e e J apallese e quite S Preference: neutral ; Topix (24 Oct): 743 (last publication: 743) Recommendations UBS view Topix (6-month target): 756 Tactical (6 months) ; ; ; ; ; e Japanese value stocks have under- e We expect earnings growth of about 25% over the upcoming 12 months. A relatively high growth rate performed growth stocks by more than still reflects last year's sharp decline caused by two natural disasters. Still, the earnings recovery has 20% for the last four months. We see this disappointed so far. Earnings growth continues to slow down and is expected to move toward a more as an overreaction to concerns on the normal single-digit growth in 2013. slower global economy, and recommend ¢ The government started implementing its JPY 18 trillion recovery budget in Q4 2011; we expect it to picking some value stocks with high boost GDP by 0.5-1.0% in FY2012, and about 0.5% in 2013. dividend yields. ¢ However, we see only limited scope for an additional earnings boost from the local economic recovery. ° We prefer companies that are using cost- Slowing export markets also curtail the outlook. June quarter-earnings results revealed emerging market reduction eee sealers ver demand was below expectation, capping earnings growth. rls alee SINS, BENSs Sar Yeu e We expect the TOPIX trailing P/E to drop to around 13.5x from 15.0x over the coming months, mainly due gt , to the earnings recovery; this provides room for moderate price increases only. Strategic (1 to 2 years) e A weaker USD-JPY rate may drive 4 Positive scenario Topix (6-month target): 970 Japanese companies’ earnings recovery ¢ Stronger global demand and stabilizing European markets lead to improved risk-taking. Falling risk beyond a technical recovery from natural ae < mh : : . disasters. Japanese exporters and aversion is likely to lead to a weaker yen, providing an additional increase in earnings. We expect 10-15% companies owning international EPS growth in FY2013 and the TOPIX target is based on