03 June 2013 Americas/United States Equity Research Electrical Equipment / Capital Goods i-Spy Global Industrials Weekly Research Analysts COMMENT Julian Mitchell 212 325 6668 [email protected] Push by Japan, China into 3D printing; more Charles Clarke 212 538 7095 competition in industrial automation software [email protected] Jonathan Shaffer ■ Japan and China making a push in 3D printing: Many Japanese 3D print- 212 325 1259 [email protected] related stocks had a strong bounce last week, due to reports that the Japanese government is bringing together the public and private sector in order to develop a high-performance sand-cast 3D printer for the mass production of cast-iron parts. These are used in diverse industries such as automotive, power gen This Week (6/3/2013 - 6/9/2013) Macro Events equipment and construction machinery. The target ASP per printer is JPY20m or 6/3 Euro-Zone May PMI Mfg (final) lower; the project cost is estimated at JPY3bn. China's biggest white goods 6/3 Germany May PMI Mfg (final) manufacturer, Haier, also announced its plan to enter the 3D printer market. 6/3 France May PMI Mfg (final) ■ Competition continues to intensify in industrial automation software: 6/3 UK May PMI Mfg 6/3 China HSBC May Mfg PMI Software comprises the single largest cost element of industrial automation 6/4 UK May PMI Construction projects today, and our Industry report last August highlighted that competition, 6/5 US Apr Factory Orders and M&A, is likely to intensify in this space, as the hardware vendors expand 6/6 Germany Apr Factory Orders their presence here. ABB (traditionally focused on hardware) just launched its 6/7 Germany Apr IP 6/9 China May Industrial Production Automation Builder software product, which combines the software tools required for programming and maintaining automation projects. ABB's Company Events predecessor product, Control Builder Plus, was focused on PLC programming, 6/3 Ford Motor Co May 2013 Sales but Automation Builder can work with all the various devices (including those 6/3 General Motors Co May 2013 Sales 6/3 SAIC Inc Q1 2014 sold by third parties) in the automation system, such as robots, servomotor 6/3 Toyota Motor Corp May 2013 Sales drives, and operator panels. Software specialist Dassault Systemes announced 6/5 Fastenal Co May 2013 Sales that it is acquiring US-based Apriso for $0.2bn; Apriso sells manufacturing 6/5 UPS Roadshow New York Day 1 software to Bombardier, Cummins, GM, Lockheed Martin, and Textron. 6/6 Foster Wheeler AG CS E&C Conf 6/6 Fluor Corp CS E&C Conf ■ Continues on next page… 6/6 Willbros Group Inc CS E&C Conf 6/6 CBI Co NV CS E&C Conf Credit Suisse has decided not to enter into business relationships with 6/6 MasTec Inc CS E&C Conf companies that Credit Suisse has determined to be involved in the development, 6/6 URS Corp CS E&C Conf manufacture or acquisition of anti-personnel mines and cluster munitions. For 6/6 Jacobs Engineering Group CS E&C Credit Suisse's position on the issue, please see https://www.credit- 6/7 Quanta Services Inc CS E&C Conf suisse.com/responsibility/doc/policy_summaries_en.pdf. .Exhibit 1: Global Performance Snapshot: The best and worst last week 10 Best Stocks 1-Week 10 Worst Stocks 1-Week 10 Best Sectors 1-Week 10 Worst Sectors 1-Week Vestas 13.4% China High Speed Transmission Equipment -11.1% European Wind Energy 11.5% Japan Machine Tools -4.7% Fiat 13.0% TBEA Co Ltd -9.9% MEA Industrials 7.0% China Power Equipment -4.3% Severfield 10.2% Xinjiang Goldwind -9.0% European Automotive 2.5% Japan Automotive -4.3% Gamesa 9.6% Changsha Zoomlion Heavy Industry -9.0% India Automotive 2.4% Japan Conglomerates -4.0% Havells India Ltd. 9.1% Okuma Corp -8.4% US Automotive 2.3% China Infrastructure Construction -2.9% Tata Motors 8.8% Suzuki Motor -7.5% Korea Engineering & Construction 2.1% Japan Auto Related Consumables -2.5% S1 Corporation 7.6% Fuji Heavy Inds. -7.4% Korea Industrials / Shipbuilding / Autos 1.9% Singapore /Taiwan Industrials -2.0% Terex Corporation 7.4% Dongfang Electric Corp -7.2% UK Capital Goods 1.7% Japan Infrastructure Machinery -1.9% McDermott International 7.1% China CSR Corp -7.0% LatAm Industrials 1.3% Japan/Taiwan Factory Automation -1.6% Manitowoc 7.0% Punj Lloyd Ltd -6.9% US Machinery 1.2% China Automotive -1.4% Source: Thomson Reuters DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683 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 03 June 2013 ■ Biz jets - look to 2014 for a recovery: The mood at EBACE was marginally more upbeat than the TXT presentation at EPG. Vendors such as Bombardier and Honda highlighted weak demand at the light end of the market, due to financing constraints for smaller customers. For incumbent vendors, there was some good news given that the entry of HondaJet is delayed until late next year. ■ Daikin upgraded to Neutral: Daikin Industries was upgraded to N (from UP, May 29) due to higher profit forecasts, partly attributable to FX assumption changes. Daikin now trades at a similar EV/EBITDA multiple to Lennox. i-Spy Global Industrials Weekly 2 03 June 2013 Table of contents Macro Snapshot: CS Six NT Demand Indicators 4 Performance Summary 7 Price Commentary Tracker 8 Recent Industrial Transactions 9 Recommended Reading 10 Recommended Reading Summaries 12 Macro/ Strategy 12 Americas Research 12 EMEA Research 22 Asia Research 22 Global Macro Forecasts 28 Valuation & Performance 29 Americas Capital Goods Valuation Summary 30 EMEA Capital Goods Valuation Summary 33 Asia Capital Goods Valuation Summary 35 CS Global Capital Goods Team 38 Global Calendars 39 Americas 39 EMEA 39 Asia 40 i-Spy Global Industrials Weekly 3 03 June 2013 Macro Snapshot: CS Six NT Demand Indicators Exhibit 2: Demand Indicators – Six Month Outlook Metric Recent / Current Trend 6 month outlook Delta Lead Indicators / surveys PMIs stabilized Likely moving sideways = Factory / durable goods orders Reacceleration Reacceleration + Coincident trends IP momentum peaking Deceleration - Company data Muted sales growth; soft orders Orders to rebound + Supply side Patchy in China, stable elsewhere Pick-up likely + Transport / distributor data Traffic growth is resilient; destocking Restocking likely + Source: Credit Suisse Research. Indicator #1 Lead Indicators/ Surveys China Manufacturing PMI ■ China’s official Manufacturing PMI released by the NBS increased slightly, by 0.2pp to 50.8 in May. This score surprised on upside against Bloomberg 50.0 consensus expectation following the weak HSBC flash PMI, but closer to CS forecast of 50.6. ■ At margin, we sense that the economy is showing tentative signs of stabilization, albeit at low level. We are inclined to take side with this PMI against the HSBC PMI and recent waves of GDP downgrade in the financial industry. The difference between official PMI and HSBC PMI is probably related to the fact that the former has a higher representation of SOEs. Eurozone, Germany and UK Mfg PMI ■ Eurozone PMI final reading came in at 48.3 against the preliminary estimate of 47.8 and April reading of 46.7. Germany PMI increased to 49.4 against preliminary reading of 49 and April reading of 48.1. The UK PMI increased to 51.3 against the consensus of 50.3 and April reading of 50.2. Eurozone Business Climate, Economic Confidence and Industrial Confidence ■ The Business Climate improved to -0.76 in May from -1.04 in April, beating the consensus of -0.85. The Economic Confidence increased to 89.4 from 88.6, in line with the consensus. The Industrial Confidence rose to -13 from -13.8, in line with the consensus. Richmond Fed Mfg Index and Chicago PMI ■ The Richmond Fed Mfg Index improved to -2 from -6, still in contractionary zone. The new-orders index fell to -10 in May from -8 in April. But the shipment index this month jumped back to 8 after it plunged to -9 in April from 8 in March. ■ Chicago PMI surged to 58.7 in May from 49 in April, beating the consensus of 50. The production subindex rose to 62.7 from 49.9 in April, while the new orders index advanced to 58.1 from 53.2. The employment sub-component rose to 56.9 from 48.7. i-Spy Global Industrials Weekly 4 03 June 2013 Indicator #4 Company Data NSK Orders Index ■ The orders index came in at 52, up 2% YoY and 4% MoM. Stripping out a brief upturn in September 2012, this was effectively the first YoY increase in 26 months. The index for daily orders (adjusted for differences in the number of working days, of which there were 20 in May) came to 2.6, a small improvement from 2.5 in April. We are encouraged by these figures. We are in the process of reviewing our forecasts. Indicator #5 Supply side Indicator Japan Machine Tool Orders DI ■ Machine tool order forecast DI for June is flat from May current DI at 2.9.