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Home , Cheil Industries, Hotel Shilla, Samsung

January 15, 2014

KOREA Daily Focus

Company News & Analysis Major Indices Close Chg Chg (%) (008770/Buy/TP: W95,000) KOSPI 1,953.28 7.21 0.37 Shares to trend higher despite near-term earnings weakness KOSPI 200 254.73 0.76 0.30 KOSDAQ 515.97 3.70 0.72

Turnover ('000 shares, Wbn) Volume Value KOSPI 247,951 3,757 KOSPI 200 63,779 2,980 KOSDAQ 409,757 1,839

Market Cap (Wbn) Value KOSPI 1,150,706 KOSDAQ 123,326

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,082 1,119 -36 Institutional 828 854 -26 1,816 1,766 50

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 117 91 26 Institutional 76 95 -18 Retail 1,646 1,651 -5

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 639 760 -121 KOSDAQ 24 17 7

Advances & Declines Advances Declines Unchanged KOSPI 507 300 73 KOSDAQ 543 373 83

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Hynix 36,650 -1,750 416 Electronics 1,299,000 -14,000 305 KODEX LEVERAGE 11,505 65 180 ByucksanEng&Const 7,000 160 156 NHN 693,000 26,000 108

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Celltrion 46,150 1,000 99 TPC 11,450 700 72 Modacom 9,640 640 57 SK Coms 7,060 360 46 HyVISION 11,300 1,200 46 Note: As of January 15, 2014

Hotel Shilla (008770 KS) Shares to trend higher despite near-term earnings weakness

4Q13 preview: Revenue of W569.3bn (+3.1% YoY), OP of W6.8bn (-69.7% YoY) Hotel/Leisure We project Hotel Shilla’s 4Q13 revenue and operating profit to come in at W569.3bn (+3.1% YoY, -16.3% QoQ) and W6.8bn (-69.7% YoY, -83.0% QoQ ), respectively, missing Earnings Preview the market consensus. We estimate duty-free shop OP margin slumped to 2.7% (stripping away bonus payouts) in 4Q13 from 6.5% in 3Q13 because of the steep decline of the January 15, 2014 US$/W rate, a major determinant of the division’s earnings.

The hotel division also likely suffered weaker earnings QoQ, as the Jeju hotel was likely (Maintain) Buy hurt by seasonal weakness at a time when the occupancy rate of the downtown hotel has yet to fully normalize. One-off bonus payouts (estimated at W9bn) are likel y to Target Price (12M, W) 95,000 have further weighed on earnings. We estimate overall OP margin stood at just 1.2% in 4Q13.

Share Price (01/14/14,W) 73,300 Despite near-term earnings weakness, shares to trend higher on long-term growth momentum Expected Return 30% Hotel Shilla has secured a significant medium- to long-term growth driver by winning the Changi Airport duty-free shop contract (announced last week). The firm’s Changi Airport OP (13F,Wbn) 89 operations should structurally drive up margins by lowering COGS ratio through large- Consensus OP (13F,Wbn) 98 volume purchases and a better product mix. From a qualitative perspective, operating duty-free shops at the two largest airports in the fast-growing Asia market should bolster EPS Growth (13F,%) - Hotel Shilla’s capabilities and raise its value. Market EPS Growth (13F,%) 5.6 P/E (13F,x) 141.7 Therefore, the correlation between near-term quarterly earnings, which are leverage d to exchange rate movements (a non-fundamental variable that is highly unpredictable), and Market P/E (13F,x) 12.0 the stock’s performance is likely to significantly decrease over the medium term. We KOSPI 1,946.07 believe investors should focus more on the firm’s medium- to long-term growth Market Cap (Wbn) 2,877 prospects, which are well-supported by: 1) the overseas expansion of the duty-free shop Shares Outstanding (mn) 40 business and the 2) the vertical expansion of the hotel business, which has been set in Free Float (%) 81.5 motion with the opening of the first Shilla Stay business hotel in Dongtan in 4Q13. Foreign Ownership (%) 40.6 Changi earnings to get on track in 2H15; Maintain Buy and TP of W95,000 Beta(12M) 0.03 52-Week Low 41,450 Hotel Shilla will commence its Changi Airport operations on October 1st. The operations 52-Week High 73,300 will initially incur heavy expenses, and thus act as a drag on 2014 consolidated earnings. However, margins should gradually begin to pick up in 2H15 and eventually increase to (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M over 4% in 2017 after the completion of the airport’s Terminal 4. In addition, purchasing Absolute 9.9 21.6 70.1 costs should also decline, potentially improving domestic duty-free shop margins. Relative 10.8 16.8 75.4 We believe the duty-free shop business warrants a premium, given that: 1) there is still 190 Hotel Shilla KOSPI 170 plenty of room for long-term growth (duty-free shops are among the most rationalized 150 retail channels), and 2) the unit can derive growth from overseas markets. W e expect 130 Hotel Shilla to become a leading player in Asia, which has the highest growth potential for 110 consumer demand (led by and Southeast Asia). We maintain our Buy rating and 90 target price of W95,000, and recommend the stock as our top pick in the Korean 70 consumer universe from a medium- to long-term view. 13.1 13.5 13.9 14.1

Daewoo Securities co., Ltd. FY (12) 12/10 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 1,440 1,764 2,190 2,257 2,699 3,003 Textiles/Apparel, Hotel/Leisure OP (Wbn) 81 96 129 89 193 286

Regina Hahm OP margin (%) 5.6 5.4 5.9 3.9 7.2 9.5 +822-768-4172 NP (Wbn) 49 56 101 19 136 217 [email protected] EPS (W) 1,235 1,401 2,535 469 3,394 5,427 ROE (%) 9.0 9.6 15.8 2.7 18.3 24.3

P/E (x) 22.5 27.5 17.3 141.7 21.6 13.5 P/B (x) 2.0 2.7 2.6 4.0 3.8 3.0 Note: All figures are based on non-consolidated K-IFRS Source: Company data, KDB Securities Research estimates

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

Key Universe Valuations January 15, 2014

※All data as of close January 14, 2014, unless otherwise noted.

13F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 005930 193,404 1,313,000 1.0 26.6 5.2 31.6 3.3 7.7 7.1 1.6 1.3 23.2 19.7 005380 Hyundai Motor 51,104 232,000 0.8 2.8 8.5 3.4 3.7 7.6 7.2 1.3 1.1 18.3 16.3 000660 SK Hynix 27,272 38,400 0.5 - 29.1 - 46.8 9.8 7.0 2.3 1.8 23.7 26.9 012330 27,256 280,000 0.7 -3.9 18.5 -3.6 13.2 8.3 7.0 1.5 1.2 18.6 17.8 005490 POSCO 27,028 310,000 2.4 -17.0 50.6 -26.7 62.9 15.5 9.1 0.7 0.6 4.5 6.8 015760 KEPCO 22,629 35,250 - 365.1 - - - 8.1 0.5 0.4 - 5.5 035420 NAVER 21,986 667,000 0.1 -25.8 85.0 3.1 79.1 61.9 31.8 12.3 8.9 22.7 40.6 000270 Motors 21,119 52,100 1.1 -2.3 12.1 -0.1 10.4 5.9 5.0 1.2 0.9 20.7 19.1 055550 20,794 43,850 0.2 -10.3 14.2 -10.1 13.7 11.9 9.7 0.8 0.7 7.1 7.6 032830 Samsung Life 19,880 99,400 2.0 0.0 9.3 4.2 4.3 18.1 15.7 1.1 0.9 6.0 5.8 017670 SK Telecom 18,370 227,500 4.1 16.7 14.6 45.1 8.9 11.1 10.1 1.7 1.5 13.2 13.0 051910 LG Chem 17,728 267,500 1.4 -4.6 20.3 -6.6 23.4 15.9 11.5 1.9 1.5 12.5 13.9 009540 Hyundai Heavy 17,556 231,000 0.4 -41.7 8.3 -49.3 73.8 39.2 20.2 1.2 1.0 2.9 4.8 105560 KB Financial Group 15,184 39,300 -3.3 11.4 3.8 11.4 9.3 7.8 0.6 0.6 6.9 7.4 096770 SK Innovation 12,113 131,000 2.1 -10.1 41.7 -22.8 63.1 14.5 8.2 0.9 0.8 5.9 9.0 086790 11,886 41,000 -8.7 10.0 -22.8 12.7 9.2 7.7 0.7 0.6 8.8 7.3 000810 Samsung F&M 11,559 244,000 2.8 20.2 14.1 19.2 14.4 11.1 9.9 1.2 1.1 11.7 11.9 066570 LG Electronics 10,948 66,900 0.4 11.1 51.7 500.5 142.5 30.7 12.4 1.1 1.0 3.2 7.6 003550 LG Corp. 10,405 60,300 1.5 -11.3 19.9 -1.4 11.5 12.2 10.3 1.0 0.9 8.0 8.5 033780 KT&G 10,201 74,300 4.3 -4.9 5.3 -20.2 26.9 17.4 13.7 1.9 1.8 11.4 13.7 034220 LG Display 9,232 25,800 2.0 26.6 -46.6 123.6 -13.6 17.4 20.5 0.9 0.9 5.0 4.2 000830 Samsung C&T 8,858 56,700 0.8 -3.2 43.3 -15.3 37.5 25.5 17.4 1.0 0.9 3.4 4.7 051900 LG Household & 8,434 540,000 0.6 13.6 13.5 16.1 15.1 27.5 23.6 6.4 5.1 26.2 24.5 003600 SK Holdings 8,430 179,500 1.5 -3.5 34.8 -1.3 22.4 8.8 6.7 2.2 1.6 8.9 10.2 086280 8,231 219,500 1.0 4.1 12.7 1.8 16.7 17.1 13.9 3.7 2.9 23.6 22.4 030200 KT 8,134 31,150 2.6 -7.9 10.5 -60.5 31.2 19.7 14.8 0.9 0.8 3.4 4.4 010140 Samsung Heavy 8,046 34,850 -1.6 -5.0 12.6 -1.4 9.8 9.1 1.3 1.1 15.7 13.5 010950 S-Oil 7,858 69,800 3.0 -29.1 121.6 -30.4 135.6 21.2 8.5 1.6 1.3 7.5 16.5 161390 7,680 62,000 0.9 238.5 10.9 244.1 9.3 9.4 8.8 1.9 1.6 21.9 19.3 006400 Samsung SDI 6,970 153,000 0.9 -70.5 253.7 -70.1 46.5 17.4 11.2 1.0 0.9 5.9 8.5 035250 6,964 32,550 2.9 10.5 13.8 18.4 12.5 18.9 17.6 2.4 2.4 14.2 14.7 011170 Lotte Chemical 6,889 201,000 0.4 32.4 63.2 10.8 63.8 21.2 11.2 1.3 1.0 6.1 9.3 042660 DSME 6,775 35,400 0.9 -14.7 60.0 -11.0 131.5 33.9 14.8 1.4 1.3 4.2 9.1 004020 6,637 77,800 0.6 -12.7 63.8 -23.5 20.4 12.1 9.1 0.7 0.6 6.0 6.9 024110 6,630 12,000 0.3 -26.5 16.3 -19.6 16.1 8.4 7.1 0.5 0.5 6.6 7.3 000720 Hyundai E&C 6,425 57,700 0.8 9.5 7.2 0.9 5.6 13.2 11.8 1.4 1.2 10.8 10.5 034730 SK C&C 6,375 127,500 1.2 11.6 5.0 31.9 1.8 14.4 13.3 2.4 2.0 19.7 17.8 036460 KOGAS 6,360 68,900 -4.4 26.3 - - - 15.9 1.0 1.1 - 4.4 088350 Hanwha Life 6,158 7,090 3.5 - - 3.5 1.6 9.8 9.8 0.8 0.8 8.6 8.3 010130 Korea Zinc 5,935 314,500 1.6 -17.4 26.3 -15.1 29.7 12.6 9.6 1.4 1.3 11.7 13.5 090430 Amorepacific 5,723 979,000 0.7 -4.1 10.2 -2.1 14.9 26.2 22.3 2.9 2.5 10.8 11.3 001800 Orion 5,099 854,000 0.3 -1.2 2.6 -1.2 9.8 37.8 31.0 5.4 4.2 14.2 13.7 009150 Samsung Electro-Mechanics 5,049 67,600 1.3 4.1 7.9 -1.3 9.4 13.0 11.0 1.4 1.2 10.7 10.8 078930 GS 4,925 53,000 2.4 3.0 37.0 -7.2 33.1 11.8 8.2 0.9 0.8 7.1 8.9 021240 COWAY 4,905 63,600 3.5 42.7 8.6 117.9 -0.2 19.6 18.8 6.1 4.8 30.5 26.0 032640 LG Uplus 4,825 11,050 2.0 332.5 29.2 - 57.1 16.5 10.8 1.4 1.3 7.3 10.6 036570 NCsoft 4,810 219,500 0.4 39.1 103.7 12.1 132.4 31.2 11.8 4.8 3.1 16.2 30.0 010060 OCI 4,615 193,500 0.2 - - - - - 80.1 1.7 1.7 - 2.0 047050 Daewoo International 4,561 40,050 0.8 4.8 105.7 13.0 33.6 19.6 14.3 6.1 5.6 10.5 12.8 011210 Hyundai Wia 4,323 168,000 0.3 2.6 16.9 4.6 19.7 11.2 8.3 2.3 1.6 21.2 20.5 Source: KDB Daewoo Securities Research

Market Data January 15, 2014

※All data as of close January 15, 2014, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 422.60 -1.11 -0.26 -4.50 USD/KRW 1,058.40 1,056.50 1,053.50 1,056.10 KOSPI 1,953.28 7.21 0.37 -0.71 JPY100/KRW 1,015.35 1,025.33 1,017.48 1,180.53 KOSDAQ 515.97 3.70 0.72 3.97 EUR/KRW 1,447.52 1,444.13 1,448.35 1,412.53 Dow Jones* 16,373.86 115.92 0.71 -0.41 3Y Treasury 2.91 2.90 2.96 2.73 S&P 500* 1,838.88 19.68 1.08 0.38 3Y Corporate 3.34 3.34 3.37 3.21 NASDAQ* 4,183.02 69.72 1.69 0.96 DDR2 1Gb* 1.69 1.69 1.56 1.21 Philadelphia Semicon* 539.61 11.95 2.26 2.25 NAND 16Gb* 3.42 3.42 3.45 1.92 FTSE 100* 6,766.86 9.71 0.14 0.73 Oil (Dubai)* 103.24 103.48 105.97 106.90 Nikkei 225 15,808.73 386.33 2.50 -0.63 Gold* 1,245.40 1,251.10 1,235.70 1,669.40 Hang Seng* 22,791.28 -97.48 -0.43 -2.35 Customer deposits (Wbn)* 14,621 13,982 14,249 17,758 (Weighted) 8,602.55 54.41 0.64 -0.12 Equity type BC (Wbn)(Jan. 13) 84,445 84,710 83,456 94,074 Note: * as of January 14, 2014 Source: KSDA, Wisefn, 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 DSME 20.59 Samsung Heavy Ind. 25.33 LG Electronics 44.34 Hynix 144.80 SK Telecom 15.89 Hynix 16.15 Samsung SDI 19.39 SK Telecom 14.39 NHN 13.57 Samsung SDI 14.44 LG Display 17.34 Samsung Electronics 12.79 Korea Express 9.75 Kia Motors 13.99 NCsoft 15.14 KODEX LEVERAGE 12.66 LG Display 8.47 Samsung Electronics 13.02 NHN 15.11 KEPCO 9.69 KEPCO 7.79 Samsung Electronics (P) 10.32 KB Financial Group 12.45 Kia Motors 9.65 HYUNDAI WIA 7.03 Hyundai Motor 9.13 Hyundai Motor 11.46 Hyundai Eng. & Cosnt. 8.85 6.90 KB Financial Group 9.06 KODEX INVERSE 10.41 8.61 Hana Financial Group 6.19 SEMCO 7.91 Honam Petrochemical 9.97 Hana Financial Group 7.19 Woori Investment Securities 4.46 LG Chem 6.71 SEMCO 9.12 Korea Express 6.37 Source: KSDA, Wisefn

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 Seoul 10.58 Celltrion 8.69 EO Technics 2.95 Paradise 6.44 Lumens 3.79 Duk San Hi Metal 2.64 CJ E&M 2.78 Interpark 4.70 Wemade 2.97 GS Home Shopping 2.54 Innox 1.89 NaturalendoTech 4.04 SM 2.75 Partrion 1.31 YG Entertainment 1.60 Duk San Hi Metal 3.11 CJ E&M 2.73 Works 1.14 Seoul Semiconductor 1.26 Medy-tox 2.72 Interpark 2.73 Innox 1.04 NICEI&T 1.22 SM 1.96 Samcholy 1.67 Maeil Dairy Industry 0.90 CJ O Shopping 1.15 KOPLA 1.38 i-SENS 1.42 Koh Young 0.83 Lumens 1.11 Techno Semichem 1.36 ViroMed 1.31 HyVISION 0.81 Celltrion 0.98 Daum Communications 1.36 STC 1.19 Winix 0.67 KH Vatec 0.97 HY-LOK Corp. 1.29 Source: KSDA, Wisefn

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 1,299,000 -14,000 191,342 Celltrion 46,150 1,000 4,638 Hyundai Motor 231,000 -1,000 50,884 Seoul Semiconductor 43,950 1,850 2,563 Hyundai Mobis 280,000 0 27,256 CJ O Shopping 395,700 3,000 2,455 POSCO 310,000 0 27,028 Paradise 26,950 -500 2,451 Hynix 36,650 -1,750 26,029 Ssangyong E&C 136,800 0 1,999 NHN 693,000 26,000 22,843 GS Home Shopping 276,200 -4,300 1,813 KEPCO 35,100 -150 22,533 Dongsuh 16,700 100 1,665 Samsung Electronics (P) 941,000 -24,000 21,486 SK Broadband 4,650 30 1,376 Kia Motors 51,800 -300 20,998 CJ E&M 31,800 1,300 1,232 Shinhan Financial Group 43,950 100 20,841 POSCO ICT 8,000 -70 1,216 Source: