21 August 2014 Pacific/ Equity Research Financials (Banks/Brokerage & Asset Managers/Insurance/Non Bank) / OVERWEIGHT/MARKET WEIGHT/OVERWEIGHT/MARKET WEIGHT

Financial Sector Research Analysts SECTOR REVIEW Takehito Yamanaka

81 3 4550 9150 [email protected] Subsectors mixed; focus on companies with Takashi Miura 81 3 4550 9941 strong macro resilience [email protected] ■ Orix our top pick: Financial sector stocks have generally been highly Ryota Muranaka affected by the external environment. However, Orix (8591, OUTPERFORM, 81-34550-9259 [email protected] TP ¥2,000) is showing little impact from either interest rates or the equity market, and we expect profit growth to remain strong and regard the stock as having substantial potential upside with little downside risk. ■ The brokerage subsector continues to underperform amid low equity trading value. However, we expect the operating environment to improve in 2–3Q. Our Japan economist, Hiromichi Shirakawa, sees a possibility of additional Bank of Japan (BoJ) easing from this November through January 2015. Although it would depend on the particulars of the easing program, this would generally imply continued low interest rates in the near-term zone that would likely make any accompanying rise in financial sector share prices short-lived. That said, bank and life insurance stocks tend to be highly affected by the shape of the yield curve, and we thus think developments here bear watching. ■ The nonlife insurance subsector is seeing strong profits so far this fiscal year, and its share-price performance has been favorable as well. With insurers already facing typhoon claims in 2Q before the Sep–Oct typhoon season gets under way, we expect little movement in nonlife stocks for the time being. ■ Excess interest repayment claims are running higher than we expected. While we expect latent risk to subside as payments increase and statutes of limitation are reached, we see a possibility of additional provisioning in FY3/15 that could weigh on profits levels at consumer finance and credit card companies. ■ A general risk for the financial sector in FY3/15 is a cut in corporate tax rates that could lead to a reversal of deferred tax assets and a temporary decline in net profit levels. ■ Stock calls: In addition to Orix, we also like (8604, NEUTRAL, TP ¥670) and Kabu.com Securities (8703, NEUTRAL, TP ¥520), both of which we expect to outperform the overall financial sector. In addition, we recommend Dai-ichi Life Insurance (8750, OUTPERFORM, TP ¥2,420) and Sumitomo Mitsui Financial Group (8316, OUTPERFORM, TP ¥5,600) on company-specific factors. We meanwhile expect ACOM (8572, UNDERPERFORM, TP ¥317) to underperform amid persistently high interest repayment claims.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

21 August 2014

Subsector ranking Our order of preference among financial subsectors is: (1) corporate service nonbanks (Orix only), (2) brokerages, (3) life insurance, (4) banks, (5) nonlife insurance, (6) nonbanks other than Orix. We look for Orix to outperform driven by prospects for continued strong NP growth in 2Q, Orix’s profits more resilient the company’s resilience against the external environment including interest rates and the to external environment than equity market, and its comparatively low valuations. We think Orix has the greatest peers'’ potential upside of financial sector names under our coverage while also having only modest downside risk. We think brokerage stocks could rebound despite profit recovery still being a work in Brokerages’ operating progress, as the Credit Suisse Risk Appetite Index for Japanese equities may be environment looks set to approaching a bottom, and major IPOs look set to increase in 3–4Q. bottom The key catalysts for the life insurance and bank subsectors remain the BoJ’s easing Life insurance and banks stance, interest rate trends, and macro indicators. Our Japan economist, Hiromichi stocks continue to be Shirakawa, currently sees a possibility of additional easing from this November through affected by interest rate January 2015. An upturn in economic indicators and a steepening of the yield curve could environment set the stage for life insurance stocks to rise ahead of bank stocks, but bank stocks could advance as well if the additional easing causes upheaval in short-term interest rates. That said, life insurers are seeing steady profit growth fuelled by strong policy sales and an upturn in investment returns. Higher profits imply lower valuations, which we think could leave life insurers looking increasingly undervalued independent of changes in the external environment. Nonlife insurers’ operating environment is improving as well due to improved performance Nonlife stocks could remain in auto insurance and a favorable turn in the investment environment. A risk for the sluggish for now amid risk of subsector is potential share-price volatility in the run-up to the Sep–Oct typhoon season. natural disaster costs Typhoon No. 11 (Halong), which swept the Japanese archipelago on 9–10 August, could produce damages in excess of No. 8 and No. 12. AIR Worldwide estimates ¥110bn in damages as of 11 August, approaching the ¥112.3bn for 2011’s typhoon No. 15 (Roke). Such a comparatively high payout before the typhoon season even gets under way could hurt the full-year balance of payments, and we therefore expect nonlife stocks to do little more than hold steady until typhoon season finishes in October. Excess interest repayment claims have risen for retail nonbanks (excluded Orix) since Retail nonbanks’ operating May, implying increased risk of additional provisioning to loss reserves this fiscal year. environment showing Share prices have been comparatively high amid long-standing expectations for renewed instability as deregulation. Credit card companies have also been strong performers so far amid a interest repayment claims recovery in cash advance balances and stronger-than-expected growth in card shopping rise transaction volume. We meanwhile expect retail nonbanks’ share prices to remain low as investors expect Acom to cut guidance before the end of the fiscal year.

Financial Sector 2

Sector Financial Figure 1: Valuation comparison Price Target BPS (¥) EPS (¥) PBR (X) PER (X) ROE (%) Company Currency Rating 20-Aug-14 Price FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E 8306 MUFG JPY 589.8 O 750 941.5 992.6 1,047.4 67.8 67.1 70.8 0.63 0.59 0.56 8.7 8.8 8.3 7.3% 6.9% 6.9%

Mega 8316 SMFG JPY 4,142.0 O 5,600 5,717.6 6,047.9 6,428.3 483.6 472.1 504.2 0.72 0.68 0.64 8.6 8.8 8.2 8.8% 8.0% 8.1% bank 8411 Mizuho FG JPY 196.7 N 240 283.3 280.4 295.2 20.6 21.0 21.1 0.69 0.70 0.67 9.5 9.3 9.3 7.5% 7.5% 7.3%

8601 Daiwa JPY 833.4 U 860 691.0 734.2 782.4 81.3 66.2 68.3 1.21 1.14 1.07 10.2 12.6 12.2 12.3% 9.3% 9.0%

8604 Nomura JPY 639.9 N 670 724.6 749.7 706.6 65.6 68.6 67.4 0.88 0.85 0.91 9.7 9.3 9.5 9.3% 9.3% 9.0%

Brokerage 8628 Matsui JPY 964 N 990 348.7 364.1 380.4 56.2 60.3 61.3 2.76 2.65 2.53 17.1 16.0 15.7 16.5% 16.9% 16.5% & Exchange 8698 Monex JPY 309 U 300 285.2 296.3 306.1 14.9 21.5 22.3 1.08 1.04 1.01 20.8 14.4 13.9 5.3% 7.4% 7.4% 8703 kabu.com JPY 476 N 520 246.5 265.5 286.6 35.4 35.2 36.3 1.93 1.79 1.66 13.5 13.5 13.1 14.5% 13.7% 13.2%

8697 Japan Exchange Group JPY 2,413 U 1,800 802.5 874.0 934.2 127.9 151.5 151.2 3.01 2.76 2.58 18.9 15.9 16.0 16.8% 18.1% 16.7%

8591 Orix JPY 1,568.5 O 2,000 1,611.9 1,759.0 1,925.7 168.8 173.2 195.6 0.97 0.89 0.81 9.3 9.1 8.0 11.0% 10.3% 10.7%

8253 Credit Saison JPY 1,990 N 1,800 2,377.6 2,491.6 2,612.2 133.4 144.3 150.8 0.84 0.80 0.76 14.9 13.8 13.2 5.7% 5.9% 5.9% Nonbank 8570 Aeon Financial Service JPY 2,298 N 2,400 1,374.2 1,492.2 1,626.7 128.0 184.1 219.6 1.67 1.54 1.41 17.9 12.5 10.5 9.6% 12.8% 14.1%

8572 ACOM JPY 360 U 317 201.9 228.8 256.6 15.0 27.4 28.8 1.78 1.57 1.40 24.0 13.1 12.5 7.7% 12.7% 11.9%

Price Target BPS (¥) EPS (¥) P/EV (X) P/NBV (X) ROEV (%) Company Currency Rating 8/20/2014 Price FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E 8729 FH JPY 1,685 N 1,750 1,158.2 1,241.0 1,329.7 117.7 122.3 129.9 0.54 0.53 0.51 11.1 10.7 10.2 5.5% 3.3% 3.4%

Life 8750 Dai-ichi Life Insurance JPY 1,450.0 O 2,420 1,740.1 1,837.2 1,972.6 75.8 121.8 162.5 0.30 0.28 0.27 5.3 4.7 4.7 6.2% 5.7% 4.6%

8795 T&D Holdings JPY 1,259.5 N 1,520 1,608.0 1,711.7 1,819.9 116.6 128.8 133.7 0.41 0.39 0.38 8.7 8.5 8.3 5.0% 4.1% 4.1%

Price Target BPS (¥) EPS (¥) P/NAV (X) PER (X) RoNAV (%) Company Currency Rating 8/20/2014 Price FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E FY14 E FY15 E FY16 E 8630 NKSJ Holdings JPY 2,530 N 2,820 3,422.0 3,519.9 3,911.2 110.8 260.9 305.0 0.51 0.49 0.46 22.8 9.7 8.3 5.4% 4.1% 6.3%

Non-Life 8725 MS&AD Holdings JPY 2,355 O 3,100 3,501.9 3,582.3 3,942.7 185.5 232.8 261.5 0.43 0.41 0.39 12.7 10.1 9.0 5.3% 5.4% 5.7%

8766 Holdings JPY 3,193.5 N 3,770 3,729.0 3,849.9 4,191.6 301.7 289.7 308.0 0.68 0.65 0.59 10.6 11.0 10.4 6.6% 8.7% 8.5%

21 August 2014 21 August

Source: Company data, Credit Suisse estimates 3

21 August 2014

Figure 2: YTD relative performance of sector indices vs. Figure 3: YTD relative performance of CS coverage stocks TOPIX vs. TOPIX BANKS 1.10 (pts) 1400 Lcap-Bank Life INSURANCE 1.10 SECURITIES Non-Life Broker/Exchange 1.05 OTHER FINANCIALS 1350 Nonbank TOPIX (RHS) 1.05 1300 1.00 1.00 1250 0.95 0.95 1200 Non-Life 0.90 1150 0.90 Life Nonbank 0.85 1100 0.85 Lcap-Bank 0.80 1050 0.80 0.75 1000 0.75 Broker/Exch ange

Note: 14 Jan=1. Note: 14 Jan=1, Simple average of performance for each stocks in Source: Thomson Reuters each sector. Source: Thomson Reuters

Figure 4: ROE (RoEV for life insurers, RoNAV for Non-life insurers) and P/B, P/EV, P/NAV index (based on FY3/15 CS estimates)

PBR, P/NAV, P/EV (X) 3.00 Brokerage & Exchange Nonbank & consumer finance JPX Matsui 2.50 Life Insurance Non-Life Insurance 2.00 Bank Acom kabu.com 1.50 Monex Daiwa Aeon FS 1.00 Credit Saison Orix Mizuho Nomura NKSJ MUFG 0.50 SFH Tokio Marine MS&AD T&D ROE Dai-ichi SMFG 0.00 0.0% 5.0% 10.0% 15.0% 20.0%

Note: Share based on 20 August. Source: Credit Suisse estimates

Financial Sector 4 21 August 2014

Brokerages Shares in brokerages and exchanges have been underperforming amid low equity trading value. In 2Q, though, we expect the business climate to improve QoQ. Among the major brokers, we expect Daiwa Securities’ (8601) tax rate to normalize from 4Q and see ROE declining accordingly. At Nomura Holdings, by contrast, we think recovery in investment trust sales to retail investors will be stronger than the industry whole. We also think a turn to profitability overseas could set the stage for higher ROE by enabling the use of loss carryforwards and see a possibility of Nomura serving as lead underwriter on major IPOs in 3–4Q. According to data disclosures by Matsui Securities (8628), online brokers’ average daily trading value for cash trades is up around 18% over the 1Q average thus far in 2Q, driven largely by activity on emerging stock exchanges. Online brokers’ margin balances, on the other hand, have yet to regain the peaks reached in February, meaning they have abundant cash. We see scope for an increase in individual investors' trading activity toward the end of the year. In terms of ROE, we still view kabu.com as undervalued. Although the global risk appetite index remains high, the risk appetite index for Japanese equities has been falling. From a technical perspective, we think the latter may soon bottom, leading to improvement in brokerages’ operating environment.

Figure 5: Quarterly yen value of domestic PO and IPO Figure 6: Global and Japan equity risk appetite indices bn yen 8 1,400 6 Daily Global Risk Appetite index 1,200 Japan equity PO 4 1,000 IPO 2 800 0 600 -2 400 Q1: 271 -4 200 -6 0 Q1: 10 -8

Source: JSDA Source: Credit Suisse

Figure 7: Market share of the three online brokers in our Figure 8: P/Bs for Nomura and Daiwa vs. TOPIX coverage 14% 1.7 12.4% 1.6 13% kabu.com Matsui 1.5 12% Matsui (ex-"margin account for day-trades") 1.4 11% Monex 1.3 10% 1.2 9% 1.1 8.8% 8% 1.0 7% 0.9 TOPIX Daiwa Nomura 6% 0.8 5.5% 5% 0.7

Source: Company data, Source: Company data, Thomson Reuters

Financial Sector 5 21 August 2014

Major banks The major banks have been reporting upbeat earnings. While we expect profits to decline Earnings growth and YoY because securities subsidiaries had strong performances in FY13 that are unlikely to economic recovery so far be matched this fiscal year, we see net profits remaining high nonetheless, with growth in failing to buoy share prices peripheral businesses and overseas operations offsetting a slump in domestic lending. The major banks had issued conservative initial guidance and in each case reported 1Q FY3/15 profits amounting to well above 25% of full-year guidance, owing to unforeseen gains on the sale of bonds and equities and lower-than-expected credit costs. We now see an increased likelihood of full-year profits beating guidance. Domestic lending activity is picking up on the back of economic recovery, and loans are also being extended to SMEs. However, regional banks have captured much of this growth in demand, which has failed to lift major banks’ loan balances. Spreads are instead being supported by large-scale financing deals to facilitate M&A activity. Normally, one would expect earnings growth and rebounding demand for funds driven by economic recovery to lift share prices, but as yet there has been no recovery in major banks’ share prices. Investors seem to be focused solely on prospects for: (1) interest rate hikes, and (2) shareholder rewards. We will be watching out for both.

Figure 9: Major banks' P/B Figure 10: Comparison of TOPIX bank index and 6M TIBOR 800 1.20 (X) (pts) 3.5 (%) 700 Banks 3.0 MUFG 1.00 SMFG 600 6M TIBOR (RHS) 2.5 Mizuho 0.80 500 2.0 400 0.60 1.5 300 0.40 1.0 200 0.5 0.20 100

0.0 0 -

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

Financial Sector 6 21 August 2014

Life insurers Life insurers reported upbeat 1Q earnings, buoyed by highly favorable sales via banks and securities houses and an upturn in investment income. Across the sector as a whole, core profits increased in FY3/14 and remain on an uptrend in FY3/15, leading to an increase in J-GAAP net profits. EV has been depressed by a decline since end-March in ultra-long-term interest rates but is currently higher than at end-FY3/14. P/EV ratios are down at all life insurers other than Dai-Ichi Life Insurance (8750) which has announced a capital increase and the acquisition of US company Protective Life, T&D Holdings (8795), and Sony Financial Holdings (8729). We have an OUTPERFORM rating on Dai-Ichi Life, where we expect valuations to rise as the acquisition boosts profits in FY3/16 and FY3/17, with EPS further buoyed by a sharp reduction in additional policy reserves.

Figure 11: JGB yield curve Figure 12: P/EV (%) (x) 2.0 0.8

8/20/2014 0.7 1.5 6/30/2014 0.6

1.0 3/31/2014 0.5 0.4 T&D 0.5 0.3 SFH Dai-ichi 0.0 0.2

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

Figure 13: P/NBVe Figure 14: Core profit of life insurers (x) 3,500 (bn yen) 26 3,000 239 24 T&D 702 551 22 2,500 433 SFH 802 316 2,000 230 1,565 20 Dai-ichi 216 217 226 18 1,500 16 1,000 1,984 1,990 1,759 1,741 14 1,400 1,687 1,534 1,674 1,651 500 1,266 12 10 0 (500) (256) (247) (171) 8 (412) (520) (436) (276) (669) 6 (1,000) (884) 4 (1,500) 2

Interest profit Mortality gains Loading profit Source: Thomson Reuters, Company data, Credit Suisse estimates Note: Total of seven life insurers that disclose base profit (Nissay, Dai- ichi, Meiji Yasuda, Sumitomo, Mitsui, Asahi, Fukoku) Source: Company data, Credit Suisse estimates

Financial Sector 7 21 August 2014

Non-life insurers There were fewer claims YoY related to natural disasters in 1Q FY3/15. However, insurers are gradually facing typhoon claims in 2Q. Led by Tokio Marine Holdings (8766), stocks in nonlife insurers had relatively strong performances in 1H 2014. We attribute this to ongoing improvement in figures from automotive insurance and a further boost to earnings from growth in profits from investments. On income statements, profits are being buoyed by reversals of catastrophe loss reserves, accompanying progress in paying out claims related to heavy snowfall in February. Although the official damage from 2Q’s Typhoon No. 11 (Halong) has yet to be announced, at this early juncture a modeling company has estimated overall payouts of around ¥100bn, comparable with Typhoon No. 15 (Roke), which made landfall in FY3/11. Thus, damage is occurring even before the typhoon season gets under way. We think it likely there will be little movement in nonlife stocks before the Sep–Oct typhoon season. We meanwhile attribute the improvement in figures from automotive insurance to payouts having been exceeded by the effect of rate hikes and revisions to the non-fleet driver rating system. Also, it seems that sharply higher gasoline prices have led to a reduction in traffic volume and associated fall in the number of traffic accidents.

Figure 15: P/NAV of non-life insurers Figure 16: Traffic volume growth and gasoline retail price 1.2 (x) 20% yen 180 1.1 15% 170 1.0 10% 160 0.9 5% 150 0.8 0.7 -- 140 0.6 (5%) 130

0.5 Tokio Marine HD (10%) 120 MS&AD 0.4 NKSJ (15%) 110 0.3

# of cars through highway (YoY, LHS) Gasoline price (RHS) Source: Thomson Reuters, company data, Credit Suisse estimates Source: MIC, NEXCO

Figure 17: Traffic volume growth and traffic accidents 20% 4% 2% 15% -- 10% (2%) 5% (4%) (6%) -- (8%) (5%) (10%) (12%) (10%) (14%) (15%) (16%)

# of cars through highway (YoY, LHS) # of traffic accidents (YoY, RHS) Source: NPA, NEXCO

Financial Sector 8 21 August 2014

Nonbanks We expect Orix to sustain robust profit growth for some years yet. The dividend payout ratio has been rising year by year, but management appears reluctant to repurchase shares. As it has no reason not to buy back shares if there is a certain amount of unused capital, the company is instead channeling its increasing capital base into investments and M&A. As a consequence, we see profits increasing further. It is difficult, however, to include capital gains in earnings forecasts . As such it could be some time before we see consensus estimates rise. We note also that capital gains on investments are starting to make a substantial contribution to earnings. While this was not unexpected (given changes to Orix's business model over the past several years), there is a risk that such gains are still viewed by investors as one-offs. Retail nonbanks have seen a renewed rise in interest repayment claims since May, implying increased risk of additional provisioning to related loss reserves. Share prices have been comparatively high amid expectations concerning deregulation. Credit card companies have also been strong performers so far amid a recovery in cash advance balances and stronger-than-expected growth in card shopping transaction volume. We meanwhile expect retail nonbanks' share prices to remain low in view of prospects for Acom’s to cut guidance before the end of the fiscal year (please refer also to our 15 August report, ACOM: Increasingly likely to make provisions for reserves on interest repayments).

Figure 18: Value and growth of leasing contracts Figure 19: P/B of seven leasing companies, growth in leasing contract and difference of 5-yr and 3-mth interest rates (¥'bn) （%） (x) (bp,%) 1,200 40.0 3.5 140 YoY % change (RHS) 120 30.0 3.0 1,000 100 2.5 20.0 80 800 2.0 60 10.0 600 1.5 40 0.0 20 1.0 400 0 -10.0 0.5 -20 200 -20.0 0.0 -40 Leasing contract value (LHS) 0 -30.0

Leasing contract value (YoY) P/B of 7 leasing companies (LHS) 5Y-3M (bp, RHS) Source: Japan Leasing Association Source: Company data, Japan Leasing Association, Thomson Reuters Figure 20: Interest repayment claims per business day Figure 21: Monthly growth of interest repayment claims Case/ Business day （%） 1,000 Acom 80 Acom 900 Aiful SMBCCF 60 800 Credit Saison Aiful 40 700 SMBCCF 600 20 500 400 0 300 (20) 200 100 (40) 0 (60)

Source: Company data Source: Company data

Financial Sector 9 21 August 2014

Appendix

Figure 22: Performance of Japan and global bank indices 1.20 TOPIX Bank TOPIX Bank (USD base) 1.15 MSCI world MSCI US MSCI EUR MSCI ACW 1.10 MSCI EM 1.05 MSCI ACW MSCI US 1.00 MSCI world MSCI EUR 0.95 TOPIX Bank (USD 0.90 base) 0.85 TOPIX Bank 0.80

Note: Jan-2014 = 1, global index is based on USD Source: Bloomberg

Figure 23: Performance of Japan and global insurance indices 1.10 TOPIX Insurance TOPIX Insurance (USD) MSCI world MSCI US 1.05 MSCI EUR MSCI ACW MSCI EM MSCI EM

MSCI ACW 1.00 MSCI US MSCI world MSCI EUR 0.95

0.90 TOPIX Insurance (USD) 0.85 TOPIX Insurance

0.80

Note: Jan-2014 = 1, global index is based on USD Source: Bloomberg

Financial Sector 10 21 August 2014

Figure 24: P/B–ROE matrix for nonbank, brokers and Figure 25: P/B–ROE matrix for banks (CS covered asset managers (CS covered companies, 12-month companies, 12-month forward) forward) 10.0x P/B 2.0x P/B 9.0x 1.8x 8.0x 1.6x 7.0x 1.4x Japan 6.0x 1.2x EU & UK 5.0x Japan 1.0x US 4.0x EU & UK 0.8x 3.0x US 0.6x 2.0x 0.4x 1.0x 0.2x 0.0x 0.0x 0% 10% 20% 30% 40% 50% 0% 5% 10% 15% 20% ROE ROE Source: Credit Suisse estimates Source: Credit Suisse estimates

Figure 26: P/B–ROE matrix for life and non-life insurers (CS covered companies, 12-month forward) 5.0x P/B 4.5x 4.0x 3.5x 3.0x Japan 2.5x EU & UK 2.0x US & Canada 1.5x 1.0x 0.5x 0.0x 0% 10% 20% 30% 40% ROE Source: Credit Suisse estimates

Financial Sector 11 21 August 2014

Companies Mentioned (Price as of 20-Aug-2014) ACOM (8572.T, ¥360, UNDERPERFORM[V], TP ¥317) Aeon Financial Service (8570.T, ¥2,298) Credit Saison (8253.T, ¥1,990) Dai-ichi Life Insurance (8750.T, ¥1,450, OUTPERFORM, TP ¥2,420) (8601.T, ¥833) Japan Exchange Group (8697.T, ¥2,413) Kabu.com Securities (8703.T, ¥476, NEUTRAL[V], TP ¥520) MS&AD Insurance Group Holdings (8725.T, ¥2,355) Matsui Securities (8628.T, ¥964) Mitsubishi UFJ Financial Group (8306.T, ¥590) (8411.T, ¥197) Monex Group (8698.T, ¥309) NKSJ Holdings (8630.T, ¥2,530) Nomura Holdings (8604.T, ¥640, NEUTRAL, TP ¥670) Orix (8591.T, ¥1,568, OUTPERFORM, TP ¥2,000) Sony Financial Holdings (8729.T, ¥1,685) Sumitomo Mitsui Financial Group (8316.T, ¥4,142, OUTPERFORM, TP ¥5,600) T&D Holdings (8795.T, ¥1,260) Tokio Marine Holdings (8766.T, ¥3,194)

Disclosure Appendix Important Global Disclosures Takehito Yamanaka and Takashi Miura, 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.

3-Year Price and Rating History for ACOM (8572.T)

8572.T Closing Price Target Price Target Price Closing Price 8572.T Date (¥) (¥) Rating 500 23-Apr-13 386 385 O * 30-Apr-13 398 450 27-Nov-13 366 470 400 28-Apr-14 393 342 N 15-Aug-14 381 317 U 300 * Asterisk signifies initiation or assumption of coverage.

200 1- Jul- 13 1- Oct- 13 1- Jan- 14 1- Apr- 14 1- Jul- 14 OUTPERFORM NEUTRAL UNDERPERFORM

3-Year Price and Rating History for Dai-ichi Life Insurance (8750.T)

8750.T Closing Price Target Price Target Price Closing Price 8750.T Date (¥) (¥) Rating 2,500 22-Jun-12 917 1,112 O * 16-Jan-13 1,300 1,475 2,000 21-Jun-13 1,319 2,348 26-Feb-14 1,516 2,393 1,500 11-Jun-14 1,535 2,420 * Asterisk signifies initiation or assumption of coverage. 1,000

500 1- Sep- 12 1- Jan- 13 1- May- 13 1- Sep- 13 1- Jan- 14 1- May- 14 1-Sep-1 OUTPERFORM

Financial Sector 12 21 August 2014

3-Year Price and Rating History for Kabu.com Securities (8703.T)

8703.T Closing Price Target Price Target Price Closing Price 8703.T Date (¥) (¥) Rating 800 30-Aug-11 226 NR 24-Mar-14 501 630 O * 14-May-14 443 480 N 600 03-Jul-14 500 560 04-Aug-14 470 520 400 * Asterisk signifies initiation or assumption of coverage.

200 1- Jan- 12 1- Jan- 13 1- Jan- 14 NOT RATED OUTPERFORM NEUTRAL

3-Year Price and Rating History for Nomura Holdings (8604.T)

8604.T Closing Price Target Price Target Price Closing Price 8604.T Date (¥) (¥) Rating 1,000 30-Aug-11 323 NR 30-Nov-11 248 280 N * 800 01-Feb-12 280 330 O 21-Feb-12 349 410 600 09-May-12 286 355 29-Jun-12 294 320 400 30-Jul-12 274 310 04-Oct-12 287 360 200 19-Dec-12 420 445 1- Jan- 12 1- Jan- 13 1- Jan- 14 01-Feb-13 512 600 NOT RATED 27-Mar-13 589 630 NEUTRAL OUTPERFORM 30-Apr-13 793 870 01-Jul-13 750 800 30-Jul-13 757 820 08-Jan-14 824 830 20-Feb-14 692 800 31-Mar-14 662 720 14-May-14 624 570 N 01-Jul-14 724 670 * Asterisk signifies initiation or assumption of coverage.

Financial Sector 13 21 August 2014

3-Year Price and Rating History for Orix (8591.T)

8591.T Closing Price Target Price Target Price Closing Price 8591.T Date (¥) (¥) Rating 2,000 11-Oct-11 637 830 O * 10-Jan-12 645 848 31-Jan-12 713 890 1,500 24-May-12 685 945 27-Jul-12 749 995 1,000 25-Sep-12 802 990 06-Feb-13 1,053 1,310 18-Mar-13 1,156 1,470 500 03-Jun-13 1,279 1,620 1- Jan- 12 1- Jul- 12 1- Jan- 13 1- Jul- 13 1- Jan- 14 1- Jul- 14 08-Jul-13 1,470 * OUTPERFORM 12-Jul-13 1,459 1,620 O 18-Oct-13 1,609 1,820 05-Nov-13 1,687 1,840 27-Feb-14 1,488 1,940 03-Jul-14 1,700 2,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Sumitomo Mitsui Financial Group (8316.T)

8316.T Closing Price Target Price Target Price Closing Price 8316.T Date (¥) (¥) Rating 6,500 09-Sep-13 4,675 5,700 O * 13-Nov-13 4,945 6,015 23-Apr-14 4,079 5,440 5,500 12-Aug-14 4,065 5,600 * * Asterisk signifies initiation or assumption of coverage. 4,500

3,500 1- Oct- 13 1- Jan- 14 1- Apr- 14 1- Jul- 14 OUTPERFORM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 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 were 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.

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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* 44% (53% banking clients) Neutral/Hold* 40% (51% banking clients) Underperform/Sell* 13% (45% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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

Price Target: (12 months) for Orix (8591.T) Method: Our ¥2,000 target price for Orix is calculated by applying a P/B of 1.25x (ROE estimate of 11.0% divided by 8.8% discount rate) to our end-FY3/15 diluted BPS estimate of ¥1,603.1 (RFR: 1%, ERP: 6.5%, Beta: 1.2). Risk: Risks to our ¥2,000 target price for Orix include growth in surplus capital with little likelihood of share buybacks, M&A deals that perplex the equity market, and shareholder returns that falls short of market expectations.

Price Target: (12 months) for Dai-ichi Life Insurance (8750.T) Method: Our ¥2,420 target price for Dai-ichi Life Insurance is based on our forecast FY3/16E EV per share of ¥4,307 and a P/EV multiple of 0.56x, which reflects a projected RoEV of 6.0% and a discount rate of 10.66% (RFR: 1%, ERP: 6.5%, Beta: 1.486). Risk: Risks that may prevent achievement of our ¥2,420 target price for Dai-ichi Life Insurance include a fall in the TOPIX or super-long-term interest rates. We think the share price already reflects advance media reports as well as the official announcement of both the acquisition and a capital increase but see lingering risk associated with the ultimate size of the share issue.

Price Target: (12 months) for Kabu.com Securities (8703.T) Method: Our ¥520 TP is derived by applying a fair-value P/B of 2.12x to our FY3/15E BPS of ¥246.5. As before, our valuation is based on an ROE –P/B matrix, using our forecast for FY3/15 adjusted ROE (excluding special stock and temporary factors) of 13.8%.

Risk: Upside risks to our ¥520 target price for kabu.com Securities most notably include growth in retail trading value, and share buybacks to boost ROE toward 20%. Downside risks include a deeper slump in trading value and in-house IT system problems.

Price Target: (12 months) for Sumitomo Mitsui Financial Group (8316.T) Method: Our ¥5,600 target price for Sumitomo Mitsui Financial Group is based on a theoretical P/B of 0.97x derived from forecast ROE of 8.8% and a 9.0% discount rate (=1.200 (2yr beta)*(RfR 1% + ERP 6.5%)) applied to our end-FY3/15 BPS forecast of ¥5,717.6. Risk: Risks to our ¥5,600 target price for Sumitomo Mitsui Financial Group include a slowdown in Asia, which is a key region for the bank, and a fall in the stock market.

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Price Target: (12 months) for Nomura Holdings (8604.T) Method: Our ¥670 target price for Nomura Holdings is based on a P/B of 0.92x our FY3/15 BPS forecast of ¥724.6. Our 0.92x multiple is based on FY3/15E ROE of 9.33% and a discount of 10.1% (based on a risk-free rate of 1%, ERP of 6.5% and a beta of 1.4). Risk: Upside risks that could impede achievement of our ¥670 target price for Nomura Holdings include: Growth in trading volume and equity financing would be a positive for the share price, while steady profits overseas would be a positive for the company's balance sheet. Downside risks include market awareness of the stability of the brokerage's global business failing to improve. Another downside risk is falling expectations that Japan will escape deflation.

Price Target: (12 months) for ACOM (8572.T) Method: We calculate our ¥317 target price for Acom based on a fair-value P/B of 1.5x (based on ROE of 11.3%, assuming a normal tax rate, and a 7.50% discount rate) to our FY3/15E BPS of ¥211.3, adjusted for our tax assumption. (Risk free rate 1.00%, ERP 6.50%, Beta 1.07) Risk: Upside risks to our ¥317 target price for Acom include: a sharp drop in interest repayment claims or significant progress toward deregulation. The shares could also get a boost if Acom makes large enough provisions for reserves that the equities market considers the company’s risk to be fully covered.

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 (8591.T, 8750.T, 8316.T, 8604.T, 8572.T) 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 (8591.T) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (8591.T, 8750.T, 8316.T, 8604.T) within the past 12 months Credit Suisse has received investment banking related compensation from the subject company (8591.T) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (8591.T, 8750.T, 8316.T, 8604.T, 8572.T) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (8591.T, 8750.T, 8316.T, 8604.T) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (8604.T). 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 (8591.T, 8750.T, 8703.T, 8703.T, 8316.T, 8316.T, 8604.T, 8572.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. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (8316.T) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited ...... Takehito Yamanaka ; Ryota Muranaka ; Takashi Miura

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Financial sector_082114_E1.doc Financial Sector 18