July 16, 2013

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Steel (Neutral) KOSPI 1,866.36 -8.80 -0.47 Making a counterintuitive bet KOSPI 200 242.02 -1.41 -0.58 KOSDAQ 537.72 6.05 1.14

Turnover ('000 shares, Wbn) Volume Value KOSPI 300,367 2,948 KOSPI 200 58,181 2,330 KOSDAQ 335,764 1,798

Market Cap (Wbn) Value KOSPI 1,085,642 KOSDAQ 122,213

KOSPI Turnover (Wbn) Buy Sell Net Foreign 810 790 20 Institutional 604 695 -91 Retail 1,522 1,453 69

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 90 69 22 Institutional 86 71 15 Retail 1,621 1,653 -32

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 469 566 -96 KOSDAQ 22 17 5

Advances & Declines Advances Declines Unchanged KOSPI 406 395 79 KOSDAQ 554 336 88

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KODEX LEVERAGE 10,500 -90 253 Samsung Electronics 1,298,000 -15,000 241 KODEX INVERSE 8,140 35 132 OCI 151,500 7,500 109 KODEX 200 24,190 -100 94

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KT Music 5,300 330 73 Lumens 10,200 1,070 70 Seoul Semiconductor 36,250 850 66 Celltrion 47,400 2,350 65 POSCO ICT 9,490 520 39 Note: As of July 16, 2013

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Steel Making a counterintuitive bet

Neutral (Maintain) Missing the forest for the trees Many investors seem to be fixated on the negatives plaguing the steel market. China’s Sector Update overcapacity still persists, and there are fears that tightening credit in the country will July 16, 2013 hinder the steel industry. The fact that July and August are seasonally the weakest months for the steel industry should make it even more doubtful that steel prices will

pick up. But a number of steel market indicators are currently pointing to the contrary. Daewoo Securities Co., Ltd. In China, the world’s largest steel market, steel prices have been steadily turning around Steel/Non-ferrous metal after hitting a bottom in late May, leaving many investors in a quandary.

Seung-hun Jeon Evidence suggests either real demand is picking up, or real buyers are restocking +822-768-2713 [email protected] China’s steel margins have been improving, giving little incentive for Chinese steelmakers

Aiden Lee to cut back production. Meanwhile, Chinese steelmakers’ inventories are declining, as are +822-768-3297 those held by steel traders. Chinese steel traders’ inventories have dropped below 2010 [email protected] and 2012 levels. If steel products are not piling up at steel mill warehouses, and traders are not increasing their purchases (despite continued production), this could mean that

either real demand is picking up, or real buyers are rebuilding inventory. Either way, we see little reason to be pessimistic on the steel market.

Stocks to buy: We prefer POSCO and At this stage, we recommend accumulating POSCO and Hyundai Steel, two of the largest blast furnace names in Korea. First, Chinese steel price rebounds tend to lead to higher ASP for domestic blast furnace steelmakers. Also, production costs at blast furnaces are expected to fall sharply in 4Q, suggesting any uptick in prices will directly translate into stronger profits. Lastly, POSCO and Hyundai Steel appear attractive relative to their biggest rivals, Japan’s Nippon Steel & Sumitomo Metal Corporation (NSSMC) and JFE Steel. The two domestic stocks are trading at P/Bs of 0.6x, well below the 1.0x for NSSMC and 0.8x for JFE. We believe that, if Japan’s steel demand recovers in 2H, it would also trigger upside for Korean steel stocks in line with their Japanese counterparts.

Korea’s steel stock index now lags steel prices (reversal from the previous trend)

(1/08=100) 140 Korean steel stocks index 2.5months Chinese HRC price

120 3.5months 1.5months

100 2-week lag

80

2months 60 1.5months 2-month lag 20days 40 08 09 10 11 12 13

Source: Mysteel.net, Thomson Reuters, KDB Daewoo Securities Research

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS BEGINNING ON PAGE 13.

Key Universe Valuations July 16, 2013

※All data as of close July 15, 2013, unless otherwise noted.

13F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 005930 Samsung Electronics 193,404 1,313,000 0.6 35.1 17.3 38.1 20.3 7.0 5.8 1.5 1.2 24.3 23.5 005380 Hyundai Motor 46,809 212,500 1.1 1.0 12.3 -2.2 8.6 7.3 6.7 1.2 1.1 17.6 16.5 005490 POSCO 27,333 313,500 2.6 -9.2 36.5 -25.3 53.4 14.6 9.5 0.6 0.6 4.7 6.9 012330 24,920 256,000 0.8 -4.1 17.0 -5.6 13.2 7.4 6.6 1.3 1.1 18.3 17.6 000270 Motors 24,160 59,600 1.3 -5.7 10.4 -5.5 13.2 6.6 5.8 1.3 1.1 19.8 18.8 032830 Samsung Life 21,200 106,000 2.0 0.0 9.3 4.2 4.3 18.1 17.4 1.1 1.0 6.0 5.8 000660 SK Hynix 19,765 28,450 0.5 - 12.4 - 16.9 7.1 6.1 1.8 1.4 25.4 23.9 055550 Shinhan Financial Group 18,873 39,800 0.2 -10.3 14.2 -10.1 13.7 10.0 8.8 0.7 0.7 7.1 7.6 051910 LG Chem 18,158 274,000 1.7 4.3 20.9 5.4 20.9 12.9 10.6 1.7 1.5 13.9 14.9 017670 SK Telecom 17,603 218,000 4.4 21.9 26.6 47.8 24.9 10.3 8.3 1.7 1.6 14.0 16.3 009540 Hyundai Heavy 14,706 193,500 -24.2 58.8 2.1 71.7 14.6 8.5 1.0 0.9 5.8 9.2 035420 NHN 13,789 286,500 0.3 22.8 30.3 19.4 31.7 21.2 16.1 4.4 3.6 31.8 34.6 096770 SK Innovation 13,639 147,500 2.2 27.5 21.5 12.1 39.9 10.4 7.4 0.9 0.8 8.4 10.8 105560 KB Financial Group 13,600 35,200 -3.3 11.4 3.8 11.4 7.7 7.0 0.5 0.5 6.9 7.4 066570 LG Electronics 11,832 72,300 1.0 50.9 30.9 1142.9 51.4 15.8 10.4 1.2 1.1 6.7 9.7 023530 Lotte Shopping 11,620 369,000 0.4 11.7 12.3 12.6 10.3 9.4 8.6 1.0 0.9 7.4 7.6 003550 LG Corp. 11,320 65,600 1.5 11.1 12.4 16.5 8.3 10.6 9.8 1.0 0.9 9.4 9.5 000810 Samsung F&M 11,228 237,000 2.8 20.2 14.1 19.2 14.4 11.1 9.7 1.2 1.1 11.7 11.9 033780 KT&G 10,942 79,700 4.3 -4.8 5.3 0.4 6.1 14.8 13.9 2.0 1.8 14.1 13.9 034220 LG Display 10,055 28,100 1.9 13.1 -17.4 196.6 -1.5 14.5 14.8 1.0 0.9 6.6 6.2 086790 Hana Financial Group 9,813 33,850 -8.7 10.0 -22.8 12.7 7.1 6.3 0.5 0.5 8.8 7.3 030200 KT 9,243 35,400 5.2 23.1 19.1 15.8 17.9 7.6 6.4 0.9 0.8 9.7 10.8 010140 Samsung Heavy 8,785 38,050 1.3 11.2 5.6 26.8 8.4 8.7 8.0 1.3 1.1 17.7 16.5 051900 LG H&H 8,699 557,000 0.6 18.5 17.3 16.9 18.8 27.8 23.4 6.3 5.0 26.4 25.3 000830 Samsung C&T 8,358 53,500 0.9 10.3 13.7 -13.0 -0.6 22.0 22.1 0.8 0.8 3.3 3.2 010950 S-Oil 8,320 73,900 4.1 32.4 22.3 35.4 27.2 10.9 8.5 1.5 1.3 14.1 16.4 003600 SK Holdings 8,007 170,500 1.6 20.1 16.6 18.1 11.6 6.5 5.9 1.8 1.4 10.5 10.9 006400 Samsung SDI 7,153 157,000 1.1 -22.1 100.3 -62.7 32.2 13.5 10.2 1.0 0.9 7.3 9.3 086280 6,956 185,500 1.2 3.0 9.4 6.1 12.5 13.2 11.7 3.0 2.5 24.6 22.6 161390 6,788 54,800 1.2 253.8 3.6 237.3 7.3 8.7 8.1 1.8 1.5 22.1 19.9 000720 Hyundai E&C 6,392 57,400 1.3 16.9 18.6 15.3 17.7 10.9 9.2 1.3 1.2 12.3 13.0 035250 Kangwon Land 6,247 29,200 2.9 12.3 15.4 18.4 17.8 17.8 15.1 2.3 2.1 14.1 15.4 009150 Samsung Electro-Mechanics 6,192 82,900 1.2 24.0 17.7 26.4 17.1 11.6 9.9 1.6 1.4 13.5 14.1 024110 Industrial Bank of Korea 6,190 11,250 0.3 -26.5 16.3 -19.6 16.1 7.7 6.7 0.5 0.5 6.6 7.3 088350 Hanwha Life 5,923 6,820 3.5 - - 3.5 1.6 9.8 9.6 0.8 0.8 8.6 8.3 004020 Hyundai Steel 5,784 67,800 0.7 -16.3 61.4 -49.3 112.7 14.3 6.7 0.6 0.5 4.0 8.0 139480 Emart 5,742 206,000 0.3 4.1 5.0 3.3 4.5 10.6 10.1 0.9 0.8 8.7 8.4 001800 Orion 5,528 926,000 0.3 -3.1 7.8 -0.2 9.5 36.5 33.4 5.1 4.4 14.3 13.6 090430 Amorepacific 5,495 940,000 0.7 2.3 11.1 4.5 16.6 23.0 19.8 2.7 2.4 11.5 12.1 032640 LG Uplus 5,458 12,500 2.7 388.6 17.7 - 29.3 16.6 12.8 1.6 1.5 8.4 10.1 010130 Korea Zinc 5,359 284,000 1.6 -0.7 3.9 3.0 8.2 9.3 8.6 1.2 1.1 14.0 13.5 034730 SK C&C 5,175 103,500 10.0 6.0 27.6 3.6 11.4 11.0 1.8 1.6 19.1 17.5 078930 GS 5,055 54,400 2.7 36.7 17.6 36.9 25.3 7.6 6.1 0.8 0.8 10.3 11.8 011170 Lotte Chemical 5,021 146,500 1.5 37.3 25.3 29.6 14.2 11.5 10.0 0.8 0.8 7.0 7.6 034020 Doosan Heavy I&C 4,621 43,650 1.8 3.9 6.6 1028.4 19.4 10.8 9.0 1.4 1.3 9.5 11.2 001300 Cheil Industries 4,583 87,400 0.8 18.1 42.8 41.5 43.3 15.5 10.8 1.6 1.4 8.9 12.1 068270 Celltrion 4,525 45,050 36.3 27.9 30.2 29.2 34.9 27.0 9.4 7.6 19.2 20.3 011210 Hyundai Wia 4,078 158,500 0.5 5.5 12.8 5.4 16.1 9.3 8.0 1.9 1.6 21.6 20.5 036570 NCsoft 3,857 176,000 0.6 67.6 39.7 50.5 42.3 16.4 11.5 3.2 2.5 21.1 24.3 069960 3,698 158,000 0.5 4.1 6.7 6.0 10.0 9.8 8.9 1.2 1.0 12.7 12.4 Source: KDB Daewoo Securities Research

Market Data July 16, 2013

※All data as of close July 16, 2013, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 377.49 2.16 0.57 -12.05 USD/KRW 1,122.60 1,122.30 1,134.80 1,151.40 KOSPI 1,866.36 -8.80 -0.47 -8.11 JPY100/KRW 1,123.16 1,130.84 1,188.27 1,454.43 KOSDAQ 537.72 6.05 1.14 7.20 EUR/KRW 1,466.23 1,465.78 1,516.38 1,410.58 Dow Jones* 15,484.26 19.96 0.13 15.45 3Y Treasury 2.88 2.89 2.76 2.95 S&P 500* 1,682.50 2.31 0.14 15.05 3Y Corporate 3.36 3.36 3.13 3.54 NASDAQ* 3,607.49 7.41 0.21 15.91 DDR2 1Gb* 1.39 1.39 1.44 1.24 Philadelphia Semicon* 489.33 -0.28 -0.06 22.42 NAND 16Gb* 2.98 2.98 2.98 1.95 FTSE 100* 6,586.11 41.17 0.63 9.27 Oil (Dubai)* 104.04 103.45 102.59 98.91 Nikkei 225 14,599.12 92.87 0.64 36.59 Gold* 1,283.50 1,277.60 1,387.30 1,592.00 Hang Seng* 21,303.31 26.03 0.12 -8.62 Customer deposits (Wbn)* 18,060 17,240 18,009 16,794 Taiwan (Weighted) 8,260.11 5.43 0.07 6.18 Equity type BC (Wbn)(July. 12) 92,454 92,538 90,460 98,912 Note: * as of July 15, 2013 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 21.18 Samsung Electronics 13.59 KODEX INVERSE 10.79 Samsung Electronics 29.95 OCI 17.90 Hanwha Chemical 8.97 Hanwha Chemical 8.83 KODEX LEVERAGE 23.38 KODEX 200 14.34 8.75 DSME 7.97 KT 18.72 NHN 12.52 LG Electronics 8.15 Hotel Shilla 5.86 KODEX 200 17.24 HANKOOK TIRE 7.37 Kangwon Land 7.58 Hana Financial Group 5.47 Hynix 14.14 Hyundai Motor 6.31 Hotel Shilla 6.65 SKC 5.30 LG Display 10.29 Samsung Techwin 5.99 Kia Motors 6.21 LG Insdustrial Systems 4.88 SEMCO 8.31 Hyundai Motor (2P) 5.84 Samsung Engineering 6.17 Samsung Heavy Ind. 4.70 NHN 6.31 SK Telecom 5.06 KODEX LEVERAGE 5.52 Hyundai Heavy Industries 4.60 HYUNDAI WIA 5.56 Hynix 4.66 KT&G 5.13 Mando 4.44 HANKOOK TIRE 4.47 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 Celltrion 11.08 Seoul Semiconductor 2.92 Seoul Semiconductor 4.65 Sung Kwang Bend 1.68 Interpark 2.22 SM 1.68 Medy-tox 2.71 KPF 1.28 CJ O Shopping 1.24 Wemade 1.43 Access Bio(Reg.S) 2.54 GS Home Shopping 1.11 Paradise 1.23 Lumens 1.27 Lumens 2.07 Sekonix 1.05 Gamevil 1.21 Partrion 1.16 SK Broadband 1.74 Maeil Dairy Industry 1.03 Infraware 1.10 NEPES 1.08 POSCO ICT 1.42 Eugene Technology 1.02 Techno Semichem 1.01 Silicon Works 0.88 KH Vatec 1.39 NEPES 0.75 POSCO ICT 0.98 CTC Bio 0.82 ATTO 1.23 P&T 0.74 CJ E&M 0.94 Melfas 0.77 SEEGENE 1.21 STC 0.74 Sekonix 0.93 Optrontec 0.71 Gamevil 1.20 Amotech 0.73 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 1,298,000 -15,000 191,195 Celltrion 47,400 2,350 4,761 Hyundai Motor 213,000 500 46,919 CJ O Shopping 358,800 5,800 2,226 POSCO 311,000 -2,500 27,115 Seoul Semiconductor 36,250 850 2,114 Hyundai Mobis 254,500 -1,500 24,774 Paradise 23,150 450 2,105 Kia Motors 58,900 -700 23,876 SK Broadband 5,460 -20 1,616 Samsung Life Insurance 106,000 0 21,200 GS Home Shopping 244,000 -1,200 1,601 Hynix 28,450 0 19,765 Dongsuh 26,800 -300 1,586 Samsung Electronics (P) 850,000 -5,000 19,408 CJ E&M 39,100 -100 1,483 Shinhan Financial Group 39,550 -250 18,755 POSCO ICT 9,490 520 1,300 LG Chem 273,000 -1,000 18,092 Daum Communications 83,700 100 1,135 Source: Korea Exchange