Morning Focus

November 12, 2018

Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) Celltrion (068270/Buy/TP: W335,000) Lower TP KOSPI 2,092.63 13.94 0.67 3Q18 review: Tailwinds remain KOSPI 200 272.11 1.66 0.61 KOSDAQ 693.67 11.30 1.66 Osstem Implant (048260/Buy/TP: W64,000) Earnings finally surprise to the upside Turnover ('000 shares, Wbn) Volume Value YG Entertainment (122870/Buy/TP: W60,000) KOSPI 322,591 5,870 KOSPI 200 98,098 4,620 Global platform revenue exhibits strong growth KOSDAQ 739,389 3,318

Emart (139480/Buy/TP: W320,000) Market Cap (Wbn) 3Q18 review: Look toward the future Value KOSPI 1,403,264 Hyundai Department Store (069960/Buy/TP: W125,000) KOSDAQ 229,338

3Q18 review: Stronger-than-expected results KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,760 1,273 486 Institutional 1,693 1,916 -223 Retail 2,359 2,637 -278

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 376 349 27 Institutional 233 354 -120 Retail 2,685 2,591 93

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,819 1,437 381 KOSDAQ 194 241 -48

Advances & Declines Advances Declines Unchanged KOSPI 718 131 47 KOSDAQ 1,017 182 61

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 44,050 50 549 KODEX KOSDAQ150 LEVERAGE 12,480 275 342 Hynix 72,900 2,100 286 Digital Power Communication 8,250 670 277 KODEX LEVERAGE 12,125 205 220

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Chorokbaem Media 2,290 340 158 SillaJen 75,600 -600 124 Posco Chemtech 76,800 4,300 94 Celltrion Healthcare 70,800 800 85 HLB 96,300 -1,200 83 Note: As of November 08, 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.

Celltrion (068270 KS ) 3Q18 review: Tailwinds remain

Healthcare 3Q18 review: Earnings widely miss expectations Results Comment For 3Q18, Celltrion reported consolidated revenue of W231.1bn (-0.4% YoY) and operating profit of W73.6bn (-44.2% YoY), missing our expectations and the consensus November 12, 2018 by a wide margin. Revenue was weaker than expected, affected by a roughly 15% price cut on Truxima supplies to Celltrion Healthcare. Still, we believe overall revenue held up well, given that there were no Remsima sales in the quarter and that Herzuma only accounted for 2% of revenue. (Maintain) Buy Margin erosion was attributable to: 1) the suspension of the company’s no. 1 plant due to a 50,000-liter capacity expansion; 2) higher expenses related to patent litigations for Target Price (12M, W) ▼ 335,000 the prompt US release of Truxima and Herzuma; and 3) increased R&D expenses stemming from the Financial Supervisory Service’s (FSS) guidelines on the accounting Share Price (11/09/18, W) 229,500 treatment of R&D expenses by pharmaceutical/biotech firms. A number of tailwinds remain Expected Return 46% While the latest results were indeed disappointing, we still see a number of tailwinds ahead. First, we expect Truxima and Herzuma to gain US approval by the end of the year. Truxima is particularly worth watching, as the US FDA’s Oncologic Drugs Advisory OP (18F, Wbn) 401 Committee unanimously voted 16-0 to recommend the approval of the biosimilar in Consensus OP (18F, Wbn) 507 October. In addition, rival Sandoz recently abandoned plans to seek the US approval of its Rituxan biosimilar Rixathon, which should enable Truxima to benefit from a first- EPS Growth (18F, %) -25.5 mover advantage in the US. Second, we believe the company will file for European Market EPS Growth (18F, %) 11.3 approval of Remsima SC, the subcutaneous version of Remsima, by the end of the year. P/E (18F, x) 96.4 Data presented at academic meetings show the subcutaneous version is comparable Market P/E (18F, x) 8.4 to the intravenous formulation, and we therefore believe the company’s Remsima KOSPI 2,086.09 portfolio is well-positioned to expand its market position. Lastly, there is a possibility that a third factory with capacity of 360,000 liters will be constructed. The company Market Cap (Wbn) 28,778 said last month that details have not yet been decided, but if announced, the plan will Shares Outstanding (mn) 125 likely trigger a re-rating in the company’s enterprise value and share price. Free Float (%) 66.6 Foreign Ownership (%) 19.8 Cut TP to W335,000, but maintain Buy Beta (12M) 1.10 We cut our target price on Celltrion to W335,000 (from W400,000), as we adjusted 52-Week Low 167,668 down our earnings estimates to reflect lower supply prices and higher expenses. Still, we maintain our Buy rating, as we believe: 1) the US approval of Truxima and Herzuma 52-Week High 373,500 and the announcement of a third plant will provide positive momentum to shares; 2) (%) 1M 6M 12M Truxima and Herzuma will continue to rapidly penetrate the European ma rket; and 3) Absolute -20.9 -11.4 36.9 the US market environment is turning increasingly favorable (e.g., the US FDA’s announcement of a Biosimilar Action Plan and growing calls for biosimilars from Relative -14.5 3.8 67.4 patient advocate groups).

270 Celltrion KOSPI However, investors should bear in mind that the impact of the no. 1 plant suspension 220 will likely last through 1H19 and that Temasek could sell additional shares in the company. 170

120

70 11.17 3.18 7.18 11.18

Mirae Asset Daewoo Co., Ltd.

[ Biotech/Healthcare ] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 603 671 949 984 1,253 1,840 Taehee Kim +822 -3774 -6813 OP (Wbn) 259 250 522 401 541 848 [email protected] OP margin (%) 43.0 37.3 55.0 40.8 43.2 46.1

Seunglok Huh NP (Wbn) 154 178 399 298 425 671 +822 -3774 -1374 EPS (W) 1,261 1,427 3,195 2,380 3,323 5,147 [email protected] ROE (%) 10.5 9.5 17.8 11.6 14.5 19.3

P/E (x) 62.6 73.8 69.2 96.4 69.1 44.6 P/B (x) 5.5 6.4 11.2 10.4 9.4 7.9 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 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

November 12, 2018 Celltrion

Table 1. 3Q18 review (Wbn, %) Mirae Asset 3Q17 2Q18 3Q18 YoY QoQ Consensus Daewoo Revenue 232.1 263.4 231.1 -0.4 -12.3 285.3 256.3 Operating profit 131.8 105.8 73.6 -44.2 -30.4 129.8 115.5 OP margin (%) 56.8 40.1 31.9 45.5 45.1 Net profit 102.9 80.5 56.2 -45.4 -30.2 98.9 91.2 Note: Net profit is attributable to controlling interests Source: FnGuide, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, W, %, %p) Previous Revised Change Notes 2018F 2019F 2018F 2019F 2018F 2019F Revenue 1,149 1,518 984 1,253 -14.3 -17.4 Supply price cuts Operating Suspension of no. 1 plant and R&D 517 737 401 541 -22.4 -26.6 profit expense accounting changes Net profit 391 587 299 426 -23.6 -27.3 EPS 3,113 4,573 2,380 3,323 -23.6 -27.3

BPS 22,852 26,467 22,119 24,536 -3.2 -7.3 OP margin 45.0 48.5 40.7 43.2 -4.2 -5.4

Net margin 34.1 38.6 30.4 34.0 -3.7 -4.6 Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Osstem Implant (048260 KQ) Earnings finally surprise to the upside

MedTech 3Q18 review: OP surprises to the upside Results Comment For 3Q18, Osstem Implant delivered revenue of W114bn (+14.5% YoY), in line with the consensus. Overall growth was driven by overseas revenue, which climbed 16.2% YoY. November 12, 2018 By region, revenue was up 10.9% YoY in China, 20.4% YoY in North America, and 48.1% YoY in Europe, and down 0.3% YoY in Asia. Domestic revenue was up 10.1% YoY.

Operating profit surprised to the upside, soaring 173.7% YoY to W12.2bn (OP margin of 10.7%). OP margin recovered to over 10% for the first time in eight quarters, driven by (Maintain) Buy overseas subsidiaries, which saw sharp margin improvements on the back of efforts to strengthen financial health and reduce SG&A expenses. At the net level, the company Target Price (12M, W) 64,000 reported a loss of W2.2bn, but this was primarily attributable to 1) F/X-related losses of W8.1bn (due to the lira and ruble) and 2) higher taxes as a result of parent profit Share Price (11/09/18, W) 43,350 growth. Asia’s no. 1 dental implant supplier; Watch for operating leverage effects Expected Return 48% 1) Tighter grip on Asia: Since 2006, Osstem Implant has generated 1.1 to 2.5 times the revenue of global leader Straumann in Asia (primarily Korea and China). In 2019, we expect Osstem Implant’s Asia revenue to expand 13.1% YoY (or +23.5% YoY, excluding OP (18F, Wbn) 39 Korea). In the maturing domestic market, we believe the company has been the Consensus OP (18F, Wbn) 33 biggest beneficiary of the dental implant co-payment rate cut. Overall, we see robust top-line growth continuing in 2019, led by overseas markets (+21.6% YoY), especially EPS Growth (18F, %) 76.3 Asia. Market EPS Growth (18F, %) 11.3 P/E (18F, x) 34.8 2) Operating leverage effects: For Osstem Implant, operating leverage is critical Market P/E (18F, x) 8.4 because the company’s business strategy involves heavy investments in fixed assets. KOSDAQ 687.29 However, despite continued top-line growth, costs remained a source of concern. Since the earnings shock in 4Q17, the company has introduced a fairly conservative Market Cap (Wbn) 619 provisioning policy and tightened control over operations. As such, we believe one-off Shares Outstanding (mn) 14 expense pressures have now been largely removed. Free Float (%) 76.4 3) Poised to become total dental solutions provider: A notable trend in the global Foreign Ownership (%) 42.2 dental equipment market is that many companies are expanding across the value Beta (12M) 0.43 chain to provide total dental solutions. Osstem Implant already generates 28-30% of its 52-Week Low 41,700 revenue from products other than dental implants. In the same way that it expanded 52-Week High 74,900 its dental chair business into overseas markets, the company is likely to take its digital imaging equipment business overseas once it establishes a stable footing domestically (%) 1M 6M 12M (4Q18). Absolute -11.0 -19.0 -39.4 Maintain Buy and TP of W64,000 Relative -0.6 0.3 -37.4 We maintain our Buy rating and target price of W64,000 on Osstem Implant. Overseas 150 Osstem Implant KOSDAQ subsidiaries are continuing robust growth, and domestically, the company is 130 continuing to benefit strongly from the lower dental implant co-payment rate.

110 Furthermore, as costs related to overseas subsidiaries stabilize, we expect more meaningful operating leverage effects to materialize. 90

70 The stock is trading at a 12-month forward P/E of 17.9x, a historical low and discount to

50 global peers (22.1x). 11.17 3.18 7.18 11.18

Mirae Asset Daewoo Co., Ltd.

[ MedTech/Healthcare Solutions] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 278 345 398 453 520 591 Choong-hyun Kim, CFA +822-3774-1740 OP (Wbn) 33 34 22 39 58 71 [email protected] OP margin (%) 11.9 9.9 5.5 8.6 11.2 12.0

NP (Wbn) 18 24 10 18 37 47 EPS (W) 1,259 1,645 708 1,247 2,609 3,271 ROE (%) 18.1 22.1 9.3 14.8 25.5 24.8

P/E (x) 64.4 36.9 83.5 34.8 16.6 13.3 P/B (x) 10.6 6.7 6.1 4.1 3.3 2.6 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 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.

November 12, 2018 Osstem Implant

Table 1. 3Q18 review (Wbn, %, %p) 3Q18P Growth 3Q17 2Q18 Mirae Asset Preliminary Consensus YoY QoQ Daewoo Revenue 99.6 112.7 114.0 114.3 115.7 14.5 1.2 Operating profit 4.4 7.2 12.2 8.1 9.2 173.7 67.9 OP margin (%) 4.5 6.4 10.7 7.1 7.9 6.2 4.2 Pretax profit 4.3 7.3 0.6 7.0 7.2 -84.9 -91.2 Net profit 5.3 4.3 -0.9 5.6 6.0 TTR TTR Notes: Based on consolidated K-IFRS; net profit is attributable to controlling interests Source: FnGuide, company data, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes 18F 19F 18F 19F 18F 19F

Revenue 451.4 518.7 453.0 520.2 0.3 0.3 Reflected 3Q18 earnings Operating 31.9 49.8 38.7 57.6 21.5 15.5 profit Pretax profit 29.2 45.6 25.5 53.3 -12.5 16.7 Net profit 22.1 32.0 17.8 37.3 -19.4 16.7 EPS (W) 1,548.1 2,236.6 1,247.4 2,609.3 -19.4 16.7 Notes: Based on consolidated K-IFRS; net profit is attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. Quarterly and annual earnings (Wbn, %) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18P 4Q18F 2017 2018F 2019F Revenue 93.5 101.0 99.6 103.7 108.5 112.7 114.0 117.8 397.8 453.0 520.2 Domestic 46.4 48.1 47.6 49.7 56.3 51.7 52.4 53.6 191.8 214.1 228.1 China 14.6 18.3 20.2 20.6 14.9 22.6 22.4 25.2 73.7 85.2 109.2 North America 14.9 15.1 15.9 15.2 15.9 19.1 19.2 17.6 61.2 71.9 84.3 Other 17.5 19.5 15.8 18.3 21.3 19.2 20.0 21.3 71.2 81.8 98.6 Operating profit 7.9 9.6 4.4 -0.3 6.9 7.2 12.2 12.4 21.7 38.7 57.6 Domestic 9.6 11.0 9.1 11.8 10.7 12.1 13.9 11.7 41.5 48.4 52.0 China -2.3 -3.1 -2.0 -9.0 -2.6 -2.3 -0.5 -0.7 -16.3 -6.1 -1.8 North America 0.4 1.3 1.2 -1.2 -0.3 0.6 0.4 0.7 1.7 1.4 4.9 Other 0.1 0.5 -3.8 -2.0 -0.9 -3.2 -1.6 0.7 -5.2 -5.0 2.5 Pretax profit -0.7 12.6 4.3 3.3 6.3 7.3 0.6 11.3 19.4 25.5 53.3 Net profit 0.0 8.0 5.3 -3.2 5.4 4.3 -0.9 9.0 10.1 17.8 37.3 OP margin (%) 8.4 9.6 4.5 -0.3 6.4 6.4 10.7 10.5 5.5 8.5 11.1 Pretax margin (%) -0.8 12.4 4.3 3.2 5.8 6.5 0.6 9.6 4.9 5.6 10.2 Net margin (%) -0.3 7.8 4.4 -6.1 3.7 2.7 -1.9 7.7 2.5 3.9 7.2 Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

YG Entertainment (122870 KQ) Global platform revenue exhibits strong growth

3Q18 review: Parent and YouTube both better than expected Entertainment For 3Q18, YG Entertainment reported consolidated revenue of W65.2bn (-13.3% YoY) and operating profit of W2.6bn (+77.8% YoY). Operating profit fell short of our Results Comment estimate, which did not include content production losses (W1.7bn). Still, we believe the company performed in line with market expectations, considering the unfavorable November 12, 2018 earnings variables it faced in the quarter. Revenue from YouTube was also better than expected.

Despite a widely anticipated void in concerts, Seungri, iKON, and BLACKPINK made great strides in the quarter. In particular, 1) BLACKPINK’s success drove robust digital (Maintain) Buy music revenue (W14.1bn; -11.3% YoY). 2) In addition, revenue from YouTube, a key area of focus, grew strongly to more than W3bn, exceeding the 1H18 total. Even after excluding one-time revenue from G-Dragon’s documentary, YouTube revenue was Target Price (12M, W) 60,000 better than our expectation of W2bn. We believe domestic digital music sales, a relatively stable source of income, and global platform sales (YouTube ads, Apple Share Price (11/09/18, W) Music/Spotify licensing, etc.), a fast-growing source of income, will both continue to 36,200 make an increasing contribution to profits. Expected Return 66% 3) The content production business recorded a loss of W1.7bn (vs. loss of W10.1bn in 4Q17-2Q18), due to higher-than-expected fixed costs. Upcoming programs include YG Treasure Box and another new title for Netflix. We see risks of continued losses. 4) YG Plus remained in the black (operating profit of W0.9bn), supported by the recognition OP (18F, Wbn) 12 of music distribution revenue and smaller losses from Moonshot. Consensus OP (18F, Wbn) 12 BLACKPINK, iKON, and WINNER to become increasingly active EPS Growth (18F, %) -57.2 YG Entertainment’s resources and fan base are shifting toward the company’s next- Market EPS Growth (18F, %) 11.3 generation artists. iKON and WINNER are currently working on new content that will be P/E (18F, x) 90.9 released after their current world tours end. Meanwhile, BLACKPINK is also growing rapidly in terms of fan base and content development. Overall, we expect a reversal Market P/E (18F, x) 8.4 from the past couple of years, which were fraught with delays in artist comebacks. KOSDAQ 687.29 BLACKPINK recently released the schedule of its first world tour (eight performances so Market Cap (Wbn) 658 far confirmed) since its debut two years ago. It also looks highly likely that North Shares Outstanding (mn) 20 America will be added to the group’s world tour. In the meantime, the group’s th Free Float (%) 62.7 members will embark on solo projects, starting with Jennie on November 12 . This should allow the company to better leverage its partnership with Universal Music Foreign Ownership (%) 14.3 Group (more collaboration with global artists), increase the frequency of comebacks Beta (12M) 0.71 (more revenue from global platforms), and diversify concert setlists. We think frequent 52-Week Low 27,000 single releases are especially effective in creating music video content, which is key to expanding the global fan base and generating short-term buzz. 52-Week High 46,700 Retain Buy and TP of W60,000; New and existing revenue sources both look (%) 1M 6M 12M robust Absolute -12.1 29.5 20.1 We retain our Buy call and target price of W60,000 on YG Entertainment. The growing Relative -1.9 60.3 24.0 fan base of BLACKPINK, iKON, and WINNER, which have taken hold as the company’s core acts, is effectively translating into earnings (albums, digital music, concerts, etc.). 180 YG Entertainment KOSDAQ Revenue from global platforms, a key area of focus, also exceeded expectations in 160 3Q18. We believe the latest quarterly results confirm the company’s earnings variables 140 and growth variables are progressing smoothly. 120 We recommend aggressively overweighting YG Entertainment, with the year 2020 in 100 mind. The company’s artist lineup (including Big Bang) will become fully active in a year, and we believe the company has strong potential on global platforms. Newer 80 11.17 3.18 7.18 11.18 artists like BLACKPINK, iKON, and WINNER, which are rising fast in Korea and Japan, should meaningfully contribute to profits over the long term. We also think the company is favorably positioned to capitalize on the growing presence of global Mirae Asset Daewoo Co., Ltd. platforms.

[Media] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 193 322 350 287 300 449 Jeong-yeob Park +822-3774-1652 OP (Wbn) 22 32 24 12 25 54 [email protected] OP margin (%) 11.4 9.9 6.9 4.2 8.3 12.0 NP (Wbn) 28 19 18 8 21 45 EPS (W) 1,700 1,094 931 398 1,052 2,305 ROE (%) 14.7 7.7 5.7 2.3 5.8 11.7 P/E (x) 26.2 25.9 31.0 90.9 34.4 15.7 P/B (x) 3.6 1.8 1.6 2.0 1.9 1.7 Dividend yield (%) 0.8 0.7 0.5 0.4 0.4 0.4 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

November 12, 2018 YG Entertainment

Table 1. Quarterly and annual earnings (Wbn, %, mn) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18P 4Q18F 2018F 2019F 2020F Revenue 107 72 75 95 77 63 65 82 287 300 449 Products 27 32 24 50 20 26 30 35 110 134 197 Albums 18 22 16 17 13 16 17 19 65 79 108 Goods, etc. 8 9 8 34 6 9 13 17 45 54 88 Management 80 41 51 45 58 37 30 46 171 166 253 Concert 13 7 21 15 2 1 5 11 19 33 64 Advertising 9 12 10 8 7 8 7 5 27 27 27 Royalties 49 6 5 1 35 5 4 11 54 42 90 Appearance fees 5 4 5 6 3 5 4 6 17 16 19 Commissions 4 11 9 11 8 18 9 11 45 40 42 Production 0 0 0 4 3 0 1 3 8 8 10 Gross profit 33.0 24.6 20.8 22.3 20.5 21.7 21.5 23.9 88 100 148 Operating profit 14.8 4.3 1.5 4.6 2.3 1.4 2.6 6.0 12 25 54 OP margin (%) 13.9 6.0 2.0 4.8 3.0 2.3 4.4 7.3 4.3 8.4 12.1 Pretax profit 13.6 6.0 7.8 2.6 2.9 1.7 3.2 4.7 12 26 56 Net profit 6.0 4.7 5.3 -4.1 0.8 -0.4 1.1 3.3 5 18 39 Net margin (%) 5.6 6.6 7.1 -4.3 1.0 -0.6 1.9 4.0 1.7 6.0 8.7 Net profit (controlling) 7.3 4.4 6.2 -0.1 2.3 -0.1 2.0 3.8 8.0 20.6 45.1 YoY Revenue 46.5 -6.5 -25.7 35.8 -27.7 -13.2 -13.3 -14.6 -18.1 4.7 49.6 Products 43.9 46.5 -0.9 91.9 -26.3 -18.6 24.5 -30.1 -16.7 21.1 47.0 Management 47.4 -27.1 -33.6 2.6 -28.0 -9.0 -41.8 2.5 -21.3 -2.6 51.7 Gross profit 42.2 7.1 -27.5 10.6 -37.8 -11.8 3.4 7.3 -13.0 14.6 47.3 Operating profit 56.3 -36.1 -87.8 30.0 -84.4 -67.2 77.8 30.0 -51.1 103.6 116.7 Net profit -6.8 -27.8 133.7 RR -87.0 TTR -78.8 TTB -59.7 272.4 119.1 Key assumption Ticket sales volume in Japan 0.1 0.5 0.5 0.8 0.1 0.0 0.2 0.2 0.5 0.9 2.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 2

Emart (139480 KS) 3Q18 review: Look toward the future

Retail 3Q18 review: In-line results Results Comment For 3Q18, Emart announced consolidated revenue of W4.73tr (+13.9% YoY) and operating profit of W194.6bn (-4.1% YoY; excluding China and duty-free November 12, 2018 operations), in line with the consensus and our projections. In 4Q18, we expect 1) the “Black EO” event (Emart’s version of Black Friday) to drive a pickup in hypermarkets, and 2) continued improvements in subsidiaries (Starbucks and Starfield) to partially offset the unfavorable comparison caused by the Chuseok (Maintain) Buy holiday (which fell in 3Q this year vs. 4Q last year). Hypermarket: Operating profit declined 16.9% YoY to W178bn, and same-store sales Target Price (12M, W) 320,000 (SSS) grew 1.3% YoY. Operating profit continued to contract, affected by: 1) increased expenses related to the minimum wage hike and 2) higher fixed costs (specialty store Share Price (11/09/18, W) 202,500 rollouts, taxes, etc.). We believe the November Black EO event will offset some of the unfavorable comparison related to Chuseok. Expected Return 58% Online: The online business recorded an operating loss of W4.9bn due to 1) the impact of holidays (online sales during holidays are 60-70% of those during weekdays) and 2) TV ad spending (W3.9bn). Losses should continue in 4Q18, as another W1.4bn will be OP (18F, Wbn) 556 spent on TV ads in the quarter. Consensus OP (18F, Wbn) 563 New growth engine to make up for hypermarket weakness EPS Growth (18F, %) -17.6 Looking to 2019, we believe any improvements in the hypermarket business will Market EPS Growth (18F, %) 11.3 continue to be limited, given 1) ongoing cost pressures related to the minimum wage P/E (18F, x) 11.1 hike and 2) the relative competitiveness of newer channels, such as online and Market P/E (18F, x) 8.4 convenience stores. However, following the establishment of a new online company in KOSPI 2,086.09 1Q19, the value of Emart’s online business should come into focus, and its online grocery market share should stabilize. With the online company serving as a new Market Cap (Wbn) 5,645 growth engine, we expect Emart’s share price to meaningfully recover. Shares Outstanding (mn) 28 While it remains unclear at this point what Emart’s equity share will be in the online Free Float (%) 71.9 company, we think it is likely the online company will become a consolidated Foreign Ownership (%) 48.8 subsidiary, considering 1) how important Emart’s logistics-driven online grocery Beta (12M) 0.61 competitiveness will be to the expansion of the new online company, and 2) the sheer 52-Week Low 188,000 revenue size of Emart’s spun-off online entity compared to Shinsegae’s (W863.4bn for 52-Week High 317,500 Emart vs. W82.4bn for Shinsegae as of 2017).

(%) 1M 6M 12M Reaffirm Buy and TP of W320,000 Absolute -5.8 -21.2 -12.9 We reaffirm our Buy call and target price of W320,000 on Emart. While the unfavorable Relative 1.8 -7.7 6.5 comparison caused by Chuseok should be partially offset by the Black EO event in 4Q18, we believe any near-term share price recovery will be limited by 1) ongoing cost 150 Emart KOSPI pressures related to minimum wage hikes and specialty store rollouts and 2) continued

130 online losses.

110 However, we look for a meaningful rebound in 2019, as 1) the company should expand its online grocery market share, and 2) the value of the online business should come 90 into focus after the establishment of the new online company. We recommend that

70 investors focus on new growth momentum rather than near-term weakness. 11.17 3.18 7.18 11.18

Mirae Asset Daewoo Co., Ltd.

[ Retail] FY (Dec.) 12/14 12/15 12/16 12/17 12/18F 12/19F Revenue (Wbn) 13,154 13,640 14,615 15,877 16,872 17,765 Myoungjoo Kim +822-3774-1458 OP (Wbn) 583 504 569 567 556 631 [email protected] OP margin (%) 4.4 3.7 3.9 3.6 3.3 3.6

NP (Wbn) 290 455 376 616 508 494 EPS (W) 10,404 16,312 13,497 22,101 18,207 17,713 ROE (%) 4.3 6.5 5.1 7.7 6.1 5.7

P/E (x) 19.5 11.6 13.6 12.3 11.1 11.4 P/B (x) 0.8 0.8 0.7 0.9 0.7 0.6 Dividend yield (%) 0.7 0.8 0.8 0.6 0.9 0.9 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

Hyundai Department Store (069960 KS) 3Q18 review: Stronger-than-expected results

Retail 3Q18 review: Stronger-than-expected results For 3Q18, Hyundai Department Store (HDS) reported revenue of W437bn (+3.5% YoY) Results Comment and operating profit of W79.9bn (+14.9% YoY), beating our expectations and the November 9, 2018 consensus. Despite higher expenses related to the duty-free business, the company performed better than expected, thanks to 1) operating profit growth in department stores due to increased floor space and 2) Chuseok holiday effects. Department store: Same-store sales (SSS) grew 3.8%. Earnings were driven by 1) top- (Maintain) line growth, especially in the luxury goods and home categories, and 2) Chuseok Buy holiday effects. Looking to 4Q18, we expect solid earnings to continue, supported by 1) increased floor space following the renovations of the Cheonho store and Gimpo Target Price (12M, W) 125,000 outlet, 2) strong sales of winter apparel due to the recent cold weather, and 3) ongoing cost savings (ad/promotional expense savings: W30bn targeted in 2018 vs. W15-20bn expected in 2019). Share Price (11/09/18, W) 87,400 Duty-free: HDS’s new duty-free store had its grand opening on November 1st. The store Expected Return 43% features around 360 brands, with 70% opened so far. The company spent W9.5bn (ads, etc.) on the store’s opening in 3Q18 (vs. W3.6bn in 2Q18). With spending (travel agent commissions, etc.) likely to continue during the store’s initial operation, we believe losses will be inevitable in 2018 and 2019. OP (18F, Wbn) 378 Consensus OP (18F, Wbn) 372 Near-term weakness in duty-free to be offset by department store business We believe uncertainties surrounding the duty-free business have increased due to 1) EPS Growth (18F, %) -1.8 intensifying competition in the Gangnam area and 2) a potential slowdown in sales Market EPS Growth (18F, %) 11.3 from daigou (unofficial Chinese shopping agents). The duty-free business will likely be P/E (18F, x) 8.2 unable to avoid losses in 2018 and 2019 as it goes through the initial stages of operation. In 2019, we project duty-free losses of W20.1bn (gross revenue of W630bn). Market P/E (18F, x) 8.4 KOSPI 2,086.09 However, we believe this will be fully offset by the department store business, which should deliver operating profit growth in 2019 on the back of the floor space expansion Market Cap (Wbn) 2,045 undertaken this year. In 2019, the overall department store industry should see Shares Outstanding (mn) 23 operating profit growth moderate amid 1) a potential slowdown in the home category as a result of fewer apartment move-ins, and 2) an unfavorable comparison caused by Free Float (%) 60.3 cost-saving effects. However, we expect HDS’s 2019 department store operating profit Foreign Ownership (%) 29.0 to grow in line with this year’s level, driven by increased floor space (the Cheonho Beta (12M) 0.93 branch and Gimpo outlet were reopened in November and August, respectively, 52-Week Low 84,200 following renovations). 52-Week High 119,500 Reiterate Buy and TP of W125,000

(%) 1M 6M 12M We reiterate our Buy rating and target price of W125,000 on HDS. While the duty-free business is likely to suffer operating losses in 2018 and 2019 due to intensifying Absolute -6.8 -14.3 -5.0 competition in the Gangnam area and a potential slowdown in daigou sales, we believe Relative 0.7 0.4 16.2 this will be fully offset by operating profit growth at the department store business, driven by floor space expansion. 150 Hyundai Department Store KOSPI In the near term, the stock could come under pressure due to heightened duty-free 130 uncertainties. However, we believe the stock will stage a meaningful recovery in 2019,

110 given that: 1) Chinese tourists to Korea are rapidly normalizing; 2) the duty-free store business looks likely to attract some top luxury brands in the near future; and 3) floor 90 space expansion in department stores should drive operating leverage effects next year. Rather than worrying about near-term weakness, we believe investors should 70 focus on 1) the duty-free business’s potential as a new growth driver and 2) the 11.17 3.18 7.18 11.18 department store business’s solid earnings growth relative to peers.

Mirae Asset Daewoo Co., Ltd.

[ Retail] FY (Dec.) 12/14 12/15 12/16 12/17 12/18F 12/19F Revenue (Wbn) 1,552 1,657 1,832 1,848 1,909 2,404 Myoungjoo Kim +822-3774-1458 OP (Wbn) 364 363 383 394 378 394 [email protected] OP margin (%) 23.5 21.9 20.9 21.3 19.8 16.4

NP (Wbn) 268 241 276 254 249 264 EPS (W) 11,470 10,294 11,784 10,841 10,644 11,292 ROE (%) 8.6 7.2 7.7 6.6 6.2 6.2

P/E (x) 10.7 12.3 9.2 9.6 8.2 7.7 P/B (x) 0.9 0.8 0.7 0.6 0.5 0.5 Dividend yield (%) 0.6 0.6 0.6 0.8 0.9 0.9 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

Mirae Asset Daewoo Research Key Universe Valuations November 12, 2018

※All data as of close November 07, 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 282,771 44,050 3.2 20.1 -4.3 21.1 6.4 6.7 6.3 1.3 1.1 21.2 19.1 000660 SK Hynix 53,071 72,900 1.4 62.1 -14.3 54.8 -13.6 3.2 3.7 1.1 0.8 39.6 25.3 068270 Celltrion 29,907 238,500 - - - - 0.0 0.0 207940 Samsung BioLogics 25,440 384,500 4.5 277.0 - 375.1 491.3 103.4 6.3 6.0 1.3 5.9 051910 LG Chem 23,648 335,000 1.8 -19.3 2.1 -16.4 5.8 16.1 15.2 1.5 1.4 9.8 9.7 005490 POSCO 23,279 267,000 3.0 19.3 3.5 21.5 10.4 6.9 6.2 0.5 0.5 7.6 7.9 017670 SK Telecom 21,599 267,500 3.7 -15.6 19.9 39.4 10.6 6.0 5.4 0.9 0.8 18.2 16.9 055550 Shinhan Financial Group 20,319 42,850 19.0 4.5 13.5 4.2 6.1 5.9 0.6 0.5 9.7 9.3 105560 KB Financial Group 20,258 48,450 22.2 5.2 7.7 4.3 5.6 5.4 0.6 0.5 10.3 10.0 028260 Samsung C&T 20,202 106,500 1.9 26.8 7.7 96.0 2.2 16.2 15.9 0.8 0.7 5.4 5.2 096770 SK Innovation 18,817 203,500 3.9 -4.4 -13.8 -10.0 -0.3 10.1 10.1 1.0 0.9 10.4 10.0 034730 SK Holdings 18,645 265,000 1.7 5.5 4.7 34.2 -2.7 8.3 8.6 1.1 1.0 15.1 12.8 032830 Samsung Life 18,480 92,400 - - - - 0.0 0.0 015760 KEPCO 17,622 27,450 - - - - - 21.1 0.3 0.3 - 1.2 006400 Samsung SDI 15,747 229,000 0.4 528.1 51.9 10.0 67.3 22.3 13.3 1.3 1.2 6.2 9.7 018260 Samsung SDS 14,547 188,000 1.3 18.6 13.8 22.7 12.9 22.3 19.8 2.4 2.2 11.3 11.7 033780 KT&G 13,798 100,500 4.0 -15.3 17.9 -16.6 11.2 14.2 12.8 1.7 1.6 12.5 13.5 010950 S-Oil 13,510 120,000 3.4 0.8 46.8 -28.5 71.2 15.7 9.2 2.1 1.8 13.3 21.6 000810 Samsung F&M 13,099 276,500 - - - - 0.0 0.0 003550 LG Corp. 11,613 67,300 1.9 0.5 8.3 -23.0 10.4 6.4 5.8 0.7 0.6 10.9 10.8 086790 Hana Financial Group 11,484 38,250 25.0 9.5 18.0 10.3 4.7 4.3 0.4 0.4 9.7 9.7 066570 LG Electronics 11,439 69,900 1.0 24.6 9.8 -5.8 21.8 7.8 6.4 0.9 0.8 11.6 12.6 091990 Celltrion Healthcare 9,949 70,800 45.8 63.6 39.9 27.0 40.3 31.8 5.1 4.5 13.5 15.1 011170 Lotte Chemical 9,546 278,500 3.8 -25.5 -1.8 -19.0 3.5 5.3 5.1 0.7 0.7 14.9 13.8 009150 Samsung Electro-Mechanics 9,337 125,000 0.6 272.0 37.4 331.3 37.0 13.9 10.2 1.9 1.6 15.4 18.0 024110 Industrial Bank of Korea 8,596 15,350 22.8 9.2 20.1 8.6 5.6 5.2 0.5 0.4 8.8 9.0 030200 KT 7,716 29,550 3.4 3.6 0.3 62.4 16.1 10.0 8.6 0.6 0.5 6.3 6.8 010130 Korea Zinc 7,576 401,500 2.5 -8.6 2.9 -1.2 9.5 12.2 11.1 1.2 1.1 10.1 10.3 032640 LG Uplus 6,789 15,550 3.5 3.9 10.2 2.0 11.4 12.2 10.9 1.0 0.9 9.3 8.9 034220 LG Display 6,083 17,000 2.9 ------0.4 0.4 - - 023530 Lotte Shopping 5,955 210,500 2.5 18.2 36.1 - - - 11.6 0.5 0.5 - 4.1 004020 Hyundai Steel 5,818 43,600 1.7 1.1 2.5 8.3 7.0 7.5 7.0 0.3 0.3 4.6 4.7 139480 Emart 5,812 208,500 0.8 -5.8 18.1 -28.5 7.9 13.2 12.2 0.7 0.7 5.3 5.6 000720 Hyundai E&C 5,679 51,000 1.0 1.0 13.9 159.8 9.8 10.8 9.9 0.9 0.8 8.0 8.4 097950 CJ CheilJedang 5,013 333,000 0.9 7.9 9.9 134.6 -65.1 5.6 15.9 1.1 1.0 23.1 6.7 128940 Hanmi Pharmaceutical 4,958 435,500 0.1 3.0 97.1 -7.8 114.0 89.0 41.6 6.4 5.6 7.6 14.6 036460 KOGAS 4,883 52,900 1.9 25.0 10.6 - 8.1 7.0 6.5 0.6 0.5 8.6 8.6 005830 DB Insurance 4,864 68,700 - - - - 0.0 0.0 003670 POSCO Chemtech 4,537 76,800 0.5 -10.4 17.2 26.9 11.2 34.5 31.0 6.1 5.3 19.0 18.3 086280 Hyundai Glovis 4,350 116,000 2.6 -5.2 6.0 -37.1 31.6 10.2 7.7 1.0 0.9 10.5 12.8 088350 Hanwha Life 3,952 4,550 - - - - 0.0 0.0 029780 Samsung Card 3,858 33,300 -28.5 -22.3 -8.2 3.9 10.9 10.5 0.6 0.5 1.5 1.5 271560 Orion 3,815 96,500 0.6 145.6 6.6 43.9 6.9 20.6 19.2 2.6 2.3 13.3 12.7 005940 NH Investment & Securities 3,813 13,550 - - - - 0.0 0.0 001450 Hyundai M&F 3,719 41,600 - - - - 0.0 0.0 071050 Korea Investment Holdings 3,700 66,400 - - - - 0.0 0.0 028050 Samsung Engineering 3,646 18,600 211.4 69.6 - 50.4 36.8 24.5 3.3 2.9 9.3 12.7 000120 CJ Logistics 3,627 159,000 -2.8 27.1 185.8 46.0 40.3 27.6 1.2 1.1 3.6 5.0 012750 S1 3,542 93,200 2.9 2.4 5.3 5.2 5.2 23.5 22.3 2.8 2.6 12.1 12.0 006360 GS E&C 3,266 41,400 0.7 234.5 -10.7 - 12.4 5.0 4.4 0.9 0.8 18.6 18.9 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data November 12, 2018

※All data as of close November 08, 2018, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 445.19 -0.71 -0.16 -19.66 USD/KRW 1,120.90 1,122.50 1,130.70 1,111.60 KOSPI 2,092.63 13.94 0.67 -15.61 JPY100/KRW 987.36 989.38 994.33 976.59 KOSDAQ 693.67 11.30 1.66 -14.62 EUR/KRW 1,281.24 1,282.06 1,303.13 1,288.96 Dow Jones* 26,180.30 545.29 2.13 5.46 3Y Treasury 1.97 1.96 2.09 2.15 S&P 500* 2,813.89 58.44 2.12 4.38 3Y Corporate 2.42 2.42 2.53 2.71 NASDAQ* 7,570.75 194.79 2.64 8.05 DDR2 1Gb* 1.21 1.21 1.28 1.28 Philadelphia Semicon* 1,257.47 14.84 1.19 -2.35 NAND 16Gb* 2.82 2.82 2.81 2.89 FTSE 100* 7,117.28 76.60 1.09 -6.94 Oil (Dubai)* 70.64 71.20 83.20 62.39 Nikkei 225 22,486.92 401.12 1.82 -4.34 Gold* 1,228.70 1,226.30 1,201.20 1,275.80 Hang Seng* 26,147.69 26.73 0.10 -14.31 Customer deposits (Wbn)* 24,060 24,521 25,956 24,511 Taiwan (Weighted) 9,945.31 36.96 0.37 -7.15 Equity type BC (Wbn)(Nov. 6) 81,703 81,631 82,044 72,234 Note: * as of November 07, 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 Hynix 102.00 Amore Pacific 12.63 KODEX LEVERAGE 26.67 Samsung Electronics 31.84 Samsung Electronics 57.09 KODEX 200 9.35 LG Electronics 24.82 SAMSUNG BIOLOGICS 29.00 Celltrion 23.28 LG Chem 8.18 KODEX KOSDAQ150 LEVERAGE 19.41 SAMSUNG C&T 23.88 KB Financial Group 14.34 LG Uplus 7.12 Hyundai Eng. & Cosnt. 18.03 LG Chem 21.98 Samsung SDI 12.72 Korea Plant Service & Engineering 5.75 KODEX 200 13.51 Hynix 21.86 SAMSUNG C&T 10.73 LG Innotek 5.29 Daum Communications 9.38 KODEX 200 Futures Inverse 2X 18.08 Samsung Life Insurance 10.21 Doosan Bobcat 4.82 Samsung Heavy Ind. 6.21 FILA KOREA 12.85 Woori Bank 9.68 INSCOB 3.84 Hyundai Heavy Industries 5.87 Samsung SDI 10.08 SEMCO 9.30 Daewoong Pharm. 3.21 Daewoong Pharm. 5.25 KODEX KOSDAQ150 INVERSE 9.39 Shinhan Financial Group 8.30 F&F 3.00 Doosan Bobcat 5.17 NCsoft 9.35 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 Posco Chemtech 10.04 Celltrion Healthcare 16.87 Posco Chemtech 12.03 SillaJen 9.13 Nowcom 5.41 HLB 16.05 L&F 5.97 Celltrion Healthcare 9.03 PearlAbyss 5.00 SillaJen 11.20 Studio Dragon 4.82 Paradise 8.71 ECOPRO 4.47 SM 3.22 CJ O Shopping 2.43 PearlAbyss 7.62 Daea TI 4.27 Energy Solutions 2.69 Gamevil 2.29 Fortis 7.58 DAWONSYS 3.60 CJ O Shopping 2.20 Com2us 2.29 SK Materials 5.78 Seoul Semiconductor 3.11 Nexen Tech 2.13 Seoul Semiconductor 2.19 ViroMed 5.06 Medy-tox 3.06 Oscotec 2.08 ECOPRO 2.06 HLB 4.79 Com2us 2.19 S-MAC 1.93 Medy-tox 2.05 LegoChem Bio 4.32 Hugel 2.06 Jtuen Entertainment 1.92 Chungdam Learning Inc. 1.54 Oscotec 4.00 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 44,050 50 282,771 Celltrion Healthcare 70,800 800 9,949 Hynix 72,900 2,100 53,071 SillaJen 75,600 -600 5,278 Samsung Electronics (P) 36,550 50 33,028 CJ O Shopping 219,000 500 4,802 Celltrion 238,500 5,000 29,907 Posco Chemtech 76,800 4,300 4,537 SAMSUNG BIOLOGICS 384,500 -15,500 25,440 HLB 96,300 -1,200 3,766 LG Chem 335,000 -5,000 23,648 ViroMed 202,700 1,700 3,234 POSCO 267,000 -1,000 23,279 Medy-tox 555,300 34,100 3,141 Hyundai Motor 105,500 -2,000 22,542 Studio Dragon 104,000 6,500 2,916 SK Telecom 267,500 -1,000 21,599 PearlAbyss 205,000 8,000 2,653 Shinhan Financial Group 42,850 150 20,319 Kolon TissueGene 40,600 200 2,475 Source: Korea Exchange