16 February 2017 Asia Pacific/Japan Equity Research Product Marketing

Japan Earnings Product Manager EARNINGS Daisuke Takato 813 4550 9671 [email protected] Cyclicals lead the way in 3Q earnings; full- year guidance raised 9%

Figure 1: Cyclicals raised NP guidance by 9%

Total Cyclical Defensive Financials

Sales -0.3% 0.3% -1.7% Surprise OP 1.1% 1.5% 0.6% NP 10.6% 10.4% 8.9% 14.3% Sales 0.5% 0.8% 0.0% Guidance 3.5% 6.0% 0.8% Change OP NP 4.3% 9.2% 1.1% 0.1%

Source: Bloomberg, Credit Suisse

■ Cyclicals fare better: Automakers and trading companies led the way during the Oct–Dec quarter earnings period, as cyclicals raised their full- year net profit guidance 9%, compared with defensives, which more or less stayed put. We see this as reflective of the yen's weakness during 3Q and a stark contrast to 2Q, when cyclicals cut their guidance by −4% (the average USD/JPY level was ¥102 in 2Q versus ¥109 in 3Q). ■ Autos, materials, and banks lead gains: Third-quarter net profit was 10% higher than consensus overall, but operating profit and sales came in line with street forecasts. This disparity comes from two main reasons: (1) some of the NP gains were one-offs that came in below the OP line, such as JFE (5411) reporting inventory gains, and (2) trading companies benefited from recovering commodity prices, but are excluded from the sales and OP because of accounting differences. ■ What to watch for: The JPY/USD has stabilized at the current 110–115 rate, and we can expect further consensus and guidance upgrades as we round out the fiscal year-end. We also highlighted in our 2017 outlook report Japanese companies that have high operating leverage (compared with global peers) and are also highly leveraged to global growth. While there was little upside surprise at the sales level this quarter, we believe any incremental growth in revenue has the potential to boost profits. ■ Governance: Corporate governance is also likely to be in the spotlight with Toshiba's (6502) accounting woes and Mitsubishi Heavy (7011) embroiled in several lawsuits on global projects. We removed Toshiba from the Focus List and downgraded MHI to UNDERPERFORM this week. Meanwhile, buybacks continue to be strong (see page 5).

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE 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. 16 February 2017

Table of contents

Guidance: Cyclicals far more optimistic 3

3Q earnings: Beat consensus forecasts 4

Buybacks strong 5

Guidance-related charts 6 Guidance: Revisions (%)...... 6 Guidance: Revisions (JPY mn) ...... 7 Guidance: Gap to consensus (%) ...... 8

Quarterly earnings-related charts 9 3Q: Earnings surprises (%) ...... 9 3Q: Earnings surprises (JPY mn)...... 10 3Q: Earnings (YoY%)...... 11 3Q: Earnings (YoY JPY mn) ...... 12

Japan Earnings2 16 February 2017

Guidance: Cyclicals far more optimistic Cyclicals raised NP guidance 9% in the Oct–Dec (3Q) quarter, compared with a −4% cut in the Jul–Sep (2Q) quarter. The number of companies raising guidance outnumbered guidance cuts almost 4-to-1, with 2/3rd of them coming from cyclicals. For more details on company guidance revisions at the single-stock level, please see Figure 5 onward.

Figure 2: Technology, autos and chemical sectors had the largest number of guidance increases Sales Operating Profit Net Profit

No of Mkt Cap (JPY Sector cos tn) % chg ↑ ↓ % chg ↑ ↓ % chg ↑ ↓ Total 486 485,017 0.5% 80 27 3.5% 96 27 4.3% 104 24 Cyclical 205 208,812 0.8% 61 11 6.0% 65 15 9.2% 66 13 Electric Appliances 43 56,617 0.6% 18 5 3.8% 19 5 5.8% 18 5 Transportation Equipment 23 53,497 1.6% 11 0 7.6% 10 2 10.0% 11 2 Chemicals 43 31,656 1.2% 12 0 5.4% 14 1 7.2% 12 1 Machinery 31 22,174 0.4% 5 2 1.4% 6 1 3.5% 6 1 Wholesale Trade 22 18,784 -2.0% 0 1 1.6% 1 0 14.7% 5 0 Precision Instruments 7 6,374 -1.8% 0 2 -1.8% 1 2 0.0% 1 1 Iron & Steel 8 5,854 0.3% 3 1 -5.4% 2 3 10.1% 4 1 Rubber Products 2 647 0 0 0 0 0 0 Nonferrous Metals 8 3,994 1.8% 5 0 14.4% 5 1 -6.6% 5 1 Oil & Coal Products 4 2,735 1.2% 1 0 26.4% 1 0 29.4% 1 0 Textiles & Apparel 5 2,521 0.3% 1 0 1.2% 1 0 1.3% 1 0 Mining 2 1,813 6.8% 2 0 18.6% 2 0 106.4% 2 0 Pulp & Paper 4 1,086 0.0% 0 0 0.0% 0 0 0.0% 0 0 Marine Transportation 3 1,059 3.5% 3 0 18.9% 3 0 -2.1% 0 1 Defensive 209 197,827 0.0% 19 15 0.8% 30 12 1.1% 37 10 Information & Communication 25 50,926 0.0% 4 1 1.0% 6 1 0.9% 7 0 Pharmaceutical 24 26,234 0.9% 4 2 3.1% 4 1 3.4% 6 1 Foods 27 23,645 -0.1% 1 1 1.1% 4 1 2.3% 5 0 Services 21 22,571 -0.1% 0 2 -0.3% 0 1 -0.6% 0 2 Land Transportation 24 20,118 0.0% 3 3 0.0% 4 1 0.4% 4 1 Construction 20 9,866 0.3% 2 1 1.1% 6 0 -3.4% 6 1 Electric Power & Gas 13 8,279 0.1% 2 1 1.9% 2 2 3.5% 2 1 Other Products 9 7,224 0.1% 1 0 -4.4% 0 1 21.3% 2 0 Retail Trade 26 18,532 -0.1% 0 3 -0.4% 0 3 -0.4% 1 3 Glass & Ceramics Products 8 4,268 0.5% 1 0 3.4% 1 0 1.2% 1 0 Metal Products 6 2,869 -0.2% 1 1 1.5% 2 1 3.6% 2 1 Air Transportation 2 2,428 0.0% 0 0 0.0% 0 0 0.0% 0 0 Warehousing & Harbor Transport 3 690 0.0% 0 0 0.0% 0 0 0.0% 0 0 Fishery, Agriculture & Forestr 1 176 0.0% 0 0 18.2% 1 0 27.3% 1 0 Financials 72 78,379 0.1% 1 1 Banks 35 41,128 0.0% 0 1 Real Estate 12 10,807 -0.1% 0 1 0.9% 1 0 0.9% 1 0 Insurance 7 14,541 0.0% 0 0 Other Financing Business 11 6,774 0.0% 0 0 Securities & Commodity Futures 7 5,129 0 0

Source: Bloomberg, Credit Suisse

Japan Earnings3 16 February 2017

3Q earnings: Beat consensus forecasts Profits in the Oct–Dec quarter surprised to the upside by 10% at the net profit level (1% for operating profit, which excludes financials and trading companies). More than 50 companies beat consensus by more than 10% at both the NP and OP level, outnumbering companies that fell short of consensus (by −10% or lower) at a ratio of about 2-to-1.

Figure 3: 3Q surprises were mainly driven by autos, materials, and banks Sales Operating Profit Net Profit

No of Mkt Cap Sector cos (JPY tn) YoY % Surprise # Beat # Miss YoY % Surprise # Beat # Miss YoY % Surprise # Beat # Miss Total 486 485,017 -4.9% -0.3% 4 5 6.8% 1.1% 51 27 23.8% 10.6% 52 17 Cyclical 205 208,812 -6.6% 0.3% 0 3 -6.4% 1.5% 36 16 25.7% 10.4% 37 12 Electric Appliances 43 56,617 -5.3% -0.3% 0 1 -20.0% -4.4% 12 6 -13.5% 4.4% 14 5 Transportation Equipment 23 53,497 -3.1% 2.1% 0 0 -21.8% 1.1% 5 2 -15.1% 15.2% 9 1 Chemicals 43 31,656 -4.0% -2.2% 0 1 2.4% 7.5% 7 2 124.1% 31.3% 8 1 Machinery 31 22,174 -1.8% 1.0% 0 0 -17.5% 0.3% 3 2 21.8% 69.0% 1 1 Wholesale Trade 22 18,784 -22.2% 3.6% 0 0 98.5% 0 0 178.1% 60.4% 1 0 Precision Instruments 7 6,374 -4.2% -3.0% 0 0 -7.1% 7.2% 2 2 -24.2% -28.8% 2 2 Iron & Steel 8 5,854 -4.0% -2.9% 0 0 -32.0% -2.9% 2 1 130.1% 27.2% 2 1 Rubber Products 2 647 -18.2% -25.1% 0 1 -10.2% 0 0 -169.9% 0 0 Nonferrous Metals 8 3,994 -1.6% 2.7% 0 0 41.1% 30.8% 3 0 23304.7% -399.2% 0 1 Oil & Coal Products 4 2,735 -4.2% 0 0 515.5% 0 0 241.6% 0 0 Textiles & Apparel 5 2,521 -4.8% -5.2% 0 0 -11.2% -4.2% 0 0 3.1% 0 0 Mining 2 1,813 -6.0% 0 0 6.7% 0 0 73.4% 0 0 Pulp & Paper 4 1,086 0.7% 0 0 1.3% 0 0 47.1% 0 0 Marine Transportation 3 1,059 -12.9% -1.1% 0 0 -121.4% 89.2% 2 1 121.9% 0 0 Defensive 209 197,827 -2.8% -1.7% 2 2 22.4% 0.6% 15 11 27.6% 8.9% 13 4 Information & Communication 25 50,926 0.0% -0.6% 0 0 14.0% 1.5% 6 2 16.7% -2.6% 1 1 Pharmaceutical 24 26,234 -3.6% 0.9% 1 0 -7.8% 15.4% 3 0 1.6% 25.9% 2 0 Foods 27 23,645 -5.1% -7.0% 0 1 0.6% -3.7% 1 2 99.6% 26.9% 4 0 Services 21 22,571 -9.3% 0.9% 0 0 519.1% -18.3% 1 3 14.0% -26.3% 1 2 Land Transportation 24 20,118 0.6% -0.2% 0 0 1.6% 2.9% 0 0 13.6% 0 0 Construction 20 9,866 0.7% -13.0% 0 1 23.9% 0 0 15.3% 0 0 Electric Power & Gas 13 8,279 -6.9% -5.2% 0 0 -36.3% 0 0 162.2% 0 0 Other Products 9 7,224 -5.0% -1.6% 1 0 5.9% -6.2% 0 1 64.2% 215.3% 1 0 Retail Trade 26 18,532 0.2% -1.9% 0 0 5.1% 0.0% 1 3 19.4% 18.5% 2 1 Glass & Ceramics Products 8 4,268 -1.1% -1.1% 0 0 12.4% 11.3% 2 0 66.6% 40.9% 1 0 Metal Products 6 2,869 -3.1% -7.2% 0 0 10.0% 19.5% 1 0 58.8% 53.4% 1 0 Air Transportation 2 2,428 -2.9% -1.0% 0 0 6.9% 7.3% 0 0 10.7% 0 0 Warehousing & Harbor Transport 3 690 1.7% 0 0 8.3% 0 0 11.2% 0 0 Fishery, Agriculture & Forestr 1 176 -0.5% 0 0 32.3% 0 0 79.8% 0 0 Financials 72 78,379 25.6% 14.3% 2 0 30.2% 0 0 14.5% 14.3% 2 1 Banks 35 41,128 8.6% 14.3% 2 1 Real Estate 12 10,807 25.6% 14.3% 2 0 30.2% 0 0 30.7% 0 0 Insurance 7 14,541 13.3% 0 0 Other Financing Business 11 6,774 25.6% 0 0 Securities & Commodity Futures 7 5,129 48.3% 0 0

Note: Number of beat/misses are ones that exceed ±10%. Consensus must have at least three broker forecasts. Source: Bloomberg, Credit Suisse

Japan Earnings4 16 February 2017

Buybacks strong Buybacks continue at a strong pace, albeit on a smaller scale than in 2016, which represented a 10-year high. Notable buyback announcements year-to-date have come from Nidec (6594), Mitsui & Co (8031), Astellas (4503), Nippon Telegraph & Telephone (9432), and Japan Exchange Group (8697).

Figure 4: Buybacks totals # of Total Size (JPY mn) Avg Size announcements (at announcement) 1998 519 876,361 1,689 1999 521 751,814 1,443 2000 719 813,954 1,132 2001 769 1,692,758 2,201 2002 1,880 9,788,757 5,207 2003 1,878 7,654,089 4,076 2004 898 3,438,970 3,830 2005 1,016 5,901,198 5,808 2006 1,018 7,345,927 7,216 2007 1,179 5,529,330 4,690 2008 1,828 5,175,495 2,831 2009 861 855,830 994 2010 815 1,221,062 1,498 2011 753 2,056,950 2,732 2012 719 1,779,719 2,475 2013 731 2,632,270 3,601 2014 626 4,916,316 7,854 2015 709 4,828,022 6,810 2016 912 6,747,778 7,399 2017 annualized 1,246 4,631,241 3,718 2014 (to Feb 15) 90 783,754 8,708 2015 (to Feb 15) 89 538,664 6,052 2016 (to Feb 15) 126 1,848,105 14,667 2017 (to Feb 15) 157 583,663 3,718

Note: Total size is calculated by multiplying the stock price at the time of buyback announcement by the number of shares being bought back due to limited data availability. This figure does not match the actual announced amount. Source: Bloomberg, Credit Suisse

Japan Earnings5 16 February 2017

Guidance-related charts Guidance: Revisions (%)

Figure 5: Top 10 guidance revisions (%) Sales Raised (%) Lowered (%) 1 (6479) MINEBEA MITSUMI Inc 12.5% 1 (6971) Kyocera Corp -7.2% 2 (1662) Japan Petroleum Exploration Co 11.0% 2 (6701) NEC Corp -6.9% 3 (6366) Chiyoda Corp 10.9% 3 (2371) Kakaku.com Inc -6.2% 4 (5713) Sumitomo Metal Mining Co Ltd 8.6% 4 (7731) Nikon Corp -6.2% 5 (6146) Disco Corp 7.7% 5 (2229) Calbee Inc -4.6% 6 (9766) Konami Holdings Corp 7.2% 6 (8002) Marubeni Corp -4.3% 7 (5706) Mitsui Mining & Smelting Co Lt 6.2% 7 (4569) KYORIN Holdings Inc -4.1% 8 (4182) Mitsubishi Gas Chemical Co Inc 5.9% 8 (1893) Penta-Ocean Construction Co Lt -3.4% 9 (1605) Inpex Corp 5.8% 9 (7649) Sugi Holdings Co Ltd -3.4% 10 (4042) Tosoh Corp 5.8% 10 (6383) Daifuku Co Ltd -3.0%

Operating Profit Raised (%) Lowered (%) 1 (4062) Ibiden Co Ltd 4900.0% 1 (5406) Kobe Steel Ltd -88.9% 2 (6762) TDK Corp 180.3% 2 (6701) NEC Corp -70.0% 3 (7211) Mitsubishi Motors Corp 103.6% 3 (3105) Nisshinbo Holdings Inc -42.8% 4 (5411) JFE Holdings Inc 60.0% 4 (7974) Nintendo Co Ltd -33.3% 5 (5713) Sumitomo Metal Mining Co Ltd 58.4% 5 (4569) KYORIN Holdings Inc -31.0% 6 (9104) Mitsui OSK Lines Ltd 46.7% 6 (5413) Nisshin Steel Co Ltd -22.7% 7 (9766) Konami Holdings Corp 44.0% 7 (7003) Mitsui Engineering & Shipbuild -20.0% 8 (5020) JX Holdings Inc 42.1% 8 (8218) Komeri Co Ltd -14.0% 9 (5706) Mitsui Mining & Smelting Co Lt 39.2% 9 (6971) Kyocera Corp -13.6% 10 (9101) Nippon Yusen KK 31.4% 10 (7261) Mazda Motor Corp -13.3%

Net Profit Raised (%) Lowered (%) 1 (1662) Japan Petroleum Exploration Co 1554.3% 1 (6366) Chiyoda Corp -820.0% 2 (5411) JFE Holdings Inc 233.3% 2 (5713) Sumitomo Metal Mining Co Ltd -178.9% 3 (6762) TDK Corp 178.9% 3 (9104) Mitsui OSK Lines Ltd -100.0% 4 (5706) Mitsui Mining & Smelting Co Lt 160.0% 4 (5413) Nisshin Steel Co Ltd -66.6% 5 (6963) Rohm Co Ltd 95.9% 5 (7003) Mitsui Engineering & Shipbuild -64.2% 6 (1605) Inpex Corp 84.7% 6 (6701) NEC Corp -60.0% 7 (7974) Nintendo Co Ltd 80.0% 7 (6758) Sony Corp -56.6% 8 (6976) Taiyo Yuden Co Ltd 66.7% 8 (7731) Nikon Corp -50.0% 9 (9766) Konami Holdings Corp 60.0% 9 (7752) Ricoh Co Ltd -44.4% 10 (4182) Mitsubishi Gas Chemical Co Inc 57.7% 10 (3105) Nisshinbo Holdings Inc -40.0%

Source: Bloomberg, Credit Suisse

Japan Earnings6 16 February 2017

Guidance: Revisions (JPY mn)

Figure 6: Top 10 guidance revisions (JPY mn) Sales Raised (JPY mn) Lowered (JPY mn) 1 (7203) Toyota Motor Corp 500,000 1 (8002) Marubeni Corp -500,000 2 (7267) Honda Motor Co Ltd 400,000 2 (6701) NEC Corp -200,000 3 (6758) Sony Corp 200,000 3 (6971) Kyocera Corp -110,000 4 (6752) Panasonic Corp 150,000 4 (7731) Nikon Corp -50,000 5 (7270) Fuji Heavy Industries Ltd 130,000 5 (2433) Hakuhodo DY Holdings Inc -27,000 6 (5020) JX Holdings Inc 130,000 6 (1893) Penta-Ocean Construction Co Lt -18,000 7 (7259) Aisin Seiki Co Ltd 100,000 7 (7649) Sugi Holdings Co Ltd -15,000 8 (6479) MINEBEA MITSUMI Inc 70,000 8 (9989) Sundrug Co Ltd -14,000 9 (4188) Mitsubishi Chemical Holdings C 70,000 9 (2229) Calbee Inc -12,000 10 (9104) Mitsui OSK Lines Ltd 69,000 10 (9532) Osaka Gas Co Ltd -11,000

Operating Profit Raised (JPY mn) Lowered (JPY mn) 1 (7203) Toyota Motor Corp 150,000 1 (6701) NEC Corp -70,000 2 (6762) TDK Corp 137,000 2 (5406) Kobe Steel Ltd -40,000 3 (7267) Honda Motor Co Ltd 135,000 3 (6758) Sony Corp -30,000 4 (5020) JX Holdings Inc 80,000 4 (7261) Mazda Motor Corp -20,000 5 (1605) Inpex Corp 52,000 5 (6971) Kyocera Corp -15,000 6 (7270) Fuji Heavy Industries Ltd 37,000 6 (7974) Nintendo Co Ltd -10,000 7 (4188) Mitsubishi Chemical Holdings C 37,000 7 (9064) Yamato Holdings Co Ltd -7,000 8 (5411) JFE Holdings Inc 30,000 8 (7731) Nikon Corp -5,000 9 (7211) Mitsubishi Motors Corp 28,600 9 (4569) KYORIN Holdings Inc -4,500 10 (5713) Sumitomo Metal Mining Co Ltd 28,000 10 (5947) Rinnai Corp -4,000

Net Profit Raised (JPY mn) Lowered (JPY mn) 1 (7203) Toyota Motor Corp 150,000 1 (6366) Chiyoda Corp -41,000 2 (7267) Honda Motor Co Ltd 130,000 2 (5406) Kobe Steel Ltd -40,000 3 (8058) Mitsubishi Corp 110,000 3 (6758) Sony Corp -34,000 4 (6762) TDK Corp 93,000 4 (5713) Sumitomo Metal Mining Co Ltd -34,000 5 (8031) Mitsui & Co Ltd 80,000 5 (6701) NEC Corp -30,000 6 (5020) JX Holdings Inc 50,000 6 (7261) Mazda Motor Corp -10,000 7 (7974) Nintendo Co Ltd 40,000 7 (7003) Mitsui Engineering & Shipbuild -9,000 8 (7211) Mitsubishi Motors Corp 37,600 8 (7752) Ricoh Co Ltd -8,000 9 (5411) JFE Holdings Inc 35,000 9 (9104) Mitsui OSK Lines Ltd -7,000 10 (4188) Mitsubishi Chemical Holdings C 26,000 10 (9064) Yamato Holdings Co Ltd -5,000

Source: Bloomberg, Credit Suisse

Japan Earnings7 16 February 2017

Guidance: Gap to consensus (%)

Figure 7: New guidance vs. current consensus forecasts Sales Guidance higher than consensus by Guidance lower than consensus by 1 (6136) OSG Corp 13.8% 1 (8113) Unicharm Corp -17.1% 2 (7751) Canon Inc 13.3% 2 (3668) COLOPL Inc -16.0% 3 (4324) Dentsu Inc 10.5% 3 (2127) Nihon M&A Center Inc -12.2% 4 (6474) Nachi-Fujikoshi Corp 8.8% 4 (2432) DeNA Co Ltd -7.8% 5 (6479) MINEBEA MITSUMI Inc 8.4% 5 (7309) Shimano Inc -7.3% 6 (6366) Chiyoda Corp 7.9% 6 (2502) Asahi Group Holdings Ltd -6.0% 7 (1662) Japan Petroleum Exploration Co 7.8% 7 (4528) Ono Pharmaceutical Co Ltd -5.9% 8 (8729) Sony Financial Holdings Inc 7.0% 8 (3092) Start Today Co Ltd -5.7% 9 (9301) Mitsubishi Logistics Corp 6.3% 9 (8002) Marubeni Corp -5.6% 10 (1605) Inpex Corp 6.1% 10 (8078) Hanwa Co Ltd -5.6%

Operating Profit Guidance higher than consensus by Guidance lower than consensus by 1 (8572) Acom Co Ltd 300.8% 1 (1662) Japan Petroleum Exploration Co -432.2% 2 (4062) Ibiden Co Ltd 262.3% 2 (5406) Kobe Steel Ltd -87.7% 3 (8515) Aiful Corp 216.0% 3 (1963) JGC Corp -74.7% 4 (7211) Mitsubishi Motors Corp 178.1% 4 (6701) NEC Corp -68.2% 5 (5411) JFE Holdings Inc 82.1% 5 (9505) Hokuriku Electric Power Co -55.4% 6 (9501) Tokyo Electric Power Co Holdin 46.5% 6 (3105) Nisshinbo Holdings Inc -48.7% 7 (6474) Nachi-Fujikoshi Corp 44.1% 7 (7974) Nintendo Co Ltd -36.5% 8 (9104) Mitsui OSK Lines Ltd 27.9% 8 (4569) KYORIN Holdings Inc -30.3% 9 (9101) Nippon Yusen KK 24.3% 9 (5110) Sumitomo Rubber Industries Ltd -28.6% 10 (5713) Sumitomo Metal Mining Co Ltd 23.2% 10 (6417) Sankyo Co Ltd -28.1%

Net Profit Guidance higher than consensus by Guidance lower than consensus by 1 (1662) Japan Petroleum Exploration Co 801.7% 1 (5406) Kobe Steel Ltd -4387.0% 2 (8572) Acom Co Ltd 388.9% 2 (6366) Chiyoda Corp -2255.5% 3 (8515) Aiful Corp 172.3% 3 (7731) Nikon Corp -465.8% 4 (5413) Nisshin Steel Co Ltd 157.7% 4 (5713) Sumitomo Metal Mining Co Ltd -194.3% 5 (5411) JFE Holdings Inc 143.5% 5 (9505) Hokuriku Electric Power Co -117.3% 6 (6474) Nachi-Fujikoshi Corp 52.3% 6 (9104) Mitsui OSK Lines Ltd -100.0% 7 (1605) Inpex Corp 51.2% 7 (7013) IHI Corp -100.0% 8 (2432) DeNA Co Ltd 48.6% 8 (9504) Chugoku Electric Power Co Inc/ -78.2% 9 (2811) Kagome Co Ltd 42.4% 9 (3863) Nippon Paper Industries Co Ltd -71.1% 10 (9409) TV Asahi Holdings Corp 39.7% 10 (6758) Sony Corp -68.4%

Source: Bloomberg, Credit Suisse

Japan Earnings8 16 February 2017

Quarterly earnings-related charts 3Q: Earnings surprises (%)

Figure 8: What was the gap with consensus? Top 10 earnings surprises Sales Consensus Beat Consensus Miss 1 (8802) Mitsubishi Estate Co Ltd 29.6% 1 (2502) Asahi Group Holdings Ltd -32.1% 2 (8830) Sumitomo Realty & Development 16.3% 2 (5110) Sumitomo Rubber Industries Ltd -25.0% 3 (7936) Asics Corp 12.8% 3 (1808) Haseko Corp -13.0% 4 (4568) Daiichi Sankyo Co Ltd 11.3% 4 (6857) Advantest Corp -12.5% 5 (5714) Dowa Holdings Co Ltd 9.9% 5 (4021) Nissan Chemical Industries Ltd -10.0% 6 (6273) SMC Corp/Japan 9.9% 6 (8028) FamilyMart UNY Holdings Co Ltd -10.0% 7 (4324) Dentsu Inc 9.8% 7 (5938) LIXIL Group Corp -9.7% 8 (6592) Mabuchi Motor Co Ltd 8.6% 8 (8035) Tokyo Electron Ltd -9.4% 9 (6988) Nitto Denko Corp 8.1% 9 (5332) TOTO Ltd -9.3% 10 (7735) SCREEN Holdings Co Ltd 7.9% 10 (8804) Tokyo Tatemono Co Ltd -9.1%

Operating Profit Consensus Beat Consensus Miss 1 (9101) Nippon Yusen KK 436.6% 1 (5406) Kobe Steel Ltd -1503.1% 2 (5411) JFE Holdings Inc 100.4% 2 (4755) Rakuten Inc -91.7% 3 (9104) Mitsui OSK Lines Ltd 98.9% 3 (3938) LINE Corp -70.0% 4 (6645) Omron Corp 70.3% 4 (7261) Mazda Motor Corp -52.3% 5 (5401) Nippon Steel & Sumitomo Metal 54.2% 5 (9107) Kawasaki Kisen Kaisha Ltd -50.2% 6 (4911) Shiseido Co Ltd 49.7% 6 (2432) DeNA Co Ltd -46.9% 7 (6988) Nitto Denko Corp 48.4% 7 (6857) Advantest Corp -44.9% 8 (5802) Sumitomo Electric Industries L 47.4% 8 (6758) Sony Corp -40.9% 9 (5713) Sumitomo Metal Mining Co Ltd 44.6% 9 (6841) Yokogawa Electric Corp -30.9% 10 (6702) Fujitsu Ltd 40.6% 10 (4021) Nissan Chemical Industries Ltd -29.1%

Net Profit Consensus Beat Consensus Miss 1 (2432) DeNA Co Ltd 443.2% 1 (5406) Kobe Steel Ltd -1383.2% 2 (5411) JFE Holdings Inc 275.6% 2 (5713) Sumitomo Metal Mining Co Ltd -399.1% 3 (7974) Nintendo Co Ltd 215.3% 3 (7731) Nikon Corp -378.8% 4 (2503) Kirin Holdings Co Ltd 144.2% 4 (4755) Rakuten Inc -125.9% 5 (6592) Mabuchi Motor Co Ltd 120.0% 5 (7752) Ricoh Co Ltd -113.5% 6 (4185) JSR Corp 116.8% 6 (6857) Advantest Corp -86.2% 7 (6273) SMC Corp/Japan 90.0% 7 (6758) Sony Corp -67.0% 8 (6645) Omron Corp 67.2% 8 (4751) CyberAgent Inc -56.0% 9 (6770) Alps Electric Co Ltd 64.5% 9 (7270) Fuji Heavy Industries Ltd -42.9% 10 (7733) Olympus Corp 61.5% 10 (6952) Casio Computer Co Ltd -29.6%

Source: Bloomberg, Credit Suisse

Japan Earnings9 16 February 2017

3Q: Earnings surprises (JPY mn)

Figure 9: What was the gap with consensus? Top 10 earnings surprises Sales Consensus Beat Consensus Miss 1 (7203) Toyota Motor Corp 246,933 1 (2502) Asahi Group Holdings Ltd -161,776 2 (8802) Mitsubishi Estate Co Ltd 71,254 2 (6758) Sony Corp -94,444 3 (7201) Nissan Motor Co Ltd 55,585 3 (5110) Sumitomo Rubber Industries Ltd -65,727 4 (6501) Hitachi Ltd 44,218 4 (9432) Nippon Telegraph & Telephone C -54,853 5 (6902) Denso Corp 32,511 5 (5411) JFE Holdings Inc -54,576 6 (7267) Honda Motor Co Ltd 32,296 6 (5938) LIXIL Group Corp -49,671 7 (7202) Isuzu Motors Ltd 29,498 7 (8028) FamilyMart UNY Holdings Co Ltd -36,664 8 (8830) Sumitomo Realty & Development29,372 8 (9101) Nippon Yusen KK -36,367 9 (7270) Fuji Heavy Industries Ltd 29,305 9 (6701) NEC Corp -36,128 10 (7751) Canon Inc 28,751 10 (4452) Kao Corp -32,133

Operating Profit Consensus Beat Consensus Miss 1 (7267) Honda Motor Co Ltd 50,251 1 (6758) Sony Corp -63,128 2 (9984) SoftBank Group Corp 31,575 2 (7203) Toyota Motor Corp -44,902 3 (6902) Denso Corp 20,293 3 (5406) Kobe Steel Ltd -33,043 4 (5802) Sumitomo Electric Industries L 16,897 4 (4755) Rakuten Inc -30,808 5 (5411) JFE Holdings Inc 16,216 5 (9432) Nippon Telegraph & Telephone C -15,430 6 (5401) Nippon Steel & Sumitomo Metal 15,572 6 (7261) Mazda Motor Corp -14,959 7 (6752) Panasonic Corp 13,913 7 (7270) Fuji Heavy Industries Ltd -13,743 8 (7259) Aisin Seiki Co Ltd 13,370 8 (6503) Mitsubishi Electric Corp -11,045 9 (6988) Nitto Denko Corp 11,572 9 (6501) Hitachi Ltd -9,307 10 (6702) Fujitsu Ltd 10,774 10 (7751) Canon Inc -7,103

Net Profit Consensus Beat Consensus Miss 1 (8306) Mitsubishi UFJ Financial Group 74,275 1 (5713) Sumitomo Metal Mining Co Ltd -48,168 2 (7203) Toyota Motor Corp 67,728 2 (6758) Sony Corp -39,872 3 (7267) Honda Motor Co Ltd 50,427 3 (5406) Kobe Steel Ltd -37,851 4 (7974) Nintendo Co Ltd 44,159 4 (7270) Fuji Heavy Industries Ltd -32,845 5 (5411) JFE Holdings Inc 30,609 5 (4755) Rakuten Inc -28,896 6 (6902) Denso Corp 26,383 6 (7731) Nikon Corp -25,227 7 (2503) Kirin Holdings Co Ltd 25,416 7 (9432) Nippon Telegraph & Telephone C -19,701 8 (6501) Hitachi Ltd 25,248 8 (7751) Canon Inc -12,671 9 (6273) SMC Corp/Japan 20,154 9 (7752) Ricoh Co Ltd -7,442 10 (6752) Panasonic Corp 19,879 10 (8308) Resona Holdings Inc -7,216

Source: Bloomberg, Credit Suisse

Japan Earnings 10 16 February 2017

3Q: Earnings (YoY%)

Figure 10: How does it compare from a year ago? Top 10 Sales Highest YoY % Lowest YoY % 1 (6141) DMG Mori Co Ltd 93.7% 1 (4324) Dentsu Inc -62.9% 2 (4528) Ono Pharmaceutical Co Ltd 68.9% 2 (8031) Mitsui & Co Ltd -51.9% 3 (6417) Sankyo Co Ltd 44.8% 3 (8053) Sumitomo Corp -45.8% 4 (3092) Start Today Co Ltd 44.3% 4 (4587) PeptiDream Inc -43.1% 5 (8933) NTT Urban Development Corp 43.8% 5 (3668) COLOPL Inc -38.1% 6 (7735) SCREEN Holdings Co Ltd 39.4% 6 (2502) Asahi Group Holdings Ltd -31.5% 7 (8802) Mitsubishi Estate Co Ltd 37.7% 7 (5110) Sumitomo Rubber Industries Ltd -24.1% 8 (3231) Nomura Real Estate Holdings In 37.5% 8 (5631) Japan Steel Works Ltd/The -23.0% 9 (3003) Hulic Co Ltd 35.9% 9 (4062) Ibiden Co Ltd -22.1% 10 (4516) Nippon Shinyaku Co Ltd 32.1% 10 (7974) Nintendo Co Ltd -21.3%

Operating Profit Highest YoY % Lowest YoY % 1 (8253) Credit Saison Co Ltd 2627.6% 1 (9504) Chugoku Electric Power Co Inc/ -712.9% 2 (8031) Mitsui & Co Ltd 1561.9% 2 (5406) Kobe Steel Ltd -468.8% 3 (9503) Kansai Electric Power Co Inc/T 790.5% 3 (4578) Otsuka Holdings Co Ltd -360.2% 4 (5019) Idemitsu Kosan Co Ltd 749.2% 4 (6701) NEC Corp -339.9% 5 (5012) TonenGeneral Sekiyu KK 748.2% 5 (9531) Tokyo Gas Co Ltd -143.8% 6 (6971) Kyocera Corp 718.4% 6 (9502) Chubu Electric Power Co Inc -141.0% 7 (5020) JX Holdings Inc 464.9% 7 (9505) Hokuriku Electric Power Co -135.9% 8 (5706) Mitsui Mining & Smelting Co Lt 410.2% 8 (9533) Toho Gas Co Ltd -132.2% 9 (6417) Sankyo Co Ltd 363.9% 9 (9107) Kawasaki Kisen Kaisha Ltd -130.6% 10 (5002) Showa Shell Sekiyu KK 302.7% 10 (9509) Hokkaido Electric Power Co Inc -126.3%

Net Profit Highest YoY % Lowest YoY % 1 (9503) Kansai Electric Power Co Inc/T 12708.3% 1 (3863) Nippon Paper Industries Co Ltd -3209.6% 2 (5201) Asahi Glass Co Ltd 8923.0% 2 (6366) Chiyoda Corp -1577.4% 3 (7167) Mebuki Financial Group Inc 3992.4% 3 (4755) Rakuten Inc -433.9% 4 (9984) SoftBank Group Corp 3883.5% 4 (9531) Tokyo Gas Co Ltd -432.6% 5 (5012) TonenGeneral Sekiyu KK 3003.0% 5 (6701) NEC Corp -432.1% 6 (8031) Mitsui & Co Ltd 2753.8% 6 (5105) Toyo Tire & Rubber Co Ltd -431.3% 7 (4045) Toagosei Co Ltd 2564.4% 7 (9502) Chubu Electric Power Co Inc -398.3% 8 (5901) Toyo Seikan Group Holdings Ltd 2464.8% 8 (9509) Hokkaido Electric Power Co Inc -347.3% 9 (7984) Kokuyo Co Ltd 1517.2% 9 (4062) Ibiden Co Ltd -323.5% 10 (3865) Hokuetsu Kishu Paper Co Ltd 1263.0% 10 (9505) Hokuriku Electric Power Co -289.7%

Source: Bloomberg, Credit Suisse

Japan Earnings 11 16 February 2017

3Q: Earnings (YoY JPY mn)

Figure 11: How does it compare from a year ago? Top 10 (JPY mn) Sales Highest YoY (JPY mn) Lowest YoY (JPY mn) 1 (1925) Daiwa House Industry Co Ltd 109,132 1 (8031) Mitsui & Co Ltd -1,234,487 2 (8802) Mitsubishi Estate Co Ltd 85,389 2 (8053) Sumitomo Corp -843,992 3 (6098) Recruit Holdings Co Ltd 83,320 3 (4324) Dentsu Inc -425,604 4 (8591) ORIX Corp 77,758 4 (6178) Japan Post Holdings Co Ltd -336,222 5 (9433) KDDI Corp 73,362 5 (6501) Hitachi Ltd -257,833 6 (7259) Aisin Seiki Co Ltd 64,105 6 (7203) Toyota Motor Corp -255,695 7 (6141) DMG Mori Co Ltd 52,658 7 (8002) Marubeni Corp -244,608 8 (8729) Sony Financial Holdings Inc 35,521 8 (6758) Sony Corp -183,313 9 (7270) Fuji Heavy Industries Ltd 33,084 9 (2502) Asahi Group Holdings Ltd -157,569 10 (3231) Nomura Real Estate Holdings In 32,967 10 (9501) Tokyo Electric Power Co Holdin -134,675

Operating Profit Highest YoY (JPY mn) Lowest YoY (JPY mn) 1 (6178) Japan Post Holdings Co Ltd 652,318 1 (7203) Toyota Motor Corp -283,680 2 (5020) JX Holdings Inc 157,207 2 (6758) Sony Corp -109,308 3 (9984) SoftBank Group Corp 106,160 3 (7270) Fuji Heavy Industries Ltd -52,409 4 (5012) TonenGeneral Sekiyu KK 60,544 4 (5406) Kobe Steel Ltd -44,797 5 (8031) Mitsui & Co Ltd 59,193 5 (7011) Mitsubishi Heavy Industries Lt -39,349 6 (5019) Idemitsu Kosan Co Ltd 59,028 6 (6501) Hitachi Ltd -37,344 7 (7267) Honda Motor Co Ltd 44,606 7 (7211) Mitsubishi Motors Corp -35,188 8 (9503) Kansai Electric Power Co Inc/T 36,159 8 (9501) Tokyo Electric Power Co Holdin -33,989 9 (8002) Marubeni Corp 35,339 9 (7261) Mazda Motor Corp -33,848 10 (9437) NTT DOCOMO Inc 33,808 10 (6701) NEC Corp -29,441

Net Profit Highest YoY (JPY mn) Lowest YoY (JPY mn) 1 (9501) Tokyo Electric Power Co Holdin 155,294 1 (7203) Toyota Motor Corp -141,434 2 (2503) Kirin Holdings Co Ltd 145,346 2 (7270) Fuji Heavy Industries Ltd -100,912 3 (7167) Mebuki Financial Group Inc 137,698 3 (6758) Sony Corp -100,503 4 (5020) JX Holdings Inc 137,616 4 (6201) Toyota Industries Corp -58,413 5 (4043) Tokuyama Corp 125,006 5 (8316) Sumitomo Mitsui Financial Grou -52,624 6 (8053) Sumitomo Corp 113,756 6 (6366) Chiyoda Corp -42,291 7 (8058) Mitsubishi Corp 106,652 7 (9432) Nippon Telegraph & Telephone C -34,113 8 (8031) Mitsui & Co Ltd 104,559 8 (7731) Nikon Corp -28,775 9 (9984) SoftBank Group Corp 88,893 9 (5105) Toyo Tire & Rubber Co Ltd -25,836 10 (4188) Mitsubishi Chemical Holdings C 80,281 10 (7751) Canon Inc -24,074

Source: Bloomberg, Credit Suisse

Japan Earnings 12 16 February 2017

Companies Mentioned (Price as of 15-Feb-2017) Astellas Pharma (4503.T, ¥1,545) JFE (5411.T, ¥2,141) Japan Exchange Group (8697.T, ¥1,624) Mitsubishi Heavy Industries (7011.T, ¥456) Mitsui & Co (8031.T, ¥1,708) NTT (9432.T, ¥4,767) Nidec (6594.T, ¥10,680) Nintendo (7974.T, ¥22,690) Toshiba (6502.T, ¥210) Refer to Figures 5-11 for other companies mentioned

Disclosure Appendix Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 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 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. 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 potential 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 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which 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. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. 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* 45% (64% banking clients) Neutral/Hold* 38% (60% banking clients) Underperform/Sell* 14% (52% 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. Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with

Japan Earnings 13 16 February 2017 the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . 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: https://www.credit- suisse.com/sites/disclaimers-ib/en/managing-conflicts.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. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=284797&v=-ty52lxmnl5yu84d2tqy0jvj6 . 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 may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. 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. 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. This research report is authored by: Credit Suisse Securities (Japan) Limited...... Daisuke Takato 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...... Daisuke Takato For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Japan Earnings 14 16 February 2017

This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico: Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau ( Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000; Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd; Singapore: Credit Suisse AG, Singapore Branch; India: Credit Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited, Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT Credit Suisse Securities Indonesia; Philippines:Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Additional Regional Disclaimers Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Australia (to the extent services are offered in Australia): Credit Suisse Securities (Europe) Limited (“CSSEL”) and Credit Suisse International (“CSI”) are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority under UK laws, which differ from Australian Laws. CSSEL and CSI do not hold an Australian Financial Services Licence (“AFSL”) and are exempt from the requirement to hold an AFSL under the Corporations Act (Cth) 2001 (“Corporations Act”) under Class Order 03/1099 published by the Australian Securities and Investments Commission (“ASIC”), in respect of the financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's professional clients and eligible counterparties as defined by the FCA, and wholesale clients as defined under section 761G of the Corporations Act. Credit Suisse (Hong Kong) Limited (“CSHK”) is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). Credit Suisse Securities (USA) LLC (CSSU) and Credit Suisse Asset Management LLC (CSAM LLC) are licensed and regulated by the Securities Exchange Commission of the United States under the laws of the United States, which differ from Australian laws. CSSU and CSAM LLC do not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1100 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore Branch to overseas investors (as defined under the Financial Advisers Regulations). Credit Suisse AG, Singapore Branch may distribute reports produced by its foreign entities or affiliates pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact Credit Suisse AG, Singapore Branch at +65-6212-2000 for matters arising from, or in connection with, this report. By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore Branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the “FAA”), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore Branch may provide to you. UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2017 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

Japan Earnings 15