22 May 2013 Asia Pacific/Japan Equity Research Electronic Equipment & Instruments (Machinery (Japan)) / MARKET WEIGHT

Yaskawa Electric Corporation

(6506 / 6506 JP) Rating OUTPERFORM* Price (21 May 13, ¥) 1,417 INCREASE TARGET PRICE

Target price (¥) (from 1,000) 1,800¹ Chg to TP (%) 27.0 Expect upward revision to FY3/14 guidance, Market cap. (¥ bn) 356.56 (US$ 3.48) Enterprise value (¥ bn) 392.60 medium-term goals may be met a year early Number of shares (mn) 251.63 Free float (%) 70.0 ■ Action: We raise our forecasts for Yaskawa Electric and change the 52-week price range 1,430 - 482 reference year for our valuation model from FY3/14 to FY3/15, revising our

*Stock ratings are relative to the coverage universe in each target price up from ¥1,000 to ¥1,800 (potential upside 27%). We reiterate analyst's or each team's respective sector. our OUTPERFORM rating. We also introduce our FY3/16 forecasts. ¹Target price is for 12 months.

Research Analysts ■ Investment case: We look for brisk capex by the SPE and automotive industries to buoy Yaskawa’s monthly orders, for which we forecast Shinji Kuroda 81 3 4550 9994 sustained double-digit growth. With yen weakness also providing a boost, [email protected] we anticipate an upward revision to guidance around the time of the 2Q Yunchao Zhao results announcement 81 3 4550 9903 [email protected] ■ We adjust our forex assumptions to ¥100/$ and ¥130/€ and raise our FY3/14 OP forecast from ¥22.8bn to ¥29.6bn (23% above guidance for ¥24bn and 18% above the ¥25.1bn IFIS consensus). For FY3/15 we raise our OP estimate from ¥21.2bn to ¥32.0bn, 10% higher than the ¥29.1bn IFIS consensus. ■ Catalysts/risks: Catalysts would include a hike in full-year guidance when 2Q results are announced, spurred by upbeat capex by automakers and high-tech companies such as TSMC and a likely resulting acceleration of YoY growth in monthly orders into double digits. Risks include forex swings, scaled-back capex by the automotive and high-tech sectors, and a seasonal slowdown in Chinese demand. ■ Valuation: Our ¥1,800 is derived by applying our ROIC model to our FY3/15 estimates. Implied P/E is 23.8x, and implied P/B 3.4x. We expect FY3/15 to mark the second year of Yaskawa's earnings recovery and, accordingly, use valuations comparable to those in FY3/12 (P/E of 23.2x) and FY3/06 (30.3x). We now assume an RFR of 0.62% (previously 0.825%) and ERP of 5.5% (6.5%).

Share price performance Financial and valuation metrics

Year 3/13A 3/14E 3/15E 3/16E Price (LHS) Rebased Rel (RHS) Revenue (¥ bn) 310.4 358.0 359.0 385.0 120 1400 Operating profit (¥ bn) 13.1 29.6 32.0 38.9 100 Recurring profit (¥ bn) 14.1 30.8 33.2 40.1 900 80 400 60 Net income (¥ bn) 6.8 17.0 19.0 23.2 EPS (¥) 27.0 67.5 75.5 92.2 Change from previous EPS (%) n.a. 23.9 50.8 IBES Consensus EPS (¥) n.a. 56.5 67.5 79.3 The price relative chart measures performance against the EPS growth (%) -19.5 150.0 11.9 22.1 TOPIX which closed at 1270.39 on 21/05/13 P/E (x) 34.6 21.0 18.8 15.4 On 21/05/13 the spot exchange rate was ¥102.52/US$1 Dividend yield (%) 1.1 0.8 0.8 1.0 EV/EBITDA(x) 13.4 10.6 9.5 8.0 Performance Over 1M 3M 12M P/B (x) 2.2 3.0 2.6 2.3 Absolute (%) 28.0 70.5 127.4 ROE(%) 6.4 14.2 14.0 15.1

Relative (%) 17.1 38.6 54.2

Net debt/equity (%) 30.9 28.4 16.9 9.0 Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.

DISCLOSURE APPENDIX CONTAINS 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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22 May 2013

Figure 1: Yaskawa Electric (6506) – Financial summary In JPY bn, unless otherwise stated Profit & Loss 3/13A 3/14E 3/15E 3/16E Key Financials 3/13A 3/14E 3/15E 3/16E Sales revenue 310.4 358.0 359.0 385.0 Growth(%) COGS 228.3 251.4 250.0 267.1 Sales 1.1 15.3 0.3 7.2 SGA 60.0 68.0 68.0 70.0 EBIT -11.8 126.5 8.1 21.6 R&D 9.0 9.0 9.0 9.0 Net Income -19.4 150.0 11.8 22.1 Other op income(expense) -8.1 -9.5 -10.5 -10.5 EPS -19.5 150.0 11.9 22.1 EBITDA 21.2 39.1 42.5 49.4 Margins(%) Depr. & Amort. 8.1 9.5 10.5 10.5 EBITDA 6.8 10.9 11.8 12.8 Goodwill amort. 0.0 0.0 0.0 0.0 EBIT 4.2 8.3 8.9 10.1 EBIT 13.1 29.6 32.0 38.9 Pretax profit 4.5 8.6 9.2 10.4 Net interest expense 0.5 0.6 0.6 0.6 Net income 2.2 4.7 5.3 6.0 Associates 1.4 1.4 1.4 1.4 Valuation(x) Net other non-op income(exp.) -1.0 -0.8 -0.8 -0.8 EV/Sales 0.9 1.2 1.1 1.0 Recurring profit 14.1 30.8 33.2 40.1 EV/EBITDA 13.4 10.6 9.5 8.0 Extraordinary gain & loss 0.0 0.0 0.0 0.0 EV/EBIT 21.7 14.0 12.6 10.2 Profit before tax 14.1 30.8 33.2 40.1 PER 34.6 21.0 18.8 15.4 Income tax 4.7 11.6 12.8 15.5 PBR 2.2 3.0 2.6 2.3 Minorities 0.6 0.8 0.8 0.9 ROE analysis(%) Net Income 6.8 17.0 19.0 23.2 ROE 6.4 14.2 14.0 15.1 Balance Sheet 3/13A 3/14E 3/15E 3/16E ROIC 5.9 11.5 11.5 13.4 Cash & equivalents 19.5 18.1 29.9 39.4 Asset turnover 102.6 111.0 106.2 106.8 Receivables 99.7 105.0 107.0 115.0 Tax burden 33.5 37.7 38.5 38.5 Inventories 64.3 68.0 70.0 75.0 Financial leverage(x) 2.7 2.5 2.4 2.2 Other current assets 25.0 25.0 25.2 25.5 Credit ratio(%) Current assets 208.5 216.1 232.1 254.9 Net debt/Equity 0.3 0.3 0.2 0.1 Property, plant & equipments 40.9 53.4 52.9 52.4 Net debt/EBITDA 1.6 0.9 0.6 0.3 Intangibles 13.6 13.6 13.6 13.6 Interest converage ratio(x) 4.4 8.6 8.9 10.4 Other non-current assets 39.5 39.5 39.5 39.5 Per share data 3/13A 3/14E 3/15E 3/16E Non-current assets 94.0 106.5 106.0 105.5 No. of shares(millions) 252.0 252.0 251.6 251.6 Total assets 302.5 322.6 338.1 360.4 EPS(¥) 27.0 67.5 75.5 92.2 Payables 58.7 64.0 63.0 65.0 BPS(¥) 420.7 475.3 537.5 610.6 Short term debt 24.3 24.3 24.3 24.3 DPS(¥) 10.0 12.0 12.0 14.0 Other current liability 37.5 37.5 37.5 37.5 Dividend payout ratio(%) 37.1 17.8 15.9 15.2 Total current liability 120.5 125.8 124.8 126.8 Quarterly analysis Q1 Q2 Q3 Q4 Long term debt 29.9 29.9 29.9 29.9 3/13A Other non-current liability 34.7 34.7 34.7 34.7 Sales 72.6 77.9 68.6 91.3 Total liabilities 185.1 190.3 189.3 191.3 Operating Income 2.2 4.0 0.7 6.3 Shareholders equity 112.2 127.0 143.5 163.8 Recurring Profit 2.0 4.4 1.2 6.5 Minority interests 5.2 5.2 5.2 5.2 Net Income 0.9 2.6 0.4 2.9 Total shareholder funds 302.5 322.6 338.1 360.4 3/14E Cashflow 3/13A 3/14E 3/15E 3/16E Sales 80.2 89.0 87.8 101.0 EBIT 13.1 29.6 32.0 38.9 Operating Income 3.3 7.3 7.9 11.1 Depr & Amortisation 8.1 9.5 10.5 10.5 Recurring Profit 3.6 7.6 8.2 11.4 Chage in working capital 6.1 -3.7 -5.3 -11.3 Net Income 1.7 4.1 4.9 6.3 Other -4.1 -10.8 -12.0 -14.6 3/15E Operating cashflow 23.2 24.6 25.3 23.5 Sales 88.7 94.0 82.8 93.5 Capex -11.3 -22.0 -10.0 -10.0 Operating Income 6.5 9.4 7.2 8.9 Disposal of PPE 0.0 0.0 0.0 0.0 Recurring Profit 6.8 9.7 7.5 9.2 Acquisitions & Investments 0.0 0.0 0.0 0.0 Net Income 3.5 5.5 4.5 5.5 Asset sale proceeds 0.0 0.0 0.0 0.0 3/16E Other 0.0 0.0 0.0 0.0 Sales 86.2 96.0 95.8 107.0 Investing cashflow -11.3 -22.0 -10.0 -10.0 Operating Income 6.2 9.7 10.6 12.4 Equity raised 0.0 0.0 0.0 0.0 Recurring Profit 6.5 10.0 10.9 12.7 Dividends paid -2.5 -3.0 -3.0 -3.5 Net Income 3.4 5.6 6.6 7.7 Net borrowings 0.0 0.0 0.0 0.0 Other -3.1 0.0 0.0 0.0 Financing cashflow -5.6 -3.0 -3.0 -3.5 Effect of exchange rates 0.0 0.0 0.0 0.0 Net Change in Cash 6.4 -0.4 12.3 10.0 Free cash flow 12.0 2.6 15.3 13.5 Note : Reported year may include estimated data Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 2 22 May 2013 Investment opinion Raise TP to ¥1,800, reiterate OUTPERFORM Bullish stance seems warranted until 2Q results, when upward revision looks likely We revise up our forecasts for Yaskawa and change the reference year for our valuation Potential upside 27% model from FY3/14 to FY3/15, raising our TP from ¥1,000 to ¥1,800 (potential upside 27%). We reiterate our OUTPERFORM rating. Factors already reflected in the share price We believe investors have already priced in: (1) Yaskawa's upbeat FY3/14 targets, which exceed consensus forecasts; (2) the company’s new medium-term plan, which calls for OP of ¥40bn in the final year, FY3/16; and (3) projected growth in demand for power conditioners, used in photovoltaic power generation.

Four factors likely to drive share price higher (1) An anticipated recovery in capex by the high-tech sector. Judging by the bullish capex Bullish stance likely justified plans issued by Taiwan’s TSMC, we see orders for SPE rebounding and think this until 1H results are new demand driver will propel the share price higher. Yaskawa has developed an announced earnings structure capable of generating ¥20bn in OP even during periods of lackluster capex by the high-tech sector, which accounts for some 40% of the company’s sales. A recovery in SPE orders through Jul–Sep should be a catalyst for both earnings and share price gains. (2) Stronger growth in robot orders, reflecting higher capex by automakers. Honda Motor and Daihatsu Motor have issued upbeat capex plans, as have many auto parts makers. At Yaskawa, robot orders from both the Japanese auto industry and US and European automakers apparently have surged since April. (3) Year-on-year growth in monthly orders remaining in the double digits. Yaskawa’s April orders were up 21% YoY and 20% MoM, in a return to double-digit growth. Until Jul–Sep, we think Yaskawa will sustain YoY order growth in the double digits, given the low base for comparison last year, and evidence of rebounding SPE demand and renewed growth in auto sector capex. (4) Strong likelihood of an upward revision to full-year guidance either at the 2Q results announcement in October, or when 3Q results come out in January 2014. Yaskawa's new medium-term business plan sets an OP target of ¥30bn for FY3/15, but if circumstances are right, we think it may attain this goal a year ahead of schedule.

Figure 2: Yaskawa Electric (6506) – Earnings forecast summary Sales Operating profit Recurring profit Net profit EPS ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) Consolidated Mar-13 A 310,383 1.1 13,070 -11.8 14,053 -10.1 6,800 -19.4 27.0 -19.5 Mar-14 CS E (new) 358,000 15.3 29,600 126.5 30,800 119.2 17,000 150.0 67.5 150.0 (prev) 336,500 8.4 22,800 74.4 24,100 71.5 13,700 101.5 54.4 101.8 CoE 350,000 12.8 24,000 83.6 24,000 70.8 13,000 91.2 51.7 91.4 IFIS E 346,462 11.6 25,069 91.8 25,089 78.5 14,355 111.1 57.0 111.2 Mar-15 CS E (new) 359,000 0.3 32,000 8.1 33,200 7.8 19,000 11.8 75.5 11.9 (prev) 326,800 -2.9 21,200 -7.0 22,200 -7.9 12,600 -8.0 50.1 -8.0 IFIS E 361,671 4.4 29,078 16.0 28,592 14.0 16,416 14.4 65.2 14.4 Mar-16 CS E (new) 385,000 7.2 38,900 21.6 40,100 20.8 23,200 22.1 92.2 22.1 IFIS E 385,000 6.5 30,819 6.0 30,250 5.8 17,600 7.2 69.9 7.3 Source: Company data, IFIS, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 3 22 May 2013 Share price charts Stronger growth in monthly orders likely to drive up share price Yasukawa no longer a laggard within the FA subsector

Figure 3: Share price and quarterly basis OP trends Figure 4: Share price and servo monthly order trends (¥mn) (¥) (mn JPY) (JPY) 14,000 Quarterly OP (lhs) 7,000 1,500 1,600 AC servo orders (parent base) 12,000 Share price (rhs) CSE Yaskawa share price (rhs) 10,000 1,400 6,000 1,200 8,000 1,200 5,000 6,000 1,000 900 4,000 4,000 2,000 800 3,000 0 600 600 -2,000 2,000 400 -4,000 300

-6,000 200 1,000

3Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 3Q 4Q 1Q 2Q 3Q 4Q 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15 3/16 0 0 10/11 11/2 11/5 11/8 11/11 12/2 12/5 12/8 12/11 13/2 13/5

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

Figure 5: FA names relative performance Figure 6: FA names absolute performance 140 240

130 220 KEYENCE Omron 120 200 NABTESCO YASKAWA ELECTRIC 110 180 THK 100 160 SMC

90 140

KEYENCE 80 120 Omron NABTESCO 70 100 SMC 60 YASKAWA ELECTRIC 80 THK 50 60 12/1 12/2 12/3 12/4 12/5 12/6 12/7 12/8 12/9 12/10 12/11 12/12 13/1 13/2 13/3 13/4 13/5 12/1 12/2 12/3 12/4 12/5 12/6 12/7 12/8 12/9 12/10 12/11 12/12 13/1 13/2 13/3 13/4 13/5

Source: Company data, Thomson Reuters, Credit Suisse Source: Company data, Thomson Reuters, Credit Suisse

Yaskawa Electric Corporation (6506 / 6506 JP) 4 22 May 2013 Stock valuation Derive TP by applying ROIC model to FY3/15 estimates Raise TP from ¥1,000 to ¥1,800 We raise our TP from ¥1,000 to ¥1,800 (potential upside 27%). As before, we base our TP Upside potential 27% by on an ROIC model; on this occasion, however, we change the reference year for our valuation model from FY3/14 to FY3/15. We also change our risk-free rate assumption from 0.825% to 0.62%, and our equity risk premium assumption from 6.5% to 5.5%. ROIC on our FY3/15 estimates is 10.09%.

By no means overvalued with ¥1,800 TP equivalent to P/E of 23.8x Based on our FY3/15 forecasts, our ¥1,800 TP implies a P/E of 23.8x, P/B of 3.4x, Valuations on high side EV/EBITDA of 11.2x, and P/CF of 15.4x. On this basis, the stock may appear overvalued. warranted, as FY3/14 is first year of earnings recovery However, FY3/14 marks the first year of Yaskawa's earnings recovery (from a low in FY3/13), and we expect FY3/15 to be the second. From the highs set in FY3/13 (P/E of 34.6x, P/B of 2.2x, and EV/EBITDA of 12.7x), we look for valuations to trend downward until profit next peaks. In short, while the profit levels differ, we think it is appropriate to use share price valuations comparable to FY3/12, the second year of Yaskawa’s post-Lehman crisis earnings recovery, and FY3/06, two years after the previous earnings bottom in FY3/04. The P/E for FY3/12 was 23.2x, and the P/B 2.0x. Similarly, P/E for FY3/06 was 30.3x, and P/B 7.2x. ROE for FY3/13 was 6.4%, and in FY3/14–15 we see ROE rising to 14.2% and 14.0%, respectively. In other words, we look for forecast P/B to rise in tandem with a decline in forecast P/E.

Figure 7: Yaskawa historical share price and theoretical price based on ROIC model

(JPY) 2,000 Yaskawa share price 1,800 Theoretical share price

1,600

1,400

1,200

1,000

800

600

400

200

0 03/1 05/1 07/1 09/1 11/1 13/1 15/1

Source: Company data, Thomson Reuters, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 5 22 May 2013

Figure 8: Historical P/E and OP Figure 9: Historical P/B and OP

(mn JPY) (x) PER-OP (x) PBR-OP (mn JPY) 80 40,000 9 40,000 35,000 70 8 35,000 30,000 30,000 60 7 25,000 25,000 50 6 20,000 CSE 20,000 5 CSE 40 15,000 15,000 10,000 4 30 10,000 5,000 3 5,000 20 0 2 0 10 -5,000 1 -5,000 0 -10,000 0 -10,000 90/1 92/1 94/1 96/1 98/1 00/1 02/1 04/1 06/1 08/1 10/1 12/1 14/1 90/1 92/1 94/1 96/1 98/1 00/1 02/1 04/1 06/1 08/1 10/1 12/1 14/1

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

Figure 10: Historical EV/EBITDA Figure 11: Historical PCFR

(x) EV/EBITDA PCFR 20 25

18

16 20

14 CSE

12 15 CSE 10

8 10

6

4 5

2

0 0 90/1 92/1 94/1 96/1 98/1 00/1 02/1 04/1 06/1 08/1 10/1 12/1 14/1 90/1 92/1 94/1 96/1 98/1 00/1 02/1 04/1 06/1 08/1 10/1 12/1 14/1

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

Yaskawa Electric Corporation (6506 / 6506 JP) 6 22 May 2013

Figure 12: Valuation table of machinery names under coverage Code Company Name Rating TP Share price Outstanding Market cap PE PB 5/21/2013 shares (000) (¥bn) 3/12 3/13 E 3/14 E 3/12 3/13 E 3/14 E 6301 Komatsu O 2,700 2,950 991,814 2,926 17.0 13.6 12.3 1.9 2.6 2.3 6305 HCM N 2,300 2,799 222,071 622 18.3 15.1 12.2 1.3 1.6 1.5 6326 Kubota U 1,150 1,712 1,313,277 2,248 22.8 23.8 22.6 2.4 2.9 2.6 6361 Ebara N 380 606 478,526 290 11.9 23.5 21.8 1.1 1.7 1.6 6367 Daikin U 3,300 4,930 304,859 1,503 24.6 23.4 20.5 1.9 2.5 2.2 6586 Makita U 3,900 6,080 143,176 871 18.7 20.1 18.8 1.7 2.2 2.0 6471 NSK O 800 1,072 560,025 600 24.6 21.3 18.5 1.3 1.9 1.7 6473 JTEKT N 1,000 1,239 348,831 432 22.0 25.4 22.1 0.9 1.2 1.2 6371 Tsubakimoto Chain O 550 664 195,731 130 12.1 15.5 14.3 0.9 1.2 1.1 6472 NTN U 200 382 566,499 216 -9.2 44.2 15.1 0.7 1.1 1.0 6861 Keyence N 26,000 32,900 60,802 2,000 25.5 26.7 25.3 2.4 2.5 2.3 6273 SMC N 17,000 22,080 68,532 1,513 19.4 22.9 21.9 1.8 2.1 2.0 6481 THK O 2,000 2,536 130,240 330 23.5 23.6 21.8 1.3 1.7 1.6 6268 Nabtesco N 1,650 2,435 132,835 323 18.5 21.6 20.3 2.3 2.8 2.5 6506 Yaskawa Electric O 1,800 1,417 267,193 379 34.6 21.0 18.8 2.2 3.0 2.6 6954 Fanuc O 17,500 16,200 195,721 3,171 23.5 28.1 24.0 2.6 2.8 2.6 6113 Amada O 700 877 381,679 335 58.2 24.6 22.9 0.6 0.9 0.8 6141 Mori Seiki U 900 1,424 115,751 165 22.2 19.8 22.4 1.3 1.5 1.4 6103 Okuma N 700 991 170,785 169 15.0 18.9 18.3 1.2 1.6 1.5 7011 MHI O 700 747 3,355,102 2,506 28.7 18.7 17.1 1.9 1.7 1.6 7013 IHI - - 432 1,466,656 634 ------1963 JGC O 3,500 3,540 252,481 894 20.0 16.6 16.1 2.8 2.4 2.2 6366 Chiyoda N 1,000 1,231 259,166 319 19.2 19.9 18.5 1.8 1.7 1.6 Coverage Avg 23.2 22.6 19.5 1.6 2.0 1.8

Code Company Name Rating EPS DPS Div. yield ROE EV/EBITDA PCFR (FY 3/13) (FY 3/13) (FY 3/13) (FY 3/13) 3/12 3/13 E 3/14 E 3/12 3/13 E 3/14 E 6301 Komatsu O 216.3 48.0 1.6% 18.0% 9.6 7.8 7.1 9.9 9.4 8.7 6305 HCM N 185.5 40.0 1.4% 10.1% 8.9 7.9 6.9 7.2 8.0 7.1 6326 Kubota U 72.1 18.0 1.1% 11.6% 14.2 13.5 12.2 16.3 16.9 15.9 6361 Ebara N 25.8 5.0 0.8% 7.1% 5.4 8.3 7.5 6.6 10.8 10.5 6367 Daikin U 210.6 37.0 0.8% 10.1% 13.3 12.7 11.4 12.9 14.0 12.9 6586 Makita U 302.0 93.0 1.5% 10.3% 9.4 11.2 9.9 14.9 16.7 15.7 6471 NSK O 50.3 12.0 1.1% 8.5% 8.6 9.3 8.3 7.7 9.3 8.7 6473 JTEKT N 48.8 15.0 1.2% 4.8% 6.7 7.3 6.8 5.2 6.3 5.9 6371 Tsubakimoto Chain O 42.7 8.0 1.2% 7.3% 5.6 6.5 5.8 6.1 8.0 7.6 6472 NTN U 8.6 0.0 0.0% 2.3% 9.4 7.6 6.5 6.3 5.1 4.4 6861 Keyence N 1,233.5 60.0 0.2% 9.6% 12.7 13.3 12.1 24.4 25.6 24.4 6273 SMC N 963.1 150.0 0.7% 9.2% 11.1 11.6 10.5 16.4 19.3 18.3 6481 THK O 107.4 24.0 0.9% 7.2% 8.3 10.1 8.9 11.7 14.2 13.5 6268 Nabtesco N 112.7 36.0 1.5% 12.3% 10.8 11.0 10.2 11.6 13.6 13.0 6506 Yaskawa Electric O 67.5 12.0 0.8% 14.2% 13.4 10.6 9.5 15.8 13.5 12.1 6954 Fanuc O 577.4 173.2 1.1% 9.8% 10.4 12.6 10.6 20.5 24.0 21.0 6113 Amada O 35.6 14.0 1.6% 3.5% 15.0 9.7 8.6 20.4 15.4 14.5 6141 Mori Seiki U 71.9 22.0 1.5% 7.3% 15.6 12.8 11.7 9.8 10.4 10.9 6103 Okuma N 52.4 12.0 1.2% 8.2% 7.2 8.2 7.3 9.6 12.0 11.5 7011 MHI O 39.8 6.0 0.8% 9.3% 11.1 9.4 8.7 12.2 10.0 9.4 7013 IHI - - 5.0 1.2% ------1963 JGC O 213.3 53.3 1.5% 14.7% 9.0 7.2 6.5 16.7 14.2 13.9 6366 Chiyoda N 61.7 17.5 1.4% 8.3% 10.5 10.9 9.6 17.7 18.3 17.2 Coverage Avg 10.3 10.1 9.0 12.3 13.1 12.3 O = OUTPERFORM N = NEUTRAL Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 7 22 May 2013 Monthly orders Order volume picking up; double-digit YoY growth likely to be maintained

China orders likely to remain buoyant in May Growth in monthly orders may appear to have slowed in March. As is already known, Year-on-year growth in however, Yaskawa settles its fiscal year accounts on 20 March, so China orders do not get monthly orders could stay in booked until the following month. That is to say, Yaskawa’s March orders include February double digits until Jul–Sep orders from China, where the Lunar New Year cuts into the number of business days. By the same token, while April orders showed a 21% YoY increase, this was actually a return to the normal pace. It follows that Yaskawa’s May orders will include April orders from China. THK and others have said already that April orders from China were at a record high, and we expect Yaskawa’s May orders to be upbeat also. Robot orders have picked up of late, and a similar trend is emerging in SPE- and LCD- related orders. Given the low base for comparison, we expect YoY growth in orders to remain in the double digits until Jul–Sep or thereabouts.

Figure 13: Consolidated monthly order trends 2012 2013 Consolidated Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr YoY (%) Motion Control -16 -26 -15 -29 -22 -11 -9 -10 9 4 23 28 14 44 1 23 Inverter -5 -13 -6 -28 -13 3 -11 -10 2 10 47 36 33 57 6 33 AC servo -23 -34 -21 -31 -21 -20 -6 -9 16 -1 2 20 -1 31 -3 16 Robot 34 20 40 -11 -18 -6 -26 12 2 24 2 6 -32 -17 -14 13 INR 42 26 52 -9 -18 -6 -25 16 1 26 6 7 -29 -14 -16 14 General 45 42 64 6 -9 13 -20 22 5 15 1 6 -29 -17 -22 5 LCD -5 -39 -45 -83 -54 -98 -59 -41 -30 271 54 56 -26 12 111 264 SER -15 -13 -36 -21 -18 -13 -42 -38 22 -15 -45 -4 -64 -37 11 2 System Engineering 6 -21 -28 26 -19 38 36 34 37 -14 22 -15 -16 110 106 35 Information System -16 93 -36 -1 -49 16 12 20 47 -9 21 -30 56 13 50 -30 Others -18 -23 -7 -52 -25 -29 29 -36 -30 45 -7 17 35 53 -43 202 Total 3 -7 -2 -20 -21 -5 -10 2 10 10 13 12 -7 23 4 21

MoM (%) Motion Control -4 -4 7 15 -6 10 -6 -21 14 -6 26 8 -15 20 -25 41 Inverter -11 2 2 6 0 13 -9 -12 8 3 42 -2 -13 20 -31 33 AC servo 2 -10 12 24 -11 11 -3 -27 19 -14 11 20 -16 20 -17 48 Robot 27 -7 -5 -6 0 1 -3 -4 6 15 -8 -4 -18 13 -3 24 INR 28 -9 -1 -9 3 2 -1 -4 6 16 -8 -8 -15 9 -3 23 General 28 -15 5 -8 -6 15 -9 -1 3 8 -6 -2 -14 -1 0 23 LCD 41 112 -58 -29 267 -97 2013 -38 49 126 -19 -56 -33 220 -21 22 SER 18 13 -43 50 -27 -10 -31 -7 17 -1 -5 80 -55 96 0 38 System Engineering -34 30 0 -11 -1 78 -4 -3 44 -41 25 -37 -35 227 -2 -42 Information System -40 50 -16 71 -70 217 11 -38 22 -7 -13 -16 33 8 11 -20 Others -4 17 36 -58 78 47 -7 -35 5 58 -34 4 12 33 -50 125 Total 2 -1 1 3 -6 18 -4 -15 15 -3 7 -3 -15 31 -14 20 Source: Company data, Credit Suisse

Yaskawa Electric Corporation (6506 / 6506 JP) 8 22 May 2013 Factors likely to fuel earnings growth at Yaskawa Expectations mounting that auto sector capex will increase in 2013 Forecast YoY capex increases of about 19% at automakers, 17% at auto parts makers Most companies have now reported FY12 results. If we examine capex plans across Auto industry capex likely to subsectors, the most surprising discovery is the high level of spending planned by drive demand in 2013 Japanese automakers and parts suppliers. Plans suggest that aggregate spending by the nine automakers will be up around 19% YoY in FY13, with spending by the 11 auto parts makers rising roughly 17%. On a dollar basis, the eight major high-tech companies intend to increase capex by only 3.2% YoY, however TSMC is planning a 17% increase, and Intel a 9% rise. It seems likely that growth will be stronger still on a yen basis. Sales 25–30% dependent on tech-sector capex; auto-sector capex accounts for 40% Nominally, we calculate that Yaskawa is dependent on high-tech sector capex for around 20% of sales, with auto-sector capex accounting for 10%. Machine tool and general machinery manufacturers make up another 20%, distributors 15%, "other" 15%, and exports 20%. Demand from machine tool and general machinery manufacturers is essentially dependent on auto- and tech-sector capex, however. The same can be said for demand from distributors. Thus in real terms, we think Yaskawa is dependent on tech-sector capex for 25–30% of sales, with auto sector capex accounting for roughly 40%.

Figure 14: Capex plans for current FY (different industries) Industry Electronic Construction/Farm Auto Auto parts Electronic Machine tool FA Beering Components machinery Company Kyocera Toyota Bridgestone Samsung Okuma Komatsu SMC NSK Murata Nissan Sumitomo Rubber Intel Mori Seiki HCM Yaskawa NTN Nidec Honda Aisin Seiki TSMC Makino Kubota THK JTEKT TDK Matsuda Denso AMD Amada Tadano Omron NGK Daihatsu Toyota Industries Hynix Nabtesco Ibiden Isuzu Toyota Boshoku Toshiba Mitsubishi Electric Taiyo Yuden Hino Toyota Gosei Micron Alps Electric Fuji Heavy Calsonic Kansei Sony Shinko Electric Suzuki Keihin Hirose Electric Exedy Mitsumi Eectric Takata Corporation

Total Capex 457bn JPY 2,942bn JPY 1,136bn JPY 45bn USD 43bn JPY 189bn JPY 277bn JPY 148bn JPY YoY (%) +5.0% +18.8% +16.5% +3.2% +32.6% -0.4% +13.1% -27.1%

Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 9 22 May 2013

Key points of 4Q results Fourth-quarter summary and key points In 4Q (Jan–Mar) FY3/13, with the yen trading at ¥88.1 vs. the USD (¥76.6 in 4Q FY3/12) and ¥116.5 vs. the EUR (¥101.8), sales rose 13% YoY to ¥91.3bn (+1% YoY to ¥68.6bn in 3Q) and OP increased 74% to ¥6.3bn (OPM = 6.9%). Forex factors boosted sales by ¥0.8bn and OP by ¥0.4bn. Sales in the motion-control business rose 27% YoY to ¥40.1bn, while OP improved to around ¥1.3bn after losses a year earlier (OPM = 3.1%). This marked a significant improvement from breakeven in 3Q, when the company took a charge of ¥0.5bn for defective components made by a supplier. Although profits for 4Q appear weak, underlying OP was ¥2.3bn after excluding unrealized profits (i.e., decline in OP) of roughly ¥1bn. Sales in the robot business rose 14% YoY to ¥32.8bn and OP increased 74% to ¥3.6bn, with the OPM reaching a record 11%. The margin was boosted by a high weighting of sales in 4Q and a decline in low-margin orders from the automotive sector, but there also appears to have been an underlying improvement in profitability.

Figure 15: Quarterly results (¥ mn, %) 11/3 12/3 13/3 Sales by segment 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Motion control 34,814 41,884 39,561 40,191 43,298 41,039 33,449 31,624 35,268 35,199 33,724 40,142 Robot 17,243 20,691 21,641 24,268 22,015 26,563 23,664 28,823 26,937 27,524 22,955 32,807 Systems engineering 6,375 7,510 6,889 13,575 6,573 7,783 6,317 14,847 6,605 9,569 8,128 12,961 Information 3,079 3,997 2,759 4,297 2,421 3,636 2,853 3,916 2,257 4,115 2,362 4,052 Others 1,853 2,018 2,204 1,998 2,150 2,574 1,877 1,689 1,507 1,505 1,463 1,303 Consolidated 63,364 76,100 73,054 84,329 76,457 81,595 68,160 80,899 72,574 77,912 68,632 91,265 yoy (%)

Motion control 62.4 77.8 39.8 27.5 24.4 -2.0 -15.4 -21.3 -18.5 -14.2 0.8 26.9 Robot 29.3 74.4 75.7 24.0 27.7 28.4 9.3 18.8 22.4 3.6 -3.0 13.8 Systems engineering -15.5 -29.5 -1.3 -16.9 3.1 3.6 -8.3 9.4 0.5 22.9 28.7 -12.7 Information 12.0 -13.7 -9.1 -16.3 -21.4 -9.0 3.4 -8.9 -6.8 13.2 -17.2 3.5 Others 43.9 54.5 40.8 24.2 16.0 27.6 -14.8 -15.5 -29.9 -41.5 -22.1 -22.9 Consolidated 36.7 46.3 40.0 13.7 20.7 7.2 -6.7 -4.1 -5.1 -4.5 0.7 12.8 (¥ mn, %) 11/3 12/3 13/3 OP by segment 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Motion control 864 3,302 3,049 1,765 3,958 2,064 594 -792 810 1,186 1 1,251 Robot -1,159 608 1,102 1,122 1,067 2,130 1,739 2,078 1,815 2,258 679 3,613 Systems engineering -76 195 90 1,852 -168 214 -163 2,034 -107 514 107 990 Information -414 -124 -212 352 -223 133 -238 189 -362 91 -302 332 Others 112 163 110 157 136 129 159 102 71 25 155 94 Elimination 61 -54 68 -59 -49 -139 -122 -14 -47 -115 19 -8 Consolidated -612 4,090 4,207 5,189 4,721 4,531 1,969 3,597 2,180 3,959 659 6,272 yoy (%)

Motion control NM NM NM 67.5 358.1 -37.5 -80.5 NM -79.5 -42.5 -99.8 NM Robot NM NM NM NM NM 250.3 57.8 85.2 70.1 6.0 -61.0 73.9 Systems engineering NM -83.8 -80.9 -47.3 NM 9.7 NM 9.8 NM 140.2 NM -51.3 Information NM NM NM 738.1 NM NM NM -46.3 NM -31.6 NM 75.7 Others NM NM NM 647.6 21.4 -20.9 44.5 -35.0 -47.8 -80.6 -2.5 -7.8 Consolidated NM NM NM 27.9 NM 10.8 -53.2 -30.7 -53.8 -12.6 -66.5 74.4 OP Margin by Segment

Motion control 2.5 7.9 7.7 4.4 9.1 5.0 1.8 -2.5 2.3 3.4 0.0 3.1 Robot -6.7 2.9 5.1 4.6 4.8 8.0 7.3 7.2 6.7 8.2 3.0 11.0 Systems engineering -1.2 2.6 1.3 13.6 -2.6 2.7 -2.6 13.7 -1.6 5.4 1.3 7.6 Information -13.4 -3.1 -7.7 8.2 -9.2 3.7 -8.3 4.8 -16.0 2.2 -12.8 8.2 Others 6.0 8.1 5.0 7.9 6.3 5.0 8.5 6.0 4.7 1.7 10.6 7.2 Consolidated -1.0 5.4 5.8 6.2 6.2 5.6 2.9 4.4 3.0 5.1 1.0 6.9 Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 10 22 May 2013 Key points of FY3/14 guidance Sales forecast appears conservative Boost from weak yen likely to be larger than assumption For FY3/14, Yaskawa assumes ¥90/USD (up ¥8.1 from ¥81.92 in FY3/13) and ¥120/EUR Large impact from yen (up ¥14.3 from ¥105.7 in FY3/13). Based on a simple calculation, this would boost annual decline vs. Asian currencies, OP by around ¥3bn YoY, assuming an impact of ¥0.17bn for the USD and ¥0.11bn for the as well as USD, EUR EUR for every ¥1 yen change in forex rates. However, Yaskawa sees a total boost to OP of ¥3.9bn, which we believe includes around ¥0.9bn from the yen's decline versus the KRW and RMB. FY3/14 guidance calls for sales growth of 13% YoY (+¥39.6bn) to ¥350bn, breaking down as ¥165bn in 1H and ¥185bn in 2H. Yaskawa assumes a boost of ¥16.5bn from the weak yen, ¥9bn from new subsidiary consolidations (¥5bn from Yaskawa Tsusho, ¥4bn from acquired German company Vipa), and the remaining ¥14.1bn from organic growth. Yaskawa sees underlying sales growth of only 5% in motion control, 2% in robots Yaskawa projects sales growth of 14% YoY in the motion control business to ¥165bn. Projecting underlying sales However, effective from FY3/14, IPM motor, high-voltage drive and other businesses growth of only 5% YoY in (generating total sales of ¥6.3bn and OP of ¥0.3bn) have been transferred to the system motion control engineering business segment. Excluding the impact of this reorganization, Yaskawa projects motion control sales of ¥171.3bn (up 19%, ¥27bn YoY). This ¥27bn in sales growth breaks down as ¥8.6bn from the weak yen (boost to OP of ¥1.8bn), ¥6.4bn from solar power conditioners (¥7.6bn → ¥14bn) and ¥5bn from the Vipa acquisition, with the remaining ¥7bn coming from organic growth. The company thus appears to project underlying sales growth of only 5% YoY in the motion control business. Yaskawa projects sales growth of 9% YoY (up ¥9.8bn) in the robot business to ¥120bn Underlying sales growth of (1H) ¥57bn, 2H: ¥63bn). This sales growth breaks down as ¥7.3bn from the weak yen 2% YoY in robot business (boost to OP of ¥2.1bn), with the remaining ¥2.5bn coming from organic growth. In other also looks cautious words, Yaskawa assumes underlying sales growth of only 2% YoY. Buffer of around ¥1bn in motion control OP FY3/14 OP guidance calls for growth of 84% YoY to ¥24bn (1H: ¥8.5bn, 2H: ¥15.5bn, OP projection also looks OPM: 6.9%). Guidance is based on OP of ¥13.8bn in motion control, or roughly 4.2x the cautious previous year’s level (OPM = 8.4%), ¥9.6bn in robots, up 15% YoY (OPM = 8.0%) and ¥1.5bn in system engineering, flat YoY. The company also assumes the information system business will return to the black with OP of ¥0.3bn, and others/eliminations of –¥1.2bn. Yaskawa projects FY3/14 motion control OP of ¥13.8bn, up ¥10.6bn from ¥3.2bn in FY3/13. This YoY increase breaks down as ¥5.6bn from sales growth, ¥1.8bn from the weak yen, ¥1.7bn from unrealized gains, –¥5.5bn from an increase in indirect costs, ¥1.2bn from lower magnetic material costs, and ¥5.8bn from PV sales growth and increased output in China. Yaskawa projects FY3/14 robot OP of ¥9.6bn, up ¥1.2bn from ¥8.4bn in FY3/13. This YoY increase breaks down as ¥1.0bn from sales growth, ¥2.1bn from the weak yen, ¥0.7bn from new high value-added products, –¥0.2bn from unrealized gains, and –¥2.4bn from higher costs. The company plans to boost upfront investment in the robot business targeting projects from FY3/15.

Yaskawa Electric Corporation (6506 / 6506 JP) 11 22 May 2013 Earnings estimates Raised guidance could accompany 2Q or 3Q results Scope for upward revision due to sales, forex and cost factors Based on analysis of FY3/14 guidance, we see upside potential to the company’s OP Our OP estimates top IFIS projection from: (1) sales (particularly relating to tech investment centering on SPE and forecasts by 18% for FY3/14 automotive robots); (2) weak yen benefits (versus Asian currencies, as well as USD and and 10% for FY3/15 EUR); and (3) costs (various cost items and cost improvements from value-added products). Revising up our FY3/14–15 forecasts We raise our FY3/14 sales estimate from ¥336.5bn to ¥358bn (+15% YoY) and our OP estimate from ¥22.8bn to ¥29.6bn (+127%) after factoring in recent research, improvements in the external environment and the impact of M&A synergies. Our sales estimate is 2% higher than guidance of ¥350bn and our OP estimate is 23% above guidance of ¥24bn. Our OP estimate is 18% above the IFIS forecast of ¥25.1bn. We also raise our FY3/15 sales forecast from ¥326.8bn to ¥359bn (flat YoY) and our OP estimate from ¥21.2bn to ¥32bn (+8% YoY). Our OP estimate exceeds the IFIS forecast of ¥29.1bn by 10%. However, we see profits entering a downward trend from 3Q FY3/15 due to a downturn in the capex cycle. We also extend our estimates to FY3/16. Assuming a full-scale recovery in Chinese demand, we forecast FY3/16 sales of ¥385bn (+7% YoY) and OP of ¥38.9bn (+22%), resulting in an OPM of 10.1%. Factors newly reflected in our estimates (1) Forex assumptions revised: ¥90/USD → ¥100/USD (guidance assumption: ¥90), Forex sensitivity relatively ¥125/EUR → ¥130/EUR (¥120), ¥14/RMB → ¥16/RMB. For every ¥1 change in forex high compared with other rates, we estimate an impact on OP of ¥0.17bn for the USD and ¥0.11bn for the EUR. FA names We also see a boost to OP from yen depreciation versus the KRW, RMB and other currencies. Yaskawa assumes a total boost from the weak yen of ¥3.9bn, but our assumptions are higher by ¥1.7bn for the USD, ¥1.1bn for the EUR, and ¥0.6bn for other currencies, giving a total of ¥3.4bn above the guidance assumption. We thus see upside of ¥1.5bn to guidance for the motion control business and ¥1.9bn for the robot business. (2) Motion control sales: Our FY3/14 sales forecast of ¥172bn is ¥7bn higher than guidance of ¥165bn, based on prospects for a recovery in SPE demand and other factors. We also factor in upside to profits of ¥2.8bn based on a contribution margin ratio of 40%. (3) Robot sales: Our sales estimate for this business is also higher than guidance; we forecast ¥123bn, versus guidance of ¥120bn. Although our forecasts are slightly conservative, we see prospects for higher demand from the auto sector. (4) Information systems: We are less bullish than Yaskawa on this business; we see losses persisting (¥0.3bn operating loss), versus guidance for profit (OP of ¥0.3bn).

Yaskawa Electric Corporation (6506 / 6506 JP) 12 22 May 2013

Figure 16: Half- and full-year earnings forecasts (¥ mn, %) 13/3 14/3CSE 15/3CSE 16/3CSE 14/3CoE Consolidated 1HA 2HA Full Year 1HE 2HE Full Year 1HE 2HE Full Year 1HE 2HE Full Year 1HE 2HE Full Year Sales 150,486 159,897 310,383 169,200 188,800 358,000 182,700 176,300 359,000 182,200 202,800 385,000 165,000 185,000 350,000 yoy (%) -4.8 7.3 1.1 12.4 18.1 15.3 8.0 -6.6 0.3 -0.3 15.0 7.2 9.6 15.7 12.8 Cost of goods sold 111,295 116,979 228,274 122,096 129,304 251,400 129,296 120,704 250,000 128,796 138,304 267,100 - - - Ratio of cost of sales 74.0 73.2 73.5 72.2 68.5 70.2 70.8 68.5 69.6 70.7 68.2 69.4 - - - Gross profit on sales 39,191 42,918 82,109 47,104 59,496 106,600 53,404 55,596 109,000 53,404 64,496 117,900 - - - SG&A 33,052 35,987 69,039 36,500 40,500 77,000 37,500 39,500 77,000 37,500 41,500 79,000 - - - Ratio of SG&A 22.0 22.5 22.2 21.6 21.5 21.5 20.5 22.4 21.4 20.6 20.5 20.5 - - - Operating profit 6,139 6,931 13,070 10,604 18,996 29,600 15,904 16,096 32,000 15,904 22,996 38,900 8,500 15,500 24,000 yoy (%) -33.6 24.5 -11.8 72.7 174.1 126.5 50.0 -15.3 8.1 0.0 42.9 21.6 38.5 123.6 83.6 OP Margin 4.1 4.3 4.2 6.3 10.1 8.3 8.7 9.1 8.9 8.7 11.3 10.1 5.2 8.4 6.9 Recurring profits 6,354 7,699 14,053 11,204 19,596 30,800 16,504 16,696 33,200 16,504 23,596 40,100 8,500 15,500 24,000 yoy (%) -31.7 21.7 -10.1 76.3 154.5 119.2 47.3 -14.8 7.8 0.0 41.3 20.8 33.8 101.3 70.8 Extraordinary profit 407 170 577 100 100 200 100 100 200 100 100 200 - - - Extraordinary expense 877 1,628 2,505 400 1,200 1,600 400 400 800 400 400 800 - - - Pretax income 5,884 6,241 12,125 10,904 18,496 29,400 16,204 16,396 32,600 16,204 23,296 39,500 - - - Income taxes-deferred 2,198 2,504 4,702 4,800 6,800 11,600 6,900 5,880 12,780 6,950 8,500 15,450 - - - Tax rate (%) 37.4 40.1 38.8 44.0 36.8 39.5 42.6 35.9 39.2 42.9 36.5 39.1 - - - Minority interests 188 435 623 250 550 800 270 550 820 270 580 850 Net profits 3,498 3,302 6,800 5,854 11,146 17,000 9,034 9,966 19,000 8,984 14,216 23,200 4,500 8,500 13,000 yoy (%) -46.1 70.3 -19.4 67.4 237.6 150.0 54.3 -10.6 11.8 -0.6 42.6 22.1 28.6 157.4 91.2

(¥ mn, %) 13/3 14/3CSE 15/3CSE 16/3CSE 14/3CoE Sales by segment 1HA 2HA Full Year 1H 2H Full Year 1H 2H Full Year 1HE 2HE Full Year 1HE 2HE Full Year

Motion control 70,467 73,866 144,333 82,500 89,500 172,000 93,500 84,000 177,500 93,000 98,500 191,500 81,000 84,000 165,000 Robot 54,461 55,762 110,223 58,500 64,500 123,000 61,000 56,500 117,500 60,500 67,000 127,500 57,000 63,000 120,000 Systems engineering 16,174 21,089 37,263 17,500 22,500 40,000 17,500 23,500 41,000 18,000 24,500 42,500 16,000 24,000 40,000 Information 6,372 6,414 12,786 5,700 6,300 12,000 5,700 6,300 12,000 5,700 6,300 12,000 7,000 7,000 14,000 Others 3,012 2,766 5,778 5,000 6,000 11,000 5,000 6,000 11,000 5,000 6,500 11,500 4,000 7,000 11,000 Consolidated 150,486 159,897 310,383 169,200 188,800 358,000 182,700 176,300 359,000 182,200 202,800 385,000 165,000 185,000 350,000 yoy (%)

Motion control -16.4 13.5 -3.4 17.1 21.2 19.2 13.3 -6.1 3.2 -0.5 17.3 7.9 14.9 13.7 14.3 Robot 12.1 6.2 9.1 7.4 15.7 11.6 4.3 -12.4 -4.5 -0.8 18.6 8.5 4.7 13.0 8.9 Systems engineering 12.7 -0.4 4.9 8.2 6.7 7.3 - 4.4 2.5 2.9 4.3 3.7 -1.1 13.8 7.3 Information 5.2 -5.2 -0.3 -10.5 -1.8 -6.1 ------9.9 9.1 9.5 Others -36.2 -22.4 -30.3 66.0 116.9 90.4 - - - - 8.3 4.5 32.8 153.1 90.4 Consolidated -4.8 7.3 1.1 12.4 18.1 15.3 8.0 -6.6 0.3 -0.3 15.0 7.2 9.6 15.7 12.8 (¥ mn, %) 13/3 14/3CSE 15/3CSE 16/3CSE 14/3CoE OP by segment 1HA 2HA Full Year 1H 2H Full Year 1H 2H Full Year 1HE 2HE Full Year 1HE 2HE Full Year

Motion control 1,996 1,252 3,248 6,596 10,504 17,100 10,996 9,704 20,700 10,796 13,504 24,300 5,900 7,900 13,800 Robot 4,073 4,292 8,365 4,208 7,892 12,100 5,008 5,692 10,700 5,208 8,792 14,000 3,800 5,800 9,600 Systems engineering 407 1,097 1,504 400 1,100 1,500 400 1,200 1,600 400 1,200 1,600 -300 1,800 1,500 Information -271 30 -241 -300 0 -300 -200 0 -200 -200 0 -200 0 300 300 Others 96 249 345 -300 -500 -800 -300 -500 -800 -300 -500 -800 -900 -300 -1,200 Elimination -162 11 -151 0 0 0 0 0 0 0 0 0 0 - 0 Consolidated 6,139 6,931 13,070 10,604 18,996 29,600 15,904 16,096 32,000 15,904 22,996 38,900 8,500 15,500 24,000 yoy (%)

Motion control -66.9 NM -44.2 230.5 739.0 426.5 66.7 -7.6 21.1 -1.8 39.2 17.4 195.6 531.0 324.9 Robot 27.4 12.4 19.3 3.3 83.9 44.7 19.0 -27.9 -11.6 4.0 54.5 30.8 -6.7 35.1 14.8 Systems engineering 784.8 -41.4 -21.5 -1.7 0.3 -0.3 - 9.1 6.7 - - - -173.7 64.1 -0.3 Information NM NM NM NM NM NM NM NM NM NM NM NM -100.0 900.0 -224.5 Others -63.8 -4.6 -34.4 NM NM NM NM NM NM NM NM NM -1,037.5 -220.5 -447.8 Consolidated -33.6 24.5 -11.8 72.7 174.1 126.5 50.0 -15.3 8.1 - 42.9 21.6 38.5 123.6 83.6 OP Margin by Segment

Motion control 2.8 1.7 2.3 8.0 11.7 9.9 11.8 11.6 11.7 11.6 13.7 12.7 7.3 9.4 8.4 Robot 7.5 7.7 7.6 7.2 12.2 9.8 8.2 10.1 9.1 8.6 13.1 11.0 6.7 9.2 8.0 Systems engineering 2.5 5.2 4.0 2.3 4.9 3.8 2.3 5.1 3.9 2.2 4.9 3.8 -1.9 7.5 3.8 Information -4.3 0.5 -1.9 -5.3 0.0 -2.5 -3.5 0.0 -1.7 -3.5 0.0 -1.7 0.0 4.3 2.1 Others 3.2 9.0 6.0 -6.0 -8.3 -7.3 -6.0 -8.3 -7.3 -6.0 -7.7 -7.0 -22.5 -4.3 -10.9 Consolidated 4.1 4.3 4.2 6.3 10.1 8.3 8.7 9.1 8.9 8.7 11.3 10.1 5.2 8.4 6.9 Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 13 22 May 2013 Forecasts for 1Q and 2Q FY3/14 Yaskawa likely to raise full-year projections at 1H results We forecast 1Q OP (due for release at end-July) to rise 53% YoY to ¥3.3bn. We expect a 235% YoY increase in OP for the motion-control business and a 28% decline in OP in the robot business. We anticipate operating losses of ¥100mn at the systems engineering business, ¥400mn at the information system business, and ¥200mn in other businesses. We forecast 2Q OP of ¥7.3bn (+84% YoY) and look for 1H OP (our forecast ¥10.6bn) to outpace OP guidance (¥8.5bn) by 25%.

Figure 17: Quarterly earnings forecasts (¥ mn, %) 13/3 14/3CSE 15/3CSE 16/3CSE Consolidated 1QA 2QA 3QA 4QA 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Sales 72,574 77,912 68,632 91,265 80,200 89,000 87,800 101,000 88,700 94,000 82,800 93,500 86,200 96,000 95,800 107,000 yoy (%) -5.1 -4.5 0.7 12.8 10.5 14.2 27.9 10.7 10.6 5.6 -5.7 -7.4 -2.8 2.1 15.7 14.4 Cost of goods sold 54,074 57,221 50,958 66,021 58,875 63,221 60,420 68,884 63,675 65,621 56,120 64,584 61,475 67,321 65,220 73,084 Ratio of cost of sales 74.5 73.4 74.2 72.3 73.4 71.0 68.8 68.2 71.8 69.8 67.8 69.1 71.3 70.1 68.1 68.3 Gross profit on sales 18,500 20,691 17,674 25,244 21,325 25,779 27,380 32,116 25,025 28,379 26,680 28,916 24,725 28,679 30,580 33,916 SG&A 16,320 16,732 17,015 18,972 18,000 18,500 19,500 21,000 18,500 19,000 19,500 20,000 18,500 19,000 20,000 21,500 Ratio of SG&A 22.5 21.5 24.8 20.8 22.4 20.8 22.2 20.8 20.9 20.2 23.6 21.4 21.5 19.8 20.9 20.1 Operating profit 2,180 3,959 659 6,272 3,325 7,279 7,880 11,116 6,525 9,379 7,180 8,916 6,225 9,679 10,580 12,416 yoy (%) -53.8 -12.6 -66.5 74.4 52.5 83.9 1,095.8 77.2 96.2 28.9 -8.9 -19.8 -4.6 3.2 47.4 39.3 OP Margin 3.0 5.1 1.0 6.9 4.1 8.2 9.0 11.0 7.4 10.0 8.7 9.5 7.2 10.1 11.0 11.6 Recurring profits 1,998 4,356 1,152 6,547 3,625 7,579 8,180 11,416 6,825 9,679 7,480 9,216 6,525 9,979 10,880 12,716 yoy (%) -58.0 -4.1 -47.3 58.0 81.4 74.0 610.1 74.4 88.3 27.7 -8.6 -19.3 -4.4 3.1 45.5 38.0 Extraordinary profit 248 159 21 149 50 50 50 50 50 50 50 50 50 50 50 50 Extraordinary expense 549 328 450 1,178 200 200 200 1,000 200 200 200 200 200 200 200 200 Pretax income 1,697 4,187 723 5,518 3,475 7,429 8,030 10,466 6,675 9,529 7,330 9,066 6,375 9,829 10,730 12,566 Income taxes-deferred 680 1,518 258 2,246 1,600 3,200 3,000 3,800 3,000 3,900 2,700 3,180 2,850 4,100 4,000 4,500 Tax rate (%) 40.1 36.3 35.7 40.7 46.0 43.1 37.4 36.3 44.9 40.9 36.8 35.1 44.7 41.7 37.3 35.8 Minority interests 121 67 101 334 150 100 150 400 160 110 150 400 160 110 170 410 Net profits 896 2,602 364 2,938 1,725 4,129 4,880 6,266 3,515 5,519 4,480 5,486 3,365 5,619 6,560 7,656 yoy (%) -76.2 -4.6 -24.3 101.5 92.5 58.7 1,240.7 113.3 103.8 33.7 -8.2 -12.4 -4.3 1.8 46.4 39.6

(¥ mn, %) 13/3 14/3CSE 15/3CSE 16/3CSE Sales by segment 1QA 2QA 3QA 4QA 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Motion control 35,268 35,199 33,724 40,142 40,500 42,000 43,500 46,000 46,500 47,000 42,000 42,000 45,000 48,000 49,000 49,500 Robot 26,937 27,524 22,955 32,807 28,000 30,500 30,000 34,500 30,500 30,500 26,500 30,000 29,500 31,000 32,000 35,000 Systems engineering 6,605 9,569 8,128 12,961 7,000 10,500 9,000 13,500 7,000 10,500 9,000 14,500 7,000 11,000 9,500 15,000 Information 2,257 4,115 2,362 4,052 2,200 3,500 2,300 4,000 2,200 3,500 2,300 4,000 2,200 3,500 2,300 4,000 Others 1,507 1,505 1,463 1,303 2,500 2,500 3,000 3,000 2,500 2,500 3,000 3,000 2,500 2,500 3,000 3,500 Consolidated 72,574 77,912 68,632 91,265 80,200 89,000 87,800 101,000 88,700 94,000 82,800 93,500 86,200 96,000 95,800 107,000 yoy (%)

Motion control -18.5 -14.2 0.8 26.9 14.8 19.3 29.0 14.6 14.8 11.9 -3.4 -8.7 -3.2 2.1 16.7 17.9 Robot 22.4 3.6 -3.0 13.8 3.9 10.8 30.7 5.2 8.9 - -11.7 -13.0 -3.3 1.6 20.8 16.7 Systems engineering 0.5 22.9 28.7 -12.7 6.0 9.7 10.7 4.2 - - - 7.4 - 4.8 5.6 3.4 Information -6.8 13.2 -17.2 3.5 -2.5 -14.9 -2.6 -1.3 ------Others -29.9 -41.5 -22.1 -22.9 65.9 66.1 105.1 130.2 ------16.7 Consolidated -5.1 -4.5 0.7 12.8 10.5 14.2 27.9 10.7 10.6 5.6 -5.7 -7.4 -2.8 2.1 15.7 14.4 (¥ mn, %) 13/3 14/3CSE 15/3CSE 16/3CSE OP by segment 1QA 2QA 3QA 4QA 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Motion control 810 1,186 1 1,251 2,710 3,886 5,401 5,103 5,110 5,886 5,501 4,203 5,010 5,786 7,301 6,203 Robot 1,815 2,258 679 3,613 1,315 2,893 3,279 4,613 2,015 2,993 2,379 3,313 1,815 3,393 3,979 4,813 Systems engineering -107 514 107 990 -100 500 -300 1,400 -100 500 -200 1,400 -100 500 -200 1,400 Information -362 91 -302 332 -400 100 -300 300 -300 100 -300 300 -300 100 -300 300 Others 71 25 155 94 -200 -100 -200 -300 -200 -100 -200 -300 -200 -100 -200 -300 Elimination -47 -115 19 -8 0 0 0 0 0 0 0 0 0 0 0 0 Consolidated 2,180 3,959 659 6,272 3,325 7,279 7,880 11,116 6,525 9,379 7,180 8,916 6,225 9,679 10,580 12,416 yoy (%)

Motion control -79.5 -42.5 -99.8 NM 234.6 227.7 540,000.0 307.9 88.6 51.5 1.9 -17.6 -2.0 -1.7 32.7 47.6 Robot 70.1 6.0 -61.0 73.9 -27.5 28.1 382.9 27.7 53.2 3.5 -27.4 -28.2 -9.9 13.4 67.3 45.3 Systems engineering NM 140.2 NM -51.3 NM -2.7 NM 41.4 NM 0.0 NM 0.0 NM 0.0 NM 0.0 Information NM -31.6 NM 75.7 NM 9.9 NM -9.6 NM 0.0 NM 0.0 NM 0.0 NM 0.0 Others -47.8 -80.6 -2.5 -7.8 NM NM NM NM NM NM NM NM NM NM NM NM Consolidated -53.8 -12.6 -66.5 74.4 52.5 83.9 1,095.8 77.2 96.2 28.9 -8.9 -19.8 -4.6 3.2 47.4 39.3 OP Margin by Segment

Motion control 2.3 3.4 0.0 3.1 6.7 9.3 12.4 11.1 11.0 12.5 13.1 10.0 11.1 12.1 14.9 12.5 Robot 6.7 8.2 3.0 11.0 4.7 9.5 10.9 13.4 6.6 9.8 9.0 11.0 6.2 10.9 12.4 13.8 Systems engineering -1.6 5.4 1.3 7.6 -1.4 4.8 -3.3 10.4 -1.4 4.8 -2.2 9.7 -1.4 4.5 -2.1 9.3 Information -16.0 2.2 -12.8 8.2 -18.2 2.9 -13.0 7.5 -13.6 2.9 -13.0 7.5 -13.6 2.9 -13.0 7.5 Others 4.7 1.7 10.6 7.2 -8.0 -4.0 -6.7 -10.0 -8.0 -4.0 -6.7 -10.0 -8.0 -4.0 -6.7 -8.6 Consolidated 3.0 5.1 1.0 6.9 4.1 8.2 9.0 11.0 7.4 10.0 8.7 9.5 7.2 10.1 11.0 11.6 Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 14 22 May 2013 Quarterly OP factor analysis Analysis of profit growth/decline in motion control and robot businesses Yen decline to substantially boost OP in both segments Figure 18 depicts quarterly OP factor analysis for the firm’s mainstay motion control and robot businesses. Although we anticipate an increase in indirect costs at the motion control business, we expect positive effects from various measures to improve productivity and a resultant increase in sales as well as from lower magnetic materials prices. At the robot business, we look for lower sales and the increase in indirect costs to weigh on 1Q OP. However, the business is likely to swing to YoY profit growth from 2Q supported by a weaker yen and productivity improvement measures.

Figure 18: Quarterly basis OP factor analysis for Motion/Robot business

Motion control business 13/3 14/3CSE 15/3CSE 16/3CSE (mn JPY, %) 1QA 2QA 3QA 4QA 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE Motion business sales 35,268 35,199 33,724 40,142 40,500 42,000 43,500 46,000 46,500 47,000 42,000 42,000 45,000 48,000 49,000 49,500 Change from last FY -8,030 -5,840 275 8,518 5,232 6,801 9,776 5,858 6,000 5,000 -1,500 -4,000 -1,500 1,000 7,000 7,500 FX impact -300 -500 400 3,000 3,500 3,200 2,200 600 0 0 0 0 0 0 0 0 Net change from last FY -7,730 -5,340 -125 5,518 1,732 3,601 7,576 5,258 6,000 5,000 -1,500 -4,000 -1,500 1,000 7,000 7,500

OP 810 1,186 1 1,251 2,710 3,886 5,401 5,103 5,110 5,886 5,501 4,203 5,010 5,786 7,301 6,203 Change from last FY -3,148 -878 -593 2,043 1,900 2,700 5,400 3,852 2,400 2,000 100 -900 -100 -100 1,800 2,000 OPM 2.3 3.4 0.0 3.1 6.7 9.3 12.4 11.1 11.0 12.5 13.1 10.0 11.1 12.1 14.9 12.5

Revenue effect -3,300 -2,300 -100 2,400 500 1,300 3,100 2,100 2,400 2,000 -600 -1,600 -600 400 2,800 3,000 High value added 700 1,500 1,700 1,443 1,500 1,500 1,800 2,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Indirect cost 252 722 -700 -2,000 -1,500 -1,500 -1,000 -1,000 -1,000 -1,000 -300 -300 -500 -1,500 -2,000 -2,000 FX impact -200 -200 150 1,300 900 900 1,000 500 0 0 0 0 0 0 0 0 Unrealized profit -600 -600 -1,643 -1,100 500 500 500 252 0 0 0 0 0 0 0 0 Total(=change from last FY) -3,148 -878 -593 2,043 1,900 2,700 5,400 3,852 2,400 2,000 100 -900 -100 -100 1,800 2,000

Marginal profit ratio 42.7 43.1 80.0 43.5 28.9 36.1 40.9 39.9 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0

Robot business 13/3 14/3CSE 15/3CSE 16/3CSE (mn JPY, %) 1QA 2QA 3QA 4QA 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE Robot business sales 26,937 27,524 22,955 32,807 28,000 30,500 30,000 34,500 30,500 30,500 26,500 30,000 29,500 31,000 32,000 35,000 Change from last FY 4,922 961 -709 3,984 1,063 2,976 7,045 1,693 2,500 0 -3,500 -4,500 -1,000 500 5,500 5,000 FX impact -500 -1,000 200 2300 3000 2500 2000 500 0 0 0 0 0 0 0 0 Net change from last FY 5,422 1,961 -909 1,684 -1,937 476 5,045 1,193 2,500 0 -3,500 -4,500 -1,000 500 5,500 5,000

OP 1,815 2,258 679 3,613 1,315 2,893 3,279 4,613 2,015 2,993 2,379 3,313 1,815 3,393 3,979 4,813 Change from last FY 748 128 -1,060 1,535 -500 635 2,600 1,000 700 100 -900 -1,300 -200 400 1,600 1,500 OPM 6.7 8.2 3.0 11.0 4.7 9.5 10.9 13.4 6.6 9.8 9.0 11.0 6.2 10.9 12.4 13.8

Revenue effect 2,300 700 -400 600 -800 0 1,800 500 1,000 -100 -1,100 -1,500 -400 200 1,900 1,800 High value added -400 276 -200 435 200 200 200 200 200 200 200 200 200 200 200 200 Indirect cost -1,252 -848 -600 0 -600 -600 -500 -500 -500 0 0 0 0 0 -500 -500 FX impact -300 -200 100 700 900 1,200 1,100 800 0 0 0 0 0 0 0 0 Unrealized profit 400 200 40 -200 -200 -165 0 0 0 0 0 0 0 0 0 0 Total(=change from last FY) 748 128 -1,060 1,535 -500 635 2,600 1,000 700 100 -900 -1,300 -200 400 1,600 1,500 Marginal profit ratio 42.4 35.7 44.0 35.6 41.3 0.0 35.7 41.9 40.0 - 31.4 33.3 40.0 40.0 34.5 36.0 Source: Company data, Credit Suisse estimates

Yaskawa Electric Corporation (6506 / 6506 JP) 15 22 May 2013 Details of the new medium-term business plan Aiming for an all-time high OP of ¥40bn in FY3/16 FY3/16 marks 100th anniversary of the company’s founding Alongside its full-year results release, Yaskawa unveiled its new three-year medium-term management plan “Realize100” ending in FY3/16, the 100th anniversary of its founding. The basic aim of the plan is to attain an OPM of more than 10% (achieving a highly profitable earnings structure), overseas sales weighting of 65% (global leadership in core businesses), and sales of ¥40.0bn in the new businesses (creation of new businesses and turning these into core businesses). As for numerical targets, the plan projects sales of ¥350.0bn (including ¥20.0bn from new businesses), and OP of ¥24.0bn (OPM 6.9%) in FY3/14 assuming forex rates of ¥90/USD and ¥120/EUR. It calls for sales of ¥370.0bn (¥27.5bn) and OP of ¥30.0bn (8.1%) in FY3/15 and sales of ¥400.0bn (¥40.0bn) and OP of ¥40.0bn (10%) in FY3/16, the final year of the plan. The company had booked record high earnings in FY3/08 with sales of ¥382.3bn and OP of ¥36.5bn (OPM 9.5%). Also, Yaskawa aims to increase its overseas sales weighting from 54% in FY3/13 to 65% in FY3/16. Similarly, it will aim to raise its overseas production ratio from 30% to 50%. Strategy for raising sales in new businesses to ¥40bn Yaskawa looks to increase sales from new businesses to ¥40.0bn in FY3/16. Specifically: (1) The company plans to launch new power conditioners for industrial-use photovoltaic (PV) power generators. Yaskawa also aims to differentiate its small, high-efficiency power conditioners for the residential market that utilize next-generation GaN-based power devices. (2) Yaskawa intends to roll out electric vehicle drive systems for construction machinery, ships, and overseas markets in addition to domestic auto OEMs. (3) Wind power components for large turbines: Yaskawa aims to leverage its simplified matrix converter technology for use in mass-production development projects in Japan and China, expand these to larger wind turbines, and enter the European wind turbine market. (4) Biomedical robotics systems: Yaskawa seeks to develop new types of robots and expand the range of applications. (5) Medical and welfare devices: Yaskawa looks to develop devices that fit customer needs by leveraging the firm’s robot and actuator technology. However, even if Yaskawa falls short of its targets for ¥40bn in sales and ¥4bn in OP (OPM 10%) from new businesses, it will still aim to finish ahead of its historical high OP of ¥36.5bn recorded in FY3/08 on the strength of its existing businesses alone.

Yaskawa Electric Corporation (6506 / 6506 JP) 16 22 May 2013

Companies Mentioned (Price as of 21-May-2013) Daihatsu Motor (7262.T, ¥2,182) Honda Motor (7267.T, ¥4,260) THK (6481.T, ¥2,536) Taiwan Semiconductor Manufacturing (2330.TW, NT$112.5) Yaskawa Electric Corporation (6506.T, ¥1,417, OUTPERFORM, TP ¥1,800)

Disclosure Appendix

Important Global Disclosures Shinji Kuroda and Yunchao Zhao, 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.

Price and Rating History for Yaskawa Electric Corporation (6506.T)

6506.T Closing Price Target Price Date (¥) (¥) Rating 18-Jun-10 758 670 U 28-Sep-10 671 670 N 26-Oct-10 637 700 10-Dec-10 748 800 19-Jan-11 876 900 01-Feb-11 895 950 21-Apr-11 863 950 O 24-Jun-11 866 1,150 12-Oct-11 577 660

25-Oct-11 660 780 UNDERPERFORM 29-Feb-12 780 750 N NEUTRAL OUTPERFORM 23-Jul-12 533 600 20-Sep-12 537 650 O 31-Oct-12 572 630 05-Dec-12 672 800 15-Jan-13 838 950 01-Feb-13 844 1,000 * Asterisk signifies initiation or assumption of coverage. 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 attractiv e, 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 Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings w ere based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Yaskawa Electric Corporation (6506 / 6506 JP) 17 22 May 2013

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.

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Price Target: (12 months) for Yaskawa Electric Corporation (6506.T) Method: Our ¥1,800 target price for Yaskawa Electric is based on ROIC model (ROIC:10.1%, RP:5.5%, RFR:0.62%) applied to FY3/15 earnings forecasts Risk: Risks that could cause the share price to diverge from our ¥1,800 target price for Yaskawa Electric include the following: risks are forex swings, scaled-back capex by the automotive and high-tech sectors, and a seasonal slowdown in Chinese demand.

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

See the Companies Mentioned section for full company names

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 (6506.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 http://www.csfb.com/legal_terms/canada_research_policy.shtml. 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.

Yaskawa Electric Corporation (6506 / 6506 JP) 18 22 May 2013

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 ...... Shinji Kuroda ; Yunchao Zhao

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Yaskawa Electric Corporation (6506 / 6506 JP) 19 22 May 2013

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6506_052213_Yaskawa Yaskawa Electric Corporation (6506 / 6506 JP) Elec_E.doc20