April 23, 2014

KOREA

Company News & Analysis Major Indices Close Chg Chg (%) Engineering (028050/Hold) KOSPI 2,000.37 -3.85 -0.19 Benign 1Q results, but uncertainties remain KOSPI 200 261.20 -0.35 -0.13 KOSDAQ 565.47 -5.51 -0.97

Turnover ('000 shares, Wbn) Volume Value KOSPI 231,735 3,822 KOSPI 200 72,044 3,118 KOSDAQ 365,528 2,231

Market Cap (Wbn) Value KOSPI 1,191,105 KOSDAQ 135,925

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,100 1,018 82 Institutional 838 946 -108 Retail 1,855 1,836 20

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 123 115 9 Institutional 99 110 -10 Retail 2,012 2,003 9

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 594 682 -88 KOSDAQ 17 19 -3

Advances & Declines Advances Declines Unchanged KOSPI 261 536 84 KOSDAQ 236 699 57

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value 1,389,000 14,000 264 Samsung Heavy Ind. 29,150 -2,000 259 Hynix 40,750 950 256 KODEX LEVERAGE 11,925 -35 205 KODEX INVERSE 7,615 10 99

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value CJ E&M 50,700 -1,300 79 Nowcom 24,400 1,850 69 GIGALANE 12,350 600 63 RingNet 5,630 200 49 KOCOM 7,030 580 45 Note: As of April 23, 2014

Samsung Engineering (028050 KS) Benign 1Q results, but uncertainties remain

Construction 1Q review: Earnings beat on better-than-expected revenue & lower SG&A Samsung Engineering reported 1Q14 revenue of W2.2tr (-17.6% QoQ, -11.9% YoY), Results Comment operating profit of W30.6bn (turning to profit YoY), and net profit of W25bn, beating April 23, 2014 both our projections and the consensus. OP margin improved 0.4%p QoQ to 1.4%, but net margin declined 2.2%p QoQ to 1.1%.

We attribute these stronger-than-expected results to three factors. 1) Cost ratio was in (Maintain) Hold line, as no major overseas cost overruns were incurred. 2) Top line declined less than anticipated on increased orders and revenue from group affiliates. 3) Cost burden eased, Target Price (12M, W) - with the SG&A ratio falling to 4.4% in 1Q from a three-year average of 4.9%.

Share Price (4/22/14, W) 77,200 Robust 1Q new orders, but still too early to shift to growth-oriented strategy Samsung Engineering landed W4.98tr in new orders in 1Q, equivalent to 55% of i ts Expected Return - annual target, including the BHP Billiton Chile power plant project (US$440mn), the Algeria Timimoun field development project (US$800mn), the Iraq Zubair oil field contract (US$840mn), the Kuwait clean fuels project (CFP; US$1.62bn), and group OP (14F, Wbn) 170 affiliate orders (W0.7tr). Consensus OP (14F, Wbn) 194

EPS Growth (14F, %) - Order momentum is expected to moderately slow, as ongoing problematic projects Market EPS Growth (14F, %) 27.7 should prevent the company from aggressively pursuing a growth-oriented strategy. P/E (14F, x) 24.2 On a positive note, the situation for troubled projects is not worsening Market P/E (14F, x) 10.8 KOSPI 2,004.22 1) The Saudi Arabia Shaybah plant project is scheduled for completion in 3Q14, but the company is still dealing with some labor supply issues. Market Cap (Wbn) 3,088 2) The design stage for the UAE carbon black facility has been completed, and the Shares Outstanding (mn) 40 project is being readied for construction. Free Float (%) 70.4 Foreign Ownership (%) 27.0 3) The Ma’aden rolling mill has begun operations; final completion is set for June. Beta (12M) 2.05 4) The Dow Chemical project is now mechanically complete. Samsung Engineering has 52-Week Low 55,500 made a claim against the project’s owner. 52-Week High 102,000 5) The Yanbu power plant project continues to face delays due to design modifications (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M following a fuel source change. Absolute 14.4 8.1 -13.7 Relative 10.4 10.9 -17.1 Maintain Hold We keep our Hold rating on Samsung Engineering unchanged, despite two straight 130 Samsung Engineering KOSPI quarters of benign earnings. 1) The valuation still does not look cheap compared with 110 2014-15F profits. 2) Margin visibility remains low for the UAE and Yanbu projects, which

90 will undergo construction over the next two or three years. 3) The company’s internal stabilization is likely to take priority over growth for the time being. That said, it is 70 encouraging that most of the company’s projects due for completion in 2014 (with the

50 exception of the carbon black and Yanbu projects) appear to be progressing without any 4.13 8.13 12.13 4.14 significant cost overruns.

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/11 12/12 12/13 12/14F 12/15F 12/16F Revenue (Wbn) 9,298 11,440 9,806 8,895 9,258 9,711 [Construction] OP (Wbn) 626 737 -1,028 170 297 477

Hyung-ryul Park OP margin (%) 6.7 6.4 -10.5 1.9 3.2 4.9 +822-768-4165 NP (Wbn) 513 527 -707 127 225 369 [email protected] EPS (W) 12,832 13,180 -17,677 3,185 5,613 9,235 ROE (%) 43.7 34.7 -54.5 13.1 19.6 25.8 Ye-gee Kim +822-768-4155 P/E (x) 15.7 12.6 - 24.2 13.8 8.4 [email protected] P/B (x) 4.9 3.4 2.2 2.3 2.0 1.6 Notes: 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

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

Key Universe Valuations April 23, 2014

※All data as of close April 22, 2014, unless otherwise noted.

14F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 14F 15F 14F 15F 14F 15F 14F 15F 14F 15F 005380 Hyundai Motor 53,968 245,000 0.8 5.9 2.5 1.5 4.3 8.1 7.7 1.1 1.0 15.5 14.1 012330 29,641 304,500 0.7 7.7 10.2 10.4 7.3 7.9 7.3 1.2 1.1 17.2 15.8 005490 POSCO 26,069 299,000 2.7 28.9 26.9 55.8 44.1 12.2 8.4 0.6 0.5 5.0 6.9 035420 NAVER 25,711 780,000 0.1 79.0 24.6 108.5 23.7 37.6 30.4 10.7 8.4 41.8 40.9 015760 KEPCO 25,614 39,900 0.2 297.9 18.4 4082.6 50.6 10.2 6.8 0.5 0.4 4.9 6.9 000270 Motors 23,592 58,200 1.3 -1.1 9.1 -6.5 11.3 6.6 5.9 1.0 0.9 16.3 15.7 055550 22,240 46,900 - - - - 0.0 0.0 032830 Samsung Life 19,200 96,000 - - - - 0.0 0.0 051910 LG Chem 18,258 275,500 1.5 7.3 38.5 14.6 39.1 14.0 10.1 1.6 1.4 11.9 14.8 017670 SK Telecom 16,472 204,000 4.6 6.9 7.7 6.3 6.2 9.5 8.9 1.0 0.9 12.4 12.2 009540 Hyundai Heavy 15,542 204,500 1.2 19.3 64.1 53.6 90.8 20.5 10.7 0.8 0.8 4.3 7.8 105560 KB Financial Group 13,967 36,150 - - - - 0.0 0.0 096770 SK Innovation 11,558 125,000 2.6 4.7 47.7 29.0 51.4 11.8 7.8 0.7 0.7 6.1 8.7 033780 KT&G 11,533 84,000 3.8 5.9 2.3 37.3 4.8 14.7 14.0 1.9 1.8 14.3 14.0 066570 LG Electronics 11,472 70,100 0.3 40.8 36.5 345.7 57.0 16.1 10.2 1.0 0.9 6.5 9.4 000810 Samsung F&M 11,394 240,500 - - - - 0.0 0.0 086790 11,016 38,000 - - - - 0.0 0.0 003550 LG Corp. 10,440 60,500 1.7 19.9 8.3 11.5 7.2 10.3 9.6 0.9 0.8 8.5 8.5 034220 LG Display 10,377 29,000 -22.8 -27.8 53.4 -29.8 15.9 22.6 0.9 0.9 6.0 4.0 023530 Lotte Shopping 10,124 321,500 0.5 6.6 16.7 18.9 21.5 10.8 8.9 0.6 0.6 5.6 6.4 000830 Samsung C&T 10,107 64,700 0.8 51.1 14.0 110.7 18.0 20.4 17.3 0.9 0.9 4.6 5.2 086280 9,544 254,500 0.6 10.6 13.2 17.1 12.7 16.9 15.0 3.4 2.8 21.8 20.3 003600 SK Holdings 8,782 187,000 1.3 47.5 16.4 117.9 9.9 7.8 7.1 0.7 0.6 9.2 9.3 030200 KT 8,525 32,650 -94.8 4747.7 - - - 5.7 0.7 0.6 - 12.4 004020 7,879 67,600 0.7 63.8 8.1 20.4 14.3 7.9 6.9 0.5 0.5 6.9 7.3 161390 7,271 58,700 1.2 9.7 8.4 9.6 8.7 8.6 7.9 1.6 1.3 19.7 18.1 034730 SK C&C 7,225 144,500 0.9 11.8 10.2 182.8 8.8 13.5 12.4 2.2 1.9 20.5 18.7 006400 Samsung SDI 7,175 157,500 1.0 - 103.3 191.1 18.7 19.5 16.5 1.0 0.9 5.1 5.8 010950 S-Oil 6,901 61,300 3.3 70.5 46.1 68.2 46.1 13.6 9.3 1.2 1.1 9.4 12.7 139480 Emart 6,788 243,500 0.6 7.7 10.9 8.7 15.1 13.4 11.6 0.9 0.9 7.4 7.8 010140 Samsung Heavy 6,730 29,150 1.7 9.8 12.8 34.6 16.3 7.9 6.8 0.9 0.8 13.8 14.2 035250 6,440 30,100 3.2 41.8 11.3 29.1 17.1 16.8 14.3 2.2 2.0 14.6 15.6 000720 Hyundai E&C 6,180 55,500 0.9 13.3 22.8 9.2 30.6 11.2 8.6 1.2 1.0 10.7 12.6 021240 COWAY 6,178 80,100 2.3 13.1 16.3 12.6 17.5 22.4 19.0 5.2 4.5 27.1 27.3 011170 Lotte Chemical 6,170 180,000 0.6 20.5 75.2 66.9 83.0 14.7 8.0 0.9 0.8 6.5 10.9 010130 Korea Zinc 6,104 323,500 1.5 36.5 2.4 47.2 4.1 9.3 8.9 1.3 1.1 14.6 13.5 088350 Hanwha Life 6,045 6,960 - - - - 0.0 0.0 036460 KOGAS 5,862 63,500 2.6 3.4 17.6 - 40.3 16.5 11.8 0.7 0.7 4.4 5.9 042660 DSME 5,799 30,300 1.0 33.9 39.3 29.3 50.4 15.7 10.4 1.1 1.0 7.3 10.1 009150 Samsung Electro-Mechanics 5,415 72,500 1.0 -5.1 31.3 -5.0 32.4 17.9 13.5 1.3 1.2 7.3 9.0 001800 Orion 4,708 788,000 0.4 6.2 8.9 10.6 15.5 29.2 25.3 3.7 3.2 13.5 13.8 078930 GS 4,585 49,350 2.7 49.5 16.0 44.7 17.2 8.5 7.3 0.7 0.6 8.1 8.8 036570 NCsoft 4,474 204,000 0.3 93.4 28.7 132.6 20.7 12.1 10.0 2.8 2.2 28.0 26.0 032640 LG Uplus 4,410 10,100 1.5 20.5 18.8 33.0 31.5 11.9 9.0 1.0 0.9 8.9 10.8 011210 Hyundai Wia 4,361 169,500 0.4 11.1 13.8 11.2 13.5 9.4 8.3 1.7 1.4 18.6 17.6 010060 OCI 4,353 182,500 0.1 - 191.7 - 547.4 117.6 18.2 1.5 1.4 1.3 8.0 047050 Daewoo International 4,287 37,650 0.8 119.2 28.7 132.7 28.2 13.3 10.4 1.7 1.5 13.6 15.2 005830 Dongbu Insurance 3,965 56,000 - - - - 0.0 0.0 097950 CJ CheilJedang 3,891 297,000 0.6 -8.0 8.9 -3.0 0.8 37.9 37.6 1.4 1.4 3.9 3.8 034020 Doosan Heavy I&C 3,838 36,150 2.1 5.8 17.3 123.6 96.0 24.7 12.6 0.8 0.7 3.3 6.2 Source: KDB Daewoo Securities Research

Market Data April 23, 2014

※All data as of close April 23, 2014, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 446.13 1.54 0.35 0.82 USD/KRW 1,039.60 1,037.90 1,075.30 1,121.70 KOSPI 2,000.37 -3.85 -0.19 1.69 JPY100/KRW 1,013.01 1,011.20 1,050.15 1,128.98 KOSDAQ 565.47 -5.51 -0.97 13.94 EUR/KRW 1,435.48 1,431.58 1,481.76 1,465.39 Dow Jones* 16,514.37 65.12 0.40 0.44 3Y Treasury 2.88 2.88 2.89 2.60 S&P 500* 1,879.55 7.66 0.41 2.60 3Y Corporate 3.31 3.31 3.31 2.95 NASDAQ* 4,161.46 39.91 0.97 0.44 DDR2 1Gb* 1.75 1.73 1.74 1.53 Philadelphia Semicon* 589.11 5.63 0.96 11.63 NAND 16Gb* 3.02 3.02 3.03 2.99 FTSE 100* 6,681.76 56.51 0.85 -0.54 Oil (Dubai)* 106.06 105.61 103.75 97.76 Nikkei 225 14,546.27 157.50 1.09 -8.57 Gold* 1,280.60 1,288.00 1,336.00 1,421.00 Hang Seng* 22,730.68 -29.56 -0.13 -2.61 Customer deposits (Wbn)* 14,912 14,999 13,346 18,853 Taiwan (Weighted) 8,956.92 -17.79 -0.20 4.00 Equity type BC (Wbn)(Apr. 21) 82,373 82,591 83,370 92,012 Note: * as of April 22, 2014 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Hynix 96.87 Hanwha Chemical 38.52 Hynix 35.94 Samsung Heavy Ind. 51.51 Samsung Electronics 55.31 22.68 LG Household & Health Care 32.28 35.00 KT 21.74 Samsung Heavy Ind. 20.74 Samsung Electronics (P) 16.05 Honam Petrochemical 16.99 Shinhan Financial Group 15.70 LG Household & Health Care 17.75 Hanwha Chemical 12.17 NCsoft 13.56 LG Chem 11.53 Samsung Electronics (P) 16.17 Samsung Electronics 9.83 POSCO 13.17 Hyundai Motor 10.34 Hyundai Mobis 12.00 CJ Cheiljedang 6.82 DSME 12.60 Hyundai Heavy Industries 9.13 Hyundai Mipo Dockyard 9.89 HYUNDAI WIA 6.45 KB Financial Group 12.48 KT&G 7.22 GKL 9.29 LG Electronics 6.44 Kia Motors 12.21 TIGER200 6.40 SK Corp. 7.76 6.26 Shinhan Financial Group 11.51 KEPCO 5.76 Industrial Bank of Korea 7.12 Hyundai Mobis 6.02 KODEX LEVERAGE 8.67 Source: KSDA, Wisefn

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Medy-tox 7.70 CJ E&M 3.36 CJ E&M 4.68 Paradise 7.75 Paradise 7.34 CJ O Shopping 3.24 CJ O Shopping 2.66 GS Home Shopping 4.00 Semiconductor 6.79 Daum Communications 2.22 Diostech 2.56 Lumens 3.07 ATTO 2.41 Wemade 1.95 Kortek 1.48 Seoul Semiconductor 2.39 SM 2.31 Gamevil 1.77 WiSoL 1.39 SM 2.28 Lumens 1.95 Com2us 1.20 Nowcom 1.07 SK Broadband 1.30 Partrion 1.81 Celltrion 1.15 GOLFZON 1.01 EO Technics 1.29 GIGALANE 1.51 SundayToz 1.14 MDS Tech 0.92 Interpark 1.27 Bio Space 1.19 Megastudy 0.92 YG-1 0.89 DANAWA 1.11 Value Added Technology 1.01 Techno Semichem 0.87 Cell Biotech 0.85 BH,LTD. 1.09 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,389,000 14,000 204,599 Celltrion 47,600 -900 4,924 Hyundai Motor 245,000 0 53,968 Paradise 37,450 -100 3,406 Hyundai Mobis 304,500 -4,000 29,641 Seoul Semiconductor 44,950 350 2,621 Hynix 40,750 950 28,941 CJ O Shopping 356,100 -4,900 2,210 POSCO 299,000 -2,500 26,069 CJ E&M 50,700 -1,300 1,964 NHN 780,000 -13,000 25,711 Dongsuh 16,000 0 1,595 KEPCO 39,900 -50 25,614 GS Home Shopping 238,400 -8,300 1,565 Samsung Electronics (P) 1,072,000 -3,000 24,477 POSCO ICT 8,900 -110 1,353 Kia Motors 58,200 -900 23,592 SK Broadband 4,250 -140 1,258 Shinhan Financial Group 46,900 300 22,240 SM 50,500 -500 1,043 Source: Korea Exchange