03 September 2015 Asia Pacific/ Equity Research (Electrical Equipment (Japan)) / MARKET WEIGHT

Car Electronics Research Analysts INITIATION

Mika Nishimura 81 3 4550 7369 [email protected] Poised for structural change; our top pick amid strong earnings momentum

■ Initiating coverage of four companies: We assess the car electronics makers based on their earnings momentum in existing navigation/audio businesses and the speed at which they are commercializing and likely to profit from next-generation technologies. Clarion leads in both areas in our view, and we initiate coverage with an OUTPERFORM rating. First, while all four companies are securing new OEM/dealer option orders in navigation/audio equipment, we expect Clarion to see the earliest profit contribution in support of strong earnings momentum in FY3/16–17. Second, we anticipate growth in sales of Clarion’s next-generation vehicle camera systems as well as increased functionality for these products (links with vehicle control). Another key strength for Clarion is its ties with in R&D, procurement, and other areas. ■ Differentiation: Car electronics names were in the spotlight through mid- 2014 amid a number of compelling investment themes for the space, including growing ties with Apple and Google and next-generation navigation systems that offer driving support. While interest in these themes has now settled down a bit, the four car electronics companies are making steady progress in next-generation areas such as driving support systems and links to the cloud, and we think this could support longer-term growth in the scope of their operations. We also see prospects for eventual industry consolidation as efforts to develop comprehensive vehicle systems prompt companies to strengthen ties with one another. ■ Stock calls: Clarion (6796, TP ¥430, OUTPERFORM) is our top pick in the sector, followed by Pioneer (6773, TP ¥260, NEUTRAL) and then by Alpine Electronics (6816, TP ¥2,000, NEUTRAL) and JVC Kenwood (6332, TP ¥310, NEUTRAL) on an equal footing. Figure 1: Expected timing of earnings contributions from new business at four car electronics makers 1H FY3/16 2H FY3/16 1H FY3/17 2H FY3/17 FY3/18 FY3/19

JVC Kenwood Dealer option Digital cockpit

Map data, instrumentation, etc. Pioneer OEM from 4Q

OEM Clarion Automotive camera systems for Bird's-eye/rear view automotive cameras/systems, TCU, etc. automated parking

Alpine OEM Advanced infotainment

Source: Company data, 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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03 September 2015 Sector poised for structural change Initiating coverage of four companies, with Clarion at OUTPERFORM Clarion our top pick in view of strong earnings momentum and rapid commercialization of next-generation technologies We initiate coverage of Clarion with a ¥430 TP and an OUTPERFORM rating, as we think Initiate on Clarion at the company leads the sector in terms of: (1) earnings momentum in the existing OUTPERFORM with ¥430 navigation/audio business and (2) the speed at which it is commercializing and likely to TP profit from next-generation technologies. First, while all four companies are securing new OEM/dealer option orders in navigation/audio equipment, we expect Clarion to see the earliest profit contribution in support of strong earnings momentum in FY3/16–17. Second, we anticipate increased sales of Clarion’s next-generation vehicle camera systems as well as increased functionality for these products (links with vehicle control). Another key strength for Clarion is its ties with Hitachi in R&D, procurement, and other areas. Our order of preference after Clarion is Pioneer and then Alpine Electronics and JVC Kenwood on an equal footing. Pioneer faces shrinking aftermarket demand for navigation equipment, but we also (1) think profits could rise sharply in FY3/17 as the company lowers its cost base and (2) see medium-term potential in high-resolution maps. We believe these factors give Pioneer a slight edge over the other two. Alpine’s profits are, meanwhile, steady but looking sluggish for FY3/16–17 amid a fallow period for OEM demand. We expect JVC Kenwood to see higher profits in FY3/17 driven by growth in its dealer option business, but current weakness augurs against any near-term rise in expectations.

Figure 2: TP and valuations for four car electronics makers Share price Potential P/E P/B EPS(JPY) BPS(JPY) Rating Target price 9/2/2015 return FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 6632 JVC Kenwood 250 NEUTRAL 300 +20% 39.7 12.9 0.5 0.5 6.3 19.4 524.0 538.4 6773 Pioneer 225 NEUTRAL 260 +16% 81.3 12.4 0.8 0.8 2.8 18.2 279.8 293.0 6796 Clarion 288 OUTPERFORM 430 +49% 10.8 9.3 2.0 1.7 26.5 30.8 143.1 168.0 6816 Alpine 1582 NEUTRAL 1,950 +23% 5.4 11.2 0.7 0.7 290.7 141.8 2,317.8 2,419.6 Source: Company data, Credit Suisse estimates

Figure 3: OP for four car electronics makers FY3/14 FY3/15 FY3/16 FY3/17 Actual Actual CS E CoE IBES E CS E IBES E (JPY bn) 1H 2H FY 1H 2H FY 1HE 2HE FYE YOY FYE FYE FYE YOY FYE 6632 JVC Kenwood -2.2 6.6 4.4 1.1 5.4 6.6 -0.5 7.4 6.9 5% 8.0 7.6 9.6 39% 9.0 6773 Pioneer 0.6 10.6 11.2 3.4 4.4 7.8 1.5 6.6 8.1 4% 8.0 7.9 13.9 72% 11.9 6796 Clarion 0.9 4.3 5.5 3.7 3.7 7.4 4.6 7.3 11.9 61% 11.0 10.4 14.1 18% 12.5 6816 Alpine 3.8 6.0 9.8 4.5 7.0 11.5 4.6 7.0 11.6 1% 10.0 11.1 12.9 11% 12.2 Source: Company data, Credit Suisse estimates

Car Electronics 2 03 September 2015

Overview of individual company reports Details for each company are as follows. Clarion (6796): OUTPERFORM, ¥430 TP We base our TP on a FY3/17E P/E of 14x, the average for rival car electronics makers. Our bullishness reflects: (1) strong earnings momentum, (2) benefits from the alliance with Hitachi in terms of R&D and cost structure, and (3) scope for medium-term profit growth accompanying commercialization of driving support technologies. We expect new orders in existing business to make an increased profit contribution from 2H FY3/16 and support strong quarterly earnings momentum through 1H FY3/17. We also have high expectations of medium-term profit growth in driving-support technologies centred on vehicle camera systems. Pioneer (6773): NEUTRAL, ¥260 TP We base our TP on a FY3/17E P/E of 14x, the average for rival car electronics makers. We think Pioneer is on course to eventually expand its OEM navigation business and also move into new areas using its map data, but profit contributions look a ways off. We take a wait-and-see stance for now, as FY3/16 profits look set to come under pressure from higher fixed costs and aftermarket demand continues to shrink. We intend to revisit our stance at the interim, as this give us an opportunity to see whether cost reductions are on schedule and how new aftermarket products are faring. Alpine Electronics (6816): NEUTRAL, ¥1,950 TP We base our TP on a FY3/17E P/E of 14x, the average for rival car electronics makers. We think Alpine’s future looks bright, with new OEM business set to contribute from 2H FY3/17 and next-generation vehicle systems likely to contribute over the longer term. However, FY3/16–3/17 is a fallow period for OEM demand, and we expect sluggish near- term profits to impede any ramp-up of investor expectations. JVC Kenwood (6632): NEUTRAL, ¥300 TP We base our TP on a FY3/16E P/B of 0.6x, the stock’s post-merger average. JVC Kenwood is currently reconfiguring its line of car electronics products and developing next-generation systems. However, we expect near-term earnings to come under pressure from a shrinking aftermarket and a tardy recovery at an overseas radio subsidiary. We look for this to weigh on investor expectations for now.

Car Electronics 3 03 September 2015

All four winning new orders, but profit timing varies Clarion could see substantial contribution from new orders in FY3/16–17 All four companies have been securing new OEM orders (dealer option for JVC Kenwood), but Clarion is already seeing a profit contribution here that looks set to become fully Clarion already seeing a fledged in FY3/17. We look for a steady increase in JVC Kenwood’s dealer option sales profit contribution from 2H FY3/16, while Alpine and Pioneer will probably not see a profit contribution from new OEM business until 2H FY3/17 (4Q for Pioneer). Next-generation fields could expand scope of operations over medium term Companies stepping up efforts in driving-assistance fields as cars evolve We expect car navigation systems to become more feature-rich as a result of Companies stepping up developments in the areas of onboard communications systems (essentially turning cars efforts in next generation into mobile devices) and autonomous driving. The added value of car navigation systems area will probably increase through an increase in the amount and types of information displayed (to include data on the surrounding area and more detailed automotive systems information) as well as a stronger link between car navigation and vehicle control. As discussed earlier, there is evidently a trend toward more advanced features (such as enhanced communications) even in new models of existing car navigation systems. The following table outlines the efforts of individual companies. Clarion is working on linking its equipment to the cloud and to vehicle control (the latter through onboard cameras and systems). Pioneer is enhancing information-related features such as cloud connection and high-precision mapping. Alpine and JVC Kenwood are focusing on digital cockpit and other high-performance car navigation technology, including improving the user interface.

Figure 4: Status of initiatives in next-generation car electronics Data, cloud alliances Next-generation user interface Shift to more advanced satnav Link with vehicle control Commercializing head-up system, JVC Kenwood Developing on-board camera systems developing/testing digital cockpits Allied with 's data service (), developing high-precision maps and Pioneer Commercializing head-up displays surroundings detection Improved communications capabilities, equipment for automated responsiveness, compatability with driving, etc. smartphones, etc. Developing proprietary cloud Clarion service Developing head-up displays Has developed on-board camera system (Smart Access) Developing head-up displays, Alpine developing/testing digital cockpits Source: Company data, Credit Suisse Clarion: Onboard cameras now commercialized and sales growing; technology evolving in new directions

Although we do not expect onboard cameras to start contributing to the car electronics Auto cameras to be more companies’ earnings on a full scale until FY3/19 at the earliest, they have already started functional to contribute to Clarion’s earnings. In onboard cameras, Clarion handles both individual units and systems. In onboard camera systems, it has a particularly high market share (nearly 50% of the global market) in 360-degree overhead-view systems. Such systems use four cameras to provide an image of car from above during parking. Clarion-made overhead-view systems have been used in Motor vehicles since 2007 (Nissan calls this technology the Around View Monitor), and earnings from this product have grown. Plans evidently call for Clarion’s cameras to be used in a self-parking system from around 2018.

Car Electronics 4 03 September 2015

Clarion’s onboard-camera-related sales are expanding as a result of automakers enhancing their driving-assistance features. In FY3/15, onboard-camera-related sales accounted for around 10% of Clarion’s total sales. Such sales are likely to continue increasing given that the ratio of cars with onboard cameras is still rising. Another factor likely to drive sales growth is that individual countries are still in the process of establishing safety-related laws and regulations.

Figure 5: Onboard camera volume (worldwide) Figure 6: Onboard camera market penetration (Japan)

80 40% Sensing Camera Back Camera 70 35% View Camera Side Camera 60 30% Front Nose Camera 50 25%

40 20% (mn units) (mn 30 15%

20 10%

10 5%

0 0% 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: TSR, Credit Suisse estimates Source: MLIT, Credit Suisse

Focusing on strengthening alliances A number of alliances Alliances could strengthen as development of next-generation systems accelerates currently being formed As the following figure shows, a number of alliances are currently being formed. These include alliances between suppliers and their customers, ones aimed at improving manufacturing efficiency, and technology alliances to facilitate the development of next- generation systems. Next-generation systems involve increased linkage to the cloud and to vehicle control, and since there is a limit to what any one company can develop on its own, even stronger alliances among companies will be necessary. For Clarion, its alliance with Hitachi is strengthening, and our focus is on whether their Focusing on further capital relationship changes as part of this move (and specifically, whether Clarion will alliances to expand become a wholly owned subsidiary of Hitachi). If the supply of systems that blend the two business areas companies’ technologies increases, it would be rational for them to put in place a comprehensive development system. For Pioneer, our focus is on the possibility of an alliance with its Increment P subsidiary and another company. In the driving-assistance field, Pioneer is currently developing high- precision maps (including 3D maps). We think that forming an alliance with an automaker or another car electronics company would speed up this development process. For Alpine, we foresee no major change anytime soon to its capital relationship with . Alpine’s relationship with China’s has been deepening since July, and the two have announced the establishment of a joint venture in the next-generation systems field. Our focus is on whether this leads to an expansion of Alpine’s business in China. For JVC Kenwood, we see potential for a further expansion of OEM operations and the formation of an alliance that contributes to the next-generation systems field. We are also focused on the potential for an automaker-led sector reorganization (involving, for example, strengthened capital relationships and standardization of development and services).

Car Electronics 5 03 September 2015

Figure 7: Various companies’ alliances

Parent Wholly-owned Pioneer subsidiary Map data, map software Hitachi

Licensing of around view monitor Business partnership centered Increment P 63.60% and moving object detection camera on satnav platform data processing technology (11/2) development Nissan Clarion Google Provision of voice recognition and search technology (13/5) 7.49% Pioneer NTT 3.00% 6.92% JVC Kenwood ZMP "Docomo DriveNet Info" (business 3.94% partnership pertaining to cloud- based information service for 0.84% vehicle users) Alpine Ten Honda Motor 40.43% Joint development of on-board platform Speaktoit Alps Electric Parent JV Toshiba Alpine Automotive Capital participation by Technology (03/1) Alpine Source: Company data, Credit Suisse

Car Electronics 6 03 September 2015 Risks Unexpectedly rapid market contraction in aftermarket products, slowdown in auto sales Aftermarket products continue to struggle owing to a shift to dealer option, OEM products In aftermarket products, demand for car navigation products, particularly in Japan, is Struggling in the aftermarket shifting to dealer option and OEM products. In audio products, particularly overseas, the demand is present in emerging markets, but we think this field could follow the pattern of car navigation over time with a shift to dealer option and OEM products, as well as an acceleration of the replacement of car audio by smartphones (which can be hooked up to the car, obviating the need for onboard audio equipment).

Figure 8: ’s monthly car electronics sales 40% Car Electronics existing store sales YOY 30%

20%

10%

0%

-10%

-20%

-30%

-40%

-50%

09/8 10/8 15/4 03/4 03/8 04/4 04/8 05/4 05/8 06/4 06/8 07/4 07/8 08/4 08/8 09/4 10/4 11/4 11/8 12/4 12/8 13/4 13/8 14/4 14/8

04/12 05/12 06/12 07/12 08/12 09/12 10/12 11/12 12/12 13/12 14/12 03/12 Source: Autobacs, Credit Suisse Sales trends at major customers could have negative effect on OEM sales On top of a decline in global auto production and sales, stagnant production and sales at Watching the trends of main major customers could have a negative impact on car electronics companies’ earnings. users We will monitor trends at Nissan Motor (a major Clarion customer), Honda Motor (a major Alpine customer), as well as at foreign luxury automakers.

Car Electronics 7 03 September 2015

Figure 9: Car electronics product mix and sales mix (FY3/15)

Aftermarket OEM Overseas sales ratio

JVC Kenwood 83%

Clarion 47%

Pioneer 63%

Alpine 90%

0 50 100 150 200 250 300 350 400

(¥1bn)

Source: Company data, Credit Suisse Development costs could increase in preparation for entering next-generation fields Companies focusing on controlling costs amid steep increase in development requirements Development costs have been persistently high among car electronics companies, with Focusing on controlling R&D the exception of Pioneer, where deteriorating earnings led to a restructuring, and in turn to costs a sharp pullback in development spending. Development costs are rising rapidly as a result of increasing orders for existing car navigation and car audio equipment, as well as up-front investment in next-generation fields. The car electronics companies are stepping up their efforts to control costs through increased development efficiency and alliances with other companies (Hitachi in the case of Clarion, Alps Electric and Fujitsu Ten in the case of Alpine, and in the case of Pioneer). We note that in parallel with their efforts to increase development efficiency, car electronics companies are constantly working to lower CoGS by such actions as adopting common components and reviewing procurement processes. Even if development costs rise, we think these companies will be able to partially offset this through CoGS reduction.

Figure 10: R&D costs at individual companies Figure 11: R&D cost ratios at individual companies Clarion 40 Clarion 16% Pioneer Pioneer Alpine 35 14% Alpine JVC Kenwood 30 JVC Kenwood 12%

25 10%

(¥bn) 20 8%

15 6%

10 4%

5 2%

0 0% 3/11 3/12 3/13 3/14 3/15 3/16E 3/17E 3/18E 3/11 3/12 3/13 3/14 3/15 3/16E 3/17E 3/18E

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

Car Electronics 8 03 September 2015

Forex swings Yen appreciation against the dollar negative for Clarion and Alpine, Yen appreciation against the dollar is a negative for Alpine, as its overseas sales ratio is Yen appreciation vs. the high. Clarion has become more resilient against yen depreciation as a result of the return dollar is a negative for of production to Japan, as it would drive up the cost of imported products sold in Japan. In Alpine and Clarion FY3/16, yen appreciation has become a negative for earnings, For Pioneer and JVC Kenwood, yen appreciation is a positive, as it increases the cost of products manufactured overseas. Note that yen appreciation against the euro is a negative for all four companies.

Figure 12: Forex sensitivity OP sensitivity Impact of FY3/16 CS estimate FY3/16 Company estimate per ¥1 change ¥5 change (123¥/US$、138¥/€) Forex OP (¥mn) on FY3/16 company's OP plan FY3/16 FY3/17 assumption US$ € (¥bn) (¥bn) (¥bn) (¥bn) US$ € (¥bn) 6632 JVC Kenwood 100 -100 5.2% -5.2% 6.9 9.6 120.0 128.0 8.0 6773 Pioneer 300 -150 10.8% -5.4% 8.1 13.9 121.8 134.8 8.0 6796 Clarion -100 -50 -3.5% -1.8% 11.9 14.1 120.0 130.0 11.0 6816 Alpine -100 -100 -3.9% -3.9% 11.6 12.9 120.0 120.0 10.0 Source: Company data, Credit Suisse estimates

Car Electronics 9 03 September 2015 Appendix

Figure 13: Car electronics global volume Figure 14: Car navigation equipment volume by region

140 14 50%

120 12 40% 10 100 30% 8 80 20% (mn) 6 (mn) 60 10% 4 40 2 0% 20 0 -10%

0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2001 2014 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1999 Japan China US Western Europe Others Worldwide YOY Car navigation Car CD PND

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

Figure 15: Car audio equipment volume by region Figure 16: PND volume by region

90 30% 40 20% 80 25% 35 15% 70 20% 30 60 15% 10% 25 50 10%

20 5% (mn) 40 5% (mn) 15 30 0% 0% 10 20 -5% -5% 10 -10% 5

0 -15% 0 -10%

2013 2006 2007 2008 2009 2010 2011 2012 2014

2003 2010 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014

Japan China US Japan China US Western Europe Others Worldwide YOY Western Europe Others WW YOY

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

Figure 17: Car navigation penetration by region 14 90% 80% 12 70% 10 Car navigation: annual shipments (LHS) Penetration rate forecast (RHS) 60% 8 50%

6 40%

(mnunits) 30% 4 20% 2 10%

0 0%

US

China

Japan

Others

Europe Western Worldwide Source: Company data, Credit Suisse estimates

Car Electronics 10 03 September 2015

Companies Mentioned (Price as of 02-Sep-2015) Seiki (7259.T, ¥4,060) Alpine (6816.T, ¥1,582, NEUTRAL, TP ¥1,950) Alps Electric (6770.T, ¥3,660) Apple Inc (AAPL.OQ, $112.34) Autobacs Seven (9832.T, ¥2,171) Clarion (6796.T, ¥288, OUTPERFORM, TP ¥430) Continental (CONG.DE, €184.45) DELPHI Automotive PLC (DLPH.N, $72.78) Denso (6902.T, ¥5,081) FUJITSU TEN LIMITED (Unlisted) Garmin Ltd (GRMN.OQ, $37.22) Google, Inc. (GOOGL.OQ, $644.91) Hitachi (6501.T, ¥647) Honda Motor (7267.T, ¥3,658) JVC Kenwood (6632.T, ¥250, NEUTRAL, TP ¥300) Magna International (MGA.N, $47.93) Mitsubishi Electric (6503.T, ¥1,124) NTT DoCoMo (9437.T, ¥2,422) Neusoft Corporation (600718.SS, Rmb14.23) Nissan Motor (7201.T, ¥1,050) Pioneer (6773.T, ¥225, NEUTRAL, TP ¥260) Speaktoit, Inc. (Unlisted) Toshiba (6502.T, ¥350) ZMP Inc. (Unlisted)

Disclosure Appendix Important Global Disclosures I, Mika Nishimura, 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 Alpine (6816.T)

6816.T Closing Price Target Price Date (¥) (¥) Rating 01-Oct-12 707 850 O 14-Feb-14 1,420 1,450 N 26-Sep-14 1,815 1,800 27-Feb-15 2,145 NR * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL 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 American 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 po tential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18

Car Electronics 11 03 September 2015

May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. 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.

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.

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Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 54% (31% banking clients) Neutral/Hold* 31% (42% banking clients) Underperform/Sell* 12% (33% 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 Alpine (6816.T) Method: We derive our ¥1,950 target price for Alpine by multiplying estimated FY3/17 EPS by a P/E of 14x, the average P/E for the seven leading stocks for electronics-related autoparts makers (Denso, Aisin Seiki, Continental, Magna, Delphi, Valeo, and Garmin) as of August 2015. Alpine shares have traded around this kind of average valuation since 2008 (ignoring certain outliers). Risk: Upside risks to our ¥1,950 target price for Alpine include faster earnings growth from products developed with current alliances, alliance developments to bolster medium-term growth, a proactive stance on shareholder returns, and accelerated cost reductions due to lower CoGS and efficiency gains in development. Downside risks include a slump in sales at major clients (Honda, BMW, etc.), increasing R&D cost, and yen appreciation (forex sensitivity: decline of ¥100mn in annual OP for each ¥1 of appreciation vs. the US dollar or euro).

Price Target: (12 months) for Clarion (6796.T) Method: Our ¥430 target price for Clarion is based on a FY3/17E P/E of 14x, the average P/E for the seven leading stocks for electronics-related autoparts makers (Denso, Aisin Seiki, Continental, Magna, Delphi, Valeo, and Garmin) as of August 2015, and EPS of ¥30.8. Although this is somewhat above Clarion's historical range, we still consider it suitable due to the high probability of the company breaking its all- time earnings record in FY3/16. We therefore base our ¥430 target price for Clarion on a P/E of 14x and EPS of ¥30.8.

Risk: Risks to our ¥430 target price for Clarion include weak sales at key customers such as Nissan Motor, a stronger yen, and rising development costs. We estimate the annual sensitivity of OP at −¥100mn for each ¥1/$ of yen appreciation and −¥50mn for each ¥1/€ of yen appreciation. Clarion’s forex assumptions for 2Q onward are ¥120/$ and ¥130/€, while ours are ¥123/$ and ¥138/€.

Car Electronics 12 03 September 2015

Price Target: (12 months) for JVC Kenwood (6632.T) Method: Our ¥300 target price for JVC Kenwood reflects our end-FY3/16 BPS estimate of ¥524 and a P/B ratio of 0.6x which is the average P/B of the former Victor Company of Japan and the former Kenwood since the merger. The reason we chose the historical average is that near- term earnings should be within the historical range.

Risk: Risks to our ¥300 target price for JVC Kenwood include: Upside: acquisition of new orders, formation of new alliances related to next- generation systems; Downside: further yen depreciation, unexpectedly rapid contraction of demand for aftermarket products, and increasing R&D cost for next-generation products.

Price Target: (12 months) for Pioneer (6773.T) Method: Our ¥260 target price for Pioneer is based on an assumed fair-value P/E of 14x (recent sector average) applied to our FY3/17 EPS forecast of ¥18.2. Now that Pioneer has sold off its money-losing home AV business, we believe the company can be evaluated as a car electronics stock. We therefore use the average P/E (as of August 2015) for the world’s seven major car electronics/auto parts makers (Denso, Aisin Seiki, Continental, Magna, Delphi, Valeo, and Garmin). Risk: Risks to our ¥260 target price for Pioneer include: Upside include accelerated cost cuts, newsflow related to development/orders of next- generation businesses, an increase in the dividend; Downside include accelerated contraction of consumer-market sales deterioration of emerging economies, and continued weakening of the yen against the US dollar. Pioneer has a high share of the car audio market in emerging nations; therefore macroeconomic deterioration in those markets would be negative for its earnings and share price. Meanwhile, every ¥1 drop in the yen's value against the US dollar reduces Pioneer's annual OP by ¥300mn, while a similar change against the euro boosts profits by ¥150mn. Pioneer’s forex assumptions from 2Q FY3/16 are ¥122/$ and ¥135/€, while ours are ¥123/$ and ¥138/€.

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 (6796.T, 6501.T, 6502.T, 7267.T, AAPL.OQ, CONG.DE, DLPH.N, GOOGL.OQ, MGA.N) 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 (7267.T, AAPL.OQ, GOOGL.OQ) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (CONG.DE, DLPH.N, MGA.N) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (7267.T, AAPL.OQ) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (7267.T, AAPL.OQ, GOOGL.OQ) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (6796.T, 6773.T, 6501.T, 6503.T, 6502.T, 6902.T, 7201.T, 7259.T, 7267.T, AAPL.OQ, GOOGL.OQ, MGA.N) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (CONG.DE, DLPH.N, MGA.N) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (6502.T, 7201.T, 7267.T, AAPL.OQ, DLPH.N, GOOGL.OQ, GRMN.OQ). Credit Suisse has a material conflict of interest with the subject company (6502.T) . Credit Suisse Securities (USA) LLC is acting as an advisor to Landis+Gyr on the announced acquisition by Toshiba Corporation. This acquisition remains subject to regulatory approvals and other customary closing conditions. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL.

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 (6796.T, 6773.T, 6816.T, 6632.T, 6501.T, 6503.T, 6770.T, 6502.T, 6902.T, 7201.T, 7259.T, 7267.T, 9437.T, AAPL.OQ, AAPL.OQ, CONG.DE, DLPH.N, GOOGL.OQ, GRMN.OQ, MGA.N) 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.

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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: (7201.T, CONG.DE). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (7267.T, AAPL.OQ, CONG.DE, DLPH.N, GOOGL.OQ) 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 ...... Mika Nishimura

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Car Electronics 14 03 September 2015

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