INVESTMENT RESEARCH DATA MODUL AG. Data Modul AG Recommendation. Date: 08/13/2014. Buy. Clear profitability increase in H1

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1 Recommendation Buy Company data before: as of - Sector Industrial Target price (EUR) 27.5 Market segment Prime Standard Price (Xetra) (EUR) ISIN DE /12/14 5:36 PM Reuters DAMG.DE Share price potential 51% Bloomberg DAM Date: 8/13/214 Clear profitability increase in H1! Data Modul has achieved the expected change of trends on the sales and income side with its H1 214 figures (sales: +9.7%; EBIT: EUR4.2m (1.)). Especially the international business (H1 sales: +21.8%; dynamic development in the US, among others) and efficiency enhancements from the "Fit for Future 215" programme accounted for this.! We confirm our sales and EBIT forecasts (48% of each our sales and EBIT estimates were reached in H1 214). In the cyclically stronger H2 we expect increasing dynamics in the Systems segment due to larger projects in the info business and an expansion in optical bonding.! The triumph of displays and touchscreens in the industry is only at its beginning. As a specialist for industrial display technology, we expect Data Modul to strongly benefit from this development.! With a P/E ratio 215 of 8.8 (peer group: 9.3) we identify clear upside potential for the share. We further consider the share a dividend title. With a price target of EUR27.5 (before: 28.5) we confirm our Buy recommendation. Share data Shares (m) Freefloat 57.% Market cap. (EURm) 64.4 Trading Volume 2,635 52W High 5/15/14 EUR W Low 8/19/13 EUR12.71 Events Q3 figures 11/11/214 Q4 figures March 214 Performance absolut related to: DAX 1 month -3.1% 3.% 3 months -1.4% -3.9% 6 months -2.7% 2.2% 12 months 38.9% 3.4% Index weighting Prime All Share.4% Prime Technolgy.281% E 215E 216E Sales Sales growth 18.3% -.4% 4.6% 8.4% 7.5% 5.9% EBIT EBIT margin 7.2% 6.% 3.9% 5.5% 6.% 6.6% Net income Net margin 5.4% 5.1% 2.2% 3.7% 4.1% 4.5% EPS Source:, Bloomberg DPS Net financial debt/ebitda Contact Net Gearing Free cash flow (FCF) FCF per share EV / sales EV / EBITDA EV / EBIT EV / FCF P/E ratio P/B ratio Dividend yield 4.5% 4.2% 3.8% 3.3% 5.5% 6.3% Figures in EURm except EPS, DPS and FCF per share (EUR), PERs based on averaged share prices Source:, 8/9 8/1 8/11 8/12 8/13 8/14 GmbH Friedrich-Ebert-Anlage Frankfurt am Main Telephone: +49 (69) Telefax: +49 (69) Internet: Authors: M. Engelmayer; S. Röhle (analysts) mengelmayer@irffm.de; sroehle@irffm.de Please take note of the information concerning the preparation of this document, the information concerning potential conflicts of interest, the compulsory information required by Section 34b WpHG (Wertpapierhandelsgesetz - German Securities Trading Act), and the liability statement at the end of this document. This financial analysis in the meaning of Section 34b WpHG Please shall only notice be the distributed advice regarding to professional possible clients conflicts or of eligible interests counterparties as well as the according disclaimer to at Section the end 31a of WpHG. this document Page 1 8/13/

2 Valuation Weighted fair value per share of EUR27.91 (before: 28.57) Valuation conclusion We value the Data Modul share based on a DCF model and a peer group analysis. We weight the peer group analysis only with 25% and the DCF model with 75%. Most of the peer group companies are very broadly positioned. Displays and embedded systems (for example at Kontron) are only one part of the business of the peers. Some peers are only suppliers (Dialog Semiconductor) and are thus no direct competitors of Data Modul. We have calculated a weighted fair value of equity of EUR98.4m (before: 1.8) respectively EUR27.91 (before: 28.57) per share. This corresponds to an EV/EBITDA 214 of 9.9 and 8.6 in 215 as well as a P/E ratio 214 of 16. and of 13.5 in 215. Summary of valuation Peer group analysis DCF model Fair value (EURm) Fair value per share (EUR) Weighting 25% 75% Weighted fair value per share (EUR) Target price (EUR) Source: Three-stage DCF model WACC of 8.8% DCF model We value the Data Modul share using our three-stage DCF model. The first stage is based on our detailed P&L forecasts until 216. In the second stage we change from our detailed forecasts towards a trend analysis until business year 223. For this period we assume a long-term EBIT margin of 7.%. With respect to sales, we assume an annual growth rate of 5.% after 216. Generally, we expect purely organic growth. Possible acquisitions are not included. In the third stage we calculate the terminal value. In this stage, that bears the highest risk in forecasting, we follow the going concern approach with a growth rate for the free cash flow of 2.% (according to the annual rate of inflation). We have calculated a WACC of 8.8%. With respect to the long-term capital structure, we have assumed an equity ratio (at market value) of 8% due to the low financial debt. The beta of 1.2 is conservative (relatively small company; cyclical industry). An analysis of the adjusted beta (individual betas for five years; relative to CDAX) results in betas of the Data Modul share of clearly under 1. (.4 -.7). Page 2 8/13/214

3 EURm 214E 215E 216E 217E 218E 219E 22E 221E 222E 223E Sales Growth y/y - 7.5% 5.9% 5.% 5.% 5.% 5.% 5.% 5.% 2.5% EBIT margin 5.5% 6.% 6.6% 7.% 7.% 7.% 7.% 7.% 7.% 7.% EBIT Income taxes Amortisation and depreciation /- Change in long-term provisions /- Others Gross operating cash flow /+ Investments in net working capital /+ Investments in fixed assets Free cash flow Present values Total present values 43.6 Terminal value 74.9 in % of total value: 63% Value of operating business Model parameters / entity DCF model: + Cash and cash equivalents Financial debt Target capital structure: -> Equity: 8% Financial debt: 2% Fair market value of equity 19.8 Risk-free rate: 4.% Beta: 1.2 Risk prem. debt: 1.8% Risk prem. 5.% Tax shield: 3.% Number of shares outstanding (m) Cost of equity: 1.% Cost of debt: 4.% Fair value per share (EUR) Growth FCF: 2.% WACC: 8.8% Date: 8/13/14 Source: Weighted fair value per share of EUR31.13 (before: 31.9) Based on our DCF model we have calculated a fair value of equity of the Data Modul share of EUR19.8m (before: 19.6) or EUR31.13 (before: 31.9) per share. The terminal value of 63% of the total value reflects the growth perspectives of Data Modul both on the sales (internationalisation, new proprietary products etc.) and on the income side (assumed EBIT margin increase to 7.%; economies of scale from improved utilisation of production capacities; rising share of high-margin Systems business). Sensitivity analysis (EUR) Discount rate (WACC) Growth (TV) 8.3% 8.8% 9.3% 9.8% 1.5% % % % Source: Page 3 8/13/214

4 Peer group valuation: fair value of EUR18.26 (before: 21.3) per share Peer group analysis The peer group consists of companies that are suppliers for the display and embedded industry (Dialog Semiconductor), distributors (Avent, Arrow Electronics) or manufacturers (Kontron). However, display products are only one part of the business of the peer companies. Also, the suppliers and distributors mostly are no direct competitors. Thus, the significance of the peer group analysis is limited. Based on the peer group analysis we have calculated a fair value of equity of EUR64.4m (before: 74.2) or EUR18.26 (before: 21.3) per share for Data Modul. This decline is due to the decreased share prices of the peer group companies. It must be noted that Data Modul's profitability will not fully materialise in 214 (not yet fully utilised production capacities; ramp-up costs for the optical bonding and embedded systems). Peer group analysis EV / EBITDA EV / EBIT P/E ratio 214E 215E 214E 215E 214E 215E Avnet Arrow Electronics Dialog Semiconductor Kontron Japan Display Average Median Standard deviation in EURm, EPS and value per share in EUR EBITDA EBIT EpS 214E 215E 214E 215E 214E 215E Enterprise value Fair value per share (EUR) Average Cash and cash equivalents Financial debt Fair market capitalisation Number of outstanding shares Fair value per share (EUR) Weighting 33.3% 33.3% 33.3% Fair value per share (EUR) Source: ; Bloomberg closing share prices as of 8/12/14 Page 4 8/13/214

5 Financial, balance and income analysis Income analysis High order inflow - high order backlog Data Modul well on its way to reach 214 targets The growth trend has continued in Q2 214 with a 7.4% sales increase to EUR39.1m (36.4; H1 214: +9.7%). The again even more dynamic order development over Q1 is noteworthy (order inflow: +13.8% to EUR4.3m (35.4; Q1 214: +.4%; H1 214: +6.2%); order backlog on June 3, 214: +8.9% to EUR1.4m (June 3, 213: 92.2): above-average range of eight months). We thus consider Data Modul well on its way to reach the 214 guidance (sales: +4-9%; order inflow: +3-6%; order backlog: +6-9%). Displays segment benefits from strong US market International markets drive growth Growth was driven by international business (international sales Q2 214: +14.8% to EUR16.9m (14.7); H1 214: +21.8%; domestic sales Q2 214: +2.8% to EUR22.3m (21.7); H1 214: +2.5%). According to CFO Dr. Pesahl, especially the US market, Great Britain and Southern Europe (economic recovery) have improved above average. In the US, Data Modul mainly distributes client-specific adapted standard displays. The Q2 sales in the Displays segment benefited from this (+9.5% to EUR22.7m (2.8); H1 214: +12.1%). The Systems segment (+5.1% to EUR16.4m (15.6); H1 214: +6.5%) was affected by the more selective acceptance of smaller projects for train station and airport information systems. As Data Modul will focus on large projects in future (several bids), sales now are more volatile in this segment and are more likely to be generated in H2 214, in our opinion. The increasing sales in optical bonding so far could not compensate for that. Key financial figures of the income statement Q2 214, H1 214 Unit: EURm Financial year: Dec. 31 Q2 213 Q2 214 H1 213 H2 214 Accounting standard: IFRS Reported Reported Reported Reported Sales Growth y/y - 7.4% - 9.7% EBIT EBIT margin 1.6% 6.1% 1.4% 5.5% Net income Net margin.7% 4.4%.3% 3.7% EPS (EUR) Incoming orders Book-to-bill ratio Order backlog Months of order backlog Source: Page 5 8/13/214

6 Quarterly sales by segment (EURm) Quarterly EBIT by segment (EURm) Q1 212 Q2 212 Q3 213 Q4 213 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q Q1 212 Q2 212 Q3 213 Q4 213 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Source: ; Displays Systems Konzern Source: ; Displays Systems Konzern Profitability approaches the usual level Efficiency enhancement measures pay off The efficiency enhancement programme "Fit for Future 215" has had a clearly positive effect on the Q2 EBIT of EUR2.4m (.6). Data Modul further benefits from the higher capacity utilisation in the Weikersheim plant and the productions and logistics costs that are lower there (EUR-.5m p.a.), in our opinion. Last year s results were burdened by expenditures for staff reduction, among others. Data Modul further approaches the 212 profitability level again (H1 212 EBIT: EUR5.1m) with H1 EBIT of EUR4.2m (1.) - despite the clearly higher R&D expenditures of EUR2.5m (H1 211: 1.4). We consider it realistic that our 214E EBIT of EUR8.7m will be reached. H2 is cyclically stronger so that possible additional expenditures in connection with the planned expansion of logistics at the Weikersheim plant should be compensated for. Growth trends remain intact Forecasts confirmed We still consider Data Modul a profiteer of the transfer of the display and touchscreen technology from the consumer segment to industrial applications. The sales from in-house developed technologies (optical bonding, embedded systems) should increase in H2 214 (still relatively low in H1 214; among others current capacity expansion in optical bonding). Then, the Systems segment should show a better performance than in H1 214 (also processing larger projects in the info business). Sales by segments (EURm) EBIT and EBIT margin by segment % 9% 6% 3% E215E216E Source: ; Displays Systems Konzern E 215E 216E EBIT Displays (EURm) - left axis EBIT Systems (EURm)- left axis Source: ; EBIT margin Systems (%) - right axis EBIT margin Displays (%) - right axis % Page 6 8/13/214

7 Financial analysis Equity ratio of above 5% Reduction of financial debt Above-average solid capital basis Data Modul still has an above-average balance sheet. This is reflected in the increase in equity to EUR43.6m (December 31, 213: 42.7) on June 3, despite the dividend payment of EUR2.m. The equity ratio was 56.% on June 3, 214 (December 31, 213: 5.8%). This clear increase is the result of the reduction of the balance sheet total to EUR77.9m on June 3, 214 (December 31, 213: 83.9). Data Modul has clearly reduced its total financial debt to EUR17.3m (December 31, 213: 21.3). The net financial debt of EUR9.6m still was above the level at the end of 213 (EUR6.m). Equity and equity ratio Working capital, working capital/sales ratio 6 62% 6 33% 5 59% 5 31% 4 56% 4 29% 3 53% 3 27% 2 5% 2 25% 1 47% 1 23% 44% 21% E 15E 16E E 15E 16E Source: ; Equity (EURm) - left axsis Equity ratio (%) - right axis Source: ; Working capital (EURm) - left axis Working capital/sales (%) - right axis Free cash flow of 2-3% of sales expected Cyclical increase of working capital The negative operating cash flow of EUR-.8m (-4.2) in H1 214 is owed to the cyclical working capital increase to EUR47.3m on June 3, 214 (December 31, 213: 41.2). As in the preceding years - we expect a clearly positive free cash flow (2-3% of sales) in the full year along with another reduction of debt. We further consider Data Modul a dividend title (dividend yield 214E: 3.3%). Cash earnings and operating cash flow Dividend and dividend yield 12 12% % 9 9% 1. 6.% E 15E 16E Source: ; Cash earnings (EURm) - left axis Operating cash flow (EURm) - left axis Cash earnings / sales (%) - right axis Operating cash flow / sales (%) - right axis 6% 3% % -3% E 15E 16E Source: ; Dividend per share (EUR) - left axis Dividend yield (%) - right axis 4.5% 3.% 1.5%.% Page 7 8/13/214

8 Income statement Unit: EURm Financial year: Dec E 215E 216E Accounting standard: IFRS Sales Production costs Gross profit R&D expenses Distribution -and administration costs EBIT Financial results EBT Income taxes Net income Weighted average number of shares (m) Earnings per share (EUR) Dividend per share (EUR) Depreciation and amortisation EBITDA Source: ; Income statement (as percentage of sales) Unit: in % Financial year: Dec E 215E 216E Accounting standard: IFRS Sales 1.% 1.% 1.% 1.% 1.% 1.% Production costs -76.5% -77.2% -78.9% -78.% -77.9% -77.8% Gross profit 23.5% 22.8% 21.1% 22.% 22.1% 22.2% R&D expenses -2.1% -2.2% -3.3% -3.1% -2.8% -2.6% Distribution -and administration costs -14.2% -14.5% -13.9% -13.4% -13.2% -13.% EBIT 7.2% 6.% 3.9% 5.5% 6.% 6.6% Financial results -.4% -.3% -.2% -.2% -.2% -.1% EBT 6.8% 5.7% 3.7% 5.3% 5.9% 6.4% Income taxes -1.4% -.6% -1.5% -1.6% -1.8% -1.9% Net income 5.4% 5.1% 2.2% 3.7% 4.1% 4.5% Depreciation and amortisation -1.4% -1.3% -1.4% -1.3% -1.3% -1.2% EBITDA 8.6% 7.3% 5.3% 6.8% 7.3% 7.8% Source: ; Page 8 8/13/214

9 Balance sheet Unit: EURm Financial year: Dec E 215E 216E Accounting standard: IFRS Intangible assets Property, plant & equipment Recognised financial assets according to equity method Other long-term assets Deferred taxes Total non-current assets Inventories Trade account receivables Claim for reimbursements of income tax Other assets Liquid assets Assets available for sale Total current assets Total assets Capital stock Capital reserve Retained earnings Other reserves Total equity Long-term financial liabilities Pension provisions Other provisions Deferred taxes Total non-current liabilities Short-term financial liabilities Other provisions Trade account payables Advanced payments received Other liabilities Tax liabilities Total current liabilities Total liabilities Source: ; Page 9 8/13/214

10 Balance sheet (as percentage of balance sheet total) Unit: in % Financial year: Dec E 215E 216E Accounting standard: IFRS Intangible assets 6.8% 7.3% 5.9% 6.2% 5.7% 5.3% Property, plant & equipment 11.2% 11.3% 1.7% 12.2% 11.9% 11.7% Recognised financial assets according to equity method.%.%.%.%.%.% Other long-term assets 2.2% 1.9%.4%.4%.4%.4% Deferred taxes 2.4% 1.2%.6%.6%.6%.6% Total non-current assets 22.6% 21.7% 17.5% 19.4% 18.6% 17.9% Inventories 38.8% 4.9% 35.5% 4.% 4.% 39.8% Trade account receivables 25.3% 21.3% 26.6% 25.9% 27.5% 29.1% Claim for reimbursements of income tax.%.%.%.%.%.% Other assets 1.2% 3.2% 2.1% 2.3% 2.3% 2.3% Liquid assets 12.% 12.8% 18.2% 12.4% 11.5% 1.8% Assets available for sale.%.%.%.%.%.% Total current assets 77.4% 78.3% 82.5% 8.6% 81.4% 82.1% Total assets 1.% 1.% 1.% 1.% 1.% 1.% Capital stock 15.1% 13.7% 12.% 12.5% 11.6% 11.% Capital reserve 32.1% 3.2% 26.7% 27.8% 25.9% 24.4% Retained earnings 1.6% 14.3% 14.% 19.4% 23.8% 27.6% Other reserves -2.1% -2.% -2.% -2.1% -1.9% -1.8% Total equity 55.6% 56.2% 5.8% 57.6% 59.4% 61.1% Long-term financial liabilities 6.2% 6.4% 1.% 1.1% 1.%.9% Pension provisions 1.6% 1.8% 1.7% 1.8% 1.8% 1.8% Other provisions 1.1%.4%.8%.8%.8%.8% Deferred taxes 2.3% 1.%.%.%.%.% Total non-current liabilities 11.3% 9.6% 3.4% 3.7% 3.6% 3.5% Short-term financial liabilities 8.8% 13.4% 22.7% 14.9% 12.6% 1.4% Other provisions 1.5% 2.8% 1.1% 1.2% 1.2% 1.2% Trade account payables 12.9% 11.3% 13.% 12.6% 13.5% 14.3% Advanced payments received.%.%.%.%.%.% Other liabilities 8.6% 6.% 6.7% 7.4% 7.3% 7.1% Tax liabilities 1.2%.7% 2.3% 2.5% 2.5% 2.4% Total current liabilities 33.1% 34.2% 45.8% 38.7% 37.% 35.4% Total liabilities 1.% 1.% 1.% 1.% 1.% 1.% Source: ; Page 1 8/13/214

11 Cash flow statement Unit EURm Financial year: Dec E 215E 216E Accounting standard: IFRS Net income Depreciation and amortisation (developement costs/pp&e) Interest result Interest received Interest paid Deferred taxes Income taxes Paid income taxes Allowance of receiveables Result of disposal of assets Changes in long-term provisions Changes in short-term provisions Other assets and liabilities Other non-cash income and expenses Cash earnings Trade account receivables Inventories Trade account payables and advanced payments Cash flow from operating activities Proceeds from the disposal of assets Payments for investments in capitalised development costs Investments in other intangible assests and tangible assets Proceeds from divestment of affiliate Cash flow from investing activities Capital increase Acquisition of own shares Dividend payment Repayments of/ proceeds from financial liabilities Cash flow from financing activities Change in financial position Changes attributable to exchange rates Financial position - start of period Financial position - end of period Source: ; Page 11 8/13/214

12 Key figures Financial year: Dec. 31 Accounting standard IFRS E 215E 216E Growth rates Sales growth 18.3% -.4% 4.6% 8.4% 7.5% 5.9% EBITDA growth 39.3% -15.7% -23.4% 38.8% 15.2% 12.8% EBIT growth 54.% -17.2% -32.4% 53.7% 18.1% 15.3% EBT growth 6.1% -16.3% -32.3% 56.8% 18.7% 16.1% EPS growth 94.9% -5.% -53.4% 83.1% 18.7% 16.1% Margin analysis EBITDA margin 8.6% 7.3% 5.3% 6.8% 7.3% 7.8% EBIT margin 7.2% 6.% 3.9% 5.5% 6.% 6.6% EBT margin 6.8% 5.7% 3.7% 5.3% 5.9% 6.4% Net margin 5.4% 5.1% 2.2% 3.7% 4.1% 4.5% Yield analysis ROI 11.3% 9.8% 4.1% 7.2% 8.4% 9.1% ROCE 16.5% 14.1% 6.2% 1.7% 11.8% 12.8% ROE before taxes 26.7% 19.8% 12.8% 19.% 2.5% 21.6% ROE after taxes 21.3% 17.6% 7.7% 13.3% 14.3% 15.1% ROIC 16.8% 13.8% 5.6% 9.8% 11.5% 12.5% Balance sheet analysis Equity ratio 55.6% 56.2% 5.8% 57.6% 59.4% 61.1% Equity/ non-current assets ratio Equity + non-current debt/ non-current assests ratio Asset intensity 22.6% 21.7% 17.5% 19.4% 18.6% 17.9% Inventory turnover Recaivables turnover Days of sales outstanding Working capital / sales ratio 23.8% 26.3% 27.% 26.5% 26.3% 26.8% Days of payables outstanding Debt ratios Net financial debt Net financial debt / EBITDA Net gearing EBITDA interest coverage EBIT interest coverage Cash flow analysis Free cash flow (FCF) FCF / sales 3.3%.6% 1.8% 2.3% 1.9% 2.6% FCF / net income 61.2% 11.6% 81.2% 62.9% 45.1% 58.5% FCF per share (EUR) FCF yield 9.9% 1.7% 4.9% 6.% 5.1% 7.7% Capex Capex / depreciation and amortisation 87.7% 169.3% 15.% 143.3% 12.4% 115.3% Capex / sales 1.2% 2.2% 1.5% 1.9% 1.5% 1.4% Valuation multiples EV / sales EV / EBITDA EV / EBIT EV / FCF P / E ratio P / B ratio P / CF ratio P / S ratio Dividend yield 4.5% 4.2% 3.8% 3.3% 5.5% 6.3% Source: ; Page 12 8/13/214

13 Trend of sales Sales by segments (213) 2 28% 15 21% % 7% % 44% 56% Displays Systems E 215E 216E -7% Sales (EURm) - left axis Growth yoy (%) - right axis Strong rebound after the cyclical sales slump in 29 (-26%) Reorientation led to a slow sales growth in the past years Internationalisation, proprietary products and system business as drivers Share of sales of the Displays segment has decreased in the last years In our view, the Systems segment should become more important because of internationalisation (USA,China) and concentration on key accounts Sales by regions (213) 213 Development of R&D expenses 6 4.% 5 3.5% 4% National % 2.5% 6% International % 1.5% E 215E 216E 1.% R&D expenses(eurm) - left axis R&D expenses / sales (%) - right axis The business of Data Modul depends strongly on the domestic market (especially the Displays segment with about 65%; Systems segment with about 5% of international sales) Strategy of internationalisation especially in USA and China R&D expenses are risen strongly in 213 because of the development of proprietary technologies - in particular optical bonding and embedded systems Differentiation from the mass market due to customised products Growth of EBITDA and EBIT Assets and asset intensity 15 1% 2 31% 12 8% 16 28% % 4% 2% % 22% % 4 19% E 215E 216E -2% E 215E 216E 16% EBITDA (EURm) - left axis EBITDA margin (%) - right axis EBIT (EURm) - left axis EBIT margin (%) - right axis Assests (EURm) - left axis Asset intensitiy (%) - right axis 213 is characterised by one-off expenses and high R&D costs Increasing margins are expected: Systems segment becomes more important, proprietary technologies, economies of scale (higher capacity utilisation) etc. Low asset intensity is reflecting a business model which is focused on the upgrading of displays and - with declining share of sales - the distribution business Source: ; Page 13 8/13/214

14 Equity and net gearing Development of capex % % % %. 2% E 215E 216E E 215E 216E Equity (EURm) - left axis Net gearing - right axis Capex (EURm) - left axis Capex / depreciation and amortisation (%) - right axis Above-average solid equity base Net gearing has decreased in the last years both absolute and relative to equity - net gearing is low High capex in 212 and 213 among others because of shifting of production and logistics from Munich to Weikersheim More investments among others in own products and internationalisation Source: ; Peer group analysis in m domestic currency Stock Market EV Sales EBITDA EBIT EPS except for stock price and EPS price cap 214E 215E 214E 215E 214E 215E 214E 215E Avnet (USD) ,735 6,885 28,41 29,398 1,128 1,211 1,4 1, % 4.% 4.1% 3.5% 3.7% - - Arrow Electronics (USD) ,837 7,655 22,49 23,78 1,39 1, % 4.6% 4.7% 4.1% 4.2% - - Dialog Semiconductor (EUR) ,495 1,48 1,82 1, % 2.3% 21.1% 16.3% 17.8% - - Kontron (EUR) % 3.9% 8.7% neg. 4.1% - - Japan Display (JPY) , , ,788 89, , ,861 42,784 58, % 16.3% 17.8% 5.7% 7.2% - - (EUR) % 6.8% 7.3% 5.5% 6.% - - Source: ; Bloomberg closing share prices as of 8/12/14 Page 14 8/13/214

15 Disclaimer Recommendations concerning particular shares (starting December 18, 29) Buy: According to our assessment, the stock will rise by at least 15% in absolute terms within a 6-month period. Hold: According to our assessment, the stock will rise by between % and 15% in absolute terms within a 6-month period. Sell: According to our assessment, the stock will decline in absolute terms within a 6-month period. Recommendations concerning particular shares (until December 17, 29) Buy: According to our assessment, the stock will rise by at least 15% in absolute terms within a 6-month period. Accumulate: According to our assessment, the stock will rise by between % and 15% in absolute terms within a 6-month period. Reduce: According to our assessment, the stock will decline by between % and 15% in absolute terms within a 6-month period. Sell: According to our assessment, the stock will decline by least 15% in absolute terms within a 6-month period. Compulsory information required under Section 34b of the German Securities Trading Act (WpHG) and the Financial Analysis Regulation Key sources of information Key sources of information used in the preparation of this document are publications in foreign and domestic media such as information services (e.g. Reuters, VWD, Bloomberg, DPA-AFX etc.), the financial press (e.g. Börsenzeitung, Handelsblatt, FAZ, FTD, Wall Street Journal, Financial Times etc.), specialised journals, published statistics, rating agencies and publications of the issuers under coverage. Summary of the valuation principles used: Analyses of shares: In valuing companies standard and accepted valuation methods (amongst others the Discounted Cash Flow Method (DCF Method), Peer-Group Analysis) are applied. Under the DCF Method the net value of the issuer is calculated, which represents the sum of the discounted company results, i.e. the net present value of the issuer s future net cash flows. The net value is therefore determined with reference to the company s anticipated future results and the discount rate applied. Under the Peer-Group Analysis Method issuers quoted on the Stock Exchange are valued with reference to the comparison of valuation multiples (e.g. price/earnings ratio, price/book value, enterprise value/sales, enterprise value/ebitda, enterprise value/ebit). Comparability of the valuation multiples is primarily determined by business activity and economic prospects. Sensitivity of the valuation parameters: The figures taken from the income statement, the cash flow statement and the balance sheet, upon which the valuation of companies is based, are numerical estimates and therefore subject to risks. These may change at any time without prior notice. Quite apart from the valuation method applied, there is a very real risk that the share price target may not be reached in the anticipated period of time. Risks include unforeseen changes in competitive pressure or in demand for the issuer s products. Such fluctuations in demand may arise as a result of changes of a technological nature, the overall level of economic activity or in some cases as a result of changes in moral concepts. Changes in tax law, in exchange rates and, in certain business segments, in regulations are other factors which can influence valuations. The above discussion of valuation methods and risk factors makes no claim to be exhaustive. Page 15 8/13/214

16 Timing conditions of planned updates: Analyses of shares: GmbH maintains a list of issuers for whom company-based financial analyses ( Coverage list of share analyses ) are published. The criterion for the inclusion or removal of an issuer from this list is governed primarily by the company s inclusion in an index (DAX, EuroStoxx 5 SM, and Stoxx Europe 5 SM ). In addition, selected issuers from the mid and small cap segment or from the US markets are included. In such cases the inclusion or removal of these issuers from the coverage list is at the sole discretion of GmbH. If deemed appropriate by the analysts, GmbH will release a short expert commentary or studies concerning the companies on the coverage list. As a rule, such research products will be published following the release of financial figures of a company under coverage. Moreover, every day company-specific events such as ad hoc announcements or important news relating to individual companies on the coverage list are evaluated. The decision as to which issuers are covered by such publications is at the sole discretion of GmbH. Moreover, fundamental analyses are prepared for the issuers included on the coverage list. The decision as to which issuers are covered by such publications is at the sole discretion of GmbH. It may occur at any time that, in fulfilment of the provisions of the German Securities Trading Act, the publication of financial analyses of individual issuers included in the coverage list is restricted without any prior warning. Internal organisational measures to deal with the prevention or handling of conflicts of interest: Employees of GmbH who are involved in the preparation and/or the offering of financial analyses are subject to the company s internal compliance regulations which classify them as employees in an environment requiring confidentiality. The company s internal compliance regulations are in accordance with Sections 33 and 33b of the German Securities Trading Act (WpHG). Possible conflicts of interest as at: 8/13/214 There are potential conflicts of interest with the following issuers mentioned in this research report: Emittent Conflicts of interest 5, 6 GmbH and/or its affiliated companies: 1) own at least 1% of the issuer s share capital. 2) have been involved in the management of a consortium issuing financial instruments of the issuer by way of a public offer within the last twelve months. 3) look after financial instruments of the issuer in a market through the placement of buying or selling orders. 4) have concluded an agreement with issuers within the last twelve months, which are either themselves or through their financial instruments the object of a financial analysis, covering services related to investment banking transactions or have received a service or a promise of services in such an agreement. 5) made this financial analysis available to the issuer prior to publication without the Valuation/Forecasts section and subsequently amended it. 6) have concluded an agreement with the issuers which are either themselves or through their financial instruments the object of the financial analysis regarding the preparation of the financial analysis. Page 16 8/13/214

17 Liability statement This document is for information purposes only. It has been prepared by GmbH and shall be distributed in Germany only. This document is not directed to persons or companies domiciled and/or maintaining branch-offices outside Germany, particularly in the United States of America, Canada, United Kingdom, and Japan. This document shall only be distributed according to the applicable laws of the respective country. Any persons receiving this document, i.e. this information and material, shall be obliged to inform themselves about the applicable laws of the respective country and to act accordingly. This document constitutes neither an offer nor an invitation to subscribe to or to purchase a security. Especially with preparation of this document GmbH shall neither act as an investment consultant nor act on the basis of some asset management duty or obligation. Any investment decision regarding any security or other financial instruments must be based on individual, professional advice and/or on the prospectus or information memorandum. This document constitutes an independent assessment of the respective issuer and/or the negotiable securities by GmbH. All and any herein contained assessments, opinions and statements are those of the author of this document and do not necessarily reflect the opinion of the issuer or third parties. All and any information this document is based on has been taken from resources considered as reliable but has not necessarily been verified by. Therefore, GmbH does not warrant the accuracy, completeness and correctness of the information and opinions contained herein. GmbH assumes no responsibility or liability for direct or indirect damage arising from the use or distribution of this document or of the information contained therein or which otherwise may arise from it. The information, opinions and statements represent the status quo of the day of the preparation of the document. Future developments may render them out of date without any changes made to this document. Price movements experienced in the past, simulations or forecasts are no reliable indicators for future price movements of securities. The tax treatment of financial instruments depends on the individual circumstances of the respective investor and may be subject to future changes, which may be retroactive. Although GmbH may provide hyperlinks to websites of companies mentioned in this study, the inclusion of a given hyperlink shall not mean that GmbH confirms, recommends or authorises all and any data on the respective website or data that can be accessed from the website. GmbH assumes no liability for such data nor for any consequences arising from the use of same. As at: 8/13/214 GmbH Responsible supervisory authority: Friedrich-Ebert-Anlage 36 Federal Financial Supervisory Authority 6325 Frankfurt am Main (Bundesanstalt für Finanzdienstleistungsaufsicht) Germany Graurheindorfer Str. 18, Bonn and Marie-Curie-Straße 24-28, 6439 Frankfurt Page 17 8/13/214