2H18 outlook
Food & Beverage Finding Goldilocks: Beginning of changes
Woon-mok Baek Susie Hong +822-3774-1679 +822-3774-1853 [email protected] [email protected]
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. Contents [Summary] Finding Goldilocks 3
I. Beginning of changes I-1. Outreach to China: A new beginning I-2. Price hike: Expectation vs. reality I-3. F/X vs. share price I-4. Capex vs. profits I-5. Marketing vs. profits I-6. Online vs. Offline I-7. Product Life Cycle vs. Consumer Preference I-8. PB vs. NB I-9. Raw material prices: Rise vs. decline I-10. Creative destruction vs. new consumption trend
II. Earnings determinant comparison 22
III. Valuation 24
IV. Top Picks 25 Orion (271560/BUY) CJ Cheiljedang (097950/BUY) [Summary] Finding Goldilocks
F&B shares vs. KOSPI
(80=100)
6000 Korea F&B index (L) KOSPI index (R)
① 1980-96 ④ 2008-09 ⑥ 2016-17 - Growth of financial, steel, chemicals, - F/X rate fluctuations - China shock (ban on Korean pop culture) 6 5000 and auto stocks - Post-crisis recovery - Slowdown in price hikes - Weak performance of domestic demand - Structural changes in Korean industries - Slowdown in grain price downtrend plays, such as F&B - Deterioration in all earnings determinants - Share price plunge 7 ② 1997~99 ⑤ 2010-15 5 4000 - F/X rate fluctuations - China Play - Domestic demand plays, including F&B, - Growth of China’s consumption market begin to grow - F/X stabilization, grain price decline, price hikes ⑦ 2018-19 - All earnings determinants are favorable ③ 2000-07 4 - Return of Goldilocks 3000 - Goldilocks for F&B - Recovery from China shock - Long-term won appreciation - Price hikes - Price hikes - Growing popularity of domestic demand plays 3 2000
2
1000 1
0 80 85 90 95 00 05 10 15 20
Source: Mirae Asset Daewoo Research
3| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I. Beginning of changes
Changes began from • 2011-14: Quantum leap; ultra-strong earnings determinants overseas market (China), • 2015-16: China shock; lower-than-expected price hikes; higher SG&A expenses Sluggish earnings product price, capex, and • 1H18: Earnings bottom out on the back of improving Korea-China relations, price hikes, reduction in capex, and cost control cost factors • 2H18: Earnings to begin normalizing after three-year slump
Earnings determinants for 2H18-2019
2013 2014 2015 2016 2017 1H18 2H18 2019
1) Earnings △ △△ determinants ++ -- +
Exports (overseas) ++---- △ +
Price (P, ASP) ++---△△△
Consumption (Q) ++△△ ++△△
F/X (US$/W) ++++△△△△
Raw material prices ++△△△△△ -
Capex ++---△ ++
SG&A + △ ---△ ++
2) Expected earnings ++△ --△△ +
3) Valuation ------△
4) Expected share △ △ performance ++ -- ++
5) Conclusion ++△ --△ ++
Note: + = positive, △ = neutral, and - = negative Source: Mirae Asset Daewoo Research
4| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-1. Outreach to China: A new beginning
THAAD crisis, Mar. 2017- • Exports include both direct exports and local production/distribution; F&B firms are expanding the proportion of Feb. 2018 Ban on local production/distribution • THAAD crisis in 2017 China bans Korean content Sharp contraction in Korea’s F&B exports Korean content Sharp • Korea’s China-bound F&B exports nosedived 18.3% YoY for one year, from March 2017 to February 2018 contraction in F&B Orion -39.5%; Nongshim -13.5%; Maeil Dairies -40.4% exports Share plunges • Plunges in share prices and valuation
Korea’s F&B exports Korea’s China-bound F&B exports
(US$mn) (%) (US$mn) (%) 400 F&B exports - worldwide (L) 60 100 F&B exports to China (L) 120 YoY (R) YoY (R)
90
300 40 75
60
200 20 50 30
0
100 0 25
-30
-20 -60 05 06 07 08 09 10 11 12 13 14 15 16 17 18 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Korea Customs Service, Mirae Asset Daewoo Research Source: Korea Customs Service, Mirae Asset Daewoo Research
5| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-1. Outreach to China: A new beginning
Improvement in Korea- • China-bound F&B exports soared in 2010-15: China relations from Share price surges Valuation jump (concerns over valuation bubble) 2H18 onwards China- • F&B exports to China declined in 2H16-1Q18: bound export recovery Share price plunges Valuation downtrend (overvaluation concerns continued) share rebound • Korea-China relations to improve from 2H18 onwards China-bound exports to recover Share prices to rebound Valuation to recover valuation recovery
China-bound F&B exports and F&B share performance China-bound F&B exports and F&B share valuation (P/E)
(US$mn) (index) (US$mn) (x) 100 F&B exports to China (L) 7000 100 F&B exports to China (L) 35 F&B share performance (R) F&B valuation (R)
6000 30 80 80
5000 25
60 60 4000 20
3000 15 40 40
2000 10
20 20 1000 5
0 0 0 0 10 11 12 13 14 15 16 17 18 10 11 12 13 14 15 16 17 18
Source: Korea Customs Service, Mirae Asset Daewoo Research Source: Korea Customs Service, Mirae Asset Daewoo Research
6| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-1. Outreach to China: A new beginning
Reasons why Korean F&B • F&B market cycle: Infancy Rapid growth Mature growth Maturity firms cannot give up on • The timing of overseas market penetration (exports) and product releases can vary, depending on the development of a country’s F&B market the Chinese market • F&B consumption grows rapidly when GDP per capita reaches US$5,000-15,000 (China’s current level) • Key factors to success overseas: Product strength, brand, localization, and distribution network
F&B market cycle: Focus should be on rapidly growing markets (GDP per capita of US$5,000-15,000)
Infancy Rapid growth Mature growth Maturity
Income (GDP per capita) Less than US$3,000 US$3,000-10,000 US$10,000-30,000 Higher than US$30,000
• Traditional markets > Modern • Food industry and modern • Interest in wellness leads to • Population aging/growth of • Markets focused on items that retail grow rapidly strong growth of health food single-person households do not require refrigeration • Increasing awareness of food • Growth of frozen/refrigerated • Healthy HMR Market features • Seller’s market safety food and PB products • Disease prevention through • Restaurant industry expands • New channels healthy eating rapidly (convenience stores, online) • Expansion of China market
GDP per capita (2016) Vietnam Hanoi/Ho Chi Minh China Beijing/Shanghai Korea Japan US US$2,000 US$2,000 US$8,000 US$17,000 US$26,000 US$35,000 US$57,000
Food consumption trend Basics/food materials Convenience food Functional food/non-essential food
Source: Mirae Asset Daewoo Research
7| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-1. Outreach to China: A new beginning
New strategies targeting • Aggressive foray into China’s online market - China has an advanced parcel delivery market and enjoys strong growth in the online retail industry; Korean China F&B firms are expanding online exposure mainly in third- to fifth-tier cities, where they have difficulties in establishing direct offline channels - Margins on online sales are 20% higher than on offline sales, due to lower commissions • New product launches, distribution network rebuilding, shelf space recovery, focus on quality and safety - While refraining from aggressive investments, Korean firms are focusing on distribution network rebuilding, shelf space recovery, and cost reduction (labor, logistics, SG&A, etc.)
China’s parcel delivery market growth outlook Korean F&B firms’ new strategies targeting China
(CNY bn)China parcel delivery market (L) (%) 1) Orion 1000 Parcel delivery market YoY (R) 70 E-commerce YoY (R) - Launch of over 20 new products and product extensions - Distribution channel reshuffle in 3rd-/4th-tier cities; 900 Hypermarkets (supermarkets, discount stores) YoY (R) foray into online channels 60 - Improvement in cost efficiency (labor, logistics, SG&A, etc.) 800
700 50 2) Nongshim 600 - Focus on sales recovery of existing products 40 - Development of new distribution channels in 1st-tier cities and 500 online channel expansion in 3rd-/4th-tier cities - Shelf space recovery 30 400
300 20 3) Maeil Dairies, Lotte Foods - New infant formula registration rules took effect 200 Registration of infant formula factories completed 10 - Maintain amicable relationships with local sales agent; entry into 100 online channels
0 0 4) CJCJ: B2C B2B (dumpling business beef-up) 13 14 15 16 17 18E 19E 20E
Source: China Post, National Bureau of Statistics of China, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research
8| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-1. Outreach to China: A new beginning
Signs of a new beginning • China implemented a ban on Korean pop culture in March 2017 • Korea and China agreed to repair their relationship in November 2017; China indicates a lifting of the in China? Korean-content ban in March 2018 • Chinese inbound travelers turned upward in March 2018 (+11.8% YoY), for the first time since the introduction of the ban on Korean content • Efforts to improve relationship between South and North Korea, North Korea and the US, Korea and China, and China and the US are expected to continue • Orion’s Chinese revenue recovered in 1Q; ramen exports turned upward; infant formula exports resumed growth (+101% YoY in March) Orion’s quarterly Chinese revenue Korea’s monthly ramen exports Korea’s monthly infant formula exports to China China revenue (L) (Wbn) (%) (US$mn) (%) (US$mn) YoY (R) 400 120 45 Exports (L) 100 16 YoY (R) 40 80 90 35 300 60 12
60 30 40 25 200 30 20 8 20 0 0 15
100 -20 4 10 -30 5 -40
0 -60 0 -60 0 07 10 13 16 19F 00 03 06 09 12 15 18 00 02 04 06 08 10 12 14 16 18 Source: Company data, Korea Customs Service, Mirae Asset Daewoo Research
9| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-1. Outreach to China: A new beginning
Aggressive forays into • Korean F&B firms are turning their eyes to the Middle East and Southeast Asia (Indonesia, Vietnam, Malaysia, the Southeast Asian markets UAE, etc.) • They are taking full advantage of the popularity of Korean pop culture in the regions Focusing on infant formula, ramen, snack, beer, soju, kimchi, seaweed, and processed foods • CJCJ, Daesang, Samyang Foods, and Nongshim have won halal certification for major products • The halal food market (W106bn, a population of 1.6bn) could serve as the next growth driver, replacing China
F&B firms’ halal certification Growth in F&B exports to Southeast Asia
Company Halal-certified products Authority (US$mn)F&B exports to Southeast Asia (L) (%) 160 YoY (R) 150 - 46 products (cooked rice, kimchi, etc.) -JAKIM - 165 products (flour, sugar, etc.) -KMF CJCJ - 15 products (nucleic acids, seasoning powder, -MUI 140 120 etc.) 120 90 - 11 products (Chungjungone corn syrup, etc. ) -MUI - 27 products (Jongga Kimchi, etc.) -KMF 100 Daesang - Six products (Chungjungone rice syrup/cubed -ESMA 60 radish kimchi, etc.) 80 30 - 35 products (ramen, snacks, etc.) -KMF 60 Samyang -Nineramen products -MUI Foods -ESMA 0 - Seven ramen products 40
- Two ramen products (Daebak ramen) -JAKIM Shinsegae -30 -KMF 20 Food - Three products (rice cakes, pepper paste, and seaweed) 0 -60 Nongshim - 15 ramen products (Shinramyun, etc.) -KMF 00 02 04 06 08 10 12 14 16 18
Note: KMF is an acronym for Korea Muslim Federation, a halal certification authority in Korea; Source: Korea Customs Service, Mirae Asset Daewoo Research JAKIM, MUI, and ESMA are certification authorities in Malaysia, Indonesia, and the Middle East, respectively Source: Local press, Mirae Asset Daewoo Research 10| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-2. Price hike: Expectation vs. reality
From 2H15 to April 2018, • Price hikes are a key driver of earnings growth F&B product prices • F&B firms have traditionally raised ASP via price hikes for existing products, new product launches, and product upgrades climbed 0.1-1% • F&B product prices increased by 3-5% annually in 2010-1H15 Goldilocks Share price gains • From 2H15 to April 2018, F&B product prices climbed 0.1-1%, due to lower costs and the won’s appreciation Decline in share price • We expect a 2% price hike in 2H18 Catalyst for shares
Growth of processed food CPI/PPI and dining-out price index Processed food CPI and F&B share price index
(%) (Index) (15=100) 18 Dine-out products price 6000 F&B share performance (L) 110 Processed food CPI YoY Processed food CPI (R)
15 F&B PPI YoY 5000 100
12 4000 90
9 3000 80 6
2000 70 3
1000 60 0
-3 0 50 08 09 10 11 12 13 14 15 16 17 18 00 02 04 06 08 10 12 14 16 18
Source: KOSIS, Mirae Asset Daewoo Research Source: KOSIS, Mirae Asset Daewoo Research
11| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-2. Price hike: Expectation vs. reality
Reasons behind price • Franchise restaurants and coffee shops have pushed through price hikes to reflect the minimum wage hike hikes in 2018 • In March, CJCJ hiked prices for its major processed food products (cooked rice, Spam, frozen dumpling, etc.) by 6-8% • Change in reasons behind price hikes: Higher costs in 2010-15; higher logistics/labor/SG&A expenses in 2018 • Immediately after a price hike, profits tend to decline on lower sales volume • Three to six months after the hike, the effects of the hike play out, with earnings increasing, thanks to sales volume normalization
Price hikes since the beginning of 2018 Reasons behind price hikes
Month Company Product and hike Internal Nongshim 7.8% hike for Baeksansoo, a bottled water Mos Burger 6.1% hike for five burger products 1. Logistics costs: Up (increases in oil prices/vehicle & labor costs) Juicy 25.6% hike for 12 beverage products Jan. Miss Saigon 10-15% hike for rice noodles 2. Labor costs: Up (minimum wage hike and natural growth) Mr. Pizza Increase in minimum order for delivery (from W12,000 to W14,000) 3. SG&A: Cost-cutting efforts (particularly for commissions and Coca-Cola 4.8% hike marketing costs) Haitai 15.4% hike for ice cream products Coffee Bean W300 hike for Americano/Latte; 4% hike for bakery Feb. goods Paris Baguette 4-18% hike External McDonald's W200 hike for burgers Jaws Food 10-20% hike 1. F/X: Stable CJCJ 6-8% hike for cooked rice, Spam, frozen dumplings, 2. Raw material costs: Modest rise Sajo 5~9% hike for fish cakes Mar. Haitai 8% reduction in dumpling product content Hongkong Banjum W500-1,500 hike Burger King W100 hike Policy factors Dongwon F&B 10.2% hike for fish cakes Lotte Confectionery 6-13% hike Korea Yakult 5.9% hike • Government’s view on CPI Apr. CJ Healthcare W500 hike for anti-hangover drinks • Price hike Earnings growth Employment growth Domino Pizza W1,000/W500 hike for large-/medium-sized pizza Tous Les Jours 6.7% hike on average Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research 12| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-3. F/X vs. share price
Since 2014, F&B shares • Until 2014, the won’s weakness would dampen earnings, due to imports and foreign-currency-denominated debt: have been immune to Benefitted from the won’s appreciation • Since 2014: F/X exposure has decreased, thanks to higher overseas revenue (including exports) contribution and F/X volatility F/X hedges • As such, F&B shares have recently been immune to F/X volatility • Going forward, if overseas revenue contribution increases further, the won’s appreciation could drive down shares • The won’s appreciation is not necessarily a positive catalyst for F&B shares
F/X and F&B share price index Overseas revenue (local production and exports) contributions
(W) US$/W rate (L) (Index) (%) 1500 F&B share performance (R) 7000 70
1400 6000 60
50 1300 5000
40 1200 4000 30
1100 3000 20
1000 2000 10
900 1000 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Orion Samyang CJCJ KT&G Daesang Nongshim Pulmuone
Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
13| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-4. Capex vs. profits
Excessive capex in 2015- • One of the main reasons behind weak earnings in 2015-17 was excessive capex 17; capex to decline in • Robust earnings in 2010-15 led to excessive capex in 2015-17 2018-19 • During the period of massive capex, the decline in earnings drove down share prices • Capex will likely decrease in 2018-19, given sluggish earnings in 2015-17 • As such, earnings should recover in 2018-19, boosting shares
Capex to revenue ratios of major F&B firms (2015-19) OP margins of major F&B firms (2015-19)
(%) (%) 10 18 15 16 17 18F 19F 15 16 17 18F 19F
15 8
12 6
9
4 6
2 3
0 0 Lotte Chilsung Shinsegae Food Daesang HiteJinro CJCJ Lotte Foods Lotte Chilsung Shinsegae Food Daesang HiteJinro CJCJ Lotte Foods
Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
14| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-5. Marketing vs. profits
Marketing campaigns: • Another reason behind weak earnings in 2015-17 was increased marketing campaigns Growth in 2015-17 vs. • In 2015-17, new product launches expanded markedly, leading to intense market share competition in beer, ramen, processed food, and HMR reduction in 2018-19 • Increased marketing expenses Lower earnings Share price decline • In 2018-19, marketing expense growth will likely be within revenue growth: SG&A-to-revenue ratios could drop • Lower SG&A-to-revenue ratios in 2018-19 will likely contribute to an earnings recovery, boosting shares
SG&A-to-revenue ratios of major F&B firms (2015-19) OP margins of major F&B firms (2015-19)
(%) (%) 40 15 15 16 17 18F 19F 15 16 17 18F 19F
35 12
30 9
25
6 20
3 15
10 0 Orion Nongshim Daesang Dongwon F&B Ottogi Lotte Foods Orion Nongshim Daesang Dongwon F&B Ottogi Lotte Foods Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
15| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-6. Online vs. Offline
Online revenue growth • Offline (hypermarket, department stores, and SSM) food revenue has declined vs. offline revenue • Food revenue via online channel (sales intermediaries and retailers' online sites) has surged, fueled by: 1) the launch of online-dedicated products; 2) the expansion of mobile services; 3) robust parcel delivery systems; and 4) decline: Leading to the construction of logistics centers margin growth • The online channel has lower commissions ,and thus higher margins, than the offline channel for F&B companies • F&B margins: Online > mom-and-pop stores > convenience stores > hypermarkets
Monthly food GMV growth of online sales intermediaries and Monthly revenue growth by sales channel (on/offline) retailers' online sites
(%) (%) 30 Online 60 Online sales intermediaries Offline Retailers' online sites 25 50
20 40
15 30 10 20 5 10 0
0 -5
-10 -10
-15 -20 16.1 16.6 16.11 17.4 17.9 18.2 16.1 16.6 16.11 17.4 17.9 18.2
Source: Ministry of Trade, Industry and Energy, Mirae Asset Daewoo Research Source: Ministry of Trade, Industry and Energy, Mirae Asset Daewoo Research Note: Online sales intermediaries include Gmarket, Auction, 11th Street, and Coupang; retailers' online sites include Emart, Shinsegae, Homeplus, Lotte Mart Mall, WeMakePrice, and Ticket Monster 16| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-7. Product Life Cycle vs. Consumer Preference
Product life cycle • Product life cycle (Introduction Growth Maturity Decline phases) reduction reduction, rapid changes • Changes in consumer preference Need for continuous development of new items • Against this background, developing long-lasting mega brands (e.g., Jjawang noodle, Jin Jjambbong ramen, Honey Butter Chips) in consumer preferences appears difficult • Alternatives to family restaurants Korean food buffet restaurant boom Home meal replacement (HMR ) market growth Slower growth of Korean food buffet restaurants F&B firms’ margin erosion • Surge in convenience dosirak (lunch box) sales, vegetable/salad market growth Investments by F&B firms Changes in consumer preference What will be the next market?
No. of Korean buffet restaurants Domestic convenience store dosirak (lunch box) market
(stores) (Wbn) 60 Seasons Table 400 Olbaan Nature Kitchen 50
300 40
30 200
20
100
10
0 0 14 15 16 17 18.4 13 14 15 16 17 18F
Source: Local press, Mirae Asset Daewoo Research Source: Ministry of Agriculture, Food and Rural Affairs, Mirae Asset Daewoo Research
17| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-8. PB vs. NB
National brands (NBs) • National brands (NBs; manufacturers’ brands) vs. private brands (PBs; retailers’ brands) • PB product sales growth was driven by convenience stores in 2013-17 (% of PB products: 4% 28%; GS25’s PB face growing threats products revenue contribution: 36.3%) from private brands • Key drivers behind PB growth: Preference for cost-efficient products, increase in single-member households and the recent “small but certain happiness” trend among consumers (PBs) • PB sales growth has also been driven by retailers (e.g., No Brand, Peacock), mid-size restaurants, chefs, and convenience stores • Large F&B manufacturers prefer NBs, as manufacturers’ margins on PB products are small, due to low prices No Brand/Peacock sales; revenue contribution of PB products PB product sales at top-three retailers, supermarkets, and at GS25 convenience stores
(Wbn) (%) 350 Peacock revenue (L) 36.5 No Brand revenue (L) 300 GS25's PB products % of revenue (R)
250 35.5
200
150
34.5 100
50
0 33.5 12 14 15 16 17
Note: Based on GS25’s January-August revenue Source: KDI, Local press, Mirae Asset Daewoo Research Source: Company data, Local press
18| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-9. Raw material prices: Rise vs. decline
Grain prices to continue • Determinants for international grain prices: 1) real demand; 2) production; and 3) speculative demand to rise • Grain output growth in 2012-14 Plunge in grain prices Share price rises • Stable grain prices in 2015-17 Slower product price increases Share price declines • Expected rebound in grain prices in 2H18-2019 Product price increases Share price rises • Grain price increases are positive for share performance in earlier stages of the uptrend
Prospects for grain supply/demand dynamics International grain price trend
(%) Production growth (L) (%) (Index) (%) 12 Consumption growth (L) 26 600 International grain prices (L) 100 Inventory turnover (R) YoY (R)
500 75
8 22
400 50
4 18 300 25
200 0
0 14
100 -25
-4 10 0 -50 05 07 09 11 13 15 17F 19F 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: USDA, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research
19| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-10. Creative destruction vs. new consumption trend
Creative destruction for • Soju makers have enjoyed strong margins, amid limited market competition and high customer loyalty soju and cigarettes: Low- • The demand for high-alcohol drinks has been declining, amid changes in drinking culture and population aging • Companies have been striving to change the perception of soju via launches of low-alcohol products (creative alcohol drinks and destruction) e-cigarettes • Heat-not-burn (HNB) cigarettes: Despite the high popularity of iQOS, Philip Morris’s HNB cigarette, KT&G, with its high market share in regular cigarettes, initially was reluctant to adopt the product • Acknowledging the growth potential of HNB cigarettes, the firm unveiled its HNB device “LiL” and sticks “FiiT” in 2018 (creative destruction)
Downtrend in alcohol content in soju Revenue contributions of regular and HNB cigarettes at KT&G
(Degree) (%) 40 - 1993: Launch of Chamisul (ABV 23%) 120 - 2006: Launch of Chum Churum (ABV 20%)
35 - 2014: Launch of Chamisul Fresh (ABV 17.8%) 100 - 2018: Launch of Chamisul Fresh (ABV 17.2%) - 2018: Launch of Chum Churum (ABV 17%) 30 80 Regular cigarettes (volume) Regular cigarettes (value) 25 60 HNB cigarettes (volume) HNB cigarettes (value) 20 40
15 20
10 0 20 30 40 50 60 70 80 90 00 06 08 10 12 14 16 18 13 14 15 16 17 18F 19F 20F
Source: Company data, Local press, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
20| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research I-10. Creative destruction vs. new consumption trend
Creative destruction for • Beer firms have been reluctant to sell imported beers and low-malt beers, due to concerns over potential cannibalization of existing product (high-margin regular beers) sales beer: Imported beer and • Oversupply of regular beer (caused by reduced consumption and capacity additions by Lotte Chilsung) has led to low-malt beer intensified market competition and margin erosion • Against this background, beer firms have been aggressively expanding into the imported beer distribution markets (creative destruction) • In order to offset the adverse impact of shrinking consumption of regular beers, Hite Jinro launched its first low-malt beer, Filite (creating a new consumption trend) • In Japan, cheaper types of beer (e.g., low-malt beers and so-called third beers) began to grow in the mid-1990s, as the country entered a prolonged recession
Total beer imports (value) Japan’s beer market trends
(US$mn) (%) (mn cases) 35 Beer imports (L) 120 600 New Genre Happoshu Beer YoY (R) 30 100 500
80 25 400 60 20 40 300 15 20 200 10 0 100 5 -20
0 -40 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 91 93 95 97 99 01 03 05 07 09 11 13 15 Source: Korea Customs Service, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
21| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research II. Earnings determinant comparison
1H18 2H18
- Amid the Chinese government’s move to lift its ban on Korean pop culture, China-bound - China-bound exports are likely to recover in 2H18, while Japan-bound export growth should Exports/overseas exports rebounded accelerate (China) - Recovery in shelf space, and distribution network and foray into online markets expected for 1H - Export markets will continue to diversify to include Southeast Asia, the Middle East, and - Export destinations diversified to Southeast Asia and the Middle East Eastern Europe; some firms are moving from exports to local production
- Prices for dining out began to rise - Prices for processed food products are expected to be raised by 1.5~2% (vs. +0.5% in 2015-17) - Prices of processed food products have been raised slightly in 2H18 Price (P) - Prices for mainstay products (e.g. bread, canned tuna, beverages) have been raised - Price increases are necessary, given the continued rise in labor, logistics and selling expenses - Producers have attempted to raise ASPs via new product launches and the introduction of - Recent F/X rate and grain price trends should limit upside to product prices premium products
- Shipments should grow by 2% levels in 2H18 - Shipment growth is projected to be in the 3% range for 1H18 - Shipments of items mainly consumed by those under 40 should continue to see contraction - Shipments of items mainly consumed by those under 40 shrank (e.g., ramen, beer, milk, ice (e.g., ramen, beer, milk, ice cream, instant coffee, juice, fermented paste, and condiments) Consumption (Q) cream, instant coffee, juice) - In contrast, shipments of HMRs, processed food, dietary supplements, water/coffee, and - Meanwhile, shipments of HMRs, processed food, dietary supplements, water/coffee, and - convenience food should continue to expand convenience food continued to expand - New product releases, overseas expansion, and M&As should help boost shipments
- US$/W in the W1,000 range in 1H18, having no significant impact on earnings - US$/W is expected to remain stable, in the range of W1,050-1,150 F/X (US$/W) - Stable F/X rate trend has almost no impact on F&B shares - F/X rate trends will likely have no material impact on earnings and shares of F&B firms in 2H18 - The impact on earnings has decreased, as the revenue contribution of overseas sales has - The impact on earnings will likely decrease going forward, in line with export growth and increased and businesses have become better prepared for F/X volatility improvement in the ability of companies to deal with F/X volatility
- Grain prices remained stable in 1H18, having no impact on share prices - Grain prices are projected to pick up slightly in 2H18 - Stable grain supply/demand dynamics expected for 2018 - Seeding reductions likely in 2018-19, amid protracted grain price downtrend Raw material prices - Favorable weather conditions and high inventory levels have contributed to price stabilization - Prices unlikely to rebound sharply, as inventory levels remain high - Efforts to reduce raw material costs continued - The strength of any pickup will depend on the occurrence of unpredictable weather events
- Capex reduction is expected for 1H18 - Capex reduction is expected for 2H18 Capex - Capex was excessive in 15~17 - Capex was excessive in 15~17 - F&B firms have focused on expanding profits rather than investments, due to sluggish earnings - F&B firms are expected to employ profit-focused strategy, due to sluggish earnings
SG&A - SG&A-to-sales ratio is expected to decline, due to tepid earnings in 2015-17 - SG&A-to-sales ratio is expected to decline, due to tepid earnings in 2015-17 (marketing - Convenience stores and online channels have expanded at the expense of hypermarkets - SG&A control is expected, due to tepid earnings in 2015-17; a sharp reduction is unlikely expenses) - Marketing focused on new, rather than existing, products - Marketing will be focused on new, rather than existing, products - Positives: China-bound exports are expected to pick up; product price increases; and possible - Positives: Price hikes, stable F/X rate trend, solid consumption growth declines in SG&A expenses Conclusion - Negatives: Headwinds from sharp capex expansion and China’s ban on Korean pop culture - Negatives: Adverse impact of sharp capex expansion to linger; possibility of rebound in grain - Earnings are expected to bounce back in 1H18 prices - F&B firms are expected to enter the earnings normalization phase in 2H18 Source: Mirae Asset Daewoo Research 22| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research II. Earnings determinant comparison
Signs of positive changes • 2011-14: Quantum leap; ultra-strong earnings determinants in key variables for 2018-19 • 2015-16: China shock; lower-than-expected price hikes; higher SG&A expenses Sluggish earnings • 1H18: Earnings bottom out on the back of improving Korea-China relations, price hikes, reduction in capex, and cost control • 2H18: Earnings to begin normalizing after three-year slump
Earnings determinants for 2H18-2019
2013 2014 2015 2016 2017 1H18 2H18 2019
1) Earnings ++△ --△△+ determinants
Exports (overseas) ++---- △ +
Price (P, ASP) ++---△△△
Consumption (Q) ++△△ ++△△
F/X (US$/W) ++++△△△△
Raw material prices ++△△△△△ -
Capex ++---△ ++
SG&A + △ ---△ ++
2) Expected earnings ++△ --△△+
3) Valuation ------△
4) Expected share ++△ --△ ++ performance
5) Conclusion ++△ --△ ++
Note: + = positive, △ = neutral, and - = negative Source: Mirae Asset Daewoo Research
23| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research III. Valuation
Undemanding valuation • In 2011-15, F&B valuations surged on: 1) heightened expectations as a China play; 2) increases in product prices; 3) stable F/X rate trends; and 4) sharp declines in raw material prices, causing controversy on overvaluation • 2016-17, valuation declined, due to the China shock and weak earnings • In 2018-19, Korean F&B P/E is expected to fall below the global F&B P/E • At current price levels, Korean F&B stocks appear more attractive than global peers
Gap between Korea’s F&B P/E and global F&B P/E F&B players’ P/E in key countries
(x) (x) (x) 25 P/E gap (Korea-global) (R) 8 35 US Japan China Korean F&B P/E (L) Taiwan Korea Global F&B P/E (L) 30 20 4
25
15 0 20
Korea
15
10 -4
10
5 -8 5 05 06 07 08 09 10 11 12 13 14 15 16 17 18 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research
24| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research Top Pick Orion (271560)
A fresh start in China
Investment points (Upgrade) Buy • China subsidiary to focus on new product releases - Modern-trade (MT) channels face limited growth potential Plans to raise turnover on its existing shelf Target Price (12M, W) 170,000 space by aggressively rolling out new products • Channel restructuring underway Share Price (5/4/18, W) 124,000 - Growth in traditional-trade (TT) channels (45% of sales) through the expansion of existing products and channel restructuring Expected Return 37% - The company plans to convert its current direct management system in TT channels into an agent system, and seek consolidation among existing agents • Cost reduction via fundamental improvement OP (18F, W bn) 293 - Efforts to cut costs across labor (workforce efficiency), distribution (shorter cycle), and Consensus OP (18F, W bn) 291 advertising/promotions (greater focus on social media) should also continue EPS Growth (18F, %) 54.7 Risk factors Market EPS Growth (18F, %) 16.1 Continued weakness in the Chinese confectionery market; intensifying competition with Chinese and global P/E (18F, x) 24.6 • players Market P/E (18F, x) 9.4
KOSPI 2,461.38
Market Cap (W bn) 170 FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F 4,902 Orion Shares Outstanding 40 160 Revenue (W bn) - - 1,117 2,080 2,301 2,473 (m n) KOSPI Free Float (%) 54.7 150 OP (W bn) - - 107 293 331 358
Foreign Ownership (%) 40.6 140 OP margin (%) - - 9.6 14.1 14.4 14.5 Beta (12M) 0.67 130 NP (W bn) - - 76 199 224 247
52-W eek Low 80,500 120 EPS (W ) - - 3,261 5,045 5,676 6,248
52-W eek High 135,500 110 ROE (%) - - 5.8 14.3 14.2 13.8 (%) 1M 6M 12M100 P/E (x) - - 32.0 24.6 21.8 19.8
Absolute -3.1 9.3 -90 P/B (x) - - 3.2 3.3 2.9 2.6 80 Relative -5.2 13.5 -17.4 17.8 17.12 18.4 Div.Yield (%) - - 0.6 0.6 0.6 0.6 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Orion, Mirae Asset Daew oo Research estimates
25| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research Orion (271560)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/17 12/18F 12/19F 12/20F (Wbn) 12/17 12/18F 12/19F 12/20F 12/17 12/18F 12/19F 12/20F
Revenue 1,117 2,080 2,301 2,473 Current Assets 457 661 808 959 P/E (x) 32.0 24.6 21.8 19.8
Cost of Sales 593 1,087 1,192 1,281 Cash and Cash Equivalen 102 285 387 507 P/CF (x) 13.4 13.2 11.9 11.3
Gross Profit 524 993 1,109 1,192 AR & Other Receivables 124 130 146 157 P/B (x) 3.2 3.3 2.9 2.6
SG&A Expenses 416 699 778 834 Inventories 151 163 183 196 EV/EBITDA (x) 26.6 13.8 12.2 10.9
Operating Profit (Adj) 107 293 331 358 Other Current Assets 80 83 92 99 EPS (W) 3,261 5,045 5,676 6,248
Operating Profit 107 293 331 358 Non-Current Assets 1,801 1,878 1,990 1,906 CFPS (W) 7,771 9,390 10,463 11,008
Non-Operating Profit -2 -21 -20 -17 Investments in Associates 24 26 29 31 BPS (W) 33,107 37,552 42,528 48,076
Net Financial Income -7 -12 -11 -8 Property, Plant and Equipm 1,673 1,749 1,851 1,768 DPS (W) 600 700 700 700
N et Gain from Inv in As s ociat 0 0 0 0 Intangible Assets 52 52 59 56 Payout ratio (%) 30.9 13.7 12.2 11.1
Pretax Profit 105 272 311 341 Total Assets 2,258 2,539 2,798 2,866 Dividend Yield (%) 0.6 0.6 0.6 0.6
Income Tax 28 70 84 91 Current Liabilities 523 598 634 473 Revenue Growth (%) - 86.2 10.6 7.5
Profit from Continuing Opera 77 202 227 250 AP & Other Payables 151 171 192 206 EBITDA Growth (%) - 120.2 10.8 5.2
Profit from Discontinued Ope 0 0 0 0 Short-Term Financial Liab 271 306 306 120 Operating Profit Growth (%) - 173.8 13.0 8.2
Net Profit 77 202 227 250 Other Current Liabilities 101 121 136 147 EPS Growth (%) - 54.7 12.5 10.1
Controlling Interests 76 199 224 247 Non-Current Liabilities 390 417 441 447 Accounts Receivable Turno 9.2 16.6 16.9 16.6
Non-Controlling Interests 1 3 3 3 Long-Term Financial Liab 329 344 359 359 Inventory Turnover (x) 7.4 13.3 13.3 13.1
Total Comprehensive Profit 68 202 227 250 Other Non-Current Liabilit 61 73 82 88 Accounts Payable Turnover 8.7 15.5 15.7 15.3
Controlling Interests 66 186 210 231 Total Liabilities 913 1,016 1,075 920 ROA (%) 3.4 8.4 8.5 8.8
Non-Controlling Interests 1 16 18 20 Controlling Interests 1,308 1,484 1,681 1,900 ROE (%) 5.8 14.3 14.2 13.8
EBITDA 173 381 422 444 Capital Stock 20 20 20 20 ROIC (%) 4.3 12.4 12.9 13.8
FCF (Free Cash Flow) 103 164 134 340 Capital Surplus 598 598 598 598 Liability to Equity Ratio (%) 67.9 66.7 62.4 47.3
EBITDA Margin (%) 15.5 18.3 18.3 18.0 Retained Earnings 76 252 449 668 Current Ratio (%) 87.5 110.4 127.4 202.9
Operating Profit Margin (%) 9.6 14.1 14.4 14.5 Non-Controlling Interests 37 39 42 46 Net Debt to Equity Ratio (%) 33.3 20.5 12.8 -4.6
Net Profit Margin (%) 6.8 9.6 9.7 10.0 Stockholders' Equity 1,345 1,523 1,723 1,946 Interest Coverage Ratio (x) 9.3 17.6 19.4 22.4 Source: Orion, M irae Asset Daewoo Research estim ates
26| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research Top Pick CJ Cheiljedang (097950 KS)
Business overhaul and fundamentals improvement on the way
Investment points (Maintain) Buy • Processed foods: Focus on top-line growth for HMR and bottom-line for mainstay products • Bio: Investment reduction for commodity products Cost cuts Lower earnings volatility Target Price (12M, W) 460,000 • To continue investing in specialty products requiring advanced technologies and generating high margins • For foodstuff, CJCJ is scaling back unprofitable operations; for feed/livestock, the company is slimming down Share Price (5/4/18, W) 342,500 organizations and cost structures in China and Cambodia • Over the long term, CJCJ could be split into two entities – processed foods and bio Expected Return 34% Risk factors OP (18F, W bn) 826 • Concerns exist over aggressive investments and M&As; needs to reduce debt Consensus OP (18F, W bn) 908 • Needs to improve the efficiency of the overseas processed foods businesses (channel expansion in the US; EPS Growth (18F, %) 112.6 production base consolidation in Vietnam; fundamentals improvement in China)
Market EPS Growth (18F, %) 16.1
P/E (18F, x) 6.3
Market P/E (18F, x) 9.4
KOSPI 2,461.38
Market Cap (W bn) 115 FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F 5,156 CJ CheilJedang Shares Outstanding 16 110 Revenue (W bn) 12,924 14,563 16,477 17,905 19,445 21,156 (m n) KOSPI Free Float (%) 51.8 105 OP (W bn) 751 844 777 826 935 1,012
Foreign Ownership (%) 20.6 100 OP margin (%) 5.8 5.8 4.7 4.6 4.8 4.8 Beta (12M) 0.99 95 NP (W bn) 189 276 370 877 357 385
52-W eek Low 319,500 90 EPS (W ) 13,073 19,044 25,536 54,279 21,776 23,479
52-W eek High 416,000 85 ROE (%) 6.2 8.4 10.9 23.1 8.2 8.2 (%) 1M 6M 12M80 P/E (x) 28.9 18.8 14.3 6.3 15.7 14.6
Absolute 3.6 -8.3 -0.375 P/B (x) 1.7 1.5 1.5 1.3 1.2 1.1 70 Relative 1.4 -4.7 -9.217.4 17.8 17.12 18.4 Div.Yield (%) 0.7 0.7 0.8 0.9 1.0 1.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: CJ CheilJedang, Mirae Asset Daew oo Research estimates
27| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research CJ Cheiljedang (097950 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/17 12/18F 12/19F 12/20F (Wbn) 12/17 12/18F 12/19F 12/20F 12/17 12/18F 12/19F 12/20F
Revenue 16,477 17,905 19,445 21,156 Current Assets 4,963 6,213 6,546 6,759 P/E (x) 14.3 6.5 16.1 14.9
Cost of Sales 12,922 14,154 15,358 16,732 Cash and Cash Equivalen 591 1,582 1,490 1,268 P/CF (x) 4.0 2.6 4.3 4.0
Gross Profit 3,555 3,751 4,087 4,424 AR & Other Receivables 2,441 2,585 2,823 3,062 P/B (x) 1.5 1.3 1.2 1.2
SG&A Expenses 2,778 2,925 3,153 3,412 Inventories 1,304 1,380 1,507 1,640 EV/EBITDA (x) 10.5 9.6 8.9 8.4
Operating Profit (Adj) 777 826 935 1,012 Other Current Assets 627 666 726 789 EPS (W) 25,536 54,279 21,776 23,479
Operating Profit 777 826 935 1,012 Non-Current Assets 11,905 11,654 11,964 12,459 CFPS (W) 90,821 134,758 81,849 87,839
Non-Operating Profit -193 623 -343 -374 Investments in Associates 165 175 191 208 BPS (W) 239,601 262,995 281,833 301,884
Net Financial Income -185 -161 -166 -167 Property, Plant and Equipm 8,179 8,093 8,419 8,906 DPS (W) 3,000 3,000 3,500 3,500
N et Gain from Inv in As s ociat -5 1 9 12 Intangible Assets 2,758 2,569 2,507 2,470 Payout ratio (%) 9.3 4.7 12.4 11.5
Pretax Profit 584 1,449 592 638 Total Assets 16,868 17,867 18,510 19,218 Dividend Yield (%) 0.8 0.9 1.0 1.0
Income Tax 172 518 178 191 Current Liabilities 5,497 5,554 5,843 6,098 Revenue Growth (%) 13.1 8.7 8.6 8.8
Profit from Continuing Opera 413 932 414 447 AP & Other Payables 2,060 2,111 2,305 2,468 EBITDA Growth (%) -2.3 5.4 8.9 7.8
Profit from Discontinued Ope 0 0 0 0 Short-Term Financial Liab 2,887 2,860 2,901 2,937 Operating Profit Growth (%) -7.9 6.3 13.2 8.2
Net Profit 413 932 414 447 Other Current Liabilities 550 583 637 693 EPS Growth (%) 34.1 112.6 -59.9 7.8
Controlling Interests 370 877 357 385 Non-Current Liabilities 5,227 5,281 5,270 5,332 Accounts Receivable Turno 7.7 7.7 7.8 7.8
Non-Controlling Interests 43 55 58 62 Long-Term Financial Liab 4,318 4,318 4,218 4,188 Inventory Turnover (x) 12.8 13.3 13.5 13.4
Total Comprehensive Profit -52 932 414 447 Other Non-Current Liabilit 909 963 1,052 1,144 Accounts Payable Turnover 10.7 10.9 11.3 11.4
Controlling Interests 14 932 414 447 Total Liabilities 10,724 10,835 11,112 11,430 ROA (%) 2.5 5.4 2.3 2.4
Non-Controlling Interests -67 0 0 0 Controlling Interests 3,375 4,208 4,516 4,845 ROE (%) 10.9 23.1 8.2 8.2
EBITDA 1,343 1,416 1,542 1,663 Capital Stock 73 73 73 73 ROIC (%) 4.5 4.5 5.6 5.8
FCF (Free Cash Flow) -270 503 97 99 Capital Surplus 930 930 930 930 Liability to Equity Ratio (%) 174.6 154.1 150.2 146.8
EBITDA Margin (%) 8.2 7.9 7.9 7.9 Retained Earnings 2,903 3,736 4,045 4,373 Current Ratio (%) 90.3 111.9 112.0 110.9
Operating Profit Margin (%) 4.7 4.6 4.8 4.8 Non-Controlling Interests 2,769 2,824 2,882 2,944 Net Debt to Equity Ratio (%) 103.7 75.9 72.3 71.3
Net Profit Margin (%) 2.2 4.9 1.8 1.8 Stockholders' Equity 6,144 7,032 7,398 7,789 Interest Coverage Ratio (x) 3.8 4.1 4.6 5.0 Source: CJ CheilJedang, Mirae Asset Daewoo Research estimates
28| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research APPENDIX 1
Important Disclosures & Disclaimers 2-Year Rating and Target Price History
Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price Orion(271560) 05/15/2018 Buy 170,000 10/13/2017 Buy 450,000 11/06/2017 Buy 150,000 08/04/2017 Buy 430,000 09/15/2017 Buy 120,000 06/13/2017 Buy 460,000 08/14/2017 Buy 110,000 05/11/2017 Buy 440,000 07/07/2017 Buy 100,000 01/31/2017 Buy 460,000 CJ CheilJedang(097950) 02/08/2018 Buy 460,000 02/04/2016 Buy 500,000 01/10/2018 Buy 480,000
(W) Orion (W) CJ CheilJedang
200,000 600,000
500,000 150,000 400,000
100,000 300,000
200,000 50,000 100,000
0 0 May 16 May 17May May 16 18 May 17 May 18
Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10%
Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 75.00% 11.11% 13.89% 0.00% Investment Banking Services 70.73% 19.51% 9.76% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2018)
29| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research APPENDIX 1
Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of CJ CheilJedang as an underlying asset, and other than this, Mirae Asset Daewoo has no other special interests in the covered companies.
Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.
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30| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research APPENDIX 1
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31| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research APPENDIX 1
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32| 2H18 Outlook [Food & Beverage] Mirae Asset Daewoo Research