23 October 2014 Asia Pacific/Japan Equity Research
Auto, Auto Parts, Materials, Electronic Components Sector Connections Series
Automotive technology insights: Refocusing on emission technologies ■ Refocus on exhaust gas emissions technologies: Environmental protection demands on the automotive industry are not limited to reduction of CO2 emissions and fuel economy; automakers must reduce the emission of other pollutants as well. In this report, we look at technology trends, competitive conditions, and market growth potential for five areas in particular (DPF/GPF, VVT, EGR, spark plugs, and exhaust gas sensors) in light of tightening regulatory frameworks and the accompanying developments in automotive technology. The Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver incisive cross-sector and cross-border thematic insights for our clients. Research Analysts Masahiro Akita 81 3 4550 7361
[email protected] Jun Yamaguchi 81 3 4550 9789
[email protected] Akinori Kanemoto 81 3 4550 7363
[email protected] Koji Takahashi 81 3 4550 7884
[email protected] JaeMin Joo +81 3 4550 9815
[email protected]
■ Environmental regulations driving automotive technologies: Environmental regulations have a major influence on automotive technologies. These regulations can broadly be separated into two groups: CO2/fuel efficiency and exhaust gas emissions. Exhaust gas emission regulations target the reduction of nitrogen oxide (NOx), hydrocarbons (HCs), carbon monoxide (CO) and particulate matter (PM) – byproducts of internal combustion engines. Advanced economies (e.g. Japan, the US, and Europe) are tightening these regulations, and emerging economies are following suit. We believe that for automakers, compliance with these regulations is essential to future sales growth, and that they will devote considerable resources to that task. ■ GDI engines create need to deal with wider range of emissions: Adoption of gasoline direct injection (GDI) engines is growing, as automakers race to reduce CO2 emissions and fuel consumption. In 2010, GDI engines accounted for 8% of all gasoline-based engines, but we expect this to expand to 29% in 2015 and 45% in 2020. GDI engines reduce CO2 emissions and fuel consumption, but as a tradeoff, increase emission of pollutants other than CO2. As a result, the industry must draw up secondary measures to reduce these other pollutants and implement more optimal overall exhaust gas emission technologies. ■ Automotive emission technologies: Excluding such drastic technological changes as powertrain electrification, emission technologies are divided into: (1) purification technologies used in the after-treatment exhaust gases and (2) technologies that suppress exhaust gas emission by adjusting temperature and intake/exhaust volumes. For the former, we focus on diesel particulate filters (DPF) and gasoline particulate filters (GPF) and for the latter, exhaust gas recirculation (EGR) and variable valve timing (VVT) – we expect all to enjoy considerable market growth. Furthermore, we anticipate heightened performance requirements for spark plugs, while the various emissions sensors are indispensable for controlling the various devices used in exhaust gas emission technologies. ■ Related stocks: Auto parts: Denso (6902, O/P, TP ¥5,750), Aisin Seiki (7259, O/P, TP ¥4,650) Materials: NGK Insulators (5333, O/P, TP ¥2,820) Electronic components: NGK Spark Plug (5334, NEUTRAL, TP ¥3,350)
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.
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23 October 2014
Table of contents Emission technologies–related stocks Related stocks and implications Refocusing on automotive emission technologies Lower fuel consumption requiring response to wider range of emissions DPF/GPF technology Variable valve timing (VVT) Exhaust Gas Recirculation (EGR) Spark plugs Exhaust gas sensors Reference: Terms used in this report
Auto, Auto Parts, Materials, Electronic Components Sector
3 3 5 5 14 21 25 28 35 40
2
23 October 2014
Emission technologies–related stocks Related stocks and implications Auto parts sector stocks We reiterate the strength of Denso (6902, OUTPERFORM, ¥5,750) and Aisin Seiki (7259, OUTPERFORM, ¥4,650) in exhaust gas technologies as well as other areas. Both companies supply products based on technologies used to control aspects such as temperature and air intake/exhaust in engines. Denso commands the top share of the global VVT market, and also maintains a major presence as a global supplier in the fields of EGR, spark plugs, and exhaust gas sensors. Aisin Seiki ranks third in the VVT market and is a leading supplier to non-Toyota automakers. We expect Denso’s sales with the emission related component business mentioned in this report will increase to ¥280bn in 2020 from ¥130bn in 2010, while Aisin Seiki’s related component sales to grow from ¥15bn in 2010 to ¥50bn in 2020. Materials sector stocks NGK Insulators (5333, OUTPERFORM, TP ¥2,820) The company is clearly positioned to benefit from continued tightening of emissions regulations due to its high market share and competitiveness in honeycomb emissions filters and DPFs. We expect growth in GPFs to be especially notable. The company can apply its existing know-how in DPFs horizontally to produce cordierite (Cd) GPFs. It could also readily achieve cost advantages from economies of scale in materials procurement and upstream manufacturing processes. Part of its investment, announced in April 2014, to expand its plant in Poland was in GPF mass production capacity that is now being built and is slated to ramp up in 2016. We think this could well become a medium-term earnings driver, with profit contributions beginning in FY17, and sales in FY18 exceeding existing sales of SiCDPFs. The company also leads in NOx sensors. Since these are used in all the different types of NOx control technologies, earnings contributions from such sensors are also quite likely to expand over the medium term. Electronic components sector stocks NGK Spark Plugs (5334, NEUTRAL, TP ¥3,350) NGK Spark Plug is the global leader in spark plugs and exhaust gas sensors; we estimate its shares of these markets at 35–40%. In the plugs business, on top of growth in direct fuel injection engines, we look for the increased adoption of spark plugs made from precious metals for port fuel injection systems as well, as they can contribute to fuel efficiency improvement. In exhaust gas sensors, we expect rising penetration of highvalue-added UEGO (Universal Exhaust Gas Oxygen) sensors and growth in NOx sensors for diesel vehicles, along with new applications such as EGR intake oxygen sensors and temperature sensors for GPF/SCR/NOx storage catalysts from around 2017–18. We estimate that automotive business sales will increase from ¥271.8bn in FY3/14 to about ¥330bn in FY3/17 and about ¥360bn in FY3/21. If new sensor applications start to make real contributions, we think segment sales could reach ¥400bn in FY3/21. We project 4– 8% annual sales growth through 2020, which looks low compared with electronic parts and materials, but profitability is already significantly improving, with the operating margin likely to rise from 22% in FY3/14 to 25% in FY3/15, and we think automotive OP could top ¥100bn in FY3/20.
Auto, Auto Parts, Materials, Electronic Components Sector
3
23 October 2014
Ibiden (4062, UNDERPERFORM, TP ¥1,500) Business related to exhaust gas includes DPFs and catalytic substrates for passenger cars and non-expansion mats for DPFs. Tighter regulations leading to greater use of NOxrelated catalysts and GPFs will probably support increased shipments of non-expansion mats. Also, the company is aiming to increase its market share in DPFs for large vehicles such as buses and trucks. Figure 1: Main suppliers discussed in this report on automotive emission technologies Field of Technology Emission AfterTreatment
Methods
Filters
Components
Supplier
Code
Rating
CP (JPY, 10/22)
TP (JPY)
Market Cap (JPYmn)
PER
Coverage Analyst
NGK Insulators
5333 OUTPERFORM
2,401
2,820
798,689
21.7 Yamaguchi, Jun
IBIDEN
4062 UNDERPERFORM
1,684
1,500
246,243
15.2 Kanemoto, Akinori
Denso
6902 OUTPERFORM
4,835
5,750
3,635,475
13.7 Akita, Masahiro
Aisin Seiki
7259 OUTPERFORM
3,670
4,650
1,152,701
11.1 Akita, Masahiro
Denso
6902 OUTPERFORM
4,835
5,750
3,635,475
13.7 Akita, Masahiro
NGK Spark Plugs
5334 NEUTRAL
2,939
3,350
592,695
14.9 Kanemoto, Akinori
NGK Insulators
5333 OUTPERFORM
2,401
2,820
790,226
21.7 Yamaguchi, Jun
Denso
6902 OUTPERFORM
4,835
5,750
3,635,475
NGK Spark Plugs
5334 NEUTRAL
2,939
3,350
592,695
Denso
6902 OUTPERFORM
4,835
5,750
3,635,475
GPF/DPF
VVT
Engine Improvement
Valvetrain/ Airflow Control
EGR
Gas Sensors
Combustion Efficiency
Spark Plugs Glow Plugs
13.7 Akita, Masahiro 14.9 Kanemoto, Akinori 13.7 Akita, Masahiro
Source: Credit Suisse
Credit Suisse has also issued a Connection Series report on 30 September on energy efficiency in transportation machinery. Please access the report via the link below. Themes in Energy Efficiency – Transport: no change is no option
Auto, Auto Parts, Materials, Electronic Components Sector
4
23 October 2014
Refocusing on automotive emission technologies Lower fuel consumption requiring response to wider range of emissions CO2 no longer the only pollutant requiring attention We believe automakers will undoubtedly need to continue their efforts to reduce the impact of their products on the environment in the years ahead. In recent years, the automotive industry has poured a considerable amount of resources into developing technologies to reduce fuel consumption as it has sought to comply with increasingly strict CO2/fuel consumption regulations. However, environmental protection demands on the industry are not simply for reducing CO2 emissions and lowering fuel consumption; automakers are being required to reduce the emission of all pollutants. Reducing the emission of the various types of pollutants requires different measures, and the industry responses are complicated by the trade-offs between measures to reduce these emissions. The use of GDI engines will likely increase, as this is one of the core technologies for reducing fuel consumption. We estimate GDI engines will account for 45% of all gasolinebased engines by 2020, up from just 8% in 2010. GDI engines contribute significantly to reduce CO2 emissions and fuel consumption but also raise the need to deal with the increasing emission of pollutants other than CO2. As a result, automakers must draw up secondary measures to reduce these other pollutants and implement more optimal overall exhaust gas emission technologies. In other words, while automakers efforts to lower fuel consumption has sharply reduced CO2 emissions, the trade-off has been an increase in emissions of other pollutants, such as NOx, HC, CO and PM, which is raising the need for emission technologies capable of reducing the emission of such pollutants. Environmental regulations driving automotive technologies Environmental regulations are having a major impact on automotive technologies. These regulations can broadly be separated into two groups: CO2/fuel efficiency regulations and exhaust gas emissions regulations. Exhaust gas emission regulations target the reduction of NOx, HC, CO and PM in the exhaust gas that automotive internal combustion engines produce. Advanced economies, such as Japan, the US, and European countries, are tightening exhaust gas emission regulations, and emerging economies are following suit. We believe that for automakers, compliance with these emission regulations is essential to future sales growth, and that they therefore will devote considerable resources to that task. Since 2000, regulations on exhaust gas and emissions, starting with new short-term regulations in Japan and the Euro 3 standards in Europe, have been tightened considerably in a relatively short period of time. Europe, which is now under the Euro 6 standards, and Japan have essentially halved the levels of emissions permissible in 2000. The US has also been tightening emission regulations, and earlier this year the Environmental Protection Agency (EPA) announced its Tier 3 program for emission standards, which is scheduled to lower allowable emission levels from 2017 through 2025. Emerging economies are generally following the Euro standards. China and Thailand have completed the introduction of standards similar to Euro 4. In China, the timing of the application of the standards to passenger cars and commercial vehicles is somewhat different, with commercial vehicles being subject to standards similar to Euro 4 from January 2015 and passenger cars scheduled to be subject to standards similar to Euro 5 by 2018. Meanwhile, certain major cities in China, such as Shanghai and Beijing, already require that passenger cars be in compliance with standards on par with Euro 5. Progress elsewhere has been a bit slower, with Indonesia still using standards similar to Euro 2 and India requiring standards close to Euro 3.
Auto, Auto Parts, Materials, Electronic Components Sector
5
23 October 2014
Figure 2: Emission standards roadmap in key countries Region
2004
2005
2006
Japan
New Short Term
U.S.
EPA(Federal) Tier2
U.S. CA
LEV1
LEV2
EU
EURO3
EURO4
China
EURO2 Equivalent
Thailand
EURO3 Equivalent
Indonesia
EURO2 Equivalent
India
EURO1
2007
2008
2009
New Long Term
2010
2011
2012
2013
2014
2015
2020 Levelup
Post New Long Term
Tier3/ Staggered Level-up LEV3 / Staggered Level-up
EURO5
EURO3 Equivalent
EURO6/Staggered Level-up
EURO4 Equivalent
Levelup
EURO5 Equivalent
Levelup
EURO4 Equivalent
Levelup
EURO2 Equivalent
Levelup
EURO3 Equivalent
Source: JAMA, Marklines, Credit Suisse
Figure 3: Main types of exhaust gas emissions Classification Major Content Regulated Emission Gas Contents
NOx -Nitrogen Oxides, mainly for NO2 HC - Hydrocarbons CO - Carbon Monoxide
Particulate Matters
PM - Mainly consists of solid carbons, soluble organic fractions, sulfate,oil additives,etc
Greenhouse Gas
CO2, etc - Some use fuel efficiency instead of CO2 emission value
Source: EPA, European Commission, MLIT, Credit Suisse
Figure 4: Average allowable emission levels for gasoline
Figure 5: Average allowable emission levels for diesel
engines in US, Japan, Europe
engines in US, Japan, Europe Unit: NOx Value, g/km
Unit: HC Value, g/km
0.0600
0.250
0.0500
0.200
Level Japan NST EURO:3 US CA LEV1
0.0400 0.150
0.100
Level Japan NST EURO:3 US CA LEV1
Level Japan PNLT EURO:6 US CA LEV3
0.0300 0.0200 0.0100
0.050
0.000 0.000
Unit: CO Value, g/km
0.500 Japan
1.000
1.500
2.000
US (EPA/CA)
2.500
3.000
3.500
Level EURO6 JPN:PNLT US LEV3
0.0000 0.000
Level EURO4 JPN:NLT
0.100 Japan
0.200
0.300 US (EPA/CA)
Unit: PM Value, g/km
0.400
0.500
0.600
EURO
EURO
Source: Marklines, EPA, European Commission, MLIT, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
Source: Marklines, EPA, European Commission, MLIT, Credit Suisse
6
23 October 2014
Figure 6: Scheduled reduction in US/California allowable emission levels (NMOG+NOx) Units: NMOG+NOx mg/km 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2017
2018
2019
2020
2021
2022
2023
2024
EPA Regulation: Passenger Car Fleet Average California Regulation: Weighted Sold Vehicle Average
Beyond 2025
Source: Marklines, Credit Suisse
Conflicting relationship between managing CO2/fuel consumption and exhaust gas emissions One of the problems when managing automotive exhaust gas emissions is the conflicting relationship with efforts to manage CO2/fuel consumption. The standard automotive internal combustion engine uses compressed air, and the oxygen concentration and temperature of this air determines the exhaust gas composition (NOx/HC/CO). With regular gasoline engines, combustion approaches the theoretical air fuel ratio (the air fuel ratio or AFR expresses the percentages of fuel and oxygen in the mix; the theoretical AFR of 14.7 is the stoichiometric amount for combustion of 1g gasoline with 14.7g air) and this keeps all emissions of NOx/HC/CO at relatively low levels. Exhaust gas is then passed through a three-way catalytic converter (TWC) to further eliminate exhaust gas components. TWCs can remove the three components NOx/HC/CO and effectively clean emissions, but there is an extreme reduction in their purification capabilities if combustion is not at the stoichiometry. TWCs are therefore not used with diesel engines, which are designed to work at relatively high oxygen concentrations, and automakers have to find other ways to manage emissions. When gasoline engines use lean-burn technologies (combustion in an air-rich environment) to manage CO2/fuel consumption, NOx is produced in large quantities because of non-stoichiometric combustion.. Combustion temperature correlates the same way; less NOx is produced at lower temperatures, but if the temperature drops too low, there are risks from unburnt fuel and the system not reaching the required temperature for catalyst activity. Excessively high combustion temperatures promote NOx generation and can shorten catalyst lifespans. Due to the need to balance this conflicting relationship, automakers have moved ahead with measures to manage CO2/fuel consumption in conventional internal combustion engines, but technologies to manage problematic exhaust gas emissions will become increasingly important in the future.
Auto, Auto Parts, Materials, Electronic Components Sector
7
23 October 2014
Figure 7: Relationship between factors involved in exhaust gas emissions in automotive internal combustion engines Air / Fuel Ratio
CO
HC
NOx
Fuel Economy
3-way Catalyst
Low
Low
High
Good
Inefficient
Low
Low
Mid
Normal
Operating Environment
High
High
Low
Worse
Inefficient
Temp.
More Air
Lean Burn
Stoichiometry
Rich Burn
Stoich
More Fuel
Source: ICCT, Credit Suisse
Figure 8: Correlation between combustion temperature and exhaust gas emissions
Air Fuel Ratio (Increase PM with higher fuel)
High Temp. (Increase NOx with higher temp)
Low Temp. (Incomplete combustion if too low, higher CO and HC)
Source: NEDO, Credit Suisse
Figure 9: Comparison of diesel and gasoline fuels FUEL Combustion
Diesel Pressurized self-combustion
Gas Spark Ignited
Characteristic High-torque, Lean-burn (Excess Oxygen) Heat Efficiency High
Low
CO2
Low
High
Nox
High
Low
PM
High
Low
Requires different aftertreatment method as TWC Emission Gas cannot be used due to high oxygen environment Treatment with Diesel
High RPM, centered around Stoichiometry
TWC treats emission efficiently as long as operated in stoichiometry. Some fuel economy improvement may worsen the emission content
Generally high in Particulate Matters than common Generally low in Particulate matter emission. PM Treatment gasoline engines. DPF commonly used for after- However certain changes such as direct injection treatment may worsen the PM emission
Source: MLIT, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
8
23 October 2014
Growing demand for exhaust gas technologies with greater use of GDI engines We expect GDI engines to become more widely used as automakers step up measures to reduce CO2 emissions/improve fuel efficiency. Direct-injection engines accounted for 8% of all gasoline engines in 2010, but we expect this to rise to 29% in 2015 and 45% in 2020. Greater use of GDI engines may trigger greater demand for exhaust gas technologies. GDI engines contribute significantly to reduced CO2 emissions/improved fuel efficiency, but they also result in increased production of other non-CO2 emissions. As a secondary measure, therefore, automakers need to reduce non-CO2 emissions and optimize the overall exhaust gas composition. GDI engines achieve better fuel efficiency because only air is injected into the fuel chamber, forming an air current that allows lean-burn combustion. While lean-burn technologies have an enormous impact on fuel consumption, they also promote the production of NOx, as touched on above. For this reason, some direct-injection engines sacrifice the improved fuel consumption with lean-burn technologies and mainly use the stoichiometric mode instead. With the tightening of fuel consumption regulations, automakers have started to look at lean-burn technologies again and are beginning to introduce lean-burn direct-injection engines that feature EGR and NOx catalysts and control the amount of NOx produced. Demand for EGR and other parts that curb exhaust gas emissions is likely to increase with the greater use of GDI engines. Apart from NOx, another major challenge with GDI engines is higher emissions of PM. According to investigations by the National Institute for Environmental Studies, cars powered by GDI engines generate approximately ten times the PM (1x1012 particles/km) compared with conventional gasoline port-injection engines when tested under the same conditions. GDI engines are part of the reason why recent regulations have become increasingly tough on PM levels. The Euro 6 regulations stipulate that GDI engines can only emit PM at less than 6x1012 particles/km, while the Euro 6c regulations to be introduced in September 2017 will tighten this for GDI and diesel engines at 6x1011 particles/km. Based on the results of the test described above, GDI engines might not comply with the stricter European regulations in 2017. North America plans to regulate the amount of particles emitted by direct-injection engines at 3mg/mile from 2017, but some tests have shown a higher level of 4–7mg/mile. We expect it will therefore be important for automakers to incorporate new parts like GPFs to reduce PM. As well as the amounts of PM emitted, there are also concerns over blockages within the combustion chamber, which could impact the performance required of injectors and spark plugs (discussed below). We expect greater use of GDI engines to spur growth in the market for parts used in such exhaust gas technologies. Figure 10: Regulatory fuel consumption (CO2) trends and official future targets in key countries Units: CO2 g/km 210 190 170 150 130 110 90 70 50
EU US CA Converted Value
US EPA Converted Value Japan Converted Value
Source: Marklines, EPA, MLIT, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
9
23 October 2014
Figure 11: Trends/outlook in global production volumes by engine type 12,000
Units: x10,000 Engine Productions
10,000 8,000 6,000 4,000 2,000 0
Diesel
Gas-Direct Injection
Gas-MFI
Hybrids/EV/FCV
Source: IHS, Credit Suisse estimates
Figure 12: Regulatory trends in key countries on PM in GDI engines 2013 EU
2014
2015
EURO5 Diesel Gas (DI)
2016
2017
2018
EURO6c
EURO6a/b
PM Mass
5.0mg/km
4.5mg/km
4.5mg/km
PM Count
-
6 x 10^11 /km
6 x 10^11 /km
PM Mass
5.0mg/km
4.5mg/km
4.5mg/km
PM Count
-
6 x 10^12 /km
6 x 10^11 /km
US
LEV3 Step1
LEV2 Diesel
PM Mass
Gas (DI)
PM Mass
Japan
10.0mg/mile
6.0mg/mile
PM Mass
5.0mg/km
Gas (DI)
PM Mass
5.0mg/km
2020
2021
Step Decrease Target:3.0mg/mile
2022 … 2025
EURO7(?)
Under Study
LEV3 -Step2
Post New Long Term Diesel
2019
LEV3 -Step3 All Vehicles 3.0mg/mile
1mg/mile
Next Post New Long Term Under Study
Source: Company data, Marklines, Credit Suisse
Figure 13: US tests on PM emissions by GDI engines (all Federal test cycles, Cold Start) Unit: mg/mile Black Carbon (PM) Mass Emission
Figure 14: Results of National Institute for Environmental Studies tests on PM from GDI engines 7E+12
8
6E+12
7 6
Unit: PM emission numbers(Particulate Numbers/km) EURO Gas PM Regulation Limit 2014-
5E+12
5
4E+12
4 US LEV3 2017 Target 3mg/mile
3 2
3E+12 2E+12
1 0 US06 Test Cycle (48mph)
Federal Test Procedure Phase 3 (26mph)
Gas DI sample1
Federal Test Procedure Phase2 (16mph) Gas DI sample2
Source: Green Car Congress June 2014, MECA, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
1E+12
EURO Gas PM Regulation Limit 2017-
0 Japan Domestic PFI Gas Vehicle
Japan Domestic DI Gas Vehicle
EU DI Gas Vehicle
Source: NIES, Credit Suisse
10
23 October 2014
Exhaust emissions technology Automotive emissions technology is closely related to the technologies used to lower CO2 emissions or boost fuel efficiency. The automakers have introduced these technologies in response to stricter emissions standards over the years. If we exclude the drastic technologies related to the development of powertrain electrification, automotive emissions technologies broadly divide into those that purify the emitted exhaust gases and those that try to control emissions by modifying the temperature inside the engine or the gases that are consumed or produced during combustion. Exhaust purification technologies typically either (1) use catalysts to remove NOx, HC or CO from the exhaust, or (2) use a filter to absorb the PM. Particulate filters are being used in both diesel (DPF) and gasoline (GPF) applications. Many diesel engines are already fitted with catalysts to remove NOx, HC and CO, often combined with DPF technology. The advent of stricter fuel efficiency standards could lead to wider adoption of such technologies in gasoline engines. VVT is an example of a combustion gas modification technology. It is widely used to reduce fuel consumption, but can also play a useful role in improving exhaust gas contents. By optimizing the timing of the air intake and exhaust valves, VVT enables the engine to consume less fuel while also reducing the amount of regulated exhaust gases emitted. It is particularly useful in reducing emissions by retaining a part of the exhaust gases inside the engine compartment for further combustion with air. EGR is one example of a technology that modifies the engine temperature and oxygen level. It involves modifying the oxygen concentration or temperature of the air used within the engine during combustion by returning some of the exhaust gas flow back to the engine compartment. While EGR makes the exhaust pipe design more complicated, it has already been widely adopted in diesel engines. Similarly, internal improvements on engines mean that the performance requirements for spark plugs continue to increase. While the aforementioned direct fuel injection and EGR systems have their advantages, their faster air flow within the engine and lower oxygen concentration create conditions that make it harder to maintain spark plug ignitability. Tougher fuel efficiency standards are leading to the wider use of direct fuel injection engines, and the parallel tightening of emissions regulations is linked to growth in EGR systems, but this means that further improvement in spark plug performance is needed as well. A variety of sensors play a critical role in these exhaust purification, engine temperature modification and combustion gas modification technologies. By detecting concentrations of oxygen, NOx and other gases in the exhaust stream, these sensors are an essential part of realizing optimal process control.
Auto, Auto Parts, Materials, Electronic Components Sector
11
23 October 2014
Figure 15: Emissions control strategies Fuel Economy Improvement
Emission Control
Engine Improvement
Energy Efficiency
Electrification,
Air/Fuel Ratio and Temp
Variable Timing
Down-Sizing
Others
EGR
VVT
After-Treatment
Catalyst
D I E S E L
Filters
DOC
DPF
SCR
Direct Injection
GPF
G A S
etc
TWC
Demand increase from Direct Injection
Source: Credit Suisse
Figure 16: Technologies/components used in emissions control Fuel
EURO2 Level
Methods
EURO3 Level
EURO4 Level
EURO5 Level
EURO6 Level
Major Components
Gas Sensors Valvetrain Airflow Control
Variable valve Timing
Gas Sensors VVT EGR
Exhaust Gas Recirculation
Gasoline
Three Way Catalysts Catalysts and Filters
TWC GPF
GPF
Gas Sensors Valvetrain Airflow Control
Gas Sensors EGR VVT
Cooled EGR
Variable Valve Timing Diesel Diesel Oxidation Catalyst
Catalysts and Filters
DOC DPF SCR
DPF
Urea SCR, etc
Source: Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
12
23 October 2014
Figure 17: Major suppliers of exhaust emissions control components Field of Technology
Components
Method GPF
Emission AfterTreatment
Filters DPF
VVT
Improvement of Internal Combustion
Valvetrain Control
EGR
Exhaust/Gas Sensors
Combustion Efficiency
Spark Plugs Glow Plugs
Major Suppliers NGK Insulators Corning IBIDEN (SiC) NGK Insulators Corning IBIDEN Hitachi Metals Sumitomo Chemical Denso Hilite Aisin Seiki Schaeffler Mitsubishi Electrics KSPG Continental Denso NGK Spark Plug Bosch Denso NGK Insulators NGK Spark Plug Bosch Denso Kyocera
Source: Company data, Marklines, IRC, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
13
23 October 2014
DPF/GPF technology Core exhaust gas treatment technologies As implied by the names, DPF and GPF filter systems capture particulate matter in exhaust gases to prevent PM emissions. DPF technology is now widely used in diesel engines in conjunction with catalytic converters; these filters are fitted to nearly all diesel cars sold in countries with relevant PM emission standards. We expect the market for these products to grow as diesel-powered vehicles become more common. In contrast, the market for gasoline-powered vehicles equipped with GPF technology is still in its infancy. However, we think this is a promising market worth watching, given that related demand is certain to grow. Shift in gasoline direct injection (GDI) engines for fuel economy; GPF technology as necessary adjunct to remove PM Traditionally, gasoline engines emitted significantly smaller quantities of NOx and PM than diesel engines. In fact, in contrast to the widespread adoption of PM emission standards for diesel engines, the issue of particulate emissions was not serious enough to warrant related standards for gasoline engines. As regulators have focused on cutting CO2 emissions and improving fuel economy, automakers have tended to opt for GDI as the fuel-injection approach of choice. However, particle number (PN) and the amounts of particulates emitted are much higher for GDI than the conventional approach of port injection. Since regulators are unlikely to allow PM emissions to increase because the goal is to make vehicles more environmentally friendly, this is one area where emissions standards are expected to tighten for gasoline engines in the future. GPF technology offers a solution by removing PM while retaining gains made in terms of lower CO2 emissions and better fuel economy. We expect the industry to move in this direction, with consequent growth in demand for GDI gasoline engines fitted with GPF systems. Euro 6c implementation and rising GDI proportion as catalysts for GPF growth We expect the proportion of GDI gasoline engines to grow from 8% in 2010 to 45% by 2025. Although the GPF market is virtually non-existent at the moment, we expect it to begin expanding rapidly as automakers start equipping gasoline-powered models with GPF technology to comply with the Euro 6c regulations, which are due to come into force in Europe from September 2017. Figure 18: Basic DPF/GPF mechanisms (diagram) honeycomb structure
Exhaust gas inflow Filter w alls to deposit (filter) PM
Purified exhaust gases
Source: NGK Insulators, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
14
23 October 2014
Expect market to take off in 2016 and reach ¥80–90bn by 2020 NGK Insulators has announced plans to commence mass GPF production in 2016, based on the projected growth in demand in Europe. We forecast the GPF market could grow to around ¥80bn–90bn by 2020, given the worldwide adoption of GDI engines (Figure 19). It is difficult to make any precise forecast of market size at this stage owing to the large number of variables (which include: the detailed PM/PN regulations; different timing of standards introduction by country or region; GPF design; market size for GDI vehicles; model distribution by engine size; and any offsetting effects due to GPFs replacing some of the honeycombs in existing exhaust filters). However, the regulations are certain to come into effect in Europe, which we think increases the probability of similar regulations being introduced in Japan and North America as well (though the timing may differ). It remains unclear if or when China might introduce Euro 6-style emissions standards. However, assuming that it occurs early in the 2020s, we think it is likely that such a move would be accompanied by PM emissions standards as well. The market for GDI gasolinepowered vehicles in China is currently about 3mn units, but this is forecast to surpass 10mn units by 2020. The trend in China is important in the long term because it is set to become as large a market for these vehicles as North America. We estimate that the market sizes of ceramic honeycombs for passenger cars, SiC DPF, and large-size honeycomb converters and cordierite DPF are all worth around ¥100– 160bn each at present. The GPF market is certain to be attractive by comparison, in our opinion. Figure 19: GPF demand projections (by scenario) (bn USD) GPF substrate market forcast by scenario 1.4 1.2
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 1-4 avg.
1.0 0.83
0.8 0.66
0.6 0.53 0.4 0.27 0.2 0.11 0.0
0.00 2015
2016
2017
2018
2019
2020
Note: Average demand shown based on four possible scenarios for timing of GPF-related standards introduction in major regions Scenario 1: EU only (2H16-) Scenario 2: EU (2H16-) + JP (2H17-) Scenario 3: EU (2H16-) + JP (2H17-) + NA (2H17) Scenario 4: EU (2H16-) + JP (2H17-) + NA (2H17) + CH (2H20-) Source: Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
15
23 October 2014
Ceramic honeycomb and filter product categories Figure 20 shows how honeycomb ceramics for exhaust gas control are subdivided into filters for gasoline and diesel vehicles, and passenger and large vehicles (commercial vehicles). Exhaust gas control mainly consists of: (1) NOx, HC, and CO control and (2) PM control. So-called honeycomb ceramics coated with catalysts that render toxic substances nontoxic (catalytic converters) are used to deal with the former, while filters (DPF and GPF) are used to directly remove the latter. While the size of the honeycomb varies according to the size of vehicle, regardless of fuel (gasoline or diesel) the material used is basically cordierite (Cd). Conventionally, PM filters have only been used in diesel-fueled vehicles. PM filters for passenger vehicles are made from silicon carbide (SiC) and aluminum titanium alloy (ALTi), while those for large and commercial vehicles are made from Cd. GPF, made from Cd, will also increasingly be used in gasoline-fueled vehicles from now on. While there is a possibility that honeycomb ceramic filters currently used in gasolinefueled vehicles and GPF might not be fitted separately but as integrated systems, we think the roadmap for this has yet to be confirmed. Figure 20: Overview of main players by automotive ceramic substrate product area Gasoline
Fuel type Vehicle type (size) Usage (exhaust gas / PM) (Usage detail) Product Main players (usage material)
PM removal
Product Main players (usage material)
Exhaust purification
TWC
(DOC / SCR)
GPF
Honeycomb (gasoline & diesel) Corning (Cd)
Corning (Cd)
NGK I (Cd)
NGK I (Cd)
NGK I (Cd)
(Ibiden: SiC)
Large-size / commercial vehicle
Exhaust purification
PM removal
(DOC / SCR)
PM removal
DPF
Large honeycomb
Large DPF
Ibiden (SiC)
Corning (Cd)
Corning (Cd)
NGK I (SiC)
NGK I (Cd)
NGK I (Cd)
Corning(AlTi)
(Hitachi M etals: Cd)
(Sumitomo Chem: AlTi)
(Ibiden: SiC)
Gasoline
Vehicle type (size) Usage (exhaust gas / PM)
Exhaust purification
Corning (Cd)
Fuel type
(Usage detail)
Diesel Passenger car
Passenger car
Passenger car PM removal GPF
Exhaust purification TWC Honeycomb
Longer-term, some GPFs may become integrated with existing TWC systems (partial canibalization), but overall market growth potential is high
Corning (Cd) NGK I (Cd) (Ibiden: SiC)
Source: Company data, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
16
23 October 2014
Situation at GPF-related companies We believe NGK Insulators and Corning have a lead in GPF, as GPF are made using ceramic material cordierite, an area in which the two companies have considerable expertise. We understand Ibiden, which has a large share of the SiC-DPF market, is also developing GPF, but we have yet to confirm details such as the start of mass production. Many details about GPF, including manufacturing costs, are unclear, but we believe NGK Insulators and Corning, which manufacture honeycomb ceramics for passenger vehicles and large honeycomb filters and Cd-DPF, use many of the same raw materials in GPF as well. We expect that accordingly they will likely be able to leverage their cost advantage (due to sharing raw materials procurement, upstream manufacturing processes, etc.). Figure 21 shows an overview of various ceramic product applications and market share estimates. Figure 21: Exhaust emission filter (honeycomb) and DPF application overview (left) and market share estimates (right)
Source: Company data, Credit Suisse estimates
Advantages and disadvantages of GPF materials (including cordierite) As Figure 22 shows, Cd and SiC have advantages and disadvantages. However, NGK Insulators and Corning are both developing products that feature Cd. We understand that development is based on diesel vehicle DPF. Figure 22: Comparison of Cd and SiC material – SiC generally has higher filtration capacity than Cd, but Cd properties also improving and expected to be used in GPFs
Cordierite (Cd)
○
PM filtration capacity Thermal shock
SiC
○ ○
Thermal stability (decomposition) Weight (lightness)
○
Cost
○
○: better performance Source: Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
17
23 October 2014
How will GPF be used? We think GPF will take off around 2016, ahead of the implementation of Euro 6c gasoline vehicle PM/PN emissions standards, which are due to come into force in September 2017. We think add-on type GPF will initially take hold. Add-on systems feature GPF that are attached separately after current TWCs. Accordingly, we think the market will see net growth in addition to honeycomb ceramics for existing TWC. At the same time, companies are developing systems that combine TWC and GPF and systems that integrate TWC function, achieved by coating GPF with three-way catalysts. We think both will meet the Euro 6c PM standard (6x1011 particles/km) by adding a GPF filter function. However, we believe this will partly cannibalize ceramic product demand volume as these products will likely be integrated with honeycomb ceramics for existing TWC and partly replace TWC honeycomb ceramics. Notwithstanding, the long-term earnings impact on related manufacturers will likely be substantial if this becomes a new market worth over ¥100bn in the long term. Figure 23: Conventional TWC system for gasoline cars to gradually integrate GPF capabilities in the future
TWC
Conventional system
"Add-on" system TWC + GPF (uncoated)
(A)
"Integrated" system (Ex.1) (B) TWC + GPF (coated w/ TWC)
TWC
TWC
"Integrated" system (Ex.2) (C) TWC + GPF (coated w/ TWC)
GPF
GPF w/ TWC
GPF w/ TWC
GPF's "filter" properties may be integrated with the conventional TWC in the future
Note: Configurations (A) to (C) are prevailing examples. Actual configurations may differ. Source: Corning, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
18
23 October 2014
NGK Insulators in the lead in GPF mass production; Corning following suit, Ibiden trailing At present, the company that has decided to make specific investments in mass production is NGK Insulators. The firm is setting up GPF mass production facilities as part of investment to expand its plant in Poland announced in April 2014. We expect mass production to start in 2016. As the company plans to use Cd, it should be able to share materials procurement and front-end processes with large Cd-DPF and large honeycomb ceramics, which it is already mass producing on a large scale. Accordingly, we think it will benefit from substantial mass production effects. We expect the take-off to begin in the European market. The US (where the weighting of GDI engines is higher) as well as Japan also look promising. We are also focusing on China as it has the potential to become the largest market during the 2020s. Corning is also in the advanced stages of GPF development. It is currently engaged in joint development with major automobile OEMs. We think Ibiden is also engaged in development, but it has no track record of large-scale Cd filter mass production, and we think there are still major disparities between Ibiden and the other two companies in terms of technology and costs. While our forecasts currently do not reflect earnings contributions from GPF, we think that given the above, NGK Insulators and Corning will likely gain substantial GPF market shares in the medium term. We intend to focus on whether Ibiden can take share from these two companies. However, at this juncture we see no major advantages at the company on the technology or cost fronts. NGK Insulators and Corning currently have a near monopoly of the large DPF market using Cd. Ibiden aims to win 20–30% of the DPF market in the longer term via the launch of new products using SiC, and we intend to focus on whether it can win orders. Figure 24: NGK Insulators (5333): GPF earnings impact scenario NGK Insulators (5333) GPF market (@USD; $mn) GPF market (@¥109/$; ¥mn) GPF market share (assumption) GPF sales YoY% GPF sales ratio (vs 17/3E Ceramics) GPF sales ratio (vs 17/3E Total sales) GPF OPM% GPF OP YoY% % of OP (vs 17/3E Ceramics) % of OP (vs 17/3E Total OP)
FY16E 113 12,300 80% 9,800 4% 3% 0% 0 0% 0%
FY17E 271 29,600 70% 20,700 111% 8% 5% 7% 1,400 2% 2%
FY18E 531 57,900 60% 34,700 68% 14% 9% 17% 6,000 329% 9% 8%
FY19E 662 72,100 55% 39,700 14% 16% 10% 20% 8,000 33% 12% 11%
FY20E 829 90,300 55% 49,700 25% 20% 13% 24% 12,000 50% 18% 17%
Consolidated sales Ceramics sales Consolidated OP Ceramics OP Consolidated OPM% Ceramics OPM%
FY16E 388,300 249,900 71,700 65,900 18.5% 26.4%
Source: Company data, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
19
23 October 2014
Growing market for non-expansion mats for catalytic substrates and filters as well In addition to honeycomb substrates for three-way catalysts, we expect growth in GPFs for GDI engines in anticipation of the implementation of Euro 6c legislation from 2016. In the field of diesel vehicles, currently the DOC (Diesel Oxidation Catalyst) + DPF configuration is mainstream, but from around 2015-2016 we expect SCR and LNT/NSR technologies to increase as well. We expect total shipments of catalytic substrates and DPF/GPFs to increase from 100mn units in 2013 to about 120–125mn in 2016 and 150–160mn in 2020. The market for mats used to hold catalyst substrates and DPF/GPFs (including expansion and non-expansion mats) will probably follow a similar trend, expanding from 10,100MT in 2013 to 12,500MT in 2016 and 15,700MT in 2020. In addition, we expect the share of the market accounted for by non-expansion mats to increase as reaction and combustion temperatures for catalysts and DPFs get higher. Figure 25: Estimated sales volumes for automotive catalytic mn units 180.0 160.0 140.0
Gasoline GPF
120.0
Gasoline TWC
100.0
Diesel NOx
80.0
Diesel DPF
60.0
Diesel DOC
40.0 20.0 0.0 CY12
CY13
CY14
CY15E CY16E CY17E CY18E CY19E CY20E
Source: Company data, Credit Suisse estimates
Figure 26: Ibiden (4062): Earnings scenarios for DPF, sealants Ibiden ¥mn DPF/Catalytic Substrate DPF for PV DPF for heavy Duty POFA (DPF and Catalytic substrate) Non-Expansion Mats Automotive related sales
FY13 70,200 56,400 0 13,800 19,100 89,300
FY14E 72,500 61,000 0 11,500 20,000 92,500
FY15E 75,700 60,700 3,000 12,000 20,400 96,100
FY16E 78,000 60,500 5,000 12,500 21,000 99,000
FY17E 80,000 60,500 7,000 12,500 22,050 102,050
FY18E 83,000 60,500 10,000 12,500 23,153 106,153
FY19E 88,000 60,500 15,000 12,500 24,310 112,310
FY20E 93,000 60,500 20,000 12,500 25,526 118,526
Automotive related OP OPM
9,200 10.3%
9,900 10.7%
10,300 10.7%
11,100 11.2%
11,736 11.5%
12,738 12.0%
14,039 12.5%
15,408 13.0%
As a % of total Ceramic Sales OP
FY13 90% 109%
FY14E 90% 94%
FY15E 90% 92%
FY16E 90% 91%
As a % of Total Sales OP
FY13 29% 39%
FY14E 28% 42%
FY15E 29% 44%
FY16E 29% 47%
FY16E Consolidated sales Ceramics Consolidated OP Ceramics OP Consolidated OPM Ceramics OPM
343,318 109,800 22,550 12,200 6.6% 11.1%
Note: Sales breakdown is Credit Suisse estimates Source: Company data, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
20
23 October 2014
Variable valve timing (VVT) Should help improve fuel efficiency, reduce emissions VVT stands for variable valve timing, referring to technology that enables the timing of engine valve opening and closing to be varied in response to engine conditions. The technology has already been widely adopted as a way of improving the fuel efficiency of internal combustion engines, as it helps improve fuel efficiency by optimizing valve trains in combination with variable valve lift. By adjusting valvetrains' intake and exhaust timing, the exhaust stroke can be made to partly overlap with the intake stroke, resulting in partial re-combustion and reducing the amount of HC and other uncombusted gases. Similar to the function of EGR, in which exhaust gas is re-used, this technology also helps reduce NOx emissions. Most auto engines feature camshafts, which rotate to push the intake and exhaust valves to open and close. Camshafts have a sprocket at one end, which is connected to the engine by a timing chain so that the camshaft rotates as the engine operates. However, in this arrangement camshaft rotation depends solely on the engine turning, so it is impossible to flexibly adjust intake and exhaust timing in order to boost engine efficiency. VVT arose out of speculation as to whether it might be possible to freely adjust intake and exhaust timing. VVTs are attached to the end of the camshaft. The VVT mechanism has a sprocket rather than the camshaft, and the timing chain is laid around the VVT with its sprocket. This enables the VVT mechanism to act as an intermediate between the engine rotation and camshaft rotation. The VVT mechanism has internal chambers. Applying the oil pressure in these chambers advances/retards the camshaft rotation, thereby to some extent adjusting intake/exhaust timing. Hydraulic VVTs are currently the most common type. Whereas they featured actuators and oil control valves, over the past few years electrical models that do not depend on hydraulics have been commercialized. Denso and Aisin Seiki have become established as major Japanese suppliers. Other companies that have secured market shares include Hitachi Automotive and overseas companies such as Hilite and Schaeffler. Denso has the lion's share of the global market (29%), while Aisin Seiki ranks third with 12%. The number of VVT installed within an engine differs depending on the engine design, including whether they are attached to intake or to both intake and exhaust. However, we estimate the per-unit installation for gasoline engines worldwide was 0.81 per engine in 2010. We expect this to increase to 1.37 per engine in 2020. We see demand for VVT growing in response to the increasing need to improve fuel efficiency and reduce exhaust gas emissions. We expect the VVT market to grow from ¥150bn in 2010 to ¥350bn in 2020.
Auto, Auto Parts, Materials, Electronic Components Sector
21
23 October 2014
Figure 27: Global VVT market shares
Figure 28: VVT mechanism operation
Delphi, 4% Others, 8%
Borg Warner, 5% Toyota In-house, 7%
Variable Valve Timing Denso, 29%
Hitachi, 11%
Schaeffler, 11%
Hilite, 13%
Camshaft Aisin Seiki, 12%
Source: IHS, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
Source: Company data, Credit Suisse
22
23 October 2014
Denso (6902, OUTPERFORM, TP ¥5,750) Denso commands the lion's share of the global VVT market. The company supplies majority of the VVT mechanisms Toyota (7203) uses along with its in-house-manufactured VVT. It also supplies VVT to a wide range of other Japanese and overseas companies including Honda (7267), Fuji Heavy Industries (7270), Mazda (7261), Mitsubishi (7211), Suzuki (7269), Daihatsu (7262), Ford, and PSA. VVT sales totaled ¥44bn in 2010. We expect sales to rise to nearly ¥100bn in 2020. Among its conventional VVTs, Denso's mainstay VVT is a low-cost block type leveraging benefits of scale due to their adoption by many car manufacturers. Block type VVTs are manufactured as single blocks creating the abovementioned chambers. This reduces costs compared with previous types which were assemblies of individual components including plates called vane to create the chambers. Adoption is currently limited, but Denso also supplies electrical VVT mechanisms for cars including the Lexus LS and IS, the Toyota Vitz, and the Mazda Demio. Conventional VVT strives to improve engine efficiency by using hydraulic pressure to advance and retard camshaft rotation. Electrical VVT eliminates the limitations of hydraulics and as the name implies uses an electric motor to enable a wide range of control that can only be achieved in this way. Also, whereas hydraulic VVT performance varies according to operational conditions due to changes in oil viscosity with temperature, the strength of electric mechanisms is that they operate in all conditions as required regardless of temperature. Electric VVT were previously adopted only in high-class vehicles as they cost more than hydraulic VVT, but recently they have appeared in mainstay compact models such as the Vitz and Demio in response to ever-tighter fuel efficiency and exhaust gas restrictions. As a result of its electric VVT track record, the company has increased supply to Mazda, and we expect Denso to focus on electric VVT and the products to be adopted in carmakers' mainstay models as they strive to achieve improvements in fuel efficiency. Figure 29: Denso electric VVT
Figure 30: Electric VVT fitting Motor
Reduction Mechanism
Electronic Driver Unit Source: Company data, Credit Suisse
Camshaft
Valve
Source: Company data, Credit Suisse
Aisin Seiki (7259, OUTPERFORM, TP ¥4,650) While Denso is the main VVT supplier to Toyota Motor, Aisin Seiki has expanded sales mainly to non-Toyota companies. The company currently supplies VVT to companies including GM, Nissan (7201), Renault, and Volvo. It has the third-largest global share after Denso and Hilite. Aisin’s VVT sales totaled ¥15bn in 2010. We expect its sales to rise to ¥50bn in 2020. The company offers both vane- and low-cost block type conventional VVT units. It has reduced the cost and weight of hydraulic VVT units via steps including using aluminum for components previously manufactured via sintering.
Auto, Auto Parts, Materials, Electronic Components Sector
23
23 October 2014
In 2012, Aisin announced a next-generation hydraulic VVT, the first ever to feature a hydraulic center-locking mechanism. The introduction of a chamber lock position between the advance and retard positions increased the freedom of variable timing, making adjustment no longer limited to advancing/retarding the camshaft as in previous models. The company claimed that the new VVT increased fuel efficiency by up to 4% and reduced uncombusted gas by up to 40%. Some claim this is on par with electric VVT under certain operating conditions. Aisin has not commercialized top-end models such as electric VVT, but has expanded the market by maximizing hydraulic system performance and value. The market apparently considers its hydraulic VVT performance to be top-class. Aisin aims to expand with hydraulic models that are low cost, light-weight and offer the best performance rather than go for high-cost electric models. We expect expansion into emerging markets via Nissan and GM, which are existing customers for its low-cost, light-weight products, with a focus on its new models with center-locking mechanisms. Figure 31: Cross-section view of Aisin Seiki's VVT with
Figure 32: Denso/Aisin VVT sales and forecasts
lock mechanism Unit: Annual Sales Forecast in 100M JPY
1,200 1,000 800 600 400 200 0 2010
2011
2012
2013 Denso
Source: Company data
Auto, Auto Parts, Materials, Electronic Components Sector
2014
2015
2016
2017
2018
2019
2020
Aisin
Source: Company data, HIS, Credit Suisse estimates
24
23 October 2014
Exhaust Gas Recirculation (EGR) Reduces pumping loss while contributing to NOx reduction Exhaust gas recirculation (EGR) redirects a portion of exhaust gas back into the engine after combustion. Exhaust gas has a much lower concentration of oxygen than ordinary intake air, and recirculating it into the cylinder helps suppress NOx production. Cooled EGR, in which exhaust gases are cooled before recirculation, is widely used in diesel engines. In addition to reducing oxygen concentration, the lower temperature also further suppresses NOx production. In gasoline engines, cooled EGR reduces pumping loss and raises fuel efficiency. The mechanism of EGR systems in simple terms consists of the addition of a recirculation pipe to the exhaust pipe, which then leads back into the air intake system. Design challenges arise because of the relative complexity of the piping surrounding the engine and the need for valve control to regulate exactly how much of the exhaust gas is recirculated for the most efficient results. Simply recirculating all of it does not work. The piping surrounding the engine has become increasingly complex in recent years due to the need for ever more precise exhaust control. EGR pipes appear immediately after the combustion stage and in some cases have additional or one further downstream in the exhaust flow after the catalytic reaction. The upper stream is called the high-pressure loop, and the lower stream the low-pressure loop. In addition, with high-volume EGR, the oxygen level in the combustion chamber can become extremely low, impairing the combustion environment, and requiring enhanced spark-plug capabilities. Despite these difficulties, EGR mechanisms contribute to both reducing emissions and raising fuel efficiency. The technology is already widely deployed in diesel engines, and we expect adoption for gasoline engines to rise. The number of EGR valves required varies depending on the number of pipes and the size of the engine. We estimate that about 24% of all engines, including diesels, currently have EGR mechanisms, and we expect increasing use in gasoline engines to bring this to about 35% in 2020. Japanese EGR suppliers include Aisan Industry (7283), Mitsubishi Electric (6503), and Denso. We estimate the EGR market will grow from ¥140bn in 2010 to ¥300bn in 2020. Figure 33: EGR piping diagram
to Tailpipe
Inter-cooler
EGR Cooler
EGR Valve
Intake
Exhaust
Source: Company data, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
25
23 October 2014
Figure 34: Global EGR valve market share
Figure 35: Global share of vehicles with EGR-equipped engines LHS: Vehicle with EGR in Thousands
Mitsubishi Electric Others
45,000
RHS: % out of Global Engines 40.0%
40,000
35.0%
35,000
30.0%
30,000
25.0%
25,000 20.0%
Pierburg (KSPG)
Continental
Delphi
20,000 15.0%
15,000 10,000
10.0%
5,000
5.0%
0
0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
DENSO
Source: Company data, Credit Suisse estimates
Commercial Vehicle(LHS)
Diesel Passenger Vehicle(LHS)
Gas Passenger Vehicle(LHS)
EGR% (RHS)
Source: Borg Warner, HIS, Credit Suisse estimates
Denso (6902, OUTPERFORM, TP: ¥5,750) The basic mechanism of EGR, as described above, is to add a recirculation pipe that leads from the exhaust pipe back into the air intake system. The real implementation challenge, however, lies in how to build in multiple valve systems to regulate airflow with high-grade capabilities while attempting not to increase the complexity of piping in the already crowded space around the engine. Denso supplies core EGR valve assemblies and cooler components. The company is fourth globally in EGR valves, trailing Mitsubishi Electric, Pierburg, and Continental. Denso’s EGR development continues to focus on how to make units lighter and more compact without sacrificing performance. The new compact EGR cooler it announced in 2012 maintains the usual fuel efficiency improvement of about 3% over an EGR with no cooler, but now does so while being 30% smaller than Denso’s most compact previous EGR cooler. The new EGR cooler is found in Toyota’s Camry Hybrid and Aqua. Similarly, the new EGR valve Denso announced in February 2014 was a new compact type that combined parts that had been separated by pipe in previous designs: the intake throttle valve and the exhaust gas recirculation valve. This made possible a unit about half the total size of its predecessors. It also enabled a reduction in the number of parts, as the various sensors that had been independently installed due to the difficulty of control could now play dual roles, reducing costs. This improved compactness and merger of functions also adds value for automakers in that it frees up design space around the engine. We expect demand for lighter and more compact components to remain high in this industry. With demand also high for contributions to emissions compliance, Denso’s new EGR designs could bring it additional growth. We estimate its EGR sales could expand from ¥19bn in 2010 to ¥36bn in 2020.
Auto, Auto Parts, Materials, Electronic Components Sector
26
23 October 2014
Figure 36: Denso’s new compound EGR valve unit
Source: Company data
Auto, Auto Parts, Materials, Electronic Components Sector
27
23 October 2014
Spark plugs What are plugs? Basically, gasoline engines use one spark plug for each cylinder while diesel engines use one glow plug for each cylinder. Spark plugs are used to transfer energy from an ignition coil into a combustion chamber. High voltage from the battery sets off a spark from the plug’s electrode, which then ignites a combustible pressurized fuel/air mixture. Glow plugs, on the other hand, are used to heat heating elements and control coils in diesel engines, allowing fuel ignition. In this report, we examine the outlook for spark plugs. Figure 37: Spark plug structure
Source: NGK Spark Plug
Precious metal spark plugs for better fuel efficiency Ignition coils generate sparks of 15,000–30,000 volts, but voltages are increasing, with levels of around 40,000 volts for high compression ratio engines and supercharged downsizing engines. The higher the compression ratio, the higher the pressure in the cylinders, making ignition more difficult. The large volume of EGR used in GDI engines also hampers ignitions, leading to lower combustion efficiency. Work is continuing to resolve such issues with improved electrode materials and designs. On the materials side, precious metals with lower electrical corrosion and dissipation levels are being adopted. In terms of design, smaller structures to minimize antiinflammatory effects and devices to allow wider spark gaps between electrodes are being developed. Expanding use of precious metals with high melting points as electrode materials Conventionally, nickel alloys have been used for spark plug electrodes. However, as the voltage of ignition coils has increased and engine combustion temperatures have risen, central electrodes are more subject to corrosion and dissipation caused by the hightemperature gases produced by combustion. To deal with this, a growing number of spark plugs are being produced using precious metals such as platinum, iridium, and ruthenium, which have high melting points and do not oxidize at high temperatures.
Auto, Auto Parts, Materials, Electronic Components Sector
28
23 October 2014
Figure 38: Comparison of electrode materials’ melting points
3000 2500 2000 1500 1000 500 0 Nickel
Iridium
Platinum
Ruthenium Alloy
Melting Tempreture (℃) Source: NGK Spark Plug, Denso
Making electrodes from precious metals reduces electric corrosion and contributes to longer lives for spark plugs. Furthermore, the higher melting point allows smaller electrodes to be used. This means a smaller surface area, reducing anti-inflammatory effects and improving ignitability. This in turn means that wider spark gaps are possible, allowing V- and U-shaped structures and taper cut grounding electrodes. Also, improved ignitability supports better EGR rates.
Precious metals extend the lives of plugs and reduce corrosion, resulting in better fuel efficiency (1−3% improvement)
The resulting reductions in spark loss mean that spark plugs made with precious metals can improve fuel efficiency by about 1–3% compared to those made with nickel alloys. Because high compression ratio engines and increased EGR make ignition more difficult, we anticipate expanding demand for spark plugs made using precious metal materials and providing better ignitability, not just for GDI engines but also for port or multi-port fuel injection engines. Figure 39: JC08 mode fuel efficiency comparisons show
Figure 40: Idling efficiency also 1–3% improved
1–3% fuel efficiency improvement for precious metal plugs over nickel alloy plugs 11.60
70.00
11.55 69.50
11.50 11.45
69.00
11.40 68.50
11.35 11.30
68.00
11.25 67.50
11.20 Nickel
Iridium
Ruthenium
JC08 mode (km/l)
Source: NGK Spark Plug
Auto, Auto Parts, Materials, Electronic Components Sector
Nickel
Iridium
Ruthenium
Idling Fuel Consumption (ml/5min)
Source: NGK Spark Plug
29
23 October 2014
Shift to multiple grounding electrodes for GDI engines Furthermore, eliminating the build-up of soot on electrodes and insulators in the GDI engines that are likely to become more widely used in future can help improve fuel efficiency as well. To burn off soot, multiple external electrodes can be used, and we look for expanding demand for multiple-electrode plugs that can burn off soot at the same time as sparking combustion. Figure 41: Three-polar plugs
Figure 42: Four-polar plugs
Source: NGK Spark Plug
Source: NGK Spark Plug
Multiple grounding electrodes for GDI engines point to higher unit prices
Trend toward narrower, longer plugs Long-reach plugs with narrower diameters and increased length in the threaded portion are tending to be adopted in engines with higher compression ratios, as they help enable (1) smaller combustion chambers and reduced valve angles, so there is greater freedom in the layout, and (2) better cooling performance around the plugs and valves, allowing improved anti-knocking measures. Efforts to reduce diameters and increase reach are also being applied to the ceramic insulation in the gasket portion using materials technologies and firing techniques.
Auto, Auto Parts, Materials, Electronic Components Sector
30
23 October 2014
Rise of precious metal plugs could slow volume growth in the spark plug market Looking at gasoline-powered car ownership by engine type, the increase in sales of new cars with GDI engines is likely to lead to slower growth in ownership of cars with port fuel injection (PFI) systems, which we expect to remain roughly flat from around 2016–17. We think the ratio of GDI ownership within gasoline-powered cars is likely to exceed 20% of the total by 2020. Figure 43: Global ownership of gasoline-powered cars by
Figure 44: Spark plug demand: Average price estimates
engine type (estimates) mn units 900,000
100% 90%
800,000
80%
700,000
70%
600,000
60%
500,000
50%
400,000
40%
300,000
30%
200,000
20% 10%
100,000
0%
0 CY10 CY11 CY12 CY13 CY14ECY15ECY16ECY17ECY18ECY19ECY20E PFI DI
Source: Company data, Credit Suisse estimates
CY10 CY11 CY12 CY13 CY14ECY15ECY16ECY17ECY18ECY19ECY20E PFI DI
Source: Company data, Credit Suisse estimates
We have noted that spark plugs made using precious metals have longer lives. In terms of driving distance, useful life for nickel plugs is around 15,000–20,000km, while the corresponding figures are about 100,000km for platinum and iridium plugs and about 120,000km for the premium RX plugs made by NGK Spark Plug using ruthenium alloy.
Growth in precious metal spark plugs likely to slow overall demand
Accordingly, if more new cars are sold using plugs made with precious metals, it becomes harder to forecast replacement demand outside North America, and we would think the risk of slower growth in the repair and maintenance market from the greater penetration of such plugs will start to manifest from around 2017−18. We anticipate that annualized growth in spark plug demand, including for new cars, will slow to around 1–2%. Figure 45: Spark plug demand outlook
Figure 46: Breakdown of spark plug shipments by type
Thou. units 100%
2,500,000
90% 80%
2,000,000
70% 60%
1,500,000
50% 40%
1,000,000
30% 20%
500,000
10% 0%
0 CY10
CY11
CY12
PFI (Nickel Plug)
CY13 CY14E CY15E CY16E CY17E CY18E CY19E CY20E
CY10
PFI (Precious Metal Plug)
PFI (Nickel Plug)
Di (Precious Metal Plug)
Source: IHS, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
CY11
CY12
CY13 CY14E CY15E CY16E CY17E CY18E CY19E CY20E PFI (Precious Metal Plug)
Di (Precious Metal Plug)
Source: IHS, Credit Suisse estimates
31
23 October 2014
Gradual increase in prices to cover slower volume growth; we expect market value to expand by 3–4% a year On the other hand, the increasing penetration of spark plugs made with precious metals will probably support a gradual rise in average prices. Such plugs are priced 2.5–3x higher than nickel plugs. Furthermore, higher demand for GDI systems is likely to contribute to expanding use of multiple-electrode and long-reach plugs, which will also support higher average prices. Figure 47 shows retail prices in the repair and maintenance market. We estimate that actual OEM prices are around 1/4–1/5 the levels indicated in the table, but this price differential suggests potential for further growth in average prices.
Average prices likely to rise with increased use of precious metals, supporting prospects for 3–4% annual growth in market value
We expect that, despite slower growth in shipments, the total value of the spark plug market will be buoyed by the rise in average unit prices, and thus forecast annual market expansion of about 3–4%. We expect the market to grow to around ¥500bn by 2020. Figure 47: NGK Spark Plug prices for repair and maintenance market
Source: Company data, Credit Suisse estimates
Figure 48: Spark plug market (value, average price outlook) ASP (JPY)
¥ mn 600,000
220.0 210.0
500,000
200.0
400,000
190.0 300,000 180.0 200,000
170.0
100,000
160.0
0
150.0 CY10
CY11
CY12
CY13
CY14E
CY15E
Spark Plug Market
CY16E
CY17E
CY18E
CY19E
CY20E
Spark Plug ASP
Source: IHS, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
32
23 October 2014
Plug-related stocks NGK Spark Plug is the largest maker of spark plugs, followed by Bosch, Champion, and Denso, among others. The main suppliers of glow plugs for diesel engines include NGK Spark Plug, BorgWarner BERU, and Bosch. Figure 49: Spark plug market share
Figure 50: Glow plug market share
15-20%
NGKS
25-30%
35-40%
30-35%
Bosch
Beru
Champion Denso
Bosch
20%
Others
Others
10% 10-15%
NGKS
10-15%
25-30%
Source: Company data, Credit Suisse estimates
Source: Company data, Credit Suisse estimates
NGK Spark Plug (5334, NEUTRAL, TP ¥3,350) Leading supplier of spark plugs and glow plugs. Due to the high technological demands of the spark plug market, the company is gradually increasing its dominance. In ceramic firing technologies in particular, NGK has a significant edge over its rivals. The company will probably be the primary beneficiary of an improving product mix resulting from the expanding use of spark plugs made with precious metals, long-reach spark plugs, and spark plugs with multiple electrodes. We think sales in the plug business (including glow plugs) could top ¥200bn by around FY3/20−21. Figure 51: NGK Spark Plug sales outlook
250,000
200,000
150,000
100,000
50,000
0
Precious metal spark plugs
Other spark Plugs
Glow plugs
Note: Sales breakdown is Credit Suisse estimates Source: Company data, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
33
23 October 2014
Denso (6902, OUTPERFORM, TP ¥5,750) Denso ranks second in the Japanese spark plug market, which it essentially splits with leader NGK Spark Plugs; together, the two companies command 99% of the market. However, the company still ranks fourth globally, behind NGK and major competitors Bosch and Champion, so the spotlight will be on efforts to increase market share. Denso unveiled its next generation of spark plugs at the Automotive Engineering Exposition held in Yokohama in May 2014, where the company demonstrated its “High Ignitability Spark Plug with Flow Guide Plate”; the flow guide plate is meant to eliminate cases where the orientation of the grounding electrode interferes with the flow of the mixed gas. The guide plate directs the flow of mixed gas around the center electrode to improve the stability of ignition and extend the discharge. EGR systems and lean-burn engines require significant swirl and strong tumble air flow within the engine cylinders in order to offset increased CO2 and lean air-fuel ratios. Denso’s new spark plugs were designed not to be interfered with extreme flows of mixed gas even with high velocity through engine cylinders. Looking forward, we anticipate expanding demand related to EGR and lean-burn systems, and we expect Denso’s high ignitability spark plugs to win growing attention as a result. Figure 52: Overview of “High Ignitability Spark Plug with Flow Guide Plate”
Source: Denso
Auto, Auto Parts, Materials, Electronic Components Sector
34
23 October 2014
Exhaust gas sensors Monitoring conditions inside the engine and out Exhaust gas sensors are installed in exhaust pipes, after combustion and around catalysis. Different sensors are used to closely gauge specific conditions, and include oxygen/airfuel ratio sensors, NOx sensors, and exhaust gas temperature sensors. Oxygen/air-fuel ratio sensors monitor oxygen levels in exhaust gases and control air-fuel ratios; they are critical to keeping HC and CO emissions in check and maintaining optimal catalytic efficiency. NOx sensors and exhaust gas temperature sensors check the characteristics of exhaust gases and are used to optimize treatment systems. The installation of sensors has increased in recent years with tougher regulations, which are requiring exhaust gas measurement signals as part of on-board diagnostics (OBD). Market for exhaust gas sensors likely to grow to around ¥350–450bn by 2020 Figure 53 summarizes trends in market share and scale for the main types of exhaust gas sensors (oxygen/air-fuel ratio sensors, temperature sensors, NOx sensors). Figure 53: Market share and scale for exhaust gas sensors Sensor Sensing elements How many in a car? Where? ASP
Oxygen (OZ, UEGO) sensor Zirconia 2 units back and forth of Honeycomb OZ $9-10/UEGO $21-22
Market Share
Market size (CY13) Market size (CY20) Other Future opporutnity
DPF Tempreture Sensor Thermister (YCrO3) 2 units back and forth of DPF $10-11
NOx Sensor Zirconia 2 units back and forth of SCR catalyst/NSR Now $40-50 ->CY20E $20
NGKS
NGKS
Bosche
Sensata
Denso
Denso
Others
Others
¥200bn (OZ 85%/UEGO 15%) ¥250bn (OZ 75%/UEGO 25% NGKS: Intake of EGR CY20 EGR market 40mn units ASP$14-15? Potential ¥60bn (in case of 100% attachment rate)
¥30bn ¥35bn Back and forth of GPF/Back of SCR catalyst CY20 GPF 16.9mn x 2units per car, Urea based SCR 15mn ASP $10-11 ¥50bn
NGK Insulator (CV/PV) > NGK Spark Plug (PV) > Bosch???
¥20bn ¥55-60bn? D/E segment snd Trucks will likely have urea based SCR catalyst and NSR
Source: Company data, Credit Suisse estimates
We forecast potential growth in the market for exhaust gas sensors (oxygen sensors, exhaust gas temperature sensors, NOx sensors) from about ¥250bn in 2013 to ¥350–450bn in 2020. The market for oxygen sensors reached ¥200bn in 2013, and we think product mix improvement resulting from the expanding use of universal air-fuel ratio sensors as well as rising auto production volumes will support market growth to around ¥250bn in 2020. Furthermore, if the adoption of intake oxygen sensors for EGR systems progresses, we think it could boost that total by up to ¥60bn. Temperature sensors are likely to see growth supported by rising production of diesel vehicles, as temperature gauges for DPF applications expand from ¥30bn in 2013 to about ¥35bn in 2020. We also think temperature sensors may well find uses in GPFs, which we expect will start to take off from around 2017–18, and that they may also be used in diagnostics for urea-based selective catalytic reduction (SCR) systems; these applications on top of DPF uses could help push the market up to around ¥50bn in 2020. We expect the use of NOx sensors to increase in tandem with various technologies to reduce NOx emissions in diesel cars as regulations become tighter under Euro 6 legislation. The anticipated adoption of these sensors in promising urea-based SCR systems led to expectations of substantially increased demand, but at this point, although quite a high proportion of commercial vehicles using this system are installed with NOx sensors, they have been adopted for passenger cars only in the D and E segments and in certain smaller cars like Peugeot’s Blue Tech line. Still, the development and application of
Auto, Auto Parts, Materials, Electronic Components Sector
35
23 October 2014
other NOx reduction technologies that do not use urea as a reductant continue, and given that sensors are indispensible to all types of reduction technologies we expect the market to expand from ¥15–20bn in 2013 to around ¥55–60bn in 2020. Below, we look at the backdrop to expanding demand for various types of exhaust gas sensors. Figure 54: Exhaust gas sensor market set to expand to ¥350bn in 2020; potential growth to ¥450bn if prospects for new applications are factored in ¥ bn 500.0 450.0 400.0
Tempreture Sensor for GPF/SCR/NSR catalyst
350.0
Oxygen (OZ/UEGO) Sensor for EGR
300.0
NOx Sensor for urea based SCR/NSR
250.0 200.0
Tempreture Sensor for DPF
150.0 Oxygen (OZ/UEGO) Sensor for Honeycomb
100.0 50.0 0.0 2013
2020E (a)
2020E (b)
Source: IHS, Company data, Credit Suisse estimates
Auto, Auto Parts, Materials, Electronic Components Sector
36
23 October 2014
Oxygen/air-fuel ratio sensors: Expanding precise control with universal air/fuel ratio sensors Zirconia oxygen sensors are installed behind engine exhaust valves, and put out signals of 0V to 1V (with 1V at the rich end of the spectrum and 0V at the lean end) to indicate the ideal air-fuel ratio based on oxygen levels in exhaust gases. Fuel injection is adjusted according to the signal output, enabling the engine to keep an optimal mixture and to maintain cleaner exhaust gases. Sensors may also be installed directly behind the honeycomb structure of a TWC to support OBD functions such as the display of catalyst efficiency (although oxygen sensors for OBD functions may be replaced in urea-based SCR systems with NOx sensors that use zirconia elements). As regulations regarding exhaust gases and fuel efficiency become tighter in Japan, the US, and Europe, high-value-added UEGO (Universal Exhausted Gas Oxygen) sensors are increasingly being used to achieve precise control of optimum air-fuel mixtures. Conventional zirconia sensors are limited in their indications to “rich burn” or “lean burn” relative to the ideal ratio, but UEGO sensors can detect the amount of deviation from the ideal and allow more precise control. Also, UEGO sensors can enable adjustment of the ratio to non-ideal levels, allowing for lean-burn combustion in gasoline engines and finetuning of diesel engines, for example. We expect the market for oxygen/air-fuel ratio sensors to expand from ¥200bn in 2013 to about ¥250bn in 2020. There are already two oxygen sensors in most cars (either two oxygen sensors or a combination of one UEGO sensor and one oxygen sensor), and the market is set to grow in line with the rise in auto production volumes. Meanwhile, tighter fuel efficiency and emissions regulations, particularly in developed markets, point to further penetration of high-priced UEGO sensors in these markets. Installation rates for UEGO sensors under exhaust valves was around 30% in 2013, and we think this will rise to around 50% in 2020. Additional prospects for oxygen sensors for EGR intake measurement Current EGR systems use intake temperature sensors and air flow meters, but not oxygen sensors. Adding oxygen sensors to monitor oxygen levels in the air intake could optimize conditions for EGR. On 15 October 2014, NGK Spark Plug announced plans to commercialize the world’s first EGR intake oxygen sensor. We understand the new sensors use the same zirconia elements as exhaust gas oxygen sensors, but that they are about 35% lighter. The same production and inspection facilities can be used, and once mass production begins we anticipated substantial leverage effects in terms of earnings. NGK Spark Plug plans to start mass production in CY2017. We expect the number of vehicles produced with EGR valves to increase, primarily in developed markets, from around 21mn units in 2013 and 23mn in 2014 to around 41mn in 2020. In terms of valuing exhaust gas sensors, assuming 100% penetration we would estimate the potential 2020 market for exhaust gas oxygen sensors at around ¥60mn. Figure 55: Oxygen sensor facilities
Source: NGK Spark Plug
Auto, Auto Parts, Materials, Electronic Components Sector
37
23 October 2014
Spotlight on potential for GPF temperature sensors Thermistor elements (YCrO3) are used in temperature sensors, which can measure temperatures ranging from −40°C to 900°C. They are mainly installed in the area of DPFs. Initially in the Japanese market, sensors with stabilized zirconia were used to measure temperatures of catalytic converters and to correct abnormally high temperatures when misfires led to unburned gas mixtures during catalysis; however, this demand is shrinking. Today, applications have expanded to various types of catalytic converter exhaust gas purification system controls and turbochargers, but we think the main use is in DPFs. A sensor is located at each end of a DPF to monitor combustion temperatures and help maintain optimal exhaust gas temperatures to burn off collected PM (soot). The market for temperature sensors is thus primarily linked to production volumes of diesel vehicles, but we also highlight new applications in GPFs. We think they may also have potential applications in diagnostics for SCR catalysts in urea-based SCR systems. NOx sensors A significant aspect of the Euro 6 regulations for diesel cars is a squeeze on controlling emissions of NOx, by such means as EGR, urea-based SCR, lean NOx catalyst (LNC) systems, and NOx storage reduction catalyst (NSR) technologies. With urea-based SCR and NSR systems, NOx sensors are used to monitor post-catalyst NOx emissions. Like oxygen sensors, NOx sensors utilize zirconium dioxide (zirconia). As such, they can concurrently act as a zirconia oxygen sensor following three-way catalytic conversion. NGK Insulators is the leading developer of NOx sensors for commercial vehicles, while NGK Spark Plug primarily offers NOx sensors for passenger vehicles. Bosch is another leading supplier. NGK Insulators currently has sufficient capacity to produce 7mn NOx sensors each month, and plans to ramp up capacity progressively to more than 10mn units by October 2015. NGK Spark Plug and Bosch should be able to produce NOx sensors using existing production lines for sensors that measure the exhaust gas concentration of oxygen. As a means of reducing NOx emissions from diesel vehicles, Peugeot plans to employ urea-based SCR in all models featuring its Blue HDi diesel engine. Mazda's CX-7 diesel variant also features an SCR system. In compact cars in the A, B, and C segments, we think the main means of NOx reduction will be lean NOx trap (LNT) systems, which are small in scale but nonetheless reduce NOx emissions over time, and EGR. In the D and E segments and in larger commercial vehicles, urea-based SCR and NSR systems are likely to hold sway. Figure 56: Bosch’s Denoxtronic 5 Tank
AdBlue
Lambda Sensor
Engine exhaust
Exhaust air temperature Sensor
Oxidation catalyst
Pressure difference セ Sensor Nox Sensor
DPF
Dosing module DM3.2
Mixer
Nox Sensor
SCR catalyst
Source: Company data, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
38
23 October 2014
NGK Spark Plug: stands to gain most from expansion in exhaust gas sensor market NGK Spark Plug is Japan's leading manufacturer of exhaust gas sensors, with an estimated 35–40% share of the global markets for oxygen and air-fuel ratio sensors, temperature sensors, and NOx sensors. The company’s sensor business (which includes exhaust gas sensors) generated FY3/14 sales of ¥112.8bn, but by FY3/21 we see sales reaching ¥150bn. In fact, we see scope for FY3/21 sales to top ¥190bn in the event of increased sales of temperature sensors for use in GPF, SCR, and NSR systems, also for oxygen sensors used in EGR systems. Based on the timeframe for regulatory tightening, we think these new applications could contribute to earnings as early as 2017–18. Our best-case scenario assumes a 4% annual boost to sales, rising to 7–8% per annum from FY3/18 once these new applications start contributing. Figure 57: Outlook for NGK Spark Plugs’ exhaust gas sensors ¥ bn 200.0 180.0
Others
160.0
Tempreture Sensor for GPF/SCR/NSR catalyst
140.0
Oxygen (OZ/UEGO) Sensor for EGR
120.0
NOx Sensor for urea based SCR/NSR Tempreture Sensor for DPF
100.0
Oxygen (OZ/UEGO) Sensor for Honeycomb
80.0 60.0 40.0 20.0 0.0 2014/3
2021/3 base case
2021/3 best case
Note: Sales breakdown are Credit Suisse estimates Source: Company data, Credit Suisse estimates
Denso (6902, OUTPERFORM, TP ¥5,750) We estimate that Denso is the world’s third-largest manufacturer of exhaust gas sensors. We think it is No. 1 in the domestic market for oxygen sensors, albeit basically sharing the market with NGK Spark Plug, as it does in the aforementioned spark plug market. Denso’s dominant position owes much to its status as major supplier to Toyota and Daihatsu. One of Denso's foremost attributes is its wide array of automotive powertrain control systems, including sensors and ranging in application from engine control to EGR control. We think it is making a significant contribution to the development of engine control systems offering optimal fuel combustion efficiency and exhaust gas reduction, and anticipate further growth in the sensor business in a tandem with advances in engine technology.
Auto, Auto Parts, Materials, Electronic Components Sector
39
23 October 2014
Reference: Terms used in this report Figure 58: Glossary of emissions-related terms used in this report Letter
Abbreviation
English Term
Description
CO
Carbon Monoxide
One of the regulated automotive emission content. Toxic to humans in certain concentration, produced from the partial oxidation of carbon-containing compounds when not enough oxygen is present to produce CO2.
CO2
Carbon Dioxide
Greenhouse gas, and one of the regulated/monitored chemical compound in automotive market. Used in conjunction with fuel economy regulations. Produced during the process of internal combustion.
DI
Direct Injection
One of the injection method for internal combustion engines, where the fuels are injected directly into the cylinder. Distinct from PFI, in which fuel is injected into the intake port to produce premixture of air and fuel prior to combustion. Possess major advantage in fuel efficiency and high power output compared to PFI, but also contains certain risk to worsen the emission gas content.
DOC
Diesel Oxidation Catalyst
One of the exhaust aftertreatment device for diesel powered vehicles, which oxidise HC and CO. Uses Oxygen to process, making it one of the major methods for diesel aftertreatment due to its nature of high oxygen content.
DPF
Diesel Particulate Filter
One of the exhaust aftertreatment device for diesel powered vehicles, designed to capture and remove diesel particulate matter or soot from exhaust.
E
EGR
Exhaust Gas Recirculation
A techinique or parts associated to the system enabling part of exhaust gas from gas or diesel engine to recirculate back to the intake side for re-combustion purpose. One of the effective methods to control oxygen concentration of the air to reduce Nox, as well as for fuel economy improvement.
G
GPF
Gasoline Particulate Filter
One of the exhaust aftertreatment device for gasoline powered vehicles, designed to capture and remove particulate matter or soot from gasoline engines. Developed from the precediing technology of DPF, focused as an effective countermeasure to handle PM from gasoline direct injection engines.
H
HC
Hydrocarbons
An organic compound consisting entirely of carbon and hydrogen. HC itself is one of the major energy sources in the world, but is toxic in nature in certain form and is one of the regulated emission content in the automotive industry if emitted through exhaust gas. The regulated automotive exhaust HC is mainly due to incomplete combustion of the fuel.
L
LEV
Low Emission Vehicle
LEV is a term specified to the vehicles considered to be low emission. The term also is used in US California state emission regulation levels.
N
NOx
Nitrogen Oxides
Generic term for the nitrogen oxides. Produced from the reaction of nitrogen and oxygen gases in the air during combustion at high temperature and oxygen level. Considered toxic as it could react with other compounds to form nitric acids, etc. One of the regulated content of automotive emission.
PFI
Port Fuel Injection
One of the injection method for internal combustion engines, where the fuels are injected to the intake port to be mixed with air prior to be released into the cylinder for combustion. One of the most common method for conventional gaoline engines.
PM
Particulate Matter
A general term for microscopic solid or liquid matter suspended in the atmosphere. One of the regulated emission content in the automotive market due to its health and environmental effects. Soot, which is reported to be emitted in higher level from direct injection, is part of the PM content.
SCR
Selective Catalytic Reduction
A means of converting and reducing one of the emission content. The well known method is Urea SCR, where urea solution is added to exhaust gas and is absorbed onto a catalyst aiming to reduce Nox emission.
Stoich
Stoichiometry
The calculation of relative quantities of reactants and products in chemical reaction. For automotive engines, it is commonly used for the mass ratio of air to fuel present in a combustion that exactly enough air is provided to completely burn all of the fuel. Anythng with more air versus fuel from stoichiometry mix is often called "lean", whereas more fuel ratio is often called "richer"
T
TWC
Three-way Catalyst
Commonly used aftertreatment device, a catalytic converter, in gasoline powered vehicles. Known to effectively convert HC, CO, and Nox simultaneously. However the reaction is only effective if operated in stoichiometry condition, making it ineffective for diesel powered engines or lean-burn condition.
U
UEGO Sensor
Universal Exhaust Gas Oxygen Sensor
Also called wideband sensor, which allows to measure more detailed Air-fuel ratio compared to normal oxygen sensor (narrow-band sensor, checking only lean-rich cycling). Allows control unit to adjust the fuel delivery and ignition timing of the engine much more rapidly.
V
VVT
Variable Valve Timing
A device or system for internal combustion engine that alters the timing of valve lift event, which is equivalent to air intake and exhaust event, often used to improve fuel efficiency and to reduce reugulated emission contents.
C
D
P
S
Source: Company data, Credit Suisse
Auto, Auto Parts, Materials, Electronic Components Sector
40
23 October 2014
Companies Mentioned (Price as of 22-Oct-2014) Aisan Industry (7283.T, ¥815) Aisin Seiki (7259.T, ¥3,670, OUTPERFORM, TP ¥4,650) BorgWarner, Inc. (BWA.N, $56.44) Bosch (BOSH.NS, Rs14624.2) Champion Spark Plugs (Unlisted) Continental (CONG.DE, €152.0) Corning (GLW.N, $18.53) DELPHI Automotive PLC (DLPH.N, $64.95) Daihatsu Motor (7262.T, ¥1,566) Denso (6902.T, ¥4,835, OUTPERFORM, TP ¥5,750) Ford Motor Company (F.N, $14.26) Fuji Heavy Industries (7270.T, ¥3,305) General Motors Corp. (GM.N, $30.84) Hilite International (Unlisted) Hitachi (6501.T, ¥777) Hitachi Metals (5486.T, ¥1,875) Honda Motor (7267.T, ¥3,412) IBIDEN (4062.T, ¥1,684, UNDERPERFORM, TP ¥1,500) KSPG Automotive (Unlisted) Kyocera (6971.T, ¥4,549) Mazda Motor (7261.T, ¥2,352) Mitsubishi Electric (6503.T, ¥1,311) Mitsubishi Motors (7211.T, ¥1,160) NGK Insulators (5333.T, ¥2,401, OUTPERFORM, TP ¥2,820) NGK Spark Plug (NGKSY.PK, $2,820) NGK Spark Plug (5334.T, ¥2,939, NEUTRAL, TP ¥3,200) Nissan Motor (7201.T, ¥951) Renault (RENA.PA, €55.29) Schaeffler AG (Unlisted) Sumitomo Chemical (4005.T, ¥355) Suzuki Motor (7269.T, ¥3,302) Toyota Motor (7203.T, ¥6,034) Volvo (VOLVY.PK, $10.525) psa peugeot citroen (Unlisted)
Disclosure Appendix Important Global Disclosures Masahiro Akita, Akinori Kanemoto and Jun Yamaguchi each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Aisin Seiki (7259.T) 7259.T Date 17-Nov-11 08-Mar-12 05-Oct-12 20-Nov-12 15-Jan-13 25-Feb-13 05-Apr-13 30-May-13 20-Aug-13 17-Jan-14 05-Jun-14 17-Sep-14
Closing Price (¥) 2,210 2,778 2,224 2,241 2,826 3,310 3,545 3,755 3,865 4,125 3,755 3,910
Target Price (¥) 2,300 3,250 3,050 3,100 3,350 3,700 4,000 4,500 4,850 5,100 4,800 4,650
Rating N O
Target Price
Closing Price 7259.T
6,000 5,000 4,000 3,000 2,000 1- Jan- 12
1- Jan- 13
1- Jan- 14
N EU T RA L O U T PERFO RM
* Asterisk signifies initiation or assumption of coverage.
Auto, Auto Parts, Materials, Electronic Components Sector
41
23 October 2014
3-Year Price and Rating History for Denso (6902.T) 6902.T Date 17-Nov-11 11-Jan-12 07-Mar-12 29-May-12 22-Aug-12 05-Oct-12 20-Nov-12 15-Jan-13 25-Feb-13 05-Apr-13 30-May-13 20-Aug-13 17-Jan-14 19-Mar-14 05-Jun-14 17-Sep-14
Closing Price (¥) 2,170 2,115 2,618 2,383 2,744 2,478 2,534 3,215 3,750 4,110 4,315 4,510 5,668 4,791 4,829 4,762
Target Price (¥) 2,390 2,400 2,800 2,900 3,100 2,850 3,050 3,650 4,050 4,500 5,350 5,750 6,450 6,200 5,900 5,750
Rating N
Target Price
Closing Price 6902.T
7,000 6,000 5,000 4,000
O
3,000 2,000 1- Jan- 12
1- Jan- 13
1- Jan- 14
N EU T RA L O U T PERFO RM
* Asterisk signifies initiation or assumption of coverage.
3-Year Price and Rating History for IBIDEN (4062.T) 4062.T Date 30-Jan-12 11-Apr-12 19-Jul-12 13-Sep-12 15-Oct-12 20-Feb-13 19-Apr-13 19-Jul-13 03-Sep-13 07-Oct-13 10-Apr-14 30-Sep-14
Closing Price (¥) 1,541 1,887 1,346 1,178 1,024 1,376 1,505 1,574 1,470 1,508 1,977 2,136
Target Price (¥) 1,550 2,000 1,200 990 950 1,600 1,700 1,600 1,500 1,550 1,850 1,500
Rating N
Target Price
Closing Price 4062.T
2,500 2,000 1,500 1,000 500 1- Jul- 12
1- Jan- 13
1- Jul- 13
1- Jan- 14
1- Jul- 14
N EU T RA L U N D ERPERFO RM
U
* Asterisk signifies initiation or assumption of coverage.
3-Year Price and Rating History for NGK Insulators (5333.T) 5333.T Date 07-Dec-11 01-Mar-12 29-May-12 23-Aug-12 19-Nov-12 28-Feb-13 31-May-13 19-Aug-13 25-Nov-13 13-Feb-14 04-Jun-14 11-Aug-14
Closing Price (¥) 874 1,088 850 986 861 1,000 1,300 1,379 1,809 2,018 2,164 2,551
Target Price (¥) 1,100 1,300 1,000 1,000 750 860 1,150 1,300 1,530 2,370 2,440 2,820
Rating O*
Target Price
Closing Price 5333.T
3,000 2,500
N
2,000 1,500 1,000 500 1- Jan- 12
O
1- Jul- 12
1- Jan- 13
1- Jul- 13
1- Jan- 14
1- Jul- 14
O U T PERFO RM N EU T RA L
* Asterisk signifies initiation or assumption of coverage.
Auto, Auto Parts, Materials, Electronic Components Sector
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23 October 2014
3-Year Price and Rating History for NGK Spark Plug (5334.T) 5334.T Date 27-Jan-12 11-Apr-12 18-Jul-12 24-Aug-12 15-Oct-12 22-Apr-13 19-Jul-13 07-Oct-13 10-Apr-14 25-Aug-14
Closing Price (¥) 960 1,121 949 893 849 1,602 2,043 2,086 2,277 3,160
Target Price (¥) 930 1,100 800 770 735 1,370 1,850 1,920 2,350 3,200
Target Price
Rating N
3,500
U
2,500
Closing Price 5334.T
1,500
500
N
* Asterisk signifies initiation or assumption of coverage.
1- Jul- 12
1- Jan- 13
1- Jul- 13
1- Jan- 14
1- Jul- 14
N EU T RA L U N D ERPERFO RM
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 attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European 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 attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American 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; 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 +1015% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
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 cover 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* 45% (54% banking clients) Neutral/Hold* 39% (50% banking clients) Underperform/Sell* 13% (44% 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 holdings, and other individual factors.
Auto, Auto Parts, Materials, Electronic Components Sector
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23 October 2014
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. Price Target: (12 months) for IBIDEN (4062.T) Method: We derive our TP using our FY3/15 forecasts and a zero-growth ROC model (EV/IC = ROC/WACC; we assume a risk-free rate of 0.55%, a risk premium of 6.25%, beta of 1.4, and ROC of 4.1%). We apply a 10% discount to factor in the risk of deteriorating conditions and earnings in the flip-chip package business. Risk:
Factors that could cause the shares to exceed our TP include further yen depreciation against the dollar, market share recovery in PCB business, or higher prices for flip-chip packages.
Price Target: (12 months) for NGK Insulators (5333.T) Method: Our ¥2,820 TP for NGK Insulators is based on FY3/15-3/16E average EPS of ¥141 and an assumed fair-value P/E of 20x (average of 12month forward consensus P/E). Risk:
Risks that may impede achievement of our ¥2,820 TP for NGK Insulators include: Decreased demand for automotive ceramics products, loosening / delay in implementation of emissions standards in China and elsewhere, delays in new product development in the electronics business, delays in insulator business restructuring, and yen appreciation.
Price Target: (12 months) for NGK Spark Plug (5334.T) Method: We derive our ¥3,200 TP for NGK Spark Plug using a zero-growth ROC model based on FY3/15 estimates (EV/IC = ROC/WACC); we apply 1.1 beta, 6.5% Rp, 0.61% Rf, and 12.8% ROC. Risk:
Risks for our ¥3,200 TP are followings; Upside risks include swifter improvement in automotive segment profitability and sharper yen devaluation, while downside risks include larger-than-expected extraordinary losses from breaches of antitrust laws elsewhere (Japan, Europe, etc.) and lower-than-forecast auto production.
Price Target: (12 months) for Denso (6902.T) Method: We derive our ¥5,750 target price for Denso by applying a fair-value P/B multiple of 1.58x to our end-FY3/15 BPS forecast of ¥3,630. Our target multiple is based on a theoretical P/E of 16x (assuming 7.9% cost of capital (Beta 1.12, ERP 6.5%, RFR 0.61%) and a premium of 27%) and our FY3/15 RoE estimate of 9.9%. Premium 27% is derived by relative P/E of Denso vs. the average of our Auto parts sector coverage in the last two years. Risk:
Risks to our ¥5,750 target price for Denso include: a higher upfront spending, a drop in the ratio of automatic transmission-equipped vehicles, yen appreciation, renewed cartel issues.
Price Target: (12 months) for Aisin Seiki (7259.T) Method: We derive our ¥4,650 target price for Aisin Seiki from a P/B of 1.23x applied to our end-FY3/15 BPS forecast of ¥3,767. The benchmark P/B (1.23x) is based on a fair value P/E of 13.3x (cost of shareholders’ equity 8% (Beta 1.13, ERP 6.5%, RFR 0.61%); premium 6%) and our FY3/15 ROE forecast of 9.3%. The premium of 6% is based on the relative P/E of Aisin Seiki vs. the average of our auto parts sector coverage for the last two years. Risk:
Risks to our ¥4,650 target price for Aisin Seiki include: decline in the proportion of automatic transmission-equipped vehicles, and yen appreciation.
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 (7203.T, 7262.T, 7267.T) 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 (7267.T) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (7267.T) within the past 12 months.
Auto, Auto Parts, Materials, Electronic Components Sector
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23 October 2014
Credit Suisse has received investment banking related compensation from the subject company (7267.T) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (4062.T, 6902.T, 7259.T, 7269.T, 7270.T, 7261.T, 7211.T, 7201.T, 4005.T, 5486.T, 6501.T, 6503.T, 6971.T, 7203.T, 7262.T, 7267.T) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (7201.T, 6971.T, 7203.T, 7267.T). For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.
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 (4062.T, 5333.T, 5334.T, 6902.T, 7259.T, 7269.T, 7270.T, 7261.T, 7211.T, 7201.T, 4005.T, 6501.T, 6503.T, 6971.T, 7203.T, 7262.T, 7267.T) within the past 12 months An analyst involved in the preparation of this report has visited certain material operations of the subject company (5486.T) within the past 12 months The travel expenses of the analyst in connection with such visits were not paid or reimbursed by the subject company, other than de minimus local travel expenses. 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: (7201.T). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (7203.T, 7262.T, 7267.T) within the past 3 years. 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. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited............................................................................... Masahiro Akita ; Akinori Kanemoto ; Jun Yamaguchi For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.
Auto, Auto Parts, Materials, Electronic Components Sector
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23 October 2014
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Auto, Auto Parts, Materials, Electronic Components Sector
Connections Series_102314_E.doc 46