Mirae Asset Daewoo Hyundai Heavy Industries (009540 KS ) Back from the brink

Shipbuilding 1Q16 review: Revenue of W10.3tr (-16.0% YoY), OP of W325.2bn For 1Q16, Hyundai Heavy Industries (HHI) reported revenue of W10.27tr (-16.0% Results Comment YoY), operating profit of W325.2bn (turning to profit YoY), and pretax profit of W361.1bn (turning to profit YoY) , with the latter two beating our estimates and the April 27, 2016 consensus by a significant margin.

Top line contracted across all businesses, aside from finance. 1) Shipbuilding revenue was dragged down by weaker orders and changes in the vessel mix . 2) (Maintain) Buy Offshore revenue was hurt by a decline in volume due to the delivery of major projects. 3) Plant revenue fell due to the finished deployment of key modules of Target Price (12M, W) 142,000 large-scale projects and new projects being in the initial stages of construction. 4) Oil refining revenue was negatively affected by lower product prices amid weak oil Share Price (04/26/16, W) 112,500 prices. 5) Revenue at other divisions was weighed by sluggish demand in the Middle East and economic weakness in overseas markets. Expected Return 26% Operating earnings, on the other hand, improved in all business segments. The offshore and plant units, though still in the red, narrowed their losses. 1)

Shipbuilding earnings improved markedly at the parent shipbuilding business, but OP (16F, Wbn) 1,123 also at Hyundai Samho Heavy Industries (HSHI) and Hyundai Mipo Dockyard Consensus OP (16F, Wbn) 640 (HMD). The stable execution of specialty ships improved shipbuilding productivity, which, together with raw material cost savings, supported a return to profitability. EPS Growth (16F, %) - The company set aside W69.5bn in loss provisions in the quarter, but added back Market EPS Growth (16F, %) 14.2 around W14.3bn in construction provisions. P/E (16F, x) 13.1 2) Offshore losses declined, helped by stabilized execution (due to the delivery of Market P/E (16F, x) 11.2 large projects) and change orders (W88.2bn). The plant unit benefited from a KOSPI 2,019.63 decrease in additional expenses (following the completion of major projects) and a W46.9bn reversal in construction provisions. 3) At the oil refining unit , operating Market Cap (Wbn) 8,550 profit improved materially thanks to strong refining margins. 4) Despite top-line Shares Outstanding (mn) 76 contraction, the electro-electric and engine/machinery units recorded better Free Float (%) 64.5 operating profits on cost saving efforts. Foreign Ownership (%) 13.1 Beta (12M) 1.52 Oil prices and economic recovery will be key 52-Week Low 81,200 The company’s 4Q15-1Q16 earnings results show that risks have significantly 52-Week High 153,500 subsided. The offshore and plant units (the biggest sources of losses) have reduced their losses and face little risks of additional losses. Going forward, the biggest (%) 1M 6M 12M factors impacting earnings will be oil prices and economic growth. Low oil prices Absolute 9.2 16.3 -21.6 are depressing demand for offshore facilities, while slowing growth is making ship Relative 7.3 18.0 -16.2 owners reluctant to place new orders.

120 Hyundai Heavy Industries Re-rating hinges on removal of uncertainties KOSPI 100 We maintain Buy on HHI and lift our target price by 10% to W142,000. We previously applied a 20% discount to a P/B of 0.8x, but are now reducing that 80 discount to 10% to reflect waning uncertainties and improving earnings (though

60 weak orders mean a discount is still warranted). We believe massive industry restructuring will play out through 2017, which should benefit HHI, given its 40 relatively healthy balance sheet and strong competitiveness relative to domestic 4.15 8.15 12.15 4.16 and foreign peers. This, in turn, could set the stage for a re-rating.

Daewoo Securities C o., Ltd. FY (Dec.) 12/13 12/14 12/15 12/16F 12/17F 12/18F Revenue (Wbn) 54,188 52,582 46,232 41,252 39,065 41,019 [Shipbuilding & Machinery ] OP (Wbn) 802 -3,249 -1,540 1,123 1,055 1,190

Ki -jong Sung OP margin (%) 1.5 -6.2 -3.3 2.7 2.7 2.9 +822 -768 -3263 NP (Wbn) 279 -1,769 -1,350 651 614 762 [email protected] EPS (W) 3,667 -23,279 -17,762 8,571 8,079 10,031 ROE (%) 1.6 -10.9 -9.3 4.6 4.2 5.0 Ho -seung Lee +822 -768 -4176 P/E (x) 70.1 - - 13.1 13.9 11.2 [email protected] P/B (x) 1.0 0.5 0.5 0.6 0.5 0.5 Notes: 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

April 27, 2016 Hyundai Heavy Industries

On- and offshore plant project risks

HHI’s stock re-rating in 2016 is likely to hinge on whether additional losses from on- and offshore plant projects are incurred, and on potential increases in revenue from change orders. Below, we outline the provisions, progress, and potential risks associated with HHI’s major projects:

Major offshore projects (1) HSHI has an order backlog of one rig ship. The company has sharply reduced potential risks related to the project by signing an agreement to push back delivery to 2Q16 and making provisions.

(2) Gorgon LNG project (orders received Oct. 2009; project worth US$2.1bn)

HHI has completed plant module delivery for this project. The project had been weighing on the company’s other projects due to a delay in delivery. Some provisions related to change orders were written back, and so the project should pose no additional risks.

(3) Norway Goliat FPSO (Feb. 2010, US$1.1bn), Myanmar SHWE field development (Feb. 2010, US$1.4bn), and UK Q204 FPSO (Feb. 2011, US$1.7bn)

As construction for these three large-scale projects is nearing completion, they have a low risk of additional losses and are unlikely to depress earnings going forward.

(4) Norway Aasta Hansteen Spar Topside project (Jan. 2013, US$1.9bn)

For this project, the company recorded losses of W190bn in 3Q15 due to increased man- hours and materials costs resulting from execution delays. However, the company has already set aside provisions and should be able to shift production capacity to the project thanks to the completion of the three large-scale projects mentioned above. There was no additional provisioning in 1Q16. The project is around 55% complete.

(5) Moho Nord project in Congo (US$1.9bn, March 2013)

This project is in a similar situation as the Norway Aasta Hansteen Spar Topside project. The project is more than 70% complete, and no additional provision has been set aside.

(6) NASR Package 2 project in Abu Dhabi (July 2014, US$2.2bn)

This EPCI project, involving offshore super complex platforms and a power distribution platform, is HHI’s most recently ordered large-scale offshore plant construction project. The project is currently around 10% complete, and approximately W120bn in provisions has already been put aside due to execution delays; thus, additional losses are unlikely to be incurred in the short term. And the project risk has been mitigated significantly, thanks to sufficient labor (design staff) and yards.

(7) Rosebank FPSO project in the UK (April 2013, US$1.9bn)

This project has yet to take off, as advances have not been collected. Revenue is not recognized, and thus does not affect HHI’s bottom line.

Among offshore plant projects, (4), (5), and (6) seem to pose relatively high levels of risk. Most of the company’s troubled projects either have been completed or are nearing completion, and thus execution delays are unlikely to occur again. In addition, some projects will likely see the write-back of provisions. We recognize that the company has relatively little experience in offshore plant design, but we believe its strong know-how in offshore production can compensate for such weaknesses.

Table 1. Offshore plant projects (US$mn, %) Order Ordering Amount Expected Progress Reflected New orders date organization (US$mn) completion rate losses (3Q) Diamond Offshore May 2013 BP 750 Feb. 2016 100% Completed- Norway Goliat FPSO Feb. 2010 Eni Norge AS 1,102 Jun. 2015 100% Completed Gorgon LNG onshore module Oct. 2009 Chevron 2,056 Dec. 2015 100% Completed Nigeria DSO 2011 Chevron 900 Nov. 2016 87% - UK Q204 FPSO Feb. 2011 BP 1,700 Dec. 2015 100% Completed Norway Aasta Hansteen platform Jan. 2013 Statoil 1,900 2017 57% Congo Moho Nord TLP & FPU Mar. 2013 Total 2,000 1H16 & 1H17 77%, 72% UPM & Drilling Equipment Jun. 2012 Hebron 550 1H16 87% UAE NASR FFD Package 2 Jul. 2014 ADMA-OPCO 2,200 End-2018 10% Source: Company data, Mirae Asset Daewoo Research estimates

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April 27, 2016 Hyundai Heavy Industries

Oil prices and economic recovery to be key to re-rating

For 2016, we expect the company to see YoY weakness in new orders, as low oil prices and the economic slowdown have been delaying or cancelling offshore plant project biddings and new project plans. Ship owners are currently reluctant to place shipbuilding orders due to falling freight rates. We believe a pickup in oil prices and the global economy will be key to the recovery and re-rating of the shipbuilding sector

Table 2. 1Q16P results (Wbn, %) 1Q16P Growth 1Q15 4Q15 Mirae Asset Preliminary Consensus YoY QoQ Daewoo Revenue 12,228 11,139 10,272 10,094 10,850 -16.0 -7.8 Operating profit -192 -279 325 88 154 TTB TTB OP margin -1.6 -2.5 3.2 0.9 1.4 TTB TTB Pretax profit -166 -446 361 100 164 TTB TTB Net profit -139 -370 209 68 99 TTB TTB Notes: Based on consolidated K-IFRS; TTB refers to “turning to black” Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. Earnings forecast revisions (Wbn, %) Previous Revised % chg. Notes 2016F 2017F 2016F 2017F 2016F 2017F - Decline in new orders‰ Reduction Revenue 41,539 40,210 41,252 39,065 -0.7 -2.8 in revenue Operating profit 522 643 1,123 1,055 115.1 63.9 - Improved predictability Pretax profit 123 261 1,005 904 717.4 246.6 - F/X losses Net profit 93 188 651 614 597.3 226.2 OP margin 1.3 1.6 2.7 2.7 - - Net margin 0.2 0.5 1.6 1.6 - - Notes: All figures are based on consolidated K-IFRS Source: Company data, Mirae Asset Daewoo Research estimates

Table 4. Quarterly and annual earnings (Wbn, %, %p) 2015 2016 1Q16P growth 2015 2016F 2017F 1Q 2Q 3Q 4Q 1QP 2QF 3QF 4QF YoY QoQ Revenue 12,228 11,946 10,918 11,139 10,272 10,572 10,076 10,332 -16.0 -7.8 46,232 41,252 39,065 Operating profit -192 -171 -898 -279 325 254 263 280 TTB TTB -1,540 1,123 1,055 Pretax profit -166 -302 -928 -446 361 218 221 205 TTB TTB -1,841 1,005 904 Net profit -139 -241 -600 -370 209 145 145 153 TTB TTB -1,350 651 614 OP margin -1.6 -1.4 -8.2 -2.5 3.2 2.4 2.6 2.7 - - -3.3 2.7 2.7 Net margin -1.0 -2.0 -5.7 -3.4 2.4 1.6 1.7 1.7 - - -2.9 1.6 1.6 Notes: All figures are based on consolidated K-IFRS; Net profit attributable to controlling interests; TTB refers to “turning to black” Source: Company data, Mirae Asset Daewoo Research estimates

Figure 1. Quarterly earnings Figure 2. Annual earnings

(Wtr) Revenue (L) (%) (Wtr) Revenue (L) (%) 16 OP margin (R) 5 60 OP margin (R) 16

14 50 12 0 12 40 8 10 -5 8 30 4

6 -10 20 0 4 -15 10 -4 2

0 -20 0 -8 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16F 08 09 10 11 12 13 14 15 16F 17F

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 3 April 27, 2016 Hyundai Heavy Industries

Table 5. New orders and order backlog (US$mn) Type 2015 Mar. 2016 Order backlog Shipbuilding 5,984 234 14,582 Offshore 1,572 149 14,387 Plant 1,258 2 10,625 Engine/machinery 1,860 347 2,149 Electro-electric 1,873 515 1,985 Construction equipment 1,692 415 - Green energy 299 80 38 Total 14,538 1,742 43,766 Source: Company data, Mirae Asset Daewoo Research

Table 1. Valuation table (Wbn, %) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16F 3Q16F 4Q16F 2014 2015 2016F Revenue 12,228 11,946 10,918 11,139 10,272 10,572 10,076 10,332 52,582 45,978 41,252 Shipbuilding 4,304 4,153 4,048 4,168 4,131 4,138 4,003 4,024 16,432 16,630 16,296 Offshore 1,240 1,121 722 1,383 929 935 854 865 4,653 3,906 3,583 Plant 1,092 1,256 916 922 886 667 602 654 2,409 4,158 2,809 Engine/machinery 495 449 400 433 362 412 401 433 1,518 1,768 1,608 Electro-electric 572 701 604 631 501 624 597 635 2,355 2,513 2,357 Constr. equipment 675 683 456 411 592 612 385 401 2,867 2,226 1,991 Green energy 84 70 87 89 83 80 75 90 312 323 328 Oil refining 3,467 3,237 3,175 2,953 2,496 2,786 2,847 2,903 21,087 13,003 11,031 Finance 241 256 447 95 249 258 251 268 743 1,250 1,026 Other 59 20 62 55 44 60 60 60 206 201 224 Revenue growth -9.6 -6.8 -12.0 -19.6 -16.0 -11.5 -7.7 -7.2 -3.0 -12.6 -10.3 (%) Shipbuilding 4.9 2.1 12.2 -10.5 -4.0 -0.3 -1.1 -3.5 -3.4 1.2 -2.0 Offshore 17.8 31.9 -40.0 -10.6 -25.1 -16.6 18.2 -37.4 -2.2 -16.1 -8.3 Plant 224.2 135.9 42.7 2.7 -18.9 -46.9 -34.3 -29.1 96.9 72.6 -32.4 Engine/machinery 48.8 13.3 26.3 -8.4 -26.9 -8.2 0.3 0.0 -11.9 16.4 -9.0 Electro-electric 25.6 -0.5 21.1 -9.5 -12.4 -11.0 -1.1 0.6 -14.7 6.7 -6.2 Constr. equipment -20.8 -15.7 -29.9 -25.7 -12.2 -10.4 -15.6 -2.4 -12.9 -22.3 -10.6 Green energy 6.4 -8.6 9.5 15.6 -0.7 13.8 -14.2 1.2 -0.7 3.6 1.5 Oil refining -43.1 -37.3 -38.2 -37.1 -28.0 -13.9 -10.3 -1.7 -5.1 -38.3 -15.2 Finance 54.2 57.0 122.9 -57.4 3.0 0.7 -43.9 183.0 11.9 68.3 -17.9 Other 3.2 -61.1 -9.4 89.7 -24.4 200.0 -3.8 9.1 -5.4 -2.5 11.6 OP -192 -171 -898 -279 325 254 263 280 -3,250 -1,541 1,123 Shipbuilding -158 -102 -360 -29 191 113 99 102 -1,896 -650 505 Offshore -86 -291 -643 -275 -71 -41 13 16 -230 -1,294 -82 Plant 32 1 -16 -93 -59 -27 -20 -18 -1,131 -76 -124 Engine/machinery -8 17 15 43 68 46 40 45 -11 67 199 Electro-electric 17 28 42 56 51 45 43 46 86 144 185 Constr. equipment 0 -2 -28 -86 2 -2 -26 -21 -33 -116 -47 Green energy -1 4 11 2 8 4 3 4 -18 16 20 Oil refining 97 235 127 170 202 185 173 171 229 629 732 Finance 19 14 16 5 27 11 12 14 34 53 63 Other -106 -74 -63 -71 -93 -80 -75 -80 -279 -313 -328 OP margin (%) -1.6 -1.4 -8.2 -2.5 3.2 2.4 2.6 2.7 -6.2 -3.4 2.7 Shipbuilding -3.7 -2.5 -8.9 -0.7 4.6 2.7 2.5 2.5 -11.5 -3.9 3.1 Offshore -6.9 -26.0 -89.0 -19.9 -7.7 -4.3 1.6 1.9 -4.9 -33.1 -2.3 Plant 2.9 0.1 -1.8 -10.1 -6.6 -4.0 -3.3 -2.8 -46.9 -1.8 -4.4 Engine/machinery -1.6 3.7 3.8 9.9 18.7 11.0 10.0 10.5 -0.7 3.8 12.4 Electro-electric 3.0 4.0 7.0 8.9 10.1 7.3 7.2 7.2 3.7 5.7 7.8 Constr. equipment 0.0 -0.2 -6.2 -21.0 0.3 -0.3 -6.7 -5.2 -1.2 -5.2 -2.4 Green energy -1.0 6.0 13.0 1.7 10.0 5.3 4.3 4.6 -5.7 5.0 6.0 Oil refining 2.8 7.3 4.0 5.8 8.1 6.7 6.1 5.9 1.1 4.8 6.6 Finance 8.0 5.3 3.5 5.0 10.7 4.3 4.8 5.0 4.5 4.3 6.2 Other -180.6 -371.0 -100.5 -128.2 -210.1 -133.3 -125.0 -133.3 -135.4 -155.9 -146.3 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 4

April 27, 2016 Hyundai Heavy Industries

Figure 3. Subsidiaries’ earnings summary Figure 4. Sales breakdown

(Wtr) Other Finance 14 Oil refining Green energy Construction equipment Electro-electric Engine/machinery Plant 1Q16 4Q15 1Q15 12 Offshore Shipbuilding

Revenue OP OPM Revenue OP OPM Revenue OP OPM 10

HHI 5,554 101 1.8% 6,156 -389 -6.3% 6,610 -199 -3.0% 8

HMD 913 48 5.3% 915 10 1.1% 856 2 0.2% 6 HSHI 1,090 24 2.2% 1,142 1 0.1% 1,107 -68 -6.1% 4 Hyundai Oilbank 2,366 177 7.5% 2,963 155 5.2% 3,119 95 3.0%

Other 350 -25 - -37 -57 - 536 -23 - 2

0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16F 3Q16F 4Q16F

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

Figure 5. New orders by business segment Figure 6. Backlog by business segment

(Wtr) Construction equipment Electro-electric (US$bn) Green energy Construction equipment Electro-electric Engine/machinery 16 Engine/machinery Plant 70 Plant Offshore 14 Offshore Shipbuilding 60 Shipbuilding

12 50 10 40 8 30 6 20 4 10 2

0 0 1Q12 1Q13 1Q14 1Q15 1Q16 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

Figure 7. P/B band Figure 8. P/B-ROE comparison (2016F)

(W) (P/B, x) 600,000 3 2.5x 500,000 CSIC 2.0x 400,000 2 CSSC

1.5x 300,000

1.0x 200,000 1 Mitsubishi HMD Mitsui 100,000 0.5x SHI HHI (ROE, %) 0 0 11 12 13 14 15 16 17 -4 -2 0 2 4 6 8

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 5 April 27, 2016 Hyundai Heavy Industries

Hyundai Heavy Industries (009540 KS/Buy/TP: W142,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F (Wbn) 12/15 12/16F 12/17F 12/18F Revenue 46,232 41,252 39,065 41,019 Current Assets 27,176 27,382 27,370 28,082 Cost of Sales 44,682 37,778 35,862 37,573 Cash and Cash Equivalents 3,105 3,574 3,857 3,439 Gross Profit 1,550 3,474 3,203 3,446 AR & Other Receivables 4,757 4,176 3,955 4,315 SG&A Expenses 3,090 2,351 2,149 2,256 Inventories 4,492 4,688 4,490 4,715 Operating Profit (Adj) -1,540 1,123 1,055 1,190 Other Current Assets 14,822 14,944 15,068 15,613 Operating Profit -1,540 1,123 1,055 1,190 Non-Current Assets 22,557 21,705 21,134 20,765 Non-Operating Profit -301 -118 -151 -68 Investments in Associates 270 275 281 295 Net Financial Income -147 -139 -122 -109 Property, Plant and Equipment 16,320 15,732 15,315 14,935 Net Gain from Inv in Associates -56 0 0 0 Intangible Assets 2,140 2,046 1,964 1,891 Pretax Profit -1,841 1,005 904 1,122 Total Assets 49,733 49,087 48,504 48,847 Income Tax -478 241 221 275 Current Liabilities 23,061 21,996 21,742 21,658 Profit from Continuing Operations -1,363 764 682 847 AP & Other Payables 4,416 4,267 4,338 4,439 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 10,083 9,596 9,109 0 Net Profit -1,363 764 682 847 Other Current Liabilities 8,562 8,133 8,295 17,219 Controlling Interests -1,350 651 614 762 Non-Current Liabilities 11,173 10,828 9,817 9,397 Non-Controlling Interests -13 112 68 85 Long-Term Financial Liabilities 9,518 9,218 8,218 0 Total Comprehensive Profit -1,900 764 682 847 Other Non-Current Liabilities 1,655 1,610 1,599 9,397 Controlling Interests -1,854 745 666 826 Total Liabilities 34,234 32,824 31,559 31,055 Non-Controlling Interests -46 19 17 21 Controlling Interests 13,736 14,388 15,002 15,764 EBITDA -472 2,125 2,004 2,092 Capital Stock 380 380 380 380 FCF (Free Cash Flow) -1,855 1,342 1,805 660 Capital Surplus 1,125 1,125 1,125 1,125 EBITDA Margin (%) -1.0 5.2 5.1 5.1 Retained Earnings 12,819 13,470 14,084 14,846 Operating Profit Margin (%) -3.3 2.7 2.7 2.9 Non-Controlling Interests 1,763 1,875 1,943 2,028 Net Profit Margin (%) -2.9 1.6 1.6 1.9 Stockholders' Equity 15,499 16,263 16,945 17,792

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F 12/15 12/16F 12/17F 12/18F Cash Flows from Op Activities -574 1,662 2,255 1,110 P/E (x) - 13.1 13.9 11.2 Net Profit -1,363 764 682 847 P/CF (x) 17.9 3.8 4.4 4.2 Non-Cash Income and Expense 1,736 1,515 1,276 1,199 P/B (x) 0.5 0.6 0.5 0.5 Depreciation 962 908 867 829 EV/EBITDA (x) - 9.6 9.4 8.7 Amortization 107 94 83 73 EPS (W) -17,762 8,571 8,079 10,031 Others 667 513 326 297 CFPS (W) 4,901 29,981 25,769 26,915 Chg in Working Capital -916 -334 543 -648 BPS (W) 193,461 202,032 210,111 220,141 Chg in AR & Other Receivables -628 693 190 -332 DPS (W) 0 0 0 0 Chg in Inventories 1,266 -195 197 -225 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables -2,480 -149 57 87 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid 0 -241 -221 -275 Revenue Growth (%) -12.1 -10.8 -5.3 5.0 Cash Flows from Inv Activities -147 -421 -499 -571 EBITDA Growth (%) - - -5.7 4.4 Chg in PP&E -1,235 -320 -450 -450 Operating Profit Growth (%) - - -6.1 12.8 Chg in Intangible Assets -28 0 0 0 EPS Growth (%) - - -5.7 24.2 Chg in Financial Assets 1,300 149 51 -121 Accounts Receivable Turnover (x) 11.1 10.5 11.2 11.5 Others -184 -250 -100 0 Inventory Turnover (x) 9.0 9.0 8.5 8.9 Cash Flows from Fin Activities 594 -798 -1,497 -944 Accounts Payable Turnover (x) 13.3 13.0 12.5 12.8 Chg in Financial Liabilities -427 -787 -1,487 -934 ROA (%) -2.6 1.5 1.4 1.7 Chg in Equity 16 0 0 0 ROE (%) -9.3 4.6 4.2 5.0 Dividends Paid 0 0 0 0 ROIC (%) -4.5 3.5 3.3 3.9 Others 1,005 -11 -10 -10 Liability to Equity Ratio (%) 220.9 201.8 186.2 174.5 Increase (Decrease) in Cash -124 469 284 -418 Current Ratio (%) 117.8 124.5 125.9 129.7 Beginning Balance 3,229 3,105 3,574 3,857 Net Debt to Equity Ratio (%) 73.3 62.0 48.9 43.3 Ending Balance 3,105 3,574 3,857 3,439 Interest Coverage Ratio (x) -6.8 5.1 5.1 6.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 6

April 27, 2016 Hyundai Heavy Industries

APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price (W) Hyundai Heavy Industries Hyundai Heavy Industries(009540) 04/27/2016 Buy 142,000 400,000 01/14/2016 Buy 131,000 10/27/2015 Buy 146,000 300,000 07/22/2015 Buy 156,000 04/14/2015 Buy 187,000 200,000 01/14/2015 Hold - 100,000 11/18/2014 Trading Buy 145,000

10/31/2014 Trading Buy 115,000 0 07/30/2014 Buy 215,000 Apr 14 Apr 15 Apr 16 05/01/2014 Buy 246,000 03/06/2014 Buy 300,000

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 analyst’s 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.

Equity Ratings Distribution Buy Trading Buy Hold Sell 68.29% 17.56% 14.15% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2016)

Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subjec t company and do not own 1% or more of the subject company's shares outstanding.

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 Analyst’s 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

Mirae Asset Daewoo Research 7 April 27, 2016 Hyundai Heavy Industries

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.

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.

Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 320 Park Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 31st Floor

Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong, China United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000

Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 Six Battery Road #11-01 7th Floor, Yusen Building 25 Old Broad St. Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku London EC2N 1HQ Tokyo 100-0005 United Kingdom Japan Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511

Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers Room 38T31, 38F SWFC Suite 2103, Saigon Trade Center B-12 Jianguomenwai Avenue 100 Century Avenue 37 Ton Duc Thang St,

Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Dist. 1, Ho Chi Minh City, China China Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia 2401B, 24th Floor, East Tower, Twin Towers #406, Blue Sky Tower, Peace Avenue 17 Equity Tower Building Lt.50 B-12 Jianguomenwai Avenue, 1 Khoroo, Sukhbaatar District Sudirman Central Business District Jl.

Chaoyang District, Beijing 100022 Ulaanbaatar 14240 Jendral Sudirman Kav. 52 -53, Jakarta Selatan China Mongolia Indonesia 12190 Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140

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