April 1, 2014

KOREA

Company News & Analysis Major Indices Close Chg Chg (%) SDI (006400/Buy/TP: W200,000) KOSPI 1,991.98 6.37 0.32 Merger with Cheil Industries to drive Samsung Group's materials business KOSPI 200 258.95 0.84 0.33 KOSDAQ 549.08 7.50 1.38

Sector News & Analysis Turnover ('000 shares, Wbn) Healthcare (Overweight) Volume Value KOSPI 208,181 3,708 Dental implant industry restructuring to accelerate KOSPI 200 60,289 3,016 KOSDAQ 324,683 2,036

Market Cap (Wbn) Value KOSPI 1,185,785 KOSDAQ 133,480

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,337 1,129 208 Institutional 895 995 -100 Retail 1,438 1,547 -109

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 153 96 57 Institutional 127 116 11 Retail 1,754 1,819 -65

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 896 860 36 KOSDAQ 28 17 11

Advances & Declines Advances Declines Unchanged KOSPI 464 309 105 KOSDAQ 600 312 82

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KODEX LEVERAGE 11,705 100 382 1,339,000 -4,000 252 KODEX INVERSE 7,680 -35 235 Hynix 37,000 1,000 179 KODEX 200 26,010 20 153

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value SNET 5,420 700 54 Crosscert 4,250 215 51 Nowcom 24,550 950 48 Modacom 9,560 -100 48 Lumens 14,500 1,200 43 Note: As of April 1, 2014

Samsung SDI (006400 KS) Merger with Cheil Industries to drive Samsung Group's materials business

Technology Merger puts components and materials businesses under one roof Yesterday, Samsung SDI announced that its board of directors had approved its proposed News Comment merger with Cheil Industries. Samsung SDI will issue 23.21mn new shares and offer Cheil April 1, 2014 Industries shareholders 0.44 shares of Samsung SDI for each of their Cheil Industries shares. If approved at the shareholders’ meeting on May 30 th the merger will take effect on July 1 st .

If the merger is successful, Samsung SDI will become a giant parts and materials supplier, (Maintain) Buy with total assets of W15tr, annual revenue of W10tr, and 12,325 employees. The company’s market cap will balloon to W11tr, making it the 19 th -largest listed company in Target Price (12M, W) 200,000 Korea. We believe the deal will be positive all around, as it will give Samsung SDI a stable business foundation and Cheil Industries’ businesses new room for growth . The merger Share Price (3/31/14, W) 161,000 should boost Samsung Group’s materials business by bringing Cheil Industries’ electronic materials and chemicals businesses under Samsung Electronics’ (SEC) umbrella. Expected Return 24% Bullish on merger, but still too early to price in synergies In 2013, only W80bn, or 2%, of Cheil Industries’ overall revenue came from supplying OP (13, Wbn) -27 PDP electrode pastes to Samsung SDI. Meanwhile, Cheil has been gearing up to supply Consensus OP (13F, Wbn) - separators for use in Samsung SDI’s rechargeable batteries—but we expect the business to take shape only after 2015. EPS Growth (13, %) -91.1 Over the medium to long term, however, w e could see several synergy effects from the Market EPS Growth (13F, %) - merger, notably: 1) enhanced competitiveness in rechargeable batteries (internal P/E (13, x) 58.5 sourcing of separators, battery packs using plastic materials, etc.) owing to Cheil’s Market P/E (13F, x) - materials expertise, 2) acceleration of the electric vehicle (EV) battery business thanks to KOSPI 1,985.61 a broader customer base (Cheil has US automakers as customers, while Samsung SDI h as Market Cap (Wbn) 7,335 ties with European firms), and 3) more efficient use of resources, including the idle Shares Outstanding (mn) 47 capacity and staff remaining following Samsung SDI’s exit from the PDP business. Free Float (%) 74.6 The rechargeable battery industry is materials-intensive, as 80% of total productio n Foreign Ownership (%) 25.9 costs come from materials. As such, we view the merger as positive because materials Beta (12M) 0.81 can play a critical role in improving the competitiveness of rechargeable batteries (such 52-Week Low 122,500 as cost savings for large EV- and ESS-use batteries). That said, we believe it is still too 52-Week High 198,500 early to price in potential synergies, as they are difficult to quantify at this point. (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Maintain Buy and TP of W200,000 Absolute 7.7 -14.1 14.6 Relative 7.4 -13.6 15.7 Yesterday, Samsung SDI and Cheil Industries shares gained 6.6% and 5.8%, respectively, following news of the merger. We believe the rally was driven more by short-term supply

150 Samsung SDI KOSPI and demand factors (short covering) aimed at securing appraisal rights than expectations

130 for post-merger synergies. We believe potential synergies should be viewed from a long- term perspective and thus advise approaching short-term rallies with caution. 110 We reiterate our Buy call and target price of W200,000 on Samsung SDI. Momentum 90 was weak in 1Q14 due to persistently sluggish earnings in small-sized batteries and a 70 decline in equity-method gains from Samsung Display (SDC). However, we expect small- 3.13 7.13 11.13 3.14 sized battery earnings and SDC’s OLED utilization to normalize in 2Q with the full- fledged release of the Galaxy S5. Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13 12/14F 12/15F

[Display/Battery] Revenue (Wbn) 5,124 5,444 5,771 5,016 4,867 5,107 OP (Wbn) 234 110 187 -27 86 176 Jonathan Hwang OP margin (%) 4.6 2.0 3.2 -0.5 1.8 3.4 +822-768-4140 NP (Wbn) 356 320 1,472 131 380 451 [email protected] EPS (W) 7,548 6,785 31,192 2,769 8,061 9,570 Will Cho ROE (%) 6.5 5.3 21.8 1.8 5.1 5.8 +822-768-4306 P/E (x) 22.3 19.7 4.8 58.5 18.7 15.7 [email protected] P/B (x) 1.3 1.0 0.9 1.0 0.9 0.9

Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo 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 DISCLOSURESDISCLOSURES & DISCLAIMDISCLAIMERSERS IN APPENDIX 1 AT THE END OF REPORT.

Healthcare (Overweight/Maintain)

Dental implant industry restructuring to accelerate ¢ Global implant leader Straumann invests in domestic implant maker MegaGen Issue Comment ¢ NHIS to cover dental implants beginning in July April 1, 2014 ¢ Domestic implant industry restructuring to help Osstem Implant expand market share

Daewoo Securities CCo.,o., Ltd. Straumann invests in domestic dental implant maker MegaGen

[Healthcare] Yesterday, Straumann, the world’s largest dental implant supplier, announced that it has

Hyun-tae Kim agreed to purchase US$30mn worth of convertible bonds from domestic implant maker +822-768-3251 MegaGen. The deal will give Straumann the option to convert the bonds into shares in 2016, [email protected] and a call option to acquire further shares from MegaGen’s major shareholders for a majority stake in the company. MegaGen plans to spend the proceeds from the deal on expanding its

domestic and overseas implant business.

Headquartered in Seoul and Daegu, MegaGen launched its implant business in 2002. The

company generated global sales of over US$30mn in 2013, two-thirds of which came from the Asia-Pacific region. The company’s products are currently sold through distributors in Europe, North America, and emerging markets.

We believe the two companies will continue to operate separately under their own brands, with Straumann focusing on premium lines, and MegaGen on lower-end brands. The Swiss company already implements a multi-brand strategy with brands including Neodent and Medentika.

NHIS to cover dental implants from July

The Ministry of Health and Welfare recently issued a public notice on the revised enforcement decree and enforcement rule of the National Health Insurance Act, which provides for the coverage of dental implants for senior citizens aged 75 or older, effective July.

According to the revised enforcement decree, the National Health Insurance Service (NHIS) will cover 50% or 20-30% of dental implant costs for senior citizens aged 75 or older, with coverage depending on the condition of the individual patient. The maximum number of implants covered has not yet been determined.

Domestic implant industry restructuring to pick up speed

Introduced in 1997, domestic dental implants have grown to a W240bn market in 2013. There are currently 50 companies in the market, and competition among domestic players has been getting increasingly fierce.

Because the NHIS coverage essentially puts a ceiling on implant prices, implant makers with stronger cost competitiveness and sales capabilities are poised to see better profits and grab increasing market share, especially given the government’s current crackdown on rebates.

We believe industry consolidation will accelerate in the currently overcrowded domestic implant market as select firms access funding from global players, and the NHIS implant coverage puts an upper limit on prices. Top-tier firms with deep pockets and strong sales capabilities should gain ground, led by current market leader Osstem Implant.

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

Key Universe Valuations April 1, 2014

※All data as of close March 3, 31, unless otherwise noted.

14F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 14F 15F 14F 15F 14F 15F 14F 15F 14F 15F 005930 Samsung Electronics 197,234 1,339,000 1.3 -2.1 6.2 -1.7 6.1 7.8 7.3 1.3 1.1 18.5 16.8 005380 Hyundai Motor 55,400 251,500 0.8 3.7 2.9 0.5 4.1 8.4 8.0 1.2 1.0 15.4 13.9 012330 31,004 318,500 0.7 7.7 10.2 10.4 7.3 8.2 7.7 1.3 1.1 17.2 15.8 000660 SK Hynix 26,277 37,000 32.1 0.5 38.2 -3.4 6.6 6.8 1.5 1.3 26.3 20.2 005490 POSCO 26,200 300,500 2.7 28.9 26.9 55.8 44.1 12.2 8.5 0.6 0.6 5.0 6.9 035420 NAVER 25,711 780,000 0.1 79.0 24.6 108.5 23.7 37.6 30.4 10.7 8.4 41.8 40.9 000270 Motors 24,200 59,700 1.3 -4.9 8.9 -6.2 11.4 6.8 6.1 1.0 0.9 16.4 15.7 015760 KEPCO 23,849 37,150 280.7 21.5 3070.8 55.3 10.6 6.8 0.4 0.4 4.4 6.5 055550 22,287 47,000 - - - - 0.0 0.0 032830 Samsung Life 19,940 99,700 - - - - 0.0 0.0 017670 SK Telecom 17,522 217,000 4.3 14.6 6.5 17.3 6.5 9.7 9.1 1.4 1.3 13.0 12.8 051910 LG Chem 17,462 263,500 1.5 8.9 37.6 15.0 38.5 13.4 9.7 1.5 1.3 11.9 14.8 009540 Hyundai Heavy 16,150 212,500 1.2 19.3 64.1 53.6 90.8 21.3 11.1 0.8 0.8 4.3 7.8 105560 KB Financial Group 14,508 37,550 - - - - 0.0 0.0 000810 Samsung F&M 11,465 242,000 - - - - 0.0 0.0 086790 11,364 39,200 - - - - 0.0 0.0 096770 SK Innovation 11,327 122,500 2.6 4.7 47.7 29.0 51.4 11.5 7.6 0.7 0.6 6.1 8.7 033780 KT&G 10,874 79,200 4.0 8.0 2.6 38.9 4.6 13.7 13.1 1.8 1.7 14.5 14.1 066570 LG Electronics 10,670 65,200 0.6 31.2 43.3 329.1 56.8 15.5 9.9 1.1 1.0 6.3 9.4 023530 Lotte Shopping 10,471 332,500 0.5 9.4 14.1 25.7 16.1 10.0 8.6 0.6 0.6 6.5 7.0 003550 LG Corp. 10,026 58,100 1.7 19.9 8.3 11.5 7.2 9.9 9.2 0.8 0.8 8.5 8.5 000830 Samsung C&T 9,576 61,300 0.8 35.4 12.6 36.9 14.9 20.7 18.0 0.9 0.9 4.2 4.7 034220 LG Display 9,554 26,700 1.9 -31.7 23.3 38.3 24.5 16.2 13.0 0.9 0.9 5.5 6.6 086280 9,131 243,500 0.6 10.6 13.2 17.1 12.7 16.2 14.4 3.2 2.7 21.8 20.3 003600 SK Holdings 9,087 193,500 1.3 47.5 16.4 117.9 9.9 8.1 7.4 0.7 0.6 9.2 9.3 004020 8,030 68,900 0.7 63.8 8.1 20.4 14.3 8.0 7.0 0.5 0.5 6.9 7.3 030200 KT 7,690 29,450 2.7 -2.4 51.6 229.2 191.4 29.3 10.0 0.8 0.8 2.2 6.2 034730 SK C&C 7,650 153,000 0.8 11.8 10.2 182.8 8.8 14.3 13.2 2.3 2.0 20.5 18.7 161390 7,606 61,400 1.1 9.7 8.4 9.6 8.7 8.9 8.2 1.7 1.4 19.7 18.1 090430 Amorepacific 7,395 1,265,000 0.5 10.1 10.6 14.9 13.5 28.8 25.4 3.2 2.9 11.3 11.6 010140 Samsung Heavy 7,296 31,600 1.6 9.8 12.8 34.6 16.3 8.6 7.4 1.0 0.9 13.8 14.2 006400 Samsung SDI 7,130 156,500 1.0 - 103.3 191.1 18.7 19.4 16.4 1.0 0.9 5.1 5.8 051900 LG Household & Health Care 7,091 454,000 0.8 10.2 10.1 8.4 10.8 20.8 18.8 4.3 3.6 23.4 21.5 010950 S-Oil 6,935 61,600 3.3 70.5 46.1 68.2 46.1 13.7 9.4 1.2 1.1 9.4 12.7 139480 Emart 6,690 240,000 0.6 8.7 11.4 9.7 13.7 13.1 11.5 1.0 0.9 7.5 8.0 011170 Lotte Chemical 6,632 193,500 0.5 20.5 75.2 66.9 83.0 15.8 8.6 1.0 0.9 6.5 10.9 035250 6,600 30,850 3.1 41.8 11.3 29.1 17.1 17.2 14.7 2.3 2.1 14.6 15.6 010130 Korea Zinc 6,321 335,000 1.5 36.5 2.4 47.2 4.1 9.6 9.2 1.3 1.2 14.6 13.5 000720 Hyundai E&C 6,280 56,400 0.9 10.7 29.9 9.6 37.0 11.5 8.4 1.2 1.1 10.5 13.0 042660 DSME 6,278 32,800 0.9 33.9 39.3 29.3 50.4 17.0 11.3 1.2 1.1 7.3 10.1 088350 Hanwha Life 5,984 6,890 - - - - 0.0 0.0 021240 COWAY 5,892 76,400 2.2 15.7 18.0 4.5 20.8 22.9 19.0 5.0 4.3 25.0 26.2 036460 KOGAS 5,742 62,200 2.6 3.4 17.6 - 40.3 16.2 11.6 0.7 0.7 4.4 5.9 009150 Samsung Electro-Mechanics 5,154 69,000 1.1 -5.1 31.3 -5.0 32.4 17.1 12.9 1.2 1.1 7.3 9.0 036570 NCsoft 4,813 219,500 0.3 89.4 31.2 131.8 21.3 13.1 10.8 3.0 2.4 27.7 25.9 001800 Orion 4,785 801,000 0.4 6.2 8.9 10.6 15.5 29.7 25.7 3.7 3.3 13.5 13.8 032640 LG Uplus 4,563 10,450 2.4 20.3 19.0 43.5 29.2 11.4 8.8 1.2 1.1 9.5 11.3 078930 GS 4,497 48,400 2.8 39.5 16.8 34.2 18.3 9.0 7.6 0.7 0.6 7.5 8.3 047050 Daewoo International 4,435 38,950 0.8 119.2 28.7 132.7 28.2 13.8 10.8 1.8 1.5 13.6 15.2 011210 Hyundai Wia 4,348 169,000 0.4 11.1 13.8 11.2 13.5 9.4 8.3 1.7 1.4 18.6 17.6 Source: KDB Daewoo Securities Research

Market Data April 1, 2014

※All data as of close April 1, 2014, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 429.25 3.46 0.81 -3.00 USD/KRW 1,066.10 1,068.80 1,067.70 1,112.50 KOSPI 1,991.98 6.37 0.32 1.26 JPY100/KRW 1,032.84 1,038.73 1,044.82 1,179.18 KOSDAQ 549.08 7.50 1.38 10.64 EUR/KRW 1,468.45 1,469.39 1,463.60 1,424.83 Dow Jones* 16,457.66 134.60 0.82 0.10 3Y Treasury 2.87 2.87 2.85 2.49 S&P 500* 1,872.34 14.72 0.79 2.20 3Y Corporate 3.30 3.30 3.28 2.85 NASDAQ* 4,198.99 43.23 1.04 1.35 DDR2 1Gb* 1.72 1.72 1.76 1.69 Philadelphia Semicon* 586.74 9.26 1.60 11.18 NAND 16Gb* 3.02 3.02 3.07 2.97 FTSE 100* 6,598.37 -17.21 -0.26 -1.78 Oil (Dubai)* 104.63 104.80 106.93 106.83 Nikkei 225 14,791.99 -35.84 -0.24 -7.02 Gold* 1,283.40 1,293.80 1,350.30 1,594.80 Hang Seng* 22,151.06 85.53 0.39 -5.09 Customer deposits (Wbn)* 13,630 13,956 14,353 17,248 Taiwan (Weighted) 8,873.15 23.87 0.27 3.03 Equity type BC (Wbn)(Mar. 28) 83,536 83,610 84,357 91,515 Note: * as of March 3, 31 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 Samsung Electronics 78.13 NHN 41.89 KODEX LEVERAGE 91.09 Samsung Electronics 55.32 KODEX 200 34.29 LG Household & Health Care 8.56 LG Chem 33.91 KODEX INVERSE 27.80 Hynix 29.70 Cheil Industries 8.11 NHN 30.80 Samsung SDI 27.48 Shinhan Financial Group 25.29 7.25 CJ Cheiljedang 21.45 KODEX 200 27.16 Hyundai Motor 20.80 POSCO 6.89 Honam Petrochemical 16.87 Cheil Industries 19.62 Kia Motors 19.32 Samsung Heavy Ind. 6.20 POSCO 12.99 Hyundai Motor 13.61 Hyundai Mobis 11.98 Orion 5.80 DSME 9.47 Kia Motors 12.06 Samsung SDI 11.57 emart 4.57 SK C&C 6.47 Shinhan Financial Group 9.81 LG Electronics 11.38 Hyundai Mipo Dockyard 4.36 Hynix 5.45 Lotte Shopping 9.42 HANKOOK TIRE 11.04 Daelim Industrial 4.06 KCC 3.35 SK Corp. 7.43 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 Lumens 10.60 Interpark 3.89 Sung Kwang Bend 9.12 Zeus 7.63 Seoul Semiconductor 8.65 Medy-tox 3.58 CJ E&M 5.24 KH Vatec 5.40 NaturalendoTech 6.96 CJ O Shopping 2.75 Interpark 3.99 NaturalendoTech 3.92 CJ E&M 4.88 GS Home Shopping 1.92 POSCO ICT 3.12 OE Solutions 2.84 Sung Kwang Bend 3.57 LiHOM-CUCHEN 1.81 Paradise 2.88 Daum Communications 1.39 KH Vatec 3.06 Celltrion 1.33 SM 2.76 ViroMed 0.91 Nowcom 2.14 Vieworks 1.01 Diostech 2.20 Deutsch Motors 0.88 HaanSoft 2.06 SFA Engineering 0.89 Mobilians 2.07 Wemade 0.74 Paradise 2.03 Diostech 0.74 Medy-tox 2.02 SK Broadband 0.73 Woory Industrial 1.97 Medipost 0.72 KEBT 1.68 HARIM 0.73 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 1,339,000 -4,000 197,234 Celltrion 44,400 400 4,462 Hyundai Motor 251,500 500 55,400 Paradise 33,800 1,350 3,074 Hyundai Mobis 318,500 3,500 31,004 Seoul Semiconductor 47,300 2,000 2,758 Hynix 37,000 1,000 26,277 CJ O Shopping 359,500 -4,800 2,231 POSCO 300,500 4,500 26,200 Ssangyong E&C 136,800 0 1,999 NHN 780,000 6,000 25,711 CJ E&M 45,950 1,300 1,780 Kia Motors 59,700 400 24,200 Dongsuh 15,900 100 1,585 KEPCO 37,150 700 23,849 GS Home Shopping 236,000 -1,000 1,549 Samsung Electronics (P) 1,043,000 -14,000 23,815 POSCO ICT 9,140 260 1,390 Shinhan Financial Group 47,000 0 22,287 SK Broadband 4,190 -10 1,240 Source: