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21 August 2014 Asia Pacific/ Equity Research Automobile Manufacturers (Auto (Japan)) / OVERWEIGHT

Mitsubishi Motors (7211 / 7211 JP) Rating OUTPERFORM* INITIATION

Price (20 Aug 14, ¥) 1,140 Target price (¥) 1,500¹ Chg to TP (%) 31.6 Market cap. (¥ bn) 1,121.37 (US$ 10.87) Entering new growth stage Enterprise value (¥ bn) 801.37 Number of shares (mn) 983.66 ■ Action: We initiate coverage of Motors (MMC) with an Free float (%) 58.6 OUTPERFORM rating and a ¥1,500 target price (potential return 31.6%). MMC

52 -week price range 1,280 - 1,000 has rejuvenated its operations despite difficulties in Japan and overseas, *Stock ratings are relative to the coverage universe in each including a major management crisis, the 2011 earthquake, flooding in , analyst's or each team's respective sector. ¹Target price is for 12 months. and sharp yen appreciation. In FY3/14 the company posted record profits, bought back all preferred shares, and reinstated its dividend; we believe it is now Research Analysts transitioning to a new growth stage as outlined in its medium-term business plan Masahiro (New Stage 2016). 81 3 4550 7361 [email protected] ■ Pursuing clearer brand identity: MMC seeks to establish a clearer identity for the brand during its anticipated growth phase by concentrating management resources in areas offering high growth and added value. We forecast sustained profit growth owing to: (1) expansion in emerging markets, (2) increased sales of pickup , SUVs, and crossovers, (3) an expanded presence in such environmentally friendly vehicles as plug-in hybrids (PHEVs) and EVs, (4) increased potential for the "Global Small Vehicle" Mirage, and (5) the pursuit of profit opportunities and effective use of resources via cooperation with partners. ■ Substantial upside potential to FY3/15 guidance: We forecast FY3/15 OP of ¥161bn, well above MMC’s ¥135bn guidance and the I/B/E/S consensus of ¥143.2bn, driven by benefits from favorable forex and cost reductions. With visibility on a FY3/15 earnings beat increasing, we look for MMC’s share price to rebound significantly. ■ Catalysts/risks: Catalysts include a recovery in demand in Thailand and better- than-expected profits from 2Q. Risks include weaker-than-expected sales in and currency fluctuations. ■ Valuation: We base our ¥1,500 TP on a fair-value P/B of 2.24x applied to end- FY3/15E BPS of ¥672. We apply a 9% discount to a theoretical P/B of 2.46x derived from adjusted FY3/15E ROE of 19.5% (assumes normal tax rate) and 7.9% COE. We think the shares currently look undervalued.

Share price performance Financial and valuation metrics

Year 3/14A 3/15E 3/16E 3/17E Price (LHS) Rebased Rel (RHS) Revenue (¥ bn) 2,093.4 2,220.0 2,385.0 2,529.0 160 1600 Operating profit (¥ bn) 123.4 161.0 178.0 196.0 140 Recurring profit (¥ bn) 129.5 164.0 183.0 203.0 120 1100 Net income (¥ bn) 104.7 131.0 145.0 146.0 100 600 80 EPS (¥) 156.6 133.2 147.4 148.5 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Change from previous EPS (%) n.a. IBES Consensus EPS (¥) n.a. 119.0 126.2 133.1 The price relative chart measures performance against the EPS growth (%) 2,271.7 -14.9 10.7 0.7 TOPIX which closed at 1279.64 on 20/08/14 On 20/08/14 the spot exchange rate was ¥103.19/US$1 P/E (x) 6.9 8.6 7.7 7.7 Dividend yield (%) 2.3 1.3 1.8 2.2 EV/EBITDA(x) 4.7 3.7 2.9 2.3 Performance Over 1M 3M 12M P/B (x) 2.0 1.7 1.4 1.2 Absolute (%) 1.8 9.3 0.1 ROE(%) 23.8 21.8 20.0 17.2

Relative (%) 0.5 -0.1 -13.6

Net debt/equity (%) net cash net cash net cash net cash Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, 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 Table of contents Key charts 3 Entering new growth stage 5 Pursuing clearer brand identity 5 Expansion in emerging markets 7 Past growth measures about to start paying off 7 Growing sales of pickups, SUVs, and crossovers 15 Aims to grow sales via strategic product launches 15 Eco- development centered on PHEV/EV 18 Aims to be technology leader 18 Growing potential for global strategic model Mirage 23 Aiming to position Mirage as entry-level vehicle for emerging markets, eco-car for advanced markets 23 Seeking earnings, efficient use of resources via joint business 26 Cooperation with via NMKV 26 Model pipeline 28 Maintaining focus on areas of strength 28 Earnings outlook 30 Major upside potential to consensus forecast 30 Valuation 36 Looking broadly undervalued 36 Risks 38 Risks include volume, forex, materials costs, recalls, natural disasters 38

Mitsubishi Motors (7211 / 7211 JP) 2 21 August 2014 Key charts Figure 1: Consensus estimates could move sharply Figure 2: Shares have yet to reflect near-term earnings higher prospects 250 Billion Yen 9% 2,500 Yen Billion Yen 50 8% 45

200 7% 2,000 40 35 6% 150 1,500 30 5% 25 4% 100 1,000 20 3% 15 50 2% 500 10 1% 5 0 0% 0 0 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

OP CSE (LHS) OP Cons. (LHS) OPM (RHS) OPM Cons. (RHS) OP (RHS) Share Price (LHS) Source: Company data, I/B/E/S, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates

Figure 3: Emerging markets account for 59% of retail Figure 4: Exposure to ASEAN markets particularly high volume (FY3/14)

Japan Thailand 14% Others 14% 25% North America 9% 15%

Europe Emerging Market 11% 59% Russia 13% 7% /NZ 7% Taiwan 5% 9% 12%

Source: Company data, Credit Suisse Source: Company data, Credit Suisse

Figure 5: Pickups, SUVs, and crossovers account for over Figure 6: The Triton is Mitsubishi Motors’ bestseller 50% of sales (FY3/14) Thousands Units 160 20%

140 18% 16% 120 14% 100 12% Passemger Pick-Up Trucks / / Others SUVs / 80 10% 43% Vehicles 60 8% 57% 6% 40 4% 20 2% 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Triton/L200/Strada (LHS) Percentage of Triton/L200/Strada (RHS)

Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 3 21 August 2014

Figure 7: MMC/PSA’s PHEV/EV global market share 13% Figure 8: Expecting rapid growth in sales of MMC’s (2013) PHEV/EV models 100 Thousands Units 90

Other 80 18% Nissan 70 23% 60

Toyota 50 10% 40 MMC/PSA 13% 30 11% 20 10 Tesla GM 12% 13% 0 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

EV PHEV Source: Fourin, Credit Suisse Source: Company data, Credit Suisse estimates

Figure 9: Mirage share of MMC sales volume (2013) Figure 10: Mirage global sales volume and contribution to MMC’s total sales 10 Thousands Units 12% 9 Mirage / 10% 8 Spacestar / 7 Attrage 8% Other Passenger 8% 6 Cars 35% 5 6% 4 4% 3 2 Pick-Up Trucks / 2% SUVs / 1 Crossover 0 0% Vehicles 57% Jul-12 Jul-13 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Mar-12 Mar-13 Mar-14 Feb-12 Feb-13 Feb-14 Nov-12 Dec-12 Nov-13 Dec-13 Aug-12 Sep-12 Aug-13 Sep-13 May-12 May-13 May-14 Mirage/Spacestar/Attrage (LHS) Percentage of Mirage/Spacestar/Attrage (RHS)

Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse

Figure 11: Alliance has led to sharp rebound in mini- Figure 12: Share of mini-vehicle production has recovered vehicle output to 9% 200 Thousands Units 180 MMC 9% 160 140 120 35% 21% 100 80 60 40

20 0 35% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: JAMA, Credit Suisse Source: JAMA, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 4 21 August 2014 Entering new growth stage Pursuing clearer brand identity Initiate coverage with OUTPERFORM rating We initiate coverage of Mitsubishi Motors (MMC) with an OUTPERFORM rating and a ¥1,500 TP (potential return 31.6%). The company has made steady progress in reviving its operations despite difficulties in Japan and overseas including a major management crisis, the Great East Japan Earthquake, flooding in Thailand, and sharp yen appreciation. In FY3/14 the company posted record profits, bought back all preferred shares, and reinstated its dividend; we believe it is now transitioning to a new growth stage as outlined in its medium-term business plan (New Stage 2016). Efforts to clarify brand identity could support sustained profit growth MMC seeks to establish a clearer identity for the brand during its anticipated growth phase by further concentrating management resources in areas offering high growth and added value. We forecast sustained profit growth owing to: (1) expansion of business in emerging markets, (2) increased sales of pickup trucks, SUVs, and crossovers, (3) an expanded presence in environmental vehicles centered on plug-in hybrids (PHEVs) and EVs, (4) increased potential for the "Global Small Vehicle" Mirage, and (5) the pursuit of profit opportunities and effective use of resources via cooperation with partners. Business expansion in emerging markets MMC has been pursuing growth in ASEAN and other emerging markets under its previous medium-term plan (Jump 2013), and we think these efforts now look set to bear fruit. We expect global wholesale volume to reach 1.540mn units in FY3/17, up from 1.257mn in FY3/14. We look for 9.7% average annual growth in emerging markets, centered on ASEAN, to drive global sales. We expect sales in Thailand—a core market for MMC—to recover from now through FY3/16. Increased sales of pickup trucks, SUVs, and crossovers Pickup trucks, SUVs, and crossovers are strategic products for MMC that account for over half of total sales volume. The Triton and Pajero Sport, based on a common platform, account for one in four vehicles sold. MMC has a new-model Triton coming in 2H FY3/15, followed by a redesigned Pajero Sport in FY3/16. Triton sales declined to 117,000 units in 2013 from a year-earlier peak of 146,000, but we think they could return to a growth track as Thailand’s pickup market recovers and new-model effects come into play. Expanded presence in environmental vehicles centered on PHEVs and EVs MMC aims to become a leader in vehicle electrification technology over the longer term. We think it could sell 52,000 PHEVs and EVs in FY3/15, up from 33,000 in FY3/14. We expect sales of the Outlander PHEV to reach 48,000 units on wider sales in Europe. We forecast overall PHEV/EV sales of 61,000 units in FY3/16 and 81,000 in FY3/17, driven by the Outlander PHEV’s North American rollout and a series of new-model PHEVs now in the pipeline. We look for MMC to make progress in expanding PHEV/EV sales toward its goal of electrified vehicles accounting for 20% of total production by 2020. Increased potential for the ”Global Small Vehicle” Mirage MMC revived the Mirage in 2012 as a globally strategic B-segment compact, positioning it as an entry-level model in emerging markets and an environmental vehicle in developed markets. The company introduced the Attrage as a derivative model in 2013. Global sales of the Mirage rose 12% YoY in Jan–Jun 2014, with strong exports offsetting a weak Thai market. We expect growth to continue as MMC initiates OEM supply and eventually launches a next-generation model aimed at capitalizing on Thailand’s second round of eco-car subsidies.

Mitsubishi Motors (7211 / 7211 JP) 5 21 August 2014

Cooperation with outside partners MMC’s with Nissan Motor, NMKV, has so far yielded the eK Wagon (Nissan Dayz) and eK Space (Nissan Dayz Roox), both in 2013. This has sharply increased MMC’s mini-vehicle production and done much to stabilize domestic operations. We think MMC could now expand this strategic cooperation to include the entire Renault-Nissan Alliance. We see this contributing to more effective use of management resources via, for example, joint development of global entry-level models (including EVs) and leveraging of Renault vehicles. Substantial potential upside to FY3/15 guidance We forecast FY3/15 OP of ¥161bn, well above MMC’s ¥135bn guidance. The I/B/E/S consensus is currently just ¥143.2bn, but we expect it to move higher. While we acknowledge volume risk in Asia and Russia, we expect profits to get a major boost from forex effects as seen in 1Q and from a full-year decline in material costs. With visibility on a FY3/15 earnings beat increasing, we look for MMC’s share price to significantly rebound. Earnings momentum could continue accelerating in FY3/16 and beyond We expect two meaningful boosts to near-to-medium-term earnings, comprising a recovery in the key Thai market and a new-model Triton pickup due for launch in late 2014. We also expect a contribution from developed markets from a full-scale rollout of PHEVs centered on Europe; the new medium-term plan calling for ¥110bn in cost cuts between FY3/15 and FY3/17 also bodes well. Consensus profit forecasts remain depressed through FY3/17, but we expect upward revisions. Near-term buy opportunity MMC’s shares have remained sluggish despite (1) 1Q OP coming in at ¥31.0bn, versus the ¥24.5bn I/B/E/S consensus, and (2) forex and certain other factors behind the beat also likely to be in play for the full year. Investors appear to be waiting on a recovery in the Thai market and may also be concerned about MMC’s exposure to geopolitical risk in Russia. However, we think near-term profits are poised to exceed expectations even if volume declines in these markets. This is not yet reflected in the share price and we accordingly think now is a good time to invest.

Figure 13: Consensus estimates could move sharply Figure 14: Shares have yet to reflect near-term earnings higher prospects 250 Billion Yen 9% 2,500 Yen Billion Yen 50 8% 45

200 7% 2,000 40 35 6% 150 1,500 30 5% 25 4% 100 1,000 20 3% 15 50 2% 500 10 1% 5 0 0% 0 0 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

OP CSE (LHS) OP Cons. (LHS) OPM (RHS) OPM Cons. (RHS) OP (RHS) Share Price (LHS) Source: Company data, I/B/E/S, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 6 21 August 2014 Expansion in emerging markets Past growth measures about to start paying off Emerging markets account for 59% of global retail sales volume MMC has implemented a number of growth initiatives in emerging markets, with a particular focus on ASEAN, as outlined in its previous medium-term business plan (Jump 2013), and should soon start to realize gains from these efforts. Reflecting this strategic focus, emerging markets accounted for 59% of global retail sales volume in FY3/14. The company has high exposure to Thailand (14%), Indonesia (15%), and the Philippines (7%).

Figure 15: Emerging markets account for 59% of retail Figure 16: Exposure to ASEAN markets particularly high volume (FY3/14)

Japan Thailand 14% Others 14% 25% North America Indonesia 9% 15%

Europe Emerging Market 11% 59% Russia Philippines 13% 7% Australia/NZ 7% Taiwan Brazil China 5% 9% 12%

Source: Company data, Credit Suisse Source: Company data, Credit Suisse Substantial scope for expansion in ASEAN markets We see considerable scope for expansion in ASEAN markets, where motorization is on the rise. In Thailand, a core market for MMC, automobile penetration in 2013 was less than 20% despite a per-capita GDP of $5,700. Going by Japan’s motorization trajectory, this suggests that there is still substantial growth potential. Right behind Thailand in growth potential are Indonesia and the Philippines, with per-capita GDP of still only about $3,500 and $2,800, respectively.

Figure 17: Considerable scope for growth in automobile penetration rates in major ASEAN markets 100% 90%

80% High Growth Stage USA 70%

60% Japan(2000) Japan 50% Japan(1990)

40% Penetration Rate Penetration Japan(1980) 30%

Japan(1970) 20% Thailand

10% Indonesia China India Philippines 0% 0 10,000 20,000 30,000 40,000 50,000 60,000 GDP(USD)/Capita

Source: IMF, Wards, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 7 21 August 2014

Past growth measures in emerging markets about to start paying off Based on its previous medium-term business plan (Jump 2013), MMC has implemented a number of growth initiatives in emerging markets, with a particular focus on ASEAN markets. In core market Thailand, the company brought a third plant online in 2012 and commenced production of the Mirage/Attrage, while also boosting capacity at its first two factories. It has also built a solid foundation in light commercial vehicles in Indonesia. In the Philippines, the company has expanded its market share to around 20%. In China, MMC launched operations at GAC Mitsubishi Motors (GMMC) in 2012, and has since boosted capacity incrementally.

Expect consolidated wholesale volume to increase to 1.54mn units in FY3/17, driven by emerging markets We expect global wholesale volume including OEM sales to rise to 1.540mn units in FY3/17, versus 1.257mn units previously. Emerging markets, expanding at an average annual rate of 9.7%, should serve as the main growth driver. We look for wholesale volume in emerging markets to climb from 553,000 units in FY3/14 to 730,000 units in FY3/17. Among emerging markets, China and ASEAN countries such as Thailand, Indonesia, and the Philippines likely be key unit volume drivers.

Figure 18: Emerging markets are driving global wholesale Figure 19: China, ASEAN likely to see strongest growth volume growth among emerging markets 1,800 800 Thousand Units Thousand Units 1,600 700

1,400 600 Thailand 1,200 Indonesia Emerging Market 500 Philippines 1,000 Australia/NZ Taiwan Europe 400 800 China North America 300 Brazil 600 Japan Russia 200 400 Others 200 100

0 0 FY11 FY12 FY13 FY14E FY15E FY16E FY11 FY12 FY13 FY14E FY15E FY16E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates No change in our view on Thailand’s longer-term growth potential Among ASEAN markets, all of which should experience sustained growth, Thailand in particular is a core market for MMC given the country's growth prospects and role as the company’s export base. Thai auto demand is currently weak, having declined following the conclusion of a program of first-time car buyer tax rebates and with subsequent political turmoil. However, given steady expansion in Thailand’s per-capita GDP, we see no reason for demand to remain depressed permanently. As noted above, automobile penetration is below 20%, which leaves considerable scope for growth over the longer term. Figure 20: Ongoing Thailand GDP growth will likely support auto demand USD Thousands Units 6,000 1,600 1,400 5,000 1,200 4,000 1,000

3,000 800

600 2,000 400 1,000 200

0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GDP/Capita (LHS) Total Auto Demand (RHS) Source: JETRO, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 8 21 August 2014

Thai auto market has averaged 8.7% annual growth over past 10 years Following introduction of the first-time car buyer tax rebate system, the Thai auto market expanded to 1.436mn units in 2012. The market entered a downturn in 2H 2013, but still maintained a level of 1.331mn units for the year. This is more than double the 2004 level (626,000 units), reflecting average annual growth of 8.7% over the past 10 years. is the market leader in Thailand with a 34% share. Toyota is followed by and Honda, then MMC in fourth place with a share of about 8%. Thailand also serves as an export base. Many automakers, especially Japanese manufacturers, leverage their production capacity there to supply both the domestic market as well as surrounding ASEAN markets. As a result, automobile production in Thailand grew to 2.457mn units in 2013, representing average annual growth of 11.4% over the past decade, a rate exceeding that for sales. In 2013, production remained flat YoY even as domestic consumption contracted, although this was achieved by redirecting output to export markets as a means of maintaining operating rates.

Figure 21: Thai auto market has grown on average by Figure 22: MMC has fourth largest market share at 8.7% per year approx. 8% 1,600 50% Thousands Units 45% 1,400 40% 1,200 35% 1,000 30%

800 25% 20% 600 15% 400 8.4% 9.0% 7.9% 10% 5.7% 6.4% 4.3% 5.1% 200 4.1% 3.8% 3.6% 5% 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Toyota Group Isuzu Honda Renault/Nissan MMC Suzuki Source: Wards, Credit Suisse Source: Marklines, Credit Suisse

Figure 23: Expanding production in Thailand as export base 3,000 Thousands Units

2,500

2,000

1,500

1,000

500

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Wards, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 9 21 August 2014

Pros and cons of first-time car buyer tax rebate program The Thai government instituted a first-time car buyer tax rebate program from September 2011 to December 2012. Under the program, first-time buyers of vehicles priced below 1mn baht with displacement of no more than 1,500cc could receive an excise tax refund of up to 100,000 baht. This incentive drove an 80.6% YoY expansion in sales to 1.436mn units in 2012. While there is no disputing the likelihood that much of this growth came at the expense of forfeited future sales, which previously had been expected to remain steady, it is also clear that the rebate program helped drive an acceleration in the motorization of Thailand, from both a manufacturing and a sales standpoint.

Figure 24: Overview of first-time car buyer tax rebate program Must be first time to purchase a new car in Thailand, and car must Criteria be sold at or less than THB 1 mn and engine size at or less than 1,500 cc

Benefit Max of THB 100,000 on tax rebate

Applied Sept. 2011 - Dec. 2012 Period

Source: Thai Government PR Dept., Credit Suisse Eco-car incentives drove expansion in Japanese automaker sales and promoted business strategy of using Thailand as an export base The Thai government launched an eco-car incentive program in 2007 aimed at growing the domestic auto market and supporting development of the auto industry. Five Japanese automakers (Nissan, Suzuki, MMC, Honda, and Toyota) participated in this first round of the program. All five locally produce fuel-efficient cars meeting the requirements of the B segment or smaller, so were able to benefit from corporate tax exemptions and reduced excise tax at time of purchase. The incentive program helped expand the domestic sales of each of the Japanese automakers and contributed to the strategy of using Thailand as an export base. The Thai government plans to launch a second round of the incentive program. Fuel economy and emissions standards have been tightened slightly and the minimum qualifying investment amount has been raised. In addition, to promote supply chain development, corporate tax exemptions will now be extended to companies that invest in local parts and mold makers. Mazda, , Ford, Volkswagen, and SAIC have applied for inclusion in addition to the five Japanese automakers that participated in the first round. We expect greater competition due to the increase in the number of participants, but believe the increase will also likely contribute to market expansion.

Mitsubishi Motors (7211 / 7211 JP) 10 21 August 2014

Figure 25: Eco-car incentive program overview

Major Criteria/Benefits Phase1 Phase 2 (Plan)

Carmakers Applicable Vehicles Carmakers Applicable Vehicles Nissan March, Almera Nissan Suzuki Swift Suzuki , Attrage Mitsubishi Honda Brio, Brio Amaze Honda Participating Manufacturers Toyota Yaris Toyota (Per Application for Phase 2) TBD Mazda General Motors Ford Volkswagen SAIC Motor CP Gasoline 1300cc or less 1300cc or less Engine Displacement Criteria C Diesel 1400cc or less 1500cc or less M r Fuel Economy Criteria 20km/l or more 23km/l or more a i Emission Standard Compliance Level EURO4 EURO 5 j t 100,000 vehicles per year on 5th year and o e Minimum Production Volume Criteria 100,000 vehicles per year on 4th year and beyond beyond r r 6.5bn Baht or more i Mnimum Investment (in Thailand) Criteria 5bn Baht a (Phase1 participant: 5bn Bhat or more) Launch Timing Criteria Must be launched by 2010 Must be launched by 2019

- Import tax on machinery - Import tax on machinery I Import Duty Exemption - Import tax on raw materials associated with - Import tax on raw materials associated with the n the production (partially) production (partially) c Exempt for 8 years Exempt for 6 years e Corporate Tax Exemption n +1 year of exemption from above if; t - Invest more than 500mn Baht on i Thai auto-part and Die suppliers Corporate Tax Exemption2 - v +2 years of exemption from above if; e - Invest more than 800mn Baht on s Thai auto-part and Die suppliers Excise Tax Incentive on New Cars Excise Tax lowered to 17% Excise Tax lowered to 14% Source: Thailand BOI, Credit Suisse

MMC’s sales in Thailand will likely start to expand again Like overall demand in Thailand, MMC’s wholesale volume peaked in FY3/13 (154,000 units) then fell to 76,000 units in FY3/14. While a major improvement in 1H FY3/15 looks unlikely, we expect a turnaround in overall demand from 2H combined with gains from launch of the new Triton to drive an expansion in full-year wholesale volume to 88,000 units in FY3/15. Sales in Thailand should continue to grow in FY3/16, as the new Triton should make a full contribution and introduction of the new Pajero Sport should help lift sales. Product mix tilted toward pickups/SUVs and B segment cars Consistent with market needs, MMC’s model lineup in Thailand is weighted toward pickup trucks/SUVs and B segment cars. Its flagship is the Triton pickup, which characteristically for the market is preferred for a wide range of uses extending from agriculture to commercial. The Triton accounts for 36% of MMC’s total volume in the market. Meanwhile, the Pajero Sport SUV, a derivative of the Triton, accounts for 15% of volume. The Triton will undergo a model change in the second half of this year while the Pajero Sport is scheduled for a makeover in 2015. MMC’s top-selling vehicle in Thailand is the Mirage (), which as a B segment car benefits from the eco-car incentive program. The Mirage accounts for 40% of total sales. The Attrage, a Mirage derivative launched in June 2013, accounts for only 5% of sales at present, but is expected to see expanded volume. MMC also sells the Lancer in Thailand, but the C segment vehicle accounts for only 4% of sales.

Mitsubishi Motors (7211 / 7211 JP) 11 21 August 2014

Figure 26: Specialization in pickups/SUVs and B segment Figure 27: Triton and Mirage the main volume drivers in cars (2013) recent years 140 Thousand Units 120

100

80

60

40

20

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Triton (L200/Strada) Pajero Sport Mirage Attrage Lancer Others

Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse estimates Three-plant production system enables MMC to also use Thailand as an export base MMC’s production system in Thailand consists of three factories in Laem Chabang, with combined annual capacity of about 424,000 units. Plant No. 1 commenced operations in 1992 and currently produces the Triton, Pajero Sport, and Lancer, as well as Nissan’s Navara pickup, which it manufactures on a contract basis (though not for much longer, as Nissan plans to manufacture the next model Navara in house). Plant No. 1 has annual capacity of 75,000 units, but is also used to supplement production at Plant No. 2, which focuses on pickup trucks. Plant No. 2, launched in 1996, specializes in the production of the Triton and the Pajero Sport and has annual capacity of 184,000 units. Plant No. 3, which just began operations in 2012, is dedicated to production of the Mirage to utilize the eco-car incentive program and has capacity of 165,000 units. Note that the plant also began producing the Mirage- derived Attrage in mid-2013. The three Laem Chabang factories provide a production base for exports and to more than 140 countries.

Figure 28: Division of , car production within three-plant structure

Production Lancer Volume (2013) MMTh Plant#1 Passenger Production Cap: Car Line 75,000/Yr 1000

Production Navara (Nissan) Volume (2013) *To be discontinued upon Nissan releasing new Navara. Pick-up Truck (Produced in Nissan Plant) Line Projected timing, August 2014 50,000

Production Production Triton/L200 Volume Pajero Sport Volume (2013) (2013) MMTh Plant#2 Pick-up Truck Production Cap: Line 153,000 50,000 184,000/Yr

Production Mirage/Attrage Volume (2013) MMTh Plant#3 Passenger Production Cap: Car Line 165,000/Yr 153,000

Source: Company data, Marklines, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 12 21 August 2014

Thai auto market looks set to turn around in 2H The Thai auto market has been in a slump, but overall demand and monthly sales data for MMC suggest that the market has now bottomed. Our focus is on when the cycle will enter an actual recovery phase. We look for a recovery in absolute unit volume in 2H. Monthly production volume suggests that the Thai market as a whole and MMC sales bottomed in April and are heading for a sharp recovery. This could also be a result of the conclusion of increasing exports, and a round of inventory adjustment following the rapid contraction in demand in 2013. The resumption of government rice purchases from farmers in June could support a recovery in auto demand, while the release of the new model Triton could also provide a boost to MMC’s sales volume. In any case, a full-fledged turnaround in YoY growth in overall demand in Thailand will probably come in FY3/16. In addition to a full-year contribution from the new Triton, release of the new model Pajero should also contribute to a recovery in sales.

Figure 29: Overall demand in Thailand broadly flat since Figure 30: MMC’s retail volume in Thailand also down and bottoming flat 160 16 Thousands Units Thousands Units 140 14

120 12

100 10

80 8

60 6

40 4

20 2

0 0 Jul-12 Jul-13 Jul-12 Jul-13 Apr-14 Apr-12 Oct-12 Apr-13 Oct-13 Jun-12 Jun-14 Jan-12 Jan-13 Jun-13 Jan-14 Oct-12 Apr-13 Oct-13 Apr-12 Apr-14 Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Mar-13 Mar-12 Mar-14 Feb-13 Feb-12 Feb-14 Nov-13 Nov-12 Dec-12 Dec-13 Aug-13 Sep-13 Aug-12 Sep-12 Mar-13 Mar-14 Mar-12 Feb-12 Feb-13 Feb-14 Nov-13 Dec-13 Nov-12 Dec-12 Aug-12 Sep-12 Aug-13 Sep-13 May-12 May-14 May-13 May-12 May-13 May-14 Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse

Figure 31: Production volume in Thailand already Figure 32: MMC’s production volume in Thailand also showing signs of recovery appears to have bottomed 300 45 Thousands Units Thousands Units 40 250 35

200 30

25 150 20

100 15

10 50 5

0 0 Jul-12 Jul-13 Jul-12 Jul-13 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Apr-12 Apr-13 Oct-13 Apr-14 Oct-12 Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Mar-12 Mar-13 Mar-14 Feb-12 Feb-13 Feb-14 Mar-12 Mar-13 Mar-14 Feb-12 Feb-13 Feb-14 Nov-12 Dec-12 Nov-13 Dec-13 Aug-12 Sep-12 Aug-13 Sep-13 Nov-12 Dec-12 Nov-13 Dec-13 Aug-12 Sep-12 Aug-13 Sep-13 May-12 May-13 May-14 May-14 May-12 May-13 Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 13 21 August 2014

Indonesia another core market for MMC alongside Thailand MMC has also built a solid foundation in Indonesia, centered on small commercial vehicles like the L300 and the Colt T120 SS. We expect sales to expand from 84,000 units in FY3/14 to 92,000 units in FY3/15 (+9.5% YoY) and to see continued growth thereafter amid strong demand. MMC relies on Krama Yudha Ratu Motors (KRM) for its manufacturing as well as its sales in Indonesia. KRM also handles production of Mitsubishi commercial vehicles. We believe MMC will likely move to strengthen its sales network and systems in order to move beyond commercial vehicles and expand into passenger cars.

Figure 33: MMC sales volume forecast in Indonesia Figure 34: Indonesian market share breakdown (2013) 120 Thousands Units Ford Others 2% 7% 100 General Motors 2% Renault/Nissan 80 7%

Toyota 60 Mitsubishi 52% 8%

40 Honda 8% 20 Suzuki 14% 0 FY11 FY12 FY13 FY14E FY15E FY16E

Source: Company data, Credit Suisse estimates Source: Marklines, Credit Suisse Philippines coming into focus following string of record sales MMC’s sales in the Philippines have reached a string of record highs, climbing to 45,000 units in FY3/14. We expect this growth to continue with an 11.1% YoY expansion to 50,000 units in FY3/15. MMC currently ranks second in market share behind Toyota. The company plans to overhaul its production system to enable it to tap future growth in the market. It has acquired an old factory site of Ford’s on which it plans to build a new plant with annual capacity of 100,000 units. The plant is due to commence operations in January 2015.

Figure 35: MMC sales volume forecast in the Philippines Figure 36: Philippines market share breakdown (2013) 70 Suzuki Others Thousands Units Hyundai Kia 3% 3% 60 3% Renault Nissan 4% 50 Isuzu Toyota 7% 40 42% Ford 30 7%

20 Honda 7% 10 MMC 0 24% FY11 FY12 FY13 FY14E FY15E FY16E

Source: Company data, Credit Suisse estimates Source: Marklines, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 14 21 August 2014 Growing sales of pickups, SUVs, and crossovers Aims to grow sales via strategic product launches Pickups, SUVs, crossovers are strategic products accounting for over 50% of sales MMC sees its pickups, SUVs, and crossovers as strategic products that account for more than 50% of sales volume. Related models include the Triton, Pajero Sports, Outlander, Pajero, and RVR. One in four of these are Triton or Pajero Sport models, which share the same platform. Updated models in the Triton series are slated for FY3/15 and for the Pajero Sport series for FY3/16. Development of new models is also underway for the RVR, Delica D:5, and Pajero, the company aiming for long-term sales growth via successive new model launches of these strategic products.

Figure 37: Pickups, SUVs, and crossovers account for Figure 38: The Triton is Mitsubishi Motors’ bestseller over 50% of sales (FY3/14) Thousands Units 160 20%

140 18% 16% 120 14% 100 12% Passemger Cars Pick-Up Trucks / / Others SUVs / 80 10% 43% Crossover Vehicles 60 8% 57% 6% 40 4% 20 2% 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Triton/L200/Strada (LHS) Percentage of Triton/L200/Strada (RHS)

Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse

Mainstay Triton driving global sales growth The mainstay Triton pickup truck is driving global sales growth. It is sold in many regions, in some cases under different names, such as L200 in Europe and some other areas and Strada in the Philippines and elsewhere, but we use Triton here to refer to the product globally. Worldwide Triton sales volume grew to 146,000 units in 2012, 19% of total sales volume. In 2013, sales volume and share of company totals both declined owing to weakness in the Thai pickup truck market, but these numbers are likely to turn around with sales growth in other regions and further new model introductions in FY3/15. Triton sales have been growing in the ASEAN region, especially Thailand, and also other emerging markets. In 2013 sales volume by country, Thailand was on top at 36,000 units, followed by Australia at 25,000, Brazil at 21,000, and Indonesia at 7,000. This is a substantial proportion in the context of its other regional numbers; by contrast, it sold 12,000 such units in all of Europe. The Thai pickup market is thus a key one for Mitsubishi Motors. It competes there with other Japanese automakers; its 7% market share places it third behind Isuzu and Toyota

Mitsubishi Motors (7211 / 7211 JP) 15 21 August 2014

Figure 39: Triton sales growing in emerging markets, Figure 40: Mitsubishi Motors third in Thai pickup truck especially Thailand market share (2013) 70 Renault/NissanOthers 2% Thousands Units Ford 4% 60 4% GM 50 5% Mazda Isuzu 40 5% 37% MMC 30 7%

20

10 Toyota 36%

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Thailand Australia Brazil Indonesia Others

Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse

Thai pickup market dominated by four Japanese automakers In the Thai pickup truck market, the Triton competes mainly with the Toyota Hilux Vigo, the Isuzu D-Max, and the . Each model is suited to market needs and there are no large differences in specifications. The Triton line-up includes turbo, diesel, and CNG offerings and the price band is on the lower end of the range after Isuzu. The market is likely to liven up further with new model introductions planned for the Nissan Navara, the Triton, and the Toyota Hilux Vigo.

Figure 41: Thai pickup market dominated by four Japanese automakers Carmaker MMC Toyota Isuzu Nissan Vehicle Name Triton Hilux Vigo D-Max NP300 Navara

L 5145 - 5285mm 5135mm 5190mm 5125 - 5255mm Dimension W 1800mm 1760 - 1835mm 1775 - 1860mm 1790 - 1850mm H 1780mm 1720 - 1845mm 1685 - 1790mm 1720 - 1907mm Weight(Curb) 1570 - 1790kg 1540 - 1735kg 1525 - 1725kg 1520 - 1850kg CNG Option YES YES YES YES Price range 498,000～987,000 Baht 592,000～1,012,000 Baht 475,000～992,000 Baht 575,000～996,000 Baht 2.5L 3.0L Engine 2.5L DI Turbodiesel 2.4L Gas DI DI 2.5L DI TurboDiesel Turbodiesel 2.7L EFI Gas 2.5L DI Turbodiesel 3.0L DI Turbodiesel Turbodiesel 2.5L Gas 106(144) 126(171) 118(160) 140kW Max Output 131kW(178ps)@4000 94kW(128ps)@5250 @3400 @3600 @5200 100kW@3600 130kW@3600 @3600 113kW@6000 343Nm 360Nm 241Nm 450Nm Max Torque 400Nm@2000-2850 194Nm@4000 @1600-2800 @1400-3400 @3800 320Nm@1800-2800 380Nm@1800-2800 @2000 244Nm@4000 5 Speed MT or 5 Speed AT 5 Speed MT or 5 Speed AT 5 Speed MT or 5 Speed AT 6 Speed MT or 7 Speed AT Source: Company data, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 16 21 August 2014

New Triton model to be launched in 2H FY3/15 Expectations are rising for the new Triton model to be launched in 2H FY3/15. It is likely to implement elements of the Sports Utility Truck concept announced at the March 2013 in the form of the Concept GR-HEV. The idea is to combine pickup truck functionality with the comfort of a sedan or SUV. The Concept GR-HEV has a 2.5l diesel HEV engine, but the new Triton is likely to be available with either a gasoline or a . We believe Thai auto demand has already bottomed out. Passenger cars have already been improving MoM, albeit only modestly, but a pickup truck recovery is lagging somewhat. Still, we expect pickup demand to begin rising again for two main reasons. First, a significant fraction of pickup users are farmers, government payments to whom for rice restarted in June. Second, a series of new models are soon to be released, including new versions of the Triton, the Nissan Navara, and the Toyota IMV.

Figure 42: The Concept GR-HEV, the concept model for Figure 43: Thai pickup demand likely to start recovering Triton development 100 Thousands Units 90 80 70 60 50 40 30 20 10 0 Jul-12 Jul-13 Apr-13 Apr-12 Oct-12 Oct-13 Apr-14

Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Mar-12 Mar-13 Mar-14 Feb-12 Feb-13 Feb-14 Nov-12 Dec-12 Nov-13 Dec-13 Sep-12 Aug-12 Aug-13 Sep-13 May-12 May-13 May-14 Pick-Up Truck Sales Other Vehicle Sales Source: Company data Source: Marklines, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 17 21 August 2014 Eco-car development centered on PHEV/EV Aims to be electric car technology leader PHEV/EV still poised for take-off MMC aims to be a leader in the shift toward technology over the longer term. The company has already released plug-in hybrid and electric vehicles (PHEV/EV), including the Outlander PHEV and i-MiEV. Total global sales volume in the PHEV/EV category in 2013 was 225,000 vehicles, just 0.3% of the total global auto market. By region, PHEV/EV sales have started expanding at an unexpected pace in Europe and the US in recent years. We believe the PHEV/EV category is likely to expand as a share of the global auto market as environmental regulations continue to tighten.

Figure 44: PHEV/EV currently a tiny fraction of the auto Figure 45: Growing in Europe and the US in recent years market Thousands Units Thousands Units 250 0.30% 250 Japan 0.25% 200 200 US 0.20% 150 150 0.15% EU 100 100 0.10% China

50 50 0.05% Others

0 0.00% 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 PHEV/EV Sales (LHS) PHEV/EV Share (RHS)

Source: Fourin, Credit Suisse Source: Fourin, Credit Suisse

PHEV/EV models will be needed to meet environmental regulations We divide environmental regulations into two major types: (1) measures to reduce emissions of particulate matter and nitrogen oxides, such as EC 443/2009 in the EU and (2) measures to reduce carbon dioxide emissions and improve fuel efficiency through setting fuel economy requirements, such as under Japan’s Energy Conservation Law.

Europe also plans to progressively tighten CO2 emission regulations to 130g/km by 2015 and 95g/km by 2021. The world’s carmakers are left with little choice but to focus on developing compliant vehicles.

In Europe, fines corresponding to the amounts by which CO2 targets have been exceeded since 2012 are to be assessed in stages, and automakers are hurrying to release new models with lower CO2 emissions. To reach the 2021 target of 95g/km, automakers will have to reduce average CO2 emissions by about 4% annually through 2020. It will thus be essential for automakers to generate a certain sales volume from low-emission vehicles. Accordingly, automakers over the past few years have been working to release PHEV and other models in the European and American markets.

Mitsubishi Motors (7211 / 7211 JP) 18 21 August 2014

Figure 46: CO2 emission regulations continuing to tighten

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

140g/km 130g/km 95g/km 68-78g/km EU 16.9km/l 18.2km/l 24.8km/l 30.2-34.6km/l

27.5mpg | 156g/km 100g/km USA 11.7km/l 35.5mpg | 15.1km/l 54.5mpg | 23.2km/l

140g/km 116g/km Japan 16.8km/l 20.3km/l ・・・Proposal

165g/km 118g/km China 14.3km/l 20.0km/l ・・・Estimate

Source: Credit Suisse

PHEV/EV likely to grow to 10% of auto market by 2030 We expect the PHEV/EV market to grow to some 10% of total global automobile demand by 2030. This forecast assumes European CO2 limits of 130g/km in 2015, 95g/km in 2021, 73g/km in 2025 (midpoint of 68–78g/km range), and a similar further reduction to 56g/km by 2030. Our forecast also assumes that the market as a whole meets these progressively tightening CO2 standards. We think MMC, which has already been an early mover in the shift toward electric car technologies, is likely to benefit substantially from this expanding PHEV/EV market over the longer term.

Figure 47: Expanding PHEV/EV market likely to grow to 10% of total by 2030 14% g/km 160

12% 140 120 10% 100 8% 80 6% 60 4% 40

2% 20

0% 0

PHEV/EV/ Share (LHS) CO2 Reg. (RHS) CO2 Ave. (RHS)

Source: Fourin, Marklines, Credit Suisse estimates

MMC has 13% of the global PHEV/EV market, driven by Outlander PHEV sales MMC was second in global PHEV/EV market share in 2013 with 13% (including OEM production for PSA). In sales by model, the Outlander PHEV drove the company’s PHEV/EV sales. The model was fifth behind the , the Volt, the Toyota Prius PHEV, and the Tesla Model S. It was developed as a combination of previously developed technologies, including EV technology, 4WD technology, and SUV expertise, and has been well-received throughout the global auto market, especially in Europe.

Mitsubishi Motors (7211 / 7211 JP) 19 21 August 2014

Figure 48: MMC/PSA’s PHEV/EV global market share 13% Figure 49: Outlander PHEV fifth in PHEV/EV sales (2013) Thousands Units 50,000

40,000 Other 18% Nissan 30,000 23%

20,000 Toyota 10% 10,000 MMC/PSA 13% Renault 0 11%

Tesla GM 12% 13%

Source: Fourin, Credit Suisse Source: EV Obsession, Datawrapper, Credit Suisse

Outlander PHEV the world’s first 4WD PHEV SUV The Outlander PHEV is MMC’s flagship electric vehicle. It debuted in 2012 as the world’s first 4WD PHEV SUV. Global sales volume grew to 28,500 vehicles in FY3/14. Its electric- only travel range is 60.2km. JC08 mode fuel efficiency is 18.6km/l when run hybrid-only without external recharging and 67.0km/l with combined electric and hybrid operation. This represents extremely high fuel efficiency, especially considering the heavier SUV design. The car’s 4WD system includes direct drive motors on both the front and back wheels.

Figure 50: Overview of the Outlander PHEV, the world’s first 4WD PHEV SUV Size Dimension 4655mm x 1800mm x 1680mm Wheel Base 2670mm Tire Size 225 / 55R18 Vehicle Weight 1770 - 1820kg Engine 2.0L 4Cyl DOHC MIVEC Gas Engine Max Output 87kW (118PS) / 4500rpm Max Torque 186Nm / 4500rpm Hybrid Drive System Twin Motor 4WD (Installed each on front and rear) Motor Max Output Front: 60kW / Rear 60kW Motor Max Torque Front: 137Nm / Rear 195Nm Approx. Charging Time 4 hours EV Driving Distance 60.2km (JC08 Mode) HEV Mode Fuel Economy 18.6km/L (JC08 Mode) PHEV Mode Fuel Economy 67km/L (JC08Mode) Vehicle Price 3,418,000 - 4,430,000 JPY Source: Company data, Credit Suisse

Outlander PHEV sales growth picking up in Europe, where PHEV/EV models are taking hold Outlander PHEV sales growth is picking up in Europe, where market acceptance of PHEV/EV models is rising. In PHEV/EV sales by country in 2013, Norway led at 6.1%, followed by the Netherlands at 5.6%, and European countries are generally leading the way in PHEV/EV uptake. Some European countries, such as the UK, France, and Sweden, also have subsidies for energy efficient cars and a number of countries offer preferential tax treatment in an effort to push wider adoption.

Mitsubishi Motors (7211 / 7211 JP) 20 21 August 2014

Figure 51: Europe leading in the spread of PHEV/EV vehicles

7% 6.10%

6% 5.55%

5%

4%

3%

2% 0.94% 0.91% 0.83% 0.73% 0.71%

1% 0.60% 0.44% 0.29% 0.26% 0.23% 0.21% 0.18% 0.17% 0.17% 0.17% 0.11% 0.08% 0.01% 0%

Source: EV Obsession, Datawrapper, Credit Suisse

Figure 52: Countries with preferential policies pushing PHEV/EV adoption Country Outlander PHEV Incentives Content Outlander PHEV Vehicle Price Actual Price Other than CEV Program listed(worth 290,000JPY/Vehicle), Japan € 24,770 € 2,101 € 22,668 Incentives based on each region exists

UK € 42,159 € 6,340 Max Incentive of ￡5,000 if Co2 emission is less than 75g/km € 35,819

No specific incentive € 41,990 － － (EV will have tax benefit of 10 years

France € 43,900 € 4,000 Max incentive of €4000/vehicle if CO2 emission is 21g - 60g/km € 39,900

Exempt from registration and vehicle tax, if the vehicle has Co2 Netherland € 43,490 － － emission of 50g/km or less

40,000SEK of incentive and tax exemption if CO2 emission is Sweden € 45,432 € 4,337 € 41,095 50g/km or less (Incentive lot available for 5000 vehicles)

Import duty will be calculated using 10% less value of the actual Norway € 52,888 － － weight of the PHEV vehicles Source: Credit Suisse Outlander PHEV sales area expanding rapidly, especially in Europe Since the Outlander PHEV launched in Japan in October 2012, MMC has been expanding the sales area with a focus on Europe. Sales began in the Netherlands, Sweden, and Switzerland in October 2013, followed in December 2013 with France and in January 2014 with Norway and Belgium. In 1Q FY3/14, Germany was added in April, the UK in May, and Spain in June. Based on the strong positive reception in Europe, the company is eyeing a North American release in FY3/16.

Figure 53: Outlander PHEV sales area expanding rapidly, especially in Europe 2013 2014 2015 2016 Jan Feb Mar Apr May Jun Jul Aug Dec Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Dec Oct Nov Dec Japan Netherland Sweden Switzerland France Norway Belgium Germany UK Australia Spain Russia North America Source: Company information, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 21 21 August 2014

We expect PHEV/EV sales volume to grow to 81,000 vehicles in FY3/17 While MMC’s FY3/14 sales volume in PHEV/EV was 33,000 vehicles, we forecast 52,000 for FY3/15. Within this, we expect strong sales in Europe to contribute most of the total at 48,000. We forecast additional growth in the category to 61,000 in FY3/16 and 81,000 in FY3/17. In addition to an expected launch of the Outlander PHEV in North America, we also anticipate positive impact from successive launches of planned new PHEV models. We anticipate steady growth in PHEV/EV sales as the company pursues its goal of a 20% sales ratio of electric vehicles by 2020.

Figure 54: Expecting rapid growth in sales of MMC’s PHEV/EV models 100 Thousands Units 90 80 70 60 50 40 30 20 10 0 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

EV PHEV Source: Company data, Credit Suisse estimates

Clear roadmap for new PHEV model releases We understand the company plans to steadily release new PHEV models in pursuit of its goal of a 20% sales ratio for electric vehicles by 2020. The Concept XR-PHEV, first revealed at the 2013 Motor Show, may indicate a potential PHEV version of the RVR compact SUV. We think such a compact PHEV SUV could arrive in FY3/17. Furthermore, the Concept GC-PHEV announced at the same time could form the basis for a large PHEV SUV to appear in FY3/17 or beyond.

Figure 55: Concept XR-PHEV Figure 56: Concept GC-PHEV

Source: Company data Source: Company data

Mitsubishi Motors (7211 / 7211 JP) 22 21 August 2014 Growing potential for global strategic model Mirage Aiming to position Mirage as entry-level vehicle for emerging markets, eco-car for advanced markets Revived in 2012 as global strategic model in B-segment category MMC revived the Mirage nameplate in 2012, selecting it to serve as its global strategic model in the B-segment compact car category. The company markets the Mirage as an entry level car in emerging markets and an eco-car in industrialized countries. All models (including exports) are manufactured at Mitsubishi Motors Thailand, taking advantage of that country's Eco Car Phase 1 Scheme. In 2013, MMC launched the Attrage compact sedan to accompany the Mirage hatchback. Combined global sales reached 80,000 units in 2013, accounting for 8% of companywide sales. Exports to countries other than Thailand currently supporting sales Sales of the Mirage (including the Attrage) continue to grow, despite lackluster demand in Thailand following the end of the program of first-time car buyer tax rebates, a situation that has been further exacerbated by political unrest. Sluggish sales in Thailand are being offset by increasing exports, not just to nearby countries such as Indonesia and the Philippines, but also to Europe, and (as of end-2013), North America. In this manner, global sales volume grew 12% YoY in Jan–Jun 2014.

Figure 57: Mirage share of MMC sales volume (2013) Figure 58: Mirage global sales volume and contribution to MMC’s total sales 10 Thousands Units 12% 9 Mirage / 10% 8 Spacestar / 7 Attrage 8% Other Passenger 8% 6 Cars 35% 5 6% 4 4% 3 2 Pick-Up Trucks / 2% SUVs / 1 Crossover 0 0% Vehicles 57% Jul-12 Jul-13 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Mar-12 Mar-13 Mar-14 Feb-12 Feb-13 Feb-14 Nov-12 Dec-12 Nov-13 Dec-13 Aug-12 Sep-12 Aug-13 Sep-13 May-12 May-13 May-14 Mirage/Spacestar/Attrage (LHS) Percentage of Mirage/Spacestar/Attrage (RHS)

Source: Marklines, Credit Suisse Source: Marklines, Credit Suisse Figure 59: Mirage sales volume by country Figure 60: MMC commands 9% share of B-segment market in three ASEAN nations (2013) 8 Thousands Units 7 Daihatsu Others 6 1% 11% Mazda 5 3% Toyota Suzuki 29% 4 7%

3 MMC 2 9% 1

0 Nissan 10% Honda 30% Jul-12 Jul-13 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Jan-12 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Mar-12 Mar-13 Mar-14 Feb-12 Feb-13 Feb-14 Nov-13 Dec-13 Nov-12 Dec-12 Aug-13 Sep-13 Aug-12 Sep-12 May-14 May-12 May-13 Thailand Indonesia US/Canada Australia Others

Source: Marklines, Credit Suisse Source: Fourin, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 23 21 August 2014

Commands 9% share of B-segment market in three key ASEAN countries In the three ASEAN countries that constitute its core market (Thailand, Indonesia, and the Philippines) MMC ranks fourth in the B-segment market (which includes the Mirage/Attrage), with a share of 9%. The Mirage/Attrage certainly stacks up well against other Japanese automakers’ B-segment offerings, in that the entry price is quite low, yet the fuel economy outstrips rivals at 22km/l in the ECE R101 mode. We attribute the former to MMC procuring many parts locally and the latter to a lightweight body with extensive use of high-tensile steel.

Figure 61: Mirage/Attrage stacks up well against other Japanese automakers’ B-segment offerings Carmaker MMC Nissan Honda Suzuki Toyota Vehicle Mirage March Brio Swift Yaris

Body Style Hatchback Hatchback Hatchback Hatchback Hatchback Model Launch 2012/3 2013/3 Minor Change 2011/5 2012/3 2013/10 Price Range (Baht) 380,000～546,000 388,000～555,000 433,500～508,500 429,000～559,000 469,000～599,000 Dimension 3710 x 1665 x 1490mm 3780 x 1665 x 1515mm 3610 x 1680 x 1485mm 3850 x 1695 x 1510mm 4115 x 1700 x1475mm Wheel Base 2450mm 2450mm 2345mm 2430mm 2550mm Vehicle Weight 860～870kg n.a. 920～955kg 970～1000kg 1010～1040kg Engine Displacement 1.2L 1.2L 1.2L 1.2L 1.2L Max Output 78ps 79ps 90ps 91ps 86ps Transmission CVT 5 Speed MT or CVT 5 Speed MT or CVT 5 Speed MT or CVT CVT Fuel Economy （ECE R101Mode) 22km/l 20km/l 20km/l 20km/l >20km/l

Carmaker MMC Nissan Honda Vehicle Attrage Almera Brio Amaze

Body Style Sedan Sedan Sedan Model Launch 2013/7 2011/10 2012/11 Price Range (Baht) 443,000～582,000 429,000～599,000 454,000～521,000 Dimension 4245 x 1670 x 1515mm 4425 x 1695 x 1500mm 3990 x 1680 x 1485mm Wheel Base 2550mm 2600mm 2405mm Vehicle Weight 885～930kg 962～1027kg 925～965kg Engine Displacement 1.2L 1.2L 1.2L Max Output 78ps 79ps 90ps Transmission 5 Speed MT or CVT 5 Speed MT or CVT 5 Speed MT or CVT Fuel Economy （ ECE R101Mode) 22km/l 20km/l 20km/l Source: Company data, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 24 21 August 2014

MMC might use Eco Car Phase 2 Scheme to launch new model in or after FY3/17 We understand MMC has applied to participate in Phase 2 of Thailand’s eco-car program. Manufacturing under this new scheme must begin by 2019, and given that the Mirage debuted in 2012 we think it likely that MMC will use the scheme to launch a next-generation vehicle in or after FY3/17. This might be an EV version of the Mirage, as MMC management has hinted at this in the past. Using OEM supply to boost sales volume, gain market share Under an agreement recently inked with de Mexico (CdM), MMC will supply the Attrage sedan to CdM on an OEM basis for five years from November 2014. MMC expects to supply CdM with 10,000 vehicles annually, thereby helping to grow global unit sales of the Mirage/Attrage. MMC already sells vehicles in Mexico, especially SUVs including the Outlander and Pajero Sport, however the B-segment is an important market in Mexico, comprising 23% of all vehicle sales. We therefore expect a boost to sales from use of the CdM sales network and brand.

Mitsubishi Motors (7211 / 7211 JP) 25 21 August 2014 Seeking earnings, efficient use of resources via joint business Cooperation with Nissan via NMKV Mini-vehicle alliance helping consolidate domestic business foundations In 2011, MMC joined forces with Nissan Motor to form Nissan Mitsubishi Kei Vehicle (NMKV), a joint venture established to plan and develop mini-vehicles. NMKV has since 2013 brought out the eK Wagon (Nissan Dayz) and eK Space (Nissan Dayz Roox), both of which are manufactured entirely at MMC’s Mizushima Plant. This collaboration has seen MMC greatly increase its mini-vehicle output, and its share of production has recovered to 9%. Moreover, as capacity utilization at Mizushima has risen from a low of around 40% to 80–90%, we think the alliance is helping consolidate MMC's domestic business foundations.

Figure 62: MMC’s mini-vehicle sales volume has been low Figure 63: Alliance has led to sharp rebound in mini- in recent years vehicle output 140 200 Thousands Units Thousands Units 180 120 160 100 140 120 80 100 60 80

40 60 40 20 20 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: JAMA, Credit Suisse Source: JAMA, Credit Suisse

Figure 64: MMC’s share of mini-vehicle sales is small Figure 65: Share of mini-vehicle production has recovered (2013) to 9% (2013) Toyota Mazda 2% 2% MMC 3% MMC 3% 9%

Nissan 9% Daihatsu Daihatsu Honda 35% 31% 21%

Honda 22%

Suzuki Suzuki 35% 28%

Source: JAMA, Credit Suisse Source: JAMA, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 26 21 August 2014

Likely to pursue further alliances Late in 2013, MMC also reached agreement with the Renault-Nissan Alliance to explore the idea of sharing products, technologies, and manufacturing capacity. This has broadened the scope of MMC’s strategic tie-up with Nissan to include the Renault-Nissan Alliance. MMC and Nissan are considering developing and strengthening NMKV and jointly developing an entry-level car that will have an electric version to be sold globally. We understand the car would be based on the mini-vehicle platform developed by NMKV for the domestic market. MMC is also considering launching a pair of Renault platform-based Mitsubishi sedans jointly with the Renault-Nissan Alliance. The first is likely to be aimed at the D-segment market in the US and Canada and will probably be made at the Renault-Samsung plant in Busan, South Korea. The second will likely compete in the global C-segment. However the production site has yet to be determined. MMC and the Renault-Nissan Alliance have also confirmed their intention to share technologies and product assets related to electric vehicles and latest-generation platforms. This should help MMC use its resources more effectively.

Figure 66: Collaborating with other automakers to make effective use of resources, add to earnings opportunities

Source: Company data

Mitsubishi Motors (7211 / 7211 JP) 27 21 August 2014 Model pipeline Maintaining focus on areas of strength Whittling down platform numbers, model numbers As part of its structural reform program, MMC is reorganizing and integrating its platforms and reducing the number of models it manufactures. Under its current medium-term plan, the company has reduced the number of platforms from 12 in FY3/11 to nine as of FY3/14 and plans a further reduction to seven by end-FY3/17. The company has also reduced the number of models from 23 in FY3/11 to 18 as of FY3/14, and intends to have only 13 models by end-FY3/17. We expect cost savings as a result of MMC narrowing its model lineup to focus on areas of strength and pursuing platform integration. Main new models likely to be pickup, SUV, PHEV versions of existing models The following figure shows our estimate of MMC's model pipeline. In the near term, we look for MMC to launch new incarnations of flagship models, including a new Triton pick-up at end-2014, and a new Pajero Sport in FY3/16. We expect a corresponding boost to global sales volume. From FY3/17, we believe MMC will likely debut PHEV versions of the RVR, Pajero and other models, growing its own sales in tandem with the PHEV market. We will also be watching out for a revamped Mirage and the global entry level car to be developed jointly with Nissan.

Mitsubishi Motors (7211 / 7211 JP) 28 21 August 2014

Figure 67: Our estimates for MMC’s model lineup and schedule for model changes Vehicle Type Platform 2011 2012 2013 2014 2015 2016 2017 2018 Memo

Pajero SUV Pajero PF Unknown beyond 2015. PHEV version is possibly considered to be added

Pajero PHEV SUV-PHEV Pajero PF

Model Change scheduled 2014 Fall. Pick-up Truck Triton PF Major selling model for MMC in ASEAN Market. Triton (Med-size P/U) （Pajero Sport） The SUV bodies version, Pajero Sport, shares same platform and being produced in the same plant

Outlander SUV GS PF (GF7W/8W) OEM model to PSA (Started from July 2007)

Outlander PHEV model created from EV model technology SUV-PHEV GS PF (GG2W) PHEV World's first SUV type PHEV

Sedan Galant Fortis GS PF (CY4A) Unknown beyond 2015 5DrHb

Lancer EvolutionX Sedan GS PF (CZ4A) Model to be discontinued in 2014

Delica Clean-diesel application was added in 2013/1. GS PF (CV1W/2W/5W) D:5 Model change planned after 2015.

RVR SUV GS PF (GA3W) Model change expected around 2017, platform is not determined PHEV version being considered from next model RVR PHEV SUV-PHEV Unknown

MMC's "Global Small" vehicle. Launched with the name Mirage in 2012/8. Produced in Mirage 5Dr Hb MiragePF (A05A) Thailand, which also produces 4 door Sedan version called "Attrage"

Mirage EV 5Dr Hb-EV MiragePF EV Version of Mirage. Possibly Japan production and possible OEM to PSA. Timing unknown

No Vehicle Name Yet Utilizing the base model of global small (Mirage), the vehicle with a concept of low priced EV, HV MiragePF Global Small-Car EV with emerging countires as possible market to be included

i Mini-car 5DrHB i PF (HA1W) Model discontinued in June 2013

Started selling in the market from Apr 2010. i-MiEV Mini-car 5DrHB-EV i PF (HA3W) Further plan beyond 2015 is unknown.

Minicab Miev Mini-car Sized (EV) Minicab PF (U67V) EV developed using Mini-cab Van as a base model. Released Dec. 2011 EV-Van

Minicab Miev Mini-Truck Minicab PF (U68T) EV using Mini-cab Truck as its base. Released Jan. 2013. truck

Suzuki Every PF Switched to OEM model from Suzuki Motors since Feb. 2014. The Suzuki vehicle is called Minicab Van Mini-car Sized Van (DS64V) Every

Suzuki Every PF Switched to OEM model from Suzuki Motors since Feb. 2014. The Suzuki vehicle is called Townbox Mini Cab-Wagon (UDS64W) Every Wagon

Suzuki Carry PF Switched to OEM model from Suzuki Motors since Feb. 2014. The Suzuki vehicle is called Minicab Truck Mini-Truck (DS16T) Carry

Pajero-Mini Mini-SUV Pajero Mini PF Model discontinued in June 2012

Provided from Nissan as OEM model since July 2012. The vehicle from Nissan is based on Dignity Sedan Nissan FR-L PF (BGY51) Nissan Cema

Provided from Nissan as OEM model since July 2012. The vehicle from Nissan is based on Proudia Sedan Nissan FR-L PF (BY51)

Lancer Cargo Van Nissan B PF (CVY12) OEM model from Nissan. Base vehicle is Nissan AD. Vehcile plan unknown beyond 2015

Delica D:3 Minivan Nissan B PF (BM20) OEM model from Nissan

Delica Van Van Nissan B PF (BVM20) OEM model from Nissan since Jan. 2011. (Nissan NV200 Vanette Van)

Joint development with Nissan The first model of the jointly developed Mini-car with Nissan. Nissan version is named Dayz. eK Wagon Mini-Tall Wagon Dayz/eK wagon PF Released June 2013. (B11W)

Joint development with The second model of the jointly developed Mini-car with Nissan. Nissan version is named Nissan eK Space Mini Extended-Tall Wagon Dayz Roox. Dayz/eK wagon PF Released Feb 2014. (B11A)

Joint development with No Vehicle Name The third model planned as the jointly developed Mini-car with Nissan.Planned to be released Global Entry-level Car Nissan Global Entry-level Car around mid-2015. Production site planned is Nissan's Kita-Kyushu Plant. Dayz/eK wagon PF

Source: Company data, Marklines, Credit Suisse

Mitsubishi Motors (7211 / 7211 JP) 29 21 August 2014 Earnings outlook Major upside potential to consensus forecast Ample room for FY3/15 earnings to beat expectations We expect MMC to post FY3/15 OP of ¥161bn, substantially beating guidance (¥135bn). As the I/B/E/S consensus is still only ¥143.2bn, there is plenty of scope for an increase. While we must allow for risk of sales missing forecasts in Asia, Russia, and certain other markets, we expect a substantial boost to profits from forex (as was the case in 1Q) and also think savings on input costs could be greater than expected over the full year. We expect a full-fledged upturn in the share price as it becomes increasingly likely that earnings will beat forecasts over the full year. Expect wholesale volume to miss guidance in FY3/15, but forecast Thai recovery from 2H, along with contributions from Triton launch, higher PHEV sales We assume wholesale volume of 1.367mn units in FY3/15, up 8.8% YoY but slightly lower than guidance (1.402mn units). While we expect outperformance in North America, where wholesale volume has been upbeat, in Europe we think sluggish demand in Russia will drag volume below the company's estimate. Our forecast for Asia also assumes underperformance in Thailand, although we see Thai sales recovering somewhat from 2H, buoyed by rebounding demand and the launch of a remodeled Triton. We also look for PHEV sales volume to increase to 48,000 units in FY3/15 (+68.4% YoY), buoyed by higher sales in Europe. Forex, lower input costs likely to propel FY3/15 OP well above guidance While expecting sales volume to fall short of the company’s projection, we still see FY3/15 OP outstripping guidance in reaching ¥161bn, buoyed by favorable forex and savings on costs for parts and materials. Guidance is premised on a ¥13bn drain on full-year profits from forex. We, however, assume a ¥12.8bn boost. For 2Q onward we assume USD/JPY of 102, EUR/JPY of 138, and THB/JPY of 3.17. We believe MMC is being conservative in forecasting an ¥18bn boost to profit from lower raw materials costs. Our forecast assumes savings of ¥33.5bn. Expect ongoing improvement in finances MMC’s shareholders’ equity ratio improved to 38.3% in FY3/14 while its cash surplus (cash & deposits less interest-bearing debt) increased to ¥227.7bn. Having repurchased all preferred shares, MMC has also resumed dividend payments. For the fiscal year ended March 2014, the company paid a dividend of ¥25 per share, comprising an ordinary dividend of ¥15 and a special dividend of ¥10 per share. We expect improvement in MMC’s finances from FY3/15. We expect the shareholders’ equity ratio to rise to 42.6% in FY3/15, and look for a stable ordinary annual dividend of ¥15. Anticipate improvement in earnings momentum from FY3/16 We think near- to medium-term earnings are set to be propelled by a two-stage rocket comprising a recovery in the key Thai market and a new-model Triton pickup due for launch in late 2014. We also expect a contribution from developed markets in the form of a full-scale rollout of PHEVs centered on Europe. Further boding well for profits is the new medium-term plan calling for ¥110bn in cost cuts between FY3/15 and FY3/17. Consensus profit forecasts remain depressed through FY3/17, but we expect them to be revised upward.

Mitsubishi Motors (7211 / 7211 JP) 30 21 August 2014

Now a good time to invest MMC reported 1Q OP of ¥31bn, well above the I/B/E/S consensus (¥24.5bn). Yet investors barely blinked, even though the outperformance was partly driven by factors likely to remain in play over the full year, such as favorable forex. It appears the market is hopeful of a business turnaround in Thailand, but is also concerned about geopolitical risk in Russia, a market to which MMC has some exposure. However, we still think it likely that earnings from 2Q onward will beat consensus estimates even allowing for lower volume in Russia. Accordingly, we believe with the share price not yet reflecting these factors, now is a good time to invest.

Figure 68: Mitsubishi Motors (7211) – Earnings forecast summary Sales Operating profit Recurring profit Net profit EPS ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) Consolidated Mar-14 A 2,093,409 15.3 123,434 83.2 129,472 37.9 104,664 175.6 156.6 2,271.7 Mar-15 CS E (new) 2,220,000 6.0 161,000 30.4 164,000 26.7 131,000 25.2 133.2 -14.9 CoE 2,300,000 9.9 135,000 9.4 138,000 6.6 110,000 5.1 111.9 -28.6 IBES E 2,222,933 6.2 143,229 16.0 147,120 13.6 117,183 12.0 119.0 -24.0 Mar-16 CS E (new) 2,385,000 7.4 178,000 10.6 183,000 11.6 145,000 10.7 147.4 10.7 IBES E 2,350,950 5.8 155,614 8.6 161,120 9.5 123,533 5.4 126.2 6.1 Mar-17 CS E (new) 2,529,000 6.0 196,000 10.1 203,000 10.9 146,000 0.7 148.5 0.7 IBES E 2,475,000 5.3 170,183 9.4 174,500 8.3 123,550 0.0 133.1 5.4 Source: Company data, I/B/E/S, Credit Suisse estimates

Figure 69: Mitsubishi Motors (7211) – Income statement Profit & Loss Statement (JPY Mn) FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Sales 3,276,716 3,200,699 3,884,874 2,519,449 2,122,626 2,120,068 2,202,869 2,682,103 1,973,572 1,445,616 1,828,497 1,807,293 1,815,113 2,093,409 2,220,000 2,385,000 2,529,000

Cost of Goods Sold 2,754,613 2,638,948 3,161,844 2,160,562 1,808,094 1,700,524 1,788,897 2,194,741 1,663,121 1,211,635 1,538,879 1,487,267 1,475,141 1,643,176 1,726,000 1,849,000 1,953,000

Gross Profit 522,103 561,751 723,030 358,887 314,532 419,544 413,972 487,362 310,451 233,980 289,617 320,025 339,971 450,232 494,000 536,000 576,000

Selling, General & Administrative Expenses 595,968 521,523 640,268 455,739 443,076 412,760 373,735 378,765 306,524 220,060 249,343 256,350 272,589 326,797 333,000 358,000 380,000

EBIT (73,865) 40,228 82,762 (96,852) (128,544) 6,784 40,237 108,597 3,927 13,920 40,274 63,674 67,382 123,434 161,000 178,000 196,000

Non-operating income 23,264 20,517 19,192 25,120 12,106 9,689 11,351 15,245 7,602 17,020 17,930 13,409 42,152 31,333 28,000 29,000 30,000 Interest and dividend income 12,162 10,767 10,155 13,021 7,920 5,105 8,098 9,633 6,485 2,111 2,413 4,500 4,890 6,356 6,000 7,000 8,000 Other 11,102 9,750 9,037 12,099 4,186 4,584 3,253 5,612 1,117 14,907 15,516 8,906 37,260 24,976 22,000 22,000 22,000

Non-operating expenses 43,456 48,882 47,610 38,563 62,734 34,252 33,045 38,109 26,453 17,960 19,255 16,180 15,631 25,295 25,000 24,000 23,000 Interest expense 35,784 32,609 36,710 29,335 25,601 19,580 20,777 20,468 14,546 13,403 13,215 13,706 10,624 9,345 8,000 7,000 6,000 Other 7,672 16,273 10,900 9,228 37,133 14,672 12,268 17,641 11,907 4,556 6,039 2,473 5,007 15,949 17,000 17,000 17,000

Recurring Profit (94,057) 11,863 54,344 (110,295) (179,172) (17,779) 18,543 85,733 (14,924) 12,980 38,949 60,904 93,903 129,472 164,000 183,000 203,000

Extraordinary income 7,274 9,578 29,651 46,536 8,111 9,152 23,399 9,481 4,490 3,859 1,350 927 12,022 2,291 - - -

Extraordinary loss 320,506 53,316 41,791 13,416 289,845 74,119 18,839 47,064 43,283 5,248 9,878 20,212 36,529 14,568 1,000 - -

Income before income taxes and minority interests (407,289) (31,875) 42,204 (77,175) (460,906) (82,746) 23,103 48,150 (53,717) 11,591 30,422 41,618 69,396 117,194 163,000 183,000 203,000

Total Tax (108,623) (42,654) 3,045 137,846 19,761 7,909 12,303 12,488 1,111 4,290 11,338 15,239 27,769 10,063 29,000 35,000 53,000

Minority interests (20,527) (477) 1,798 403 (5,882) 1,511 2,055 952 55 2,542 3,462 2,450 3,648 2,465 3,000 3,000 3,000

Net Income (278,139) 11,256 37,361 (215,424) (474,785) (92,166) 8,745 34,710 (54,883) 4,758 15,621 23,928 37,978 104,664 131,000 145,000 146,000

Basic EPS (232.77) 7.66 25.35 (145.22) (194.36) (19.75) 1.59 6.30 (9.91) 0.86 2.82 4.32 6.61 156.60 133.21 147.44 148.46 Diluted EPS - 7.42 23.43 - - - 0.96 3.81 - 0.51 1.66 2.40 3.71 104.29 - - -

Average Shares Outstanding 1,194.90 1,470.16 1,473.72 1,483.43 2,442.86 4,666.02 5,491.44 5,509.31 5,537.82 5,537.94 5,537.96 5,537.96 5,751.83 668.37 983.44 983.44 983.44 Period Shares Outstanding 1,470.16 1,470.16 1,483.43 1,483.43 4,253.94 5,491.38 5,491.44 5,537.82 5,537.82 5,537.87 5,537.87 5,537.86 6,078.70 983.44 983.44 983.44 983.44 Book Value Per Share 174.18 184.10 188.95 20.20 (47.34) (31.67) (26.73) (21.81) (40.47) (38.51) (35.90) (32.61) (9.21) 549.63 672.13 799.24 923.29

DPS (Yen) ------25.0 15.0 20.0 25.0 Payout Ratio 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16.0% 11.3% 13.6% 16.8% Total Dividend paid ------24,586 14,752 19,669 24,586

Capital Expenditure 186,353 158,500 121,100 109,300 128,600 108,700 67,600 56,700 71,900 47,100 52,500 71,000 51,400 72,200 90,000 103,000 109,000 Depreciation 154,598 146,537 122,800 94,400 79,600 62,200 69,100 71,900 79,000 69,000 62,700 53,400 50,300 52,700 58,000 65,000 72,000 Research & Development Expenses - 67,233 77,956 68,874 68,775 74,100 67,100 77,600 64,000 44,400 49,400 55,000 59,900 67,500 72,000 81,000 86,000

Source: Company data, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 31 21 August 2014

Figure 70: Mitsubishi Motors (7211) – Balance sheet Balance Sheet (JPY Mn) FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Current assets 1,227,589 1,098,993 960,721 869,396 821,940 842,310 1,059,637 964,137 540,943 673,077 736,579 759,175 878,980 936,561 1,021,000 1,113,000 1,212,000 Cash and deposits 102,180 90,269 81,728 173,514 307,474 259,045 358,058 355,896 167,841 264,323 317,097 311,631 409,509 450,063 510,000 570,000 641,000 Notes and accounts receivable 444,279 347,852 208,150 187,093 150,951 179,101 195,021 174,076 89,607 121,385 114,432 146,182 149,555 173,535 184,000 198,000 210,000 Sales finance receivables - - 34,257 44,451 24,476 39,278 40,480 14,722 30,596 22,139 25,495 26,713 26,856 28,927 31,000 33,000 35,000 Marketable Securities 15,512 6,187 3,737 10,558 4,220 5,365 12,225 5,754 ------Inventories 350,807 304,418 272,682 275,460 233,353 257,946 351,991 299,644 189,119 183,868 189,286 187,462 202,320 207,549 220,000 236,000 250,000 Short-term loans 18,045 26,026 6,708 4,719 2,386 2,047 3,277 113 608 251 7,019 8,990 90 3,261 3,000 3,000 3,000 Deferred tax assets 97,102 71,692 54,955 4,979 1,799 1,206 846 1,040 1,398 2,007 3,218 1,963 3,543 15,445 15,000 15,000 15,000 Other current assets 212,811 265,303 316,920 172,890 111,457 124,127 124,831 123,789 69,305 89,548 90,236 83,494 93,416 61,803 62,000 62,000 62,000 Allowance for doubtful debts (13,147) (12,754) (18,416) (4,268) (14,176) (25,805) (27,092) (10,897) (7,528) (10,448) (10,207) (7,263) (6,312) (4,025) (4,000) (4,000) (4,000)

Fixed Assets 1,754,079 1,795,567 1,464,631 1,159,639 767,346 715,260 719,056 645,271 597,063 585,592 575,932 562,130 573,829 607,329 640,000 678,000 715,000 Property, plant and equipment 1,270,179 1,219,469 832,371 707,717 530,903 506,007 517,464 453,453 439,936 408,234 383,564 376,736 386,903 400,801 433,000 471,000 508,000 Land ------96,494 95,569 101,161 99,173 99,432 101,022 101,000 101,000 101,000 Buildings and structures ------98,855 86,018 85,461 77,580 82,541 79,678 89,000 100,000 110,000 Tools, instruments & fixtures ------71,775 79,156 61,402 45,956 51,977 55,033 61,000 68,000 75,000 Machinery and equipment ------163,687 139,260 127,578 113,112 139,756 148,565 165,000 185,000 204,000 Construction WIP ------9,125 8,228 7,960 40,913 13,196 16,501 17,000 17,000 17,000 Intangible assets 11,024 11,506 42,409 29,719 32,107 25,836 38,530 31,825 16,436 12,435 11,856 11,669 12,894 12,937 13,000 13,000 13,000 Long-term finance receivables - - 87,385 105,612 2,072 8,365 18,872 5,580 24,001 45,196 53,485 53,924 48,228 40,652 41,000 41,000 41,000 Investments and other assets 472,876 564,592 502,466 316,591 202,264 175,052 144,190 154,413 116,690 119,725 127,025 119,798 125,801 152,936 153,000 153,000 153,000 Investment securities 157,214 150,241 213,705 140,252 71,867 74,126 71,460 75,999 54,650 64,820 73,031 72,477 67,251 71,759 72,000 72,000 72,000 Other investments and other assets 337,506 340,510 257,307 250,364 198,610 148,492 82,165 83,123 66,156 60,981 56,032 48,893 64,435 78,190 78,000 78,000 78,000 Deferred tax assets - 91,913 77,644 19,721 6,730 7,413 8,468 9,842 8,206 6,060 9,188 8,889 4,349 9,898 10,000 10,000 10,000 Allowance for doubtful accounts (21,844) (18,072) (46,190) (93,746) (74,943) (54,979) (17,903) (14,551) (12,322) (12,136) (11,226) (10,461) (10,234) (6,911) (7,000) (7,000) (7,000)

Total Assets 2,981,668 2,894,560 2,425,352 2,029,035 1,589,286 1,557,570 1,778,693 1,609,408 1,138,009 1,258,669 1,312,511 1,321,306 1,452,809 1,543,890 1,661,000 1,791,000 1,927,000

Current Liabilities 1,945,182 2,056,647 1,645,674 1,567,099 857,343 867,165 1,110,877 1,030,916 620,093 773,278 700,584 703,457 787,248 720,946 743,000 767,000 799,000 Notes and Accounts payable 633,511 497,524 411,018 345,212 293,853 333,842 451,053 423,729 155,600 265,028 278,595 317,355 313,810 355,724 377,000 405,000 429,000 Short-term loans 839,170 1,015,070 663,377 716,950 277,952 244,362 352,044 296,302 248,626 319,574 219,953 186,689 257,255 153,685 149,000 142,000 141,000 Short-term interest-free borrowings - 14,803 14,433 24,555 ------Commercial paper - - 76,333 106,813 ------Current portion of bonds ------Accrued expenses 276,616 230,176 165,057 156,350 181,250 181,553 194,941 178,508 114,578 101,190 97,159 99,220 106,168 113,893 114,000 114,000 114,000 Taxes payable 7,200 5,287 3,042 1,771 3,157 7,371 7,220 8,115 4,994 3,062 9,016 8,792 8,360 9,522 15,000 18,000 27,000 Revenue advances ------Allowance for product warranty 27,691 27,945 37,476 38,403 49,859 49,589 53,213 50,320 35,561 26,331 28,211 24,753 28,273 31,993 32,000 32,000 32,000 Other current liabilities 160,994 265,842 274,938 177,045 51,272 50,448 52,406 73,942 60,739 58,089 67,636 66,642 73,377 56,124 56,000 56,000 56,000

Long-term liabilities 787,186 551,112 482,008 416,192 396,932 409,147 359,512 250,361 294,888 250,913 363,835 352,228 314,333 272,934 245,000 224,000 204,000 Bonds 272,425 112,699 55,045 42,237 40,941 57,640 53,490 25,800 200 ------Long-term borrowings 215,063 176,822 213,862 196,624 157,078 145,749 98,316 31,806 104,579 73,174 177,995 161,390 107,125 68,672 41,000 20,000 - Deferred tax liabilities 19,062 17,184 10,532 24,751 17,357 18,251 24,259 27,967 18,549 20,750 27,650 26,973 30,103 28,053 28,000 28,000 28,000 Allowance for retirement benefits 202,939 176,558 119,778 112,520 99,295 102,787 105,881 103,295 106,311 106,354 106,921 108,602 111,660 - - - - Allowance for directors' retirement benefits - - - - 1,614 1,958 1,005 936 929 927 912 912 912 912 1,000 1,000 1,000 Other long-term liabilities 77,697 67,849 82,791 40,060 80,647 82,762 76,561 60,557 64,320 49,705 50,354 54,350 64,531 175,294 175,000 175,000 175,000

Shareholders' Equity 272,713 284,261 320,834 96,301 403,836 340,774 349,529 387,564 319,247 324,017 339,805 363,976 401,754 591,453 708,000 833,000 955,000 Common stock 252,201 252,201 252,201 252,201 642,300 657,336 657,342 657,349 657,350 657,355 657,355 657,355 657,355 165,701 166,000 166,000 166,000 Additional paid-in capital 220,816 220,816 224,481 27,513 417,612 432,648 432,654 432,661 432,661 432,666 432,666 432,666 432,666 85,257 85,000 85,000 85,000 Retained earnings (200,304) (188,756) (155,847) (183,410) (656,068) (749,198) (740,454) (702,432) (770,750) (765,988) (750,200) (726,028) (688,049) 340,714 457,000 582,000 704,000 Treasury stock - - (1) (3) (8) (12) (13) (14) (14) (15) (15) (15) (217) (219) - - -

Valuation, currency translation and other adjustments (16,645) (13,598) (40,540) (66,328) (79,054) (72,096) (53,747) (70,751) (105,797) (99,832) (101,030) (106,982) (61,556) (50,921) (47,000) (47,000) (47,000) Unrealized gain on securities 36,400 34,830 33,854 19,917 9,208 9,046 10,132 10,676 1,183 5,494 10,464 11,327 5,222 5,786 6,000 6,000 6,000 Deferred hedge gain/loss ------1,393 3,157 789 (90) 3,055 2,232 2,980 (1,641) (2,000) (2,000) (2,000) Foreign currency translation adjustments (53,045) (48,428) (74,394) (86,245) (88,262) (81,142) (65,272) (84,584) (107,769) (105,236) (114,551) (120,542) (69,759) (51,323) (51,000) (51,000) (51,000)

Minority interests (6,768) 16,138 17,376 15,771 10,229 12,580 12,522 11,318 9,573 10,293 9,318 8,626 11,030 9,477 12,000 14,000 16,000

Total Liabilities & Shareholders' equity 2,981,668 2,894,560 2,425,352 2,029,035 1,589,286 1,557,570 1,778,693 1,609,408 1,138,009 1,258,669 1,312,511 1,321,306 1,452,809 1,543,890 1,661,000 1,791,000 1,927,000

Source: Company data, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 32 21 August 2014

Figure 71: Mitsubishi Motors (7211) – Cash flow statement Mitsubishi Motor Co. Ltd (7211) Cash Flow Statement FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Operating activities Income before income taxes (407,289) (31,875) 42,204 (77,175) (460,906) (82,746) 23,103 48,150 (53,717) 11,591 30,422 41,618 69,396 117,194 163,000 183,000 203,000 Depreciation and amortization 154,598 146,537 193,265 139,471 97,484 69,486 75,035 74,871 84,408 71,850 65,862 56,741 54,324 59,211 58,000 65,000 72,000 Change in allowance for doubtful accounts 8,089 (5,184) 50,709 34,043 (9,125) (9,345) (15,201) (14,664) (3,194) (551) 375 (2,775) (1,596) (2,445) - - - Change in accrued retirement benefits 109,160 (24,888) 8,321 (6,878) (11,722) 1,763 (650) 2,485 2,445 (52) 732 1,713 2,676 - - - - Interest and dividends received (12,162) (10,767) (10,155) (13,021) (7,920) (5,105) (8,098) (9,633) (6,485) (2,111) (2,414) (4,501) (4,890) (6,356) (6,000) (7,000) (8,000) Interest expense 35,784 32,609 36,710 29,335 25,601 19,580 20,777 20,468 14,546 13,403 13,215 13,706 10,624 9,345 8,000 7,000 6,000 Exchange gains and losses 293 1,404 241 1,995 2,007 (227) 119 (1,438) 2 3,269 2,099 199 10,467 (7,507) - - - Equity method investment gains (3,164) (4,352) (2,373) (9,573) 13,002 (1,453) (2,166) (4,447) (367) (4,544) (5,914) (5,932) (4,853) (7,373) (7,000) (7,000) (7,000) Net gain/loss on sale and disposal of fixed assets 3,629 (187) 3,358 4,022 16,189 (1,862) 2,003 2,602 2,968 (736) 669 1,807 5,032 4,038 - - - Net loss on sale of shares and investment securities (7,750) (3,998) (20,624) (40,010) (1,331) (391) (5,036) (74) - (138) - - (11,533) (205) - - - Valuation loss on investment securities 5,706 1,377 10,401 527 446 335 451 508 - 20 ------Change in trade receivables 87,700 107,132 (23,725) 19,162 39,597 (19,550) 5,618 5,348 63,144 (27,975) 191 (36,490) 14,919 (23,910) (10,000) (14,000) (12,000) Change in inventories 7,131 65,361 (44,595) 3,330 53,402 (5,881) (55,334) 52,955 57,073 12,113 (6,171) (4,754) 5,976 (1,187) (12,000) (16,000) (14,000) Change in trade payables 87,050 (162,793) 59,563 (61,669) (57,396) 30,210 69,297 (24,114) (229,035) 107,557 19,044 42,703 (22,208) 42,135 21,000 28,000 24,000 Other 88,446 15,767 (250,177) (4,518) 334,927 74,900 71,088 55,044 (12,485) (67,159) 2,017 33,404 66,107 50,966 51,000 51,000 51,000 Interest and dividends received 12,404 10,381 6,430 11,914 12,578 6,444 10,135 11,478 8,613 2,785 4,952 9,445 7,218 9,396 6,000 7,000 8,000 Interest paid (35,441) (32,816) (34,289) (27,146) (28,505) (19,048) (20,914) (21,959) (14,530) (13,599) (13,195) (13,966) (10,826) (9,453) (8,000) (7,000) (6,000) Income taxes paid (6,896) (11,726) (7,668) (5,260) (4,675) (2,680) (7,881) (9,301) (6,727) (5,006) (8,079) (13,532) (18,608) (23,404) (20,000) (32,000) (44,000) Net cash used in operating activities 127,288 91,982 17,596 (1,451) 13,653 54,430 162,346 188,279 (93,335) 100,716 103,811 119,386 172,227 210,443 203,000 174,000 185,000

Investing activities Increase in time deposits 79 633 14 (1,248) (18,920) 3,045 12,085 5,523 (13,720) 12,267 494 (5) (40,203) 9,583 5,000 5,000 5,000 Purchases of securities (1,072) (259) (189) ------Proceeds from sale of marketable securities 2,887 75 - 4 ------Purchases of tangible fixed assets (157,483) (155,840) (188,935) (134,785) (140,760) (133,924) (111,594) (86,622) (91,224) (44,279) (53,263) (72,452) (61,573) (90,695) (90,000) (103,000) (109,000) Proceeds from disposal of tangible fixed assets 94,936 124,899 123,013 83,080 111,788 45,839 40,274 28,549 16,686 13,941 9,870 8,403 8,528 14,715 10,000 10,000 10,000 Purchases of investment securities (2,259) (2,640) (2,546) (8,630) (2,176) (3,156) (3,914) (1,353) (559) - (2) - (944) - - - - Proceeds from sale of investment securities 10,929 10,439 20,703 110,689 9,477 2,990 9,872 2,643 445 260 - 20 12,563 221 1,000 1,000 1,000 Purchases of investments in resulting in changes in scope (15,650) (3,558) - (1,623) - - (5,414) - - - - - (21,587) (2,265) - - - Change in short term loans - - - - 5,009 741 (2,646) 2,613 (1,027) 349 (6,510) (3,671) 8,651 (1,625) - - - Payments for loans (624,193) (795,174) (2,876) (6,674) (444) (2,017) (68) (1,738) (811) (13) - - - (6,294) (1,000) (1,000) (1,000) Proceeds from loans receivable 605,508 821,927 3,877 7,106 1,616 1,584 1,974 1,076 714 413 320 265 302 705 1,000 1,000 1,000 Other (5,123) (5,384) 64,485 (1,091) 203 86 13,412 443 (5,291) (5,263) (3,500) (1,629) (20,063) (5,697) 6,000 6,000 6,000 Net cash used in investing activities (91,441) (4,882) 17,546 46,828 (34,207) (84,812) (46,019) (48,866) (94,787) (22,325) (52,590) (69,069) (114,327) (81,352) (68,000) (81,000) (87,000)

Financing activities Change in short-term borrowings (140,871) 137,871 89,601 55,151 (425,649) (48,192) (13,564) 508 (28,135) (52,161) 2,580 (34,321) 21,552 (5,790) (5,000) (7,000) (1,000) Proceeds from long-term debt 18,455 44,076 95,599 168,384 116,277 21,957 68,823 4,542 114,435 171,800 206,691 83,776 85,169 2,925 - - - Repayment of long-term borrowings (70,773) (113,190) (124,626) (126,378) (278,919) (40,471) (61,530) (127,934) (59,965) (54,243) (194,243) (94,680) (106,473) (142,824) (28,000) (21,000) (20,000) Proceeds from issuance of bonds 163,174 182,423 97,656 106,105 3,697 19,729 ------Redemption of bonds (186,218) (363,579) (187,870) (146,456) (49,147) (1,596) (4,934) (8,700) (22,790) (25,600) (200) ------Proceeds from issue of shares 201,745 - - - 767,344 29,704 ------254,111 - - - Dividends paid ------Dividends paid to minority shareholders - - - (130) (40) (33) (79) (98) (585) (1,671) (3,029) (3,014) (3,562) (4,313) (3,000) (4,000) (5,000) Other (78) (245) (2,401) (1) (5) (53) (3) (911) (7,941) (7,242) (6,761) (4,339) (4,995) (186,191) (5,000) (5,000) (5,000) Net cash used in financing activities (14,566) (112,644) (32,041) 56,675 133,558 (18,955) (11,287) (132,593) (4,981) 30,881 5,037 (52,579) (8,310) (82,083) (41,000) (37,000) (31,000)

Effect of exchange rate changes on cash and cash equivalents 4,395 4,870 (14,263) (2,242) (12) 2,557 11,326 (10,186) (13,793) (584) (3,381) (3,208) 546 3,520 4,000 4,000 4,000

Net increase (decrease) in cash and cash equivalents 25,676 (20,674) (11,162) 99,810 112,992 (46,780) 116,366 (3,366) (206,902) 108,688 52,875 (5,471) 50,136 50,527 98,000 60,000 71,000

Cash and cash equivalents at beginning of the period 89,590 115,863 95,189 84,544 181,911 294,903 248,069 364,268 360,902 154,666 263,453 316,464 310,993 361,167 412,000 510,000 570,000

Effect due to change in the fiscal period of consolidated subsidiaries 597 - 517 (2,443) - (54) (167) - 666 25 22 ------73 112 - 37 - - - -

Cash and cash equivalents at end of the period 115,863 95,189 84,544 181,911 294,903 248,069 364,268 360,902 154,666 263,453 316,464 310,993 361,167 411,695 510,000 570,000 641,000

Source: Company data, Credit Suisse estimates

Figure 72: Mitsubishi Motors (7211) – Financial indicators Mitsubishi Motor Co. Ltd (7211) Ratio FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

MOS Current ratio 63.1% 53.4% 58.4% 55.5% 95.9% 97.1% 95.4% 93.5% 87.2% 87.0% 105.1% 107.9% 111.7% 129.9% 137.4% 145.1% 151.7% Quick ratio 28.2% 21.0% 16.7% 23.4% 52.3% 48.2% 48.4% 50.9% 40.3% 48.5% 60.1% 64.0% 70.2% 85.9% 92.9% 99.6% 106.0% Cash ratio 6.1% 4.7% 5.2% 11.7% 36.4% 30.5% 33.3% 35.1% 27.1% 34.2% 45.3% 44.3% 52.0% 62.4% 68.6% 74.3% 80.2% Fixed ratio 643.2% 631.7% 456.5% 1204.2% 190.0% 209.9% 205.7% 166.5% 187.0% 180.7% 169.5% 154.4% 142.8% 102.7% 90.4% 81.4% 74.9% LT fixed ratio 165.5% 214.9% 182.4% 226.3% 95.8% 95.4% 101.4% 101.2% 97.2% 101.9% 81.9% 78.5% 80.1% 70.3% 67.2% 64.1% 61.7% Equity / total assets 9.1% 9.8% 13.2% 4.7% 25.4% 21.9% 19.7% 24.1% 28.1% 25.7% 25.9% 27.5% 27.7% 38.3% 42.6% 46.5% 49.6% Debt / equity ratio 1001.9% 917.4% 663.2% 2059.5% 310.6% 374.5% 420.7% 330.6% 286.6% 316.1% 313.2% 290.0% 274.2% 168.0% 139.5% 119.0% 105.0% Leverage 4.4 4.3 2.6 8.0 0.4 0.5 0.4 (0.0) 0.6 0.4 0.2 0.1 (0.1) (0.4) (0.5) (0.5) (0.5) Net debt / EBITDA 15.0 6.5 3.1 18.1 (5.3) 2.4 1.2 (0.0) 2.1 1.5 0.8 0.3 (45,129.0) (227,706) (320,000) (1.7) (1.9)

Turnovers Days A/R turnover 49.5 39.7 19.6 27.1 26.0 30.8 32.3 23.7 16.6 30.6 22.8 29.5 30.1 30.3 30.3 30.3 30.3 Inventory turnover 39.1 34.7 25.6 39.9 40.1 44.4 58.3 40.8 35.0 46.4 37.8 37.9 40.7 36.2 36.2 36.1 36.1 A/P turnover 70.6 56.7 38.6 50.0 50.5 57.5 74.7 57.7 28.8 66.9 55.6 64.1 63.1 62.0 62.0 62.0 61.9

Capital Return OPM -2.3% 1.3% 2.1% -3.8% -6.1% 0.3% 1.8% 4.0% 0.2% 1.0% 2.2% 3.5% 3.7% 5.9% 7.3% 7.5% 7.8% Asset turnover 0.0% 108.9% 146.1% 113.1% 117.3% 134.7% 132.1% 158.3% 143.7% 120.6% 142.2% 137.2% 130.9% 139.7% 138.5% 138.2% 136.0% ROA 0.0% 0.4% 1.4% -9.7% -26.2% -5.9% 0.5% 2.0% -4.0% 0.4% 1.2% 1.8% 2.7% 7.0% 8.2% 8.4% 7.9% Financial leverage 0.0% 1115.6% 965.6% 1435.7% 1019.9% 530.3% 591.1% 553.1% 518.1% 547.6% 555.4% 531.3% 464.5% 340.3% 266.7% 238.6% 219.5% ROE 0.0% 4.3% 13.6% -138.9% -267.7% -31.1% 3.1% 11.3% -20.7% 2.2% 6.7% 9.7% 12.7% 23.8% 21.8% 20.0% 17.2%

Source: Company data, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 33 21 August 2014

Figure 73: Mitsubishi Motors (7211) – Segment information Mitsubishi Motor Co. Ltd (7211) Segment Information FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E - Sales by segment Automotive 3,194,059 3,106,403 3,809,763 2,443,342 2,086,052 2,080,884 2,154,673 2,657,458 1,961,564 1,434,736 1,817,949 1,796,894 1,805,073 2,081,212 2,205,017 2,370,988 2,513,399 Business Finance 93,962 99,326 78,146 72,626 40,193 39,183 47,947 24,590 11,891 10,878 10,754 10,398 10,059 12,157 14,221 15,291 16,210 Eliminations (11,305) (5,030) (3,035) 3,481 (3,619) 1 249 55 117 1 (206) - (19) 38 (465) (501) (532) Total 3,276,716 3,200,699 3,884,874 2,519,449 2,122,626 2,120,068 2,202,869 2,682,103 1,973,572 1,445,616 1,828,497 1,807,293 1,815,113 2,093,409 2,218,771 2,385,777 2,529,077 - Operating profit by segment Automotive (70,527) 49,876 124,361 (50,865) (104,306) (6,142) 17,683 95,778 3,390 11,493 37,821 60,348 64,997 121,879 159,596 176,274 193,728 Business Finance 365 (5,008) (40,137) (49,880) (21,066) 10,418 22,305 12,763 419 2,425 2,659 3,471 2,403 1,516 1,590 1,826 2,072 Eliminations (3,703) (4,641) (1,463) 3,892 (3,172) 2,507 249 55 117 1 (206) (144) (19) 38 (96) (96) (94) Total (73,865) 40,228 82,762 (96,852) (128,544) 6,784 40,237 108,597 3,927 13,920 40,274 63,674 67,382 123,434 161,090 178,004 195,706

Operating profit margin by segment Automotive -2.2% 1.6% 3.3% -2.1% -5.0% -0.3% 0.8% 3.6% 0.2% 0.8% 2.1% 3.4% 3.6% 5.9% 7.2% 7.4% 7.7% Business Finance 0.4% -5.0% -51.4% -68.7% -52.4% 26.6% 46.5% 51.9% 3.5% 22.3% 24.7% 33.4% 23.9% 12.5% 11.2% 11.9% 12.8% Eliminations 32.8% 92.3% 48.2% 111.8% 87.6% 250700.0% 100.0% 100.0% 100.0% 100.0% 100.0% #DIV/0! 100.0% 100.0% 20.5% 19.1% 17.7% Total -2.3% 1.3% 2.1% -3.8% -6.1% 0.3% 1.8% 4.0% 0.2% 1.0% 2.2% 3.5% 3.7% 5.9% 7.3% 7.5% 7.7%

Sales by location 3,276,716 3,200,699 3,884,874 2,519,449 2,122,626 2,120,068 2,202,869 2,682,103 1,973,572 1,445,616 1,828,497 1,807,293 1,815,113 2,093,409 2,218,771 2,385,777 2,529,077 Japan 2,436,967 2,198,819 2,354,208 1,564,860 1,258,275 1,352,182 1,515,221 2,021,524 1,600,176 1,243,926 1,557,329 1,515,165 1,444,627 1,744,352 1,715,965 1,656,456 1,656,456 North America 911,158 896,668 1,205,049 599,675 435,311 401,229 423,941 392,765 232,063 165,984 182,013 188,705 175,096 267,262 314,693 355,592 381,398 Europe 395,265 543,107 761,760 656,241 670,218 597,585 681,155 657,169 356,143 190,968 223,740 203,692 120,849 128,651 119,280 131,335 142,249 Asia 152,903 157,693 238,731 183,767 198,554 228,498 292,885 358,339 305,006 274,500 410,001 448,171 659,364 616,680 716,740 828,825 906,236 Oceania 163,796 162,151 163,719 209,093 156,724 140,393 147,413 Other 230,257 228,386 297,396 181,960 160,679 166,249 164,090 207,173 173,396 181,955 29,611 24,981 27,632 30,414 38,192 43,047 45,199 Eliminations (849,837) (823,974) (972,270) (667,054) (600,411) (625,675) (874,423) (954,867) (693,212) (611,717) (737,993) (735,574) (776,177) (903,044) (842,827) (769,872) (749,875)

Operating profit by location (73,865) 40,228 82,762 (96,852) (128,544) 6,784 40,237 108,597 3,927 13,920 40,274 63,674 67,382 123,434 161,090 178,004 195,706 Japan (61,246) 22,795 46,255 19,933 (73,561) (10,857) (5,136) 82,891 2,561 (9,846) (13,342) 25,796 9,253 68,387 72,910 67,221 64,221 North America 33,559 45,538 33,775 (125,970) (74,256) (3,891) 5,466 (10,586) (23,605) (4,379) (2,972) 1,249 (6,005) 2,718 6,959 6,169 4,256 Europe (30,278) (17,971) (10,547) 14,105 (192) 9,288 25,327 20,255 (4,461) 5,061 18,629 8,442 11,285 8,225 6,120 10,062 13,248 Asia (1,901) 492 11,968 12,415 21,602 15,220 20,260 19,894 20,618 13,616 35,284 35,296 57,253 42,300 51,968 60,470 68,528 Oceania 5,193 1,363 (2,576) 4,682 7,455 7,237 7,057 Other (9,077) (2,298) 6,073 (16,731) (11,450) (5,031) (3,563) (4,711) 1,056 8,570 1,903 1,090 979 1,046 671 3,604 6,684 Eliminations (4,922) (8,329) (4,763) (604) 9,313 2,054 (2,117) 853 7,757 898 (4,421) (9,564) (2,807) (3,927) 15,005 23,242 31,711

Operating profit margin by location -2.3% 1.3% 2.1% -3.8% -6.1% 0.3% 1.8% 4.0% 0.2% 1.0% 2.2% 3.5% 3.7% 5.9% 7.3% 7.5% 7.7% Japan -2.5% 1.0% 2.0% 1.3% -5.8% -0.8% -0.3% 4.1% 0.2% -0.8% -0.9% 1.7% 0.6% 3.9% 4.2% 4.1% 3.9% North America 3.7% 5.1% 2.8% -21.0% -17.1% -1.0% 1.3% -2.7% -10.2% -2.6% -1.6% 0.7% -3.4% 1.0% 2.2% 1.7% 1.1% Europe -7.7% -3.3% -1.4% 2.1% 0.0% 1.6% 3.7% 3.1% -1.3% 2.7% 8.3% 4.1% 9.3% 6.4% 5.1% 7.7% 9.3% Asia -1.2% 0.3% 5.0% 6.8% 10.9% 6.7% 6.9% 5.6% 6.8% 5.0% 8.6% 7.9% 8.7% 6.9% 7.3% 7.3% 7.6% Oceania 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 0.8% -1.6% 2.2% 4.8% 5.2% 4.8% Other -3.9% -1.0% 2.0% -9.2% -7.1% -3.0% -2.2% -2.3% 0.6% 4.7% 6.4% 4.4% 3.5% 3.4% 1.8% 8.4% 14.8% Eliminations 0.6% 1.0% 0.5% 0.1% -1.6% -0.3% 0.2% -0.1% -1.1% -0.1% 0.6% 1.3% 0.4% 0.4% -1.8% -3.0% -4.2%

Source: Company data, Credit Suisse estimates

Figure 74: Mitsubishi Motors (7211) – Wholesale volume assumptions Wholesale Volume (K Units) FY12 FY13 FY14E FY15E FY16E Japan 176 313 325 314 314 North America 81 105 117 132 141 Europe 213 216 232 256 277 Asia 402 354 418 462 505 Others 248 269 275 289 303 Total 1,120 1,257 1,367 1,453 1,540

YoY FY12 FY13 FY14E FY15E FY16E Japan -4.3% 77.8% 4.0% -3.5% 0.0% North America -22.1% 29.6% 11.0% 13.3% 7.0% Europe -12.0% 1.4% 7.6% 10.3% 8.0% Asia 24.5% -11.9% 18.0% 10.5% 9.3% Others 13.2% 8.5% 2.3% 5.0% 5.0% Total 4.5% 12.2% 8.8% 6.3% 6.0% Source: Company data, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 34 21 August 2014

Figure 75: Factors contributing to change in OP OP Factor Analysis (Mn Yen) FY12 FY13 FY14E FY15E FY16E Volume / Mix / Others 12,300 (4,800) 17,200 26,400 25,400 Selling Expenses (16,100) (30,300) (8,800) (16,100) (16,200) Forex (3,400) 65,900 12,800 (1,600) - Cost Reduction 43,200 40,400 33,500 31,800 32,100 Others (32,300) (15,200) (17,134) (23,500) (23,300) Total 3,700 56,000 37,566 17,000 18,000 OP 67,382 123,434 161,000 178,000 196,000

Source: Company data, Credit Suisse estimates

Figure 76: Forex impact estimates on our FY3/15E OP Forex Impact (Mn Yen) Sensitivity FY13 FY14E Impact USD 2,000 100 102 4,000 EUR 1,300 134 138 5,200 AUD 1,200 93 93 - THB (45,000) 3.19 3.17 900 GBP 250 159 171 3,000 CAD 375 95 94 (375) NZD 200 82 88 1,200 RUB 13,000 3.01 2.80 (2,730) Others 1,605 Total 12,800

Source: Company data, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 35 21 August 2014 Valuation Looking broadly undervalued Target price of ¥1,500 derived from 2.24x fair-value P/B, implies P/E of 11.3x We base our ¥1,500 TP on a target P/B of 2.24x and our FY3/15 BPS estimate of ¥672. We arrive at this multiple by applying a 9% discount to the fair-value P/B of 2.46x derived from our 19.5% ROE forecast for FY3/15 (after normalization of the effective tax rate) and a 7.9% cost of capital. This 9% discount is in turn based on MMC’s P/E relative to the auto sector over the past six months, while the 7.9% cost of capital assumes a beta of 1.13, ERP of 6.5%, and RFR of 0.61%. The implied P/E is 11.3x. However, MMC is currently trading on a P/E of 8.6x, well below both the aforementioned implied P/E and the 10.2x average for Japanese automakers in our coverage. Even based on EPS adjusted for a normalized effective tax rate, the P/E on our FY3/15 EPS estimate is 9.6x, which is still below the average. At 1.7x, the P/B on our FY3/15 BPS is above the sector average, but remains at an attractive level when we take the high ROE into account. Also, the stock is trading at an EV/EBITDA ratio of 3.7x our FY3/15 estimates, and this too is substantially lower than the sector average (5.7x).

Figure 77: Valuation summary Company Rating Share Price Target Price Return PER (x) PBR (x) ROE (%) EV/EBITDA 8/20/2014 % FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 Toyota Motor OUTPERFORM 5,951 7,550 26.9% 10.3 9.4 8.2 1.3 1.2 1.1 13.7% 13.2% 13.8% 6.0 5.5 4.9 OUTPERFORM 1,457 1,800 23.5% 9.4 10.4 9.6 2.5 2.2 1.9 29.5% 22.0% 20.8% 6.2 5.0 4.4 Mitsubishi Motors OUTPERFORM 1,140 1,500 31.6% 7.3 8.6 7.7 2.1 1.7 1.4 23.8% 21.8% 20.0% 4.7 3.7 2.9 Mazda Motor OUTPERFORM 2,420 3,000 24.0% 10.7 7.9 8.2 2.2 1.8 1.5 20.6% 24.9% 19.5% 6.7 5.7 4.9 Honda Motor OUTPERFORM 3,499 4,350 24.3% 11.0 9.6 8.2 1.1 1.0 0.9 10.5% 10.6% 11.4% 9.9 8.7 7.7 Fuji Heavy Industries OUTPERFORM 2,927 3,850 31.5% 11.1 9.1 8.7 3.0 2.3 1.9 30.4% 28.6% 24.1% 5.3 4.5 4.1 Nissan Motor NEUTRAL 1,007 1,100 9.2% 10.8 9.7 8.6 1.0 0.9 0.8 9.6% 9.7% 10.2% 10.3 9.8 8.9 Isuzu Motors NEUTRAL 725 750 3.4% 10.3 11.0 9.8 1.9 1.7 1.5 20.5% 16.4% 16.0% 3.9 4.4 3.8 Daihatsu Motor NEUTRAL 1,774 1,850 4.3% 9.0 8.6 8.6 1.4 1.2 1.1 15.9% 15.1% 13.7% 3.9 3.1 2.6 Suzuki Motor NEUTRAL 3,364 3,050 -9.3% 17.6 14.7 13.7 1.4 1.3 1.2 8.7% 9.3% 9.3% 3.1 4.8 4.2 Yamaha Motor UNDERPERFORM 1,905 1,450 -23.9% 15.1 13.4 10.8 1.8 1.6 1.5 13.0% 12.8% 14.2% 8.2 7.5 6.0 11.1 10.2 9.3 1.8 1.5 1.3 17.8% 16.8% 15.7% 6.2 5.7 4.9 Source: Company data, Thomson Reuters, Credit Suisse estimates

Figure 78: Performance summary Company Rating Share Price Target Price Return Maket Cap. Return (%) JPY JPY % JPY Million 1M 3M 6M 1Y 2Y 3Y 8/20/2014 Toyota Motor OUTPERFORM 5,951 7,550 26.9% 18,746 -0.9% 7.7% -0.5% -3.4% 83.4% 115.0% Hino Motors OUTPERFORM 1,457 1,800 23.5% 834 5.0% 14.9% -5.1% 10.3% 148.2% 264.3% Mitsubishi Motors OUTPERFORM 1,140 1,500 31.6% 1,121 1.8% 9.3% 2.8% 0.1% 46.2% 22.6% Mazda Motor OUTPERFORM 2,420 3,000 24.0% 2,037 -0.8% 13.3% -1.8% 18.6% 399.0% 200.6% Honda Motor OUTPERFORM 3,499 4,350 24.3% 6,306 -2.0% 0.7% -5.4% -4.0% 32.2% 45.6% Fuji Heavy Industries OUTPERFORM 2,927 3,850 31.5% 2,284 1.2% 15.4% 4.6% 21.3% 342.1% 511.1% Nissan Motor NEUTRAL 1,007 1,100 9.2% 4,221 2.0% 10.9% 9.6% 0.5% 27.6% 54.2% Isuzu Motors NEUTRAL 725 750 3.4% 1,229 7.9% 20.9% 14.9% 18.1% 74.4% 126.7% Daihatsu Motor NEUTRAL 1,774 1,850 4.3% 756 0.5% 1.1% 7.8% -5.8% 32.7% 42.0% Suzuki Motor NEUTRAL 3,364 3,050 -9.3% 1,887 2.5% 14.6% 28.7% 51.2% 116.0% 121.0% Yamaha Motor UNDERPERFORM 1,905 1,450 -23.9% 665 9.2% 23.1% 24.8% 45.9% 149.3% 69.2% 2.4% 12.0% 7.3% 13.9% 131.9% 142.9% Source: Company data, Thomson Reuters, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 36 21 August 2014

Valuations also attractive vs. global peers MMC is also undervalued in terms of P/B versus ROE relative to many of its global peers (our global auto sector coverage encompasses Toyota Motor, Nissan Motor, Mazda Motor, Honda Motor, Fuji Heavy Industries, Nissan Motor, Isuzu Motors, Daihatsu Motor, Suzuki Motor, Yamaha Motor, Renault, PSA, Fiat, Volkswagen, Daimler, BMW, India, Tata Motors, Mahindra & Mahindra, Hyundai Motor, Kia Motors, Geely Automobile Holdings, Great Wall Motors, Brilliance China Automotive Holdings, Dongfeng Motor Group, Guangzhou Automobile Group, BYD, Ford Motor, and General Motors).

Figure 79: Valuations also look attractive in comparison with global peers 4.5 PBR

4.0

3.5

3.0

2.5

2.0

1.5 MMC

1.0

0.5 ROE 0.0 0% 5% 10% 15% 20% 25% 30% 35% 40%

Source: Company data, Thomson Reuters, Credit Suisse estimates

Mitsubishi Motors (7211 / 7211 JP) 37 21 August 2014 Risks Risks include volume, forex, materials costs, recalls, natural disasters Lower-than-expected sales volume Sales volume could fall short of expected levels if the reactive decline in demand following the consumption tax hike drags on longer than anticipated. Similarly, the impact of a 2H launch for the new Triton could be muted if recovery in the flagging Thai market is slow. MMC’s exposure to the Russian market could also cause sales volume to fall below projected levels. Forex We continue to assume USD/JPY of 102 and EUR/JPY of 138. Yen appreciation against these currencies could adversely affect earnings. We also assume THB/JPY of 3.17. As MMC incurs a large portion of its costs in Thailand, in this case earnings would be squeezed by a weaker yen. MMC’s earnings could also be depressed by greater-than- expected weakening of other emerging market currencies, although this is reflected to a certain extent in guidance. Sharply higher input prices MMC is a heavy user of steel, aluminum, and various precious metals. Accordingly, fluctuations in contract and market prices could affect earnings. Product recalls, accidents, natural disasters Earnings could also deteriorate due to product recalls, accidents, and natural disasters.

Mitsubishi Motors (7211 / 7211 JP) 38 21 August 2014

Companies Mentioned (Price as of 20-Aug-2014) BMW (BMWG.DE, €88.61) BYD Co Ltd (1211.HK, HK$51.75) Brilliance China Automotive Holdings Limited (1114.HK, HK$14.52) Daihatsu Motor (7262.T, ¥1,774) Daimler (DAIGn.DE, €61.33) Dongfeng Motor Group Company Limited (0489.HK, HK$14.1) Fiat (FIA.MI, €7.13) (F.N, $17.41) Fuji Heavy Industries (7270.T, ¥2,927) GMMC (Unlisted) Geely Automobile Holdings Ltd (0175.HK, HK$3.09) General Motors Corp. (GM.N, $34.53) Greatwall Ele (600192.SS, Rmb10.42) Guangzhou Automobile Group (2238.HK, HK$8.71) Hino Motors (7205.T, ¥1,457) Honda Motor (7267.T, ¥3,499) Hyundai Motor (005380.KS, W226,000) Isuzu Motors (7202.T, ¥725) JAC Group (Unlisted) Kia Motors (000270.KS, W60,500) Mahindra & Mahindra (MAHM.BO, Rs1357.95) Maruti Suzuki India Ltd (MRTI.BO, Rs2742.4) Mazda Motor (7261.T, ¥2,420) Mitsubishi Fuso (Unlisted) Mitsubishi Motors (7211.T, ¥1,140, OUTPERFORM, TP ¥1,500) NMKV (Unlisted) Nissan Motor (7201.T, ¥1,007) P.T. Krama Yudha Ratu Motors (Unlisted) Renault (RENA.PA, €59.42) Renault Samsung Motors (Unlisted) SAIC Motor Corp Ltd (600104.SS, Rmb16.9) Suzuki Motor (7269.T, ¥3,364) Tata Motors Ltd. (TAMO.BO, Rs511.65) Tesla Motors Inc. (TSLA.OQ, $255.71) Toyota Motor (7203.T, ¥5,951) Volkswagen (VOWG_p.DE, €171.6) (VOLVY.PK, $12.53) Yamaha Motor (7272.T, ¥1,905) psa citroen (Unlisted)

Disclosure Appendix Important Global Disclosures I, Masahiro Akita, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 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.

Mitsubishi Motors (7211 / 7211 JP) 39 21 August 2014

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

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Price Target: (12 months) for Mitsubishi Motors (7211.T) Method: We base our ¥1,500 target price for Mitsubishi Motors on a fair-value P/B of 2.24x applied to end-FY3/15E BPS of ¥672. We apply a 9% discount to a theoretical P/B of 2.46x derived from adjusted FY3/15E ROE of 19.5% (assumes normal tax rate) and 7.9% COE. (The 9% discount assume that buyers will aim for a 9% return with targeting at the theoretical price.) Risk: Risks to our ¥1,500 target price for Mitsubishi Motors include: weaker-than-expected sales in Russia, currency fluctuations, and raw material price hikes.

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 Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (7211.T) within the next 3 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 (7211.T) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Mitsubishi Motors (7211 / 7211 JP) 40 21 August 2014

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7211_082114_MMC Mitsubishi Motors (7211 / 7211 JP) Initiation_E.doc42