December 11, 2015

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Steel/Non-Ferrous Metal (Neutral) KOSPI 1,948.62 -3.45 -0.18 Short-term investment strategy KOSPI 200 240.35 -0.25 -0.10 KOSDAQ 653.48 -4.60 -0.70 Steel/Non-Ferrous Metal (Neutral) 2016 Outlook Report Turnover ('000 shares, Wbn) Volume Value Telecom Service (Overweight) KOSPI 373,906 4,020 2016 Outlook Report KOSPI 200 60,032 2,796 KOSDAQ 796,067 3,061

Market Cap (Wbn) Value KOSPI 1,234,143 KOSDAQ 189,475

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,095 1,348 -253 Institutional 841 695 146 Retail 1,934 1,968 -34

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 165 163 2 Institutional 99 107 -8 Retail 2,801 2,789 12

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 936 970 -34 KOSDAQ 78 81 -2

Advances & Declines Advances Declines Unchanged KOSPI 344 468 65 KOSDAQ 488 565 66

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 1,284,000 1,000 264 KODEX LEVERAGE 9,660 -40 157 Hanmi Pharm 660,000 -37,000 145 79,000 -3,900 101 LG Chem 326,500 12,500 94

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value NTPIA 2,025 -105 202 CCS Cable TV 2,200 185 118 BARUN 3,790 20 115 Osung LST 975 -180 101 SEJONG TELECOM 1,830 120 88 Note: As of December 11, 2015

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

Steel/Non-Ferrous Metal (Neutral/Maintain)

Short-term investment strategy

¢ Blast furnace steelmakers may be in for a near-term rebound ¢ But structural issues will limit upside to shares Sector Update ¢ Top picks are POSCO and Poongsan December 11, 2015

Blast furnace steelmakers may be in for a near-term rebound Daewoo Securities CCo.,o., Ltd. Generally, shares of blast furnace steelmakers move higher when steel prices rise or blast

[Steel/Non-ferrous metal] furnace spreads expand. Encouragingly, blast furnace spreads have widened 3.4% during the past month, increasing for the first time since May 2015, as ’s small steelmakers have Seung-hun Jeon +822-768-2713 been forced to cut production due to tight liquidity and deteriorating margins. [email protected] Until recently, production cuts were merely a function of weak demand. Hence, when steel

demand fell, so did production, prices, utilization, and margins. Lately, however, the decline in steel prices has been slowing, margins have been picking up, and small steelmakers’ utilization has been plummeting. This suggests that production cuts are beginning to outpace the

decline in demand, which could serve as a near-term catalyst for steelmakers’ margins and share prices.

But structural issues to limit upside to shares

However, the rebound will likely be limited. Steel demand is unlikely to meaningfully improve anytime soon, and small steelmakers are likely to resume production once they begin to see a pickup in profits.

Another risk is yuan depreciation, which is likely to continue after the currency’s inclusion in the SDR basket. Because the yuan is effectively pegged to the dollar, the strengthening of the dollar has caused the yuan to remain overvalued. Investors are worried that if China lets the yuan fall to spur exports, it would put downside pressure on China’s steel export prices.

Meanwhile, the structural oversupply in iron ore is expected to persist through 2017. As such, steel prices are unlikely to get a boost from a rise in iron prices. The weak currency of , the world’s second-largest iron ore producer, is also negative to iron ore prices.

Top picks are POSCO and Poongsan

We see potential for a near-term rebound for POSCO at the end of the year and the beginning of next year, given the stock’s attractive dividends and possible profit turnaround due to spread expansion.

Within non-ferrous metal stocks, our top pick is Poongsan. The plunge in copper prices presents downside risks to near-term earnings, but we believe the value of the defense business will provide downside support to shares. We recommend investors buy and hold the stock until inflation and copper prices begin to turn around.

Hyundai Steel’s near-term rebound potential hinges on the results of its automotive steel price negotiations with Hyundai Motor. Until the negotiations are finalized, we believe investors should focus on POSCO rather than .

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

Steel/Non-Ferrous Metal Glimmers of hope emerging, but remain cautious

Steel: Market could pick up after 2Q16 Neutral (Maintain) Steel production has begun to decline, and capacity expansion efforts have virtually come to a halt. Industry restructuring is gathering pace in many countries, and China’s 2016 Outlook Report steel production capacity is projected to shrink from 2015. Nevertheless, the global steel November 30, 2015 downturn is getting worse, because the decline in demand is outpacing restructuring effects.

Daewoo Securities Co., Ltd. In our view, the recovery of the global steel market will depend on the recovery of [Steel/Non-ferrous metal] economic growth and steel demand, not on industry restructuring. Our analysis of global economic conditions, government policies, and leading indicators of the steel industry Seung-hun Jeon suggests the global steel market will experience a short-term pickup only after 2Q16. +822-768-2713 [email protected] Non-ferrous metal: Wait for US rate hike and end of Chinese rate cuts Non-ferrous metals are no longer widely seen as mere commodities. Ultra-low interest rates and quantitative easing in the wake of the 2008 crisis have made non-ferrous metals behave more like financial assets. Therefore, analyzing supply and demand by comparing real demand to mining capacity may be of little use. In 2015, the market expected copper overcapacity to intensify, and zinc and lead supply conditions to tighten. Instead, zinc and lead have seen the biggest price declines among non-ferrous metals this year.

We believe what matters more than supply and demand right now are top-down factors, such as interest rates and currency movements, given the prevalence of speculative demand (rather than real demand) and financial maneuvering (such as carry trades). We think any meaningful rise in non-ferrous metal prices will be preconditioned on the beginning of US rate hikes and the end of China’s rate cuts. Once these two events come to pass, non-ferrous metal prices should increase full swing alongside inflation indicators.

Maintain Neutral; Top picks are POSCO, Poongsan, and POSCO C&C We maintain our Neutral stance on the steel sector. If history is any guide, the steel sector is unlikely to outperform the market as long as the dollar remains strong. As our top picks, we recommend POSCO among large caps, Poongsan among mid-caps, and POSCO C&C among small caps.

Once the steel market begins to pick up, POSCO’s stock is guaranteed to follow suit. We also think management’s focus on cash flow raises the company’s M&A appeal. The scandal related to former executives will not be a major factor affecting share prices, as was proven this year.

Poongsan can serve as a good play for investors betting on inflation. The value of the defense business should provide downside support to share prices. Indeed, the stock has held up well this year, despite the continued decline in copper prices. Once inflation begins to rise, copper prices and Poongsan’s stock should pick up, too. In addition, a halt in the decline in copper prices alone could lead to an increase in annual operating profit.

POSCO C&C’s profits have begun to normalize. Prices of full-hard steel (raw material), which were unreasonably high, are starting to fall, and the increased production of premium products is leading to product mix improvements. As a result, quarterly earnings have been improving despite the overall steel market downturn. We thus see a good chance dividend payments will resume. Based on our DPS forecast, the stock is currently yielding more than 3%.

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.

Telecom Service SAFE: Time for a defensive play

2016 outlook: Defensive play and growth opportunities Overweight (Maintain) We see challenges ahead for telecom stocks. ARPU growth is slowing as the LTE market 2016 Outlook Report matures, which should cause the stocks to grow sensitive to outside events/regulatory issues in 2016 (such as the legislative election and frequency auctions). Nevertheless, November 27, 2015 amid a slowdown in the domestic economy, telecom stocks are likely to garner investors’ attention as defensive plays, owing to their steady earnings and high dividend yields.

Daewoo Securities CCCo.,Co., Ltd. Digital technology is transforming how we live, as smart machines move beyond just

[Telecom Service / Media] automation of physical tasks to higher functions that exemplify the “se cond machine age,” which includes advances in telecommunications and data communications. For Jee-hyun Moon example, physical objects embedded with telecom chips can collect and exchange data +822-768-3615 [email protected] for a variety of purposes. As the IT industry continues to focus on products/s ervices that make life easier, we believe the telecom industry will play an increasingly important role Nu-ri Ha in this transformation, helping to connect technology with humans. In the coming year, +822-768-4130 we believe telecom companies will be strongly motivated to active ly seek growth [email protected] opportunities.

S.A.F.E. S - Shareholder return: Korean telcos are seeing stronger free cash flow (FCF), which should allow them to increase shareholder returns. For global telcos, higher dividend yields tend to go hand in hand with valuatio n premiums; those with dividend yields of around 3-4% trade at an average P/B of 2.8x. Based on the November 26 th closing price, SK Telecom’s (SKT) annual and year-end dividend yields are estimated at 4.3% and 3.8%, respectively, yet the stock is trading at a P/B of only 1.1x.

A - ARPU Growth: ARPU growth is slowing as the LTE market matures, whereas data traffic growth is accelerating. The first major uptick in ARPU occurred during the transition from 3G to LTE services, and we believe a second can be expected with the further segmentation of LTE plans (higher charges for higher data usage, and more segmented plans allowing subscribers to choose from a range of prices for different intended uses ). The increase in data consumption has been driven by growing demand for video streaming.

F - Frequency auction: In early 2016, the government plans to auction 700MHz, 1.8GHz, 2.1GHz, and 2.6GHz bands. SKT and KT are expected to actively participate in the bid, as their 2.1GHz licenses will expire at end-2016.

E - Expanding businesses (new businesses and M&As): In 2016, telecom companies are likely to actively seek new business opportunities, in light of the slowdown in existing businesses and regulator y issues. New business areas include media (platform and content), IoT (smart home) and fintech (payment and online-only banks).

Overweight; Top pick is SK Telecom We reiterate our Overweight rating on the telecom sector. In 2016, telcos’ shareholder returns will likely increase. Moreover, telcos are anticipated to seek growth opportunities actively, navigating regulatory headwinds early next year.

Our top pick is SKT (017670 KS/Buy/TP of W350,000), in light of the stock’s top-of-the- class dividend yields and major efforts to pursue growth. We also advise closely watching LG Uplus (032640 KS/Buy/TP of W15,000) and KT (030200 KS/Trading Buy/TP of W35,000).

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 December 11, 2015

※All data as of close December 10, 2015, unless otherwise noted.

16F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F 005930 189,132 1,284,000 2.1 2.2 5.1 5.3 7.6 10.0 9.3 1.1 1.0 11.7 11.4 005380 Hyundai Motor 32,711 148,500 3.4 15.6 -1.2 12.6 1.1 5.6 5.6 0.6 0.5 11.4 10.5 015760 KEPCO 31,199 48,600 3.1 8.3 0.5 -46.9 -1.5 4.6 4.7 0.4 0.4 9.8 8.9 090430 AmorePacific 23,559 403,000 0.3 33.4 31.0 25.2 31.7 35.9 27.3 6.8 5.5 20.6 22.3 012330 22,827 234,500 1.5 15.0 7.2 22.5 5.8 6.1 5.7 0.8 0.7 13.4 12.6 000660 SK Hynix 21,731 29,850 1.3 -21.9 10.7 -22.9 11.3 6.5 5.8 0.9 0.8 14.1 13.8 051910 LG Chem 21,638 326,500 1.2 17.6 33.5 35.9 34.2 13.8 10.3 1.6 1.4 12.6 15.0 000270 Motors 21,160 52,200 2.6 27.7 14.0 25.8 10.9 5.6 5.1 0.7 0.7 14.2 13.9 035420 NAVER 21,096 640,000 0.2 33.3 22.4 35.7 21.6 28.5 23.4 5.4 4.4 27.7 26.0 032830 Samsung Life 20,900 104,500 - - - - 0.0 0.0 018260 Samsung SDS 20,273 262,000 0.2 12.2 1381.5 8.3 1338.7 42.3 2.9 4.1 1.7 10.1 82.3 055550 19,513 41,150 - - - - 0.0 0.0 017670 SK Telecom 18,894 234,000 4.3 4.8 1.4 0.4 1.8 11.4 11.2 1.0 1.0 10.1 9.7 034730 SK Holdings 17,766 252,500 0.8 9.0 13.4 4.3 -49.4 20.8 41.2 3.2 3.0 19.8 8.9 051900 LG Household & Health Care 15,665 1,003,000 0.5 21.6 16.8 22.7 18.6 30.1 25.4 6.8 5.5 25.7 24.4 033780 KT&G 14,828 108,000 3.3 -4.9 0.7 -9.4 2.0 15.5 15.2 2.1 1.9 14.7 13.9 005490 POSCO 14,822 170,000 4.7 10.9 11.3 593.2 33.2 10.1 7.6 0.3 0.3 3.5 4.6 000810 Samsung F&M 14,663 309,500 - - - - 0.0 0.0 105560 KB Financial Group 13,348 34,550 - - - - 0.0 0.0 003550 LG Corp. 12,424 72,000 1.4 8.3 0.0 5.2 2.1 11.4 11.1 0.9 0.8 8.2 7.8 096770 SK Innovation 11,789 127,500 2.0 -34.7 48.8 -29.1 58.6 15.4 9.7 0.7 0.7 4.7 7.2 006400 Samsung SDI 8,836 128,500 0.8 468.2 5.0 385.4 -81.4 5.8 31.2 0.7 0.7 12.3 2.2 034220 LG Display 8,784 24,550 2.0 -40.9 85.2 -43.9 110.7 14.2 6.7 0.7 0.6 4.9 9.7 010130 Korea Zinc 8,520 451,500 1.4 22.0 16.2 23.5 17.4 12.8 10.9 1.5 1.3 12.4 13.0 010950 S-Oil 8,444 75,000 3.7 -8.9 15.1 0.0 15.1 11.3 9.8 1.4 1.3 13.2 13.8 035250 8,205 38,350 3.3 11.5 5.2 14.7 9.5 16.0 14.6 2.4 2.2 16.4 16.4 066570 LG Electronics 8,068 49,300 1.6 58.8 19.7 146.9 21.0 9.3 7.7 0.7 0.6 7.6 8.6 011170 Lotte Chemical 7,883 230,000 0.4 7.6 12.6 19.0 16.8 6.1 5.2 0.9 0.8 15.8 15.8 030200 KT 7,559 28,950 2.8 1.1 0.3 -13.4 4.2 10.1 9.7 0.6 0.6 6.5 6.4 047810 Korea Aerospace Industries 7,428 76,200 0.3 27.7 23.5 42.2 26.2 24.6 19.5 4.9 4.0 22.1 22.7 024110 7,372 13,250 - - - - 0.0 0.0 023530 Lotte Shopping 7,196 228,500 0.9 12.1 12.9 57.4 14.1 14.7 12.9 0.4 0.4 2.8 3.2 086790 7,119 24,050 - - - - 0.0 0.0 001800 Orion 7,052 1,180,000 0.6 14.8 8.2 23.0 13.5 33.6 29.6 4.4 3.9 14.1 14.2 009540 6,848 90,100 - 123.3 - 724.4 126.0 15.3 0.4 0.4 0.4 3.1 035720 6,773 112,700 0.2 92.2 38.3 76.3 40.8 43.0 30.6 2.5 2.3 6.0 7.9 128940 6,752 660,000 63.1 28.5 73.0 36.4 106.3 77.9 12.1 10.5 12.1 14.5 086280 6,750 180,000 1.1 9.5 8.4 57.8 2.4 11.6 11.3 1.9 1.7 17.6 15.6 004020 Hyundai Steel 6,726 50,400 1.5 6.8 9.9 7.6 31.6 7.7 5.8 0.4 0.4 5.6 6.9 021240 Coway 6,471 83,900 4.3 11.8 21.2 9.6 21.3 17.7 14.6 4.3 3.8 28.1 30.2 088350 Hanwha Life 6,384 7,350 - - - - 0.0 0.0 161390 5,878 47,450 0.9 7.1 14.0 7.7 14.9 8.2 7.2 1.0 0.9 12.8 13.0 009240 Hanssem 5,660 240,500 0.4 44.2 27.9 41.7 32.7 34.4 25.9 8.9 6.7 32.1 31.7 139480 Emart 5,436 195,000 0.8 21.2 13.5 -24.0 12.3 12.4 11.1 0.7 0.7 6.0 6.3 009150 Samsung Electro-Mechanics 5,258 70,400 0.9 25.4 29.0 240.2 32.7 20.2 15.2 1.1 1.1 6.0 7.5 036570 NCSOFT 4,846 221,000 1.7 29.6 21.8 34.4 24.9 18.6 14.9 2.7 2.4 16.5 18.1 078930 GS Holdings 4,683 50,400 2.7 -8.4 17.6 15.9 28.9 8.4 6.5 0.5 0.5 5.9 7.3 005830 Dongbu Insurance 4,666 65,900 - - - - 0.0 0.0 002380 KCC 4,655 442,500 2.0 1.2 5.1 56.3 4.6 20.5 19.6 0.7 0.7 3.7 3.8 097950 CJ CheilJedang 4,625 351,500 0.6 8.6 9.5 28.5 33.2 17.4 13.1 1.4 1.3 8.9 10.8 Source: KDB Daewoo Securities Research

Market Data December 11, 2015

※All data as of close December 11, 2015, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 353.94 1.27 0.36 -8.47 USD/KRW 1,177.50 1,178.20 1,158.20 1,104.50 KOSPI 1,948.62 -3.45 -0.18 1.15 JPY100/KRW 968.14 968.95 940.06 936.61 KOSDAQ 653.48 -4.60 -0.70 18.01 EUR/KRW 1,288.77 1,298.14 1,241.82 1,374.61 Dow Jones* 17,574.75 82.45 0.47 -1.45 3Y Treasury 1.75 1.75 1.80 2.13 S&P 500* 2,052.23 4.61 0.23 -0.29 3Y Corporate 2.16 2.16 2.16 2.45 NASDAQ* 5,045.17 22.30 0.44 6.74 DDR2 1Gb* 1.09 1.09 1.11 1.37 Philadelphia Semicon* 674.23 3.94 0.59 -1.82 NAND 16Gb* 1.46 1.46 1.51 2.25 FTSE 100* 6,088.05 -38.63 -0.63 -7.02 Oil (Dubai)* 36.51 36.49 42.88 63.76 Nikkei 225 19,224.25 177.70 0.93 10.43 Gold* 1,073.10 1,077.60 1,088.50 1,228.90 Hang Seng* 21,704.61 -99.15 -0.45 -9.03 Customer deposits (Wbn)* 20,322 20,223 21,638 16,404 (Weighted) 8,115.89 -100.28 -1.22 -12.49 Equity type BC (Wbn)(Dec. 9) 79,802 79,796 80,857 78,587 Note: * as of December 10, 2015 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung SDI 19.17 Samsung Electronics 88.65 LG Chem 25.50 KODEX LEVERAGE 25.74 SK Energy 12.97 Samsung Electronics (P) 43.15 Samsung Electronics 21.62 Kia Motors 18.88 Kia Motors 9.84 Hotel Shilla 29.59 POSCO 17.06 Hanmi Pharm 13.44 SAMSUNG C&T 8.81 POSCO 22.89 NHN 17.02 Hanmi Science 10.55 Dongbu Insurance 8.46 KEPCO 10.84 KODEX INVERSE 14.56 Hynix 9.23 MANDO 8.17 Hyundai Mobis 10.58 SK Telecom 13.99 Hyundai Motor 7.76 Hanmi Science 6.77 LG Electronics 9.53 Hyundai Mobis 12.39 Dongbu Insurance 7.40 LG Chem 6.59 Samsung F&M Insurance 9.24 Samsung F&M Insurance 9.81 OCI 6.21 LG Display 6.01 SK Telecom 8.91 Hana Financial Group 8.95 Honam Petrochemical 4.53 BGF Retail 5.60 Hyundai Eng. & Cosnt. 8.68 SAMSUNG C&T 8.81 Samsung Heavy Ind. 4.24 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 ViroMed 3.87 Binex 3.92 ISPLUS 5.15 Medy-tox 6.57 OSSTEM IMPLANT 3.70 Celltrion 2.70 Bio Space 3.77 CJ E&M 5.56 LOEN 3.61 Silicon Works 2.30 KEBT 2.10 OSSTEM IMPLANT 2.75 New Pride 2.98 CJ E&M 1.94 iNtRON Bio 2.03 Daum Communications 2.53 Medy-tox 2.07 Diostech 1.68 SETI 1.34 Interpark 1.29 SEEGENE 1.63 ECOPRO 1.39 DoubleUGames 1.28 i3system 1.15 Medipost 1.55 Innocell 1.33 Silicon Works 1.18 Maeil Dairy Industry 1.00 Komipharm 1.53 Gamevil 1.30 DAWONSYS 0.88 NEW 0.95 PNESolution 1.44 Koh Young 1.23 INICIS 0.88 Binex 0.93 YONWOO 1.34 Semiconductor 1.23 CTC Bio 0.74 CrucialTec 0.91 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 1,284,000 1,000 189,132 Celltrion 78,600 -2,000 8,825 Hyundai Motor 148,500 -3,000 32,711 Daum Communications 112,700 -100 6,773 KEPCO 48,600 -50 31,199 CJ E&M 84,500 -2,900 3,273 SAMSUNG C&T 147,000 1,500 27,884 Dongsuh 31,100 250 3,101 Samsung Electronics (P) 1,082,000 -9,000 24,706 Medy-tox 439,500 -20,600 2,486 Amore Pacific 403,000 0 23,559 ViroMed 174,000 -2,500 2,470 Hyundai Mobis 234,500 0 22,827 Komipharm 39,250 -3,300 2,125 Hynix 29,850 -450 21,731 LOEN 79,300 3,900 2,006 LG Chem 326,500 12,500 21,638 Paradise 18,100 -400 1,646 Kia Motors 52,200 -1,800 21,160 Com2us 112,800 300 1,451 Source: Korea Exchange