 15/12 CS E 538.0 - 63.0 - 62.0 - 36.0 - 102.7 - CoE 540.0 - 64.0 - 64.5 - 38.0 - 108.3 - IBES E 534.5 - 63.5 - - - 37.6 - 107.9 - 16/12 CS E 553.0 2.8 68.0 7.9 67.0 8.1 42.5 18.1 121.2 18.1 IBES E 554.1 3.7 69.1 8.8 - - 42.9 14.1 121.4 12.5 17/12 CS E 567.0 2.5 72.0 5.9 71.0 6.0 45.0 5.9 128.4 5.9 IBES E 575.3 3.8 73.3 6.1 - - 46.9 9.2 129.8 6.9 Source: Company data, I/B/E/S, Credit Suisse estimates

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Figure 2: Asahi Kasei (3407) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 15/3 A 1,986.4 4.7 157.9 10.2 166.5 16.6 105.7 4.3 75.6 4.3 16/3 CS E 2,000.0 0.7 170.0 7.6 172.5 3.6 110.0 4.1 78.7 4.1 CoE 2,000.0 0.7 164.0 3.8 166.5 0.0 106.0 0.3 75.9 0.3 IBES E 2,007.7 1.1 167.0 5.7 - - 107.5 1.8 77.3 2.2 17/3 CS E 2,030.0 1.5 182.0 7.1 185.0 7.2 120.0 9.1 85.9 9.1 IBES E 2,028.6 1.0 177.1 6.1 - - 114.5 6.5 82.6 6.8 18/3 CS E 2,060.0 1.5 192.0 5.5 195.0 5.4 127.0 5.8 90.9 5.8 IBES E 2,082.7 2.7 189.3 6.9 - - 122.9 7.3 88.2 6.8 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 3: Tosoh (4042) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) 15/3 A 809.7 4.8 51.4 23.6 60.2 21.6 62.3 110.7 104.0 110.7 16/3 CS E 808.0 -0.2 64.5 25.5 64.5 7.2 41.0 -34.2 68.4 -34.2 CoE 810.0 0.0 67.0 30.4 67.0 11.3 43.0 -31.0 71.8 -31.0 IBES E 812.0 0.3 65.3 27.1 - - 41.9 -32.8 69.4 -33.2 17/3 CS E 823.0 1.9 65.5 1.6 65.7 1.9 41.7 1.7 69.6 1.7 IBES E 824.8 2.1 66.3 2.7 - - 42.6 3.9 70.7 3.4 18/3 CS E 837.0 1.7 67.5 3.1 67.8 3.2 43.1 3.4 71.9 3.4 IBES E 843.6 2.3 71.2 7.4 - - 46.9 10.0 77.3 9.3 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 4: Shin-Etsu Chemical (4063) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 15/3 A 1,255.5 7.7 185.3 6.6 198.0 9.6 128.6 13.2 302.0 13.1 16/3 CS E 1,290.0 2.7 224.0 20.9 231.0 16.7 150.5 17.0 353.4 17.0 CoE ------IBES E 1,308.3 4.2 212.6 14.7 - - 144.8 12.6 338.7 12.2 17/3 CS E 1,350.0 4.7 243.0 8.5 250.0 8.2 163.5 8.6 383.9 8.6 IBES E 1,387.0 6.0 237.5 11.7 - - 160.3 10.7 376.7 11.2 18/3 CS E 1,410.0 4.4 260.0 7.0 267.0 6.8 174.5 6.7 409.7 6.7 IBES E 1,434.8 3.4 257.9 8.6 - - 172.2 7.4 405.8 7.7 Source: Company data, I/B/E/S, Credit Suisse estimates

Chemicals 4 29 June 2015

Figure 5: JSR (4185) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) 15/3 A 404.1 2.5 38.1 5.6 41.6 5.0 29.9 18.8 130.0 21.4 16/3 CS E 425.0 5.2 42.0 10.3 43.0 3.3 31.5 5.3 136.9 5.3 CoE 420.0 3.9 41.0 7.7 42.0 0.9 31.0 3.6 134.7 3.6 IBES E 417.4 3.3 42.8 12.4 - - 32.0 6.8 138.7 6.7 17/3 CS E 440.0 3.5 48.0 14.3 49.0 14.0 35.5 12.7 154.3 12.7 IBES E 437.6 3.0 47.3 12.6 - - 34.9 10.7 152.4 11.4 18/3 CS E 460.0 4.5 52.0 8.3 53.0 8.2 38.5 8.5 167.3 8.5 IBES E 457.3 4.5 51.5 8.8 - - 38.0 9.1 167.3 9.7 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 6: Zeon (4205) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 15/3 A 307.5 3.7 28.2 -5.5 31.1 -4.5 19.1 -2.9 84.1 -2.9 16/3 CS E 325.0 5.7 34.0 20.4 34.0 9.3 24.0 25.8 105.8 25.8 CoE 320.0 4.1 32.0 13.3 32.0 2.9 23.0 20.5 101.4 20.5 IBES E 323.1 5.1 33.3 18.0 - - 22.9 19.9 100.2 19.2 17/3 CS E 340.0 4.6 37.5 10.3 37.5 10.3 25.0 4.2 110.2 4.2 IBES E 335.0 3.1 36.4 7.1 - - 25.2 5.1 111.0 4.9 18/3 CS E 355.0 4.4 40.0 6.7 40.0 6.7 26.7 6.8 117.7 6.8 IBES E 348.9 4.2 39.4 8.2 - - 27.6 9.2 123.0 10.9 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 7: Ube Industries (4208) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 15/3 A 641.8 -1.3 24.1 -1.1 23.2 24.3 14.6 16.1 13.8 13.5 16/3 CS E 685.0 6.7 36.0 49.1 32.0 37.8 17.0 16.0 16.1 16.0 CoE 685.0 6.7 36.0 49.1 32.0 37.8 17.0 16.0 16.1 16.1 IBES E 678.1 5.7 34.3 42.2 - - 16.8 14.9 16.1 16.3 17/3 CS E 700.0 2.2 40.0 11.1 36.0 12.5 21.5 26.5 20.3 26.5 IBES E 691.9 2.0 38.0 10.5 - - 20.0 19.1 19.1 18.3 18/3 CS E 716.0 2.3 43.0 7.5 39.0 8.3 23.4 8.8 22.1 8.8 IBES E 713.0 3.0 42.7 12.6 - - 23.3 16.1 22.3 16.9 Source: Company data, I/B/E/S, Credit Suisse estimates

Chemicals 5 29 June 2015

Figure 8: Hitachi Chemical (4217) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 15/3 A 534.0 8.1 35.1 26.5 40.3 25.5 21.1 -12.5 101.3 -12.5 16/3 CS E 576.0 7.9 56.0 59.3 60.0 49.0 39.5 87.2 189.7 87.2 CoE 570.0 6.8 55.0 56.5 56.0 39.1 39.0 84.8 184.9 82.5 IBES E 568.3 6.4 52.6 49.7 - - 37.3 76.7 179.5 77.2 17/3 CS E 594.0 3.1 61.0 8.9 65.0 8.3 45.0 13.9 216.1 13.9 IBES E 594.8 3.3 57.7 3.0 - - 40.7 3.0 196.3 3.5 18/3 CS E 615.0 3.5 65.0 6.6 69.0 6.2 48.0 6.7 230.5 6.7 IBES E 619.7 4.2 62.2 7.8 - - 44.4 9.1 216.0 10.1 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 9: Nippon Kayaku (4272) - Forecasts summary Sales Operating profit Recurring profit Net profit EPS

¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥bn YoY (%) ¥ YoY (%) Consolidated 15/3 A 161.9 1.1 22.3 -7.4 25.2 -5.0 15.7 -6.4 86.4 -6.4 16/3 CS E 176.0 8.7 25.0 12.1 25.6 1.7 16.0 2.2 88.3 2.2 CoE 176.0 8.7 25.0 12.1 25.6 1.7 16.0 2.2 88.3 2.2 IBES E 175.4 8.4 24.5 9.9 - - 16.3 4.1 90.0 4.1 17/3 CS E 190.0 8.0 28.9 15.6 29.5 15.2 18.8 17.5 103.7 17.5 IBES E 190.2 8.4 28.7 17.1 - - 18.5 13.5 102.1 13.5 18/3 CS E 209.0 10.0 33.5 15.9 34.1 15.6 22.0 17.0 121.4 17.0

IBES E 210.1 10.4 33.0 15.0 - - 21.5 15.9 118.4 15.9 Source: Company data, I/B/E/S, Credit Suisse estimates

Chemicals 6 29 June 2015

Companies Mentioned (Price as of 29-Jun-2015) Asahi Kasei (3407.T, ¥1,013, NEUTRAL, TP ¥1,200) BASF (BASFn.DE, €83.15) CSB Battery Co., Ltd. (Unlisted) Hitachi Chemical (4217.T, ¥2,204, OUTPERFORM, TP ¥3,200) JSR (4185.T, ¥2,185, NEUTRAL, TP ¥2,250) Kuraray (3405.T, ¥1,481, NEUTRAL, TP ¥1,650) Nippon Kayaku (4272.T, ¥1,309, OUTPERFORM, TP ¥1,840) Shin-Etsu Chemical (4063.T, ¥7,585, NEUTRAL, TP ¥8,400) Shintech (Unlisted) Tosoh (4042.T, ¥766, NEUTRAL, TP ¥730) Ube Industries (4208.T, ¥231, NEUTRAL, TP ¥250) Zeon (4205.T, ¥1,137, NEUTRAL, TP ¥1,140)

Disclosure Appendix Important Global Disclosures I, Masami Sawato, 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 Asahi Kasei (3407.T)

3407.T Closing Price Target Price Date (¥) (¥) Rating 09-Aug-12 418 440 N 12-Nov-12 439 460 31-Jan-13 528 670 O 23-May-13 691 830 30-Aug-13 724 850 31-Oct-13 745 920 14-Jan-15 1,106 1,070 N 17-Mar-15 1,225 1,170 28-May-15 1,107 1,200 * Asterisk signifies initiation or assumption of coverage. NEUTRAL OUTPERFORM

3-Year Price and Rating History for Hitachi Chemical (4217.T)

4217.T Closing Price Target Price Date (¥) (¥) Rating 01-Aug-12 1,189 1,760 O 18-Oct-12 1,067 1,560 22-Jan-13 1,327 1,640 30-Jan-13 1,264 1,630 05-Jun-13 1,582 2,160 02-Sep-13 1,620 1,960 25-Oct-13 1,503 1,930 28-Jan-14 1,490 1,620 N 12-Aug-14 1,837 2,250 O 11-Mar-15 2,612 3,200 OUTPERFORM NEUTRAL * Asterisk signifies initiation or assumption of coverage.

Chemicals 7 29 June 2015

3-Year Price and Rating History for JSR (4185.T)

4185.T Closing Price Target Price Date (¥) (¥) Rating 23-Jul-12 1,391 1,800 O 18-Oct-12 1,323 1,500 23-Jan-13 1,699 2,000 24-Apr-13 2,197 2,320 30-Aug-13 1,720 2,120 28-Oct-13 1,867 2,040 27-Jan-14 1,929 2,100 23-Apr-14 1,754 1,950 21-Oct-14 1,740 1,900 N 10-Mar-15 2,118 2,270 OUTPERFORM NEUTRAL 22-Apr-15 2,195 2,250 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Kuraray (3405.T)

3405.T Closing Price Target Price Date (¥) (¥) Rating 31-Jul-12 922 1,320 O 24-Oct-12 902 1,150 10-Dec-12 1,039 1,150 N 01-Apr-13 1,338 1,700 O 28-May-13 1,509 2,000 22-Aug-13 1,127 1,250 N 29-Oct-13 1,168 1,200 27-May-14 1,243 1,300 06-Aug-14 1,325 1,400 16-Mar-15 1,546 1,650 OUTPERFORM NEUTRAL * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Nippon Kayaku (4272.T)

4272.T Closing Price Target Price Date (¥) (¥) Rating 17-Jul-12 749 950 O 03-Dec-12 926 950 N 29-Jan-13 1,019 1,030 22-Apr-13 1,376 1,300 09-Jun-14 1,291 1,700 O 13-Apr-15 1,506 1,890 22-Jun-15 1,379 1,840 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL

Chemicals 8 29 June 2015

3-Year Price and Rating History for Shin-Etsu Chemical (4063.T)

4063.T Closing Price Target Price Date (¥) (¥) Rating 26-Jul-12 3,895 4,670 N 25-Oct-12 4,610 4,300 17-Jan-13 5,420 6,200 O 25-Apr-13 6,670 7,820 05-Jul-13 6,900 8,040 02-Sep-13 5,930 7,800 24-Oct-13 5,740 7,400 28-Jan-14 5,606 7,100 08-Oct-14 6,882 7,500 10-Dec-14 8,105 9,000 NEUTRAL OUTPERFORM 17-Mar-15 8,196 8,500 N 28-Apr-15 7,909 8,400 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Tosoh (4042.T)

4042.T Closing Price Target Price Date (¥) (¥) Rating 08-Aug-12 180 210 N 31-Aug-12 165 180 13-Nov-12 153 160 10-Dec-12 179 160 U 28-Jan-13 214 210 12-Mar-13 277 280 03-Jun-13 322 310 03-Sep-13 369 320 03-Feb-14 424 350 16-Apr-14 387 320 NEUTRAL UNDERPERFORM 02-Jun-14 485 480 N 15-Jan-15 589 600 23-Jun-15 818 730 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Ube Industries (4208.T)

4208.T Closing Price Target Price Date (¥) (¥) Rating 01-Aug-12 167 200 N 31-Aug-12 171 180 16-Oct-12 176 170 01-Feb-13 192 200 12-Mar-13 193 210 29-May-13 209 220 30-Aug-13 174 200 16-Oct-14 154 190 19-Jun-15 219 250 * Asterisk signifies initiation or assumption of coverage. NEUTRAL

Chemicals 9 29 June 2015

3-Year Price and Rating History for Zeon (4205.T)

4205.T Closing Price Target Price Date (¥) (¥) Rating 08-Aug-12 636 740 O 17-Oct-12 562 710 22-Jan-13 754 980 08-Mar-13 971 1,260 23-May-13 1,063 1,600 17-Jan-14 1,050 1,400 17-Mar-14 901 1,300 20-Oct-14 977 1,000 N 08-May-15 1,137 1,140 * Asterisk signifies initiation or assumption of coverage. OUTPERFORM NEUTRAL

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Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 52% (25% banking clients) Neutral/Hold* 33% (45% banking clients) Underperform/Sell* 13% (46% banking clients) Restricted 2% *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.

Chemicals 10 29 June 2015

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Kuraray (3405.T)

Method: Our ¥1,650 target price for Kuraray is based on our FY12/16 EPS forecast of ¥121.2 and the average P/E of 13.6x since 2012. Risk: Risks to our ¥1,650 target price for Kuraray include: upside: greater-than-expected growth in the demand for LCD TVs and expansion of non-LCD-related businesses; downside: (1) a demand slump within the LCD market, (2) rapid uptake of large OLED devices, and (3) emergence of poval film substitutes on a commercial scale.

Price Target: (12 months) for Asahi Kasei (3407.T)

Method: We base our ¥1,200 target price for Asahi Kasei by applying a P/E of 14x (12-month forward average for 10 years) to our FY3/17 EPS estimate of ¥85.9. Risk: Upside risks to our ¥1,200 target price for Asahi Kasei include improvement in AN margins and growth in monthly housing orders. Downside risks include looser AN supply-demand, slowing electronics demand, and a stronger yen.

Price Target: (12 months) for Tosoh (4042.T) Method: Our ¥730 target price for Tosoh uses FY3/17E EPS of ¥69.6 and a P/E of 10.5x. Our multiple is based on the sector-relative P/E (10-year average) of 0.88x and the coverage average P/E of 11.9x (as of June 2015). The sector-relative P/E is based on a universe of 23 companies in our coverage, including Mitsubishi Chemical Holdings, Shin-Etsu Chemical, and Toray. Risk: Upside risks to our ¥730 target price for Tosoh include stronger-than-anticipated recoveries for prices for urethane feedstocks and ethyleneamines, and higher profits in advanced materials due to yen weakness. Downside risks for medium-term earnings include the rise of natural gas-based products in the Middle East and US weakening Tosoh’s cost competitiveness, and yen appreciation squeezing export margins.

Price Target: (12 months) for JSR (4185.T)

Method: We base our ¥2,250 TP on end-FY3/16E BPS of ¥1,657.2 and a P/B of 1.36x, calculated by multiplying the 1.05x 10-year historical average of the stock’s P/B relative to our electronic materials coverage universe by the current 1.3x average P/B for the same universe.

Risk: The following could be seen as risks to our ¥2,250 target price for JSR: Upside risks include greater-than-expected expansion in cutting- edge materials such as new alignment films and immersion ArF photoresists. Potential medium-term catalysts include growing demand for S-SBR and profitability in medical materials, lithium-ion capacitors, etc. A share buyback announcement is yet another potential share price catalyst. Downside risks include slower demand for synthetic rubber, semiconductors, or LCDs.

Price Target: (12 months) for Shin-Etsu Chemical (4063.T) Method: We derive our ¥8,400 target price for Shin-Etsu Chemical from FY3/17E EPS of ¥383.9 and a fair-value P/E of 21.9x. Our valuation is based on the average P/E since 2000 (after the dot-com bubble, 19x) and a premium of 15%.

Risk: Risks that could cause the share price to diverge from our ¥8,400 target price for Shin-Etsu Chemical: Upside risks include an early resolution of the raw material supply woes at Shintech, and greater-than-forecast price increases for silicon wafers. Downside risks include a decrease in silicon wafer shipments due to a slowdown in demand for semiconductors used in smartphones and automotives, and a shift to yen appreciation.

Price Target: (12 months) for Zeon (4205.T) Method: Our ¥1,140 target price for Zeon is based on a P/E of 10.3x applied to our FY3/17 EPS estimate of ¥110.2. Our fair-value P/E assumption reflects the stock's 10-year average sector-relative P/E of 0.9x and the current average P/E of 11.4.x for diversified chemicals stocks in our coverage. Risk: The main risks that could cause the share price to diverge from our ¥1,140 target price for Zeon are: Downside - a decline in optical film demand and declines in automobile/tire production; Upside - recovery in demand for synthetic rubber and improvement in its profitability, increase in orders for optical films.

Chemicals 11 29 June 2015

Price Target: (12 months) for Ube Industries (4208.T) Method: We derive our ¥250 target price for Ube Industries from a fair-value P/B of 0.9x applied to our FY3/17 BPS estimate of ¥274.8. The fair- value P/B is the average P/B over the past 10 years for integrated chemical sector companies in our coverage (1.0x) multiplied by 0.9x (the average P/B for the companies in our coverage).

Risk: Risks to our ¥250 target price for Ube Industries include: Upside: caprolactam margins tracking ahead of management's assumptions, new customers for automotive LiB materials, and an upturn in demand for polyimide and other electronic materials; Downside: falling caprolactam prices due to worsening supply–demand conditions.

Price Target: (12 months) for Hitachi Chemical (4217.T) Method: We base our ¥3,200 target price for Hitachi Chemical on a fair-value P/E of 14.8x applied to estimated FY3/17 EPS of ¥216.1. Fair-value P/E is the TOPIX-average P/E (16.6x) for the integrated chemical sector times the sector average P/E relative to TOPIX of the past 10 years (0.89x).

Risk: Risks to our ¥3,200 target price for Hitachi Chemical include: upside: stronger-than-expected monthly sales of electronics materials and automotive parts, and recovery in demand for touch panel materials and expanded takeup of automotive LiB anode materials; downside: yen restrengthening and a slowdown in demand for electronic materials including die bonding materials.

Price Target: (12 months) for Nippon Kayaku (4272.T) Method: We employ a P/E of 17.7x (the average P/E since 2001) and our FY3/17E EPS of ¥103.7 to calculate our ¥1,840 TP.

Risk: Risks that may impede achievement of our ¥1,840 target price for Nippon Kayaku include market rejection of biosimilars, diminishing price differences between biosimilars and original brands, a deceleration of growth in the auto industry, reduced catalyst demand, and overseas generic makers entering Japan's market over the long term.

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 Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (3405.T, 3407.T, 4042.T, 4185.T, 4063.T, 4205.T, 4208.T, 4217.T) within the next 3 months. 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 (3405.T, 3407.T, 4042.T, 4185.T, 4063.T, 4205.T, 4208.T, 4217.T, 4272.T) 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 https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. The following disclosed European company/ies have estimates that comply with IFRS: (3407.T). 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 ...... Masami Sawato

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Chemicals 12 29 June 2015

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