10 April 2014

Summary company financials (m)

Year end March FY2012 FY2013 FY2014 FY2015E
Price 1419.00 Revenue 30,582.0 38,287.0 55,635.3 63,980.6
Market cap (m) 29,107.6 6.3% 25.2% 45.3% 15.0%
Enterprise value (m) 17,834.1 EBITDA 6,550.0 5,149.0 6,499.0 7,749.0
21.4% 13.4% 11.7% 12.1%
Net income 3,275.0 2,290.0 2,778.0 3,123.8
Net debt (cash) -11,681.0 -9,928.0 -11,273.5 -12,837.3
Shares outstanding 20.9 20.8 20.5 20.5
EV/Sales 0.60 0.51 0.33 0.26
EV/EBITDA 2.8 3.8 2.8 2.1
PE 9.6 13.4 10.5 9.3
Proto Corporation
Revenue growth
EBITDA margin
Proto Corporation operates Japan's leading automotive ecommerce website "Goo-net Exchange" (Western peers would be Autotrader, or
Ebay Motors). Goo-net has a 54% market share, and emergent divisions in Malaysia, Taiwan, Indonesia and Singapore. Proto also owns
Autoway, the largest online shopping site for tires in Japan with over 2 million tyres are sold per year. Both businesses enjoy scale benefits
that accrue to the market leader and we would expect the the company to therefore be able to defend its leadership position for the some
time to come.

Mugen Motorsports, a company controlled by Hirotoshi Honda, the son of Honda Motor Company founder Soichiro Honda, owns 33.5% of
the shares outstanding. An additional 12% of the shares are owned by seven members of Proto's senior management team, including a 5.1%
stake held by the CEO. According to our analysis, Mugen and all seven management team members have actively increased their stakes in
Proto over the last 2 years. Mugen has purchased an additional 0.8% stake and management cumulatively have purchased an additional
0.25%.

Since 2005, Proto has achieved average organic revenue growth of 9.7% according to our analysis. However, more recently organic revenue
growth has accelerated to 15%+ as Proto benefits from its platform's internet and mobile exposure. Note the 45% revenue growth for FY2014
was 17% organic and 28% due to the acquisition of Autoway. Operating profit growth since 2005 has averaged 12% per annum. Proto has
grown through this period without share issuance, and recently has conducted share buyback programs. At the time of writing Proto equity
traded at 0.33x Enterprise Value to Revenue for the year to March 2014, and 10.5x P/E.

The Japanese auto market, as measured by volume of new cars sold or second hand cars exchanged, has grown at just 0.5% per annum since
2010. However, Proto's strategy is allowing growth in excess of this, by several means. Firstly, Goo-net continues to sign up new dealerships,
and has grown the dealerships signed to it at 7.8% per annum since 2010. Secondly, Goo-net has successfully introduced new services, and
offers for example not just ecommerce databasing but also now inspection services. Goo-inspection is growing at 20% per annum and we
estimate represents 10% of group revenue. Proto's revenue is primarily derived from advertising fees, paid by dealerships to list their vehicles
on Goo-net, and revenue from Goo-net membership fees from consumers as well as sale of the Goo-net magazine.

Since 2012, Proto's operating margins have fallen from 19% to 10%. Part of the decline has been driven by the 2013 acquisition of Autoway,
purchased for 0.25x revenues but with limited extant profitability. The company has also guided that front loaded investments have impacted
operating expenses.

Overall we see Proto as a theoretically strong business both in terms of business model, market shares, growth potential and with an equity
price offering a 10x PE ratio on reduced margins. Proto has historically paid 25-35% of its earnings in dividend. The management team appear
well motivated in terms of equity stakes, and the company's net cash position puts the company on an "ex cash PE" of just 6.4x.