Nomura : Outlook for FY19-20 corporate earnings(PDF 416KB)

News Release

Outlook for FY19-20 corporate earnings

Quarterly Update

3 December 2019

For inquiries:

Market Strategy Research Dept

Equity Research Dept

Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Contents

Summary and major assumptions........................................................	3
Contributions to recurring profit growth by sector.................................	5
Revisions to recurring profit estimates (versus old estimates) .............	7
Revision index for the Russell/Nomura Large Cap Index .....................	9

Reference
Russell/Nomura Large Cap Index: earnings indicators ......................	10
Recurring profits by sector.................................................................	12
Percentage change in quarterly sales and profits ..............................	13
Valuation indicators ...........................................................................	14
What are the Russell/Nomura Japan Equity Indexes? .......................	15

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Summary and major assumptions

Overview of the FY19 corporate earnings outlook

In this report, we collate and analyze earnings forecast data issued by our analysts.

For FY19, our analysts forecast sales growth of 0.2% y-y and a recurring profit decline of 5.3% for companies in the Russell/Nomura Large Cap Index (ex financials). In our previous forecast (released in September 2019, collated as of 26 August 2019, same throughout), we forecast slight recurring profit growth, and now forecast a recurring profit decline as a result of downward revisions. If recurring profits were to decline, it would be the first time since FY11, eight years ago.

We lower our sales growth and recurring profit growth forecasts by 0.9ppt and 5.5ppt, respectively. In FY19 Q2, SoftBank Group [9984] recognized large losses in its investment business. The downward revision to our forecast for the company represented about 40% of our total downward revision to our recurring profit forecast. The revision index, which captures the trend in revisions to forecasts by our analysts in terms of the number of companies, was -16.9%, with downward revisions holding the advantage over upward revisions for the fifth straight quarter, an improvement of 9.1ppt from -26.1% last time. Our forex assumptions for FY19 are USD/JPY of 108.31 (previously 107.72) and EUR/JPY of 120.21 (previously 121.62), only slight changes. We thus think revisions to forecasts attributable to changes in forex assumptions for these two currencies were minimal.

In FY19 Q2, recurring profits at companies in the Russell/Nomura Large Cap Index (ex financials) fell 20.8% y-y on a 0.6% increase in sales. If we exclude SoftBank Group, in view of the reason stated earlier, recurring profits fell 9.7% y-y on a 0.7% increase in sales. Q1 sales and recurring profits excluding those for SoftBank Group rose 1.1% y-y and fell 15.0%, respectively. On this basis, sales growth slowed and the recurring profit decline narrowed.

Overview of the FY20 corporate earnings outlook

For FY20, our analysts look for sales growth of 1.8% y-y and recurring profit growth of 9.3% for companies in the Russell/Nomura Large Cap Index (ex financials). Based on an assumption of a moderate economic recovery, they expect profit growth to be driven mainly by economically sensitive sectors, including electrical machinery, precision equipment; automobiles; chemicals; and machinery.

The forex assumptions used for FY20 are USD/JPY of 108.00 (previously 107.00) and EUR/JPY of 119.00 (previously 121.00).

From last time, our sales growth forecast was revised down by 0.1ppt and our recurring profit growth forecast was raised by 2.3ppt. We lowered our recurring profit forecast by ¥1,541.5bn, but raised our recurring profit growth forecast, mainly because we lowered our forecast for recurring profits in FY19 on which we base our comparison.

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Fig. 1: Overview of consolidated earnings forecasts for the Russell/Nomura Large Cap Index

(% y-y, except where noted)

		No.	New
		of cos	FY16	FY17	FY18	FY19E	FY20E
	Russell/Nomura Large Cap (ex financials)	307	-3.3	8.2	6.5	0.2	1.8
	Manufacturing	179	-4.3	9.3	3.0	-0.7	2.3
Sales	Basic materials	41	-5.6	17.1	7.0	0.2	0.4
Processing	83	-4.4	7.9	1.7	-2.3	3.1
	Nonmanufacturing (ex financials)	128	-1.8	6.7	11.5	1.4	1.2
	Russell/Nomura Small Cap (ex financials)	1,131	-0.5	6.1	4.6	2.2	3.0
	Russell/Nomura Large Cap (ex financials)	307	2.9	16.3	3.6	-9.2	11.4
	Manufacturing	179	-0.5	17.8	0.3	-8.9	14.5
Operating profits	Basic materials	41	9.4	34.9	0.1	-18.0	9.4
Processing	83	-3.6	15.9	0.2	-7.5	14.0
	Nonmanufacturing (ex financials)	128	7.5	14.3	8.0	-9.5	7.7
	Russell/Nomura Small Cap (ex financials)	1,131	7.2	6.8	-2.4	3.3	11.2
	Russell/Nomura Large Cap	333	1.4	15.3	1.1	-3.5	8.3
	Russell/Nomura Large Cap (ex financials)	307	3.6	17.5	3.1	-5.3	9.3
	Manufacturing	179	0.2	21.6	-1.5	-9.1	16.1
	Basic materials	41	12.1	43.6	2.1	-21.5	11.2
Recurring profits	Processing	83	-3.1	19.6	-2.6	-6.0	15.3
	Nonmanufacturing	154	2.5	9.7	3.7	1.8	1.7
	Nonmanufacturing (ex financials)	128	8.4	12.2	9.7	-0.4	1.4
	Russell/Nomura Small Cap	1,227	5.8	9.0	-1.8	1.1	10.8
	Russell/Nomura Small Cap (ex financials)	1,131	8.8	8.4	0.3	-0.1	11.8
	Russell/Nomura Large Cap	333	8.5	32.2	-4.5	-7.5	9.0
	Russell/Nomura Large Cap (ex financials)	307	10.8	38.5	-1.1	-11.8	11.0
	Manufacturing	179	-1.5	53.1	-4.3	-17.8	18.6
	Basic materials	41	58.4	49.6	0.9	-31.1	16.9
Net profits	Processing	83	-14.0	68.5	-5.9	-16.3	16.9
	Nonmanufacturing	154	18.2	15.1	-4.7	3.6	0.8
	Nonmanufacturing (ex financials)	128	30.9	20.4	3.9	-3.3	1.8
	Russell/Nomura Small Cap	1,227	17.3	14.5	-5.9	6.8	12.7
	Russell/Nomura Small Cap (ex financials)	1,131	21.7	10.1	-3.4	7.1	14.4

Old

FY19E FY20E

1.1 1.9

0.3 2.0

0.9 -0.7

-1.03.0

2.1 1.7

3.0 3.0

-3.78.8

-5.114.6

-13.413.2

-2.311.9

-2.02.0

7.8 9.3

1.2 6.4

0.2 7.0

-5.115.7

-14.913.2

-1.213.5

7.1 -1.4

6.9 -3.0

5.1 8.4

4.8 9.4

-3.16.9

-6.68.0

-14.718.6

-22.815.4

-12.315.2

9.5 -2.9

5.0 -4.2

13.8 7.8

15.9 8.7

Note: Latest estimates as of 25 November 2019; previous estimates as of 26 August 2019.

Source: Nomura

Fig. 2: Major assumptions

As of 17 October 2019

		Industrial	Policy rate
		production	WTI	Exchange rate (avg)
		(FY-end)
		2010 base year
		% y-y	%	$/bbl	USD/JPY	EUR/JPY
FY18		0.1	-0.10	62.8	110.90	128.40
FY19E		-1.7	-0.10	56.6	108.31	120.21
FY20E		0.6	-0.10	55.0	108.00	119.00
FY18	H1	0.5	-0.10	68.7	110.33	129.92
FY18	H2	-0.3	-0.10	56.9	111.46	126.87
FY19E	H1	Estimate -1.9	-0.10	58.1	108.61	121.41
FY19E	H2	-1.5	-0.10	55.0	108.00	119.00
FY20E	H1	0.3	-0.10	55.0	108.00	119.00
FY20E	H2	1.0	-0.10	55.0	108.00	119.00

As of 18 July 2019

Industrial	Policy rate
production	WTI	Exchange rate (avg)
(FY-end)
2010 base year
% y-y	%	$/bbl	USD/JPY	EUR/JPY
0.1	-0.10	62.8	110.90	128.40
-0.9	-0.10	60.0	107.72	121.62
0.5	-0.10	60.0	107.00	121.00
0.5	-0.10	68.7	110.33	129.92
-0.3	-0.10	56.9	111.46	126.87
-0.5	-0.10	59.9	108.45	122.25
-1.3	-0.10	60.0	107.00	121.00
-0.2	-0.10	60.0	107.00	121.00
1.1	-0.10	60.0	107.00	121.00

Note: WTI is the term-average WTI crude oil futures price. The above assumptions are not Nomura forecasts but the assumptions on which Nomura analysts base their earnings forecasts.

Source: Nomura

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Contributions to recurring profit growth by sector

Overview of the FY19 corporate earnings outlook

For FY19, our analysts expect recurring profits to increase in 8 of 19 sectors and decrease in 11.

Sectors expected to contribute substantially to profit growth include financials; utilities; housing, real estate; retailing; and software.

In the financials sector, the profit growth stems in part from low profits in FY18, when the market environment was harsh, but earnings have also been bottoming in banks' non-retailclient-facing operations. H1 results show that earnings from corporate business in Japan and elsewhere driven by debt capital market (DCM) and M&A-related operations held up well, in addition to earnings from market-related operations from gains on the sale of foreign bonds. In utilities, we expect improved gains/losses related to the fuel cost adjustment system. In the housing, real estate sector, the office building leasing market remains strong. Sales of condos appear to be stagnating, mainly in the Greater Tokyo area, but steady progress has been made with contracts for condos of major developers. In retailing, we expect margin improvement at companies, including through cost reductions and a focus on margins. In the software sector, appetite for IT investment has been strong, mainly in manufacturing and distributive/services industries, for the purpose of improving productivity and expanding sales.

Sectors expected to contribute substantially to profit decline include chemicals; electrical machinery, precision equipment; telecommunications; and steel, nonferrous metal.

In the chemicals sector, business conditions are harsh, chiefly in petrochemical products, as a result of US-China trade friction and a slowdown in the economy. In the electrical machinery, precision equipment sector, harsh conditions continue, mainly in economically sensitive businesses, owing to sluggish auto sales and capex. We forecast a decline in profits for the full year, though some signs of earnings recovery have emerged, including an upward revision to the capex plans of the largest logic semiconductor manufacturer. In the telecommunications sector, downward pressure has come from the rollout of new mobile pricing plans and upfront investments. SoftBank Group has booked more than ¥1trn in settlement gains on the forward purchase agreement in FY19, but the deterioration in earnings from investments by the investment fund business and by the company itself has exceeded this. In the steel, nonferrous metals sector, we expect export margins at blast furnace steelmakers to be unfavorable through the third quarter of 2019. The price of iron ore has been falling, but we do not expect the benefits of this to be seen until January 2020.

Overview of the FY20 corporate earnings outlook

For FY20, our analysts expect recurring profits to increase in 15 of 19 sectors and decrease in 4.

Sectors expected to contribute the most to profit growth include electrical machinery, precision equipment; pharmaceuticals, healthcare; automobiles; and chemicals.

In electrical machinery, precision equipment, we expect tailwinds from higher demand for 5G smartphones, uptake of which should pick up in 2020. We also expect a recovery in capex related to flash memory, followed by resumption of DRAM investment. In pharmaceuticals, healthcare, the effect of no more acquisition-related costs is big, but even excluding this factor, we expect solid profit growth throughout the sector. In automobiles, we expect profit growth on cost reductions and new car effects, although market conditions are likely to remain weak, with the exception of the US market. In chemicals, we forecast the largest contribution from the oil products subsector. We think LNG production growth will drive profit growth in addition to the effect of inventory valuation losses falling out of the picture.

Sectors expected to contribute to profit declines are telecommunications, utilities, trading companies, and construction.

In telecommunications, the dropping out of the picture of settlement gains on the contract to sell shares at SoftBank Group, discussed earlier, is a major factor. We forecast profit growth for the sector after adjusting for this factor. In utilities, downward pressure is likely to come from intensification of competitive conditions owing to deregulation of electricity/gas retail sales. In trading companies, we forecast profit declines mainly in resource businesses on the assumption that prices of coking coal, iron ore, and other commodities will be weak. We also expect the dropping out of the picture of one-time profits either booked already or expected to be booked in FY2019. In construction, we think competition for orders has been become increasingly intense in very large projects with long construction periods.

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Fig. 3: Contributions to recurring profit growth by sector for the Russell/Nomura Large Cap Index

FY19E
Increase in profits			(%)
	Growth	Contribution	Contribution
8 sectors			(ex financials)
Financials	8.0	29.6	-
Utilities	26.8	15.5	12.0
Housing, real estate	6.2	7.4	5.7
Retailing	7.7	6.9	5.4
Software	17.5	6.9	5.3
Household goods	4.2	2.0	1.6
Construction	1.0	0.4	0.3
Transportation	0.1	0.2	0.1
Decrease in profits			(%)
	Growth	Contribution	Contribution
11 sectors			(ex financials)
Pharmaceuticals, healthcare	-1.7	-1.5	-1.2
Trading companies	-0.9	-1.7	-1.3
Services	-1.7	-1.7	-1.3
	-0.6	-2.3
Automobiles	-1.8
Media	-23.4	-5.0	-3.8
Food	-11.5	-11.0	-8.5
Machinery	-9.3	-13.9	-10.7
Steel, nonferrous metals	-52.6	-28.4	-21.9
Telecommunications	-12.1	-33.1	-25.6
Electrical machinery, precision equipment	-10.6	-34.7	-26.8
Chemicals	-14.7	-35.9	-27.7

Source: Nomura

FY20E
Increase in profits			(%)
	Growth	Contribution	Contribution
			(ex financials)
15 sectors
Electrical machinery, precision equipment	23.8	30.7	32.3
Pharmaceuticals, healthcare	43.8	16.7	17.6
Automobiles	9.9	16.1	16.9
Chemicals	9.2	8.5	9.0
Machinery	11.6	6.9	7.2
Transportation	8.0	5.4	5.7
Financials	2.7	4.8	-
Software	21.0	4.3	4.5
	10.5	3.9	4.1
Food
Services	7.4	3.2	3.4
	7.4	3.2	3.3
Retailing
	27.3	3.1
Steel, nonferrous metals	3.2
	5.3	3.0	3.1
Housing, real estate
Household goods	12.2	2.7	2.9
Media	10.4	0.7	0.8
Decrease in profits			(%)
	Growth	Contribution	Contribution
			(ex financials)
4sectors
Construction	-2.1	-0.4	-0.4
Trading companies	-2.8	-2.2	-2.4
Utilities	-12.4	-4.0	-4.2
Telecommunications	-6.2	-6.6	-7.0

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Revisions to recurring profit estimates (versus old estimates)

Overview of the FY19 corporate earnings outlook

Our analysts have raised their FY19 recurring profit forecasts for 4 of 19 sectors and lowered them for 14. Upward revisions were made to the pharmaceuticals, healthcare; utilities; software; and financials sectors.

In pharmaceuticals, healthcare, earnings were strong in Japan and overseas in Q2, and we factored in progress with SG&A cost controls and cost reductions. In utilities, we reflected profit improved under the fuel cost adjustment system resulting from lower oil price assumptions. In software, IT investment demand conditions and margin improvement at companies were better than expected. In the amusement subsector, unit sales of software exceeded our expectations owing to the launch of a smaller version of a mainstay game device. We made only slight revisions to our forecast for the financials sector.

We made the largest downward revisions to forecasts in terms of monetary value in the telecommunications; electrical machinery, precision equipment; trading companies, and automobile sectors.

In telecommunications, this mainly reflected losses on investments by the investment fund business and by the company itself at SoftBank Group in Q2. In electrical machinery, precision equipment, business conditions have worsened further, mainly in economically sensitive businesses, such as factory automation and power semiconductors for industry. Business conditions have been worsening for office equipment in response to customers' appetites for investment having been sapped and intensification of competitive conditions. We raised our forecasts for some subsectors, such as electronic parts and semiconductor production equipment, as we raise our outlook for demand for electronic parts used in smartphones and base stations and testers for processors, as uptake of 5G smartphones has exceeded expectations. In trading companies, we lower our forecasts for resource businesses in view of weak commodity prices. Coking coal prices have been falling and iron ore market prices have been weak on weaker than expected steel product market prices in China. In non-resource businesses, business conditions have been deteriorating in automotive and chemical product operations in response to slowing economic activity. In automobiles, we factor in weak tire sales, mainly overseas, deterioration in business conditions in India, and the effect of forex rates. New one-time expenses have also arisen, such as for large-scale recalls.

Overview of the FY20 corporate earnings outlook

Our analysts have raised their FY20 recurring profit forecasts for 4 of 19 sectors and lowered them for 14.

Upward revisions were made in the pharmaceuticals, healthcare; software; utilities; and housing, real estate sectors.

The background to our upward revisions in the pharmaceuticals, healthcare and software sectors is similar to that for our FY19 forecast revisions. In utilities, we reflected cost reductions to some extent in our earnings forecasts. In housing, real estate, we reflect the growing likelihood that a large-scale real estate developer will book gains on real estate sales, but our upward revision for the sector as a whole is small.

Downward revisions were biggest for the chemicals; trading companies; automobiles; electrical machinery, precision equipment sectors.

In chemicals, we lowered our oil products subsector forecast as we lowered our oil price assumption, and we take a more downbeat view of earnings from petrochemicals. In trading companies, we make downward revisions mainly to resource business forecasts as we changed our assumptions for commodity prices. In automobiles, we factored in fines and model-mix deterioration accompanying the efforts to comply with CO2 regulations in Europe. In electrical machinery, precision equipment, our downward revision is smaller than that for FY19 because we expect demand for 5G smartphones to rise.

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Fig. 4: Revisions to recurring profit estimates (versus old estimates) for the Russell/Nomura Large Cap Index

FY19E
[Upward revisions]	4 sectors
	New		Old	Revision	Change
	¥bn		¥bn	¥bn	%
Pharmaceuticals, healthcare	1,485		1,362	122	9.0
Utilities	1,258		1,218	40	3.3
Software	795		769	26	3.4
Financials	6,874		6,856	18	0.3
[Downward revisions]	14 sectors
	New		Old	Revision	Change
	¥bn		¥bn	¥bn	%
Housing, real estate	2,182		2,183	-1	-0.1
Media	279		282	-4	-1.3
Household goods	865		872	-7	-0.8
Retailing	1,667		1,681	-14	-0.8
Transportation	2,630		2,646	-16	-0.6
Food	1,455		1,494	-40	-2.7
Services	1,672		1,777	-104	-5.9
Steel, nonferrous metals	438		582	-145	-24.8
Machinery	2,305		2,462	-156	-6.3
Chemicals	3,579		3,775	-196	-5.2
Automobiles	6,295		6,549	-254	-3.9
Trading companies	3,120		3,384	-264	-7.8
Electrical machinery, precision equipment	5,018		5,303	-285	-5.4
Telecommunications	4,142		5,146	-1,004	-19.5

FY20E
[Upward revisions]	4 sectors
	New		Old	Revision	Change
	¥bn		¥bn	¥bn	%
Pharmaceuticals, healthcare	2,135		2,092	43	2.1
Software	963		937	26	2.8
Utilities	1,102		1,077	25	2.3
Housing, real estate	2,298		2,297	1	0.0
[Downward revisions]	14 sectors
	New		Old	Revision	Change
	¥bn		¥bn	¥bn	%
Media	308		310	-3	-0.8
Household goods	971		981	-10	-1.1
Transportation	2,839		2,852	-13	-0.5
Financials	7,060		7,073	-13	-0.2
Retailing	1,790		1,818	-28	-1.5
Telecommunications	3,884		3,930	-45	-1.1
Food	1,607		1,682	-75	-4.4
Steel, nonferrous metals	557		678	-121	-17.8
Machinery	2,573		2,699	-126	-4.7
Services	1,796		1,935	-139	-7.2
Electrical machinery, precision equipment	6,212		6,351	-139	-2.2
Automobiles	6,918		7,189	-270	-3.8
Trading companies	3,033		3,359	-326	-9.7
Chemicals	3,910		4,253	-343	-8.1

Note: No revisions were made to our FY19 or FY20 forecasts for the construction sector. Latest estimates as of 25 November 2019; previous estimates as of 26 August 2019.

Source: Nomura

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Nomura | JPN Outlook for FY19-20 corporate earningsDecember 3, 2019

Fig. 5: Revision index for the Russell/Nomura Large Cap Index

																					(%)
			(yy/m)		18/3		18/6		18/9		18/9		19/3		19/6	19/9	19/12
Russell/Nomura Large Cap						14.4		-11.4		0.9		-17.4		-31.4		-27.6	-24.6	-15.6
Russell/Nomura Large Cap (ex financials)			13.2		-12.9		1.7		-19.1		-33.8		-28.0	-26.1	-16.9
Manufacturing						13.3		-23.8		7.2		-26.0		-47.8		-34.1	-46.4	-25.7
Basic materials						26.8		-17.1		9.8		-36.6		-42.9		-31.7	-63.4	-56.1
Processing						17.9		-33.3		14.3		-29.8		-57.8		-41.0	-50.6	-32.5
Nonmanufacturing (ex financials)					13.1			3.3		-6.6		-9.0		-14.1		-19.5	2.3	-4.7
(%)
80				Russell/Nomura Large Cap (ex financials)
60
40
20
0
-20
-40
-60
-8080	82	84	86	88	90	92	94	96	98	00	02	04	06	08	10	12	14	16	18	(CY)

Note: (1) Calculated by Nomura based on revisions to recurring profit forecasts. Excludes consolidated subsidiaries. (2) Revision index = (number of upward revisions - number of downward revisions) ÷ number of constituent companies.

Source: Nomura

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Nomura | JPN	Outlook for FY19-20 corporate earnings							December 3, 2019
Russell/Nomura Large Cap Index: earnings indicators
Fig. 6: Percentage change in sales by sector						(% y-y, except where noted)
				No. of	FY16	FY17	FY18	FY19E	FY19E	FY20E	FY20E
				cos				Old	New	Old	New
			Russell/Nomura Large Cap (ex financials)	307	-3.3	8.2	6.5	1.1	0.2	1.9	1.8
			Manufacturing	179	-4.3	9.3	3.0	0.3	-0.7	2.0	2.3
	Industrial groups		Basic materials	41	-5.6	17.1	7.0	0.9	0.2	-0.7	0.4
			Processing	83	-4.4	7.9	1.7	-1.0	-2.3	3.0	3.1
			Nonmanufacturing (ex financials)	128	-1.8	6.7	11.5	2.1	1.4	1.7	1.2
			Materials	41	-5.6	17.1	7.0	0.9	0.2	-0.7	0.4
			Machinery, autos	45	-3.1	9.0	2.2	-0.5	-1.9	2.9	2.8
	Broad sectors		Electronics	38	-6.3	6.0	0.8	-1.8	-2.9	3.2	3.8
		Consumer, distribution	98	-2.2	6.7	15.5	3.0	2.0	1.9	1.3
			Information	23	0.1	6.3	3.7	1.5	1.4	2.6	2.3
			Utilities, infrastructure	62	-2.5	6.0	3.8	2.2	2.1	1.1	0.8
			Chemicals	33	-5.8	18.0	8.0	1.7	1.4	-0.5	0.1
			Steel, nonferrous metals	8	-5.1	15.0	4.7	-1.3	-3.0	-1.1	1.2
			Machinery	26	-2.9	13.9	3.0	1.7	0.3	2.9	2.9
			Autos	19	-3.2	7.7	2.0	-1.1	-2.6	2.9	2.7
			Electrical machinery, precision equipment	38	-6.3	6.0	0.8	-1.8	-2.9	3.2	3.8
			Pharmaceuticals, healthcare	22	-2.7	3.2	3.5	9.5	10.1	1.7	1.4
			Food products	20	-1.8	6.7	2.5	1.4	1.2	0.9	0.6
			Household goods	13	-4.1	7.5	3.5	2.1	1.3	5.6	5.5
	Sectors		Trading companies	7	-4.6	13.1	45.0	2.1	-0.3	0.7	-0.1
		Retailing	20	2.2	5.1	3.1	3.4	3.3	3.8	3.5
			Services	16	-2.7	0.7	1.9	0.9	0.4	2.5	1.0
			Software	11	2.9	20.8	9.5	4.6	5.9	8.3	8.0
			Media	5	-1.3	5.3	6.4	1.2	1.4	2.5	2.7
			Telecommunications	7	0.0	4.7	2.7	1.0	0.8	1.8	1.4
			Construction, engineering	7	0.2	1.9	8.0	4.4	4.4	-1.0	-1.0
			Housing, real estate	19	5.1	5.1	5.4	3.2	3.7	2.7	2.3
			Transportation	25	-3.1	5.8	-1.1	2.1	1.6	2.3	2.3
			Utilities	11	-8.2	8.5	6.6	0.6	0.1	-1.0	-1.6

Note: Figures exclude listed consolidated subsidiaries. Latest estimates as of 25 November 2019; previous estimates as of 26 August 2019.

Source: Nomura

10

Nomura | JPN Outlook for FY19-20 corporate earningsDecember 3, 2019

Fig. 7: Percentage change in recurring profits by sector

(% y-y, except where noted)

		No. of	FY16	FY17	FY18	FY19E	FY19E	FY20E	FY20E
		cos
					Old	New	Old	New
	Russell/Nomura Large Cap	333	1.4	15.3	1.1	1.2	-3.5	6.4	8.3
	Russell/Nomura Large Cap (ex financials)	307	3.6	17.5	3.1	0.2	-5.3	7.0	9.3
Industrial	Manufacturing	179	0.2	21.6	-1.5	-5.1	-9.1	15.7	16.1
Basic materials	41	12.1	43.6	2.1	-14.9	-21.5	13.2	11.2
groups
Processing	83	-3.1	19.6	-2.6	-1.2	-6.0	13.5	15.3
	Nonmanufacturing	154	2.5	9.7	3.7	7.1	1.8	-1.4	1.7
	Nonmanufacturing (ex financials)	128	8.4	12.2	9.7	6.9	-0.4	-3.0	1.4
	Materials	41	12.1	43.6	2.1	-14.9	-21.5	13.2	11.2
	Machinery, autos	45	-13.0	16.5	-8.9	1.5	-3.1	9.7	10.4
	Electronics	38	27.8	26.1	9.3	-5.5	-10.6	19.8	23.8
Broad sectors	Consumer, distribution	98	19.8	14.8	2.8	1.8	-1.1	12.3	10.4
		23	0.2	6.1	33.1	7.8		-16.5	-1.2
	Information	-9.3
	Utilities, infrastructure	62	-3.8	9.6	-2.5	6.0	6.3	2.4	2.3
		26	-8.1	4.4	-10.5	7.7	8.0	3.2	2.7
	Financials
	Chemicals	33	16.1	34.2	4.5	-10.0	-14.7	12.7	9.2
	Steel, nonferrous metals	8	-5.5	93.4	-7.3	-37.0	-52.6	16.4	27.3
	Machinery	26	-17.9	29.3	9.6	-3.2	-9.3	9.7	11.6
	Autos	19	-11.6	12.9	-14.6	3.4	-0.6	9.8	9.9
	Electrical machinery, precision equipment	38	27.8	26.1	9.3	-5.5	-10.6	19.8	23.8
	Pharmaceuticals, healthcare	22	-5.4	5.9	-3.5	-9.8	-1.7	53.5	43.8
		20	8.3	4.8	-3.7	-9.1		12.5	10.5
	Food products	-11.5
	Household goods	13	5.8	20.8	6.9	5.0	4.2	12.6	12.2
	Trading companies	7	233.4	31.2	10.4	7.5	-0.9	-0.8	-2.8
Sectors	Retailing	20	-1.4	12.4	3.3	8.6	7.7	8.2	7.4
	Services	16	-9.6	10.9	0.0	4.4	-1.7	8.9	7.4
	Software	11	21.1	44.2	16.7	13.6	17.5	21.7	21.0
	Media	5	-1.0	9.6	4.1	-22.3	-23.4	9.8	10.4
	Telecommunications	7	-1.4	1.4	38.5	9.3	-12.1	-23.6	-6.2
	Construction, engineering	7	30.5	9.8	-1.1	1.0	1.0	-2.1	-2.1
	Housing, real estate	19	22.4	9.9	-2.7	6.2	6.2	5.2	5.3
	Transportation	25	-5.2	9.0	2.2	0.7	0.1	7.8	8.0
	Utilities	11	-36.2	10.2	-12.8	22.8	26.8	-11.6	-12.4
	Financials	26	-8.1	4.4	-10.5	7.7	8.0	3.2	2.7

Note: (1) Figures exclude listed consolidated subsidiaries. Latest estimates as of 25 November 2019; previous estimates as of 26 August 2019.

Source: Nomura

11

Nomura | JPN Outlook for FY19-20 corporate earningsDecember 3, 2019

Fig. 8: Recurring profits by sector

(¥bn, except where noted)

		No. of	FY16	FY17	FY18	FY19E	FY19E	FY20E	FY20E
		cos				Old	New	Old	New
	Russell/Nomura Large Cap	333	41,339	47,681	48,162	49,079	46,795	52,233	50,679
	Russell/Nomura Large Cap (ex financials)	307	34,408	40,521	41,796	42,223	39,921	45,160	43,618
Industrial	Manufacturing	179	19,641	23,855	23,510	22,399	21,439	25,924	24,883
Basic materials	41	3,551	4,971	4,963	4,357	4,017	4,931	4,468
groups
Processing	83	12,524	14,790	14,552	14,313	13,618	16,239	15,703
	Nonmanufacturing	154	21,698	23,826	24,652	26,680	25,355	26,309	25,796
	Nonmanufacturing (ex financials)	128	14,766	16,666	18,286	19,824	18,482	19,235	18,735
	Materials	41	3,551	4,971	4,963	4,357	4,017	4,931	4,468
	Machinery, autos	45	8,528	9,755	8,911	9,010	8,600	9,888	9,492
	Electronics	38	3,996	5,035	5,641	5,303	5,018	6,351	6,212
Broad sectors	Consumer, distribution	98	8,630	10,162	10,312	10,570	10,263	11,866	11,332
		23	3,999	4,317	5,753	6,198		5,176	5,155
	Information	5,216
	Utilities, infrastructure	62	5,704	6,280	6,216	6,784	6,807	6,948	6,961
	Financials	26	6,931	7,160	6,366	6,856	6,874	7,073	7,060
	Chemicals	33	3,002	3,911	4,036	3,775	3,579	4,253	3,910
	Steel, nonferrous metals	8	549	1,061	927	582	438	678	557
	Machinery	26	1,813	2,336	2,539	2,462	2,305	2,699	2,573
	Autos	19	6,716	7,419	6,372	6,549	6,295	7,189	6,918
	Electrical machinery, precision equipment	38	3,996	5,035	5,641	5,303	5,018	6,351	6,212
		22	1,465	1,616	1,540	1,362	1,485	2,092	2,135
	Pharmaceuticals, healthcare
	Food products	20	1,487	1,723	1,625	1,494	1,455	1,682	1,607
	Household goods	13	613	755	830	872	865	981	971
	Trading companies	7	2,192	2,852	3,148	3,384	3,120	3,359	3,033
Sectors	Retailing	20	1,435	1,545	1,497	1,681	1,667	1,818	1,790
	Services	16	1,437	1,671	1,672	1,777	1,672	1,935	1,796
		11	341	564	620	769	795	937	963
	Software
	Media	5	318	349	364	282	279	310	308
	Telecommunications	7	3,339	3,404	4,769	5,146	4,142	3,930	3,884
		7	617	664	696	738	738	722	722
	Construction, engineering
	Housing, real estate	19	1,845	2,054	2,055	2,183	2,182	2,297	2,298
	Transportation	25	2,204	2,450	2,474	2,646	2,630	2,852	2,839
	Utilities	11	1,038	1,112	992	1,218	1,258	1,077	1,102
	Financials	26	6,931	7,160	6,366	6,856	6,874	7,073	7,060

Note: Figures exclude listed consolidated subsidiaries. Latest estimates as of 25 November 2019; previous estimates as of 26 August 2019.

Source: Nomura

12

Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Fig. 9: Percentage change in quarterly sales and profits (FY18 Q3-FY19 Q2)

									% y-y
			Sales			Operating profits			Recurring profits			Net profits
		Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
	Russell/Nomura Large Cap	-	-	-	-	-	-	-	-	-17.0	1.1	-4.3		-18.4	-27.4	-21.0	-10.6	-18.2
	Russell/Nomura Large Cap
	(ex financials)	5.8	4.6	1.2	0.6	-5.7	2.4	-10.7	-16.9	-16.6	2.6	-5.0		-20.8	-27.6	-12.9	-14.1	-22.0
		2.1	-0.4	-0.1	-0.2	-9.5	-10.5	-19.0	-10.4	-25.1	-5.4	-26.2		-15.4	-38.9	-23.4	-41.8
Industrial	Manufacturing		-16.1
Basic materials	7.3	0.1	2.4	-1.1	-22.9	-9.9	-27.9	-30.7	-23.8	-8.9	-33.0		-35.0	-33.4	-11.9	-43.5	-41.4
groups
Processing	0.6	-1.4	-2.3	-1.4	-6.2	-10.2	-19.3	-6.2	-29.5	-1.5	-27.6		-12.2	-44.1	-27.1	-46.9	-13.5
	Nonmanufacturing	-	-	-	-	-	-	-	-	-9.0	8.6	18.1		-21.2	-15.0	-17.6	30.3
		-20.3
	Nonmanufacturing (ex
	financials)	11.4	11.8	3.0	1.7	-0.3	22.0	-0.1	-24.6	-4.7	16.1	25.4		-27.3	-10.8	9.7	38.1	-29.9
	Basic materials	7.3	0.1	2.4	-1.1	-22.9	-9.9	-27.9	-30.7	-23.8	-8.9	-33.0		-35.0	-33.4	-11.9	-43.5	-41.4
	Machinery, autos	2.5	-1.1	-1.3	-0.8	-8.8	-22.2	-17.0	-7.5	-31.0	-13.8-20.7	-12.2	-53.0	-20.4	-20.5
	-11.8
	Electronics	-2.4	-1.9	-4.1	-2.2	-2.2	14.3	-23.5	-4.5	-26.7	24.8	-39.9		-12.3	-22.7	-34.6	-72.0
Broad		-16.1
Consumption, distribution	14.9	16.1	2.3	1.7	-7.0	2.2	-2.6	2.6	-7.5	1.0	-4.7		-2.3	-14.5	1.0	-5.4	6.0
sectors
Information	3.3	4.2	3.5	2.5	18.8	52.2	-8.5	-79.6	0.8	39.2	56.8		-79.9	-13.2	-14.1	72.7	SL
	Utilities, infrastructure	3.3	4.7	5.4	3.8	-6.5	14.3	10.2	6.4	-8.4	11.8	18.3		8.6	-9.7	21.5	46.5
		21.4
	Financials	-	-	-	-	-	-	-	-	-19.7	-7.8	-0.4		-0.8	-26.4	-71.0	12.7
		9.3
	Chemicals	8.0	0.4	3.7	-1.3	-24.0	-8.7	-23.6	-25.9	-26.8	-7.1	-30.1		-30.9	-38.5	-25.7	-35.1	-35.5
	Steel, nonferrous metals	5.8	-0.5	-0.8	-0.7	-18.2	-13.4	-44.4	-55.6	-12.9	-20.7-44.7	-57.3	-16.3	SP	-68.2
	-66.0
	Machinery	2.4	-0.9	-3.5	-1.6	-4.5	18.3	-22.2	-18.2	-7.9	29.6	-25.6		-20.2	-0.9	30.1	-24.0	-22.0
	Automobiles	2.5	-1.1	-0.7	-0.6	-10.2	-35.2	-15.3	-2.7	-38.6	-25.9	-19.0		-9.2	-62.7	-33.8	-19.4
		-8.4
	Electrical machinery,
	precision equipment	-2.4	-1.9	-4.1	-2.2	-2.2	14.3	-23.5	-4.5	-26.7	24.8	-39.9		-12.3	-22.7	-34.6	-72.0	-16.1
	Pharmaceuticals,
	1.3	10.2	12.4	15.2	2.7	10.6	8.1	21.4	-4.6	-3.7	-3.1		12.2	-15.2	43.6	-7.2	22.3
	healthcare
	Food products	0.2	-1.5	0.1	0.1	-15.3	-22.5	-20.4	-16.8	-19.2	-27.9	-21.5		-16.1	-19.3	-46.8	-24.0
		-17.0
	Household goods	2.9	-0.2	0.8	2.2	2.4	-20.2	-3.9	10.9	-3.6	-16.3	-7.9		7.6	-45.2	-12.2	-11.3
		12.4
		42.7	43.6	0.6	-3.0	-8.7	20.2	-3.7	-10.3	-3.4	19.7	-1.5		-16.1	-8.5	23.9	-4.8
Sectors	Trading companies		-11.9
	Retailing	6.0	5.9	4.0	5.2	-2.8	0.6	4.5	23.9	-2.6	4.3	-0.8		16.5	-5.6	28.0	8.0
		17.1
	Services	2.1	1.6	-1.6	-0.3	-14.4	8.8	2.1	6.3	-12.6	10.2	3.1		5.7	-11.2	-25.8	10.9
		45.2
	Software	17.5	12.2	8.5	9.9	23.6	43.0	16.1	39.9	12.4	96.0	-3.2		21.8	20.1	85.5	-1.6	38.9
	Media	6.1	8.9	2.3	5.5	-13.4	-6.6	-29.4	19.6	-19.6	-22.2-17.6	-44.4	-31.2	-28.1	32.8
	-43.9
	Telecommunications	0.9	2.7	3.0	1.1	21.9	59.1	-9.4	-93.0	1.1	40.9	65.6		-91.2	-15.3	-27.6	83.0	SL
	Construction, engineering	9.4	10.9	10.6	12.2	-5.8	11.4	12.2	16.9	-6.4	10.8	10.5		12.0	-3.4	24.1	18.7
		11.7
	Housing, real estate	1.0	7.2	4.3	6.4	-7.7	-8.9	7.0	8.8	-7.5	-13.7	8.4		6.6	-11.7	-14.5	5.2
		7.5
	Transportation	-0.3	-2.3	1.2	2.5	7.9	7.9	2.2	1.8	5.9	13.6	4.5		4.5	1.4	107.5	7.3
		7.6
	Utilities	7.8	7.4	9.6	0.0	-52.8	127.3	37.3	8.5	-60.4	156.2	76.2		19.0	-62.0	88.6	246.2
		85.7
		-	-	-		-	-	-		-19.7	-7.8	-0.4			-26.4	-71.0	12.7
	Financials	-	-		-0.8	9.3

Note: (1) Q1 = Feb-Apr,Mar-May, or Apr-Jun; Q2 = May-Jul,Jun-Aug, or Jul-Sep; Q3 = Aug-Oct,Sep-Nov, or Oct-Dec; Q4 = Nov-Jan,Dec-Feb, or Jan-Mar. (2) Figures are for companies that had announced results (either full year, Q1, Q2, or Q3) by 25 November 2019. (3) Excludes consolidated subsidiaries. (4) SP = switch to profits; SL = switch to losses; LS = losses shrinking; LI = losses increasing.

Source: Nomura

13

Nomura | JPN Outlook for FY19-20 corporate earningsDecember 3, 2019

Fig. 10: Valuation indicators

			P/E			P/CF		P/B	Dividend yield		ROE
		FY19E FY20E FY21E	FY19E FY20E FY21E	FY18	FY19E	FY19E FY20E FY21E	FY18	FY19E	FY20E FY21E
		x	x	x	x	x	x	x	x	%	%	%	%	%		%	%
	Russell/Nomura Large Cap	15.9	14.6	13.5	-	-	-	1.34	1.32	2.34	2.46	2.64	9.2	8.4		8.8	9.0
	Russell/Nomura Large Cap
	(ex loss-making cos)	15.4	14.3	13.2	-	-	-	1.33	1.32	2.33	2.51	2.70	9.5	8.7		8.8	9.0
	Russell/Nomura Large Cap
Industrial	(ex financials)	17.2	15.5	14.2	8.8	8.3	7.8	1.52	1.46	2.22	2.34	2.51	10.3	8.7		9.1	9.5
groups	Manufacturing	19.1	16.1	14.5	10.0	9.1	8.4	1.61	1.56	2.16	2.29	2.45	10.5	8.3		9.4	9.8
	Basic materials	15.0	12.9	11.5	6.0	5.5	5.1	0.94	0.91	2.66	2.71	2.92	9.0	6.2		6.9	7.4
	Processing	16.9	14.4	13.0	9.5	8.5	7.9	1.54	1.48	2.15	2.33	2.52	11.2	9.0		9.9	10.3
	Nonmanufacturing	13.2	13.1	12.4	-	-	-	1.10	1.11	2.57	2.67	2.87	8.2	8.5		8.2	8.3
	Nonmanufacturing (ex financials)	15.0	14.7	13.7	7.4	7.3	7.0	1.39	1.33	2.31	2.42	2.61	9.9	9.2		8.8	9.0
	Basic materials	15.0	12.9	11.5	6.0	5.5	5.1	0.94	0.91	2.66	2.71	2.92	9.0	6.2		6.9	7.4
	Machinery, autos	14.0	12.6	11.5	8.2	7.6	7.1	1.27	1.21	2.61	2.79	3.02	9.4	8.9		9.4	9.7
Broad	Electronics	22.0	17.3	15.3	11.6	10.0	9.2	2.02	1.97	1.63	1.79	1.95	14.5	9.1		10.9	11.4
Consumption, distribution	22.0	19.8	18.2	12.2	11.6	11.0	1.87	1.84	2.04	2.10	2.26	9.1	8.5		9.1	9.4
sectors
Information	17.1	16.0	13.8	6.9	6.7	6.3	1.64	1.64	2.95	3.20	3.44	13.9	9.6		10.0	11.0
	Utilities, infrastructure	12.3	12.5	12.1	6.3	6.3	6.1	1.22	1.11	2.01	2.07	2.12	8.9	9.5		8.6	8.4
	Financials	8.9	9.0	8.9	-	-	-	0.60	0.66	3.65	3.72	3.96	5.3	7.2		7.1	6.9
	Chemicals	13.9	12.3	11.5	6.5	6.0	5.7	1.10	1.04	2.81	2.86	2.95	10.0	7.7		8.2	8.3
	Steel, nonferrous metals	24.3	16.7	11.5	4.3	3.9	3.4	0.58	0.59	1.91	2.01	2.75	6.7	2.4		3.5	4.9
	Machinery	19.9	17.7	16.2	11.7	10.8	10.1	1.75	1.66	1.87	1.99	2.08	10.1	8.6		9.1	9.3
	Automobiles	12.0	10.8	9.9	7.1	6.5	6.0	1.10	1.05	3.03	3.25	3.55	9.2	9.0		9.5	9.9
	Electrical machinery, precision
	equipment	22.0	17.3	15.3	11.6	10.0	9.2	2.02	1.97	1.63	1.79	1.95	14.5	9.1		10.9	11.4
	Pharmaceuticals, healthcare	38.6	27.2	23.1	18.0	16.5	15.1	2.53	2.57	1.83	1.85	1.87	8.4	6.6		9.3	10.4
	Food products	22.5	19.4	18.3	12.2	11.2	10.7	2.06	2.00	2.76	2.88	3.04	10.9	9.0		10.1	10.3
	Household goods	29.3	25.8	23.7	20.1	18.0	16.7	4.23	4.01	1.39	1.44	1.55	13.3	14.1		14.9	15.0
Sectors	Trading companies	7.7	7.9	7.5	4.5	4.5	4.4	0.88	0.87	4.19	4.18	4.36	12.0	11.4		10.6	10.4
Retailing	27.4	25.4	23.0	14.3	13.4	12.4	2.50	2.44	1.28	1.38	1.91	8.8	9.2		9.3	9.6
	Services	25.9	24.5	23.4	15.3	14.6	14.2	1.38	1.36	1.57	1.63	1.69	5.1	5.3		5.4	5.5
	Software	25.4	21.6	18.8	21.1	18.4	16.3	4.02	3.77	1.84	2.23	2.59	13.2	15.1		16.7	17.5
	Media	19.1	17.1	16.2	12.5	11.6	11.3	1.11	1.07	1.84	1.84	1.84	7.3	5.7		6.1	6.2
	Telecommunications	14.7	14.1	12.1	5.1	5.0	4.7	1.36	1.36	3.61	3.81	4.03	15.0	9.3		9.4	10.5
	Construction	8.9	9.2	9.3	7.7	8.0	8.0	1.15	1.08	2.97	3.01	3.04	14.0	12.5		11.2	10.4
	Housing, real estate	13.5	12.8	12.3	9.4	9.0	8.7	1.41	1.17	2.39	2.46	2.53	10.0	9.4		8.9	8.7
	Transportation	15.6	14.3	13.9	7.4	7.0	6.9	1.47	1.39	1.36	1.43	1.49	8.8	9.2		9.4	9.0
	Utilities	7.1	9.5	9.0	2.5	2.8	2.7	0.66	0.62	2.78	2.80	2.80	6.2	9.0		6.3	6.4
	Financials	8.9	9.0	8.9	-	-	-	0.60	0.66	3.65	3.72	3.96	5.3	7.2		7.1	6.9
Russell/Nomura Small Cap	17.5	15.5	15.2	-	-	-	1.18	1.11	2.31	2.32	2.34	6.6	6.4		7.0	6.8
Russell/Nomura Small Cap (ex financials)	18.6	16.3	15.7	9.6	8.9	8.7	1.34	1.28	1.88	1.90	1.93	7.0	7.0		7.6	7.5

Note: Share prices and forecasts are as of 25 November 2019.

Source: Nomura

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What are the Russell/Nomura Japan Equity Indexes?

The Russell/Nomura Japan Equity Indexes are Japanese equity indexes developed jointly by FTSE Russell Indexes and the Global Research Division, Financial Engineering & Technology Research Center, Nomura Securities Co., Ltd.

Russell/Nomura Japan Equity Indexes should be useful in:

• Determining investment strategies (strategic asset allocation)
• Determining manager structures
• Devising asset management benchmarks
• Supporting portfolio management activities
• Evaluating the performance of various investment styles
• Managing risk

Russell/Nomura Japan Equity Indexes have the following characteristics:

• They are share price indexes that are weighted by free-float-adjusted market capitalization and cover the top 98% of all listed stocks in terms of float-adjusted market capitalization, thereby offering broad market coverage
• In addition to stocks listed on the First Section of the Tokyo Stock Exchange (TSE-1), they include stocks listed on other exchanges
• Because the indexes take into consideration the stable shareholding ratio, they reflect the stocks that are actually available for investment
• There are style indexes for large and small companies and for value and growth stocks
• The Prime Index consists of the top 1,000 stocks in the Total Market Index by market cap excluding stable shareholdings
• Stocks are selected quantitatively based on clearly defined criteria
• The composition of each index is reviewed once a year.

Complete details of rules for the Russell/Nomura Japan Equity Index can be found in the Russell/Nomura Japan Equity Index Rulebook.

The intellectual property right and any other rights, in Russell/Nomura Japan Equity Index belong to Nomura Securities Co., Ltd. ("Nomura") and Frank Russell Company ("Russell"). Nomura and Russell do not guarantee accuracy, completeness, reliability, usefulness, marketability, merchantability or fitness of the Index, and do not account for business activities or services that any index user and/or its affiliates undertakes with the use of the Index.

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Any Authors named on this report are Research Analysts unless otherwise indicated

Analyst Certification

I, Japan Equity Research, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Important Disclosures

The lists of issuers that are affiliates or subsidiaries of Nomura Holdings Inc., the parent company of Nomura Securities Co., Ltd., issuers that have officers who concurrently serve as officers of Nomura Securities Co., Ltd., issuers in which the Nomura Group holds 1% or more of any class of common equity securities and issuers for which Nomura Securities Co., Ltd. has lead managed a public offering of equity or equity linked securities in the past 12 months are available at https://www.nomuraholdings.com/report/. Please contact the Research Production Operation Dept. of Nomura Securities Co., Ltd. for additional information.

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The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

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Distribution of ratings (Nomura Group)

The distribution of all ratings published by Nomura Group Global Equity Research is as follows:

51% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services** by the Nomura Group.

44% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 55% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services by the Nomura Group

5% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 14% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services by the Nomura Group.

As at 30 June 2019.

*The Nomura Group as defined in the Disclaimer section at the end of this report. ** As defined by the EU Market Abuse Regulation

Distribution of ratings (Instinet, LLC)

The distribution of all ratings published by Instinet, LLC Equity Research is as follows:

54% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided investment banking services to 0% of companies with this rating within the previous 12 months.

42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; Instinet LLC has provided investment banking services to 0% of companies with this rating within the previous 12 months.

4% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; Instinet LLC has provided investment banking services to 0% of companies with this rating within the previous 12 months.

Definition of Nomura Group's equity research rating system and sectors

The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock, subject to limited management discretion. An analyst's target price is an assessment of the current intrinsic fair value of the stock based on an appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated target price, defined as (target price - current price)/current price.

STOCKS

A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia ex- Japan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.

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SECTORS

A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as 'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.Japan/Asia ex-Japan: Sector ratings are not assigned.

Target Price

A Target Price, if discussed, indicates the analyst's forecast for the share price with a 12-month time horizon, reflecting in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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The intellectual property rights and any other rights, in Russell/Nomura Japan Equity Index belong to Nomura Securities Co., Ltd. ("Nomura") and Frank Russell Company ("Russell"). Nomura and Russell do not guarantee accuracy, completeness, reliability, usefulness, marketability,

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merchantability or fitness of the Index, and do not account for business activities or services that any index user and/or its affiliates undertakes with the use of the Index.

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

Disclaimers required in Japan

Credit ratings in the text that are marked with an asterisk (*) are issued by a rating agency not registered under Japan's Financial Instruments and Exchange Act ("Unregistered Ratings"). For details on Unregistered Ratings, please contact the Research Product Management Dept. of Nomura Securities Co., Ltd.

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Transactions involving foreign equities are subject to a domestic sales commission of up to 1.026% of the transaction amount (which equals the local transaction amount plus local fees and taxes in the case of a purchase or the local transaction amount minus local fees and taxes in the case of a sale) (for transaction amounts of ¥750,000 and below, maximum domestic sales commission is ¥7,668). Local fees and taxes in foreign financial instruments markets vary by country/territory. When foreign equities are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Foreign equities carry the risk of losses owing to factors such as price fluctuations and foreign exchange rate fluctuations.

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¥4,320 if this would be less than ¥4,320). When convertible bonds are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Convertible bonds carry the risk of losses owing to factors such as interest rate fluctuations and price fluctuations in the underlying stock. In addition, convertible bonds denominated in foreign currencies also carry the risk of losses owing to factors such as foreign exchange rate fluctuations.

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When Japanese government bonds (JGBs) for individual investors are purchased via public offerings, only the purchase price shall be paid, with no sales commission charged. As a rule, JGBs for individual investors may not be sold in the first 12 months after issuance. When JGBs for individual investors are sold before maturity, an amount calculated via the following formula will be subtracted from the par value of the bond plus accrued interest: (1) for 10-year variable rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used, (2) for 5-year and 3-year fixed rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used. When inflation-indexed JGBs are purchased via public offerings, secondary distributions (uridashi deals), or other OTC transactions with Nomura Securities, only the purchase price shall be paid, with no sales commission charged. Inflation-indexed JGBs carry the risk of losses, as prices fluctuate in line with changes in market interest rates and fluctuations in the nationwide consumer price index.The notional principal of inflation-indexed JGBs changes in line with the rate of change in nationwide CPI inflation from the time of its issuance. The amount of the coupon payment is calculated by multiplying the coupon rate by the notional principal at the time of payment. The maturity value is the amount of the notional principal when the issue becomes due. For JI17 and subsequent issues, the maturity value shall not undercut the face amount. Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.4% of the transaction amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time of redemption. Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an asset management fee (trust fee) of up to 5.4% (annualized basis) of the net assets in trust, as well as fees based on investment performance. Other indirect costs may also be incurred. For foreign investment trusts, indirect fees may be incurred during the course of holding such as investment company compensation.

Investment trusts invest mainly in securities such as Japanese and foreign equities and bonds, whose prices fluctuate. Investment trust unit prices fluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry the risk of losses. Fees and risks vary by investment trust. Maximum applicable fees are subject to change; please thoroughly read the written materials provided, such as prospectuses or documents delivered before making a contract.

In interest rate swap transactions and USD/JPY basis swap transactions ("interest rate swap transactions, etc."), only the agreed transaction payments shall be made on the settlement dates. Some interest rate swap transactions, etc. may require pledging of margin collateral. In some of these cases, transaction payments may exceed the amount of collateral. There shall be no advance notification of required collateral value or collateral ratios as they vary depending on the transaction. Interest rate swap transactions, etc. carry the risk of losses owing to fluctuations in market prices in the interest rate, currency and other markets, as well as reference indices. Losses incurred as such may exceed the value of margin collateral, in which case margin calls may be triggered. In the event that both parties agree to enter a replacement (or termination) transaction, the interest rates received (paid) under the new arrangement may differ from those in the original arrangement, even if terms other than the interest rates are identical to those in the original transaction. Risks vary by transaction. Please thoroughly read the written materials provided, such as documents delivered before making a contract and disclosure statements.

In OTC transactions of credit default swaps (CDS), no sales commission will be charged. When entering into CDS transactions, the protection buyer will be required to pledge or entrust an agreed amount of margin collateral. In some of these cases, the transaction payments may exceed the amount of margin collateral. There shall be no advance notification of required collateral value or collateral ratios as they vary depending on the financial position of the protection buyer. CDS transactions carry the risk of losses owing to changes in the credit position of some or all of

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Nomura | JPN Outlook for FY19-20 corporate earnings	December 3, 2019

the referenced entities, and/or fluctuations of the interest rate market. The amount the protection buyer receives in the event that the CDS is triggered by a credit event may undercut the total amount of premiums that he/she has paid in the course of the transaction. Similarly, the amount the protection seller pays in the event of a credit event may exceed the total amount of premiums that he/she has received in the transaction. All other conditions being equal, the amount of premiums that the protection buyer pays and that received by the protection seller shall differ. In principle, CDS transactions will be limited to financial instruments business operators and qualified institutional investors.

No account fee will be charged for marketable securities or monies deposited. Transfers of equities to another securities company via the Japan Securities Depository Center are subject to a transfer fee of up to ¥10,800 per issue transferred depending on volume.

Nomura Securities Co., Ltd.

Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142)

Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association of Japan; and Type II Financial Instruments Firms Association.

The Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese Walls and employee training.

Additional information regarding the methodologies or models used in the production of any investment recommendations contained within this document is available upon request by contacting the Research Analysts listed on the front page. Disclosures information is available upon request and disclosure information is available at the Nomura Disclosure web page:

http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx

Copyright © 2019 Nomura Securities Co., Ltd. All rights reserved.

Disclosures as of 30-Aug-2019.

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