05 June 2013 Asia Pacific/Japan Equity Research Non Ferrous Metals (Non Ferrous Metals (Japan)) / MARKET WEIGHT

Mitsubishi Materials (5711 / 5711 JP) Rating (from Neutral) OUTPERFORM* Price (04 Jun 13, ¥) 324 UPGRADE RATING

Target price (¥) (from 270) 470¹ Chg to TP (%) 45.1 Market cap. (¥ bn) 424.71 (US$ 4.25) Increasing exposure to non-copper Enterprise value (¥ bn) 1,006.75 Number of shares (mn) 1,310.82 businesses; stock still lagging Free float (%) 75.0 52-week price range 376 - 195 ■ Increased exposure to non-market-driven businesses: We upgrade our rating on

*Stock ratings are relative to the coverage universe in each Mitsubishi Materials from Neutral to OUTPERFORM and raise our TP from ¥270 to analyst's or each team's respective sector. ¥470. We also newly add earnings estimates for FY3/16. With the downturn in copper ¹Target price is for 12 months. prices, the weighting of Mitsubishi Materials’ copper business has diminished, and the Research Analysts focus is now shifting to non-copper businesses such as carbide tools and cement, Shinya Yamada which are less susceptible to market fluctuations. We see the valuation rising 81 3 4550 9910 accordingly, and therefore think there is considerable upside potential. [email protected] ■ Reasons for laggard status and areas of recent improvement: Among the factors Kazumasa Okumoto likely contributing to the stock’s laggard status, we identify: (1) softening copper 81 3 4550 7266 [email protected] prices, (2) carbide tool inventory adjustments, and (3) risk of sluggish earnings at SUMCO and the polysilicon business. Risk of further weakening in copper prices remains, but we believe this downside risk is now modest. Carbide tool inventory adjustments have been completed, and demand for carbide tools is picking up. Meanwhile, SUMCO and the polysilicon business are now in the recovery phase of the inventory cycle and can benefit from a weaker yen. Given the above, we believe that factors holding the stock back have largely disappeared. ■ Catalysts: Upside catalysts include yen weakening, improving carbide tool data, and on-going firm cement data. Risks include yen appreciation, further decline in copper prices, and less favorable market conditions in Japan and the US for construction (affecting the cement business) and globally for autos (carbide tools) and electronics (electronic materials). SUMCO’s earnings announcement, which is scheduled for this Friday after market close, could be another positive catalyst. ■ Valuation: In light of the copper business’ decreased weighting, we switch from the average P/E for the global nonferrous metals industry as the basis for our TP calculation to a sum-of-the-parts valuation model based on our FY3/15E EPS.

Share price performance Financial and valuation metrics

Year 3/13A 3/14E 3/15E 3/16E Price (LHS) Rebased Rel (RHS) Revenue (¥ bn) 1,287.3 1,532.0 1,391.0 1,521.0 400 120 Operating profit (¥ bn) 52.5 76.5 83.5 88.6 300 110 Recurring profit (¥ bn) 74.4 87.0 96.0 99.1 200 100 Net income (¥ bn) 37.0 50.0 56.0 56.5 100 90 EPS (¥) 28.2 38.1 42.7 43.1 0 80 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Change from previous EPS (%) n.a. 54.9 52.7 IBES Consensus EPS (¥) n.a. 29.7 31.6 35.4 The price relative chart measures performance against the EPS growth (%) 286.5 35.3 12.0 0.9 TOPIX which closed at 1125.47 on 04/06/13 P/E (x) 9.5 8.5 7.6 7.5 On 04/06/13 the spot exchange rate was ¥100.04/US$1 Dividend yield (%) 1.5 1.9 2.5 3.1 EV/EBITDA(x) 9.0 7.3 6.5 5.9 Performance Over 1M 3M 12M P/B (x) 0.87 0.87 0.80 0.74 Absolute (%) 17.8 11.7 56.5 ROE(%) 9.8 11.2 11.0 10.2

Relative (%) 20.2 -0.3 -2.4

Net debt/equity (%) 155.3 119.5 98.6 81.0 Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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05 June 2013

Investment opinion We upgrade our rating on Mitsubishi Materials from Neutral to OUTPERFORM and raise our target price from ¥270 to ¥470. With the downturn in copper prices, the weighting of Mitsubishi Materials’ copper business has diminished, and the focus is now shifting to non- copper businesses such as carbide tools and cement, which are less susceptible to market fluctuations. We see the valuation rising accordingly, and therefore think there is considerable upside potential. Reasons for stock’s underperformance Among the factors likely contributing to the stock’s laggard status, we identify: (1) softening copper prices, (2) carbide tool inventory adjustments, and (3) risk of sluggish earnings at SUMCO and the polysilicon business. Risk of further weakening in copper prices remains, but we believe this downside risk is now limited. Carbide tool inventory adjustments were completed in March, and demand for carbide tools is picking up. Meanwhile, SUMCO and the polysilicon business are now in the recovery phase of the inventory cycle. Given the above, we believe that downside risk has largely disappeared. Switch to sum-of-the-parts valuation model We expect the copper business’ recurring profit weighting to fall sharply to 31% by FY14, from 53% in FY12. We attribute the business’ deteriorating performance to falling copper prices, as well as a decline in dividend income from the Los Pelambres mine in Chile, where costs have been rising. In contrast, the outlook for Mitsubishi Materials' non-copper businesses is improving, with the cement business buoyed by robust demand in Japan and the US and the carbide tool business benefiting from an end to inventory adjustments. At the electronic materials business, demand is recovering while structural reform is turning SUMCO around. Upbeat demand for aluminum bottles is among factors boosting aluminum business profits. As P/Es at rival non-copper enterprises are higher than the non-ferrous metal industry average, the target price derived from our sum-of-the-parts model is 45% above the current share price (Figure 1). The P/B implied by our target price is 1.26x, above the current P/B of 0.87 (both based on FY3/14E). We view this premium as justified, as at 11.2%, our ROE forecast for FY14 is also relatively high. Nor do we regard the P/E and P/B on the current share price as especially high, based on historical comparison (Figures 3-4). Mitsubishi Materials shares have been notably underperforming relative to cement and carbide tool maker, and silicon wafer-related company stocks, but we believe the share price will rally as risk of falling copper prices is factored in (Figures 5-7). We also have OUTPERFORM ratings on a number of Mitsubishi Materials' peers, including Taiheiyo Cement and Sumitomo Osaka Cement (analyst: Jun Yamaguchi), Cemex (Vanessa Qurioga), Kennametal (Julian Mitchell), and Shin-Etsu Chemical and Tokuyama (Masami Sawato).

Mitsubishi Materials (5711 / 5711 JP) 2 05 June 2013

Figure 1: Valuation Applied P/E Segment EPS (\)

Cement 12.3x ¥10.6 ------A Sumitomo Osaka Cement 12.1x Taiheiyo Cement 12.4x

Nonferrous 9.8x ¥11.9 ------B Dowa Holdings 11.2x Mitsubishi Materials 8.8x Mitsui Mining & Smelting 8.6x Sumitomo Metal Mining 8.9x Newcrest Mining 12.1x PanAust 13.0x Jiangxi Copper Company Ltd 11.4x Hindustan Zinc Limited 7.2x BHP Billiton 9.4x Rio Tinto 8.3x Teck Resources Ltd 11.4x Vale 7.8x

Carbide Tools 11.5x ¥8.3 ------C Sandvik 12.9x Kennametal Inc. 11.1x Sumitomo Electric Industries 10.6x

Aluminum 8.5x ¥3.0 ------D Furukawa Sky 8.5x

Polysilicon 12.8x ¥5.5 ------E Shin-Etsu Chemical 17.8x SUMCO 7.9x

Other 10.0x ¥3.4 ------F

T/P ¥470 - - - - G Source: Company data, I/B/E/S, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 3 05 June 2013

Figure 2: RP split by segment Elec Recurring Advanced Cement Metals materials/c Aluminum Others Eliminations Total profit mat/tools omp 11/3 5,278 43,234 15,139 -11,597 3,802 7,972 -7,405 56,425 12/3 7,729 37,840 12,329 -20,660 4,439 10,110 -9,293 42,495 13/3 14,023 39,134 10,622 3,465 5,530 10,864 -9,226 74,414 14/3E 20,500 36,000 17,000 8,500 6,000 8,500 -9,500 87,000 15/3E 26,100 29,500 20,500 13,500 7,400 8,500 -9,500 96,000 16/3E 29,500 27,000 22,000 14,000 7,600 8,500 -9,500 99,100

Cement Metals Advanced mat/tools Elec materials/comp Aluminum Others

-40% -20% 0% 20% 40% 60% 80% 100%

11/3 -21% 9% 77% 27% 7% 14%

12/3 -49% 18% 89% 29% 10% 24%

13/3 19% 53% 14% 5% 7% 15%

14/3E 24% 41% 20% 10% 7% 10%

15/3E 27% 31% 21% 14% 8% 9%

16/3E 30% 27% 22% 14% 8% 9%

Source: Company data, Credit Suisse estimates

Figure 3: Historical P/E Figure 4: Historical P/B (x) (x) 40.0 2.5

2.0 30.0

1.5

20.0

1.0

10.0 0.5

P/E Adjusted P/E

0.0 0.0 '92/4 '94/4 '96/4 '98/4 '00/4 '02/4 '04/4 '06/4 '08/4 '10/4 '12/4 '14/4 '92/4 '94/4 '96/4 '98/4 '00/4 '02/4 '04/4 '06/4 '08/4 '10/4 '12/4 '14/4 Source: Thomson Reuters, Company data, Credit Suisse estimates Source: Thomson Reuters, Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 4 05 June 2013

Figure 5: Share price performance of cement makers Figure 6: Share price performance of carbide tool makers (US$) (US$) (Jan'11=100) (Jan'09=100) 250 400 CEMEX TEXAS INDS. SANDVIK KENNAMETAL MITSUBISHI MATERIALS SUMITOMO OSAKA CEMENT MITSUBISHI MATERIALS SUMITOMO ELECTRIC IND. 200 TAIHEIYO CEMENT 300

150 200

100 100 50

0 0 09/1 09/7 10/1 10/7 11/1 11/7 12/1 12/7 13/1 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 Source: Thomson Reuters Source: Thomson Reuters

Figure 7: Share price performance of silicon wafer manufacturers (Jan '12=100) Mitsubishi Materials 300 SUMCO SHIN-ETSU CHEMICAL TOKUYAMA 250

200

150

100

50

0 '12/1 '12/3 '12/5 '12/7 '12/9 '12/11 '13/1 '13/3 '13/5 Source: Thomson Reuters

We think Mitsubishi Materials deserves credit for steadily building up its cash flow and striving to improve margins by selecting and consolidating operations (Figure 8). To a certain extent investors seem to concur, as although the TOPIX-relative share price swung repeatedly within a broad range through 2006, when earnings were declining, since 2007 the range itself has been higher (Figure 9). However, the market cap still does not seem to adequately reflect Mitsubishi Materials' cash flow, as the free cash flow (FCF) yield based on average FCF from FY99 (when such data first became available) through FY12 is 5.5%. This makes Mitsubishi Materials the most undervalued of the four major non-ferrous metal companies, as the FCF yield based on average FCF over the past three years (FY10–12, including the Great East Japan Earthquake and floods in Thailand) is 7.5% (Figure 10).

Mitsubishi Materials (5711 / 5711 JP) 5 05 June 2013

Figure 8: Cash flow of Mitsubishi Materials

OPCF (JPY mn) 16% 160,000 FCF

14% OPCF/Sales (LHS) 140,000 OPM (LHS) 12% 120,000

10% 100,000

8% 80,000

6% 60,000

4% 40,000

2% 20,000

0% 0

-2% -20,000

-4% -40,000 3/01 3/03 3/05 3/07 3/09 3/11 3/13 3/15E Source: Company data, Credit Suisse estimates

Figure 9: Share price performance rel. to TOPIX Figure 10: FCF yield of nonferrous metal companies (Jan '80=100) 300

Mitsubishi Materials 250

200 Mitsui Mining & Smelting 150

100 DOWA

50 FY3/11 - FY3/13 avg. FCF/MV Sumitomo Metal Mining 0 FY3/00 - FY3/13 avg. FCF/MV 80/01 84/01 88/01 92/01 96/01 00/01 04/01 08/01 12/01 0% 2% 4% 6% 8% 10% Source: Thomson Reuters Source: Company data, Credit Suisse estimates

Risks Risks to earnings and the share price include a further decline in copper prices and yen appreciation, as well as deterioration in the US and Japanese construction markets (affecting the cement business) and in the global auto market (carbide tools). Worsening conditions in the electronics market would also pose a risk (for the electronic materials business). In addition, the company may have to buy shares in SUMCO if Nippon Steel and Sumitomo Metal Corporation sell their stakes. In this case, equity financing would emerge as a major risk.

Mitsubishi Materials (5711 / 5711 JP) 6 05 June 2013

Cement Cement is the company’s most closely followed business, reflecting its high profitability, competitiveness, and growth potential, even compared with other core divisions. The business stands out for (1) its high market share in both Japan, where it is No. 2, and California, the focal point of its operations in the US, where it is also No. 2; (2) its Kyushu plant, which is the largest cement factory in Japan; and (3) its vertically integrated business in the US, with ready-mixed concrete operations. It is worth noting that this vertical integration allowed combined OP from cement and ready-mixed concrete to remain in the black even after the market declined after the collapse of Lehman Brothers. In FY3/13, this segment once again ranked among the most profitable for both Mitsubishi Materials and its competitors (Figure 11). This is in spite of the fact that Sumitomo Osaka Cement has no low-margin US business, allowing it to focus exclusively on the domestic market, and Cemex benefits from oligopolistic conditions in Mexico (EBITDA margin of 36%) and Latin America (34%), which generate high earnings.

Figure 11: Profit margins of cement business (FY12)

20% EBITDA margin OP margin

15%

10%

5%

0% Mitsubishi Materials Taiheiyo SOC CEMEX

Source: Company data, Credit Suisse estimates

In Japan, the company has a joint marketing venture with Ube Industries that holds about a 25% share of the market, second only to Taiheiyo Cement with around 35%. Mitsubishi Materials by itself controls about 15% of Japan’s total cement production capacity (ranking it third, behind Taiheiyo Cement and Sumitomo Osaka Cement). The Kyushu plant in Fukuoka prefecture is the centerpiece of its domestic operations. With roughly 6.7mn tons of clinker production capacity (on 5 kilns), the massive plant singlehandedly accounts for 12% of total domestic production capacity (Figure 12). Along with its belt conveyor systems used to constantly feed raw material limestone, it has the advantage of a coastal location suitable for exporting. Leveraging the highest cost competitiveness in Japan, the company uses the Kyushu plant as a base to export to other parts of Asia.

Mitsubishi Materials (5711 / 5711 JP) 7 05 June 2013

Figure 12: Clinker manufacturing capacity in Japan

MITSUBISHI MATERIALS KYUSHU TAIHEIYO CEMENT OITA UBE Industries ISA TAIHEIYO CEMENT KAMIISO SUMITOMO OSAKA CEMENT KOCHI TOKUYAMA NANYO SUMITOMO OSAKA CEMENT AKO TOSOH NANYO DENKA OUMI TAIHEIYO CEMENT OFUNATO TAIHEIYO CEMENT FUJIWARA TAIHEIYO CEMENT KUMAGAI MYOJYO CEMENT ITOIGAWA UBE Industries KANDA UBE Industries UBE TAIHEIYO CEMENT SAITAMA ASO CEMENT TAGAWA HACHINOHE CEMENT HACHINOHE SUMITOMO OSAKA CEMENT GIFU MITSUBISHI MATERIALS YOKOZE KANDA CEMENT KANDA NS CEMENT MURORAN DC KAWASAKI HITACHI CEMENT HITACHI SUMITOMO OSAKA CEMENT TOCHIGI NSSMC CEMENT KOKURA RYUKYU CEMENT OBU TSURUGA CEMENT TSURUGA MITSUBISHI MATERIALS AOMORI MITSUBISHI MATERIALS IWATE 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 kt/year

Note: as of 2012/4/1

Source: Company data, Credit Suisse estimates

The domestic market environment for cement is favorable. Driven by a recovery in construction investment that extends beyond reconstruction demand arising from the Great East Japan Earthquake, domestic cement demand remains on a positive trajectory (Figure 13). Mitsubishi Materials’ cement sales volume dipped in 2H FY3/13 as a result of scheduled kiln maintenance, so overall volume for FY3/13 was weak relative to the industry as a whole (Figure 14). However, with this maintenance now behind it, the company should post domestic sales growth in FY3/14 significantly exceeding the industry average, and we expect it to see the strongest earnings momentum of all the cement makers in FY3/14 as a result. With supply-demand conditions tightening, management has announced plans to implement a ¥1,000/ton price hike in FY3/14, and we suspect it will be able to achieve some sort of increase (probably in the ¥300–500 range).

Mitsubishi Materials (5711 / 5711 JP) 8 05 June 2013

Figure 13: Construction orders and starts growth Construction start floor area, YoY 3mMA 50% Construction orders, general contractors (50 companies), YoY 3mMA

40% Domestic cement sales, YoY 3mMA

30%

20%

10%

0%

-10%

-20%

-30%

-40%

-50%

'06/01 '96/01 '97/01 '98/01 '99/01 '00/01 '01/01 '02/01 '03/01 '04/01 '05/01 '07/01 '08/01 '09/01 '10/01 '11/01 '12/01 '13/01 '95/01 Source: JCA, MLIT

Figure 14: Domestic cement production volume (kt) Production (RHS) YoY (LHS) 20% 10,000

10% 5,000

0% 0

-10% -5,000

-20% -10,000 '89/1 '92/1 '95/1 '98/1 '01/1 '04/1 '07/1 '10/1 '13/1

Source: JCA

As a result of the turnaround in demand, capacity utilization at all cement makers is closing in on 100%, and exports continue to fall, even in the face of a now weakening yen (Figures 15-16). Companies appear to be trimming back exports of underperforming products in order to concentrate on their more profitable domestic businesses. Along with mix improvement gains, this in turn has driven a significant improvement in both export prices and the export spread (the difference between export prices and specific consumption costs of coal) (Figures 17-18). With its huge Kyushu plant, Mitsubishi Materials should benefit significantly from these developments, and we expect improved export margins to be a key earnings driver for the company.

Mitsubishi Materials (5711 / 5711 JP) 9 05 June 2013

Figure 15: Domestic cement export volume (kt) 100% 2,000

80% 1,600

60% 1,200

40% 800

20% 400

0% 0

-20% -400

-40% -800

-60% -1,200 Export (RHS) YoY (LHS) -80% -1,600 '89/1 '92/1 '95/1 '98/1 '01/1 '04/1 '07/1 '10/1 '13/1

Source: JCA

Figure 16: Mitsubishi Materials’ cement shipment volume (kt) 5,500 20%

4,500 15% 3,500 10% 2,500 5% 1,500

500 0%

-500 -5% -1,500 -10% -2,500 Domestic Export -15% -3,500 Domestic, YoY Export, YoY -4,500 -20% 09/9 10/9 11/9 12/9 13/9E 14/9E 15/9E Source: Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 10 05 June 2013

Figure 17: Cement export prices (USD, yen) Figure 18: Cement export spread (export price – coal import price*0.1) (JPY/t) (¥/t) 50 (USD/t) 6,000 3,000

5,000 40 2,600

4,000 30 2,200 3,000 20 1,800 2,000

10 1,400 1,000 Export price, USD/t (LHS) JPY/t (RHS) 0 0 1,000 '90/1 '94/1 '98/1 '02/1 '06/1 '10/1 2003/01 2005/01 2007/01 2009/01 2011/01 2013/01 Source: MoF Source: MoF, Credit Suisse

In Southern California, the base of its US operations, Mitsubishi Materials again holds the second highest share of the market at about 25%, compared to about 40% for market- leader Cemex. In ready-mixed concrete, subsidiary Robertson’s Ready Mix (RRM) holds the top share of the market at around 40%, affording it attractive margins. Disclosed EBITDA margin for FY12/11 was around 25%, significantly exceeding the 14% margin for the cement division as a whole (FY3/12). MCC Development (a 70-30 joint venture between Mitsubishi Materials and Mitsubishi) raised its interest in RRM from 70% to full 100% ownership in December 2012. A distinguishing characteristic of the company’s US business is its vertical integration between cement and ready-mixed concrete, which, as previously noted, was the critical factor behind its ability to ride out the sharp decline in demand seen during the global economic downturn, as RRM’s presence helped to minimize the impact on sales volume, allowing the cement business as a whole to squeak by with only modest losses. It also appears that the company was able to remain in the black at the OP line for combined cement and ready-mixed concrete operations during this time. The fact that EBITDA in Cemex’s US operations ended only barely in the black further underlines the highly profitable structure of Mitsubishi Materials’ US cement (including ready-mixed concrete) business (Figure 19). Meanwhile, Taiheiyo Cement’s US business, also based on the West Coast, posted a fourth straight year of operating losses in FY12 and the company expects further losses in FY13.

Mitsubishi Materials (5711 / 5711 JP) 11 05 June 2013

Figure 19: Cemex US EBITDA ($mn) 50.0% 500

EBITDA EBITDA margin 40.0% 400

30.0% 300

20.0% 200

10.0% 100

0.0% 0

-10.0% -100 05/1Q 06/1Q 07/1Q 08/1Q 09/1Q 10/1Q 11/1Q 12/1Q 13/1Q

Source: Company data

The operating environment for cement in the US is turning around, and data confirms that both construction investment and cement sales volume are on a sustained upswing on the West Coast, where the company’s operations are centered (Figure 20-21). The outlook is widely viewed as favorable, the Portland Cement Association projecting continued growth on the order of 10% through 2017 (Figure 22). Mitsubishi Materials has posted sustained double-digit growth since 2H FY3/13, outperforming rival Cemex, which is now seeing its volume decline (Figure 23-24). We believe this difference can be attributed to the vertical integration between its cement and ready-mixed concrete operations. Given the ongoing turnaround in cement sales prices, we expect gains from sales volume growth and price hikes to drive a significant improvement in earnings in FY3/14 (Figure 25-26).

Figure 20: US construction spending YoY growth 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% US, construction spending, total, YoY Private, YoY -25% Public, YoY -30% '94/1 '96/1 '98/1 '00/1 '02/1 '04/1 '06/1 '08/1 '10/1 '12/1

Source: US Census Bureau

Mitsubishi Materials (5711 / 5711 JP) 12 05 June 2013

Figure 21: Cement shipment YoY growth in US West Coast 60%

40%

20%

0%

-20%

-40%

-60% '05/1 '06/1 '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '13/1

California Arizona Nevada Source: USGS

Figure 22: US cement consumption

140,000 (kt) 14%

120,000 US Cement consumption (LHS) YoY (RHS) 12%

100,000 10%

80,000 8%

60,000 6%

40,000 4%

20,000 2%

0 0%

-20,000 -2% 2010 2011 2012 2013 2014 2015 2016 2017 Source: PCA

Mitsubishi Materials (5711 / 5711 JP) 13 05 June 2013

Figure 23: Mitsubishi Materials’ US cement sales (kt) 1,000 30%

800 20% 600

400 10% 200

0 0%

-200 -10% -400

-600 -20% Mitsubishi Materials, US cement shipment -800 YoY

-1,000 -30% 09/9 10/3 10/9 11/3 11/9 12/3 12/9 13/3 13/9E 14/3E 14/9E 15/3E 15/9E 16/3E Source: Company data, Credit Suisse estimates

Figure 24: Cemex US shipment volume

60%

40%

20%

0%

-20%

-40%

Cement (YoY) Ready-mix (YoY) -60% 06/1Q 07/1Q 08/1Q 09/1Q 10/1Q 11/1Q 12/1Q 13/1Q Source: Company data

Mitsubishi Materials (5711 / 5711 JP) 14 05 June 2013

Figure 25: Cemex US shipment prices

20% Cement price (YoY) Ready-mix price (YoY)

15%

10%

5%

0%

-5%

-10%

-15% 06/1Q 07/1Q 08/1Q 09/1Q 10/1Q 11/1Q 12/1Q 13/1Q Source: Company data

Figure 26: US domestic cement prices (USD/t) 220

200

180

160

US domestic cement price (PPI, 3mMA)

140 '00/1 '02/1 '04/1 '06/1 '08/1 '10/1 '12/1 Source: Thomson Reuters

Mitsubishi Materials (5711 / 5711 JP) 15 05 June 2013

Advanced Materials & Tools The metals processing business, centered on carbide tools, is the company’s highest- margin business (Figure 27). Margins saw some slippage in FY3/12 and FY3/13 as a result of damage sustained due to the Thai floods (impacting 2H FY3/12 and 1H FY3/13 results) and inventory adjustments (FY3/13). However, with inventory drawdowns now completed, operating margins should begin to normalize above 12% and make a greater contribution to companywide earnings growth in FY3/14.

Figure 27: OPM by segment

15% FY3/11 FY3/12 FY3/13

12%

9%

6%

3%

0% Cement Metals Advanced mat/tools Aluminum Elec materials/comp Other Source: Company data

Mitsubishi Materials holds the fourth-largest share of the global market for carbide tools. Its main competitors include industry leader Sandvik of Sweden, second-runner Kennametal in the US, and fifth-place Sumitomo Electric Industries. The carbide tool industry is notable for its high margins (Figure 28). This is due to a lack of major competitors from countries such as South Korea, Taiwan, and China, which prevents intense price competition developing. Although production unit prices for Japanese carbide tools (tips) declined in response to the sharp downturn in demand during the global recession and following the Great East Japan Earthquake, the fact that no such decline was observed during inventory adjustments carried out in FY3/13 is an indication of how moderate the competitive environment is in the industry (Figure 29).

Mitsubishi Materials (5711 / 5711 JP) 16 05 June 2013

Figure 28: Carbide tools business EBITDA margin Figure 29: Carbide tip production prices (JPY/g) 30% 35 10% FY2012 FY2011 8% 25% 30 6%

20% 4% 25 2% 15% 0%

20 -2% 10% -4%

5% 15 -6% Production price, 12mMA -8% 0% YoY (RHS) Sandvik Kennametal Mitsubishi SEI 10 -10% Materials '05/1 '06/1 '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '13/1 Source: Company data Source: METI

Carbide tools are used mainly in cutting operations at automakers and in other general manufacturing industries, and because they are consumables, there is a close correlation between overall demand and global industrial output (Figures 30-31). FY3/13 was marked by inventory adjustments worldwide, but demand began to turn around in the second half of 1Q 2013 and we expect to see a return to a firm demand environment in FY3/14 (Figures 32-33). Inventories have also started to decline (Figure 34).

Figure 30: Carbide tools business recovering 50% Kennametal, monthly order, YoY (LHS) 15% World industrial production, YoY (RHS)

10% 25% 5%

0% 0%

-5% -25% -10%

-50% -15% '04/1 '04/12 '05/11 '06/10 '07/9 '08/8 '09/7 '10/6 '11/5 '12/4 '13/3

Source: Company data, Thomson Reuters

Mitsubishi Materials (5711 / 5711 JP) 17 05 June 2013

Figure 31: Carbide tools recovering in Japan 150 (%) (%) 50 40 100 30

20 50 10

0 0

-10 -50 -20

-30 -100 Carbide tip, shipment-inventory balance (LHS) -40 Industrial Production, shipment-inventory balance (RHS) -150 -50 '88/1 '90/5 '92/9 '95/1 '97/5 '99/9 '02/1 '04/5 '06/9 '09/1 '11/5 Source: METI

Figure 32: Carbide tip production volume (t) (%) 500 100 Cabide tips, Production (LHS) YoY growth

80 400

60

300 40

20 200

0

100 -20

0 -40 '10/1 '10/7 '11/1 '11/7 '12/1 '12/7 '13/1 Source: METI

Mitsubishi Materials (5711 / 5711 JP) 18 05 June 2013

Figure 33: Carbide tip sales (t) (%) 400 Carbide tips, Shipment (LHS) YoY growth 50

350 40

300 30

250 20

200 10

150 0

100 -10

50 -20

0 -30 '10/1 '10/7 '11/1 '11/7 '12/1 '12/7 '13/1

Source: METI

Figure 34: Carbide tip inventories (months) (k units) 2.1 100,000 Carbide tip, inventory volume (RHS) Turnover (LHS) 1.8

75,000 1.5

1.2 50,000 0.9

0.6 25,000

0.3

0.0 0 '88/1 '91/1 '94/1 '97/1 '00/1 '03/1 '06/1 '09/1 '12/1 Source: METI

Mitsubishi Materials (5711 / 5711 JP) 19 05 June 2013

Electronic Materials & Components Core products at the electronic materials division include polysilicon and functional materials (such as conductive materials and sputtering targets). Equity-method affiliates include SUMCO, where the mainstay product is silicon wafers. While earnings growth has remained steady in functional materials thanks to an expanding smartphone market, earnings in the polysilicon business and at SUMCO are subject to significant fluctuations in response to silicon demand cycles. The polysilicon industry continues to suffer from excess capacity put in place on expectations for growth in global solar demand, and inventories in Japan have risen significantly as a result (Figure 35). That said, efforts to draw down inventories and focus on semiconductor-grade silicon in the domestic market (cutting back products for solar applications) appear to be paying off, as there are now signs of a modest recovery in sales volume and sale prices are also beginning to level off (Figure 36-37). With the exception of small diameter wafers, inventory cycles in the silicon wafer industry, the main buyers of polysilicon, are also on an upward trend (Figure 38). SUMCO is also set to see restructuring gains that promise to drive further margin improvement (Figure 39).

Figure 35: Polysilicon inventories 7 (months) Polysilicon, inventory (RHS) (kt) 4,500 Inventory turnover (LHS) 4,000 6 3,500 5 3,000

4 2,500

3 2,000

1,500 2 1,000 1 500

0 0 '85/1 '89/1 '93/1 '97/1 '01/1 '05/1 '09/1 '13/1

Source: METI

Mitsubishi Materials (5711 / 5711 JP) 20 05 June 2013

Figure 36: Polysilicon sales (kt) (%) 1,400 140 Domestic shipment (LHS) 1,200 120 YoY 3mMA 1,000 100

800 80

600 60

400 40

200 20

0 0

-200 -20

-400 -40 '00/1 '02/1 '04/1 '06/1 '08/1 '10/1 '12/1 Source: METI

Figure 37: Polysilicon prices (JPY/kg) 10,000

9,000 Domestic ASP

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0 '00/1 '02/1 '04/1 '06/1 '08/1 '10/1 '12/1 Source: METI

Mitsubishi Materials (5711 / 5711 JP) 21 05 June 2013

Figure 38: Shipment-inventory balance of silicon wafer by gauge (6mMA) 200% 6 in. 150% 8 in. 12 in. 100%

50%

0%

-50%

-100%

-150% '00/1 '02/1 '04/1 '06/1 '08/1 '10/1 '12/1 Source: METI

Figure 39: SUMCO earnings recovering (JPY mn) 150,000

OP NP 100,000

50,000

0

-50,000

-100,000

-150,000 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14E 3/15E 3/16E Source: Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 22 05 June 2013

Metals This division includes smelting and processing businesses in Japan and Indonesia. It also receives dividend income from the Los Pelambres copper mine in Chile. Dividend income totaled ¥24.5bn in FY3/13, accounting for over half of the ¥39.1bn in total recurring profit generated by the business. The division has considerable exposure to both copper prices and exchange rates. Copper prices have declined (Figure 40). This is due to slowing in the Chinese economy, which has undermined both global demand and Chinese import volume, as well as the opening of new copper mines, which has created an oversupply situation (Figure 41-43). Given these fundamentals, we expect the gradual softening trend in copper prices to continue (Figure 44). However, we estimate that production costs at the world’s copper mines average about $6,500/ ton, so it seems unlikely that prices will drop much lower than about $6,000/ton. In fact, on a dollar-denominated basis, this marked the bottom in the copper market downturn that began in 2009, suggesting that downside risk in this division is limited.

Figure 40: LME Copper prices and inventories 1,000 (kt) (USD/t) 12,000 900 LME Cu, Inventories (LHS) LME Cu (RHS) 10,000

800 Thousands

700 8,000 600

500 6,000

400 4,000 300

200 2,000 100

0 0 '03/1 '04/1 '05/1 '06/1 '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '13/1

Source: Thomson Reuters

Figure 41: Global copper demand Figure 42: China net import of refined copper (kt) 500% (kt) 500 1,800 30%

400% 400 1,200 20% 300% 300

600 10% 200% 200

100% 100 0 0%

0% 0 -600 -10% -100% -100 Global copper demand (LHS) YoY (RHS) 3m MA (RHS) '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '13/1 -1,200 -20% 98/1 00/1 02/1 04/1 06/1 08/1 10/1 12/1 China, net import, refined copper (RHS) YoY (LHS) Source: ICSG Source: JETRO

Mitsubishi Materials (5711 / 5711 JP) 23

MitsubishiMaterials (5711 /5711 JP) Figure 43: Global copper supply-demand model (kt) 2008 2009 2010 2011 2012 2013f 2014f 2015f 2008 2009 2010 2011 2012 2013f 2014f 2015f MINE PRODUCTION STOCKS North America 1,952 1,695 1,646 1,732 1,715 1,995 2,159 2,142 LME + COMEX Stocks 371 592 437 459 384 Western Europe 198 205 253 285 334 364 367 383 SHFE Stocks 18 96 132 93 205 CIS & other E Europe 1,788 1,798 1,759 1,776 1,747 1,789 1,797 1,839 Total Exchange Stocks 389 688 569 552 589 China 1,157 1,056 1,258 1,375 1,550 1,651 1,692 1,740 Weeks Cons (Exch Stks) 1.1 2.1 1.5 1.4 1.5 Chile 5,402 5,453 5,480 5,291 5,482 5,869 6,132 6,215 Commercial Stocks 417 388 407 417 488 Australia 875 845 861 943 913 1,000 999 983 Total Reported Stocks 806 1,076 976 969 1,077 Indonesia 650 995 871 543 427 626 635 785 Price (US$/t) 6,932 5,149 7,547 8,813 7,956 7,482 6,675 6,200 ROW 3,691 3,898 4,057 4,278 4,537 5,280 5,914 6,404 TC (US$/t) 45 75 47 56 64 68 75 85 World Mine Production 15,713 15,947 16,184 16,222 16,705 18,574 19,695 20,491 RC (¢/lb) 4.5 7.5 4.7 5.6 6.4 6.8 7.5 8.5

Highly Probable Growth ------91 265 Probable & Possible Growth ------46 167 COPPER CONSUMPTION BY COUNTRY (Mt) Disruption Allowance - - - - - (1,115) (1,190) (1,256) North America 2.19 1.78 1.90 1.90 2.01 2.05 2.11 2.17 SX/EW 3,071 3,274 3,335 3,444 3,640 3,572 3,941 4,149 Western Europe 3.37 2.77 3.03 2.90 2.75 2.71 2.71 2.70 Concentrate 12,646 12,677 12,853 12,782 13,070 13,891 14,705 15,522 Eastern Europe 1.11 0.77 0.85 1.11 1.11 1.13 1.16 1.20 World Mined Copper 15,713 15,947 16,184 16,222 16,705 17,459 18,642 19,667 China 5.10 6.38 7.20 7.93 8.34 8.84 9.34 9.80 % Change 3.6% 1.5% 1.5% 0.2% 3.0% 4.5% 6.8% 5.5% India 0.53 0.55 0.58 0.59 0.62 0.67 0.71 0.73 Conc. avail after direct use 12,630 12,656 12,831 12,760 13,048 13,869 14,683 15,500 Japan 1.20 0.88 1.06 1.01 1.03 1.04 1.05 1.05 Smelter Capacity 16,597 17,078 17,554 17,986 18,856 19,730 20,709 21,181 Middle East 0.74 0.76 0.92 0.95 0.97 1.02 1.07 1.12 Smelter Production 14,292 14,178 14,786 15,425 15,902 17,815 19,120 19,761 Other Asia 2.35 2.23 2.43 2.23 2.20 2.27 2.36 2.46 Required Adjustment - - - - - (950) (1,800) (1,800) Oceania 0.15 0.13 0.13 0.12 0.12 0.13 0.13 0.13 Scrap/Remelted Blister (2,067) (1,937) (2,618) (2,867) (3,021) (3,204) (3,224) (3,281) Africa 0.30 0.31 0.30 0.28 0.29 0.30 0.31 0.33 Smelter loss 482 440 471 456 445 455 471 474 Latin America (inc Mexico) 0.89 0.77 0.92 0.88 0.91 0.94 0.98 1.02 Primary Feed Required 12,707 12,681 12,639 13,015 13,326 14,116 14,675 15,423 World Consumption 17.93 17.32 19.33 19.89 20.34 21.09 21.92 22.71 SURPLUS/(DEFICIT) CONC (77) (25) 192 (255) (278) (247) 8 77 % Change -0.3% -3.4% 11.6% 2.9% 2.3% 3.7% 3.9% 3.6% China 9.2% 25.0% 13.0% 10.0% 5.2% 5.9% 5.7% 4.9% REFINED COPPER PRODUCTION World ex China -3.6% -14.7% 10.7% -1.3% 0.3% 2.1% 2.6% 2.7% North America 1,710 1,496 1,405 1,282 1,284 1,340 1,422 1,425 COPPER CONSUMPTION BY SECTOR (Mt) Western Europe 1,932 1,812 1,904 1,964 2,045 2,167 2,185 2,184 Building & Construction 6.03 5.47 5.57 5.66 5.79 5.97 6.18 6.38 Eastern Europe 1,558 1,567 1,692 1,736 1,744 1,757 1,829 1,835 % Change -1.6% -9.4% 1.9% 1.6% 2.2% 3.0% 3.7% 3.1% China 3,795 4,109 4,534 5,197 5,665 7,227 8,656 9,485 Transport 2.01 2.34 1.94 1.93 2.02 2.12 2.26 2.41 Other Asia & Oceania 4,593 4,383 4,424 4,372 4,504 4,813 4,937 4,967 % Change -0.1% 16.5% -17.0% -0.8% 4.5% 5.2% 6.6% 6.6% Africa 608 727 883 964 1,080 1,428 1,670 1,750 Electrical 5.84 5.80 6.71 6.94 7.11 7.35 7.63 7.90 Latin America (inc Mexico) 4,064 4,197 4,135 4,145 3,938 4,112 4,353 4,356 % Change 0.9% -0.7% 15.7% 3.4% 2.4% 3.3% 3.9% 3.5% Probable Growth ------109 269 Consumer Goods 1.80 1.69 2.44 2.56 2.60 2.73 2.83 2.94 Adjustments to refined prod - - - - 61 (1,580) (2,954) (3,017) % Change 0.6% -6.1% 44.8% 4.6% 1.5% 5.2% 3.7% 3.7% Scrap/Blister 897 840 856 790 779 826 837 875 Machinery & Equipment 2.25 2.02 2.65 2.80 2.83 2.92 3.01 3.09 Electro Refined 15,189 15,018 15,642 16,216 16,681 17,692 18,266 19,105 % Change -0.7% -9.9% 30.9% 5.5% 1.3% 3.2% 2.8% 2.7% Net SX/EW 3,071 3,274 3,335 3,444 3,640 3,572 3,941 4,149 Total 17.93 17.32 19.33 19.89 20.34 21.09 21.92 22.71 World Production 18,260 18,291 18,977 19,660 20,321 21,264 22,207 23,254 Annual Substitution (468) (394) (450) (550) (450) (450) (400) (400) % Change 5.6% 0.2% 3.8% 3.6% 3.4% 4.6% 4.4% 4.7% SURPLUS/(DEFICIT) 332 968 (349) (228) (21) 176 288 540

Source: Company data, Credit Suisse estimates June05 2013

24

05 June 2013

Figure 44: Copper price forecast (USD/lb) 4.0

3.8

3.6 3.6 3.6 3.5 3.5 3.5

3.3

3.2 3.1 3.1 3.0 3.0 2.9

2.5 12/1Q 12/3Q 13/1Q 13/3QE 14/1QE 14/3QE Source: Credit Suisse estimates

Figure 45 shows recurring profit sensitivity to copper prices at the four major nonferrous producers. For Mitsubishi Materials, a $100 swing in the price of copper has an impact of about 1.1% (based on company guidance), the second highest level of exposure after Sumitomo Metal Mining. On the other hand, the company has the lowest forex sensitivity, every ¥1 change in value of the yen against the USD impacting RP by just 0.4%. This is because the cement business imports coal as a raw material, resulting in only a modest export surplus in the import/export balance.

Figure 45: Sensitivity (RP) FY3/14 Sensitivity Cu Ni Gold Zn Pb FX ($100/t) (10¢/lb) $10/Toz $100/t $100/t \1/$ Mitsui M&S RP 23 700 100 300 Mitsubishi Mtrls RP 862 300 SMM RP 1,300 1,300 500 1,500 DOWA RP 30 290 380 vs. FY3/14 CoE Mitsui M&S RP 0.1% 4.0% 0.6% 1.7% Mitsubishi Mtrls RP 1.1% 0.4% SMM RP 1.2% 1.2% 0.5% 1.4% DOWA RP 0.1% 0.9% 1.2% Source: Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 25 05 June 2013

Earnings forecasts FY3/14 We raise our RP forecast from ¥80.5bn to ¥87.0bn (+17% YoY) and look for it to finish ahead of ¥80.0bn guidance. The upward revision is mainly attributable to our RP forecast hike for the cement business from ¥17.5bn to ¥20.5bn and for the electronic materials business from ¥5.0bn to ¥8.5bn reflecting a strong performance by SUMCO. In addition to a robust performance in Japan and the US markets, the cement business is also likely to benefit from some price hikes. We also look for SUMCO to benefit from a lower yen. Furthermore, we anticipate Mitsubishi Material’s semiconductor mounting materials business (soldering and electroplating materials), which boasts an overwhelming global market share of around 60–80%, to maintain its robust performance for smartphone application. We essentially maintain our forecasts for the copper business (up from ¥35.5bn to ¥36.0bn) and our copper price assumptions ($3.28/lb), but we reduce our copper mine dividend income forecast from ¥16.0bn to ¥13.0bn, in line with company estimates, due to the decline in ore grade and copper prices. However, reflecting gains from a lower yen (assumption revised from ¥95/$ to ¥100/$), we leave our RP forecast for the copper business more or less unchanged. We substantially raise our NP forecast from ¥32.3bn to ¥50.0bn and expect NP to outpace ¥45.0bn guidance. In addition to the upwardly revised RP forecasts, we attribute our higher NP forecast to lower-than-expected extraordinary losses (reduced from ¥10.0bn to ¥8.0bn), and a dip in minority equity income due to the decline in dividend income from copper mines (revised down from ¥12.0bn to ¥8.0bn). A greater-than-expected rise in NP would, as matter of course, lead to higher ROE and lower P/E valuations, which are positive for the shares. Every ¥1 move impacts OP by ¥300mn versus the dollar and by ¥60mn versus the euro. FY3/15 We raise our RP forecast from ¥83.5bn to ¥96.0bn (+10% YoY). We attribute the increase to continued growth in the cement business (forecast raised from ¥20.5bn to ¥26.1bn) and a sustained robust performance at the electronic materials business (¥5.5bn to ¥13.5bn). However, we anticipate a second successive profit decline in the copper business due to lower copper price assumptions ($2.95/lb) FY3/16 We newly introduce our RP forecast for FY3/16. We look for a modest 3% YoY growth in RP to ¥99.1bn. While we expect robust profit growth to continue in cement and other business, we anticipate a third profit decline in a row at the copper business due to further decline in our copper price assumptions ($2.91/lb)

Mitsubishi Materials (5711 / 5711 JP) 26 05 June 2013

Figure 46: Earnings forecast summary Sales Operating profit Recurring profit Net profit EPS ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) Consolidated Mar-11 1,333,992 57,290 56,425 14,274 10.9 Mar-12 1,440,847 8.0 52,293 -8.7 42,495 -24.7 9,565 -33.0 7.3 -33.0 Mar-13 A 1,287,251 -10.7 52,500 0.4 74,414 75.1 36,948 286.3 28.2 286.5 Mar-14 CS E (new) 1,532,000 19.0 76,500 45.7 87,000 16.9 50,000 35.3 38.1 35.3 (prev) 1,500,000 16.5 71,000 35.2 80,500 8.2 32,300 -12.6 24.6 -12.7 CoE 1,480,000 15.0 72,000 37.1 80,000 7.5 45,000 21.8 34.3 21.8 IBES E 1,459,280 13.4 67,900 29.3 79,850 7.3 40,389 9.3 29.7 5.3 Mar-15 CS E (new) 1,391,000 -9.2 83,500 9.2 96,000 10.3 56,000 12.0 42.7 12.0 (prev) 1,400,000 -6.7 70,000 -1.4 83,500 3.7 36,700 13.6 28.0 13.6 IBES E 1,462,533 0.2 71,900 5.9 83,856 5.0 43,113 6.7 31.6 6.4 Mar-16 CS E (new) 1,521,000 9.3 88,600 6.1 99,100 3.2 56,500 0.9 43.1 0.9 IBES E 1,510,350 3.3 76,675 6.6 86,000 2.6 47,875 11.0 35.4 12.2 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 47: Segment information Consolidated income statement (¥m) 08/3 09/3 10/3 11/3 12/3 13/3 14/3E 15/3E 16/3E Sales 1,659,286 1,424,114 1,119,448 1,333,992 1,440,847 1,287,251 1,532,000 1,391,000 1,521,000 Operating profit 100,146 35,134 12,680 57,290 52,293 52,500 76,500 83,500 88,600 Non-operating profit 65,949 41,803 32,576 43,499 36,844 43,304 31,500 33,500 31,500 Non-operating expenses 30,111 36,891 54,798 44,364 46,641 21,389 21,000 21,000 21,000 Recurring profit 135,984 40,046 -9,541 56,425 42,495 74,414 87,000 96,000 99,100 Net profit 74,268 6,106 -66,555 14,274 9,565 36,948 50,000 56,000 56,500 Segment information (¥m) 08/3 09/3 10/3 11/3 12/3 13/3 14/3E 15/3E 16/3E Sales Cement 185,074 198,701 163,084 150,976 155,907 160,908 193,500 205,500 215,500 Metals 684,497 530,420 421,938 582,883 599,192 507,198 680,000 510,000 620,000 Advanced materials & Tools 150,040 128,153 84,351 116,989 115,054 108,769 130,000 140,000 144,000 Electric materials & components 91,759 65,968 57,826 57,011 67,471 62,094 67,000 70,000 73,000 Aluminum 169,143 151,742 127,037 133,972 148,583 145,641 151,500 155,500 158,500 Others 378,771 349,127 265,209 292,158 354,637 301,639 310,000 310,000 310,000 Total 1,659,286 1,424,114 1,119,448 1,333,992 1,440,847 1,287,251 1,532,000 1,391,000 1,521,000 Recurring profit Cement 5,278 7,729 14,023 20,500 26,100 29,500 Metals 43,234 37,840 39,134 36,000 29,500 27,000 Advanced materials & Tools 15,139 12,329 10,622 17,000 20,500 22,000 Electric materials & components -11,597 -20,660 3,465 8,500 13,500 14,000 Aluminum 3,802 4,439 5,530 6,000 7,400 7,600 Others 7,972 10,110 10,864 8,500 8,500 8,500 Eliminations -7,405 -9,293 -9,226 -9,500 -9,500 -9,500 Total 56,425 42,495 74,414 87,000 96,000 99,100 Source: Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 27 05 June 2013

Figure 48: Financial summary In JPY bn, unless otherwise stated Profit & Loss 3/13A 3/14E 3/15E 3/16E Key Financials 3/13A 3/14E 3/15E 3/16E Sales revenue 1,287.3 1,532.0 1,391.0 1,521.0 Growth(%) COGS 1,094.6 1,315.5 1,167.5 1,292.4 Sales -10.7 19.0 -9.2 9.3 SGA 140.2 140.0 140.0 140.0 EBIT 0.4 45.7 9.2 6.1 R&D 0.0 0.0 0.0 0.0 Net Income 286.2 35.3 12.0 0.9 Other op income(expense) -56.4 -60.8 -62.5 -62.0 EPS 286.5 35.3 12.0 0.9 EBITDA 108.9 137.3 146.0 150.6 Margins(%) Depr. & Amort. 56.4 60.8 62.5 62.0 EBITDA 8.5 9.0 10.5 9.9 Goodwill amort. 0.0 0.0 0.0 0.0 EBIT 4.1 5.0 6.0 5.8 EBIT 52.5 76.5 83.5 88.6 Pretax profit 4.5 5.2 6.3 6.0 Net interest expense -19.5 -7.0 -5.0 -3.0 Net income 2.9 3.3 4.0 3.7 Associates 0.0 0.0 0.0 0.0 Valuation(x) Net other non-op income(exp.) 41.5 17.5 17.5 13.5 EV/Sales 0.8 0.7 0.7 0.6 Recurring profit 74.4 87.0 96.0 99.1 EV/EBITDA 9.0 7.3 6.5 5.9 Extraordinary gain & loss -16.6 -8.0 -8.0 -8.0 EV/EBIT 18.7 13.2 11.4 10.1 Profit before tax 57.8 79.0 88.0 91.1 PER 9.5 8.5 7.6 7.5 Income tax 10.8 21.0 24.0 26.6 PBR 0.9 0.9 0.8 0.7 Minorities 10.0 8.0 8.0 8.0 ROE analysis(%) Net Income 37.0 50.0 56.0 56.5 ROE 9.8 11.2 11.0 10.2 Balance Sheet 3/13A 3/14E 3/15E 3/16E ROIC 4.2 5.2 5.6 5.8 Cash & equivalents 64.4 60.8 62.9 71.6 Asset turnover 71.0 82.6 75.4 82.3 Receivables 211.7 225.0 230.0 235.0 Tax burden 18.7 26.6 27.3 29.2 Inventories 282.4 300.0 320.0 340.0 Financial leverage(x) 4.5 3.8 3.5 3.2 Other current assets 220.4 198.1 198.1 198.1 Credit ratio(%) Current assets 778.9 783.8 811.0 844.7 Net debt/Equity 1.6 1.2 1.0 0.8 Property, plant & equipments 659.0 659.7 658.2 657.2 Net debt/EBITDA 5.8 4.2 3.6 3.1 Intangibles 48.3 48.3 48.3 48.3 Interest converage ratio(x) 3.0 3.8 4.1 4.3 Other non-current assets 325.6 362.8 327.6 298.1 Per share data 3/13A 3/14E 3/15E 3/16E Non-current assets 1,032.8 1,070.8 1,034.0 1,003.6 No. of shares(millions) 1310.7 1310.7 1310.7 1310.7 Total assets 1,811.8 1,854.6 1,845.0 1,848.3 EPS(¥) 28.2 38.1 42.7 43.1 Payables 105.9 120.0 120.0 120.0 BPS(¥) 309.2 371.6 406.2 439.2 Short term debt 287.9 255.0 200.0 150.0 DPS(¥) 4.0 6.0 8.0 10.0 Other current liability 402.5 390.0 390.0 400.0 Dividend payout ratio(%) 14.2 15.7 18.7 23.2 Total current liability 796.3 765.0 710.0 670.0 Long term debt 379.0 367.0 367.0 367.0 Other non-current liability 170.2 174.6 174.6 174.6 Total liabilities 1,345.5 1,306.6 1,251.6 1,211.6 Shareholders equity 405.2 487.0 532.4 575.7 Minority interests 61.0 61.0 61.0 61.0 Total shareholder funds 1,811.8 1,854.6 1,845.0 1,848.3 Cashflow 3/13A 3/14E 3/15E 3/16E EBIT 52.5 76.5 83.5 88.6 Depr & Amortisation 56.4 60.8 62.5 62.0 Chage in working capital -6.0 -16.8 -25.0 -25.0 Other -1.3 3.3 -2.9 -5.9 Operating cashflow 101.6 123.8 118.1 119.7 Capex -51.4 -61.5 -61.0 -61.0 Disposal of PPE 3.7 0.0 0.0 0.0 Acquisitions & Investments -15.2 -15.0 0.0 0.0 Asset sale proceeds 4.7 0.0 0.0 0.0 Other -30.2 0.0 0.0 0.0 Investing cashflow -88.5 -76.5 -61.0 -61.0 Equity raised 0.0 0.0 0.0 0.0 Dividends paid -9.7 0.0 0.0 0.0 Net borrowings -31.2 -51.0 -55.0 -50.0 Other 4.5 0.0 0.0 0.0 Financing cashflow -36.3 -51.0 -55.0 -50.0 Effect of exchange rates 0.0 0.0 0.0 0.0 Net Change in Cash -23.2 -3.6 2.1 8.7 Free cash flow 13.1 47.3 57.1 58.7 Note : Reported year may include estimated data Source: Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 28 05 June 2013

Figure 49: HOLT analysis

Source: Company data, Credit Suisse estimates

Mitsubishi Materials (5711 / 5711 JP) 29 05 June 2013

Companies Mentioned (Price as of 04-Jun-2013) Cemex (CX.N, $10.92) Dowa Holdings (5714.T, ¥810) Furukawa Sky (5741.T, ¥299) Kennametal Inc. (KMT.N, $41.92) MCC Development Corporation (Unlisted) Mitsubishi Corp (8058.T, ¥1,799) Mitsubishi Materials (5711.T, ¥324, OUTPERFORM, TP ¥470) Nipp Light Metal (5703.T, ¥117) Nippon Steel & Sumitomo Metal (5401.T, ¥264) Robertson's Ready Mix (Unlisted) SUMCO (3436.T, ¥1,261) Sandvik (SAND.ST, Skr92.7) Sumitomo Electric Industries (5802.T, ¥1,217) Sumitomo Metal Mining (5713.T, ¥1,314) Sumitomo Osaka Cement (5232.T, ¥294) Taiheiyo Cement (5233.T, ¥291) Texas Industries (TXI.N, $68.14) Ube Industries (4208.T, ¥194)

Disclosure Appendix

Important Global Disclosures Shinya Yamada and Kazumasa Okumoto, 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 Mitsubishi Materials (5711.T)

5711.T Closing Price Target Price Date (¥) (¥) Rating 08-Dec-10 269 310 O 22-Feb-11 306 390 24-May-11 243 270 N 02-Dec-11 221 200 24-Jan-12 234 290 O 01-Jun-12 210 250 05-Nov-12 228 250 N 21-Jan-13 293 340 09-Apr-13 280 270 * Asterisk signifies initiation or assumption of coverage. OUTPERFORM NEUTRAL

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European 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 Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings 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 cov er 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* 42% (53% banking clients) Neutral/Hold* 39% (48% banking clients) Underperform/Sell* 15% (39% 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 holdin gs, and other individual factors.

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Price Target: (12 months) for Mitsubishi Materials (5711.T)

Method: Our ¥470 target price for Mitsubishi Materials is based on sum of the parts, which we apply to our FY3/15 EPS forecast. Risk: Risks to our ¥470 target price for Mitsubishi Materials include: cement sales trends, carbide sales trends, copper prices, and forex movements.

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

See the Companies Mentioned section for full company names The subject company (5711.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 non-investment banking services to the subject company (5711.T) within the past 12 months Credit Suisse has received compensation for products and services other than investment banking services from the subject company (5711.T) within the past 12 months 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 (5711.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.

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