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Fujifilm Holdings Corporation (FUJIY-OTC) SUMMARY

SUMMARY DATA

Risk Level * Average, Type of Stock Large-Value Industry Seqpt-Phtomask Zacks Industry Rank * 107 out of 267

Current Recommendation NEUTRAL

Prior Recommendation Outperform Date of Last Change 27/02/2014

Current Price (02/26/14) $28.90 Target Price $30.00

Fujifilm reported improved year-over-year results for the third quarter of fiscal 2014. Net income increased 68.9% year over year on the back of higher revenues and margins. Revenues climbed 9.2% to 600.1 billion due to strong sales in the pharmaceuticals and medical systems businesses and favorable impact of falling yen exchange rate. Product launches and cost management have been the favorable factors. However, we believe all these positives have already been accounted for in the company s share price. Falling sales of compact digital cameras will hamper the company s revenues and margins in the quarters ahead. Moreover, Fujifilm s presence in regions outside Japan exposes it to various socio-economic and political risks. Based on these factors, we downgrade our recommendation on the stock to Neutral from Outperform.

52-Week High $29.80 52-Week Low $18.62 One-Year Return (%) 53.10 Beta 1.08 Average Daily Volume (sh) 24,307

ADR Outstanding (mil) 482 Market Capitalization ($mil) $13,930 Short Interest Ratio (days) 0.87 Institutional Ownership (%) 0 Insider Ownership (%) N/A

Annual Cash Dividend $0.29 Dividend Yield (%) 0.99

5-Yr. Historical Growth Rates

Sales (%) 3.6 Earnings Per ADR (%) 13.8 Dividend (%) 10.1

P/E using TTM EPADR 14.7

P/E using 2014 Estimate 20.2 P/E using 2015 Estimate 18.3

Zacks Rank *: Short Term 1

3 months outlook 3 - Hold * Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates (In millions of $)

Q1 Q2 Q3 Q4 Year (Jun) (Sep) (Dec) (Mar) (Mar)

2012 6,497 A 7,000 A 7,025 A 7,277 A 27,799 A 2013 6,471 A 6,908 A 6,774 A 6,547 A 26,690 A 2014 5,759 A 6,124 A 5,978 A 4,978 E 22,839 E 2015 6,216 E 6,631 E 6,270 E 3,798 E 22,915 E

Earnings per ADR Estimates (EPADR is operating earnings before non-recurring items, but including employee stock options expenses)

Q1 Q2 Q3 Q4 Year (Jun) (Sep) (Dec) (Mar) (Mar)

2012

$0.37 A $1.04 A $0.79 A $0.53 A $1.15 A 2013

$0.06 A $0.21 A $0.59 A $0.57 A $1.43 A 2014

$0.31 A $0.45 A $0.64 A $0.03 E $1.43 E 2015

$0.34 E $0.37 E $0.67 E $0.20 E $1.58 E

Projected EPADR Growth - Next 5 Years % 7

February 27, 2014

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OVERVIEW

Tokyo-based Fujifilm Holdings Corporation is a leading global producer of photographic imaging products. Fujifilm operated through 282 subsidiaries as of Mar 31, 2013, including the vital Fujifilm Corporation, Fuji Xerox Co. Ltd and Toyama Chemical Co. Ltd. The company develops, manufactures, and markets traditional and digital imaging products. In addition, Fuji Photo provides services and solutions for consumers, professionals, healthcare providers and commercial customers.

The company s Imaging Solutions segment, which accounted for approximately 13.3% of total revenue during fiscal 2013, focuses on color films, digital cameras, photofinishing equipment and color paper, chemicals and services for photofinishing.

Fujifilm s Information Solutions segment, which accounted for 41.0% of net revenue, manufactures and markets systems devices for graphic arts, medical imaging and information systems, flat panel display materials and recording media.

The company s Document Solutions segment, which accounted for about 45.7% of revenues, manufactures and markets printers and production systems. It also provides paper and document services to its customers.

Approximately 57.2% revenues of Fujifilm s products and services in the fiscal year ended Mar 31, 2013, came from Japan. The rest came from international operations.

Fujifilm was established in 1934 as the Fuji Photo Film Co. Ltd. In 2006, Fujifilm Group was transformed into a holding company Fujifilm Holdings Corporation . This controlled the Group's two largest units - Fujifilm Corporation and Fuji Xerox Co. Ltd.

REASONS TO BUY

Fujifilm s medical systems and pharmaceuticals business have improved the company s financials significantly. In the reported quarter, while medical systems sales improved in the fields like medical-use, picture archiving and communications, pharmaceuticals business got a boost from strong sales in the Toyama Chemical and Fujifilm Pharma.

As most of the company business is denominated in currency other than yen, favorable impacts of the falling yen exchange rate helped boost Fujifilm s earnings in the third quarter of fiscal 2014. Net income in the quarter soared 68.9% year over year. Moreover, the company s margin management tactics are encouraging and appear to be beneficial over the long term. This, we believe, will position Fujifilm as a sustainable and profitable corporation with a larger market share in the quarters ahead.

Fujifilm is attempting to gain greater market share through geographical expansion as well as product launches in all the segments. In the third quarter of fiscal 2014, the company launched products ranging from lenses to printers. Moreover, Fujifilm is in the process of expanding the digital camera business through the launch of several cameras.

REASONS TO SELL

Although based in Japan, Fujifilm has a significant presence in the Americas, Europe and Asia. Roughly 59.5% of the company s total revenue in fiscal third-quarter 2014 was generated outside Japan. The varying socio-political environment of each country makes it a challenge for Fujifilm. Moreover, the company s results were hurt by the ever-increasing prices of raw materials, hurting the margins.

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The traditional photo imaging business of the company is not performing as desired because of competition from smartphones and camera-equipped cellphones. Third-quarter fiscal 2014 revenues were affected by a demand reduction for compact digital cameras, lowering revenues for the Imaging Solutions segment. Moreover, lowered demand for IT equipment hurt revenues.

Fujifilm s diversified product portfolio exposes it to stiff competition from different players for various products. Thus, it becomes difficult for the company to manage its prices while checking costs. Product innovation also becomes difficult, as it involves extensive reasearch and development (R&D) expenditure.

RECENT NEWS

Establishment of Fujifilm Tissue Engineering Co., Ltd. On Feb 25, 2014, Fujifilm established the Fujifilm Tissue Engineering (Shanghai) Co., Ltd., to launch regenerative medicine business in China. The subsidiary will provide epidermis culturing services on contract to medical institutes by 2015.

Fiscal Third-Quarter 2014 Highlights

On Jan 30, 2014, Fujifilm reported net income of 31.0 billion ($309.1 million) for the third quarter of fiscal 2014 (ended Dec 31, 2013), up 68.9% year over year. The hike in earnings resulted from improvement in both revenues and margins.

Revenues: Revenues in the reported quarter improved 9.2% year over year to 600.1 billion ($5,978.4 million). The year-over-year rise in revenues was attributable to strong sales in the medical systems business, the graphic systems business, documents business and favorable effects of the yen depreciation. However, revenue growth was partially offset by decline in the demand for compact digital cameras.

Revenues from the Imaging Solutions segment came in at 101.7 billion ($1,012.8 million) and accounted for 16.9% of total revenue. The Information Solutions segment contributed 223.3 billion ($2,224.3 million) or 37.2% of total revenue and the Document Solutions segment generated 275.2 billion ($2,741.3 million) or 45.9% of total revenue. Of the total revenue, domestic revenues accounted for 40.5%, while international revenues contributed the remaining 59.5%.

Costs/Margins: Gross margin in fiscal third-quarter 2014 stood at 39.2%, up 110 basis points from the year-ago quarter. Selling, general and administrative (SG&A) and R&D expenses, together accounted for 193.2 billion ($1,925.0 million), representing 32.2% of the total revenue. Balance Sheet: Cash and cash equivalents at the end of the period was 555.7 billion ($5,281.1 million) registering an increase of 7.9% from the previous quarter.

The company s long-term debt stood at 315.8 billion ($3,001.1 million) as of Dec 31, 2013, up 0.4% sequentially.

Cash flow: Net cash from operating activities for fiscal third-quarter increased to 58.3 billion ($581.0 million) versus 34.8 billion ($429.2 million) in the comparable quarter last year. Capital expenditure for the reported quarter was 19.5 billion ($194.7 million), compared with 22.3 billion ($274.5 million) in the third quarter of fiscal 2013.

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Outlook: Fujifilm increased fiscal 2014 guidance based on strong financials for the quarter. The company increased the revenue guidance to 2,400.0 billion from 2,350.0 billion, representing a year-over-year increase of 8.4%. Operating income is maintained at 140.0 million, an increase of 22.7% from fiscal 2013. Moreover, Fujifilm estimates its net income for the coming fiscal to be 80.0 billion, up from 70.0 billion, increasing 47.4% year over year. This will lead to an earnings per share of 166.01.

Myanmar Subsidiary

On Dec 2, 2013, Fujifilm s new subsidiary in the Republic of the Union of Myanmar, named Fujifilm Myanmar Limited commenced its operations. The announcement for the opening of this subsidiary was done by the company on Nov 18.

The subsidiary has been established with a paid-in capital of 20 million. The subsidiary will help the company tap the growth potential the region offers. Myanmar is roughly double the land area of Japan, with a population of approximately 60 million. With the expansion in labor force, the nation offers a wide scope for economic development.

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VALUATION

Fujifilm s current trailing 12-month earnings multiple is 14.7x compared with 20.9x for the industry average and 18.1x for the peer group. Over the last five years, the company s shares have traded in the range of 11.7x to 180.7x trailing 12-month earnings.

Fujifilm has been growing its international operations, which exposes the company to various socio-political risks as well as economic risks of the country of business operation. Additionally, the traditional photo imaging business of compact digital cameras is not performing well. Based on these factors we are downgrading our recommendation on the stock to Neutral from Outperform. Our $30.00 target price, 19.0x 2015 EPADR, reflects this view.

Key Indicators

P/E F1

P/E F2

Est. 5-Yr EPS Gr%

P/CF (TTM)

P/E (TTM)

P/E 5-Yr High (TTM)

P/E 5-Yr Low

(TTM) Fujifilm Holdings Corporation (FUJIY) 20.2 18.3 7.0 5.9 14.7 180.7 11.7

Industry Average 20.0 14.4 14.3 5.7 20.9 106.9 8.9 S&P 500 15.7 14.8 10.7 14.8 18.1 27.7 12.0

Photronics Inc. (PLAB) 19.6 10.5 21.6 5.6 26.8 33.1 6.1

TTM is trailing 12 months; F1 is 2014 and F2 is, CF is operating cash flow

P/B Last Qtr.

P/B 5-Yr High

P/B 5-Yr Low

ROE (TTM)

D/E Last Qtr.

Div Yield Last Qtr.

EV/EBITDA (TTM)

Fujifilm Holdings Corporation (FUJIY) 0.7 0.9 0.3 4.1 0.1 1.0 3.6

Industry Average 0.8 0.8 0.8 3.7 0.2 0.5 4.0 S&P 500 4.8 9.8 2.9 25.4

2.1

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Earnings Surprise and Estimate Revision History

DISCLOSURES & DEFINITIONS

The analysts contributing to this report do not hold any shares of FUJIY. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1063 companies covered: Outperform - 17.5%, Neutral - 75.2%, Underperform

6.7%. Data is as of midnight on the business day immediately prior to this publication.

Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively.

Research Analyst Shilpa Maheshwari Copy Editor Kamalika Pramanik Content Ed. Payal Jalan QCA Supriyo Bose Lead Analyst Payal Jalan

Reason for update Earnings Update