Special Company Report

Securities analyst: Norihisa Matsuo
Ambitious Net Co., Ltd.
matsuo@ambitiousnet.co.jp

Tamagawa Holdings (JASDAQ 6838)

Developing the business with three ‘re-s’, electronics and communications equipment
and renewable energy businesses are the growth engines
Continuing with solar power generation as well as developing geothermal power
generation business, progressing strongly as these businesses become fully viable
Market Capitalization: ¥9.6 billion

Share Price: ¥231 (January 6) Estimated Range (one-year) ¥220 – ¥430

2014 high ¥457/low ¥153

■ Executive Summary～ Working vigorously towards new growth with management renewal ～In the era in which Japan's electronics industry was displaying rapid growth, Tamagawa
Electronics YK was established as a development company for the attenuators and otherelectronics components that were needed to support this process. The foundations for theCompany’s business lay in the high-frequency circuit elements, measuring equipment, andcommunications equipment needed for wireless telecommunications equipment applications.
As a result of the stable and sustained growth it continued to achieve in this business, theCompany’s shares were registered on the OTC market in August 1998, 31 years after it had
been established. The analog high-frequency technologies that it has developed since its
establishment have been passed onto today's business, and they are still widely used in
products for applications in various fields including public works, etc. Following its OTC
registration, the Company attempted to secure growth by expanding orders for mobile phone
related devices, but in FY2002/3 it tumbled out of profitable operation and recorded a lossof over ¥300 million. It subsequently remained in the red on annual turnover of around ¥3billion over the course of the following years.

Source: Yahoo Financial (weekly basis overpast two years)
Total Number of Shares Outstanding:
41,865,000 shares
Projected/Forecast EPS (FY15/3) ¥10.9
Projected/Forecast PER 21.2 times
Actual BPS (FY14/9) ¥67.8
Actual PBR (FY14/9) 3.41 times
Current financial year forecast dividend
per share ¥1.0
Projected/Forecast dividend yield of 0.43%
Foreign shareholding ratio 34.8%

In an attempt to improve this situation the previous management team embarked upon abiomass energy business, in the wake of the Lehman shock, in 2010 but this ended in failure
and in 2012 the current management team took over the running of the Company. Under thecurrent management team, which is focused on finance, the Company has moved towards
recovery and with the implementation of the Renewable Energy Act in 2012 providing it witha new source of earnings potential, the Company moved into the black in FY 2013/3 thanks
to the adoption of a new approach to management based upon emphasizing profitability andachieving it by means of consolidation and electing to adopt a fixed-price purchasing
structure. The Company is expected to record growth in both revenues and earnings in bothof the following two financial years to date. Moreover, the company is expected to record a
new all-time high for earnings in the current term and intends to resume payment of adividend, albeit small, at the end of the current fiscal year. Furthermore, with theimplementation of the Renewable Energy Act in 2012 providing it with a new source of
earnings potential, and by embarking upon a solar power generation business exploiting afixed-price purchasing structure, the Company is planning to make great strides by acquiringa highly profitable stock business with long-term stability. The company's key principle is‘business investment’, and by acting in accordance with this ideal it is returning earnings toregional communities across Japan, and aims to promote a recycling oriented society toencourage the revitalization and development of regional economies. The company hasplanned to raise its corporate value by means of corporate revitalization, but also tocontribute to society by furthering the diffusion of solar power, geothermal, biomass, andother sources of renewable energy. The growth in the earnings generated from these areas
is, in turn, being reinvested and anticipated that this will be highly evaluated in the future by
the stock market as it starts to result in a virtuous cycle of expansion and improvement.

Cash flows (14/3)

Operating cash flow ¥764 million
Investing cash flow -¥265 million
Free cash flow ¥499 million
Financing cash flow ¥875 million
Cash and equivalents, etc ¥1,763 million
Interest-bearing liabilities ¥617 million
Depreciation and amortization (14/3)¥86 million
Gross margin (FY14/9) 32.1%
Company Profile
Established: November 1968
Listed: August 1999
Number of shareholders: 1,321 (end – 14/9)
Number of employees: 131 (end – 14/9)
Head office: 1-6-15 Hamamatsucho,
Minato-ku, Tokyo
President and Representative Director:
Toru Masuzawa
Representative Director: Masanori
Kobayashi
Unit (1,000 yen)

Net sales/revenues

YOY

Operating income

YOY

Current/recurring income

YOY

Net income

YOY

EPS

2012.32013.3

3,106
3,671

17.7%
18.2%

-29
373

-

-23
374

-

-37
339

-

15.7

2014.3

4,171

13.6%

477

27.8%

478

30.4%

436

28.5%

11.7

2015.3E
2016.3E

4,534
5,800

8.7%
27.9%

506
810

6.1%
60.1%

489
800

2.4%
63.6%

450
720

3.2%
60.0%

10.9
13.9

2017.3E

7,300

25.9%

1,120

38.3%

1,100

37.5%

780

8.3%

15.0

2018.3E

10,000

37.0%

2,100

87.5%

2,000

81.8%

1,200

53.8%

23.1

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Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)■ Valuation~ Stock price set to rise in tandem with the increase in earnings ~From a public offering price of ¥1,600 at the time of its OTC registration in August 1999, the share price subsequently rose toreach a high of ¥4,390 and a market capitalization of ¥23.8 billion. Against a background of growth expectations the share price
was highly valued but the subsequent decline in the Company’s business results ushered in a long-term decline in the share price.
The price temporarily hit a bottom in 2002 and then, in the period from October 2004 to February 2009, the decline in thecompany’s business performance became particularly conspicuous and resulted in a sharp declining trend and a pre-3:1 stock split
low of ¥78 for the share price. The market capitalization at this time declines to just over 400 million year. Subsequently theCompany undertook a 1.31 million-share third-party allocation capital raising in 2010 (issue price ¥110), and plans to rebuild its
financial structure thanks to the 2013 1.0 1 million share third-party capital raising (issue price ¥130) and the issuance of warrants
for new shares. It conducted a 3:1 stock split in March this year so as to improve the liquidity of its shares. The total number ofshares outstanding as of the end of September 2014 was 41,865,000 shares, and the market capitalization reached ¥10 billion. The
Company’s pre-listing recurring/current income peaked at ¥455 million, but recorded a new all-time high for earnings on thismeasure in the previous financial year. The Company is also undertaking new financing to funds the development of its solar power
generation and geothermal power generation operations. The company also has great expectations for its performance in thecurrent financial year and thereafter in its electronics and communications equipment for next-generation telecommunications
infrastructure equipment and renewable energies businesses, and it is anticipated that the share price will rise in tandem with thisimprovement in its earnings and that the market capitalization of the company will also expand accordingly.

Developing the business withthree ‘returns’
1 Raising corporate value by renewing thecompany ・・・Management reform at
Tamagawa Electronics
2 Getting to grips with renewable energy
Solar power generation systems sales
business and solar power generation plantbusiness
3 Reinvestment of profits generated

Tamagawa Electronicshigh‐frequency wireless technologies[Major customers]
Nippon Electric, Panasonic, Toshiba,
Mitsubishi Electric, Hitachi Kokusai
Electric, Government administration
offices, Chugoku Electric Power, NTT
DoCoMo, Softbank Mobile, Fujitsu, KDDI,
Japan Radio (JRC), and various researchand development organizations

The Company has revived Tamagawa Electronics and its accumulated knowledge of theanalogue high-frequency technologies that are indispensable for electronics andcommunications equipment. It continues to remain in the black and to achieve its aim ofrecording high profitability, and it is striving to attain growth in the renewable energy
business that it is newly developing. The appointment of current president Masuzawa asrepresentative director in 2012 has seen the company achieve a transformation in its
management practices in terms of opting for integration and consolidation, and delivering
speed of management decision-making. Since returning to the black in the financial year to
March 2013, the company now expects to achieve growth in both revenues and earnings forthe second consecutive term in the current financial year.
The nuclear power plant accident caused by the Great East Japan earthquake of March2011 has focused a great deal of close-up attention on solar power and other forms ofnatural energy-related businesses. Since announcing its new move into the business ofselling solar power generation systems in February 2012, the company has made progress
towards the development of a promising electricity sales business, which looks sets to beable to deliver stable earnings by means of the implementation of a fixed price purchasesystem. The company is already showing signs of broadening the range of its operations out
from its current focus on solar power into areas such as geothermal power generation andeven into biomass. Consequently it is attracting a great deal of attention for its positive drive
to pursue profits whilst reinvesting its earnings, derived from this full-scale launch into
renewable energy, back into this area.
In the midst of the advent of a period of renewal in the social infrastructure that has been
built up in the post-war period, it is widely expected that the profile of Tamagawa
Electronics, which might formerly have been described as playing a supporting role, iscurrently on the rise. The company is currently displaying an ability to meld the sector-wide
top-class analog high-frequency technologies that the company has developed since its
establishment, with modern digital technologies. In tandem with the diffusion of smart phones
and other similar items, there has been a surge in demand four speed and greater capacity inthe field of data communication. High-frequency technologies are contributing to achieving
the goals of raising transmission speeds, providing high-volume data telecommunications
capabilities and distributing video contents that are indispensable factors in this process.
Thanks to the accumulated know-how in development and production technologies
possessed by its in-house staff, Tamagawa Holdings is widely recognized by a large numberof major companies in the sector as being a company that possesses technology is that it
would simply impossible for its rivals to attain similar levels of prowess in quickly. President
Kobayashi has played a key role in raising the profitability of the company at the heart of its
management and he has served in his current role as Representative Director of Tamagawa
Holdings since June 2014. Together with presidents Masuzawa he is very keen to pursue
growth in earnings for the Group.

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Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)
Also expanding into disasterprevention wireless[Tamagawa Electronics productlineup]
1 Device equipment … High-frequency
circuit elements for communications
equipment such as distributors,
attenuators, terminals, oscillators, andRF filters/duplexers, etc.
2 Systems equipment … Proprietaryproducts such as high-frequency
amplifiers, synthesizers, microwave
power transmission and reception
equipment, and OEM products

Tie-up with major Korean
manufacturer
Competitor companies and sales in thehigh-frequency wireless field* 1: Overall sales *2: High-frequency
wireless(Unit for sales is yen 100 million)
Company name* 1 *2 field
Ace (Korea)
MobileK MW (Korea)
MobileNihon Dengyo Kosaku Mobile
Stack Electronics
Broadcasting
Antenna Giken
PublicWorks/disaster prevention(Source: Company materials)

Also making progress withplants in Vietnam

The range of devices and systems equipment products that Tamagawa Electronics deals in
extends from 30MHz right up to 30GHz, and these are used in next-generation mobile,satellite telecommunications, ETC, digital TV, FM broadcasting, public service and disasterprevention wireless, and marine and aviation control systems, etc. the increase in thenumber of mobile telephone base stations has contributed to the expansion of thecompany's business results in this area, but it is also aiming to expand its business results
steadily by means of directly selling proposals, on the basis of products and technologies
that the Group has developed in-house by means of its own proprietary research anddevelopment activities, to its clients, who include major telecommunications operators andmanufacturers of electronic and electrical equipment. 44% of the company's revenues in theprevious fiscal year were accounted for by sales to the base stations of mobile
telecommunications operators, with the remainder being accounted for by 28% to defenserelated purchasers, and is 28% to public works and disaster prevention applications.
Tamagawa does not have an excessive reliance upon the fiercely cost competitive field of
mobile communications, and the expansion in sales of its own proprietary, in-housedeveloped products means that it is continuing to build up a highly profitable earnings
structure.
In tandem with the rapid rate of diffusion in mobile telephones, there has been a surge inconstruction of base stations with all carriers being actively involved. The Company
recorded very solid performance particularly in this field in the 1990s when high-frequency
filters and other components able to deal with high frequency wireless technologies forthese base stations were utterly indispensable to their operation. Subsequently, a fierce
price war broke out with manufacturers both in Japan and overseas, notably with two
Korean companies (Ace, and KMW). Up to this point the company had maintained a market
share of 30% but from 2005 onwards this declined and this factor was directly linked to theslowdown in its business performance. Sellers to overcome these challenges, Tamagawa theentered into an operational tie-up with the Korean operator Ace, which had formerly been
its rival, in May 2013, and was thereby able to build a structure which should mean that it
will be capable of winning out in competition with its rival companies for the surge indemand for smart phone 4G applications anticipated from 2016 onwards. The contribution
from this tie-up has been substantial and Tamagawa continues to be able to heavily reduce
its production costs from previous levels by exploiting the manufacturing facilities of Ace.
Simultaneously, it has also become possible to shorten lead-times by securing production
capacity and so it is in an excellent position to undertake contracted production of filter
components for 4G base stations that are expected get to fully underway and have beenplanned for 2016 onwards. This contribution has already started to appear and has been
evident since the second half of the previous fiscal year, and with low price proposals
proceeding smoothly the Company’s market share should also expand accordingly.
The company has a structure in place to further exploit plants in Vietnam to produce
device products four which demand is anticipated from the mobile communications sector.
Consequently the plan is to establish a local office in the country at the end of March 2015
with the plan being to increase cost competitiveness further as a result. The possibility also
exists of selling products manufactured in Vietnam in the future 3.9G mobile communications
base stations in the US where the diffusion rate of such products lags behind that of Japan.
By specializing on the development and manufacture of high-end products in domestic
factories in Japan, Tamagawa will be highly evaluated four having constructed a corporatebase that is able to fend off competition by exploiting the use of overseas production
facilities.

【Major products developed through R&D】
1 Rack-mounted optical converters -> miniaturization, implementation of broadband frequency systems,
2 Programmable attenuators (attenuators)-> Miniaturization, weight reduction, implementation of broadband
3 Attenuators, terminals, directional couplers, and various RF devices -> expanding frequency areas, expanding electric
power areas
4 Microwave capturing equipment -> new products, real-time high-speed data transmission of waveform data

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Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)
Aiming at own product ratio of 70%

Developing high-speed digitizer
boardsSecurity related products
attracting attention

Aiming for sales of ¥50 billion

The Company plans to raise the ratio of high-end in-house developed products so as tobuild up a highly profitable earnings structure, and so it is pressing ahead with research anddevelopment activities on the basis of the store of analog high-frequency wirelesstechnology that it has accumulated over the course of a large number of years. In
FY2014/3 it achieved very rapid growth as rack-mounted optical converters were used foranalogue optical transmissions in various wireless systems for defense, broadcasting andother purposes, and expectations are now high for the development of high-end proprietaryproducts as well. The in-house product ratio was 30% in FY2013/3, 35% in FY2014/3, and is
expected to record another steady rise to 40% in FY2015/3. Moreover, the plan is to raise
this ratio even higher to the 70% level in FY2018/3. Tamagawa Plans strengthen its ability
to offer high value-added, high-end, in-house developed products, and thereby intends toescape from its former operational positioning in which it was vulnerable to fluctuations in
the market environment.
Much of the company’s technology is effectively stored in its staff resources, and so we
believe that it is indispensable for its future growth that the company is careful to train andreward its employees appropriately. Moreover, according to Patent Office data, Tamagawa
has filed 25 patents applications over the course of the past 20 years, but many of thesepatent applications have not been granted, and so remain pending with the possibility thatthey will never attain patents status, including the possibility of them being rejected
outright. But there are now sign that on the patents front too, the managementtransformation is delivering positive results with the announcement in 2009 of a patent
being granted for semiconductor electric transmission testing equipment, and in 2011 andpatents being granted for semi-coaxial equipment and for filters.
The Company is developing high-speed digital support for particle physics research
institutions by using applied technologies for analog high frequencies and digital signal
processing, and for digital high-speed transmission, etc. the company is currently striving todevelop generic products in this area and expects to commence sales of them in the future.
Potential purchasers would largely be high-energy acceleration equipment research
institutions, and physics research institutes, etc. but it is possible that several otherapplications may also exist for them. Tamagawa also plans to expand sales into theautomobile sector in the future and expects to records and in-house produced productratio of 70% with its excellent products. Moreover, the Company is developing testing
equipment (product name: Ba-in equipment) with a high degree of long-term reliability for
power semiconductor applications in the space and satellite fields. A single system costs
several tens of millions of yen and so it is a very expensive product, but with demand forenergy conservation, and in response to environmental restrictions, rising there are great
expectations for products in this area.
‘Hi-vision image optical transmission equipment’, which has been jointly developed inassociation with regional universities, is a highly promising product produced by theCompany that, by means of the fusion of milli-wave wireless technology with highly
compatible analog optical transmission technologies, that makes it possible to transmit
large volumes of high definition images over large distances without compression andacross a wide range of frequency bands. It is being seen as an indispensable product for
crime prevention measures to protect mega-solar cables that are increasingly frequently
being stolen from solar power plants against theft, and the company has also decided to
install them at its own power generation plant with which progress is currently underway.
The Company is also adopting a positive stance towards planning marketing proposals on
this basis.
The forecast for Electronics and communications equipment business sales in thecurrent financial year is ¥3.4 billion, but thanks to the creation of this new market, it isanticipated that sales in FY2016/3 will be ¥3.7 billion, FY2017/3 will be ¥4.3 billion andthat stable growth will continue. Moreover, the company plans to record sales of ¥5billion in FY2018/3. The business foundation in sales of applications for Mobile
telecommunications devices is stable, and the prospects for expansion into other areasof demand such as defense, government and public sector wireless, transportation, theenvironment, and security looked promising, as do those for the company's entry into
the US market for mobile telephone base station applications, and the company’s policy
is firmly fixed on achieving its sales projections.

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Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)
Renewable energy businessexpanding
Trend in fixed purchase prices byfinancial year
July 2012→¥40/kilowatt hour2013¥36/kilowatt hour
2014¥32/kilowatt hour
2015 (est.)¥28/kilowatt hour?
[Trends in solar power generation
business]
1 Project construction
Explanation written estimates/quotations,income and expenditure planning, electric
power systems/networks, applications forequipment/installation approvals, etc
2 Contracts
3 Undertaking works projects
4 Completion of solar power generation
systems
5 Related works
6 Commencement, management, andreporting, of sales of electrical power

The rate of growth in the electronics and telecommunications equipment businesses arealso expanding, Whilst expectations for further business expansion in the future are largely
concentrated on the renewable energy operation and on solar power generation in particular.
The issue of radiation contamination has resurfaced as a result of the accidents at the
Fukushima nuclear power plant following the great East Japan earthquake of March 2011. This
has resulted in a significant degree of impetus being placed behind a public and private sector
drive to overcome the challenges of renewable energy sources, and of solar power inparticular.
The passing of the Renewable Energy Special Measures Act in July 2012 brought about theinitiation of a fixed price system for electric power. In the business world a large number ofcompanies headed by Softbank, have started to display a heightened degree of interest in
Mecca so in advance of the liberalization of electric power supply from 2016 and are making
progress with its commercialization. The company consists of a small of elite specialists withbackgrounds in areas such as finance and accounting, but even among a large number of listedcompanies there is growing interest in getting to grips with this issue. Prospects for future
growth will be largely determined hereafter by success or failure in steadily forging allianceswith location partners and in planning tie-up with partner companies to sow the seeds for
future business opportunities. Finding suitable locations for this business, successfully
undertaking negotiations with land owners, choosing solar panels and the power controllers
that are indispensable for power generation, acquiring power distribution networks, undertaking
supervision, managing operations, and carrying out maintenance and other activities will
require various kinds of know-how related to development and operational control, but will
also allow Tamagawa and delete exploits its rich store of experience in the project financearea in which it is so strong.

Megasolar market expanding

The size of Japan’s solar systems market is estimated to be approximately 8 GW on anannual installation volume base. To date, most of this has been for domestic use solar power,
and has been dominated by small-scale installations of 1 MW or less but, according to theJapan Photovoltaic Energy Association (JPEA), although domestic use is likely to remain flatand the small scale solar market is shrinking, in the business area in which Tamagawa
operates, solar power generation of 1 MW and over, the implementation of the fixed-pricepurchasing system for solar generated power and the advent of the year prior to the holdingof the Tokyo Olympics is expected to result in expansion in the scale of the market.

Looking ahead to expanding salesof self-marketed electric power

The company’s renewable energy business consists of the sale of solar systems including
electric power generation modules and power controllers, etc., and the electric power
generation business which undertakes business development by means of independently
securing sites, operating electric power generation plants, and by subsequently selling theelectricity that it generates. Given the current expansion in the scale of the market, thecompany expects to record growth of 14.6% in sales of systems in the current financial yearto ¥1.02 billion. Moreover, it expects to record sales of electricity from the solar power plantsthat it operates of ¥114 million in the current financial year which represents year-on-year
growth of 121.1%, so although the scale remains small at present the rate of growth isexpanding rapidly.

Accumulating operating know-how

Company’s power generation
subsidiary companies
GP Energy Co., Ltd.
GP Energy 2 Co., Ltd.
GP Energy 3 Co., Ltd.
GP Energy 3-A Co., Ltd.
GP Energy 5 Co., Ltd.
GP Energy 6 Co., Ltd.
GP Energy A GK
GP Energy B GK
GP Energy C GK
GP Energy D GK

In its solar power systems sales business, the Company has accumulated systems
installation know-how suitable for a wide range of customer needs including car parks,
mountain and forest locations, and logistics warehouses, etc. Tamagawa has a joint project(applications already made for 27 electric power generation plants, 76.5 MW), on a nationwide
scale, with ISE Power with whom it arranged a business in May last year, in the offing andanticipates that this will make a sales contribution to systems sales as well as contributing tosales of various types of support businesses over the course of the next several years.
Moreover, in the solar power generation business too, Tamagawa has been successful with its
plans for a 1.6MW scale electric power production facility in Shimoseki City, which became its
first project of its own to start selling electricity on June 22, 2013 (electricity sales price¥42/kWh), and has gained valuable operational know-how as a result. It is currently awaiting
the commencement of electric car sales at its independent power generation plants inlocations including Minami Shimabara, Sodegaura, Tateyama, and Gotoretto. These are all 20year stock businesses, and it is anticipated that they will deliver stable earnings contributions.
The commencement of operations at the Misawa plant (about 10M) from the next financial
year onwards is expected to result in a rapid expansion in sales, and it is anticipated thatmargins may also rise because of the higher IRR (internal rate of return) resulting from capital
freed up by the use of leasing.

-5-

Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)

Business operations tie-up withISE Power[Aims of business tie-up] Operation of
combined/shared/integrated megasolar
power generation plant/plants
1 Ise Foods Group’s site provision
2 Provision of equipment/installationrights for solar power plant owned byPresident Akimoto's company
3 Provision ofcompositional/constitutional andoperational knowhow for company’s
Shimoseki solar power generation plant

Raising ¥2.1 billion of capital byissuing warrants for new sharesto influential foreign banks

Strong sales of electronic andcommunications equipment【FY2015/3 first half sales by industry】(Unit: yen million, %)Sales(Year-on-year comparison)
Mobile communications
544(+11.2)
Defense677(+52.1)
Other
521(+16.3)
Total
1,741(＋26.0)Strong financials being maintained

Tamagawa announced that it had entered into a capital and business tie-up with ISEPower Co., Ltd. (Representative Director Yukihiro Akimoto) in May 2014. ISE Power’s
Chairman Ise is also the owner of the Ise Foods Group, the largest supplier of hens’ eggs inJapan and the owner of a large number of landholdings in Japan, and is extremely interested
in the solar power production business. As a result of this relationship with the company it
was decided to enter in to an operational tie-up. Subsequently, the capital tie-up was
dissolved but the business tie-up with Tamagawa, with its rich store of knowhow in
operating solar power plant, remains intact, and it is expected that the mega solar projectwill be rolled out on sites owned by the Ise Group (approximately 1.42 million m², 57 power
generation plants) right across Japan in the future. There are currently 27 sites in 10
prefectures with a targeted total power generation output capacity of 76.5Mw (electricity
selling price ¥36/kWh) for which applications have already been submitted.
At a Board of Directors meeting held on December 26, 2014, a resolution to commence a
geothermal binary electric power generation operation (125Kw) capable of exploiting an
existing source in Beppu City, Oita Prefecture, as a new business (to be operated by GP
Energy 6) was approved. With a purchase price of ¥40/kWh the scale is small but it isexpected that this business will generate stable earnings over the course of the coming 15
years. Moreover, it was simultaneously announced that an issue of warrants for new shareswith an option to adjust the execution price was to be made to a global infrastructure fundowned by the major foreign bank Macquarie. The exercise price is ¥218 (no upper limit,lower
limit exercise price ¥153), and if all of the warrants were to be exercised at this price a
maximum of 10 million new shares would be issued, raising over ¥2.1 billion in capital. ThreeFrance will mainly be used for the repayments of borrowings used to acquire the site of theMisawa electric power generation plant, and it is scheduled that financing and loans will be
provided to the four consolidated subsidiary companies that are to own the Misawa electric
power generation plant. Additionally, it is anticipated that financing and loans will be provided
to the consolidated subsidiary companies that own the Beppu geothermal power generation
plant and the Minami Shimabara plant. As a result, Tamagawa will proceed with a smoothdevelopment of its renewable energy business into the future, and it is expected that it plansto achieve expansion in its earnings from this area.
The interim bookclosing for the first half of FY2015/3 saw sales of electronics andcommunications equipment increase 26% year-on-year with strong sales of ¥1.741 billion
being recorded for the period. Mobile communications applications showed steady growth,and defense applications also continued to perform well. Testing equipment for power
semiconductor applications and other in-house proprietary products grew strongly (up 67.7%
year-on-year to ¥6.96 billion). Moreover, sales for the first solar power generation plant,
Shimonoseki mega solar, increased 93.3% because of the transition from just three monthsof operation in the previous financial year to 6 months of operation in the current year.
Conversely, solar system sales were affected by delay to the start of construction works
caused by a two-month delay in a connection response from an electric company, which
resulted in approximately 50% of the anticipated sales of ¥300 million not being able to bebooked as revenues, and it is not expected that they will be booked in time for the full
financial year bookclosing
FY2015/3 interim operating cash flow declined from a former level of positive ¥2-¥300
million to minus more than ¥100 million, but there were ¥400 million of sales receivables
for the electronics and communications equipment business (because of collection site
delays for transactions with a major company), and land purchase costs for the solar mega
solar lots for sale in Yokohama totaling hundred and ¥120 million, and so it is anticipatedthat these will be received in the second half. The shareholders equity ratio rose year-onyear to 66%, and the interest-bearing debt ratio declined year-on-year to 13.4%, and so
the basic financial soundness of the company was maintained. Investment in the mega
solar operation, which is a stable stock business, will continue, but we anticipate that
fundamental soundness of the company’s finances will be preserved.

-6-

Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)
Firm sales plan for second-half[Quarterly results trends for electronic
and communications equipment](Units: yen million, %)FY2014/3
1Q 692 -> 2Q 690 -> 3Q 853 -> 4Q
998 ->
1-2Q 1382 -> 3-4Q 1847
FY2015/3
1Q 776 -> 2Q 965
1-2Q 1741 -> 3-4Q (est.) 1659 (-10.2%)

Room for upward revision to fullyear of business results[FY2015/3 sales plan by segment(Units: yen million, %)FY2014/3
FY2015/3
Electronics/communications
3,229
3,400
(First half
1,382
1,741)
Solar systems
890
1,020
(First half
414
136)
Solar power plants 51
114(First half
23
45)
Totals
4,171
4,534(First half
1,820
1,923)

Prospect of current/recurringincome of ¥2 billion being
achieved in three years time[Company's past, present, andestimated future business results](Units: yen million, %)Sales
RP
FY3/1997
3,982
455
FY3/2001
6,765
153
FY3/2002
4,290▲357
FY3/2014
4,171
478
FY3/2015 (est.) 4,534489
FY3/2018 (est.) 10,000
2,000

In the second half of the FY2015/3 financial year, the first sale of solar power mega solar
real estate lots in Yokohama and the sale of other lots (eight blocks in Nagasaki & Sasebo)
went well and double digit growth is anticipated in a turnaround from declining revenues at
the interim bookclosing stage so, with fourth-quarter sales of ¥640 million expected to bebooked, growth of 14.6% to ¥1.02 billion for the solar system sales business is anticipated forthe full year. Moreover, it is expected that solar power generation sales will be 2.5 times
larger than those booked at the half year bookclosing and will be 2.2 times higher year-onyear at ¥1.14 billion. Full-time sales for the electronics and communications equipment
business are expected to increase 5.2% year-on-year to ¥3.4 billion, but second-half sales
expected to be lower than in the same period in the previous year and below sales recordedin the first half of this year, and so the forecast is expected to be somewhat tight. Mobile
communications sales benefited from a six-month contribution (¥250 million) in the previous
term from the increased price competitiveness deriving from the tie-up with the Korean
company Ace, but there will be a full year contribution in the current fiscal year. Some ¥500
million's worth of 3G sales are anticipated, and thanks to stronger proposal marketing
activities in the defense and public works area sales in the second half are expected tocome in roughly flat year-on-year, and half-on-half at ¥1.847 billion.
For the current fiscal year overall, forward investment in anticipation of medium to longterm business development is a particularly remarkable feature. Capital investment in solar
power generation plants is planned to increase 6.4 times year-on-year to ¥1 billion, andcapital investment in the electronics and communications equipment is also forecast to riseby 35% year-on-year to ¥1.3 billion. It is also anticipated that there will be an increase inresearch and development expenditure in this area (from ¥124 million in the previous
financial year to ¥201 million in the current financial year) with an eye to making progress
into high-end products. Operating income for the business is expected to decline 18.3%
year-on-year to ¥370 million, but since sales of high margin in-house proprietary products
are being maintained at a strong level, this also looks a little too cautious to us. The
operating profit margin in the second half of the previous financial year was 14.4%. The
operating margin dipped to 11.1% in the first half of the current year, but adjusting this byadding ¥38 million, half of the ¥77 million fall term increase in research and development
expenditure, it appears that the operating margin is being held roughly level year-on-year.
On the assumption that the operating profit margin will also be maintained at a similar level
into the second half, even adjusting for the increase in research and development
expenditure leaves ¥40-¥50 million of leeway for an upward revision to operating income if
second half sales are flat on the same period in the previous year (¥1.847 billion) and up
from the first half (¥1.741 billion).
Second-half sales of solar systems are expected to be booked in the fourth quarter, and it
is anticipated that full year operating profit will be 1.9 times higher year-on-year at ¥85
million and that solar power generation will also record a ¥50 million increase in profitability
at the operating level. Consequently there is scope for upward revisions to the rather
conservative full term forecasts for both sales and operating profits.

On the basis of the information we have received from the company, we expect that it willrecord net revenues of ¥5.8 billion in FY2016/3 (of which the electronics andcommunications business will account for ¥3.8 billion) and recurring/current income of ¥800
million. On the assumption that a high level of EPS is to be expected until the accumulated
losses are cleared and also assuming that 100 million new shares will be created, areforecast is for earning per share of around ¥13.9 for the current financial year. Moreover,given that we expect FY 2017/3 sales of ¥7.5 billion (of which the electronics andcommunications business will account for ¥4.4 billion) and recurring/current income of ¥1.1
billion, we forecast EPS of around ¥15. Furthermore, we anticipate FY 2018/3 sales of ¥10billion (of which the electronics and communications business will account for ¥5.0 billion),recurring/current income of ¥2.0 billion, and net income of ¥1.1 billion, with striking growthin business results being achieved thanks to rapid expansion in the renewable energy
business and stable growth in electronics and telecommunications equipment.

-7-

Jan07, 2015

Tamagawa Holdings (JASDAQ 6838)
Needs to be valued as a growthstock
Current share price ¥231
Market capitalization ¥9.67 billion
Target share price (3 months) ¥340
Target share price (one year) ¥430 Target
market capitalization (one year) ¥17.5 billion
Forecast EPS assumptions:
FY3/2015 (est.) ¥10.9
FY3/2016 (est.) ¥13.9(FY3/2016 figure is Ambitious Net assumption basedon contact with the Company)(Assuming issuance of 10 million new shares)[Assumptions]
1 Steady progress being made towards
achievement of medium to long-termbusiness results
2 No issuance of new shares in addition torecently announced financing
3 No alterations in business environment

Comparisons with peer companies[Business portfolio of peer companies]
1 Fuji Electric Industry (control switchingequipment, solar)
2 Ubiteq, INC. (vehicle-mounted equipment
and sensors)
3 Adtech PT (LC & semiconductor-use
plasma use high-frequency electric powersource equipment)
4 santec (parts for optical communications
applications, and optical measuring
equipment)
5 Artiza Networks, Inc. (communications
measuring equipment for carriers)
6 NF Circuits (electronic measuring
equipment)[Peer company comparisons](Units: yen, hundred million yen, times, %)Share prices as of January 6*1=Current share price *2=Market
capitalization *3=Recurring Profit*4=Dividend yield

Risk factors

Having negotiated a difficult period in the wake of the Lehman shock, the share price appears to be
recovering, thanks to continued success being achieved by the current management team with thereorganization of the company, and must be evaluated as being a long-term, stable growth stock, given
expectations of growth in electronics and telecommunications equipment and a step-change increase in
the renewable energy business. Since the enactment of the Renewable Energy Act in 2012, a large
number of listed companies have moved into the renewable energy business, but the level of
Tamagawa’s operations deserves to be valued as that of a top-class operator in this area given its
accumulation of experience and business results. With the sale of future power plants by the renewableenergy business already scheduled, long-term growth in revenues and stable cash flows are to be
expected.
However although there is some room for upward revisions to both revenues and earnings for the
results in the current financial year to March, it looks likely that because of the positioning of forward
investment timing, this growth may appear a little sluggish by comparison to that achieved in theprevious financial year. However, the contribution to business earnings from the solar power generation
business is becoming substantial and can be expected to record strong growth in the next financial year
and thereafter. The Company has set targets of ¥10 billion and ¥2 billion for sales and operating
income respectively, but, given the current forecasts, the announcement of a new medium-term plan isforecast for the near future. In this report, we have set a one-year share price target of ¥430, and amarket capitalization of ¥17.5 billion, on the basis of the average PER (31 times) for 6 comparable
companies in the electronics equipment sector.
It is difficult to find companies with operational profiles that resemble that of the company in terms of
its engagement in the renewable energy business, but in this report we have attempted a comparison
against six companies with revenues of a similar scale in the areas of electronic components, electronicequipment, and mobile telecommunications base station related operations. The ongoing dilution
resulting from the March 2014 30% stock split is currently resulting in a market capitalization of
approximately ¥9.7 billion, but it is certainly not the case that Tamagawa's share price looks
conspicuously high by comparison to the share price levels of the similar companies to which we havecompared it, and in fact in the light of the growth that we anticipate for next year and thereafter there
is considerable room for it to be upwardly revalued. The issuance of 100 million new shares isanticipated from the exercise of warrants the new shares thereafter, but we also expect that the paceof earnings growth will accelerate as a result of this factor.
Company (code, market)
CSP*1
Fuji Electric Industry (6654 TSE1) 1566
Ubiteq, INC. (6662 JASDAQ)
284
Adtech PT (6668 TSE2)
1323
ｓａｎｔｅｃ（6777・JASDAQ)
400
Artiza Networks, Inc. (6778 TSE2) 804
NF Circuits (6864 JASDAQ)
978
Simple average for six companies
Tamagawa Holdings (6838 JASDAQ) 231（ＪＡＳＤＡＱ

MC*2
104.4
41.4
113.6
47.8
76.9
61.3
74.2
96.7

RP*3
5.3
1.0
4.9
1.9
4.1
8.7
4.3
4.9

ＰＥＲ
29.9
65.9
39.0
16.0
25.4
10.7
31.2
21.2
17.1

ＰＢＲ
0.96
1.25
4.72
0.63
1.61
0.92
1.68
3.41
1.37

DY*4
1.92
1.06
0.30
1.50
0.62
1.74
1.19
0.43
1.67 ）

It is possible that the company's main business of high-frequency circuit elements and otherelectronic components for communications equipment sector applications may be affected by volatility
in the economic environment. Moreover, future earnings may fluctuate in response to productobsolescence as a result of technological advances and increased severity in price competition with rival
companies. Reductions in the purchase prices in the fixed purchase price system that forms thefoundation of solar power generation, geothermal power generation, and other renewable energy
businesses, and unforeseen alterations to the price structure itself may be expected to pose risks, as
may the possibility of events, such as the suspension of new applications to electric power generationcompanies from megasolar renewable-energy producers, etc., occurring that have an impact upon theelectricity sales business in the future. Moreover, the possibility exists that it may prove to be
impossible to secure sufficient growth funding in circumstances in which the raising of the necessaryfinancing for the promotion of the business to become impossible for any reason whatsoever.

< Disclaimer >This document is provided for informational purposes only and should not be used or construed as a solicitation, an offer to buy, or an offer to sell any security.
The content of this document is provided as a reference for making investment decisions and represents the opinion of Ambitious Net Co., Ltd. but Ambitious Net
Co., Ltd. offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. Responsibility for the final
investment decision in terms of selection of securities and the timing of purchasing or selling securities shall remain with the user of the report.
Ambitious Net Co., Ltd. shall not be held responsible for any damage caused by the use of this report. The copyright of this report and the rights regarding thecreation and exploitation of the derivative work of this and other Ambitious Net Co., Ltd. reports belong to Ambitious Net Co., Ltd. This report may be reproduced
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Author of this report: Norihisa Matsuo (Member JSDA) Member/Affiliated Company: Ambitious Net Co., Ltd. http://www.ambitiousnet.co.jp
Compartment Tokyo Chuo 211, 3-24-1 Hatchobori, Chuo-ku, Tokyo 104-0032 Tel: 03-6222-3620/090-3426-7563 e-mail: matsuo@ambitiousnet.co.jp-8-

Jan07, 2015