One-Asia Morning Focus

May 13, 2020 One-Asia Morning Focus

Today’s reports NCsoft (036570 KS/Buy/TP: W970,000) Raise TP – Our top global gaming pick for 2020-21; Raise TP Hanwha Aerospace (012450 KS/Buy/TP: W33,000) Lower TP – Stability of defense business to stand out Shinsegae (004170 KS/Buy/TP: W360,000) – 1Q20 review: More leveraged to tailwinds than headwinds

Global performance monitor: Two-day change (%) Asia xJPN World EM World DM Korea Japan China Taiwan HK India Indonesia Singapore Thailand Index 0.86 0.47 -0.05 -1.80 0.38 1.23 -0.40 1.24 -0.04 -0.25 0.03 3.12 Growth 0.65 1.12 0.64 -0.76 0.48 1.74 -0.92 1.59 -0.29 0.79 0.21 3.62 Value N/A 0.47 -0.72 -3.07 0.27 0.56 0.15 0.85 0.20 -1.54 -0.16 2.58 Semicon. & equip. 0.85 0.87 0.48 0.41 1.87 0.30 -0.90 -1.98 N/A N/A N/A N/A Tech hardware & equip. 0.24 0.24 0.75 -2.15 0.80 0.12 0.09 1.64 6.94 N/A -1.06 N/A Comm. & prof. services 0.07 0.07 -0.24 1.23 3.42 -0.82 -0.22 N/A -3.99 -1.02 N/A N/A Software & services 0.86 0.74 0.54 -0.41 0.56 -1.03 -0.32 0.94 2.21 N/A -2.18 N/A Media & entertainment 2.78 2.73 0.70 3.97 0.91 0.07 2.06 -0.12 -2.24 N/A -2.24 N/A Consumer goods 1.15 1.00 -0.53 -0.98 1.03 2.15 -0.85 1.09 1.31 1.67 N/A 3.59 Consumer services 0.12 -0.62 -1.17 -4.81 2.26 -1.03 3.82 1.46 -0.03 2.74 0.35 2.49 F&B & tobacco 0.21 -0.03 -0.10 -0.73 1.21 -0.03 -1.92 1.85 1.87 1.94 9.76 5.10 Food & staples retailing 1.17 0.02 0.47 -2.04 1.31 0.72 -0.39 1.25 2.19 N/A 0.99 2.85 Retailing 1.51 1.38 0.95 -4.43 0.39 -1.88 0.13 -0.58 -0.88 -0.50 -0.89 3.91 HH & personal products -0.91 -1.17 -0.17 -2.21 0.99 -0.62 -0.36 N/A -2.55 1.79 N/A N/A Pharma & life sciences 0.40 0.18 1.37 0.22 -0.96 0.24 0.22 4.11 -0.89 -0.84 N/A N/A Autos & parts 0.88 0.89 0.26 -3.21 0.61 -0.97 -1.54 3.81 5.17 2.38 N/A N/A Transportation 1.17 0.37 0.36 -3.34 2.01 -0.12 0.57 0.25 3.68 1.34 -1.65 2.70 Capital goods 0.06 0.17 -0.93 -3.32 0.24 -0.32 -0.67 0.07 -0.33 N/A 0.08 N/A Materials 0.44 -0.39 -1.20 -4.66 0.90 -0.86 -0.30 N/A 2.06 6.10 N/A 3.78 Real estate 1.20 0.98 -0.37 -1.10 -0.10 -1.31 1.34 1.04 5.28 -4.06 -0.76 5.02 Energy 0.64 -0.16 -0.90 -3.93 -0.21 -0.25 -2.10 -1.29 -4.47 -1.99 -0.30 3.47 Banks 0.28 -0.27 -1.57 -4.45 -1.41 -0.97 0.35 1.58 -1.66 -2.01 -0.22 1.70 Diversified financials 1.06 -1.25 -0.68 -4.34 -0.81 -1.24 1.47 2.98 -0.14 N/A 0.92 5.84 Telecom services 0.44 0.31 -0.86 2.74 -0.63 -0.96 -0.25 1.19 5.81 -1.16 0.43 0.08 Utilities 0.52 0.39 -0.54 -4.16 0.93 -0.02 0.96 0.32 2.22 -0.35 N/A 4.35 Key thematic ETFs: Change (%) Market movers Mkt cap US dollar total returns (%) Robotics & AI (Global X) Name Ctry Sector (US$mn) 1D 1M 3M 6M 1Y 3Y Cloud Computing (Global X) Top seven performers Lithium & Battery (Global X) Wilmar International SG Consumer staples 17,278 8.0 11.5 -9.9 -4.5 5.6 8.0 Internet of Things (Global X) NCsoft KR Commun. services 13,389 6.5 14.4 10.7 33.9 44.4 103.5 Digitalisation (iShares) NTPC IN Utilities 12,002 6.0 6.3 -25.4 -26.2 -31.5 -35.0 FinTech (Global X) Netmarble KR Commun. services 7,390 5.1 10.6 7.1 7.9 -22.6 -39.9 Genomics & Biotech (Global X) InterGlobe Aviation IN Industrials 5,131 5.0 -2.1 -34.0 -35.6 -39.2 -18.7 Health & Wellness (Global X) Bharti Airtel IN Commun. services 40,432 4.7 15.6 -2.0 42.5 59.8 45.8 Ageing Population (iShares) ITC Ltd IN Consumer staples 26,858 4.4 -10.1 -26.8 -39.8 -47.7 -46.0 EM Consum Growth (iShares) Bottom seven performers Clean Energy (iShares) Reliance Industries IN Energy 124,265 -5.8 22.7 -4.9 -1.9 10.2 90.3 Water Resources (Invesco) Bank Mandiri ID Financials 12,555 -5.2 -8.5 -50.6 -43.6 -44.2 -33.7 Agribusiness (iShares) Bank Rakyat Indonesia ID Financials 20,606 -4.9 -4.9 -47.6 -38.9 -37.5 -12.0 Global Infrastructure (iShares) Ayala Land PH Real estate 9,301 -4.5 -0.1 -26.2 -30.6 -29.0 -16.4 ESG US Leaders (iShares) POSCO KR Materials 12,101 -3.8 -4.9 -25.6 -25.8 -29.2 -36.1 2D 10D Hana Financial Group KR Financials 6,226 -3.6 0.0 -31.1 -30.4 -29.0 -36.4 (9) (6) (3) 0 3 6 9 12

SM Prime Holdings PH Real estate 16,991 -3.4 1.9 -29.7 -25.2 -20.3 -6.4

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

May 13, 2020 One-Asia Morning Focus

MSCI valuations (DM, EM, Asia ex-JP)

14 12M forward P/E (x) 18 2.0 12M trailing P/B (x) 2.8

17 2.6 13 1.8 16 2.4 12 15 1.6 2.2 14 11 1.4 2.0 13 10 1.2 12 1.8

9 11 1.0 1.6 May-19 Aug-19 Nov-19 Feb-20 May-19 Aug-19 Nov-19 Feb-20 MSCI Asia ex-JP (L) MSCI World EM (L) MSCI World DM (R) MSCI Asia ex-JP (L) MSCI World EM (L) MSCI World DM (R)

MSCI 12M forward P/E (x) Currencies (vs. USD) Value Change (%) Korea Vietnam 12 1D 3M YTD 1,224.9 0.36 3.84 5.91 11 19 KRW CNY 7.1 0.03 1.67 1.77 10 16 JPY 107.2 -0.26 -2.53 -1.33 9 IDR 14,905.0 -0.02 9.11 7.37 8 13 HKD 7.8 0.01 -0.26 -0.53

7 TWD 29.9 0.20 -0.36 -0.33 10 May-19 Aug-19 Nov-19 Feb-20 May-19 Aug-19 Nov-19 Feb-20 SGD 1.4 -0.11 2.12 5.29 THB 32.1 -0.16 3.12 7.25 Indonesia India 17 20 INR 75.5 -0.29 5.86 5.80 PHP 50.3 0.00 -0.51 -0.66 15 18 MYR 4.3 -0.12 4.70 5.88 VND 23,334.0 0.04 0.43 0.70 13 16

11 14 Commodities Latest Change (%) 9 12 May-19 Aug-19 Nov-19 Feb-20 close 1D 3M YTD May-19 Aug-19 Nov-19 Feb-20 Crude oil (US$/bbl) 29.6 -4.0 -56.3 -56.3 Hong Kong China Thermal coal (US$/tonne) 58.6 0.0 -12.6 -12.6 17 13 Iron ore (US$/tonne) 86.7 -0.2 -5.3 -5.3 Copper (US$/tonne) 5,231.0 0.1 -15.0 -15.0 15 12 Nickel (US$/tonne) 12,188.0 -0.5 -12.9 -12.9 Tin (US$/tonne) 15,400.0 0.7 -8.6 -8.6 13 11 Gold (US$/ozt) 1,695.3 -0.9 11.6 11.6 Palm oil (INR/tonne) 689.8 1.0 -20.7 -20.7

11 10 Soybean oil (c/lb) 25.1 -0.2 -26.9 -26.9 May-19 Aug-19 Nov-19 Feb-20 May-19 Aug-19 Nov-19 Feb-20 Corn (US$/bu) 3.1 0.1 -22.3 -22.3 Wheat (US$/bu) 5.2 -0.9 -6.1 -6.1

Source: FactSet, Mirae Asset Daewoo Research (updated on 5/12/20 at 23:00 KST)

NCsoft (036570 KS) Our top global gaming pick for 2020-21; Raise TP

Game 1Q20 review: Earnings fall short of our expectations Results Comment For 1Q20, NCsoft reported revenue of W731.1bn (+104% YoY) and operating profit of May 13, 2020 W241.4bn (+204% YoY). Earnings were boosted by the first full-quarter recognition of revenue from Lineage 2M (released in November 2019).

However, the results fell short of our expectations (revenue of W743bn and operating profit of W272bn), largely because of labor expenses, which were more than W20bn (Maintain) Buy higher than our projection due to one-off incentives.

Target Price (12M, W) ▲ 970,000 Margins to improve further in 2Q20 We are revising our Lineage 2M daily average revenue assumption for 2Q20 to W3.1bn Share Price (05/12/20, W) 747,000 (W2.2bn for Lineage M). We forecast 2Q20 revenue and operating profit at W642bn (+56% YoY) and W245bn (+89% YoY), respectively. Expected Return 30% Strongest earnings/new release momentum and most compelling valuation among global gaming stocks OP (20F, Wbn) 1,058 Since 4Q19, global gaming stocks on the Nasdaq and elsewhere have been on a strong Consensus OP (20F, Wbn) 1,053 run. Their rally has recently gained further momentum, with companies related to contactless services coming into focus. EPS Growth (20F, %) 136.5 Market EPS Growth (20F, %) 28.5 Among global gaming stocks, NCsoft has attracted a great deal of investor attention P/E (20F, x) 19.4 due to: 1) its attractive valuation, backed by positive earnings momentum; and 2) its Market P/E (20F, x) 12.9 global growth story, which is set to play out in 2H20 and 2021. KOSPI 1,922.17 Several new releases for 2H20 were confirmed in the company’s 1Q20 earnings Market Cap (Wbn) 16,400 announcement, including: 1) Lineage 2M’s rollout in Asia (Taiwan and Japan); 2) a beta Shares Outstanding (mn) 22 test for TL (The Lineage), which is being developed in PC and console versions; and 3) Free Float (%) 81.9 the domestic launch of the large-scale mobile MMORPG Blade & Soul 2. Foreign Ownership (%) 51.2 As such, in addition to domestic revenue driven by Lineage M and Lineage 2M, the Beta (12M) 0.57 company should see several new sources of revenue in 2021, including: 1) 52-Week Low 457,000 domestic/overseas revenue from Blade & Soul 2; 2) overseas revenue from Lineage 2M 52-Week High 747,000 (Asia, North America, and Europe); and 3) domestic/overseas revenue and PC/console (%) 1M 6M 12M revenue from TL. Absolute 14.9 39.9 48.8 Based on 2020 Bloomberg consensus estimates, major global gaming stocks have an Relative 11.2 55.8 63.2 average P/E of 24.2x. NCsoft is trading at a 2020F P/E of 19.4x, vs. 29.7x for major gaming stocks on the Nasdaq, 19.6x for those listed in Japan, and 31.7x for those listed 160 NCsoft KOSPI in China. 140 120 We reaffirm our Buy call on NCsoft and raise our target price to W970,000 (from 100 W910,000). We applied a P/E of 25x, the stock’s median over the past two decades, to

80 our 2020F EPS. We plan to revise up our target P/E if more details emerge on 2H20

60 releases. 5.19 9.19 1.20 5.20

Mirae Asset Daewoo Co., Ltd.

[Internet] FY (Dec.) 12/17 12/18 12/19 12/20F 12/21F 12/22F Revenue (Wbn) 1,759 1,715 1,701 2,826 2,994 3,234 Chang-kwean Kim +822-3774-1614 OP (Wbn) 585 615 479 1,058 1,309 1,502 [email protected] OP margin (%) 33.3 35.9 28.2 37.4 43.7 46.4 NP (Wbn) 441 418 358 847 948 1,159 EPS (W) 20,104 19,061 16,320 38,591 43,171 52,771 ROE (%) 19.1 16.4 14.7 29.5 25.9 25.2 P/E (x) 22.3 24.5 33.1 19.4 17.3 14.2 P/B (x) 3.4 3.7 4.1 4.5 3.6 2.9 Dividend yield (%) 1.6 1.3 1.0 0.7 0.7 0.7 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

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

Hanwha Aerospace (012450 KS) Stability of defense business to stand out

Technology 1Q20 review: Solid OP of W3.2bn (turn to profit YoY, -90.9% QoQ) Results Comment For 1Q20, Hanwha Aerospace announced revenue of W1.03tr (+7.6% YoY, -35.7% QoQ) May 13, 2020 and operating profit of W3.2bn (turn to profit YoY, -90.9% QoQ), exceeding our expectations (revenue of W1tr and an operating loss of W2bn). The market was expecting revenue of W1.06tr and an operating loss of W3.2bn. Despite worries about the impact of COVID-19, Hanwha Techwin (operating profit of (Maintain) Buy W6bn vs. our estimate of W2.5bn) and Hanwha Systems (operating profit of W10.9bn vs. our estimate of W9.8bn) delivered better-than-expected performances. At Hanwha Target Price (12M, W) ▼ 33,000 Techwin, the US B2B market had yet to be affected by COVID-19, while Hanwha Systems was supported by new project orders. Meanwhile, risk and revenue sharing Share Price (05/12/20, W) 23,650 program (RSP) expenses were W28.9bn (+25.5% YoY, +95.0% QoQ). Defense exports to grow in 2020; Stability of defense business to stand out Expected Return 40% Looking to 2Q20, we anticipate revenue of W1.25tr (-10.7% YoY, +21.6% QoQ) and operating profit of W45.3bn (-42.5% YoY, +1,316.1% QoQ). Operating profit is likely to OP (20F, Wbn) 178 decline YoY (vs. W78.8bn in 2Q19), weighed down by: 1) slowing growth of the security Consensus OP (20F, Wbn) 202 camera business (Hanwha Techwin) in the US B2B market; and 2) a fall in precision machinery revenue due to sluggish end-markets. EPS Growth (20F, %) -20.0 Market EPS Growth (20F, %) 28.5 Despite the COVID-19 outbreak, we expect defense-related businesses to exhibit stable P/E (20F, x) 11.6 earnings. Hanwha Defense should see stable exports, while Hanwha Systems should Market P/E (20F, x) 12.9 continue to benefit from Tactical Information Communication Network (TICN) orders KOSPI 1,922.17 and M&A effects. While there are worries that the government could cut back its defense budget due to increased fiscal spending, we think defense imports would be Market Cap (Wbn) 1,197 the first to be affected; we believe any impact on the company’s defense businesses Shares Outstanding (mn) 51 will be relatively limited. Free Float (%) 64.1 Foreign Ownership (%) 17.9 For 2020, we expect revenue of W5.15tr (-2.1%) and operating profit of W177.8bn Beta (12M) 1.55 (+7.6%). Although we revised down our forecasts by 6.1% and 3.2%, respectively, we still expect earnings to hold up relatively well, considering the uncertainties 52-Week Low 15,000 surrounding COVID-19. While the outbreak has sparked worries about the aircraft 52-Week High 42,850 market, this could also lead to a decline in the company’s RSP expenses. (%) 1M 6M 12M Absolute 1.7 -37.3 -22.8 Maintain Buy, but cut TP to W33,000 Relative -1.5 -30.1 -15.4 We maintain our Buy rating on Hanwha Aerospace but cut our target price to W33,000 (from W34,100), as we slightly adjusted our earnings estimates. The stock is currently 160 Hanwha Aerospace KOSPI trading at a 2020F P/B of 0.5x. The company has overcome the seasonally weak 1Q20. 140 The key challenge now will be maintaining stability. 120 100 80 60 40 5.19 9.19 1.20 5.20

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/ FY (Dec.) 12/17 12/18 12/19 12/20F 12/21F 12/22F Electronic Components] Revenue (Wbn) 4,215 4,453 5,264 5,151 5,563 5,715

Wonjae Park OP (Wbn) 83 53 165 178 203 220 +822-3774-1426 OP margin (%) 2.0 1.2 3.1 3.5 3.6 3.8 [email protected] NP (Wbn) -48 32 132 104 128 146

EPS (W) -913 619 2,555 2,045 2,537 2,882

ROE (%) -2.1 1.4 5.4 4.1 4.9 5.3

P/E (x) - 52.5 13.7 11.6 9.3 8.2 P/B (x) 0.9 0.7 0.7 0.5 0.4 0.4

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.4

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Shinsegae (004170 KS) 1Q20 review: More leveraged to tailwinds than headwinds Retail 1Q20 review: Earnings hit hard by COVID-19 Results Comment For 1Q20, Shinsegae delivered consolidated revenue of W1.2tr (-21.1% YoY) and operating profit of W3.3bn (-97.0% YoY). Operating profit missed our estimate and the May 13, 2020 consensus, hurt by 1) the steep revenue decline caused by COVID-19 and 2) fixed cost pressures. Even if fixed costs decline in 2Q-3Q20 on Incheon International Airport (IIA) rent reductions, we believe sluggish earnings will continue through 2Q20 due to 1) three fewer holidays/weekend days in June and 2) other cost pressures (such as real (Maintain) Buy estate taxes). Department stores (non-consolidated): Operating profit plunged 57.7% YoY to Target Price (12M, W) 360,000 W22.6bn, as revenue slumped due to the impact of COVID-19. However, sales have been recovering rapidly in May amid strong pent-up demand. We believe Shinsegae Share Price (05/12/20, W) 244,000 will see a stronger recovery than its rivals, given its higher exposure to luxury goods. Duty free: The duty-free division posted an operating loss of W32.4bn. We believe the Expected Return 48% situation has little improved compared to March. Still, once overseas reselling gets underway, we think daily revenue could begin to meaningfully pick up. The overseas reselling policy should provide a meaningful boost to profits, considering 1) the rapid OP (20F, Wbn) 298 recovery of China’s consumer spending and 2) potential demand. Consensus OP (20F, Wbn) 380 More leveraged to tailwinds than headwinds EPS Growth (20F, %) -67.3 We believe Shinsegae’s revenue and operating profit will decline this year due to Market EPS Growth (20F, %) 28.5 COVID-19, given the high fixed costs of both the department store and duty-free P/E (20F, x) 13.9 businesses. However, we think there is a strong chance that earnings will turn around Market P/E (20F, x) 12.9 in 3Q20, driven by: 1) the release of pent-up domestic demand; 2) the consumption- KOSPI 1,922.17 boosting effects of increased liquidity; and 3) the temporary approval of overseas reselling by duty-free operators. Market Cap (Wbn) 2,402 The duty-free industry should get fully back on track once the pandemic is over. As for Shares Outstanding (mn) 10 the department store industry, however, the revenue decline in low/mid-end Free Float (%) 71.3 accessories could accelerate due to the rising online penetration rate in Foreign Ownership (%) 28.9 apparel/accessories. However, the impact on Shinsegae is likely to be fairly limited, Beta (12M) 1.02 given the company’s high exposure to luxury goods. All in all, we believe Shinsegae’s 52-Week Low 204,000 stock is more leveraged to tailwinds than headwinds. 52-Week High 324,000 Reiterate Buy and TP of W360,000 (%) 1M 6M 12M We reiterate our Buy call and target price of W360,000 on Shinsegae. The 1Q20 Absolute 1.2 -6.0 -24.0 weakness of department stores and duty-free stores, which were directly affected by Relative -2.0 4.7 -16.6 COVID-19, was widely anticipated. We expect sluggish earnings to continue in 2Q20, as the impact of COVID-19 and sluggish duty-free traffic are likely to persist. However, 110 Shinsegae KOSPI earnings should bounce back quickly in 2H20, driven by: 1) the release of pent-up 100 demand; 2) the consumption-boosting effects of increased liquidity; and 3) the Korea 90 Customs Service’s temporary approval of overseas reselling. 80 70 Based on 3Q20-2Q21 earnings estimates, Shinsegae is trading at a P/E of 8x. We think 60 the stock is undervalued, given: 1) the rapid normalization taking place in the 50 department store channel; and 2) relaxed regulations on the duty-free industry. With 5.19 9.19 1.20 5.20 uncertainties related to COVID-19 already priced in, we believe Shinsegae’s stock will react more sensitively to tailwinds than headwinds going forward. We recommend

Mirae Asset Daewoo Co., Ltd. gradually accumulating shares on weakness.

[ Retail] FY (Dec.) 12/16 12/17 12/18 12/19 12/20F 12/21F Revenue (Wbn) 2,947 3,871 5,186 6,394 5,669 6,772 Myoungjoo Kim +822-3774-1458 OP (Wbn) 251 346 397 468 298 531 [email protected] OP margin (%) 8.5 8.9 7.7 7.3 5.3 7.8

Minjeong Kyeong NP (Wbn) 227 182 239 526 172 330 +822-3774-1437 EPS (W) 23,071 18,513 24,274 53,472 17,512 33,550 [email protected] ROE (%) 7.3 5.5 6.9 14.2 4.2 7.4

P/E (x) 7.6 16.2 10.5 5.4 13.9 7.3 P/B (x) 0.5 0.9 0.7 0.7 0.6 0.5 Dividend yield (%) 0.7 0.4 0.8 0.7 0.8 0.8 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates