Korea Morning Focus

May 16, 2019 Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) LS (006260/Buy/TP: W65,900) Lower TP KOSPI 2,092.78 10.94 0.53 Lack of new growth drivers vs. cheap valuation KOSPI 200 269.64 1.07 0.40 KOSDAQ 729.60 19.44 2.74 Emart (139480/Buy/TP: W190,000) Lower TP 1Q19 review: No clear traffic growth strategy Turnover ('000 shares, Wbn) Volume Value Korean Air (003490/Buy/TP: W45,000) KOSPI 556,549 5,053 At the forefront of industry changes KOSPI 200 66,747 3,120 KOSDAQ 843,843 4,941

Nongshim (004370/Buy/TP: W350,000) Market Cap (Wbn) Growing into a global brand Value KOSPI 1,386,709 Celltrion Healthcare (091990/Buy/TP: W90,000) KOSDAQ 250,301 Watch for new product rollouts in 2H19 KOSPI Turnover (Wbn) Buy Sell Net Samsung Life (032830/Trading Buy/TP: W100,000) Foreign 1,393 1,470 -78 Strong new business canceled out by falling interest rates Institutional 1,135 1,183 -48 Retail 2,483 2,374 108

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 475 465 10 Institutional 296 236 60 Retail 4,134 4,196 -62

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,137 1,182 -46 KOSDAQ 447 415 33

Advances & Declines Advances Declines Unchanged KOSPI 645 195 53 KOSDAQ 1,049 180 47

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 42,550 -100 327 KODEX Leverage 12,000 100 249 Daechang 1,800 70 177 Kakao 132,000 -2,000 165 KODEX Kosdaq150 11,395 585 162 Leverage

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Kukil Paper 4,275 -335 322 LB Semicon 10,450 2,410 191 KRTNet Corporation 5,390 415 135 OE Solutions 50,700 11,700 98 Nexon GT 13,700 -200 92 Note: As of May 15, 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.

LS (006260 KS) Lack of new growth drivers vs. cheap valuation

Technology 1Q19 review: Disappointing OP of W99.5bn (-44.4% YoY, +106.8% QoQ) Results Comment For 1Q19, LS announced revenue of W2.41tr (-1.8% YoY, -6.8% QoQ) and operating May 16, 2019 profit of W99.5bn (including W19.2bn in equity-method profits; -44.4% YoY, +106.8% QoQ), missing our estimates (W2.53tr and W129.6bn, respectively) by 5.0% and 23.2%, respectively. The market was looking for revenue of W2.56tr and operating profit of W132.1bn. (Maintain) Buy LS Cable & System (LSCS) posted revenue of W1.09tr (+10.1% YoY, -1.0% QoQ) and operating profit of W43.1bn (+55.0% YoY, +407.1% QoQ). Margins improved on the Target Price (12M, W) ▼ 65,900 back of a 0.8% QoQ rise in average copper prices (US$6,220/tonne) and a turn to profitability in submarine cables. Order backlog rose to W1.72tr (from W1.66tr at end- Share Price (05/15/19, W) 45,900 4Q18). LS-Nikko Copper recorded revenue of W2.08tr (+11.9% YoY, -4.6% QoQ), operating Expected Return 44% profit of W61.1bn (+16.2% YoY, -25.1% QoQ), and pretax profit of W53.8bn (-1.5% YoY, -36.9% QoQ). LS I&D logged operating profit of W5.8bn (-69.8% YoY, turning to profit QoQ), affected by inventory valuation losses of US$9mn at Superior Essex. OP (19F, Wbn) 311 Consensus OP (19F, Wbn) 515 LS Mtron posted revenue of W226.9bn (-6.4% YoY, +6.2% QoQ) and an operating loss of W0.6bn (remaining in the red YoY and QoQ). The tractor business benefited from EPS Growth (19F, %) -39.6 seasonal strength, but the injection molding machine business remained in the red. Market EPS Growth (19F, %) -18.6 The electronic components business was also adversely affected by sluggish P/E (19F, x) 6.1 smartphone demand. Market P/E (19F, x) 11.6 KOSPI 2,092.78 LS Mtron continues to struggle following business sale; In need of new growth engines Market Cap (Wbn) 1,478 Shares Outstanding (mn) 32 Looking to 2Q19, we forecast revenue of W2.57tr (-1.0% YoY, +6.7% QoQ) and Free Float (%) 53.6 operating profit of W118.2bn (-26.4% YoY, +18.8% QoQ). We expect LS-Nikko Copper Foreign Ownership (%) 15.3 and LSCS to continue stable earnings, but we see limited potential for earnings Beta (12M) 1.49 improvement at LS Mtron due to the ongoing weakness of the injection molding 52-Week Low 44,650 machine business. 52-Week High 90,100 LS’s net debt slightly ticked up to W3.1tr in 1Q19, after falling from W3.31tr in 4Q16 to W2.98tr in 4Q17 and W2.89tr in 4Q18. Looking ahead, we believe LS Mtron will play an (%) 1M 6M 12M important part in the company’s earnings and growth. In this respect, the use of LS Absolute -13.9 -15.2 -47.1 Mtron’s remaining proceeds (around W330bn) from the sale of the copper foil business Relative -7.7 -15.3 -37.8 and subsidiary LS Automotive will be key.

120 LS KOSPI Reiterate Buy, but lower TP to W65,900; Gradually accumulate shares 100 We reiterate our Buy rating on LS, but lower our target price to W65,900 (from 80 W80,000) in light of the lack of new growth drivers. Our target price is based on 0.6x

60 (20% discount to five-year average; vs. 0.76x, previously) our 12-month forward BPS of W109,849. Nevertheless, we recommend gradually accumulating shares, given the 40 5.18 9.18 1.19 5.19 stock’s cheap valuation (12-month forward P/B of 0.42x and P/E of 6.1x).

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) 8,508 9,418 10,110 9,933 10,182 10,374

Wonjae Park OP (Wbn) 279 402 354 311 341 371 +822-3774-1426 OP margin (%) 3.3 4.3 3.5 3.1 3.3 3.6 [email protected] NP (Wbn) 168 297 404 244 247 242

EPS (W) 5,223 9,219 12,551 7,579 7,658 7,500

ROE (%) 7.1 11.5 13.7 7.5 7.1 6.6

P/E (x) 11.4 7.9 3.9 6.1 6.0 6.1 P/B (x) 0.8 0.8 0.5 0.4 0.4 0.4

Dividend yield (%) 2.1 1.7 2.5 2.7 2.7 2.7

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.

Emart (139480 KS) 1Q19 review: No clear traffic growth strategy

Retail 1Q19 review: OP significantly misses consensus For 1Q19, Emart reported consolidated revenue of W4.59tr (+11.7% YoY) and operating Results Comment profit of W74.3bn (-51.6% YoY). Operating profit missed our estimate and the May 16, 2019 consensus by a wide margin, hurt by: 1) increased promotional expenses and margin erosion (offline business) due to low-price guarantee competition across online and offline retailers; and 2) heavy spending aimed at market share expansion (online business).

(Maintain) Hypermarket: Operating profit declined 29.5% YoY to W114.3bn, while same-store Buy sales (SSS) dipped 1.8% YoY. As was the case in 4Q18, operating profit was dragged down by: 1) slower growth in non-grocery categories; 2) higher expenses; and 3) Target Price (12M, W) ▼ 190,000 margin compression from increased sales in low-margin categories (such as appliances). Share Price (05/15/19, W) 155,000 SSG.com: Operating loss widened to W10.8bn, which we attribute to heavy promotions aimed at gaining market share following the integration of the online platform. Top- Expected Return 23% line growth was especially disappointing, missing market expectations. Gross merchandise volume (GMV) grew 13.6% YoY to W652.8bn in 1Q19 (vs. +17.5% for the overall online market; +20.2% for the online grocery market). OP (19F, Wbn) 411 Offline in need of traffic recovery strategy; online in need of customer loyalty Consensus OP (19F, Wbn) 506 strategy In our view, Emart’s earnings weakness stems from the decline in in-store traffic, EPS Growth (19F, %) -26.8 caused by 1) the consumer shift to online shopping and 2) the rise of new category Market EPS Growth (19F, %) -18.6 killers. In 1Q19, hypermarket traffic rose 0.7%, improving from -3.8% in 2018. However, P/E (19F, x) 13.1 we think the latest traffic growth was a function of price competition (average ticket price: -3% in 1Q19 vs. slight increase in 4Q18) and thus view it as temporary. Given 1) Market P/E (19F, x) 11.6 the widespread adoption of fast delivery services, and 2) emergence of new online KOSPI 2,092.78 category killers (Oasis Market, etc.), we expect consumer migration to online channels to continue for some time. Emart will likely continue to struggle unless it comes up Market Cap (Wbn) 4,321 with a strategy to revive offline traffic other than price competition (such as Shares Outstanding (mn) 28 differentiated delivery services). Free Float (%) 71.4 We expect SSG.com to record a loss (albeit an intended one) in 2019. Unlike the offline Foreign Ownership (%) 45.7 space, the online market is still up for grabs. As such, heavy promotional spending for Beta (12M) 0.57 market share expansion and top-line growth will be inevitable. For 2019, we estimate 52-Week Low 155,000 SSG.com to post revenue of W725.3bn and an operating loss of W43.2bn. 52-Week High 277,000 Maintain Buy, but cut TP to W190,000 (from W240,000)

(%) 1M 6M 12M We remain Buy on Emart but cut our target price to W190,000 (from W240,00), as we reduced our 2019 operating profit estimate by 18.9%, in light of 1) the persistent Absolute -13.9 -19.9 -40.7 weakness in hypermarkets and 2) online losses. Hypermarket earnings are likely to Relative -7.7 -20.1 -30.4 remain under pressure for some time, given 1) the lower number of holidays in 2Q19 (two fewer than in 2Q18) and 2) the softness in non-grocery categories caused by the 110 Emart KOSPI shift to online shopping. Meanwhile, SSG.com is likely to continue losses amid hefty 100 promotions for market share expansion. We remain cautious on Emart, considering 1) 90 the absence of any clear strategy to revive online/offline traffic; 2) offline weakness in 80 non-grocery categories; and 3) expected losses in the online business. Looking ahead, 70 we believe a differentiated strategy for restoring online/offline traffic will be critical for the stock to recover. 60 50 5.18 9.18 1.19 5.19

Mirae Asset Daewoo Co., Ltd.

[ Retail] FY (Dec.) 12/15 12/16 12/17 12/18 12/19F 12/20F Revenue (Wbn) 13,640 14,615 15,515 17,049 18,725 19,553 Myoungjoo Kim +822-3774-1458 OP (Wbn) 504 569 585 463 411 487 [email protected] OP margin (%) 3.7 3.9 3.8 2.7 2.2 2.5

NP (Wbn) 455 376 616 450 330 404 EPS (W) 16,312 13,497 22,101 16,150 11,826 14,477 ROE (%) 6.5 5.1 7.7 5.5 4.0 4.7

P/E (x) 11.6 13.6 12.3 11.3 13.1 10.7 P/B (x) 0.8 0.7 0.9 0.6 0.5 0.5 Dividend yield (%) 0.8 0.8 0.6 1.1 1.3 1.3 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

Korean Air (003490 KS) At the forefront of industry changes

Airlines 1Q19 review: The worst is averted Results Comment For 1Q19, Korean Air reported revenue of W3.14tr (+1.2% YoY). Despite a decline in May 16, 2019 cargo traffic (-9.4% YoY), revenue held up well, supported by passenger traffic growth (+1.8% YoY) and robust aerospace revenue (+12.7% YoY). Domestic passenger traffic gained 4.3% YoY, aided by higher load factor. International passenger load factor also increased 0.9%p YoY to 80.3%. (Maintain) Buy However, operating profit came in at W140.6bn (-15.5% YoY), missing our forecast (W153.7bn) and the consensus (W171.9bn). The weaker-than-expected operating profit Target Price (12M, W) 45,000 was due to: 1) an 8.8%p YoY decline in cargo load factor (to 70.0%); 2) higher aircraft repair/maintenance expenses; and 3) increased airport-related expenses resulting Share Price (05/15/19, W) 33,400 from minimum wage hikes. Meanwhile, fuel costs were down just 1% YoY. Net loss amounted to W62.5bn. Interest expenses grew 30.4% YoY to W146.1bn, driven Expected Return 35% by higher LIBOR rates and K-IFRS changes. F/X-translation losses amounted to W147.2bn due to a higher US$/W rate at end-1Q19. Debt-to-equity ratio rose to 819% (vs. 743% at end-2018), due to sluggish earnings and an increase in medium- and long- OP (19F, Wbn) 912 term capital leases (+W1.59tr) following accounting standard revisions. That said, the Consensus OP (19F, Wbn) 953 recognition of operating lease commitments as an on-balance sheet liability (a key EPS Growth (19F, %) - revision to K-IFRS effective from 2019) had a marginal (+50%p) impact on debt-to- Market EPS Growth (19F, %) -18.6 equity ratio, as Korean Air has relatively little exposure to operating leases. P/E (19F, x) 34.6 Expectations remain intact Market P/E (19F, x) 11.6 KOSPI 2,092.78 1) Market presence to be restored: Given ongoing restructuring at the airline’s rival, we believe Korean Air is well positioned to regain its market position, leveraging its Market Cap (Wbn) 3,168 leadership in cargo and long-haul routes. Korean Air’s share of slots at Incheon Shares Outstanding (mn) 96 International Airport has fallen to less than 30%, but the pace of decline should start to Free Float (%) 64.5 slow. And with the rival scaling back less-profitable routes (e.g., North America and Foreign Ownership (%) 26.1 Europe), Korean Air’s margins should gradually improve. Notably, Korean Air captured Beta (12M) 1.13 19% (second-largest share) of Category 1 routes in the latest China route allocation. 52-Week Low 25,450 2) Cash flow to improve: It is notable that the airline’s cash flow has improved despite 52-Week High 37,750 weak earnings. Operating cash flow expanded to W786.5bn (vs. W774.5bn in 1Q18). In (%) 1M 6M 12M addition, capex dropped to W162.2bn (vs. W450.5bn in 1Q18). EBITDA also rose to Absolute -11.5 2.6 -2.2 W652.3bn (+11.3% YoY). Relative -5.2 2.4 14.9 Maintain Buy and TP of W45,000 120 Korean Air KOSPI We reaffirm our Buy rating and target price of W45,000 on Korean Air. Our target price 110 implies a 2019F P/B of 1.2x, higher than the stock’s five-year average P/B of 1.0x but 100 90 lower than the average peak multiple (1.3x) over the same period. Korean Air’s shares 80 have pulled back amid the recent won depreciation. However, we believe improving 70 cash flows will enhance expectations on shareholder value improvement in the long 60 term. We recommend accumulating the stock from a long-term perspective. 5.18 9.18 1.19 5.19

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 11,732 12,092 13,020 13,008 13,455 13,744 Jay JH Ryu +822-3774-1738 OP (Wbn) 1,121 940 640 912 1,090 1,184 [email protected] OP margin (%) 9.6 7.8 4.9 7.0 8.1 8.6

NP (Wbn) -565 792 -193 93 326 413 EPS (W) -7,171 8,631 -2,012 965 3,402 4,307 ROE (%) -27.2 29.4 -5.9 2.9 8.4 8.8

P/E (x) - 3.9 - 34.6 9.8 7.8 P/B (x) 1.2 0.9 1.1 0.9 0.8 0.6 Dividend yield (%) 0.0 0.7 0.8 0.7 0.7 0.7 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

Nongshim (004370 KS) Growing into a global brand

Food & Beverage 1Q19 review: Overseas growth stands out For 1Q19, Nongshim reported a 4.5% YoY rise in revenue and an 8.1% YoY fall in Results Comment operating profit (W31.6bn). Revenue growth was driven by: 1) new product rollouts May 16, 2019 (Shin Ramyun Non-Frying, Happy Ramyun, etc.); 2) strong sales of existing instant noodle products; and 3) growth of the US subsidiary. The operating profit decline was largely caused by domestic factors, including: 1) a high base of comparison; 2) increased ad/promotional spending due to the release of Shin Ramyun Non-Frying and competition with Ottogi; and 3) the difference in timing of the Lunar New Year holiday. (Maintain) Buy Domestic revenue gained 2.3% YoY, but operating profit contracted 18% YoY. Domestic instant noodle revenue rose 1.7% YoY, thanks to new product effects and Chapagetti. Target Price (12M, W) 350,000 The company’s instant noodle market share (by value) was up 0.3%p YoY to 53.9%. Snack revenue fell 3.6% YoY on lower sales volume, while beverage revenue grew 18.5% YoY, aided by Baeksansoo (+38.6%) and Capri Sun (+10.0%). Share Price (05/15/19, W) 277,500 Looking at overseas subsidiaries (US, China, Japan, Australia, and Vietnam), revenue Expected Return 26% and operating profit expanded 13.1% and 83.9% YoY, respectively. In the US, revenue and operating profit surged 22.6% and 126.7% YoY, respectively, fueled by: 1) stronger sales at key channels (Walmart, Costco, Kroger, etc.); 2) robust sales of cup noodles; 3) broader product offerings; and 4) expansion into the Midwest/East Coast. In China, OP (19F, Wbn) 101 revenue slipped 0.7% YoY amid an unfavorable comparison, but operating profit Consensus OP (19F, Wbn) 105 gained 50.0% YoY on the back of cost efficiency.

EPS Growth (19F, %) 10.3 Watch for overseas growth, especially in the US and Vietnam Market EPS Growth (19F, %) -19.4 We believe Nongshim’s share price and earnings will largely be driven by: 1) overseas P/E (19F, x) 18.2 growth (US, China, Japan, Australia, and Vietnam); 2) easing competition with Ottogi; and 3) sales of Shin Ramyun Non-Frying. Market P/E (19F, x) 11.7 KOSPI 2,092.78 In our view, overseas growth is Nongshim’s biggest investment appeal. In 2018, overseas revenue and operating profit grew 10.4% and 44.8% YoY, respectively. In Market Cap (Wbn) 1,688 2019, we forecast overseas revenue and operating profit to grow 12.9% and 31.1% YoY, Shares Outstanding (mn) 6 respectively. In the US, we expect revenue growth of 15.2%, backed by geographical expansion, advance into traditional trade channels, and broader product offerings. In Free Float (%) 49.6 China, we look for revenue growth of 6.8%, supported by forays into the western Foreign Ownership (%) 20.6 region and online channel expansion. The company has also ventured into Vietnam, Beta (12M) 0.26 the world’s fifth largest instant noodle market. The company built a local sales network 52-Week Low 214,000 in 2018 and began generating revenue in 1Q19. If Nongshim’s venture into Vietnam proves successful, we believe overseas markets will have even greater importance for 52-Week High 356,000 the company. (%) 1M 6M 12M We expect pricing competition with Ottogi to ease, given increasing fatigue following Absolute -5.1 14.7 -13.4 intense market share competition over the past four to five years and lukewarm Relative 1.7 14.4 1.7 consumer response to new products. While some seasonal products and product extensions are expected, there should be fewer compared to the last four to five years. 130 Nongshim KOSPI The domestic non-fried instant noodle market is estimated at around W100bn, just 5% 110 of the overall instant noodle market. As demand for deep-fried noodles dwindles, Nongshim is looking to grow the non-fried instant noodle market with Shin Ramyun 90 Non-Frying. We expect the company to gain ground in the non-fried market. 70 Maintain Buy and TP of W350,000 50 Nongshim’s instant noodles are growing into a global brand. The company’s valuation 5.18 9.18 1.19 5.19 looks attractive compared to major peers, such as Tingyi, Uni-President, Nissin, Toyo Suisan, and Indofood. We also believe the stock has strong downside support, given its Mirae Asset Daewoo Co., Ltd. low P/B (0.8x) and non-cyclical nature.

[ F&B] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 2,217 2,208 2,236 2,312 2,393 2,470 Woon-mok Baek +822-3774-1679 OP (Wbn) 90 96 89 101 111 121 [email protected] OP margin (%) 4.1 4.3 4.0 4.4 4.6 4.9

NP (Wbn) 199 91 84 93 102 107 EPS (W) 32,764 14,905 13,858 15,287 16,723 17,537 ROE (%) 11.6 5.0 4.5 4.9 5.1 5.2

P/E (x) 10.1 23.8 18.4 18.2 16.6 15.8 P/B (x) 1.1 1.1 0.8 0.8 0.8 0.8 Dividend yield (%) 1.2 1.1 1.6 1.4 1.4 1.6 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

Celltrion Healthcare (091990 KQ) Watch for new product rollouts in 2H19

Healthcare 1Q19 review: In line with consensus Results Comment For 1Q19, Celltrion Healthcare announced consolidated revenue of W220.5bn (+71.7% May 16, 2019 YoY) and operating profit of W9.4bn (+11.9% YoY). The latter was in line with the recently raised consensus. This was the first time that first-quarter revenue exceeded W200bn, as exports previously deferred due to distribution structure overhauls in 4Q18 were recognized in 1Q19. Revenue mix by product was 60% for Remsima, 31% for Truxima, and 9% for Herzuma, consistent with market prescription data. We believe (Maintain) Buy this indicates that overseas partners’ inventories of Celltrion Healthcare’s products are being efficiently managed. The impact of variable considerations in 1Q19 was also less Target Price (12M, W) 90,000 than W10bn, thanks to reasonable inventory levels and stabilized pricing.

Share Price (05/15/19, W) 68,600 Status check by product 1) Remsima (US brand name Inflectra): Remsima’s European market share expanded Expected Return 31% further in 1Q19 to 57%. Investor worries intensified after Pfizer reported a 19% QoQ decline in Inflectra revenue in 1Q19. However, we believe the decline was caused by

inventory adjustments by distributors, lump-sum settlement of rebates to insurers, OP (19F, Wbn) 150 seasonal weakness, and lower pricing. We expect Pfizer’s Inflectra revenue to Consensus OP (19F, Wbn) 105 normalize in 2Q19. US Inflectra prescriptions also showed a wide divergence with Pfizer’s figures, increasing 7.6% QoQ by value and 7.8% QoQ by volume in 1Q19. EPS Growth (19F, %) 1,119.2 Market EPS Growth (19F, %) -18.6 2) Truxima: In just seven quarters since its release in Europe, Truxima’s market share P/E (19F, x) 70.8 has reached 36%, growing faster than Remsima had done. We believe pricing is also Market P/E (19F, x) 11.6 holding up fairly well due to limited competition (Truxima’s rival biosimilar holds a KOSDAQ 729.60 market share of 15%).

Market Cap (Wbn) 9,831 3) Herzuma: Even though Herzuma was the second trastuzumab biosimilar to win Shares Outstanding (mn) 144 approval in Europe, it now holds a market share of 10%, the largest among competing Free Float (%) 35.7 biosimilars. In particular, Herzuma controls 45% of the market in the Netherlands and Foreign Ownership (%) 30.9 28% in Austria. Beta (12M) 0.98 52-Week Low 58,970 Watch for new product rollouts in 2H19 52-Week High 111,072 We reaffirm our Buy call and target price of W90,000 on Celltrion Healthcare, as: 1) the US release of Truxima and Herzuma this year is likely to boost revenue and margins (%) 1M 6M 12M (given their high pricing); 2) the launch of Remsima SC in Europe later this year could Absolute -1.6 3.1 -25.1 strengthen the company’s competitive position in the infliximab market (there are no Relative 3.4 -3.7 -11.4 subcutaneous injection formulations currently available in the market); and 3) effects

160 Celltrion Healthcare KOSDAQ of the distribution structure overhaul should begin to materialize in 2H19. 140 120

100

60 5.18 9.18 1.19 5.19

Mirae Asset Daewoo Co., Ltd.

[ Biotech/Healthcare] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 758 921 713 1,313 2,729 3,060 Taehee Kim +822-3774-6813 OP (Wbn) 179 154 -25 150 438 490 [email protected] OP margin (%) 23.6 16.7 -3.5 11.4 16.0 16.0

NP (Wbn) 123 157 11 139 364 409 EPS (W) 1,060 1,230 80 969 2,485 2,737 ROE (%) 21.4 13.4 0.7 8.2 18.6 17.5

P/E (x) - 86.6 947.1 70.8 27.6 25.1 P/B (x) - 8.9 6.2 5.3 4.6 4.0 Dividend yield (%) - 0.0 0.0 0.0 0.0 0.0 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

May 16, 2019 Celltrion Healthcare

Table 1. 1Q19 review (Wbn, %) Mirae Asset 1Q18 4Q18 1Q19 YoY QoQ Consensus Daewoo Revenue 128.4 188.7 220.5 71.7 16.9 203.0 211.6 Operating profit 8.4 -68.9 9.4 11.9 TTB 8.5 9.4 OP margin 6.6 -36.5 4.3 4.2 4.4 Net profit 60.5 -66.5 5.8 -90.4 TTB 6.2 10.0 Note: Net profit is attributable to controlling interests Source: Company data, FnGuide, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Samsung Life (032830 KS) Strong new business canceled out by falling interest rates Insurance 1Q19 review: Net profit of W447.3bn (+14.7% YoY); Solid investment yield and new business Results Comment For 1Q19, Samsung Life announced net profit of W447.3bn, topping our estimate May 15, 2019 (W409.6bn) by 9.2%. The earnings beat was primarily attributable to investment yield (3.57% on a consolidated basis), which came in 27bps higher than our expectation thanks to disposal gains (W152bn). New business growth also stood out. APE (a key measure of top line) fell 3.4% YoY, but (Maintain) Trading Buy new business value grew 20.6% YoY (from W261bn in 1Q18 to W315bn in 1Q19), driven by portfolio improvements centered on higher-margin, protection-type products (such Target Price (12M, W) 100,000 as health policies). New business margin improved to 46.5%, rising 4.9%p from the 2018 average. Share Price (05/15/19, W) 81,000 Efficiency indicators, however, were sluggish overall. 1) Risk loss ratio rose 0.9%p to 85%, with mortality gains decreasing for the fourth straight quarter. 2) Negative spread Expected Return 23% also widened 4bps QoQ to 91bps. While this was partly due to temporary factors (a rise in the crediting rate due to the sale of Samsung Electronics shares), negative spread was still up 7-8bps YoY even after adjusting for the impact. New money yield was also Pretax Profit (19F, Wbn) 1,975 sluggish, at just 3.0%. Consensus Pretax Profit (19F, 1,777 Wbn) Falling interest rates overshadowing strong new business The share performances of life insurers are largely determined by a “growth-profit- EPS Growth (19F, %) -17.2 shareholder return” cycle, as represented by 1) new business growth, 2) profitability of Market EPS Growth (19F, %) -18.6 existing business, and 3) dividend payouts. P/E (19F, x) 11.8 Market P/E (19F, x) 11.6 Samsung Life’s new business growth has been improving on the back of aggressive sales of living benefit policies (such as health policies). However, existing business KOSPI 2,092.78 margins have been worsening as a result of falling bond yields. In 1Q19, the 10-year Market Cap (Wbn) 16,200 KTB yield slipped 12bps. Based on the embedded value (EV) sensitivity to interest rates Shares Outstanding (mn) 200 the insurer revealed last year, this amounts to a roughly 300bn EV decline in 1Q19 alone, comparable to the new business value seen in the quarter. While the near-term Free Float (%) 41.9 outlook for interest rates remains uncertain, we note that there has never been an Foreign Ownership (%) 16.8 instance where long-term interest rates picked up as the share of the working Beta (12M) 0.65 population declined. 52-Week Low 79,700 52-Week High 113,000 We also see uncertainties over dividends due to tighter capital regulations. Samsung Life will probably be able to maintain a solid RBC ratio of over 150% (currently 338%) (%) 1M 6M 12M after the new capital regulations are adopted. However, dividends are unlikely to Absolute -5.4 -11.7 -28.0 increase sufficiently until the impact of the new rules becomes clearer. While Samsung Relative 1.4 -11.9 -15.4 Life’s net assets have roughly doubled since its IPO, its DPS has increased by only 30% (from W2,000 in FY10 to W2,650 in FY18). Excluding the gains from the sale of SEC

110 Samsung Life KOSPI shares, DPS has actually remained unchanged at W1,990. For reference, insurers in 100 Europe provided clear guidelines on dividend payouts and share repurchases following the introduction of Solvency II in 2016 only after they had gained clarity on appropriate 90 capital ratio levels. 80

70 We maintain our Trading Buy rating and target price of W100,000 on Samsung Life.

60 5.18 9.18 1.19 5.19

FY (Dec.) 12/15 12/16 12/17 12/18 12/19F 12/20F Mirae Asset Daewoo Co., Ltd. Direct premiums (Wbn) 27,457 27,884 26,321 25,158 25,019 25,591 [ Securities/Insurance] Pretax profit (Wbn) 1,372 2,607 1,715 2,366 1,975 1,971 NP (Wbn) 1,211 2,054 1,195 1,664 1,378 1,391 Gil-won Jeong +822-3774-1675 EPS (W) 6,056 10,271 5,976 8,322 6,888 6,954 [email protected] BPS (W) 118,609 141,542 155,822 152,527 171,392 178,410

P/E (x) 18.2 11.0 20.8 9.8 11.8 11.6 P/B (x) 0.9 0.8 0.8 0.5 0.5 0.5 ROE (%) 5.3 7.9 4.0 5.4 4.3 4.0

Dividend yield (%) 1.6 1.1 1.6 3.2 3.2 3.2 Stockholders’ equity (Wbn) 23,722 28,308 31,164 30,505 34,278 35,682

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

Mirae Asset Daewoo Research Key Universe Valuations May 16, 2019

※All data as of close May 14, 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 254,014 42,550 3.3 -54.2 38.9 -46.7 34.7 13.2 9.8 1.1 1.1 8.8 11.1 000660 SK Hynix 54,236 74,500 2.0 -78.7 60.6 -78.6 55.5 16.3 10.5 1.0 1.0 6.9 10.1 005380 Hyundai Motor 27,350 128,000 3.1 40.1 30.5 139.2 15.0 10.0 8.7 0.5 0.5 5.1 5.7 068270 Celltrion 25,079 196,000 - - - - 0.0 0.0 051910 LG Chem 24,037 340,500 1.8 -3.8 47.4 -1.3 48.7 18.3 12.3 1.4 1.3 8.3 11.4 055550 Shinhan Financial Group 21,315 44,950 12.5 3.1 10.5 0.7 6.1 6.1 0.5 0.5 9.4 8.8 005490 POSCO 20,925 240,000 4.6 -16.7 1.8 69.3 2.3 7.3 7.1 0.4 0.4 6.5 6.3 017670 SK Telecom 20,832 258,000 3.9 5.8 9.8 -34.9 53.0 10.2 6.7 0.8 0.7 8.8 12.5 051900 LG H&H 20,335 1,302,000 0.9 12.5 9.5 15.3 10.4 25.8 23.4 5.6 4.8 19.9 18.8 012330 Hyundai Mobis 20,300 213,000 1.6 9.1 10.2 27.0 7.4 8.6 8.0 0.6 0.6 7.5 7.6 035420 NAVER 19,778 120,000 0.3 -15.1 26.3 -31.4 68.6 44.4 26.3 2.9 2.6 8.2 12.5 105560 KB Financial Group 19,275 46,100 9.7 3.8 10.8 4.0 5.7 5.5 0.5 0.5 9.3 9.0 028260 Samsung C&T 18,950 99,900 2.0 5.4 20.1 -4.2 20.7 15.0 12.4 0.7 0.7 5.2 5.9 034730 SK Holdings 17,660 251,000 1.9 13.3 12.9 -32.3 20.1 11.7 9.7 0.9 0.9 8.9 9.8 000270 Kia Motors 17,005 41,950 1.9 20.5 19.7 54.5 16.7 9.5 8.2 0.6 0.6 6.3 7.0 015760 KEPCO 16,884 26,300 ------0.3 0.3 - - 032830 Samsung Life 16,200 81,000 - - - - 0.0 0.0 018260 Samsung SDS 16,017 207,000 1.4 11.6 16.5 12.7 15.4 22.6 19.6 2.4 2.2 11.3 12.0 096770 SK Innovation 15,719 170,000 4.7 -7.3 6.3 -14.0 6.6 11.2 10.5 0.8 0.8 7.7 7.9 006400 Samsung SDI 15,197 221,000 0.5 16.8 45.7 -1.0 42.4 22.4 15.7 1.2 1.1 5.6 7.5 033780 KT&G 13,729 100,000 4.2 12.8 5.6 17.5 5.1 13.0 12.3 1.5 1.4 12.7 12.6 000810 Samsung F&M 13,123 277,000 - - - - 0.0 0.0 003550 LG Corp. 12,407 71,900 3.2 17.2 15.4 5.5 15.6 6.4 5.6 0.6 0.6 10.5 11.1 066570 LG Electronics 11,864 72,500 1.0 7.1 20.0 23.7 39.9 8.5 6.1 0.8 0.7 10.3 12.9 090430 AmorePacific 11,692 200,000 0.6 6.0 20.7 6.9 22.4 32.9 26.9 2.9 2.7 7.8 8.9 035720 Kakao 11,009 132,000 0.1 167.0 116.1 127.8 160.4 94.5 36.3 2.1 2.0 2.2 5.6 086790 Hana Financial Group 10,974 36,550 8.6 8.1 9.5 8.2 4.5 4.1 0.4 0.4 9.0 9.1 036570 NCsoft 10,937 498,500 1.2 30.9 27.2 48.0 18.0 17.7 15.0 3.3 2.8 23.7 23.1 251270 Netmarble 10,075 118,000 44.5 59.7 57.2 39.0 33.7 24.3 2.1 1.9 6.6 8.5 091990 Celltrion Healthcare 9,831 68,600 - 192.4 1119.2 156.4 70.8 27.6 5.3 4.6 8.2 18.6 010950 S-Oil 9,581 85,100 3.6 91.9 60.5 185.0 86.8 13.5 7.2 1.4 1.2 10.8 18.0 011170 Lotte Chemical 9,083 265,000 4.0 -15.9 14.9 -7.2 13.8 5.9 5.2 0.6 0.6 11.5 11.9 010130 Korea Zinc 8,218 435,500 2.5 8.9 6.0 19.1 2.4 13.1 12.8 1.2 1.1 9.7 9.3 024110 Industrial Bank of Korea 8,020 13,950 5.4 3.9 2.0 3.3 5.1 5.0 0.4 0.4 8.3 8.1 009540 HHI 7,891 111,500 - 594.6 - - - 66.3 0.7 0.7 - 1.0 009150 Samsung Electro-Mechanics 7,581 101,500 1.1 -19.1 28.9 -17.5 31.2 14.6 11.1 1.4 1.3 10.7 12.6 030200 KT 7,259 27,800 4.0 2.0 3.0 28.2 5.6 8.2 7.8 0.5 0.5 6.5 6.6 032640 LG Uplus 6,811 15,600 4.2 -2.9 11.7 2.0 18.2 13.9 11.7 0.9 0.9 7.0 7.9 034220 LG Display 6,369 17,800 - - - - - 20.0 0.5 0.5 - 2.3 018880 Hanon Systems 6,139 11,500 - - - - 0.0 0.0 086280 Hyundai Glovis 5,738 153,000 2.2 8.8 2.2 20.2 8.7 10.9 10.0 1.2 1.1 11.8 11.7 004020 Hyundai Steel 5,691 42,650 1.8 2.5 16.1 42.1 23.3 10.0 8.1 0.3 0.3 3.3 3.8 000720 Hyundai E&C 5,473 49,150 1.0 24.6 6.1 20.7 0.6 11.9 11.8 0.8 0.8 7.2 6.8 Hyundai Heavy Industries 267250 5,081 312,000 5.9 78.7 2.1 154.0 4.5 7.4 7.1 0.6 0.6 8.6 8.5 Holdings 010140 SamsungHvyInd 5,002 7,940 - - - - - 64.7 0.7 0.7 - 1.2 128940 Hanmi Pharmaceutical 4,767 410,500 0.1 37.5 -0.2 141.7 -12.3 79.2 90.3 6.1 5.8 8.2 6.8 023530 Lotte Shopping 4,696 166,000 3.1 6.5 3.9 - 10.5 11.7 10.6 0.4 0.4 3.4 3.7 005830 DB Insurance 4,390 62,000 - - - - 0.0 0.0 139480 Emart 4,321 155,000 1.3 -11.1 18.3 -26.8 22.4 13.1 10.7 0.5 0.5 4.0 4.7 097950 CJ CheilJedang 4,298 285,500 1.2 15.4 12.7 -64.8 23.7 15.0 12.1 0.9 0.8 6.3 7.3 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data May 16, 2019

※All data as of close May 15, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 415.33 -1.00 -0.24 -3.17 USD/KRW 1,187.00 1,183.10 1,140.50 1,066.60 KOSPI 2,092.78 10.94 0.53 4.12 JPY100/KRW 1,082.58 1,083.08 1,018.17 972.07 KOSDAQ 729.60 19.44 2.74 9.00 EUR/KRW 1,330.33 1,328.80 1,289.16 1,272.61 Dow Jones* 25,532.05 207.06 0.82 9.45 3Y Treasury 1.71 1.71 1.76 2.31 S&P 500* 2,834.41 22.54 0.80 12.92 3Y Corporate 2.18 2.18 2.23 2.91 NASDAQ* 7,734.49 87.47 1.14 16.03 DDR2 1Gb* 1.06 1.06 1.06 1.34 Philadelphia Semicon* 1,442.83 33.88 2.40 23.82 NAND MLC 64G* 2.52 2.53 2.38 3.72 FTSE 100* 7,241.60 77.92 1.09 7.53 Oil (Dubai)* 69.70 70.97 70.10 73.77 Nikkei 225 21,188.56 121.33 0.58 8.32 Gold* 1,296.30 1,301.80 1,290.60 1,318.20 Hang Seng* 28,122.02 -428.22 -1.50 11.90 Customer deposits (Wbn)* 26,058 26,656 25,769 27,836 Taiwan (Weighted) 10,560.71 41.46 0.39 10.54 Equity type BC (Wbn)(May. 13) 81,043 81,408 85,086 80,998 Note: * as of May 14, 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 Kakao 32.54 Hotel Shilla 25.90 KODEX 200 Futures Inverse 2X 25.09 KODEX KOSDAQ150 INVERSE 32.18 Hanjin KAL 11.82 Samsung Electronics 22.57 KODEX Kosdaq150 Leverage 22.84 Samsung Electronics 26.31 LG Electronics 9.95 Celltrion 15.53 Hyundai Eng. & Cosnt. 18.14 Kakao 10.06 Samsung SDI 7.71 KEPCO 14.36 Hotel Shilla 16.75 NAVER 9.78 SEMCO 7.69 LG Chem 9.74 Hanwha Chemical 8.90 Hynix 9.43 Kia Motors 6.35 Netmarble 9.17 Korea Investment Holdings 6.53 KODEX Leverage 9.11 Korea Plant Service & LG Uplus 5.35 Hyundai Eng. & Cosnt. 7.75 Hite Jinro 5.71 8.38 Engineering Hyundai Heavy Industries SK Telecom 4.74 Shinsegae 5.93 4.64 KEPCO 8.18 Holdings KODEX KOSDAQ150 INVERSE 4.26 LG Display 5.92 Shinsegae 4.63 Netmarble 7.90 NAVER 4.25 emart 5.32 KODEX Inverse 4.61 SK Telecom 7.51 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 LB Semicon 6.06 Cafe24 Corp. 16.35 Nepes 6.23 Seojin System 4.34 Solid Technologies 4.67 Medy-tox 5.61 Solid Technologies 4.79 Duk San Hi Metal 3.63 PearlAbyss 3.98 ViroMed 4.74 LB Semicon 4.58 JNK Heaters 3.04 OSSTEM IMPLANT 3.00 HLB 2.62 ViroMed 4.31 Kolon Life Science 2.52 Emerson Pacific 2.50 Wonik IPS 2.46 SNK 4.07 Studio Dragon 2.41 Ubiquoss 2.49 Ace Technology 2.30 Posco Chemtech 3.29 ECHO 2.28 Kolon TissueGene 2.46 OE Solutions 2.17 PSK 2.68 Ubiquoss 2.16 Kolon Life Science 2.34 Dongjin Semichem 1.96 OE Solutions 2.66 KMW 1.86 Danawa 2.14 Winix 1.76 Paradise 2.62 Silicon Works 1.62 ECHO 2.05 Alteogen 1.76 Dongjin Semichem 2.61 Tes 1.50 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 42,550 -100 254,014 Celltrion Healthcare 68,600 1,300 9,831 Hynix 74,500 -100 54,236 CJ ENM 194,200 4,000 4,259 Samsung Electronics (P) 34,550 150 28,431 SillaJen 56,000 1,200 3,947 Hyundai Motor 128,000 0 27,350 ViroMed 239,400 13,900 3,820 Celltrion 196,000 500 25,079 Posco Chemtech 54,100 2,900 3,299 LG Chem 340,500 9,000 24,037 HLB 77,500 3,400 3,041 Shinhan Financial Group 44,950 250 21,315 Medy-tox 516,000 -5,300 3,001 POSCO 240,000 500 20,925 PearlAbyss 182,500 4,400 2,376 SK Telecom 258,000 -1,500 20,832 Studio Dragon 83,300 3,100 2,337

Mirae Asset Daewoo Research Key Universe Valuations May 16, 2019

Samsung Biologics 310,000 3,500 20,511 Celltrion 54,400 2,100 1,854 Source: Korea Exchange