Cj E&M (130960)

Company Note July 11, 2017

CJ E&M (130960)

12M rating BUY (Maintain) 2Q17 preview: Have faith in content’s potential

12M TP W108,000 from W108,000 Up/downside +42% 2Q17 OP in line with consensus We expect CJ E&M to post sales of W399.8bn (+11.9% YoY) and OP of W26.5bn Stock Data (+87.8% YoY) that meets the consensus (W26.4bn). For media, ad sales would KOSPI (Jul 10, pt) 2,382 grow less than expected (+1.8% YoY) due to poor business conditions and weak Stock price (Jul 10, KRW) 76,000 sales among second-tier channels. However, the success of variety shows such as Market cap (USD mn) 2,550 Shares outstanding (mn) 39 Youn’s Kitchen and Produce 101 as well as robust sales of digital ads and content 52-Week high/low (KRW) 88,700/53,800 will drive up earnings. We expect an operating loss at the film division due a poor 6M avg. daily turnover (USD mn) 25.3 box office for The King’s Case Note (released April 26, 1.6mn tickets sold) and The Free float / Foreign ownership (%) 56.7/25.5 Merciless (May 17, 0.9mn tickets sold) although Confidential Assignment (January Major shareholders (%) 18, 7.8mn tickets sold) was a hit. On the other hand, we expect stable earnings CJ Corp. and 5 others 42.9 growth at the music division due to synergy with the media division. By division, we expect OP of W28.1bn (+37.1% YoY) at media and W2.0bn (+50.5% YoY) at music, Performance but a loss of W2.6bn (W6.6bn in 2Q16) at film and W0.9bn at performance 1M 6M 12M (W1.0bn in 2Q16). Absolute (%) (5.4) 1.3 8.4 Relative to KOSPI (%p) (5.4) (15.1) (12.9) Earnings growth fueled by competitive content, overseas business 12MF PE trend and value chain expansion

(X) 12MF PER (LHS) (KRW) 200,000 60 CJ E&M is a comprehensive content provider with creative strength for productions price (RHS) 180,000 such as dramas and film. As for media, self-produced dramas and variety shows 50 160,000 140,000 will fuel ad sales while digital ad and content sales would drive up margins. A sharp 40 120,000 competitive edge in content will support the company’s gaining ground in Asian 30 100,000 countries like Vietnam, Thailand and China. CJ E&M has also tried to expand its 80,000 20 60,000 divisional value chain through sub-labels such as Studio Dragon, JK Film, AOMG 40,000 10 and Highlight Records, and these should offer earnings growth. 20,000 0 0 Aug-14 Aug-15 Aug-16 Core business to remain highlighted in 2H17; Maintain BUY Source: WISEfn consensus We maintain BUY with our SotP-driven TP of W108,000. Operational value will remain highlighted as earnings grow at the media division. CJ E&M’s subsidiary broadcast channels (tvN, Mnet, etc.) have introduced competitive dramas (Stranger , The Bride of Habaek, Live Up to Your Name, etc .) and variety shows (New Journey to the West S4 , Show Me The Money S6, Three Meals A Day: Fishing Village S4, etc.). Improving business conditions and content creation skills will push up ad charges along with content sales. We expect OP to jump 93.8% YoY at the media division. The film division will also post robust earnings if The Battleship Island (release July 26) is a box office hit, allowing a re-rating for the share price. Drama production company Studio Dragon (91% owned) is pursuing a public listing in 2017. This would significantly enhance the company’s value as well.

Yr to Sales OP NP EPS % chg EBITDA PE EV/EBITDA PB ROE DY Dec (W bn) (W bn) (W bn) (KRW) (YoY) (W bn) (x) (x) (x) (%) (%) 2015A 1,347 53 54 1,409 (75.8) 373 57.2 8.2 2.0 3.6 0.2 2016A 1,538 28 62 1,611 14.3 428 44.0 7.4 1.8 4.0 0.3 2017F 1,815 96 512 13,267 723.5 553 5.7 6.0 1.5 28.7 0.3 Minha Choi 2018F 2,016 120 161 4,164 (68.6) 593 18.3 5.5 1.4 7.7 0.4 822-3276-6260 2019F 2,190 143 186 4,813 15.6 634 15.8 5.0 1.3 8.2 0.4 [email protected] Note: Net profit and EPS attributed to controlling interest 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 AT THE END OF THIS REPORT. CJ E&M (130960)

Table 1. 2Q17 earnings preview (W bn , %, %p) 2Q16 1Q17 2Q17F QoQ YoY Consensus Diff. Sales 357.3 394.3 399.8 1.4% 11.9% 402.8 (0.7%) OP 14.1 23.4 26.5 13.5% 87.8% 26.4 0.4% OPM 4.0 5.9 6.6 0.7%p 2.7%p 6.6 0.1%p EBT 47.6 45.2 555.0 1128.5% 1065.0% 47.8 1,061.0% Controlling-int. 43.2 33.2 420.1 1167.2% 872.8% 37.0 1,035.4% NP Source: Company data, FnGuide, Korea Investment and Securities

Figure 1. Quarterly sales and OPM

(W bn) Sales (L) OPM (R) (%) 600 8

500 6

400 4

300 2

200 0

100 (2)

0 (4) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17F

Source: Company data, Korea Investment and Securities

Figure 2. Media sales and OPM Figure 3. Film sales and OPM

(W bn) Sales (L) OPM (R) (%) (W bn) Sales (L) OPM (R) (%) 500 12 100 15

450 10 90 10

400 8 80 5 6 350 70 0 4 300 60 (5) 2 250 50 (10) 0 200 40 (15) (2) 150 30 (20) (4)

100 (6) 20 (25)

50 (8) 10 (30)

0 (10) 0 (35) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17F 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17F Source: Company data, Korea Investment and Securities Source: Company data, Korea Investment and Securities

2 CJ E&M (130960)

Figure 4. Music sales and OPM Figure 5. Performance sales and OPM

(W bn) Sales (L) OPM (R) (%) (W bn) Sales (L) OPM (R) (%) 70 8 10 50

9 60 6 0 8

50 4 7 (50) 6 40 2 5 (100) 30 0 4 (150) 20 (2) 3 2 (200) 10 (4) 1

0 (6) 0 (250) 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17F Source: Company data, Korea Investment and Securities Source: Company data, Korea Investment and Securities

Table 2. Earnings forecast (W bn, %, & YoY, %p ) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17F 3Q17F 4Q17F 2016 2017F 2018F Sales 313.5 357.3 378.8 488.8 394.3 399.8 451.9 568.5 1,538.4 1,814.5 2,015.8 Media 225.4 268.4 268.6 366.1 285.7 311.9 322.0 432.2 1,128.4 1,351.8 1,518.6 Film 40.3 40.6 56.2 52.4 56.6 36.5 72.7 62.7 189.5 228.5 252.0 Music 44.6 47.2 46.2 61.4 47.4 50.4 49.1 64.4 199.4 211.3 221.6 Performance 3.3 1.1 7.8 8.9 4.6 1.1 8.0 9.2 21.0 22.9 23.6 COGS 236.7 269.8 290.8 392.2 287.2 297.8 345.6 438.8 1,189.5 1,369.4 1,528.2 COGS/sales (%) 75.5 75.5 76.8 80.2 72.8 74.5 76.5 77.2 77.3 75.5 75.8 Gross profit 76.8 87.4 88.0 96.6 107.1 102.0 106.3 129.7 348.8 445.1 487.5 Gross margin (%) 24.5 24.5 23.2 19.8 27.2 25.5 23.5 22.8 22.7 24.5 24.2 SG&A 67.9 73.3 85.0 94.7 83.7 75.5 88.1 102.2 320.9 349.5 367.3 SG&A/sales (%) 21.7 20.5 22.4 19.4 21.2 18.9 19.5 18.0 20.9 19.3 18.2 OP 8.9 14.1 3.1 1.9 23.4 26.5 18.2 27.5 28.0 95.6 120.2 OPM (%) 2.8 4.0 0.8 0.4 5.9 6.6 4.0 4.8 1.8 5.3 6.0 Media 5.1 20.5 8.7 12.1 20.1 28.1 17.4 24.5 46.5 90.1 110.2 Film 3.8 (6.6) (7.4) (13.6) 1.9 (2.6) (1.3) (0.6) (23.9) (2.6) 1.0 Music (0.1) 1.3 2.4 3.6 2.4 2.0 2.6 3.7 7.2 10.6 11.1 Performance 0.1 (1.0) (0.8) (0.2) (1.0) (0.9) (0.5) (0.1) (1.8) (2.5) (2.1) EBT 14.6 47.6 9.4 (4.2) 45.2 555.0 34.5 40.4 67.5 675.1 213.8 Controlling-int. NP 13.2 43.2 2.0 3.8 33.2 420.1 26.3 32.3 62.2 511.8 160.6 (% YoY) Sales 7.0 19.4 2.4 27.0 25.8 11.9 19.3 16.3 14.2 18.0 11.1 Media 26.7 20.1 18.0 30.5 26.8 16.2 19.9 18.1 24.1 19.8 12.3 Film (38.9) 28.8 (39.6) 9.7 40.4 (10.1) 29.4 19.6 (20.5) 20.6 10.3 Music 6.3 9.4 (4.8) 21.6 6.4 6.6 6.2 4.9 8.3 6.0 4.8 Performance (55.7) 3.0 935.9 44.0 39.8 3.2 3.2 3.2 36.8 8.9 3.0 COGS 4.2 23.3 1.5 36.7 21.3 10.4 18.9 11.9 16.7 15.1 11.6 COGS/sales (%p) (2.0) 2.4 (0.7) 5.7 (2.7) (1.0) (0.3) (3.1) 1.7 (1.9) 0.3 Gross profit 16.5 8.7 5.4 (1.6) 39.4 16.7 20.8 34.3 6.4 27.6 9.5 Gross margin (%p) 2.0 (2.4) 0.7 (5.7) 2.7 1.0 0.3 3.1 (1.7) 1.9 (0.3) SG&A 19.7 17.1 21.6 10.1 23.3 3.0 3.7 8.0 16.6 8.9 5.1 SG&A/sales (%p) 2.3 (0.4) 3.6 (3.0) (0.4) (1.6) (2.9) (1.4) 0.4 (1.6) (1.0) OP (2.9) (20.8) (77.5) (84.4) 162.2 87.8 494.8 1,359.0 (46.9) 241.6 25.8 OPM (%p) (0.3) (2.0) (2.9) (2.8) 3.1 2.7 3.2 4.4 (2.1) 3.4 0.7 Media 105.6 4.4 24.0 (29.0) 290.0 37.1 98.9 102.7 0.5 93.8 22.4 Film (41.8) NA NA NA (48.7) NA NA NA NA NA NA Music NA (37.5) NA NA NA 50.5 6.8 2.7 980.3 47.5 4.5 Performance 109.0 NA NA NA NA NA NA NA NA NA NA EBT (86.1) 126.2 (71.5) NA 208.6 1,065.0 265.0 NA 13.8 899.6 (68.3) Controlling-int. NP (85.6) 225.2 (92.8) NA 152.0 872.8 1,220.8 744.1 14.4 723.4 (68.6) Note: We expect sharp rises for EBT and controlling-int. NP in 2Q17 due to Netmarble Games’ earnings growth as well as gains on its revaluation after IPO on May 12 Source: Company data, Korea Investment and Securities

3 CJ E&M (130960)

Figure 6. OP by division

(W bn) Media Film Music Performance 40 26.5 27.5 30 9.7 23.4 17.8 14.1 18.2 12.1 20 13.6 1.9 3.1 9.2 8.9 10

(10) (3.3) (8.5)

(20) (10.5)

(30) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17F Source: Company data, Korea Investment and Securities

Table 3. CJ E&M ’s dramas and variety shows in 2H17

Title Channel Genre Schedule Release date Production/cast Duel OCN Drama Sat/Sun 22:20 2017. 06. 03 Jung Jae-young, Kim Jung-eun Stranger tvN Drama Sat/Sun 21:00 2017. 06. 10 Jo Seung-woo, Bae Doona The Bride of Habaek tvN Drama Mon/Tue 22:50 2017. 07. 03 Shin Se-kyung, Nam Joo-hyuk Criminal Minds tvN Drama Wed/Thu 22:50 2017. 07. 26 Son Hyun-joo, Lee Joon-gi, Moon Chae-won Save Me OCN Drama Sat/Sun 22:20 2017. 08. 05 Ok Taecyeon, Woo Do-hwan, Seo Ye-ji Live Up to Your Name tvN Drama Sat/Sun 21:00 2017. 08 Kim Nam-gil, Kim Ah-joong Director: Lee Yoon-jung ( Cheese in the Trap ) Argon tvN Drama Mon/Tue 22:50 2017. 09 Cast: Kim Joo-hyuk, Chun Woo-Hee Director: Na Young-seok, Yang Jung-woo Trivia tvN Variety show Fri 21:50 2017. 06. 02 Cast: You Hee-yeol, Rhyu Si-min, Kim Young-ha New Journey to the West Director: Na Young-seok, Shin Hyo-jung tvN Variety show Tue 21:30 2017. 06. 13 (season 4) Cast: Kang Ho-dong, Lee Soo-geun Show Me The Money Mnet Variety show Fri 23:00 2017. 06. 30 Jay Park, Dok2, Tiger JK, Dynamic Duo (season 6) Idol School Mnet, tvN Variety show Thu 21:30 2017. 07. 13 Kim Tae-eun CP (Chief Producer, Superstar K ) Director: Min Cheol-gi (King of Mask Singer ) Shadow Singer tvN Variety show Fri 20:00 2017. 07. 14 Cast: Kang Ho-dong, Ha Hyun-woo Director: Kim Yu-gon ( Dad! Where Are We Going? ) Leaving the Nest tvN Variety show Sat 19:40 2017. 07. 15 Cast: Park Sang-won, Choi Min-soo Three Meals A Day: Director: Na Young-seok tvN Variety show Fri 21:50 2017. 08 Fishing Village 4 Cast: Lee Seo-jin, Eric Mun, Yoon Kyun-sang

Source: Press release, company data, Korea Investment and Securities

Table 4. Earnings revisions (W bn, %, %p ) 2017F 2018F Previous Revised Chg Previous Revised Chg Sales 1,777.7 1,814.5 2.1 1,928.5 2,015.8 4.5 OP 89.7 95.6 6.5 117.1 120.2 2.7 OPM 5.0 5.3 0.2 6.1 6.0 (0.1) EBT 146.3 675.1 361.3 182.4 213.8 17.2 NP 113.7 511.8 350.2 143.9 160.6 11.6 Source: Korea Investment and Securities

4 CJ E&M (130960)

Table 5. Netmarble ownership pre and post -IPO

Shareholders Pre-IPO Post-IPO Shares Stake (%) Shares Stake (%) Jun-Hyuk, Bang 20,729,472 30.59 Jun-Hyuk, Bang 20,729,472 24.47 CJ E&M 18,720,000 27.62 CJ E&M 18,720,000 22.09 Han River Investment 15,057,800 22.22 Han River Investment 15,057,800 17.77 NCsoft 5,842,800 8.62 NCsoft 5,842,800 6.90 Jaehyun Lee 567,200 0.84 Jaehyun Lee 567,200 0.67 Treasury shares 25,800 0.04 Treasury shares 25,800 0.03 Others 6,833,316 10.08 Others 23,786,928 28.07 Total 67,776,388 100.0 Total 84,730,000 100.0 Note: Han River Investment refers to Tencent Source: DART, Korea Investment and Securities

Figure 7. Overseas sales Figure 8. Overseas sales by division

(W bn) Overseas sales (L) % over total sales (R) (%) 250 20 18.0 18 Music Performance 200 16 13.9% 0.7%

12.4 14 11.2 150 12 Film 8.5 10 17.7% 2016 Overseas sales W191.4bn 100 8

6 Media 67.7% 50 4

0 0 2014 2015 2016 1Q17

Source: Data Analysis, Retrieval and Transfer system (DART), company data, Source: DART, company data, Korea Investment and Securities Korea Investment and Securities

Figure 9. Studio Dragon ownership structure

CJ E&M

91%

Studio Dragon

100% 100% 100%

Culture Depot Hwa & Dam Pictures KPJ

Representing Park Ji-eun Representing Kim Representing Kim (screenwriter) Eun-sook Yoeong-hyun and and Gianna Jeon (actress) (screenwriter) Park Sang-yeon

Note: According to 1Q17 quarterly report, CJ E&M owns 90.76% of Studio Dragon Source: DART, news release, Korea Investment and Securities

5 CJ E&M (130960)

Table 6. TP calculation (W bn, x ) NOPLAT Multiple Value Notes Operating value (a) 2,227 Media 69.0 27 1,937 Applied 12MF NOPLAT Film 228 Value as a platform, applied 1x 2017 PS Music/Performance 6.2 10 62 Applied 2017 NOPLAT Game (b) 2,261 22.1% stake in Netmarble Games (20% discount) Business value 4,488 Net debt (c) 308 Fair value 4,181 =(a)+(b)-(c) Shares outstanding (‘000) 38,575 Excl. treasury shares TP (KRW) 108,384

Source: Korea Investment and Securities

Company overview & Glossary

CJ E&M was formed in March 2011 through a merger among CJ Group’s five media/entertainment affiliates: On Media, CJ Media, CJ Internet, M-net Media and CJ Entertainment. In March 2014, CJ E&M signed a deal to attract investment from Tencent to strengthen the game business Netmarble that was later split off from the company as CJ Netmarble. And then in October, CJ Netmarble and CJ Games merged to become Netmarble Games. With this, the game business was excluded from CJ E&M’s consolidated accounting. CJ E&M has 22.1% ownership of Netmarble Games. CJ E&M is a comprehensive content provider in the broadcast, film, music and performance businesses and CJ Corp. is the largest shareholder with 39.4%.

ò PPL (product placement): A type of indirect advertising; An advertising technique used by companies to promote their products through appearances in film, television, or other media

ò CPI (content power index): An integrated index to evaluate the influence of content using news subscription rankings (popularity), direct search rankings (involvement) and social media buzz (engagement)

ò Killer content: Primary content that play a leading role in the market

ò PIP (platform in platform): Selling advertisements through content like short clips in the web portal

ò MCN (multi-channel network): An organization that works with video platforms such as YouTube, to offer assistance to a channel owner in areas such as distribution, digital rights management, monetization/sales in exchange for a percentage of the ad revenue from the channel

6 CJ E&M (130960)

Balance sheet Income statement

FY-ending Dec. (W bn) 2015A 2016A 2017F 2018F 2019F FY-ending Dec. (W bn) 2015A 2016A 2017F 2018F 2019F Current assets 940 996 1,176 1,302 1,431 Sales 1,347 1,538 1,815 2,016 2,190 Cash & cash equivalents 47 81 89 96 101 COGS 1,019 1,190 1,369 1,528 1,657 Accounts & other receivables 434 553 654 728 813 Gross profit 328 349 445 488 533 Inventory 4 5 6 6 7 Non-current assets 1,425 1,797 1,964 2,066 2,139 SG&A expenses 275 321 350 367 390

Investment assets 603 659 749 812 861 Operating profit 53 28 96 120 143 Tangible assets 77 275 276 274 255 Financial income 19 19 23 25 27 Intangible assets 653 724 779 807 842 Total assets 2,365 2,793 3,141 3,368 3,570 Interest income 9 4 3 3 3 Current liabilities 642 937 798 887 908 Financial expenses 21 37 48 54 58 Accounts & other payables 418 480 485 523 552 Interest expenses 14 12 15 15 14 ST debt & bonds 55 268 233 209 191 Other non-operating profit (120) (24) (22) (24) (26) Current portion of LT debt 121 101 111 133 105 Gains (Losses) in associates, 129 81 627 146 162 Non-current liabilities 162 240 256 244 250 subsidiaries and JV Debentures 100 140 140 115 115 Earnings before tax 59 68 675 214 247 LT debt & financial liabilities 32 34 35 35 32 Income taxes 6 7 169 52 61 Total liabilities 805 1,177 1,054 1,131 1,158 Controlling interest 1,552 1,546 2,023 2,172 2,346 Net profit 53 61 506 161 187 Capital stock 194 194 194 194 194 Net profit of controlling interest 54 62 512 161 186 Capital surplus 973 973 973 973 973 Other comprehensive profit (1) (103) (25) 0 0 Other Reserves 16 60 60 60 60 Total comprehensive profit 52 (42) 481 161 187 Retained earnings 370 420 922 1,071 1,245 Total comprehensive profit of Minority interest 9 69 64 65 66 54 (41) 487 161 186 controlling interest Shareholders' equity 1,560 1,616 2,087 2,237 2,412 EBITDA 373 428 553 593 634

Cash flow Key financial data

FY-ending Dec. (W bn) 2015A 2016A 2017F 2018F 2019F FY-ending Dec. 2015A 2016A 2017F 2018F 2019F

C/F from operations 295 259 70 481 476 Per-share data (KRW) EPS 1,409 1,611 13,267 4,164 4,813 Net profit 53 61 506 161 187 BPS 40,188 40,052 52,364 56,212 60,706 Depreciation 14 16 23 23 22 DPS 200 200 250 300 300 Amortization 306 384 434 450 469 Growth (%) Sales growth 9.3 14.2 17.9 11.1 8.6 Net incr. in W/C (42) (168) (270) (17) (46) OP growth NM (46.9) 241.6 25.8 18.7 Others (36) (34) (623) (136) (156) NP growth (75.8) 14.4 723.4 (68.6) 15.6 C/F from investing (189) (534) (35) (435) (411) EPS growth (75.8) 14.3 723.5 (68.6) 15.6 EBITDA growth 28.6 14.7 29.3 7.3 6.9 Capex (8) (212) (24) (22) (4) Profitability (%) Decr. in fixed assets 0 0 0 0 0 OP margin 3.9 1.8 5.3 6.0 6.5 Incr. in investment 162 137 510 83 114 NP margin 4.0 4.0 28.2 8.0 8.5 EBITDA margin 27.7 27.8 30.5 29.4 29.0 Net incr. in intangible assets (331) (358) (490) (478) (504) ROA 2.2 2.4 17.1 5.0 5.4 Others (12) (101) (31) (18) (17) ROE 3.6 4.0 28.7 7.7 8.2 C/F from financing (94) 306 (28) (39) (60) Dividend yield 0.2 0.3 0.3 0.4 0.4 Dividend payout ratio 14.2 12.4 1.9 7.2 6.2 Incr. in equity 3 95 0 0 0 Stability Incr. in debt (96) 218 (24) (27) (47) Net debt (W bn) (52) 372 308 255 183 Dividends 0 (8) (8) (10) (12) Int.-bearing debt/equity (%) 19.8 33.7 24.5 21.5 17.8

Others (1) 1 4 (2) (1) Valuation ( x) PE 57.2 44.0 5.9 18.7 16.2 C/F from others 2 3 0 0 0 PB 2.0 1.8 1.5 1.4 1.3 Increase in cash 14 34 8 7 5 EV/EBITDA 8.2 7.4 6.1 5.6 5.1

Note: K-IFRS (consolidated)

7 CJ E&M (130960)

Changes to recommendation and price target

Company (Code) Date Recommendation Price target CJ E&M (130960) 05-31-16 BUY W110,000 08-10-16 BUY W95,000 03-30-17 BUY W108,000

120,000

100,000

80,000

60,000

40,000

20,000

0 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17

■ Guide to Korea Investment & Securities Co., Ltd. stock ratings based on 12-month forward share price performance relative to the market index ò BUY: Expected to outperform the market index by 15%p or more ò Hold: Expected to underperform or outperform the market index by less than 15%p ò Underweight: Expected to underperform the market index by 15%p or more ò Korea Investment & Securities does not offer target prices for stocks with Hold or Underweight ratings.

■ Guide to Korea Investment & Securities Co., Ltd. stock rating allocation (as of Jun 30, 2017)

BUY Hold Underweight (Sell) 78.9% 20.3% 0.9% Note: % of companies under coverage with this rating

■ Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months ò Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. ò Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. ò Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization.

■ Analyst Certification I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report.

■ Important compliance notice As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does not own 1% or more of any class of common equity securities of CJ E&M.

There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of the research report or at the time of the public appearance.

Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for CJ E&M in the past 12 months;

Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from CJ E&M in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intend to seek compensation for investment banking services from CJ E&M in the next 3 months.

Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in CJ E&M’s securities at the time that the research report was published.

Korea Investment & Securities Co., Ltd. does not own over 1% of shares of the companies mentioned in this report as of July 11, 2017. Korea Investment & Securities Co., Ltd. has not provided this report to various third parties. Neither the analyst/analysts who prepared this report nor their associates own any shares of the company/companies mentioned in this report as of July 11, 2017. Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of CJ E&M and is the liquidity provider.

Prepared by: Minha Choi

8 CJ E&M (130960)

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United Kingdom: This report is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of section 21 of the Financial Services and Markets Act 2000 of the United Kingdom ("FSMA"). To the extent that this report does constitute such an invitation or inducement, it is directed only at (i) persons who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) of the United Kingdom (the "Financial Promotion Order"); (ii) persons who fall within Articles 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order; and (iii) any other persons to whom this report can, for the purposes of section 21 of FSMA, otherwise lawfully be made (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Persons who are not relevant persons must not act or rely on this report.

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Singapore: This report is provided pursuant to the financial advisory licensing exemption under Regulation 27(1)(e) of the Financial Advisers Regulation of Singapore and accordingly may only be provided to persons in Singapore who are "institutional investors" as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. This report is intended only for the person to whom Korea Investment & Securities Co., Ltd. has provided this report and such person may not send, forward or transmit in any way this report or any copy of this report to any other person. Please contact Korea Investment & Securities Singapore Pte Ltd in respect of any matters arising from, or in connection with, the analysis or report (Contact Number: 65 6501 5600).

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