Korea Morning Focus

August 5, 2019 Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) JB Financial Group (175330/Buy/TP: W8,600) Raise TP KOSPI 1,998.13 -19.21 -0.95 2Q19 review: Earnings surprise and capital ratio improvement KOSPI 200 262.99 -2.74 -1.03 KOSDAQ 615.70 -6.56 -1.05 Kumho Petrochemical (011780/Buy/TP: W110,000) Lower TP Slow demand recovery vs. attractive valuation Turnover ('000 shares, Wbn) Volume Value SK Telecom (017670/Buy/TP: W335,000) KOSPI 427,827 5,338 5G services to drive ARPU higher KOSPI 200 98,130 3,796 KOSDAQ 591,587 3,704

NCsoft (036570/Buy/TP: W700,000) Market Cap (Wbn) Lineage 2M: Dawn of a new era Value KOSPI 1,331,726 KOSDAQ 213,546 Sector News & Analysis KOSPI Turnover (Wbn) Biotech/Healthcare (Overweight) Buy Sell Net Conditions for a rebound Foreign 1,420 1,817 -398 Institutional 1,593 1,230 363 Retail 2,287 2,273 14

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 482 412 70 Institutional 202 209 -7 Retail 2,995 3,058 -63

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,233 1,407 -174 KOSDAQ 443 404 39

Advances & Declines Advances Declines Unchanged KOSPI 289 537 65 KOSDAQ 507 692 96

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 44,950 -250 530 Hynix 76,100 -1,600 366 KODEX KOSDAQ150 9,150 350 263 INVERSE KODEX Leverage 11,375 -240 261 KODEX 200 Futures 8,020 175 248 Inverse 2X

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value A-Jin Industry 3,920 640 197 Soulbrain 69,900 0 151 Kukil Paper 5,130 -40 114 Duksan Techopia 15,600 -1,500 100 Dongjin Semichem 14,350 50 87 Note: As of August 02, 2019

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

JB Financial Group (175330 KS) 2Q19 review: Earnings surprise and capital ratio improvement Banks 2Q19 review: Surprise net profit of W111.5bn Results Comment For 2Q19, JB Financial Group (JBFG) announced net profit (attributable to controlling interests) of W111.5bn (+50.5% YoY, +20.5% QoQ), beating our estimate (W97.7bn) by August 5, 2019 14% and the recently raised consensus (around W97bn) by 15%. Net profit broke the previous quarterly record set in 1Q19, culminating in record half-year net profit in 1H19. The group’s 1H19 ROE was 12.4%, the highest among banks (financial holding companies) and credit card companies under our coverage. (Maintain) Buy Biggest positive: CET1 ratio improves faster than expected to 9.62% Group CET1 ratio at end-2Q19 was estimated at 9.62% (+72bps YoY, +31bps QoQ). As Target Price (12M, W) ▲ 8,600 such, the group has already achieved its year-end target of 9.6%. The improvement was driven by: 1) risk-weighted asset management (which started several years ago) Share Price (08/02/19, W) 5,590 and 2) retained earnings acceleration following the group’s full ownership of Kwangju Bank. We believe the improved CET1 ratio provides the foundation for the group to Expected Return 54% pursue more aggressive shareholder returns and quality growth. Assuming the countercyclical capital buffer is raised to the maximum 2.5% (from 0% currently), the CET1 requirement for JBFG—which is not considered a domestic systemically NP (19F, Wbn) 339 important bank (D-SIB)—would be 9.5%, which it already has exceeded. We thus believe JBFG no longer deserves a valuation discount for its absolute capital ratio. Consensus NP (19F, Wbn) 322

EPS Growth (19F, %) 16.6 Bank NIM stands out; JB Woori Capital’s credit quality is stabilizing Market EPS Growth (19F, %) -25.6 On a combined basis, 2Q19 bank net interest margin (NIM) gained 7bps QoQ (+14bps P/E (19F, x) 3.1 at Jeonbuk Bank and +1bp at Kwangju Bank), aided by: 1) the repricing of lending rates caused by the repayment and replacement of group loans for interim payments; 2) Market P/E (19F, x) 12.2 loan portfolio reorientation toward medium-rated credit loans, auto loans, and KOSPI 1,998.13 corporate loans; and 3) lower funding costs due to a higher mix of core deposits. Market Cap (Wbn) 1,101 One source of concern has been the rise in JB Woori Capital’s delinquency ratio in Shares Outstanding (mn) 197 2018, which was caused by the strategic decision to increase exposure to used car Free Float (%) 86.0 financing (a more profitable area). In response, JB Woori Capital began tightening Foreign Ownership (%) 41.9 underwriting standards in 3Q18. As a result, the firm’s nominal delinquency ratio has Beta (12M) 0.53 fallen from 2.4% in 4Q18 to 2.07% in 1Q19 and 1.93% in 2Q19. Actual delinquency ratio 52-Week Low 5,310 has also stabilized to 2.63% in 4Q18, 2.39% in 1Q19, and 2.29% in 2Q19. 52-Week High 6,300 A small regional financial holding stock with a high ROE; Raise TP to W8,600 (%) 1M 6M 12M Reflecting the better-than-expected 2Q19 results, we revise up our 2019-21 net profit Absolute -6.8 -10.4 -8.4 forecasts by 3.8%, 3.2%, and 2.5%, respectively, and consequently raise our target Relative -1.1 -1.2 4.1 price to W8,600 (from W8,300). Our 2019 ROE forecast for JBFG is 9.7%, the highest within our coverage. In recent years, the group’s dividend payout ratio rose from 5.4% 110 JB Financial Group KOSPI in 2016 to 8.3% in 2017 and 14.4% in 2018. We expect the group to raise its dividend payout further to 14.9% in 2019, 17.4% in 2020, and 19.3% in 2021, which translate into 100 attractive dividend yields of 4.7%, 5.7%, and 6.4%, respectively. 90

70 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd. Fiscal year-end 12/16 12/17 12/18 12/19F 12/20F 12/21F Net interest inc. (Wbn) 1,019 1,162 1,255 1,247 1,301 1,337 [ Banks/Credit Cards] Net non-interest inc. (Wbn) 16 -24 -2 36 53 55 Operating profit (Wbn) 253 350 417 474 499 511 Heather Kang +822-3774-1903 Net profit (Wbn) 143 185 243 339 357 363 [email protected] EPS (W) 951 1,191 1,538 1,794 1,810 1,843

EPS growth (%) 4.8 25.2 29.2 16.6 0.9 1.8 P/E (x) 5.9 4.7 3.6 3.1 3.1 3.0 P/PPOP (x) 2.5 2.1 1.8 1.7 1.6 1.6

P/B (x) 0.38 0.36 0.35 0.29 0.26 0.24 ROE (%) 6.4 7.8 8.7 9.7 8.9 8.2 Dividend yield (%) 0.9 1.8 3.2 4.7 5.7 6.4 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

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.

August 5, 2019 JB Financial Group

Table 1. TP calculation

Sustainable ROE 7.90% Growth 3.00% Cost of equity 14.02%

Cost of equity 14.02% Rf 2.50% Beta 1.92 Market premium 6.00%

Fair P/B (x) 0.44 2019F BPS (W) 19,441 Target price (W) 8,600 Source: Mirae Asset Daewoo Research estimates

Table 2. Implied valuation at TP of W8,600 2016 2017 2018 2019F 2020F 2021F P/B (x) 0.58 0.55 0.54 0.44 0.40 0.37 P/E (x) 9.0 7.2 5.6 4.8 4.8 4.7

ROE (%) 6.4 7.8 8.7 9.7 8.9 8.2 EPS growth (%) 4.8 25.2 29.2 16.6 0.9 1.8

Dividend yield (%) 0.6 1.2 2.1 3.0 3.7 4.2 Source: Company data, Mirae Asset Daewoo Research estimates

2Q19 review: Surprise net profit of W111.5bn Major one-off items in the quarter included: 1) a W17.6bn reversal in charges related to Jeonbuk Bank’s litigation with Woongjin Group; 2) W5.9bn in additional provisioning due to corporate credit rating reassessment at Kwangju Bank; 3) W4bn in reversals of provisions related to individual corporations at Kwangju Bank; and 4) W5.9bn in NPL sale gains at JB Woori Capital.

Group NPL ratio fell to 0.81% (-16bps YoY, -7bps QoQ), while group NPL coverage ratio (based on old formula that includes credit loss reserves) rose to 183.9% (+25.0%p YoY, +13.5%p QoQ). At the bank level, delinquency ratio improved to 0.64% (-23bps YoY, -11bps QoQ) at Jeonbuk Bank and to 0.46% (-9bps YoY, -9bps QoQ) at Kwangju Bank.

Mirae Asset Daewoo Research

Kumho Petrochemical (011780 KS) Slow demand recovery vs. attractive valuation

Chemicals Slow demand recovery; Cut TP to W110,000 Results Comment Slow demand recovery; cut TP by 15% to W110,000: Spreads for Kumho August 5, 2019 Petrochemical’s key chemical products have come under pressure amid ongoing weakness in China’s demand. While 2Q19 results were robust, we expect 3Q19 earnings to decline on tighter spreads. We revise down our earnings estimates and consequently cut our target price by 15% to W110,000 (based on a P/E of 9x our three- year average EPS estimate). (Maintain) Buy Demand recovery is key: Despite limited capacity pressures, spreads for Kumho Target Price (12M, W) ▼ 110,000 Petrochemical’s key products (ABS, BPA, and synthetic rubber) have remained sluggish due to sagging demand in end-markets such as appliances and auto. Earlier in the Share Price (08/02/19, W) 79,500 year, we had anticipated China’s auto/appliance demand to pick up on the back of policy support. However, China’s actual policy stimulus has been limited, and Expected Return 38% uncertainties over trade disputes have intensified, resulting in much weaker-than-usual demand. That said, if the trade war escalates further, we expect China to introduce additional stimulus, limiting further downside to chemical spreads. In our view, any OP (19F, Wbn) 441 meaningful recovery will ultimately depend on US-China trade disputes and China’s Consensus OP (19F, Wbn) 537 policy stimulus.

EPS Growth (19F, %) -20.4 Still our preferred stock in chemicals; maintain Buy: Kumho Petrochemical’s shares Market EPS Growth (19F, %) -25.4 have recently pulled back on tepid chemical spreads and macro uncertainties. In 3Q19, P/E (19F, x) 6.8 we expect earnings to decline, weighed down by tighter phenol derivative spreads. Market P/E (19F, x) 12.3 Despite the unfavorable demand conditions, however, we think the company will be KOSPI 1,998.13 able to generate quarterly operating profit of W80-90bn, supported by robust margins in specialty rubbers and energy. Given the significant pullback, valuation looks Market Cap (Wbn) 2,422 inexpensive even based on current earnings expectations. In addition, with capacity Shares Outstanding (mn) 33 pressures limited, earnings should improve sharply once demand begins to pick up. Free Float (%) 57.0 We continue to prefer Kumho Petrochemical among pure chemical plays and maintain Foreign Ownership (%) 35.3 our Buy rating on the stock. Beta (12M) 1.39 52-Week Low 79,500 2Q19 review: In-line results; 3Q19 earnings to decline 52-Week High 110,500 2Q19 OP of W138.9bn: For 2Q19, Kumho Petrochemical posted robust operating profit of W138.9bn. Synthetic rubber operating profit improved QoQ on wider spreads, and (%) 1M 6M 12M operating profit in synthetic resin and phenol derivatives also remained strong, in line Absolute -16.0 -12.0 -24.3 with 1Q19 levels. Relative -10.8 -2.9 -14.0 3Q19 OP to contract to W89.4bn: For 3Q19, we forecast operating profit to contract to 110 Kumho Petrochemical KOSPI W89.4bn. Spreads have tightened across the board as a result of sluggish demand, but 100 phenol derivatives are likely to be hit the hardest. While spreads have come down to 90 2017 levels, operating profit is likely to be more resilient compared to 2017 due to 80 higher specialty rubber margins.

70 Capacity pressures limited; demand recovery is key: Kumho Petrochemical’s key 60 7.18 11.18 3.19 7.19 products have minimal new capacities coming online in the next several years. While demand remains weak, we expect spreads and earnings to improve from current levels once macro concerns ease and demand returns to normal. Mirae Asset Daewoo Co., Ltd.

[ Chemicals/Oil Refining/EV Batteries] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 3,970 5,065 5,585 5,529 6,192 6,264 Yeon-ju Park +822-3774-1755 OP (Wbn) 157 263 555 441 392 400 [email protected] OP margin (%) 4.0 5.2 9.9 8.0 6.3 6.4

NP (Wbn) 73 214 491 391 384 304 EPS (W) 2,187 6,377 14,667 11,681 11,474 9,083 ROE (%) 4.6 12.3 23.4 15.8 13.8 9.8

P/E (x) 37.5 15.6 6.0 6.8 6.9 8.8 P/B (x) 1.7 1.8 1.2 1.0 0.9 0.8 Dividend yield (%) 1.0 1.0 1.5 1.9 1.9 1.9 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

August 5, 2019 Kumho Petrochemical

Table 1. Quarterly and annual earnings (Wbn) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19P 3Q19F 4Q19F 2018 2019F 2020F Revenue Total 1,339.9 1,441.8 1,450.6 1,352.6 1,275.1 1,297.1 1,542.0 1,414.6 5,584.9 5,528.8 6,192.1 Synthetic rubber 474.5 516.6 539.5 484.8 477.3 499.9 600.5 480.5 2,015.4 2,058.3 2,409.0 Synthetic resins 299.6 324.1 320.7 281.3 288.2 311.6 350.3 350.3 1,225.7 1,300.3 1,405.5 Phenol derivatives 416.2 452.9 453.6 433.5 366.4 485.6 436.3 436.3 1,756.2 1,724.7 1,745.4 Energy and other 57.0 42.4 52.3 54.6 52.7 45.6 54.9 47.4 206.3 200.6 232.2 Operating Total 165.8 153.5 151.0 84.3 144.2 138.9 89.4 68.9 554.2 441.4 392.5 profit Synthetic rubber 33.2 41.3 27.0 4.8 47.7 60.0 42.0 33.6 106.4 183.4 168.6 Synthetic resins 24.0 16.2 9.6 -8.4 17.3 18.7 10.5 10.5 41.4 57.0 56.2 Phenol derivatives 66.6 67.9 77.1 43.4 36.6 43.7 4.4 8.7 255.0 93.4 34.9 Energy and other 34.2 21.2 28.7 41.0 36.9 20.5 27.5 26.1 125.1 110.9 127.7 Pretax profit 194.2 181.2 162.4 79.1 143.5 150.5 118.0 98.0 616.9 510.1 512.5 Net profit 132.1 175.3 122.4 61.4 113.9 115.3 88.5 73.5 491.2 391.2 384.3 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

SK Telecom (017670 KS) 5G services to drive ARPU higher

Telecom Service 2Q19 review: Revenue of W4.44tr and in-line OP of W322.8bn Results Comment For 2Q19, SK Telecom (SKT) reported preliminary revenue of W4.44tr and operating August 5, 2019 profit of W322.8bn. Operating profit came in line with the market consensus, supported by 1) a QoQ gain in ARPU due to wireless service revenue growth and 2) efficient marketing spending. Encouragingly, operating profit held steady QoQ even as marketing expenses grew nearly W30bn QoQ and depreciation expenses increased more than W40bn QoQ (a result of the full-fledged rollout of 5G). (Maintain) Buy The results confirm that a rise in 5G subscribers can drive ARPU higher, especially as Target Price (12M, W) 335,000 the decline in ARPU caused by the increase in the optional discount rate to 25% for existing LTE subscribers draws to an end. Most 5G plans have high prices. While there Share Price (08/02/19, W) 252,000 are some monthly plans priced at the W50,000 level, they offer less than 10GB of basic data, and any data usage above that caps data speed to 1Mbps, a level that is not fast Expected Return 33% enough for streaming videos. We hence believe most 5G subscribers will sign up for plans in the W75,000 or above range. Even when applying the 25% discount rate, actual prices would be around W51,000, roughly 60% higher than the average ARPU of LTE OP (19F, Wbn) 1,339 plans (W32,000). As such, following the end of the decline in ARPU from existing LTE Consensus OP (19F, Wbn) 1,282 subscribers, we expect ARPU to steadily grow, driven by 5G subscriber growth.

EPS Growth (19F, %) -58.6 5G service network to gradually stabilize; Service quality to rapidly improve Market EPS Growth (19F, %) -25.6 in 2H19 P/E (19F, x) 15.7 While there have been some complaints about the initial service quality of 5G following Market P/E (19F, x) 12.2 its hasty rollout, we believe services are gradually improving. One major contributor to KOSPI 1,998.13 the quality issues was the delayed release of 5G-enabled smartphones, which meant telcos did not have enough time to test and optimize network connections. Most of the Market Cap (Wbn) 20,348 optimization work has now been completed, and coverage looks likely to be expanded Shares Outstanding (mn) 81 from 3Q19, which should help improve service quality. In 2Q19, SKT said that it Free Float (%) 52.4 attracted more than 500,000 5G subscribers and is on track to have more than one Foreign Ownership (%) 39.9 million 5G subscribers by August. As service quality improves and more 5G Beta (12M) 0.02 smartphones hit the market (Galaxy Note 10 and mid/low-range models), we believe 52-Week Low 243,000 the telco will be able to achieve its year-end target of 2mn 5G subscribers. 52-Week High 289,500 Increasing market dominance in non-telecom sectors to contribute to (%) 1M 6M 12M enterprise value Absolute -3.3 -3.1 -0.4 Relative 2.7 6.9 13.2 The latest results also highlight earnings improvements in non-telecom segments. Particularly encouraging was the commerce business, which turned a profit, led by 11th 130 SK Telecom KOSPI Street. We expect non-telecom businesses to deliver more visible results, fueled by 1) 120 synergies from the ADT Caps acquisition (e.g., T Map parking service) and 2) the 110 impending mergers between SK Broadband and t-broad and between Oksusu and 100 Pooq. We maintain our Buy rating on SKT in light of the 5G-driven margin recovery in 90 wireless and the improving competitive position of non-telecom businesses. 80 70 7.18 11.18 3.19 7.19

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[ Telecom Services/Robotics/Shipbuilding] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 17,092 17,520 16,874 17,804 18,467 18,883 Hakmoo Lee +822-3774-1785 OP (Wbn) 1,536 1,537 1,202 1,339 1,384 1,572 [email protected] OP margin (%) 9.0 8.8 7.1 7.5 7.5 8.3

NP (Wbn) 1,676 2,600 3,128 1,295 2,221 2,417 EPS (W) 20,756 32,198 38,738 16,043 27,505 29,936 ROE (%) 10.7 15.4 15.5 5.7 9.3 9.5

P/E (x) 10.8 8.3 7.0 15.7 9.2 8.4 P/B (x) 1.0 1.1 0.9 0.8 0.8 0.7 Dividend yield (%) 4.5 3.7 3.7 4.0 4.0 4.0 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

August 5, 2019 SK Telecom

Earnings and forecasts

Table 1. 2Q19 review (Wbn, %) 2Q19P Growth 2Q18 1Q19 Preliminary Mirae Asset Daewoo Consensus YoY QoQ Revenue 4,154 4,335 4,437 4,279 4,383 6.8 2.4 Operating profit 347 323 323 301 320 -6.9 0.1 OP margin (%) 8.4 7.4 7.3 7.0 7.3

Pretax profit 1,163 468 353 427 421 -69.6 -24.5 Net profit 917 379 263 346 331 -71.3 -30.6 Notes: All figures are based on consolidated K-IFRS; net profit is attributable to controlling interests Source: WISEfn, company data, Mirae Asset Daewoo Research estimates

Table 2. Quarterly earnings and forecasts (Wbn, %) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F

Revenue 4,234 4,346 4,443 4,497 4,182 4,154 4,186 4,352 4,335 4,437 4,484 4,548 Mobile service 2,686 2,721 2,741 2,717 2,569 2,498 2,485 2,449 2,413 2,436 2,461 2,474 Interconnection 173 145 150 157 151 156 156 103 127 132 132 132 Other 229 244 265 241 269 288 285 299 272 280 277 290 Subsidiaries 1,147 1,236 1,286 1,383 1,193 1,212 1,261 1,502 1,523 1,589 1,614 1,652 Operating expenses 3,829 3,922 4,050 4,187 3,856 3,807 3,882 4,126 4,012 4,114 4,157 4,182 Commissions paid 1,368 1,367 1,373 1,383 1,262 1,217 1,266 1,258 1,274 1,256 1,264 1,280 Depreciation 793 806 817 832 824 807 807 846 932 971 963 969 Marketing expenses 760 768 798 794 754 706 734 716 701 729 731 739 Wages 463 465 510 529 550 536 538 665 691 699 703 665 Other 446 516 554 649 466 542 537 642 414 459 495 528 Operating profit 405 423 392 310 326 347 304 225 323 323 327 367 OP margin (%) 9.6 9.7 8.8 6.9 7.8 8.4 7.3 5.2 7.4 7.3 7.3 8.1 Net profit 579 620 793 661 693 914 1,050 475 374 259 302 342 Net margin (%) 13.7 14.3 17.8 14.7 16.6 22.0 25.1 10.9 8.6 5.8 6.7 7.5 YoY Revenue 0.1 1.8 4.7 3.3 -1.2 -4.4 -5.8 -3.2 3.7 6.8 7.1 4.5 Mobile service -0.7 0.7 1.7 0.3 -4.3 -8.2 -9.4 -9.9 -6.1 -2.5 -1.0 1.0 Interconnection -9.1 -20.5 -17.0 51.5 -12.6 7.9 3.8 -34.5 -15.6 -15.2 -15.2 29.0 Other 12.9 17.1 17.7 -2.6 17.2 18.2 7.6 24.1 1.2 -2.9 -2.9 -2.9 Subsidiaries 1.5 5.1 12.7 7.0 4.0 -1.9 -2.0 8.6 27.6 31.1 28.0 10.0 Operating expenses 0.1 1.6 6.0 3.4 0.7 -2.9 -4.1 -1.4 4.1 8.1 7.1 1.3 Marketing expenses 5.9 6.5 10.7 -0.2 -0.7 -8.0 -7.9 -9.9 -7.0 3.2 -0.5 3.3 Operating profit 0.8 3.9 -7.5 2.8 -19.7 -18.0 -22.5 -27.4 -0.9 -6.9 7.6 62.7 Net profit 1.2 113.2 146.2 39.2 19.7 47.4 32.4 -28.2 -46.1 -71.7 -71.2 -28.0 Notes: All figures are based on consolidated K-IFRS; net profit is attributable to controlling and non-controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Table 3. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes 19F 20F 19F 20F 19F 20F Revenue 17,425 17,829 17,804 18,467 2.2 3.6 Operating profit 1,288 1,346 1,339 1,384 3.9 2.9 Pretax profit 1,859 3,146 1,626 2,806 -12.6 -10.8 Net profit 1,507 2,491 1,295 2,221 -14.0 -10.8 EPS (W) 18,664 30,844 16,043 27,505 -14.0 -10.8 OP margin (%) 7.4 7.5 7.5 7.5 Net margin (%) 8.6 14.0 7.3 12.0 Notes: All figures are based on consolidated K-IFRS; net profit and EPS are attributable to controlling interests Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

NCsoft (036570 KS) Lineage 2M: Dawn of a new era

Game 2Q19 review: In line with expectations; Lineage performance stands out Results Comment For 2Q19, NCsoft reported revenue of W410.7bn (+15% QoQ) and operating profit of August 5, 2019 W129.4bn (+63% QoQ), in line with our expectations (W412bn and W121bn, respectively).

Boosted by an update in March, revenue from Lineage M grew 12.6% QoQ to W223.8bn, surpassing the 4Q18 level. For the PC title Lineage, revenue jumped 141.9% (Maintain) Buy QoQ to W50.1bn, as the number of gamers more than doubled following the Remastered update in March. Target Price (12M, W) 700,000 Other titles, including Lineage 2 and Aion, also performed well, with revenue remaining largely steady QoQ. Share Price (08/02/19, W) 520,000 We expect solid earnings trends to extend into 2H19, as 1) Lineage M and Lineage user Expected Return 35% indicators continue to improve (as recently as July) and 2) a number of major updates are planned.

OP (19F, Wbn) 645 Lineage 2M release looks imminent; Marketing to begin in Aug.-Sep. Consensus OP (19F, Wbn) 550 On its earnings conference call, NCsoft reiterated its plan to release Lineage 2M in 2H19. The company also confirmed that it is preparing to launch the title overseas, EPS Growth (19F, %) 31.4 including in Japan, soon after its domestic release. Market EPS Growth (19F, %) -25.4 P/E (19F, x) 20.8 Management said it expects Lineage 2M revenue (domestic and overseas combined) to Market P/E (19F, x) 12.3 be comparable to that of Lineage M. Following its launch in June 2017, Lineage M KOSPI 1,998.13 generated annual revenue of W995bn in 2017 and W913bn in 2018. During its initial release, Lineage M’ earned daily average revenue of around W10-13bn, setting a new Market Cap (Wbn) 11,412 record for a mobile title. Shares Outstanding (mn) 22 Free Float (%) 81.3 Maintain Buy and TP of W700,000 Foreign Ownership (%) 50.4 We expect new title momentum to continue over the next several years, supported by Beta (12M) 0.55 the overseas release of the much-anticipated Lineage 2M and the rollout of Aion 2 and 52-Week Low 356,000 Blade & Soul 2. The company also looks likely to enter the cloud gaming market, with a 52-Week High 526,000 beta test for the new PC/console title TL (The Lineage) expected in 2H19.

(%) 1M 6M 12M In light of the earnings variables confirmed in the 2Q19 earnings announcement, we Absolute 13.3 9.7 40.5 are lowering our 2019 revenue and operating profit forecasts by 11.0% and 17.9%, Relative 20.3 21.0 59.7 respectively, and raising our 2020 revenue and operating profit forecasts by 8.1% and 12.0%, respectively. 150 NCsoft KOSPI

130 Our revisions merely reflect a pushback of Lineage 2M’s anticipated release from early 4Q19 (late September-October) to mid/late 4Q19 (November-December), which 110 prompted us to defer around W200bn of our new title revenue estimate from 2019 to 90 2020. We keep our Buy rating and target price of W700,000.

70 7.18 11.18 3.19 7.19

Mirae Asset Daewoo Co., Ltd.

[Internet] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 984 1,759 1,715 1,829 2,485 2,882 Chang-kwean Kim +822-3774-1614 OP (Wbn) 329 585 615 645 1,120 1,497 [email protected] OP margin (%) 33.4 33.3 35.9 35.3 45.1 51.9 NP (Wbn) 272 441 418 550 833 1,095 EPS (W) 12,416 20,104 19,061 25,045 37,935 49,879 ROE (%) 14.9 19.1 16.4 21.3 26.5 27.5 P/E (x) 19.9 22.3 24.5 20.8 13.7 10.4 P/B (x) 2.7 3.4 3.7 3.5 2.9 2.3 Dividend yield (%) 1.5 1.6 1.3 1.2 1.2 1.2 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

Biotech/Healthcare Conditions for a rebound

Overweight (Maintain) End to selloff in sight The pharmaceutical/biotech sector is in turmoil. Amid a host of issues both big and Industry Report small, the sector index has sold off sharply, and a number of stocks have plunged August 5, 2019 more than 50% or hit new 52-week lows. While various factors are behind the selloff, the biggest cause has been the phase 3 data of major biotech companies. HLB and SillaJen have already announced their data, and investors are now awaiting results from Mezzion and Helixmith, which will be announced, respectively, on November 16th Mirae Asset Daewoo Co., Ltd. (American Heart Association meeting) and during the week of September 23rd. An end to the uncertainties is in sight. [Biotech/Healthcare]

Taehee Kim Previous rebounds point to potential snapback +822-3774-6813 There have been two instances in recent years when the pharmaceutical/biotech [email protected] sector staged a rebound: in 2017 and in early 2019. The turnaround in 2017 was largely driven by: 1) the strong earnings momentum and KOSPI 200 inclusion of biosimilar companies; 2) Hanmi Pharmaceutical; and 3) expectations on Daewoong Pharmaceutical’s new drugs. The early 2019 rebound was primarily due to: 1) the dissipation of uncertainties (R&D accounting issues) and 2) the IPOs of several biotech companies.

In 2H19, we expect: 1) robust earnings momentum from biosimilar and botulinum toxin names; 2) positive R&D events, including the US approval of SK Biopharmaceuticals’ cenobamate; and 3) IPOs of a number of promising biotech companies, including Voronoi, OliPass, and MedPacto.

Poised for a rebound in late September We believe the pharmaceutical/biotech sector is poised for a rebound in late September. Whether good or bad, the release of Helixmith’s phase 3 data will clear the last remaining uncertainty, and earnings momentum and R&D progress should subsequently come into focus. The excessive pullback of biotech stocks unrelated to the phase 3 data issue is another reason we expect a sector rebound.

As such, we recommend overweighting the pharmaceutical/biotech sector following the release of Helixmith’s phase 3 data. For more aggressive investors, it may be beneficial to bet on the release of positive results and overweight the sector prior to the data announcement. Among top-tier names, we recommend Yuhan and Hanmi Pharmaceutical as our top picks. Among biotech names, we advise paying attention to Oscotec and OliX Pharmaceuticals if sentiment picks up. Both companies boast strong technology but have seen a sharp decline in share prices.

Previous biotech rebounds in 2017 and early 2019

(pt) 500

400

300 KOSPI

200 KOSDAQ

KOSDAQ 100 Bio/Pharm

0 13.01 14.01 15.01 16.01 17.01 18.01 19.01

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Key Universe Valuations August 5, 2019

※All data as of close August 01, 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 Samsung Electronics 268,342 44,950 3.2 -53.4 23.9 -46.6 21.4 14.0 11.5 1.2 1.1 8.8 10.0 000660 SK Hynix 55,401 76,100 2.0 -85.3 102.4 -84.1 94.0 22.4 11.6 1.1 1.0 5.2 9.5 005380 Hyundai Motor 27,243 127,500 3.1 67.7 4.7 142.3 10.8 9.8 8.9 0.5 0.5 5.2 5.5 012330 Hyundai Mobis 23,445 246,000 1.6 10.3 7.8 25.4 8.8 10.1 9.3 0.7 0.7 7.4 7.4 035420 NAVER 23,404 142,000 0.2 -25.8 110.5 -52.8 148.1 76.4 30.8 3.4 3.1 5.7 13.0 051910 LG Chem 23,401 331,500 1.8 -25.3 66.1 -34.1 94.5 26.7 13.7 1.4 1.3 5.6 10.2 068270 Celltrion 20,982 163,500 - - - - 0.0 0.0 017670 SK Telecom 20,348 252,000 4.0 11.4 3.3 -58.6 71.4 15.7 9.2 0.8 0.8 5.7 9.3 055550 Shinhan Financial Group 20,272 42,750 14.3 5.4 11.3 0.9 5.8 5.7 0.5 0.5 9.3 8.6 051900 LG H&H 19,039 1,219,000 0.9 12.8 9.7 16.5 10.7 23.9 21.6 5.2 4.4 20.3 19.1 005490 POSCO 18,920 217,000 4.6 -21.1 -1.8 55.3 -0.7 7.2 7.3 0.4 0.4 5.9 5.7 015760 KEPCO 17,397 27,100 ------0.3 0.3 - - 105560 KB Financial Group 17,352 41,500 10.3 4.1 12.6 3.2 5.0 4.9 0.5 0.4 9.3 8.9 000270 Kia Motors 17,350 42,800 1.9 20.5 19.7 54.5 16.7 9.7 8.3 0.6 0.6 6.3 7.0 006400 Samsung SDI 17,294 251,500 0.4 22.3 40.8 14.1 34.5 22.1 16.4 1.3 1.2 6.4 8.0 028260 Samsung C&T 17,091 90,100 2.2 -16.8 41.4 -39.5 16.8 16.6 14.2 0.6 0.5 4.2 4.1 018260 Samsung SDS 16,172 209,000 1.2 13.6 15.8 13.2 15.8 22.7 19.6 2.5 2.2 11.3 12.0 096770 SK Innovation 15,580 168,500 4.7 -46.5 75.4 -56.1 94.1 21.8 11.2 0.8 0.8 4.0 7.6 032830 Samsung Life 14,680 73,400 - - - - 0.0 0.0 034730 SK Holdings 14,670 208,500 2.3 13.3 12.9 -32.3 20.1 9.7 8.1 0.8 0.7 8.9 9.8 033780 KT&G 13,153 95,800 4.4 12.8 5.6 17.5 5.1 12.4 11.8 1.5 1.4 12.7 12.6 003550 LG Corp. 12,321 71,400 3.2 17.2 15.4 5.5 15.6 6.4 5.5 0.6 0.6 10.5 11.1 000810 Samsung F&M 12,199 257,500 - - - - 0.0 0.0 036570 NCsoft 11,412 520,000 1.2 4.9 73.6 31.4 51.5 20.8 13.7 3.5 2.9 21.3 26.5 035720 Kakao 10,727 128,500 0.1 175.1 140.8 159.4 159.7 80.8 31.1 2.0 1.9 2.6 6.4 066570 LG Electronics 10,408 63,600 1.2 -11.8 30.9 -20.9 81.5 11.7 6.5 0.8 0.7 6.6 11.1 010950 S-Oil 10,268 91,200 1.6 34.0 115.3 83.7 191.9 22.4 7.7 1.5 1.3 7.1 18.3 086790 Hana Financial Group 10,178 33,900 11.5 6.2 9.6 8.5 4.1 3.8 0.4 0.3 9.0 8.9 010130 Korea Zinc 8,114 430,000 2.6 14.2 5.0 25.6 -0.2 12.3 12.3 1.2 1.1 10.2 9.4 011170 Lotte Chemical 7,798 227,500 4.6 -34.3 31.9 -35.0 35.1 7.6 5.6 0.6 0.5 7.8 9.9 251270 Netmarble 7,791 90,900 15.4 51.2 24.8 33.7 32.7 24.5 1.6 1.5 5.3 6.7 090430 AmorePacific 7,629 130,500 0.8 -15.7 30.9 -9.8 31.4 25.5 19.4 1.9 1.8 6.6 8.1 024110 Industrial Bank of Korea 7,273 12,650 6.0 3.0 3.9 2.0 4.6 4.5 0.4 0.4 8.5 8.1 030200 KT 7,272 27,850 3.9 9.5 1.0 18.2 5.3 8.9 8.5 0.5 0.5 6.0 6.0 009540 KSOE 7,219 102,000 - 215.7 - 27.2 176.9 139.0 0.6 0.6 0.3 0.4 009150 Samsung Electro-Mechanics 6,954 93,100 1.2 -39.9 36.8 -3.0 -7.6 11.3 12.3 1.3 1.2 12.4 10.3 018880 Hanon Systems 6,379 11,950 - - - - 0.0 0.0 091990 Celltrion Healthcare 6,357 44,200 - 192.4 1119.2 156.4 45.6 17.8 3.4 3.0 8.2 18.6 086280 Hyundai Glovis 5,888 157,000 2.1 13.5 4.6 23.2 21.9 10.9 9.0 1.2 1.1 11.9 13.1 032640 LG Uplus 5,676 13,000 5.0 -12.5 9.5 -18.5 15.2 14.5 12.5 0.8 0.8 5.6 6.3 Hyundai Heavy Industries 267250 5,122 314,500 5.9 78.7 2.1 154.0 4.5 7.5 7.2 0.6 0.6 8.6 8.5 Holdings 004020 Hyundai Steel 5,038 37,750 2.0 6.1 22.5 53.1 31.9 8.3 6.3 0.3 0.3 3.5 4.3 034220 LG Display 4,866 13,600 - - - - - 26.2 0.4 0.4 - 1.4 000720 Hyundai E&C 4,666 41,900 1.2 22.4 10.8 49.0 7.3 8.2 7.7 0.7 0.7 8.9 8.9 010140 Samsung Heavy Industries 4,366 6,930 - - - - - 27.9 0.6 0.6 - 2.4 097950 CJ CheilJedang 4,238 281,500 1.2 15.4 12.7 -64.8 23.7 14.7 11.9 0.9 0.8 6.3 7.3 029780 Samsung Card 4,096 35,350 -16.3 3.1 2.8 4.1 11.5 11.1 0.6 0.6 1.5 1.5 071050 Korea Investment Holdings 3,996 71,700 - - - - 0.0 0.0 012750 S1 3,990 105,000 2.6 4.9 7.3 52.9 8.6 25.3 23.3 2.7 2.5 12.1 12.4 036460 KOGAS 3,836 41,550 3.6 8.5 4.3 14.7 29.2 6.6 5.1 0.4 0.4 6.9 8.4 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data August 5, 2019

※All data as of close August 02, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 412.76 -2.95 -0.71 -3.77 USD/KRW 1,188.50 1,181.90 1,155.40 1,119.30 KOSPI 1,998.13 -19.21 -0.95 -0.59 JPY100/KRW 1,106.04 1,086.45 1,066.80 1,002.51 KOSDAQ 615.70 -6.56 -1.05 -8.02 EUR/KRW 1,316.80 1,309.19 1,304.16 1,305.50 Dow Jones* 26,583.42 -280.85 -1.05 13.96 3Y Treasury 1.26 1.31 1.46 2.11 S&P 500* 2,953.56 -26.82 -0.90 17.67 3Y Corporate 1.77 1.82 1.96 2.77 NASDAQ* 8,111.12 -64.30 -0.79 21.68 DDR4 8Gb* 3.63 3.63 3.13 7.90 Philadelphia Semicon* 1,511.98 -30.46 -1.97 29.75 NAND MLC 64G* 2.47 2.48 2.33 3.30 FTSE 100* 7,584.87 -1.91 -0.03 12.63 Oil (Dubai)* 63.05 64.57 64.92 72.42 Nikkei 225 21,087.16 -453.83 -2.11 7.80 Gold* 1,420.90 1,426.10 1,389.30 1,217.90 Hang Seng* 27,565.70 -212.05 -0.76 9.69 Customer deposits (Wbn)* 26,251 24,108 27,438 25,949 Taiwan (Weighted) 10,549.04 -182.71 -1.70 10.41 Equity type BC (Wbn)(Jul. 31) 79,346 79,586 81,167 81,306 Note: * as of August 01, 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 SDI 32.71 Samsung Electronics 96.32 Samsung Electronics 84.97 KODEX Leverage 52.54 SEMCO 14.82 Hynix 45.35 KODEX 200 Futures Inverse 2X 35.58 KODEX Kosdaq150 Leverage 48.73 Korea Aerospace Industries 6.95 POSCO 24.87 Hynix 33.40 LG Household & Health Care 10.11 Hotel Shilla 6.80 Samsung Electronics (P) 19.96 SK Telecom 26.39 KODEX 200 5.82 Douzone Bizon 5.66 Celltrion 19.68 NAVER 23.50 Hyundai Mipo Dockyard 5.63 Amore Pacific 2.84 KB Financial Group 18.46 Samsung Electronics (P) 16.71 Amore Pacific 5.02 LG Corp. 2.22 Hana Financial Group 18.10 Hyundai Motor 16.36 Kiwoom Securities 4.89 Shinhan Leverage WTI Futures Hyundai Mipo Dockyard 2.20 Hyundai Motor 16.25 Hyundai Mobis 15.23 3.34 ETN(H) Dongwon F&B 1.86 LG Innotek 14.78 Celltrion 12.74 Korea Investment Holdings 3.18 KODEX Inverse 1.85 LG Display 14.13 Kakao 10.65 Hyundai Heavy Industries 3.03 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 Partrion 9.99 Dongjin Semichem 6.61 Dongjin Semichem 5.54 Duksan Techopia 16.36 Celltrion Healthcare 8.12 Soulbrain 6.36 SKC Kolon PI 4.80 ViroMed 5.35 Power Logics 5.47 Mezzion Pharma 5.06 S&STECH 4.50 Seoul Semiconductor 5.05 MC Nex 4.23 EO Technics 4.12 EO Technics 3.37 ZUMinternet 3.48 Ace Technology 3.72 BH,LTD. 3.65 Mezzion Pharma 2.65 HLB 2.80 Emerson Pacific 3.65 Duksan Techopia 3.07 CJ ENM 1.77 Alteogen 2.30 Hyundai IT 3.65 ViroMed 2.56 Sam Chun Dang Pharm. 1.68 J contentree 1.99 Ubiquoss Holdings 2.58 Kukil Paper 2.46 MS Autotech Co.Ltd 1.45 Medy-tox 1.97 Celltrion 2.52 Medy-tox 2.26 Shinheung SEC 1.41 AfteecaTV 1.94 SFA Semicon 2.18 Digital Aria 2.08 Wonik Materials 1.41 PharmAbcine 1.80 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 44,950 -250 268,342 Celltrion Healthcare 44,200 -1,200 6,357 Hynix 76,100 -1,600 55,401 CJ ENM 161,300 -3,000 3,537 Samsung Electronics (P) 36,000 -600 29,624 ViroMed 181,400 -11,100 2,894 Hyundai Motor 127,500 2,000 27,243 Medy-tox 392,300 -24,800 2,281 Hyundai Mobis 246,000 2,500 23,445 PearlAbyss 173,900 1,700 2,264 NAVER 142,000 1,500 23,404 SillaJen 31,200 -13,350 2,217 LG Chem 331,500 -1,000 23,401 KMW 52,900 -600 2,058 Celltrion 163,500 -7,000 20,982 Hugel 380,000 -9,500 1,984 SK Telecom 252,000 8,000 20,348 SK Materials 173,200 200 1,827 Shinhan Financial Group 42,750 -1,450 20,272 Studio Dragon 59,400 -500 1,666 Source: Korea Exchange