13 July 2016 Asia Pacific/Japan Equity Research Internet
Mixi (2121.T / 2121 JP) Rating NEUTRAL* [V] Price (12 Jul 16, ¥) 4,295 INITIATION
Target price (¥) 4,900¹ Chg to TP (%) 14.1 Market cap. (¥ bn) 356.97 (US$ 3.46) Initiate at NEUTRAL; valuations attractive, but Enterprise value (¥ bn) 341.97 Number of shares (mn) 83.11 need more income sources to lessen Free float (%) 40.0 52-week price range 6,060 - 3,015 dependence on Monster Strike
*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ■ Action: We initiate coverage of Mixi with a NEUTRAL rating and a ¥4,900 ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix). target price (potential return 14.1%). Although valuations appear low, and we see few downside risks to the share price, we would need more catalysts to Research Analysts take a more positive view. Keiichi Yoneshima 81 3 4550 9740 ■ Investment case: Despite the stock’s comparatively low valuations, Mixi's [email protected] earnings depend heavily on Monster Strike, creating a risk of earnings fluctuations. However, its ample cash flow should enable promotional/development-related spending to sustain long-term Monster Strike profits, and also new business investment. We see no relative overvaluation, and only limited downside risk, so we assign a NEUTRAL rating. ■ Catalysts/risks: Catalysts include development of new sources of earnings, clear earnings contribution from growth in new business areas. Risks include earnings trends for Monster Strike, including in overseas markets, and tightening or loosening of online gaming regulations. ■ Valuation: We base our TP on a DCF model. We set our forecasts through FY3/20 and derive our going-concern value for FY3/21 onward by applying an EBITDA of 3.0x. We assume an 8.45% WACC.
Share price performance Financial and valuation metrics
Year 3/16A 3/17E 3/18E 3/19E Price (LHS) Rebased Rel (RHS) Sales (¥ bn) 208.8 225.6 214.8 202.8 8000 160 Operating profit (¥ bn) 95.0 95.6 83.1 71.4 6000 140 Recurring profit (¥ bn) 94.8 95.7 83.2 71.5 120 Net income (¥ bn) 61.0 62.2 54.1 46.5 4000 100 EPS (¥) 734.6 738.4 641.7 551.6 2000 80 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Change from previous EPS (%) n.a. IBES Consensus EPS (¥) n.a. 659.5 615.9 535.1 The price relative chart measures performance against the EPS growth (%) 79.3 0.5 -13.1 -14.0 TOPIX which closed at 1285.73 on 12/07/16 P/E (x) 5.8 5.8 6.7 7.8 On 12/07/16 the spot exchange rate was ¥103.3/US$1 Dividend yield (%) 1.9 3.4 3.5 3.1 EV/EBITDA(x) 3.6 3.6 4.2 4.8 Performance over 1M 3M 12M P/B (x) 2.9 2.1 1.7 1.5 Absolute (%) -3.4 11.3 -26.1 ROE(%) 69.7 42.5 28.2 20.2
Relative (%) — 14.8 -5.8 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, 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. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access
13 July 2016 Table of contents
Key charts 3 Investment opinion 4 Initiate at NEUTRAL with ¥4,900 TP 4 Re-rating needs new catalysts; assign NEUTRAL rating as no overvaluation 4 (1) Long-term Monster Strike profits could reduce risk of share price decline. 4 (2) Re-rating requires new catalysts 4 Views on Mixi's earnings outlook 4 Rationale for rating the stock NEUTRAL 5 Valuation 6 Risks 7 Company profile 8 History: From SNS to gaming; major change in profit sources 8 Executives 8 Shareholders 9 Corporate group 9 Business portfolio 10 Developing entertainment-funded stable growth 10 Entertainment segment 10 Monster Strike (Japan): Efforts to extend product life cycle 10 Monster Strike (overseas): Upgraded marketing push in North America 11 New title Marvel Tsum Tsum growing steadily in Japan, overseas launch in FY3/18 11 Media platform segment 12 Ticket Camp: Developing as leader in online secondary ticketing distribution market 12 Current media: Holding the line with Mixi SNS and Diverse 12 New business development an ongoing challenge 12 Business outlook 13 Focusing on Monster Strike while also developing new titles and overseas operations 13 Monster Strike following similar trajectory to Puzzle & Dragons 14 Media platform business may need M&A activity expansion 15 Sizing up the growth potential of Ticket Camp 16 Capacity to invest with appropriate level of shareholder returns 16 Earnings forecasts 17
Mixi (2121.T / 2121 JP) 2 13 July 2016 Key charts
Figure 1: Trends in number of Monster Strike downloads
Domestic Overseas (Taiwan, HongKong, Macau, North America, South Korea)
40
Launch of Hong Kong and 35 35 Macao version Launch of North America version 30 Launch of South Launch on 25 Korea version Android
Millions of users of Millions 20 Start of TV commercials Launch of 15 Taiwan version
10 Launch on iOS 5
0 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16
Source: Company data, Credit Suisse
Figure 2: Mixi’s sales trends (entertainment segment) Figure 3: GungHo’s sales trends
Mixi's entertainment segment sales Gungho
60,000 60,000 55,051 51,276 49,909 50,000 47,002 50,000 46,799 43,717 44,424 44,618 42,226 42,025 41,369 40,241 38,495 40,000 40,000 37,72236,879 35,110 30,528 30,904 31,699
30,000 30,000
(JPYmn) (JPYmn) 19,452 20,000 20,000 14,121 10,044 10,000 10,000 3,113 3,291 3,846 4,561 0 0 261 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q FY14/3 FY15/3 FY16/3 FY12/12 FY13/12 FY14/12 FY15/12 FY16/12
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
Figure 4: Estimates on entertainment segment sales Figure 5: Media platform business Entertainment segment (sales) TicketCamp MUSE&Co. Marriage Support SNS "mixi" and etc. 60,000 4000
55,051 Acquire MUSE&CO. and
53,000 53,000
52,000 52,000
51,276 50,000
50,000 Hunza
49,000 49,000
47,002 47,000 47,000 46,000 50,000 46,000 Acquire Diverse
42,025 3000 40,000
30,000 2000
(JPYmn) (JPYmn) 20,000 1000 10,000
0 0 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY14/3 FY15/3 FY16/3 FY16/3 FY17/3 FY18/3 FY19/3 Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse
Mixi (2121.T / 2121 JP) 3 13 July 2016 Investment opinion Initiate at NEUTRAL with ¥4,900 TP
Figure 6: Mixi (2121) – Earnings summary Mixi (2121) Earnings Summary EV 12-Jul-16 Sales Operating profit Recurring profit Net profit EPS P/E /EBITDA ¥4,295 ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) ¥ (x) Consolidated FY Mar-16 A 208,799 84.9% 95,033 80.4% 94,798 79.9% 61,022 85.1% 734.6 79.3% 3.6 5.8 Mar-17 CS E (new) 225,600 8.0% 95,648 0.6% 95,728 1.0% 62,223 2.0% 738.4 0.5% 3.6 5.8 CoE 218,000 4.4% 80,000 -15.8% 80,000 -15.6% 54,000 -11.5% 640.8 -12.8% NA 6.7 IBES E 211,930 1.5% 84,474 -11.1% 84,772 -10.6% 55,249 -9.5% 659.5 -10.2% 2.6 6.5 Mar-18 CS E (new) 214,800 -4.8% 83,103 -13.1% 83,183 -13.1% 54,069 -13.1% 641.7 -13.1% 4.2 6.7 IBES E 210,521 -0.7% 80,263 -5.0% 79,908 -5.7% 51,960 -6.0% 615.9 -6.6% 3.0 7.0 Mar-19 CS E (new) 202,800 -5.6% 71,423 -14.1% 71,503 -14.0% 46,477 -14.0% 551.6 -14.0% 4.8 7.8 IBES E 186,889 -11.2% 68,542 -14.6% 68,489 -14.3% 43,764 -15.8% 535.1 -13.1% 5.0 8.0 Source: Company data, I/B/E/S, Credit Suisse estimates Re-rating needs new catalysts; assign NEUTRAL rating as no overvaluation Mixi’s earnings rebounded sharply after its smartphone game application Monster Strike proved to be a major hit. While the shares appear undervalued in terms of P/E and EV/EBITDA, we see a high risk of earnings fluctuation over the longer term given the company’s reliance on a single game title. Even though Mixi’s valuations appear attractive, investors may find it difficult to reassess the stock in the absence of hits among other titles or overseas. However, the shares do not look overvalued and we see few downside risks for the share price, so we assign a NEUTRAL rating. We focus on the following: (1) Long-term Monster Strike profits could reduce risk of share price decline. At present, Mixi's earnings seem to hinge almost entirely on Monster Strike. If Mixi can sustain Monster Strike profits over the long term, the resulting accumulation of FCF should limit downside share price risk, in our view. (2) Re-rating requires new catalysts Mixi's shares do not seem overvalued but a re-rating of the stock will likely require new hit games and success in overseas gaming operations. We believe Monster Strike's success is generating ample cash, providing a sufficient financial base. (3) Medium-term potential in non-gaming fields Mixi's non-gaming businesses include ticket re-sales, fashion, and marriage/dating services. If profit growth in these areas has significant earnings impact, it could trigger a change in Mixi's valuations, given that these seem highly sustainable businesses. Views on Mixi's earnings outlook
■ We forecast FY3/17 sales of ¥225.6bn and OP of ¥95.6bn, above guidance (¥218bn, ¥80bn respectively), but we think quarterly earnings have more or less peaked.
■ From FY3/18, we see entertainment sales falling 5% annualized (due to a smaller Monster Strike contribution) with almost flat growth in media platform operations.
■ We expect a steady gross margin but no cuts in fixed cost such as sales promotion to ensure long-term profits. These costs and sales decline are likely to lower the OPM.
Mixi (2121.T / 2121 JP) 4 13 July 2016
Rationale for rating the stock NEUTRAL
■ Limited downside risk as long as FY3/17 valuations are appealing and earnings remain stable (Positive).
■ Little likelihood of a sharp drop in earnings as the company has ample cash flow for investing in Monster Strike’s sales promotion and game development (Positive).
■ Reliance on Monster Strike’s domestic performance for a large portion of its earnings implies a strong chance of sustained contraction after sales peak (Negative).
■ Earnings improvement in the media platform business appears likely, but may not be enough to offset the slump at the entertainment business (Neutral).
Figure 7: Mixi share price vs. TOPIX
¥8,000 MIXI TOPIX relative (RHS) 9.0 ¥7,000 8.0 ¥6,000 7.0 6.0 ¥5,000 5.0 ¥4,000 4.0 ¥3,000 3.0 ¥2,000 2.0 ¥1,000 1.0
¥0 0.0
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16
Jan-15 Jan-12 Jan-13 Jan-14 Jan-16
Oct-12 Oct-13 Oct-14 Oct-15
Apr-15 Apr-12 Apr-13 Apr-14 Apr-16
Source: Thomson Reuters, Credit Suisse
Figure 8: FY2 forward EV/EBITDA Figure 9: FY2 forward P/E
Colopl GungHo mixi 30 x 8 x Colopl GungHo GREE DeNA Nexon mixi GREE 7 x 25 x DeNA Nexon 6 x 20 x 5 x 17.8 x 4.5 x 15 x 15.0 x 4 x 4.2 x PER 3.8 x EV/EBITDA 3.3 x 3 x 10.6 x 3.1 x 10 x 9.3 x 8.5 x 2 x 7.2 x 1.8 x 5 x 1 x
0 x
Jun-15 Jun-16
Oct-15
Apr-15 Apr-16
Feb-15 Feb-16
Dec-14 Dec-15
Aug-15
Jul-16 Jul-14 Jul-15
Jan-14 Jan-15 Jan-16
Oct-14 Oct-15
Apr-15 Apr-16 Apr-14 Source: Thomson Reuters, Credit Suisse Source: Thomson Reuters, Credit Suisse
Mixi (2121.T / 2121 JP) 5 13 July 2016 Valuation Our ¥4,900 target price is based on a DCF model premised on an equity risk premium of 6.5% and a risk-free rate of 0.0%. Considering that online businesses are oriented toward cash flow generation, we set our WACC assumption at 8.45% based on zero debt and a 1.3 beta. We set our earnings forecasts through FY3/20 and derive our going-concern value for FY3/21 onward by applying an EBITDA of 3.0x. Despite the stock’s relatively attractive valuations, Mixi relies on Monster Strike for the bulk of its earnings. Taking into account the high risk of an earnings contraction, we set our target multiple at 3.0x, a 25% discount versus the 4.0x figure for the I/B/E/S average FY2 forward EV/EBITDA among six domestic online game companies, including Colopl (3668), Nexon (3659), and Gree (3632). We therefore calculate Mixi’s fair value at ¥4,899 and set our target price at ¥4,900, which equates to 6.6x FY3/17E EPS, 7.6x FY3/18E EPS, and 8.9x FY3/19E EPS, all based on our EPS forecasts
Figure 10: DCF analysis DCF Analysis 7.97
(JPY mn) Assumptions FCF estimates # of shares 84,265,000 3/17E 3/18E 3/19E 3/20E Net Debt(16/3A) (100,122) OP 95,648 83,103 71,423 59,742 Terminal EV/EBITDA Multiple 3.0x Tax rate 35% 35% 35% 35% EBIAT 62,171 54,017 46,425 38,833 WACC Calculation Depreciation & Amortization 2,723 2,724 2,725 2,726 Risk free rate 0.00% Other non-cash cost Beta 1.30 EBITDA 98,372 85,827 74,148 62,468 Mkt. Risk Premium 6.50% Net working capital 679 654 654 654 Cost of Equity 8.45% CAPEX (480) (480) (480) (480) Interest rate 1.0% FCF 65,093 56,915 49,324 41,733 Cost of Liability after tax 0.65% Year 1.00 2.00 3.00 4.00 D/E ratio 0.0x Discount rate 0.92 0.85 0.78 0.72 WACC 8.45% Present Value 60,021 48,392 38,670 30,169
(a) Present Value Current - 20/3E 177,252 (b) Terminal Value 135,476 (c) Enterprise Value (a) + (b) 312,728 (d) Net Debt (16/3A) (100,122) (e) Market Value (c) - (d) 412,850 (f) Estimated Fair Value(JPY) (e) / # of shares 4,899 Source: Company data, Credit Suisse estimates
Mixi (2121.T / 2121 JP) 6 13 July 2016 Risks Risks (upside/downside) to our ¥4,900 target price for Mixi include earnings trends (expansion/contraction) for Monster Strike including in overseas markets, and earnings momentum for new businesses (acceleration/slowdown), Other upside risks include the release of new hit game titles and earnings contributions from new businesses. Other downside risks include tightening of online gaming regulations and a sudden drop in the smartphone market.
Mixi (2121.T / 2121 JP) 7 13 July 2016 Company profile History: From SNS to gaming; major change in profit sources After operating an online job-search site called Find Job! since November 1997, founder Kenji Kasahara incorporated in June 1999. The social networking service (SNS) Mixi that provided the initial success began in February 2004, and the company changed its name to identify with its eponymous service in February 2006, listing on TSE Mothers seven months later. Whilst it maintained a solid core user base, the Mixi SNS lost momentum with the advent of Facebook and other platforms. Earnings slumped, and the company reported a net loss for 1–3Q FY3/14. A turnaround began with the September 2013 launch of mobile game title Monster Strike. Mixi has not been as successful as DeNA or Gree in creating games for exclusive-to-Japan smartphone platforms, but the popularity of Monster Strike is in the same league as Puzzles and Dragons (PAD), a rival title published by GungHo. The success of Monster Strike helped Mixi to post OP of ¥95.0bn on sales of ¥208.8bn for FY3/16. However, the company is actively looking to develop other business areas as well rather than plough all of its resources into the gaming industry.
Figure 11: Corporate history C orporate history 1999 June Establishes E-M ercury, Inc. (investm ent ¥3m n) at Shinsencho, Shibuya, Tokyo to operate "Find Job !", an online job search business 2000 O ct Reorganizes E-M ercury, Inc. as E-M ercury Kabushiki Kaisha (paid-in capital ¥10m n) 2004 Feb Starts social networking service (SN S) M ixi as a part of the Internet M edia business (currently M edia Platform business) 2006 Feb Changes com pany nam e to M ixi, Inc. 2006 Sep Lists shares on TSE M others 2011 Apr Spins off "Find Job!" as a separate com pany, M ixi Recruitm ent, Inc. 2012 M ar Establishes M ixi Am erica, Inc. (consolidated subsidiary) in the U.S. 2013 Jan Acquires 100% stake in M ixi Reseach (Internet research business established follow ing an incorporation-type dem erger at N etM ile) and m akes it a consolidated subsidiary 2013 Sep Establishes Nohana, Inc. as a consolidated subsidiary 2013 O ct Starts operations for sm artphone gam es app M onster Strike 2013 N ov Acquires 100% stake in Confianza Inc. and converts it into a consolidated subsidiary 2013 D ec Acquires 100% stake in Diverse Inc. (m arriage-support business established follow ing an incorporation-type dem erger at LINE) and m akes it a consolidated subsidiary M ixi Research takes over Itokuro Inc.'s M ystery Shopping business follow ing an absorption-type split 2014 M ar Issues new shares via public offering 2015 M ar Acquires 100% stake in M U SE & Co., Ltd. And Hunza, Inc. and converts these into consolidated subsidiaries
Source: Company data, Credit Suisse Executives In 2013, founder and leading shareholder Kenji Kasahara relinquished his position as CEO to become Chairman with non-representative status. The new CEO was Yusuke Asakura, previously an executive officer with the company. In June 2014, Asakura was succeeded as CEO by Hiroki Morita, a senior manager who had earlier overseen the operation of the Mixi SNS as well as the development and growth of Monster Strike. The Board of Directors of Mixi is currently composed of five directors, two non-executive directors, and three corporate auditors (one of whom is full-time).
Mixi (2121.T / 2121 JP) 8 13 July 2016
Figure 12: Management Title Name Y M History Representative Hiroki Morita 2000 Dec Joined Netvillage Co., Ltd. (current fonfun Corporation) Director and 2008 Nov Joined Mixi President 2014 Feb Appointed Executive Producer for Mixi's Monster Studio 2014 Jun Appointed Representative Director and President of Mixi (current position) Director Yasuhiro Ogino 2005 Aug Joined Macromill Inc. 2009 Dec Joined Mixi 2011 Nov Appointed Head of Business Promotion (current position) 2012 Jun Appointed member of the board (current position) Director Koki Kimura 2003 Feb Joined Mobileproduction Co., Ltd. 2005 Mar Joined Index Corporation 2008 Jun Joined Mixi 2015 Jun Appointed member of the board (current position) 2015 Aug Appointed Head of Mixi's XFLAG Studio (current position) Director Kenji Kasahara 1999 Jun Founded eMercury Inc. (current Mixi) and joined as Director 2006 Feb Appointed Representative Director and President after the change in company name to Mixi 2013 Jun Appointed Chairman of the board (current position) Director Ichiya Nakamura 1984 Apr Joined the Ministry of Posts and Telecommunications 1998 Aug Visiting Professor, Media Lab, MIT 2008 Apr Professor, Graduate School of Media Design, Keio University (current position) 2009 Jun Appointed member of the board (current position) Director Tatsuya Aoyanagi 1993 Oct Joined Tohmatsu & Co. (current Deloitte Touche Tohmatsu LLC) 2007 Jul Appointed Director of Heartworth Partners Inc. (current position) 2010 Jun Appointed Corporate Auditor of Mixi 2012 Jun Appointed member of the board (current position) Corporate auditor Takako Kato 1970 Apr Joined Japan Radio Co., Ltd. 2004 Aug Appointed Full-time Auditor (current position) of eMercury Inc. (current Mixi) Corporate auditor Takayuki Sato 1992 Apr Joined Union Bank of Switzerland (current UBS) Tokyo branch 2002 Apr Representative of Satoh Business Law Office (current position) 2007 Jun Appointed Corporate Auditor of Mixi (current position) Corporate auditor Hiroyuki Wakamatsu 1995 Apr Joined Tohmatsu & Co. (current Deloitte Touche Tohmatsu LLC) 2012 Jun Appointed Corporate Auditor of Mixi (current position) 2014 Sep Lecturer, Graduate School of Finance, Accounting and Law, Waseda University (current position) Source: Company data, Credit Suisse Shareholders
Figure 13: Main shareholders C ontribution to the Com pany S hareholder nam e S hareholding N o. of shares ratio (％) Kenji Kasahara 36,418,000 43.21 CHASE MANHATTAN BANK GTS CLIENTS ACCOUNT ESCROW 1,621,464 1.92 BN Y FO R GCM CLIEN T ACCO U N TS （E） BD 1,605,357 1.9 Private Investors 1,350,000 1.6 BN Y GCM CLIEN T ACCO U N T JPRD AC ISG （FE-AC） 1,261,603 1.49 Note: As of 31 March 2016 Source: Company data, Credit Suisse estimates Corporate group The consolidated workforce totaled 558 employees (full-time) as of the end of March 2016. Major group subsidiaries include Mixi Recruitment, which operates the original job-search site; nohana, which provides photobook compilation apps; Diverse, which runs an online dating platform; Muse & Co., which develops e-commerce sites targeting female shoppers, and Hunza, developer of the secondary ticket distribution channel Ticket Camp. The group also includes two new business development-related investment subsidiaries, i-Mercury Capital and Mixi America.
Mixi (2121.T / 2121 JP) 9 13 July 2016 Business portfolio Developing entertainment-funded stable growth Mixi’s revenue base comprises an entertainment segment, mostly mobile games such as Monster Strike, and a smaller media platform segment that includes the Mixi SNS, Marriage Support, and Ticket Camp. The entertainment segment currently generates most of Mixi’s consolidated sales revenue, reflecting the huge popularity of Monster Strike. The short-term performance trend for this segment has a significant influence on consolidated performance and the share price. Although probably not capable of the kind of explosive growth seen with successful games, we think the media platform segment is important in that it can generate more sustainable revenue over the longer term. Figure 14: Sales trends
Entertainment Mediaplatform
70,000
60,000 3462 3656 50,000 3078 2426 3264 40,000 2783
(JPYmn) 30,000 55,051 51,276 2782 47,002 20,000 42,226 42,025 2674 30,528 10,000 19,452 2685 2144 1835 2116 10,044 0 0 0 261 3,113 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY14/3 FY15/3 FY16/3
Source: Company data, Credit Suisse Entertainment segment Monster Strike (Japan): Efforts to extend product life cycle Revenues in this segment have grown rapidly since 2H CY2013 with the launch of the hit mobile game Monster Strike, which is generating annual revenue of roughly ¥200bn at this point. Most segment revenue derives from Monster Strike in Japan. The gross margin is approximately 70% (excluding 30% for settlement fees), but regular outlays are necessary for promotional and advertising costs to maintain and develop the user base. Operating margins of about 50% are common even with major hit games. To extend the life cycle of Monster Strike, Mixi is not only using TV advertising, but is also investing in related anime production and promotional events. Anime are being distributed via You Tube, and movie events are also being held. Promotional events include Monster Strike shop (in Shibuya), X-FLAG Park 2016 (25 September, at Makuhari), and the Monster Strike Gran Prix Championship 2016, which is being hosted at Makuhari alongside X-FLAG Park 2016 by e-Sport Distribution Organization (the preliminary rounds of the competition are being held across Japan).
Mixi (2121.T / 2121 JP) 10 13 July 2016
Monster Strike (overseas): Upgraded marketing push in North America Although the game has not been as successful as in Japan to date, Mixi is trying to use its accumulated domestic expertise and stronger financial base to upgrade marketing efforts in North America for the English edition of Monster Strike. Overseas revenues are small as yet, implying that any overseas success could help to drive further segment expansion. New title Marvel Tsum Tsum growing steadily in Japan, overseas launch in FY3/18 Mixi has begun marketing a new game, Marvel Tsum Tsum, developed jointly with Disney and Marvel. Early download numbers have been good. Mixi plans to develop this title for overseas markets as well, and success could provide another earnings driver. However, the sheer preponderance of domestic revenues from Monster Strike means that success with this new game or other titles would have only a marginal impact on consolidated profit or on the share price in the near term, in our view.
Figure 15: Trends in Monster Strike number of downloads
Domestic Overseas (Taiwan, HongKong, Macau, North America, South Korea)
40
Launch of Hong Kong and 35 35 Macao version Launch of North America version 30 Launch of South Launch on 25 Korea version Android
Millions of users of Millions 20 Start of TV commercials Launch of 15 Taiwan version
10 Launch on iOS 5
0 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16
Source: Company data, Credit Suisse
Mixi (2121.T / 2121 JP) 11 13 July 2016
Media platform segment Mixi aims to build the earnings base in this segment both by establishing new businesses and through M&A deals. Acquisitions of Diverse, matching platform provider focus on marriage, in 2013 and Hunza, the operator of the Ticket Camp platform, in 2015 have boosted revenues.
Figure 16: Media platform business
TicketCamp MUSE&Co. Marriage Support SNS "mixi" and etc.
4000 Acquire MUSE&CO. and Hunza Acquire Diverse 3000
2000 (JPYmn)
1000
0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY14/3 FY15/3 FY16/3
Source: Company data, Credit Suisse Ticket Camp: Developing as leader in online secondary ticketing distribution market Developed by Hunza before being acquired by Mixi in 2015, Ticket Camp is a peer-to-peer secondary ticketing distribution service accessible via browser or mobile app. It provides an escrow service to enable owners of tickets to on-sell items to individual purchasers in a secure online environment. Mixi earns a 13% commission on transaction settlements (5% from the purchaser and 8% from the seller), but waives fees for sales below a set price. Current media: Holding the line with Mixi SNS and Diverse The Mixi SNS has retained its core user base, and we expect it to continue performing for the company, primarily as a generator of advertising revenue. The YYC and youbride sites operated by Diverse also serve a dedicated user base that should generate fairly stable revenues into the future, in our view. New business development an ongoing challenge Mixi continues to invest in new media businesses on an ongoing basis. Current ventures in development include Poiboy, a matching/messaging app for women; minimo, a service to help hair and beauty salons connect with models: and mitene, an app for compiling family albums. We do not expect any of the current development businesses to make any major contribution to future earnings, but app development is also useful in that it helps Mixi gain better technical expertise and collect a substantial amount of user data. Even if this does not boost revenue in the short term, we think a process of continual business development should yield some new sources of earnings at some stage.
Mixi (2121.T / 2121 JP) 12 13 July 2016 Business outlook We regard trends in the domestic Monster Strike franchise as the most critical factor that affects earnings and share-price formation. We think the market would put a positive value on any businesses that could add significantly to revenues, with the main candidates being the development of new game titles and the Monster Strike franchise in North America and other overseas markets. Over the medium and long term, the media platform segment should begin to attract more market attention as it generates greater earnings stability. The segment remains small in comparison with entertainment, even though Diverse does generate stable revenues and Hunza is growing rapidly due to the Ticket Camp platform. We expect the market to raise its valuation appropriately to take account of the media platform segment once Mixi either generates a large-scale business or else accrues enough smaller online media interests to the point where the business acquires meaningful scale relative to entertainment. Focusing on Monster Strike while also developing new titles and overseas operations The high revenue dependence on the domestic Monster Strike franchise means that Mixi remains heavily exposed to related performance trends. The mobile game is so massive in Japan that generating further growth would be a major challenge, but Mixi can significantly enhance its capacity to invest by generating revenue streams through life cycle extension. Our base line scenario for the entertainment segment is for a gradual revenue slide in the domestic Monster Strike business, offset by emerging revenue streams from Marvel Tsum Tsum and overseas market development. Overall, we expect flat segment performance.
Figure 17: Estimates on entertainment segment sales Entertainment segment (sales)
60,000
55,051
53,000 53,000
52,000 52,000
51,276
50,000 50,000
49,000 49,000
47,002 47,000 47,000 46,000
50,000 46,000 42,025 40,000
30,000 (JPYmn) 20,000
10,000
0 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE FY16/3 FY17/3 FY18/3 FY19/3
Source: Company data, Credit Suisse estimates
Mixi (2121.T / 2121 JP) 13 13 July 2016
Figure 18: Monster Strike’s sales ranking (iOS) Figure 19: Marvel Tsum Tsum’s sales ranking (iOS)
Source: App Annie, Credit Suisse Source: App Annie, Credit Suisse
■ Monster Strike: launched Oct 2013: An in-house Mixi title, which has become one of the most successful smartphone games in Japan, along with GungHo Entertainment’s Puzzle & Dragons.
■ Marvel Tsum Tsum: launched Feb. 2016 in collaboration with Marvel and Disney
■ Black Knight Strikers: launched Jan. 2016 (original action RPG title) Monster Strike following similar trajectory to Puzzle & Dragons Figures 20–21 compare the revenues generated by Mixi’s Monster Strike and GungHo’s Puzzle & Dragons (PAD), the two highest-grossing mobile apps in Japan at the moment. An iOS version of PAD was originally released in February 2012, followed by an Android version in September 2012. It proved to be an unprecedented hit in Japan, posting higher revenues for six consecutive quarters until Apr–Jun 2013. Consolidated sales then tapered slightly before rebounding to reach a new quarterly peak of ¥49.9bn in Jan–Mar 2014. Sales have since fallen off again, but were still more than 60% of the peak value in Jan– Mar 2016 at ¥31.7bn. Monster Strike was released in October 2013. Consolidated sales took off over the next 20 months, reaching ¥51.3bn in Apr–Jun 2015. Sales then dipped a little before recovering to post a new record of ¥55.1bn for Jan–Mar 2016. The sales revenues of mega-hit games tend to follow a similar pattern, and a PAD-style trajectory is likely in our opinion.
Figure 20: Mixi’s sales trends (entertainment segment) Figure 21: GungHo’s sales trends
Mixi's entertainment segment sales GungHo 60,000 55,051 60,000 51,276 49,909 50,000 47,002 50,000 46,799 43,717 44,424 44,618 42,226 42,025 41,369 40,241 38,495 37,72236,879 40,000 40,000 35,110 30,528 30,904 31,699
30,000 30,000
(JPYmn) (JPYmn) 19,452 20,000 20,000 14,121 10,044 10,000 10,000 4,561 3,113 3,291 3,846 0 0 261 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q FY14/3 FY15/3 FY16/3 FY12/12 FY13/12 FY14/12 FY15/12 FY16/12
Source: Company data, Credit Suisse Source: Company data, Credit Suisse
Mixi (2121.T / 2121 JP) 14 13 July 2016
Figure 22: Sales trends (Mixi and GungHo)
Gungho Mixi 60,000
50,000
40,000
30,000 (JPY (JPY mn) 20,000
10,000
0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q FY12/12 FY13/12 FY14/12 FY15/12 FY16/12
Source: Company data, Credit Suisse Media platform business may need M&A activity expansion We expect sales revenue in the media platform segment to increase in FY3/17 due to the strong performance of Hunza (from the growth of Ticket Camp) acquired in 2015. Although the Mixi SNS and Diverse are both generating stable earnings, we do not expect either to be a source of growth. The expansion of Ticket Camp will shift the revenue mix within the segment, but the market for ticket on-selling is limited. We expect steady revenue growth from the segment, but no dramatic change in the absence of new business contributions. Mixi has accumulated plenty of funds to invest, and we think management will favor M&A activity as a way to expand the business. Our forecasts do not factor in any acquisitions at present.
Figure 23: Sales trends and estimates (media platform)
Mediaplatform segment
4500 4,200 4,200 4,200 4,200 4,200 4,000 4000 3,800 3656 3,600 3462 3500 3264 3078 3000
2500
(JPYmn) 2000
1500
1000
500
0 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE FY16/3 FY17/3 FY18/3
Source: Company data, Credit Suisse estimates
Mixi (2121.T / 2121 JP) 15 13 July 2016
Sizing up the growth potential of Ticket Camp The Hunza-managed platform Ticket Camp is the leading presence in the secondary ticket distribution market. To date, the platform has booked around 300,000 ticket transactions. Rival platforms offering a similar service include TicketStreet and ticket.co.jp operated by Wavedash Co., Ltd. Key players in this segment outside Japan include Ticketbis and StubHub. In addition, Yahoo! Japan and Avex announced plans in May to establish a joint online ticketing venture. We expect the arrival of more new entrants, since it is one of the growth sectors within online media. Whilst new entrants augment the competitive risks, they also help to expand the user base and create a more vibrant secondary market for tickets. We think that the market will also continue to grow as digital ticketing becomes the norm. As one of the leading secondary ticket distribution service providers in Japan, Ticket Camp could reap most of the gains if it can stay ahead of its rivals, implying the potential for significant earnings uplift.
Figure 24: TicketCamp’s transaction value
“TicketCamp” Monthly Transaction Value
3600 (JPYmn)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015
Source: Company data, Credit Suisse Capacity to invest with appropriate level of shareholder returns Mixi ranks highly among Japan’s online vendors in terms of its capacity to invest. Its cash holdings were ¥126.3bn at end-FY3/16. Residual cash after the deduction of unpaid taxes (¥26.2bn) and the final dividend for FY3/16 (¥12.4bn) was still ¥87.7bn. Financially, the company is in a healthy position, given projected annual FCF of about ¥60bn. Mixi has also not hesitated to tap the stock market for funds, raising ¥6.5bn from a public offering in March 2014 to help pay for the advertising costs to support the rapid growth of Monster Strike. Mixi later raised ¥17.3bn from overseas investors in July 2015 (including a sale of treasury stock) to help repay debt in connection with the Hunza acquisition. In terms of shareholder returns, the target consolidated payout ratio is 20%. Mixi also conducted a share buyback in May 2016, with a ceiling of ¥10bn or 3mn shares. Profits exceeded initial guidance and the company returned the excess to shareholders.
Figure 25: List of major M&A deals Date Company Amount (JPY bn) 15-Mar Hunza, Inc. 11.6 15-Feb Muse & Co., Ltd 1.8 13-Oct Diverse, KK 1.1 Source: Company data, Credit Suisse
Mixi (2121.T / 2121 JP) 16 13 July 2016 Earnings forecasts
Figure 26: Mixi (2121) – Income statement Income Statement (JPY mn) 3/14 3/15 3/16 3/17E 3/18E 3/19E 3/20E Revenues Internet Media business 9,678 63,968 Advertisement 1,498 920 fee charge 8,180 63,048 Find Job! 809 590 Others 1,660 3,560 Entertainment 195,354 210,000 198,000 186,000 174,000 Media Platform 13,442 15,600 16,800 16,800 16,800 Total Net Revenues 12,155 112,918 208,799 225,600 214,800 202,800 190,800 %yoy -3.8% 829.0% 84.9% 8.0% -4.8% -5.6% -5.9% Cost of Sales 3,386 10,999 24,738 24,849 24,741 24,621 24,502 Gross Profit 8,769 101,919 184,061 200,751 190,059 178,179 166,298 % of Revenue 72% 90% 88% 89% 88% 88% 87% SG&A 8,278 49,222 89,015 105,103 106,956 106,756 106,556 Operating Income 480 52,686 95,033 95,648 83,103 71,423 59,742 %yoy -81.4% 10876.3% 80.4% 0.6% -13.1% -14.1% -16.4% % of Revenue 4% 47% 46% 42% 39% 35% 31% non-operating income 44 80 44 80 80 80 80 Recurring Profit 263 52,706 94,798 95,728 83,183 71,503 59,822 % of Revenue 2% 47% 45% 42% 39% 35% 31% Income Tax, adjusted 311 19,375 32,317 33,505 29,114 25,026 20,938 Minority Interests 0 0 0 0 0 0 0 Extraoridnary Profits/Loss (181) (53) - - - - - Net Income (227) 32,966 61,022 62,223 54,069 46,477 38,885 % of Revenue -2% 29% 29% 28% 25% 23% 20% EBITDA 803 52,943 95,607 98,372 85,827 74,148 62,468 % of Revenue 7% 47% 46% 44% 40% 37% 33% EPS (JPY) (3) 410 735 738 642 552 461 Source: Company data, Credit Suisse estimates
Figure 27: Mixi (2121) – Balance sheet Balance Sheet (JPY mn) 3/14 3/15 3/16 3/17E 3/18E 3/19E 3/20E Current Assets 21,917 83,370 143,190 193,479 234,873 269,939 298,257 Cash & Securities 17,818 65,413 126,316 176,903 219,167 255,103 284,290 Working Capital 4,148 17,957 16,874 16,575 15,706 14,837 13,967 Fixed Assets 4,574 20,808 21,848 21,867 21,886 21,905 21,923 Tangibles 622 624 925 920 921 923 924 Intangibles 965 14,236 10,552 10,578 10,596 10,613 10,630 Investments & Others 2,987 5,947 10,369 10,369 10,369 10,369 10,369 Others ------Total Assets 26,492 104,178 165,038 215,345 256,759 291,844 320,181 Current Liabilities 4,046 50,608 43,465 43,938 43,923 43,907 43,892 Short-term Debt ------Other 3,346 37,260 43,465 43,938 43,923 43,907 43,892 Long-term Liabilities 19 - 83 83 83 83 83 Long-term Debt ------Other 19 - 83 83 83 83 83 Total Liabilities 4,065 50,608 43,548 44,021 44,006 43,990 43,975 Minority Interests 5 4 5 5 5 5 5 Shareholders' Equity 22,422 53,563 121,482 171,319 212,748 247,849 276,201 Liabilities & Shareholder Equity 26,492 104,178 165,039 215,345 256,759 291,844 320,181 Source: Company data, Credit Suisse estimates
Mixi (2121.T / 2121 JP) 17 13 July 2016
Companies Mentioned (Price as of 12-Jul-2016) Avex Group Holdings Inc. (7860.T, ¥1,193) COLOPL Inc (3668.T, ¥2,194) DeNA (2432.T, ¥2,712) Facebook Inc. (FB.OQ, $117.93) Gree (3632.T, ¥592) GungHo Online (3765.T, ¥302) MUSE & Co.,Ltd (Unlisted) Marvel (MVL^A10, $54.08) Mixi (2121.T, ¥4,295, NEUTRAL[V], TP ¥4,900) Nexon (3659.T, ¥1,444) Walt Disney (DISN.BA, $183.0) Yahoo Japan (4689.T, ¥466) i-mercury Capital, Inc. (Unlisted) mixi recruitment (Unlisted) nohana Inc. (Unlisted) Please see Figures 11–13 for other companies mentioned
Disclosure Appendix
Important Global Disclosures I, Keiichi Yoneshima, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Mixi (2121.T)
2121.T Closing Price Target Price Date (¥) (¥) Rating 18-Jul-13 289 240 U 01-Oct-13 250 180 14-May-14 1,170 500 04-Jun-14 2,762 2,200 26-Aug-14 6,200 6,000 N 06-Apr-15 4,735 NR * Asterisk signifies initiation or assumption of coverage.
UNDERPERFORM NEUTRAL N O T RAT ED
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return 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.
Mixi (2121.T / 2121 JP) 18 13 July 2016
Not Rated : 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* 51% (41% banking clients) Neutral/Hold* 36% (17% banking clients) Underperform/Sell* 13% (38% banking clients) Restricted 0% *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.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Mixi (2121.T)
Method: We base our ¥4,900 target price for Mixi on a DCF model with a forecast horizon through FY3/20. To calculate enterprise value for FY3/21 onward we take projected FY3/20 EBITDA and apply an EV/EBITDA of 3x. Mixi relies on a single game title for the bulk of its earnings. Taking into account the high risk of an earnings contraction, we set our target multiple at 3.0x, a 25% discount versus the 4.0x figure for the I/B/E/S average FY2 forward EV/EBITDA among six domestic online game companies, including Colopl (3668), Nexon (3659), and Gree (2121) We assume WACC of 8.45%, from RFR of 0.0%, ERP of 6.5%, beta of 1.3x, and D/E = 0. Although valuations are attractive, we think the shares are unlikely to appreciate as long as a single game is responsible for the majority of earnings. We assign a NEUTRAL rating, based on the 12-month forward potential return and comparison with our coverage universe. Risk: Risks (upside/downside) to our ¥4,900 target price and NEUTRAL rating for Mixi include earnings trends (expansion/contraction) for Monster Strike including in overseas markets, and earnings momentum for new businesses (acceleration/slowdown), Other upside risks include the release of hit new game titles and earnings contributions from new businesses. Other downside risks include tightening of online gaming regulations and a sudden drop in the smartphone market.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (4689.T, FB.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (FB.OQ) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (FB.OQ) within the past 12 months
Mixi (2121.T / 2121 JP) 19 13 July 2016
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (2121.T, 4689.T, FB.OQ, 3632.T, 3668.T) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (FB.OQ). Credit Suisse has a material conflict of interest with the subject company (FB.OQ) . Credit Suisse has been named as a defendant in various putative shareholder class-action lawsuits relating to Facebook, Inc.’s May 2012 initial public offering. Credit Suisse’s practice is not to comment in research reports on pending litigations to which it is a party. Nothing in this report should be construed as an opinion on the merits or potential outcome of the lawsuits.
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=236585&v=-g3vknp9yy1y38mcdvgn9bv7a . 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. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (FB.OQ) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (Japan) Limited ...... Keiichi Yoneshima 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 ...... Keiichi Yoneshima
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.
Mixi (2121.T / 2121 JP) 20 13 July 2016
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, 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. 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). 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 © 2016 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.
2121_071316_mixi_E.doc Mixi (2121.T / 2121 JP) 21