07 June 2013 Asia Pacific/Japan Equity Research Non Ferrous Metals (Non Ferrous Metals (Japan)) / MARKET WEIGHT Mitsubishi Materials (5711 / 5711 JP) Rating OUTPERFORM Price (07 Jun 13, ¥) 315 COMPANY UPDATE Target price (¥) 470¹ Chg to TP (%) 49.2 Market cap. (¥ bn) 412.91 (US$ 4.28) Record high cement export price could mean Enterprise value (¥ bn) 1,000.19 Number of shares (mn) 1,310.82 guidance-beating profits at cement business Free float (%) 75.0 52-week price range 376 - 195 ■ Hikes in export price since start of 2012 improve export spread by *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¥1,200/ton: Many market participants are bullish on the outlook for price ¹Target price is for 12 months. hikes and expect Mitsubishi Materials' cement business to benefit from firm Research Analysts demand both in Japan and the US. However, a lot of investors are unaware Shinya Yamada that the export spread has rebounded to a 10-year high. The export price 81 3 4550 9910 has risen by ¥1,100 since the start of 2012 (improving the ex-coal price [email protected] spread by ¥1,200), far exceeding the increase in the domestic price. This Kazumasa Okumoto improvement in export business should be a positive surprise for the cement 81 3 4550 7266 [email protected] business, and as such, we maintain our OUTPERFORM rating. ■ Highly competitive in cement exports: We believe that Mitsubishi Materials is highly competitive in exports, as its Kyushu cement works is Japan's largest and is located on the coast, close to the company's customers in Asia. The company exports 29% of its cement output, the highest weighting among the three majors (17% at Taiheiyo Cement, 10% at Sumitomo Osaka Cement), and should therefore benefit the most from the recent rise in the export price. ■ Domestic demand for cement will likely continue to grow: We see the recovery trend in domestic cement demand strengthening over the long term, as the replacement cycle, which can be estimated from cumulative cement volume and annual consumption, is 74 years, far longer than cement's lifespan (60 years). We believe that domestic demand will recover before 60 years, and that there could be major disasters if demand fails to pick up. DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS ® BEYOND INFORMATION Client-Driven Solutions, Insights, and Access 07 June 2013 Figure 1: Cement export price increasing 50 (USD/t) (JPY/t) 6,000 5,000 40 4,000 30 3,000 20 2,000 10 1,000 Export price, USD/t (LHS) JPY/t (RHS) 0 0 '90/1 '94/1 '98/1 '02/1 '06/1 '10/1 Source: MoF Figure 2: Export spread surging 2,800 (JPY/t) 2,600 2,400 2,200 2,000 1,800 1,600 1,400 Export spread 1,200 1,000 '06/1 '13/1 '04/1 '05/1 '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '03/1 Source: MoF Mitsubishi Materials (5711 / 5711 JP) 2 07 June 2013 Figure 3: Clinker production capacity MITSUBISHI MATERIALS KYUSHU TAIHEIYO CEMENT OITA UBE Industries ISA TAIHEIYO CEMENT KAMIISO SUMITOMO OSAKA CEMENT KOCHI TOKUYAMA NANYO SUMITOMO OSAKA CEMENT AKO TOSOH NANYO DENKA OUMI TAIHEIYO CEMENT OFUNATO TAIHEIYO CEMENT FUJIWARA TAIHEIYO CEMENT KUMAGAI MYOJYO CEMENT ITOIGAWA UBE Industries KANDA UBE Industries UBE TAIHEIYO CEMENT SAITAMA ASO CEMENT TAGAWA HACHINOHE CEMENT HACHINOHE SUMITOMO OSAKA CEMENT GIFU MITSUBISHI MATERIALS YOKOZE KANDA CEMENT KANDA NS CEMENT MURORAN DC KAWASAKI HITACHI CEMENT HITACHI SUMITOMO OSAKA CEMENT TOCHIGI NSSMC CEMENT KOKURA RYUKYU CEMENT OBU TSURUGA CEMENT TSURUGA MITSUBISHI MATERIALS AOMORI MITSUBISHI MATERIALS IWATE 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 （1000トン/年） Source: Company data Figure 4: Renewal cycle expanding (year) 120 China Japan Korea Taiwan 100 US Brazil Italy Germany 80 Spain France UK 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 (year) Note: Cement renewal cycle is based on annual consumption and reserve Source: Company data, Credit Suisse estimates Mitsubishi Materials (5711 / 5711 JP) 3 07 June 2013 Figure 5: Earnings forecast summary Sales Operating profit Recurring profit Net profit EPS ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) Consolidated Mar-11 1,333,992 57,290 56,425 14,274 10.9 Mar-12 1,440,847 8.0 52,293 -8.7 42,495 -24.7 9,565 -33.0 7.3 -33.0 Mar-13 A 1,287,251 -10.7 52,500 0.4 74,414 75.1 36,948 286.3 28.2 286.5 Mar-14 CS E 1,532,000 19.0 76,500 45.7 87,000 16.9 50,000 35.3 38.1 35.3 CoE 1,480,000 15.0 72,000 37.1 80,000 7.5 45,000 21.8 24.4 -13.4 IBES E 1,456,800 13.2 68,591 30.6 80,454 8.1 42,620 15.4 31.5 11.7 Mar-15 CS E 1,391,000 -9.2 83,500 9.2 96,000 10.3 56,000 12.0 42.7 12.0 IBES E 1,457,380 0.0 73,318 6.9 85,220 5.9 44,911 5.4 33.1 5.1 Mar-16 CS E 1,521,000 9.3 88,600 6.1 99,100 3.2 56,500 0.9 43.1 0.9 IBES E 1,484,771 1.9 77,114 5.2 86,443 1.4 47,833 6.5 34.3 3.6 Source: I/B/E/S, Company data, Credit Suisse estimates Mitsubishi Materials (5711 / 5711 JP) 4 07 June 2013 Companies Mentioned (Price as of 07-Jun-2013) Mitsubishi Materials (5711.T, ¥315, OUTPERFORM, TP ¥470) Sumitomo Osaka Cement (5232.T, ¥287) Taiheiyo Cement (5233.T, ¥275) Disclosure Appendix Important Global Disclosures Shinya Yamada and Kazumasa Okumoto, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Mitsubishi Materials (5711.T) 5711.T Closing Price Target Price Date (¥) (¥) Rating 08-Dec-10 269 310 O 22-Feb-11 306 390 24-May-11 243 270 N 02-Dec-11 221 200 24-Jan-12 234 290 O 01-Jun-12 210 250 05-Nov-12 228 250 N 21-Jan-13 293 340 09-Apr-13 280 270 05-Jun-13 316 470 O O UT PERFO RM N EUT RAL * Asterisk signifies initiation or assumption of coverage. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe wh ich consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Austr alia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.