July 1, 2019 Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) Dongkuk Steel Mill (001230/Hold) KOSPI 2,130.62 -3.70 -0.17 Further debt reductions needed to increase shareholder value KOSPI 200 277.50 -0.25 -0.09 KOSDAQ 690.53 -7.68 -1.10

Turnover ('000 shares, Wbn) Volume Value KOSPI 529,504 4,282 KOSPI 200 66,427 2,827 KOSDAQ 766,070 4,241

Market Cap (Wbn) Value KOSPI 1,419,521 KOSDAQ 236,406

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,508 1,195 312 Institutional 859 969 -110 1,891 2,091 -199

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 414 426 -12 Institutional 193 201 -7 Retail 3,563 3,546 17

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,040 975 65 KOSDAQ 355 375 -20

Advances & Declines Advances Declines Unchanged KOSPI 269 533 92 KOSDAQ 428 765 96

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 47,000 500 574 Hynix 69,500 -700 216 KODEX Kosdaq150 8,930 -455 215 Leverage KODEX KOSDAQ150 8,140 185 200 INVERSE KODEX Leverage 12,695 -55 124

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Hyundai IT 17,750 -1,400 286 Energy Solutions 5,710 -2,440 135 Linkgenesis 9,200 1,450 126 SillaJen 49,400 -2,900 101 ViroMed 168,600 -24,600 94 Note: As of June 28, 2019

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Dongkuk Steel Mill (001230 KS) Further debt reductions needed to increase shareholder value Steel 2Q19 preview: Lower sales mix of cheap rebars to drive earnings improvement Earnings Preview June 28, 2019 For 2Q19, we forecast Dongkuk Steel Mill to post non-consolidated revenue of W1.4tr (+1.3% YoY, +11.3% QoQ) and operating profit of W48bn (+117.9% YoY, +58.8% QoQ). We expect earnings to improve YoY and QoQ on the back of a seasonal increase in the sales volume of long products and a decline in the mix of low-priced rebars. Cold-rolled steel prices should also rise on higher prices of hot-rolled steel (raw material), further (Maintain) Hold supporting margins. That said, heavy plate margins are likely to remain under pressure, as 1H19 contract prices for shipbuilding steel were likely frozen despite Target Price (12M, W) - higher prices of slab (raw material).

Share Price (06/27/19, W) 6,880 Monthly rebar price disclosure system taking hold Domestic rebar makers have stopped taking new orders and are currently only Expected Return - fulfilling existing contracts, after suspending quarterly price negotiations with the Korea Construction Procurement Part Association in January. Rebar makers are instead

individually announcing monthly prices and demanding that changes in raw/secondary OP (19F, Wbn) 203 material prices are reflected in rebar prices so they can ensure a reasonable level of Consensus OP (19F, Wbn) 207 profitability. So far, the monthly price disclosure system appears to be taking hold. As a result, the sales mix of cheap rebars has been falling, contributing to rebar suppliers’ EPS Growth (19F, %) - margin improvements. That said, with the price dispute yet to be resolved, we believe Market EPS Growth (19F, %) -21.6 future developments need to be closely monitored. There are worries about sluggish P/E (19F, x) 10.5 demand in 2H19, but given the YoY growth in construction orders since March, we Market P/E (19F, x) 12.3 think increasing social overhead capital (SOC) spending could lead to stronger demand KOSPI 2,134.32 in the civil construction sector. Market Cap (Wbn) 657 Further debt reductions needed to increase shareholder value Shares Outstanding (mn) 95 Free Float (%) 72.7 While long steel margins are improving as a result of the industry’s new rebar pricing Foreign Ownership (%) 28.4 policy, flat steel margins remain constrained by the company’s limitation as a pure Beta (12M) 1.95 rolling mill. And while the company has reduced its leverage over the past five years 52-Week Low 6,350 through restructuring, its debt level is still high, with net debt of W2.3tr and a debt 52-Week High 9,680 ratio of 180% at end-1Q19. With the company’s recent announcement that it will inject US$150mn into its Brazilian affiliate CSP (in which it owns 30%) over the next three (%) 1M 6M 12M years (US$45mn in 2019, US$79.5mn in 2020, and US$25.5mn in 2021), the pace of Absolute 6.0 -2.7 -19.6 deleveraging is likely to slow. Applying an EV/EBITDA of 6x to EBITDA of roughly Relative 1.5 -7.5 -11.8 W400bn expected over the next 12 months, we come to a valuation of W2.4tr, which implies shareholders’ equity of just W100bn when accounting for net debt. We believe 120 Dongkuk Steel Mill KOSPI further debt reductions are needed for shareholder value to increase. 110 100 90 80 70 60 6.18 10.18 2.19 6.19

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[ Advanced Materials/Metals] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 5,007 6,049 5,965 5,827 6,218 6,455 Jaekwang Rhee +822-3774-6022 OP (Wbn) 257 241 145 203 206 213 [email protected] OP margin (%) 5.1 4.0 2.4 3.5 3.3 3.3

NP (Wbn) 61 5 -298 62 78 83 EPS (W) 643 47 -3,121 654 815 871 ROE (%) 2.9 0.2 -14.3 3.2 3.8 3.9

P/E (x) 17.2 231.7 - 10.5 8.4 7.9 P/B (x) 0.5 0.5 0.4 0.3 0.3 0.3 Dividend yield (%) 1.4 0.9 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.

June 28, 2019 Dongkuk Steel Mill

Table 1. Quarterly and annual earnings (Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F 3Q19F 4Q19F 2018 2019F 2020F Revenue 1,401 1,512 1,501 1,550 1,375 1,496 1,460 1,496 5,965 5,827 6,218 Dongkuk Steel Mill (parent) 1,264 1,353 1,346 1,401 1,232 1,371 1,335 1,371 5,365 5,308 5,710 Subsidiaries 137 159 155 149 143 125 125 125 600 518 508 Operating profit 21 32 53 39 48 56 49 50 145 203 206 Dongkuk Steel Mill (parent) 11 22 46 35 30 48 40 41 114 159 171 Subsidiaries 10 10 7 5 18 9 9 9 31 44 34 OP margin 1.5 2.1 3.5 2.5 3.5 3.8 3.3 3.3 2.4 3.5 3.3 Dongkuk Steel Mill (parent) 0.8 1.6 3.4 2.5 2.5 3.5 3.0 3.0 2.1 3.0 3.0 Subsidiaries 7.2 6.5 4.2 3.2 12.6 6.8 6.8 6.8 5.2 8.4 6.7 Pretax profit (37) (193) (11) (86) 3 31 23 24 (327) 80 102 Net profit (38) (193) (7) (59) 4 23 17 18 (298) 62 78 (controlling interests) Source: Mirae Asset Daewoo Research estimates

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Mirae Asset Daewoo Research Key Universe Valuations July 1, 2019

※All data as of close June 27, 2019, unless otherwise noted.

19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 280,580 47,000 3.0 -56.7 31.8 -49.5 27.8 15.5 12.1 1.2 1.2 8.3 10.0 000660 SK Hynix 50,596 69,500 2.2 -85.3 94.0 -85.4 87.6 22.3 11.9 1.0 0.9 4.8 8.5 005380 Hyundai Motor 29,914 140,000 2.9 61.8 9.5 143.0 11.5 10.8 9.7 0.5 0.5 5.2 5.6 068270 26,372 205,500 - - - - 0.0 0.0 051910 LG Chem 25,025 354,500 1.7 -21.5 56.7 -24.3 68.0 24.9 14.8 1.5 1.4 6.4 10.1 012330 22,445 235,500 1.5 9.1 10.2 27.0 7.4 9.6 8.9 0.7 0.6 7.5 7.6 005490 POSCO 21,317 244,500 4.1 -14.6 2.8 71.9 3.0 7.3 7.1 0.5 0.4 6.6 6.4 055550 21,292 44,900 12.5 3.1 10.5 0.7 6.1 6.1 0.5 0.5 9.4 8.8 017670 SK Telecom 20,913 259,000 3.9 7.2 4.4 -51.8 65.3 13.9 8.4 0.8 0.8 6.6 10.3 051900 LG H&H 20,507 1,313,000 12.8 9.7 15.7 10.6 26.0 23.5 5.6 4.8 20.0 18.9 105560 KB Financial Group 19,170 45,850 9.7 3.8 10.8 4.0 5.7 5.4 0.5 0.5 9.3 9.0 035420 NAVER 18,789 114,000 0.3 -15.1 26.3 -31.4 68.6 42.2 25.0 2.7 2.5 8.2 12.5 028260 Samsung C&T 18,153 95,700 2.1 5.4 20.1 -4.2 20.7 14.4 11.9 0.7 0.6 5.2 5.9 000270 Motors 17,836 44,000 1.8 20.5 19.7 54.5 16.7 10.0 8.6 0.6 0.6 6.3 7.0 032830 Samsung Life 16,720 83,600 - - - - 0.0 0.0 018260 Samsung SDS 16,636 215,000 1.3 11.6 16.5 12.7 15.4 23.4 20.3 2.5 2.3 11.3 12.0 015760 KEPCO 16,402 25,550 ------0.2 0.2 - - 034730 SK Holdings 16,324 232,000 2.0 13.3 12.9 -32.3 20.1 10.8 9.0 0.9 0.8 8.9 9.8 006400 Samsung SDI 16,263 236,500 0.4 17.7 37.7 12.6 27.1 21.1 16.6 1.3 1.2 6.4 7.5 096770 SK Innovation 14,702 159,000 5.0 -46.5 75.4 -56.1 94.1 20.6 10.6 0.8 0.7 4.0 7.6 033780 KT&G 13,523 98,500 4.3 12.8 5.6 17.5 5.1 12.8 12.1 1.5 1.4 12.7 12.6 003550 LG Corp. 13,270 76,900 3.0 17.2 15.4 5.5 15.6 6.9 5.9 0.7 0.6 10.5 11.1 066570 LG Electronics 12,977 79,300 0.9 7.1 20.0 23.7 39.9 9.3 6.7 0.9 0.8 10.3 12.9 000810 Samsung F&M 12,696 268,000 - - - - 0.0 0.0 086790 11,229 37,400 8.6 8.1 9.5 8.2 4.6 4.2 0.4 0.4 9.0 9.1 035720 10,973 131,500 0.1 167.0 116.1 127.8 160.4 94.1 36.2 2.1 2.0 2.2 5.6 036570 NCsoft 10,468 477,000 1.3 32.4 26.4 49.5 17.4 16.7 14.3 3.2 2.7 23.9 23.1 251270 9,683 113,000 44.5 59.7 57.2 39.0 32.3 23.2 2.0 1.8 6.6 8.5 090430 AmorePacific 9,616 164,500 0.8 6.0 20.7 6.9 22.4 27.1 22.1 2.4 2.3 7.8 8.9 010950 S-Oil 9,423 83,700 1.4 -11.0 217.9 7.6 388.6 35.1 7.2 1.4 1.2 4.2 18.5 010130 Korea Zinc 8,982 476,000 2.3 13.8 0.8 23.1 -2.5 13.8 14.2 1.3 1.2 10.0 9.1 011170 Lotte Chemical 8,655 252,500 4.2 -34.3 31.9 -35.0 35.1 8.4 6.2 0.6 0.6 7.8 9.9 009540 HHI 8,387 118,500 - 594.6 - - - 70.4 0.7 0.7 - 1.0 091990 Celltrion Healthcare 8,126 56,500 - 192.4 1119.2 156.4 58.3 22.7 4.3 3.8 8.2 18.6 024110 8,078 14,050 7.5 4.5 5.4 3.6 5.0 4.8 0.4 0.4 8.6 8.3 030200 KT 7,403 28,350 3.9 2.0 3.0 28.2 5.6 8.4 7.9 0.5 0.5 6.5 6.6 009150 Samsung Electro-Mechanics 7,305 97,800 1.1 -21.6 27.6 -18.9 39.2 14.3 10.2 1.4 1.2 10.5 13.0 034220 LG Display 6,387 17,850 - - - - - 247.7 0.5 0.5 - 0.2 032640 LG Uplus 6,331 14,500 4.5 -2.9 11.7 2.0 18.2 12.9 10.9 0.9 0.8 7.0 7.9 018880 Hanon Systems 6,219 11,650 - - - - 0.0 0.0 086280 6,038 161,000 2.0 8.8 2.2 20.2 8.7 11.5 10.6 1.3 1.2 11.8 11.7 000720 Hyundai E&C 5,969 53,600 0.9 22.4 10.8 21.0 1.6 12.9 12.7 0.9 0.9 7.3 7.0 004020 5,578 41,800 1.8 6.1 22.5 53.1 31.9 9.1 6.9 0.3 0.3 3.5 4.3 267250 5,277 324,000 5.7 78.7 2.1 154.0 4.5 7.7 7.4 0.6 0.6 8.6 8.5 Holdings 010140 SamsungHvyInd 5,141 8,160 - - - - - 66.5 0.7 0.7 - 1.2 128940 4,691 404,000 0.1 37.5 -0.2 141.7 -12.3 78.0 88.9 6.0 5.7 8.2 6.8 023530 Lotte Shopping 4,540 160,500 3.2 6.5 3.9 - 10.5 11.3 10.2 0.4 0.4 3.4 3.7 071050 Korea Investment Holdings 4,497 80,700 - - - - 0.0 0.0 097950 CJ CheilJedang 4,471 297,000 1.2 15.4 12.7 -64.8 23.7 15.6 12.6 0.9 0.9 6.3 7.3 029780 4,426 38,200 -16.3 3.1 2.8 4.1 12.5 12.0 0.6 0.6 1.5 1.5 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data July 1, 2019

※All data as of close June 28, 2019, unless otherwise noted. Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 442.14 2.37 0.54 3.08 USD/KRW 1,156.80 1,158.20 1,184.10 1,117.90 KOSPI 2,130.62 -3.70 -0.17 6.00 JPY100/KRW 1,073.35 1,075.00 1,080.97 1,013.97 KOSDAQ 690.53 -7.68 -1.10 3.16 EUR/KRW 1,315.11 1,317.28 1,325.30 1,292.24 Dow Jones* 26,526.58 -10.24 -0.04 13.71 3Y Treasury 1.47 1.49 1.65 2.12 S&P 500* 2,924.92 11.14 0.38 16.53 3Y Corporate 1.97 1.98 2.13 2.76 NASDAQ* 7,967.76 57.79 0.73 19.53 DDR4 8Gb* 3.16 3.22 3.66 8.28 Philadelphia Semicon* 1,456.90 21.06 1.47 25.02 NAND MLC 64G* 2.33 2.35 2.36 3.61 FTSE 100* 7,402.33 -14.06 -0.19 9.92 Oil (Dubai)* 64.42 64.29 70.11 74.36 Nikkei 225 21,275.92 -62.25 -0.29 8.76 Gold* 1,412.00 1,411.60 1,283.60 1,252.80 Hang Seng* 28,621.42 399.44 1.42 13.89 Customer deposits (Wbn)* 25,055 25,179 24,530 26,844 Taiwan (Weighted) 10,730.83 -43.07 -0.40 12.32 Equity type BC (Wbn)(Jun. 26) 81,244 81,059 80,725 80,510 Note: * as of June 27, 2019 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung Electronics 291.73 Netmarble 14.40 International 15.95 Samsung Electronics 90.81 LG Chem 21.23 Shinsegae International 14.30 Hana Financial Group 8.53 KODEX Kosdaq150 Leverage 47.60 Hynix 13.83 Woongjin Coway 9.51 Hanwha Chemical 7.71 Hynix 29.37 LG Electronics 13.82 Korea 8.97 KODEX Leverage 7.64 Netmarble 20.59 Samsung Electronics (P) 12.84 KT&G 8.40 NC Soft 6.78 LG Electronics 11.56 SEMCO 9.89 NC Soft 7.50 SKC 6.28 Korea Investment Holdings 6.25 Doosan Heavy Ind. & Celltrion 9.10 6.41 Kakao 5.90 Samsung SDI 5.70 Construction Samsung SDI 8.72 Doosan Infracore 5.87 Shinhan Financial Group 5.27 SEMCO 5.54 POSCO 8.70 Hana Financial Group 4.76 KODEX Inverse 5.16 Hyundai Eng. & Cosnt. 5.47 KODEX KOSDAQ150 INVERSE 7.50 Honam Petrochemical 4.39 STX Pan Ocean 5.08 Meritz Securities 5.22 Source: KSDA, FnGuide

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 RS Automation 8.85 ViroMed 12.78 CJ ENM 11.49 ViroMed 7.42 Nepes 4.38 SillaJen 11.12 RFHIC 4.23 Jenexine 6.80 ABL Bio 3.81 KMW 8.26 LB Semicon 3.78 KMW 6.70 Energy Solutions 2.59 LB Semicon 4.38 Mezzion Pharma 2.49 SillaJen 5.75 Kangstem Biotech 2.00 LegoChem Bio 2.84 Digital Aria 2.43 ABL Bio 4.26 NHN KCP 1.90 Paseco 2.77 SFA Engineering 2.25 OliX 4.08 Mezzion Pharma 1.90 Celltrion 2.64 Nepes 2.03 LegoChem Bio 2.84 MC Nex 1.88 YG Entertainment 2.39 CIS 1.67 EuBio 2.82 PharmAbcine 1.83 Partrion 1.80 Partrion 1.66 Kangstem Biotech 2.41 Winix 1.63 Medipost 1.76 Solid Technologies 1.48 Celltrion Healthcare 1.92 Source: KSDA, FnGuide

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 47,000 500 280,580 Celltrion Healthcare 56,500 -100 8,126 Hynix 69,500 -700 50,596 CJ ENM 177,000 5,800 3,881 Samsung Electronics (P) 38,250 250 31,475 SillaJen 49,400 -2,900 3,484 Hyundai Motor 140,000 -500 29,914 PearlAbyss 212,300 0 2,764 Celltrion 205,500 1,500 26,372 ViroMed 168,600 -24,600 2,690 LG Chem 354,500 5,000 25,025 Medy-tox 450,000 900 2,617 Hyundai Mobis 235,500 0 22,445 68,000 -800 1,908 POSCO 244,500 0 21,317 Hugel 419,600 8,600 1,829 Shinhan Financial Group 44,900 -250 21,292 Celltrion 48,050 -1,150 1,637 320,000 5,000 21,173 KMW 41,200 -900 1,599 Source: