1/30 kennametal inc q2 2014 - credit suisse

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

27 January 2014

Americas/United States

Equity Research

Electrical Equipment / Capital Goods

i-Spy Global Industrials Weekly COMMENT

FA controllers moving on-machine; Chinese

over-capacity early-warning; Expro M&A target

Factory automation - Controllers moving on-machine: At last year's Hannover

Automation Fair, we noted a trend whereby automation control is moving

increasingly 'up' into the software layer (Siemens has been a leader here), or 'down'

directly onto machines (an approach which ETN appears to favor). This move

appears to be gathering pace; Rockwell Automation last week unveiled its Armor

GuardLogix programmable automation controller (PAC), which is designed to be

installed directly onto machines. Using on-machine controllers can reduce

component-count, wiring time and maintenance costs for plant operators.

Chinese over-capacity early-warning system: China's NDRC is developing its

own early warning system, to collect industrial information and issue warnings if

over-capacity looks likely. This reinforces the notion that capacity is likely to remain

under a tight leash in most Chinese heavy industries for the rest of this 5-Year Plan.

AHR (HVAC) Expo: We received some re-assurance from the AHR Expo in New

York that investment in the institutional portion of the US non-residential market

(60% of the total) is bottoming out, after three years of declines. Dec Q orders data

for US HVAC from Carrier (UTX) and York (JCI) was also encouraging. US HVAC

OEMs and component suppliers are rapidly reacting to the rise of variable speed

technology, which should help them to withstand the threat of Daikin / Goodman.

Expro a takeout target? According to our OFS team, media sources indicate that

UK oilfield services firm Expro International (controlled by PE) has attracted interest

from GE and Schlumberger as an auction process begins. Expro could be worth up

to $5bn; it has annual sales of $1.3bn and 28% op margins.

Rating changes: Wind turbine leader Vestas was downgraded to UP (from N, Jan

24), based on a muted end-market growth outlook. Low voltage electrical equipment

manufacturer Legrand was upgraded to N (from UP, Jan 24) following recent

underperformance. Komax was downgraded to N (from OP, Jan 22), as the Solar

disposal now seems priced in.

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

Knight Transportation 8.5% China Datang Corp -10.0% China Industrial Machinery 0.8% European Wind Energy -8.3%

HIWIN 7.6% Rieter Holding -9.3% India Automotive -0.4% Japan Conglomerates -7.7%

Zhejiang Tianma 7.5% GS E&C -9.2% China Infrastructure Construction -0.7% European Electrical/Electronics -7.2%

Airtac 6.2% Gamesa -8.7% US Defense -1.6% Japan Machine Tools -7.0%

Kia Motors 5.7% Chicago Bridge & Iron -8.5% Korea Industrials / Shipbuilding / Autos -1.9% Japan Auto Related Consumables -6.8%

Henan Pinggao Electric Co Ltd 4.0% WW Grainger Inc. -8.4% India Capital Goods -2.0% Japan Automotive -6.0%

Sany Heavy Industry 4.0% Hitachi -8.4% US Environmental Services -2.0% US Fluid Management -5.4%

China CNR Corp 3.3% Kennametal Inc. -8.3% Singapore /Taiwan Industrials -2.2% US Machinery -5.3%

Guangxi Liugong Machinery 3.2% Mazda Motor -8.3% China Automotive -2.2% Japan Infrastructure Machinery -5.2%

General Dynamics 3.0% Cummins Inc. -8.3% US Transports -2.2% US Industrial Distribution -5.0% Source: DataStream.

Research Analysts

Julian Mitchell

212 325 6668

[email protected]

Charles Clarke

212 538 7095

[email protected]

Jonathan Shaffer

212 325 1259

[email protected]

This Week (1/27/2014 - 2/2/2014)

Macro Events

1/27 US Jan Dallas Fed Mfg. Activity

1/28 US Jan Richmond Fed

1/30 Euro-Zone Jan Business Climate

1/30 Euro-Zone Jan Economic Confidence

1/30 Euro-Zone Jan Industrial Confidence

1/30 China Jan HSBC Mfg PMI

1/31 US Jan Chicago PMI

1/31 Japan Dec IP (Flash)

Company Events

1/27 Caterpillar Inc Q4 2013

1/28 Danaher Corp Q4 2013

1/28 Illinois Tool Works Inc Q4 2013

1/28 Rexnord Corp Q3 2014

1/28 Koninklijke Philips NV Y 2013

1/28 SKF AB Y 2013

1/28 Kone OYJ Y 2013

1/28 Siemens AG Q1 2014

1/28 Hitachi Construction Mchn Q3 2014

1/28 Samsung Engineering Co Y 2013

1/29 Knight Transportation Inc Q4 2013

1/29 Boeing Co/The Q4 2013

1/29 Rockwell Automation Inc Q1 2014

1/29 Canadian Pacific Railway Q4 2013

1/29 Komatsu Ltd Q3 2014

1/30 ADT Corp/The Q1 2014

1/30 Dover Corp Q4 2013

1/30 Canadian National Railway Q4 2013

1/30 Kennametal Inc Q2 2014

1/30 Atlas Copco AB Y 2013

1/30 Daihatsu Motor Co Ltd Q3 2014

1/31 Tyco International Ltd Q1 2014

1/31 Electrolux AB Y 2013

1/31 Makita Corp Q3 2014

1/31 OKUMA Corp Q3 2014

1/31 FANUC Corp Q3 2014

1/31 NSK Ltd Q3 2014

1/31 NTN Corp Q3 2014

1/31 Nabtesco Corp Q3 2014

1/31 Keyence Corp Q3 2014

27 January 2014

i-Spy Global Industrials Weekly 2

Table of contents Catalyst Calendar 3 Macro Snapshot: CS Six NT Demand Indicators 4 Performance Summary 6 Price Commentary Tracker 7 Recent Industrial Transactions 8 Recommended Reading 9 Reading Summaries 11

Global Research 11 Macro / Strategy 11 Americas Research 12 EMEA Research 29 Asia Research 31

Global Macro Forecasts 37 Valuation & Performance 38

Americas Capital Goods Valuation Summary 39 EMEA Capital Goods Valuation Summary 42 Asia Capital Goods Valuation Summary 44

CS Global Capital Goods Team 47 Global Calendars 48

Americas 48 EMEA 49 Asia 50

27 January 2014


Catalyst Calendar Exhibit 2: Catalyst Calendar

United Tech Corp Q4 13 1/22 1.0% General Electric Q4 13 1/17 -2.3% Domino Printing S1 14 12/12 Jpmorgan Chase Q4 13 1/14 0.1% Parker Hannifin Q2 14 1/22 -3.5%

Stanley Black & Q4 13 1/24 -3.2% Siemens Ag-Reg Q1 14 1/28 Pentair Ltd-Reg Q4 13 1/28 Bank Of America Q4 13 1/15 -4.3% United Tech Corp Q4 13 1/22 1.0%

Adt Corp/The Q1 14 1/30 Koninklijke Phil Y 13 1/28 Idex Corp Q4 13 1/29 Citigroup Inc Q4 13 1/16 2.3% Yaskawa Electric Q3 14 1/23 1.8%

Tyco Intl Ltd Q1 14 1/31 Danaher Corp Q4 13 1/28 Dover Corp Q4 13 1/30 General Electric Q4 13 1/17 -2.3% Honeywell Intl Q4 13 1/24 -1.5%

Assa Abloy Ab-B Y 13 2/7 3M Co Q4 13 1/30 Cameron Internat Q4 13 1/30 Alstom Q3 14 1/21 -13.8% Siemens Ag-Reg Q1 14 1/28

Ingersoll-Rand Q4 13 2/11 Snap-On Inc Q4 13 2/7 Tyco Intl Ltd Q1 14 1/31 United Tech Corp Q4 13 1/22 1.0% Rockwell Automat Q1 14 1/29

Kaba Holding-B S1 14 3/12 Agilent Tech Inc Q1 14 2/14 Sulzer Ag-Reg Y 13 2/20 General Dynamics Q4 13 1/22 4.6% Omron Corp Q3 14 1/30

Spectris Plc Y 13 2/27 Flowserve Corp Q4 13 2/21 Honeywell Intl Q4 13 1/24 -1.5% Emerson Elec Co Q1 14 2/4

Itt Corp Q4 13 2/27 Siemens Ag-Reg Q1 14 1/28 Eaton Corp Plc Q4 13 2/4

Koninklijke Phil Y 13 1/28 Yokogawa Elec Q3 14 2/7Natl Oilwell Var Q4 13 1/31 Regal Beloit Q4 13 2/10Vestas Wind Syst Y 13 2/4 Daikin Inds Q3 14 2/10

Stanley Black & Q4 13 1/24 -3.2% Alcoa Inc Q1 14 1/9 -6.6% General Dynamics Q4 13 1/22 4.6% Mitsubishi Heavy Q3 14 2/6 Ingersoll-Rand Q4 13 2/11

Assa Abloy Ab Q4 13 2/7 Allegheny Tech Q4 13 1/22 -6.3% Lockheed Martin Q4 13 1/23 -3.9% Abb Ltd-Reg Y 13 2/13 Smc Corp Q3 14 2/12

Kaba H1 14 3/12 Precision Castpt Q3 14 1/23 -3.5% Boeing Co/The Q4 13 1/29 Rolls-Royce Hold Y 13 2/13 Abb Ltd-Reg Y 13 2/13

Hexcel Corp Q4 13 1/24 -7.0% Northrop Grumman Q4 13 1/30 Mtu Aero Engines Y 13 2/18 Schneider Electr Y 13 2/20

Carpenter Tech Q2 14 1/30 L-3 Comm Hldgs Q4 13 1/30 Schneider Electr Y 13 2/20 Weg SA Y 13 2/26

Ball Corp Q4 13 1/30 Cubic Corp Q1 14 2/11 Safran Sa Y 13 2/20

Crown Holdings I Q4 13 2/3 Saic Inc Q4 13 3/26 Gamesa Y 13 2/27

Norsk Hydro Asa Y 13 2/12

Constellium Nv-A Q4 13 2/14

Kaiser Aluminum Q4 13 2/19

Worthington Inds Q3 14 3/21

Acuity Brands Q2 14 1/9 12.2% General Electric Q4 13 1/17 -2.3% United Tech Corp Q4 13 1/22 1.0% Osg Corp Q1 14 1/9 -0.9% Hexcel Corp Q4 13 1/24 -7.0%

Parker Hannifin Q2 14 1/22 -3.5% Rockwell Collins Q1 14 1/21 0.8% Johnson Controls Q1 14 1/23 -4.4% Fastenal Co Q4 13 1/15 -4.5% Ametek Inc Q4 13 1/29

Woodward Inc Q1 14 1/22 0.5% United Tech Corp Q4 13 1/22 1.0% Stanley Black & Q4 13 1/24 -3.2% Ww Grainger Inc Q4 13 1/24 -5.8% Haynes Intl Inc Q1 14 1/31

Hubbell Inc -B Q4 13 1/28 General Dynamics Q4 13 1/22 4.6% Siemens Ag-Reg Q1 14 1/28 Kennametal Inc Q2 14 1/30 Lear Corp Q4 13 1/31

Triumph Group Q3 14 1/28 Johnson Controls Q1 14 1/23 -4.4% Illinois Tool Wo Q4 13 1/28 Sandvik Ab Y 13 2/3 Delphi Automotiv Q4 13 2/4

Meritor Inc Q1 14 1/29 Honeywell Intl Q4 13 1/24 -1.5% Atlas Copco-A Y 13 1/30 Cognex Corp Q4 13 2/13 Rti Intl Metals Q4 13 2/6

Eaton Corp Plc Q4 13 2/4 Du Pont (Ei) Q4 13 1/28 Tyco Intl Ltd Q1 14 1/31 Amer Axle & Mfg Q4 13 2/7

Astronics Corp Q4 13 2/5 Borgwarner Inc Q4 13 2/14 Emerson Elec Co Q1 14 2/4 Mine Safety Appl Q4 13 2/13

Littelfuse Inc Q4 13 2/5 Garmin Ltd Q4 13 2/19 Lennox Intl Inc Q4 13 2/5 Curtiss-Wright Q4 13 2/20

Amer Axle & Mfg Q4 13 2/7 Schneider Electr Y 13 2/20 Assa Abloy Ab-B Y 13 2/7 Barnes Group Inc Q4 13 2/21

Legrand Sa Y 13 2/13 Regal Beloit Q4 13 2/10 Gkn Plc Y 13 2/25

Borgwarner Inc Q4 13 2/13 Daikin Inds Q3 13 2/10 Trimas Corp Q4 13 2/26

Trw Automotive Q4 13 2/14 Ingersoll-Rand Q4 13 2/11 Dynamic Material Q4 13 2/27

Allison Transmis Q4 13 2/19 Chart Industries Q4 13 2/28

Flowserve Corp Q4 13 2/21 Magna Intl Q4 13 2/28

Luxfer Holdi-Adr Y 13 3/11

Worthington Inds Q3 14 3/21

Nidec Corp Q3 14 1/22 1.1% Yaskawa Electric Q3 14 1/23 1.8% Rexnord Corp Q3 14 1/28 Textron Inc Q4 13 1/22 5.3% General Electric Q4 13 1/17 -2.3%

Skf Ab- B Shares Y 13 1/28 Siemens Ag-Reg Q1 14 1/28 Rockwell Automat Q1 14 1/29 United Tech Corp Q4 13 1/22 1.0% United Tech Corp Q4 13 1/22 1.0%

Rexnord Corp Q3 14 1/28 Rockwell Automat Q1 14 1/29 Timken Co Q4 13 1/30 Honeywell Intl Q4 13 1/24 -1.5% Textron Inc Q4 13 1/22 5.3%

Crompton Gr-Gdr Q3 14 1/29 Omron Corp Q3 14 1/30 Kennametal Inc Q2 14 1/30 Dassault Systeme Y 13 2/6 General Dynamics Q4 13 1/22 4.6%

Timken Co Q4 13 1/30 Fanuc Corp Q3 14 1/31 Emerson Elec Co Q1 14 2/4 Finmeccanica Spa Y 13 3/19 Johnson Controls Q1 14 1/23 -4.4%

Emerson Elec Co Q1 14 2/4 Emerson Elec Co Q1 14 2/4 Xylem Inc Q4 13 2/4 Stanley Black & Q4 13 1/24 -3.2%

Lennox Intl Inc Q4 13 2/5 Ats Automation Q3 14 2/6 Geberit Ag-Reg Y 13 3/11 Honeywell Intl Q4 13 1/24 -1.5%

Rbc Bearings Inc Q3 14 2/7 Yokogawa Elec Q3 14 2/7 Siemens Ag-Reg Q1 14 1/28

Regal Beloit Q4 13 2/10 Thk Co Ltd Q3 14 2/7 United Tech Corp Q4 13 1/22 1.0% Kone Oyj-B Y 13 1/28Ingersoll-Rand Q4 13 2/11 SMC Corp Q3 14 2/12 Stanley Black & Q4 13 1/24 -3.2% Tyco Intl Ltd Q1 14 1/31Altra Industrial Q4 13 2/14 Cognex Corp Q4 13 2/13 Tyco Intl Ltd Q1 14 1/31 Emerson Elec Co Q1 14 2/4

Franklin Elec Co Q4 13 2/20 Abb Ltd-Reg Y 13 2/13 General Electric Q4 13 1/17 -2.3% Assa Abloy Ab-B Y 13 2/7 Vestas Wind Syst Y 13 2/4

Weg Sa Y 13 2/26 Hollysys Automat Q2 14 2/19 Alstom Q3 14 1/21 ##### Ingersoll-Rand Q4 13 2/11 Lennox Intl Inc Q4 13 2/5Teco Elec & Mach 3/29 Schneider Electr Y 13 2/20 Siemens Ag-Reg Q1 14 1/28 Kaba Holding-B S1 14 3/12 Regal Beloit Q4 13 2/10

Weg Sa Y 13 2/26 Alfa Laval Ab Y 13 2/5 Daikin Inds Q3 14 2/10

Gea Group Ag Y 13 2/6 Ingersoll-Rand Q4 13 2/11

Spx Corp Q4 13 2/12 Azz Inc Q4 13 1/8 -14.0% Rolls-Royce Hold Y 13 2/13Abb Ltd-Reg Y 13 2/13 Hubbell Inc -B Q4 13 1/28 Thyssenkrupp Ag Q1 14 2/14

Valmont Inds Q4 13 2/12 Schindler Ho-Reg Y 13 2/14

Quanta Services Q4 13 2/21 Mtu Aero Engines Y 13 2/18Safran Sa Y 13 2/20

TYC

SPW

VMI

ETN HON IR KMT

EMR

LXFR

RBC ROK RXN TXT UTX

CSTM CUB

ADT DHR DOV GE

ALLE

Source: Company data, Credit Suisse estimates

27 January 2014


Macro Snapshot: CS Six NT Demand Indicators Exhibit 3: 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 / Survey

Eurozone & Germany Flash PMI

■ Eurozone Aggregate Flash PMI jumped to 53.9 in January from 52.7 last month. Germany PMI rose to 31 month high of 56.3 from 54.3 in December

Chicago Dec Fed Nat Activity

■ Chicago Fed National Activity Index (CFNAI) decreased to +0.16 in December from +0.69 in November. Three of the four broad categories of indicators that make up the index decreased from November.

Japan Industrial Production

■ Japan's Industrial Production in November was weaker than October with shrink of 0.1%. In October it has increased by 1.0%

German IFO

■ German business confidence rose sharply in January, business climate index climbed to 110.6 points from 109.5 points in December. Current business rose to 112.4 points in January from 111.6 points in December, while the outlook sub-index rose to 108.9 points from 107.4 points

Indicator #4 Company Data

EMR Monthly Orders

■ Overall 3MMA organic orders were up 3.5% in December (ex FX impact of - 1%). PM decelerated somewhat, but this was offset by improvement in IA which was flat (from down in November). Climate Tech picked up (Asia and Europe helped here) growing ~8%. We think the stock is unlikely to react significantly as the trends are broadly unchanged.

CAT Dealer Statistics

■ Total Machine sales were down 9% in December (vs. down 12% in Nov and Oct). There was improvement across all segments though generally comps were easier. NA and Asia Pac were down 1% (down 2% in Nov) and down 19% (down 24% in Nov), respectively, but both had much easier comps. LatAm was down 3% (vs. down 8% in Nov) and EAME was down 13% (vs. down 16% in Nov). Total Engine sales were down 6% (vs. down 5% in Nov).

2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

5

Exhibit 4: Demand Indicators

Indicator #1 Lead Indicators/ Surveys



Eurozone & Germany Flash PMI Chicago Fed Nat Activity Japan Industrial Production

30

35

40

45

50

55

60

65

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Eurozone Mfg PMI Germany Mfg PMI

Flash PMIs

30

35

40

45

50

55

60

65

70

75

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

-50

-40

-30

-20

-10

0

10

20

30

40

Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

Source: Datastream Source: Datastream Source: Bloomberg




Germany IFO EMR Dec Orders CAT Dealer Statistics

70

80

90

100

110

120

130

Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

IFO Business Climate

IFO Business Expectations

IFO Current Situation

-6

-4

-2

0

2

4

6

8

10

Dec

-11

Feb

-12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Feb

-13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

Total EMRDec Orders +3.5% (Ex-FX 3MMA)

-15%

-5%

5%

15%

25%

35%

Dec-11 Jun-12 Dec-12 Jun-13 Dec-13

CAT Machinery 3M Sales CAT Engine 3M Sales

Source: Datastream Source: Company Website Source: Company Website

27 January 2014


Performance Summary Exhibit 5: Company Performance

Best Performers 1-Week Best Performers 1-Week Best Performers 1-Week

Knight Transportation 8.5% Schindler-Holding AG 2.2% HIWIN 7.6%

General Dynamics 3.0% Melrose 2.1% Zhejiang Tianma 7.5%

Union Pacific 2.3% Invensys 1.2% Airtac 6.2%

Werner Enterprises 1.8% Kone Corporation 0.9% Kia Motors 5.7%

Constellium 1.0% GEA Group 0.7% Henan Pinggao Electric Co Ltd 4.0%

Best Performers YTD Best Performers YTD Best Performers YTD

Knight Transportation 16.2% Fiat 23.8% Airtac 13.6%

Harman International 9.2% PSA Peugot Citroen 19.0% Henan Pinggao Electric Co Ltd 12.3%

MasTec, Inc. 9.1% Finmeccanica 15.7% China High Speed Transmission Equipment 11.6%

CACI International, Inc. 7.3% Vestas 11.4% China Ming Yang Wind Power Group Ltd. 11.0%

Alliant Techsystems Inc. 7.2% Autoneum 10.5% HIWIN 9.3%

Worst Performers 1-Week Worst Performers 1-Week Worst Performers 1-Week

Kansas City Southern -14.5% Alstom -21.6% China Datang Corp -10.0%

Parker Hannifin Corporation -10.0% Rieter Holding -9.3% GS E&C -9.2%

Terex Corporation -10.0% Gamesa -8.7% Hitachi -8.4%

Chicago Bridge & Iron -8.5% ABB -8.2% Mazda Motor -8.3%

WW Grainger Inc. -8.4% Vestas -8.0% Mori Seiki -7.9%

Worst Performers YTD Worst Performers YTD Worst Performers YTD

Kansas City Southern -19.7% Alstom -18.4% Daewoo E&C -19.5%

Bombardier Inc -16.3% Fenner -14.0% Dongfang Electric Corp -19.0%

General Electric -11.0% Spectris -11.0% Geely Automobile Holdings -17.1%

Parker Hannifin Corporation -10.9% Cookson Group -10.6% China Railway Construction Corporation -17.0%

Cummins Inc. -10.4% Rotork plc -9.8% Sany International -15.6%

Americas EMEA Asia

Source: Datastream (Ex-Dividends)

Exhibit 6: Sector Performance

Sector Performance (Best to Worst) 1-Week Sector Performance (Best to Worst) 1-Week Sector Performance (Best to Worst) 1-Week

US Defense -1.6% MEA Industrials -2.9% China Industrial Machinery 0.8%

US Environmental Services -2.0% UK Capital Goods -3.3% India Automotive -0.4%

US Transports -2.2% European Mechanical -3.3% China Infrastructure Construction -0.7%

Canada Industrials -2.3% European Industrial Machinery -3.5% Korea Industrials / Shipbuilding / Autos -1.9%

US Aerospace -2.6% European Aerospace & Defense -3.5% India Capital Goods -2.0%

LatAm Industrials -3.6% European Automotive -3.6% Singapore /Taiwan Industrials -2.2%

US Automotive -3.7% Swiss Mid-cap Engineering -4.3% China Automotive -2.2%

US Engineering & Construction -3.7% European Electrical/Electronics -7.2% Japan/Taiwan Factory Automation -2.2%

US EE/MI -3.8% European Wind Energy -8.3% China Power Equipment -2.3%

US Industrial Distribution -5.0% China Container Manufacturing -2.5%

US Machinery -5.3% Korea Engineering & Construction -3.5%

US Fluid Management -5.4% Japan Infrastructure Machinery -5.2%

Japan Automotive -6.0%

Japan Auto Related Consumables -6.8%

Japan Machine Tools -7.0%

Japan Conglomerates -7.7%

Sector Performance (Best to Worst) YTD Sector Performance (Best to Worst) YTD Sector Performance (Best to Worst) YTD

US Defense 1.2% European Wind Energy 7.5% China Container Manufacturing 0.7%

US Aerospace -0.3% European Automotive 3.3% India Automotive -1.5%

US Industrial Distribution -1.4% European Industrial Machinery 2.6% Japan Conglomerates -1.9%

US Automotive -2.0% European Aerospace & Defense 0.2% Japan/Taiwan Factory Automation -3.1%

US EE/MI -2.3% MEA Industrials 0.0% China Power Equipment -4.2%

US Transports -3.0% Swiss Mid-cap Engineering -1.6% Korea Industrials / Shipbuilding / Autos -4.8%

Canada Industrials -3.4% European Mechanical -1.7% Japan Infrastructure Machinery -4.8%

US Machinery -4.3% UK Capital Goods -2.5% Korea Engineering & Construction -4.8%

US Engineering & Construction -4.9% European Electrical/Electronics -3.0% Japan Automotive -4.9%

LatAm Industrials -4.9% Japan Auto Related Consumables -5.2%

US Environmental Services -5.3% Singapore /Taiwan Industrials -5.2%

US Fluid Management -7.0% China Industrial Machinery -6.0%

India Capital Goods -8.0%

Japan Machine Tools -8.3%

China Automotive -9.5%

China Infrastructure Construction -12.0%

Americas EMEA Asia

Source: Datastream (Ex-Dividends)

27 January 2014


Price Commentary Tracker In summary, we can see that pricing commentary has remained stable, despite the soft

volumes in Q313.

Exhibit 7: Price Tracker Date Company Direction Comment

1/22/2014Textron

(Cessna) = Pricing for us was roughly flat year over year, I would say it has more less stabilized in terms of the pricing environment

1/21/2014 Alstom -Our esteemed competitors acknowledged the price pressure on the gas turbines which I confirm and which is not the illustration of a booming

market

1/17/2014 GE = Order pricing- P&W:-3%, O&G:+1.8%, EM:-0.1%, Aviation: +1.8%, Healthcare:-1.5%, Transportation:+0.2%

1/9/2014 Acuity -We will continue to be vigilant on our pricing posture… We continue to experience some isolated pricing pressures in certain markets and

sales channels, such as home improvement and larger renovation projects. As we have said before, we will defend our market position

vigorously from competitors, should they attempt to use price as their only point of differentiation

11/7/2013 Rockwell =So then in next year, we're expecting once again to do about a point-of-price, maybe a little bit less than that. And then I think on the input

cost side we're not expecting any significant change in input costs as we move into next year. We do expect to have normal wage and benefit

inflation

11/7/2013 Siemens +We expect pricing to be about similar as to what we have been guiding to markets for 2014 in the Siemens 2014 program, so around about

2.5 percentage points

11/5/2013 Emerson = Pricing is a little bit softer out in the marketplace, but it's still slightly positive, less positive than 2013

10/30/2013 SPX Corp =In the US power transformer market, replacement demand remains at a high level in terms of volume. Industry lead times were stable quarter

to quarter, pricing was also stable and remained competitive

10/29/2013 Alfa Laval =If we look at pricing overall, I think if we look at the products that are considered to be more of a standard nature, of course, there is a more

severe price pressure. And of course, that is, to some degree, supported by the declining metal prices that we've seen some time ago. But for

our contract orders, no change in, say, the pricing environment

10/29/2013 Regal Beloit - Sales prices declined 0.8% from the prior year, impacted by the two-way material price formulas with our larger customers

10/29/2013 Johnson Controls +Our pricing initiatives – a lot of that has to do with getting our commercial terms to stick with the OEs, and that's something that we've chased

all year. We were able to get that recovery and that will help us going forward

10/25/2013 Atlas Copco + We have a still good pricing development, our price mix is doing fine.

10/25/2013 Eaton =We try to run a model that basically says between productivity, new product introductions, and price increases, that we roughly come out

equal versus commodity prices, so no material headwind/tailwind this year.

10/25/2013 Electrolux = Prices continued to decline in the third quarter but on a sequential basis, development is stable.

10/25/2013 Schneider =I would have been expecting for the second half a price impact very limited and possibly even negative given the environment and the fact

that on the raw material we are indeed seeing a continuation of a positiveimpact ... but we believe that the bulk of this price increase impact

will be for 2014.

10/24/2013 ABB =Price pressure remains, but that is mainly in the Power divisions but it's now at the more normalized level where we can manage well to

compensate the cost and productivity measures as you can see in the table.

10/24/2013 Kennametal = Pricin- net-net, maybe slightly down; nothing significant with the industrial being kind of flattish and a little bit of pressure on the mining side.

10/24/2013 Sandvik =Net, we have not seen any downward pricing trends in any part of the company. So it's been neutral to possibly slightly positive in some

areas. But the net effect is, I would say, less than 0.5% in the positive direction when it comes to pricing. So flat to maybe slightly positive.

10/24/2013 Timken =Pricing on the process side is not a significant issue. Obviously, it's not an issue much of all in distribution. There is some price competition

going on, on the large capital equipment, OE side of the business; but once again, it's a small enough portion of the business that it's not

significantly material

10/22/2013 Kone =Our prices in new equipment have been stable… And in maintenance, to a certain extent, challenging everywhere … In modernization, our

prices have been rather stable.

10/22/2013 UTX = Otis- pricing pressure in China; spares pricing's still pretty good.

10/21/2013 Philips - At this moment, no real step-up, let's say, in price erosion movements to a negative effect.

10/21/2013 Lennox +In terms of sort of the broader price cost equation, this industry and we've done a good job over the last couple of years, most specifically this

year, of being able to get price to offset commodity increases during the cycle. And we expect we'll do something very similar as we go into

2014, announce a price increase and pass on the customers

10/18/2013 GE = Orders price was flat.

10/18/2013 Honeywell - For PMT, we've seen some further pricing pressures in Advanced Materials.

10/18/2013 Ingersoll Rand +You'll probably see us have price next year again. Even in a market where there might be muted inflation and not a lot of announced price

agreements, we would still expect to have price -- some positive price gap.

10/18/2013 Textron =We pretty well held those prices, both sequentially and year-over-year in terms of the third quarter. So we're keeping the pricing around where

we expected it to be

10/17/2013 Danaher =Price, still pretty steady. We're getting the same price on the consumables side. Equipment remains challenging. It's definitely worse than it

was, say, two years ago, but it's been pretty consistent with what we're seeing.

10/17/2013 Dover =I would say some of the pricing that we have put in place related to materials earlier quarters have started to come down a bit. So the net

spread on, as we track price as it relates to materials, sequentially really is pretty flat off the second quarter.

10/17/2013 Hubbell - On the power side - a much more price competitive environment than we've seen in the past


27 January 2014


Recent Industrial Transactions Exhibit 8: Recent Industrial Transactions x, unless otherwise stated

EV/TTM or EV/Last FY EV/NTM or EV/Next FY

Announce Date Acquiror Target Sales EBITDA

EBITA or

EBIT Sales EBITDA EBITA or EBIT

20-Jan-14 GE Cameron ( high-speed gas processing unit) 1.5 - - - - - $550

20-Jan-14 Safran Eaton (Aerospace) 2.6 19.0 - - - - $270

13-Jan-14 AMEC Foster Wheeler (FWLT) - - - - 9.9 - $3,200

6-Jan-14 GE TMO (Cell culture, gene moduln, magnetic beads) 4.2 14.0 - - - - $1,060

6-Jan-14 B/E Aerospace LT Energy Services, Wildcat Wireline 2.1 - - - - - $265

26-Dec-13 Textron Beechcraft Corporation 0.8 6.9 - - - - $1,400

10-Dec-13 Flowserve Innovative Mag-Drive - - - - - - ---

4-Dec-13 Emerson EGS Electric (SPX Corp) 2.4 11.8 13.1 - 11.5 - $571

3-Dec-13 Johnson Controls Hitachi Appliances (Global AC) - - - - - - ---

31-Oct-13 Sentinel Capital Actuant (Electrical Segment) 0.9 - 7.6 - - - $258

16-Oct-13 Marmon Group IMI (Merchandising, Beverage Dispense) - - - 1.3 - 8.9 $1,100

10-Oct-13 KKR Melrose ( Crosby & Acco) - 10.0 10.7 - - - $1,000

1-Oct-13 Assa Abloy Ameristar - - - - - 13.6 $171

26-Sep-13 Nidec Mitsubishi Materials CMI Corporation - - - - - - $102

24-Sep-13 Emerson Virgo Valves and Controls 1.6 8.4 - - - - $450

16-Sep-13 Kennametal ATI Tungsten Materials 1.8 7.2 - - - - $605

10-Sep-13 Toshiba Vijai - - - - - - $200

5-Sep-13 SKF Kaydon 2.7 16.1 22.1 2.3 11.5 14.5 $1,250

19-Aug-13 Atlas Copco Edwards Group 1.7 8.8 12.8 1.6 7.2 9.2 $1,600

14-Aug-13 B/E Aerospace Blue Dot 1.4 $75

11-Aug-13 Rockwell Collins ARINC - - - 2.3 - - $1,390

6-Aug-13 Platinum Equity Emerson (Ebedded Computing & Power Biz.) 0.4 - - - - - $300

31-Jul-13 Schneider Invensys 1.8 16.8 25.1 1.30 12.3 13.7 $5,200

30-Jul-13 ABB Ring Motors (Alstom) - - - - - - ---

28-Jun-13 Lixil Corporation American Standard - 10.3 - - 13.0 - $542

20-Jun-13 Carlyle Group Marelli Motori (Melrose) 1.4 - 11.2 - - - $281

1-May-13 Tyman PLC Truth Hardware (Melrose) 1.6 8.9 - - - - $200

23-Apr-13 Honeywell RAE Systems 3.2 - - - 13.0 - $340

22-Apr-13 ABB Power-One 1.0 7.7 9.3 - - - $1,000

17-Apr-13 Roper Managed Health Care Associates - - - - 10.5 - $1,000

8-Apr-13 General Electric Lufkin 2.6 16.9 21.7 2.3 13.5 17.1 $3,300

28-Mar-13 Schneider TM Samara - - - - - - $340

5-Mar-13 KKR Gardner Denver 1.6 7.9 9.3 1.6 8.6 9.9 $3,740

20-Feb-13 Weir Group R Wales, Cheong foundry, Xmeco foundry - - - - - - $83

21-Dec-12 General Electric Avio (Aviation Business) 1.8 9.8 13.0 - 8.5 - $4,300

20-Dec-12 Weir Group Mathena - - - - 5.0 - $240

19-Dec-12 Heraeus Holding Spectris (Fusion UV division) - - 13.2 - - - $172

12-Dec-12 Mitsubishi Heavy Ind United Technologies Corp (PWPS) 0.9 6.1 7.1 - - - $600

30-Nov-12 Dover Anthony International 1.9 - 16.0 - - - $603

29-Nov-12 Siemens Invensys (Rail) 2.3 - 15.0 - - - $2,780

16-Oct-12 ITT Corp Bornemann Pumps - - - 1.8 - - $267

16-Oct-12 Safran Goodrich Electric Power Systems - - - 2.0 - - $400

16-Oct-12 Bodycote Bluewaters - - - 2.0 - 8.0 $68

10-Oct-12 Bain Capital Apex Tool 1.1 7.1 - - - - $1,600

9-Oct-12 Spectrum Stanley Black & Decker (HHI) 1.4 7.5 - - - - $1,400

1-Oct-12 Honeywell Thomas Russell - - - 1.7 6.0 - $525

17-Sep-12 Danaher Corporation IRIS International, Inc. 2.8 28.1 - 2.6 10.5 13.0 $338

28-Aug-12 Daikin Industries Ltd Goodman Global 1.9 10.5 12.3 1.8 10.1 11.8 $3,700

16-Aug-12 Clayton, Dubilier & Rice Decorative Surfaces(51%)-ITW unit 1.9 - 15.6 $1,050

9-Aug-12 National Oilwell Varco Robbins & Myers 2.4 - 9.3 2.3 8.7 $2,500

8-Aug-12 Platinum Equity Clipper Windpower (UTX) - - - - - - ---

30-Jul-12 Roper Sunquest - - - - 10.1 14.2 $1,415

25-Jul-12 BC Partners&Carlyle Milton Roy, Sullair (UTX) 1.8 9.5 - - - - $3,460

23-Jul-12 GenCorp Inc RocketDyne unit (UTX) 1.8 9.5 - - - - $550

5-Jul-12 GKN Volvo Aero 1.4 - - - - - $1,000

18-Jun-12 Melrose Elster - - - 1.2 8.4 - $2,300

21-May-12 Eaton Cooper Industries 2.1 12.9 15.3 2.0 12.0 12.6 $11,800

15-May-12 GE Industrea Ltd 1.8 5.5 8.8 1.6 4.5 6.6 $690

15-May-12 GE Fairchild International - - - - - - NA

10-May-12 Platinum Equity Caterpillar Logistics Services - - - - - - $750

8-May-12 General Electric China XD (15% stake) - - - 1.8 30.2 - $535

26-Apr-12 Ametek Dunkermotoren - - - 1.7 - $250

25-Apr-12 Dover Production Control Services 2.4 - - - - - $220

10-Apr-12 Danaher X-Rite 2.5 10.0 11.5 2.6 10.3 - $625

10-Apr-12 Cobham Thrane & Thrane 2.3 - 14.8 - $428

2-Apr-12 Bodycote Curtis Wright HT 1.4 - 6.2 1.4 - 6.8 $52

20-Mar-12 Siemens Connectors & Measurements, Expro Holdings 5.2 - - - - - $620

19-Mar-12 Amazon Kiva Systems - - - - - - $775

10-Feb-12 Dover Maag Group 1.6 9.3 12.6 $290

30-Jan-12 ABB Thomas & Betts 1.7 11.1 14.6 - - 13.6 $3,857

30-Jan-12 Siemens RuggedCom Inc. - - - - - - $383

30-Jan-12 Sany Heavy Putzmeister 0.6 - - - - - $475

25-Jan-12 Weir Novatech 2.8 7.0 - - - - $176

24-Jan-12 Robert Bosch SPX- Service Solutions - 12.7 - 1.2 - - $1,150

17-Jan-12 Kennametal Deloro Stellite 1.3 8.0 - - - - $354

Announced Deal

Value (USD mn)

Source: Bloomberg, Reuters, Company data, Credit Suisse Research

27 January 2014


Recommended Reading (Bullets from each recommended reading note are provided in subsequent pages of iSpy)

Exhibit 9: Global Research

■ Global Equity Strategy; M &A: Welcome to the recovery; Andrew Garthwaite; 27

January 2014

Exhibit 10: Macro / Strategy

■ Asia Pacific Equity Strategy; HSBC PMI falls below 50... sell cyclicals?; Sakthi Siva;

23 January 2014

■ China Economics; HSBC Flash PMI dropped below the 50-benchmark in January;

Dong Tao; 23 January 2014

Exhibit 11: Americas Research

■ Honeywell International Inc.; Sluggish recent relative performance sets up attractive

entry point ahead of March 5 meeting; Julian Mitchell; 27 January 2014

■ Stanley Black & Decker, Inc.; Maintaining ’14 Est.; Need Further Signs of Execution

in 1Q; Michael Dahl; 27 January 2014

■ Kansas City Southern; Autos, Crude Growth Pushed to '15; Size of Prize Is

Unchanged; Allison M. Landry; 27 January 2014

■ WW Grainger Inc.; 4Q13: The Good, the Bad, and the Outlook; Hamzah Mazari; 26

January 2014

■ Embraer; Selling When Backlog Is Stalling; Bruno Savaris; 24 January 2014

■ What’s Cookin’ In Machinery And Engineering & Construction; Are You A

'Belieber'?; Jamie Cook; 24 January 2014

■ Global Aerospace & Defense; Initial Q4 Results Show Spares Outpacing OE;

Mgmt's Hoping for 2014 Defense Rev Bottom; Robert Spingarn; 24 January 2014

■ JB Hunt Transport Services; Solid Intermodal Overshadowed by Weak Dedicated &

TL Operating Results; Allison M. Landry; 24 January 2014

■ Union Pacific; Volume Leverage & Productivity to Drive Record EPS and Margins in

2014; Allison M. Landry; 24 January 2014

■ Lockheed Martin; Mgmt Hopeful 2014 Marks Revenue Bottom; Robert Spingarn; 23

January 2014

■ Jacobs Engineering; SKM-ing By; Jamie Cook ; 23 January 2014

■ AHR (HVAC) Expo Takeaways; Mid-single digit market growth; Daikin meeting;

Disciplined competitive landscape; Julian Mitchell; 23 January 2014

■ Oilfield Services & Equipment; Things We've Learned This Week; James Wicklund;

23 January 2014

■ Norfolk Southern; Otherwise Solid '14 Outlook Dimmed by Coal; Allison M. Landry;

23 January 2014

27 January 2014


■ United Technologies Corp; More comfort on Otis; Key risks dwindling; Julian

Mitchell; 22 January 2014

■ Parker Hannifin Corporation; A Balancing Act; Jamie Cook; 22 January 2014

■ Textron; Cessna guide appears realistic, not conservative; firmer DoD outlook;

Julian Mitchell; 22 January 2014

■ General Dynamics Corporation; The Call We've All Been Waiting For; Robert

Spingarn; 22 January 2014

■ Emerson; December 3MMA +3.5%: Stabilization at IA offset by NP deceleration;


■ Knight Transportation; It Was Sunny at Knight in December; Allison M. Landry; 21

January 2014

■ Rockwell Collins, Inc.; Still a Transition Year; Robert Spingarn; 21 January 2014

■ General Electric; Power & Water SG&A acid test in 2014; trimming Oil & Gas

forecasts; Julian Mitchell; 21 January 2014

Exhibit 12: EMEA Research

■ Vestas; Too much optimism priced in; Mark Freshney; 24 January 2014

■ Legrand SA; Switching our view; Simon Toennessen; 24 January 2014

■ Komax; Downgrade to Neutral - Much is now priced in; Patrick Laager; 22 January

2014

■ Alstom; What to cheer for until May?; Simon Toennessen; 21 January 2014

Exhibit 13: Asia Research

■ NTN; Extraordinary loss of ¥27bn for EU cartel fines; Shinji Kuroda; 27 January

2014

■ Daikin Industries; Takeaways from Goodman meeting at AHR Expo; Shinji Kuroda;

27 January 2014

■ Machinery Sector; Update on absolute and relative share price Performance; Shinji

Kuroda; 27 January 2014

■ Yaskawa Electric Corporation; Report on 3Q meeting: See growth strategies

yielding results in FY3/15; Shinji Kuroda; 23 January 2014

■ Yaskawa Electric Corporation; 3Q FY3/14 results on weak side, but no need for

undue concern; Shinji Kuroda; 23 January 2014

■ Machinery sector; Nachi-Fujikoshi results briefing: Implications for the sector; Shinji


■ Komatsu; Investor interest seems on the rise; Shinji Kuroda; 22 January 2014

27 January 2014


Reading Summaries Global Research

Global Equity Strategy; M &A: Welcome to the recovery; Andrew Garthwaite; 27

January 2014

■ M&A is one of our key themes for 2014. We think it’s set to accelerate as:

Cash-financed M&A/buy-backs are EPS-enhancing for 49% and 23% of the

European and US market, respectively (double the mid-2012 levels).

The corporate sector has $2.3trn of 'firepower' to return leverage to average levels

in Europe and the US, and private equity has nearly $1.1trn available to spend. 32%

and 16% of US and European market cap have net cash.

Cheaper to buy than build: 26% of market cap trades below replacement value in

Europe, 34% in GEM, 43% in Japan and 5% in the US.

■ Why now? M&A follows CEO business confidence, macro uncertainty (see chart

below) and stock market returns by 1 to 1½ years. It is now the preferred use of

cash among UK CFOs. M&A (rel to market cap) is running at half and at a third of

average levels in North America and Europe, respectively.

■ Implications: Typically, equities gain 9% on average after an acceleration in M&A

activity. Near-record premiums are being paid. The corporate sector has bought

$1.4trn since the market low (compared with $200bn of retail selling) and can buy

c10% of market cap. This is negative for corporate credit.

■ The sectors most vulnerable to M&A are pharma, hotels, semis, tobacco and

telecoms in Europe, on our scorecard. Analysts' picks are featured in CSEREUMA

and CSUSUSMA. Fenner, Arkema, Sonova, Flowserve, Health Net, Global

Payments and Informatica are more than 10% cheap on Credit Suisse HOLT®,

have positive EPS momentum and are Outperform-rated. We also show quant

screens. M&A is not enough to make us alter our neutral stance on investment

banks.

■ Trends in M&A: Abnormally high PE involvement, record premiums and, on

average, the acquirer outperforms over the next 1 and 2 years. Historically, the

resources sector has seen the most successful deals..

Macro / Strategy

Asia Pacific Equity Strategy; HSBC PMI falls below 50... sell cyclicals?; Sakthi Siva;

23 January 2014

■ Is it a case of here we go again? We have been highlighting in recent reports the

historical tendency for cyclicals to underperform defensives in 1H, and outperform in

2H (see our 8 January report, Could 2014 be different?). This tendency for

underperformance in 1H has largely been driven by macro data peaking early in the

year. The key question then for investors is whether to sell cyclicals given the sharp

fall in the HSBC China flash PMI to 49.6 (below the 50 expansion threshold) in

January. This maybe particularly pertinent for Materials where China is the main

27 January 2014


demand driver and particularly as the cyclicals/defensives price-to-book gap is now

the smallest since mid-2012

■ ■ Supply, FX, rest of world demand and valuations. We are, however, staying

Overweight cyclicals (in particular Tech, Consumer Cyclicals, Materials) as rest of

world demand looks strong, supply/capex is being cut, currency weakness provides

a translation tailwind (particularly for Indian IT, Australian and Indian Materials) and

valuations are still attractive.

■ ■ Top picks among cyclicals. Top cyclical picks include our US recovery basket

(Indian IT, Korean autos) and selective Materials stocks (Rio Tinto, Fortescue

Metals, Sterlite and Chinese Cement).

China Economics; HSBC Flash PMI dropped below the 50-benchmark in January;

Dong Tao; 23 January 2014

■ HSBC Flash PMI declined to 49.6 in January, weaker than the Bloomberg

consensus of 50.3. This is the first time since July 2013 that the Flash PMI dropped

below the 50-benchmark.

■ New orders index fell the most among the key sub-indices, by 1.8 pp to 49.8. New

export orders index moderated to 49.0 from its prior of 49.1. Such dynamics

between new orders and new export orders indices suggest that the weakened

domestic new orders was probably the main drag to the overall new orders.

■ This early reading of January's activity suggests that the economy remained in the

"sequentially softening zone" for the first month of 2014.

■ This set of data is consistent with our call that the economy is steady, with a

weakening bias. In our view, GDP growth peaked in 3Q13, but there is limited

downside in the coming quarters. On the other hand, Beijing does have space for

stimulus, if deemed necessary, although the threshold to trigger stimulus measures

is likely to be higher under the current administration than under the previous

administration.

Americas Research

Honeywell International Inc.; Sluggish recent relative performance sets up attractive

entry point ahead of March 5 meeting; Julian Mitchell; 27 January 2014

Following Q4, we leave our EPS estimates on HON unchanged. The stock's slight

underperformance relative to the XLI over the past 6 months creates an attractive short-

term entry point ahead of the March 5 analyst meeting, in our view. We now see double-

digit upside potential to our (unchanged) TP for HON. From a fundamental 12-month

standpoint, UTX remains our top pick among the five 'mega cap' EE/MI conglomerates

that we cover.

■ March analyst meeting may highlight the prospects for $8 of earnings power:

The analyst meeting is likely to see new medium-term financial targets unveiled for

each business segment. Assuming low-mid single digit overall sales growth

(Aerospace is likely continues to see growth at a lower rate than at peers such as

UTX, and GE; we also adjust Transportation's sales base for the Friction

27 January 2014


divestment), 25%+ operating incremental margins (or 30-50bps annual op margin

expansion), and no changes in tax rate or balance sheet structure (flat interest and

NOSH) implies close to $8 of EPS in 2018 (see inside). HON's strong track record

on operating margin improvement in the past 5 years will likely mean whatever

targets that it sets are likely to be viewed as fairly 'conservative' by the Street.

■ What else would we like to see in March? Aside from segment growth and margin

detail, we would welcome: (i) More clarity on the balance sheet usage; management

is likely to keep a firm grip on the cash hoard, but a potential net cash position within

the next 12 months does suggest a more active policy could be introduced,

particularly as HON's acquisitions so far in this cycle have been well received by

investors;

■ (ii) Re-segmentation of Automation & Control Solutions segment; we would like to

see a re-classification of ACS, given its size (2014E revenues of ~$18bn), and

business diversity. This could involve a reporting structure split-out into 2-3

segments (along the lines of Energy, Safety & Security / Process / Building

Solutions & Distribution, or by end-location i.e. Buildings, and Industrial etc), as well

as a commitment to 'seed' each segment with M&A capital (which would tie in with

our first point). We think this would add a new growth 'dimension' for the medium-

term to HON (just as the company's successful revamp of its footprint in the

emerging markets has done over the past 5 years), and provide more external

clarity on what are some very strong assets within the ACS portfolio. We are aware

that UTX has moved somewhat in the opposite direction, with the recent formation

of its BIS segment, which encompasses what had been three separate reporting

segments three years ago (Otis, Carrier, Fire & Security), but would highlight that

the vast preponderance of UTX's BIS products are driven by construction / buildings

investment, whereas this is not necessarily true of HON ACS.

■ Q1 outlook: In common with GE and UTX over the past 10 days, consensus has

had to lower Q1 HON EPS forecasts. We do not think this implies any particular risk

to FY expectations, but would note that the -150bps y-o-y margin decline in PMT

margins implies a decent turn-around is required (y-o-y margin expansion of well

over 50bps) if this segment is to hit the upper end of its target of 20-50bps FY14

margin improvement. In the two 'major' segments, Q1 should be fairly on track in

light of the ongoing slight dilution from recent M&A activity; we forecast aggregate y-

o-y EBIT growth in ACS and Aerospace of +4% in Q1, after +7% in FY13, and

against our +7% FY14 forecast.

Stanley Black & Decker, Inc.; Maintaining ’14 Est.; Need Further Signs of Execution

in 1Q; Michael Dahl; 27 January 2014

■ Stock likely to be range-bound near-term; 1Q results in April will be key: We

view Stanley's reaffirmation of '14 guidance for the second time since initially

discussing EPS expectations on the 3Q/13 conference call as one step toward

rebuilding investor confidence. However, we also think the combination of continued

headwinds and light 1Q/14 guidance will keep the stock range-bound until 1Q

results in mid-April. We think the key to a higher multiple will be mgmt's ability at that

point to not only at least maintain FY guidance, but to avoid further back-end

weighting expectations.

■ Lowering 1Q est., maintaining FY/14 est. at $5.35: We are reducing our 1Q/14

EPS est. to $0.97 from $1.07, consistent with the company's $0.95- $0.98 guidance.

27 January 2014


We are maintaining our FY/14 est. at $5.35, consistent with guidance of $5.30-

$5.50. Our est. reflects cost actions and organic growth initiatives taking hold as the

year progresses, though we think it will be difficult to achieve the targeted 150+ bps

of margin improvement in Security given likely continued declines in sales in 1H,

and volatile FX trends create potential for greater than expected headwinds (largely

in CDIY).

■ We expect FY/14 sales +5%: We expect FY/14 revs of $11.4 bln (+5%), with 4%

organic growth. We see flat Security sales at $2.42 bln (higher NA offsetting further

declines in Europe due to elevated attrition rates), with CDIY +5% to $5.77 bln and

Industrial +8% (+5% organic) to $3.34 bln.

■ We see op. margins of 13%: We expect Security margins +110 bps to 12.5% (we

est. 10.8% in 1Q then improving sequentially each qtr. as cost cuts are fully

implemented), CDIY +10 bps to 14.9% (weighed down meaningfully by FX

headwinds), and Industrial margins +30 bps to 15.2%.

Kansas City Southern; Autos, Crude Growth Pushed to '15; Size of Prize Is

Unchanged; Allison M. Landry; 27 January 2014

■ Estimate Revisions: We have lowered our FY14 and FY15 EPS estimates to $4.69

and $5.78, from $5.15 and $6.40 respectively. We are also introducing our FY16

EPS forecast of $6.93. Our DCF-derived target price is $115 (from $136), due to

lower base year (2015) EBIT. Maintain Outperform.

■ 4Q13 Result: KSU reported adj. 4Q13 EPS of $1.03, which came in lower than our

estimate of $1.07 and the consensus of $1.10. Revs were in line with expectations,

while the O.R. was 60 bps worse (68.1% vs. 67.5%).

■ Setting a Realistic Bar for '14: KSU's mid-teens EPS growth guidance for 2014 fell

short of the 29% and 26% growth that our initial forecast and the consensus were

dialing in, respectively - sending shares down 15% on Friday. The key drivers were

a slower ramp in new auto OEM production in Mexico; the timing of CBR destination

infrastructure; and mgmt's newly christened strategy of setting realistic and

attainable expectations.

■ Conclusion: With the stock below $100, we think there are a number of investors

who would be willing to step in at these levels. This should provide support for the

stock in the near term, but the next 3-6 months could prove painfully frustrating as

the market determines the appropriate valuation.

At the end of the day, there has been no change in the long-term oppty set. In our

view, once we are through this 'transitory' phase, what should remain evident to

investors is that there is not a single stock in the entire transport space that has

more visible, tangible growth opptys over the next several years than KSU. For this

reason, we continue to recommend the stock.

WW Grainger Inc.; 4Q13: The Good, the Bad, and the Outlook; Hamzah Mazari; 26

January 2014

27 January 2014


■ What to do with GWW shares: Buy more if you believe underlying sales growth

fundamentals and the share gain story are on track despite headwinds from weaker

FX, mix and lower pricing.

■ Numbers: GWW reported Q4 EPS of $2.59 versus our estimate of $2.68 and

consensus of $2.63. The miss to our number came from lower operating margins

mainly from the mix impact of higher sales from acquisitions and faster growing

lower margin accounts. GWW revised 2014 guidance lower to ~5-9% sales growth

(previous guidance was ~6-10%) and EPS of ~$12.10 to $13.00 (previous guidance

was ~$12.25-$13.15) due primarily to FX headwinds.

■ Estimates: Our 2014 EPS estimate decreases to $12.70 (from $12.99) based on

updated guidance and higher FX headwinds. Our 2015 EPS estimate is $14.61.

■ Good: (1) US business showing momentum on volume side; (2) January sales

growth adjusted for weather up ~mid-high single digits; (3) higher Canadian gross

margins on freight consolidation; (4) local/state government business resilient; and

(5) growth initiatives on track.

■ Bad: (1) Slower top line growth post major FX headwinds; (2) expect lower pricing

going forward; (3) US gross margin expansion likely more moderate; (4) expect

unfavorable operating margin expansion in 1H 2014; and (5) federal government

and reseller business remain headwinds.

Embraer; Selling When Backlog Is Stalling; Bruno Savaris; 24 January 2014

■ Initiating with UNDERPERFORM Rating (US$28/ADS, 13% downside). We are

initiating coverage of Embraer (ERJ) with a more cautious stance on the name,

mainly due to (i) poorer mix of deliveries in the commercial segment, which should

result in some margin compression; (ii) challenging outlook ahead of the deliveries

of the second generation of E-Jets, which will start only in 2018, with backlog hardly

expanding; and (iii) expensive valuation, which should translate into a ~30%

premium to historical valuation levels during periods of backlog compression. Also,

based on HOLT®, a Credit Suisse's proprietary valuation metric, the implied

downside risk to the shares would be about 27%.

■ Greater Backlog at the Expense of Poorer Margins? Post the (i) successful

launch of the second generation of E-Jets during the Paris Air Show (June 2013),

with the announcement of up to 365 potential orders; and (ii) addition of about 130

firm orders of E-Jets (360 orders, including options), mostly from North American

airlines after the relaxation of scope clauses, backlog's upward momentum should

be mostly driven by the conversion of options into firm orders. In this sense,

considering that in 2018, only four years away, the deliveries of second-generation

E-Jets will start to take place, then this conversion ratio could linger at a lower level

unless ERJ decides to implement a fiercer commercial strategy, thus implying lower

margins.

■ Strong Performance After the Booming Backlog Momentum in 2013. After a

+16% (USD terms) and +37% (BRL terms) absolute performance over the last 12

months, we believe that the more challenging operational momentum and

demanding valuation levels have set the grounds for a profit-taking momentum.

Embraer is currently trading at 7.5x 2014 EV/Ebitda, 16.7x 2014 P/E, and 7.6x 2015

EV/Ebitda, 17.3x 2015 P/E. With almost no multiples compression in the coming

years, we see the cost of ownership as quite unattractive.

27 January 2014


■ What Could Go Wrong? (i) Further BRL Depreciation. As Embraer has ~90% of its

top line and 75%–80% of its costs denominated in USD, it has been a good choice

to protect against further BRL depreciation. Our base case considers a BRL/USD

rate of 2.6 at 2014YE, i.e. a further ~10% BRL depreciation from current levels.

Even if we were to assume a BRL/USD rate of 3.0, which implies a 22%

depreciation from current levels, ERJ would still be trading at ~15x 2014 P/E, a level

at which the company trades when its backlog is expanding and, thus, is not

attractive. (ii) Strong 4Q13 Results. After posting lower-than-expected results in the

9M13, Embraer is set to report a strong 4Q13, which could bring its 2013 results

close to its guidance. Results should be reported at the end of February 2014. Still,

we believe that consensus is materially optimistic, about 13% and 26% above our

earnings estimates for 2014 and 2015, respectively, and a downward earnings

revision should take place in the short to medium term. (iii) Backlog Addition from

Defense. Some of the 60 LOIs of KC-390 could be converted into firm orders still in

2014.

What’s Cookin’ In Machinery And Engineering & Construction; Are You A

'Belieber'?; Jamie Cook; 24 January 2014

■ Machinery underperformed this week with NAV and PH taking the biggest beatings,

down 8.4% and 6.8% respectively. Expectations for PH were fairly elevated heading

into the print. Orders improved 5% but on easy comparisons with order strength

coming more from distribution versus OE. Still, we think the LT self-help story

remains intact and expect more clarity on capital allocation by next quarter. We

believe PH is finding acquisitions tougher to complete and as such may focus more

on share repo and raising the dividend. There were two surprisingly positive notes

on the mining front. The Vice President of Sandvik's surface drilling division said he

expected coal and iron ore to remain strong this year, which could spur growth in

equipment in 2014. JEC also noted the mining industry is seeing the market come

back a little bit. Commodity prices are firming, and iron ore and coal prices are

holding better than expected. JEC noted customers are contemplating real projects

again albeit this is more of a 2015 story. CAT reported retail sales, which were again

largely underwhelming, and reports EPS on Monday. Again, the key for the stock is

what we hear on the restructuring front – are cost cutting actions structural or short-

term? Our top picks remain PH and MTW.

■ JEC was the first E&C to kick off earnings and disappointed, missing on EPS and

keeping its 2014 guide unchanged. The street was already weary of JEC's guidance

with Q1'14 expected unusually low due to the SKM acquisition. Also, the book to bill

was largely flat if SKM backlog was excluded. Still, JEC pointed to lumpiness and

remains very bullish on the process industries. Pricing remains more of the same,

up marginally. JEC was more positive on mining and government, and commented

there was some government work moving forward. Our top picks remain FLR and

KBR.

Global Aerospace & Defense; Initial Q4 Results Show Spares Outpacing OE; Mgmt's

Hoping for 2014 Defense Rev Bottom; Robert Spingarn; 24 January 2014

■ Earnings season continues next week with TGI, BA, CACI, ATK, BEAV, CRS, LLL,

NOC, RTN, WAIR, BAH and HAYN all reporting results. So far, we've seen better

27 January 2014


spares growth than OE for most, while two defense CEOs are looking for sales to

trough this year.

■ Raytheon Booked Some Nice Orders in Q4: On Thursday, RTN announced that

in Q4 it received a contract award from Oman for an advanced missile defense

system (NASAMS), valued at $1.28B. It also revealed that it signed a contract with

BAE (also in Q4) to supply its RACR AESA radars for the Republic of Korea's F-16

upgrades. This is the company's first international customer for the radar.

International sales grew 6% Y/Y in Q3 and we expect similar growth in Q4 (reports

next Thursday).

■ Boeing Receives F/A-18 Lifeline in Omnibus Bill; DOD Concerned Software

Could Delay F-35B: The omnibus funding bill signed into law on Jan. 17 included a

$75M down-payment for 22 Super Hornets that the Navy didn’t request, giving

officials time to decide whether they want the jets as a hedge against delays in the

F-35. This is especially interesting in light of a DOD report released yesterday which

warned that ongoing reliability problems with the F-35 could delay USMC plans to

start using its B model by mid-2015. See inside for details. (Bloomberg, Reuters,

01.22-23.2014).

■ Bombardier Cuts Jobs To Conserve Cash: After last week's announcement of a

delay to CSeries EIS, BBD announced this week that it will cut 1,700 aerospace

jobs (~1,100 in Canada and ~600 in Wichita) in an effort to manage costs and

conserve cash – a central point of investor focus now. In a separate Reuters article,

BBD management affirmed its ability to complete the CSeries program without

refinancing. (Reuters, 01.21.2014)

■ CS View: While some of the media seems to have connected the job cuts to the

CSeries delay, we actually think the two are largely unrelated. We think most of

these cuts are in support functions or tied to softness in the Learjet bizjet operation

in Wichita (we still think Learjet 85 EIS will be delayed further). We agree that these

actions reflect an increased sensitivity to cash spend at Bombardier. In fact, we

think cash conservation was one of the drivers behind the CSeries delay (in addition

to technical maturation). Specifically, we believe flight test article number 5 is being

pushed to the right to defer cash spend, as it is not needed until interiors are tested.

JB Hunt Transport Services; Solid Intermodal Overshadowed by Weak Dedicated &

TL Operating Results; Allison M. Landry; 24 January 2014

■ EPS Revisions: Our FY14 estimate is unchanged at $3.35, and we have lowered

our FY15 EPS estimate to $3.88 (from $3.89). We are also introducing our FY16

EPS forecast of $4.25. Our DCF-derived target price is $78 (down from $77).

■ Q4 Result: JBHT reported 4Q13 EPS of $0.77, vs. our est. of $0.78 and the

consensus of $0.79. Revs were in line, and the O.R. was 20 bps worse (89.6% vs.

our 89.4%).

■ Healthy Intermodal Demand, Good Incremental Margins: JBHT saw steadily

strong demand in its intermodal segment in Q4, with loads in Oct, Nov, and Dec up

16%, 14%, and 11%, respectively, year-over-year (though we note a weak Dec

comp). Rev per load (ex-fuel) was up 1.0% y/y, while op income was up 17% y/y

and came in 4% above our estimate.

27 January 2014


■ Additionally, incremental margins in the intermodal business remained healthy in the

quarter. Year-over-year contribution margins were a solid 18% in spite of challenges

from weather.

■ Brokerage Mixed: The company's ICS unit reported mixed results in Q4, as healthy

gains in revenue (+13% y/y); volumes (+5%); and revenue per load (+7%) were

partially offset by margin pressure from increased third party carrier rates, as well as

higher personnel costs related to branch network expansion. However, we note that

JBHT saw the first uptick in demand within its spot brokerage (transactional)

business in a number of years.

■ Some Costs to Remain, Some to Subside: JBHT noted a number of unfavorable

cost items in the quarter, including increased costs to hire and retain drivers as well

as higher workers' comp. While the increase in workers' comp expense should

subside as the weather improves (due to less injuries), hiring and retention costs are

expected to remain high as a strengthening housing market and continued increase

in shale activity provide drivers with attractive employment alternatives.

■ Concerns in Trucking: Hunt's trucking division (JBT) reported an operating loss of

$1.0 million in the quarter primarily due to a 4.6% decline in average length of haul

and a decrease in independent contractor capacity that resulted in a tractor count

reduction of ~240. Note that the company announced a number of leadership

changes in the division on December 18th, and outlined expectations for significant

financial improvements in 2015 following operational improvements throughout

2014. However, we highlight the potential for a few more bumpy quarters ahead as

the division moves forward with its turnaround plan.

■ 2014 Spending Breakdown, Efficiencies Ahead: Management provided us with

some additional color around its projected $700 million of capital spending in 2014.

The company plans to spend ~$140 million replacing its entire truckload fleet, which

is likely to result in substantial efficiency gains in the division.

■ Additionally, intermodal will use ~$275 million for new trucks and new containers,

while ~$240 million will be allocated to DCS.

■ Conclusion: While we believe JBHT has a great secular growth story, current

valuation levels appear full, and thus, for the time being, we remain on the sidelines

here. Maintain Neutral.

Union Pacific; Volume Leverage & Productivity to Drive Record EPS and Margins in

2014; Allison M. Landry; 24 January 2014

■ EPS Revisions: We have increased our FY14 and FY15 EPS estimates to $10.86

and $12.63 from $10.82 and $12.60, respectively. We are also introducing our FY16

EPS forecast of $14.22. Our DCF-derived 12-month target price is $201 (from

$200), due to a higher base year (2015) EBIT.

■ 4Q13 Result: UNP reported 4Q13 EPS of $2.55, which was above our estimate of

$2.52 and the consensus estimate of $2.49. Revenues were 1% above our

expectations, and the O.R. of 65.0% was in line.

■ Volume Leverage & Productivity: Solid volumes (owing to grain, frac sand;

domestic intermodal; and housing/construction) along with productivity gains should

translate into significant op leverage in 2014 - which we believe will more than

27 January 2014


compensate for a temporary moderation in core pricing. We saw a glimpse of this

leverage in Q4 (the first time total carloads were up y/y in 6 qtrs), as the O.R.

improved 200bps y/y despite a ~10% drop in coal vols.

■ Increased Capex Signals More Growth Ahead: Although mgmt did not provide

specific capex guidance for 2014, UP did indicate that spending would be higher

than the $3.6b in 2013; in our view this is a signal that the company sees additional

growth opportunities ahead.

■ Putting the Balance Sheet to Work: UNP targeting an adj. debt/cap ratio of ~40%

and adj. debt to EBITDA of 1.5x - up from 38% and 1.4x in 2013, respectively.

Assuming that EBITDA won't decline, this guidance implies that the company will

likely issue additional debt at attractive rates, and/or accelerate its new 60m share

buyback program that commenced on Jan 1.

Lockheed Martin; Mgmt Hopeful 2014 Marks Revenue Bottom; Robert Spingarn; 23

January 2014

■ Shares underperformed following a solid Q4 report that excluding a 54-cent goodwill

impairment charge at MST beat consensus EPS and showed strong bookings and

cash flow. 2014 guidance was introduced a $10.25-10.55 and we suspect that some

of the underperformance reflected the fact that pension offered an incremental ~43-

cent tailwind over expectations as of the Q3 call. However, in fairness we note that

the guidance also incorporates 16-cents of headwind from restructuring at Space

and MST ($55M and $25M respectively), and does not include 12-cents of potential

tailwind from an extension of the R&D tax credit and possible upside from a buyback

above that required to offset option creep (~$1.2B). Thus, we expect Lockheed to

deliver a 2014 EPS ahead of its range, and so our '14 EPS moves to $10.70 (from

$10.32). Similarly our '15 EPS rises to $11.40 from $10.87. We reiterate Neutral but

increase our TP to $150 from $124 (calculated by applying a peer 14x multiple to

our '14 EPS).

■ Some Segments Appear Closer to Bottom than Others: On the call CFO Tanner

spoke about LMT's portfolio being a "differentiator" which has enabled LMT to

"survive without having huge drops Y/Y." He furthered a belief that revenues will be

"very, very close" to bottom between 2014 and 2015 given the flattening of the DOD

topline over that timeframe with the recent budget deal. What is not clear to us is

whether the 13-15% decline in the investment accounts between GFY'10 and

GFY'14's trough has yet been fully realized at LMT. For example, at the low end of

2014 guidance, MFC and MST sales would show declines of just 3.3% and 7.6%

from recent peak (in 2013 & 2012 respectively). The same phenomenon exists at

Aeronautics, where the low end of the 2014 guide is just 2.4% below 2012's revenue

peak, although here we are less concerned given that growing F-35 and C-5 volume

make this segment a special case (2014 guidance is for ~4.4% Y/Y growth at

Aeronautics at the midpoint). Space and IS&GS do look closer to bottom given that

their declines have been more in-line with that of the investment accounts.

Jacobs Engineering; SKM-ing By; Jamie Cook ; 23 January 2014

■ Thoughts Post Call: JEC's Q1'14 EPS disappointed as investors had feared,

missing the street estimate by $0.07 (adjusting for favorable tax). SKM was a

27 January 2014


headwind of $0.10 (known); however, timing of holidays and the gov't shutdown also

hurt results. Still, JEC reiterated their guide for FY2014. Relative to last quarter, JEC

is slightly more positive on gov't work and is seeing signs of life in mining (albeit they

admit the uptick is more 2015), and continues to be very constructive across the

broader energy markets. Award prospects continue to be process industry driven,

particularly in the US and ME. Better utilization and a modest uptick in unit margins

should help JEC's core business. While JEC admitted to some larger deals in the

pipeline, smaller niche ones are more likely. We tweak our FY2014-2016 EPS to

$3.60, $4.35, and $5.05 respectively and slightly reduce our TP to $77.

■ Color on 2014 Outlook: JEC maintained its 2014 EPS guide of $3.35-$3.90 or

$3.63 at the midpoint, compared to the consensus estimate of $3.68. Third and

fourth quarter earnings are expected to ramp more meaningfully, reflecting strength

from JEC's legacy businesses, particularly in process industries. Gross margins are

projected in the mid-fifteen range for the remaining nine months. Operating margins

are forecast in the mid-five range for the remaining three quarters, and are expected

to "approach" the mid-five range for the full year. Margins should strengthen in 2H

as field service and maintenance/turnaround activity accelerates, typical of normal

seasonality. Overall, unit margin trends continue to be positive, albeit modest. SKM

is expected to be accretive for the full year including the $0.10 hit from the first

quarter. Book to bill for SKM is expected to trend positively to the 1.05x-1.10x range

for the year.

AHR (HVAC) Expo Takeaways; Mid-single digit market growth; Daikin meeting;

Disciplined competitive landscape; Julian Mitchell; 23 January 2014

■ We attended the AHR Expo and met with corporates including EMR, RBC, XYL, IR,

HON, and Daikin (Goodman). The major themes at the show were 1) suggestion of

modest (albeit gradual) commercial construction recovery; 2) high growth (but small

US market share) for variable speed (VRV / VRF) residential and commercial

products; 3) proliferation of home automation products amongst OEMs; and 4) a

disciplined competitive landscape is continuing (and the rise of variable speed

should not alter this, as pricing / margins appear above-average).

■ End markets grinding higher; institutional at trough: For the US non-residential

market, we heard some confirmation of our thesis that institutional markets (60% of

the total) are now bottoming out, after 2-3 tough years; this was a key reason why

we turned more positive on the non-resi market in our EE/MI outlook report (Jan 6).

In terms of the US commercial market, multi-family buildings are strong, especially

in terms of replacement, but overall trends show modest improvement rather than

sharp recovery. In residential HVAC, another year of solid growth looks likely. Our

Vendor Data (updated for EMR, JCI, UTX figures – see inside) suggests a healthy

order environment at present, implying mid-single digit sales growth in 2014.

■ Decent pricing for OEMs, may improve for suppliers: Price trends are again

positive for the OEMs, which underlines the disciplined competitive landscape;

Goodman pricing may be more disciplined in fact under Daikin ownership. For the

component suppliers (motors, compressors etc), the stability of raw materials prices

may set up a slightly more favorable price environment in 2014, following a tough

18-month period as commodity prices were coming down.

■ Daikin / Goodman: We had an interesting meeting with Goodman, the leading US

resi HVAC business, which was acquired by Daikin in 2012. Overall, Goodman

27 January 2014


expects to see significant share gains from the emergence of variable speed

technology, given Daikin’s historic strength here in non-US markets. Goodman

appears to be price-disciplined (something which we think was not always true in

the past), and technology / increased advertising are seen as key tools for it to grow

share, rather than discounting. We do not see major downside risk for suppliers

such as EMR and RBC as a result of the Daikin-Goodman deal (we think Goodman

is more likely to affect procurement strategy / processes at Daikin, than vice versa);

we do not think much has changed since the merger closed, and their relationships

with McQuay (acquired in 2006) remain strong. If Goodman expands at the high

end, this could benefit the higher-tier suppliers in the US.

■ Variable speed a hot topic; offerings proliferate from OEMs / suppliers: VRF /

VRV (variable speed HVAC systems) are starting to penetrate the US market

(particularly among high efficiency HVAC products), after already having significant

penetration in Europe and Asia. While this part of the market is fairly small (less

than 5% of unit deliveries in both commercial and residential), most market

participants expect growth of at least 20-30% in the coming years, and all the OEMs

and component suppliers are ramping up their product offerings. The positive here

is that pricing and profit margins trends within variable speed are accretive for the

OEMs. Among the incumbent OEMs, a shift towards the high-end should favor

Trane, given its positioning in this segment. Hence, we do not envisage particular

volume or profit threats at present for the likes of Carrier and Trane, from Daikin in

the next 2-3 years.

■ Home automation / Nest impact: We saw 3 different HVAC OEMs with an

integrated home automation / temperature control offering: Trane (Nexia),

Honeywell (Total Connect) and Emerson (Sensi). It is difficult at this point to

differentiate between the offerings; Nest was clearly a popular topic of discussion

given its recent acquisition by Google. Most industry participants we met with

seemed to think: (i) the hype around the GOOG takeover would be positive for

'smart thermostat' industry penetration and increased home comfort / energy

efficiency awareness as regards climate control equipment; (ii) Nest is very focused

at the high-end of the market, not the mass-market, so this may limit its ability to

take market share; (iii) there appeared to be some doubts as to the technical

efficacy of the product.

■ Stocks: We continue to view IR as a top pick in EE/MI, as we think it should benefit

from market trends towards higher efficiency standards, and decent pricing provides

a supportive backdrop for the cost-cutting program; UTX remains our top pick

among the large conglomerates, partly due to its revenue exposure via Carrier.

Among the suppliers, we do not expect EMR or RBC to suffer from procurement

pattern changes at Daikin / Goodman.

Oilfield Services & Equipment; Things We've Learned This Week; James Wicklund;

23 January 2014

■ As we enter into the new year, the conflicting arguments and sentiments are higher

than usual. In the world of Oilfield Services, we are seeing a cyclical rollover in

several subsectors of our industry and typically down-cycles are not good for the

stocks. Subsea tree orders crested last year and will be down in 2014. Deepwater

rig orders have gone from 41 in 2012 to 18 last year and a rig company CEO says

“industry may be entering a short arguably useful pause in the cycle.” “Business is

so strong we can’t be efficient but it will moderate in 2014 and we can catch up” is

27 January 2014


probably positive for the company’s operations but not for a growth stock’s

valuation. Engineered valve orders down because the big EPC project wave is

slowing. This makes the investment argument for equipment manufacturers, rig

companies, boat companies and a host of companies in their supply chains, much

more difficult. That is the reason for our focus on large capitalization, technology

focused, integrated service companies. Their business will continue to grow, at 1.5x-

2.0x the nominal increase in capex because parts of the business are rolling over

yet capex is still going up. And while 5%-6% doesn’t sound like a big number, these

are stocks that will grow top line by 9%-12% this year and grow earnings by 17%-

45% this year and are trading less than 14x this year’s earnings. BHI, HAL, SLB and

WFT are all on our Outperform list. The cyclical separation provides opportunity.

■ Welcome Aboard. Noble (NE) joined the cautious crowd (growing by the day)

noting the “industry may be entering a short arguably useful pause in the cycle” –

demand for deepwater rigs is slowing under a backdrop of slowing CAPEX growth.

■ Reactivation Cancelled. Hercules Offshore (HERO) cancels the reactivation of the

HERO 203 (standard jackup rig). Recall HERO announced plans to reactivate this

rig ($20M reactivation cost) late last year.

■ Eyes on Expro. Three unnamed sources told Bloomberg that UK-based oilfield

service company Expro International Group has attracted interest from GE and

Schlumberger as an auction process begins. People close to the potential deal

estimate Expro's value approaches $5 billion—for context, Expro is roughly the

same size as Superior Energy Services, Dresser Rand, or Oil States International.

Based on 3Q13 results, Expro generates about $1.3bn in annual revenue with an

operating margin of about 28%. The large service company is controlled by Arle

Capital Partners, a UK private equity firm, which is reportedly preparing to divest.

Goldman and Deutsche Bank are reportedly advising Arle / Expro on the potential

sale. None of the companies involved have provided any public disclosure on the

process at this time.

Norfolk Southern; Otherwise Solid '14 Outlook Dimmed by Coal; Allison M. Landry;

23 January 2014

■ EPS Revisions: We have raised our FY14 and FY15 EPS estimates to $6.55 and

$7.24 from $6.42 and $7.15, respectively. We are also introducing our FY16 EPS

forecast of $8.01. Our DCF-derived target price is $104 (from $101), on account of

higher base year (2015) EBIT.

■ Strong Q4 Op Results: NSC reported 4Q13 EPS of $1.64, which was above our

estimate and the consensus of $1.50. The top line was ~1% higher than forecast,

and the O.R. came in 90 bps better than expected (69.4% vs. our 70.3%).

■ Op Leverage Shines Through: Despite a 9% decline in coal revenues, NSC

managed to post a 400bps y/y improvement in op margins (partially helped by easy

comps), and more importantly, a 50bp improvement relative to Q3 (compared with

the historical normal seq. deterioration of ~150 bps).

■ Coal Woes: Norfolk is well positioned to benefit from strong growth in merchandise

and intermodal in 2014, but similar to its Eastern competitor, the company cannot

escape the throes of the challenging domestic and export coal market that has

plagued the Eastern rails for several qtrs. This should dim the otherwise solid

growth momentum that was observed in Q4.

27 January 2014


■ Conclusion: In spite of continuing challenges on the coal front, we see ~12% EPS

growth at NSC in 2014, which compares with our forecast of just 4% EPS growth at

CSX. More importantly, the stocks are trading at P/E multiples that are roughly in-

line despite the earnings growth disparity (NSC is currently trading at 14.3x the 2014

consensus vs. CSX's fwd. multiple of 14.2x. Accordingly, NSC remains our preferred

rail play in the East.

United Technologies Corp; More comfort on Otis; Key risks dwindling; Julian

Mitchell; 22 January 2014

■ Following Q4 earnings, we leave our EPS estimates largely unchanged, and our TP

at $125; UTX remains our top pick among the 'mega-cap' EE/MI conglomerates,

based on (i) end-market exposure; (ii) self-help from BIS formation and GR

synergies; (iii) willingness to use the balance sheet, once GR debt is digested. What

we found incrementally interesting today was:

■ Organic growth albatross being cast off: UTX delivered 4.5% organic sales

growth in Q4, which was its highest growth rate since Q311. Based off the order

book in the BIS and Aerospace businesses, and the company's end-market mix

(high exposure to non-resi and commercial aerospace, where the latter in particular

exceeded our orders expectations in Q413), we think a similar level of organic

growth should be attainable for UTX through 2014. This would imply higher growth

than our EE/MI peer group average, after 2 years of growth under-performance.

■ Non-residential markets are improving; UTX has high exposure here: In our

sector outlook report of January 6, we highlighted our more positive view on the

non-residential markets (US institutional trends bottoming out etc), and we heard re-

assuring commentary this morning; Otis orders re-accelerated globally, helped by

>30% growth in N America, and N America Commercial HVAC orders were up in

the mid-single digits. We think that non-residential buildings account for ~33% of

UTX revenues, well above the average for the other large conglomerates. As we

noted in our detailed report from September 2013, we think the Commercial / BIS

assets at UTX will be a positive contributor to the share price in 2014, after two

sluggish years.

■ More confidence on key risk #1: It is clear that Chinese elevators is an end-

market which many investors are extremely cautious on, and Otis' position as the #2

player here has been a concern for some time. We view this market a little more

favorably, and continue to think that 2014 should see double-digit unit delivery

growth for Otis in China, after ~20% order growth in 2013. We acknowledge that

price reductions are one driver, aside from end-market demand, of this volume

growth, but the $0.11 headwind we factor into our UTX EPS bridge (see inside)

should be sufficient to account for this issue.

■ More confidence on key risk #2: Around 19% of UTX sales relate to the US DoD,

where visibility on a deteriorating spending environment has been extremely low for

the past 2 years. However, several companies in this earnings reporting season

appear to have found some semblance of visibility on this market, and the UTX CFO

also sounded a little more confident here. The $0.12 EPS headwind in 2014 from

sequestration, which we have had penciled in since mid-2013, still looks reasonable.

■ Not more concerned on key risk #3: While last year we felt comfortable on the

outlook for Otis China, we have been troubled by Otis Europe, given the high

27 January 2014


margins of that business, and the consistent declines in organic sales. However,

signs here appear moderately better; aftermarket revenues were essentially flat

exiting the year in Otis Europe, while equipment sales were up in 2013.

■ Capital allocation subdued for now: UTX is keeping an iron grip on its cash hoard

this year, with organic capex again exceeding combined buyback and M&A spend.

As we move into 2015, after what will then have been 2 ½ years of GR acquisition-

related-debt absorption, we anticipate that UTX will maintain a fairly efficient

balance sheet, with M&A within BIS and buy-backs likely to step-up (and capex will

step-down).

Parker Hannifin Corporation; A Balancing Act; Jamie Cook; 22 January 2014

■ Thoughts Post Call: PH's stock price fell 3.5% on high expectations, as the market

was expecting a beat and raise versus the one penny miss (although PH beat its

internal forecast by ~$0.10) and narrowing of 2014 guidance. Aero margins continue

to disappoint vs. the Street. However, Industrial International in particular is putting

up 40% incrementals (ex. restructuring) along with encouraging signs of a top-line

recovery. We believe this could provide upside to PH's FY'15 margin targets of

15.0% (in a flat market) if markets surprise on the upside. NA margins are also

holding solid and are above PH's 15% target. Orders improved 5% on easier comps

as PH has yet to benefit from the OE order momentum it's still seeing in distribution.

We also believe capital allocation remains a bigger focus internally. With acquisition

opportunities not progressing at a fast enough pace, opportunities should arise for

PH to increase for dividend and share repo more materially. We tweak our FY'14-16

EPS to $6.40, $8.50, and $9.50, respectfully, and reiterate our TP of $148. PH

remains our top pick among our larger-cap industrials names.

■ Details on Guide: For FY'14, PH narrowed its guide to $6.20-$6.60 keeping the

midpoint the same but taking $0.10 off the low and high ends. Sales are forecast up

1.5% with NA and Int'l up 2% each and Aero down 2%. Excluding the JV with GE,

total sales are forecast up 3% and Aero sales are forecast up 4%. Margins in NA

are projected at 16.5%, Aero at 11.6% (both tweaked down), and Int'l at 11.7%.

Restructuring actions are now more 2H loaded ($0.34 vs. $0.28 although FY is

unchanged) driving $0.03 less in savings in FY2014. Mgmt remains committed to

achieving the $80M in run rate savings in FY'15. Corp, admin, interest and other are

forecast at $461M ex. non-recurring charges and the tax rate in 2H is forecast at

29%.

Textron; Cessna guide appears realistic, not conservative; firmer DoD outlook;


■ Following Q4 earnings, we leave our EPS estimates largely unchanged, as our 2014

forecast was at the mid-point of the newly-issued guidance range, and 3 weeks into

the year, it is a little too early for us to radically change our view on light/medium

business jet market fundamentals. We welcome management's 'caution' on the

Cessna margin outlook for the year, given the experience of recent years.

■ Cessna guide not particularly conservative: It is clear from the Q&A session on

the call that Cessna's FY14 op margin guidance of 2.5-3.5% appears conservative

to many, in the context of double-digit top-line growth. However, we caution that

27 January 2014


Cessna is unlikely to see particularly positive EBIT in the 1H, even assuming 40-

50% incremental margins. We are cautious about assuming another big leap in

incremental margins in the 2H14, given (i) Cessna backlog has been flat for 6

months despite impending new product launches (which one might expect would

push up orders); (ii) aftermarket trends sound fairly subdued entering the year; (iii)

historical incremental margins for Cessna averaged ~25%, and management

comments (as recently as Oct 2013) imply that this cycle will be little different (we

est. 30% incremental margins for Cessna in FY14).

■ Slight re-assurance on Military outlook: One feature of this earnings season is

that several companies appear to have groped their way to some kind of visibility on

the US Defense revenue outlook, after very low visibility last year. We place TXT in

this camp; it sounds as if Bell margins are bottoming out, following 11.8% margins in

the 2H13, and V-22 foreign military orders are being won. In Systems, it appears the

profit trough was back in 2012, with management having good visibility on a ramp-

up in the 2H14, when operating margins could approach the double-digit level for

the first time since 2010.

General Dynamics Corporation; The Call We've All Been Waiting For; Robert

Spingarn; 22 January 2014

■ Soft 2014 Guide a Different Story with Buyback: On today's earnings call, there

was initial market disappointment when official 2014 EPS guidance was introduced

at $6.80-6.85 (on $30B of revenue / EBIT margin ~12%), below the street's $7.24.

But there was a quick reversal when CEO Novakovic noted the $5.3B of cash on

hand and said "you'll see us very actively returning a lot of that cash to our

shareholders," initially through a Q1 accelerated share repurchase (ASR) of 11.4M

shares (to complete the existing authorization), and subsequently by a new

authorization expected at the February board meeting.

■ This is the moment the market has been waiting for, in our view, and may be the key

driver, along with a potential bottoming of the defense businesses in 2014, for a

catch-up trade to peers this year. With firmer expectations around cash returns, we

increase our target multiple to 14.5x (reflecting 13.2x for defense, 15.6x for

aerospace), which we apply to our 2015 EPS of $8.05. We raise our TP accordingly

to $117, reiterating Outperform. Our FY14 estimate of $7.35 remains well above

today's guidance because we embed the ASR and a new buyback (totaling ~$2.2B),

and think IS&T sales and Aero margins may exceed guidance. Further, our 2015

EPS rises from $7.69 to $8.05, also on a more aggressive buyback assumption.

■ 2014 Could Represent Revenue Trough: Management guided for revenue growth

at Aerospace and Marine in 2014, offset by continuing pressure at Combat (seen

down 4-4.5%) and IS&T (down 20%). While Combat guidance appears realistic, and

somewhat optimistic should the considerable (~$1.2B) International order expected

in Q1 slip once more, the IS&T expectation appears conservative, particularly given

the segment's outperformance in 2013 (sales grew 2.5% versus initial expectations

for a 5% reduction). We also note that guidance implies ~40bps of margin pressure

at Aerospace (with margin lower in the first 3 quarters before a dramatic increase in

Q4), which appears to be mix rather than R&D on a potential next-gen 450/550.

27 January 2014


Emerson; December 3MMA +3.5%: Stabilization at IA offset by NP deceleration;


■ Overall 3MMA organic orders were up 3.5% in December (ex FX impact of - 1%),

consistent with November, and broadly in-line with expectations / FY14 guidance for

organic sales growth of 3-5%; we think the stand-alone month was up a little more

than the 3MMA. PM decelerated somewhat, but this was offset by improvement in

IA which was flat (from down in November). Climate Tech picked up (Asia and

Europe helped here) growing ~8%. We think the stock is unlikely to react

significantly as the trends are broadly unchanged.

■ Process growth remains muted: Organic order growth of +3% was helped by the

Americas and Europe, partly offset by particular weakness in Australia; China was

"solid." Currency was a significant headwind to reported orders (-3%).

■ Stabilization in IA despite continued weakness in alternators business: Orders

stabilized (flat y-o-y) after declines of -2% in November. Renewables and electrical

drives (Europe-focused business) are still weak, consistent with November. Fluid

automation and materials joining contributed to the improvement.

■ NP decelerates on Lat Am: Weaker Americas caused a 300bps deceleration in

orders, with a slowdown in Latin America in particular. Asia and Europe demand

remain solid.

■ Implications: The uneven trends in NP Americas imply a cautious read for ETN

(where Power Quality is 15-20% of Electrical sales). We think the trends in IA are

consistent with our view that the short-cycle industrial recovery is likely to be fairly

muted, similar to the 2003-2004 era.

Knight Transportation; It Was Sunny at Knight in December; Allison M. Landry; 21

January 2014

■ EPS Revisions: We have increased our 4Q13 EPS estimate to $0.24 from $0.21,

which puts our FY13 EPS forecast at $0.86 (from $0.82). Our FY14 estimate

increases to $0.94 (from $0.92), and our FY15 is $1.03 (from $1.02). Our DCF-

derived target price is $19 (from $16) due to a lower discount rate and a higher base

year (2015) EBIT estimate.

■ A Surprise Upside Surprise: On Tuesday before the market open, KNX raised its

4Q13 EPS guidance to $0.24-$0.25 (from $0.20-$0.23), and slightly increased its

1Q14 guidance to $0.19-$0.21 (from $0.18-$0.20). This compares to our initial

estimates of $0.20 and $0.21 for Q4 and 1Q14, and the consensus of $0.22 and

$0.19, respectively.

■ KNX attributed the 4Q13 guidance raise to 1) improved freight demand; 2) growth in

the non-asset based biz (including brokerage); 3) increased productivity gains; and

4) improved driver recruiting and retention efforts. The positive momentum

continued into January, although management noted that it is clearly very early in

the first quarter.

■ Supply Tightened in December: Consistent with our channel checks, stronger

than anticipated freight demand during the month of December (particularly during

the second half of the month, when shipments seasonally fall off) led to tighter TL

supply. As a result, some shippers were willing to pay for deadhead in order to

secure capacity. One thing to keep in mind, however, is that not all customers tie up

27 January 2014


capacity in Q4 and/or December; and therefore, were unaffected by the implications

of a tighter market.

■ Bid Season Implications: While it is difficult to predict at this point how shipper

contract negotiations will shake out, KNX told us that it feels more confident to ask

for a price increase that is warranted than it did during the month of November.

Based on our conversation with management, a 3% rate increase would offset

inflation and allow for some profit to flow through to the bottom line. But, again, from

what we gathered, not all shippers were affected by tighter capacity in December.

■ Too Early to Call an Inflection: In our view, while tighter capacity in December

could potentially be an early sign of an inflection point in the TL market, we are not

yet convinced that a tight December in and of itself will be enough to propel

widespread shipper acceptance of rate increases as we move into the 2014 bid

season. And more importantly, if incremental pricing improvement is in fact in the

cards, the key question then becomes, will it be enough to offset cost inflation?

■ Indeed, KNX called 2014 "The Year of the Driver", and noted that some of its larger

competitors may not have filled the gap in this respect. In other words, although

KNX appears to have the driver situation relatively under control, this may not be the

case for the rest of the industry. Further, to Knight's credit, the favorable upside

expectations for Q4 were helped by successful internal actions taken by

management to implement effective cost controls.

■ Conclusion: While fundamentals at KNX appear to be heading in the right direction,

in order for us to become more constructive on the stock, we would like to see

incremental earnings upside in the next 1-2 years from the following: 1) more

evidence to support that we are in fact nearing an inflection point in the broader

truckload market; 2) sustained pricing gains that more than offset inflation from

increased driver pay; higher equipment costs; and productivity losses from the new

Hours of Service regulations; and 3) further containment by KNX of the driver

shortage issue in the face of an improving housing and non-residential construction

market.

■ Valuation Appears Rich: The stock is currently trading at 20.7 times the 2014

consensus (compared with its historical 3 and 5-year historical average forward P/E

ratios of 18.6 times and 16.6 times, respectively), and 18.9 times the 2015

consensus of $1.01.

Rockwell Collins, Inc.; Still a Transition Year; Robert Spingarn; 21 January 2014

■ FQ1 brought an EPS of $0.96, consistent with both CS and consensus. While sales

were in-line (although 5.0% below consensus, which likely had ARINC closing

earlier than it did), weaker margins were offset by lower-than-expected tax. Full-year

guidance rose, both to formally include ARINC (which mgmt expects to be "slightly

accretive" in the remaining three quarters of FY'14) and for an improved outlook at

Government Systems (GS) from the Murray-Ryan Bipartisan Budget Act. Full-year

GS sales are now seen down mid-single-digit, with FY'14 still expected to represent

trough. Our FY'14/'15 EPS move to $4.45/$5.02 from $4.40/$5.00. Our TP rises to

$73 (from $68), calculated by applying a 10-year 16x average multiple to our

calendarized FY'14 EPS of $4.59. We reiterate Neutral.

■ ARINC a "Show Me" Story: Clearly the company views ARINC as a growth

avenue, but we think the market is struggling a bit to agree, and so it is going to

27 January 2014


become a "show me" story for COL that may not really be clarified for several

quarters. We note that the investor day on March-6th in New York may still prove

too soon to shed light on the out-year performance of the acquisition. That said, it

does appear to be a decent strategic fit as it adds a third (services) leg to the stool,

and so long as it does not detract from the core business, this story could become

interesting once the commercial OE ramp accelerates and government stabilizes

(expected in FY'15), or if biz jet recovers early. Right now, the market generally

does not expect a biz jet recovery until FY'15 (based on our own recent buyside

survey).

■ Lumpy 787 Spares Aid FQ1 Aftermarket: Air Transport Aftermarket grew ~14%

Y/Y, largely driven by a significant spares delivery on 787 that supplemented ~mid-

single-digit growth in MRO and ~mid-to-high single-digit growth on retrofit and

spares. Full-year aftermarket growth is still seen at mid-single-digit, and we note that

COL stated it has yet to see competitive pressure from surplus parts abate.

General Electric; Power & Water SG&A acid test in 2014; trimming Oil & Gas

forecasts; Julian Mitchell; 21 January 2014

■ Following Q413 earnings, our ests are largely unchanged. We see 40bps of

Industrial op. margin growth in FY14 after 60bps in FY13; the main drag YoY will be

Power & Water (where our Opex analysis suggests that FY14 will be a better "acid

test" of the Simplification efforts than FY13). We reduced our Oil & Gas assumptions

in light of our more cautious stance on this end-market. Off this revised base-line,

we think our current earnings forecasts are very achievable, and the implied

midteens P/E multiple looks inexpensive; we retain our Outperform rating. The stock

probably remains subdued short term in light of a soft Q1 (we forecast EPS will be

down -18% y-o-y), with the PLCC spin-off likely to be the next major catalyst.

■ Power & Water – SG&A / sales was flat in FY13, needs to fall in FY14: Trends

within P&W are likely the main reason why GE is likely now to emphasize absolute

EBIT growth (we estimate +6% in FY14 in P&W), rather than margins (we estimate -

90bps in FY14 in P&W), as the key metric to track. What is interesting is that while

P&W SG&A fell by -13% in FY13, P&W sales fell by 13%, implying no change in

P&W SG&A/sales ratio took place, even as overall GE Industrial SG&A / sales fell

by 150-200bps in FY13. The P&W operating margins were ok last year though

because gross margins grew by ~140bps (after stripping out the Q413 wind turbine

blade problems), helped by "Mix" (equipment sales fell by over 20% in FY14) and

"Value Gap." The challenge in FY14 is that "Mix" will be a big headwind (wind

turbine growth), and "Value Gap" a much smaller tailwind; it is critical therefore that

the SG&A costs continue to be cut, as sales now rise. We forecast a 3% decline in

SG&A in P&W in FY14, and 21% volume leverage (exc-wind blade issue, pricing,

and Other items) within the gross margin – this should be sufficient to account for

Mix headwinds.

■ Segment bridge analysis update – Mix likely overwhelms Value Gap: Our

revised margin bridge analysis is shown inside (the methodology here was laid out

in our October 2013 GE report - this is built predominantly using bottom-up

assumptions within our operating segments). We assume that ‘Simplification’ efforts

(which we estimate reduces $1.2bn of cost in FY14, after a $1.6bn cut in 2013) drive

the full delta of margin expansion in 2014, with ‘Value Gap’ (a $200m tailwind, after

$900m in FY13) not quite offsetting the headwinds from ‘Mix’ and ‘Other’ items. The

Mix headwind is a little larger than we had previously forecasted, due to (i) the push-

27 January 2014


outs of some wind turbine deliveries from 2013 into 2014 (we now forecast WTG

delivery growth of 40% in 2014), and (ii) FY13 Equipment orders grew at a mid-

teens rate, against low-single-digit Services order growth, leading us to forecast

equipment sales at GE Industrial will grow at double the rate of services sales in

FY14. Acquisition dilution should be limited as we estimate that in Q413 the

cumulative margin ‘gap’ of Lufkin and Avio relative to broader GE Industrial had

closed to ~250bps.

■ Other segments look fairly steady, albeit we trim O&G estimates: Industrial

profits excluding Power & Water have been steadily improving in the past 3 years,

having grown by 9-12% in each of 2011, 2012 and 2013; we assume this run-rate

continues over FY14-16. The main change we have made is a reduction in our Oil &

Gas assumptions. This is due to our more cautious view on this end-market (see our

EE/MI Outlook report from January 6), and the slowing orders at GE (equipment

orders were down by -8% y-o-y in Q4, after +30% in the 1H13). We now forecast

O&G EBIT growth of 15% in FY14, and 8% thereafter, compared with a 16% FY11-

13 CAGR.

■ Capital allocation – more leverage in GE Industrial? The CEO highlighted on the

Q413 earnings call that "we plan to work capital efficiency hard in 2014." This could

presage increasing leverage at the GE Industrial balance sheet, where net debt was

$2bn at the end of September.

■ Tough start to the year: For Q114, EPS are likely to be down double-digits owing

to (i) front-loading of restructuring costs (likely to total $1-1.5bn in FY14); (ii) double-

digit profit decline at Transportation due to Mining weakness; and (iii) single-digit

profit decline at Power & Water due to some ongoing wind blade challenges.

EMEA Research

Vestas; Too much optimism priced in; Mark Freshney; 24 January 2014

■ Downgrade to Underperform: Vestas has risen c380% over the past 12 months

(vs the sector up 13%) as the cost-cutting plan has been executed, the US market

has become more steady and turbine pricing has stabilised. We update our model

for the full benefit of the cost-cutting and increase our EBITDA margin assumptions

by c100-200bps. Our TP rises to DKK130 (from DKK55), but we downgrade to

Underperform (from Neutral) as we think the stock has run ahead of fundamentals.

■ Investment case: (1) End-market unlikely to exhibit growth: Based on our

bottom-up analysis, we believe the market for wind turbines will be c45GW p.a. for

2014E-17E, up from a c40GW p.a. average over the past four years. Assuming

stable market share, this means Vestas could be 'ex-growth' at c5.5GW p.a. from

2015E; (2) Margin recovery story has played out: owing to aggressively cutting

fixed costs by >c€400m p.a., we think Vestas will reach c10.7% EBITDA margins

(versus 5.2% trough in 2011A and 12.8% peak in 2008A), although we see limited

scope of further improvement. Comments from Q3 conference calls suggest that

pricing is merely stable, rather than on an upward trajectory. Given the c18-month

order backlog, negative pricing momentum in 2012 could continue into 2014.

■ Catalysts: Vestas will report FYdec13 results and FYdec14 guidance on 4

February. We forecast c5.0GW of deliveries and c10.7% EBITDA margin for

FYdec14 (equivalent to c5.0% EBIT). We are concerned that more than this may be

27 January 2014


priced in, given the strong stock price performance. The major risk to our negative

thesis is that positive momentum carries the stock further.

■ Valuation: Our DCF/EVA® valuation yields a TP of DKK130. We forecast the stock

returning to a c18% RoIC in 2015E. The FYdec15E P/E is c18x, versus the

European Electrical capital goods sector on c10.5x.

Legrand SA; Switching our view; Simon Toennessen; 24 January 2014

■ Upgrade to Neutral, new TP €40 (from €38): Having underperformed the SXNP by

15% over the past six months, the shares are discounting sluggish organic growth

momentum in FY14 (1% in H1 14E) and relative valuation levels look more

attractive (over the past 12 months the stock has traded below its historical PE

premium against the SXNP). We think consensus numbers are still too high, in

particular for France and Italy in FY14, and despite raising our earnings forecasts by

1-10% over 2013-15E, mainly from stronger margin forecasts, we are still 2-5%

below consensus. While we don't incorporate acquisitive growth in our forecasts, we

could see Legrand offsetting sluggish organic growth with increased acquisition

activity. We change primary analyst on Legrand with this report.

■ We regard Legrand as one of the highest-quality names in our Capital Goods

coverage, with strong margin resilience owing to its pricing power and a sector-

leading cash-flow conversion and returns profile. With a more attractive relative

valuation following the stock's recent underperformance, and what we consider

ambitious consensus top-line expectations in FY14, we believe the current

risk/reward for Legrand is well balanced. This is supported by our scenario analysis

suggesting 10% potential upside in our bull case (stronger M&A activity, better end-

market demand outlook) versus 9% potential downside in our bear case.

■ Catalysts: Q4 results on 13 February 2014.

■ Valuation: Legrand is trading on 12.1x 2014E EV/EBITA and 18.1x PE. Given the

potential for downgrades to FY14 organic revenue forecasts, we prefer stocks with

better earnings growth momentum, self-help potential and turnaround opportunities

for underperforming businesses (eg, ABB, Prysmian and Siemens) which should

lead to stronger multiple re-ratings.

Komax; Downgrade to Neutral - Much is now priced in; Patrick Laager; 22 January

2014

■ We downgrade Komax to Neutral from Outperform as we believe a substantial

part of the increasingly more favorable prospects for Wire and Medtech is now

priced in. We also believe the ongoing process to sell the solar business is now

reflected in the share price.

■ What to do with the stock? Since Jan 2013 the stock more than doubled (+111%)

and is now cruising at levels around our TP of SFr150/share, which we continue to

view as fair. Material upside from current levels is now dependent on (1) stable

order momentum at Wire in 1H14, (2) feeding down to RoS of 20% or more for this

segment in 2014, (3) a book-to-bill ratio exceeding 1 at Medtech in 1H14, (4) a quick

27 January 2014


and smooth divestment of Solar, and (5) a clear strategy for Medtech which we

believe doesn't fit with the rest of the Group.

■ What's the next big catalyst? The upcoming announcement of the disposal of

Solar is unlikely to provide the same outperformance of the shares. More important

will be the outlook for 2014 (FY results due 26 March) which is likely to be upbeat

but not enough to move the stock higher, in our view.

■ How does the stock trade? On c16x our revised EPS15E and c8x EV/EBITDA the

shares have closed the gap against Swiss industrials (15.5x and 6.8x). While we

concede that a premium is fair, we believe more than 10% would be unmerited.

Alstom; What to cheer for until May?; Simon Toennessen; 21 January 2014

■ Reiterate Underperform rating, TP cut to €21 (from €24): Following Alstom's

disappointing set of Q3 results we lower our EPS forecasts by 6% in FY14 and 16%

in FY15 driven by a combination of slower revenue growth and lower margin

forecasts mainly in Thermal Power. We now forecast a 6.8% operating profit margin

in FY15 compared to 7.1% previously. Our FY16 margin estimate of 7.2% is below

the company's 8% margin target.

■ Weak FCF outlook; we forecast no dividend payment for FY14: Driven by on-

going pressure from a lower level of down payments due to a lack of big ticket

contracts (mainly in Thermal Power new build), we now forecast negative -€148m

FCF in H2 (-€659m in FY14). On our estimates, this lifts Alstom's 'net debt to

EBITDA' ratio to 2.9x (from 2.5x) for FY14 which in our view will cause the board to

waive the dividend payment (we had been estimating €260m).

■ Decline in Thermal Service margins could come on top: Although management

continues to play down the margin risk to its highly profitable Thermal Service

business we continue to believe that more service activities being taking in-house by

utilities could trigger accelerated pricing pressure for this business medium to long

term. We estimate that a 150bps decline in Thermal Service margins on top of our

new FY15 forecasts could lower group profits by an incremental 5%.

■ What to cheer for in remainder of FY14? Following the conference call, we

struggle to see a positive catalyst for the shares until the reporting of FY14 on 7th

May. With management eliminating in our view the bulls' hope for positive FCF in

FY14 and no FCF guidance provided for FY15, we don’t see why investors should

structurally buy into the Alstom investment case.

■ Valuation: On our new estimates, Alstom is trading on 9.0x FY15 EV/EBITA; we

believe it is already reflecting a mid-cycle valuation level.

Asia Research

NTN; Extraordinary loss of ¥27bn for EU cartel fines; Shinji Kuroda; 27 January

2014

■ Event: We lower our FY3/14 estimates (and expect the company to report a net

loss) because NTN will take an extraordinary charge to cover EU cartel fines, but we

27 January 2014


leave our estimates unchanged for FY3/15 and beyond. We maintain our ¥500

target price (based on FY3/15E) and reiterate our NEUTRAL rating.

■ Investment case: As 4:00 p.m. on 27 January, NTN announced it would book

provisions for antitrust-related losses as an extraordinary loss in the 3Q FY3/14

results to cover a ¥27bn fine for breaching EU competition laws in the European

automotive bearings business. SKF in Europe had previously announced it would

book provisions to cover fines of around ¥47bn in its 4Q results (Oct–Dec 2013).

The SKF share price fell 6% the day after this announcement, but has since risen

gradually. With NTN, however, the company is unlikely to resume its dividend in

FY3/15 and we see equity financing risk. We expect the share price to weaken for

the time being.

■ We lower our FY3/14 NP estimate from ¥12bn to a net loss of ¥14.5bn, reflecting

the extraordinary loss of ¥27bn to be booked in 3Q. We maintain our estimates for

FY3/15 and beyond.

■ Risks: NTN is slated to release its 3Q FY3/14 results at 4:00 p.m. on 31 January

and we expect OP of ¥6.9bn. Downside risks include fines in North America and

equity financing. Upside risks include an early resumption of dividends.

■ Valuation: We maintain our ¥500 TP, applying an ROIC model to our FY3/15

estimates. Implied P/E, P/B and EV/EBITDA are 15.5x, 1.2x, and 6.3x, respectively.

Daikin Industries; Takeaways from Goodman meeting at AHR Expo; Shinji Kuroda;

27 January 2014

■ Event: Our US machinery analyst Julian Mitchell visited the International Air-

Conditioning, Heating, Refrigerating Exposition (AHR Expo 21–23 January) in New

York, where he spoke with David Swift, CEO of Daikin subsidiary Goodman. In this

report, we look at the key points from the meeting. We also refer to the AHR (HVAC)

Expo Takeaways report issued on 23 January.

■ Growth in mid-to-high single digits in 2014: Goodman’s outlook for the market

can be distilled into four key points: (1) mid-to-high single digit growth YoY in the

North America HVAC market in 2014; (2) shift to inverter models likely to gather

pace in North America; (3) potential for annualized growth of 25–30% in the variable

refrigerant flow (VRF) market; and (4) potential for double-digit growth in Daikin’s

mini-split systems (compact, ductless air conditioners), which are now sold through

Goodman’s channels.

■ Catalysts/risks: We forecast 3Q (Oct-Dec) OP of roughly ¥21bn, up 98% YoY.

Upside risks to our target price include early synergies from the Goodman

acquisition and rapid margin improvement in emerging markets. Downside risks

include external factors (intensifying price competition etc.) that derail Daikin’s

growth strategy.

■ Valuation: We continue to base our ¥5,900 target price on an ROIC model applied

to our FY3/15 estimates. Daikin’s share price is slightly higher than that of US rival

Lennox.

27 January 2014


Machinery Sector; Update on absolute and relative share price Performance; Shinji


■ Third-quarter results announcements ramp up this week: 27 Jan (Mon):

Caterpillar (US; full-FY12/13 results); 28 Jan: Hitachi Construction Machinery (HCM;

6305); 29 Jan: Komatsu (6301), Misumi (9962), Hitachi Koki (6581); also HSBC’s

China PMI for January; 30 Jan: Kawasaki Heavy Industries (7012; 13:00 JST),

Omron (6645); 31 Jan: NSK (6471), NTN (6472), Sumitomo Heavy Industries

(6302), Okuma (6103), Fanuc (6954), Keyence (6861), Makita (6586; 2 p.m.).

■ Market focused on laggards; strong-performing names hit by profit-taking:

Eleven sector stocks beat TOPIX’s 2.5% decline for the week (vs. 17 January),

while 17 underperformed (24 saw absolute declines). Sumitomo Heavy led the

gainers at +6.5%, followed by Komatsu at +2.8%, Keyence at +1.6%, and HCM at

+0.9%, with all four remaining in positive territory. Heavy machinery/plant

engineering stocks had underperformed since November but have come in for

buying over the past two weeks amid the market’s focus on laggards. Last week

also saw stock selection extend to pure machinery makers including Komatsu and

HCM. Newly included to our report from this week are automotive consumables

names OSG (6136) and Nachi-Fujikoshi (6474).

■ Decliners were led by DMG Mori Seiki (6141) and JTEKT (6473) at –6.3%, with

investors perceiving DMG Mori Seiki as overbought and JTEKT as overvalued. THK

was next at –5.7% amid risk of OP missing guidance, followed by Okuma at –5.2%,

Omron at –5.1%, and NSK at –4.9%, all in reaction to previous strong performance.

JGC and IHI were both down 4.6% after earlier gains accompanying the market’s

focus on laggards.

■ Stock calls: Our order of preference within individual subsectors is unchanged. We

continue to highlight Okuma and Fanuc in machine tools; Tsubakimoto Chain

(6371), NSK, and JTEKT in automotive consumables; Ebara (6361) and Makita in

infrastructure; Yaskawa Electric (6506) and SMC (6273) in factory automation; and

Mitsubishi Heavy Industries (7011) in heavy machinery/plant engineering.

Yaskawa Electric Corporation; Report on 3Q meeting: See growth strategies

yielding results in FY3/15; Shinji Kuroda; 23 January 2014

■ Event: We report here on our key takeaways from the meeting held by Yaskawa

Electric to discuss 3Q results (the speaker was company president Junji Tsuda). We

heard nothing that would prompt us to alter our earnings estimates, and maintain

our ¥1,700 target price and OUTPERFORM rating.

■ See growth strategies yielding results in FY3/15: (1) With an accrual of ¥800mn

in unrealized profits, Oct–Dec results were in line with the company’s internal target.

However, Jan–Mar earnings look set to beat initial guidance. (2) PV order value has

recovered gradually since bottoming in November, and the company expects

FY3/15 orders to turn up YoY. (3) Yaskawa sees robot earnings growing faster than

targeted in its medium-term plan, on steady expansion in automotive sector capex

at home and abroad and growth in automation investment in China. Over the next

two years, the company aims to further bolster its robot profit structure. (4) In

servomotors, the company seeks a higher market share and improved margins

through the launch of the new Sigma 7 series and adoption of automated

processing equipment. (5) Orders for back-end SPE also have been rebounding in

4Q. (6) In the auto sector in particular, Japanese companies are increasingly

27 January 2014


returning to onshore production. Yaskawa has transferred production of some

inverter products back to Japan from China. (7) As of December 2012, Japan has

dropped the 80W power limit on robots (originally imposed for safety reasons). This

should cut robot investment costs by a third, and may help expand Yaskawa's

market share by boosting demand for robots for assembly applications.

■ Risks: Risks include a smaller-than-expected impact from product launches.

■ Valuation: We continue to derive our ¥1,700 TP by applying an ROIC model to our

FY3/15 estimates. Our TP implies a P/E of 19.4x, P/B of 3.1x, and EV/EBITDA of

9.9x.

Yaskawa Electric Corporation; 3Q FY3/14 results on weak side, but no need for

undue concern; Shinji Kuroda; 23 January 2014

■ Results impression: Somewhat negative

Yaskawa Electric announced 3Q FY3/14 (Oct–Dec 2013) results at 16:00 on 23

January. Sales rose 20% YoY to ¥82.4bn, while OP was 6.8x higher than the

previous year at ¥4.5bn (OPM of 5.4%), just below our ¥5.0bn estimate. We

attribute this slight shortfall versus our estimate to an accrual of ¥800mn in

unrealized profits stemming from brisk orders and an accompanying buildup in

inventories (¥700mn YoY drain on OP). Results were broadly in line with internal

targets, despite the unforeseen reporting of unrealized profits. Yaskawa accordingly

left its full-year guidance unchanged. To meet company’s full-year guidance it will

need a 34% YoY increase in 4Q OP, to ¥8.4bn, and to meet our full-year estimates

it will need a 55% increase in 4Q OP, to ¥9.7bn. We also leave our full-year

estimates unchanged, as an increase on this scale looks achievable.

■ Near-term share price impact: Somewhat negative

Yaskawa Electric shares closed on 23 January at ¥1,613, up 1.8% from the

previous day. We think it likely the shares will fall again on 24 January, as investors

probably had been speculating about an upward revision to guidance. We will also

be paying close attention, however, to the small meeting scheduled for 10:30 on 24

January, when we expect company president Junji Tsuda to discuss demand

forecasts and business strategies for the remainder of FY3/14 and FY3/15. We see

an opportunity to buy on weakness.

Machinery sector; Nachi-Fujikoshi results briefing: Implications for the sector;

Shinji Kuroda; 22 January 2014

■ Targets record earnings in FY11/14, unveils medium-term plan: Nachi-

Fujikoshi held a results briefing in the afternoon of 22 Jan and unveiled a new

medium-term plan though FY11/17. The company assumes FY11/14 exchange

rates of ¥100/$ and ¥135/€ and forecasts sales of ¥205bn (+17% YoY) and OP of

¥17bn (+38%, operating margin 8.3%, prospective EPS ¥40.23, dividend per share

¥8). The company thus anticipates achieving a new all-time high OP seven years

after the previous record (¥16.8bn in FY11/07). The new plan calls for sales of

¥250bn in the final year covered, OP of ¥25bn (OPM 10%), and NP of ¥16bn

(prospective EPS ¥64.4).

27 January 2014


■ Robot demand looks likely to be strong in 2014: Nachi-Fujikoshi targets FY11/14

robot sales of ¥16.5bn (+25% YoY). Conditions in the North American automotive

market were tough in 2013, but started to recover early in 2014. In China both local

and Japanese automakers are boosting investment in automation. We understand

the company also anticipates strong demand from domestic automakers and

anticipates continued brisk business in Korea. In industrial robots, the company is

driving up growth in sales of the new MZ Series.

■ Bearing sales should also continue to rise, especially in Asia: Nachi- Fujikoshi

expects FY11/14 bearing sales of ¥78bn (+21% YoY). The company projects

continued favorable demand conditions especially in Asia, although it sees risks in

the domestic automotive market.

■ Aerospace / auto-use machine tool demand also firm: Nachi-Fujikoshi targets

FY11/14 machine tool sales of ¥31.5bn (+12% YoY). In addition to longer-term

growth prospects for aircraft engine applications, the company cites the trend

toward a greater number of automotive transmission speeds as boosting demand in

North America. It also plans to focus on super-hard drills, where it has continued to

gain market share.

■ Brisk demand for hydraulic equipment for mini excavators: The company

expects FY11/4 hydraulic equipment sales of ¥42bn (+25% YoY). Amid continued

weak demand for larger hydraulic excavators, Nachi- Fujikoshi anticipates favorable

conditions and market share gains in mini and midi excavators, which are a focus

point for the company.

■ Implications for sector shares: While there is risk with regard to domestic auto

production in 2014, overseas auto production will probably continue to rise. We also

expect ongoing demand arising from automotive capex and investment in

automation and see longer-term growth prospects in aerospace applications. We

believe these factors point to favorable conditions for machinery stocks.

■ FY11/14 OP forecast cautious, reflects negatives: Nachi-Fujikoshi forecasts

FY11/14 OP of ¥17bn (up ¥4.6bn YoY). The company expects improved operating

rates, the weaker yen and cost cuts to boost profits by ¥10.5bn, ¥2bn and ¥3bn

respectively, but sees higher materials costs, lower prices and higher other

operating expenses depressing profits by ¥3bn, ¥3bn and ¥5bn respectively. The

forecast thus reflects potential earnings risks.

Komatsu; Investor interest seems on the rise; Shinji Kuroda; 22 January 2014

■ Action: We make reiterate our forecasts and our target price of ¥1,900 (potential

return of -11.7%). We maintain our NEUTRAL rating.

■ Investment case: Recent negative newsflow has sent the stock down toward

¥2,000 (dividend yield of 2.9%), where we believe further downside risk is minimal.

Meanwhile, Caterpillar’s stock has rebounded, and other rivals, such as Daikin

Industries (6367), are beginning to look overvalued. Investors may therefore be

turning their attention to Komatsu as a defensive play. However, we remain

concerned about a further decline in demand for mining machinery, which carries

high margins, and resulting contraction in profitability in FY3/15. In addition,

domestic demand for Kubota’s hydraulic excavators could decline sharply after the

surge in demand caused by upcoming implementation of tighter emission

27 January 2014


regulations. We therefore think Kubota’s stock may merit more attention in 2015

than this year and recommend a wait-and-see stance.

■ Catalysts: We are looking toward the release of Caterpillar’s 4Q results and 2015

forecasts on 27 January at 9:30pm JST. Also, on 28 January (Tue) Hitachi

Construction Machinery (HCM; 6305) is to release 3Q (Oct–Dec) results and hold its

results briefing from 4:30pm. Komatsu plans to follow with its 3Q results and a 4pm

telephone conference the next day (29 Jan). We expect HCM to report 3Q OP rose

12% YoY to ¥15.6bn, but think Komatsu will report an 11% decline to about ¥35bn.

One upside catalyst would be a shift to more aggressive capital spending by mining

companies. Downside risks include a double-dip in China demand, a structural

decline in demand for mining machinery, and a resulting deterioration in Komatsu’s

profitability.

■ Valuation: We continue to base our ¥1,900 TP on an ROIC model applied to our

FY3/15 forecasts. Our TP implies a P/E of 13.5x and EV/EBITDA of 7.8x. By

comparison, our US analyst’s TP and FY2014 forecast for Caterpillar produces

implied P/E of 14.7x and EV/EBITDA of 6.0x. Komatsu thus looks undervalued on

P/E but overvalued on EV/EBITDA.

27 January 2014


Global Macro Forecasts Exhibit 14: Global Macro Forecasts

Source: Credit Suisse estimates

27 January 2014


Valuation & Performance Exhibit 15: Sector Valuation & Performance

AmericasPE/G Yield

Sector 14E 15E FY1 FY2 15E 14E 15E 14E 15E 14E 15E 14E 15E DIV 1-WK 1-MO 3-MO 6-MO YTD VS LO VS HI BETA

Canada Industrials 16.4x 14.2x 18.4x 14.4x 1.1x 1.2x 1.1x 12.6x 10.7x 9.1x 8.1x 3.0x 2.5x 2.1% -2% -4% 5% 9% -3% 22% -8% 1.15

LatAm Industrials 15.8x 13.9x 16.9x 13.9x 0.8x 1.6x 1.4x 16.1x 15.7x 11.6x 11.4x 2.6x 2.3x 2.2% -4% -5% 1% -2% -5% 13% -15% 0.75

US Aerospace 18.5x 16.2x 17.1x 13.4x 1.0x 2.2x 2.0x 13.5x 11.9x 11.7x 10.4x 2.9x 2.5x 2.8% -3% 0% 10% 20% 0% 60% -5% 1.18

US Automotive 13.6x 11.4x 15.6x 11.6x 0.7x 0.9x 0.8x 9.1x 7.8x 6.2x 5.4x 2.4x 2.4x 1.0% -4% -2% 1% 10% -2% 54% -7% 1.48

US Defense 14.5x 13.7x 10.7x 10.1x 1.8x 1.0x 1.0x 10.5x 9.7x 8.6x 8.1x 2.2x 2.0x 3.1% -2% 1% 10% 19% 1% 60% -4% 0.96

US EE/MI 17.0x 15.2x 16.0x 13.1x 1.2x 1.8x 1.7x 11.9x 10.9x 9.6x 8.7x 2.6x 3.0x 1.3% -4% -2% 6% 14% -2% 34% -7% 1.34

US Engineering & Construction 15.2x 12.5x 16.9x 12.6x 1.0x 0.6x 0.5x 8.8x 7.4x 7.0x 6.0x 2.1x 1.7x 0.4% -4% -3% 1% 16% -5% 29% -10% 1.45

US Environmental Services 18.9x 16.6x 21.8x 18.8x 1.5x 2.2x 2.1x 14.3x 10.6x 8.2x 0.0x 2.2x 0.0x 2.3% -2% -5% -6% -5% -5% 12% -13% 0.67

US Fluid Management 21.5x 19.0x 18.1x 16.1x 1.6x 2.5x 2.4x 15.2x 13.7x 12.9x 11.7x 4.9x 4.2x 1.1% -5% -6% 2% 18% -7% 33% -7% 1.24

US Industrial Distribution 19.1x 16.8x 19.1x 16.4x 1.4x 1.7x 1.5x 12.5x 10.8x 10.1x 9.7x 3.2x 2.8x 0.9% -5% -1% -1% 4% -1% 22% -8% 1.19

US Machinery 15.4x 12.9x 18.9x 13.5x 0.9x 1.5x 1.4x 10.9x 9.3x 8.3x 7.3x 2.6x 2.3x 1.4% -5% -4% 3% 11% -4% 30% -9% 1.59

US Transports 18.8x 16.3x 20.9x 16.6x 1.1x 2.2x 2.0x 12.1x 10.7x 9.1x 8.1x 2.9x 2.6x 1.2% -2% -3% 1% 8% -3% 24% -8% 1.16

Average 17.1x 14.9x 17.5x 14.2x 1.2x 1.6x 1.5x 12.3x 10.8x 9.4x 7.9x 2.8x 2.4x 1.7% -3% -3% 3% 10% -3% 33% -8% 1.18

S&P 500 -3% 0% 1% 8% -1% 18% -3% 1.00

EMEAPE/G Yield


European Aerospace & Defense 14.0x 12.8x 12.5x 10.9x 1.1x 1.3x 1.2x 10.7x 9.8x 8.0x 7.5x 2.6x 2.4x 2.3% -4% 0% 2% 12% 0% 39% -7% 0.73

European Automotive 11.6x 9.4x 18.0x 17.8x 0.7x 0.6x 0.6x 8.9x 7.2x 5.4x 4.5x 1.5x 1.4x 2.3% -4% 3% 7% 11% 3% 47% -7% 0.97

European Electrical/Electronics 13.8x 12.4x 14.1x 12.5x 0.9x 1.3x 1.2x 10.4x 9.2x 8.0x 7.1x 2.2x 2.1x 3.7% -7% -3% -1% 9% -3% 32% -11% 1.08

European Mechanical 16.5x 14.4x 14.9x 13.6x 1.1x 1.5x 1.4x 11.9x 10.4x 9.5x 8.5x 3.0x 2.7x 3.3% -3% -1% 1% 3% -2% 16% -13% 1.09

European Wind Energy 25.1x 20.2x 22.2x 19.8x - 0.9x 0.8x 12.9x 10.8x 6.1x 5.6x 2.2x 2.0x - -8% 8% 18% 49% 7% 411% -11% 0.96

European Industrial Machinery 16.2x 12.0x 15.3x 15.0x 0.4x 0.7x 0.6x 11.3x 8.9x 7.0x 6.0x 1.8x 1.6x 1.3% -3% 3% 2% 19% 3% 36% -8% 1.06

MEA Industrials 11.4x 8.7x 10.1x 8.0x - 0.7x 0.6x 1.5x 6.6x 1.1x 0.0x 1.4x 1.3x 2.4% -3% 0% 23% 49% 0% 87% -6% 1.18

Swiss Mid-cap Engineering 16.5x 14.9x 16.1x 14.8x 1.1x 1.4x 1.4x 11.1x 9.7x 8.0x 7.7x 2.4x 2.2x 2.1% -4% -1% 6% 13% -2% 36% -8% 1.38

UK Capital Goods 15.9x 15.4x 14.6x 12.0x 1.8x 1.9x 1.8x 11.3x 10.5x 9.2x 8.7x 2.8x 2.7x 2.3% -3% -2% 1% 10% -2% 37% -7% 1.19

Average 15.7x 13.3x 15.3x 13.8x 1.0x 1.1x 1.1x 10.0x 9.2x 6.9x 6.2x 2.2x 2.0x 2.5% -4% 1% 7% 19% 1% 82% -8% 1.07

DJSTOXX 600 2% -11% -15% -18% -6% 6% -18% 1.00

AsiaPE/G Yield


China Automotive 9.9x 8.1x 14.1x 12.1x 0.4x 0.5x 0.4x 6.7x 5.2x 4.5x 3.7x 1.4x 1.2x 1.4% -2% -9% -6% 9% -9% 23% -22% 1.34

China Industrial Machinery 9.2x 11.9x 16.4x 13.6x 0.7x 0.9x 0.8x 7.4x 6.1x 5.7x 4.9x 1.0x 0.9x 2.6% 1% -6% -6% 7% -6% 20% -35% 1.36

China Infrastructure Construction 8.7x 7.5x 17.7x 13.7x 0.5x 0.6x 0.6x 9.3x 8.1x 7.1x 6.4x 1.2x 1.1x 2.3% -1% -12% -13% -1% -12% 21% -24% 0.96

China Power Equipment 14.9x 13.6x 18.7x 15.7x 0.7x 1.5x 1.3x 9.3x 8.3x 5.7x 5.2x 1.2x 1.1x 1.4% -2% -1% -2% 17% -4% 41% -22% 1.08

China Container Manufacturing 15.0x 11.4x 19.1x 33.2x 0.3x 0.4x 0.4x 10.3x 8.3x 7.0x 6.0x 1.4x 1.3x 2.1% -3% 2% 14% 25% 1% 40% -16% 1.44

India Automotive 17.5x 14.5x 18.2x 15.1x 0.8x 1.5x 1.4x 12.0x 10.4x 9.0x 7.8x 3.6x 3.1x 1.5% 0% -2% 3% 21% -1% 38% -11% 0.91

India Capital Goods 16.7x 16.5x 19.4x 16.2x 0.7x 1.2x 1.0x 12.7x 10.8x 10.4x 8.5x 2.5x 2.3x 1.3% -2% -8% 12% 28% -8% 50% -24% 1.26

Japan Automotive 11.2x 10.0x 22.4x 15.4x 0.4x 0.6x 0.6x 10.0x 7.2x 6.2x 5.4x 1.7x 1.5x 1.7% -6% -4% 1% 5% -5% 51% -14% 1.15

Japan Auto Related Consumables 19.4x 14.3x 14.4x 15.8x 0.4x 0.6x 0.6x 17.2x 11.5x 8.0x 7.0x 1.5x 1.4x 0.7% -7% -5% 17% 35% -5% 92% -10% 1.39

Japan Conglomerates 19.3x 16.1x 14.0x 13.0x 0.4x 0.5x 0.5x 13.0x 11.1x 7.8x 6.9x 2.0x 1.8x 1.1% -8% -1% 16% 20% -2% 76% -9% 1.37

Japan/Taiwan Factory Automation 22.9x 19.4x 24.1x 22.4x 0.9x 1.9x 2.5x 13.9x 11.4x 11.4x 9.8x 3.1x 2.8x 1.2% -2% -3% 11% 25% -3% 62% -7% 1.08

Japan Infrastructure Machinery 17.5x 15.4x 26.3x 14.7x 1.0x 1.1x 1.1x 11.5x 9.7x 8.9x 7.8x 1.9x 1.8x 1.4% -5% -4% 7% 15% -5% 47% -15% 1.15

Japan Machine Tools 25.3x 18.9x 21.9x 15.6x 0.7x 1.3x 1.2x 18.9x 11.4x 11.9x 9.8x 1.5x 1.4x 1.1% -7% -9% 12% 34% -8% 77% -13% 1.36

Korea Engineering & Construction 13.7x 9.8x 10.8x 10.1x 0.5x 0.5x 0.5x 11.4x 8.1x 8.8x 6.6x 1.4x 1.3x 1.3% -3% -3% -10% -6% -5% 15% -32% 1.04

Korea Industrials / Shipbuilding / Autos 10.5x 9.9x 11.9x 8.5x 0.5x 0.5x 0.5x 10.3x 9.1x 8.0x 6.7x 1.0x 0.9x 1.0% -2% -4% -11% 0% -5% 25% -19% 1.21

Singapore /Taiwan Industrials 17.1x 14.1x 15.5x 14.4x 0.9x 1.5x 1.3x 11.6x 12.3x 8.6x 9.3x 1.8x 1.6x 2.9% -2% -5% -5% -4% -5% 4% -15% 1.37

Average (Non Japan Asia) 13.3x 11.7x 16.2x 15.3x 0.6x 0.9x 0.8x 10.1x 8.7x 7.5x 6.5x 1.7x 1.5x 1.8% -2% -5% -2% 10% -6% 28% -22% 1.20

Average (Japan) 19.3x 15.7x 20.5x 16.2x 0.62x 1.0x 1.1x 14.1x 10.4x 9.0x 7.8x 2.0x 1.8x 1.2% -6% -4% 11% 22% -5% 67% -11% 1.25

EV/EBITDA

EV/EBITDA

EV/EBITDA

P/B

P/B

P/BEV/Sales

EV/EBIT

EV/EBIT

P/E

PerformanceAVG P/E (5Y)

PerformanceEV/Sales

EV/Sales

EV/EBIT

Performance

AVG P/E (5Y)

AVG P/E (5Y)

P/E

P/E

Source: Factset, Credit Suisse estimates

2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

3

9

Americas Capital Goods Valuation Summary

Exhibit 16: Americas Valuation & Performance Canada Industrials $USD PE/G YIELD

Name Rating CCY 1/27/2014 TP MktCp 14E 15E 5Y FY1 5Y FY2 15E 14E 15E 14E 15E 14E 15E 14E 15E DIV 1-WK 1-MO 3-MO 6-MO YTD VS LO VS HI BETA

Bombardier Inc N CAD 3.86 5 5,039 7.8x 6.8x 11.3x 9.7x 0.3x 0.5x 0.4x 8.7x 7.5x 6.5x 5.7x 2.5x 2.4x 2.8% -6.1% -17.9% -27.4% -22.2% -16.3% 0.0% -28.1% 1.57

CAE, Inc. O CAD 14.24 13 3,369 21.2x 17.5x 14.8x 13.2x - 2.2x 2.0x 14.0x 11.2x 9.1x 7.6x 2.7x 2.6x 1.4% 1.0% 3.6% 18.7% 21.7% 5.4% 44.4% -2.1% 0.81

Finning International Inc. NA CAD 26.42 4,110 12.2x 11.2x 15.4x 12.1x 1.1x 0.9x 0.9x 9.5x 8.2x 6.7x 5.9x 2.5x 2.0x 2.3% -2.5% -2.6% 10.9% 19.5% -2.7% 27.7% -3.8% 1.54

Ritchie Bros. Auctioneers U USD 22.96 17 2,457 25.7x 22.1x 28.4x 23.6x 1.8x - 4.7x 16.7x 14.2x 12.6x 11.1x 3.6x - 2.2% -2.3% 1.7% 14.7% 19.3% 0.1% 26.3% -3.2% 0.90

SNC Lavalin Group NA CAD 46.87 6,435 17.3x 13.8x 27.3x 16.8x 0.1x 1.2x 1.2x 16.7x 14.4x 12.5x 11.7x 3.6x 3.2x 1.9% -2.3% -1.7% 7.1% 9.8% -1.9% 18.5% -5.8% 1.24

Toromont Industries, Ltd. NA CAD 25.25 1,755 14.5x 13.5x 12.9x 11.1x 2.3x 1.2x 1.2x 9.8x 8.6x 7.2x 6.4x 3.2x 2.4x 2.1% -1.6% -5.5% 7.4% 8.3% -5.3% 16.6% -5.9% 0.85

Average 16.4x 14.2x 18.4x 14.4x 1.1x 1.2x 1.1x 12.6x 10.7x 9.1x 8.1x 3.0x 2.5x 2.1% -2.3% -3.7% 5.2% 9.4% -3.4% 22.3% -8.2% 1.15

LatAm Industrials $USD PE/G YIELD


Embraer U USD 32 28 5,835 13.5x 12.4x 14.8x 11.7x 0.6x 0.9x 0.8x 17.2x 18.4x 11.0x 12.2x 1.5x 1.4x 2.3% -5.6% -1.0% 4.8% -5.8% -0.6% 9.0% -18.4% 0.64

WEG N BRL 28 30 7,326 18.1x 15.4x 19.1x 16.0x 0.9x 2.2x 2.0x 15.0x 13.0x 12.1x 10.7x 3.6x 3.1x 2.1% -1.6% -9.2% -3.0% 1.0% -9.2% 17.9% -11.9% 0.86

Average 15.8x 13.9x 16.9x 13.9x 0.8x 1.6x 1.4x 16.1x 15.7x 11.6x 11.4x 2.6x 2.3x 2.2% -3.6% -5.1% 0.9% -2.4% -4.9% 13% -15.2% 0.75

US Aerospace $USD PE/G YIELD


BE Aerospace Inc. O USD 82.93 100 8,688 19.0x 16.2x 17.0x 14.1x 0.8x 2.5x 2.2x 12.9x 11.0x 11.6x 9.8x 3.1x 2.7x 0.0% -0.9% -3.9% 2.4% 19.0% -4.7% 64.5% -5.2% 1.65

Boeing O USD 136.65 162 102,686 18.0x 16.2x 17.1x 13.3x 1.4x 1.1x 1.1x 13.4x 12.4x 11.1x 10.5x - - 1.4% -2.7% -0.2% 5.4% 30.0% 0.1% 85.5% -5.3% 1.28

Precision Castparts O USD 255.46 312 37,107 21.3x 18.2x 17.2x 14.8x 0.9x 4.2x 3.8x 15.5x 12.8x 14.1x 12.0x 3.5x 2.9x 0.0% -5.6% -4.9% 0.2% 15.2% -5.1% 41.4% -6.2% 1.13

Rockwell Collins, Inc. N USD 77.07 73 10,437 17.3x 15.3x 13.8x 12.7x - 2.2x 2.1x 15.0x 13.3x 12.3x 11.1x - - 1.5% -0.7% 4.1% 9.8% 8.3% 4.3% 33.1% -2.8% 1.02

Spirit AeroSystems N USD 33.70 30 4,875 12.6x 11.6x 18.9x 9.2x 0.1x 0.9x 0.8x 10.1x 9.5x 8.0x 7.6x 2.2x 1.9x 0.0% -3.2% -0.8% 28.3% 32.9% -1.1% 111.4% -6.1% 1.30

TransDigm O USD 169.10 166 8,917 22.8x 19.9x 18.3x 16.0x 1.8x - - 14.4x 12.6x 13.0x 11.5x - - 13.9% -2.4% 5.6% 14.9% 17.0% 5.0% 25.3% -4.0% 0.73

Average 18.5x 16.2x 17.1x 13.4x 1.0x 2.2x 2.0x 13.5x 11.9x 11.7x 10.4x 2.9x 2.5x 2.8% -2.6% 0.0% 10.2% 20.4% -0.3% 60.2% -4.9% 1.18

US Automotive $USD PE/G YIELD


American Axle NA USD 19.55 1,477 7.7x 7.0x 7.7x 6.7x 0.2x 0.7x 0.7x 7.9x 7.2x 5.1x 4.7x - 3.4x 0.0% -5.8% -2.6% 3.8% 0.5% -4.4% 67.8% -7.6% 1.53

BorgWarner NA USD 53.71 12,246 16.7x 14.1x 45.3x 14.9x 0.8x 1.5x 1.3x 11.3x 9.9x 8.7x 7.7x 3.0x 2.5x 0.4% -3.8% -3.8% 2.4% 12.6% -3.9% 51.6% -5.7% 1.49

Delphi Automotive NA USD 59.92 18,438 12.2x 10.4x - 10.2x 0.7x 1.1x 1.0x 9.0x 7.8x 7.0x 6.2x 4.6x 3.4x 1.1% -4.4% 0.2% -0.3% 58.1% -5.3% -

Ford Motor Co. NA USD 15.83 74,709 10.8x 7.7x 7.9x 11.7x 0.6x 0.5x 0.4x 10.8x 7.4x 5.9x 4.9x 2.5x 2.1x 2.6% -4.2% 3.5% -10.1% -6.2% 2.6% 30.5% -10.9% 1.40

General Motors NA USD 36.83 51,156 8.6x 7.1x 8.1x 14.6x 0.3x 0.2x 0.2x 5.1x 4.3x 2.8x 2.4x 1.4x 1.2x 0.1% -4.6% -10.0% 2.1% 2.7% -9.9% 39.9% -11.3% 1.21

Harman International NA USD 89.38 6,038 22.5x 17.7x 22.6x 9.6x 0.6x 1.2x 1.1x 14.4x 12.4x 10.6x 9.3x 3.6x 3.1x 1.1% -1.2% 7.2% 20.6% 47.7% 9.2% 116.0% -1.2% 1.93

KAR Auction Servicers O USD 27.89 33 3,872 19.4x 16.8x 19.8x 11.6x 1.0x 2.4x 2.3x - - - - 2.5x 2.1x 2.2% -3.1% -3.3% -5.4% 9.6% -5.6% 44.5% -7.5% 1.42

Lear Corp NA USD 77.05 6,218 10.3x 8.6x 11.3x 16.6x 0.4x 0.4x 0.4x 6.6x 6.2x 5.1x 4.7x 2.0x 1.7x 0.9% -3.7% -5.2% 0.1% 11.2% -4.8% 58.1% -7.3% 1.24

Magna International NA USD 86.56 19,143 11.3x 9.9x 9.5x 14.3x 0.6x 0.5x 0.5x 8.3x 7.2x 5.7x 5.1x 1.9x 1.7x 1.4% -1.5% 7.1% 2.4% 13.2% 5.5% 68.7% -2.4% 1.22

Superior Interiors NA USD 19.08 525 21.9x 19.3x 17.0x 8.9x 2.0x - - 11.5x 10.1x 6.1x 5.1x 1.1x - 2.8% -3.9% -7.4% -1.5% 4.8% -7.5% 11.5% -12.8% 1.03

Tenneco NA USD 53.77 3,271 12.1x 9.9x 13.9x 9.4x 0.4x 0.5x 0.4x 7.5x 6.5x 5.5x 4.8x - 3.5x 0.0% -5.9% -4.7% -1.4% 11.3% -4.9% 55.5% -6.5% 1.97

TRW Automotive Holdings NA USD 74.19 8,558 10.1x 8.8x 8.4x 10.4x 0.7x 0.5x 0.5x 7.1x 6.8x 5.3x 5.0x 2.0x 1.6x 0.0% -2.0% 0.1% -1.8% 1.2% -0.3% 40.7% -6.3% 1.87


US Defense $USD PE/G YIELD


Alliant Techsystems Inc. O USD 130.42 148 4,153 13.9x 12.2x 8.8x 8.8x 0.9x 1.0x 0.9x 10.9x 9.8x 8.8x 8.0x 3.0x 2.7x 0.8% 0.2% 6.9% 18.3% 40.1% 7.2% 105.2% -4.0% 0.93

CACI International, Inc. N USD 78.53 72 1,840 13.5x 13.4x 11.8x 11.2x - 0.7x 0.7x - - - - 1.4x 1.3x#ERR: No IBES data for CACI.N DPS on 27-Jan-2014. Closest on 17-Oct-2013-0.3% 7.7% 10.3% 18.3% 7.3% 56.2% -0.7% 0.87

Esterline Technologies O USD 103.95 125 3,294 18.4x 16.3x 12.9x 11.6x 2.5x 1.9x 1.8x 13.7x 12.0x 9.6x 8.7x 1.8x 1.6x 0.0% -3.9% 2.4% 27.7% 27.6% 2.0% 56.6% -5.2% 1.30

General Dynamics O USD 98.31 117 34,743 13.7x 12.8x 10.1x 9.6x 2.8x 1.1x 1.1x 9.7x 9.5x 8.1x 8.0x 2.4x 2.2x 2.2% 3.0% 3.5% 11.9% 15.2% 2.9% 52.3% -3.2% 1.10

L-3 Communications N USD 104.17 97 9,232 12.8x 12.4x 9.4x 9.0x - 1.0x 1.1x 10.2x 7.9x 8.6x 6.7x 1.6x 1.5x 2.1% -3.2% -2.8% 6.3% 11.8% -2.5% 39.2% -4.1% 0.96

Lockheed Martin N USD 147.76 150 47,329 14.1x 13.2x 11.0x 10.4x 1.6x 1.1x 1.2x 10.1x 9.7x 8.9x 8.6x - - 3.3% -3.9% -0.2% 10.5% 23.0% -0.6% 70.4% -5.7% 0.91

ManTech International Corp. U USD 30.38 21 1,129 16.5x 16.4x 12.0x 11.6x - 0.5x 0.6x 9.3x 8.5x 7.5x 7.0x 0.9x 0.9x 2.8% 0.3% 1.5% 4.7% 2.8% 1.5% 25.3% -2.0% 0.59

Northrop Grumman Corporation N USD 113.45 109 25,185 13.3x 12.0x 9.5x 9.1x 1.6x 1.1x 1.1x 9.7x 9.8x 8.2x 8.2x 3.0x 2.9x 2.1% -4.1% -1.1% 4.7% 23.2% -1.0% 76.2% -5.7% 1.10

Raytheon Company O USD 88.13 96 28,155 14.0x 12.4x 10.7x 10.0x 1.2x 1.3x 1.3x 10.4x 10.2x 9.2x 8.8x 3.8x 2.7x 2.4% -2.2% -3.0% 7.6% 22.7% -2.8% 67.3% -4.7% 0.86

SAIC U USD 45.48 34 3,894 - 16.0x - - - 0.8x 0.8x - 10.3x 8.7x 8.4x 2.1x 1.9x 12.4% -2.2% -2.2% -4.0% 8.4% -2.2% 46.4% -7.2% -

Average 14.5x 13.7x 10.7x 10.1x 1.8x 1.0x 1.0x 10.5x 9.7x 8.6x 8.1x 2.2x 2.0x 3.1% -1.6% 1.3% 9.8% 19.3% 1.2% 59.5% -4.3% 0.96

Performance

EV/EBITDA

P/B

P/B

P/B

P/B

P/B

EV/EBIT

EV/EBIT

EV/EBITDA

EV/EBITDA

Local Price

Local Price

Local Price

AVG P/E

Local Price

Local Price

AVG P/E

P/E

P/E

P/E

AVG P/E

Performance

Performance

EV/EBITDA

Performance

Performance

AVG P/E

AVG P/E

EV/EBIT

EV/EBIT EV/EBITDA

EV/SALES

EV/SALES

EV/SALES

EV/SALES

EV/SALES

P/E

P/E

EV/EBIT


2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

0

Exhibit 17: Americas Valuation & Performance (contd) US EE/MI $USD PE/G YIELD


ADT O USD 38.78 55 7,824 18.1x 15.5x 1.0x 3.3x 3.2x 14.3x 13.3x 6.5x 6.1x 1.8x 1.7% -2.2% -5.8% -9.0% -3.2% -4.2% 0.0% -22.0%

Allegion O USD 46.84 48 4,498 19.8x 17.7x 1.3x 2.3x 2.1x 12.3x 10.6x 11.1x 9.6x 3.2x 0.0% -2.4% 4.9% - - 6.0%

Constellium O USD 24.23 25 2,522 11.8x 9.3x - 0.5x 0.5x 7.6x 6.2x 7.0x 5.8x - 0.0% 1.0% 5.2% 28.4% 33.1% 4.1% 66.8% -1.5%

Cubic N USD 51.04 51 1,367 18.8x 16.6x 0.2x 0.9x 0.9x 12.4x 11.0x 10.2x 9.2x 1.8x 0.5% -2.6% -3.8% -4.3% 1.0% -3.1% 24.8% -9.7%

Danaher Corporation N USD 74.13 75 51,683 19.8x 18.6x 18.2x 16.3x 2.3x 2.8x 2.7x - 14.5x 12.4x 11.8x 2.2x 0.2% -4.8% -3.8% 2.2% 10.1% -4.0% 27.7% -5.6% 0.94

Dover Corp N USD 90.33 90 15,389 15.3x 14.3x 15.3x 13.4x 1.5x 1.9x 1.8x 11.6x 10.9x 9.2x 8.7x 2.9x 1.7% -5.0% -6.2% -1.9% 5.5% -6.4% 33.7% -6.4% 1.36

Emerson O USD 65.26 76 46,016 17.4x 15.6x 16.4x 14.8x 1.8x 1.9x 1.8x 10.4x 9.7x 8.9x 8.3x 4.1x 2.5% -5.6% -7.1% -3.2% 6.3% -7.0% 22.4% -7.1% 1.30

Eaton Corporation O USD 73.13 84 34,564 15.1x 13.1x 15.7x 12.5x 0.8x 1.9x 1.9x - 14.2x 12.0x 11.0x 1.9x 2.1% -4.8% -4.7% 2.6% 6.1% -3.9% 31.1% -5.8% 1.50

General Electric O USD 24.95 30 254,085 14.9x 14.3x 14.1x 12.8x - 1.7x 1.8x - - - - 2.2x 3.1% -6.1% -10.3% -4.8% 2.4% -11.0% 16.9% -11.0% 1.72

Honeywell International Inc. N USD 88.47 101 69,420 15.9x 14.7x 14.9x 13.2x 1.4x 1.8x 1.7x 11.1x 10.3x 9.6x 9.0x 4.0x 1.9% -1.6% -2.9% 1.2% 6.6% -3.2% 29.6% -3.2% 1.29

Hubbell Inc NR USD 115.09 5,978 19.4x 17.6x 10.1x 9.6x 1.8x 1.7x 1.6x 11.1x 9.8x 9.8x 8.7x 3.5x 3.1x 1.6% -3.1% 5.6% 6.4% 7.2% 5.7% 27.1% -3.7% 1.30

Ingersoll Rand O USD 58.11 69 16,741 18.1x 14.9x 12.6x 10.4x 0.6x 1.4x 1.4x 13.1x 11.5x 10.4x 9.4x 2.3x 1.5% -6.8% -5.0% 7.0% 19.3% -5.7% 43.0% -7.6% 1.48

ITT NR USD 41.10 3,728 17.9x 15.9x 7.7x 6.8x 1.1x 1.3x 1.3x 10.7x 9.4x 8.8x 7.7x 3.2x 2.8x 0.9% -6.0% -4.2% 9.9% 31.6% -5.3% 63.4% -7.6% 1.25

Kennametal Inc. N USD 46.94 50 3,681 16.4x 13.3x 19.1x 13.1x 0.7x 1.4x 1.3x 11.3x 9.6x 8.5x 7.4x 2.0x 1.5% -8.3% -9.7% 1.1% 8.3% -9.9% 30.8% -9.9% 1.37

Lennox International NA USD 85.44 4,230 19.1x 16.2x 12.0x 11.6x 0.8x 1.4x 1.3x 13.0x 11.4x 11.1x 9.4x - - 0.9% -2.7% 1.0% 8.6% 19.0% 0.4% 51.2% -3.5%

Luxfer O USD 21.01 24 567 13.0x 11.7x 0.9x 1.1x 1.1x 8.8x 8.0x 7.2x 6.6x 2.7x 1.9% -1.1% 3.5% 13.3% 21.9% 0.7% 63.1% -3.5%

Regal Beloit O USD 75.13 81 3,386 16.5x 15.3x 1.9x 1.2x 1.1x 12.1x 10.8x 8.6x 7.8x 1.5x 1.1% -4.6% 2.1% 4.6% 16.2% 1.9% 20.5% -11.3%

Rockwell Automation N USD 112.99 114 15,684 18.1x 16.4x 18.1x 16.0x 1.7x 2.4x 2.3x 12.6x 11.8x 11.3x 10.6x - 1.8% -5.2% -4.2% 1.9% 16.7% -4.4% 38.1% -5.7% 1.58

Roper NR USD 135.67 13,473 21.6x 20.1x 20.4x 18.2x 2.0x 4.4x 4.2x - - - - - - 0.5% -3.1% -2.0% 5.9% 7.7% -2.2% 15.5% -4.4% 0.88

Rexnord O USD 27.72 31 2,710 15.5x 15.5x - - 0.4x 2.0x 1.9x 14.6x 12.7x 10.2x 9.4x - 0.0% -3.1% 3.6% 19.0% 46.1% 2.6% 71.4% -3.5% 1.25

SPX Corp N USD 98.88 105 4,485 19.1x 15.2x 16.3x 13.5x 0.5x 1.1x 1.0x 13.9x 12.0x 10.7x 9.6x 2.2x 1.0% -5.3% -0.1% 14.1% 29.4% -0.7% 44.9% -6.4% 1.27

Stanley Black & Decker N USD 77.81 73 13,967 14.6x - 26.0x 12.9x - 1.6x 1.5x 13.9x - 10.0x 8.4x 1.7x 2.5% -4.1% -4.0% -2.6% -8.0% -3.6% 4.6% -15.8%

Textron NR USD 36.41 10,237 17.2x 14.8x 26.0x 12.9x 0.8x 1.0x 0.9x 13.6x 11.6x 9.7x 8.6x 2.5x 0.2% 0.9% -0.5% 25.0% 33.0% -1.0% 46.3% -4.2% 2.33

Tyco International, Ltd O USD 39.40 46 18,131 18.5x 15.9x 9.6x 13.3x 1.0x 1.7x 1.6x 14.1x 12.2x 10.5x 9.4x 3.4x 1.7% -4.8% -4.4% 8.1% 13.2% -4.0% 31.3% -4.8% 0.91

United Technologies Corp O USD 111.80 125 102,586 16.3x 14.9x 1.5x 1.8x 1.7x 11.4x 10.6x 9.8x 9.2x 3.0x 2.0% -2.1% -0.9% 5.1% 5.9% -1.8% 27.7% -3.7% 1.12

Valmont Industries U USD 149.14 151 3,995 13.5x 13.1x 15.9x 14.2x - 1.2x 1.2x 8.3x 8.0x 7.2x 7.0x 2.0x 0.0% -1.2% 0.1% 8.4% 6.8% 0.0% 12.9% -9.3% 1.20

Xylem NR USD 33.68 6,214 17.6x 15.8x 15.8x - 1.1x 1.8x 1.7x - - - - - - 1.4% -7.9% -2.5% 3.5% 35.1% -2.7% -


US Engineering & Construction $USD PE/G YIELD


Chicago Bridge & Iron N USD 75.78 90 8,147 14.6x 13.0x 12.4x 11.6x 0.7x 0.7x 0.7x 9.5x 7.8x 8.0x 6.7x 3.8x 2.7x 0.3% -8.5% -7.6% 2.7% 27.2% -8.9% 49.1% -8.9% 2.04

EnergySolutions NA USD 4.14 375 - - 9.5x 11.8x - - - - - - - - -#ERR: No IBES data for ES.N EPS on 27-Jan-2014. Closest on 18-Apr-20130.0% #NULL! #NULL! #NULL! #NULL! 11.9% -0.2% 0.97

Fluor O USD 77.48 97 12,657 17.6x 15.1x 16.5x 14.5x 1.2x 0.4x 0.4x 8.6x 7.6x 7.4x 6.3x 3.0x 2.4x 0.8% -5.6% -2.9% 0.8% 23.8% -3.5% 43.1% -7.4% 1.49

FosterWheeler N USD 29.62 32 2,914 15.2x 12.7x 13.5x 11.4x 0.6x 0.7x 0.6x 9.7x 7.6x 8.0x 6.4x 3.1x 2.3x 0.0% -4.9% -9.6% 8.3% 38.2% -10.3% 51.4% -10.3% 1.91

Jacobs Engineering O USD 63.00 77 8,310 17.0x 14.7x 15.3x 13.9x 1.0x 0.6x 0.5x 8.5x 8.8x 7.4x 7.8x 1.8x 1.7x 0.0% -4.2% 2.1% 3.0% 6.4% 0.0% 32.4% -5.7% 1.40

KBR Inc. O USD 31.67 44 4,691 11.6x 9.9x 12.2x 11.5x 0.8x 0.5x 0.4x 5.9x 4.7x 5.4x 4.4x 1.7x 1.2x 0.8% -3.6% 3.2% -8.4% 1.2% -0.7% 13.1% -12.7% 1.47

McDermott International O USD 8.50 10 2,011 20.4x 12.2x 9.1x 10.3x - 0.6x 0.5x 10.7x 7.9x 7.4x 5.7x 1.1x 1.0x 0.0% -7.4% -2.5% 18.1% -1.7% -7.2% 26.3% -36.9% 1.32

Quanta Services O USD 31.07 38 6,707 17.5x 15.3x 24.3x 17.8x 0.9x 0.9x 0.8x 9.4x 8.1x 7.5x 6.4x 1.5x 1.3x 0.0% -1.8% -0.8% 5.1% 15.9% -1.6% 20.7% -3.3% 0.91

URS Corporation N USD 51.18 56 3,833 11.8x 11.0x 11.7x 10.9x 1.9x 0.5x 0.5x 8.9x 8.1x 6.6x 6.1x 0.9x 0.8x 1.6% -2.0% -2.4% -7.3% 10.1% -3.4% 26.8% -7.8% 1.50

Willbros Group Inc. U USD 8.65 9 431 11.4x 8.6x 18.9x 12.0x - 0.3x 0.3x 7.8x 6.0x 5.0x 4.0x 1.9x 1.5x 0.0% -2.8% -7.7% -14.8% 20.5% -8.2% 40.9% -17.1% 1.57


US Environmental Services $USD PE/G YIELD


Clean Harbors N USD 56.21 62 3,410 21.2x 17.9x 24.8x 21.0x 0.7x 1.2x 1.1x 12.4x 8.6x 6.6x 4.8x 2.1x 1.8x 0.0% -1.4% -5.4% -10.0% -0.4% -6.3% 11.7% -10.1% 0.70

Covanta Holding N USD 17.55 19 2,290 - 34.1x 30.6x 25.9x 2.1x 2.6x 2.5x - - - - 2.8x 2.5x 3.7% -2.8% -1.2% 1.6% -15.7% -1.1% 2.3% -19.5% 0.60

Progressive Waste N USD 23.16 24 2,667 19.3x 17.0x 21.1x 18.0x 1.3x 2.0x 2.0x 17.2x 14.9x 8.0x 7.3x 2.1x 2.0x 2.4% -1.4% -6.0% -12.1% -3.7% -6.4% 15.1% -14.1% 0.79

Republic Services N USD 31.74 38 11,429 16.2x 14.6x 16.4x 14.6x 2.1x 2.1x 2.1x 13.2x 10.6x 8.2x 6.8x 1.4x 1.4x 3.0% -1.6% -5.5% -6.2% -6.4% -4.4% 2.8% -10.4% 0.75

Waste Connections O USD 40.80 49 5,041 20.4x 18.2x 21.4x 18.6x 1.5x 3.5x 3.2x 15.7x 10.6x 10.2x 7.1x 2.3x 2.1x 1.0% -1.7% -6.3% -7.4% -5.7% -6.5% 21.8% -11.7% 0.57

Waste Management N USD 41.64 48 19,537 17.4x 15.7x 16.3x 14.7x 1.5x 2.0x 2.0x 12.7x 8.0x 8.1x 5.2x 2.7x 2.5x 3.5% -3.4% -7.3% -3.7% -0.9% -7.2% 15.9% -9.7% 0.64

Average 18.9x 16.6x 21.8x 18.8x 1.5x 2.2x 2.1x 14.3x 10.6x 8.2x 2.2x 2.3% -2.0% -5.3% -6.3% -5.5% -5.3% 11.6% -12.6% 0.67

US Fluid Management $USD PE/G YIELD


Donaldson Company, Inc. O USD 40.53 48 5,920 22.7x 20.2x 20.9x 18.8x 1.9x 2.3x 2.2x 15.2x 14.1x 12.8x 11.9x - 4.6x 1.1% -4.4% -6.6% 0.1% 11.8% -6.7% 18.2% -7.0% 1.19

Flowserve Corp. O USD 72.99 83 10,180 18.4x 16.5x 14.5x 12.8x 1.3x 2.2x 2.0x 13.6x 12.3x 11.9x 10.9x 4.9x 3.7x 0.8% -5.4% -5.1% 3.2% 28.8% -7.4% 44.7% -7.4% 1.60

Pall Corporation O USD 79.44 94 8,801 23.3x 20.4x 19.0x 16.6x 1.6x 3.1x 2.9x 16.7x 14.7x 13.8x 12.2x 4.8x 4.4x 1.3% -4.9% -6.5% -1.8% 13.6% -6.9% 25.1% -7.1% 1.14

Pentair, Inc. N USD 72.22 80 14,396 - - - - - - - - - - - 1.3% -6.9% -6.9% 6.8% 18.2% -7.0% 44.7% -7.1% 1.04


P/B

P/B

P/B

EV/EBIT

EV/SALES

P/E

P/E

P/E Performance

Performance

EV/EBITDA

AVG P/E

Local Price

Local Price

AVG P/E

Local Price

AVG P/E

Local Price P/B

AVG P/E

EV/EBITDA

EV/EBITDA

EV/EBITDA

Performance

P/E

EV/EBIT

EV/EBIT PerformanceEV/SALES

EV/SALES

EV/SALES EV/EBIT


2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

1

Exhibit 18: Americas Valuation & Performance (contd) US Industrial Distribution $USD PE/G YIELD


Anixter International U USD 91.09 71 2,964 14.2x 13.1x 13.1x 11.1x 1.2x 0.6x 0.6x 9.1x 6.8x 8.3x 6.3x 2.5x 2.0x 0.0% -2.6% 1.5% 11.2% 16.0% 1.4% 47.3% -3.6% 1.23

Fastenal Co N USD 45.09 54 13,381 26.6x 22.7x 29.7x 25.2x 1.6x 3.6x 3.2x 17.0x 15.5x - 14.4x - - 1.8% -5.3% -4.9% -11.4% -8.0% -5.1% 2.5% -15.2% 1.03

MSC Industrial Direct Co. N USD 84.87 90 5,274 21.2x 18.4x 20.0x 17.4x 2.2x 2.0x 1.8x 13.0x 11.3x 11.2x 9.9x 3.6x 3.4x 1.4% -3.9% 4.1% 1.8% 4.8% 4.9% 12.3% -4.2% 1.06

Wesco International O USD 88.55 90 3,914 14.8x 13.0x 13.7x 11.7x 0.9x 0.7x 0.6x 11.2x 9.5x 9.9x 8.1x 2.0x 1.8x 0.0% -4.6% -2.6% 5.6% 16.9% -2.8% 35.3% -5.6% 1.68

WW Grainger Inc. O USD 241.85 310 16,787 18.7x 16.7x 18.8x 16.7x 1.4x 1.7x 1.5x 12.2x 10.9x 10.8x 9.8x 4.5x 3.9x 1.5% -8.4% -5.3% -11.4% -7.7% -5.3% 12.0% -11.7% 0.97

Average 19.1x 16.8x 19.1x 16.4x 1.4x 1.7x 1.5x 12.5x 10.8x 10.1x 9.7x 3.2x 2.8x 0.9% -5.0% -1.4% -0.8% 4.4% -1.4% 21.9% -8.1% 1.19

US Machinery $USD PE/G YIELD


AGCO Corp N USD 53.08 63 5,168 9.2x 9.0x 13.3x 11.3x - 0.5x 0.5x 6.8x 6.2x 5.2x 4.6x 1.2x 1.1x 0.7% -4.2% -9.9% -9.2% -5.6% -10.3% 10.5% -17.6% 1.92

Allison Transmission N USD 27.85 29 5,079 23.9x 18.4x - - 0.6x 3.7x 3.5x 14.6x 11.9x 10.1x 8.7x - - 1.5% -2.2% 2.1% 16.4% 17.2% 0.9% 31.6% -3.7%

Babcock & Wilcox N USD 33.51 35 3,713 14.0x 12.8x - - 2.1x 1.0x 1.0x 9.5x 8.5x 8.0x 7.1x 3.3x 2.5x 1.0% -3.9% -2.5% 3.1% 9.7% -2.0% 30.2% -4.4% 0.94

Caterpillar Inc. O USD 86.17 103 56,226 14.9x 12.9x 17.5x - 1.2x 1.1x 1.0x 14.0x 11.2x 8.9x 7.5x 2.6x 2.2x 2.4% -5.8% -5.2% 2.5% 3.9% -5.1% 7.1% -13.4% 1.85

Cummins Inc. O USD 126.31 156 23,966 13.7x 11.3x 16.9x 13.6x 0.5x 1.3x 1.2x 9.8x 8.3x 8.4x 7.2x 3.1x 2.4x 1.7% -8.3% -9.7% -1.2% 4.2% -10.4% 21.9% -10.4% 1.65

Deere & Co. O USD 85.55 102 31,770 10.3x 11.2x 13.1x 11.9x - 1.8x 1.9x 6.8x 7.4x 5.8x 6.0x 2.7x 2.3x 2.3% -4.3% -5.7% 3.5% 3.0% -6.3% 5.7% -10.0% 1.58

Douglas Dynamics Inc. U USD 15.58 14 346 19.6x 14.6x - - 0.3x 2.3x - 12.7x - 9.7x - 2.5x - 5.4% -5.6% -8.4% 2.3% 8.4% -7.4% 20.8% -8.4% 0.80

Illinois Tool Works, Inc. N USD 79.21 84 35,761 17.8x 15.4x 17.1x 14.3x 0.8x 2.5x 2.4x 13.0x 11.8x 10.6x 9.9x 4.1x 3.7x 1.9% -4.2% -5.2% 0.0% 10.0% -5.8% 32.5% -5.8% 1.12

Joy global NA USD 52.70 5,332 16.1x 14.2x 12.2x 12.2x - 1.7x 1.6x 11.2x 10.7x 9.1x 8.9x 1.9x 1.8x 1.3% -6.3% -8.9% -8.8% 6.5% -9.9% 9.1% -19.2% 1.76

Manitowoc O USD 23.62 31 3,147 15.5x 12.5x 31.2x 15.3x 0.6x 1.1x 1.1x 10.9x 8.7x 8.4x 7.1x 3.6x 2.8x 0.3% -7.7% 0.8% 17.0% 15.1% 1.3% 40.0% -9.1% 1.37

MasTec, Inc. NA USD 35.71 2,758 15.8x 13.6x 14.5x 12.1x 0.8x 0.7x 0.7x 7.6x 6.5x 5.3x 5.3x 3.0x 1.9x - 0.3% 10.9% 7.7% 8.2% 9.1% 34.5% -1.6% 1.07

Oshkosh Corporation N USD 50.96 53 4,316 15.2x 11.9x 10.4x 10.6x 1.7x 0.7x 0.7x 9.1x 4.7x 7.2x 3.9x 2.0x 1.7x 0.4% -5.3% 2.1% -4.4% 13.7% 1.2% 45.9% -6.4% 2.43

Paccar Inc N USD 56.23 60 19,911 15.4x 13.8x 38.9x 18.0x 1.2x 1.3x 1.2x 15.7x 13.7x 11.2x 10.8x 3.0x 2.8x 1.7% -5.5% -3.8% 0.9% 1.5% -5.0% 23.6% -5.5% 2.13

Parker Hannifin Corporation O USD 114.63 148 17,114 17.6x 14.1x 15.8x 13.1x 1.0x 1.4x 1.3x 12.1x 9.5x 9.6x 7.9x 2.6x 2.3x 1.6% -10.0% -10.5% -1.9% 11.0% -10.9% 34.0% -11.3% 1.33

Rush Enterprises, Inc. O USD 28.19 32 1,146 15.8x 12.8x 23.8x 13.0x 0.5x 0.3x 0.3x 10.9x 14.1x 8.3x 11.0x 1.5x 1.3x 0.0% -4.5% -6.7% -4.1% 13.1% -4.9% 28.2% -6.7% 1.60

Terex Corporation O USD 37.92 51 4,224 13.0x 10.3x 20.5x 12.9x 0.3x 0.7x 0.7x 8.7x 6.8x 6.9x 5.6x 1.8x 1.4x 0.0% -10.0% -8.9% 8.0% 28.6% -9.7% 45.8% -10.5% 1.37

United Rentals NA USD 79.50 7,411 13.2x 10.5x 22.2x 16.6x 0.4x 2.7x 2.5x 10.5x 8.8x 5.8x 5.1x 3.4x 2.6x - -2.0% 2.9% 20.7% 38.7% 2.0% 71.9% -4.6% 2.10

Wabco Holdings NA USD 89.28 5,548 15.7x 13.2x 16.7x 13.6x 0.8x 1.9x 1.7x 12.6x - 10.3x - - 4.0x 0.0% -6.1% -3.6% 2.4% 12.9% -4.4% 42.5% -7.0% 1.97


US Transports $USD PE/G YIELD


Canadian National N USD 52.31 56 43,444 16.4x 14.8x 15.5x 13.7x 1.2x 4.9x 4.6x 12.8x 12.0x 10.3x 9.7x 4.0x 3.5x 1.8% -1.9% -7.7% -4.8% 4.8% -8.3% 11.6% -9.5% 1.04

Canadian Pacific Railways O USD 141.70 175 24,861 18.5x 15.5x 17.9x 14.4x 0.6x 4.8x 4.5x 14.2x 12.2x 11.3x 10.1x 3.9x 3.6x 0.9% -5.1% -6.1% -1.6% 15.3% -6.4% 26.5% -9.5% 1.32

CH Robinson N USD 57.21 57 8,674 19.1x 17.5x 24.4x 21.5x 1.8x 0.7x 0.6x 12.5x 11.1x 11.6x 10.4x - - 2.4% -3.2% -0.9% -6.1% -4.0% -1.9% 5.3% -15.8% 0.83

Con-Way O USD 39.36 44 2,239 16.6x 13.4x 30.7x 14.8x 0.4x 0.4x 0.4x 9.5x 7.7x 5.0x 4.4x 2.3x 2.0x 1.0% -3.0% -1.4% -13.9% -5.0% -0.9% 25.4% -14.5% 1.85

CSX Corporation N USD 26.20 27 26,558 13.7x 12.2x 13.6x 12.0x 1.5x 2.8x 2.7x 9.9x 9.1x 7.5x 7.0x 2.5x 2.3x 2.3% -3.8% -7.4% -1.7% 5.6% -8.9% 21.5% -10.4% 1.34

Echo Global Logistics O USD 20.75 23 487 23.4x 17.8x 28.8x 19.0x 0.6x 0.5x 0.4x 12.7x 9.4x 9.5x 7.4x 2.8x 2.4x 0.0% -2.4% -3.7% 8.5% -4.7% -3.4% 21.5% -7.7% 0.82

Expeditors International O USD 42.00 48 8,634 21.3x 19.5x 26.0x 22.8x 1.7x 1.1x 1.1x 11.6x 10.0x 10.8x 9.3x 4.0x 3.5x 1.4% -4.0% -4.9% -10.0% 4.2% -5.1% 19.7% -10.0% 1.05

FedEx Corporation N USD 134.58 139 42,020 19.2x 15.1x 17.1x 13.8x 0.8x 0.9x 0.8x 11.9x 9.6x 7.0x 6.0x 2.4x 2.2x 0.4% -4.2% -6.2% 1.1% 27.0% -6.4% 46.5% -6.4% 1.39

Genesee & Wyoming, Inc. O USD 89.23 103 3,698 17.6x 15.1x 21.0x 17.2x 0.9x 3.2x 2.9x 13.3x 11.9x 10.4x 9.1x 2.4x 2.0x 0.0% -3.7% -6.9% -12.3% -0.5% -7.1% 11.8% -12.3% 1.38

JB Hunt Transport Services N USD 76.30 78 8,945 22.8x 19.6x 23.3x 19.2x 1.2x 1.5x 1.4x 15.1x 13.2x 10.7x 9.5x - - 0.7% -1.7% -1.5% 2.1% 1.8% -1.3% 15.5% -3.8% 1.19

Kansas City Southern O USD 99.49 115 10,965 20.1x 16.9x 25.6x 18.9x 0.8x 4.7x 4.3x 15.5x 13.2x 12.1x 10.7x 2.3x 2.3x 0.8% -14.5% -18.5% -19.5% -7.7% -19.7% 7.2% -20.5% 1.06

Knight Transportation U USD 21.32 19 1,707 22.5x 20.3x 22.4x 18.8x 1.8x 1.7x 1.6x 10.8x 11.4x 6.3x 6.7x 2.9x 2.6x 1.1% 8.5% 15.5% 23.2% 25.6% 16.2% 40.6% -0.6% 1.01

Landstar System N USD 57.20 54 2,615 20.1x 18.6x 21.0x 18.1x 1.6x 0.9x 0.9x 12.2x 11.0x 10.6x 9.7x - - 0.5% -1.6% -0.5% 6.1% 6.5% -0.4% 13.8% -3.7% 0.99

Norfolk Southern O USD 89.61 104 27,679 13.9x 12.4x 14.0x 12.1x 1.1x 3.0x 2.8x 9.9x 9.0x 7.8x 7.2x 2.4x 2.2x 2.3% 0.7% -2.9% 1.8% 22.5% -3.5% 30.6% -4.3% 1.26

Old Dominion Freight Line O USD 55.16 56 4,753 19.7x 17.2x 20.9x 16.2x 1.2x 2.0x 1.8x 12.0x 10.3x 8.9x 7.7x 3.3x 2.8x 0.0% -0.4% 4.3% 16.8% 26.3% 4.0% 59.2% -3.2% 1.27

Union Pacific O USD 171.64 201 79,052 15.9x 14.0x 15.3x 13.2x 1.0x 3.7x 3.5x 10.6x 9.8x 8.6x 7.9x 3.5x 3.3x 1.7% 2.3% 3.4% 14.0% 8.2% 2.2% 30.9% -1.4% 1.15

United Parcel Service O USD 96.33 107 89,428 18.1x 16.0x 18.9x 16.1x 1.1x 1.7x 1.6x 13.0x 11.7x 10.4x 9.4x - - 2.6% -3.6% -8.0% -2.0% 11.0% -8.3% 21.5% -8.3% 1.01

Werner Enterprises N USD 25.92 23 1,880 19.4x 17.3x 19.5x 16.3x 1.3x 0.9x 0.9x 10.8x 9.3x 5.2x 4.6x 2.3x 2.2x 0.7% 1.8% 4.3% 10.3% 7.7% 4.8% 16.4% -3.5% 0.89


P/E P/B

P/BP/E

EV/EBITDA

Local Price

Local Price AVG P/E EV/EBITDA

EV/EBITDA

Performance

Performance

AVG P/ELocal Price

AVG P/E

Performance

P/E P/B

EV/SALES

EV/SALES

EV/SALES EV/EBIT

EV/EBIT

EV/EBIT


2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

2

EMEA Capital Goods Valuation Summary

Exhibit 19: EMEA Valuation & Performance European Aerospace & Defense $USD PE/G YIELD


BAE Systems NR GBp 430.00 22,739 10.3x 9.8x 8.3x 8.1x - 0.8x 0.8x 9.5x 9.1x 7.7x 7.4x 3.2x 2.9x 4.7% -3.2% -2.3% -5.3% -3.6% -1.1% 31.3% -8.1% 0.56

Cobham NR GBp 281.50 5,013 13.5x 12.9x 11.3x 10.7x - 1.9x 1.9x 10.5x 10.1x 8.2x 7.9x 2.7x 2.5x 3.4% -4.5% 2.7% 0.2% -2.1% 2.6% 33.3% -8.5% 0.69

EADS NR EUR 52.78 56,559 15.8x 13.0x 19.0x 13.5x 0.5x 0.7x 0.6x 12.1x 10.0x 7.9x 6.8x 3.5x 3.0x 1.7% -7.5% -6.2% 7.0% 17.6% -5.4% 53.5% -7.6% 0.78

Finmeccanica NR EUR 6.37 5,039 10.4x 8.5x 7.8x 6.8x 0.2x 0.5x 0.4x 8.1x 6.9x 4.7x 4.2x 1.0x 1.0x 0.6% 0.1% 16.0% 11.3% 62.2% 15.7% 77.4% -2.5% 1.10

Meggitt NR GBp 526.00 6,922 13.3x 12.4x 11.5x 10.5x 1.6x 2.8x 2.6x 11.7x 10.9x 9.4x 8.6x 1.9x 1.8x 2.4% -3.5% -0.7% -6.6% -3.9% -0.3% 22.3% -8.1% 1.10

MTU Aero Engines NR EUR 64.90 4,618 14.1x 12.7x 13.2x 11.9x 1.5x 1.0x 0.9x 11.5x 10.3x 8.6x 7.8x 2.5x 2.2x 2.2% -4.0% -8.6% -11.2% -5.3% -9.1% 0.0% -18.1% 0.50

QinetiQ NR GBp 220.20 2,401 14.9x 14.8x 10.3x 10.0x - 1.1x 1.1x 13.4x 13.9x 10.4x 10.9x 2.8x 2.5x 1.9% -5.0% 0.9% 10.7% 19.1% 1.5% 22.7% -7.0% 0.58

Rolls-Royce NR GBp 1172.00 36,383 15.9x 14.8x 14.1x 12.9x 1.8x 1.3x 1.2x 12.4x 11.1x 9.2x 8.5x 2.9x 2.6x 1.8% -6.2% -7.8% 1.0% 0.5% -8.1% 26.7% -9.1% -

Safran NR EUR 52.25 29,815 17.3x 15.0x 15.2x 12.7x 1.0x 1.5x 1.4x 10.3x 9.0x 7.9x 7.0x 2.9x 2.6x 2.2% -2.1% 3.7% 10.9% 18.4% 3.4% 57.1% -3.6% 0.86

Thales NR EUR 47.62 13,184 13.2x 12.3x 13.1x 9.6x 1.3x 0.6x 0.6x 7.3x 6.5x 5.2x 4.6x 1.8x 1.6x 2.0% -2.7% 3.5% 7.0% 22.9% 1.8% 79.6% -3.3% 0.70

Ultra Electronics NA GBp 1950.00 2,247 14.9x 14.3x 13.9x 12.9x - 1.8x 1.7x 11.0x 10.3x 9.1x 8.6x 3.6x 3.3x 2.1% 0.0% 1.7% 1.6% 7.4% 1.1% 24.1% -1.6% 0.47


European Automotive $USD PE/G YIELD


Autoliv Inc NA USD 86.47 8,292 13.7x 11.9x - - 0.9x 0.9x 0.8x 9.4x 8.3x 6.9x 6.2x 1.9x 1.7x 2.3% -5.0% -5.5% -4.2% 5.7% -5.8% 34.8% -8.4% 0.96

BMW NA EUR 81.97 67,521 10.1x 9.6x 22.2x 19.8x 2.4x 0.6x 0.6x 5.5x 5.1x 3.5x 3.2x 1.4x 1.3x 3.3% -5.1% -3.6% -0.3% 11.4% -4.1% 28.6% -5.1% -

Continental NA EUR 159.30 43,595 12.8x 11.6x - - 1.0x 1.0x 1.0x 9.3x 7.9x 6.5x 5.7x 2.7x 2.3x 1.6% -3.4% -1.0% 21.5% 34.5% -0.1% 93.8% -3.4% -

Daimler NA EUR 62.83 91,969 11.0x 9.4x - - 1.0x 0.6x 0.6x 7.4x 6.2x 4.8x 4.3x 1.4x 1.2x 3.5% -4.9% -0.5% 5.1% 20.3% -0.1% 62.6% -4.9% -

Fiat NA EUR 7.36 12,965 6.9x 5.7x - - 0.0x 0.2x 0.2x 6.8x 5.9x 3.1x 2.8x 0.9x 0.8x 0.2% -1.1% 26.1% 26.2% 22.9% 23.8% 88.1% -3.4% BETA

MAN NA EUR 90.10 18,127 22.7x 18.1x - - - 1.0x 0.9x 15.3x 12.3x 10.0x 8.3x 2.3x 2.2x 2.6% -0.4% 1.0% 1.6% 5.2% 1.0% 7.6% -0.5% 0.39

Michelin NA EUR 77.62 19,732 9.6x 8.5x - - 0.7x 0.7x 0.7x 7.5x 6.8x 5.1x 4.6x 1.4x 1.2x 3.1% -4.4% 1.3% 1.1% 2.8% 0.5% 31.1% -7.2% 1.20

Porsche NA EUR 75.92 31,793 6.4x 5.7x - - 0.4x - - - - - - 0.6x 0.6x 2.6% -3.2% 0.1% 18.4% 18.6% 0.3% 43.2% -4.2% 1.35

PSA Peugot Citroen NA EUR 11.24 5,455 - 6.5x - - - 0.2x 0.2x - 9.2x 3.6x 3.1x 0.5x 0.4x 0.0% -2.1% 18.2% 18.5% 17.0% 19.0% 112.9% -11.5% 1.54

Renault NA EUR 63.78 25,808 7.7x 6.0x 17.6x 13.0x 0.1x 0.4x 0.4x 4.1x 1.8x 1.3x 0.7x 0.7x 0.6x 2.5% -6.5% 9.0% -0.4% 7.8% 9.1% 48.7% -6.7% 1.06

Scania NA SEK 125.70 7,810 14.4x 12.4x 23.5x 24.9x 0.9x 0.6x 0.5x 10.7x 8.8x 8.2x 6.8x 2.5x 2.3x 3.8% -4.1% -0.4% -5.1% -7.4% -0.2% 4.8% -16.1% 0.84

Volkswagen NA EUR 194.40 45,258 8.3x 7.4x 14.3x 12.2x 0.6x 0.2x 0.2x 7.3x 6.1x 3.8x 3.3x 1.0x 0.9x 2.1% -4.1% -4.5% 11.1% 8.8% -4.9% 40.9% -4.9% 0.46

Volvo NA SEK 87.75 28,145 16.0x 9.7x 12.3x 19.1x 0.1x 0.7x 0.7x 14.1x 8.1x 7.7x 5.3x 2.3x 1.9x - -3.0% 5.0% 3.4% -8.7% 3.9% 8.7% -15.1% 0.90


European Electrical/Electronics $USD PE/G YIELD


ABB O CHF 22.72 26 58,787 15.5x 14.1x 14.8x 13.7x 1.1x 1.4x 1.4x 11.2x 9.8x 9.0x 8.1x 2.9x 2.6x 3.0% -8.2% -3.4% -1.0% 11.2% -3.2% 18.3% -8.2% 1.38

Alstom U EUR 21.61 21 9,125 8.4x 8.3x 10.2x 9.7x - 0.4x 0.4x 9.7x 9.6x 6.6x 6.5x 1.2x 1.1x 3.2% -21.6% -17.8% -21.4% -15.0% -18.4% 0.0% -39.1% 1.28

Eltek NA NOK 7.79 418 11.1x 9.7x 15.7x 14.5x 0.2x 0.7x 0.7x 6.6x 5.5x 4.8x 4.1x 2.3x 2.2x 7.7% -0.3% 10.3% 13.2% 36.0% 9.6% 110.0% -1.6% 0.83

Legrand SA N EUR 39.61 40 14,327 17.7x 16.2x 15.7x 14.5x 2.0x 2.5x 2.3x 12.5x 11.2x 10.7x 9.6x 2.8x 2.6x 2.7% -3.8% -1.4% -4.3% 1.7% -1.1% 22.2% -6.0% 0.83

Philips N EUR 26.50 26 32,957 15.2x 13.1x 15.7x 11.9x 0.9x 1.0x 1.0x 10.7x 9.1x 7.2x 6.3x 2.0x 1.9x 2.9% -5.6% -1.0% 2.5% 10.1% -0.6% 30.1% -5.7% 1.12

Schneider N EUR 60.71 58 47,083 14.1x 12.5x 14.2x 12.5x 1.0x 1.5x 1.4x 11.1x 9.8x 9.1x 8.0x 1.8x 1.7x 3.1% -7.1% -4.1% -1.4% 1.5% -4.2% 14.9% -8.0% 1.06

Siemens O EUR 96.33 105 116,123 14.4x 12.7x 12.4x 11.0x 0.5x 1.2x 1.2x 11.2x 9.5x 8.3x 7.3x 2.6x 2.4x 3.2% -4.2% -3.9% 2.2% 17.0% -3.0% 30.8% -5.0% 1.08


European Mechanical $USD PE/G YIELD


Alfa Laval N SEK 156.60 145 10,203 18.4x 16.5x 15.4x 14.8x 1.6x 2.2x 2.1x 13.8x 12.2x 11.5x 10.2x 3.6x 3.2x 2.4% -5.0% -4.9% 3.4% 5.9% -5.1% 17.0% -5.1% 1.12

Assa Abloy O SEK 331.60 360 19,404 19.4x 17.6x 15.3x 13.9x 1.4x 2.6x 2.5x 15.1x 13.4x 13.5x 12.1x 3.7x 3.2x 1.7% -3.0% -3.1% 5.3% 14.9% -2.4% 39.3% -3.9% 1.00

Atlas Copco O SEK 175.80 210 32,481 16.2x 14.8x 15.8x 14.6x 1.8x 2.4x 2.3x 12.5x 11.2x 10.8x 9.7x 4.7x 4.1x 3.3% -3.5% -1.5% -2.8% 3.4% -1.4% 12.8% -8.5% 1.21

Electrolux N SEK 155.40 175 6,892 12.7x 9.8x 13.9x 10.8x 0.3x 0.5x 0.5x 10.7x 8.3x 6.7x 5.4x 2.6x 2.3x 4.2% -4.1% -7.7% -4.0% -18.2% -7.8% 1.1% -19.4% 1.26

Kone Corporation N EUR 32.87 34 21,702 20.9x 19.2x 18.6x 17.6x 2.0x 2.1x 2.0x 15.2x 13.7x 13.9x 12.7x - - 3.5% 0.9% -1.1% 3.0% 17.6% 0.2% 17.6% -8.6% 0.59

Metso O EUR 23.85 27 4,889 13.9x 13.1x 10.5x 10.0x - 1.1x 1.1x 9.8x 9.2x 8.0x 7.7x 2.6x 2.4x 5.1% -4.1% -1.3% 5.0% 14.7% -2.1% 17.4% -11.9% 1.11

Outotec NA EUR 7.86 1,968 17.4x 16.0x - - - 0.8x 0.9x 11.0x 9.7x 8.9x 7.9x 2.6x 2.4x 3.7% -5.1% 6.1% -2.7% -13.9% 3.2% 19.5% -39.3% -

Sandvik U SEK 90.85 75 17,701 14.5x 12.7x 14.2x 14.6x 0.9x 1.6x 1.5x 11.2x 9.8x 8.3x 7.4x 2.9x 2.7x 3.8% -1.5% 0.6% 2.1% 10.2% 0.2% 15.5% -15.8% 1.28

SKF U SEK 169.80 150 12,011 13.6x 11.5x 15.1x 12.3x 0.5x 1.3x 1.3x 10.3x 8.7x 8.5x 7.3x 3.1x 2.7x 3.2% -5.1% 1.0% -1.3% -6.1% 0.7% 13.9% -8.1% 1.14

Valmet NA EUR 6.52 1,337 18.0x 12.3x - - 0.4x 0.4x 0.4x 9.8x 7.6x 4.9x 4.5x 1.2x 1.1x 1.7% -2.7% - - - -2.0% 1.9% -5.1% -


P/B

P/B

EV/EBITDA

EV/EBITDA

EV/EBITDA

Local Price

Local Price

Local Price

AVG P/E

Local Price

Performance

Performance

AVG P/E

AVG P/E

AVG P/E

EV/EBITDA P/B

P/B Performance

PerformanceP/E

P/E

P/E

P/E

EV/SALES

EV/SALES

EV/SALES

EV/SALES

EV/EBIT

EV/EBIT

EV/EBIT

EV/EBIT


2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

3

Exhibit 20: EMEA Valuation & Performance (contd) European Wind Energy $USD PE/G YIELD


Gamesa NA EUR 7.85 2,725 23.6x 18.1x 22.2x 19.8x 0.3x 0.9x 0.9x 11.8x 10.7x 5.8x 5.5x 1.8x 1.6x - -8.7% 3.4% 13.5% 41.4% 3.5% 383.1% -12.2% 0.97

Vestas U DKK 178.50 130 6,670 26.7x 22.3x - - - 0.8x 0.8x 14.0x 10.9x 6.4x 5.6x 2.7x 2.4x - -8.0% 11.7% 21.8% 57.1% 11.4% 438.0% -9.6% 0.96

Average 25.1x 20.2x 22.2x 19.8x 0.3x 0.9x 0.8x 12.9x 10.8x 6.1x 5.6x 2.2x 2.0x - -8.3% 7.5% 17.7% 49.2% 7.5% 410.5% -10.9% 0.96

European Industrial Machinery $USD PE/G YIELD


Deutz NA EUR 6.83 1,129 14.3x 10.9x 23.5x 24.9x 0.3x 0.6x 0.5x 12.1x 8.9x 5.4x 4.5x 1.5x 1.3x 0.9% -3.2% 5.9% -1.7% 30.6% 5.3% 80.2% -8.3% 1.20

Fiat Industrial NA EUR 8.18 15,111 9.0x 7.5x - - 0.4x 0.8x 0.7x 7.2x 6.0x 5.2x 4.4x 1.7x 1.4x - -6.1% -1.1% -8.4% #NULL! -1.3% 9.2% -15.5% 0.88

GEA Group NA EUR 35.29 9,294 15.8x 14.3x 14.3x 12.2x 1.0x 1.2x 1.1x 11.0x 9.8x 9.1x 8.2x 2.5x 2.2x 1.8% 0.7% 1.1% 14.2% 13.8% 2.0% 43.1% -1.8% 1.35

Kloeckner & Co O EUR 10.95 13 1,495 32.0x 16.4x 12.3x 19.1x - 0.2x 0.2x 15.0x 10.5x 7.8x 6.4x 0.7x 0.7x 0.1% -1.6% 11.8% 6.8% 16.5% 10.0% 34.4% -4.8% 1.54

Rheinmetall NA EUR 46.10 2,498 12.3x 8.5x 12.2x 9.3x 0.1x 0.4x 0.4x 11.0x 7.6x 6.0x 4.8x 1.2x 1.1x 1.7% -2.6% 3.2% 2.1% 30.6% 3.4% 31.0% -2.6% 1.06

Vossloh NA EUR 70.00 1,276 16.1x 13.6x 15.9x 13.0x 0.2x 0.8x 0.8x 11.6x 9.7x 7.9x 6.8x 1.6x 1.5x 1.8% -5.4% -3.6% -3.6% 11.6% -3.4% 12.3% -15.7% 0.46

Wincor Nixdorf NA EUR 51.65 2,338 14.1x 12.6x 13.3x 11.7x 0.7x 0.7x 0.7x 10.9x 9.5x 7.9x 7.1x 3.6x 3.1x#ERR: No IBES data for WING.DE DPS on 27-Jan-2014. Closest on 17-Oct-2013-6.1% 2.3% 6.1% 7.9% 2.5% 41.8% -6.1% 0.90


MEA Industrials $USD PE/G YIELD

Name Rating CCY 3/2/1900 TP MktCp 14E 15E 5Y FY1 5Y FY2 15E 14E 14E 15E 14E 15E 14E 15E DIV 1-WK 1-MO 3-MO 6-MO YTD VS LO VS HI BETA

El Sewedy Electric NA 32.00 1,027 11.4x 8.7x 10.1x 8.0x - 0.7x 0.6x 1.5x 6.6x 1.1x 1.4x 1.3x 2.4% -2.9% 0.5% 23.2% 48.8% 0.0% 87.4% -5.8% 1.18

Swiss Mid-cap Engineering $USD PE/G YIELD


Autoneum O CHF 150.90 180 788 12.8x 11.1x - - 0.4x 0.4x 0.4x 6.8x 6.0x 4.4x 3.9x 2.4x 2.1x 1.1% 0.5% 10.6% 28.0% 76.1% 10.5% 179.7% -5.1% -

Bucher Industries N CHF 260.00 240 2,979 13.8x 13.0x 15.2x 12.5x 1.8x 0.9x 0.9x 8.9x 8.0x 6.8x 6.2x 2.3x 2.1x 2.2% -3.7% 2.1% 4.8% 11.6% 0.4% 36.4% -3.7% 1.79

Forbo N CHF 751.50 710 1,890 14.7x 13.3x 11.5x 10.8x 1.2x 1.2x 1.2x 9.9x 9.1x 7.5x 7.0x 1.7x 1.6x 1.9% 0.5% -2.2% 5.4% 12.3% -1.4% 29.6% -2.7% 1.46

Geberit N CHF 263.20 240 11,003 21.3x 20.1x 18.2x 17.2x - 4.0x 3.8x 18.1x 16.8x - 14.6x - - 2.9% -5.6% -3.4% 4.2% 6.1% -2.7% 23.7% -5.6% 1.00

Georg Fischer N CHF 614.00 620 2,815 13.2x 11.7x 13.6x 8.6x 0.8x 0.7x 0.7x 10.3x 9.0x 7.0x 6.2x 2.2x 2.0x 2.5% -6.9% -3.5% -0.8% 26.7% -2.2% 66.7% -7.3% 1.89

KABA N CHF 420.50 410 1,793 17.5x 15.8x 14.6x 13.2x 1.5x 1.6x 1.5x 11.4x 10.0x 9.2x 8.2x 2.5x 2.3x 2.7% -4.4% -1.8% 6.4% 13.5% -3.0% 23.1% -4.4% 1.08

Komax N CHF 140.70 150 535 14.0x 12.7x 13.2x 20.1x 0.7x 1.3x 1.3x 9.2x 7.5x 7.6x 6.3x 1.6x 1.5x 1.9% -6.6% 3.1% 13.3% 43.2% 4.0% 78.1% -7.7% 1.65

OC Oerlikon O CHF 13.60 15 5,061 17.0x 16.3x 11.6x 18.5x 1.9x 1.3x 1.2x 9.4x 7.6x 6.9x 5.6x 2.1x 2.0x 2.1% -5.6% 3.4% 7.5% 11.9% 1.9% 36.3% -6.2% 1.96

Rieter Holding O CHF 202.90 260 1,060 15.8x 12.2x 29.8x 16.7x 0.2x 0.8x 0.8x 8.5x 6.4x 5.9x 4.7x 2.3x 2.0x 1.3% -9.3% -1.6% 10.3% 10.2% -3.4% 42.7% -9.8% 1.23

Schindler-Holding AG O CHF 133.40 150 17,677 21.0x 18.6x 18.2x 17.0x 1.3x 1.6x 1.5x 12.7x 10.7x 11.1x 9.5x 4.6x 4.0x 1.6% 2.2% 1.4% 4.9% 0.7% 1.6% 9.3% -8.1% 0.34

Sika N CHF 2996.00 2300 7,204 19.2x 17.6x 16.3x 14.2x 1.3x 1.2x 1.1x 13.6x 12.0x 10.6x 9.6x 3.2x 2.9x 2.0% -3.1% -5.1% 11.4% 16.1% -5.5% 44.7% -5.5% 1.17

Sulzer R CHF 132.70 5,082 14.3x 12.6x 14.5x 13.5x 0.7x 1.1x 1.0x 10.2x 9.2x 7.7x 7.1x 1.7x 1.6x 2.2% -4.9% -7.3% -2.8% -4.2% -7.8% 0.4% -21.9% 1.59


UK Capital Goods $USD PE/G YIELD


Bodycote PLC O GBp 658.50 760 2,034 15.1x 14.0x 24.8x 12.0x 1.7x 1.9x 1.8x 10.1x 9.0x 6.8x 6.1x 2.1x 1.9x 2.1% -7.1% -0.5% 0.2% 6.3% -1.7% 42.5% -7.8% 1.37

Cookson Group U GBp 456.00 405 2,042 13.2x 11.7x 1.0x 0.9x 0.9x 10.2x 9.4x 7.5x 7.0x 1.3x 1.2x 3.2% -3.2% -10.5% -5.0% 7.5% -10.6% 41.6% -10.7% -

Fenner O GBp 417.20 490 1,336 14.0x 12.7x 12.0x 10.7x 2.8x 1.1x 1.1x 7.2x 8.8x 5.8x 7.1x 2.2x 2.1x 2.8% -7.1% -13.8% 1.6% 20.8% -14.0% 36.4% -14.0% 1.09

GKN O GBp 387.60 430 10,495 12.6x 11.6x 16.7x 9.5x 0.9x 0.9x 0.9x 10.2x 8.8x 7.3x 6.5x 2.9x 2.5x 2.0% -4.8% 3.5% 6.7% 10.7% 3.8% 61.0% -4.8% 1.65

Halma O GBp 614.50 620 3,832 21.6x 20.5x 16.1x 15.0x 2.9x 3.6x 3.5x 16.1x 15.0x 14.1x 13.1x 4.6x 4.2x 1.8% -1.2% 0.5% 11.3% 10.5% 1.8% 33.5% -1.4% 0.76

IMI PLC O GBp 1496.00 1640 7,660 16.1x 14.7x 12.6x 11.5x 1.7x 2.4x 2.3x 11.3x 11.9x 9.6x 10.1x - 4.7x 2.4% -3.8% -2.3% -1.2% 9.0% -1.9% 29.0% -4.5% 1.22

Invensys N GBp 509.50 390 5,577 - - - - - - - - - - -#ERR: IBES company not found: ISYS.L1.2% 0.0% 1.2% 2.7% 0.2% 48.4% 0.0% 1.25

Laird U GBp 301.60 215 1,333 14.6x 12.6x 11.1x 9.1x 0.8x 1.6x 1.5x 13.6x 11.8x 10.3x 9.4x 1.8x 1.8x 4.0% -2.9% 9.9% 21.9% 56.3% 8.8% 76.3% -4.9% 1.59

Melrose N GBp 314.80 275 6,583 18.1x 16.3x 11.2x 10.1x 1.0x 2.2x 2.0x - - - - 2.1x 2.0x 2.6% 2.1% 5.0% -0.6% 11.6% 3.0% 34.9% -2.1% 1.29

Morgan Crucible U GBp 312.70 270 1,473 12.9x 11.6x 11.3x 9.9x 0.8x 1.1x 1.1x 7.9x 6.9x 6.1x 5.4x 2.7x 2.4x 3.4% -6.7% 0.2% 4.2% 2.4% -1.7% 30.1% -6.8% 1.63

Rotork plc O GBp 2589.00 3230 3,713 19.4x 18.2x 19.2x 17.9x 2.5x 3.5x 3.3x 14.5x 13.3x 13.5x 12.4x - - 1.9% -2.0% -9.3% -9.7% -2.5% -9.8% 1.8% -14.8% 0.92

Senior O GBp 290.40 315 1,994 14.7x 13.7x 11.6x 11.1x 1.9x 1.5x 1.5x 10.1x 9.1x 8.3x 7.6x 3.1x 2.7x 1.7% -2.4% -6.7% -1.7% 9.3% -5.5% 44.9% -8.0% 1.26

Severfield NA GBp 61.75 303 - 25.7x 16.1x 15.5x - 0.9x 0.9x - - - - - - 0.4% 0.0% 0.6% -1.8% 9.8% 2.5% 74.4% -5.7% 0.74

Smiths Group O GBp 1470.00 1460 9,569 15.2x 14.2x 12.7x 11.6x 2.2x 2.1x 2.0x 11.4x 10.5x 9.8x 9.0x 3.7x 3.3x 2.7% -3.5% -1.3% 4.0% 8.4% -0.7% 24.3% -3.6% 0.65

Spectris O GBp 2279.00 2560 4,465 16.2x 14.9x 13.9x 12.5x 2.0x 2.3x 2.2x 10.3x 9.3x 9.3x 8.5x 2.9x 2.7x 1.9% -5.6% -10.3% -0.3% 8.0% -11.0% 24.3% -11.0% 1.34

Spirax Sarco N GBp 2878.00 3030 3,588 19.5x 18.0x 2.4x 2.9x 2.8x 13.4x 12.2x 11.5x 10.5x 4.5x 4.0x 2.1% -6.3% -3.6% -1.8% 0.5% -3.7% 27.2% -6.9% -

Weir Group N GBp 2090.00 2210 7,355 13.5x 12.5x 13.6x 13.1x 1.7x 2.0x 1.9x 10.9x 10.1x 9.1x 8.4x 2.6x 2.3x 2.0% -2.2% -2.5% -9.9% -2.7% -2.0% 5.3% -15.5% 1.10


EV/EBITDA

EV/EBITDA

P/B

P/B

P/B

P/B

P/B

EV/EBITDA

EV/EBITDA

EV/EBITDA Performance

Local Price

Local Price

Local Price

Local Price

P/ELocal Price AVG P/E

AVG P/E Performance

AVG P/E

AVG P/E

EV/EBIT

EV/EBITAVG P/E Performance

Performance

Performance

P/E

P/E

P/E

P/E

EV/SALES

EV/SALES

EV/SALES

EV/SALES

EV/SALES

EV/EBIT

EV/EBIT

EV/EBIT

ource: Company data, Credit Suisse estimates

2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

4

Asia Capital Goods Valuation Summary

Exhibit 21: Asia Valuation & Performance China Automotive $USD PE/G YIELD


Geely Automobile Holdings NA HKD 3.11 3,526 6.8x 5.9x 14.2x 11.9x 0.4x 0.6x 0.5x 4.6x 3.5x 3.7x 2.8x 1.2x 1.0x 1.2% -5.5% -16.2% -17.9% -4.0% -17.1% 9.1% -33.4% 1.93

Brilliance China Automotive Holding NA HKD 11.82 7,653 11.0x 9.1x 12.6x 11.6x 0.4x - - - - - - 2.8x 2.2x 2.4% -3.3% -4.2% -10.9% 27.5% -6.5% 44.7% -18.1% 1.24

Dongfeng Motors Group NA HKD 11.42 12,676 7.0x 6.5x 11.5x 10.5x 0.7x 0.4x 0.3x 3.4x 2.5x 2.5x 1.8x 1.1x 1.0x 1.6% -1.2% -5.8% 4.8% 9.8% -5.9% 19.3% -12.8% 1.16

Weichai Power Co. NA HKD 29.30 6,269 10.5x 9.0x 13.2x 11.7x 0.5x 0.6x 0.5x 7.5x 6.0x 5.8x 4.7x 1.4x 1.3x 1.4% 1.7% -6.8% -2.0% 14.0% -6.2% 31.7% -16.0% 1.15

Sinotruk (Hong Kong) NA HKD 3.84 1,366 14.0x 10.0x 18.8x 14.8x 0.3x 0.4x 0.3x 11.4x 8.9x 6.3x 5.6x 0.4x 0.4x 0.4% -2.8% -12.1% -1.5% 0.0% -11.7% 11.0% -31.7% 1.23


China Industrial Machinery $USD PE/G YIELD


Anhui Heli NA CNY 11.20 952 10.9x 10.0x 19.6x 14.5x 1.0x 0.7x 0.6x 10.2x 8.9x 7.6x 6.7x 1.5x 1.4x 1.8% 2.4% -7.4% 2.7% 44.7% -7.4% 47.6% -19.5% 1.16

Changsha Zoomlion Heavy Industry NA HKD 6.38 1,175 7.1x 6.4x 12.7x 10.5x 0.6x 0.2x 0.2x 5.1x 4.4x 4.6x 4.1x 0.8x 0.7x 3.9% -2.1% -12.2% -7.0% 14.7% -11.9% 28.1% -40.5% 1.26

Guangxi Liugong Machinery NA CNY 5.89 1,096 11.0x 9.8x 15.0x 12.4x 0.4x 0.6x 0.6x 5.4x 3.2x 3.2x 2.1x 0.7x 0.6x 4.2% 3.2% -6.7% -9.8% -3.6% -7.4% 4.4% -45.9% 1.26

Lonking Holdings Ltd. NA HKD 1.55 855 8.6x 7.2x 12.2x 10.5x 0.3x 0.9x 0.9x 8.3x 6.9x 6.2x 5.4x 0.8x 0.7x 0.0% -2.5% 2.6% -1.3% -1.3% 2.6% 15.7% -32.6% 1.67

Sany Heavy Industry NA CNY 5.96 7,507 8.5x 8.8x 16.2x 13.1x 1.5x 1.4x 1.3x 9.0x 7.2x 6.3x 5.2x 1.5x 1.3x 4.2% 4.0% -6.6% -15.5% -13.2% -7.2% 4.0% -53.8% 1.39

Sany International NA HKD 2.05 803 7.8x 6.9x 18.6x - 0.6x 1.0x 0.8x 6.8x 5.8x 5.6x 4.8x 0.8x 0.7x 3.0% -6.4% -16.0% -8.9% -10.1% -15.6% 13.9% -45.2% 1.27

Shantui Construction Machinery NA CNY 2.99 613 - 37.8x 16.4x 16.7x - 0.5x 0.5x - - - - 0.8x 0.8x 0.0% 2.7% -6.0% -11.0% -6.3% -6.0% 3.1% -46.1% 1.29

Yangzijiang Shipbuilding (Holdings) Ltd O SGD 1.18 1.50 3,547 9.0x 8.6x - - - 1.7x 1.6x 7.2x 6.2x 6.4x 5.7x 1.1x 1.1x 4.2% -1.3% -0.8% -0.4% 26.2% -0.4% 46.6% -4.8% 1.68

Zhejiang Tianma NA CNY 4.18 821 10.5x - 20.7x 17.9x - - - - - - - 0.9x - 2.4% 7.5% 1.7% -3.0% 9.7% -0.9% 19.4% -29.6% 1.30

Average 9.2x 11.9x 16.4x 13.6x 0.7x 0.9x 0.8x 7.4x 6.1x 5.7x 4.9x 1.0x 0.9x 2.6% 0.8% -5.7% -6.0% 6.8% -6.0% 20.3% -35.3% 1.36

China Infrastructure Construction $USD PE/G YIELD


China Communications Construction Co Ltd NA HKD 5.58 10,603 4.8x 4.4x 11.5x 10.0x 0.5x 0.4x 0.4x 7.5x 7.1x 5.5x 5.3x 0.7x 0.6x 4.1% 0.4% -10.6% -7.6% -5.9% -10.7% 4.1% -30.0% 0.96

China Railway Construction Corporation NA HKD 6.41 8,723 5.6x 5.0x 14.9x 11.8x 0.4x 0.1x 0.1x 6.1x 5.5x 3.8x 3.6x 0.7x 0.7x 2.1% -3.3% -17.9% -22.4% -18.8% -17.0% 6.7% -28.3% 0.87

China Railway Group Ltd NA HKD 3.48 8,698 6.0x 5.7x 15.1x 11.5x 0.7x 0.3x 0.3x 11.0x 10.5x 7.9x 8.0x 0.6x 0.6x 1.8% -2.2% -14.5% -17.1% -16.5% -13.0% 9.4% -24.8% 1.22

CSR Times Electric NA HKD 24.15 3,657 13.4x 11.1x 24.1x 18.8x 0.5x 2.0x 1.7x 11.8x 9.4x 10.8x 8.8x 2.6x 2.2x 1.8% -4.2% -10.9% -9.6% 17.5% -13.4% 46.4% -19.4% 1.03

China CSR Corp NA HKD 5.84 10,191 12.2x 10.5x 22.8x 17.0x 0.5x 0.5x 0.5x 9.5x 7.8x 7.3x 6.2x 1.7x 1.5x 2.0% 1.9% -9.9% -6.4% 13.0% -8.2% 38.7% -19.9% 0.78

China CNR Corp NA CNY 4.43 7,560 10.0x 8.4x 18.2x 13.4x 0.4x 0.5x 0.4x 10.2x 8.5x 7.2x 6.4x 1.1x 1.0x 2.2% 3.3% -7.7% -12.8% 2.3% -10.0% 20.4% -22.4% 0.88

Average 8.7x 7.5x 17.7x 13.7x 0.5x 0.6x 0.6x 9.3x 8.1x 7.1x 6.4x 1.2x 1.1x 2.3% -0.7% -11.9% -12.7% -1.4% -12.0% 21% -24.1% 0.96

China Power Equipment $USD PE/G YIELD


Baoding Tianwei Baobian Electric Co Ltd U CNY 4.58 3.50 1,040 - 34.2x 39.4x - - 2.6x 2.1x - - - - 1.39x 1.34x 0.0% 2.2% -11.8% -15.5% -19.2% -11.9% 2.2% -40.0% 1.18

China XD N CNY 3.23 4.80 2,738 30.5x 22.3x 0.5x 0.7x 0.6x - - - - 0.96x 0.92x 2.5% 0.3% -1.8% -8.2% -1.2% 5.6% -17.0%

China High Speed Transmission Equipment NA HKD 4.70 990 19.0x 13.4x 12.5x 12.4x 0.1x 1.7x 1.6x 10.6x 8.8x 5.7x 4.8x 0.72x 0.68x 0.0% -4.3% 14.6% 14.9% 34.3% 11.6% 52.1% -9.3% 1.26

China Ming Yang Wind Power Group Ltd. NA USD 2.72#ERR: NOT COVERED 331 - - - - - - - - - - - - - 0.0% 0.0% 17.2% 4.6% 72.2% 11.0% 134.5% -19.8% 1.58

Chongqing Machinery & Electric Co., Ltd NA HKD 0.92 - 5.6x 4.8x 11.3x 10.2x 0.4x 0.3x 0.3x - - - - - - 4.8% -2.1% -7.1% -4.2% 3.4% -7.1% 4.5% -32.4% 1.28

China Datang Corp N HKD 1.53 1.50 493 12.7x 8.6x - - 0.2x - - 16.6x 14.4x 9.5x 8.6x 0.9x 0.8x 1.8% -10.0% -0.6% -8.4% -14.5% -6.7% 39.1% -23.1% 0.87

China Longyuan Power O HKD 9.22 12.30 9,546 14.5x 11.9x 24.4x 18.2x 0.5x 5.0x 4.4x 14.8x 13.1x 9.6x 8.6x 1.7x 1.6x 0.8% -7.8% -4.9% 3.7% 12.9% -7.7% 46.6% -8.7% 0.59

Dongfang Electric Corp NA HKD 11.02 3,534 7.9x 7.7x 18.8x 14.5x - 0.4x 0.4x 5.6x 5.2x 3.7x 3.3x 0.9x 0.8x 1.2% -4.3% -16.8% -7.1% 2.2% -19.0% 9.8% -30.3% 1.22

Harbin Power Equipment NA HKD 4.41 782 5.5x 5.3x 10.6x 9.9x 2.8x - - 3.8x 4.2x 2.2x 2.6x 0.4x 0.3x 2.8% -2.9% -11.4% -8.3% -7.5% -12.2% 0.0% -38.1% 1.22

Henan Pinggao Electric Co Ltd O CNY 11.34 11.60 1,536 17.6x 13.7x - 31.4x 0.4x 1.7x 1.3x - - - - 2.6x 2.3x 0.4% 4.0% 14.4% 24.3% 29.7% 12.3% 37.6% -4.5% 0.82

Shanghai Electric Group Co., Ltd. NA HKD 2.41 6,706 9.0x 8.7x 15.3x 14.1x - 0.3x 0.3x 4.5x 4.1x 3.4x 3.1x 0.7x 0.7x 3.2% -3.6% -15.1% -15.1% -7.7% -14.5% 0.0% -27.6% 1.02

TBEA Co Ltd N CNY 9.82 6.40 4,653 14.7x 12.6x 17.7x 14.4x 0.5x 0.8x 0.7x - - - - 1.7x 1.5x 1.2% 1.9% -2.4% -17.6% 30.6% -2.7% 58.8% -20.4% 0.91

Xinjiang Goldwind NA HKD 8.27 4,064 27.1x 20.5x - - 0.5x 2.0x 1.7x - - - - 1.4x 1.4x 0.8% -6.0% 4.4% 6.0% 90.1% -6.4% 139.7% -12.4% 0.98


China Container Manufacturing $USD PE/G YIELD


Singamas Container Holdings Ltd. NA HKD 1.71 533 10.0x 8.8x - 49.8x 0.3x 0.3x 0.3x 5.2x 4.2x 3.8x 3.2x 0.87x 0.81x 2.8% -2.8% -2.3% -5.0% 2.4% -6.0% 12.5% -25.7% 1.54

CIMC 'A' NA CNY 15.97 3,253 20.0x 14.0x 19.1x 16.7x 0.3x 0.5x 0.4x 15.4x 12.3x 10.2x 8.7x 1.95x 1.78x 1.4% -2.2% 5.7% 33.9% 47.6% 7.5% 67.2% -5.8% 1.33


India Automotive $USD PE/G YIELD

Name Rating CCY 1/27/2014 TP MktCp 14E 15E 5Y FY1 5Y FY2 12 14E 15E 14E 15E 14E 15E 14E 15E DIV 1-WK 1-MO 3-MO 6-MO YTD VS LO VS HI BETA

Ashok Leyland N INR 17.05 15 723 - - 15.9x 13.9x - 0.8x 0.7x - 14.8x - 8.6x 1.3x 1.3x 3.5% 1.2% 3.0% 1.5% 25.8% -0.9% 43.6% -32.2% 1.10

Bajaj Auto N INR 1933.65 2090 8,922 16.2x 14.1x 26.4x 16.7x 1.0x 2.7x 2.3x 11.5x 9.7x 11.3x 9.6x 5.8x 4.7x 2.3% 0.0% -0.1% -7.7% -0.1% 1.2% 15.5% -10.7% 1.21

Bharat Forge NA INR 342.45 1,271 21.1x 16.6x 22.8x 19.3x 0.4x 1.6x 1.4x 13.8x 11.2x 9.1x 7.7x 3.2x 2.8x 1.0% 1.1% 4.6% 18.6% 67.7% 4.2% 82.1% -1.8% 1.17

Bosch O INR 9354.15 10020 4,683 24.4x 20.1x 16.5x 14.4x 1.0x 2.7x 2.3x - - - - 4.0x 3.4x 0.6% -1.6% -10.4% 5.4% 3.6% -7.3% 16.2% -11.9% 0.61

Hero Motocorp U INR 2035.20 1900 6,480 18.8x 14.2x 16.5x 14.7x 0.9x 1.5x 1.3x 15.2x 10.8x 11.0x 9.3x 6.9x 5.7x 3.0% -1.9% -2.5% -1.3% 11.9% -1.9% 41.6% -7.6% 0.54

Mahindra & Mahindra N INR 885.25 1010 8,694 14.9x 13.8x 17.2x 13.8x 1.4x 1.4x 1.2x 10.9x 9.7x 9.5x 8.4x 3.0x 2.6x 1.4% -1.5% -8.2% -1.7% -2.9% -6.2% 15.5% -11.9% 1.04

Maruti Suzukia India O INR 1772.55 1960 8,538 18.6x 15.5x 0.8x 1.2x 1.1x 14.9x 11.9x 9.3x 7.6x 2.5x 2.2x 0.5% -0.3% -0.2% 8.3% 33.6% 0.5% 43.4% -4.0% 0.71

Tata Motors O INR 370.50 450 16,168 8.7x 7.4x 11.9x 12.9x 0.3x 0.5x 0.5x 5.6x 5.0x 3.8x 3.4x 2.3x 1.8x 0.0% 0.2% -0.2% -3.0% 27.5% -1.6% 45.1% -7.3% -


EV/EBITDA

EV/EBITDA

EV/EBITDA

EV/EBITDA

EV/EBITDA

EV/EBITDA

EV/EBIT

EV/EBIT

EV/EBIT

EV/EBIT

EV/EBIT

EV/EBIT

EV/SALES

EV/SALES

EV/SALES

EV/SALES

EV/SALES

EV/SALES

P/E

P/E

P/E

P/E

P/E

P/E

Performance

Performance

AVG P/E P/B

P/B Performance

Performance

Local Price

Local Price

AVG P/E

Performance

Local Price

Performance

Local Price

AVG P/E

AVG P/E

AVG P/E

AVG P/E

Local Price

Local Price

P/B

P/B

P/B

P/B


2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

5

Exhibit 22: Asia Valuation & Performance (contd)

India Capital Goods $USD PE/G YIELD


ABB Ltd. NA INR 616.20 2,082 - 32.6x 44.6x 31.8x 0.9x 1.6x 1.4x - - - - 4.4x 3.9x 0.5% -3.6% -10.5% -1.0% 23.0% -11.1% 37.0% -12.2% 1.02

BEML Ltd NA INR 206.30 137 - 13.5x 10.4x - - - - - - - - 0.4x 0.4x 1.2% -0.6% -13.8% 20.4% 43.8% -12.6% 59.7% -23.3% 1.15

BGR Energy NA INR 112.00 129 5.4x 5.5x 12.4x 10.3x - 0.6x 0.5x - - - - 0.6x 0.6x 6.3% -5.5% -11.1% 3.1% 32.6% -10.9% 45.8% -55.2% 1.57

Bharat Heavy Electricals U INR 165.10 99 6,443 10.1x 12.6x - 0.8x 0.9x 6.2x 7.5x 5.7x 6.1x 1.2x 1.2x 0.0% -3.6% -4.7% 21.1% 4.3% -6.4% 62.7% -27.8% -

Crompton Greaves Ltd U INR 111.85 98 1,122 20.9x 13.4x 18.2x 13.8x 0.1x 0.6x 0.6x 15.1x 10.6x 11.1x 8.1x 1.9x 1.7x 0.7% -2.1% -13.7% 14.1% 32.0% -13.1% 50.4% -16.7% 1.09

Cummins India N INR 448.40 382 1,982 20.4x 18.2x 19.8x 17.2x - 2.9x 2.6x 17.3x 15.6x - - 4.6x 4.2x 2.9% -1.2% -4.4% 11.4% 4.4% -6.5% 19.9% -14.2% 0.86

Havells India Ltd. NA INR 760.30 1,513 19.7x 16.8x 18.7x 14.4x 0.8x 1.2x 1.1x 15.0x 12.4x 13.0x 10.9x 5.3x 4.3x 1.0% -2.8% -5.2% 8.7% 25.0% -3.8% 28.1% -9.0% 1.39

KEC International Ltd NA INR 52.70 216 11.5x 7.5x 9.5x 7.7x 0.1x 0.3x 0.3x 6.2x 4.9x 5.4x 4.4x 1.1x 1.0x 0.9% -4.6% -6.6% 54.1% 90.9% -7.5% 120.0% -17.7% 0.94

Larsen & Toubro U INR 1005.85 713 14,863 19.8x 17.6x 23.3x 20.1x - 2.1x 1.8x 17.0x 16.0x 14.9x 12.7x 2.7x 2.4x 1.2% 0.5% -6.7% 2.9% 18.8% -6.0% 44.8% -12.2% 1.23

Punj Lloyd Ltd NA INR 27.05 143 15.4x 10.9x - 11.0x - 0.4x 0.4x - - - - 0.3x 0.3x 0.0% -1.5% -7.4% -2.3% 4.4% -5.7% 30.4% -52.0% 1.70

Siemens India NA INR 578.85 3,281 - 32.4x 31.8x 25.8x 0.3x 1.6x 1.5x - - - - 4.7x 4.3x 0.9% -2.0% -12.8% 5.9% 13.3% -12.8% 38.0% -13.6% 1.35

Suzlon Energy Ltd NA INR 10.73 414 - - 7.8x 12.9x - 0.7x 0.6x - 8.9x - 4.4x - - 0.0% 2.1% 1.8% 0.0% 54.2% 4.0% 86.3% -59.9% 1.47

Thermax NA INR 644.75 1,225 26.2x 20.3x 20.0x 17.0x 2.3x 1.4x 1.2x - 13.1x - 12.5x 3.7x 3.3x 1.1% -4.0% -7.4% 4.4% 11.0% -9.4% 20.7% -9.4% 1.24

Voltas Ltd U INR 104.35 84 551 18.1x 13.3x 16.8x 12.7x 0.2x 0.6x 0.6x 12.2x 8.3x 12.2x 8.6x 2.0x 1.8x 1.5% 0.7% -10.7% 22.8% 34.3% -9.9% 62.5% -15.6% 1.38


Japan Automotive PE/G YIELD


Nissan Motor N JPY 908 1000 37,126 10.3x 8.5x 14.6x 11.4x 0.6x 0.4x 0.4x 14.8x 9.5x 7.9x 7.0x 0.9x 0.9x 3.0% -5.6% 2.9% -9.3% -11.6% 2.7% 6.1% -26.3% 1.24

Toyota Motor O JPY 6039 7450 203,126 10.3x 9.6x 49.2x 20.8x 0.2x 0.8x 0.8x 11.1x 10.0x 8.3x 7.6x 1.4x 1.3x 2.0% -2.7% -5.5% -3.7% 1.2% -5.9% 40.0% -9.1% 1.09

Mazda Motor O JPY 508 600 20,854 12.8x 9.7x 19.3x 23.1x 0.1x 0.8x 0.7x 13.2x 7.2x 7.2x 5.8x 2.6x 2.1x 0.0% -8.3% -6.3% 14.7% 23.9% -6.6% 119.0% -10.2% 1.69

Daihatsu Motor N JPY 1668 1930 6,934 8.7x 8.7x 13.4x 11.6x - 0.4x 0.4x 4.0x 3.3x 3.1x 2.8x 1.4x 1.2x 3.2% -7.2% -5.2% -12.8% -22.6% -6.4% 0.0% -25.7% 0.75

Honda Motor O JPY 3920 5060 68,920 11.7x 10.0x 27.2x 10.2x 0.3x 0.6x 0.5x 11.1x 8.2x 7.1x 6.2x 1.3x 1.2x 2.0% -5.7% -8.8% 0.1% 8.0% -9.5% 17.7% -10.2% 1.08

Suzuki Motor N JPY 2714 3070 14,854 13.9x 13.1x 23.1x 19.1x 0.6x 0.5x 0.5x 5.9x 4.9x 4.3x 3.8x 1.2x 1.1x 0.7% -7.2% -3.5% 11.3% 15.4% -4.0% 31.9% -8.2% 0.96

Fuji Heavy Inds. O JPY 2876 3480 21,895 10.6x 10.7x 10.4x 11.9x 0.3x 1.0x 0.9x - - 5.6x 4.8x 3.0x 2.5x 1.0% -5.6% -3.8% 7.8% 18.7% -4.6% 143.7% -5.9% 1.28

Average 11.2x 10.0x 22.4x 15.4x 0.4x 0.6x 0.6x 10.0x 7.2x 6.2x 5.4x 1.7x 1.5x 1.7% -6.0% -4.3% 1.2% 4.7% -4.9% 51% -13.7% 1.15

Japan Auto Related Consumables $USD PE/G YIELD


JTEKT O JPY 1547 1750 5,160 23.0x 13.6x 15.2x 16.8x 0.2x 0.4x 0.4x 18.1x 10.0x 7.2x 6.0x 1.5x 1.4x 1.0% -7.7% -12.7% 25.3% 25.5% -13.6% 82.6% -13.6% 1.59

NSK O JPY 1219 1400 6,422 18.3x 14.8x - 18.5x 0.2x 0.8x 0.7x 16.3x 12.7x 9.5x 8.3x 2.0x 1.8x 1.0% -7.7% -6.9% 18.6% 32.8% -6.8% 96.0% -8.9% 1.36

NTN N JPY 477 500 2,475 20.0x 14.1x 9.5x 15.7x - 0.4x 0.4x - 11.9x 7.4x 6.6x 1.3x 1.2x 0.0% -7.4% 2.4% 1.1% 48.1% 0.0% 111.1% -9.5% 1.36

Tsubakimoto Chain O JPY 800 900 1,452 16.5x 14.7x 18.4x 12.4x 0.9x 0.9x 0.8x - - - - 1.4x 1.3x 1.0% -4.4% -1.6% 22.3% 32.0% -0.2% 77.4% -6.1% 1.23


Japan Conglomerates $USD PE/G YIELD


Hitachi N JPY 786 735 37,036 15.8x 12.5x 9.5x 13.2x 0.4x 0.4x 0.4x 12.7x 10.2x 6.9x 6.1x 1.7x 1.6x 1.2% -8.4% -0.5% 17.5% 19.5% -1.3% 54.4% -9.3% 1.36

Mitsubishi Electric NA JPY 1220 1030 25,551 19.7x 16.1x 14.9x 11.9x 0.3x 0.7x 0.6x 12.9x 10.1x 7.5x 6.3x 1.9x 1.7x 1.0% -7.1% -5.8% 16.3% 28.0% -7.6% 69.7% -9.2% 1.25

IHI Corporation U JPY 468 6,698 22.4x 19.7x 17.6x 14.0x - 0.5x 0.5x 13.5x 12.9x 9.0x 8.1x 2.3x 2.1x 1.0% -7.7% 4.5% 13.9% 13.3% 3.1% 102.6% -7.7% 1.50


Japan/Taiwan Factory Automation $USD PE/G YIELD


Airtac N TWD 275 214 1,546 23.1x 18.5x - - 0.8x - 4.6x 16.9x 13.8x 14.2x 11.7x 4.9x 4.2x 1.3% 6.2% 8.9% 26.1% 61.8% 13.6% 111.7% -1.4% 1.25

Delta Electronics N TWD 166.5 164.0 13,379 19.5x 17.0x 17.7x 15.7x 1.1x 2.0x 1.8x 14.8x 12.3x 10.5x 9.1x 4.1x 3.8x 3.1% -2.6% 0.6% 7.1% 14.4% -2.1% 58.6% -3.2% 0.98

Fanuc O JPY 16780 19000 32,034 31.2x 26.1x 30.4x 24.2x - - - 15.2x 11.7x 14.2x 11.6x 3.0x 2.8x 0.9% -4.2% -12.2% 3.8% 12.9% -12.8% 23.8% -13.4% 0.81

HIWIN N TWD 275 220 2,301 24.2x 19.4x 22.2x - 0.6x - 4.3x - 16.0x 14.8x 12.2x 5.1x 4.2x 1.0% 7.6% 10.0% 20.1% 51.1% 9.3% 65.2% 0.0% 1.61

Keyence N JPY 42000 38000 24,858 29.2x 26.2x 24.0x 21.8x - - - 15.0x 13.5x - 12.9x 3.3x 3.0x 0.1% -2.3% -5.1% 11.4% 31.3% -6.7% 68.6% -9.1% 0.81

SMC O JPY 26440 28500 17,419 22.5x 21.1x 35.8x 23.0x 1.3x 4.6x 4.3x - - 12.2x 10.6x 2.5x 2.3x 0.1% -5.3% -0.3% 17.3% 27.3% -0.2% 72.2% -5.6% 0.86

Nabtesco N JPY 2328 2350 2,888 21.0x 17.4x 22.6x 16.9x 1.3x 1.5x 1.4x 12.2x 8.8x 8.8x 6.9x 2.5x 2.3x 1.4% -4.5% -4.2% -3.2% 13.3% -4.0% 41.1% -9.4% 0.88

Teco N TWD 33 36 2,182 15.3x 13.6x 13.9x 12.2x 1.1x 1.0x 1.0x 11.4x 9.9x 8.6x 7.5x 1.5x 1.5x 2.9% -2.9% -3.2% 5.1% 1.1% -3.2% 42.8% -4.8% 1.18

THK N JPY 2304 2400 2,845 20.1x 16.9x 33.8x 23.3x 0.5x 1.6x 1.4x 9.7x 7.4x 8.0x 6.5x 1.5x 1.4x 0.8% -6.8% -11.5% 7.4% 12.6% -12.2% 51.4% -13.5% 1.03

Yaskawa Electric Corporation O JPY 1451 1700 3,562 22.6x 17.6x 16.4x 42.0x 0.2x 1.0x 0.9x 15.7x 9.1x 11.0x 8.9x 3.0x 2.6x 0.7% -7.6% -13.0% 14.5% 23.9% -12.7% 80.5% -13.7% 1.40


Japan Infrastructure Machinery $USD PE/G YIELD


Daikin Industries N JPY 5935 5900 16,853 20.9x 17.8x 31.8x 17.7x 0.4x 1.0x 0.9x 15.6x 12.7x 11.6x 9.9x 2.6x 2.3x 0.7% -5.8% -8.6% 5.2% 45.5% -9.4% 79.3% -9.9% 1.10

Ebara O JPY 668 760 3,026 19.8x 15.9x 22.6x 12.3x 2.0x 0.7x 0.7x 9.3x 7.7x 6.5x 5.4x 1.6x 1.5x 0.7% -6.4% -1.0% 28.2% 23.9% -1.2% 92.0% -6.4% 1.28

Hitachi Construction Machinery N JPY 2058 2200 4,265 14.1x 13.1x 46.6x 12.2x 0.7x 0.5x 0.5x 11.2x 9.6x 7.2x 6.7x 1.2x 1.2x 2.1% -2.9% -7.6% -1.8% 6.4% -8.3% 8.4% -26.5% 1.14

Komatsu N JPY 2027 1900 18,848 13.7x 12.7x 21.6x 15.4x 1.3x 1.0x 1.0x 10.6x 8.5x 8.1x 7.3x 1.6x 1.5x 2.5% -2.9% -4.4% -6.5% -7.4% -5.1% 1.0% -31.8% 1.13

Kubota N JPY 1689 1750 20,699 17.1x 16.0x 18.2x 15.4x 0.5x 1.4x 1.4x 11.9x 11.1x 10.3x 9.5x 2.6x 2.4x 1.1% -6.5% -2.4% 17.1% 18.1% -2.9% 64.6% -7.2% 1.14

Makita O JPY 5410 5800 7,164 19.3x 17.0x 17.1x 15.4x 0.9x 2.0x 1.9x 10.5x 8.5x 9.8x 8.3x 1.9x 1.8x 1.3% -6.6% -0.7% 0.6% 5.9% -2.0% 34.1% -11.0% 1.08


EV/EBITDA

EV/EBITDA

EV/EBIT

EV/SALES

EV/EBIT

EV/EBIT

EV/EBITEV/SALES

EV/SALES

EV/SALES EV/EBIT

EV/SALES

EV/SALES

P/E

P/E

P/E

P/E

EV/EBITDA

EV/EBITDA

EV/EBITDA

EV/EBITDA P/B

Local Price

P/B

Local Price

Local Price

Performance

Performance

Performance

Local Price

Local Price

AVG P/E

AVG P/EP/E

P/E P/B

P/B

Performance

AVG P/E

PerformanceAVG P/E

P/B

P/B

AVG P/E PerformanceEV/EBITLocal Price

AVG P/E


2

7 J

an

ua

ry 2

01

4

i-Sp

y G

lob

al In

du

stria

ls W

ee

kly

4

6

Exhibit 23: Asia Valuation & Performance (contd)

Japan Machine Tools $USD PE/G YIELD


Amada N JPY 854 870 3,181 27.4x 20.7x 29.7x 21.4x 0.2x 1.3x 1.3x 18.9x 13.2x 12.2x 9.9x 0.9x 0.9x 1.2% -6.4% -8.3% 3.3% 21.1% -7.9% 54.4% -11.1% 1.25

Mori Seiki U JPY 1784 1400 1,882 25.2x 18.3x 21.2x 14.8x 0.4x 1.2x 1.1x - 9.6x - 10.8x 1.9x 1.8x 1.1% -7.9% -5.6% 11.5% 40.1% -5.7% 116.8% -14.1% 1.30

Okuma Corp O JPY 1027 1300 1,638 23.2x 17.9x 14.7x 10.5x 1.5x 1.3x 1.1x - - 11.5x 8.6x 1.7x 1.6x 0.9% -6.6% -12.8% 20.1% 41.7% -11.4% 60.0% -13.3% 1.51


Korea Engineering & Construction $USD PE/G YIELD


Daelim Industrial O KRW 80500 103000 2,587 8.3x 6.6x 8.0x 7.2x 0.6x 0.3x 0.2x 6.0x 4.5x 5.0x 3.9x 0.6x 0.5x 0.6% -3.2% -13.3% -21.5% -9.6% -14.5% 9.5% -25.8% 1.33

Daewoo E&C N KRW 5930 8500 2,276 9.1x 7.7x 13.3x 11.6x 0.2x 0.2x 0.2x 9.1x 8.0x 8.0x 7.2x 0.7x 0.6x 0.0% -2.8% -17.2% -31.0% -23.2% -19.5% 0.0% -38.0% 1.08

GS E&C N KRW 32250 35000 1,519 16.7x 7.8x 5.1x 9.9x - 0.2x 0.2x 17.3x 9.2x 12.9x 7.9x 0.6x 0.5x 0.8% -9.2% 7.5% -13.4% 5.7% 5.7% 21.2% -42.9% 1.17

Hyundai E&C O KRW 57800 70000 5,945 10.0x 8.4x 12.3x 10.3x 0.5x 0.4x 0.4x 6.4x 5.4x 5.8x 5.0x 1.2x 1.0x 0.9% -2.0% -3.0% -5.6% -2.4% -4.8% 6.8% -20.4% 0.97

S1 Corporation NA KRW 73100 2,566 20.2x 17.8x 0.6x 1.7x 1.5x 13.8x 11.6x 8.8x 7.2x 3.2x 3.0x 1.5% -3.9% -0.8% 17.7% 5.2% -2.3% 24.1% -5.8% 0.49

Samsung Engineering Co Ltd U KRW 70200 60000 2,594 18.2x 10.8x 15.3x 11.8x - 0.3x 0.3x 16.2x 10.0x 12.4x 8.2x 2.5x 2.1x 4.2% 0.3% 8.8% -5.3% -10.8% 6.4% 26.5% -56.3% 1.19

Average 13.7x 9.8x 10.8x 10.1x 0.5x 0.5x 0.5x 11.4x 8.1x 8.8x 6.6x 1.4x 1.3x 1.3% -3.5% -3.0% -9.8% -5.8% -4.8% 14.7% -31.5% 1.04

Korea Industrials / Shipbuilding / Autos $USD PE/G YIELD


Daewoo Shipbuilding & Marine Engineering NR KRW 34450 #ERR: No data found6,090 12.6x 9.5x 12.5x 9.9x 0.2x 0.4x 0.4x 16.3x 12.3x 11.4x 9.4x 1.3x 1.2x 0.7% -5.4% -0.7% -3.0% 16.2% -1.6% 46.0% -10.3% 1.24

Doosan Heavy Industries & Construction N KRW 35150 40000 3,446 9.9x 7.9x 13.2x 9.2x 0.1x 0.2x 0.2x 16.7x 13.5x 12.6x 10.5x 0.8x 0.7x 2.1% -3.7% -2.2% -19.1% -23.8% -0.7% 9.8% -26.9% 1.05

Doosan Infracore NR KRW 12250 2,347 14.0x 9.5x 11.8x 9.1x - 0.3x 0.3x 16.0x 13.1x 10.5x 9.0x 0.9x 0.8x 0.0% -2.0% -2.4% -18.6% -0.8% -2.8% 18.9% -27.5% 1.33

Hyundai Heavy Industries O KRW 224500 ` 15,759 19.5x 12.8x 9.3x 8.3x 0.3x 0.3x 0.3x - 13.4x 11.6x 8.7x 0.9x 0.9x 1.1% -3.4% -12.3% -15.0% 6.9% -12.6% 27.6% -22.2% 1.28

Hyundai Mipo Dockyard N KRW 168500 166000 3,113 - 22.9x 25.0x - - 0.8x 0.7x - - - - 1.2x 1.2x 0.9% -7.7% -4.5% -0.3% 26.7% -5.3% 58.2% -11.1% 1.43

Hyundai Mobis O KRW 294000 374000 26,433 7.5x 6.9x 8.6x 7.6x 0.7x 0.8x 0.7x 5.0x 3.8x 4.1x 3.2x 1.2x 1.0x 0.7% 2.4% 1.7% -3.4% 7.3% 0.2% 19.5% -6.8% 0.92

Hyundai Motor O KRW 223500 294000 43,200 6.1x 5.7x 9.4x 8.0x 0.8x 0.5x 0.5x 7.0x 6.1x 5.4x 4.7x 1.0x 0.9x 0.9% -3.2% -2.6% -14.5% -3.9% -5.5% 22.1% -16.0% 1.04

Kia Motors N KRW 53500 60000 20,030 5.5x 5.0x 8.3x 7.2x 0.8x 0.4x 0.4x 3.8x 4.1x 2.8x 3.0x 0.9x 0.8x 1.3% 5.7% -4.3% -15.1% -16.0% -4.6% 9.2% -22.4% 1.20

Samsung Heavy Industries N KRW 34250 44000 7,303 9.2x 8.7x 8.9x 8.7x - 0.5x 0.5x 7.5x 6.5x 5.6x 4.9x 1.2x 1.0x 1.4% 0.0% -9.9% -13.9% -14.3% -10.0% 13.8% -24.8% 1.37


Singapore /Taiwan Industrials $USD PE/G YIELD


COSCO Corporation Ltd N SGD 0.7 0.8 1,245 27.3x 20.9x 19.0x 17.0x 0.9x 0.9x 0.9x 17.8x 16.4x 10.3x 9.8x 1.2x 1.2x 2.8% -2.1% -6.6% -10.7% -5.3% -6.0% 6.0% -26.4% 1.56

Hyflux Ltd N SGD 1.2 1.3 778 22.1x 16.7x 20.8x 17.4x 1.0x 3.1x 2.2x - 19.7x - 14.8x 1.3x 1.1x 2.8% -0.4% -1.3% -1.3% -11.9% -1.7% 0.9% -21.2% 1.22

Keppel Corporation O SGD 10.5 12.7 14,909 11.8x 10.9x 11.7x 12.0x 1.0x 1.5x 1.4x 10.8x 9.9x 9.5x 8.7x 1.8x 1.7x 3.8% -3.8% -5.9% -3.5% 2.6% -6.0% 5.0% -8.4% 1.21

Sembcorp Industries Ltd N SGD 5.2 5.3 7,337 11.0x 10.1x 11.7x 11.3x 0.9x 0.8x 0.7x 7.7x 6.7x 6.1x 5.4x 1.7x 1.6x 2.8% -2.1% -4.2% -1.5% 3.1% -4.6% 9.2% -5.6% 1.15

Sembcorp Marine Ltd N SGD 4 4 6,712 13.1x 11.9x 14.3x 14.1x 0.7x 1.2x 1.1x 10.1x 8.7x 8.6x 7.6x 2.9x 2.6x 2.6% -2.4% -7.2% -9.1% -9.9% -7.9% 0.0% -13.9% 1.70


EV/EBIT

EV/EBIT

EV/EBIT

EV/SALES

EV/SALES

EV/SALES

EV/EBIT

P/E

P/E

P/E

P/E

EV/EBITDA

EV/EBITDA

EV/EBITDA P/B

P/B

P/B

P/B

Performance

AVG P/E

AVG P/E

AVG P/E

Performance

EV/EBITDAEV/SALES

Local Price

Local Price

Local Price

Local Price AVG P/E Performance

Performance


27 January 2014


CS Global Capital Goods Team Global Sector Head: Julian Mitchell

Americas Analyst Email Phone # of Stocks

US Aerospace Robert Spingarn [email protected] 212 538 1895 7

Canada Industrials Hamzah Mazari [email protected] 212 538 7983 6

Lat Am Industrials Bruno Savaris [email protected] 55 11 3701 6332 10

US Defense Robert Spingarn [email protected] 212 538 1895 9

US Small-cap Aerospace and Defense Julie Yates [email protected] 212.325.3706 5

US EE/MI, Additive Manufacturing Julian Mitchell [email protected] 212 325 6668 24

US Engineering & Construction Jamie Cook [email protected] 212 538 6098 10

US Environmental Services Hamzah Mazari [email protected] 212 538 7983 6

US Fluid Management Hamzah Mazari [email protected] 212 538 7983 4

US Industrial Distribution Hamzah Mazari [email protected] 212 538 7983 5

US Machinery Jamie Cook [email protected] 212 538 6098 12

US Transports Allison Landry [email protected] 212 325 3716 20

EMEA Analyst Email Phone # of Stocks

European Electrical Simon Toennessen [email protected] 44 20 7888 0289 4

European Cables Max Yates [email protected] 44 20 7883 8501 2

European Mechanical Andre Kukhnin [email protected] 44 20 7888 0350 12

European Wind Energy Mark Freshney [email protected] 44 20 7888 0887 2

Swiss Mid-cap Engineering Patrick Laager [email protected] 41 44 334 60 76 12

UK Capital Goods Andre Kukhnin [email protected] 44 20 7888 0350 2

UK Capital Goods Jonathan Hurn [email protected] 44 20 7883 4532 13

Asia Analyst Email Phone # of Stocks

China Industrial Machinery Gerald Wong [email protected] 65 6212 3037 1

China Power Equipment Edwin Pang [email protected] 852 2101 6406 3

China Power Equipment Vincent Chan [email protected] 852 2101 6568 4

India Automotive Jatin Chawla [email protected] 91 22 6777 3719 4

India Capital Goods Amish Shah [email protected] 9122 6777 3743 5

Japan Automotive Issei Takahashi [email protected] 81 3 4550 7884 9

Japan Auto Related Consumables Shinji Kuroda [email protected] 81 3 4550 9994 4

Japan Factory Automation Shinji Kuroda [email protected] 81 3 4550 9994 6

Japan Conglomerates Shinji Kuroda [email protected] 81 3 4550 9994 1

Japan Conglomerates Hideyuki Maekawa [email protected] 813 4550 9723 2

Japan Infrastructure Machinery Shinji Kuroda [email protected] 81 3 4550 9994 6

Japan Machine Tools Shinji Kuroda [email protected] 81 3 4550 9994 3

Korea Engineering & Construction Minseok Sinn [email protected] 822 3707 8898 6

Korea Industrials / Shipbuilding / Autos Henry Kwon [email protected] 822 3707 3732 8

Singapore Capital Goods Gerald Wong [email protected] 65 6212 3037 2

Taiwan Industrials Pauline Chen [email protected] 886 2 2715 6323 1

Taiwan Automation Jerry Su [email protected] 886 2 2715 6361 3

mailto:[email protected]




























27 January 2014


Global Calendars Americas

Exhibit 24: Company Events Exhibit 25: Macro Events Date Company Event

1/27 Roper Industries Inc Q4 2013

1/27 Caterpillar Inc Q4 2013

1/28 Hubbell Inc Q4 2013

1/28 Danaher Corp Q4 2013

1/28 Ford Motor Co Q4 2013

1/28 Oshkosh Corp Q1 2014

1/28 Illinois Tool Works Inc Q4 2013

1/28 Rexnord Corp Q3 2014

1/29 Knight Transportation Inc Q4 2013

1/29 Boeing Co/The Q4 2013

1/29 Rockwell Automation Inc Q1 2014

1/29 Canadian Pacific Railway Ltd Q4 2013

1/30 CACI International Inc Q2 2014

1/30 Alliant Techsystems Inc Q3 2014

1/30 Northrop Grumman Corp Q4 2013

1/30 L-3 Communications Holdings IncQ4 2013

1/30 B/E Aerospace Inc Q4 2013

1/30 Tenneco Inc Q4 2013

1/30 ADT Corp/The Q1 2014

1/30 WESCO International Inc Q4 2013

1/30 Dover Corp Q4 2013

1/30 United Parcel Service Inc Q4 2013

1/30 Harman International Industries IncQ2 2014

1/30 Raytheon Co Q4 2013

1/30 Manitowoc Co Inc/The Q4 2013

1/30 Landstar System Inc Q4 2013

1/30 Canadian National Railway Co Q4 2013

1/30 Kennametal Inc Q2 2014

1/31 Lear Corp Q4 2013

1/31 Tyco International Ltd Q1 2014

1/31 PACCAR Inc Q4 2013

2/4 Eaton Corp PLC Q4 2013

2/4 Emerson Electric Co Q1 2014

2/4 Anixter International Inc Q4 2013

2/4 AGCO Corp Q4 2013

2/5 CH Robinson Worldwide Inc Q4 2013

2/4 TransDigm Group Inc Q1 2014

2/5 Con-way Inc Q4 2013

2/6 Cummins Inc Q4 2013

2/6 Old Dominion Freight Line Inc Q4 2013

2/6 General Motors Co Q4 2013

2/6 Spirit Aerosystems Holdings Inc Q4 2013

2/6 Republic Services Inc Q4 2013

2/6 Covanta Holding Corp Q4 2013

2/7 American Axle & Manufacturing Holdings IncQ4 2013

2/7 Echo Global Logistics Inc Q4 2013

2/10 Regal-Beloit Corp Q4 2013

2/10 Waste Connections Inc Q4 2013

2/11 Ingersoll-Rand PLC Q4 2013

2/11 Cubic Corp Q1 2014

2/11 Toromont Industries Ltd Q4 2013

2/12 Deere & Co Q1 2014

2/12 SPX Corp Q4 2013

2/12 Valmont Industries Inc Q4 2013

2/12 Rush Enterprises Inc Q4 2013

2/12 Genesee & Wyoming Inc Q4 2013

2/13 Progressive Waste Solutions LtdQ4 2013

2/13 Bombardier Inc Q4 2013

2/13 BorgWarner Inc Q4 2013

2/13 CAE Inc Q3 2014

2/13 WABCO Holdings Inc Q4 2013

2/13 Finning International Inc Q4 2013

2/14 TRW Automotive Holdings Corp Q4 2013

2/14 ITT Corp Q4 2013

2/14 Constellium NV Q4 2013

2/14 Harsco Corp Q4 2013

2/18 Waste Management Inc Q4 2013

2/18 Fluor Corp Q4 2013

2/19 ManTech International Corp/VA Q4 2013

Date Datapoint Period Region

1/27 New Home Sales Dec-13 United States

1/27 Dallas Fed Mfg. Activity Jan-14 United States

1/28 Durable Goods Orders Dec-13 United States

1/28 Richmond Fed Jan-14 United States

1/31 Chicago PMI Jan-14 United States

2/3 ISM Mfg Jan-14 United States

2/3 ISM Prices Paid Jan-14 United States

2/4 Factory Orders Dec-13 United States

2/14 Industrial Production Jan-14 United States

2/14 Capacity Utilization Jan-14 United States

2/18 Empire Mfg Feb-14 United States

2/18 NAHB Index Feb-14 United States

2/19 Housing Starts Jan-14 United States

2/19 Building Permits Jan-14 United States

2/20 Philadelphia Fed Feb-14 United States

2/20 Leading Indicators Jan-14 United States

2/21 Existing Home Sales Jan-14 United States

2/24 Chicago Fed Nat Activity Jan-14 United States

2/25 House Price Index Dec-13 United States

Source: Bloomberg Source: Bloomberg

27 January 2014


EMEA

Exhibit 26: Company Events Exhibit 27: Macro Events

Date Company Event

1/28 Koninklijke Philips NV Y 2013

1/28 SKF AB Y 2013

1/28 Kone OYJ Y 2013

1/28 Siemens AG Q1 2014

1/29 Scania AB Y 2013

1/29 Fiat SpA Y 2013

1/30 Atlas Copco AB Y 2013

1/31 Electrolux AB Y 2013

1/31 Autoliv Inc Q4 2013

2/3 Sandvik AB Y 2013

2/4 Vestas Wind Systems A/S Y 2013

2/5 Alfa Laval AB Y 2013

2/6 Volvo AB Y 2013

2/6 GEA Group AG Y 2013

2/6 Metso OYJ Y 2013

2/6 Daimler AG Y 2013

2/7 Assa Abloy AB Y 2013

2/11 Cie Generale des Etablissements MichelinY 2013

2/13 Renault SA Y 2013

2/13 Legrand SA Y 2013

2/13 Morgan Advanced Materials PLC Y 2013

2/13 Rolls-Royce Holdings PLC Y 2013

2/13 ABB Ltd Y 2013

2/14 Schindler Holding AG Y 2013

2/18 MTU Aero Engines AG Y 2013

2/19 Thales SA Y 2013

2/19 Peugeot SA Y 2013

2/20 Safran SA Y 2013

2/20 Sulzer AG Y 2013

2/20 BAE Systems PLC Y 2013

2/20 Schneider Electric SA Y 2013

2/25 Georg Fischer AG Y 2013

2/25 GKN PLC Y 2013

2/26 Weir Group PLC/The Y 2013

2/26 Airbus Group NV Y 2013

EMEA Datapoint Period Region

1/30 Euro-Zone Business Climate Jan-14 Euro-Zone

1/30 Euro-Zone Economic Confidence Jan-14 Euro-Zone

1/30 Euro-Zone Industrial Confidence Jan-14 Euro-Zone

2/3 Euro-Zone PMI Mfg (final) Feb-14 Euro-Zone

2/3 Germany PMI Mfg (final) Feb-14 Germany

2/3 France PMI Mfg (final) Feb-14 France

2/3 UK PMI Mfg Jan-14 UK

2/4 UK PMI Construction Jan-14 UK

2/6 Germany Factory Orders Dec-13 Germany

2/6 UK New Car Registration Jan-14 UK

2/7 Germany IP Dec-13 Germany

2/7 UK IP Dec-13 UK

2/10 France IP Dec-13 France

2/12 Euro-Zone Industrial Production Dec-13 Euro-Zone

2/20 Euro-Zone PMI Mfg (flash) Feb-14 Euro-Zone

2/20 Germany PMI Mfg (flash) Feb-14 Germany

2/20 France PMI Mfg (flash) Feb-14 France

2/24 Germany IFO Feb-14 Germany


27 January 2014


Asia

Exhibit 28: Company Events Exhibit 29: Macro Events Date Company Event

1/27 Hyundai Mobis Y 2013

1/27 Samsung Heavy Industries Co Ltd Y 2013

1/28 Hitachi Construction Machinery Co LtdQ3 2014

1/28 Maruti Suzuki India Ltd Q3 2014

1/28 Daewoo Engineering & Construction Co LtdY 2013

1/28 Samsung Engineering Co Ltd Y 2013

1/29 Komatsu Ltd Q3 2014

1/30 Daihatsu Motor Co Ltd Q3 2014

1/29 Crompton Greaves Ltd Q3 2014

1/29 Havells India Ltd Q3 2014

1/30 Toshiba Corp Q3 2014

1/30 Siemens Ltd Q1 2014

1/30 Hero MotoCorp Ltd Q3 2014

1/31 Makita Corp Q3 2014

1/31 OKUMA Corp Q3 2014

1/31 FANUC Corp Q3 2014

1/31 Honda Motor Co Ltd Q3 2014

1/31 NSK Ltd Q3 2014

1/31 NTN Corp Q3 2014

1/31 Nabtesco Corp Q3 2014

1/31 Keyence Corp Q3 2014

1/31 Alstom T&D India Ltd Q3 2014

2/3 JTEKT Corp Q3 2014

2/3 Mitsubishi Electric Corp Q3 2014

2/4 Fuji Heavy Industries Ltd Q3 2014

2/4 IHI Corp Q3 2014

2/4 Toyota Motor Corp Q3 2014

2/4 Hitachi Ltd Q3 2014

2/4 BEML Ltd Q3 2014

2/4 Bharat Forge Ltd Q3 2014

2/4 Cummins India Ltd Q3 2014

2/5 Mazda Motor Corp Q3 2014

2/5 Bharat Heavy Electricals Ltd Q3 2014

2/6 Suzuki Motor Corp Q3 2014

2/7 Amada Co Ltd Q3 2014

2/7 Kubota Corp Q3 2014

2/7 Ebara Corp Q3 2014

2/7 Tsubakimoto Chain Co Q3 2014

2/7 THK Co Ltd Q3 2014

2/7 Yokogawa Electric Corp Q3 2014

2/10 Daikin Industries Ltd Q3 2014

2/10 Nissan Motor Co Ltd Q3 2014

2/10 Tata Motors Ltd Q3 2014

2/12 SMC Corp/Japan Q3 2014

2/12 DMG Mori Seiki Co Ltd Q3 2014

2/14 Mahindra & Mahindra Ltd Q3 2014

2/24 Sembcorp Marine Ltd Y 2013

2/26 Sembcorp Industries Ltd Y 2013

Date Datapoint Period Region

1/30 China HSBC Mfg PMI Jan-14 China

1/31 Japan IP (Flash) Dec-13 Japan

2/1 China PMI Mfg Jan-14 China

2/12 India IP Dec-13 India

2/12 Japan Machine Tool Orders (Flash) Jan-14 Japan

2/12 Japan Machine Orders Dec-13 Japan

2/17 Japan IP (Final) Dec-13 Japan

2/18 Japan Machine Tool Orders (Final) Jan-14 Japan

2/20 China HSBC Mfg PMI (flash) Jan-14 China

2/26 Singapore IP Jan-14 Singapore

3/13 China IP Jan-14 China

3/13 China FAI Jan-14 China


The author of this report wishes to acknowledge the contribution made by Sameer Thakur and Mehak Khanduja, employees of Crisil GRA, a division of CRISIL Limited, a third-party provider of offshore research services to Credit Suisse.

27 January 2014


Companies Mentioned (Price as of 24-Jan-2014)

3D Systems (DDD.N, $79.87) ADT Corporation (ADT.N, $38.78) Allegion (ALLE.N, $46.84) Alliant Techsystems Inc. (ATK.N, $130.42) Alstom (ALSO.PA, €21.6) BE Aerospace Inc. (BEAV.OQ, $82.93) Baker Hughes Inc. (BHI.N, $56.43) Boeing (BA.N, $136.65) Booz Allen Hamilton Holding (BAH.N, $18.06) CACI International, Inc. (CACI.N, $78.53) Carpenter Technology Corp (CRS.N, $58.8) Caterpillar Inc. (CAT.N, $86.17) Constellium (CSTM.N, $24.23) Cubic Corporation (CUB.N, $51.04) DMG Mori Seiki (6141.T, ¥1,849) Daikin Industries (6367.T, ¥6,161) Danaher Corporation (DHR.N, $74.13) Dover Corporation (DOV.N, $90.33) Eaton Corporation (ETN.N, $73.13) Embraer (ERJ.N, $31.99) Emerson (EMR.N, $65.26) ExOne (XONE.OQ, $50.59) Fanuc (6954.T, ¥17,220) Fluor (FLR.N, $77.48) General Dynamics Corporation (GD.N, $98.31) General Electric (GE.N, $24.95) Google, Inc. (GOOG.OQ, $1123.21) Halliburton (HAL.N, $48.61) Haynes International, Inc. (HAYN.OQ, $52.05) Hitachi Construction Machinery (6305.T, ¥2,133) Honeywell International Inc. (HON.N, $88.47) Ingersoll-Rand Plc (IR.N, $58.11) JB Hunt Transport Services (JBHT.OQ, $76.3) JTEKT (6473.T, ¥1,607) Jacobs Engineering (JEC.N, $63.0) Johnson Controls (JCI.N, $48.21) KBR Inc. (KBR.N, $31.67) Kawasaki Heavy Industries (7012.T, ¥468) Kennametal Inc. (KMT.N, $46.94) Keyence (6861.T, ¥43,980) Knight Transportation (KNX.N, $21.32) Komatsu (6301.T, ¥2,110) Komax (KOMN.S, SFr140.7) L-3 Communications (LLL.N, $104.17) Legrand SA (LEGD.PA, €39.6) Lockheed Martin (LMT.N, $147.76) Luxfer (LXFR.N, $21.01) Makita (6586.T, ¥5,600) Mitsubishi Heavy Industries (7011.T, ¥690) NSK (6471.T, ¥1,251) Noble Corporation (NE.N, $32.94) Norfolk Southern (NSC.N, $89.61) Northrop Grumman Corporation (NOC.N, $113.45) Okuma Corporation (6103.T, ¥1,068) Parker Hannifin Corporation (PH.N, $114.63) Raytheon Company (RTN.N, $88.13) Regal Beloit (RBC.N, $75.13) Rexnord Corporation (RXN.N, $27.72) Rockwell Automation (ROK.N, $112.99) Rockwell Collins, Inc. (COL.N, $77.07) SMC (6273.T, ¥27,220) SPX (SPW.N, $98.88) Schlumberger (SLB.N, $88.15) Stratasys (SSYS.OQ, $121.41) Sumitomo Heavy Industries, Ltd. (6302.T, ¥510) Textura Corp (TXTR.N, $32.96) The Manitowoc Company, Inc (MTW.N, $23.62) Triumph Group Inc (TGI.N, $76.98) Tsubakimoto Chain (6371.T, ¥815) Tyco International, Ltd (TYC.N, $39.4) Union Pacific (UNP.N, $171.64) United Technologies Corp (UTX.N, $111.8) Valmont Industries (VMI.N, $149.14) Vestas (VWS.CO, Dkr178.5) WW Grainger Inc. (GWW.N, $241.85) Weatherford International, Inc. (WFT.N, $14.06) Wesco Aircraft (WAIR.N, $21.99) Xylem (XYL.N, $33.68) Yaskawa Electric Corporation (6506.T, ¥1,509)

27 January 2014


Disclosure Appendix

Important Global Disclosures

I, Julian Mitchell, 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 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; Australia, N ew 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. Pr ior 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.

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.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (54% banking clients)

Neutral/Hold* 41% (48% banking clients)

Underperform/Sell* 14% (43% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

27 January 2014


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

The subject company (HON.N, UTX.N, EMR.N, IR.N, RXN.N, DHR.N, TXTR.N, CSTM.N, ADT.N, VMI.N, RBC.N, DOV.N, ALLE.N, CUB.N, GE.N, SPW.N, CRS.N, XYL.N, NOC.N, GWW.N, GOOG.OQ, ERJ.N, KBR.N, CAT.N, ALSO.PA, JEC.N, NSC.N, LMT.N, 6301.T, RTN.N, WAIR.N, CACI.N, UNP.N, BHI.N, BAH.N, TGI.N, ATK.N, MTW.N, 6861.T, BEAV.OQ, LLL.N, 6273.T, COL.N, FLR.N, GD.N, HAL.N, NE.N, BA.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (IR.N, RXN.N, TXTR.N, CSTM.N, ADT.N, RBC.N, ALLE.N, CUB.N, GE.N, SPW.N, CRS.N, NOC.N, GOOG.OQ, ERJ.N, KBR.N, RTN.N, WAIR.N, UNP.N, BAH.N, MTW.N, BEAV.OQ, GD.N, HAL.N, BA.N) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (HON.N, EMR.N, IR.N, CSTM.N, VMI.N, GE.N, CRS.N, NOC.N, ERJ.N, ALSO.PA, NSC.N, LMT.N, 6301.T, RTN.N, BHI.N, MTW.N, 6861.T, BEAV.OQ, 6273.T, HAL.N, NE.N, BA.N) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (IR.N, TXTR.N, CSTM.N, CUB.N, GE.N, NOC.N, WAIR.N, UNP.N, HAL.N, BA.N) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (IR.N, RXN.N, TXTR.N, CSTM.N, ADT.N, RBC.N, ALLE.N, CUB.N, GE.N, SPW.N, CRS.N, NOC.N, GOOG.OQ, ERJ.N, KBR.N, RTN.N, WAIR.N, UNP.N, BAH.N, MTW.N, BEAV.OQ, GD.N, HAL.N, BA.N) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (HON.N, UTX.N, EMR.N, IR.N, RXN.N, DHR.N, TXTR.N, CSTM.N, ADT.N, KMT.N, XONE.OQ, VMI.N, RBC.N, DOV.N, ALLE.N, CUB.N, GE.N, SPW.N, CRS.N, XYL.N, NOC.N, GWW.N, GOOG.OQ, ERJ.N, KBR.N, CAT.N, HAYN.OQ, JEC.N, LMT.N, SLB.N, KNX.N, 6305.T, 6301.T, RTN.N, JBHT.OQ, WAIR.N, CACI.N, UNP.N, BHI.N, 6586.T, 7012.T, BAH.N, TGI.N, 6367.T, ATK.N, MTW.N, PH.N, BEAV.OQ, LLL.N, 6273.T, 7011.T, COL.N, FLR.N, GD.N, HAL.N, BA.N) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (HON.N, EMR.N, IR.N, CSTM.N, VMI.N, GE.N, CRS.N, NOC.N, ERJ.N, ALSO.PA, NSC.N, LMT.N, 6301.T, RTN.N, BHI.N, MTW.N, 6861.T, BEAV.OQ, 6273.T, HAL.N, NE.N, BA.N) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (TYC.N, ETN.N, HON.N, UTX.N, DDD.N, EMR.N, IR.N, RXN.N, LXFR.N, DHR.N, TXTR.N, CSTM.N, ADT.N, KMT.N, XONE.OQ, VMI.N, SSYS.OQ, RBC.N, DOV.N, ROK.N, ALLE.N, CUB.N, GE.N, SPW.N, CRS.N, XYL.N, NOC.N, GWW.N, GOOG.OQ, ERJ.N, KBR.N, WFT.N, CAT.N, HAYN.OQ, JEC.N, NSC.N, LMT.N, SLB.N, KNX.N, RTN.N, JBHT.OQ, WAIR.N, CACI.N, UNP.N, BHI.N, BAH.N, TGI.N, ATK.N, MTW.N, PH.N, BEAV.OQ, LLL.N, COL.N, FLR.N, GD.N, HAL.N, NE.N, BA.N).

Credit Suisse has a material conflict of interest with the subject company (UTX.N) . Credit Suisse Securities (USA) LLC is acting as an advisor to Goodrich (GR) in a potential transaction with United Technologies Corp.

Credit Suisse has a material conflict of interest with the subject company (RXN.N) . Credit Suisse served as co-managing bookrunner of Rexnord's Initial Public Offering

Credit Suisse has a material conflict of interest with the subject company (SPW.N) . Credit Suisse Securities USA LLC acted as financial advisor to SPX Corp in the sale of its Service Solutions business to Robert Bosch GmbBH.

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 (TYC.N, ETN.N, HON.N, UTX.N, DDD.N, EMR.N, IR.N, RXN.N, LXFR.N, DHR.N, TXTR.N, CSTM.N, ADT.N, KMT.N, XONE.OQ, VMI.N, SSYS.OQ, RBC.N, DOV.N, ROK.N, ALLE.N, CUB.N, GE.N, SPW.N, CRS.N, XYL.N, NOC.N, GWW.N, GOOG.OQ, KOMN.S, ERJ.N, KBR.N, WFT.N, CAT.N, ALSO.PA, HAYN.OQ, JEC.N, NSC.N, LMT.N, SLB.N, KNX.N, 6305.T, 6141.T, 6302.T, 6301.T, RTN.N, JBHT.OQ, WAIR.N, CACI.N, 6371.T, 6473.T, 6471.T, UNP.N, BHI.N, 6586.T, LEGD.PA, 7012.T, VWS.CO, BAH.N, TGI.N, 6367.T, ATK.N, MTW.N, 6954.T, PH.N, 6861.T, BEAV.OQ, 6103.T, LLL.N, 6273.T, 7011.T, 6506.T, COL.N, FLR.N, GD.N, HAL.N, NE.N, BA.N) 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.

The following disclosed European company/ies have estimates that comply with IFRS: (ALSO.PA, 6141.T, LEGD.PA).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (TYC.N, ETN.N, IR.N, TXTR.N, CSTM.N, ADT.N, RBC.N, CUB.N, GE.N, NOC.N, GOOG.OQ, RTN.N, WAIR.N, UNP.N, TGI.N, MTW.N, FLR.N, GD.N, HAL.N, BA.N) within the past 3 years.

27 January 2014


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.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

27 January 2014


References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Copyright © 2014 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

iSpy_1.27.2014.doc

https://www.credit-suisse.com/who_we_are/en/

1/30 kennametal inc q2 2014 - credit suisse

Documents