April 9, 2015

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Steel (Overweight) KOSPI 2,058.87 -0.39 -0.02 announces merger with KOSPI 200 258.33 -0.18 -0.07 KOSDAQ 676.96 8.93 1.34

Economy & Strategy Update Turnover ('000 shares, Wbn) April MPC Volume Value KOSPI 519,429 5,805 Expectations for a rate cut remain intact KOSPI 200 84,005 3,924 KOSDAQ 579,044 3,700

Market Cap (Wbn) Value KOSPI 1,285,499 KOSDAQ 180,759

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,421 1,349 72 Institutional 963 1,227 -264 Retail 3,371 3,188 184

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 235 185 50 Institutional 179 186 -7 Retail 3,275 3,317 -42

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 839 887 -49 KOSDAQ 35 39 -4

Advances & Declines Advances Declines Unchanged KOSPI 455 359 57 KOSDAQ 613 369 58

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 1,483,000 4,000 251 Hynix 41,900 -700 234 KODEX LEVERAGE 11,435 -25 155 LG Chem 254,000 12,500 128 NHN 653,000 8,000 115

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Daum Communications 110,300 3,200 152 Sansung P&C 91,800 11,900 136 GOLFZON 15,450 2,000 131 Coreana Cosmetics 7,920 380 89 73,500 -1,200 83 Note: As of April 9, 2015

This document is a summary of a report prepared by Daewoo Securities Co., Ltd. (“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. 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. 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.

Steel (Overweight/Maintain)

Hyundai Steel announces merger with Hyundai Hysco ¢ Hyundai Steel to merge with Hyundai Hysco: Deal to be finalized on July 1 st , 2015 News Comment ¢ Merger likely to create only limited synergies April 9, 2015 ¢ Recommended strategy: Buy POSCO

st Daewoo Securities CCo.,o., Ltd. Hyundai Steel to merge with Hyundai Hysco; Deal to be finalized on July 1

[Steel/Non-ferrous metal] On April 8th, Hyundai Steel announced it has decided to merge with Hyundai Hysco. Hyundai Hysco shareholders will receive 0.8577607 shares of Hyundai Steel for each existing Hyundai Seung-hun Jeon Hysco share they own. Dissenting shareholders will be able to exercise appraisal rights at +822-768-2713 W72,100 per share for Hyundai Steel and W63,552 per share for Hyundai Hysco, which are, [email protected] respectively, 9.2% and 6.4% lower than current share prices.

The 2,667,762 shares Hyundai Hysco owns in Hyundai Steel will be allocated to Hyundai Hysco shareholders, which will have the same impact as cancelling 2% of treasury shares. As a result, the merged company will have 133,445,785 shares outstanding (rather than

136,113,547 shares).

Merger likely to create only limited synergies

In our view, the merger effects are more psychological than tangible. While the merger does have some benefits, we also see several negative effects that could partially offset the positives.

We believe potential merger synergies between the two companies were mostly realized after Hyundai Hysco spun off its cold-rolled coil (CRC) division to Hyundai Steel in December 2013. We think the latest merger will have limited benefits, given the likelihood of 1) an increase in current Hyundai Hysco employees’ pay (which is lower than that of Hyundai Steel’s employees), and 2) margin deterioration at the steel pipe business due to the use of Hyundai Steel’s relatively expensive hot-rolled coil (HRC).

We estimate the merger will boost Hyundai Steel’s EPS by 4.9% (based on the 2014 figure), but mainly as a result of the 2% treasury stock retirement. Such an impact appears to have been mostly priced in after yesterday’s rally.

2) Due to the removal of internal transactions, operating profit growth is likely to outpace revenue growth following the merger, pushing OP margin higher. But in the long term, we view this as a negative to pricing, as a seemingly high margin may work to the company’s disadvantage at a time when major customers, most notably (HMG), are struggling with falling margins.

Recommended strategy: Buy POSCO

Hyundai Steel’s and Hyundai Hysco’s stocks could rise further, in line with the overall advance of the steel sector. In the short run, however, we believe POSCO is the best bet in the sector.

Hyundai Steel’s stock has gained 11.2% in the past month on merger expectations, while POSCO’s stock has fallen 7.2% during the same period amid poor industry conditions and prosecutors’ probe into the steelmaker’s former chairman. We find it hard to see Hyundai Steel’s stock continuing to rise on the merger issue alone, considering that the actual benefits of the tie-up with Hyundai Hysco will be limited. The challenging earnings outlook for HMG also poses a headwind to the steelmaker’s stock.

In 4Q13, hopes of a merger similarly drove Hyundai Steel higher, pushing the stock’s P/B far above POSCO’s. But, after the deal was announced, Hyundai Steel’s P/B converged with that of POSCO in the subsequent quarter. Thus, in the near term, we believe POSCO shares are likely to catch up. We see little differentiation between Hyundai Steel’s and Hyundai Hysco’s shares, as prices will move toward the pre-set merger ratio.

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

April MPC

Expectations for a rate cut remain intact

Expectations for a rate cut in 2Q remain intact; Bond market to stay favorable until May MPC meeting Fixed Income Report The April MPC meeting yielded several noteworthy developments. In particular, we note April 9, 2015 that: 1) the BOK revised down its 2015 real GDP estimate (to 3.1%) and CPI estimate (0.9%); 2) a minority opinion (voicing support for a rate cut) emerged; 3) the BOK

Daewoo Securities CCo.,o., Ltd. emphasized the government’s role in reviving the economy; 4) some members expressed confidence in a domestic economic recovery; and 4) the BOK indicated a [Fixed Income] willingness to depend on economic data.

Yeo-sam Yoon In light of the BOK’s base rate cut in March, substantial downward revisions to +822-768-4022 economic estimates were inevitable. Some market watchers predicted that real GDP [email protected] and CPI estimates would be adjusted to below the 3.0% and 1.0% levels. We projected

that the BOK would lower its 2015 real GDP and CPI estimates to 3.1% and 1.0%, respectively, considering the bank’s previous stance.

Given that some expected the bank to lower its GDP growth estimate to below 3.0%, its actual revision—to 3.1%, as we projected—can be expected to weigh on the bond market to some degree. Meanwhile, the BOK lowered its inflation estimate more sharply than we expected, pointing to the central bank’s concerns about the current low- inflation environment. These concerns were also reflected in its April report on monetary policy direction, which stated that the negative GDP gap would persist for a “considerable period of time.”

In answer to a question about possible government stimulus measures, the BOK governor said he would agree with the idea of introducing a supplementary budget if the economic recovery appeared to be threatened by a tax revenue shortfall, indicating that fiscal measures are still needed to stabilize the economy.

The BOK governor maintained his positive stance on the economy, but also sounded caution over the economic outlook. Despite the better-than-anticipated February industrial activity reading, overall economic indicators for March are likely to be dragged down by a sharp decline in daily average export growth and sluggish wholesale and retail sales. In our view, the negative outlook for March economic data is why the BOK governor said the central bank must check the sustainability of domestic demand growth to confirm the economic recovery.

With regard to exports, the governor acknowledged the unfavorable environment, including the decline in petrochemical product sales resulting from the oil price downtrend, the weak yen, and the investment slowdown in . He also acknowledged, albeit indirectly, the burden of the escalating currency war, saying that he is paying keen attention to the yen’s movements . Based on his comments, we forecast Korea’s exports to face an uphill battle throughout 2015.

The governor’s comments following the MPC meeting were in line with his recent announcement that the BOK’s policy decisions would be data-dependent, similar to the US Fed. We do not expect any meaningful recovery in domestic data before the May MPC meeting. As such, the central bank is projected to cut the base rate in 2Q with the aim of propelling economic growth.

If the base rate is lowered to 1.50% in 2Q, the BOK is likely to restrain from additional rate cuts for the remainder of the year. (Concerns over a further economic slowdown are likely to weaken after 2Q, while expectations for US rate hikes should build.) As such, we cautiously project domestic market rates to bottom around the time of the May MPC meeting. We believe market conditions will remain favorable for the bond market even before any additional factors that could put more downward pressure on bond yields appear.

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.

Key Universe Valuations April 9, 2015

※All data as of close April 8, 2015, unless otherwise noted.

15F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F 005930 218,445 1,483,000 1.0 12.9 9.4 8.7 5.5 10.1 9.5 1.3 1.2 14.5 13.5 005380 Hyundai Motor 35,575 161,500 2.1 -4.1 10.7 -1.3 8.1 6.4 5.9 0.7 0.6 11.9 11.6 000660 SK Hynix 30,503 41,900 1.2 14.3 9.0 8.8 11.9 6.6 5.9 1.4 1.1 22.9 20.8 015760 KEPCO 27,669 43,100 1.4 15.4 7.3 199.0 -57.2 3.4 8.0 0.5 0.4 14.0 5.5 012330 22,681 233,000 1.2 10.5 8.3 15.7 5.3 5.7 5.4 0.8 0.7 15.8 14.4 005490 POSCO 21,840 250,500 3.2 14.6 8.8 236.0 8.9 10.4 9.5 0.5 0.5 5.0 5.2 035420 NAVER 21,525 653,000 0.1 37.5 23.6 62.9 22.4 28.9 23.6 6.6 5.2 32.8 29.6 017670 SK Telecom 21,196 262,500 3.8 23.3 0.4 23.0 0.7 9.6 9.5 1.2 1.1 14.5 13.2 018260 Samsung SDS 19,925 257,500 0.2 20.1 17.8 12.5 18.4 42.9 36.2 4.4 3.9 10.6 11.4 090430 Amorepacific 19,268 3,296,000 0.3 37.8 30.7 48.3 34.5 40.5 30.1 6.8 5.6 18.1 20.4 032830 Samsung Life 19,240 96,200 - - - - 0.0 0.0 055550 18,636 39,300 - - - - 0.0 0.0 000270 Motors 17,877 44,100 2.6 1.8 26.8 -0.7 27.7 6.0 4.7 0.7 0.6 12.5 14.2 051910 LG Chem 16,833 254,000 1.6 27.7 35.4 49.2 36.1 14.5 10.7 1.4 1.3 10.2 12.7 105560 KB Financial Group 14,218 36,800 - - - - 0.0 0.0 033780 KT&G 12,796 93,200 3.6 -26.5 11.5 -24.4 14.5 20.5 17.9 2.1 2.0 10.9 12.0 051900 LG Household & Health Care 12,448 797,000 0.6 26.2 20.1 25.9 22.2 32.1 26.3 6.8 5.5 24.1 24.0 000810 Samsung F&M 12,412 262,000 - - - - 0.0 0.0 034730 SK C&C 11,775 235,500 0.8 18.4 11.8 287.4 8.6 23.9 22.0 3.5 3.1 19.6 18.2 034220 LG Display 10,931 30,550 1.6 58.0 -20.2 81.9 -18.0 6.6 8.1 0.8 0.8 13.5 10.0 009540 10,678 140,500 1.4 - 213.9 - 493.4 97.5 16.4 0.6 0.6 0.7 4.2 003550 LG Corp. 10,440 60,500 1.7 18.0 4.2 18.5 5.9 8.5 8.0 0.8 0.7 9.4 9.2 096770 SK Innovation 10,264 111,000 2.9 - 20.5 - 22.5 12.6 10.3 0.7 0.6 5.3 6.2 066570 LG Electronics 9,688 59,200 1.0 1.2 26.2 174.9 27.6 9.8 7.6 0.8 0.8 9.0 10.5 006400 Samsung SDI 9,386 136,500 0.7 241.8 6.5 - 4.4 24.7 23.6 0.8 0.8 3.3 3.4 000830 Samsung C&T 9,217 59,000 1.0 1.9 6.6 42.3 11.8 24.6 22.0 0.9 0.9 3.8 4.1 004020 Hyundai Steel 9,033 77,500 1.0 12.3 3.8 37.4 0.3 8.6 8.6 0.6 0.6 7.4 7.0 010130 Korea Zinc 8,407 445,500 1.1 3.1 16.7 9.6 16.8 15.3 13.1 1.6 1.5 11.3 12.0 010950 S-Oil 8,185 72,700 2.7 - 32.9 - 28.9 16.2 12.6 1.6 1.4 10.1 11.9 086280 8,063 215,000 0.7 10.6 13.3 3.7 13.6 14.5 12.8 2.4 2.1 18.3 17.6 011170 Lotte Chemical 8,003 233,500 0.4 143.6 34.7 339.1 39.6 12.4 8.9 1.1 1.0 9.6 12.0 003600 SK Holdings 7,984 170,000 1.5 29.8 6.2 34.0 -3.9 5.6 5.9 0.6 0.5 10.9 9.5 086790 7,813 26,950 - - - - 0.0 0.0 035250 7,745 36,200 2.8 10.0 10.8 15.2 13.2 18.7 16.5 2.5 2.3 14.7 15.2 030200 KT 7,585 29,050 2.8 - 1.1 - 27.3 19.2 15.1 0.6 0.6 3.7 4.6 021240 Coway 7,489 97,100 2.6 18.4 12.4 23.9 14.3 24.2 21.2 5.6 5.0 27.6 27.6 023530 Lotte Shopping 7,353 233,500 0.6 11.3 12.6 37.8 13.4 9.7 8.6 0.4 0.4 4.4 4.8 001800 Orion 7,230 1,210,000 0.5 13.3 7.0 22.2 12.6 36.2 32.1 5.0 4.4 15.0 14.9 024110 7,094 12,750 - - - - 0.0 0.0 035720 Daum 6,544 110,300 1.0 173.5 39.3 83.9 45.2 35.0 24.1 9.1 7.1 29.7 34.3 088350 Hanwha Life 6,279 7,230 - - - - 0.0 0.0 139480 Emart 6,216 223,000 0.7 4.1 12.5 41.1 10.5 15.2 13.8 0.9 0.8 5.8 6.1 000720 Hyundai E&C 6,191 55,600 1.1 16.8 15.6 35.8 21.5 10.3 8.5 1.0 0.9 10.5 11.5 19306. 009150 Samsung Electro-Mechanics 5,617 75,200 0.7 38.3 -49.5 32.5 23.0 17.4 1.2 1.2 5.5 6.9 4 002380 KCC 5,449 518,000 1.5 15.4 2.8 -20.9 4.3 22.0 21.1 1.0 1.0 4.7 4.8 161390 5,320 42,950 1.0 -0.9 12.0 2.2 21.2 7.4 6.1 1.0 0.9 14.7 15.5 097950 CJ CheilJedang 5,039 383,500 0.6 29.8 14.8 190.5 31.3 20.7 15.8 1.7 1.5 8.6 10.4 032640 LG Uplus 4,519 10,350 2.3 22.2 1.6 58.1 6.7 12.5 11.7 1.0 1.0 8.3 8.3 010140 4,433 19,200 2.6 168.5 -10.2 159.2 -10.0 11.6 12.9 0.7 0.6 6.3 5.5 000120 CJ Korea Express 4,391 192,500 44.8 17.3 166.3 4.4 28.8 27.6 1.5 1.4 6.6 6.4 Source: KDB Daewoo Securities Research

Market Data April 9, 2015

※All data as of close April 9, 2015, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 411.28 2.07 0.51 6.36 USD/KRW 1,093.40 1,089.70 1,099.50 1,053.60 KOSPI 2,058.87 -0.39 -0.02 6.87 JPY100/KRW 910.26 905.93 910.71 1,033.85 KOSDAQ 676.96 8.93 1.34 22.25 EUR/KRW 1,179.12 1,179.44 1,192.02 1,453.23 Dow Jones* 17,902.51 27.09 0.15 0.39 3Y Treasury 1.70 1.73 1.92 2.86 S&P 500* 2,081.90 5.57 0.27 1.15 3Y Corporate 1.95 1.98 2.20 3.28 NASDAQ* 4,950.82 40.59 0.83 4.74 DDR2 1Gb* 1.20 1.20 1.23 1.73 Philadelphia Semicon* 697.45 4.51 0.65 1.56 NAND 16Gb* 1.91 1.92 2.06 3.01 FTSE 100* 6,937.41 -24.36 -0.35 5.95 Oil (Dubai)* 56.38 56.16 58.46 103.36 Nikkei 225 19,937.72 147.91 0.75 14.53 Gold* 1,203.10 1,210.60 1,164.30 1,308.70 Hang Seng* 26,236.86 961.22 3.80 9.97 Customer deposits (Wbn)* 18,596 18,491 17,131 14,623 Taiwan (Weighted) 9,568.04 -3.93 -0.04 3.17 Equity type BC (Wbn)(Apr. 7) 78,543 78,665 79,835 82,906 Note: * as of April 8, 2015 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 LG Chem 38.71 Hynix 19.20 SK Energy 18.93 Hynix 39.84 Samsung Electronics 30.49 KB Financial Group 19.02 Hyundai Heavy Industries 16.87 Hyundai Mobis 26.60 Hyundai Heavy Industries 19.49 POSCO 17.79 LG Chem 15.18 SK Telecom 20.29 Hyundai Steel 17.95 Hana Financial Group 15.55 13.29 Samsung Electronics 15.81 Honam Petrochemical 12.09 Samsung Heavy Ind. 14.12 NHN 9.79 Samsung Corp. 15.61 Samsung SDI 11.39 Hyundai Mobis 10.44 Daewoo Securities 8.83 DSME 15.37 LG Electronics 9.81 Kia Motors 8.98 NCsoft 8.47 KEPCO 12.52 LG Innotek 8.77 Woogjin Chemical 7.44 Woogjin Chemical 7.75 Hyundai Motor 12.02 SK Telecom 8.22 LG Display 5.86 S-Oil 7.13 KCC 11.96 Samsung Corp. 8.07 Korea Investment Holdings 5.72 LG Life Sciences 6.12 KT 11.48 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 Sansung P&C 18.04 Celltrion 9.20 Medy-tox 4.08 GOLFZON 14.60 Medy-tox 5.57 Paradise 3.72 Paradise 3.60 Sansung P&C 4.13 NaturalendoTech 3.69 Sung Woo HiTech 3.27 INICIS 3.08 Mobase 2.88 KEBT 3.12 Nongwoo Bio 2.15 IC 2.66 Protec 2.67 Com2us 3.04 Eugene Corporation 1.78 iNtRON Bio 2.52 SK Broadband 2.54 Webzen 2.49 Spigen Korea 1.49 Celltrion 2.24 Daum Communications 2.47 Gamevil 2.41 Bio Space 1.36 OCI Materials 2.12 KBH 2.14 Semiconductor 1.95 SundayToz 1.35 Leeno 2.11 SM 2.08 INICIS 1.80 Devsisters 1.24 CJ E&M 2.07 KH Vatec 2.06 Value Added Technology 1.69 Mobilians 1.00 SEEGENE 2.01 KREIT 2.02 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,483,000 4,000 218,445 Celltrion 73,500 -1,200 7,612 Hyundai Motor 161,500 500 35,575 Daum Communications 110,300 3,200 6,544 Hynix 41,900 -700 30,503 Dongsuh 35,000 2,050 3,490 KEPCO 43,100 -600 27,669 CJ E&M 57,600 -900 2,231 Samsung Electronics (P) 1,149,000 -17,000 26,236 Paradise 23,700 300 2,155 Hyundai Mobis 233,000 -7,500 22,681 Com2us 194,100 -1,000 1,958 POSCO 250,500 -2,500 21,840 Medy-tox 339,000 30,000 1,918 NHN 653,000 8,000 21,525 Sansung P&C 91,800 11,900 1,647 SK Telecom 262,500 -5,500 21,196 NaturalendoTech 73,900 3,200 1,429 SAMSUNG SDS 257,500 -500 19,925 GS Home Shopping 216,900 -4,300 1,423 Source: