Suzuki Motor (7269 JP)

Transcription

1 COMPANY NOTE JPN Industrials Autos & Auto Parts Suzuki Motor (7269 JP) Initiate at Hold: Better to Wait for Improved Risk-Reward Timing Key Takeaway Suzuki's fundamentals are strong, even with a tough Indian economy and a weakening rupee. If the benefits of a future Indian economic recovery and the impact of its Asian strategy are taken into account, Suzuki would be an attractive long-term investment target. That said, we believe a Hold rating is appropriate, as we see numerous uncertainties and risks over the next 12 months. Investors should gauge the most appropriate timing in terms of risk and reward. Investment thesis: Our Hold investment thesis comprises three points. (1) There are numerous uncertainties and risks, such as the Indian economy, revisions to the Japanese automobile tax system, and the outcome of the arbitration with VW. (2) Although the company s business base remains fairly good, wariness over risk will have to retreat for valuation to improve. (3) It is impossible to forecast the outcome and share price impact related to the dissolution of Suzuki s tie-up with VW. Price target: We initiate coverage with a Hold rating. Our 12-month price target is 2,600. This corresponds to our estimated EV/EBITDA of 4x for the calculation base year of FY3/15. There are considerable distortions from its conservative accounting policy and accelerated depreciation, but EV/EBITDA has worked effectively in the past, moving in a range of 4 6x. Successful investment opportunities have been created when this multiple drops deeply below 4x. Our target price corresponds to our estimated P/E of 13x for FY3/15, which looks low in the historical average of 20x. Earnings forecasts: Assuming 100/$, we expect FY3/14 operating profit of billion (company guidance: billion), 1% over the Bloomberg consensus forecast. We forecast YoY growth of 9% to billion in FY3/15, 5% above the consensus view. We believe that Suzuki will have an operating profit CAGR of 10% in the FY3/15 FY3/17 period, higher than the sector average. Even in a harsh environment, stable earnings growth can be expected. Valuation/Risks With a discount rate of % and terminal growth of 0 1%, our 2-stage DCF model gives a theoretical share price range of some 2,671 2,980. Our price target is at the bottom limit of this range but the valuation will likely remain low in view of current risks and uncertainties. The biggest risk at hand is the possibility of revisions to the Japanese tax system for minivehicles. Financial Summary HOLD Price target 2,600 Price 2,477 Book Value (MM): 1,194,597.0 Book Value/Share: 2,045 Net Debt (MM): ( 411.1)BN Return on Avg. Equity: 7.5% Net Debt/Capital: (35.6)% Market Data 52 Week Range: 2,919-1,869 Total Entprs. Value (MM): Market Cap. (MM): 978.5BN 1,389.6BN Shares Out. (MM): Float (MM): Avg. Daily Vol.: 2,310,881 Takaki Nakanishi * Equity Analyst tnakanishi@jefferies.com * Jefferies (Japan) Limited EQUITY RESEARCH JAPAN JPY Prev. 2012A Prev. 2013E Prev. 2014E Prev. 2015E Rev. (B) -- 2, , , ,422.4 Chg (% YoY) % % % % Operating Profit (B) Chg (% YoY) % % % % OP Margin % % % % Net Profit (B) Chg (% YoY) % % % % DPS EPS Price Performance 3,000 2,500 2,000 FY Mar ,500 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 16 to 19 of this report.

2 Suzuki (7269 JP) Hold: 2,600 Price Target Scenarios Target Investment Thesis Our Hold investment thesis comprises three points. (1) There are numerous uncertainties and risks, such as the Indian economy, revisions to the Japanese automobile tax system, and the outcome of the arbitration with VW. (2) Although the company s business base remains fairly good, wariness over risk will have to retreat for valuation to improve. (3) It is impossible to forecast the outcome and share price impact related to the dissolution of Suzuki s tie-up with VW. Upside Scenario A weaker yen beyond our 100/$ and 1.6/rupee assumptions. Stepped-up expectations of both a turnaround of the Indian economy and improving results at MSIL, Suzuki s subsidiary. A rebound in the share of the Japanese mini-vehicle market. Victory in the arbitration with VW and the actualization of the share buyback Target price: 2,860 based on a 10% premium to our main valuation scenario. Downside Scenario A stronger yen beyond our 100/$ and 1.6/rupee assumptions. Postponement of the abolition of the vehicle acquisition tax or an increase in the road tax in domestic tax system reforms. A destabilization of the management structure Target price: 2,340 based on a 10% discount to our main valuation scenario. THE LONG VIEW Long Term Analysis Suzuki: Trend of Long-term Earnings Band Chart 1-Yr Forward PER Global Auto Sales Units: Regional Mix Source: Company data and Jefferies Estimates Source: Bloomberg, Jefferies Estimates Source: Company data Peer Group Group PEs (FY2014E) 12M Stock Relative to Topix Investment / Price Target Source: Bloomberg, Jefferies Estimates Source: Bloomberg Catalysts The course of automobile body tax revisions in Japan will probably be decided during this year. This could be a major negative factor, depending on details. Political and economic developments in India will also constitute a key news flow. It is highly likely that the outcome of the arbitration with VW will be decided by the spring of Company Description Suzuki was 10th in global auto market share in 2012 by sales volume and 3rd in motorcycles. The midsize automaker's strengths are in small cars and Japanese minivehicle. It has more than 40% market share in India, which is now its biggest source of profits. Chairman Osamu Suzuki is a strong leader. Suzuki and GM ended equity ties in 2008, and Suzuki forged a partnership with VW in Dec 2009 which is now under an arbitration process for a break-up. page 2 of 19

3 Investment Thesis and Valuation We initiate coverage of Suzuki Motor with a Hold rating. Our 12-month price target is 2,600. This corresponds to our estimated EV/EBITDA of 4x for the calculation base year of FY3/15. EV/EBITDA has worked effectively in the past to eliminate the distortions from Suzuki's conservative accounting policy and accelerated depreciation, and it has moved in a range of 4 6x. Successful investment opportunities have been created when this multiple falls well below 4x. On the other hand, the P/E, which was previously excessively high, is contracting rapidly, though it is still slightly elevated; our target price corresponds to our estimated P/E of 13x for FY3/15. With a discount rate of % and terminal growth of 0 1%, our DCF model gives a theoretical share price range of some 2,671 2,980. Our price target is at the bottom limit of this range, but the valuation is likely to remain low in light of the current deterioration of the Indian economy and uncertainty about revisions to domestic automobile body taxes, which we think represents the biggest risk. An expected rate of return of 8% over the next 12 months will likely be an average performance. An expected rate of return of 8% over the next 12 months will likely be an average performance for the sector. Over the last 12 months, the share price performance deteriorated sharply, underperforming the sector by 28%. A major issue was the Indian economy worsening more than anticipated. If various uncertain factors could be clarified, we may see share price performance turn up, since Suzuki s fundamentals are good, in our view. However, on a time horizon of the next 12-months, there are numerous uncertainties and risks, and investors should gauge the most appropriate timing in terms of risk and reward. Chart 1: Analysis of Discount Chas Flow 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 (Ybn) 0.0% 0.5% ( bn) ( bn) 0.0% 0.5% Low High 7.5% , , , , ,842 2, % , , , ,671 2,789 Source: Jefferies estimates, Company data Chart 2: Band Chart 1-Year Forward P/Es Chart 3: Band Chart 1-Year Forward P/Bs Source: Jefferies estimate, Company data and Bloomberg Source: Jefferies estimate, Company data and Bloomberg Our Hold investment thesis comprises the following three points. First, we believe that investors should gauge the most appropriate timing in terms of risk and reward, since there are numerous uncertainties and risks on a 12-month time horizon, such as: (1) the page 3 of 19

4 Indian economy, (2) revisions to the domestic tax system for mini-vehicles, and (3) the impact of arbitration with VW. Second, the company s business base remains fairly good even in this harsh environment. We forecast Suzuki to have an operating profit CAGR of 10% in the FY3/15 FY3/17 period, higher than the sector average. If wariness about risks retreat, the company s stable fundamentals will likely increase. Finally, it is impossible to forecast the outcome and the share price impact related to the dissolution of Suzuki s tie-up with VW, since various scenarios can be envisioned. It is highly likely that the outcome of the arbitration will be decided by the spring of Share price volatility could be extremely high, contingent on this result. Moreover, we cannot rule out the risk that Suzuki will carry out financing to fund the repurchase of shares. page 4 of 19

5 Operating profit CAGR of 10% in the FY3/15 FY3/17E period, higher than the sector average. Fundamentals Outlook We estimate Suzuki will have operating profit CAGR of 10% in the FY3/15 FY3/17 period, higher than the sector average. Even in a harsh environment, we can look for stable earnings growth, largely due to prospects for higher earnings at India's Maruti (MSIL IN), which has maintained its competitiveness. Furthermore, the benefits from a steady position in Southeast Asia where strategic reinforcement has been underway in recent years will also be added. The return to profitability of the motorcycle business will contribute as well. Suzuki made a wise decision in 2012 to retreat from the US auto market, which had reached a low ebb. As a result, the company s internal resources are being efficiently invested in areas that have strength. Chart 4: Reporting segment operating profit ( bn) FY3/09A FY3/10A FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E Japan N. America Europe Asia (Maruti Suzuki India) (Suzuki Indonesia) (Pak Suzuki) Others Corporates/Eliminations Total YoY (% ) -49% 3% 35% 12% 21% 25% 9% 17% 4% Source: Jefferies estimates, company data Note: MSIL figures are calculated by Jefferies Japan Research team which are based on Japanese GAAP base and are not equal to the reported numbers by MSIL Chart 5: Suzuki: Trend of operating income from India business Chart 6: Suzuki Indonesia's operating income Source: Jefferies estimate, company data Note: (1) Consolidated OP contribution which is based on GAAP is based on Jefferies estimate Source: Jefferies estimate, company data Our estimates are based on the following assumptions. 1. Exchange rates: 100/$ and 130/. 2. US SAAR: Gradual growth from 15.6 million units in 2013 to 16 million units in Japanese SAAR: 5.51 million units (up 5.8% YoY) in FY3/14 and 5.17 million units (down 6.1% YoY) in FY3/15. page 5 of 19

6 Japanese mini-vehicle SAAR: We anticipate 2.2 million units (up 11.5% YoY) in FY3/14 and 2.01 million units (down 8.4% YoY) in FY3/15. There is a risk of further deterioration in demand if the staged reduction in the purchase tax is postponed, or if the mini-vehicle tax is increased. We expect FY3/14 operating profit of 180 billion (company guidance: 170 billion), 1% over the consensus forecast. We forecast a YoY gain of 9% to 197 billion in FY3/15, 5% above the consensus view. Even in a harsh environment, stable earnings growth can be expected. Risk Analysis Market and business risks Suzuki is exposed to a wide range of risks, including escalating automobile market competition, changes in automobile market demand, the impact of fluctuations in exchange rates and interest rates, rising material prices, regulations, law-suits, and product quality problems. The biggest imminent risk is the possibility of revisions to the Japanese tax system for mini-vehicles. Changes in exchange rates are calculable risks. Every 1 (roughly 1%) move against the US dollar affects operating profit by around 0.5 billion; adding in a 0.1 move (about 6%) in the Indian rupee rate and other currencies would alter this number by 6.5 billion. This would change operating profit by approximately 2.0%. Risks to our investment thesis Upside Scenario 1. A weaker yen beyond our 100/$ and 1.6/rupee assumptions. 2. Stepped-up expectations of both a turnaround of the Indian economy and improving results at MSIL, Suzuki s subsidiary. 3. A rebound in the share of the Japanese mini-vehicle market. 4. Victory in the arbitration with VW and the actualization of the share buyback. Downside Scenario 1. A stronger yen beyond our 100/$ and 1.6/rupee assumptions. 2. Postponement of the abolition of the vehicle acquisition tax or an increase in the road tax in domestic tax system reforms. 3. A destabilization of the management structure. Catalysts The course of automobile body tax revisions in Japan will probably be decided during this year. This could be a major negative factor, depending on the details. Political and economic developments in India will also constitute key news flow. It is highly likely, in our view, that the outcome of the arbitration with VW will be decided by the spring of page 6 of 19

7 Management Chart 7: Suzuki s Major Shareholders Major shareholders Volkswagen 19.8% Master Trust Bank of Japan, T. 3.6% Japan Trustee Services, T. 3.5% Tokio Marine & Nichido Fire Ins. 3.2% Bank of Tokyo-Mitsubishi UFJ 2.8% Shizuoka Bank 2.5% Resona Bank 2.3% Sompo Japan Insurance 1.6% SSBT OD05 OmnibusAcc. TreatyC1. 1.5% Nippon Steel & Sumitomo Metal 1.3% Overseas investor 48.5% Source: Japan Company Handbook Autumn 2013 Chart 8: Suzuki s CEO Biography Biography of Mr. Osamu Suzuki Representative Director and Chairman & CEO December 2008 Chairman/President April 2002 Chairman September 2001 Chairman/CEO/COO June 2000 Chairman/CEO June 1978 President November 1973 Senior Managing Director December 1967 Managing Director November 1963 Director January 1963 General Manager April 1958 Joined the Company Source: Bloomberg page 7 of 19

8 Chart 9: Suzuki (7269): Consolidated earnings model Full Year FY3/13A FY3/14E FY3/13A FY3/14E ( bn) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE 1 Avg. /$ Rates Avg. /Indian Rupee Total Revenues ( bln) 2, , , , , , , , , , , YoY (% ) 6% -4% 3% 13% 9% 8% 5% 0% 5% 12% 14% 6% -6% 4% 6% 5% 19% 21% 9% 5 Mfg. Variable Costs (E) 1, , , , , , , Variable Margin (%) 36.3% 35.2% 37.1% 38.4% 37.3% 37.4% 37.7% 36.7% 37.4% 39.3% 37.6% 36.2% 37.3% 36.3% 38.4% 38.7% 39.8% 37.9% 37.4% 7 Fixed Mfg. Costs (E) Fixed Mfg. Cost Ratio (%) 12.4% 11.4% 11.5% 11.0% 10.4% 10.6% 10.8% 11.5% 11.6% 11.2% 10.9% 11.8% 11.1% 11.7% 11.5% 12.2% 10.2% 10.6% 11.2% 9 Cost of Sales 1, , , , , , , , , SG&A Total Operating profit YoY (% ) 35% 12% 21% 25% 9% 17% 4% 2% 44% 37% 14% 39% -22% 16% 64% 24% 52% 65% -12% 13 Financial profit, net Other Non-op profit, net Equity profit Recurring profit YoY (% ) 31% 7% 19% 22% 9% 16% 4% 6% 34% 29% 16% 40% -20% 4% 59% 17% 45% 51% -3% 18 Extraordinary Balance, net Taxes Minority/Others Net profit YoY (% ) 56% 19% 49% 31% 6% 15% 3% 35% 69% 19% 44% 31% 42% -41% 140% 10% 30% 385% -10% 23 EPS - Basic ( ) EPS - Fully diluted ( ) DPS Shares Outstanding (mln) Depreciation ( bn) Capex ( bn) R&Ds ( bn) Ratios (%) 31 SG&A/Revenue 19.7% 19.0% 20.0% 21.2% 20.7% 20.1% 20.2% 19.8% 20.1% 21.5% 20.9% 18.9% 20.9% 20.1% 20.0% 20.0% 22.9% 21.1% 20.7% 32 Operating profit/revenue 4.1% 4.7% 5.6% 6.2% 6.2% 6.7% 6.7% 5.4% 5.8% 6.6% 5.8% 5.5% 5.2% 4.5% 6.8% 6.5% 6.7% 6.1% 5.6% 33 Effective Tax Rates 44.8% 45.0% 34.7% 34.5% 34.9% 34.9% 34.9% 35.6% 33.7% 34.1% 34.9% 35.8% 35.4% 42.9% 31.3% 33.2% 35.1% 34.9% 34.9% 34 Net profit/revenue 1.7% 2.1% 3.1% 3.6% 3.5% 3.7% 3.7% 3.5% 2.7% 3.8% 3.5% 3.8% 3.2% 0.9% 4.2% 4.0% 3.6% 3.4% 3.5% 35 OP variance analysis ( bln) 36 Sales/Mix Cost savings Expense/Others Forex impact Depreciation R&Ds Total OP change Source: Jefferies estimates, company data Note: (E) =NRi estimate page 8 of 19

9 Chart 10: Suzuki (7269): Global Automobile Retail Sales Units and Production Analysis Full Year FY3/13A FY3/14E FY3/13A FY3/14E ('000 units) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE 1 Global Automobile retail sales 2 Japan YoY % Change -5% 2% 13% 2% -7% -1% -4% 31% -1% 0% 4% 52% 14% -2% -1% -3% 3% 1% 6% 4 W. Europe Russia Others Europe subtotal YoY % Change -14% -8% -12% -1% 7% 7% 5% -8% -15% -6% 4% -8% -8% -20% -11% -11% 0% 5% 4% 9 US Canada N. America subtotal YoY % Change -20% -3% -6% -93% % -9% -87% -100% -4% -4% 0% -17% L. America China India 1,133 1,007 1,051 1,074 1,217 1,350 1, Pakistan Indonesia Thailand Others Asia 1,625 1,550 1,588 1,631 1,812 2,050 2, YoY % Change 27% -5% 2% 3% 11% 13% 7% -1% 6% 3% 3% 6% -8% 17% -3% -6% 12% 4% 1% 21 Middle East Africa Global retail sales total 2,625 2,570 2,661 2,693 2,851 3,116 3,275 1,275 1,386 1,273 1, YoY % Change 12% -2% 4% 1% 6% 9% 5% 5% 2% 0% 2% 13% -3% 9% -3% -5% 6% 2% 2% 25 Global Automobile Production 26 Japan 994 1,020 1, N. America Europe China Indonesia Pakistan India 1,273 1,134 1,169 1,201 1,352 1,530 1, Thailand Asia Total 1,719 1,608 1,682 1,703 1,933 2,211 2, Global Total 2,877 2,802 2,877 2,845 3,026 3,319 3,459 1,389 1,488 1,354 1, YoY % change Total OEMs (1) Inventory change (1) End Inventory (1) Day supply (2) Source: Jefferies estimates, company data Note: (1) NRi estimates, (2) Days supply is calculated the term end global inventory divided by the period retail sales units page 9 of 19

10 Chart 11: Suzuki (7269): Segment Analysis Full Year FY3/13A FY3/14E FY3/13A FY3/14E ( bn) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE 1 Business Segment ( bn) 2 Revenues 3 Automotive 2, , , , , , , , , , , Motorcycles Others Financial services Total 2, , , , , , , , , , , YoY (% ) 6% -4% 3% 13% 9% 8% 5% 0% 5% 12% 14% 6% -6% 4% 6% 5% 19% 21% 9% 9 Operating profit 10 Automotive Motorcycles Others Financial services (Eliminations) Total YoY (% ) 35% 12% 21% 25% 9% 17% 4% 2% 44% 37% 14% 39% -22% 16% 64% 24% 52% 65% -12% 17 Operating Margin (%) 18 Automotive 4.8% 5.2% 6.6% 6.8% 6.7% 7.0% 6.7% 6.4% 6.7% 7.2% 6.5% 6.6% 6.1% 5.5% 7.7% 7.6% 6.9% 6.9% 6.1% 19 Motorcycles -4.2% -1.0% -5.2% -1.4% -1.0% 2.1% 4.0% -5.2% -5.2% -0.7% -2.1% -5.8% -4.6% -8.2% -2.9% -3.7% 2.5% -2.9% -1.4% 20 Others 13.8% 14.8% 11.7% 14.4% 17.7% 19.5% 21.0% 11.1% 12.3% 14.9% 13.9% 11.7% 10.5% 16.2% 10.6% 12.0% 18.8% 13.9% 13.9% 21 Total 4.1% 4.7% 5.6% 6.2% 6.2% 6.7% 6.7% 5.4% 5.8% 6.6% 5.8% 5.5% 5.2% 4.5% 6.8% 6.5% 6.7% 6.1% 5.6% 22 Geographical Segment ( bn) 23 Revenues 24 Japan 1, , , , , , , N. America Europe Asia , , , , Others (Eliminations) Total 2, , , , , , , , , , , YoY (% ) 6% -4% 3% 13% 9% 8% 5% 0% 5% 12% 14% 6% -6% 4% 6% 5% 19% 21% 9% 32 Operating profit 33 Japan N. America Europe Asia (Maruti Suzuki India) (Suzuki Indonesia) (Pak Suzuki) Others Corporates/Eliminations Total YoY (% ) 35% 12% 21% 25% 9% 17% 4% 28% 19% 98% -1% 39% -22% 16% 64% 24% 52% 65% -12% Source: Jefferies estimates, company data page 10 of 19

11 Chart 12: Suzuki (7269): Sales Mix Analysis Full Year FY3/13A FY3/14E FY3/13A FY3/14E ('000 units) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE Cons. units of sales (000 units) 1 Automobile 2 Japan N. America Europe Asia 1,433 1,339 1,420 1,505 1,666 1,884 2, Others Total 2,577 2,485 2,584 2,604 2,857 3,102 3,242 1,247 1,337 1,204 1, Motorcycle 9 Japan N. America Europe Asia 1,065 1,126 1,093 1,189 1,344 1,524 1, Others Total 1,332 1,406 1,362 1,457 1,629 1,818 2, YoY (% ) 6% 6% -3% 7% 12% 12% 12% -7% 1% -1% 15% -10% -4% 11% -7% -1% -1% 19% 11% 16 Revenues ( bn) 17 Automobile 18 Japan , N. America Europe Asia , , , , Others Total 2, , , , , , , , , , , Motorcycle 25 Japan N. America Europe Asia Others Total YoY (% ) -2% -1% -10% 21% 5% 8% 9% -18% 0% 23% 19% -21% -15% -1% 1% 18% 28% 30% 11% 32 Others 33 Total YoY (% ) 7% 0% 4% 9% 3% 3% 3% 45% 1% 109% -4% -8% -2% -7% 28% 22% 1% 69% -22% 35 Cons. Sales by destination 36 Japan , , , , , N. America Europe Asia , , , , Others Total 2, , , , , , , , , , , YoY (% ) 6% -4% 3% 13% 9% 8% 5% 0% 5% 12% 14% 6% -6% 4% 6% 5% 19% 21% 9% Source: Jefferies estimates, company data page 11 of 19

12 Chart 13: Suzuki (7269): Maruti Suzuki's consolidated model Full Year FY3/13A FY3/14E FY3/13A FY3/14E (Rupee mln) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE 1 /Rupee Suzuki stake: MUL 54.2% 54.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% 3 Domestic Exports Cons. sales volume ('000) YoY (% ) 25% -12% 4% 2% 13% 13% 8% 1% 8% 3% 2% 5% -4% 26% -5% -10% 20% 4% 0% 7 Avg. price per vehicle (000Rs) Gross revenues 401, , , , , , , , , , , ,721 91, , , , , , ,897 9 Excise Duty 42,531 39,082 55,021 56,783 64,249 74,921 83,584 24,361 30,660 24,821 31,962 13,428 10,933 14,047 16,613 12,771 12,050 14,928 17, Net revenues 366, , , , , , , , , , , ,292 80, , ,563 99, , , , YoY (% ) 26% -4% 21% 6% 16% 17% 12% 17% 25% 9% 4% 26% 7% 42% 13% -5% 27% 6% 2% 12 Other income 358,490 17,180 18,316 17,038 19,500 19,500 19,500 7,529 10,788 8,038 9,000 3,612 3,916 4,320 6,467 4,465 3,573 4,500 4, Operating income 358,490 9,630 9,754 9,985 11,500 11,500 11,500 4,842 4,911 4,985 5,000 2,489 2,353 2,434 2,477 2,422 2,562 2,500 2, Non-op. income 358,490 7,550 8,562 7,053 8,000 8,000 8,000 2,686 5,876 3,053 4,000 1,123 1,563 1,886 3,990 2,043 1,010 2,000 2, Row materials/components 271, , , , , , , , , , ,019 80,630 58,654 83,760 82,257 68,762 68,968 80,343 91, Labor 7,036 8,438 11,022 13,476 16,871 19,799 23,054 4,735 6,287 6,674 6,802 2,383 2,352 2,412 3,875 2,951 3,723 3,013 3, Depreciation 10,135 11,383 18,612 20,099 24,561 26,636 30,730 6,870 11,742 9,793 10,305 3,399 3,470 3,583 8,159 4,802 4,992 5,153 5, Selling and Distribution Expenses 44,189 30,534 22,169 22,094 25,003 29,072 31,489 11,813 10,356 9,605 12,489 5,955 5,858 1,644 8,712 5,065 4,540 5,968 6, Total expenses 332, , , , , , , , , , ,615 92,367 70,335 91, , ,235 17, Profit from operations 26,512 14,460 23,246 33,416 38,041 48,102 52,969 6,079 17,167 15,083 18,333 4,464 1,615 5,329 11,837 6,860 8,223 8,521 9, Other income 4,820 7,550 8,562 7,053 8,000 8,000 8,000 2,686 5,876 3,053 4,000 1,123 1,563 1,886 3,990 2,043 1,010 2,000 2, Profit from operations before interests 31,332 22,010 31,808 40,469 46,041 56,102 60,969 8,765 23,043 18,136 22,333 5,587 3,178 7,216 15,827 8,903 9,233 10,521 11, Financial Expenses ,897 1, , Pretax profit 31,088 21,462 29,911 38,993 45,441 55,502 60,369 8,054 21,857 17,260 21,733 5,255 2,798 6,756 15,101 8,461 8,799 10,221 11, YoY (% ) -13% -31% 39% 30% 17% 22% 9% -25% 105% 114% -1% -30% -16% 159% 88% 61% 214% 51% -24% 26 Tax 8,201 5,155 5,989 10,109 12,269 14,986 16,300 1,541 4,448 4,241 5,868 1, ,743 2,705 2,145 2,097 2,760 3, Net profit 22,887 16,351 23,921 28,883 33,172 40,516 44,069 6,512 17,409 13,018 15,865 4,238 2,274 5,013 12,396 6,316 6,702 7,461 8, YoY (% ) -8% -29% 46% 21% 15% 22% 9% -17% 106% 100% -9% -22% -5% 144% 94% 49% 195% 49% -32% 29 EBITDA 36,385 25,843 41,857 53,514 62,602 74,738 83,699 12,948 28,909 24,876 28,638 7,863 5,085 8,913 19,996 11,662 13,214 13,673 14, % of net revenues 9.9% 7.3% 9.8% 11.9% 12.0% 12.3% 12.3% 7.0% 12.0% 12.3% 11.5% 7.5% 6.3% 8.1% 15.3% 11.7% 12.9% 11.7% 11.3% 31 Less: Depreciation -10,135-11,383-18,612-20,099-24,561-26,636-30,730-6,870-11,742-9,793-10,305-3,399-3,470-3,583-8,159-4,802-4,992-5,153-5, EBIT 26,250 14,460 23,246 33,416 38,041 48,102 52,969 6,079 17,167 15,083 18,333 4,464 1,615 5,329 11,837 6,860 8,223 8,521 9, YoY (% ) 1% -45% 61% 44% 14% 26% 10% -24% 166% 148% 7% -22% -29% 351% 124% -70.5% 19.9% 3.6% 15.2% 34 % net revenues 7.3% 4.1% 5.5% 7.4% 7.3% 7.9% 7.8% 3.3% 7.1% 7.5% 7.4% 4.2% 2.0% 4.9% 9.1% 6.9% 8.1% 7.3% 7.4% 35 Translated in JPY ( bn) 36 Net Sales EBIT Pretax profit Net income Suzuki disclosed JP-GAAP 41 Revenues NA NA NA NA NA NA NA 42 Operating income NA NA NA NA NA NA NA Source: Jefferies estimates, company data Note: This model is prepared by the Japan auto team in order to estimate Suzuki's Asian segment OP. Thus, all projections are not necessarily equal to the MSIL official estimates made by our Indian auto team. page 12 of 19

13 Chart 14: Suzuki (7269): Balance Sheet Analysis Full Year FY3/13A FY3/14E FY3/13A FY3/14E ( bn) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE Balance Sheet ( bn) 1 Assets ( bln) : 2 Cash and Securities Receivable Inventory Others Current Assets 1, , , , , , , , , , , , , , , , , , , Plants and Equipment Investment/Others Total Assets 2, , , , , , , , , , , , , , , , , , , Liabilities and Equity ( bln) : 11 ST Debts Payable Others Current Liabilities , , , , , , LT Debts Retirement, Other LT Liabilities Minority Interest Equity 1, , , , , , , , , , , , , , , , , , , Liabilities and Equity Total 2, , , , , , , , , , , , , , , , , , , Balance Sheet Strength 21 Total Capital Employed ( bln) 1, , , , , , , , , , , , , , , Working Capital( bln) Total Debts( bln) Adj. Net Debt (cash)( bln) Total Debt to Capital (%) 40.0% 39.5% 32.9% 28.0% 24.6% 18.9% 12.6% 39.5% 32.9% 31.1% 28.0% 40.9% 39.5% 35.7% 32.9% 32.5% 31.1% 29.4% 28.0% 26 Equity/Assets (% ) 46.5% 49.3% 49.9% 49.3% 49.4% 51.2% 53.8% 51.8% 49.9% 50.7% 49.3% 50.6% 51.8% 50.8% 49.9% 50.7% 50.7% 50.4% 49.3% 27 Net Debt/Equity (%) -24.9% -36.1% -35.6% -30.1% -28.0% -31.6% -35.9% -35.4% -35.6% -38.8% -30.1% -37.0% -35.4% -30.8% -35.6% -36.6% -38.8% -33.7% -30.1% 28 Book Value per Share ( ) 1,728 1,761 2,045 2,280 2,478 2,706 2,942 1,782 2,045 2,195 2,280 1,746 1,782 1,872 2,045 2,141 2,195 2,229 2, Asset Turnover (X) Tangible Asset Turnover (X) Total Debt to EBITDA (X) EBITDA Interest Coverage (X) Return Measure ROE (% ) 4.7% 5.5% 7.5% 8.7% 8.3% 8.8% 8.3% ROA (% ) 5.5% 5.7% 6.3% 6.9% 7.1% 7.9% 8.0% RoIC (%) 8.8% 10.7% 11.1% 12.0% 12.1% 13.5% 13.6% Source: Jefferies estimates, company data page 13 of 19

14 Chart 15: Suzuki (7269): Cash Flow Analysis Full Year FY3/13A FY3/14E FY3/13A FY3/14E ( bn) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE 1 Cash flow from operations 2 Pretax profit Depreciation Impairment loss Interests/dividends Interest expenses Equity profit Appraisal loss of invested securities Account receivable Inventory Accounts payable Unpaid expenses Others Subtotal Interests/dividends Interest expenses Taxes paid Operating cash flow Cash flow from investing 20 Time deposits Short term securities Acquisition of tangible assets Disposition of tangible assets Investment securities L/T loans Subsidiaries' stocks Others Cash flow from financing Cash flow from investing 30 S/T borrowings L/T debts Bonds Dividends Minority dividends Own share buy backs Others Cash flow from investing Exchange rates impacts Changes in cash/equivalents Beginning cash/cash equivalents Gains from new consolidation Ending cash/cash equivalents Source: Jefferies estimates, company data page 14 of 19

15 Chart 16: Suzuki (7269): Japan Supply/Demand Model Full Year FY3/13A FY3/14E FY3/13A FY3/14E ('000 units) FY3/11A FY3/12A FY3/13A FY3/14E FY3/15E FY3/16E FY3/17E 1H A 2HA 1HA 2HE 1QA 2Q A 3Q A 4QA 1QA 2Q A 3QE 4QE 1 Market register vehicle sales 2,977 3,064 3,238 3,313 3,162 3,148 3,053 1,612 1,626 1,525 1, ,076 2 Market minivehicle sales 1,629 1,689 1,973 2,200 2,015 1,970 1, ,020 1, Total Market Demand (Unit) 4,606 4,753 5,210 5,513 5,177 5,118 4,944 2,591 2,620 2,545 2,967 1,260 1,331 1,092 1,528 1,184 1,362 1,206 1,761 4 Registration mkt. Share (%) Minivehicle mkt. share (%) Suzuki's total market share (%) Suzuki's register vehicle sales Suzuki's minivehicle sales Suzuki's Total Dealer Sales YoY (% ) -5% 2% 13% 2% -7% -1% -4% 31% -1% 0% 4% 52% 14% -2% -1% -3% 3% 1% 6% 11 Mazda's OEM Market sales Nissan OEM Market Sales Total Suzuki's make market sales Change in dealer inventories Domestic Factory Sales Exports Change in factory inventories Suzuki's production 994 1,020 1, YoY (% ) 4% 3% 2% -6% -7% 2% -5% 15% -9% -13% 1% 43% -6% -10% -7% -17% -8% -6% 7% Source: Jefferies estimates, company data page 15 of 19

16 Company Description Suzuki was 10th in global auto market share in 2012 by sales volume and 3rd in motorcycles. The midsize automaker's strengths are in small cars and Japanese mini-vehicles. It has more than a 40% market share in India, which is now its biggest source of profits. Chairman Osamu Suzuki is a strong leader. Suzuki and GM ended equity ties in 2008, and Suzuki forged a partnership with VW in Dec 2009 which is now under an arbitration process for a break-up. 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. page 16 of 19