October 2, 2018

Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) Medytox (086900/Buy/TP: W940,000) KOSPI 2,338.88 -4.19 -0.18 Accumulate shares, with early 2019 China launch in mind KOSPI 200 300.17 -0.34 -0.11 KOSDAQ 816.53 -5.74 -0.70 Sector News & Analysis Turnover ('000 shares, Wbn) Volume Value Holding Companies (Overweight) KOSPI 272,609 5,427 ’s remaining issues and what to expect next KOSPI 200 75,216 3,887 KOSDAQ 552,813 3,571

Market Cap (Wbn) Value KOSPI 1,565,088 KOSDAQ 271,668

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,250 1,298 -48 Institutional 1,156 1,250 -94 Retail 3,000 2,876 125

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 335 351 -16 Institutional 183 280 -96 Retail 3,054 2,940 114

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 984 1,045 -60 KOSDAQ 134 151 -16

Advances & Declines Advances Declines Unchanged KOSPI 352 471 76 KOSDAQ 434 752 81

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value 46,350 -100 292 Korea SP Pharm 9,150 610 238 Hynix 73,700 600 219 KOREA AEROSPACE 33,250 -1,850 216 292,000 -5,000 189

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value SillaJen 106,800 4,400 244 HLB 120,500 400 91 Keayeast 3,630 365 87 CreaS F&C 24,000 -3,000 75 NATURECELL 15,700 350 67 Note: As of October 01, 2018

Mirae Asset Daewoo Research This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose.

Medytox (086900 KQ) Accumulate shares, with early 2019 China launch in mind Healthcare Reaffirm Buy and TP of W940,000 Company Update Medytox’s shares have recently pulled back due to declining exports to China and Allergan’s botulinum toxin portfolio expansion. However, we believe Medytox’s October 2, 2018 Neuronox will gain approval in China and be officially released in the country during 1H19. And while Allergan’s botulinum toxin portfolio has become more expansive, we believe expectations on Innotox remain intact. Even if we conservatively assume Innotox sales are half of what we previously anticipated, we still see 29.4% upside (Maintain) Buy potential to share prices. We thus recommend slowly accumulating shares, with Neuronox’s expected 1H19 launch in China in mind.

Target Price (12M, W) 940,000 Concern 1: Sluggish exports to China → Official approval expected in 1H19 According to Korea Customs Service (KCS) data, exports of products assumed to be Share Price (10/01/18, W) 611,000 botulinum toxins contracted 22.4% YoY in 3Q18. This was largely because of China’s crackdown on unofficial shopping agents, known as “daigou,” which has recently Expected Return 54% ramped up in the wake of negative events in the local pharmaceuticals industry. However, the fact that Allergan’s China revenue growth is accelerating suggests China’s botulinum toxin market is continuing to grow at a fast pace. If Neuronox is OP (18F, Wbn) 105 officially released in 1H19, we think it will rapidly penetrate the Chinese market, given its already well-established brand recognition, price advantage over Allergan’s product, Consensus OP (18F, Wbn) 106 and better quality compared to Lanzhou Institute’s product. EPS Growth (18F, %) 14.9 Concern 2: Innotox’s increasing competition → Too early to draw conclusion Market EPS Growth (18F, %) 13.8 P/E (18F, x) 41.0 With its recent acquisition of Bonti, Allergan has gained access to the biotech firm’s fast-acting botulinum toxin programs. Given their faster action and shorter duration, Market P/E (18F, x) 9.1 Bonti’s botulinum toxin products are likely to target a niche market for people who KOSDAQ 816.53 either are new to botulinum toxins or want non-invasive treatments. In our view, what Market Cap (Wbn) 3,456 deserves closer attention is the liquid prefilled syringe Allergan unveiled in mid- September. If the product is being internally developed by Allergan, it would be Shares Outstanding (mn) 6 reasonable to lower expectations on Innotox. However, we think there is a chance the Free Float (%) 71.9 prefilled syringe is being developed as part of Innotox, given that 1) the licensing deal Foreign Ownership (%) 48.6 with Medytox could have a clause that prevents Allergan from developing an identical Beta (12M) 0.41 product and 2) Allergan has had no clinical trials on liquid formations confirmed so far. 52-Week Low 402,000 But even if Allergan is indeed developing its own product, we note that: 1) the company 52-Week High 853,500 described Innotox in a more positive light; 2) Innotox’s indications have already been disclosed (while indications of the liquid prefilled syringe have not); and 3) Innotox has (%) 1M 6M 12M additional benefits, such as the exclusions of animal-derived ingredients and human Absolute -8.8 -16.5 23.6 serum albumin. We hence advise taking a prudent approach and not becoming overly Relative -8.7 -11.0 -1.2 concerned.

160 Medytox KOSDAQ 3Q18 exports to soften, but medium/long-term outlook remains bright 140 For 3Q18, we forecast Medytox to report revenue of W52.6bn (+30.5% YoY) and 120 operating profit of W24.8bn (+46.4% YoY). While we originally expected 3Q18 earnings to be somewhat sluggish, we slightly reduced our estimates further to reflect recent 100 KCS export data. We estimate botulinum toxin exports fell 10.6% QoQ to W20.7bn. We 80 believe domestic sales of botulinum toxins continued to grow strongly, at 40% YoY, 60 thanks to the effects of the new plant. 9.17 1.18 5.18 9.18

Mirae Asset Daewoo Co., Ltd.

[Pharmaceutical/Biotech] chaFY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 89 133 181 226 268 317 Taehee Kim +822-3774-6813 OP (Wbn) 52 75 90 105 136 161 [email protected] OP margin (%) 58.4 56.4 49.7 46.5 50.7 50.8 Seunglok Huh NP (Wbn) 42 59 73 84 110 133 +822-3774-1374 EPS (W) 7,477 10,471 12,955 14,889 19,515 23,454 [email protected] ROE (%) 43.4 45.4 42.2 35.7 34.4 31.0 P/E (x) 68.6 34.1 37.4 41.0 31.3 26.1 P/B (x) 20.6 10.6 10.7 10.5 8.1 6.3 Dividend yield (%) 0.3 0.6 0.5 0.4 0.4 0.5 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

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

Holding Companies Samsung’s remaining issues and what to expect next

Overweight (Maintain) Samsung Group fully unties its circular shareholdings, easing governance pressures Industry Report With the market sale of Samsung C&T stakes held by Samsung Electro-Mechanics (SEMCO; 2.6% or 5mn shares) and Samsung F&M (1.4% or 2.61mn shares) completed October 2, 2018 in September, Samsung Group has completely untied its four remaining circular shareholdings.

The four circular shareholdings that were untangled did not pose a legal problem, nor did they have a separate deadline for disposal under the current Monopoly Regulation Mirae Asset Daewoo Co., Ltd. and Fair Trade Act (MRFTA), which allows the continuation of existing circular shareholdings. In addition, no further regulations were anticipated. The preannounced [Holding Companies/IT Services] MRFTA revisions restrict the voting rights held by an affiliate that completes a circular shareholding, but the rule only applies to conglomerates that are newly designated. As Dae-ro Jeong such, we believe Samsung Group’s recent unwinding of its circular shareholdings +822-3774-1634 eases its regulatory uncertainties and pressures for improved governance. [email protected] Remaining governance issues Su Yeon Lee +822-3774-7162 1. Samsung Life’s disposal of SEC shares: Samsung Life likely to sell the shares on the [email protected] market; Samsung C&T has little incentive to acquire the shares

We believe Samsung Life’s position as the largest shareholder of Samsung Electronics (SEC) within the group is unsustainable, given regulations regarding the separation of financial and non-financial activities and tighter international accounting standards on insurers. In particular, current proposed revisions to the Insurance Business Act, which mandate the mark-to-market valuation of equity holdings, would require Samsung Life to sell its SEC shares in excess of 3% of its total assets (around 5.8%) within a seven- year grace period. We think it is likely Samsung Life will first sell the portion of its SEC shares subject to the voting control restrictions under the current MRFTA (Article 11) on the market. That is because, even if Samsung Life unloads up to a 5.5% stake in SEC on the market, Samsung Group’s voting interest in SEC would remain essentially unchanged, at 15%. In addition, despite being the de-facto holding company of Samsung Group, we think Samsung C&T will have little incentive to acquire additional shares in SEC for the time being. For starters, it would be difficult for Samsung C&T to fund such a purchase, as a 1% SEC stake acquisition would cost W3tr. But even if Samsung C&T did increase its SEC stake, regulations under the MRFTA would ultimately cap the group’s maximum voting shares in SEC at 15%. 2. Response to tougher related-party transaction regulations: Samsung Welstory’s need for ownership restructuring; Merger with is one possibility The MRFTA revisions aim to strengthen the effectiveness of related-party transaction regulations, by unifying controlling families’ ownership threshold to 20% in both listed and unlisted affiliates (currently 30% for listed and 20% for unlisted) and extending the regulations to their subsidiaries (over 50% stake). Under these new rules, Samsung Welstory (a wholly-owned subsidiary of Samsung C&T) will likely become subject to related-party transaction regulations. Indeed, in its findings of a review on conglomerates’ related-party transactions released in June, the Korea Fair Trade Commission (FTC) mentioned Samsung Welstory as one example of how companies are circumventing the regulations. In July, the FTC conducted onsite investigations into the alleged related-party transactions of Samsung Welstory, Samsung C&T, SEC, and . We believe Samsung Welstory will consider a number of options to change its ownership structure in order to address stricter regulations on related-party transactions. We think one viable approach would be for Samsung Welstory to merge with group affiliate Hotel Shilla (008770 KS), which would not only free the company from the equity ownership rule but also reduce its share of intergroup sales. As the two companies have related businesses, such a combination could be synergetic. It would also allow Samsung Group to secure additional control over Hotel Shilla, in which it only owns a combined 16.9% stake. Meanwhile, Samsung C&T would gain a majority stake in the merged entity, putting it in an advantageous position in the event of a potential group separation down the road.

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

Mirae Asset Daewoo Research Key Universe Valuations October 2, 2018

※All data as of close September 28, 2018, unless otherwise noted.

18F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 005930 Samsung Electronics 297,536 46,350 3.1 20.3 0.1 27.2 7.5 6.7 6.3 1.3 1.1 22.2 20.0 000660 SK Hynix 53,654 73,700 1.4 62.2 2.4 59.2 4.1 3.2 3.0 1.1 0.8 40.5 30.2 068270 Celltrion 36,616 292,000 - - - - 0.0 0.0 207940 35,597 538,000 4.5 277.0 - 375.1 687.4 144.7 8.8 8.3 1.3 5.9 051910 LG Chem 26,013 368,500 1.6 -17.7 17.4 -10.5 21.2 16.6 13.7 1.6 1.5 10.5 11.7 005490 POSCO 25,764 295,500 2.7 19.3 3.5 21.5 10.4 7.6 6.9 0.5 0.5 7.6 7.9 028260 Samsung C&T Corporation 24,280 128,000 1.6 26.8 7.7 96.0 2.2 19.5 19.1 1.0 0.9 5.4 5.2 105560 KB Financial Group 23,247 55,600 22.1 5.0 8.1 3.7 6.4 6.2 0.6 0.6 10.3 10.0 017670 SK Telecom 22,245 275,500 3.6 -13.2 5.1 29.7 4.8 6.6 6.3 0.9 0.8 17.0 15.2 055550 21,410 45,150 23.2 2.2 16.6 2.6 6.3 6.1 0.6 0.6 9.9 9.4 096770 SK Innovation 20,620 223,000 3.6 -8.0 -6.3 -3.8 -2.0 10.3 10.5 1.1 1.0 11.1 10.4 034730 SK Holdings 20,088 285,500 1.4 4.6 7.0 26.5 6.1 9.5 9.0 1.2 1.1 14.5 13.6 032830 Samsung Life 19,220 96,100 - - - - 0.0 0.0 015760 KEPCO 18,842 29,350 - - - - - 22.7 0.3 0.3 - 1.2 018260 Samsung SDS 17,565 227,000 1.1 24.5 13.4 31.7 12.1 25.2 22.4 2.9 2.6 12.0 12.3 006400 Samsung SDI 17,363 252,500 0.4 498.4 44.8 15.7 47.3 23.4 15.9 1.4 1.3 6.5 9.0 010950 S-Oil 15,480 137,500 3.3 10.1 29.0 -23.3 55.1 16.8 10.8 2.4 2.1 14.2 21.0 033780 KT&G 14,072 102,500 4.1 -15.7 21.0 -16.8 13.7 14.5 12.8 1.8 1.6 12.5 13.8 086790 13,736 45,750 24.8 9.6 18.1 9.7 5.6 5.1 0.5 0.5 9.7 9.7 000810 Samsung F&M 13,478 284,500 - - - - 0.0 0.0 091990 Celltrion Healthcare 12,661 90,100 45.8 63.6 39.9 27.0 51.3 40.4 6.5 5.8 13.5 15.1 003550 LG Corp. 12,648 73,300 1.8 0.5 8.3 -23.0 10.4 7.0 6.3 0.7 0.7 10.9 10.8 066570 LG Electronics 11,635 71,100 1.0 29.4 15.2 -9.5 36.7 8.2 6.0 0.9 0.8 11.2 13.6 009150 Samsung Electro-Mechanics 10,308 138,000 0.6 205.4 29.8 264.9 28.5 18.1 14.1 2.2 1.9 13.1 14.9 011170 Lotte Chemical 9,374 273,500 3.8 -19.6 -0.8 -14.0 4.5 4.9 4.6 0.7 0.6 15.7 14.6 024110 8,568 15,300 24.2 6.2 20.5 6.0 5.6 5.2 0.5 0.4 8.9 8.8 010130 Korea Zinc 8,161 432,500 2.3 -8.6 2.9 -1.2 9.5 13.1 12.0 1.3 1.2 10.1 10.3 030200 KT 7,846 30,050 3.3 4.0 -1.1 37.6 14.9 12.0 10.4 0.6 0.6 5.4 5.8 032640 LG Uplus 7,553 17,300 3.2 0.5 13.8 -3.5 14.9 14.3 12.4 1.1 1.1 8.8 8.8 000720 Hyundai E&C 7,550 67,800 0.7 9.7 15.9 171.2 14.2 13.8 12.1 1.2 1.1 8.4 9.3 004020 7,486 56,100 1.3 1.1 2.5 8.3 7.0 9.7 9.0 0.4 0.4 4.6 4.7 034220 LG Display 6,870 19,200 2.6 ------0.5 0.5 - - 023530 Lotte Shopping 5,926 209,500 2.5 15.7 26.5 - - - 12.5 0.5 0.5 - 3.7 139480 Emart 5,868 210,500 0.8 -5.8 18.1 -28.5 7.9 13.3 12.3 0.7 0.7 5.3 5.6 036460 KOGAS 5,585 60,500 1.7 25.0 10.6 - 8.1 8.0 7.4 0.6 0.6 8.6 8.6 128940 5,346 469,500 0.1 -1.8 108.0 -14.0 129.7 102.9 44.8 6.9 6.0 7.1 14.6 005830 DB Insurance 5,218 73,700 - - - - 0.0 0.0 078930 GS Holdings 5,157 55,500 3.2 -8.0 4.8 -2.6 5.3 5.5 5.2 0.6 0.6 11.8 11.3 097950 CJ CheilJedang 4,990 331,500 0.9 17.3 - 181.4 - 4.6 1.0 27.2 0.0 086280 4,781 127,500 2.4 -5.1 5.6 -37.4 29.3 11.2 8.7 1.1 1.0 10.4 12.6 088350 Hanwha Life 4,595 5,290 - - - - 0.0 0.0 029780 Samsung Card 4,281 36,950 -33.2 -16.8 -8.9 3.9 12.2 11.7 0.6 0.6 1.5 1.5 003670 POSCO Chemtech 4,277 72,400 0.5 -10.4 17.2 26.9 11.2 32.5 29.2 5.8 5.0 19.0 18.3 006360 GS E&C 4,262 54,500 0.6 242.8 -25.8 - -16.1 6.2 7.4 1.2 1.0 19.9 15.4 271560 Orion 4,230 107,000 0.7 137.1 7.7 34.4 9.7 24.4 22.3 2.9 2.6 12.5 12.3 071050 Korea Investment Holdings 4,213 75,600 - - - - 0.0 0.0 005940 NH Investment & Securities 4,024 14,300 - - - - 0.0 0.0 028050 3,861 19,700 232.3 59.9 - 79.3 35.6 19.8 3.4 2.9 10.0 15.6 001450 Hyundai M&F 3,755 42,000 - - - - 0.0 0.0 000120 CJ Logistics 3,604 158,000 -1.5 24.5 192.5 37.0 39.1 28.6 1.2 1.1 3.7 4.8 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data October 2, 2018

※All data as of close October 01, 2018, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 499.79 -2.49 -0.50 -9.81 USD/KRW 1,110.20 1,112.70 1,108.80 1,146.70 KOSPI 2,338.88 -4.19 -0.18 -5.68 JPY100/KRW 975.79 981.17 998.65 1,020.42 KOSDAQ 816.53 -5.74 -0.70 0.50 EUR/KRW 1,288.39 1,294.57 1,293.19 1,350.87 Dow Jones* 26,458.31 18.38 0.07 6.58 3Y Treasury 2.02 2.01 1.92 1.89 S&P 500* 2,913.98 -0.02 0.00 8.09 3Y Corporate 2.46 2.45 2.42 2.43 NASDAQ* 8,046.35 4.38 0.05 14.83 DDR2 1Gb* 1.28 1.28 1.30 1.23 Philadelphia Semicon* 1,366.74 8.87 0.65 6.14 NAND 16Gb* 2.82 2.82 2.82 3.01 FTSE 100* 7,510.20 -35.24 -0.47 -1.80 Oil (Dubai)* 80.03 80.36 75.02 55.55 Nikkei 225 24,245.76 125.72 0.52 3.15 Gold* 1,191.50 1,182.30 1,207.40 1,285.50 Hang Seng* 27,788.52 72.85 0.26 -8.94 Customer deposits (Wbn)* 26,995 27,048 25,342 24,355 Taiwan (Weighted) 11,051.80 45.46 0.41 3.18 Equity type BC (Wbn)(Sep. 27) 82,896 82,612 82,112 70,614 Note: * as of September 28, 2018 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Amore Pacific 25.55 KOREA AEROSPACE 45.67 SK Energy 21.89 Celltrion 37.63 LG Chem 18.95 SEMCO 37.16 16.67 Samsung Electronics 37.42 Samsung Electronics 18.67 Netmarble 11.50 Samsung Engineering 14.87 Hanmi Pharm 23.92 HYUNDAI HEAVY INDUSTRIES SAMSUNG BIOLOGICS 11.08 Hyundai Heavy Industries 11.20 12.16 SAMSUNG BIOLOGICS 19.55 HOLDINGS Samsung Electronics (P) 9.12 SAMSUNG C&T 10.66 LG Household & Health Care 12.16 POSCO 14.57 SK Energy 8.71 Hotel Shilla 7.32 KODEX KOSDAQ150 INVERSE 11.72 LG Uplus 13.13 POSCO 8.53 6.90 Netmarble 11.13 SamwhaCapacitor 12.67 Hana Financial Group 8.17 Saehan Media 6.21 emart 10.17 11.19 NCsoft 6.19 Green Cross Corp. 5.79 GS Construction 9.44 KODEX KOSDAQ150 LEVERAGE 10.63 GS Construction 5.82 Korea Zinc 4.80 HYUNDAI CE 7.14 Samsung SDI 9.81 Source: KSDA, Wisefn

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell SillaJen 34.58 CreaS F&C 7.50 SKPI 7.95 Celltrion Healthcare 15.28 ViroMed 8.86 SKPI 7.14 CJ O Shopping 7.30 CreaS F&C 15.10 HLB 7.41 Paradise 6.23 YG Entertainment 3.09 Posco Chemtech 13.64 Posco Chemtech 3.42 Medy-tox 5.63 Seoul Semiconductor 2.39 Jenexine 6.71 Leeno 1.59 L&F 5.22 1.48 OliX 5.02 DH PHARM 1.51 Cafe24 Corp. 3.85 SM 1.42 ViroMed 4.69 PearlAbyss 1.38 Daejoo Electronic Materials 3.58 NeoPharm 1.42 Daejoo Electronic Materials 4.36 GMP 1.22 Innocell 2.04 GMP 1.33 Jtuen Entertainment 4.31 Crystal Genomics 1.18 TELCON RF PHARM 1.64 megastudyEdu 1.27 SillaJen 3.32 Keayeast 1.06 Wemade 1.58 NUTRIBIOTECH 1.21 ST Pharm 3.16 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 46,350 -100 297,536 Celltrion Healthcare 90,100 -2,100 12,661 Hynix 73,700 600 53,654 SillaJen 106,800 4,400 7,456 Celltrion 292,000 -5,000 36,616 CJ O Shopping 255,700 7,700 5,607 SAMSUNG BIOLOGICS 538,000 4,000 35,597 HLB 120,500 400 4,675 Samsung Electronics (P) 37,950 100 34,293 Posco Chemtech 72,400 -600 4,277 Hyundai Motor 129,000 -500 27,563 NANOS 8,100 -60 3,976 LG Chem 368,500 3,000 26,013 ViroMed 242,000 1,200 3,861 POSCO 295,500 1,000 25,764 Medy-tox 611,000 -8,000 3,456 SAMSUNG C&T 128,000 -1,500 24,280 Studio Dragon 116,300 800 3,261 NHN 713,000 -3,000 23,502 Kolon TissueGene(Reg.S) 47,400 -1,500 2,890 Source: Korea Exchange