August 1, 2019 Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) Electronics (005930/Buy/TP: W56,000) KOSPI 2,024.55 -14.13 -0.69 Bottoming out KOSPI 200 266.34 -2.61 -0.97 KOSDAQ 630.18 4.54 0.73 Seoul Semiconductor (046890/Buy/TP: W21,300) Lower TP Earnings to improve in 3Q, but weak demand remains a concern Turnover ('000 shares, Wbn) Volume Value BNK Financial Group (138930/Buy/TP: W8,900) KOSPI 578,033 5,533 2Q19 review: Net interest income declines KOSPI 200 91,704 3,732 KOSDAQ 755,261 4,229

Rayence (228850/Buy/TP: W16,000) Lower TP Market Cap (Wbn) Earnings disappoint, but valuation looks attractive Value KOSPI 1,349,752 Daewoong Pharmaceutical (069620/Hold) KOSDAQ 217,992 2Q19 revenue hits quarterly record, in line with the consensus KOSPI Turnover (Wbn) Buy Sell Net AmorePacific (090430/Hold) Foreign 1,774 1,824 -50 Earnings to modestly recover in 2H19 Institutional 1,311 1,190 121 Retail 2,421 2,498 -77

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 514 486 27 Institutional 191 195 -5 Retail 3,505 3,518 -13

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,486 1,552 -66 KOSDAQ 490 482 8

Advances & Declines Advances Declines Unchanged KOSPI 464 361 68 KOSDAQ 792 414 86

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value 45,350 -1,200 585 KISCO 8,360 -1,040 306 KODEX KOSDAQ150 8,695 -60 303 INVERSE KODEX 200 Futures 7,785 125 281 Inverse 2X Hynix 76,900 -2,000 281

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Crystal New Material 2,690 415 245 Soulbrain 65,000 2,300 241 Chemtros 4,785 -685 135 Kukil Paper 5,440 -360 129 Mr. Blue 7,040 1,620 128 Note: As of July 31, 2019

This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose.

Samsung Electronics (005930 KS) Bottoming out

Technology 2Q19 review: OP of W6.6tr (-55.6% YoY, +5.8% QoQ)

Results Comment For 2Q19, Samsung Electronics (SEC) announced revenue of W56.1tr (-4.0% YoY, +7.1% August 1, 2019 QoQ) and operating profit of W6.6tr (-55.6% YoY, +5.8% QoQ), exceeding our estimates by 3.5% (vs. W54.2tr) and 3.3% (vs. W6.4tr), respectively. The market was expecting revenue of W58.6tr and operating profit of W7.1tr. By business division, operating profit was: 1) W0.71tr (vs. our previous estimate of (Maintain) Buy W0.71tr) for consumer electronics (CE); 2) W1.56tr (vs. our previous estimate of W2.01tr) for IT & mobile communications (IM); 3) W3.4tr (vs. our previous estimate of Target Price (12M, W) 56,000 W3.03tr) for semiconductors; and 4) W0.75tr (vs. our previous estimate of W0.6tr) for display. Share Price (07/31/19, W) 45,350 3Q19F OP of W6.98tr; Quarterly OP already bottomed in 1Q19 Expected Return 23% The semiconductor division showed some price elasticity of demand. Both DRAM and NAND prices fell more than expected (-21% vs. our forecast of -20% for DRAM; -15% vs. our forecast of -14% for NAND), but shipment growth was better than projected (+16% OP (19F, Wbn) 27,468 vs. our forecast of +13% for DRAM; +30% vs. our forecast of +14% for NAND). While Consensus OP (19F, Wbn) 26,745 prices continued to decline, we find it encouraging that the memory industry has recovered some of its price elasticity. The overall shipment recovery was driven by the EPS Growth (19F, %) -46.6 looming mobile peak season and inventory normalization at server companies. Market EPS Growth (19F, %) -25.1 P/E (19F, x) 14.1 In NAND, operating profit was better than feared thanks to cost improvements. Backed Market P/E (19F, x) 12.4 by cost advantages, we expect the company to gain market share from 3Q19. In DRAM, KOSPI 2,024.55 there is a chance the company will decide not to adjust wafer input, as OP margin is hovering above 40%. Still, given the company’s inventory levels, we would not rule out Market Cap (Wbn) 270,730 the possibility of some production adjustments from line optimization. Shares Outstanding (mn) 6,793 Free Float (%) 74.5 At the IM division, sales of the A series remain strong, but the decline in Galaxy S10 Foreign Ownership (%) 58.0 sales is worrying. In 3Q19, we expect slight margin improvement driven by the release Beta (12M) 1.50 of the Galaxy Note 10. The CE division is continuing to deliver stable earnings. For 52-Week Low 37,450 display, we expect earnings to improve in 3Q19, as OLED shipments should grow on 52-Week High 48,450 the back of Apple’s new product rollouts.

(%) 1M 6M 12M For 3Q19, we look for revenue of W60tr (-8.4% YoY, +6.8% QoQ) and operating profit of Absolute -3.5 -1.7 -1.9 W6.98tr (-60.3% YoY, +5.8% QoQ). By division, we forecast operating profit of: 1) Relative 1.5 7.0 11.2 W0.76tr for CE; 2) W1.94tr for IM; 3) W3tr for semiconductor; and 4) W1.24tr for display. Maintain Buy and TP of W56,000 110 Samsung Electronics KOSPI

100 We expect semiconductor operating profit (which has the biggest impact on earnings) to reach a bottom in 3Q19. However, we believe overall quarterly operating profit 90 already bottomed in 1Q19. We maintain our Buy rating and target price of W56,000 on 80 SEC. That said, it is disappointing that expectations for additional shareholder returns have been pushed back to early 2020. We thus recommend gradually accumulating 70 7.18 11.18 3.19 7.19 shares on weakness rather than aggressively buying shares.

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 201,867 239,575 243,771 232,055 250,254 261,849

Wonjae Park OP (Wbn) 29,241 53,645 58,887 27,468 34,040 49,423 +822-3774-1426 OP margin (%) 14.5 22.4 24.2 11.8 13.6 18.9 [email protected] NP (Wbn) 22,416 41,345 43,891 21,847 26,520 37,942

Chuljoong Kim EPS (W) 2,735 5,421 6,024 3,216 3,904 5,586 +822-3774-1464 ROE (%) 12.5 21.0 19.6 8.8 10.0 13.2 [email protected] P/E (x) 13.2 9.4 6.4 14.1 11.6 8.1 Young-gun Kim P/B (x) 1.5 1.8 1.1 1.2 1.1 1.0 +822-3774-1448 Dividend yield (%) 1.6 1.7 3.7 3.1 3.1 3.1 [email protected] Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Seoul Semiconductor (046890 KQ) Earnings to improve in 3Q, but weak demand remains a concern Technology 2Q19 review: Disappointing OP of W6.6bn (-62.3% YoY, -61.2% QoQ) Results Comment For 2Q19, Seoul Semiconductor (SSC) posted revenue of W283.3bn (-2.4% YoY, +0.5% August 1, 2019 QoQ) and operating profit of W6.6bn (-62.3% YoY, -61.2% QoQ), missing our estimates by 2.5% (vs. W290.6bn) and 65.4% (vs. W19bn), respectively. The market was looking for revenue of W290.5bn and operating profit of W18.3bn. The poor performance was largely attributable to unfavorable market conditions. (Maintain) Buy Continued weakness in LED demand prompted competitors to aggressively lower prices and also pushed the company’s utilization down to 62% (-14%p YoY). Target Price (12M, W) ▼ 21,300 In addition, cost pressures increased due to the plant relocation to Vietnam. We estimate related costs totaled more than W15bn in 1H19 alone. The company also Share Price (07/31/19, W) 16,150 recognized costs more conservatively, setting aside an additional W13bn in bad debt expenses. Expected Return 32% Earnings to improve in 3Q19; Sluggish demand remains a concern

Looking to 3Q19, we expect revenue of W289.2bn (-9.7% YoY, +2.1% QoQ) and OP (19F, Wbn) 66 operating profit of W19.7bn (-29.9% YoY, +199.7% QoQ). We expect earnings to Consensus OP (19F, Wbn) 97 improve on the back of new QLED TV releases and the operation of the Vietnamese EPS Growth (19F, %) -21.9 plant. Market EPS Growth (19F, %) -25.1 Revenue growth in automotive lighting should also be concentrated in 2H19. The mix P/E (19F, x) 19.2 of general lighting sales (which are less profitable) should fall in 2H19, leading to a Market P/E (19F, x) 12.4 normalization in OP margin. The growing sales of automotive headlamps are KOSDAQ 630.18 particularly positive. The recent won depreciation against the dollar should also prove Market Cap (Wbn) 942 favorable to earnings. Shares Outstanding (mn) 58 Furthermore, we believe SSC’s long-term competitiveness is strengthening. Many Free Float (%) 67.4 established LED suppliers are experiencing slowing growth, while Chinese suppliers Foreign Ownership (%) 11.8 are being hindered by patent issues. We are also optimistic on the company’s new Beta (12M) 0.98 ventures. SSC expects to begin generating VCSEL and micro LED revenue in 2H19. 52-Week Low 15,800 While initial revenue is likely to be modest, we view these new ventures as positive to 52-Week High 25,050 long-term growth.

(%) 1M 6M 12M Maintain Buy, but lower TP to W21,300 Absolute -10.5 -31.9 -10.3 Relative -2.0 -22.5 10.4 The continued weakness in demand remains a concern. We are cautious on the demand outlook, given uncertainties surrounding the global economy. While the 150 Seoul Semiconductor company’s conservative cost recognition and inventory management in response to KOSDAQ 130 such uncertainties are positive in the long term, we think the company needs to restore market confidence in the near term. 110 We maintain our Buy rating on SSC but lower our target price to W21,300 (from 90 W24,500), applying a P/B of 1.7x (vs. 1.9x previously) to our 12-month forward BPS of 70 W12,540. 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 954 1,110 1,194 1,134 1,129 1,224

Wonjae Park OP (Wbn) 58 98 95 66 91 114 +822-3774-1426 OP margin (%) 6.1 8.8 8.0 5.8 8.1 9.3 [email protected] NP (Wbn) 36 40 63 49 63 78

EPS (W) 621 692 1,077 842 1,075 1,335

ROE (%) 6.1 6.7 10.1 7.4 8.8 10.2

P/E (x) 25.1 40.3 18.0 19.2 15.0 12.1 P/B (x) 1.5 2.7 1.7 1.3 1.3 1.2

Dividend yield (%) 0.5 0.7 1.5 1.5 1.9 1.9

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

BNK Financial Group (138930 KS) 2Q19 review: Net interest income declines

Banks 2Q19 review: Above-consensus NP of W174.1bn Results Comment For 2Q19, BNK Financial Group (BNKFG) reported net profit attributable to controlling August 1, 2019 interests of W174.1bn (+15.8% YoY, -1.7% QoQ), 13.2% above the Bloomberg consensus (W153.8bn) and 8.3% above the FnGuide consensus (W160.8bn). The solid result was driven by group-level credit cost stabilization and improved earnings at non-bank subsidiaries. (BNK Capital, BNK Securities, and BNK Savings Bank posted combined net profit of W35.1bn, up 74.6% YoY.) One-off factors for 2Q19 included (Maintain) Buy Bank’s reversal of loss provisions for Heavy I&C.

Target Price (12M, W) 8,900 Positives Group NPL ratio declined to 1.20% (-23bps YoY, -6bps QoQ), aided by Busan Bank’s Share Price (07/31/19, W) 7,000 lower new NPL formation and reversal of loss provisions due to Hanjin Heavy I&C’s debt-to-equity swap. Group credit costs were W92.8bn (-15.6% YoY, flat QoQ), or 47bps Expected Return 27% of total credit (annualized; -11bps YoY, flat QoQ). Combined new NPL formation at Busan Bank and Kyongnam Bank was well-controlled at W142.3bn (-31.5% YoY, +84.2% QoQ). Group-level net commission income increased sharply to W71bn (+30.2% YoY, NP (19F, Wbn) 523 +31.7% QoQ) in 2Q19, supported by increased real estate PF commissions at Busan Consensus NP (19F, Wbn) 534 Bank, Kyongnam Bank, and BNK Capital. EPS Growth (19F, %) 4.1 Market EPS Growth (19F, %) -25.1 Negatives P/E (19F, x) 4.4 In 2Q19, group-level net interest income declined to W552.4bn (-5.9% YoY, -1.0% QoQ). Market P/E (19F, x) 12.4 Net interest margin (NIM) contracted at both Busan Bank and Kyongnam Bank (-6bps KOSPI 2,024.55 QoQ to 2.10% and -5bps QoQ to 1.98%, respectively) due to lower interest rates on Market Cap (Wbn) 2,282 new loans (as a result of increased low-risk loans) and a sharp decline in market rates. Shares Outstanding (mn) 326 Won-denominated loans grew 1.4% QoQ (+3.1% YTD) at Busan Bank, but declined 0.8% Free Float (%) 84.8 QoQ (-0.1% YTD) at Kyongnam Bank (which saw the maturing of group loans for Foreign Ownership (%) 52.7 interim payment in apartment purchases). For 3Q19 through 1Q20, we expect further Beta (12M) 0.72 QoQ NIM declines of 4bps, 1bp, and 1bp, respectively, for Busan Bank and 3bps, 1bp, 52-Week Low 6,640 and 1bp, respectively, for Kyongnam Bank. We forecast 2019-20 won-denominated 52-Week High 8,970 loan growth of 4.6% and 4.5%, respectively, for Busan Bank and 1.1% and 4.3%, respectively, for Kyongnam Bank. We project 2019 group-level net interest income to (%) 1M 6M 12M decline 5.7% YoY to W2.2tr. Absolute -6.5 -4.8 -22.0 Relative -1.6 3.7 -11.5 Attractive dividend, Visibility on NIM stabilization is key

110 BNK Financial Group KOSPI Currently trading at a 2019F P/B of 0.28x, the stock appears undervalued relative to its 100 projected 2019 dividend yield (4.9%). However, with the entire banking (financial

90 holding company) sector trading at a discount due to macro concerns, we believe more visibility on NIM stabilization and reduced earnings volatility is needed for the 80 stock’s undervaluation to meaningfully ease. 70

60 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd. Fiscal year-end 12/16 12/17 12/18 12/19F 12/20F 12/21F Net interest inc. (Wbn) 2,140 2,281 2,344 2,262 2,357 2,443 [ Banks/Credit Cards] Net non-interest inc. (Wbn) 72 -5 173 282 305 315 Operating profit (Wbn) 712 594 750 777 842 878 Heather Kang +822-3774-1903 Net profit (Wbn) 502 403 502 523 558 583 [email protected] EPS (W) 1,539 1,237 1,540 1,603 1,711 1,790

EPS growth (%) -20.6 -19.6 24.6 4.1 6.7 4.6 P/E (x) 4.5 5.7 4.5 4.4 4.1 3.9 P/PPOP (x) 2.1 2.0 1.8 1.8 1.7 1.6

P/B (x) 0.34 0.32 0.30 0.29 0.27 0.26 ROE (%) 7.9 5.8 6.8 6.8 6.9 6.8 Dividend yield (%) 3.2 3.2 4.2 4.5 4.9 5.3 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Rayence (228850 KQ) Earnings disappoint, but valuation looks attractive MedTech 2Q19 review: Revenue misses consensus Results Comment For 2Q19, Rayence reported revenue of W32.7bn (+6.3% YoY). Revenue marked a August 1, 2019 quarterly record but still fell short of the consensus. The core dental segment performed well (+20.1% YoY), but all other segments were sluggish (+0.9% YoY for medical, +2.6% YoY for industrial, and -29.3% YoY for veterinary). Operating profit came in at W6.4bn (-0.3% YoY; OP margin of 19.4%), well below the consensus, but OP margin improved 1.8%p QoQ. (Maintain) Buy Diversifying revenue base and reducing exposure to Vatech Target Price (12M, W) ▼ 16,000 1) Dental: In the dental detector segment, Rayence has been diversifying its customer base beyond Vatech since 2018. We also expect the company to begin generating Share Price (07/31/19, W) 12,100 meaningful global ODM sales from its bendable intraoral sensors, which are the only one of its kind in the world. Expected Return 32% 2) Industrial: Rayence, which offers both TFT (lower pricing) and CMOS (high resolution) detectors, is diversifying its product (tires, batteries, PCB, semiconductor, OP (19F, Wbn) 23 rechargeable batteries, etc.) and customer portfolios. We expect the company to Consensus OP (19F, Wbn) 24 expand its market share, especially in Europe and Asia.

EPS Growth (19F, %) 28.0 3) Veterinary: Rayence acquired a veterinary electronic medical record supplier and a Market EPS Growth (19F, %) -25.1 drugs distributor to expand its veterinary business beyond diagnostic equipment (X- P/E (19F, x) 10.0 rays, CTs, oral sensors, etc.). Market P/E (19F, x) 12.4 4) Medical: In the company’s core market of retrofit X-ray systems, ASP has continued KOSDAQ 630.18 to decline due to intensifying competition. In response, Rayence is focusing on driving Market Cap (Wbn) 201 sales volume through expansion into Latin America via its subsidiary Osko, B2B Shares Outstanding (mn) 17 contracts with GE Healthcare, and a technology transfer deal in Brazil. Free Float (%) 30.0 Cut TP to W16,000, but maintain Buy Foreign Ownership (%) 5.6 Beta (12M) 0.98 We cut our target price on Rayence to W16,000 (from W22,000), in light of our earnings 52-Week Low 12,050 revisions. We maintain our Buy rating, as we still see 32% upside potential from current 52-Week High 19,700 prices. The stock currently trades at a 12-month forward P/E of 9.8x, a discount to global peers (17.9x). Rayence is continuing to diversify its business portfolio using its (%) 1M 6M 12M robust CMOS and TFT technologies. We expect such business diversification to begin Absolute -18.2 -21.7 -38.4 generating meaningful effects in 2H19. Relative -10.4 -10.9 -24.2

130 Rayence KOSDAQ

110

90

70

50 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd.

[ MedTech/Healthcare Solutions] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 98 107 116 124 134 149 Choong-hyun Kim, CFA +822-3774-1740 OP (Wbn) 18 17 21 23 25 28 [email protected] OP margin (%) 18.4 15.9 18.1 18.5 18.7 18.8

NP (Wbn) 15 15 16 20 21 24 EPS (W) 947 881 948 1,213 1,252 1,473 ROE (%) 13.1 8.5 8.8 10.5 9.9 10.6

P/E (x) 18.1 21.0 17.2 10.0 9.7 8.2 P/B (x) 1.7 1.7 1.4 0.9 0.9 0.8 Dividend yield (%) 1.7 0.5 0.6 0.8 0.8 0.8 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

August 1, 2019 Rayence

Table 1. 2Q19 review (Wbn, %, %p) 2Q19P Growth 2Q18 1Q19 Mirae Asset Preliminary Consensus YoY QoQ Daewoo Revenue 30.7 28.3 32.7 35.0 34.5 6.3 15.5 Operating profit 6.4 5.0 6.4 7.0 7.0 -0.3 27.7 OP margin (%) 20.7 17.6 19.4 20.0 20.3 -1.3 1.9 Pretax profit 7.2 6.1 7.1 7.0 7.4 -0.5 16.7 Net profit 5.6 4.9 5.2 5.8 4.8 -7.3 5.5 Note: Based on K-IFRS Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes 19F 20F 19F 20F 19F 20F

Revenue 133.6 147.4 124.4 134.5 -6.8 -8.8 Reflected 2Q19 results Operating profit 26.5 29.7 23.1 25.2 -12.6 -15.0 Pretax profit 26.5 30.1 25.0 25.3 -5.9 -15.8 Net profit 21.8 24.7 20.1 20.8 -7.5 -15.8 EPS (W) 1,312.2 1,486.4 1,213.4 1,251.9 -7.5 -15.8 Note: Based on K-IFRS Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. Quarterly and annual earnings (Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19P 3Q19F 4Q19F 2018 2019F 2020F Revenue 28.5 30.7 29.7 27.5 28.3 32.7 31.6 31.8 116.4 124.4 134.5 TFT 12.2 14.5 12.6 14.4 12.5 14.3 12.1 13.1 53.7 52.0 53.1 CMOS 10.0 11.7 14.1 6.3 10.5 10.9 14.8 12.8 42.1 48.9 53.5 Other 6.3 4.5 2.9 6.8 5.3 7.5 4.7 5.9 20.5 23.5 27.9 Operating profit 5.2 6.4 5.7 4.0 5.0 6.4 5.8 6.0 21.2 23.1 25.2 Pretax profit 5.4 7.2 5.8 3.4 6.1 7.1 5.8 6.0 21.9 25.0 25.3 Net profit 4.6 5.6 4.5 1.1 4.9 5.2 4.9 5.1 15.7 20.1 20.8 OP margin 18.2 20.7 19.1 14.6 17.6 19.4 18.4 18.8 18.2 18.6 18.7 Pretax margin 19.1 23.3 19.6 12.5 21.6 21.8 18.2 18.8 18.8 20.1 18.8 Net margin 16.1 18.1 14.9 3.6 16.7 15.4 15.7 16.2 13.5 16.2 15.4 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Daewoong Pharmaceutical (069620 KS) 2Q19 revenue hits quarterly record, in line with the consensus Healthcare 2Q19 revenue hits quarterly record, in line with the consensus Results Comment For 2Q19, Daewoong Pharmaceutical reported non-consolidated revenue of W263.4bn August 1, 2019 (+10.6% YoY) and operating profit of W17.1bn (+70.6% YoY), which were both in line with the consensus. Revenue hit a quarterly record (previous record: W257.4bn in 4Q18), driven by a 9.9% YoY increase in ETC revenue and a 23.0% YoY gain in OTC revenue. (Maintain) Hold One of the biggest highlights of the report was the sharp rise in Nabota exports to the US. In 2Q19, US-bound Nabota exports jumped to W15.3bn, up from W2.9bn in 1Q19 Target Price (12M, W) - (when exports first began). Nabota’s domestic revenue was also robust, growing 38.7% YoY. Share Price (07/31/19, W) 158,500 OP margin rose 2.3%p YoY to 6.5%, fueled by the increase in Nabota’s US exports (which have high margins) and reduced fixed cost pressures due to top-line growth. In Expected Return - 2Q19, the company recognized W3.8bn in Nabota-related litigation costs. Excluding that item, OP margin was 7.9%. OP (19F, Wbn) 59 Jeuveau’s US market entry appears to be progressing smoothly Consensus OP (19F, Wbn) 58 Jeuveau’s (Nabota’s US brand name) US market entry appears to be progressing EPS Growth (19F, %) 2,400.6 smoothly following its official release in May. Jeuveau’s distributor Evolus has been Market EPS Growth (19F, %) -25.1 carrying out a number of marketing campaigns, in particular highlighting the P/E (19F, x) 49.6 botulinum toxin’s molecular weight of 900 kDa (the same as Allergan’s Botox). Market P/E (19F, x) 12.4 We believe data on Korea’s US-bound exports of products assumed to be botulinum KOSPI 2,024.55 toxins offer some insight into how well Jeuveau is doing. Such exports, which were Market Cap (Wbn) 1,836 almost nonexistent through February, totaled US$2.66mn in March, US$5.29mn in Shares Outstanding (mn) 12 April, US$2.86mn in May, and US$5.3mn in June. For comparison, the April-June Free Float (%) 37.7 numbers are equivalent to 22% of Korea’s total botulinum toxin exports in 2Q19. Foreign Ownership (%) 5.6 In June, Evolus said it received a request for supplementary information regarding the Beta (12M) 1.42 European approval of Nuceiva (Nabota’s European brand name). Given that Nabota has 52-Week Low 138,000 already been approved by the US FDA, we believe Evolus will have little trouble 52-Week High 207,000 obtaining approval in Europe. If Evolus gains final approval after submitting the supplementary information, Daewoong Pharmaceutical will receive a US$1mn (%) 1M 6M 12M milestone from Evolus. Absolute 5.7 -18.1 -13.4 Relative 11.2 -10.8 -1.8 Maintain Hold 120 Daewoong Pharmaceutical We are encouraged by: 1) Jeuveau’s smooth US market entry; 2) Nabota’s expected KOSPI 110 release in Canada and European approval in 2H19; and 3) R&D developments at

100 subsidiary HanAll Biopharma. We keep our Hold rating for now but plan to revisit our

90 rating and target price after gaining further clarity on Jeuveau’s performance in the US and the outcome of the botulinum toxin strain lawsuit. 80

70 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd.

[ Biotech/Healthcare] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 794 867 944 1,019 1,080 1,152 Taehee Kim +822-3774-6813 OP (Wbn) 35 45 31 59 65 75 [email protected] OP margin (%) 4.4 5.2 3.3 5.8 6.0 6.5

NP (Wbn) 33 37 1 37 43 52 EPS (W) 2,846 3,170 128 3,197 3,734 4,448 ROE (%) 6.5 6.9 0.3 6.7 7.4 8.2

P/E (x) 24.1 51.9 1,474.5 49.6 42.5 35.6 P/B (x) 1.4 3.2 3.7 3.0 2.8 2.6 Dividend yield (%) 0.9 0.4 0.3 0.4 0.4 0.5 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

August 1, 2019 Daewoong Pharmaceutical

Table 1. 2Q19 review (Wbn, %) Mirae Asset 2Q18 1Q19 2Q19 YoY QoQ Consensus Daewoo Revenue 238.2 238.1 263.4 10.6 10.6 258.7 261.7 Operating profit 10.0 10.2 17.1 70.6 67.7 14.0 16.4 OP margin (%) 4.2 4.3 6.5 5.4 6.3 Net profit 7.7 4.4 11.8 53.3 164.9 9.4 13.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

AmorePacific (090430 KS) Earnings to modestly recover in 2H19

Cosmetics Lackluster 2Q19 results Results Comment AmorePacific announced its 2Q19 earnings results during market hours on July 31st. July 31, 2019 Revenue and operating profit came in at W1.39tr (+3.7% YoY) and W87.8bn (-39.8% YoY), respectively, with the latter falling 26% short of the recently lowered consensus.

Duty-free revenue (24.1% of consolidated revenue) grew 17.3% YoY to W356.8bn, accelerating from 14.6% YoY in 1Q19. However, domestic revenue excluding duty free (Maintain) Hold (39.5% of consolidated revenue) continued to contract (-6.6% YoY) due to sluggish domestic demand, market competition, and channel restructuring. Target Price (12M, W) - In China (24.6% of consolidated revenue), revenue from the brands Sulwhasoo and Hera was better than expected, expanding 30% YoY on the back of a strategic focus on Share Price (07/31/19, W) 140,000 online channels and the solid growth of China’s luxury cosmetics market.

Expected Return - However, the company’s mass brand, Innisfree, posted single-digit negative growth YoY in China, as new store rollouts in third/fourth-tier cities coincided with the closure of underperforming stores in first/second-tier cities. OP (19F, Wbn) 406 Consensus OP (19F, Wbn) 488 Consolidated operating profit slumped 39.8% YoY, weighed down by domestic fixed cost pressures (labor and channel reshuffle) and increased marketing spending in EPS Growth (19F, %) -9.8 China. As a result, OP margin also contracted 4.5%p YoY. Market EPS Growth (19F, %) -25.1 Looking to 2H19, we expect earnings to modestly recovery, helped by a favorable P/E (19F, x) 27.3 comparison and stabilization in China (following mass channel restructuring). Market P/E (19F, x) 12.4 Management also said it plans to curtail marketing and brand-related spending in KOSPI 2,024.55 2H19 compared to 1H19. We forecast 2H19 consolidated operating profit to grow 32% Market Cap (Wbn) 8,184 YoY (vs. -28% YoY in 1H19). Shares Outstanding (mn) 69 Free Float (%) 51.6 Maintain Hold Foreign Ownership (%) 33.1 We are lowering our 2019-20 EPS estimates by 26% and 15%, respectively, given the Beta (12M) 1.20 weaker-than-expected 1H19 results and the slower-than-anticipated recovery of the 52-Week Low 140,000 domestic cosmetics business caused by tepid domestic demand. 52-Week High 277,000 Following its recent sell-off, AmorePacific is now trading at a 2020F P/E of 20.8x. While (%) 1M 6M 12M we see minimal risk of additional downside to current share prices, we also believe any Absolute -14.9 -22.9 -47.7 near-term upside will be limited. Given sluggish domestic demand and the softening Relative -10.4 -16.0 -40.7 domestic cosmetics market, it remains uncertain how effective the company’s ongoing brand investments and restructuring will be in 2H19. We hence maintain our Hold 120 AmorePacific KOSPI rating on the stock.

100

80

60

40 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd.

[ Global Consumer] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 5,645 5,124 5,278 5,531 6,017 6,478 Woochang Chung +822-3774-6753 OP (Wbn) 848 596 482 406 532 582 [email protected] OP margin (%) 15.0 11.6 9.1 7.3 8.8 9.0

NP (Wbn) 639 394 332 300 394 434 EPS (W) 9,262 5,709 5,683 5,127 6,738 7,417 ROE (%) 17.7 9.8 7.7 6.6 8.1 8.4

P/E (x) 34.7 53.3 36.9 27.3 20.8 18.9 P/B (x) 5.7 5.1 3.3 2.1 1.9 1.8 Dividend yield (%) 0.5 0.4 0.6 0.8 1.0 1.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Mirae Asset Daewoo Research Key Universe Valuations August 1, 2019

※All data as of close July 30, 2019, unless otherwise noted.

19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 Samsung Electronics 270,730 45,350 3.1 -53.4 23.9 -46.6 21.4 14.1 11.6 1.2 1.1 8.8 10.0 000660 SK Hynix 55,983 76,900 2.0 -85.3 102.4 -84.1 94.0 22.7 11.7 1.1 1.0 5.2 9.5 005380 Hyundai Motor 27,029 126,500 3.2 67.7 4.7 142.3 10.8 9.8 8.8 0.5 0.5 5.2 5.5 051910 LG Chem 23,825 337,500 1.8 -25.3 66.1 -34.1 94.5 27.2 14.0 1.5 1.4 5.6 10.2 012330 22,969 241,000 1.7 10.3 7.8 25.4 8.8 9.9 9.1 0.7 0.7 7.4 7.4 035420 NAVER 22,744 138,000 0.2 -25.8 110.5 -52.8 148.1 74.3 29.9 3.3 3.0 5.7 13.0 068270 Celltrion 21,880 170,500 - - - - 0.0 0.0 055550 20,628 43,500 14.3 5.4 11.3 0.9 5.9 5.8 0.5 0.5 9.3 8.6 017670 SK Telecom 20,065 248,500 4.0 7.2 4.4 -51.8 65.3 13.3 8.1 0.8 0.7 6.6 10.3 005490 POSCO 19,661 225,500 4.4 -21.1 -1.8 55.3 -0.7 7.5 7.5 0.4 0.4 5.9 5.7 051900 LG H&H 19,632 1,257,000 0.9 12.8 9.7 16.5 10.7 24.7 22.3 5.4 4.6 20.3 19.1 105560 KB Financial Group 18,146 43,400 10.3 4.1 12.6 3.2 5.3 5.1 0.5 0.4 9.3 8.9 015760 KEPCO 17,911 27,900 ------0.3 0.3 - - 000270 Motors 17,735 43,750 1.8 20.5 19.7 54.5 16.7 9.9 8.5 0.6 0.6 6.3 7.0 028260 Samsung C&T 17,395 91,700 2.2 -16.8 41.4 -39.5 16.8 16.9 14.5 0.6 0.6 4.2 4.1 006400 Samsung SDI 17,122 249,000 0.4 22.3 40.8 14.1 34.5 21.9 16.3 1.3 1.2 6.4 8.0 018260 Samsung SDS 16,133 208,500 1.2 13.6 15.8 13.2 15.8 22.6 19.6 2.5 2.2 11.3 12.0 096770 SK Innovation 15,812 171,000 4.7 -46.5 75.4 -56.1 94.1 22.1 11.4 0.8 0.8 4.0 7.6 034730 SK Holdings 15,550 221,000 2.1 13.3 12.9 -32.3 20.1 10.3 8.5 0.8 0.8 8.9 9.8 032830 Samsung Life 15,220 76,100 - - - - 0.0 0.0 033780 KT&G 13,221 96,300 4.4 12.8 5.6 17.5 5.1 12.5 11.9 1.5 1.4 12.7 12.6 000810 Samsung F&M 12,460 263,000 - - - - 0.0 0.0 003550 LG Corp. 12,200 70,700 3.3 17.2 15.4 5.5 15.6 6.3 5.5 0.6 0.6 10.5 11.1 066570 LG Electronics 10,686 65,300 1.1 -11.8 30.9 -20.9 81.5 12.0 6.6 0.8 0.7 6.6 11.1 035720 10,601 127,000 0.1 175.1 140.8 159.4 159.7 79.9 30.8 2.0 1.9 2.6 6.4 010950 S-Oil 10,594 94,100 1.6 34.0 115.3 83.7 191.9 23.2 7.9 1.6 1.3 7.1 18.3 036570 NCsoft 10,567 481,500 1.3 27.8 27.2 44.7 17.9 17.5 14.8 3.2 2.7 23.2 22.7 086790 10,433 34,750 11.5 6.2 9.6 8.5 4.2 3.9 0.4 0.3 9.0 8.9 010130 Korea Zinc 8,350 442,500 2.5 14.2 5.0 25.6 -0.2 12.6 12.6 1.2 1.1 10.2 9.4 090430 AmorePacific 8,184 140,000 0.8 -15.7 30.9 -9.8 31.4 27.3 20.8 2.1 1.9 6.6 8.1 011170 Lotte Chemical 7,986 233,000 4.5 -34.3 31.9 -35.0 35.1 7.8 5.8 0.6 0.6 7.8 9.9 251270 7,783 90,800 15.4 51.2 24.8 33.7 32.7 24.4 1.6 1.5 5.3 6.7 009540 KSOE 7,679 108,500 - 215.7 - 27.2 188.1 147.9 0.7 0.7 0.3 0.4 024110 7,561 13,150 6.0 3.0 3.9 2.0 4.7 4.7 0.4 0.4 8.5 8.1 030200 KT 7,233 27,700 4.0 9.5 1.0 18.2 5.3 8.9 8.4 0.5 0.5 6.0 6.0 009150 Samsung Electro-Mechanics 6,872 92,000 1.2 -39.9 36.8 -3.0 -7.6 11.2 12.1 1.3 1.2 12.4 10.3 091990 Celltrion Healthcare 6,644 46,200 - 192.4 1119.2 156.4 47.7 18.6 3.6 3.1 8.2 18.6 018880 Hanon Systems 6,245 11,700 - - - - 0.0 0.0 086280 5,775 154,000 2.1 13.5 4.6 23.2 21.9 10.7 8.8 1.2 1.1 11.9 13.1 032640 LG Uplus 5,676 13,000 5.0 -12.5 9.5 -18.5 15.2 14.5 12.5 0.8 0.8 5.6 6.3 267250 5,309 326,000 5.7 78.7 2.1 154.0 4.5 7.8 7.4 0.6 0.6 8.6 8.5 Holdings 034220 LG Display 5,188 14,500 - - - - - 27.9 0.4 0.4 - 1.4 004020 5,178 38,800 1.9 6.1 22.5 53.1 31.9 8.5 6.4 0.3 0.3 3.5 4.3 000720 Hyundai E&C 4,794 43,050 1.2 22.4 10.8 49.0 7.3 8.4 7.9 0.7 0.7 8.9 8.9 010140 4,454 7,070 - - - - - 28.4 0.6 0.6 - 2.4 097950 CJ CheilJedang 4,290 285,000 1.2 15.4 12.7 -64.8 23.7 14.9 12.1 0.9 0.8 6.3 7.3 029780 Samsung Card 4,206 36,300 -16.3 3.1 2.8 4.1 11.9 11.4 0.6 0.6 1.5 1.5 071050 Korea Investment Holdings 4,152 74,500 - - - - 0.0 0.0 005830 DB Insurance 3,972 56,100 - - - - 0.0 0.0 012750 S1 3,971 104,500 2.6 4.9 7.3 52.9 8.6 25.2 23.2 2.7 2.5 12.1 12.4 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data August 1, 2019

※All data as of close July 31, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 420.78 2.22 0.53 -1.90 USD/KRW 1,182.00 1,183.40 1,156.40 1,116.70 KOSPI 2,024.55 -14.13 -0.69 0.72 JPY100/KRW 1,088.45 1,087.23 1,066.74 1,005.95 KOSDAQ 630.18 4.54 0.73 -5.85 EUR/KRW 1,318.82 1,318.84 1,314.65 1,307.43 Dow Jones* 27,198.02 -23.33 -0.09 16.59 3Y Treasury 1.29 1.30 1.48 2.12 S&P 500* 3,013.18 -7.79 -0.26 20.05 3Y Corporate 1.80 1.81 1.97 2.78 NASDAQ* 8,273.61 -19.72 -0.24 24.12 DDR4 8Gb* 3.63 3.63 3.16 7.90 Philadelphia Semicon* 1,593.82 -4.20 -0.26 36.77 NAND MLC 64G* 2.48 2.48 2.33 3.30 FTSE 100* 7,646.77 -39.84 -0.52 13.55 Oil (Dubai)* 63.63 62.53 64.88 73.38 Nikkei 225 21,521.53 -187.78 -0.86 10.02 Gold* 1,429.70 1,420.40 1,413.70 1,221.30 Hang Seng* 28,146.50 40.09 0.14 12.00 Customer deposits (Wbn)* 24,299 24,520 24,710 27,543 Taiwan (Weighted) 10,823.81 -7.09 -0.07 13.29 Equity type BC (Wbn)(Jul. 29) 79,519 80,248 81,537 81,304 Note: * as of July 30, 2019 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung SDI 59.08 Samsung Electronics 64.24 Samsung Electronics 38.03 Hynix 38.38 Hynix 24.68 LG Display 40.67 KODEX 200 Futures Inverse 2X 18.04 KODEX Leverage 32.48 SEMCO 12.91 POSCO 16.29 Samsung SDI 15.17 KODEX KOSDAQ150 INVERSE 11.60 LG Household & Health Care 10.79 Amore Pacific 16.20 Hyundai Motor 13.50 LG Electronics 6.94 Korea Aerospace Industries 9.01 Korean Air Lines 14.04 SK Telecom 11.62 LG Household & Health Care 6.88 8.90 Hyundai Motor 12.83 LG Chem 11.17 Amore Pacific 6.64 6.46 Hana Financial Group 10.82 NAVER 10.50 KODEX Kosdaq150 Leverage 5.86 Daelim Industrial 6.35 Shinhan Financial Group 7.66 Shinhan Financial Group 9.53 SEMCO 5.17 Kakao 5.94 Kia Motors 7.47 Kia Motors 8.61 Amore Pacific 4.67 Amore Pacific 5.83 LG Electronics 6.88 Hana Financial Group 7.21 Daelim Industrial 4.45 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Celltrion 4.47 Soulbrain 8.47 Mezzion Pharma 10.03 Soulbrain 10.29 KMW 3.91 Power Logics 5.53 KMW 5.22 Celltrion Healthcare 6.40 SillaJen 3.40 ViroMed 5.03 NHN KCP 2.28 AfteecaTV 4.02 Kukil Paper 3.07 Celltrion Healthcare 4.28 Seojin System 2.25 HLB 3.34 CJ ENM 2.86 Nepes 2.02 OE Solutions 2.13 Power Logics 1.68 AfteecaTV 2.40 ADTechnology 1.87 SK Materials 1.90 ABL Bio 1.67 HLB 2.36 LB Semicon 1.67 Tes 1.88 SillaJen 1.55 Medy-tox 2.28 NHN KCP 1.62 Paradise 1.62 DAEMO 1.42 Dongjin Semichem 2.15 Modetour Network 1.59 HFR 1.56 Sejong Medical 1.37 Cafe24 Corp. 2.10 HLS Science 1.56 Nepes 1.55 1.25 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 45,350 -1,200 270,730 Celltrion Healthcare 46,200 -2,200 6,644 Hynix 76,900 -2,000 55,983 CJ ENM 165,700 3,500 3,634 Samsung Electronics (P) 37,000 -1,050 30,447 ViroMed 197,500 6,500 3,151 Hyundai Motor 126,500 -1,500 27,029 SillaJen 44,250 250 3,144 LG Chem 337,500 3,000 23,825 Medy-tox 417,900 1,200 2,430 Hyundai Mobis 241,000 -3,000 22,969 PearlAbyss 171,600 3,300 2,234 NAVER 138,000 -500 22,744 KMW 55,100 3,500 2,143 Celltrion 170,500 -6,500 21,880 Hugel 374,500 -4,500 1,955 Shinhan Financial Group 43,500 -300 20,628 SK Materials 178,000 2,500 1,877 SK Telecom 248,500 2,000 20,065 Studio Dragon 61,500 0 1,725 Source: