July 5, 2012 2H12 Outlook Report Industry Report

Holding companies (Overweight)

Daewoo Securities Co., Ltd. Dae-ro Jeong +822-768-4160 [email protected]

Investment opportunities during transition to holding structure

Holding companiesÊ shares significantly outperformed the KOSPI early this year (after displaying sluggishness at end-2011). However, due to the protracted European crisis, they have pulled back once again. As a result, they are trading at the upper end of their historical discount range. However, we believe the current significant discount presents investors with a buying opportunity. Generally speaking, when the stock market is bearish, holding companiesÊ shares tend to significantly underperform the shares of their subsidiaries and the KOSPI. But when the market turns bullish, they tend to rebound quickly, since they are considered deeply undervalued (relative to their asset values).

In selecting our top picks for 2H, we took into account valuation merits as well as growth prospects (amid a myriad of economic uncertainties). We recommend SK Holdings (003600 KS) and Doosan Corp. (000150 KS) as our top picks.

When a company adopts a holding structure, the management control (i.e. ownership succession) of its controlling shareholder is usually strengthened. Given that politicians are whispering about bringing back a shareholding cap, banning circular shareholding, and placing new restrictions on holding structure conversion process, companies are rushing to adopt holding structures to achieve smooth ownership succession and attain greater management control. Companies that are currently pushing to adopt holding structures are doing so to prepare for ownership succession or to increase the ownership stakes of their respective controlling shareholders. And these companies are opting for the same conversion process: tendering offers after spin-off.

As a company switches to a holding structure, we see some opportunities for investors. During the conversion process (announcement of conversion  spin-off  tender offer), we advise investors to invest in its subsidiary. However, when a holding company acquires its subsidiaryÊs shares via a tender offer, we recommend buying the holding companyÊs shares, as they should rise on their valuation merits (relative to their asset values).

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

I. Investment strategy and valuation...... 3 1. Deeply undervalued; Poised to rebound...... 3 2. Overweight; Top picks are SK Holdings and Doosan Corp...... 5

II. 2H12 Outlook ...... 11 1. Elections and holding companies ...... 11 2. Conversion to holding company structure to accelerate...... 12

III. Issue analysis: Transition to holding company ...... 14 1. Status ...... 14 2. Method of transition: Spin-off and tender offer ...... 14 3. Holding company investment strategy...... 16

LG Corp. (003550 KS)...... 18

SK Holdings (003600 KS) ...... 20

Doosan Corp. (000150 KS) ...... 22

Hanwha (000880 KS) ...... 24

2

July 5, 2012 Holding companies

I. Investment strategy and valuation

1. Deeply undervalued; Poised to rebound

Holding companiesÊ shares significantly outperformed the KOSPI early this year (after displaying sluggishness at end-2011). However, due to the protracted European crisis, they have pulled back once again. As a result, they are trading at the upper end of their historical discount range.

We believe that the current deep undervaluation presents investors a compelling buying opportunity. As holding company shares show a tendency toward path dependence, when the stock market is bearish, the shares tend to significantly underperform their subsidiaries and the KOSPI. But when the market turns bullish, they tend to rebound quickly, since they are considered deeply undervalued (relative to their asset values). The shares are also significantly impacted by the market conditions of the holding companiesÊ major businesses.

Figure 1. Relative share performances of holding companies in KDB Daewoo Securities Universe

(1/1/11=100) 160 LG SK Doosan Hanwha KOSPI 140

120

100

80

60

40 1/11 3/11 5/11 7/11 9/11 11/11 1/12 3/12 5/12

Source: KDB Daewoo Securities Research

Figure 2. YTD share price changes of major holding companies and their subsidiaries

(%) KOSPI LG LG Electronics LG Chem (%) Doosan Doosan Heavy Doosan Infracore 10 10 1.548413246 2.801120448 0 0

-10 -10 -8.031496063 -9.440559441 -10.42345277 -11.67434716 -20 -18.01075269 -20

(%) SK SK Innovation SK Telecom (%) Hanwha Korea Life Hanwha Chemical 20 20 9.504132231 10 10

0 0 -2.816901408 -10 -10 -11.66077739 -20 -20 -15.08295626 -13.10810811 -14.22764228

Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 3 July 5, 2012 Holding companies

Figure 3. Relative share performances of the portfolios of holding companies and major subsidiaries

(1/1/08=100) 160 KOSPI Holding companies portfolio 140 Major subsidiaries portfolio

120

100

80

60

40 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12

Source: KDB Daewoo Securities Research

Figure 4. LG Corp.Ês NAV discount trend Figure 5. SK HoldingsÊ NAV discount trend

(%) (%) 70 70

60 60

50 50

40 40

30 30

20 20

10 10

0 0 06 07 08 09 10 11 12 08 09 10 11 12

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

Figure 6. Doosan Corp.Ês NAV discount trend Figure 7. Hanwha Corp.Ês NAV discount trend

(%) (%) 80 70

70 60

60 50 50 40 40 30 30 20 20

10 10

0 0 1/09 7/09 1/10 7/10 1/11 7/11 1/12 3/10 6/10 9/10 12/10 3/11 6/11 9/11 12/11 3/12 6/12

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

KDB Daewoo Securities Research 4 July 5, 2012 Holding companies

2. Overweight; Top picks are SK Holdings and Doosan Corp.

Recommend SK In selecting our top picks for 2H, we took into account valuation merits as well as growth Holdings and Doosan potential (amid a host of economic uncertainties). We recommend SK Holdings (003600 KS) Corp. as our top picks and Doosan Corp. (000150 KS) as our top picks. for their valuation merits SK HoldingsÊ shares had pulled back alongside those of SK Innovation (a key subsidiary), and growth potential whose shares have been negatively affected by demand contraction and growing uncertainties over oil prices and refining margins amid the economic slump. However, concerns about SK Innovation have already been priced in, in our view. Meanwhile, another subsidiary SK E&S is anticipated to serve as a new growth driver as the company has integrated gas field exploration/development and LNG procurement/distribution businesses through the acquisition of K-Power. SK E&S is also expected to reduce SK HoldingsÊ earnings volatility by complementing oil refining and petrochemical subsidiaries that are highly volatile to the economic cycle.

We are also optimistic about Doosan Corp. in light of the growth potential of its in-house businesses, which account for 30% of its total NAV. These businesses have strong potential for growth and margin improvement. Currently, Doosan Corp. is significantly undervalued, trading at a 45% discount to its NAV. Also positive are 1) the companyÊs efforts to enhance shareholdersÊ value, including treasury share buyback and retirement, and 2) a sharp decrease in subsidiary-related risks.

Table 1. Ratings and TPs of holding companiesÊ shares in the KDB Daewoo Securities Universe (W, x) Discount Companies Ticker Rating CP TP Upside P/E P/B rate SK 003600KS Buy 130,000 220,000 69.2 3.8 0.8 58.0 Doosan 000150KS Buy 129,000 210,000 62.8 11.2 1.0 46.3 LG 003550KS Buy 53,900 90,000 67.0 9.6 0.8 55.0 Hanwha 000880KS Buy 28,100 42,000 49.5 7.1 0.5 52.9 Note: P/Es and P/Bs are based on 2012F; Share prices are as of June 26, 2012 Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 5 July 5, 2012 Holding companies

Table 2. LG Corp.Ês major subsidiaries by business type Type of business Listed Unlisted Holding company LG Corp. (003550 KS) - LG Electronics (003550 KS) LG Siltron, Lusem, Hiteleservice, Hiplaza Electronics LG Display (0034220 KS) Hi Business Logistics, Himsolutek etc LG Innotek (011070 KS) LG Chem (051910 KS) LG MMA, LG Polycarbonate, SeeTec, Coca-Cola Korea LG Life Science (068870 KS) Chemicals Hankook Beverage, Diamond Water, The Face Shop LG H&H (051900 KS) TOSTEM BM, HousysENG etc LG Housys (108670 KS) LG Uplus (032640 KS) Telecom/other services LG International (001120 KS) LG MMA, A-in Teleservice, DMI, Dacom Crossing etc GIIR (035000 KS) Source: KDB Daewoo Securities Research

Figure 8. NAV and market cap trends of LG Corp.

(Wtr) 30 LG Corp.'s stake value in LG Chem LG Corp.'s stake value in LG Electronics 25 LG Corp.'s market cap LG Corp.'s NAV

20

15

10

5

0 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12

Source: KDB Daewoo Securities Research

Figure 9. NAV contribution of LG Corp. Figure 10. Relative performances of major LG Group shares

Property, 5.3% (1/1/11=100) LG Electronics, 160 LG Corp. LG Electronics Brand royalty, 15.1% LG Chem KOSPI 12.3% 140

120

100

LG Chem, 29.2% 80

60 Others, 37.7% 40 1/11 4/11 7/11 10/11 1/12 4/12

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

KDB Daewoo Securities Research 6 July 5, 2012 Holding companies

Table 3. SK HoldingsÊ major subsidiaries by business type Business Listed Non-listed Holding company SK Holdings (003600 KS) - SK Innovation (096770 KS) SK Chemical (006120 KS) SKC (082740 KS) SK E&S, Choongnam City Gas, Daehan Oil Pipeline, Energy / chemicals SK Gas (018670 KS) Chonnam City Gas, Kangwon City Gas etc Ko-one Energy Service (026870 KS) Busan City Gas (015350 KS) SK Telecom (017670 KS) Loen (016170 KS) SK Communications (066270 KS) Information SK Broadband (033630 KS) SK Telesys, SK Telink, Infosec etc / telecommunication SK C&C (034730 KS) SK Hynix (000660 KS) Siliconfile (082930 KS) Construction / logistics SK Shipping, SK E&C, SK Marketing & Company, SK Networks (001740 KS) / services FNU Credit Bank etc Finance SK Securities (001510 KS) - SKC Solmics (057500 KS) Others SK Biopham, SK-W etc UB Care (032620 KS) Source: KDB Daewoo Securities Research

Figure 11. NAV and market cap trends of SK Holdings

(Wtr) 16 SK Holdings' stake value in SK Telecom SK Holdings' stake value in SK Innovation 14 SK Holdings' market cap 12 SK Holdings' NAV

10

8

6

4

2

0 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12

Source: KDB Daewoo Securities Research

Figure 12. NAV contribution of SK Holdings Figure 13. Relative performances of major SK Group shares

Brand royalty, (1/1/11=100) 11.5% 160 SK Holdings SK Innovation SK Innovation, SK Telecom KOSPI 28.6% 140

Others, 120 19.7%

100

80 SK Innovation, 17.1% SK E&S, 23.3% 60 1/11 4/11 7/11 10/11 1/12 4/12

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

KDB Daewoo Securities Research 7 July 5, 2012 Holding companies

Table 4. Doosan Corp.Ês major subsidiaries by business type Type of business Listed Unlisted Holding company Doosan Corp. (000150 KS) - Dosan Heavy (034020 KS) Heavy industries Doosan Infracore (042670 KS) Doosan DST, Rexcon Doosan Engine (082740 KS) Construction / Doosan E&C (011160 KS) Doosan AMC, Doosan International, Doosan Feed & Livestock consumer goods DIP holdings, Doosan Cuvex, Doosan Donga, Neoplux Finance / services Oricom (010470 KS) Doosan Motor, Neo Trans, N Shaper, SRS Korea Doosan Tower, Doosan Bears, Doosan Capital, B&G Securities Source: KDB Daewoo Securities Research

Figure 14. NAV and market cap trends of Doosan Corp.

(Wtr) 7 Doosan Corp.'s stake value in Doosan Heavy Doosan Corp.'s market cap 6 Doosan Corp.'s NAV

5

4

3

2

1

0 7/09 1/10 7/10 1/11 7/11 1/12

Source: KDB Daewoo Securities Research

Figure 15. NAV contribution of Doosan Corp. Figure 16. Relative performances of major Doosan Group shares

(1/1/11=100) Brand royalty, Property, 2.9% 120 Doosan Corp. Doosan Heavy 4.5% Doosan Infracore KOSPI 110

Others, 16.5% 100

Doosan Heavy, 90 41.8% 80

70

60 Own business, 33.8% 50 1/11 4/11 7/11 10/11 1/12 4/12

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

KDB Daewoo Securities Research 8 July 5, 2012 Holding companies

Table 5. Hanwha Corp.Ês major subsidiaries by business type Type of business Listed Unlisted Hanwha L&C, H Compound, Hanwha E&C Manufacture / Hanwha Corp. (000880 KS) Hanwha Nanotech, Dream Pharma construction Hanwha Chemical (009830 KS) Hanwha Tech M, Hanwha Polydreamer etc Hanwha Securities (003530 KS) Hanwha Non-life Insurance SNR Bank, Hanwha Asset Management Finance (000370 KS) Hanwha Venture Capital, Korea TMS Korea Life Insurance Korea Life Insurance Investigation etc (088350 KS) Hanwha Galleria, Hanwha S&C Services and others Hanwha Timeworld (027390 KS) Hanwha Hotel & Resort, Hancomm Hanwha 63 City, Hanwha Station Development Source: KDB Daewoo Securities Research

Figure 17. NAV and market cap trends of Hanwha Corp.

(Wtr) 7 Hanwha Corp.'s stake value in Hanwha Chemical Hanwha Corp.'s NAV 6 Hanwha Corp.'s market cap

5

4

3

2

1

0 3/10 6/10 9/10 12/10 3/11 6/11 9/11 12/11 3/12 6/12

Source: KDB Daewoo Securities Research

Figure 18. NAV contribution of Hanwha Corp. Figure 19. Relative performances of major Hanwha Group shares

(1/1/11=100) 180 Hanwha Corp. Korea Life Korea Life Insurance, 20.6% 160 Hanwha Chemical In-house KOSPI businesses, 34.0% 140

120

100 Hanwha Chemical, 19.1% 80

60 Others, 8.2%

Hanwha E&C, 40 18.2% 1/11 4/11 7/11 10/11 1/12 4/12

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

KDB Daewoo Securities Research 9 July 5, 2012 Holding companies

Table 6. Share price correlation of LG Corp. and subsidiaries (W, Wbn, %) Share price performance NAV Code CP Mkt. cap. Stake NAV Correlation 1 W 1 M 3M YTD contribution LG Corp. 003550 KS 53,900 -4.4 0.0 -16.6 -12.2 9,301 - 22,136 - - LG Chem 051910 KS 288,500 -1.0 -1.4 -17.2 -9.1 19,119 33.5 6,405 28.9 0.95 LG Electronics 066570 KS 61,400 -4.7 -8.1 -27.8 -17.5 10,048 33.7 3,386 15.3 0.90 LG H&H 051900 KS 589,000 -3.1 2.4 3.3 20.8 9,199 34.0 3,128 14.1 -0.83 LG Uplus 032640 KS 5,420 -0.9 2.7 -22.0 -26.8 2,790 30.6 854 3.9 0.64 LG Life Science 068870 KS 32,350 2.1 13.9 -8.4 -5.7 536 30.4 163 0.7 0.92 Note: Share prices are as of June 26, 2012, Source: Company data, KDB Daewoo Securities Research

Table 7. Share price correlation of SK Holdings and subsidiaries (W, Wbn, %) Share price performance NAV Code CP Mkt. cap. Stake NAV Correlation 1 W 1 M 3M YTD contribution SK Holdings 003600 KS 130,000 -3.7 6.6 -11.3 7.4 6,105 - 12,653 - - SK Innovation 096770 KS 134,000 -9.5 -5.3 -19.0 -5.6 12,390 33.4 4,138 32.7 0.89 SK Telecom 017670 KS 123,500 1.2 0.0 -15.1 -12.7 9,972 25.2 2,513 19.9 0.63 SK E&S Unlisted ------94.1 1,026 27.5 - SK Networks 001740 KS 8,480 -5.3 2.9 -17.7 -16.0 2,105 39.1 823 6.5 0.80 SKC 011790 KS 123,500 -2.2 -1.2 -5.8 11.3 1,536 42.5 653 5.2 0.85 SK C&C 034730 KS 102,000 -5.1 13.3 -12.4 -12.8 5,100 Parent - - 0.58 SK Hynix 000660 KS 23,100 -3.1 5.0 -23.8 5.2 16,034 Second-tier - - 0.77 Note: Share prices are as of June 26, 2012, Source: Company data, KDB Daewoo Securities Research

Table 8. Share price correlation of Doosan Corp. and subsidiaries (W, Wbn, %) Share price performance NAV Code CP Mkt. cap. Stake NAV Correlation 1 W 1 M 3M YTD contribution Doosan Corp. 000150 KS 129,000 2.4 -1.5 -11.9 -9.8 2,673 - 5,176 - - Doosan Heavy 034020 KS 54,700 -1.1 2.8 -13.0 -16.0 5,790 41.2 2,388 46.1 0.93 Doosan Infracore 042670 KS 54,700 -2.7 -7.3 -16.0 2.8 3,094 Second-tier - - 0.72 Doosan E&S 011160 KS 2,990 0.0 -5.1 -15.9 -2.0 519 Second-tier - - 0.91 Oricom 010470 KS 13,700 1.5 1.5 -6.5 -7.1 29 71.7 21 0.4 0.63 Note: Share prices are as of June 26, 2012, Source: Company data, KDB Daewoo Securities Research

Table 9. Share price correlation of Hanwha Corp. and subsidiaries (W, Wbn, %) Share price performance NAV Code CP Mkt. cap. Stake NAV Correlation 1 W 1 M 3M YTD contribution Hanwha Corp. 000880 KS 28,100 -3.4 0.2 -16.4 -15.2 2,106 - 4,151 - - Hanwha Chemical 009830 KS 20,550 -2.6 0.0 -21.3 -16.5 2,883 37.6 1,083 26.1 0.98 Korea Life Insurance 003550 KS 6,360 -6.3 2.7 -19.0 -14.1 5,524 21.7 1,197 28.8 0.87 Hanwha E&C Unlisted ------100.0 1,059 25.5 - Hanwha Securities 003530 KS 4,015 -2.9 -0.1 -21.6 -11.0 335 Subsidiary - - 0.95 Hanwha Non-life 000370 KS 5,700 0.7 -4.8 -20.4 -23.0 278 Subsidiary - - 0.90 Note: Share prices are as of June 26, 2012, Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 10 July 5, 2012 Holding companies

II. 2H12 Outlook

1. Elections and holding companies

Recently, the practices of large corporate groups, including 1) transactions between group affiliates, 2) a surge in the number of subsidiaries, and 3) reckless expansion into the service industry, have raised much concern. As such, there are growing calls to limit large conglomerates from cannibalizing the domain of SMEs. Two major elections scheduled this year (general election on April 11 and presidential election on December 19) should provide a forum for the political circle to discuss reforming large corporate groups.

Control on holding Accordingly, control on holding companies, which had been eased since 2007, is expected companies is expected to strengthen again, through an increase in shareholding requirement in subsidiaries and to strengthen lower debt-to-equity ratio limit from current 200% to 100%. To encourage corporate groupsÊ conversion to a holding company structure, a bill was introduced in the National Assembly in 2009 to revise the Monopoly Regulation and Fair Trade Act (MRFTA) to 1) allow holding companies to own financial subsidiaries and to 2) ease requirements for stake ownership of second-tier subsidiaries in third-tier subsidiaries to 20% for listed companies and to 40% for unlisted companies (currently 100% for both listed and unlisted companies). However, the bill was killed before reaching the plenary session due to the end of the 18th National Assembly.

Table 10. Major political partiesÊ pledges for the reform of large conglomerates New Frontier Party Democratic United Party United Progressive Party All affiliates of 10 largest groups cannot invest in Group-affiliated companies cannot invest Regulation on total - domestic companies in excess of 30% of their net in domestic companies in excess of 25% equity investment assets of their net assets Ban on circular To discuss banning new circular Ban new circular shareholdings; Three year grace Ban circular shareholdings shareholding shareholdings period for existing shareholdings Shareholding cap of non-financial business operators Separation of the in financial holding companies: 9% → 4%; Separation of financial subsidiaries from financial and industrial - Separation of financial subsidiaries from corporate corporate groups sectors groups

Tax increases - Corporate income tax rate: 22% → 30% - Debt-to-equity ratio limit 100%; Higher Debt-to-equity ratio limit 100%; Higher shareholding shareholding requirements in subsidiaries Holding company- requirements in subsidiaries (30% for listed; 50% for - (40% for listed; 80% for non-listed related regulations non-listed companies) companies)

To consider the enactment of a corporate group act Ban on group affiliatesÊ bidding for public projects Taxation on the shareholding in Prevention of transactions among Others Strengthening penalties on transactions among subsidiaries of unrelated businesses; group affiliates group affiliates Improvement in subcontracting system Reform of the current subcontracting system Source: KDB Daewoo Securities Research

Table 11. Requirements to establish/convert to a holding company Detail Objective To hold controlling stakes in domestic businesses Total assets Over W100bn The combined value of subsidiary shares must exceed 50% of the holding companyÊs asset value Stake The share value is revised annually based on fair market value or equity method Within 30 days after the registration or merger/spilt-off date If a company converts to a holding company structure through stake Reporting acquisitions or asset growth, the company must report this change within four months after the end of the business year Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 11 July 5, 2012 Holding companies

Table 12. Major restrictions on holding companies under the current MRFTA MRFTA Detail Debt ratio Article 8-2 (2) A holding companyÊs liabilities should not exceed twice the total amount of capital A holding companyÊs stake in listed and unlisted subsidiaries should exceed 20% and 40%, Stakes in subsidiaries and respectively Article 8-2 (2) second-tier subsidiaries A subsidiaryÊs stake in listed and unlisted second-tier subsidiaries should exceed 20% and 40%, respectively Separation of the financial and A holding company is prohibited from owning stakes in financial subsidiaries, second-tier subsidiaries Article 8-2 (2), (3), (4) industrial sectors and third-tier subsidiaries In principle, a holding company is prohibited from owning stakes in third-tier subsidiaries Third-tier subsidiary share If a second-tier subsidiary owns a 100% stake in a third-tier subsidiary, the holding company is allowed ownership to own shares in the third-tier subsidiary Grace period for holding company requirements is two years (can be extended by two years if the FTC Others approves) Source: KDB Daewoo Securities Research

2. Conversion to holding company structure to accelerate

When a company adopts a holding structure, management control (in terms of matters such as ownership succession) of its controlling shareholder is usually strengthened. Current regulations are favorable for corporate groupsÊ to switch to a holding company structure in light of 1) low shareholding requirements in subsidiaries and second-tier subsidiaries and 2) no limit on shareholding in subsidiaries of unrelated businesses.

Discussions on Thus, through the adoption of a holding structure, controlling shareholders of holding strengthening companies should be able to expand their stakes without additional costs, which should help regulations are them strengthen their management control on groups. Given that politicians are whispering accelerating companiesÊ about bringing back a shareholding cap, banning circular shareholding, and placing new restrictions on the holding structure conversion process, companies are rushing to adopt conversion to a holding holding structures to achieve smooth ownership succession and greater management control. structure 1) Revival of regulation on total equity investment In 1986, a regulation was introduced to ban group companiesÊ shareholding in excess of their net assets in domestic companies. The regulation was designed to prevent large companies from recklessly expanding into new business areas. However, the regulation was abolished in 2009 after going through a series of strengthening and easing.

A holding company is If the ceiling for 20 largest corporate groupsÊ total amount of shareholding is set at 25% of exempt from total equity their net assets, nine groups are subject to regulations with their excess shareholding investment regulations estimated at W13tr. If the ceiling for 10 largest corporate groupsÊ shareholding is set at 30% of net assets, four groups are subject to regulations with an estimated excess shareholding of W9tr. Accordingly, companies that are expected to be subject to regulations should make various efforts to avoid the regulations. Converting to a holding company structure could be an option, since a holding company is exempt from total equity investment regulations.

2) Ban on circular shareholding Circular investment is a variation of mutual investment in which Company A owns stocks in Company B, Company B owns stocks in Company C, and coming full circle, Company C owns stock in Company A. If Company C acquires a stake in Company A, Company A is able to recover its initial investment. Eventually, Company A is able to control Company B and C without any capital or actual investment.

Through a holding The MRFTA bans mutual investments, but not circular investments. However, banning structure, group owners circular investments is currently discussed by politicians as a way of reforming large are able to control corporate groups. As most group owners are controlling subsidiaries through circular subsidiaries through investments, they might consider conversion to a holding structure through which they can maintain control on subsidiaries through vertical shareholding. vertical shareholding

KDB Daewoo Securities Research 12 July 5, 2012 Holding companies

3) Possible end to tax benefits Companies switching to Another factor that may speed up transition to a holding company structure is a possible end a holding company to tax deferrals on capital gains from such transition, which is temporarily granted under the structure are eligible for Restriction of Special Taxation Act. To encourage such transition, the government has tax benefits until end- allowed controlling shareholders to defer tax payments on capital gains (since 2001 until 2012 end-2012) arising from a stock swap (subsidiariesÊ stocks in exchange for the holding companyÊs stocks), until such gains are actually realized through the disposal of holding company shares.

If the tax deferral period is not extended (through revision to the Act), capital gain taxes will likely be imposed on profits resulting from the stock swap beginning next year. Given rising political pressure from large conglomerates for economic reform (as discussed earlier in this report), revising the Act could face strong opposition. Thus, we expect SMEs (that are more sensitive to taxes than their much larger counterparts) to increasingly switch to a holding company within this year.

4) Taxation on transactions among group affiliates Pursuant to the revised Inheritance Tax and Gift Tax Act (as of end-December 2011), the government plans to impose a gift tax on transactions among group affiliates, if a company where the controlling shareholder and/or a related party holds a stake in excess of 3% of the total shares generates more than 30% of its revenues from transactions with an affiliated party (based NOPAT). Taxes will be calculated by applying the gift tax rate to deemed donation. Deemed donation is calculated as follows: NOPAT*(% of transactions with affiliated parties ă 30%)*(shareholding ratio ă 3%).

Transaction between a However, this provision shall not apply if: 1) the affiliate is majority owned by the company holding company and its subject to taxation, or 2) the transaction is between a holding company and its subsidiaries subsidiaries is not or second-tier subsidiaries (subsidiaries are considered as a single entity with the holding considered affiliated company). Thus, companies that generate a large proportion of revenues from its affiliates transactions can save taxes if they incorporate such affiliates under their umbrella after switching to a holding company.

Figure 20. Gift tax on transactions among group affiliates

After-taxAfter-tax operatingoperating profitprofit W100bn W100bn %% ofof transactionstransactions withwith affiliatedaffiliated partiesparties 80%80% ControllingControlling shareholder'sshareholder's stakestake 50%50%

GiftGift taxtax basebase W100bnx(80%-30%)x(50%-3%)=W23.5bnW100bnx(80%-30%)x(50%-3%)=W23.5bn

GiftGift taxtax W23.5bnW23.5bn xx 50%(gift50%(gift taxtax raterate 50%)-W0.46bn(progressive50%)-W0.46bn(progressive taxtax deduction)deduction) == W11.29bnW11.29bn

Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 13 July 5, 2012 Holding companies

III. Issue analysis: Transition to holding company

1. Status

In 1H, Nexen (005720 KS), Aekyung Petrochemical (006840 KS), Hankook Tire (000240 KS), and Kolmar Korea (024720 KS) announced their transition to a holding company structure. As part of the transition efforts, Nexen increased its stake in Nexen Tire from 31.61% to 40.48% through a stock swap (a tender offer). Aekyung Petrochemical and Hankook Tire each passed preliminary deliberations for stock re-listing after a decision was made for division of corporation. As a result, Hankook Tire will become a holding company under the corporate name, Hankook Tire Worldwide, with its tire business being spun off as a new corporation, Hankook Tire. Aekyung Petrochemical will be renamed as AK Holdings, and its existing businesses will be re-listed under Aekyung Petrochemical. Kolmar Korea will separate its investment business and cosmetics & medical supply business into Kolmar Korea Holdings and Kolmar Korea, respectively.

Table 1. Companies currently pushing to adopt holding structures Announcement Split ratio (holding Holding company Key subsidiary Re-listing date Progress date company: subsidiary) Kolmar Korea Holdings Kolmar Korea 6/4/2012 0.325:0.675 10/1/2012 Decision on split-off made Aekyung AK Holdings 4/24/2012 0.64:0.36 9/17/2012 Re-listing plan approved following preliminary evaluation Petrochemical Hankook Tire Worldwide Hankook Tire 4/25/2012 0.19:0.81 10/4/2012 Re-listing plan approved following preliminary evaluation Samyang Holdings Samyang Corp. 8/10/2012 0.57:0.43 12/5/2012 June 20th~July 10th: Subscription period for rights offering Source: KDB Daewoo Securities Research

2. Method of transition: Spin-off and tender offer

Companies prefer „spin- Companies that are currently pushing to adopt holding structures are doing so to prepare for off and tender offer‰ ownership succession or to increase the ownership stakes of their respective controlling process shareholders. And these companies are opting for the same conversion process: tendering offers after spin-offs. In other words, once a company is split into a holding company and a subsidiary, the holding company would acquire stakes in the subsidiary via a tender offer. And shareholders would receive new shares of the holding company via a rights offering in return for their shares in the subsidiary.

This method of transition is most popular among companies switching to a holding company, as it allows controlling shareholders to increase their stakes in both the holding company and its subsidiaries. LG, SK, CJ and Nongshim Holdings employed this process to complete their transition into a holding company structure.

Figure 21. Process of conversion to a holding structure

Controlling Controlling Controlling shareholders shareholder shareholder Spin Investment off in kind 20%+α 20% 40%20% 50% A A A A B Holdings company company company company 50% Treasury 15% 35% shares 15% A A B Subsidiary company 20% Subsidiary

Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 14 July 5, 2012 Holding companies

Tender offer to buy Controlling shareholders do not need to hold stakes in subsidiaries, as they can control the subsidiariesÊ shares subsidiaries through the holding company. As such, they exchange their stakes in enhances the holding subsidiaries for newly issued shares of the holding company, increasing the holding companyÊs control of companyÊs stakes in subsidiaries, while maintaining control of subsidiaries through the subsidiaries holding company.

Meanwhile, minority shareholders, who prefer operating subsidiariesÊ shares, do not feel the incentive to invest in the holding companyÊs shares. As such, minority shareholders often do not accept a tender offer made by the holding company to buy subsidiariesÊ shares. In this case, an increase in controlling shareholdersÊ stakes in the holding company will be larger than a rise in the holding companyÊs stake in subsidiaries

Some major groups have a cross shareholding structure where controlling shareholders with stakes in some flagship subsidiaries control the entire group. If these groups are converted to a holding structure, the key issue will be to secure stable control of their subsidiaries. In addition, they should meet the minimum subsidiary ownership requirement (20% for listed subsidiaries and 40% for unlisted subsidiaries). Therefore, conversion to a holding structure will likely follow the same pattern as previously.

Table 14. Type of holdings conversion Conversion type Holdings SK, LG, GS, CJ, Amorepacific, Hanjin Heavy Industries & Construction, Nongshim Tender offer Daesang, HCN, Daewoong, Pyung hwa, Neowiz Holdings Spin-off Secondary offering Daekyo, KPX, ISU, DPI, KEC Holdings Spin-off Se Ah Holdings Split-off Nexon, Dongwha, Pulmuone, Korea Computer Holdings Source: KDB Daewoo Securities Research

Table 15. Change in controlling shareholdersÊ stake before and after tender offer (%, %p) Controlling shareholdersÊ Controlling shareholdersÊ Holding companies Increase stake before tender offer stake after tender offer Woongjin Holdings 36.4 87.2 50.8 LGEI 33.8 78.3 44.5 Daesang Holidngs 33.5 67.4 33.9 Hanjin Heavy Industries & Consruction 16.9 50.1 33.2 Amorepacific 31.7 62.6 30.9 CJ 20.2 50.1 29.9 LGCI 12.7 41.6 28.9 Nongshim Holdings 36.4 61.3 24.9 Daewoong 55 76.9 21.9 JW Holdings 33.5 54.4 20.9 Neowiz 41.5 60.7 19.2 KEC Holdings 29.6 48 18.4 SK 15.7 29.6 13.9 DPI Holdings 33 45.5 12.5 KPX Holdings 48.5 56.7 8.2 Pyung hwa Holdings 33.6 39.1 5.5 Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 15 July 5, 2012 Holding companies

3. Holding company investment strategy

We believe that investors can benefit when a company switches to a holding structure. We advise investors to invest in the subsidiary during the conversion process (announcement of conversion  spin-off  tender offer). However, when the holding company acquires the subsidiaryÊs shares via a tender offer, we recommend that investors buy the holding companyÊs shares, as they should rise on their valuation merits (relative to their asset values).

It should be noted that the controlling shareholder is likely to attempt to increase the values of the subsidiary before making a tender offer, because higher share prices (for the subsidiary) should enable the shareholder to secure a larger stake in the holding company during the share swap. As for the holding company, once a share swap ratio is set following a tender offer, uncertainties over new share issues should ease.

Figure 22. Share performances of a holding company and a subsidiary after conversion to a holding structure

(Share price) 200 Spin-off Tender offer

150 Subsidiary

Announcement of conversion 100 Holding company

50

(Time) 0 07.9 07.12 08.3 08.6 08.9

Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 16 July 5, 2012 Holding companies

Table 16. Amorepacific GroupÊs conversion to a holding structure (W) Amorepacific Group Amorepacific Date Share price Performance Share price Performance Announcement of conversion 3/15/2006 365,000 - - - Suspension of share trading 5/25/2006~6/29 320,000 -12.3% - - Spin-off and listing 6/29/2006 183,000 - 385,000 - Announcement of tender offer and rights offering 10/9/2006 127,000 -30.6% 455,500 18.3% Disclosure of issue price 11/14/2006 139,000 9.4% 509,000 11.7% Peak of the holding companyÊs share price 12/26/2006 171,000 23.0% 563,000 10.6% Source: KDB Daewoo Securities Research

Table 17. SK GroupÊs conversion to a holding structure (W) SK Holdings SK Energy Date Share price Performance Share price Performance Announcement of conversion 4/11/07 93,000 - - - Suspension of share trading 6/28/07~7/24/07 134,000 44.1% - - Spin-off and listing 7/25/07 205,000 - 169,500 - Announcement of tender offer and rights offering 9/17/07 182,500 -11.0% 157,000 -7.4% Disclosure of issue price 9/21/07 178,000 -2.5% 151,000 -3.8% Peak of the holding companyÊs share price 11/24/07 285,500 60.4% 200,000 32.5% Source: KDB Daewoo Securities Research

Figure 23. Amorepacific GroupÊs conversion to a holding structure

(W) (Spin-off, 6/29/06=100) (Tender offer, 11/14/06=100) 500,000 Amorepacific 140 Amorepacific Group 130 Amorepacific Group Amorepacific Amorepacific

400,000 120 120

300,000 100 110

200,000 80 100

100,000 60 90

0 40 80 1/05 3/05 5/05 7/05 9/05 11/05 1/06 3/06 5/06 6/06 7/06 7/06 8/06 8/06 9/06 9/06 10/06 10/06 11/06 11/06 11/06 12/06 12/06 1/07 1/07 2/07 2/07 3/07

Source: KDB Daewoo Securities Research Figure 24. SK GroupÊs conversion to a holding structure

(W) (Spin-off, 7/25/07=100) (Tender offer, 9/21/07=100) 160,000 SK Holdings 110 SK Holdings 200 SK Holdings SK Energy SK Energy 140,000 100

120,000 150 90 100,000 80 80,000 100 70 60,000 60 40,000 50

20,000 50

0 40 0 1/07 2/07 3/07 4/07 5/07 6/07 7/07 8/07 9/07 12/07 3/08

Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 17 July 5, 2012 Holding companies

LG Corp. (003550 KS)

Buy (Maintain) Share price to hinge on key subsidiaries’ performance

Target Price (12M, W) 90,000  Maintain Buy with TP of W90,000 Share Price (07/03/12, W) 56,600 Expected Return (%) 59.0  Appears undervalued given market cap is no more than the combined value of LGE EPS Growth (12F, %) 0.9 and LG Chem stakes Market EPS Growth (12F, %) 17.2  Key subsidiaries’ earnings to modestly pick up from 3Q P/E(12F, x) 10.1

Market P/E(12F, x) 9.5 KOSPI 1,867.82 We maintain our Buy rating on LG Corp. with a target price of W90,000. Market Cap (Wbn) 9,767 The companyÊs current market cap (W9.3tr) is only equivalent to the combined value Shares Outstanding (mn) 176 (W9.7tr) of its stakes in LG Electronics (LGE) and LG Chem. We believe that LG Corp.Ês Avg Trading Volume (60D, '000) 409 shares are undervalued, trading at a 55% discount to the companyÊs net asset value per Avg Trading Value (60D, Wbn) 23 share Dividend Yield (12F, %) 1.8 Free Float (%) 51.4 Since early this year, LG Corp.Ês shares have shown a strong correlation to LG ChemÊs 52-Week Low 50,100 shares. LGE (one of the culprits behind LG Corp.Ês share discount) is expected to see 52-Week High 85,900 steady earnings improvement despite lingering concerns over its smartphone business. Beta (12M, Daily Rate of Return) 1.37 On the other hand, LG Chem posted lukewarm 1Q results due to high oil prices and tepid Price Return Volatility (12M Daily, %, SD) 2.9 Chinese demand. And, with the economy staying sluggish, it seems difficult to confirm if Foreign Ownership (%) 26.7 the company has bottomed. Major Shareholder(s) Koo Bon Moo et al. (48.59%) We believe that LG Corp.Ês shares will appreciate only if LG ChemÊs operating earnings improve on the back of market recovery. For 2Q, we expect LG Chem to post solid earnings relative to its peers thanks to a pickup in its I&E materials and battery units. Price Performance Given current low inventory levels, any signs of an economic recovery could lead to a (%) 1M 6M 12M faster than expected margin improvement at LG Chem. Absolute 3.9 -12.3 -31.6 Relative 2.0 -11.9 -19.4 Meanwhile, we believe LGE has moved past the worst of its troubles. Profitability at the HE division is improving sharply on strong sales of 3D and OLED TVs. The HA division has regained stability thanks to stabilizing raw material prices and improving productivity. However, the MC division still faces a number of challenges, suggesting that earnings improvement may not be sustainable this year (although the division swung to profit in 1Q). Nevertheless, the overall earnings outlook for the division is not very depressing given its strong product lineup (including the Optimus LTE2 and the Optimus 4X) and its improving relationship with telecoms.

LG Corp. has already established solid corporate governance on the back of its long- standing history as a holding company. It generates annual free cash flow of W250~300bn from dividends, brand royalties, and rental income. Furthermore, the company has additional financing sources, thanks to its strong credit rating and asset quality. Moreover, the company can adjust cash inflows thanks to the fact that it maintains management control over its subsidiaries. Therefore, we believe that LG. Corp. will be able to meet its future financing needs without much difficulty. § Earnings & Valuation Metrics 110 Share price KOSPI FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 100 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 90 12/10 9,480 1,859 19.6 1,529 8,693 2,238 5,691 17.7 10.0 1.6 7.2

80 12/11 10,059 1,307 13.0 978 5,563 1,677 604 9.6 11.0 1.0 7.3

70 12/12F 10,302 1,510 14.7 987 5,612 1,744 1,365 9.0 10.1 0.9 5.9

60 12/13F 11,941 1,698 14.2 1,072 6,098 1,919 1,407 9.1 9.3 0.8 4.9 6/11 10/11 2/12 6/12 12/14F 12,857 1,861 14.5 1,182 6,720 2,046 1,531 9.3 8.4 0.8 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

Daewoo Securities Research 18

July 5, 2012 Holding companies

LG Corp. (003550 KS/Buy/TP: W90,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 10,059 10,302 11,941 12,857 Current Assets 3,043 4,052 5,550 6,944 Cost of Sales 8,277 8,395 9,776 10,523 Cash and Cash Equivalents 441 1,292 1,924 2,538 Gross Profit 1,782 1,907 2,166 2,335 AR & Other Receivables 2,051 2,100 2,434 2,621 SG&A Expenses 432 429 482 497 Inventories 327 335 388 418 Operating Profit (Adj) 1,350 1,478 1,684 1,838 Other Current Assets 93 96 110 117 Operating Profit 1,307 1,510 1,698 1,861 Non-Current Assets 12,118 12,155 12,154 12,187 Non-Operating Profit -73 -109 -94 -102 Investments in Associates 8,782 8,782 8,782 8,782 Net Financial Income 0 0 0 0 Property, Plant and Equipment 2,284 2,042 1,833 1,653 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 124 132 142 141 Pretax Profit 1,234 1,401 1,604 1,759 Total Assets 15,161 16,207 17,704 19,131 Income Tax 162 296 388 426 Current Liabilities 2,621 2,517 2,951 3,190 Profit from Continuing Operations 1,071 1,105 1,216 1,334 AP & Other Payables 1,957 2,004 2,323 2,501 Profit from Discontinued Operations -41 -41 -41 -41 Short-Term Financial Liabilities 468 311 395 438 Net Profit 1,030 1,064 1,175 1,292 Other Current Liabilities 197 202 234 252 Controlling Interests 978 987 1,072 1,182 Non-Current Liabilities 1,579 1,779 1,956 2,140 Non-Controlling Interests 52 77 102 110 Long-Term Financial Liabilities 957 946 937 929 Total Comprehensive Profit 917 951 1,062 1,180 Other Non-Current Liabilities 544 754 940 1,132 Controlling Interests 868 876 962 1,071 Total Liabilities 4,200 4,295 4,907 5,330 Non-Controlling Interests 49 75 100 108 Controlling Interests 10,550 11,426 12,212 13,107 EBITDA 1,677 1,744 1,919 2,046 Capital Stock 879 879 879 879 FCF (Free Cash Flow) 604 1,365 1,407 1,531 Capital Surplus 2,367 2,367 2,367 2,367 EBITDA Margin (%) 16.7 16.9 16.1 15.9 Retained Earnings 7,370 8,357 9,254 10,260 Operating Profit Margin (%) 13.0 14.7 14.2 14.5 Non-Controlling Interests 411 486 586 694 Net Profit Margin (%) 9.7 9.6 9.0 9.2 Stockholders' Equity 10,960 11,912 12,798 13,801

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 553 1,373 1,421 1,536 P/E (x) 11.0 10.1 9.3 8.4 Net Profit 1,030 1,064 1,175 1,292 P/CF (x) 8.3 8.0 7.6 7.2 Non-Cash Income and Expense 52 639 703 713 P/B (x) 1.0 0.9 0.8 0.8 Depreciation 308 241 209 181 EV/EBITDA (x) 7.3 5.9 4.9 4.1 Amortization 20 24 26 27 EPS (W) 5,563 5,612 6,098 6,720 Others -143 -76 -58 -67 CFPS (W) 7,426 7,122 7,433 7,902 Chg in Working Capital -378 -34 -69 -43 BPS (W) 59,334 64,273 68,685 73,778 Chg in AR & Other Receivables -82 -50 -334 -187 DPS (W) 1,000 1,000 1,000 1,000 Chg in Inventories -78 -8 -53 -30 Payout ratio (%) 18.0 17.8 16.4 14.9 Chg in AP & Other Payables -58 47 319 178 Dividend Yield (%) 1.6 1.8 1.8 1.8 Income Tax Paid -152 -296 -388 -426 Revenue Growth (%) 6.1 2.4 15.9 7.7 Cash Flows from Inv Activities -735 -270 -593 -691 EBITDA Growth (%) -25.1 4.0 10.1 6.6 Chg in PP&E -597 0 0 0 Operating Profit Growth (%) -29.7 15.6 12.5 9.6 Chg in Intangible Assets -45 -32 -36 -27 EPS Growth (%) -36.0 0.9 8.7 10.2 Chg in Financial Assets 24 -321 -630 -742 Accounts Receivable Turnover (x) 5.1 5.0 5.3 5.1 Others -117 83 73 78 Inventory Turnover (x) 35.1 31.1 33.0 31.9 Cash Flows from Fin Activities 271 -253 -196 -231 Accounts Payable Turnover (x) 5.2 5.2 5.5 5.3 Chg in Financial Liabilities 511 -168 75 35 ROA (%) 7.1 6.8 6.9 7.0 Chg in Equity 1 0 0 0 ROE (%) 9.6 9.0 9.1 9.3 Dividends Paid -190 0 -176 -176 ROIC (%) 45.5 42.8 49.9 57.5 Others -52 -85 -95 -90 Liability to Equity Ratio (%) 38.3 36.1 38.3 38.6 Increase (Decrease) in Cash 91 851 631 614 Current Ratio (%) 116.1 161.0 188.1 217.7 Beginning Balance 350 441 1,292 1,924 Net Debt to Equity Ratio (%) 7.8 -2.2 -10.1 -17.6 Ending Balance 441 1,292 1,924 2,538 Interest Coverage Ratio (x) 18.5 17.9 17.9 20.7 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 19 July 5, 2012 Holding companies

SK Holdings (003600 KS)

Buy (Maintain) Pay attention to growing value

Target Price (12M, W) 220,000  Maintain Buy and TP of W220,000 Share Price (07/03/12, W) 137,500 Expected Return (%) 60.0  Concerns about SK Innovation have already been priced in EPS Growth (12F, %) -2.1  SK E&S emerged as a new cash cow Market EPS Growth (12F, %) 17.2 P/E(12F, x) 4.0 Market P/E(12F, x) 9.5 We maintain our Buy call on SK Holdings with a target price of W220,000. Early this year, KOSPI 1,867.82 the companyÊs shares fell more than 30% from its peak (albeit it has recently rebounded). Market Cap (Wbn) 6,457 It should be noted that, for the most part, SK HoldingsÊ shares pulled back alongside Shares Outstanding (mn) 47 those of SK Innovation (a key subsidiary). Indeed, SK InnovationÊs shares have been Avg Trading Volume (60D, '000) 198 negatively affected by demand contraction and growing uncertainties over oil prices and Avg Trading Value (60D, Wbn) 25 refining margins amid the economic slump. However, we believe that downside risks are Dividend Yield (12F, %) 1.4 Free Float (%) 54.2 limited, as: 1) the aforementioned negatives have already been priced in, and 2) SK 52-Week Low 112,500 InnovationÊs trading P/B has fallen below 1.0x. Rather, we believe that SK HoldingsÊ 52-Week High 189,500 valuations have become attractive, given the increased discount to its net asset value Beta (12M, Daily Rate of Return) 1.66 (currently 58%). Price Return Volatility (12M Daily, %, SD) 3.3 Foreign Ownership (%) 30.6 In light of growing power demand and the expected shutdowns of nuclear reactors in Major Shareholder(s) Gori and Uljin (for maintenance works), we anticipate a power supply shortage. SK C&C et al. (32.01%) Accordingly, SK E&S (a non-listed subsidiary; ownership stake of 95.1%) is likely to post Treasury shares (13.22%) steady earnings improvements after 2Q. SK E&S entered the LNG-fueled power generation business by acquiring K-Power in August 2011. And the company enhanced Price Performance its pricing competitiveness by signing a fixed-rate LNG procurement contract with (%) 1M 6M 12M Indonesia-based Tangguh. As LNG prices in Asia soared to historic-high levels due to Absolute 12.7 8.3 -25.5 Relative 10.9 8.7 -13.3 demand growth (resulting from the Japanese nuclear reactor shutdowns), domestic system marginal prices (which are based on current LNG prices) jumped. Against this backdrop, thanks to the aforementioned fixed-rate LNG deal, SK E&SÊs power generation unitÊs OP margin has reached around 50%, vs. 10~20% for its private-sector peers. The companyÊs capacity seems limited for now (1.2% of domestic capacity). But SK E&S is building new co-generation power plants in Osung (833 MW; to be completed in January 2013) and in Changheung and Munsan (800 MW each; in end-2014).

Capitalizing on its strong cash flow, SK E&S is pushing to invest in LNG development projects. For example, the company acquired a 37.5% stake in a gas field project in Barossa-Caldita, Australia. The agreement includes an option for the acquisition of an additional stake (12%; when the gas reserve is confirmed to be sufficient). Furthermore, it should be noted that, during market recoveries, holding companiesÊ shares tend to outperform those of their subsidiaries on the back of valuation merits.

§ Earnings & Valuation Metrics Share price KOSPI 110 FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 100 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 90 12/10 90,533 5,647 6.2 925 19,484 9,420 1,864 11.5 7.2 1.2 5.3

80 12/11 111,218 8,347 7.5 1,673 35,244 10,026 4,787 17.0 3.4 0.9 4.8

70 12/12F 117,716 6,651 5.6 1,637 34,490 9,975 1,807 14.3 4.0 0.8 5.3

60 12/13F 119,398 7,558 6.3 1,907 40,176 11,264 2,796 14.6 3.4 0.6 4.7 6/11 10/11 2/12 6/12 12/14F 124,904 8,467 6.8 2,102 44,269 12,432 3,524 14.1 3.1 0.5 4.3

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

July 5, 2012 Holding companies

SK Holdings (003600 KS/Buy/TP: W220,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 111,218 117,716 119,398 124,904 Current Assets 41,759 42,463 43,950 46,918 Cost of Sales 99,464 105,627 106,016 110,294 Cash and Cash Equivalents 9,372 8,078 7,955 8,180 Gross Profit 11,754 12,088 13,381 14,609 AR & Other Receivables 15,146 16,031 16,260 17,010 SG&A Expenses 5,238 5,154 5,466 5,694 Inventories 9,656 10,221 10,367 10,845 Operating Profit (Adj) 6,516 6,934 7,916 8,915 Other Current Assets 2,621 2,758 2,793 2,909 Operating Profit 8,347 6,651 7,558 8,467 Non-Current Assets 50,655 56,691 59,737 62,592 Non-Operating Profit -1,008 -817 -775 -993 Investments in Associates 4,109 7,500 7,522 7,545 Net Financial Income 0 0 0 0 Property, Plant and Equipment 31,013 34,198 37,657 40,812 Net Gain from Inv in Associates 62 0 0 0 Intangible Assets 8,611 8,059 7,415 6,899 Pretax Profit 7,339 5,834 6,783 7,474 Total Assets 92,414 99,154 103,687 109,510 Income Tax 2,140 1,638 1,905 2,099 Current Liabilities 35,607 36,493 35,923 36,038 Profit from Continuing Operations 5,199 4,196 4,878 5,375 AP & Other Payables 15,147 16,032 16,261 17,011 Profit from Discontinued Operations -95 -6 0 0 Short-Term Financial Liabilities 12,874 12,444 11,534 10,534 Net Profit 5,103 4,189 4,878 5,375 Other Current Liabilities 7,586 8,017 8,128 8,493 Controlling Interests 1,673 1,637 1,907 2,102 Non-Current Liabilities 22,785 25,407 25,852 26,405 Non-Controlling Interests 3,430 2,552 2,971 3,273 Long-Term Financial Liabilities 16,396 18,162 17,660 17,024 Total Comprehensive Profit 4,752 4,048 4,737 5,234 Other Non-Current Liabilities 6,113 6,969 7,916 9,105 Controlling Interests 1,554 1,587 1,857 2,051 Total Liabilities 58,391 61,900 61,775 62,443 Non-Controlling Interests 3,198 2,461 2,880 3,183 Controlling Interests 10,751 12,192 13,970 15,942 EBITDA 10,026 9,975 11,264 12,432 Capital Stock 239 239 239 239 FCF (Free Cash Flow) 4,787 1,807 2,796 3,524 Capital Surplus 6,134 2,794 2,794 2,794 EBITDA Margin (%) 9.0 8.5 9.4 10.0 Retained Earnings 4,951 6,501 8,329 10,352 Operating Profit Margin (%) 7.5 6.8 7.8 8.3 Non-Controlling Interests 23,272 25,063 27,943 31,125 Net Profit Margin (%) 1.5 1.4 1.6 1.7 Stockholders' Equity 34,023 37,254 41,912 47,067

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 10,496 7,417 9,278 10,083 P/E (x) 3.4 4.0 3.4 3.1 Net Profit 5,103 4,189 4,878 5,375 P/CF (x) 1.1 1.4 1.2 1.2 Non-Cash Income and Expense 5,408 5,913 6,386 7,057 P/B (x) 0.9 0.8 0.6 0.5 Depreciation 2,731 2,106 2,501 2,805 EV/EBITDA (x) 4.8 5.3 4.7 4.3 Amortization 779 935 848 712 EPS (W) 35,244 34,490 40,176 44,269 Others 1,128 -679 -775 -994 CFPS (W) 109,192 98,547 110,712 118,352 Chg in Working Capital 1,367 -1,230 -82 -250 BPS (W) 129,734 173,634 224,648 277,075 Chg in AR & Other Receivables -618 -863 -229 -750 DPS (W) 1,950 1,950 1,950 1,950 Chg in Inventories -2,157 -551 -146 -478 Payout ratio (%) 4.8 4.8 4.1 3.8 Chg in AP & Other Payables 4,976 1,004 229 750 Dividend Yield (%) 1.6 1.4 1.4 1.4 Income Tax Paid -1,382 -1,455 -1,905 -2,099 Revenue Growth (%) 22.9 5.8 1.4 4.6 Cash Flows from Inv Activities -5,125 -8,551 -6,603 -6,704 EBITDA Growth (%) 6.4 -0.5 12.9 10.4 Chg in PP&E -5,347 -5,695 -5,960 -5,960 Operating Profit Growth (%) 47.8 -4.3 16.4 11.2 Chg in Intangible Assets -850 -225 -204 -195 EPS Growth (%) 80.9 -2.1 16.5 10.2 Chg in Financial Assets -666 -480 -1,366 -1,519 Accounts Receivable Turnover (x) 9.7 9.2 9.0 9.1 Others 1,739 -2,151 927 970 Inventory Turnover (x) 12.3 11.8 11.6 11.8 Cash Flows from Fin Activities -2,833 -183 -2,776 -3,132 Accounts Payable Turnover (x) 11.4 9.8 9.6 9.7 Chg in Financial Liabilities -965 918 -1,524 -1,641 ROA (%) 5.8 4.4 4.8 5.0 Chg in Equity 0 0 0 0 ROE (%) 17.0 14.3 14.6 14.1 Dividends Paid -80 -80 -79 -79 ROIC (%) 10.4 10.8 11.6 12.3 Others -1,788 -1,232 -1,285 -1,417 Liability to Equity Ratio (%) 171.6 166.2 147.4 132.7 Increase (Decrease) in Cash 2,633 -1,294 -101 247 Current Ratio (%) 117.3 116.4 122.3 130.2 Beginning Balance 6,739 9,372 8,078 7,978 Net Debt to Equity Ratio (%) 43.9 46.0 35.0 24.2 Ending Balance 9,372 8,078 7,978 8,225 Interest Coverage Ratio (x) 6.7 5.8 7.2 7.3 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 21 July 5, 2012 Holding companies

Doosan Corp. (000150 KS)

Buy (Maintain) Growth story remains intact

Target Price (12M, W) 210,000  Maintain Buy rating with a TP of W210,000 Share Price (07/03/12, W) 135,000 Expected Return (%) 55.6  Electro-Materials to experience profitability improvements; Mottrol business to post EPS Growth (12F, %) 16.6 steady recovery Market EPS Growth (12F, %) 17.2  Shareholder value likely to improve on treasury stock buyback/retirement P/E(12F, x) 11.7

Market P/E(12F, x) 9.5 KOSPI 1,867.82 We maintain our Buy rating on Doosan Corp. with a target price of W210,000. We Market Cap (Wbn) 2,797 expect Doosan Corp.Ês in-house units to post strong growth. In-house operations, Shares Outstanding (mn) 26 accounting for roughly 30% of the companyÊs total net asset value (NAV), promise Avg Trading Volume (60D, '000) 90 high profitability (cash generation) and growth potential (overseas expansion). In Avg Trading Value (60D, Wbn) 12 light of this, the companyÊs stock appears undervalued (a 45% discount to the Dividend Yield (12F, %) 2.2 companyÊs NAV). Free Float (%) 34.7 52-Week Low 113,500 Doosan Corp.Ês Electro-Materials business group will likely improve its profitability 52-Week High 175,500 by cutting the proportion of low-margin products, and instead, focus on high value- Beta (12M, Daily Rate of Return) 0.93 added products (i.e., FCCL) in 2H. The business reported healthy earnings in 1H Price Return Volatility (12M Daily, %, SD) 2.3 Foreign Ownership (%) 10.9 driven by SEC (Galaxy S II and Galaxy Note), and should continue to enjoy strong Major Shareholder(s) earnings in 2H thanks to the release of Galaxy S III. The business is currently Park Yong Kon et al. (45.11%) operating five production lines domestically, and one production line in China (as Treasury Fund (15.01%) part of an effort to strengthen its overseas market presence). By end-3Q, it will add three more lines (one in Korea and two in China) to meet rising demand. Price Performance (%) 1M 6M 12M The Mottrol business group is also striving to upgrade its profitability by reducing Absolute 11.1 -6.9 5.9 its dependence on three Korean construction equipment makers for revenues, and Relative 9.3 -6.5 18.0 steadily increasing exports (mainly to China). The sluggish excavator market amid falling Chinese investments may dent demand, and combined with capacity expansion, this may cause temporary risks to the business group. However, we do not expect an across-the-board decline in ChinaÊs infrastructure investments, and thus, any impact on the businessÊs growth potential should be limited.

Doosan Corp. is preparing to sell DIP HoldingsÊs stakes in System Restaurant Service and Korea Aerospace Industries, and non-core assets of Doosan Group. Once the sales are completed, gains on such sales should help improve the companyÊs financial position (debt repayments, etc.). The plan to buy back (and possible retire) its treasury shares should also directly boost the companyÊs shareholder value.

§ Earnings & Valuation Metrics

160 Share price KOSPI FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 140 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 120 12/10 3,753 900 24.0 768 24,986 981 3,493 30.7 6.2 1.5 5.1

100 12/11 4,033 453 11.2 305 9,893 496 146 9.5 14.5 1.5 10.4

80 12/12F 4,415 543 12.3 319 11,535 608 455 9.7 11.7 1.1 6.6

60 12/13F 4,904 696 14.2 415 15,020 666 290 11.7 9.0 1.0 5.3 6/11 10/11 2/12 6/12 12/14F 5,514 807 14.6 486 17,590 747 314 12.6 7.7 0.9 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

Daewoo Securities Research 22

July 5, 2012 Holding companies

Doosan Corp. (000150 KS/Buy/TP: W210,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 4,033 4,415 4,904 5,514 Current Assets 1,763 2,315 2,818 3,629 Cost of Sales 2,963 3,139 3,489 3,893 Cash and Cash Equivalents 359 478 353 492 Gross Profit 1,070 1,276 1,415 1,622 AR & Other Receivables 840 710 794 892 SG&A Expenses 661 741 834 969 Inventories 424 465 516 580 Operating Profit (Adj) 409 534 581 653 Other Current Assets 135 148 164 184 Operating Profit 453 543 696 807 Non-Current Assets 4,533 4,626 4,500 4,510 Non-Operating Profit -50 -62 -81 -87 Investments in Associates 2,338 2,375 2,375 2,375 Net Financial Income 0 0 0 0 Property, Plant and Equipment 1,450 1,626 1,790 1,986 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 288 281 276 279 Pretax Profit 403 481 614 720 Total Assets 6,296 6,941 7,319 8,139 Income Tax 51 116 135 158 Current Liabilities 1,529 1,757 1,751 2,137 Profit from Continuing Operations 352 365 479 561 AP & Other Payables 449 488 543 611 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 444 571 433 655 Net Profit 352 365 479 561 Other Current Liabilities 636 698 775 871 Controlling Interests 305 319 415 486 Non-Current Liabilities 1,279 1,454 1,504 1,516 Non-Controlling Interests 47 47 64 75 Long-Term Financial Liabilities 849 933 883 783 Total Comprehensive Profit 372 333 447 529 Other Non-Current Liabilities 302 394 493 605 Controlling Interests 330 286 382 453 Total Liabilities 2,807 3,212 3,255 3,653 Non-Controlling Interests 43 47 65 76 Controlling Interests 3,193 3,405 3,675 4,022 EBITDA 496 608 666 747 Capital Stock 154 154 154 154 FCF (Free Cash Flow) 146 455 290 314 Capital Surplus 993 963 921 884 EBITDA Margin (%) 12.3 13.8 13.6 13.6 Retained Earnings 2,467 2,678 3,023 3,439 Operating Profit Margin (%) 11.2 12.3 14.2 14.6 Non-Controlling Interests 296 324 389 464 Net Profit Margin (%) 7.6 7.2 8.5 8.8 Stockholders' Equity 3,489 3,729 4,064 4,486

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 305 645 525 592 P/E (x) 14.5 11.7 9.0 7.7 Net Profit 352 365 479 561 P/CF (x) 11.2 9.5 7.5 6.4 Non-Cash Income and Expense 96 214 186 186 P/B (x) 1.5 1.1 1.0 0.9 Depreciation 69 39 48 58 EV/EBITDA (x) 10.4 6.6 5.3 4.1 Amortization 18 35 37 36 EPS (W) 9,893 11,535 15,020 17,590 Others -63 -48 -45 -45 CFPS (W) 12,728 14,195 18,091 20,995 Chg in Working Capital -101 150 -5 3 BPS (W) 98,791 125,116 135,678 148,823 Chg in AR & Other Receivables 62 130 -84 -99 DPS (W) 3,000 3,000 3,000 3,000 Chg in Inventories 134 -42 -52 -64 Payout ratio (%) 21.5 19.4 14.9 12.7 Chg in AP & Other Payables -182 21 55 68 Dividend Yield (%) 2.1 2.2 2.2 2.2 Income Tax Paid -42 -84 -135 -158 Revenue Growth (%) 7.5 9.5 11.1 12.4 Cash Flows from Inv Activities -235 -653 -323 -442 EBITDA Growth (%) -49.4 22.4 9.5 12.3 Chg in PP&E -168 -213 -212 -254 Operating Profit Growth (%) -49.6 19.9 28.0 16.0 Chg in Intangible Assets -24 -28 -31 -39 EPS Growth (%) -60.4 16.6 30.2 17.1 Chg in Financial Assets 53 -813 -577 -688 Accounts Receivable Turnover (x) 5.8 6.4 7.4 7.5 Others -96 401 497 540 Inventory Turnover (x) 9.0 9.9 10.0 10.1 Cash Flows from Fin Activities -50 131 -327 -12 Accounts Payable Turnover (x) 8.8 9.4 9.5 9.6 Chg in Financial Liabilities 324 38 12 22 ROA (%) 5.8 5.5 6.7 7.3 Chg in Equity -228 -39 -42 -37 ROE (%) 9.5 9.7 11.7 12.6 Dividends Paid -90 -74 -70 -70 ROIC (%) 20.9 21.3 23.1 23.8 Others -56 -38 -27 -27 Liability to Equity Ratio (%) 80.5 86.1 80.1 81.4 Increase (Decrease) in Cash 19 123 -125 139 Current Ratio (%) 115.3 131.7 161.0 169.8 Beginning Balance 340 359 481 357 Net Debt to Equity Ratio (%) 26.6 13.7 -0.7 -11.9 Ending Balance 359 481 357 496 Interest Coverage Ratio (x) 6.9 14.1 26.0 30.2 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 23 July 5, 2012 Holding companies

Hanwha (000880 KS)

Buy (Maintain) Deeply undervalued

Target Price (12M, W) 42,000  Cut TP to W42,000 (19.2%) in light of a fall in investment asset value Share Price (07/03/12, W) 29,100 Expected Return (%) 44.3  Further subsidiary risk should be limited; Stock seems undervalued EPS Growth (12F, %) 123.4  Hanwha E&C to grow full swing on greater overseas momentum Market EPS Growth (12F, %) 17.2 P/E(12F, x) 7.3 Market P/E(12F, x) 9.5 We lower our target price for Hanwha Corp. to W42,000 (from W52,000), reflecting: 1) a KOSPI 1,867.82 downward revision to our in-house operations forecast, and 2) a decline in the companyÊs Market Cap (Wbn) 2,181 investment asset value (due to falling share prices of its subsidiaries). However, we Shares Outstanding (mn) 75 maintain our Buy rating on the company, as the stock is deeply undervalued (a 53% Avg Trading Volume (60D, '000) 221 discount to the net asset value), and holds high upside potential. Avg Trading Value (60D, Wbn) 6 Dividend Yield (12F, %) 1.5 We believe that concerns over Hanwha ChemicalÊs operating performance (a core Free Float (%) 55.9 subsidiary of Hanwha Corp.Ês) have sent Hanwha Corp.Ês shares lower. A recovery in 52-Week Low 25,850 Hanwha ChemicalÊs share price may be delayed, given the capital requirements for 52-Week High 55,000 steady investments, and 2) uncertainty over the solar cell subsidiaryÊs operation (even Beta (12M, Daily Rate of Return) 1.22 Price Return Volatility (12M Daily, %, SD) 2.5 after chemical demand recovers). However, Hanwha Corp.Ês stock is unlikely to slide Foreign Ownership (%) 20.1 further, currently trading at a P/B of only 0.7x. As such, any fall in the companyÊs net Major Shareholder(s) asset value (due to a lower investment asset value) should be limited, and the stock will Kim Seung Yeon et al. (36.23%) likely rise gradually on the back of attractive valuation and the growth potential of in-house Treasury Fund (7.84%) operations. NPS (7.17%) Price Performance We expect Hanwha Corp.Ês manufacturing business to lead the companyÊs revenue and (%) 1M 6M 12M profitability growth. Utilizing its strong market power, the manufacturing unit will be able Absolute 2.8 -13.5 -40.9 to roll out high value-added products (guided weapons, etc.). The business should also be Relative 1.0 -13.1 -28.7 driven by: 1) the governmentÊs policy to develop state-of-the-art weapons system, 2) the completion of large-caliber, multiple rocket launcher factory, and 3) the designation of the company as a guided weapons specializing company. The trading business may be affected by global economic uncertainty, reporting uneven operating results. Still, the business is anticipated to swing to positive territory through steady profit improvements.

Furthermore, Hanwha E&C, a wholly-owned unlisted subsidiary of Hanwha Corp., appears to possess huge growth potential. The company has large order backlog (including a 7-year contract for the construction of a new city in Iraq, with the total construction value of US$7.75bn, and a 25% advance payment term), adding stability to the companyÊs business. Investors should also note the companyÊs efforts for qualitative growth in the business portfolio. Going forward, we expect overseas order momentum to pick up further.

§ Earnings & Valuation Metrics Share price KOSPI 140 FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 120 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 100 12/10 14,472 464 3.2 1,149 15,232 657 -27,696 33.2 3.1 0.8 13.4

80 12/11 12,186 314 2.6 135 1,783 430 45 2.9 18.6 0.6 18.0

60 12/12F 12,717 359 2.8 301 3,984 465 1,143 6.3 7.3 0.5 15.7

40 12/13F 13,717 424 3.1 386 5,113 539 245 7.6 5.7 0.4 14.8 6/11 10/11 2/12 6/12 12/14F 14,815 516 3.5 449 5,951 636 314 8.2 4.9 0.4 13.6

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 estimates

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July 5, 2012 Holding companies

Hanwha (000880 KS/Buy/TP: W42,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 12,186 12,717 13,717 14,815 Current Assets 4,853 5,043 6,239 6,384 Cost of Sales 11,267 11,717 12,618 13,562 Cash and Cash Equivalents 351 1,438 2,005 2,179 Gross Profit 919 1,000 1,100 1,253 AR & Other Receivables 3,052 2,299 2,562 2,678 SG&A Expenses 614 604 635 694 Inventories 888 649 974 785 Operating Profit (Adj) 305 396 464 559 Other Current Assets 510 600 641 685 Operating Profit 314 359 424 516 Non-Current Assets 10,177 11,327 12,480 13,671 Non-Operating Profit -17 22 77 68 Investments in Associates 5,811 5,848 5,939 6,031 Net Financial Income 0 0 0 0 Property, Plant and Equipment 3,063 3,241 3,401 3,538 Net Gain from Inv in Associates 239 300 320 337 Intangible Assets 209 197 235 264 Pretax Profit 296 381 501 583 Total Assets 15,030 16,370 18,718 20,055 Income Tax 203 80 110 128 Current Liabilities 5,748 5,289 5,638 5,829 Profit from Continuing Operations 94 301 391 455 AP & Other Payables 2,016 1,627 1,837 1,984 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 2,598 2,480 2,525 2,467 Net Profit 94 301 391 455 Other Current Liabilities 1,134 1,183 1,276 1,378 Controlling Interests 135 301 386 449 Non-Current Liabilities 4,223 5,773 7,435 8,178 Non-Controlling Interests -41 0 5 6 Long-Term Financial Liabilities 2,391 3,452 4,652 5,563 Total Comprehensive Profit -6 280 370 434 Other Non-Current Liabilities 1,551 2,040 2,502 2,334 Controlling Interests 56 278 364 427 Total Liabilities 9,971 11,063 13,072 14,007 Non-Controlling Interests -62 2 6 7 Controlling Interests 4,686 4,933 5,265 5,661 EBITDA 430 465 539 636 Capital Stock 377 377 377 377 FCF (Free Cash Flow) 45 1,143 245 314 Capital Surplus 400 400 400 400 EBITDA Margin (%) 3.5 3.7 3.9 4.3 Retained Earnings 3,937 4,207 4,562 4,979 Operating Profit Margin (%) 2.6 2.8 3.1 3.5 Non-Controlling Interests 373 375 381 388 Net Profit Margin (%) 1.1 2.4 2.8 3.0 Stockholders' Equity 5,059 5,307 5,646 6,049

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 645 1,534 509 550 P/E (x) 18.6 7.3 5.7 4.9 Net Profit 296 320 391 455 P/CF (x) 9.6 6.0 4.8 4.2 Non-Cash Income and Expense 267 159 148 181 P/B (x) 0.6 0.5 0.4 0.4 Depreciation 112 52 52 50 EV/EBITDA (x) 18.0 15.7 14.8 13.6 Amortization 13 17 23 27 EPS (W) 1,783 3,984 5,113 5,951 Others -101 -123 -14 -23 CFPS (W) 3,438 4,891 6,105 6,971 Chg in Working Capital 251 1,118 81 43 BPS (W) 60,265 62,988 66,883 71,750 Chg in AR & Other Receivables -210 240 -263 -116 DPS (W) 450 450 450 450 Chg in Inventories -116 240 -325 189 Payout ratio (%) 23.3 10.4 8.1 7.0 Chg in AP & Other Payables 165 -411 210 147 Dividend Yield (%) 1.4 1.6 1.6 1.6 Income Tax Paid -170 -63 -110 -128 Revenue Growth (%) -15.8 4.4 7.9 8.0 Cash Flows from Inv Activities -294 -1,065 -845 -863 EBITDA Growth (%) -34.6 8.1 16.0 18.0 Chg in PP&E -271 -250 -212 -187 Operating Profit Growth (%) -32.4 14.5 18.1 21.6 Chg in Intangible Assets -40 -58 -61 -55 EPS Growth (%) -88.3 123.4 28.3 16.4 Chg in Financial Assets -164 -976 -843 -913 Accounts Receivable Turnover (x) 4.6 4.9 5.9 5.9 Others 180 218 271 292 Inventory Turnover (x) 14.9 16.6 16.9 16.8 Cash Flows from Fin Activities -207 688 903 486 Accounts Payable Turnover (x) 7.6 7.7 8.9 8.7 Chg in Financial Liabilities 111 -120 45 -58 ROA (%) 0.7 1.9 2.2 2.4 Chg in Equity 0 0 0 0 ROE (%) 2.9 6.3 7.6 8.2 Dividends Paid -42 -31 -31 -31 ROIC (%) 2.5 8.8 11.5 13.4 Others -276 -305 -311 -336 Liability to Equity Ratio (%) 197.1 208.4 231.5 231.6 Increase (Decrease) in Cash 133 1,155 567 173 Current Ratio (%) 84.4 95.3 110.7 109.5 Beginning Balance 218 351 1,506 2,073 Net Debt to Equity Ratio (%) 90.7 83.6 90.6 95.8 Ending Balance 351 1,506 2,073 2,246 Interest Coverage Ratio (x) 1.1 1.2 1.4 1.5 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 25 July 5, 2012 Holding companies

Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of LG Corp. and SK as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for the shares of SK, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with LG Corp. and SK as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies.

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 analystÊs 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.

(W) LG Corp. (W) SK (W) Doosan Corp. (W) Hanwha

140,000 300,000 250,000 70,000 120,000 60,000 250,000 200,000 100,000 200,000 50,000 80,000 150,000 40,000 150,000 60,000 100,000 30,000 100,000 40,000 20,000 50,000 20,000 50,000 10,000 0 0 0 0 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12

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 AnalystÊs 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.

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.

Daewoo Securities Research 26

July 5, 2012 Holding companies

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

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KDB Daewoo Securities Research 27