Yamaha Motor (7272 JP)

Transcription

1 COMPANY NOTE JPN Industrials Autos & Auto Parts Yamaha Motor (7272 JP) Initiate at Hold: Concern over Declining Competitiveness in Emerging Countries Key Takeaway Investment sentiment for Yamaha would vary greatly depending on what is seen as the share price driver: whether investors see its recovering leisure products earnings in developed markets or uncertainty in its motorcycle business in emerging markets as the driver. We are more concerned about its declining competitiveness in emerging markets. We rate it Hold based on the view that expectations for improved earnings in developed markets alone are not sufficient. Investment thesis: Our investment thesis for Yamha Motor rests on the following three points: 1) We are not confident of a recovery in Yamaha's business in developed countries; 2) more time is needed for its platform strategy for leading cost competitiveness in emerging nations to take effect; and 3) the company is unattractively valued. Price target: We initiate coverage of Yamaha Motor with a Hold rating, setting our price target for the next 12 months at 1,450. We have assigned a 20% premium to the average sector P/E of about 11x, corresponding to the estimated PER of 13x for FY12/14, our base year for valuations. We have taken into consideration a growth cycle close to the trough and a high growth rate compared with the mean reversion for the business. At 18%, the average OP growth rate for FY12/13 to FY12/15 is significantly high for the sector. Earnings forecasts: Our FY12/13 OP forecast is almost 6% lower than Bloomberg consensus forecasts, amounting to 54bn (company target: 55bn), assuming an exchange rate of 100/US$. We expect OP to rise 24% YoY in FY12/14, to 67bn. However, we estimate profit to fall below consensus forecasts by 13%. Yamaha s sensitivity to foreign exchange fluctuations is the highest in the sector at 3.4%. Its OP should rise as much as 15% if and when the forecasted exchange rate reaches 105/US$. Forex would remain an earnings driver for the company. Valuation/Risks The theoretical share price for the company ranges from about 1,007 1,719, based on our 20-stage DCF model, assuming a discount rate of 5.5% 6.0% and a terminal growth rate of 0% 1.0%. Our price target is at the mid-point of this range. The company s theoretical share price, suggested by our SOTP-based buildup method, also stands at 1,425. The risk of foreign exchange fluctuations is extremely high. Every 1 (approximately 1%) fluctuation would affect OP by 1.6bn for US$ and 0.4bn for the euro. Such exchange fluctuations would cause operating profit to fluctuate by approximately 3.4%. Financial Summary HOLD Price target 1,450 Price 1,534 Book Value (MM): 341,561.0 Book Value/Share: 882 Net Debt (MM): 220,512.0 Return on Avg. Equity: 2.5% Net Debt/Capital: 64.6% Market Data 52 Week Range: 1, Total Entprs. Value (MM): Market Cap. (MM): 756.0BN 535.5BN Shares Out. (MM): Float (MM): Avg. Daily Vol.: 1,809,233 Takaki Nakanishi * Equity Analyst tnakanishi@jefferies.com * Jefferies (Japan) Limited EQUITY RESEARCH JAPAN JPY Prev. 2012A Prev. 2013E Prev. 2014E Prev. 2015E Rev. (B) -- 1, , , ,587.6 Chg (% YoY) -- (5.4)% % % % Operating Profit (B) Chg (% YoY) -- (65.2)% % % % OP Margin % % % % Net Profit (B) Chg (% YoY) -- (72.2)% % % % DPS EPS Price Performance 2,000 1,500 1,000 FY Dec NOV-12 MAR-13 JUL-13 NOV-13 Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies 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. Please see analyst certifications, important disclosure information, and information regarding the status of non-us analysts on pages 15 to 18 of this report.

2 Yamaha (7272 JP) Hold: 1,450 Price Target Scenarios Target Investment Thesis Investment thesis rests on the following three points: 1) We are not confident of a strong recovery in the company s business in developed countries; 2) we envisage the company will need a considerable amount of time to improve its competitiveness in emerging markets; and 3) the company is unattractively valued. Upside Scenario A weaker yen beyond our 100/$ assumption Expansion in leisure equipment market in developed countries beyond expectations Ownership expansion beyond expectations in the Indonesian motorcycle market Fuel injection (FI) cost reductions beyond expectations Target price: 1,600 based on a 10% premium to our main valuation scenario. Downside Scenario A stronger yen beyond our 100/$ assumption Economic downturn in emerging countries centered on those in Asia, and a decline in demand for motorcycles Deterioration in demand in Indonesia beyond expectations Target price: 1,300 based on a 10% discount to our main valuation scenario. THE LONG VIEW Long Term Analysis Yamaha: Long-term Earnings Trends Band Chart 1-Yr Forward PER Global Auto Sales Units: Regional Mix Source: Company data and Jefferies Estimates Peer Group Group PEs (FY2014E) Source: Bloomberg, Jefferies Estimates 12M Stock Relative to Topix Source: Company data Investment / Price Target Source: Bloomberg, Jefferies Estimates Catalysts We think the monthly sales volumes and the market share in Indonesia and changes in monthly leisure equipment sales volumes in the United States and Europe will continue to affect the company s share price. The company s FY12/14 guidance in February could be bullish, which would have a positive effect on the share price. Source: Bloomberg Company Description In addition to core motorcycles, Yamaha products include marine, power and leisure, and others. It ranked second in the global motorcycle market in 2012 by sales volumes and first in outboard motors. The medium-term plan calls for an FY12/15 OPM of 5%. It is looking for growth opportunities in EMs. page 2 of 18

3 Investment Thesis and Valuation We initiate coverage of Yamaha Motor with a Hold rating and 12-month price target of 1,450. As for our rationale, we have added a 20% premium to the average sector P/E of approximately 11x, corresponding to the estimated PER of 13x for FY12/14, our base-year for valuations. We have taken into consideration a growth cycle that has remained close to the trough and a high growth rate compared with the mean reversion for the business. At 18%, the average operating profit growth rate for FY12/13 to FY12/15 is significantly high for the sector. The theoretical share price for the company ranges from about 1,007 1,719, based on the DCF model, assuming a discount rate of 5.5% 6.0% and a terminal growth rate of 0% 1.0%. Our price target is at the mid-point of this range. The company s theoretical share price, as suggested by our SOTP-based build-up method, also stands at 1,425. At 3.4%, the company s sensitivity to foreign exchange fluctuation of 1 is the highest in the sector. We are cognizant of the possibility of an increase in the company s share price as expectations for a weaker yen rises. The company s share price tends to rally in the summer, as the demand season in developed countries corresponds to the period from January to June. Low prices seem to offer good trading opportunities in winter. Chart 1: Discounted Cash Flow Analysis NPV Terminal value Retirement provision Enterprise Value ( bn) Discount of FCF Growth rates Net debts and other adjustments Growth rates Fair Value per share ( ) rates ( bn) 0.0% 0.5% ( bn) ( bn) 0.0% 0.5% Low High 6.0% ,007 1, % ,237 1,719 Source: Jefferies estimates, Company data Our investment thesis rests on the following three points: First, we are not confident of a recovery in the company s business in developed countries. We believe that investment patterns will vary significantly, depending on what is seen as the driver of share prices; in other words, whether investors regard the company s improved leisure products earnings in developed markets or the uncertainty in its motorcycle business in emerging markets as the driver. We are more concerned about the company s declining competitiveness in emerging countries. We think that expectations for an earnings improvement in developed countries alone can t sustain a share price increase. The company s valuation is not particularly unattractive Second, we believe the company will need a considerable amount of time to improve its competitiveness in emerging markets. Much more time is needed, as the company s platform strategy to improve its competitiveness in emerging countries will not start taking shape on a full scale until In our view, the company s businesses still present a high risk of fluctuation in these markets. Thirdly, the company s valuation is not particularly unattractive. Its growth cycle is close to the trough, and its valuation is on the rise. However, we don t find the company s valuation, already at a level of 14x for FY12/14, to be particularly attractive. page 3 of 18

4 Chart 2: One-year forward P/Es Chart 3: One-year forward P/Bs Source: Jefferies estimate, Company data and Bloomberg Source: Jefferies estimate, Company data and Bloomberg Chart 4: New PF model contributions as a % of total procurement Source: Jefferies, company data page 4 of 18

5 Fundamental Outlook The medium-term fundamentals forecasted for FY12/14 are 13% lower than consensus forecasts. Our forecasts are based on the following assumptions: 1. Exchange rates: 100/US$ and 130/. 2. SAAR for motorcycles in Indonesia: We forecast that the SAAR will rise moderately, to 7.5mn units in 2013 (up 6% YoY) and 7.87mn units in 2014 (up 5% YoY), assuming that Yamaha supplies 32% of motorcycle demand in Indonesia in 2013 and 31% of demand in 2014, respectively. FY12/14 figure to be 13% lower than consensus forecasts. We project the company s operating profit for FY12/13 to be 54bn (compared with the company s target of 55bn), approximately 6% lower than Bloomberg consensus. We expect profit to increase 24% YoY, to 67bn in FY12/14, but this figure should be 13% lower than consensus forecasts. The company is highly sensitive to foreign exchange fluctuations. An exchange fluctuation of 1 can result in the company s operating profit varying by 1.6bn on a US dollar basis and 0.4bn on a euro basis. At 3.4%, the company s sensitivity to foreign exchange fluctuations is the highest in the sector. Hence, the company s operating profit will increase by as much as 15% if and when the forecasted exchange rate hits 105/US$. Forex should remain an earnings driver for the company. Chart 5: Earnings and valuation comparison based on forex sensitivity FY3/15E FY3/15E FY3/15E OP ( bn) EPS ( ) P/E (x) US$ Euro Toyota 2, , , , Nissan Honda , , Mazda Suzuki (1) Fuji Heavy Daihatsu Yamaha Motor Total 4, , , , Source: Jefferies estimates and company data Risk Analysis Market and business risks The risk of foreign exchange fluctuations is extremely high. A foreign exchange fluctuation of 1 (approximately 1%) can result into operating profit varying by approximately 3.4%. For example, such exchange fluctuations would result in profit fluctuating by 1.6bn on a US dollar basis and by 0.4bn on a euro basis. The company is expanding its investments significantly in low-end markets in India at the moment. Depending on the country s competitive environment, the company s operations in India may present risks. Risks to our investment thesis Upside Scenario 1. A weaker yen beyond our 100/$ assumption. 2. Expansion in the leisure equipment market in developed countries beyond our expectations. 3. Ownership expansion beyond expectations in the Indonesian motorcycle market. 4. Fuel injection (FI) cost reductions beyond expectations. page 5 of 18

6 Downside Scenario 1. A stronger yen beyond our 100/$ assumption. 2. Economic downturn in emerging countries centered on those in Asia, and a decline in demand for motorcycles. 3. Deterioration in demand in Indonesia beyond expectations. Catalysts We think the monthly sales volumes and the market share in Indonesia, and changes in monthly leisure equipment sales volumes in the United States and Europe will continue to affect the company s share price. The company s FY12/14 guidance in February could be bullish, which would have a positive effect on the share price. Management Chart 6: Yamaha Motor s Major Shareholders Major shareholders Yamaha Corp. 12.1% State Street Bank & Trust 10.1% Toyota Motor 3.5% Mizuho Bank 3.1% Master Trust Bank of Japan, T. 3.0% Mitsui Co. 2.4% Japan Trustee Services, T. 2.4% Japan Trustee Services, T9 2.2% Bank of New York Jasdec Treaty 2.1% Shizuoka Bank 1.9% Overseas investor 44.1% Source: Japan Company Handbook Autumn 2013 Chart 7: Yamaha Motor s CEO Biography Biography of Mr. Hiroyuki Yanagi President and Representative Director January 2012 President, Chief Executive Officer and Representative Director of the Company and Chief General Manager of Motorcycle Business Operations (to present) June 2011 Director of Yamaha Corporation (to present) March 2010 President, Chief Executive Officer and Representative Director November 2009 Senior Executive Officer of the Company and Senior General Manager of MC Business Section, MC Business Operations March 2009 Senior Executive Officer of the Company and Chief General Manager of Manufacturing Center January 2009 Executive Officer of the Company and Executive General Manager of Manufacturing Center March 2007 Executive Officer of the Company and Senior General Manager of SyS Operations, MC Headquarters January 2007 Senior General Manager of SyS Operations, MC Headquarters January 2006 Senior General Manager of China Business Operation of the Company Managing Director of Yamaha Motor India Pvt. Ltd. (presently India Yamaha Motor Pvt. Ltd.) April 2003 President of MBK Industrie April 2000 General Manager of Soude Factory, Production Control Division, MC Operations and General Manager of Morimachi Factory, Production Control Division, MC Operations of the Company April 1978 Joined the Company Source: Company data page 6 of 18

7 Chart 8: Yamaha Motor (7272): Consolidated Earnings Model Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Average exchange rates (1) 2 /US$ /Euro Revenues 1, , , , , , , YoY (% ) 12% -1% -5% 16% 9% 4% 8% 11% 21% 11% 6% 4% 19% 24% 18% 13% 9% 12% 1% 6 Variable costs Variable margin (%) 46.4% 46.0% 46.2% 44.7% 44.3% 44.3% 43.8% 45.7% 43.7% 44.3% 44.3% 46.4% 45.1% 42.2% 45.1% 45.0% 43.7% 43.5% 45.3% 8 Fixed costs Fixed costs ratio (%) 23.6% 24.4% 26.7% 23.4% 22.6% 22.9% 22.2% 23.0% 23.8% 21.8% 23.5% 23.9% 22.2% 23.5% 24.1% 22.3% 21.4% 22.6% 24.5% 10 CoGS , , , , , Gross profit SG&A Operating profit YoY (% ) NA 4% -65% 190% 24% 12% 17% 45% NM 40% 4% 12% 95% 497% NM 45% 35% 22% -14% 15 Financial balance, net Others, net Equity income Recurring profit YoY (% ) NA -4% -57% 110% 21% 12% 17% 27% 738% 42% -2% -21% 143% 210% -1938% 54% 32% 24% -25% 20 Extraordinary profit, net Tax Minority/Others Net profit YoY (% ) NA 47% -72% 354% 15% 13% 16% 41% -288% 23% 3% -36% 334% -2707% -208% 61% 2% 40% -27% 25 EPS ( ) CFPS ( ) DPS ( ) Weighted average shares (mn) Depreciation ( bn) Capex ( bn) R&Ds ( bn) Ratios (%) 33 Operating profit/revenue 4.0% 4.2% 1.5% 3.9% 4.4% 4.7% 5.1% 4.3% 3.4% 5.4% 3.3% 4.2% 4.4% 3.5% 3.4% 5.4% 5.4% 3.8% 2.9% 34 Tax Rates 53.9% 43.9% 54.3% 28.6% 34.0% 34.0% 34.0% 22.2% 36.0% 34.0% 34.0% 29.4% 16.5% 33.6% 38.0% 34.0% 34.0% 34.0% 34.0% 35 Net profit/revenue 1.4% 2.1% 0.6% 2.4% 2.6% 2.8% 3.0% 2.9% 1.9% 3.2% 1.8% 2.3% 3.5% 1.7% 2.1% 3.2% 3.3% 2.1% 1.5% 36 OP Variance Analysis 37 Forex Depreciation Raw materials Sales changes Product mix Selling costs Cost reduction, others Total OP Change Source: Jefferies estimates, company data page 7 of 18

8 Chart 9: Yamaha Motor (7272): Segment Analysis Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Business Segments 2 Revenues ( bn) 3 Motorcycles , , , Marine (Boats, Outboard motors) ATVs, Golf Carts, Snow Mobiles Indutrial/Robotics Others (Ind. robotics, Others) Total 1, , , , , , , Operating profit ( bn) 10 Motorcycles Marine (Boats, Outboard motors) ATVs, Golf Carts, Snow Mobiles Indutrial/Robotics Others (Ind. robotics, Others) Total Operating Margin (%) 17 Motorcycles 4.7% 3.1% 0.0% 1.0% 1.6% 2.6% 3.2% 0.8% 1.2% 1.8% 1.3% 1.4% 0.3% 1.1% 1.4% 1.9% 1.7% 2.1% 0.5% 18 Marine (Boats, Outboard motors) 0.4% 4.0% 5.5% 12.6% 12.9% 12.4% 12.3% 16.4% 7.8% 16.4% 8.5% 17.4% 15.5% 5.6% 10.1% 17.6% 15.3% 6.6% 10.3% 19 ATVs, Golf Carts, Snow Mobiles -10.9% 7.5% 0.5% 4.6% 8.2% 9.5% 9.8% 0.9% 7.4% 9.8% 6.6% -2.8% 4.4% 11.0% 3.8% 9.1% 10.4% 6.9% 6.3% 20 Indutrial/Robotics 16.2% 18.1% 12.4% 14.4% 13.2% 15.5% 14.7% 10.4% 18.4% 12.9% 13.5% 3.8% 14.7% 12.0% 25.7% 6.3% 16.9% 17.2% 9.3% 21 Others (Ind. robotics, Others) % 4.6% 6.2% 5.1% -1.1% -0.8% 7.7% 4.7% 4.7% 5.6% 5.6% 9.6% 8.4% 0.8% 2.9% 6.4% 7.6% 3.4% 22 Total 4.0% 4.2% 1.5% 3.9% 4.4% 4.7% 5.1% 4.3% 3.4% 5.4% 3.3% 4.2% 4.4% 3.5% 3.4% 5.4% 5.4% 3.8% 2.9% 23 Geographical Segments 24 Revenues ( bn) 1, , , , , , , Japan N. America Europe Asia Others (Elimination) Operating profit ( bn) Japan N. America Europe Asia Others (Elimination) Source: Jefferies estimates, company data page 8 of 18

9 Chart 10: Yamaha Motor (7272): Analysis of Motorcycle Division Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Motorcycle Division 2 Motorcycle Sales Units (000) 3 Japan N. America Europe Asia 6,084 6,059 5,228 5,116 5,508 5,881 6,465 2,554 2,562 2,784 2,724 1,268 1,286 1,230 1,332 1,369 1,415 1,427 1,297 7 (Indonesia) 3,326 3,136 2,423 2,416 2,441 2,528 2,730 1,277 1,139 1,277 1, (Thailand) , (India) (Taiwan) (China) (Vietnam) ,007 1, (Other Asia) Others Total 6,960 6,982 6,091 6,024 6,470 6,910 7,557 3,000 3,024 3,255 3,215 1,471 1,529 1,482 1,542 1,581 1,674 1,693 1, Motorcycle Price per Unit 17 Japan ( mn) N. America ($) 7,317 6,967 7,346 6,745 6,751 6,886 7,230 6,723 6,791 6,703 6,806 6,788 6,647 6,872 6,714 6,788 6,647 6,872 6, Europe (Euro) 4,238 4,433 4,676 4,308 4,305 4,305 4,305 4,272 4,368 4,255 4,366 4,460 4,114 4,042 4,821 4,460 4,114 4,042 4, Asia ( mn) Others ( mn) Revenues ( bn) 23 Japan N. America Europe Asia (Indonesia) (Thailand) (India) (Vietnam) Others Total , , , Contribution OP ( bn) (E) 34 Japan N. America Europe Asia Others Total Source: Jefferies estimates, company data page 9 of 18

10 Chart 11: Yamaha Motor (7272): Analysis of Marine Division Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Marine Division 2 Sales Units (000) 3 Outboard motors Water Vehicles Water vehicles Revenues ( bn) 7 Outboard motors Water vehicles Others Total Operating income ( bn) 12 Japan boats Outboard motors Water vehicles Others Total Revenues ( bn) 18 Japan N. America Europe Asia Others Total Source: Jefferies estimates, company data page 10 of 18

11 Chart 12: Yamaha Motor (7272): Analysis of ATVs/Power Units Division Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 ATVs/Power Units Division 2 ATVs Sales Units (000) 3 US ATVs US ROV/Side-by-side Europe ATVs Others All terrain vehicles total Revenues ( bn) 9 US ROV/Side-by-side Golf carts Others Total OP ( bn) 14 US ROV/Side-by-side Snow mobile Golf carts Others Total Revenues ( bn) 20 Japan N. America Europe Asia Others Total Source: Jefferies estimates, company data page 11 of 18

12 Chart 13: Yamaha Motor (7272): Analysis of IM/Others Division Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Other Division 2 Sales Units 3 Surface Chip Mounters 2,160 2,030 1,900 1,885 1,885 1,979 2, Revenues ( bn) 5 IM (SCM) Engines (AE) PAS Others Total OP ( bn) 11 IM (SCM) PAS Others Total Revenues ( bn) 16 Japan N. America Europe Asia Others Total Source: Jefferies estimates, company data page 12 of 18

13 Chart 14: Yamaha Motor (7272): Balance Sheet Analysis Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Balance Sheet (Y bln) 2 Cash and Securities Receivable Inventory Others Current Assets Plants and Equipment Investment/Others Total Assets , , , , , , , , , , , , , , , , ST Debts Payable Others Current Liabilities LT Debts and bonds Retirement and Other LT Liabilities Equity Total Liabilities and Equity , , , , , , , , , , , , , , , , Balance Sheet Strength 19 EBITDA EBIT Total Capital Employed Total Debts Net debt (cash) Book Value/Share ( ) ,028 1,136 1,247 1,377 1,023 1,028 1,098 1, ,023 1,004 1,028 1,056 1,098 1,116 1, Equity/Assets (%) 32% 34% 35% 37% 39% 41% 43% Net Debt to Equity (%) 38% 50% 65% 63% 62% 58% 51% ROE (Ave. % ) 7.5% 9.7% 2.5% 10.2% 10.3% 10.6% 11.1% ROA (% ) 5.2% 5.9% 1.9% 5.1% 6.1% 6.6% 7.4% EBIT RoIC (% ) 6.9% 7.8% 2.4% 6.4% 7.4% 7.9% 8.9% Source: Jefferies estimates, company data page 13 of 18

14 Chart 15: Yamaha Motor (7272) : Cash Flow Analysis Full Year FY3/14E FY12/14E FY12/13E FY12/14E ( bn) FY12/10A FY12/11A FY12/12A FY12/13E FY12/14E FY12/15E FY12/16E 1HA 2HE 1HE 2HE 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE 1 Cash Flow Statement (Y bln) 2 Pretax profit Depreciation Amort. consolidation adjustment Equity profit Tax current Others Cash Flow from Operations Time Deposit CAPEX Investment securities Dec (Inc) in L/T Loan Investment in cons. subsidiaries Others Cash for investing S/T debts Proceeds from L/T debts Payment of L/T debts Bonds/CB Dividends paid Share buyback Others Cash from financing Foreign exchange impact on cash Change in cash/equivalent Ending cash/equivalent Source: Jefferies estimates, company data page 14 of 18

15 Company Description In addition to core motorcycles, Yamaha products include marine, power and leisure, and others. It ranked 2nd in the global motorcycle market in 2012 by sales volume and 1st in outboard motors. The medium-term plan calls for an FY12/15 OPM of 5%. It is looking for growth opportunities in EMs. Analyst Certification I, Takaki Nakanishi, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Registration of non-us analysts: Takaki Nakanishi is employed by Jefferies (Japan) Limited, a non-us affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. For Important Disclosure information on companies recommended in this report, please visit our website at Disclosures.action or call Meanings of Jefferies Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12- month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Conviction List Methodology 1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research 2. Only stocks with a Buy or Underperform rating are allowed to be included in the recommended list. 3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen is used to ensure a well-diversified portfolio. 4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis. 5. Once a month, analysts are invited to recommend their best ideas. Analysts stock selection can be based on one or more of the following: non-consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relative to the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached their target price, been downgraded over the course of the month or where a more suitable candidate has been found are removed. 6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list during the month. 7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$. 8. The conviction list is published once a month whilst global equity markets are closed. 9. Transaction fees are not included. page 15 of 18

16 10. All corporate actions are taken into account. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Other Companies Mentioned in This Report Daihatsu Motor (7262 JP: 1,824, HOLD) Fuji Heavy Industries (7270 JP: 2,790, HOLD) Honda Motor (7267 JP: 4,100, BUY) Mazda Motor (7261 JP: 450, BUY) Nissan Motor (7201 JP: 923, HOLD) Suzuki Motor (7269 JP: 2,477, HOLD) Toyota Motor (7203 JP: 6,290, HOLD) Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY % % HOLD % % UNDERPERFORM % % Other Important Disclosures Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group LLC ( Jefferies ) group companies: United States: Jefferies LLC which is an SEC registered firm and a member of FINRA. United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority; registered in England and Wales No ; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0) ; facsimile +44 (0) Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; located at Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen s Road Central, Hong Kong. Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2, Singapore , telephone: page 16 of 18

17 Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a member of the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, Yuraku-cho, Chiyoda-ku, Tokyo ; telephone ; facsimile India: Jefferies India Private Limited, which is licensed by the Securities and Exchange Board of India as a Merchant Banker (INM ) and a Stock Broker with Bombay Stock Exchange Limited (INB ) and National Stock Exchange of India Limited (INB ) in the Capital Market Segment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-Kurla Complex, Bandra (East) Mumbai , India; Tel This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. The information set forth herein was obtained from sources believed to be reliable, but has not been independently verified by Jefferies. 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