Internet/Game Bet on Korean Internet Stocks in 2015

Internet/Game Bet on Korean internet stocks in 2015

2015 could be the year of Korean internet stocks Overweight (Maintain) In 2014, Chinese internet companies, led by Alibaba, made huge advances in both 2015 Outlook earnings and share prices. We believe this was the result of a combination of factors, including the Chinese government’s staunch support of the company , an enormous December 1, 2014 domestic market, and the adoption of proven monetization models from the US and Korea.

Daewoo Securities CCCo.,Co., Ltd. Alibaba’s online payment platform Alipay is similar to eBay’s Paypal, while Taobao’s

[Internet/Game/Entertainment] marketplace is comparable to other C2C shopping sites like Korea’s Gmarket. Tencent’s mobile instant messaging app Wechat features the same services as KakaoTalk and LINE, Chang-kwean Kim and has seen rapid growth in 2014 driven by its mobile game center. +822-768-4321 [email protected] Major Korean internet and game companies are poised to deliver new monetization

Jeong-yeob Park models that are optimized for the mobile environment in 2015. NAVER is targeting the +822-768-4124 Japanese market with its LINE Pay service, while Daum Kakao is eyeing the domestic [email protected] market with Kakao Pay and Bank Wallet Kakao. NCsoft is getting ready to take on multi-

platforms and cross-border ma rkets by incorporating cloud technology to its upcoming new releases Master X Master (MXM) and Lineage Eternal.

In 2014, NAVER unveiled a mobile-only search ad service with a more sophisticated interface and pricing system than Google’s. The company was a lso one step ahead of Facebook in adopting mobile “checkout”, a service that allow users to purchase a variety of products offered by different online shops using a single NAVER account.

We believe China’s mobile market, the primary driver of Chinese inter net companies, will peak in 2015, as smartphone penetration nears 70%, similar to developed market levels.

Buy NAVER and NCsoft In 2013, global mobile stocks rose sharply, fueled by Facebook’s strong mobile ad growth. In 2014, Chinese internet stocks rallied following Alibaba’s IPO. We believe 2015 will be the year of Korean internet stocks driven by new growth stories, such as mobile payment, offline-to-online (O2O) commerce, omni channel and cloud games.

Foreign investors are always on the lookout for fresh stories as they tend to be more rewarding than familiar themes. With China’s internet growth story already played out , we believe Korean internet shares make for a more compelling play.

NAVER’s market cap respective to Google and Alibaba is just 6.1% and 8.1%, while Daum Kakao’s is only 2% and 2.7%. Based on monthly active users (MAU), LINE and KakaoTalk are respectively valued at US$81 and US$64 per user, cheaper than Facebook (US$155) and Twitter (US$98).

We recommend overweighting NAVER (035420 KS/Buy/TP: W1,050,000) and NCsoft (036570 KS/Buy/TP: W220,000). NAVER has been at the forefront in introducing new mobile monetization models in domestic and overseas markets. NCsoft is likely to announce shareholder friendly policies (dividends an d buybacks), which should provide downside support to shares.

For Daum Kakao (035720 KQ/Buy/TP: W172,000), share performance will likely hinge on the number of merchants that sign up for Bank Wallet Kakao (to be unveiled mid- December) and the potential eff ects of promotions. Interpark INT (108790 KQ/Buy/TP: W30,000) has continued robust growth in the tourism unit , but we believe investors should wait for the company’s 4Q earnings report to confirm a recovery at its book unit.

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.

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C O N T E N T S

I. 2014 review 3 2014: Chinese internet firms delivered remarkable performances 3

II. 2015 outlook 7 Mobile payments becoming widespread 7

III. Three-year outlook 9 1. Internet sector 9 2. Games 13

V. Valuation & investment strategy 16 Attractiveness of Korean internet stocks 16 NAVER (035420 KS) 23 NCsoft (036570 KS) 26 Daum Kakao (035720 KQ) 29 Interpark INT (108790 KQ) 32

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I. 2014 review

2014: Chinese internet firms delivered remarkable performances

In 2014, Alibaba made history with the largest global IPO (Bloomberg ticker: BABA US Equity). Alibaba was priced at US$68 amid strong interest and surged 38% on the first day of trading. The Chinese e-commerce company currently has a market cap of US$282bn, ranking second among internet firms after Google on the New York Stock Exchange.

Other major Chinese internet firms, such as Tencent and Baidu, also delivered robust share performances this year. In particular, Chinese internet stocks have sharply advanced since Alibaba’s IPO, as it brought global attention to the Chinese internet market.

Among US internet firms, Facebook was the only one that displayed solid share performance. The company continued to attract users by acquiring mobile firms with high growth potential, including WhatsApp, while its mobile ad revenues increased steadily. Meanwhile, shares of mobile internet companies, including Twitter and Linkedin, and internet companies with higher PC-based revenue contributions, including Google, Amazon, and Ebay, moved sideways or declined through the year.

With regard to domestic internet firms, Daum Kakao, which merged in October, was the only internet stock to have advanced YoY. Shares of NAVER and Interpark INT were range-bound throughout the year. NAVER postponed the IPO of LINE, and its mobile ad revenue increased only modestly. Interpark INT failed to deliver earnings improvement due to decreased profitability.

Among game companies, shares of Com2uS which made global success with the role-playing game (RPG) Summoners War, and Gamevil (Com2uS’s largest shareholder), advanced most sharply. Their robust share performances are attributable to 1) in-house game development, 2) game distribution via in-house platform, instead of LINE or KakaoTalk, and 3) greater success in the global market, than the domestic market.

It has been six years since the iPhone 3 was released in 2009. Since the maturation of the domestic mobile internet market, no new player has emerged with a major breakthrough service. Although Telegram gained popularity temporarily due to KakaoTalk’s security issues, there was no change in KakaoTalk’s subscriber data.

Looking back in 2014, we believe that sustainability or scalability of a revenue model is now more important than regional merits or traffic.

Figure 111.1. Market cap. of major global internet companies

(US$bn) 240 NAVER's market cap (W23tr) as a % of 200 Google's is 6.1% Alibaba's is 8.1% 160 Facebook's is 10.3% 370 120 275 Daum Kakao's market cap (W8tr) as a % of Google's is 2.0% 80 Alibaba's is 2.7% Facebook's is 3.4% 40

Source: Bloomberg, KDB Daewoo Securities Research

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Figure 222.2. USUSUS internet stocks Figure 333.3. Chinese internet stocks

(-1Y=100p) Google Amazon.com Ebay (-1Y=100p) Tencent Alibaba Baidu 200 Facebook Twitter LinkedIn 160 Sina Weibo Groupon

US internet shares other than Facebook 160 have slowed during the year 130

120 100

Shares with sizable M/S have outperformed 80 70

40 40 11/13 1/14 3/14 5/14 7/14 9/14 11/14 11/13 1/14 3/14 5/14 7/14 9/14 11/14

Source: Thomson Reuter, KDB Daewoo Securities Research Source: Thomson Reuter, KDB Daewoo Securities Research

Figure 444.4. Korean internet stocks Figure 555.5. Mobile game stocks

(-1Y=100p) (-1Y=100p) 220 NAVER 800 Gamevil Daum Kakao Com2us Interpark INT 650 Wemade 180 Zynga Daum Kakao shares have increased Dena post merger 500 Gungho Online 140 350 Com2us' shares surged with global success of Summoners War 100 200

60 50 11/13 1/14 3/14 5/14 7/14 9/14 11/14 11/13 1/14 3/14 5/14 7/14 9/14 11/14 Source: Thomson Reuter, KDB Daewoo Securities Research Source: Thomson Reuter, KDB Daewoo Securities Research

Figure 666.6. Console game stocks Figure 777.7. PC game stocks

(-1Y=100p) (-1Y=100p) NCsoft Neowiz Games NHN Entertainment Tencent 220 160 Activision Blizzard NetEase Nexon EA EA's shares have increased on 190 Nintendo successful expansion to mobile Sega Sammy 130 Namco Bandai 160

130 100

100 70 70

40 40 11/13 1/14 3/14 5/14 7/14 9/14 11/14 11/13 1/14 3/14 5/14 7/14 9/14 11/14

Source: Thomson Reuter, KDB Daewoo Securities Research Source: Thomson Reuter, KDB Daewoo Securities Research

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Figure 888.8. Monthly unique visitors on PC web & appappssss

(mn persons) 40 94.7% of PC users visit NAVER web site 30 82.1% of PC users visit Daum web site 20 29.2% of PC users visit Kakao web or KakaoTalk PC 10

Source: Koreanclick, KDB Daewoo Securities Research

Figure 999.9. Monthly unique visitors on mobile web & appappssss

(mn persons) 96.8% of mobile users visit 30 Kakao mobile web or use Kakao apps

93.4% of mobile users visit NAVER mobile web or use NAVER apps 20 48.8% of mobile users visit facebook mobile web or use facebook apps

Source: Koreanclick, KDB Daewoo Securities Research

Figure 101010.10 . NAVER query and query share trends Figure 111111.11 . Daum query and query share trends

(mn) NAVER's search query increases (%) (mn) Query (L) (%) 6,000 Query (L) from 72% to 78% 80 1,400 Query share (R) 25 Query share (R) in the past 2 years 5,000 78 1,200

1,000 4,000 76 20 800 3,000 74 600 2,000 72 15 400

1,000 70 200

0 68 0 10 1/12 7/12 1/13 7/13 1/14 7/14 1/12 7/12 1/13 7/13 1/14 7/14

Source: Koreanclick, KDB Daewoo Securities Research Source: Koreanclick, KDB Daewoo Securities Research

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Figure 121212.12 . Mobile game net user trends by developer

(mn persons) Netmarble Games Sundaytoz Wemade Neowiz Games 40 Com2us Gamevil NHN Entertainment

0 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14

Source: Koreanclick, KDB Daewoo Securities Research

Figure 131313.13 . Monthly uniquuniquee visitors on tourism mobile apps

('000 persons) 600 Interpark Mode Tour Hana Tour Interpark increased itsshare of mobile visitors by developing mobile app early Online Tour Expedia Web Tour 500 Tour Express

400

300

200

100

0 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 Source: Koreanclick, KDB Daewoo Securities Research

Figure 141414.14 . Monthly unique visitors on instant messaging Figure 151515.15 . Monthly unique visitors on social networking services services

(mn persons) (mn persons) 30 25 KakaoStory Band Facebook Google+ 25 Naver Cafe 20 KakaoTalk 20 LINE 15 Facebook Messenger 15 Telegram NateOn 10 10 Mypeople 5 5

0 0 1/14 4/14 7/14 10/14 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 Source: Koreanclick, KDB Daewoo Securities Research Source: Koreanclick, KDB Daewoo Securities Research

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II. 2015 outlook

Mobile payments becoming widespread

Major mobile internet players, including KakaTalk, Wechat, and Facebook, have each implemented a business model most appropriate for their service characteristics. KakaoTalk and LINE generate most of their revenues from mobile games, while Facebook and Twitter rely on mobile ads.

In 2015, major players are expected to exploit the advantages of mobile internet (accessibility and portability), by adding greater sophistication to their existing revenue models, while launching new revenue models and expanding business areas to include online-to-offline (O2O marketing).

For example, internet companies have recently strived to increase their share of the mobile payment market via mobile traffic. In addition to traditional financial firms (banks and credit card firms), retailers (department stores, convenient stores, etc.), telcos (including SKT), IT hardware makers (including Samsung Electronics), and internet service providers are all endeavoring to expand or advance into the mobile payment and banking markets.

While each player has their own strengths, the global payment market will likely become dominated by one or two players by 1H15. We believe the key to success will come down how widely a payment providers services are accepted (offline retailers and internet shopping malls).

A market research firm has recently projected that US payments via mobile payment services would surge by 155.8% YoY in 2015 and 207.0% YoY in 2016.

Although the percentage of those who have experienced mobile payments in the US, Canada, and the UK, as of July 2014, was only 16% of their combined mobile users, 82% responded that mobile payments were more convenient. In Korea, the percentage of those who have used mobile credit card and check card payments currently stand at 7.3% and 1.9%, respectively. In 2015, growth expectations for mobile payment service providers will likely climb sharply.

Figure 161616.16 . Monetization history of mobile messaging platform

Source: KDB Daewoo Securities Research

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Figure 171717.17 . US proximity mobile payment transaction value

(US$bn) (%) 140 Near field mobile payment transaction value (L) 250 % change (R) 120 200 100

150 80

60 100

40 50 20

0 0 2013 2014F 2015F 2016F 2017F 2018F

Note: Point-of-sale transactions made by using a mobile device as a payment method; includes scanning, tapping, swiping or checking in; excludes purchase made remotely on mobile devices that are delivered later on Source: eMarketer, KDB Daewoo Securities Research

Table 111.1. Japanese IT/retail companiescompanies’’’’ payment services LINE Pay RakuteRakutenn Bn BankB ankankank Aeon BBankankankank Seven BBankankankank Launch date End-2014 (forecast) 2010 2006 2001 LINE Corp, NAVER (035420 KS Seven & i Holdings (3382 JP Parent company Rakuten (4755 JP Equity) Aeon (8267 JP Equity) Equity) Equity) Parent’s major LINE messaging app/Internet E-commerce/e-book/digital Retail (16,000 stores) Retail/restaurant business portal /Online ad /e-commerce content Deposit/loan/exchange/stock Deposit/loan/exchange/credit Major services Deposit/payment/transfer trading/credit card/debit Deposit/loan via ATM card/debit card/e-wallet card/lottery - Via accounts linked to - 24-hour payment at Rakuten - 5% discount on payment via - No ATM fee for Seven Bank

credit/prepaid cards Mall Aeon credit card account holders - No money transfer fee between 1) Payment at offline stores - E-cash accumulation - E-cash accumulation Rakuten Bank accounts 2) Money transfer between LINE - On-/off-line e-cash accumulation - Operating hours: 09:00-21:00 friends - Lowest commission rate in the - No ATM fee at partnership - Fixed fee (W500) for payment industry/e-cash accumulation banks - No money transfer fee between

Aeon Bank accounts Revenue in recent - JPY41.0bn JPY103.8bn JPY108.0bn fiscal year Source: KDB Daewoo Securities Research

Table 222.2. Domestic nonnon----financialfinancial companiescompanies’’’’ payment services Company Service Detail EEExpectedExpected launch date Platform Daum Bank Wallet Money transfer/payment using balance (max. W500,000) in Now in service provider Kakao Kakao the virtual account Kakao Pay Mobile payment service Now in service Mobile commerce service integrating mobile wallet and SK planet Syrup Now in service membership services Device Helps users manage coupons, various tickets and membership Now in service, payment/transfer services to be SEC Samsung Wallet manufacturer cards in one place added within this year Apple Apple Pay Payment service based on NFC technology Not available in Korea Telecom BLE Payment Payment service based on Bluetooth low energy (BLE) service SKT 1H15 /BLE e-card technology provider Olleh app KT User authorization based on device info and user data base Now in service authorization Now in service, payment/transfer services to be LG Uplus Pay Now Mobile payment service added early -2015 Payment gate service KG Inicis K-Pay Mobile payment service Now in service provider Deferred Yellow Pay Mobile payment/money transfer/credit purchase Now in service payment service Source: KDB Daewoo Securities Research

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III. Three-year outlook

1. Internet sector

In the ad market, online ads, which is divided into mobile and PC ads, are expected to outgrow TV or newspaper ads.

As of 3Q14, NAVER, Korea’s leading online ad company, saw mobile ads account for 27% of its search ad revenue and 12% of its display ad revenue, while Facebook’s mobile ads took up 66% of its total global ad revenue (vs. 49% in 3Q13). At Interpark, reservations via its domestic accommodation app Check in NOW accounted for more than 60% of its total reservations. These developments suggest that mobile payments are becoming increasingly significant from a commercial standpoint.

Mobile internet has lured people in their 40s-50s to the connected world, resulting in a rise in the average age of internet users. It has also increased the time spent on internet among teens and 20-somethings.

eMarketer forecasts that in Korea, the share of mobile ads as a percentage of total online ads will grow to the highest level in the world by 2018 (up from 38.4% in 2014, to 54.4% in 2015, and to 73.2% in 2018). It also forecasts that the mobile ad market will expand sharply, up 120.0% YoY in 2014, 60.0% in 2015, and 30.0% in 2016.

On the flip side, however, the growth of mobile ads is eating away at other traditional ad mediums. Indeed, a July survey shows that 41% of the respondents plan to curtail print ads, including newspapers and magazines (and 34% to scale back their TV ads), to allocate more resources to mobile ads in 2015.

Figure 181818.18 . History of online advertising business

Source: KDB Daewoo Securities Research

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Figure 191919.19 . Facebook mobile ad revenue growth

(US$bn) (%) 4 Revenue (L) 70 Mobile ad revenue (L) 60 % of mobile ad revenue (R) 3 50

40 2 30

20 1 10

0 0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14

Source: Facebook, KDB Daewoo Securities Research

Figure 202020.20 . Mobile internet ad spending as % of digital ad spendingspending

(%) 80 Korea Global average 70

0 2013 2014F 2015F 2016F 2017F 2018F

Source: eMarketer, KDB Daewoo Securities Research

Figure 212121.21 . SurveySurvey:: Where would you cut in your 2015 ad budget to offseoffsett increased mobile ad spendingspending????

(%) 50

0 Printed Overall increase in TV Display Search Video ad budget

Note: Based on an survey of advertisers who are planning to increasing mobile ad spending over the next year Source: Mobile Advertising – Wave Two, KDB Daewoo Securities Research

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Omni-channel retailing is the marketing of multi-channel retailing, but is concentrated on a seamless approach to the consumer experience through all available shopping channels, i.e. online and offline stores, mobile internet devices, catalogs, call centers and so on.

Omni-channel retailing will likely be beneficial to internet retailers, in light of the increase in showrooming, the practice of examining merchandise in a traditional brick and mortar retail store or other offline stores, and then buying it online. Omni-channels will be also important for reverse-showrooming customers. Companies need to establish a route that seamlessly connects online and offline settings, to allow shoppers to view items online, and then pick up offline.

Showrooming is very common in Korea, with many shoppers browsing items at department stores, and buying them online, at a lower price. This practice can be also found in international shopping. Sellers (both domestic and foreign) display detailed product information on online sites, and deliver the products directly from abroad, or guide the consumers to offline stores.

We believe that mobile messengers such as LINE and KakaoTalk are well-positioned to play a key role in omni-channel retailing, in light of the following: 1) mobile messengers satisfy the most important criteria for an omni-channel retailer, i.e., high exposure. Indeed, 90% of Korean and Japanese smartphone owners use LINE and/or KakaoTalk. And the number of subscribers to LINE@, the mobile address for offline stores, has exceeded 105,000. 2) Recently introduced mobile payment services are expected to greatly improve shopping experience and convenience. Whether the payment services have successfully taken root will be determined in 1H15. Starbucks now generates 40% of its revenue online. As such, a business model where it encourages customers to buy items online for their own use or as a gift to others at a discount may prove profitable.

As for NAVER, Korean shoppers may gain information on Japanese products sold at offline stores via LINE@, and purchase the items using LINE Pay. NAVER and LINE users may also be able to browse and purchase new Chanel bags displayed on the store on Champs-Elysées, and then, pick up the item in a geographically closer shop in Seoul or Tokyo.

Table 333.3. Global internet ad market forecasts (((US$mn,(US$mn, x, %%)))) 201320132013-2013 ---2018201820182018 200920092009 2012012010201 000 201120112011 201220122012 201320132013 2014F2014F2014F 2015F2015F2015F 2016F2016F2016F 2017F2017F2017F 2018F2018F2018F CAGRCAGRCAGR Global internet ad 59 70 85 100 117 133 149 164 179 195 10.7 Mobile internet ad 2 3 5 8 14 19 24 28 33 37 21.5 Online internet ad 57 67 80 92 103 114 125 136 146 157 8.8 Classified ad 11 12 14 14 16 17 18 19 20 20 5.1 Display ad 20 23 27 30 34 37 40 43 45 48 7.4 Video ad 2 2 3 4 5 7 8 10 12 15 23.8 Search ad 25 29 37 43 48 54 59 64 69 74 8.8 % Mobile internet ad 3.6 4.4 5.8 8.2 12.1 14.2 16 17.3 18.4 19.3 Online internet ad 96.4 95.6 94.2 91.8 87.9 85.8 84 82.7 81.6 80.7 Classified ad 17.9 17.6 15.8 14.3 13.6 12.8 12.1 11.5 11 10.5 Display ad 33.4 33.4 32 30.5 28.7 27.7 26.7 26 25.3 24.7 Video ad 2.7 3.2 3.5 4 4.3 4.9 5.6 6.3 6.9 7.6 Search ad 42.4 41.4 42.9 43 41.3 40.4 39.6 39 38.5 37.9 Source: PwC, KDB Daewoo Securities Research

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Figure 222222.22 . Change in distribution channel

Single Channel Only offline shop Multi Independent Channel channels (Onlinevs. Offline)

Cross Channel Organic channels Omni Organic and Channel customer-centric channels

Source: Kukmin Daily, Trend Korea 2015, KDB Daewoo Securities Research

Figure 232323.23 . “““Buy“BuyBuyBuy”””” button on Facebook

Source: Facebook, KDB Daewoo Securities Research

Figure 242424.24 . NAVERNAVER’’’’ss O2O platform ‘‘‘shop‘shop windowwindow’’’’ Figure 252525.25 . NAVERNAVER’’’’ss O2O platform ‘‘‘style‘style windowwindow’’’’

Source: NAVER, KDB Daewoo Securities Research Source: NAVER, KDB Daewoo Securities Research

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2. Games

NCsoft unveiled its new game Lineage Eternal at G-STAR 2014. The game attracted enormous attention as it is the first game in Korea to be based on cloud technology. As such, users are able to play Lineage Eternal on various platforms, including tablet PCs, smart TVs, and mobile devices via the cloud gaming service.

Under cloud gaming service, games are run on cloud servers, and the video is screamed to the users. Hence, as this will allow users can play games on the multiple platforms, specialized game consoles or PCs with high-performance graphic cards will no longer be necessary. If the cloud gaming market takes off, domestic game companies would be able to simultaneously tackle the domestic and global markets.

Considering the opportunities, global IT companies are making efforts to shift to cloud gaming. Alibaba recently joined hands with Ubitus, one of the leading cloud gaming technology solution providers in the world, to launch its own cloud gaming service AliCloud. Square-Enix, a Japan- based console game developer, unveiled Dive In, which allow users to play Square Enix’s hit game Final Fantasy 7 on the mobile platform. TV makers, namely Samsung Electronics and Sony, are also developing cloud games as part of their smart TV content.

In recent years, domestic mobile game developers have competed to create games more appropriate for smartphones. With the accelerating shift to cloud gaming, however, developers should be increasingly required to build up capabilities to address numerous technical issues, including multiple user interfaces and streaming speed. Considering the low probability of developing a successful new game and high development costs, funding capabilities will also become important for developers.

Figure 262626.26 . History of game platform

Source: KDB Daewoo Securities Research

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Figure 272727.27 . Global mobile game market forecasts Figure 282828.28 . Domestic mobile game market forecasts

(US$bn) (Wbn) 30 Tablet 16 Smartphone CAGR 20.6% 25 12 20

CAGR 47.6% 15 8

10 4 5 CAGR 18.8%

0 0 2012 2013 2016E 2012 2013 2014E 2015E Source: AppLift, Newzoo Global Games Market Report, KDB Daewoo Securities Source: 대한민국 게임백서 2013, KDB Daewoo Securities Research Research

Table 444.4. Global game market outlook (((US$mn,(US$mn, %%)))) 201320132013-2013 ---2018201820182018 200920092009 201020102010 201120112011 201220122012 201320132013 2014F2014F2014F 2015F2015F2015F 2016F2016F2016F 2017F2017F2017F 2018F2018F2018F CAGRCAGRCAGR Global games 54 58 61 61 66 71 75 80 84 89 6.2 In-game ad 2 2 2 2 3 3 3 4 4 4 11.9 Console 29 28 27 24 25 27 28 29 31 32 4.9 Online 13 15 18 19 21 23 25 27 29 31 7.4 PC 6 6 7 7 7 7 7 7 7 7 -0.5 Mobile 5 6 7 8 9 11 12 13 14 15 9.6 % In-game ad 3.0 3.1 3.4 3.7 3.9 4.1 4.3 4.5 4.8 5.0 Console 52.9 48.9 44.6 39.3 38.2 38.0 37.4 36.9 36.4 35.9 Online 23.5 26.2 28.9 31.7 32.5 32.9 33.3 33.7 34.1 34.4 PC 10.5 11.0 11.2 11.6 11.0 10.2 9.6 9.0 8.4 7.9 Mobile 10.1 10.8 11.9 13.6 14.4 14.9 15.4 15.9 16.3 16.8 Source: PwC, KDB Daewoo Securities Research

Figure 292929.29 . FIFA Online 3M mobile version

Source: KDB Daewoo Securities Research

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Figure 303030.30 . FIFA Online 14 PlayStation version Figure 313131.31 . FIFA Online 3 PC version

Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research

Figure 323232.32 . NetEase’s mobile expansion and share price trend

(US$) 100 NetEase share price Started to release globally successful titles such as Ninja Must Die 2, World Soccer Collection 80 Announced strategy to expand into mobile platform during 1Q13 earnings release 60 Announced intention to further expand 40 mobile games Release of three mobile games, porffolio including mobile version of well-known MMORPG 20 Westward Journey Focused only on PC MMORPG Launch of TCG Mini Westward Journey

0 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14

Source: Thomson Reuter, NetEase, KDB Daewoo Securities Research

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V. Valuation & investment strategy

Attractiveness of Korean internet stocks

Since 2012, software stocks (e.g., Google, Facebook) have outperformed hardware stocks (e.g., Apple, and Samsung Electronics (SEC)). We expect this trend will continue for another two to three years.

When it comes to mobile device segments, handset manufacturers such as Apple and SEC enjoyed momentum after the launch of the iPhone 3G in 2009. However, they have lost ground to China-based makers such as Xiaomi and Huawei, and now to India-based Micromax Informatics.

As of end-2014, smartphone penetration rate is exceeding 90% in Korea and 80% in major advanced countries. However, the smartphone markets in emerging countries (e.g., India, Latin America, and Southeast Asia) have been rapidly growing. Globally, smartphone penetration rate remains at only around 30%. Until this rate reaches 50%, the mobile internet sector should provide investors with new opportunities. While competition between mobile device manufacturers is growing fiercer by the day, top mobile internet companies are still enjoying market dominance.

We believe that Korean mobile internet stocks will become increasingly attractive next year for the following reasons:

1) Currently low valuation. Based on Bloomberg consensus, the 2015F P/E of Korean mobile internet stocks is lower than that of peers. In addition, their MAU (US$81 for LINE; US$64 for KakaoTalk) is also lower than that of overseas peers (US$155 for Facebook; US$98 for Twitter).

2) Rosy growth prospects in emerging markets. The mobile internet industry in major economies is forecast to slow after 2016. However, their growth stories for Japan and Southeast Asian countries remain intact, largely benefiting LINE.

3) New growth stories. We foresee rallies of Korean internet companies with the emergence of new businesses such as mobile settlements, online-to-offline commerce, omni-channel retailing, and cloud gaming. Korean market offers ideal conditions for the launch of new services, as Korean internet users are early adopters and tend to quickly embrace unfamiliar internet business models.

Figure 333333.33 . Market caps of hardware and software/platform compacompaniesnies

(p) 350 Device manufacturer Software/platform provider Alibaba IPO

290

230

170

110 Facebook IPO

50 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 Note: Market caps are based on 1/1/2012 price. Hardware companies includes Samsung Electronics, Apple, HP, etc, while software/platform companies are NAVER, Google, Tencent, Baidu and etc Source: Bloomberg, KDB Daewoo Securities Research

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Figure 343434.34 . Value of each MAU in MIMMIMMIM andandand SNSSNSSNS applications

(US$) Social Network 360 323

300

240

180 155 Mobile Instant Messaging 120 93 81 64 60 32

0 WhatsApp LINE KakaoTalk Facebook Twitter LinkedIn

Note: WhatsApp’s current value is calculated as acquisition price * facebook’s price increase from the day of acquisition; Assumed LINE’s value as W15tr, KakaoTalk’s value as W6tr, LINE’s MAU as 170mn as released on 2014 LINE conference, KakaoTalk’s MAU as 85mn, and Facebook/Twitter/Linkedin’s figure as released in 3Q earnings Source: Company data, KDB Daewoo Securities Research

Figure 353535.35 . Market cap/sales in MIM and SNS appliapplicationscations

(x) 318.5 24 MobileInstant Messaging Social Network

20 19.3 17.4 16.9 16 13.3 12.5 12

0 WhatsApp LINE Kakaotalk Facebook Twitter LinkedIn

Figure 363636.36 . Major internet sector investorsinvestors’’’’ shareholdings by company

(%) Fidelity Vanguard BlackRock T. Rowe Price Assoc. 12 Franklin Templeton Baillie Gifford & Co. Capital Group Capital World State Street Invesco Oppenheimer Funds 9

0 NAVER Daum Kakao Baidu Alibaba Tencent Facebook LinkedIn Ebay Yahoo Japan Source: Bloomberg, KDB Daewoo Securities Research

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Figure 373737.37 . Fund flow: Net buying of Korean major Figure 383838.38 . Fund flow: Net buying of NAVER sharesharesharesshare sss internet/software sharesharessss

(Wbn) Market cap of major internet companies (R) (Wtr) (Wbn) (W'000) 1,200 Foreign investors (L) 50 2,000 1,000 Institutional investors (L) Price (R) 800 Foreign investors (L) 1,500 Institutional investors (L) 40 800 400 1,000 0 30 600 500 -400 0 -800 20 400 Alibaba IPO -1,200 -500 10 Alibaba IPO 200 -1,600 -1,000

-2,000 0 -1,500 0 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14

Source: Quantiwise, KDB Daewoo Securities Research Source: Quantiwise, KDB Daewoo Securities Research

Figure 393939.39 . Fund flow: Net buying of DaumDaumDaum Kakao sharesharessss Figure 404040.40 . Fund flow: Net buying of NCsoft sharesharessss

(Wbn) Price (R) (W'000) (Wbn) Price (R) (W'000) 200 Foreign investors (L) 200 1,000 Foreign investors (L) 300 Institutional investors (L) 180 Institutional investors (L) 100 800 160 250 0 600 140 400 200 -100 120 200 -200 100 150 0 -300 80 60 -200 100 -400 40 -400 Alibaba IPO 50 -500 -600 Alibaba IPO 20 -600 0 -800 0 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14

Source: Quantiwise, KDB Daewoo Securities Research Source: Quantiwise, KDB Daewoo Securities Research

Figure 414141.41 . Fund flow: Net buying of Interpark INT sharesharessss Figure 424242.42 . Fund flow: Net buying of NHN EntEnt....sharesharesharesharessss

(Wbn) (W'000) (Wbn) Price (R) (W'000) 2,000 Price (R) 30 1,500 Foreign investors (L) 140 Foreign investors (L) Alibaba IPO Institutional investors (L) 1,500 Institutional investors (L) 120 25 1,000 1,000 100 20 500 500 80 15 60 0 0 10 Alibaba IPO -500 40 -500 -1,000 5 20

-1,500 0 -1,000 0 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14

Source: Quantiwise, KDB Daewoo Securities Research Source: Quantiwise, KDB Daewoo Securities Research

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December 1, 2014 Internet/Game

Figure 434343.43 . Number of NAVER shares held by US institutional Figure 444444.44 . Number of Daum Kakao shares held by US investors institutional investors

(mn shares) (mn shares) 30 14

12 25 10 20 8 15 6 10 4

5 2

0 0 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/14 7/14 9/14 11/14 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/14 7/14 9/14 11/14

Note: Institutional investors include US/global funds and US insurance companies Note: Institutional investors include US/global funds and US insurance companies Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research

Figure 454545.45 . Number of NCsoft shares held by UUSS institutional Figure 464646.46 . Number of Google shares held by US institutionalinstitutional investors investors

(mn shares) (mn shares) 7 260

6 255 250 5 245 4 240 3 235 2 230

1 225

0 220 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/14 7/14 9/14 11/14 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/14 7/14 9/14 11/14

Figure 474747 . Number of Facebook shares held by US institutional Figure 484848.48 . Number of Twitter shares held by US institutionalinstitutional inveinveinvestorsinve storsstorsstors investors

(mn shares) (mn shares) 1,600 600

1,400 500 1,200 400 1,000

800 300

600 200 400 100 200

0 0 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/14 7/14 9/14 11/14 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/14 7/14 9/14 11/14

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December 1, 2014 Internet/Game

Figure 494949.49 . NAVERNAVER’’’’ss P/s P/EP/ E during online ad growth period

(x) 70 P/E (FY1) P/E (12MF) 12MF P/E 45x, 60 FY1 P/E 50x with growth in domestic internet ad market share

0 02 03 04 05 06 07 08 09 10 11 12 13 14

Source: Quantiwise, KDB Daewoo Securities Research

Figure 505050.50 . DaumDaumDaum KakaoKakao’’’’ss P/E trend

(x) 70 P/E (12MF)

60 50 with dominant mobile traffic share, recorded 12MFP/E of 23x 40

10 Shares fell on dilution 0 03 04 05 06 07 08 09 10 11 12 13 14

Source: Quantiwise, KDB Daewoo Securities Research

Figure 515151.51 . ChinChinChineseChin eseeseese game publisher NetEaseNetEase’’’’ss P/E trend during mobile expansion

(x) 20 P/E (12MF) P/E (FY1) Announced strategy to expand into mobile platform during 1Q13 earnings release 15

5 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14 10/14 Source: Thomson Reuter, KDB Daewoo Securities Research

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December 1, 2014 Internet/Game

Table 555.5. Earnings forecasts of global internet companies (((US$(US$US$US$mnmnmnmn,,,, %%%)%))) MarkeMarkeMarke Revenue OPOPOP OP margin NPNPNP NP margin EPSEPSEPS

t capt cap 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F NAVER 22,384 2,113 2,556 3,132 479 727 1,018 22.7 28.4 32.5 1,734 456 750 82.1 17.8 23.9 10.6 14.0 22.4 Daum Kakao 7,453 485 615 941 75 102 257 15.4 16.5 27.3 60 48 167 12.4 7.8 17.8 1.0 2.8 4.4 Interpark INT 627 352 349 389 19 17 30 5.3 5.0 7.7 12 12 22 3.4 3.5 5.7 0.4 0.4 0.7 Google 369,820 59,825 52,845 62,794 13,966 18,733 22,537 23.3 35.4 35.9 12,920 14,001 17,285 21.6 26.5 27.5 - 25.8 30.2 Yahoo 49,016 4,680 4,405 4,480 577 696 707 12.3 15.8 15.8 1,366 7,530 606 29.2 170.9 13.5 1.3 1.6 1.1 Amazon 156,793 74,452 89,478 106,052 745 44 1,146 1.0 0.0 1.1 274 -356 442 0.4 -0.4 0.4 -0.5 1.9 3.7 Facebook 217,292 7,872 12,376 16,991 2,804 7,052 8,637 35.6 57.0 50.8 1,491 2,971 3,242 18.9 24.0 19.1 1.1 1.7 1.9 Twitter 26,485 665 1,378 2,283 -636 82 301 -95.6 5.9 13.2 -645 -602 -503 -97.1 -43.7 -22.0 -2.2 0.1 0.3 LinkedIn 28,097 1,529 2,189 2,945 48 363 462 3.1 16.6 15.7 27 -32 38 1.8 -1.5 1.3 -0.1 1.9 2.8 Groupon 5,055 2,574 3,177 3,618 76 -17 70 2.9 -0.5 1.9 -95 -89 -30 -3.7 -2.8 -0.8 -0.2 0.1 0.2 Yahoo Japan 20,773 3,857 3,580 3,832 1,971 1,699 1,820 51.1 47.5 47.5 1,249 1,112 1,178 32.4 31.1 30.8 0.2 0.2 0.2 Rakuten 17,885 5,321 4,978 5,591 926 881 1,099 17.4 17.7 19.7 440 486 625 8.3 9.8 11.2 0.4 0.4 0.5 Alibaba 275,193 8,583 12,691 17,466 4,081 4,606 6,908 47.5 36.3 39.5 3,811 4,808 6,070 44.4 37.9 34.8 - 2.2 3.0 Baidu 85,938 5,196 7,984 11,312 1,820 2,209 3,188 35.0 27.7 28.2 1,711 2,200 3,053 32.9 27.6 27.0 5.9 6.5 9.0 Sohu 1,948 1,400 1,657 2,038 183 -204 -67 13.1 -12.3 -3.3 -15 -190 -71 -1.1 -11.5 -3.5 -3.8 -3.6 -0.9 Sina 2,529 665 756 888 23 -34 17 3.4 -4.5 1.9 45 81 51 6.8 10.7 5.7 1.0 0.8 0.9 Youku 3,853 493 647 896 -111 -124 -82 -22.4 -19.1 -9.1 -94 -120 -57 -19.2 -18.6 -6.3 -0.5 -0.4 -0.2 Tencent 149,775 9,831 12,790 15,720 2,810 4,705 6,029 28.6 36.8 38.4 2,522 3,923 4,984 25.6 30.7 31.7 0.4 0.4 0.5 Average 11.1 17.2 20.2 11.1 17.8 12.1 Note: Based on Bloomberg consensus on December 1 Source: Bloomberg, KDB Daewoo Securities Research

Table 666.6. Valuation comparison of global internet companies (x, %(x, %)% ))) Market P/EP/EP/E P/BP/BP/B P/SP/SP/S EV/EBITDA ROEROEROE ROAROAROA

capcapcap 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F NAVER 22,384 68.3 48.7 30.4 11.9 12.5 9.1 8.9 8.9 7.2 26.6 25.5 18.8 22.8 28.5 35.1 12.9 16.3 21.7 Daum Kakao 7,453 140.9 47.5 30.0 3.8 5.1 4.6 3.6 12.3 8.0 20.6 54.3 25.9 -0.2 9.4 22.9 -0.1 7.5 17.8 Interpark INT 627 44.0 49.4 27.6 5.7 5.2 4.5 1.5 1.8 1.6 - 26.2 17.4 13.8 11.2 17.5 3.6 3.6 6.5 Google 369,820 - 21.0 17.9 - 3.7 3.1 - 7.0 5.9 16.4 11.9 10.0 14.4 16.5 16.3 11.3 13.9 14.0 Yahoo 49,016 39.0 32.7 46.1 1.4 1.3 1.2 11.3 11.1 10.9 32.2 29.2 28.8 31.3 9.6 2.6 21.3 7.1 1.1 Amazon 156,793 178.1 91.9 15.2 15.1 13.1 1.8 1.8 1.5 32.9 24.9 18.6 -2.2 2.6 9.2 -0.6 0.5 2.1 Facebook 217,292 74.0 46.2 40.6 9.5 7.4 6.2 17.6 17.6 12.8 31.6 25.1 20.1 16.0 18.1 16.9 14.1 19.4 18.8 Twitter 26,485 - 439.4 122.4 7.5 7.9 7.8 18.8 19.2 11.6 - 91.7 44.5 - -6.7 -1.9 -29.9 -7.6 -1.8 LinkedIn 28,097 - 116.6 81.5 9.4 9.6 9.1 13.6 12.8 9.5 97.3 45.0 31.5 -0.5 4.1 6.2 -0.4 3.5 6.3 Groupon 5,055 - 139.4 44.8 6.9 6.3 5.7 1.7 1.6 1.4 32.4 16.4 12.4 -21.2 0.8 3.5 -8.1 1.0 3.5 Yahoo Japan 20,773 19.1 18.8 17.7 3.7 3.4 3.0 6.2 5.8 5.5 - 9.2 8.5 20.8 19.8 17.7 15.5 14.2 12.9 Rakuten 17,885 43.2 36.8 28.7 6.1 5.8 4.9 3.7 3.6 3.2 3.4 6.6 5.4 15.5 17.1 18.8 1.6 1.8 2.3 Alibaba 275,193 - 51.0 37.4 13.7 12.8 9.8 - 21.7 15.8 - 44.5 31.1 - 35.7 28.9 - 19.0 17.6 Baidu 85,938 41.6 37.7 27.3 10.9 9.9 7.3 11.9 10.8 7.6 30.8 30.3 21.8 30.5 29.5 30.2 16.4 16.3 17.9 Sohu 1,948 - - - 1.6 1.7 1.7 1.2 1.2 1.0 76.9 - 39.6 -13.6 -12.4 -4.7 -5.1 -6.4 -2.5 Sina 2,529 37.0 50.3 44.0 1.1 1.3 1.3 3.3 3.3 2.8 36.3 43.3 18.6 9.3 3.9 4.1 5.5 2.2 2.3 Youku 3,853 - - - 1.6 1.6 1.7 5.7 6.0 4.3 36.0 - 155.1 -5.0 -4.9 -0.6 -4.3 -6.3 0.4 Tencent 149,775 41.4 38.3 29.3 12.3 11.6 8.6 12.1 11.7 9.5 28.3 26.5 20.9 34.2 34.0 32.5 17.1 19.2 19.7 Average 54.9 84.5 44.9 7.2 6.8 5.7 7.7 8.8 6.7 35.8 31.9 29.4 10.4 12.0 14.2 4.2 7.0 8.9 Note: Based on Bloomberg consensus on December 1 Source: Bloomberg, KDB Daewoo Securities Research

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December 1, 2014 Internet/Game

Table 777.7. Earnings forecasts of global game companies (((US$(US$US$US$mnmnmnmn,,,, %%%)%))) Market Revenue OPOPOP OP margin NPNPNP NP margin EPSEPSEPS

capcapcap 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F NCsoft 3,142 692 738 789 188 233 251 27.1 31.6 31.9 145 197 211 21.0 26.7 26.8 9.9 9.2 9.8 Neowiz Games 423 405 188 220 88 28 62 21.6 14.8 28.1 43 11 39 10.6 5.7 17.8 0.6 0.5 1.8 NHN Ent. 1,003 - 498 582 - 14 48 2.8 8.2 - 29 48 - 5.9 8.2 - 2.0 3.2 Gamevil 867 74 131 187 11 15 34 14.9 11.5 18.1 13 27 51 17.2 20.9 27.1 2.9 4.2 7.6 Com2us 1,232 74 211 287 7 93 135 9.5 44.3 47.1 18 83 117 24.0 39.2 40.8 6.1 8.2 11.7 Wemade 563 208 185 242 11 4 49 5.4 2.1 20.4 0 -3 20 0.0 -1.7 8.3 -1.1 -0.2 1.3 Activision Blizzard 15,567 4,583 4,838 4,716 1,372 1,573 1,590 29.9 32.5 33.7 1,010 692 924 22.0 14.3 19.6 0.9 1.4 1.4 Electronic Arts 13,659 3,575 4,196 4,452 33 899 992 0.9 21.4 22.3 8 647 699 0.2 15.4 15.7 1.6 2.1 2.3 Take-Two 2,327 2,351 1,481 1,559 415 179 195 17.7 12.1 12.5 362 97 99 15.4 6.5 3.2 1.3 1.4 Zynga 2,347 873 688 797 -66 -94 -7 -7.5 -13.6 -0.9 -37 -223 -125 -4.2 -32.4 -15.7 -0.2 0.0 0.0 Gameloft 399 310 299 347 33 9 32 10.7 3.1 9.4 10 1 19 3.2 0.3 5.4 0.1 0.1 0.3 Nintendo 16,421 5,709 4,695 4,508 -464 243 241 -8.1 5.2 5.4 -232 197 173 -4.1 4.2 3.8 -0.8 1.6 1.4 Sega Sammy 3,667 3,775 3,194 3,309 385 171 281 10.2 5.4 8.5 307 71 172 8.1 2.2 5.2 0.7 0.3 0.7 Namco Bandai 4,804 5,069 4,573 4,696 446 487 525 8.8 10.7 11.2 250 307 332 4.9 6.7 7.1 1.2 1.4 1.5 Konami 2,711 2,173 1,921 2,123 77 163 245 3.5 8.5 11.5 38 97 148 1.8 5.1 7.0 0.4 0.7 1.1 DeNA 1,867 1,810 1,200 1,240 531 222 228 29.3 18.5 18.4 316 132 136 17.5 11.0 11.0 1.7 1.0 1.0 GREE 1,614 1,243 908 931 347 207 207 27.9 22.7 22.2 172 124 125 13.8 13.7 13.5 0.8 0.5 0.5 Gungho Online 4,348 1,673 1,466 1,274 936 803 692 55.9 54.7 54.3 562 505 412 33.6 34.5 32.3 0.5 0.5 0.4 Shanda Games 1,761 707 766 807 276 288 308 39.1 37.6 38.2 258 218 228 36.5 28.5 28.3 0.8 - - Netease.com 13,809 1,519 1,871 2,284 719 790 938 47.3 42.2 41.1 734 776 918 48.3 41.5 40.2 5.9 6.2 7.3 Tencent 149,775 9,831 12,790 15,720 2,810 4,705 6,029 28.6 36.8 38.4 2,522 3,923 4,984 25.6 30.7 31.7 0.4 0.4 0.5 Kingsoft 2,838 354 533 785 92 89 150 26.0 16.6 19.1 109 119 139 30.9 22.3 17.6 0.1 0.1 0.1 Average 11.1 17.2 20.2 11.1 17.8 12.1 Note: Based on Bloomberg consensus on December 1 Source: Bloomberg, KDB Daewoo Securities Research

Table 888.8. Valuation comparison ofofof global internet companies (x,(x,(x, %%%)%))) Market PPP/P///EEEE PPP/P///BBBB PSRPSRPSR EV/EBITDA ROEROEROE ROAROAROA

capcapcap 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F 131313 14F14F14F 15F15F15F NCsoft 3,142 15.4 15.7 14.7 2.5 2.5 2.2 3.9 4.3 4.0 6.6 9.1 8.5 17.3 17.6 16.0 13.6 13.8 13.1 Neowiz Games 423 37.3 42.1 11.5 1.5 1.5 1.4 2.1 2.4 2.0 11.1 11.6 6.3 4.2 3.7 12.6 2.3 2.3 8.9 NHN Ent. 1,003 - 33.0 20.9 1.1 1.1 1.0 - 2.0 1.7 - 17.7 9.2 - 3.1 5.1 - 2.4 4.1 Gamevil 867 48.5 32.2 17.6 5.1 5.0 3.9 7.6 6.7 4.7 50.2 43.3 21.2 11.2 16.1 23.6 10.1 13.8 20.2 Com2us 1,232 21.3 15.0 10.6 7.0 7.3 4.5 7.8 5.9 4.3 23.6 12.4 8.5 42.8 57.3 48.1 38.6 53.3 49.6 Wemade 563 - - 25.4 2.4 2.4 2.2 3.6 3.1 2.3 - - 22.3 -7.0 0.5 10.0 -5.2 2.1 14.3 Activision Blizzard 15,567 24.8 15.8 15.2 2.2 2.1 1.9 3.6 3.2 3.3 11.6 9.7 9.2 6.6 14.2 13.1 4.3 9.1 8.4 Electronic Arts 13,659 27.4 21.0 19.1 5.1 5.0 4.4 3.3 3.3 3.1 14.0 10.8 10.1 16.0 28.3 34.4 7.2 12.3 12.8 Take-Two 2,327 8.5 21.1 19.5 3.2 3.3 2.9 1.0 1.6 1.5 2.4 9.9 8.1 62.7 11.6 9.2 21.6 6.2 6.3 Zynga 2,347 - - 113.0 1.2 1.2 1.2 3.3 3.4 2.9 - 24.6 12.7 -10.8 -0.5 0.5 -8.8 -1.2 1.2 Gameloft 399 55.6 76.3 18.7 2.3 2.2 2.0 1.3 1.3 1.2 - 12.5 6.6 4.1 3.2 10.1 2.9 - - Nintendo 16,421 - 73.2 81.9 1.4 1.4 1.4 3.1 3.5 3.7 - 31.2 32.2 -0.8 2.1 1.4 -0.7 2.2 1.1 Sega Sammy 3,667 22.9 47.9 19.6 1.2 1.1 1.1 1.1 1.2 1.1 6.1 7.8 5.1 5.1 2.5 6.7 3.2 1.4 3.7 Namco Bandai 4,804 21.1 15.6 14.5 2.0 1.9 1.7 1.0 1.1 1.0 - 5.6 5.3 9.7 12.6 12.7 6.9 8.9 9.6 Konami 2,711 61.0 25.8 17.4 1.4 1.3 1.2 1.4 1.4 1.3 14.3 11.0 7.9 2.3 5.0 7.2 1.6 3.2 5.1 DeNA 1,867 8.5 12.5 12.1 1.3 1.3 1.2 1.2 1.6 1.5 2.5 4.7 4.9 16.9 10.6 9.1 11.4 8.3 6.7 GREE 1,614 10.1 12.6 12.7 1.6 1.5 1.4 1.6 1.8 1.7 3.1 4.9 5.1 17.4 12.2 9.6 12.6 7.5 5.2 Gungho Online 4,348 8.3 8.4 10.1 4.4 4.1 3.1 2.9 3.0 3.4 5.0 4.3 5.5 70.3 55.8 28.8 52.7 41.7 26.5 Shanda Games 1,761 8.2 - - 8.9 1.5 1.2 2.6 2.3 2.2 6.1 5.5 5.3 44.6 20.4 17.5 22.8 - - Netease.com 13,809 18.0 17.1 14.5 3.8 3.5 3.0 7.9 7.4 6.0 10.4 12.8 10.7 22.8 22.1 21.9 18.3 17.8 17.8 149,77 Tencent 41.4 38.3 29.3 12.3 11.6 8.6 12.1 11.7 9.5 28.3 26.5 20.9 34.2 34.0 32.5 17.1 19.2 19.7 5 Kingsoft 2,838 24.8 25.7 20.4 3.8 3.7 3.1 6.5 5.3 3.6 30.3 21.0 12.7 18.6 17.7 17.1 9.8 10.0 8.7 Average 25.7 28.9 24.7 3.4 3.0 2.5 3.8 3.5 3.0 14.1 14.1 10.8 18.5 15.9 15.8 11.5 11.7 12.1 Note: Based on Bloomberg consensus on December 1 Source: Bloomberg, KDB Daewoo Securities Research

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December 1, 2014 Internet/Game

NAVER (035420 KS) Poised for takeoff in 2015

Internet Mobile business poised for takeoff in 2015

2014 was the year in which NAVER prepared to get into the mobile business. We believe (Maintain) Buy 2015 will be the year in which the company begins its mobile business in full swing.

We have been noticing several changes in NAVER’s mobile ads, which contributed 27% Target Price (12M, W) 1,050,000 of search ad revenue in 3Q14. Previously, NAVER applied the same pricing policy for its PC and mobile search ads. The company now offers mobile-only ad services (e.g. “Smart Share Price (11/28/14, W) 756,000 Choice”) that are priced differently. Meanwhile, the company has started to provide a mobile payment service called “Checkout” and has broadened its mobile commerce Expected Return 39% categories to airline tickets, local specialties, and online-to-offline (O2O) services.

OP (14F, Wbn) 774 Securing business models in Japan and Southeast Asia will be key in 2015 Consensus OP (14F, Wbn) 794 LINE Corporation recently unveiled a number of new services and monetization models EPS Growth (14F, %) -68.4 at its LINE Conference Tokyo 2014 in October. Most notable was LINE Pay, a simplified Market EPS Growth (14F, %) 1.2 payment service that allows users to make online and offline payments via their credit P/E (14F, x) 52.7 card, bank account, or even in person at convenience stores. Market P/E (14F, x) 13.1 KOSPI 1,980.78 The company introduced a number of other services, including: 1) LINE Maps for Indoors, an app for navigating through commercial buildings (e.g., shopping malls), 2) LINE Market Cap (Wbn) 24,920 WOW, a delivery app, which recently started a lunch delivery service, 3) LINE Taxi, a taxi- Shares Outstanding (mn) 33 hailing service to be offered in collaboration Japan’s leading taxi operator Nihon Kotsu, Free Float (%) 79.1 and 4) a subscription-based music streaming service. Regarding ad services, the company Foreign Ownership (%) 53.3 introduced its partners for LINE Business Connect, which connects businesses to LINE’s Beta (12M) 0.73 API and allows them to send targeted marketing to customers with LINE’s messaging 52-Week Low 659,000 service. The company said it plans to make LINE@ accounts (originally targeted at 52-Week High 853,000 smaller companies) open to anyone, both individuals and companies (the number of (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M active accounts jumped from 40,000 in 2Q14 to 100,000 in 3Q14). Absolute -6.0 -2.8 8.6 Relative -8.6 -1.0 12.2 A global IPO may be in the cards; Retain Buy and TP of W1,050,000

140 NAVER KOSPI NAVER is applying its new mobile monetization models across the broader Asia region, 130 expanding beyond Korea to Japan and Southeast Asia. The company was the first to 120 introduce mobile ad, mobile commerce, and O2O services in Korea, and is now advancing 110 into mobile payments with LINE Pay in Japan. 100 90 If these efforts bear fruit in 2015, we believe NAVER could make another attempt to 80 take LINE public in the US or Japan. Compared with Alibaba, which is built on domestic 11.13 3.14 7.14 11.14 demand growth with help from the Chinese government, we believe NAVER will set itself apart by thriving in the highly competitive global market. We maintain our Buy rating on NAVER with a target price of W1,050,000.

FY (12) 12/11 12/12 12/13 12/14F 12/15F 12/16F Revenue (Wbn) 2,121 1,799 2,312 2,770 3,361 3,840 OP (Wbn) 660 521 524 774 1,075 1,400 OP Margin (%) 31.1 29.0 22.7 27.9 32.0 36.5 NP (Wbn) 450 546 1,897 473 764 1,028 EPS (W) 9,350 11,346 45,425 14,338 23,186 31,199 ROE (%) 30.6 31.4 112.7 27.9 33.3 32.5 P/E (x) 22.4 19.9 15.9 52.7 32.6 24.2 P/B (x) 4.2 3.8 11.3 9.7 7.5 5.8 Note: 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

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December 1, 2014 Internet/Game

Table 999.9. NAVERNAVER’’’’ss quarterly and annual earnings (Wbn, %) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q14F 1Q15F 2Q15F 3Q15F 4Q15F 201320132013 2014F2014F2014F 2015F2015F2015F Revenue 626 686 700 759 788 829 829 914 2,287 2,770 3,361 Advertisement 477 504 498 525 540 557 551 621 1,742 2,004 2,269 Contents 131 168 191 221 237 260 266 281 431 712 1,044 Other 17 13 11 12 12 12 12 12 114 54 47 LINE LINE (gross) 229 286 328 368 418 466 489 521 578 1,211 1,894 LINE (net) 145 183 209 234 265 296 311 331 454 771 1,203 Revenue breakdown Advertisement 76.2 73.5 71.1 69.2 68.4 67.2 66.5 67.9 76.2 72.3 67.5 Contents 21.0 24.5 27.3 29.2 30.1 31.3 32.1 30.8 18.8 25.7 31.1 Other 2.8 1.9 1.6 1.6 1.5 1.4 1.4 1.3 5.0 1.9 1.4 LINE LINE (gross) 36.6 41.7 46.9 48.5 52.9 56.3 58.9 57.0 25.3 43.7 56.3 LINE (net) 23.2 26.7 29.8 30.8 33.6 35.7 37.5 36.2 19.9 27.8 35.8 Operating expenses 439 497 511 549 552 569 569 596 1,772 1,996 2,286 Labor costs 130 144 141 165 158 161 160 161 479 579 640 Commissions 171 185 199 209 217 228 228 252 676 763 925 Advertising 41 62 64 64 65 66 67 67 246 232 265 Depreciation 32 34 36 37 39 40 42 43 117 139 165 Communication 25 24 26 27 26 26 26 26 113 101 106 Fringe benefits 15 16 17 17 17 17 17 17 55 65 67 Other 25 32 28 31 29 30 30 30 86 116 118 Operating profit 186 189 189 209 237 260 260 318 524 774 1,075 OP margin 29.8 27.6 27.0 27.6 30.0 31.4 31.3 34.8 22.7 27.9 32.0 Non-operating profit 15 13 28 14 14 14 14 15 87 70 58 Non-operating expenses 15 135 9 10 10 10 10 10 154 170 40 Pretax profit 186 67 208 213 241 264 264 323 448 674 1,093 Taxes 59 46 64 68 77 84 85 103 127 238 349 Net profit 129 39 154 150 169 185 185 225 1,897 473 764 NP margin 20.6 5.7 22.0 19.8 21.4 22.3 22.3 24.6 82.9 17.0 22.7 YoY Revenue 21.5 20.1 22.3 20.6 26.0 20.8 18.4 20.5 22.6 21.1 21.3 Advertisement 15.5 18.2 16.5 10.5 13.2 10.5 10.8 18.2 44.1 15.0 13.2 Contents 92.8 48.3 62.8 67.9 80.4 54.3 39.1 27.2 22.9 65.3 46.6 Other -48.7 -56.0 -60.1 -44.0 -33.3 -10.5 6.3 -2.9 93.1 -52.5 -12.7 LINE LINE (gross) 240.2 144.2 82.4 72.5 82.2 62.8 48.9 41.8 880.4 109.7 56.4 LINE (net) 115.6 56.2 57.2 70.6 82.7 61.7 48.9 41.8 670.9 69.6 56.2 Operating expenses 13.0 14.8 8.3 14.8 25.6 14.5 11.4 8.5 31.5 12.7 14.5 Operating profit 47.7 36.9 87.9 39.1 27.1 37.4 37.5 52.1 -0.5 50.2 38.9 Net profit -17.9 -68.0 -90.2 177.3 31.1 369.0 20.3 49.8 368.6 -75.1 61.7 QoQ Revenue -0.5 9.6 2.1 8.4 3.9 5.1 0.1 10.3 Advertisement 0.3 5.7 -1.3 5.5 2.8 3.2 -1.0 12.6 Contents -0.2 28.0 13.6 15.7 7.2 9.5 2.4 5.8 Other -19.9 -23.7 -16.8 10.1 -4.6 2.4 -1.2 0.6 LINE LINE (gross) 7.5 25.0 14.6 12.1 13.6 11.7 4.8 6.7 LINE (net) 6.0 26.2 13.8 12.1 13.6 11.7 4.8 6.7 Operating expenses -8.1 13.1 2.9 7.5 0.5 3.1 0.1 4.7 Operating profit 23.7 1.5 0.0 10.8 13.0 9.8 0.0 22.5 Net profit 138.3 -69.5 290.4 -2.4 12.6 9.3 0.1 21.6 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 24

December 1, 2014 Internet/Game

NAVER (035420 KS/Buy/TP: W1,050,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/13 12/14F 12/15F 12/16F (Wbn) 12/13 12/14F 12/15F 12/16F Revenue 2,3122,3122,312 2,7702,7702,770 3,3613,3613,361 3,8403,8403,840 Current Assets 1,3361,3361,336 1,8591,8591,859 2,8432,8432,843 4,0464,0464,046 Cost of Sales 000 000 000 000 Cash and Cash Equivalents 435 819 1,582 2,605 Gross Profit 2,3122,3122,312 2,7702,7702,770 3,3613,3613,361 3,8403,8403,840 AR & Other Receivables 319 343 416 475 SG&A Expenses 1,7881,7881,788 1,9971,9971,997 2,2862,2862,286 2,4402,4402,440 Inventories 0 0 0 0 Operating Profit (Adj) 524524524 774774774 1,0751,0751,075 1,4001,4001,400 Other Current Assets 582 697 845 966 Operating Profit 524524524 774774774 1,0751,0751,075 1,4001,4001,400 NonNonNon-Non ---CurrentCurrent Assets 1,3621,3621,362 1,3061,3061,306 1,2861,2861,286 1,2691,2691,269 NonNonNon-Non ---OperatingOperating Profit ---67 -676767 ---80-808080 ---32-323232 222 Investments in Associates 14 17 20 23 Net Financial Income 15 17 32 51 Property, Plant and Equipment 792 698 622 560 Net Gain from Inv in Associates -2 0 0 0 Intangible Assets 134 121 109 100 Pretax Profit 457 694 1,043 1,402 Total Assets 2,6982,6982,698 3,1653,1653,165 4,1294,1294,129 5,3155,3155,315 Income Tax 131 222 280 375 Current Liabilities 832832832 794794794 945945945 1,0671,0671,067 Profit from Continuing Operations 326 472 763 1,027 AP & Other Payables 156 187 226 259 Profit from Discontinued Operations 1,569 0 0 0 Short-Term Financial Liabilities 242 86 86 86 Net Profit 1,8951,8951,895 472472472 763763763 1,0271,0271,027 Other Current Liabilities 434 521 633 722 Controlling Interests 1,897 473 764 1,028 NonNonNon-Non ---CurrentCurrent Liabilities 390390390 446446446 517517517 575575575 Non-Controlling Interests -2 -1 -1 -1 Long-Term Financial Liabilities 110 110 110 110 Total Comprehensive Profit 1,8321,8321,832 472472472 763763763 1,0271,0271,027 Other Non-Current Liabilities 280 336 407 465 Controlling Interests 1,834 473 764 1,028 Total Liabilities 1,2221,2221,222 1,2391,2391,239 1,4621,4621,462 1,6421,6421,642 Non-Controlling Interests -2 -1 -1 -1 Controlling Interests 1,4711,4711,471 1,9231,9231,923 2,6642,6642,664 3,6723,6723,672 EBITDA 656 881 1,162 1,471 Capital Stock 16 16 16 16 FCF (Free Cash Flow) 248 836 1,030 1,251 Capital Surplus 133 133 133 133 EBITDA Margin (%) 28.4 31.8 34.6 38.3 Retained Earnings 4,556 5,007 5,749 6,756 Operating Profit Margin (%) 22.7 27.9 32.0 36.5 NonNonNon-Non ---ControllingControlling Interests 444 333 333 111 Net Profit Margin (%) 82.1 17.1 22.7 26.8 Stockholders' Equity 1,4751,4751,475 1,9261,9261,926 2,6672,6672,667 3,6733,6733,673

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/1312/1312/13 12/14F 12/15F 12/16F 12/1312/1312/13 12/14F 12/15F 12/16F Cash Flows from Op Activities 628 836 1,030 1,251 P/E (x) 15.9 52.7 32.6 24.2 Net Profit 1,895 472 763 1,027 P/CF (x) 41.2 27.8 22.0 17.1 Non-Cash Income and Expense -1,162 423 371 431 P/B (x) 11.3 9.7 7.5 5.8 Depreciation 116 94 76 62 EV/EBITDA (x) 35.4 26.8 19.6 14.7 Amortization 16 13 11 9 EPS (W) 45,425 14,338 23,186 31,199 Others -1,294 316 284 360 CFPS (W) 17,566 27,156 34,409 44,223 Chg in Working Capital 71 141 139 113 BPS (W) 64,165 77,839 100,364 130,901 Chg in AR & Other Receivables -54 -46 -59 -48 DPS (W) 734 734 734 734 Chg in Inventories 0 0 0 0 Payout ratio (%) 1.2 4.6 2.9 2.1 Chg in AP & Other Payables 0 0 0 0 Dividend Yield (%) 0.1 0.1 0.1 0.1 Income Tax Paid ---201 -201201201 ---222-222222222 ---280-280280280 ---375-375375375 Revenue Growth (%) 28.5 19.8 21.3 14.3 Cash Flows from Inv Activities -423 -156 -202 -164 EBITDA Growth (%) 4.5 34.3 31.9 26.6 Chg in PP&E -361 0 0 0 Operating Profit Growth (%) 0.6 47.7 38.9 30.2 Chg in Intangible Assets -40 0 0 0 EPS Growth (%) 300.4 -68.4 61.7 34.6 Chg in Financial Assets 458 -156 -202 -164 Accounts Receivable Turnover (x) 9.8 10.9 11.0 10.7 Others ---480 -480480480 000 000 000 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Cash Flows from Fin Activities -162 -178 -22 -22 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 Chg in Financial Liabilities 22 -156 0 0 ROA (%) 67.4 16.1 20.9 21.8 Chg in Equity -71 0 0 0 ROE (%) 112.7 27.9 33.3 32.5 Dividends Paid -27 -22 -22 -22 ROIC (%) 56.5 82.1 168.3 313.6 Others ---86 -868686 000 000 000 Liability to Equity Ratio (%) 82.9 64.4 54.8 44.7 Increase (Decrease) in Cash 40 384 763 1,023 Current Ratio (%) 160.5 234.1 301.0 379.1 Beginning Balance 395 435 819 1,582 Net Debt to Equity Ratio (%) -42.4 -66.1 -81.5 -90.1 Ending Balance 435435435 819819819 1,5821,5821,582 2,6052,6052,605 Interest Coverage Ratio (x) 77.5 142.5 276.6 360.3 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 25

December 1, 2014 Internet/Game

NCsoft (036570 KS) A big cycle lies ahead in 2015

Game Six mobile titles set for release in 2015

NCsoft currently has a team of 200 developers dedicated to mobile games at its Seoul (Maintain) Buy office. The company also owns the mobile game developer Ntreev Soft. Through these two organizations, NCsoft plans to roll out the following six mobile titles in 2015: 1) Target Price (12M, W) 220,000 Blade & Soul Mobile , 2) Aion Legions , 3) Fashion Street (social network game), 4) Pangya Mobile (golf game), 5) H2 (a pro baseball game), and 6) Wanna be the Summoner (role- Share Price (11/28/14, W) 159,500 playing game). The company is also set to release an updated version of Lineage Mobile Haste (which originally debuted in March) before the end of 2014.

Expected Return 38% Mobile line up to feature cloud and AI technology in the long term

OP (14F, Wbn) 261 At G-Star 2014, NCsoft showcased three of its upcoming blockbuster releases. For the Consensus OP (14F, Wbn) 259 shooting game Master X Mater (MXM), the company has completed a closed beta test (CBT) in October and plans to conduct another CBT in 1H15, followed by EPS Growth (14F, %) 51.9 commercialization in 2H15. But the company’s biggest focus is on Lineage Eternal , which Market EPS Growth (14F, %) 1.2 is set to undergo a CBT in 2015, with commercial launch expected in 2016. NCsoft also P/E (14F, x) 14.5 announced Project HON , which the firm plans to release in the near future. Market P/E (14F, x) 13.1 KOSPI 1,980.78 NCsoft’s CEO Taekjin Kim said the new blockbuster titles will be getting a simultaneous global release in both PC and mobile versions with cloud technology support. He added Market Cap (Wbn) 3,498 that the company is looking to incorporate artificial intelligence (AI) into its games. Shares Outstanding (mn) 22 Free Float (%) 76.0 Mobile and blockbuster games to drive growth in 2015 Foreign Ownership (%) 39.3 Beta (12M) 0.23 Global game developers received mixed valuations in 2014. King Digital Entertainment, 52-Week Low 123,500 the maker of the massive hit Candy Crush Saga , has been trading at a low P/E after 52-Week High 248,500 failing to come up with a strong follow up game. Console game developers Electronic Arts and Square Enix, on the other hand, have been trading at high multiples thanks to (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M their increasing mobile exposure. Chinese MMORPG developer NetEase has also received Absolute 21.3 -5.6 -32.3 Relative 17.9 -3.9 -30.0 a higher premium after launching mobile games in 2013.

120 NCsoft KOSPI We remain positive on NCsoft, as the company is likely to deliver another strong earnings report in 4Q14 (supported by Lineage I microtransaction events) and has shown 100 strong commitment to strengthening its mobile games business. We reiterate our Buy 80 rating on NCsoft with a target price of W220,000.

40 11.13 3.14 7.14 11.14

FY (12) 12/11 12/12 12/13 12/14F 12/15F 12/16F Revenue (Wbn) 609 754 757 809 910 1,057 OP (Wbn) 136 151 205 261 294 336 OP Margin (%) 22.3 20.0 27.1 32.3 32.3 31.8 NP (Wbn) 121 156 159 241 258 295 EPS (W) 5,529 7,120 7,245 11,005 11,787 13,465 ROE (%) 14.6 16.8 14.8 19.2 17.3 16.8 P/E (x) 55.6 21.1 34.3 14.5 13.5 11.8 P/B (x) 7.0 3.0 4.4 2.4 2.0 1.7 Note: 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

KDB Daewoo Securities Research 26

December 1, 2014 Internet/Game

Table 101010.10 . NCsoftNCsoft’’’’ss quarterly and annual earnings (Wbn, %) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q14F4Q14F4Q14F 1Q15F1Q15F1Q15F 2Q15F2Q15F2Q15F 3Q15F3Q15F3Q15F 4Q15F4Q15F4Q15F 201320132013 2014F2014F2014F 2015F2015F2015F Revenue 178 214 212 206 181 184 287 257 757 809 910 Lineage I 41 57 69 75 55 60 64 65 288 242 245 Lineage II 12 14 15 14 14 14 14 13 57 54 55 Aion 22 18 33 20 20 20 27 19 96 93 84 Blade & Soul 19 19 20 19 19 19 19 11 69 78 69 Guild Wars 2 25 22 20 26 24 21 91 53 123 93 189 Wildstar 0 28 16 8 4 4 4 3 0 52 16 MXM 0 0 0 0 0 0 20 32 0 0 52 Royalties 45 38 22 25 26 27 29 33 66 129 115 Other 14 18 18 19 19 19 19 27 58 69 84 Revenue breakdown Lineage I 23.0 26.6 32.4 36.6 30.5 32.7 22.3 25.4 38.0 29.9 26.9 Lineage II 6.5 6.3 7.0 6.9 7.8 7.7 4.9 5.0 7.6 6.7 6.1 Aion 12.5 8.6 15.6 9.5 10.8 10.6 9.2 7.3 12.7 11.5 9.3 Blade & Soul 10.8 8.9 9.3 9.4 10.7 10.5 6.7 4.4 9.1 9.6 7.6 Guild Wars 2 14.1 10.4 9.3 12.7 13.2 11.3 31.6 20.6 16.3 11.5 20.8 Wildstar 0.0 13.1 7.6 3.7 2.2 2.2 1.4 1.3 0.0 6.4 1.7 MXM 0.0 0.0 0.0 0.0 0.0 0.0 7.0 12.6 0.0 0.0 5.8 Royalties 25.0 17.6 10.5 11.9 14.1 14.5 10.0 13.0 8.7 15.9 12.6 Other 8.1 8.4 8.3 9.4 10.6 10.5 6.7 10.3 7.6 8.6 9.3 Operating expenses 133.6 148.9 130.3 132.1 135.5 139.5 176.9 159.4 551.4 544.8 611.4 Labor costs 78.5 76.8 71.8 71.4 79.1 80.4 88.7 85.0 311.3 298.5 333.2 Commissions 5.4 6.0 6.1 5.9 5.2 5.3 8.2 7.4 26.0 23.3 26.1 Royalties 3.9 3.3 3.0 3.6 3.4 3.3 3.3 3.4 15.5 13.7 13.5 Box production 0.4 1.2 0.3 0.3 0.5 0.5 5.5 5.3 3.3 2.3 11.7 Marketing 3.6 14.8 5.8 7.5 7.9 9.0 21.5 11.5 20.9 31.7 49.9 D&A 9.2 9.4 9.8 9.7 9.1 9.2 11.8 11.2 35.5 38.2 41.2 Other 31.5 35.8 31.5 31.9 29.3 30.8 33.7 34.1 130.2 130.6 127.8 Operating profit 45 65 81 74 45 45 110 98 205 261 294 OP margin 25.0 30.4 38.4 35.8 25.1 24.2 38.4 38.1 27.1 32.3 32.3 Net profit 37 53 76 79 39 38 93 91 159 241 258 NP margin 20.5 24.8 35.8 38.3 21.4 20.8 32.4 35.5 21.0 30.2 28.8 YoY growth Revenue -3.6 11.4 24.7 -2.1 1.6 -13.9 35.7 25.2 0.4 7.0 12.4 Lineage I -37.9 -32.9 10.0 0.5 34.5 5.8 -6.4 -13.2 40.3 -16.1 1.3 Lineage II -18.5 -5.1 13.7 -9.1 22.0 4.2 -4.7 -8.2 -12.2 -5.2 2.3 Aion -21.4 -21.1 45.7 -9.7 -12.1 6.5 -19.4 -3.7 -32.2 -2.9 -9.3 Blade & Soul 16.5 35.2 -2.7 8.4 0.8 1.3 -1.9 -41.7 10.8 12.6 -10.4 Guild Wars 2 -30.9 -23.1 -19.6 -22.3 -5.0 -6.0 361.6 103.7 -25.2 -24.5 102.7 Wildstar 314.9 188.4 125.9 -24.0 -42.6 -29.0 29.7 36.2 2.9 95.6 -11.2 MXM 13.1 32.8 2.8 34.2 33.9 6.6 9.2 38.0 13.8 19.9 21.7 Royalties -19.8 4.3 164.7 29.6 2.0 -31.5 35.6 33.2 35.7 28.9 12.8 Other -30.1 54.8 187.9 72.4 5.9 -27.5 22.9 16.0 3.2 53.9 7.2 QoQ growth Revenue -15.2 20.0 -1.0 -2.8 -12.0 1.7 56.1 -10.4 Lineage I -45.1 38.7 20.4 9.7 -26.6 9.1 6.6 1.7 Lineage II -25.5 17.1 9.3 -4.7 0.0 0.0 0.0 -8.2 Aion 2.8 -17.4 79.5 -40.7 0.0 0.0 35.8 -29.1 Blade & Soul 7.5 -0.5 3.3 -1.9 0.0 0.0 0.0 -41.7 Guild Wars 2 -25.1 -11.6 -11.4 32.5 -8.4 -12.6 335.3 -41.5 Wildstar - - -42.6 -53.2 -46.5 0.0 0.0 -14.4 MXM 37.9 -15.7 -40.7 10.3 4.1 4.3 8.3 15.9 Royalties 0.2 25.6 -2.4 9.2 0.0 0.0 0.0 38.0 Other -21.5 45.9 25.2 -9.6 -38.3 -2.0 147.8 -11.1 Operating profit -20.0 44.7 43.0 4.1 -50.9 -1.0 142.5 -1.7 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests; Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 27

December 1, 2014 Internet/Game

NCsoft (036570 KS/Buy/TP: W220,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/13 12/14F 12/15F 12/16F (Wbn) 12/13 12/14F 12/15F 12/16F Revenue 757757757 809809809 910910910 1,0571,0571,057 Current Assets 786786786 1,0641,0641,064 1,3731,3731,373 1,7321,7321,732 Cost of Sales 220220220 208208208 233233233 271271271 Cash and Cash Equivalents 123 355 576 805 Gross Profit 537537537 601601601 677677677 786786786 AR & Other Receivables 83 90 101 117 SG&A Expenses 331331331 341341341 382382382 450450450 Inventories 1 1 1 1 Operating Profit (Adj) 205205205 261261261 294294294 336336336 Other Current Assets 579 618 695 809 Operating Profit 205205205 261261261 294294294 336336336 NonNonNon-Non ---CurrentCurrent Assets 694694694 666666666 645645645 630630630 NonNonNon-Non ---OperatingOperating Profit 111111 343434 252525 393939 Investments in Associates 23 24 27 32 Net Financial Income 16 22 29 38 Property, Plant and Equipment 248 223 200 181 Net Gain from Inv in Associates 4 4 4 4 Intangible Assets 112 107 102 98 Pretax Profit 216 295 319 375 Total Assets 1,4801,4801,480 1,7301,7301,730 2,0182,0182,018 2,3622,3622,362 Income Tax 58 54 61 80 Current Liabilities 252252252 269269269 302302302 351351351 Profit from Continuing Operations 159 241 258 295 AP & Other Payables 23 24 27 32 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 3 3 3 3 Net Profit 159159159 241241241 258258258 295295295 Other Current Liabilities 226 242 272 316 Controlling Interests 159 241 258 295 NonNonNon-Non ---CurrentCurrent Liabilities 696969 737373 828282 949494 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 5 5 5 5 Total Comprehensive Profit 148148148 241241241 258258258 295295295 Other Non-Current Liabilities 64 68 77 89 Controlling Interests 151 246 263 301 Total Liabilities 321321321 342342342 384384384 445445445 Non-Controlling Interests -3 -5 -5 -6 Controlling Interests 1,1411,1411,141 1,3711,3711,371 1,6171,6171,617 1,9011,9011,901 EBITDA 241 292 321 360 Capital Stock 11 11 11 11 FCF (Free Cash Flow) 135 285 312 359 Capital Surplus 221 221 221 221 EBITDA Margin (%) 31.8 36.1 35.3 34.1 Retained Earnings 1,017 1,246 1,493 1,776 Operating Profit Margin (%) 27.1 32.3 32.3 31.8 NonNonNon-Non ---ControllingControlling Interests 181818 171717 171717 171717 Net Profit Margin (%) 21.0 29.8 28.4 27.9 Stockholders' Equity 1,1591,1591,159 1,3881,3881,388 1,6341,6341,634 1,9181,9181,918

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/1312/1312/13 12/14F 12/15F 12/16F 12/1312/1312/13 12/14F 12/15F 12/16F Cash Flows from Op Activities 236 285 312 359 P/E (x) 34.3 14.5 13.5 11.8 Net Profit 159 241 258 295 P/CF (x) 21.1 11.6 11.2 9.8 Non-Cash Income and Expense 99 60 55 63 P/B (x) 4.4 2.4 2.0 1.7 Depreciation 29 25 22 20 EV/EBITDA (x) 19.9 8.8 7.1 5.4 Amortization 6 5 5 4 EPS (W) 7,245 11,005 11,787 13,465 Others 64 30 28 39 CFPS (W) 11,778 13,743 14,299 16,313 Chg in Working Capital -16 13 27 40 BPS (W) 56,765 67,187 78,427 91,346 Chg in AR & Other Receivables -9 -6 -11 -16 DPS (W) 600 600 600 600 Chg in Inventories 1 0 0 0 Payout ratio (%) 7.5 5.0 4.6 4.1 Chg in AP & Other Payables 1 1 1 1 Dividend Yield (%) 0.2 0.4 0.4 0.4 Income Tax Paid ---26 -262626 ---54-545454 ---61-616161 ---80-808080 Revenue Growth (%) 0.4 6.9 12.5 16.2 Cash Flows from Inv Activities -214 -40 -76 -113 EBITDA Growth (%) 26.8 21.2 9.9 12.1 Chg in PP&E -101 0 0 0 Operating Profit Growth (%) 35.8 27.3 12.6 14.3 Chg in Intangible Assets -1 0 0 0 EPS Growth (%) 1.8 51.9 7.1 14.2 Chg in Financial Assets -112 -40 -76 -113 Accounts Receivable Turnover (x) 9.6 9.6 9.8 10.0 Others 000 000 000 000 Inventory Turnover (x) 509.0 836.8 856.9 870.5 Cash Flows from Fin Activities -17 -12 -12 -12 Accounts Payable Turnover (x) 30.9 26.7 27.3 27.7 Chg in Financial Liabilities -15 0 0 0 ROA (%) 11.4 15.0 13.8 13.5 Chg in Equity 1 0 0 0 ROE (%) 14.8 19.2 17.3 16.8 Dividends Paid -12 -12 -12 -12 ROIC (%) 42.6 97.8 135.9 208.0 Others 999 000 000 000 Liability to Equity Ratio (%) 27.7 24.7 23.5 23.2 Increase (Decrease) in Cash 0 232 221 230 Current Ratio (%) 311.9 395.5 454.6 494.1 Beginning Balance 123 123 355 576 Net Debt to Equity Ratio (%) -57.8 -67.7 -75.5 -82.0 Ending Balance 123123123 355355355 576576576 805805805 Interest Coverage Ratio (x) 636.0 1,515.3 1,708.8 1,951.8 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 28

December 1, 2014 Internet/Game

Daum Kakao (035720 KQ) The battle for the mobile payment market

Internet Mobile payment battle heating up

Daum Kakao is expected to launch promotional campaigns for its new Bank Wallet (Maintain) Buy Kakao service in mid-December. The company plans to focus first on getting enough merchants on board before aggressively going after users. Target Price (12M, W) 172,000 During its conference call on November 20 th , NAVER unveiled its new mobile ad and commerce services, as well as a mobile payment system called “Checkout.” We believe Share Price (11/28/14, W) 146,700 Daum Kakao has either begun its mobile payment and reservation services or will do so in December 2014 or January 2015. Samsung Electronics has joined with six credit card Expected Return 17% companies to extend the coverage of its mobile payment service Samsung Wallet to include the companies’ credit card apps, with over 20,000 merchants having signed up OP (14F, Wbn) 100 for the service. Global payment services, such as Alipay, Apple Pay and PayPal are also Consensus OP (14F, Wbn) 131 gearing up to tap into the domestic mobile payment market.

EPS Growth (14F, %) -63.6 Earnings to improve in 4Q, led by KakaoStory ads Market EPS Growth (14F, %) 1.2 P/E (14F, x) 82.9 Aside from mobile games, Kakao’s new services disappointed in 3Q14. In 4Q14, however, Market P/E (14F, x) 13.1 we expect to see meaningful revenue from KakaoStory’s mobile ad services, particularly KOSDAQ 545.08 “Today’s Recommendation” (which sells 10 spots daily based on cost per time (CPT)), and performance-type ads (which sell 52,000 targeted segments based on cost per click Market Cap (Wbn) 8,298 (CPC)). Shares Outstanding (mn) 58 Free Float (%) 56.2 Kakao’s mobile game ARPU has almost doubled YoY, while revenue from the Plus Friend Foreign Ownership (%) 20.5 service (Kakao’s main mobile ad product) has continued double-digit QoQ growth. For Beta (12M) 0.36 4Q14, we forecast Daum Kakao to post revenue of W250bn (+12.6% QoQ) and 52-Week Low 68,700 operating profit of W68bn (+121% QoQ). 52-Week High 177,100

(%)(%)(%) 1M1M1M 6M6M6M 12M12M12M A race against time; Maintain Buy and TP of W172,000 Absolute -1.5 42.2 73.0 Daum Kakao enjoys strong domestic mobile traffic thanks to its KakaoTalk service and is Relative 1.6 43.4 63.6 likely to benefit from merger synergies. As such, we expect stable growth across all 270 Daum Communications major businesses in 4Q14. KOSDAQ 220 However, we believe Daum Kakao needs to prove that its new monetization models are

170 working in order to justify its high P/E. The company is in a race against time, as the mobile market is already flush with competition. We believe the company should aim at 120 becoming a mobile ad/commerce platform for online and offline small- and mid-sized

70 businesses by leveraging its strong mobile traffic and new mobile payment system. We 11.13 3.14 7.14 11.14 maintain our Buy call on Daum Kakao with a target price of W172,000.

FY (12) 12/11 12/12 12/13 12/14F 12/15F 12/16F Revenue (Wbn) 421 453 531 649 1,092 1,427 OP (Wbn) 117 102 82 100 328 444 OP Margin (%) 27.8 22.5 15.4 15.4 30.0 31.1 NP (Wbn) 108 76 66 43 244 340 EPS (W) 8,079 5,656 4,862 1,770 4,317 6,020 ROE (%) 26.9 15.7 12.5 7.8 37.2 38.4 P/E (x) 14.9 16.1 17.3 82.9 34.0 24.4 P/B (x) 3.5 2.4 2.0 13.9 10.7 7.9 Note: 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

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Table 111111.11 . Daum Kakao’s quarterly and annual earnings (combi(combinedned basis) (Wbn, %) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q14F 1Q15F 2Q15F 3Q15F 4Q15F 201320132013 2014F2014F2014F 2015F2015F2015F Revenue 197 225 222 250 249 275 277 291 742 894 1,092 Search ads 129 147 142 161 160 180 177 176 520 579 692 Display ads 59 63 67 74 74 77 81 95 194 264 327 Game 6 9 8 9 10 13 13 14 17 32 50 Transactions 4 6 5 5 5 6 6 6 10 20 23 Revenue

breakdown Search ads 65.2 65.5 64.0 64.4 64.2 65.3 63.7 60.4 70.1 64.7 63.3 Display ads 30.0 27.8 30.4 29.8 29.7 27.9 29.3 32.7 26.2 29.5 29.9 Game 2.9 3.9 3.5 3.7 3.9 4.7 4.9 4.9 2.3 3.5 4.6 Transactions 1.8 2.8 2.1 2.1 2.2 2.1 2.1 2.1 1.4 2.2 2.1 Operating 147 163 191 182 178 194 193 199 594 683 764 expense Labor costs 40.4 42.7 64.8 49.2 48.3 52.1 52.8 57.6 144.0 197.2 210.8 Fringe benefits 7.3 9.8 9.5 9.9 10.6 10.6 10.1 9.8 27.3 36.4 41.1 Depreciation 8.5 9.5 10.0 10.9 11.2 11.4 11.7 12.0 30.9 38.9 46.3 Rental fees 3.1 3.6 3.6 3.8 4.8 4.9 5.0 5.1 11.2 14.1 19.9 Commissions 41.6 46.3 52.0 52.3 49.1 54.7 53.2 54.9 148.4 192.1 211.8 Advertising 10.8 8.9 11.3 11.8 11.4 13.6 14.7 15.4 83.5 42.8 55.1 Bad debt -1.1 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.9 -1.0 0.4 expenses Amortization 3.3 3.3 3.3 3.3 3.4 3.4 3.4 3.4 15.4 13.1 13.5 Outsourcing fees 6.9 8.1 7.8 7.9 7.9 7.9 7.9 7.9 25.8 30.7 31.6 Ad Agency fees 20.1 24.3 22.9 25.7 25.1 28.1 27.0 26.3 85.1 93.1 106.5 Event fees 0.3 0.4 0.3 0.3 0.3 0.3 0.3 0.4 2.6 1.3 1.4 Other 5.6 6.3 5.6 6.5 6.3 6.4 6.4 6.4 18.9 24.0 25.5 Operating profit 51 62 31 68 71 81 85 92 148 211 328 OP margin 25.6 27.6 13.9 27.2 28.4 29.6 30.5 31.5 19.9 23.7 30.0 Pretax revenue 47 65 4 62 61 72 75 82 144 178 291 Corporate tax 7 9 -2 10 10 11 12 13 14 25 46 Net profit 40 56 -6 52 52 61 63 69 128 141 244 NP margin 20.4 24.8 -2.8 20.7 20.7 22.2 22.7 23.8 65.6 53.6 74.9 YoY growth Revenue 20.1 23.1 20.7 18.5 26.1 22.1 25.0 16.5 63.6 20.5 22.2 Search ads 7.4 14.3 11.9 11.5 24.2 21.8 24.5 9.3 26.4 11.3 19.5 Display ads 54.2 31.9 34.9 27.4 24.7 22.6 20.4 28.0 474.3 35.7 24.0 Game 60.4 111.3 90.7 75.1 67.6 48.0 73.8 52.8 - 84.5 59.3 Transactions 46.6 171.7 66.8 92.0 52.0 -11.1 25.6 13.0 23.2 92.4 15.3 Operating profit 18.0 85.1 -6.0 76.7 39.5 31.2 175.0 34.8 45.1 43.2 55.3 Net profit 20.2 128.3 적전 38.9 28.4 9.4 TTB 34.3 66.4 10.9 73.3 QoQ growth Revenue -6.3 14.1 -1.5 12.6 -0.3 10.5 0.8 4.9 Search ads -10.8 14.6 -3.7 13.3 -0.6 12.4 -1.6 -0.6 Display ads 1.6 5.6 7.8 10.1 -0.5 3.8 5.9 17.1 Game 10.3 51.4 -11.9 19.1 5.6 33.6 3.5 4.7 Transactions 29.2 77.0 -26.5 14.1 2.3 3.6 3.8 2.7 Operating profit 31.6 22.7 -50.5 121.0 3.9 15.4 3.8 8.3 Net profit 8.0 39.1 적전 TTB -0.1 18.5 2.9 10.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research

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Daum Kakao (035720 KQ/Buy/TP: W172,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/13 12/14F 12/15F 12/16F (Wbn) 12/13 12/14F 12/15F 12/16F Revenue 531531531 649649649 1,0921,0921,092 1,4271,4271,427 Current Assets 350350350 424424424 687687687 1,0271,0271,027 Cost of Sales 000 000 000 000 Cash and Cash Equivalents 110 131 194 384 Gross Profit 531531531 649649649 1,0921,0921,092 1,4271,4271,427 AR & Other Receivables 60 73 123 161 SG&A Expenses 449449449 549549549 764764764 982982982 Inventories 0 0 0 0 Operating Profit (Adj) 828282 100100100 328328328 444444444 Other Current Assets 180 220 370 482 Operating Profit 828282 100100100 328328328 444444444 NonNonNon-Non ---CurrentCurrent Assets 308308308 284284284 288288288 291291291 NonNonNon-Non ---OperatingOperating Profit 222 ---42-424242 ---16-161616 ---7-777 Investments in Associates 8 9 16 21 Net Financial Income 10 11 16 26 Property, Plant and Equipment 120 100 84 72 Net Gain from Inv in Associates -2 -2 -2 -2 Intangible Assets 86 74 65 58 Pretax Profit 84 58 312 437 Total Assets 658658658 709709709 976976976 1,3181,3181,318 Income Tax 15 15 67 95 Current Liabilities 878787 106106106 178178178 232232232 Profit from Continuing Operations 69 43 245 342 AP & Other Payables 41 50 83 109 Profit from Discontinued Operations -3 0 0 0 Short-Term Financial Liabilities 1 0 0 0 Net Profit 666666 434343 245245245 342342342 Other Current Liabilities 45 56 95 123 Controlling Interests 66 43 244 340 NonNonNon-Non ---CurrentCurrent Liabilities 171717 202020 343434 444444 Non-Controlling Interests 0 0 1 1 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 636363 434343 245245245 342342342 Other Non-Current Liabilities 17 20 34 44 Controlling Interests 63 43 244 340 Total Liabilities 104104104 126126126 212212212 276276276 Non-Controlling Interests 0 0 1 1 Controlling Interests 539539539 567567567 748748748 1,0251,0251,025 EBITDA 121 132 353 464 Capital Stock 7 28 28 28 FCF (Free Cash Flow) 83 84 296 382 Capital Surplus 188 166 166 166 EBITDA Margin (%) 22.8 20.3 32.3 32.5 Retained Earnings 371 399 580 857 Operating Profit Margin (%) 15.4 15.4 30.0 31.1 NonNonNon-Non ---ControllingControlling Interests 151515 151515 161616 171717 Net Profit Margin (%) 12.4 6.6 22.3 23.8 Stockholders' Equity 554554554 582582582 764764764 1,0421,0421,042

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/1312/1312/13 12/14F 12/15F 12/16F 12/1312/1312/13 12/14F 12/15F 12/16F Cash Flows from Op Activities 126 84 296 382 P/E (x) 17.3 82.9 34.0 24.4 Net Profit 66 43 245 342 P/CF (x) 8.7 44.7 25.7 19.2 Non-Cash Income and Expense 65 37 78 92 P/B (x) 2.0 13.9 10.7 7.9 Depreciation 24 20 16 13 EV/EBITDA (x) 7.2 60.5 22.0 16.1 Amortization 15 12 9 7 EPS (W) 4,862 1,770 4,317 6,020 Others 26 5 53 72 CFPS (W) 9,692 3,281 5,710 7,658 Chg in Working Capital 12 7 24 18 BPS (W) 41,852 10,532 13,723 18,615 Chg in AR & Other Receivables 9 -11 -41 -31 DPS (W) 1,133 1,133 1,133 1,133 Chg in Inventories 0 0 0 0 Payout ratio (%) 22.7 147.1 26.0 18.7 Chg in AP & Other Payables 7 5 18 14 Dividend Yield (%) 1.3 0.8 0.8 0.8 Income Tax Paid ---24 -242424 ---15-151515 ---67-676767 ---95-959595 Revenue Growth (%) 17.2 22.2 68.3 30.7 Cash Flows from Inv Activities -98 -43 -161 -122 EBITDA Growth (%) -12.3 9.1 167.4 31.4 Chg in PP&E -43 0 0 0 Operating Profit Growth (%) -19.6 22.0 228.0 35.4 Chg in Intangible Assets -7 0 0 0 EPS Growth (%) -14.0 -63.6 143.9 39.4 Chg in Financial Assets -21 -43 -161 -122 Accounts Receivable Turnover (x) 9.9 11.8 13.4 12.1 Others ---27 -272727 000 000 000 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Cash Flows from Fin Activities -39 -15 -64 -64 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 Chg in Financial Liabilities 1 0 0 0 ROA (%) 10.4 6.3 29.1 29.8 Chg in Equity 6 0 0 0 ROE (%) 12.5 7.8 37.2 38.4 Dividends Paid -15 -15 -64 -64 ROIC (%) 27.5 31.4 126.1 200.9 Others ---31 -313131 000 000 000 Liability to Equity Ratio (%) 18.7 21.7 27.7 26.5 Increase (Decrease) in Cash -11 22 63 190 Current Ratio (%) 402.1 400.7 386.1 442.2 Beginning Balance 120 110 131 194 Net Debt to Equity Ratio (%) -49.5 -57.3 -70.0 -79.6 Ending Balance 110110110 131131131 194194194 384384384 Interest Coverage Ratio (x) 439.3 401.1 1,623.1 2,196.0 Source: Company data, KDB Daewoo Securities Research estimates

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Interpark INT (108790 KQ) Tour business to continue robust growth in 2015

Internet Shopping Book division held back overall earnings during 1Q14-3Q14

We revised down our 2014 earnings estimates in light of the weakness of the book (Maintain) Buy division. However, gross merchandise value (GMV) at the tour division has been growing briskly (+38.7% YoY for the first three quarters of 2014), and margins at the Target Price (12M, W) 30,000 entertainment division have been stabilizing in 2H14.

The book division recorded W5bn in losses during the first three quarters in 2014 (vs. Share Price (11/28/14, W) 21,450 W0.6bn in losses during the same period a year ago), weighed by 1) the sharp contraction of the printed book market due to the growing use of mobile devices, and 2) Expected Return 40% heavy marketing spending ahead of the adoption of the fixed price system in December.

OP (14F, Wbn) 18 Online tour market share to continue to expand in 2015 Consensus OP (14F, Wbn) 19 Interpark INT’s tour revenue has been increasing rapidly in line with the company’s EPS Growth (14F, %) -14.9 expansion from airline tickets to hotels and package tours. We expect tour margins to Market EPS Growth (14F, %) 1.2 improve in 2015, as the revenue mix of higher-margin products like hotel bookings and P/E (14F, x) 51.8 package tours should increase at the expense of lower-margin flight bookings. Market P/E (14F, x) 13.1 KOSDAQ 545.08 In 2015, we project overall GMV to grow 13.2% YoY, driven by a 24.4% YoY increase in the tour division. We forecast 2015 operating profit and net profit to surge to W32.2bn Market Cap (Wbn) 698 (+78.2% YoY) and W24.2bn (+83.3% YoY), respectively. Shares Outstanding (mn) 33 Free Float (%) 27.6 Online travel companies maintain competitive edge; Lift TP to W30,000 Foreign Ownership (%) 6.5 Interpark INT has dominated the domestic travel market, beating out domestic offline Beta (12M) 2.95 52-Week Low 17,350 leaders Hana Tour and Modetour Network, as well as global rivals like Hotels.com and 52-Week High 27,700 Agoda.

(%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Recently, the company’s shares pulled back on news of NAVER’s plans to sell airline Absolute -8.9 4.1 0.0 tickets. However, we note that online travel companies like Expedia have maintained Relative -6.0 5.1 0.0 their lead over major portals like Yahoo Japan and Google in advanced markets where online booking is prevalent. We believe this is because online portals lag behind online 130 Interpark INT KOSDAQ travel agencies in terms of the quality and quantity of the products offered, as well as 110 infrastructure (e.g. call centers). 90 70 We revised up our 2015F EPS by 25%, assuming high growth for the tour division and 50 normalized margins for the book division. As such, we raise our target price to W30,000 30 (from W24,000) and keep our Buy rating intact. Our target price is based on a 2015F P/E 10 11.13 3.14 7.14 11.14 of 40x, the level at which Hana Tour and Modetour Network traded during their high growth periods.

FY (12) 12/11 12/12 12/13 12/14F 12/15F 12/16F Revenue (Wbn) 351 356 386 385 432 491 OP (Wbn) 8 15 20 18 32 43 OP Margin (%) 2.3 4.2 5.2 4.7 7.4 8.8 NP (Wbn) 9 11 13 13 24 33 EPS (W) 535 620 487 414 749 1,003 ROE (%) 21.1 16.9 13.8 12.3 19.1 20.9 P/E (x) - - - 51.8 28.7 21.4 P/B (x) - - - 6.1 5.0 4.1 Note: 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

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December 1, 2014 Internet/Game

Table 121212.12 . Interpark INTINT’’’’ss quarterly and annual earnings (Wbn, %) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q14F 1Q15F 2Q15F 3Q15F 4Q15F 201320132013 2014F2014F2014F 2015F2015F2015F GMV 628 616 676 713 652 735 774 822 2,301 2,634 2,983 Shopping 168 145 154 163 156 150 161 177 596 630 644 Book 69 46 61 55 67 48 60 56 247 231 231 ENT 101 108 136 179 107 140 138 169 534 524 554 Tour 290 318 325 316 322 397 416 420 921 1,249 1,554 Revenue 97 82 102 99 114 98 108 111 386 385 432 Performances 2 5 10 10 6 3 2 17 23 27 28 Commissions 26 27 30 30 31 30 33 35 90 113 128 Other 12 11 12 13 10 13 12 11 49 48 46 Products 57 39 50 50 68 49 58 54 223 197 229 % of revenue Performances 2.2 5.8 9.5 10.3 5.3 3.2 1.9 15.5 6.0 7.0 6.6 Commissions 26.7 32.4 29.7 30.7 27.1 30.7 30.1 31.1 23.4 29.4 29.7 Other 12.0 14.0 11.5 13.0 8.3 13.7 11.2 10.0 12.7 12.4 10.7 Products 59.0 47.8 49.2 50.6 59.1 50.4 54.0 48.3 57.9 51.2 53.0 CGS 59 46 60 76 72 59 64 68 248 241 263 SG&A 34 34 36 21 34 32 35 35 118 125 137 Operating profit 4 2 6 7 6 4 7 7 20 18 32 OP margin 4.3 1.9 5.6 6.6 4.9 4.5 6.1 6.6 5.3 4.7 7.5 Net profit 3 1 4 6 7 5 8 4 13 13 24 NP margin 2.8 1.0 4.0 5.7 6.2 5.5 7.0 3.8 3.4 3.4 5.6 YoY Revenue 3.4 -8.9 4.3 -4.5 17.7 19.8 6.0 12.2 11.3 -0.2 12.2 Performances -11.5 2.6 128.9 -14.6 178.3 -34.7 -79.1 68.8 44.7 15.4 5.6 Commissions 38.3 32.1 29.6 8.9 19.3 13.4 7.6 13.6 24.8 25.6 13.2 Other 119.7 -37.2 -9.9 4.6 -18.6 17.6 2.8 -13.5 17.8 -2.4 -3.3 Products -15.0 -16.5 -12.0 -2.8 17.8 26.3 16.2 7.0 3.1 -11.7 16.3 Operating profit -22.3 -61.3 -19.3 70.5 33.7 175.6 14.4 12.3 38.6 -11.8 78.2 Net Profit -17.6 -68.8 -20.5 167.9 164.5 591.8 83.0 -25.4 -2.4 1.4 83.3 QoQ Revenue -6.3 -15.6 24.4 -2.9 15.5 -14.1 10.1 2.9 Performances -81.9 121.0 103.5 4.8 -41.0 -48.1 -34.7 744.6 Commissions -6.9 2.2 14.0 0.4 1.9 -2.8 8.2 6.1 Other -5.1 -2.0 2.7 9.5 -26.1 41.6 -10.2 -7.8 Products 11.2 -31.7 28.2 -0.1 34.7 -26.8 18.0 -8.0 Operating profit 9.5 -62.0 260.4 13.8 -14.1 -21.7 49.6 11.8 Net profit 27.3 -70.9 426.3 37.2 25.6 -23.8 39.2 -44.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research

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December 1, 2014 Internet/Game

Interpark INT (108790 KQ/Buy/TP: W30,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/13 12/14F 12/15F 12/16F (Wbn) 12/13 12/14F 12/15F 12/16F Revenue 386386386 385385385 432432432 491491491 Current Assets 224224224 243243243 299299299 369369369 Cost of Sales 248248248 241241241 263263263 294294294 Cash and Cash Equivalents 48 64 99 142 Gross Profit 138138138 144144144 169169169 197197197 AR & Other Receivables 83 86 96 109 SG&A Expenses 118118118 125125125 137137137 155155155 Inventories 31 31 35 40 Operating Profit (Adj) 202020 181818 323232 434343 Other Current Assets 62 62 69 78 Operating Profit 202020 181818 323232 434343 NonNonNon-Non ---CurrentCurrent Assets 146146146 138138138 132132132 127127127 NonNonNon-Non ---OperatingOperating Profit ---3 -333 ---2-222 ---2-222 ---3-333 Investments in Associates 2 2 3 3 Net Financial Income -2 -2 -1 -1 Property, Plant and Equipment 42 38 35 32 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 87 83 79 75 Pretax Profit 17 16 30 40 Total Assets 370370370 381381381 431431431 496496496 Income Tax 4 2 6 8 Current Liabilities 229229229 227227227 253253253 285285285 Profit from Continuing Operations 13 13 24 32 AP & Other Payables 54 53 60 68 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 17 15 15 15 Net Profit 131313 131313 242424 323232 Other Current Liabilities 158 159 178 202 Controlling Interests 13 13 24 33 NonNonNon-Non ---CurrentCurrent Liabilities 393939 393939 393939 393939 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 39 39 39 39 Total Comprehensive Profit 131313 131313 242424 323232 Other Non-Current Liabilities 0 0 0 0 Controlling Interests 13 13 24 33 Total Liabilities 268268268 266266266 292292292 325325325 Non-Controlling Interests 0 0 0 0 Controlling Interests 102102102 116116116 140140140 172172172 EBITDA 29 26 39 49 Capital Stock 14 14 14 14 FCF (Free Cash Flow) 33 18 39 49 Capital Surplus 62 62 62 62 EBITDA Margin (%) 7.5 6.8 9.0 10.0 Retained Earnings 31 44 69 101 Operating Profit Margin (%) 5.2 4.7 7.4 8.8 NonNonNon-Non ---ControllingControlling Interests ---1 -111 ---1-111 ---1-111 ---1-111 Net Profit Margin (%) 3.4 3.4 5.6 6.7 Stockholders' Equity 101101101 115115115 139139139 171171171

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/1312/1312/13 12/14F 12/15F 12/16F 12/1312/1312/13 12/14F 12/15F 12/16F Cash Flows from Op Activities 35 18 39 49 P/E (x) - 51.8 28.7 21.4 Net Profit 13 13 24 32 P/CF (x) - 27.8 18.1 14.7 Non-Cash Income and Expense 19 12 14 15 P/B (x) - 6.1 5.0 4.1 Depreciation 4 4 3 3 EV/EBITDA (x) - 25.4 15.7 11.5 Amortization 4 4 4 4 EPS (W) 487 414 749 1,003 Others 11 4 7 8 CFPS (W) 1,200 772 1,184 1,457 Chg in Working Capital 9 -3 8 10 BPS (W) 3,770 3,540 4,288 5,291 Chg in AR & Other Receivables -7 0 -4 -5 DPS (W) 0 0 0 0 Chg in Inventories -3 0 -4 -5 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables 3 0 3 4 Dividend Yield (%) - 0.0 0.0 0.0 Income Tax Paid ---4 -444 ---2-222 ---6-666 ---8-888 Revenue Growth (%) 8.4 -0.3 12.2 13.7 Cash Flows from Inv Activities -2 0 -5 -6 EBITDA Growth (%) 26.1 -10.3 50.0 25.6 Chg in PP&E -2 0 0 0 Operating Profit Growth (%) 33.3 -10.0 77.8 34.4 Chg in Intangible Assets -1 0 0 0 EPS Growth (%) -21.5 -15.0 80.9 33.9 Chg in Financial Assets -4 0 -5 -6 Accounts Receivable Turnover (x) 12.4 12.0 12.7 12.8 Others 555 000 000 000 Inventory Turnover (x) 13.0 12.4 13.1 13.2 Cash Flows from Fin Activities -21 -2 0 0 Accounts Payable Turnover (x) 11.1 8.9 9.2 9.1 Chg in Financial Liabilities -22 -2 0 0 ROA (%) 3.6 3.5 6.0 7.0 Chg in Equity 0 0 0 0 ROE (%) 13.8 12.3 19.1 20.9 Dividends Paid 0 0 0 0 ROIC (%) 19.7 24.6 48.8 93.7 Others 111 000 000 000 Liability to Equity Ratio (%) 265.0 232.4 210.6 189.7 Increase (Decrease) in Cash 12 16 34 43 Current Ratio (%) 97.8 107.0 118.3 129.4 Beginning Balance 37 48 64 99 Net Debt to Equity Ratio (%) -26.0 -38.8 -59.9 -76.7 Ending Balance 484848 646464 999999 142142142 Interest Coverage Ratio (x) 5.9 6.3 11.4 15.2 Source: Company data, KDB Daewoo Securities Research estimates

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APPENDIX 1

Important Disclosures & Disclaimers 222-2---YearYear Rating and Target Price History

Company (((Code)(Code)Code)Code) DateDateDate RatingRatingRating Target Price Company (((Code)(Code)Code)Code) DateDateDate RatingRatingRating Target Price NAVER(035420) 03/06/2014 Buy 1,050,000 12/17/2012 Buy 280,000 01/13/2014 Buy 920,000 11/08/2012 Buy 310,000 11/26/2013 Buy 870,000 Daum Communications(035720) 11/09/2014 Buy 172,000 10/16/2013 Buy 700,000 10/06/2014 Buy 211,000 09/15/2013 Buy 670,000 06/22/2014 Buy 144,000 08/29/2013 Buy 483,000 02/16/2014 Buy 93,000 05/29/2013 Buy 382,000 08/11/2013 Buy 108,000 11/29/2012 Buy 330,000 05/12/2013 Buy 115,000 NCsoft(036570) 07/16/2014 Buy 220,000 02/14/2013 Buy 130,000 05/18/2014 Buy 280,000 11/12/2012 Buy 115,000 11/26/2013 Buy 310,000 Interpark INT(108790) 12/01/2014 Buy 30,000 04/25/2013 Buy 250,000 08/20/2014 Buy 24,000 02/05/2013 Buy 200,000 05/11/2014 Buy 30,000

(W) NAVER (W) NCsoft (W) Daum Communications (W) Interpark INT 1,200,000 400,000 250,000 40,000

1,000,000 200,000 300,000 30,000 800,000 150,000 600,000 200,000 20,000 100,000 400,000 100,000 10,000 200,000 50,000

0 0 0 0 Dec 12 Dec 13 Dec 14 Dec 12 Dec 13 Dec 14 Dec 12 Dec 13 Dec 14 Dec 12 Dec 13 Dec 14

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% 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 Daewoo Securities, 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.

Disclosures We managed the IPO of Interpark INT, which listed on February 6, 2014.

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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted 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 Daewoo Securities Co., Ltd. except as otherwise stated herein.

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December 1, 2014 Internet/Game

Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

KDB Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 320 Park Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 31st Floor

Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong, China United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000

Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 Six Battery Road #11-01 7th Floor, Yusen Building 25 Old Broad St. Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku London EC2N 1HQ Tokyo 100-0005 United Kingdom Japan Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511 Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers Room 38T31, 38F SWFC Suite 2103, Saigon Trade Center B-12 Jianguomenwai Avenue 100 Century Avenue 37 Ton Duc Thang St,

Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Dist. 1, Ho Chi Minh City, China China Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia 2401B, 24th Floor, East Tower, Twin Towers #406, Blue Sky Tower, Peace Avenue 17 Equity Tower Building Lt.50 B-12 Jianguomenwai Avenue, 1 Khoroo, Sukhbaatar District Sudirman Central Business District Jl.

Chaoyang District, Beijing 100022 Ulaanbaatar 14240 Jendral Sudirman Kav. 52-53, Jakarta Selatan China Mongolia Indonesia 12190 Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140

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