Holding companies Growing motivation for holding company conversion
1. End of circular shareholdings Overweight (Maintain) For Korean conglomerates, circular shareholdings are no longer a feasible option for Industry Report maintaining and expanding control over their vast business empires. Under the revision to the Monopoly Regulation and Fair Trade Act (MRFTA), large corporate groups are November 26, 2015 banned from forming new circular shareholdings or strengthening existing one s. Companies are allowed to keep previously established circul ar shareholdings, but are
Daewoo Securities CCCo.,Co., Ltd. encouraged to gradually and voluntarily untie their existing shareholdings (which are required to be publicly disclosed). However, we believe there is a possibility tha t existing [Holding Companies/IT Services] circular shareholdings could also be directly regulated, potentially becoming subject to
Dae-ro Jeong mandatory removal within a certain period. +822-768-4160 [email protected] Ultimately, the unwinding of circular shareholdings should serve as a major catalyst to convert to a holding comp any. Some of the biggest Korean conglomerates, such as Yoon-seok Seo Samsung, Hyundai Motor Group (HMG), and Lotte, have recently been making great +822-768-4127 efforts to unwind their existing circular shareholdings. By doing so, they may be able to [email protected] avoid potential policy risks whi le also making the transition to a holding company
structure easier. In our view, adopting a holding company structure is the best or second-best option for conglomerates looking to tighten their managerial control and ensure ownership succession.
2. Opportune time for holding company conversion The government is introducing various policies to facilitate holding company conversion. If the intermediate financial holding company bill passes into law, large corporate groups will be able to convert to holding structures without being forced to dispose of their stakes in their financial subsidiaries. In addition, under the Special Act for Corporate Vitality Improvement (the so-called “one-shot” act), tax benefits would be provided for corporate groups’ restructu ring plans and restructuring processes will be simplified, albeit for a limited period (five years). Furthermore, through the tax code revision, the statutory grace period for the deferral of taxation on capital gains from the tender offer would be extended by three years, until end-2018.
Historically, corporate governance-related pledges tend to increase during presidential campaigns. Accordingly, the environment for holding company conversions is likely to become increasingly unfavorable heading into the next presidential election in end-2017. Meanwhile, it has taken eight months on average from the announcement of holding structure conversions until the tender offers/rights offerings to meet subsidiary stake requirements. Thus, the two-year period from n ow should be the opportune time for holding company conversion.
3. Attention to shift to dividend after completion of holding company structure Currently, controlling families are facing increasingly limited opportunities to expand their wealth through related-party transactions due to strengthening regulations. When circular shareholdings were large corporate groups’ prevailing structure, dividends were considered the outflow of groups’ cash holdings. Going forward, however, corporate groups should be en couraged to increase dividends after completing a holding company structure as they need a legitimate way to acquire funds to pay inheritance and gift tax for the transfer of managerial control.
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.
November 26, 2015 Holding companies
Opportune time to convert to holding company
Source: KDB Daewoo Securities Research
Major conglomerates’ circular shareholdings and financial subsidiaries RankRankRank NameNameName HeadHeadHead Circular Financial RankRankRank NameNameName HeadHeadHead Circular Financial
1 Samsung Lee Kun-hee shareholding○ subsidiaries○ 21 Hyosung Cho Seok-lae shareholdingX subsidiaries○
2 HMG Chung Mong-koo ○ ○ 22 Dongkuk Steel Jang Se-joo X X
3 SK Chey Tae-won Converted to holding company 23 Youngpoong Jang Hyung-jin ○ X
4 LG Koo Bon-moo Converted(Jul to. 3,holding 2007) company 24 Mirae Asset Park Hyun-joo X ○
5 Lotte Shin Kyuk-ho ○ (Ap r. 3, 2001) ○ 25 Kolon Lee Woong-yul Converted to holding company
6 Hyundai Heavy Chung Mong-joon ○ ○ 26 Hanjin Heavy Cho Nam-ho Converted(Jan. to holding1, 2010) company
7 IndustriesGS Huh Chang-soo Converted to holding company 27 Industries KCC Jung Mong-jin X (Aug. 1, 2007) X
8 Hanjin Cho Yang-ho In process of(Jul converting. 7, 2004) to holding 28 Halla Jung Mong-won In process of converting to holding
9 Hanwha Kim Seung-yeon companyX (Aug. 1, 2013)○ 29 Hankook Tire Cho Yang-lae Convertedcompany to holding (Sep. 2,company 2014) (Jul.
10 Doosan Park Yong-gon Converted to holding company 30 Taekwang Lee Ho-jin X 6, 2013) ○
11 Shinsegae Lee Myung-hee X (Jan. 1, 2009) X 31 Daesung Kim Young-dae Converted to holding company
12 CJ Lee Jae-hyun Converted to holding company 32 Hyundai Jung Mong-kyu ○ (Jan. 1, 2011) ○
13 LS Ku Tae-hoi Converted (Sep.to holding 4, 2007) company (Jul. 33 DevelopmentKyobo Life - Shin Chang-jae X ○
14 Kumho Asiana Park Sam-gu ○ 2, 2008) X 34 InsuranceSeAH Lee Soon-hyung Converted to holding company (Jul.
15 Dongbu Kim Joon-gi X ○ 35 E-Land Park Sung-su X 3, 2001) ○
16 Daelim Lee Joon-young ○ X 36 Taeyoung Yoon Sae-young X X
17 Booyoung Lee Joong-geun Converted to holding company 37 HiteJinro Park Moon-deok Converted to holding company (Jul.
18 Hyundai Hyun Jeong-eun ○ (Dec. 30, 2009)○ 38 AmorePacific Seo Kyung-bae Converted to 3,holding 2008) company (Jul.
19 OCI Lee Soo-young X X 39 Samchully Lee Man-deuk X 1, 2007) ○
20 Hyundai Jeong Jee-sun ○ X 40 Hansol Lee In-hee In process of converting to holding
Note: ExcludesDepartment government-owned companies company (Jan. 1, 2015) Source: FTC, KDB Daewoo Securities Research
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November 26, 2015 Holding companies
C O N T E N T S
I. Corporate governance improved sharply in 2015 4 1. For stronger competitiveness and managerial control 4 2. Holding company conversions to increase 5
II. Changes in corporate governance-related policies 7 1. Restrictions on circular shareholding 8 2. Regulations on related-party transactions 9 3. Introduction of intermediate financial holding companies 11 4. Introduction of“one shot” law 12
III. Holding company conversion A to Z 13 1. Method of transition to a holding company 13 2. Requirements for conversion to holding company 14 3. Tax benefits to boost holding company conversion 15 4. Investment opportunities in holding company conversions 16
IV. Group ownership restructuring scenarios 18 1. Samsung Group 18 2. Hyundai Motor Group (HMG) 22 3. Lotte 24
V. Top Picks 27 SK Holdings (034730 KS) 28 LG (003550 KS) 31
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November 26, 2015 Holding companies
I. Corporate governance improved sharply in 2015
1. For stronger competitiveness and managerial control
Corporate groups’ efforts for improving governance were one of the greatest issues in the Korean stock market this year. In 2015, major corporate groups have made various efforts to optimize their business portfolios. Faced with increasing need to concentrate on selected business areas, corporate groups are seeking to streamline their businesses and improve efficiency of each business via spin-offs/split-offs and mergers.
Samsung Group and SK Group were the most prominent in this effort. They have optimized their business portfolios to improve competiveness and strengthen controlling families’ managerial control. These efforts will likely continue through 2016, with medium-sized corporate groups following suit.
TableTableTable 111.1... Major groupsgroups’’’’ restructuring in 2015 RankRankRank GroupGroupGroup Details RankRankRank GroupGroupGroup Details
Samsung C&T and Cheil Industries merge (Sep. 2015) CJ Systems and CJ Olive Young merge (Dec. 2014) Samsung group announces disposal of Samsung SDI’s 1 Samsung 20 CJ chemical unit and Samsung Fine Chemicals to Lotte Announces sale of CJ HelloVision to SK Group (Nov. 2015) Group (Oct . 201 5) Sells families’ 13.39% controlling stake in Hyundai Glovis Hyundai (Feb . 20 15) 3 26 Daelim Daelim Corporation and Daelim I&S merge (Jul. 2015) Motor Hyundai Steel and Hyundai Hysco merge (Jul. 2015); INNOCEAN Worldwide IPO (Jul . 20 15) SK and SK C&C merge (Aug. 2015) 5 SK 28 Dongbu Announces sale of Dongbu Farm Hannong (Mar. 2015) SK Telecom to acquire CJ HelloVision (Nov. 2015) LG Int’l acquires 51% of Pantos’s outstanding shares 6 LG (Jan . 20 15) 29 Hyundai Sells stake in Hyundai Logistics (Oct. 2014) Pantos fully acquires Hi Business Logistics (Oct. 2015) Announces IPO of Hotel Lotte (Aug. 2015) 7 Lotte Unwinds 84% of Lotte Group’s total cross-shareholdings 33 Hyosung Galaxia Communications and Infohub merge (Jul. 2015) (Aug .2015 ) Hanjin KAL Holdings acquires Jungseok Enterprise’s Dongkuk 14 Hanjin investment unit (Jun . 20 15) 39 Dongkuk Steel and and Union Steel merge (Jan. 2015) Steel Hanjin sells entire stake in Korean Air (Jul. 2015) Hanwha Q Cells and Hawha Solar One merge (Feb. 2015) 15 Hanwha Acquires Samsung group’s affiliates (Techwin, Thales, 42 Halla Halla Holdings and Halla Meister merge (Jul. 2015) General Chemical s, etc .) ( Jun . 2015 ) Hankook Tire acquires 19.5% stake in Halla Visteon Climate Oricom fully acquires HAN COMM. (Aug. 2015) Control (Jun . 201 5) 17 Doosan 43 Hankook Tire Announces split-off of Doosan Infracore’s machine tool Hankook Tire and Hanyang Tire Sales merge (Jul. 2015) division and s ell partial stake in the division (Oct 2015 ) Hansol Holdings and Hansol Logistics’s investment unit merge (Mar . 201 5) 18 Shinsegae Shinsegae Food and Shinsegae SVN merge (Dec. 2014) 61 Hansol Hansol Holdings and Hansol Lighting’s investment unit merge (Aug. 2015) Notes: Based on total asset size Source: Fair trade committee, News, KDB Daewoo Securities Research
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November 26, 2015 Holding companies
2. Holding company conversions to increase
Steady increase in holding company conversions
Currently, a total of 140 holding companies have been established as of October 2015 (+9 in 2011, +10 in 2012, +12 in 2013, +5 in 2014, and +8 in 2015). Since a holding company structure was allowed under the MRFTA in 1999, the number of holding companies has steadily increased.
Although the number of large corporate groups that have holding companies has steadily risen to 24, there has recently been a slowdown as the MRFTA bans holding companies from having shares of financial companies, and requires them to eventually unwind circular shareholdings to become a holding company structure.
Growing demand for holding company conversions
① Government: Request for simpler and more transparent shareholding structure for companies ② Investors: Expectations for growth in EV based on governance improvement and restructuring via holding company conversion ③ Controlling shareholders: Low stakes ‰ concerns about hostile M&As ‰ defense and transfer of managerial control
Figure 111.1... Number of holding companies (financial + nonnon----financial)financial)
(unit) 160 Financial holding companies Hansol Holding companies Hanjin 140 Halla KAL 15 120 Nonghyup 13 15 Daesung 12 Kolon 100 13 Doosan 12 80 9 126 LS 117 60 103 114 SK 5 84 92 CJ 40 4 70 GS 4 55 20 3 36 22 27 0 05 06 07 08 09 10 11 12 13 14 15F Source: Fair Trade Commission, KDB Daewoo Securities Research
TableTableTable 222.2. Current ‘‘‘d‘dddee factofacto’’’’ holding companies (Wbn) RankRankRank GroupGroupGroup De facto holdholdinging cococo Market cap NotesNotesNotes Samsung C&T and Cheil Industries 1 Samsung Samsung C&T 28,928 merge (Sep . 2015 ) 3 Hyundai Motor Hyundai Mobis 24,044 7 Lotte Hotel Lotte - Preparing IPO 10 Hyundai Heavy Indust. Hyundai Heavy Industries 6,886 15 Hanwha Hanwha Corp 2,818 Doosan Corp disqualified as holding 17 Doosan Doosan Corp 2,287 company (Dec. 2014) Shinsegae 2,471 Shinsegae spun-off E-mart (May 18 Shinsegae E-mart 6,049 2011) 25 Kumho Asiana Kumho Industrial 555 28 Dongbu Dongbu 92 29 Hyundai Hyundai Elevator 1,468 Hyundai Department 30 Hyundai Greenfood 2,467 Store 31 OCI OCI Company 1,801 33 Hyosung Hyosung Corp 4,074 36 Youngpoong Youngpoong Corp 2,037 Notes: Based on Nov, 25 th 2015 closing price Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
Figure 222.2. Market capitalization by sector
(Wtr) 250
200
150
100
50
0
Notes: Wise26 classification basis, Hanwha Corp(Chemicals), SK(Software), CJ(Consumer Staples) are labeled as Holding companies, Nov, 25 th 2015 closing price basis Source: KDB Daewoo Securities Research
Figure 333.3. Holding companiescompanies’’’’ market capitalization
Over W1tr Over W60bn (Wtr) (Wbn) 35 1,200 29 30 986 970 1,000 913 25 805 776 800 710 691 684 20 18 649 610 600 15 13 12 9 10 7 400 5 3 5 2 2 1 1 1 200 0 0
Notes: Holding companies whose market cap Is over W60bn, Nov, 25 th 2015 closing price basis Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
II. Changes in corporate governance-related policies
Opportune time for holding company conversion
The government is introducing various policies to facilitate holding company conversion. If the intermediate financial holding company bill passes into law, large corporate groups will be able to convert to holding structures without being forced to dispose of their stakes in their financial subsidiaries. In addition, under the Special Act for Corporate Vitality Improvement (the so-called “one-shot” act), tax benefits would be provided for corporate groups’ restructuring plans and restructuring processes will be simplified, albeit for a limited period (five years). Furthermore, through the tax code revision, the statutory grace period for the deferral of taxation on capital gains from the tender offer would be extended by three years, until end-2018.
Historically, corporate governance-related pledges tend to increase during presidential campaigns. Accordingly, the environment for holding company conversions is likely to become increasingly unfavorable heading into the next presidential election in end-2017. Meanwhile, it has taken eight months on average from the announcement of holding structure conversions until the tender offers/rights offerings to meet subsidiary stake requirements. Thus, the two-year period from now should be the opportune time for holding company conversion.
Figure 444.4. Opportune ttimeime tototo convert to holding compancompanyyyy
Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
1. Restrictions on circular shareholding
For Korean conglomerates, circular shareholdings are no longer a feasible option for maintaining and expanding control over their vast business empires. Under the revised Monopoly Regulation and Fair Trade Act (MRFTA), large corporate groups are banned from forming new circular shareholdings or strengthening existing ones. Companies are allowed to keep previously established circular shareholdings, but are encouraged to gradually and voluntarily untie their existing shareholdings (which are required to be publicly disclosed).
Ultimately, the unwinding of circular shareholdings should serve as a major catalyst to convert to a holding company. Some of the biggest Korean conglomerates, such as Samsung, Hyundai Motor Group (HMG), and Lotte, have recently been making great efforts to unwind their existing circular shareholdings. Going forward, we expect conglomerates to continue to unwind their circular shareholdings to improve their corporate governance and switch to a holding company structure.
1) Under the revised MRFTA, large corporate groups are banned from forming new circular shareholdings or strengthening existing ones.
Following the passage of the revision to the MRFTA in late 2013, the government’s ban on new cross-shareholdings between affiliates of conglomerates subject to cross-shareholding restrictions took effect on July 25, 2014. The law bans 1) new circular equity investments and 2) the acquisition of additional shares to strengthen existing circular ownership structures within a single corporate group.
Breach of the act could result in: 1) penalties (up to 10% of purchase price), 2) restrictions on the exercise of voting rights (for every stock used to establish or strengthen circular shareholdings following the date on which an order of disposal was issued), or 3) criminal prosecution (up to three years in prison or up to W200mn in fines).
2) Companies are allowed to keep previously established circular shareholdings. However, they are being encouraged to gradually and voluntarily untie their existing shareholdings.
Indeed, the Fair Trade Commission (FTC) now requires 1) each company under the umbrella of a large corporate group to disclose its cross-shareholding status, and 2) the representative firm of each corporate group to disclose the group’s overall cross-shareholding status as of April 1 st on May 31 st of each year. And any corporate group that has experienced a change in the cross- shareholding ties of its affiliates shall disclose such changes at the end of the following quarter (February 28 th , May 31 st , August 31 st , and November 30 th ).
3) However, we believe there is a possibility that existing circular shareholdings could also be directly regulated after the presidential election in late 2017, potentially becoming subject to mandatory removal within a certain period.
TableTableTable 333.3. Pledges by 2012 presidential election candidates Park GeunGeun----hyehyehyehye Moon JaeJae----inininin Ahn CheolCheol----soosoosoosoo
New circular Ban Ban Ban shareholdings Existing circular Complete unwinding after Voluntary unwinding followed No new measures shareholdings three-year grace period by possible regulatory intervention Violators subject to restrictions Violators subject to forced Other - on voting rights and fines disposal Source: KDB Daewoo Securities Research
TableTableTable 444.4. Major groupsgroups’’’’ crosscrosscross-cross ---shareholdingsshareholdings (units) GroupGroupGroup 201320132013 201420142014 201520152015
Samsung 30 14 7 Holds financial affiliates Hyundai Motor 2 5 4 Holds financial affiliates Lotte 5,851 299 67 Holds financial affiliates Hyundai Heavy Ind. 1 1 1 Hanjin 2 3 0 Dongbu 5 0 0 Holds financial affiliates Daelim 1 1 1 Hyundai 4 6 0 Holds financial affiliates Hyundai 3 3 3 YoungpoongDepartment S tore 9 6 6 Hyundai 4 4 4 Holds financial affiliates Notes:Development Based on cross-shareholdings which is over 1% stake, Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
2. Regulations on related-party transactions
Currently, the government is taking a two-track approach to regulations on related-party transactions by easing its stance on corporations (benefiting companies) on the one hand while tightening restrictions on individuals (controlling families) on the other. 1) Corporate regulations Restrictions apply to subsidiaries or affiliates in which a specially-related person owns, individually or together with his family members, no less than 30% of issued shares (20% for unlisted subsidiaries or affiliates). Provision of unfair profits can include: 1) deals with substantially favorable conditions, 2) the bestowal of business opportunities, and 3) transactions of substantial volume without reasonable consideration of external options. However, transactions necessary to improve efficiency, ensure security, and meet urgent needs will be exempt from regulations on related-party transactions. 2) Individual regulations In the past, economic gains made by managing families from related-party deals were left unregulated. To prevent chaebol families from distributing their wealth to heirs unfettered, the government classified profits from related-party transactions as taxable gifts under the inheritance/gift tax law in 2011 with enforcement beginning in 2013. The gift tax is calculated based on the NOPAT of any company in which the controlling shareholder and/or an affiliated person has a 3% or higher stake, if the company’s revenue from transactions with group affiliates exceeds 15% of total revenue. Of note, the gift tax is calculated based on the operating profit generated from transactions between a company (i.e., beneficiary) and an entity affiliated with the controlling shareholder of the company. As the operating profit of a company translates into gains for shareholders (through share price advances), profits from related-party transactions are deemed gifts given to the controlling shareholder, etc.
Table 555.5. Regulations on related party transactions LawLawLaw Provisions Timeline Ban on: 1) Deals with substantially favorable conditions MRFTA revision bill passed by National * Exemption: The price difference with arms’ length transaction is less than 7%, and the Assembly (July 2 nd , 2013) annual transaction amount is less than W5bn (or W20bn for goods/services) MRFTA Legislation notice of revision to 2) Bestowal of business opportunities ↓ Enforcement Decree (Oct. 2 nd , 2013) * Exemption: Only the related party is capable of performing the business, or the related Providing companies, Revised Enforcement Decree took party won the contract in a fair manner benefiting companies, effect (Feb. 14 th , 2014) 3) Transactions of substantial volume without reasonable consideration of outside controlling families * One-year grace period for ongoing options related party transactions, until Feb. * Exemption: Annual transaction amount is less than 12% of the transaction party’s 14 th , 2015 revenue, and less than W20bn; or the transactions are necessary to improve efficiency, ensure security, and meet urgent needs Profits from related-party transactions are deemed taxable gifts given to the controlling Revision to inheritance/gift tax (Dec. Inheritance/gift tax shareholder, etc. 31 st , 2011) ↓ *** Taxable profit = NOPAT ××× (percentage of relatedrelated----partyparty transactions --- 15%) ××× Revised inheritance/gift tax took controlling families (ownership stake --- 3%)3%)3%) ××× gift tax rate effect as of 2013 Source: KDB Daewoo Securities Research
Table 666.6. Penalties for breach of related party transactiontransaction provision under MRFTA Classification Corrective actionactionaction Penalties Criminal penalties - Discontinuance of provision of unfair profits to related parties, and Providing company - In the amount not exceeding 5% of introduction of measures to prevent revenue recurrence of similar practices - Imprisonment of up to 3 years, or a fine - Notice on penalties pronounced on May - Deletion of relevant contract terms of up to W200mn 30 th , 2014 - Disclosure of imposition of corrective (Article 66, Paragraph 1 of MRFTA) Controlling families & - Up to W2bn, absent revenue (Article 24- orders related parties 2, Paragraph 2 of MRFTA) - Other necessary measures (Article 24 of MRFTA) - Discontinuance of provision of unfair profits to related parties, and - In the amount not exceeding 5% of introduction of measures to prevent revenue recurrence - Notice on penalties pronounced on May Benefiting company - Deletion of relevant contract terms Not applicable 30 th , 2014 - Disclosure of imposition of corrective - Up to W2bn, absent revenue (Article 24- orders 2, Paragraph 2 of MRFTA) - Other necessary measures (Article 24 of MRFTA) Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
Figure 555.5. Determination of relatedrelated----partyparty transaction
No Does conglomerate in question have over W5tr in total assets and an ownership structure of a chaebol? Is it Hyundai Glovis subject to aban on new cross-shareholding?
Yes
Does the transaction involve an affiliate in which an No individual or inclusive of family members hold more than 30% of issued shares (20% for an unlisted affiliate)?
Yes
No Does the transaction have substantially favorable conditions compared to arm’s length transaction? Yes
No Does the transaction bestow business Yes opportunities that could provide substantial profits without reasonable payment in return?
No Is the transaction of substantial Yes volume and made without reasonable consideration of external options? Yes Efficiency
Yes Security
Yes Urgency
Normal related-party Related-party transaction is considered to provide unfair transaction support to related parties → Impose legal controls
Source: KDB Daewoo Securities Research
Figure 666.6. Determination of deemed donation
Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
3. Introduction of intermediate financial holding companies
▶▶▶ Government is moving to allow non-financial holding companies to own financial subsidiaries
▶▶▶ Government has recently demonstrated its firm commitment to the introduction of intermediate financial holding companies
The bill allowing non-financial holding companies to own financial subsidiaries and requiring conglomerates to establish intermediate financial holding companies under certain circumstances is still pending at the National Assembly. However, the government has recently demonstrated its firm commitment to the introduction of intermediate financial holding companies.
Many large conglomerates already own a number of financial and insurance companies. Under current law, they are prohibited from converting to a holding company unless they sell their financial subsidiaries. Thus, once non-financial holding companies are allowed to own financial subsidiaries via intermediate financial holding companies, large conglomerates will be able to convert to holding structures without being forced to dispose of their stakes in their financial subsidiaries. In other words, the introduction of intermediate financial holding companies would ultimately encourage large conglomerates to adopt holding structures.
Currently, out of the 62 conglomerates subject to cross-shareholding restrictions (as designated by the FTC), 29 are based in manufacturing yet have financial companies as subsidiaries. Among them, Samsung, HMG, Lotte, Hanwha, and Dongbu would need to introduce intermediate financial holding companies if they were to choose to adopt holding structures. Once non- financial holding companies are allowed to own financial subsidiaries, these conglomerates may switch to holding structures to solidify or transfer ownership while keeping their stakes in financial subsidiaries intact.
Figure 777.7. Introduction of intermediate financial holding compcompanananyyyy
Source: KDB Daewoo Securities Research
TableTableTable 777.7. GovGovGovernmentGov ernment to allow nonnon----financialfinancial holding companies to own financial subsidsubsidiariesiaries NotesNotesNotes
Permission for holding companies to own financial subsidiaries; introduction of Proposal to revise the Fair intermediate financial holding companies to prevent movement of capital between Trade Act (9/26/12) financial and non -financial companies Presidential transition committee’s national agenda Permission for holding companies to own financial subsidiaries; obligation to establish (3 /21 /13) intermediate financial holding company if certain criteria are met—e.g. companies that FTC policy briefing (4/24/13) own three or more financial subsidiaries (including insurers), or whose financial Plan to promote M&As subsidiaries (including insurers) hold total assets of at least W20tr (3/6/14) FTC reports to National Prioritize the establishment of intermediate financial holding companies in order to Policy Committee encourage large conglomerates to improve their corporate governance and separate (7/2/14) financial and non -financial capital New economic team’s policy Passage of economic democratization agenda items (including requirements to establish direction (7/30/14) intermediate financial holding compan ies ) by year -end The government and ruling parties are trying to introduce intermediate financial Current ~ holding company in the end of 2015 Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
4. Introduction of “““one shot” law
▶▶▶ The bill to pass the National Assembly by end-2015; Provides a support package for companies undergoing restructuring for five years
▶▶▶ “““One shot” law to facilitate business restructuring full swing via M&As
- Timeline
The government sought to introduce the so-called “one shot” law, or a special law to boost corporate vitality, which was outlined in the Ministry of Strategy and Finance’s (MOSF) “2015 Economic Policy Directions” report (December 22 nd , 2014); The government announced the results of research into the “one shot” law (May 27 th , 2015); Lawmaker Lee Hyun-jae led the way in proposing a bill to introduce the “one shot” law (July 9 th , 2015); The bill is expected to pass the National Assembly by end-2015, and the “one shot” law will likely be implemented in 2016.
- Purpose
Designed to demand that companies take preemptive reorganizing efforts ‰ Provides a support package for companies undergoing restructuring to advance into new business areas (Case of Japan: Enacted a special law to boost industry vitality in 1999, contributing to raising corporate profitably and economic growth; The average ROA of 103 companies subject to the law climbed from 2.9% in 2003 to 3.9% in 2007, while payrolls increased by 49,000)
- Key highlights
The law is designed to make it easier for companies to restructure their businesses by allowing them to circumvent certain regulatory restrictions if their restructuring plans are approved by a private-public committee and the related ministry.
(Submission of restructuring plan ‰ approval by a private-public committee and the related ministry ‰ application of the “one shot” law reduces business restructuring expenses, including M&A costs, and regulatory restrictions
Table 888.8. Special law to boost corporate vitality Details Companies undergoing restructuring in sectors in oversupply (Example: shipbuilding, steel, display, auto, etc.) *** Sectors in oversupply : Sectors that have many non-viable firms due to intense competition, or those that have seen competitiveness deteriorate due to Target the emergence of replacement industries 1) Sector revenue and operating profit fell sharply for the past three years, compared to their 10-year averages; The recent three - year price hike is lower than the increase in raw material costs 2) Oversupply is unlikely to ease for the time being due to the di fficulty of cost reduction Support period Support companies undergoing restructuring for five years Source: KDB Daewoo Securities Research
Table 999.9. Details of “one shot” law Regulatory items Measures under consideration In M&As, extend share repurchase period for dissenting shareholders (from one to three months for listed firms and from two to six months for non-listed firms) Appraisal rights Reduce cost burden Period of exercising appraisal rights: From less than 20 days after a shareholders’ meeting to less than 10 days Corporate registration tax 50% cut in corporate registration tax Allow ownership of third-tier subsidiary if holding company owns a 20% or higher stake (Currently, Holding third-tier holding companies must own 100% of third-tier subsidiaries) subsidiaries Extend deadline for holding company conversion to (Currently two years, but can be extended by two Relax holding years ) company regulations Debt guarantee Allow debt guarantee during holding company conversion Cross/circular shareholding Extend grace period to unwind cross/circular shareholdings from six months to one year Joint shareholding Allow subsidiaries to jointly invest in a second -tier subsidiary during holding company conversion Exempt shareholder resolution when newly issued shares for merger account for less than 20% of Small-scale merger outstanding shares (currently less than 10%) Abort a small-scale merger in the event that 20% or more of the surviving company’s shareholders Simplify procedure oppose the merger (currently 10% or more) Shareholders’ meeting Shorten the period of shareholder notice and financial disclosure from two weeks to one week Exempt shareholder resolution when acquiring company buys more than 2/3 of acquired company’s outstanding shares (curren tly more than 90%) Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
III. Holding company conversion A to Z
1. Method of transition to a holding company
▶▶▶ Holding company conversion: 1) Spin-off, 2) tender offer, 3) rights offering
▶▶▶ It took an average of eight months from announcement to rights offering
Several companies that underwent transitions into holding companies opted for tender offers after spinning off their subsidiaries. In other words, once a company is separated into a holding company and a subsidiary, the holding company could acquire a stake in the subsidiary via a tender offer to meet regulatory qualifications (20% stake in listed subsidiaries and 40% stake in unlisted subsidiaries). Then, shareholders would receive new shares of the holding company via a rights offering in return for their shares in the subsidiary.
This method of transition is the most popular among companies switching to a holding company structure, as it allows the controlling shareholder to increase their stakes in the holding company and allows holding companies to raise its stakes in subsidiaries. Acquiring a stake in an affiliate in the open market would require a substantial amount of funds, whereas a tender offer followed by a rights offering would enable a holding company to easily gain stakes in its subsidiaries without having to invest sizable funds. Simply put, controlling shareholders can assert their ownership in holding companies at minimal costs, and holding companies can meet their regulatory requirements for ownership in subsidiaries.
It took an average of eight months from the announcement of a holding company conversion to rights offering (four months for a BOD meeting, a shareholders ’ meeting, and re-listing, and another four months for a rights offering, share exchange, and listing of new shares. In the event that subsidiary earnings were weak, it took more than 12 months to ensure more favorable share exchange ratios for controlling shareholders.
TableTableTable 101010.10 . Average of eight months (247 days) from announcemenannouncementt of holding company conversion to tender offer/rights offering Announcement Announcement Tender offer & until tender Holding company Split date ReReRe-Re ---listinglisting date datedatedate rights offering offer/rights offering Halla Holdings Apr. 07, 2014 Sep. 01, 2014 Oct. 06, 2014 Nov. 06, 2014 213 days Hanjin KAL Mar. 22, 2013 Aug. 01, 2013 Sep. 16, 2013 Sep. 23, 2014 550 days Korea Kolmar Jun. 04, 2012 Oct. 01, 2012 Oct. 19, 2012 Dec. 11, 2012 190 days Holdings Hankook Tire Apr. 25, 2012 Sep. 01, 2012 Oct. 04, 2012 May 20, 2013 390 days Worldwide AK Holdings Apr. 24, 2012 Sep. 01, 2012 Sep. 17, 2012 Nov. 14, 2012 204 days Samyang Holdings Aug. 10, 2011 Nov. 01, 2011 Dec. 05, 2011 Jun. 01 , 2012 296 days Kolon Oct. 15, 2009 Dec. 31, 2009 Feb. 01, 2010 May 24, 2010 221 days KC Green Holdings Sep. 28, 2009 Jan.01, 2010 Jan. 29, 2010 May 14, 2010 228 days Youngone Holdings Apr. 14, 2009 Jul. 01, 2009 Jul. 30, 2009 Aug. 31, 2009 139 days Iljin Holdings Apr. 16, 2008 Jul. 01, 2008 Aug. 01, 2008 Sep. 08, 2008 145 days Hitejinro Holdings Apr. 16, 2008 Jul. 01, 2008 Jul. 30, 2008 Jul. 22, 2009 462 days Hanjin Heavy Ind. & May 15, 2007 Aug. 01, 2007 Aug. 31, 2007 Oct. 08, 2007 146 days Const. Holdings SK Apr. 11, 2007 Jul. 01, 2007 Jul. 25, 2007 Aug. 29, 2007 140 days Woongjin Feb. 15, 2007 May 01, 2007 May 31, 2007 Aug. 02, 2007 168 days CJ Jun. 12, 2007 Sep. 01, 2007 Oct. 04, 2007 Nov. 08, 2007 149 days Amorepacific Mar. 15, 2006 Jun. 01, 2006 Jun. 29, 2006 Oct. 09, 2006 208 days Group LG Nov. 15, 2000 Apr. 01, 2001 May 02, 2001 Nov. 08, 2001 358 days Average time until tender offeroffer/rights/rights offering 247 days Notes: Tender offer/rights offering date is based on date of public announcement Source: KDB Daewoo Securities Research
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2. Requirements for conversion to holding company
▶▶▶ Four conditions for establishing a holding company
In order to establish or convert to holding company, the company must meet all of the following four requirements:
First, a domestic holding company must possess assets worth more than W100bn. The asset threshold has been raised from initial W10bn, to W30bn in 2001, and to W100bn in 2002.
Second, the sum of stakes in subsidiaries owned by a holding company must exceed 50% of the holding company’s asset value. Under the enforcement decree to MRFTA, a holding company is designed to control operations of domestic subsidiaries. It should be noted that even if the sum of shares in affiliates (not subsidiaries) exceeds 50% of asset value, the holding company does not meet this qualification.
Third, a holding company must directly possess shares in companies that it controls, rather than taking executive posts at the companies or having a de facto influence.
Fourth, a holding company is designed to control only domestic companies; overseas affiliates are not considered subsidiaries. However, if a holding company establishes firms in Korea in partnership with foreign investors, these foreign-invested firms could be regarded as subsidiaries.
In the meantime, under the MRFTA, companies that meet all of the aforementioned four requirements will be automatically considered holding companies and will be subject to relevant regulations.
TableTableTable 111111.11 ... Requirement tototo convert to holding compancompanyyyy Details
Requirement to Total assets Total assets > W100bn convert Share ratio Value of stakes in subsidiaries is over 50% of parent basis total assets Debt ratio Less than 200% Separation of industrial and Barred from holding stakes in financial subsidiaries (second and third-tier) financial capital Stakes in listed subsidiaries (second-tier subsidiaries): over 20% Share ratio Stakes in un listed subsidiaries (second -tier subsidiaries): over 4 0% Restrictions Holding third-tier Permitted only if second-tier subsidiaries owns 100% stakes in third-tier subsidiaries subsidiaries Stakes in non- Holding companies can hold under 5% stake in non-affiliates affiliates Prohibited from Holding companies can invest only in affiliates joi nt investment Source: Fair trade committee, News, KDB Daewoo Securities Research
Figure 888.8. Requirement for holding company structure
Source: KDB Daewoo Securities Research
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3. Tax benefits to boost holding company conversion
▶▶▶ Deferral of capital gains tax arising from the conversion process
Conversion to a holding company inevitably entails share transfer and a resulting tax burden. The biggest tax burden is capital gains tax (or corporate tax). In most of cases, capital gains on the sale of listed shares are not subject to tax. However, major shareholders are subject to a capital gains tax.
Under the current tax law, major shareholders are those that meet either share ratio or stake value
. This is determined by taking into account all shares owned by not just the person, but also by relatives (stipulated by the law) and related parties. Thus, controlling family members of a listed firm are rarely free from capital gains tax when they do equity transactions. In order to facilitate conversion to a holding company, the Korean government provides holding companies with a statutory grace period for the deferral of taxation on capital gains from the tender offer until the disposal of holding companies’ shares. Specifically, under the Special Tax Treatment Control Act (Article 38-2), shareholders that receive shares in the holding company in return for their shares in the subsidiary are not subject to capital gains/income taxes until they dispose of the holding company shares. Given that such disposal rarely occurs (because stake is directly related with management control), taxation burden should largely dissipate.
These tax benefits will be effective only until December 31 st , 2018. We see these benefits are meant to encourage holding company conversion by relieving funding burden of major shareholders.
TableTableTable 121212.12 . Qualification of major shareholder and capital gains tax rateratessss KOSPI KOSDAQ
Share ratio 2% → 1% 4% → 2% Stake value Over W5bn → Over W2.5bn Over W4bn → Over W2bn
Cap. gains rateraterate
Small businesses 10% → 20% Major KOSPI & KOSDAQ Held over 1yr 20% shareholders Large companies listed stocks Held less than 1yr 30% Minority shareholders Tax -free Small businesses 10% Minority shareholders and major shareholders Unlisted stocks 20% Large companies (held over 1 year ) Major shareholders (held less than 1 year ) 30% Notes: New tax rates take effect April 2016 Source: KDB Daewoo Securities Research
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4. Investment opportunities in holding company conversions
▶▶▶ investors can capitalize on controlling shareholders’ efforts to secure sufficient stakes during the conversion process
After a corporate group announces its decision to convert to a holding company and subsequently splits off into a holding company and one or more subsidiaries, we advise investors to accumulate shares in its subsidiaries during the conversion process until the holding company acquires subsidiaries’ shares via a tender offer.
Following the tender offer, we recommend investors increase their exposure to the holding company, as the stock’s perceived undervaluation could trigger a sharp narrowing of its discount to its net asset value. It goes without saying that our investment strategy is premised on strong confidence in the operating value of the spun-off subsidiaries.
Controlling shareholders typically make efforts to raise the value of their subsidiary until the tender offer. The reason behind this is that, as shares of the subsidiary rise, they can secure more newly issued shares of the holding company in exchange for their stake in the subsidiary. After a tender offer is announced, the share swap ratio will be determined, positively affecting shares of the holding company thanks to the lifting of uncertainties over new share issuance.
Figure 999.9. ConverConversionsionsionsion process: Equity spinspin----offoffoffoff ‰‰‰Tender offer ‰‰‰Equity swap
Controlling ① Equity spin-off Controlling shareholders shareholders
20% 40% 20% 40%
Subsidiary A Subsidiary B Holding A Subsidiary B
15% of treasury shares 15%
Operating co. A 20%
Controlling shareholders ② Tender offer & 20%+α Equity swap
Holding A
35% 40% Operating co. A Subsidiary B
Source: KDB Daewoo Securities Research
Figure 101010.10 . Historical ssharehareharehare performance during conversion to holding company
(Stock price) 200 Tender offer Equity spin-off Equity swap
150 Subsidiary
Announce transition to holding company Holding 100 company
50
(Time) 0 07.9 07.12 08.3 08.6 08.9
Source: KDB Daewoo Securities Research
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▶▶▶ Changes in market caps after conversion: Pre-conversion market cap < post-conversion market cap
Comparing pre- and post–conversion market caps also supports our investment case. Although uncertainties arise during the trading suspension period, we note that the combined market cap of a holding company and its subsidiary is larger than the pre-conversion market cap of the subsidiary.
Theoretically speaking, corporate value should not change after conversion, as a subsidiary just splits into a holding company and a new subsidiary. However, this is not the case, as we have outlined above. As such, expectations that conversion to a holding structure will ensure higher independence and specialized management appear to be reflected in corporate value. Therefore, the announcement of a firm’s conversion into a holding company will likely be well received in the stock market, as the change should not just improve corporate governance but also clarify each subsidiaries’ business focus.
Figure 111111.11 . NongsimNongsim’’’’ssss equity spinspin----offoffoffoff Figure 121212.12 . SKSKSK’SK ’’’ss equity spinspin----offoffoffoff Figure 131313.13 . Hankook TireTire’’’’ss equity spinspin----offoffoff
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
Figure 141414.14 . Aekyung PetrochemPetrochem’’’’ss equity Figure 151515.15 . Korea KolmarKolmar’’’’ss equity spinspin---- Figure 161616.16 . DongDongDong-Dong ---AA STA ST’ST ’’’ss equity spinspin----offoffoffoff spinspinspin-spin ---offoffoffoff offoffoff
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
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IV. Group ownership restructuring scenarios
1. Samsung Group
(1) Issues
▶▶▶ Expanding control over SEC: SEC’s split, followed by merger of SEC’s investment holding unit and Samsung SDS
▶▶▶ Unwinding circular shareholdings: Once the group secures complete control over SEC through Samsung C&T, remaining circular shareholdings to be untied
TableTableTable 131313.13 . Controlling familiesfamilies’’’’ stakes (%, Wbn) NameNameName Relation Company StakeStakeStake ValueValueValue SEC 3.38 6,476 Samsung Life 20.76 4,484 Lee Kun-hee - Samsung C&T 2.86 827 (1942) Samsung SDS 0.01 3 Total 11,790 Samsung C&T 16.54 4,784 Lee Jay-yong SEC 0.57 1,092 Eldest son (1968) Samsung SDS 11.25 2,263 Total 8,139 Samsung C&T 5.51 1,595 Lee Boo-jin Eldest daughter Samsung SDS 3.90 785 (1970) Total 2,380 Samsung C&T 5.51 1,595 Lee Seo-hyun Second daughter Samsung SDS 3.90 785 (1973) Total 2,380 Notes: Based on Nov, 25 th 2015 closing price, Source: Dart, KDB Daewoo Securities Research
Figure 171717.17 . Samsung GGGroupGrouprouproup’’’’ss corporate governance (current)
Lee Jae-yongand related parties ⑨ (May26, 2015) (Sep.23, 2013)Cheil Industries’ fashion Announcedmergerbetween ① businesstransferredto Everland Cheil IndustriesandSamsungC&T 30.8% 2.6% Cheil Industries [028260] 1.4% 4.8% Samsung C&T ⑧ [000830] (Nov. 4, 2013 ) Everlanddecides to split off (Nov.26,2014) 12.6% ③ Samsung Welstory(wholly-owned subsidiary) CheilWorldwidesold (Treasury 100% treasurystock(10%toSEC) shares12.7%) Samsung SECtobuybackshares(1.12%) Welstory
(Mar.31,2014) Cheil Worldwide 5.1% Hotel Shilla 7.3% ⑤ SDImergedwith Cheil Industries [030000] [008770] 4.1% 19.3% 20.8% Samsung SDI 12.6% [006400] SEC 7.2% Samsung Life Formerly CheilIndustries 19.6% [005930] [032830] [001300] (Treasury shares12.2%) 1.3% (Treasury shares0.05%) 14.7% Samsung Fine Chemicals 8.4% 23.7% SEMCO 37.5% Samsung Card 34.4% [004000] [009150] [029780] ⑦ ⑩ (Jul 14, 2015) (Dec. 12, 2013)Lifepurchases (Nov. 26, 2014) Modulebusinesstransfer ④ stakeinCard(6.38%) HanwhaGroup 11.0% S1 17.6% SHI Samsung Securities 11.1% acquiresSamsung [012750] [010140] [016360] Techwin,Samsung (Sep. 1, 2014)AnnouncesmergerbetweenSHI andEngineering, Total, Samsung (Nov. 19,2014)Mergerfails 8.0% GeneralChemicals, ⑥ 13.1% 15.0% SamsungThales Samsung Engineering Samsung SDS Samsung Life [028050] 22.6% [018260] [000810] 7.8% 17.1% Samsung SNS (Sep. 27, 2013) Samsung SDS and Samsung SNS merge 19.1% ②
Source: KDB Daewoo Securities Research
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(2) Expanding control over SEC
▶ Acquisition of additional stakes unlikely
1) Currently, Samsung Group owns a 17.31% stake in SEC via affiliates and the controlling Lee family (excluding 12.21% in treasury shares). The group needs to increase its stake in order to ensure firm control over the electronics giant. However, buying additional shares in the company could be challenging given the group’s budget constraints. Given SEC’s current market cap of W190tr, it would cost around W1.9tr for just an additional 1% stake.
2) Even if the group secures enough funds to acquire additional shares, it would be practically impossible for affiliates to raise their stakes without violating the government’s ban on new cross- shareholdings (Under the revised MRFTA enacted in July 2014, large corporate groups are banned from forming new circular shareholdings or strengthening existing ones).
Hence, the only way for the group to raise its SEC stake would be for SEC to increase its treasury shares, which do not have voting rights. That said, SEC is already implementing a large repurchase and cancellation program. We thus believe the group will not seek to increase its control over SEC by raising its stake in the company.
TableTableTable 141414.14 . SECSECSEC’SEC ’’’ss major shareholders (%,Wbn) NameNameName Shares StakeStakeStake ValueValueValue Lee Kun-hee 4,985,464 3.38 6,476 Controlling family Hong Ra-hee 1,083,072 0.74 1,407 (1)(1)(1) Lee Jae-yong 840,403 0.57 1,092 Total 6,908,939 4.69 8,975 Samsung Life 10,622,814 7.21 13,799 Samsung C&T 5,976,362 4.06 7,763 Samsung F&M 1,856,370 1.26 2,411 Samsung Affiliates (2) Welfare 89,683 0.06 116 Foundation Samsung Foundation of 37,615 0.03 49 Culture Total 18,582,844 12.62 24,138 Holdings in the group (1) + (2) 25,491,783 17.31 33,114 Treasury stock 17,986,686 12.21 23,365 GroupGroupGroup’Group ’’’ss ownership 43,478,469 29.52 56,479 TotalTotalTotal 147,299,337 100.00 191,342 Notes: Reflected current ongoing buy-back shares; Based on Nov. 25 th , 2015 closing price Source: Dart, KDB Daewoo Securities Research
▶▶▶ SEC’s split, followed by merger between SEC’s investment holding unit and Samsung SDS
If SEC splits into an investment holding company and an electronics operating subsidiary, Samsung C&T and the controlling Lee family will need to secure sufficient ownership in the holding unit. This can be achieved by merging the holding company with Samsung SDS, in which the group holds a considerable stake (total of 58.7%, including 22.6% by SEC, 19.1% by the Lee family, and 17.1% by Samsung C&T). When the SEC holding company offers its shares to increase its stake in its operating subsidiary, the Lee family and Samsung C&T could acquire additional shares in the holding company (SEC investment holding and Samsung SDS), thereby obtaining control over the SEC operating company and other electronics affiliates.
Such an approach would alleviate worries that a direct merger between SEC and Samsung SDS would dilute SEC’s operating value, reducing the potential backlash from SEC shareholders. For shareholders of SEC’s investment holding company, this could rather be viewed as a positive event that 1) leads to a net increase in the combined market cap of SEC’s investment holding company and operating subsidiary, and 2) turns SEC holdings into an operating holding company through the integration of Samsung SDS’s business.
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TableTableTable 151515.15 . Expected major shareholders after merger between SESECCC’’’’ss investment unit and Samsung SDS (shares) Before merger After merger SECSECSEC’SEC ’’’ss investment unit (surviving) Samsung SDSSDSSDS (((dissolved(dissolveddissolved)))) SEC holding company NotesNotesNotes
Shares Ownership Shares Ownership Shares Ownership Lee JaeJae----yongyongyongyong 220,635 0.58%0.58%0.58% 8,704,312 11.25% 2,338,575 4.11%4.11%4.11%
Lee BooBoo----jinjinjinjin 000 0.00%0.00%0.00% 3,018,859 3.90%3.90%3.90% 734,551 1.29%1.29%1.29% Controlling Lee SeoSeoSeo-Seo ---hyunhyunhyunhyun 000 0.00%0.00%0.00% 3,018,859 3.90%3.90%3.90% 734,551 1.29%1.29%1.29% familyfamilyfamily Lee GunGun----heeheeheehee 1,308,856 3.44%3.44%3.44% 9,7019,7019,701 0.01%0.01%0.01% 1,311,217 2.30%2.30%2.30% 9.499.499.49%9.49 %%% Hong RRRaRaaa----heeheeheehee 284,344 0.75%0.75%0.75% 000 0.00%0.00%0.00% 284,344 0.50%0.50%0.50% Samsung Welfare 23,545 0.06% 0 0.00% 23,545 0.04% Foundation Samsung Foundation of 9,875 0.03% 0 0.00% 9,875 0.02% Culture Samsung Life 2,788,855 7.32% 0 0.00% 2,788,855 4.90% Samsung F&M 487,361 1.28% 0 0.00% 487,361 0.86% Samsung C&T 1,569,001 4.12%4.12%4.12% 13,215,822 17.08% 4,784,685 8.41%8.41%8.41%
SEC 4,722,125 12.40% 17,472,110 22.58% 8,973,452 15.77% Treasury shares Samsung SDS 0 0.00% 27,614 0.04% 6,719 0.01% 15.15.15.7815. 787878%%%% Total number of issued 38,085,703 100.00% 77,377,800 100.00% 56,913,328 100.00% shares Note 1: Assumed split ratio between SEC ’s investment unit and operating company at 0.3:0.7 and merger ratio between SEC ’s investment unit and Samsung SDS at 1.0 : 0.26 (based on Nov. 25 th , 2015 closing price), Note 2: If tender offer and share transfer are processed after merger, Samsung Group ’s stake in SEC holding company will increase Source: KDB Daewoo Securities Research estimates
Figure 181818.18 . MMMergerMerger between SEC’s investment unit and Samsung SDSSDS ‰‰‰SEC holding company
Related parties Related parties
30.8% 30.8%
9.7%+α Samsung C&T (After Samsung C&T (Cheil Industries+SamsungC&T) equity swap) (Cheil Industries+SamsungC&T)
8.6%+β (After equity swap) 4.1% 17.1% 19.1% SEC holding co 4.8% 22.58% SEC Samsung SDS (SEC invunit+Samsung SDS) Investment unit [018260]
12.2% +x(Additional 12.2%+γ 23.7% share buyback) 23.7% (Acquire over 20% after equity swap) 4.8% SEC SEMCO SEC SEMCO operating company [009150] operating company [009150] 4.1%
Source: Dart, KDB Daewoo Securities Research
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(3) Unwinding of cross shareholdings Currently, there are seven cross-shareholdings across Samsung Group, three of which are bound by Samsung SDI’s 4.8% stake in Samsung C&T, three by Samsung Electro-Mechanics’ (SEMCO) 2.6% stake in Samsung C&T, and the remaining one by Samsung F&M’s 1.4% stake. We believe Samsung Group will first take steps to secure complete control over Samsung Electronics (SEC) through Samsung C&T before unwinding its remaining circular shareholdings.
Figure 191919.19 . Samsung GGGroupGrouprouproup’’’’ss crosscrosscross-cross ---shareholdishareholdishareholdingsngsngsngs
2.64% Samsung C&T 4.77% [028260] 4.06% 19.34%
Samsung Life [032830] 7.21% 14.98%
SEC 1.26% Samsung F&M 1.38% [005930] [000810]
23.69% 19.58%
SEMCO Samsung SDI [009150] [006400]
Notes: Red ‘O’ indicates last step of each cross-shareholding Source: KDB Daewoo Securities Research
TableTableTable 161616.16 . Current circular shareholdings of Samsung Group Affiliate 111 Affiliate 2 Affiliate 3 Affiliate 4 Affiliate 5 Affiliate 6 Subject to
1 Samsung C&T → SEC → SEMCO → Samsung C&T unwinding 4.1% 23.7% 2.6% 2 Samsung C&T → Samsung Life → SEC → SEMCO → Samsung C&T SEMCO 19.3% 7.2% 23.7% 2.6% →Samsung C&T 3 Samsung C&T → Samsung Life → Samsung F&M → SEC → SEMCO → Samsung C&T 19.3% 14.9% 1.3% 23.7% 2.6% 4 Samsung C&T → SEC → Samsung SDI → Samsung C&T 4.1% 19.6% 4.8% 5 Samsung C&T → Samsung Life → SEC → Samsung SDI → Samsung C&T Samsung SDI 19.3% 7.2% 19.6% 4.8% →Samsung C&T 6 Samsung C&T → Samsung Life → Samsung F&M → SEC → Samsung SDI → Samsung C&T 19.3% 14.9% 1.3% 19.6% 4.8% 7 Samsung C&T → Samsung Life → Samsung F&M → Samsung C&T Samsung F&M 19.3% 14.9% 1.4% →Samsung C&T Source: KDB Daewoo Securities Research Figure 202020.20 . Projection of Samsung GGGroupGrouprouproup’’’’ss future corporate governance
Source: KDB Daewoo Securities Research
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2. Hyundai Motor Group (HMG)
(1) Cross shareholding structure
HMG controls Hyundai Motor Company (HMC), Kia Motors and other affiliates through Hyundai Mobis. HMG has four cross-shareholdings, two of which are bound by Hyundai Steel ’s 5.7% stake in Hyundai Mobis, one by Hyundai Glovis ’s 0.7% stake in Hyundai Mobis, and the other by Kia
Figure 212121.21 . Hyundai Motor GroupGroup’’’’ss corporate governance
Source: KDB Daewoo Securities Research
TableTableTable 171717.17 ... Controlling familiesfamilies’’’’ stakes (%, Wbn) NameNameName Relation TitleTitleTitle Company StakeStakeStake ValueValueValue Hyundai Motor 5.17 1,726 Hyundai Mobis 6.96 1,674 Hyundai Glovis 6.71 500 Chung Mong-koo Hyundai Steel 11.81 790 - President of HMG (1938) Hyundai Engineering 4.68 294 Hyundai Autoever 9.68 11 Haevichi Hotels & Resorts 4.65 12 Total 5,007 Hyundai Glovis 23.29 1,733 Hyundai Engineering 11.72 736 Kia Motors 1.74 378 Innocean 2.00 28 Chung Eui-son VP of Hyundai Eldest son Hyundai Wia 1.95 66 (1970) Motor Hyundai Autoever 19.47 22 Seolim Development 100 13 Hyundai Motor 2.28 1,040 Total 4,015 Notes: Based on Nov. 25 th , 2015 closing price, Source: Dart, KDB Daewoo Securities Research
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Figure 222222.22 . Hyundai Motor GGGroupGrouprouproup’’’’ss crosscross----shareholdingsshareholdings
X: Expected to unwind
Hyundai Glovis Hyundai Mobis [028260] X [028260] X
Hyundai Motor Kia Motors [032830] [032830]
Hyundai Steel [032830]
Source: KDB Daewoo Securities Research
TableTableTable 181818.18 . Current circular shareholdings of Hyundai Motor Group Affiliate 111 Affiliate 2 Affiliate 3 Affiliate 4 Affiliate 555
1 Hyundai Mobis → Hyundai Motor → Kia Motors → Hyundai Mobis
20.8% 33.9% 16.9%
2 Hyundai Mobis → Hyundai Motor → Hyundai Glovis → Hyundai Mobis 20.8% 4.9% 0.7% 3 Hyundai Mobis → Hyundai Motor → Hyundai Steel → Hyundai Mobis
20.8% 11.2% 5.7% 4 Hyundai Mobis → Hyundai Motor → Kia Motors → Hyundai Steel → Hyundai Mobis 20.8% 33.9% 19.6% 5.7% Source: Dart, KDB Daewoo Securities Research (2) Unwinding of cross shareholdings Kia’s shares of Hyundai Mobis (valued at roughly W3.8tr) are critically tied to the controlling family’s group ownership, meaning selling them to outsiders is not an option. But it would also be difficult for group affiliates or the controlling family to directly buy the shares, given the ban on new circular investments and the sheer cost of purchase. We believe HMG will opt to transition to a holding company structure, through which it can internally absorb its cross-shareholdings and thus ensure managerial control and ownership transfer.
This will likely be done by Hyundai Mobis switching to a holding company, after which HMC and Kia will follow suit, splitting themselves up into investment units and operating companies. The investment units of HMC and Kia should then merge with Hyundai Mobis’s holding company. In the merger process, the existing cross-shareholdings should be absorbed into the group holding company’s treasury shares. This would also allow the group holding company to meet subsidiary stake requirements.
Figure 232323.23 . Projected converconversionsionsionsion tototo holding company
Step 1. Hyundai Mobis’sequity spin-off Step 2. Hyundai Motor spin-off Step 3. Kia Motors’ spin-off ‰ Change Hyundai Mobis’s investment unit ‰ Merge Hyundai Motor investment unit with ‰ Merge Kia Motors’ investment unit with into Hyundai Motor holding company Hyundai Motor holding company Hyundai Motor holding company
Merge Merge Hyundai Motor holding company Hyundai Mobis Hyundai Mobis Hyundai Mobis Hyundai Mobis Investment unit Investment unit investment unit operating co. Hyundai Mobis 16.9% investment unit Kia Motors Hyundai Motor 33.9% investment unit investment unit 16.9% 20.8% 16.9% 20.8% 16.9% 16.9%
33.9% Hyundai Motor 33.9% 20.8% 33.9% 16.9% Hyundai Motor Kia Motors Kia Motors investment unit
20.8% Hyundai Motor Hyundai Motor Kia Motors Hyundai Mobis operating co. operating co. operating co. operating co.
Source: KDB Daewoo Securities Research
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3. Lotte
(1) Cross shareholding structure Lotte Group now has 67 (down from 416 in 2Q15), following chairman Shin Dong-bin’s purchase of Lotte E&C’s 1.34% stake (W35.8bn) in Lotte Confectionery in August, and Lotte Hotel’s purchase of shares in affiliated companies in October (Lotte Shopping’s 12.0% stake in Lotte Aluminum, Fujifilm Korea’s 3.5% stake in Daehong Communications (W13bn)., and Lotte Confectionary’s 0.9% stake in Fujifilm Korea).
Among the group’s cross-shareholdings, 1) three are bound by Lotte Confectionery’s stake in Lotte Shopping; 2) three by Lotte Chilsung’s stake in Lotte Shopping; 3) 26 by Fujifilm Korea’s stake in Lotte Shopping; 4) 14 by Lotte Data Communication’s stake in Lotte Shopping; 5) 14 by Lotte Data Communication’s stake in Lotte Shopping; 6) 17 by Lotte E&C’s stake in Lotte Shopping; and 7) four by Daehong Communications’ stake in Lotte Confectionery.
TableTableTable 191919.19 . Timeline of key events DateDateDate Details End-2Q15 Lotte Group: 416 circular shareholdings Shin Dong-bin releases public apology; announces group’s transition to a holding company Aug. 11, 2015 structure Launches task force to improve Lotte Group’s corporate governance; announces disposal of 80% Aug. 26, 2015 of circular shareholdings by end -Nov. 2015 via open -market and off -board deals Shin Dong-bin buys 1.3% stake in Lotte Confectionery (19,000 shares; W35.8bn) from Lotte E&C Aug. 28 , 2015 ‰ unwound 140 circular shareholdings (33.7%) Shin Dong-bin announced the group’s plans to dispose of 80% of circular shareholdings by end- Sep. 17, 2015 Oct. 2015 Hotel Lotte acquired affiliates’s stakes in other affiliates (W101bn) → Unwound 209 circular shareholdings ① Lotte Shopping’s stake in Lotte Aluminum 12.0% (W84bn) Oct. 27. 2015 ② Fujifilm Korea’s stake in Daehong Communications 3.5% (W13bn) ③ Lotte Confectionary’s stake in Fujifilm Korea 0.9% (W3.8bn) Compared to end -June , 83.9% of circular shareholdings were unwound Source: KDB Daewoo Securities Research TableTableTable 202020.20 . Controlling familiesfamilies’’’’ stakes (Wbn) Major shareholders Relation Company StakeStakeStake ValueValueValue Lotte Confectionary 6.83 192 Shin Kyuk-ho Lotte Chilsung 1.30 37 - (1922) Lotte Shopping 0.93 67 Total 296 Lotte Confectionary 3.95 111 Lotte Chilsung 2.83 80 Lotte Shopping 13.45 964 Lotte Food 1.96 23 Shin Dong-ju Eldest Lotte Card 0.17 2 (1954) son Lotte Capital 0.53 2 Lotte Data Communication 3.99 26 Lotte E&C 0.37 6 Lotte Corp. 8.03 36 Total 1,250 Lotte Confectionary 8.78 247 Lotte Chilsung 5.71 161 Lotte Shopping 13.46 964 Lotte Food 1.96 23 Lotte Card 0.27 3 Shin Dong-bin Second son Lotte Capital 0.86 3 (1955) Lotte Non-life 1.35 5 Lotte Data Communication 7.50 48 Lotte E&C 0.59 10 Lotte Corp. 8.40 38 Total 1,502 Notes: Based on Nov. 25 th , 2015 closing price Source: Dart, KDB Daewoo Securities Research
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Figure 242424.24 . Lotte GroupGroup’’’’ss corporate governance (current)
Kwangyoon- L 4 th Investment company. 15.6%, L 9 th Investment company10.4% Korea Fujifilm7.86% sa L 7 th Investment company9.4%, L 1 st Investment company8.6% LotteConfectionery7.86% L 8 th Investment company5.8%, L 10 th Investment company4.4% LotteData Communication4.81% 28.1% L 12 th Investment company4.2%, L 6 th Investment company4.0% LotteChilsung3.93% L 5 th Investment company3.6%, L 11 th Investment company3.3% LotteE&C0.95% L 2 nd Investment company3.3%, Japan family 2.1% Japan Hotel LottePusan0.78% LotteHoldings Hotel Lotte Pusan0.6%
64.0% 19.1% 75.5% LotteShopping Hotel Lotte 8.8% (023530) 5.5%
31.1%43.1% 25.0% 8.9% 3.5% 34.6% 27.7%18.8% 38.7% 16.3%34.0% 13.1% 50.0% Lotte LotteFood Daehong LotteCorp. LotteE&C LotteTrading Lotteria Lotte.com Aluminum (002270) Communications
35.2%13.2% 15.3% 3.2% 34.5% Lotte Hyundai 9.3% LotteData 52.3% Confectionery Information Communication (004990) Tech (026180) 31.3% 19.3% 56.8% 60.3% 51.1% 53.0% 12.7% LotteChem LotteChilsung 9.3% LotteHimart Woori Korea Fujifilm Korea Seven (011170) 8.9% (005300) (071840) Home Shopping
20.8% LotteRental
25.0% 26.6% 22.4% 93.8% LotteNon-Life Insurance LotteCapital LotteCard (000400)
Source: KDB Daewoo Securities Research
Figure 252525.25 . Lotte GGGroupGrouprouproup’’’’ss circular shareholdings
Source: KDB Daewoo Securities Research
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2) Expected corporate governance
▶▶▶ Currently moving to meet shareholding requirements for subsidiaries and second-tier subsidiaries
The Lotte Group is currently pursuing the IPO of Hotel Lotte which controls most Lotte Group affiliates along with Lotte Shopping. In the process of holding company conversion, shareholding requirements for subsidiaries and second-tier subsidiaries should be met (at least a 20% stake in listed firms and 40% in non-listed firms)
▶▶▶ Passage of the intermediate financial holding company bill to make it easier to convert to a holding structure
The Lotte Group currently has financial subsidiaries. If the intermediate financial holding company bill pending in the National Assembly is passed, it will be easier to convert to a holding structure as the group would not have to sell its stakes in financial subsidiaries. Of note, the group needs to change its third-tier subsidiary shareholding structure, given that a holding company is currently required to have a 100% ownership of a third-tier subsidiary.
Figure 262626.26 . Projection of Lotte GGGroupGrouprouproup’’’’ss future corporate governance
Source: KDB Daewoo Securities Research
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V. Top Picks
SK Holdings (034730/Buy) Five growth strategies to drive up NAV
ò 1) IT services (in-house): To raise its IT services profile to global standards via partnership ò 2) ICT security convergence and smart logistics (in-house): To expand new businesses ò 3) Bio/pharmaceuticals (SK Biopharmaceuticals and SK Biotek): To generate value from the pharmaceutical businesses ò 4) LNG (SK E&S): To integrate its LNG value chain; To secure new business opportunities in China ò 5) Semiconductor module (Essencore) and materials (M&A, JV, etc.): To establish high-growth, high-margin business models ò Maintain Buy and TP of W330,000
LG (003550/Buy) Rebound to start
ò LG Group is revamping business portfolio: To achieve vertical integration of the automotive electronics businesses and complete the value chain of the energy solution businesses ò Valuation to recover if electronics business recovers ò Maintain Buy and TP of W90,000
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SK Holdings (034730 KS) Five growth strategies to drive up NAV
Holding companies Five growth strategies to drive up NAV 1) IT services (in-house): The company is seeking to raise its IT services profile to global standards, using cloud, big data, and IoT technologies. As part of such efforts, the company (Maintain) Buy established FSK Holdings, a joint venture with Taiwan’s Foxconn (Hon Hai Precision Industry). Through the joint venture (70% owned by Foxconn and 30% by SK Holdings), the company plans to acquire Daiwa Associate Holdings, a Hong Kong-based manufacturer of Target Price (12M, W) 330,000 smart sensors and parts for the Internet of Things (IoT). Looking forward, we expect the company to gain various opportunities related to smart factory projects for Foxconn’s Share Price (11/25/15, W) 261,500 Chongqing plant. 2) ICT security convergence and smart logistics (in-house): The company is aiming to Expected Return 26% establish a security convergence platform (information security and physical security) and expand into security devices (sensors, etc.), as well as biometrics- and video surveillance- related software. The company is also looking to enter the business of smart logistics using OP (15F, Wbn) 1,827 big data and IoT. The company will initially focus on bolstering its capabilities on the back Consensus OP (15F, Wbn) 2,937 of captive (affiliate) demand until 2016 and then work on broadening its global presence, especially in China through its partnership with Hon Hai, from 2017. EPS Growth (15F, %) 2,929 Market EPS Growth (15F, %) 22.4 3) Bio/pharmaceuticals (SK Biopharmaceuticals and SK Biotek): SK Group plans to fully P/E (15F, x) 3.4 integrate its value chain (R&D, manufacturing, and marketing) by 2018. After this, SK Market P/E (15F, x) 11.6 Biopharmaceuticals will consider going public and acquire developers with strong potential. Currently, SK Biopharmaceuticals is focusing its resources on developing central nervous KOSPI 2,009.42 system agents and seeking out-licensing deals with global companies. In particular, the drug Market Cap (Wbn) 18,399 company has successfully completed Phase 2b clinical trial for its lead epilepsy treatment (YKP3089) and is expected to move onto Phase 3 trial. Assuming manufacturing and sales Shares Outstanding (mn) 71 begin in 2018, we estimate annual revenue to reach W1tr. SK Biotek, which was spun off Free Float (%) 48.4 from SK Biopharmaceuticals in April, manufactures and sells active pharmaceutical Foreign Ownership (%) 24.1 ingredients (API) and intermediates to multinational drug companies. The company plans to Beta (12M) 0.87 invest W70.1bn to expand its API capacity by 2019 with the aim of increasing its annual 52-Week Low 196,500 revenue to W100bn by 2020. 52-Week High 320,500 4) LNG (SK E&S): SK E&S is aiming to integrate its LNG value chain and expand its LNG capacity to 5mn tonnes by 2020. The LNG business enjoys cost advantages due to direct (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M access to cheap gas in the US and Australia. SK E&S is also expected to secure new business Absolute -2.8 6.5 20.2 opportunities in China through partnerships with local companies like Huadian Group and Relative -1.3 13.8 18.5 China Gas Holdings.
160 SK Holdings KOSPI 5) Semiconductor module (Essencore) and materials (M&A, JV, etc.): The semiconductor module business (Essencore) aims to achieve W1.5tr in revenue by 2019. The 140 semiconductor materials business is looking to acquire or form a joint venture with a
120 company that holds world class technology to tap into the fast-growing materials market.
100 Maintain Buy and TP of W330,000 As an operating holding company, SK Holdings is focusing on five key areas it believes are 80 11.14 3.15 7.15 11.15 essential to ensuring sustainable growth. We believe the company is well positioned to implement its vision given its ample cash flow and ICT capabilities. As the company executes its growth strategies, we expect the value of the operating business and subsidiary stakes to increase, supporting a potential upward revision in our target price. We maintain our Buy call on SK Holdings with a target price of W330,000.
FY (12) 12/11 12/12 12/13 12/14 12/15F 12/16F Revenue (Wbn) 1,702 2,242 2,302 2,426 41,476 99,362 OP (Wbn) 176 201 225 272 1,827 5,842 OP Margin (%) 10.3 9.0 9.8 11.2 4.4 5.9 NP (Wbn) 438 356 189 127 5,427 1,513 EPS (W) 8,765 7,122 3,777 2,546 77,130 21,498 ROE (%) 25.3 15.8 8.4 5.5 41.2 9.3 P/E (x) 13.3 14.5 35.7 83.9 3.4 12.2 P/B (x) 2.4 1.9 2.4 3.6 1.3 1.3 Note: 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
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TableTableTable 212121.21 . SK GroupGroup’’’’ssss growth framework Growth areas Related companies Details
- Extend the coverage of IT services, establish overseas footholds through business (1) IT services SK C&C, etc. partnerships, and broaden cloud -based offerings ICT - Security convergence platform (information security and physical security) (2) ICT SK C&C, Infosec, - Expand into security devices (sensors, etc.) as well as biometrics- and video surveillance convergence NSOK, etc. - related software - Integrate the pharmaceuticals value chain, including R&D, manufacturing, and (3) Bio/ marketing by 2018 SK Biopharmaceuticals pharmaceuticals - Take SK Biopharmaceuticals public in 2018 and acquire drug developers with strong potential - Integrate and expand LNG value chain in the group; expand capacity of LNG business to 5mn tonnes by 2020 New - Benefits from cost advantages (due to direct access to cheap gas in the US and growth (4) LNG SK E&S Australia) and captive demand portfolio - Expected to partner with a Chinese firm in the near future to secure new business Opportunities - Semiconductor module business (Essencore) aims to achieve W1.5tr in revenue by (5) Semiconductor SK C&C, Essencore, SK Hynix, 2019 modules/materials etc. - Plans to acquire a firm with world class technology to secure stable footing in the market Source: Company data, KDB Daewoo Securities Research
TableTableTable 222222.22 . SKSKSK’SK ’’’ss major shareholders (Wbn) NameNameName Number of shares StakeStakeStake ValueValueValue NotesNotesNotes NameNameName 16,465,472 23.4 4,001 Chey Tae-won 8,616 0.0 2 Noh So-young 5,250,000 7.5 1,276 Chey Gi-won 5,736 0.0 1 Chey Shin-won 21,729,824 30.9 5,280 Total of related parties 2,450,000 3.5 595 100% subsidiary of Foxconn Holdings Best Leap Enterprises 31,644,533 45.0 7,690
Other 14,535,940 20.7 3,532
Total treasury shares 11,021,664 15.7 2,678 SK Holdings’ stake in SK C&C (31.8%) became treasury shares after Original 3,514,276 5.0 854 Sharemerger buyback completed (9/11/2015 – 11/11/2015) Newly acquired 70,360,297 100.0 17,098 Total number of issued shares Notes: Based on Nov. 25th , 2015 closing price, Source: Dart, KDB Daewoo Securities Research
Figure 272727.27 . SK GroupGroup’’’’ssss corporate governance (current)
CheyTae-won and related CheyChang-won and parties related parties
▶ SKChem’s major shareholders SK’s major shareholders ▶ 30.9% Chey Chang-won 14.7% CheyTae-won23.4% Chey Shin-won0.1% 17.3% CheyGi-won7.5% 99.4% Treasury shares 15.5% Treasury shares 15.7% Infosec
SK C&C+SK 50.0% [034730 KS] Encarsales.com SK Chemicals [006120 KS] 10.0% SKSecurities [001510 KS] 28.2%
25.2% 33.4%41.8% 39.1% 100% 83.1% 100% 100% 44.5% 25.4%
SK Telecom SK Innovation SKC SKNetworks SKForest SK Shipping SK E&S SK Biophram SK E&C [017670 KS] [096770 KS] [011790 KS] [001740 KS]
100% 20.1% 48.9%64.5% 83.5% 100% 100% 66.0% 50.0% 44.0% 45.6%
SK SKHynix iRiver UBcare SK Gas SK Broadband Communications SK Telink SKPlanet SK Syntec Initz Entis [000660 KS] [060570 KQ] [032620 KQ] [018670 KS] [066270 KQ] 32.8%
SKD&D [210980 KS]
Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
TableTableTable 232323.23 . SKSKSK Biopharmaceuticals’ major pipelines Current stage Details
Signed out-licensing deal with Jazz Pharmaceuticals (US); Plan to go on sale in 2018 Sleep-wake disorders Will receive engineering fees during clinical trials (under technology export deal with Phase 3b clinical trial underway (SKL-N05) Jazz) and royalties once drug goes on sale Secured copyright in 12 Asian countries; Plans to engage in direct marketing Phase 3b clinical trial expected to begin in 4Q15 Epilepsy Phase 2b clinical trial underway Global release planned for 2018; Direct revenue (approximately W1tr annually) (YKP3089) Results expected to come out in July expected Chronic constipation/ Irritable bowel syndrome Phase 2b clinical trial underway Plans to sign out-licensing deals with global drug companies in 1Q16 (YKP10811) Acute seizures Signed out-licensing in 2010 with Acorda Therapeutics (US supplier of drugs for Submitted NDA (PLUMIAZ) central nervous system disorders) Dementia/ cognitive impairment Phase 2a clinical trial underway Conducting phase 2a clinical trial independently (SKL 15508) Source: KDB Daewoo Securities Research
TableTableTable 242424.24 . SK BiopharmaceuticalsBiopharmaceuticals’’’’ consolidated income statement (((Wbn(WbnWbnWbn)))) 201120112011 201220122012 201320132013 201420142014
Revenue 37.6 51.8 60.5 72.4 CMS 108.1 113.0 Development of new drugs 10.1 16.1 (adjustment) -57.8 -56.7 Cost of sales 27.4 37.7 44.4 46.6 Gross profit 10.2 14.1 16.1 25.9 SG&A 32.6 50.1 60.2 65.1 Operating profit ---22.3 ---36.0 ---44.2 ---39.2 OP margin -59.4% -69.5% -73.0% -54.2% CMS 4.7 7.8 OP margin 4.4% 6.9% Development of new drugs -48.9 -46.7 OP margin -484.9% -289.6% (adjustment) 0.1 -0.3 Financial income 4.9 9.2 6.4 6.2 Financial expenses 1.3 1.4 1.9 2.5 Non-operating income 2.6 1.2 0.3 0.6 Non-operating expenses 4.6 3.0 3.2 1.2 Pretax income -20.7 -30.0 -42.6 -36.2 Corporate tax -1.2 0.4 -1.6 0.8 Net profit ---19.5 ---30.3 ---41.0 ---37.0 Source: Dart, KDB Daewoo Securities Research
Figure 292929.29 . SK BiopharmaceuticalBiopharmaceutical’’’’ss global peer UCB (UCB BB Figure 282828.28 . SK GroupGroup’’’’ss bio business value chain Equity)
Tae-won Chey and related persons UCB's financial data (US$mn) 2011 2012 2013 2014 30.9% Revenue 4,519.8 4,451.7 4,161.6 4,442.5 SK C&C+SK Holdings Cost of sales 1,410.5 1,393.9 1,281.8 1,398.9 (034730 KS) Gross profit 3,109.3 3,057.8 2,879.8 3,043.6 100% Operating profit 484.6 537.5 349.3 362.7
OP margin SK Biopharm 10.7% 12.1% 8.4% 8.2% (New drug development) Pretax profit 324.4 338.2 160.7 147.5 Net profit 331.4 320.2 212.5 277.7
100% 100% ($mn,x) EV/EBITD SK Biotech Market cap P/E P/B (Supplies pharmaceutical SKLife Science A ingredients) (US) 2015F 16,752 39.5 2.9 22.4
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
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LG (003550 KS) Rebound to start
Holding companies LG Group revamping business portfolio Vertical integration of auto electronics systems: LG Electronics (LGE; infotainment, (Maintain) Buy motors) ‰ LG Chem (batteries) ‰ LG Innotek (sensors, LED) ‰ LG Display (auto display), etc.
Target Price (12M, W) 90,000 Completion of energy solution value chain: LGE (solar modules, ESS) ‰ LG Chem (batteries) ‰ LG CNS (smart microgrids), etc.; 2017 revenue target is upper-W4tr levels. Share Price (11/25/15, W) 74,100 Valuation to recover if electronics business recovers
Expected Return 21% General investment points for holding companies are: 1) upside from rising value of stakes in listed subsidiaries, 2) exposure to non-listed subsidiaries, and 3) positive attributes of holding company shares (e.g., brand royalty income, dividends, and OP (15F, Wbn) 1,311 transparent governance). Consensus OP (15F, Wbn) 1,270 Among these three, we believe LG Corp. meets the first point. LG Group’s business EPS Growth (15F, %) 25.3 portfolio includes electronics, chemicals, telecom and other services, with electronics Market EPS Growth (15F, %) 20.9 (mainly LGE) responsible for 50% of revenue and operating profit. As such, LG Corp.’s P/E (15F, x) 12.3 shares have been inextricably tied to the performance of the electronics business, even Market P/E (15F, x) 11.5 in recent months despite a fall in the share of electronics in the company’s NAV. Thus, a KOSPI 2,009.42 recovery in automotive electronic equipment and parts should help drive LG Corp.’s Market Cap (Wbn) 12,786 stock. In the past, valuation discount eased, when the share of LGE stake in NAV Shares Outstanding (mn) 176 increased. Free Float (%) 51.4 Maintain Buy with TP of W90,000 Foreign Ownership (%) 27.1 Beta (12M) 0.75 We maintain Buy with a target price of W90,000. The company’s valuation discount is 52-Week Low 53,100 decreasing (from roughly 50% early this year) due to LGE’s turnaround. This positive 52-Week High 74,400 trend should continue throughout next year, as LGE’s earnings are projected to expand further. (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Absolute 7.9 13.3 9.5 LG Corp. is the only holding company with a net-cash position in the KDB Daewoo Relative 9.5 21.0 7.9 universe. The company typically generates annual free cash flow of around W250bn from dividend income, trademark royalties, rental income, etc. Notably, if the trademark 120 LG Corp. KOSPI royalty rate—which is revised annually and currently stands at 20bp of revenue—is 110 raised, the company will be able to secure additional cash flow of W110bn per 10bp. 100 Given that LG Corp. is a pure holding company that does not incur capex, expectations 90 of shareholder return policies, including higher dividend payouts, are likely to increase
80 steadily.
70 11.14 3.15 7.15 11.15 The company’s stable holding structure and corporate governance, combined with positive outcomes from new growth drivers including auto parts, energy, eco-friendly household products, and healthcare, should further brighten its business prospects.
FY (12) 12/11 12/12 12/13 12/14 12/15F 12/16F Revenue (Wbn) 10,059 9,695 9,799 9,865 10,210 10,440 OP (Wbn) 1,351 1,232 1,154 1,044 1,311 1,420 OP Margin (%) 13.4 12.7 11.8 10.6 12.8 13.6 NP (Wbn) 978 938 896 845 1,059 1,114 EPS (W) 5,563 5,334 5,095 4,802 6,019 6,334 ROE (%) 9.6 8.7 7.8 7.0 8.3 8.2 P/E (x) 11.0 12.2 12.6 12.7 12.3 11.7 P/B (x) 1.0 1.0 1.0 0.9 1.0 0.9 Note: 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
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November 26, 2015 Holding companies
Figure 303030.30 . Discount to NAV Figure 313131.31 . P/E band
(%) (Wtr) 70 25
60 20 50
15 14.0x 40 12.0x 30 10.0x 10 8.0x 20 6.0x 5 10
0 0 06 07 08 09 10 11 12 13 14 15 03 04 05 06 07 08 09 10 11 12 13 1415F 15
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
Figure 323232.32 . NAVNAVNAV breakdown Figure 333333.33 . LGLGLG’LG ’’’ss cashflow
(Wbn) 2011 2012 2013 2014 2015F Ordinary net cash inflow(1)-(2) 155.4 240.5 169 199.4 198.1 Ordinary Cash inflow(1) 589.5 616.6 568 575.7 585.8 Dividends 260.9 252.6 200.3 209.4 214.4 Brand Royalties 264.9 271.1 269.1 264.9 267.6 Lease income 63.7 92.9 98.7 101.5 103.7
Ordinary Cash outflow(2) 434.1 376.1 399.1 376.3 387.7 Admin cost(exclude 107.5 131.3 141.3 141.5 141.4 depreciation cost) Corporate tax 64.2 68.8 67.7 60.6 64.2 Dividend payout 175.9 175.9 175.9 175.9 175.9 Investment on tangible and 88 3.1 20.6 5.5 13 intangible asset Net financial expense -1.5 -3.1 -6.5 -7.2 -6.9
Source: KDB Daewoo Securities Research Source: Dart, KDB Daewoo Securities Research
Figure 343434.34 . LG GGGroupGrouprouproup’’’’ss electric car business value chain Figure 353535.35 . LG GGGroupGrouprouproup’’’’ss electric car business ecosystem
LG (003550 KS)
30.1% 33.7% 30.1% 85.0%
LG Chemical LGElectronics LG Housys LG CNS [051910] [066570] [108670]
37.9% 40.8%
LG Display LGInnotek [034220] [011070]
Source: Dart, KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
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November 26, 2015 Holding companies
Figure 363636.36 . LG GGGroupGrouprouproup’’’’ss corporate govegovernancernance
Ku Bon-mu and related parties
48.6% 27.6% 51.0% LG LGInternational PantosLogistics [003550] Corp [001120]
30.1% 30.4% 30.1% 34.0% 36.1% 35.0% 28.2% 33.7%
LG Housys LG Life Sciences LG Chemical LG H&H LG Uplus GⅡR Silicon Works LG Electronics [108670] [068870] [051910] [051900] [032640] [035000] [108320] [066570] 100% 85.0% 100% 100% 98.4% 37.9% LG Display LG CNS LG N Sys TheFaceShop Medialog HS Ad [034220]
100% 100% 100% 100% 40.8% LG-Toyo LG Innotek ServeOne Haitai Beverage WithU Engineering [011070] 51.0% 90.0% 100% Coca-Cola Hi Business LGSiltron Beverage Logistics 100% 86.0% 51.0% LG-Hitachi LG Sports CNP Cosmetics Water Solutions 50.0% LGMMA
Source: KDB Daewoo Securities Research
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LG (003550 KS/Buy/TP: W90,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/13 12/14 12/15F 12/16F (Wbn) 12/13 12/14 12/15F 12/16F Revenue 9,7999,7999,799 9,8659,8659,865 10,210 10,440 Current Assets 3,7103,7103,710 3,8513,8513,851 4,3864,3864,386 4,0354,0354,035 Cost of Sales 8,1858,1858,185 8,3628,3628,362 8,4298,4298,429 8,5668,5668,566 Cash and Cash Equivalents 682 497 799 701 Gross Profit 1,6141,6141,614 1,5031,5031,503 1,7811,7811,781 1,8741,8741,874 AR & Other Receivables 2,004 2,263 2,535 2,643 SG&A Expenses 461461461 459459459 470470470 454454454 Inventories 330 308 316 330 Operating Profit (Adj) 1,1541,1541,154 1,0441,0441,044 1,3111,3111,311 1,4201,4201,420 Other Current Assets 694 783 736 361 Operating Profit 1,1541,1541,154 1,0441,0441,044 1,3111,3111,311 1,4201,4201,420 NonNonNon-Non ---CurrentCurrent Assets 12,841 13,482 13,746 13,906 NonNonNon-Non ---OperatingOperating Profit ---75 -757575 ---88-888888 ---73-737373 ---79-797979 Investments in Associates 9,434 9,815 10,094 10,524 Net Financial Income -55 -60 -65 -25 Property, Plant and Equipment 2,362 2,478 2,464 2,212 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 156 134 123 99 Pretax Profit 1,079 956 1,238 1,341 Total Assets 16,550 17,333 18,132 17,941 Income Tax 123 127 167 184 Current Liabilities 2,6602,6602,660 2,8972,8972,897 2,5482,5482,548 2,2322,2322,232 Profit from Continuing Operations 956 829 1,071 1,157 AP & Other Payables 1,254 1,372 960 1,001 Profit from Discontinued Operations -125 6 0 0 Short-Term Financial Liabilities 605 686 578 178 Net Profit 831831831 834834834 1,0711,0711,071 1,1571,1571,157 Other Current Liabilities 801 839 1,010 1,053 Controlling Interests 896 845 1,059 1,114 NonNonNon-Non ---CurrentCurrent Liabilities 1,7851,7851,785 1,8501,8501,850 2,1022,1022,102 1,2461,2461,246 Non-Controlling Interests -65 -10 12 43 Long-Term Financial Liabilities 1,149 1,196 1,431 831 Total Comprehensive Profit 741741741 659659659 1,0741,0741,074 1,1571,1571,157 Other Non-Current Liabilities 636 654 671 415 Controlling Interests 804 674 1,090 1,162 Total Liabilities 4,4454,4454,445 4,7474,7474,747 4,6504,6504,650 3,4793,4793,479 Non-Controlling Interests -63 -15 -16 -5 Controlling Interests 11,756 12,252 13,137 14,075 EBITDA 1,478 1,347 1,619 1,695 Capital Stock 879 879 879 879 FCF (Free Cash Flow) 405 239 417 1,527 Capital Surplus 2,365 2,363 2,362 2,362 EBITDA Margin (%) 15.1 13.7 15.9 16.2 Retained Earnings 8,575 9,153 10,025 10,963 Operating Profit Margin (%) 11.8 10.6 12.8 13.6 NonNonNon-Non ---ControllingControlling Interests 349349349 334334334 345345345 388388388 Net Profit Margin (%) 9.1 8.6 10.4 10.7 Stockholders' Equity 12,105 12,586 13,482 14,463
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/1312/1312/13 12/1412/1412/14 12/15F 12/16F 12/1312/1312/13 12/1412/1412/14 12/15F 12/16F Cash Flows from Op Activities 736 600 701 1,527 P/E (x) 12.6 12.7 12.3 11.7 Net Profit 831 834 1,071 1,157 P/CF (x) 12.8 13.0 10.6 7.9 Non-Cash Income and Expense 45 -7 163 484 P/B (x) 1.0 0.9 1.0 0.9 Depreciation 300 274 281 252 EV/EBITDA (x) 8.3 9.0 8.7 7.8 Amortization 24 29 27 23 EPS (W) 5,095 4,802 6,019 6,334 Others -279 -310 -145 209 CFPS (W) 4,982 4,701 7,016 9,330 Chg in Working Capital -89 -223 -463 95 BPS (W) 66,860 69,678 74,710 80,043 Chg in AR & Other Receivables -107 -252 -257 -108 DPS (W) 1,000 1,000 1,000 1,000 Chg in Inventories 79 30 -4 -13 Payout ratio (%) 20.8 20.7 16.1 14.9 Chg in AP & Other Payables 11 108 -415 41 Dividend Yield (%) 1.6 1.6 1.3 1.3 Income Tax Paid ---126 -126126126 ---128-128128128 ---197-197197197 ---184-184184184 Revenue Growth (%) 1.1 0.7 3.5 2.3 Cash Flows from Inv Activities -543 -721 -304 -19 EBITDA Growth (%) -6.3 -8.9 20.2 4.7 Chg in PP&E -323 -356 -253 0 Operating Profit Growth (%) -6.3 -9.5 25.6 8.3 Chg in Intangible Assets -46 -27 -16 0 EPS Growth (%) -4.5 -5.8 25.3 5.2 Chg in Financial Assets -149 -21 -13 -19 Accounts Receivable Turnover (x) 4.9 4.6 4.3 4.0 Others ---25 -252525 ---317-317317317 ---22-222222 000 Inventory Turnover (x) 25.5 30.9 32.7 32.3 Cash Flows from Fin Activities -18 -60 -55 -1,176 Accounts Payable Turnover (x) 6.5 6.4 7.2 8.7 Chg in Financial Liabilities 158 129 126 -1,000 ROA (%) 5.1 4.9 6.0 6.4 Chg in Equity -1 -3 -1 0 ROE (%) 7.8 7.0 8.3 8.2 Dividends Paid -182 -179 -179 -176 ROIC (%) 30.4 26.2 30.0 33.3 Others 777 ---7-777 ---1-111 000 Liability to Equity Ratio (%) 36.7 37.7 34.5 24.1 Increase (Decrease) in Cash 174 -185 302 -99 Current Ratio (%) 139.5 132.9 172.1 180.8 Beginning Balance 508 682 498 799 Net Debt to Equity Ratio (%) 6.3 8.3 6.4 -0.4 Ending Balance 682682682 498498498 799799799 701701701 Interest Coverage Ratio (x) 14.7 12.2 15.9 30.0 Source: Company data, KDB Daewoo Securities Research estimates
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APPENDIX 1
Important Disclosures & Disclaimers 222-2---YearYear Rating and Target Price History
Company (((Code)(Code)Code)Code) DateDateDate RatingRatingRating Target Price Company (((Code)(Code)Code)Code) DateDateDate RatingRatingRating Target Price SK Holdings(034730) 08/30/2015 Buy 330,000 02/06/2014 Buy 150,000 04/27/2015 Buy 290,000 11/01/2013 Buy 140,000 03/08/2015 Buy 270,000 LG Corp.(003550) 12/02/2013 Buy 90,000 03/07/2014 Buy 170,000
(W) (W) LG Corp. SK Holdings 350,000 100,000 300,000 80,000 250,000 200,000 60,000
150,000 40,000 100,000 20,000 50,000 0 0 Nov 13 Nov 14 Nov 15 Nov 13 Nov 14 Nov 15
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 BuyBuyBuy Trading Buy HoldHoldHold SellSellSell 72.77% 13.86% 13.37% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2015)
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 published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers,
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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.
KDB 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.
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