Korea Morning Focus

August 16, 2019 Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) KEPCO (015760/Trading Buy/TP: W29,000) Upgrade rating & Present TP KOSPI 1,938.37 12.54 0.65 Earnings improve on easing cost pressures KOSPI 200 254.86 2.03 0.80 KOSDAQ 597.15 6.40 1.08 Korean Air (003490/Buy/TP: W30,000) Lower TP Attractive valuation vs. weak earnings momentum Turnover ('000 shares, Wbn) Volume Value Hanwha Corp. (000880/Buy/TP: W34,000) Lower TP KOSPI 687,077 5,076 Plant issue resolved; Revenue to normalize from 4Q19 KOSPI 200 80,776 3,177 KOSDAQ 781,543 4,106

SK Holdings (034730/Buy/TP: W300,000) Lower TP Market Cap (Wbn) Share prices at rock bottom Value KOSPI 1,293,002 LS (006260/Buy/TP: W57,300) Lower TP KOSDAQ 207,101 LSCS on the mend; LS Mtron in need of growth engines KOSPI Turnover (Wbn) Buy Sell Net Partron (091700/Buy/TP: W20,000) Lower TP Foreign 1,528 1,578 -50 Record-high quarterly results Institutional 1,001 1,025 -24 Retail 2,497 2,445 52 Spigen Korea (192440/Buy/TP: W76,000) Lower TP Revenue growth vs. inevitable margin erosion KOSDAQ Turnover (Wbn) Buy Sell Net Amotech (052710/Buy/TP: W23,500) Foreign 415 480 -65 Navigating rough waters Institutional 197 191 5 Retail 3,466 3,403 62

Iljin Materials (020150/Buy/TP: W64,000) Program Buy / Sell (Wbn) Elecfoils in hot demand Buy Sell Net KOSPI 1,187 1,339 -152 JYP Entertainment (035900/Buy/TP: W28,000) Lower TP KOSDAQ 394 447 -53 Margin recovery in 3Q19 will be key Advances & Declines Advances Declines Unchanged Vieworks (100120/Buy/TP: W34,000) Lower TP KOSPI 508 316 70 Hope remains KOSDAQ 807 408 84 Medytox (086900/Buy/TP: W500,000) Lower TP KOSPI Top 5 Most Active Stocks by Value (Wbn) Earnings shock due to litigation and bad debt expenses Price (W) Chg (W) Value Samsung Electronics 43,700 700 372 KODEX 200 Futures Seegene (096530/Buy/TP: W30,000) 8,515 -145 225 Right on track Inverse 2X KODEX Leverage 10,650 155 220 Nongshim (004370/Buy/TP: W320,000) Lower TP Hynix 76,900 2,400 195 KODEX KOSDAQ150 9,485 -185 189 Overseas growth deserves more credit INVERSE

Hite Jinro (000080/Trading Buy/TP: W24,000) Look for a turnaround in 2H19 and 2020 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KMW 58,100 3,600 140 ViroMed 177,100 28,600 111 Samryoong 8,170 1,180 90 SillaJen 13,600 -850 89 ZUMinternet 6,920 590 88 Note: As of August 14, 2019

This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. 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.

KEPCO (015760 KS) Earnings improve on easing cost pressures

Utility 2Q19 review: Smaller-than-expected operating loss of W298.6bn Results Comment For 2Q19, KEPCO reported revenue of W13.07tr (-2.0% YoY). Electricity sales volume August 16, 2019 (+0.1% YoY) and ASP (+0.4% YoY) held steady YoY, but overall revenue remained sluggish, hurt by a decline in other revenue, including overseas revenue.

At the operating level, the company recorded a loss of W298.6bn, which was smaller than the losses recorded in 2Q18 (W687.1bn) and 1Q19 (W629.9bn), and better than (Upgrade) Trading Buy the market consensus (loss of W604.8bn). Fuel costs fell 8.1% YoY on lower utilization of coal-fired plants and higher utilization of nuclear reactors (82.8%; +20.1%p YoY). Target Price (12M, W) 29,000 Power purchasing costs also dropped 4.9% YoY as a result of a decline in both purchase volume and prices. Share Price (08/14/19, W) 25,100 Net loss attributable to controlling interests also narrowed YoY to W447.5bn (vs. loss of W949.2bn in 2Q18). Valuation gains related to derivatives declined and net interest Expected Return 16% expenses increased (+10.4% YoY to W449.8bn), but the impact was outweighed by the removal of tangible asset impairments (W701.3bn) recorded last year. On a non- consolidated basis, the company swung to a net profit of W125.4bn (vs. loss of OP (19F, Wbn) 594 W423.9bn in 2Q18). That said, YTD net loss remains higher YoY, at W1.52tr (vs. loss of Consensus OP (19F, Wbn) 593 W1.05tr in 1H18). EPS Growth (19F, %) - Nuclear reactor utilization and price hikes will be key Market EPS Growth (19F, %) -26.5 P/E (19F, x) - 1) Nuclear reactor utilization: Nuclear reactor utilization, which picked up to 82.8% in Market P/E (19F, x) 12.0 2Q19, has recently fallen back below 70%. For 3Q19 as a whole, we forecast utilization KOSPI 1,938.37 to be in the low-70% range, largely unchanged from the 3Q18 level (73.2%). That said, profits should continue to improve YoY, driven by a fall in system marginal prices (SMP) Market Cap (Wbn) 16,113 amid lower oil prices. Shares Outstanding (mn) 642 Free Float (%) 44.7 In 4Q19, we expect nuclear reactor utilization to recover to the high-70% or low-80% Foreign Ownership (%) 26.4 range due to the end of maintenance and resumption of reactor operation. Given that Beta (12M) 0.43 nuclear reactor utilization was 72.8% in 4Q18, profits could improve at a faster rate in 52-Week Low 23,850 4Q19. 52-Week High 35,800 2) Electricity price hikes: Expectations on electricity price hikes could gradually increase, as KEPCO has said it will present a tariff reform proposal by the end of (%) 1M 6M 12M November. That said, if earnings improvements continue, the actual timing of price Absolute -1.4 -25.7 -17.3 hikes could be pushed back, causing uncertainties to linger. Relative 6.2 -14.7 -3.6 Upgrade to Trading Buy and present TP of W29,000 130 KEPCO KOSPI 120 We upgrade our rating on KEPCO from Hold to Trading Buy and present a target price 110 of W29,000 (target P/B of 0.27x), which reflects the company’s potential ROE (2%) based 100 on current oil prices and nuclear reactor utilization. Nuclear reactor utilization, which 90 has recently fallen, should recover in 4Q19, and the decline in SMP is likely to further 80 support earnings improvements. Most importantly, we believe policy risks are already 70 8.18 12.18 4.19 8.19 reflected in the stock’s current valuation (P/B of 0.23x).

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 60,190 59,815 60,628 59,660 62,609 64,696 Jay JH Ryu +822-3774-1738 OP (Wbn) 12,002 4,953 -208 594 2,407 2,706 [email protected] OP margin (%) 19.9 8.3 -0.3 1.0 3.8 4.2

NP (Wbn) 7,049 1,299 -1,315 -653 614 794 EPS (W) 10,980 2,023 -2,048 -1,017 957 1,237 ROE (%) 10.2 1.8 -1.9 -0.9 0.9 1.1

P/E (x) 4.0 18.9 - - 26.2 20.3 P/B (x) 0.4 0.3 0.3 0.2 0.2 0.2 Dividend yield (%) 4.5 2.1 0.0 0.0 0.4 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

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.

Korean Air (003490 KS) Attractive valuation vs. weak earnings momentum Airlines 2Q19 review: Earnings disappoint, with operating loss of W98.6bn Results Comment For 2Q19, Korean Air posted revenue of W3.12tr (+0.5% YoY). In international August 16, 2019 passenger, traffic growth (+4.2% YoY) was in line with our expectation, while yield (+4.1% YoY) surpassed our estimate. In cargo, we believe yield continued to increase despite a decline in load factor. Meanwhile revenue from the aerospace unit grew 9.0% YoY, supporting overall revenue. (Maintain) Buy Earnings disappointed, however, with a larger-than-expected operating loss of W98.6bn (vs. our forecast of a W67.2bn loss and consensus estimate of a W23.7bn Target Price (12M, W) ▼ 30,000 loss). The loss stemmed from a 6% increase in operating expenses, including labor expenses (safety incentives, etc.), and rising fuel costs caused by won depreciation. Share Price (08/14/19, W) 22,900 Load factor was solid in international (83.2%; +2.9%p YoY) and domestic (82.5%; +1.8%p YoY), but remained weak in cargo (70.2%; -5.7%p YoY). Operating profit from the Expected Return 31% aerospace unit improved YoY to W3.6bn, and the hotel unit’s operating loss narrowed to W7.5bn.

Net loss attributable to controlling interests was W398.2bn, weighed down by 1) F/X- OP (19F, Wbn) 516 translation losses (W213.7bn) due to won depreciation and 2) interest expenses Consensus OP (19F, Wbn) 688 (W146.7bn). EPS Growth (19F, %) - Need to see improvements in balance sheet and cargo cycle Market EPS Growth (19F, %) -26.5 P/E (19F, x) - 1) Balance sheet: Korean Air’s consolidated and non-consolidated debt ratios have Market P/E (19F, x) 12.0 increased to 884% (+141%p from end-2018) and 835% (+128%p from end-2018), KOSPI 1,938.37 respectively. Debt burden continues to grow as a result of weak earnings and won depreciation. Looking to 3Q19, we expect operating profit of W305.4bn (-24% YoY), Market Cap (Wbn) 2,172 supported by strong seasonality. Given current F/X trends, however, we think a turn to Shares Outstanding (mn) 96 net profit is unlikely. In 2H19, we believe Korean Air needs to consider recapitalization Free Float (%) 64.5 measures, such as issuing exchangeable bonds. It should also accelerate asset Foreign Ownership (%) 23.9 securitization plans, such as the Songhyeon-dong land disposal announced earlier this Beta (12M) 1.04 year. 52-Week Low 22,900 52-Week High 37,750 2) Cargo cycle: The cargo cycle is unlikely to recover anytime soon, given that the market slump reflects a slowdown in the global economy—especially the IT sector and (%) 1M 6M 12M Asian economies. However, Korean Air expects to win large shipment contracts for Absolute -19.9 -37.9 -16.9 transporting semiconductor equipment to China and the US, which should help drive a Relative -13.8 -28.7 -3.1 recovery in cargo earnings.

150 Korean Air KOSPI Maintain Buy, but lower TP to W30,000

130 We maintain our Buy rating on Korean Air but reduce our target price to W30,000 110 (from W38,000), which implies a 12-month forward P/B of 1.0x. As the market has reflected the won’s sharp depreciation, the stock is currently trading at a P/B of 0.75x, 90 below the stock’s five-year average low. Accordingly, we recommend a buy-on-dip 70 approach from a long-term perspective. However, any meaningful rebound in share 8.18 12.18 4.19 8.19 prices will likely require signs of a cargo cycle recovery and F/X stabilization.

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 11,732 12,092 13,020 12,946 13,325 13,593 Jay JH Ryu +822-3774-1738 OP (Wbn) 1,121 940 640 516 765 832 [email protected] OP margin (%) 9.6 7.8 4.9 4.0 5.7 6.1

NP (Wbn) -565 792 -193 -464 82 160 EPS (W) -7,171 8,631 -2,012 -4,840 852 1,666 ROE (%) -27.2 29.4 -5.9 -17.2 3.0 4.9

P/E (x) - 3.9 - - 26.9 13.7 P/B (x) 1.2 0.9 1.1 0.9 0.7 0.6 Dividend yield (%) 0.0 0.7 0.8 1.1 1.1 1.1 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

Hanwha Corp. (000880 KS) Plant issue resolved; Revenue to normalize from 4Q19 Conglomerates 2Q19 review: Below-consensus net profit of W47.4bn (-70.6% YoY) Results Comment For 2Q19, Hanwha Corp. posted revenue of W12.8tr (+1.4% YoY), operating profit of W363.6bn (-48.5% YoY), and net profit attributable to controlling interests of W47.4bn August 16, 2019 (-70.6% YoY). Earnings missed the consensus owing to lackluster results at major subsidiaries such as Hanwha Life and Hanwha Chemical. Operating profit from in- house businesses declined sharply YoY, hurt by an accident at the Daejeon plant (which produces rocket systems). (Maintain) Buy 1) In-house businesses: Revenue of W1.0tr (-9.4% YoY), operating profit of W48.1bn (-48.4% YoY) Target Price (12M, W) ▼ 34,000 ① Manufacturing: Revenue and operating profit were W570bn (-9.2% YoY) and W31.2bn (-61.5% YoY), respectively. Revenue from chemicals and defense remained Share Price (08/14/19, W) 22,100 weak, as the Daejeon plant’s operation was suspended due to an explosion in February. The Daejeon plant resumed partial operation in May and was cleared for full Expected Return 54% operation in August. We expect defense revenue to normalize from 4Q19, and revenue deferred due to the accident will be recognized in 2020 and 2021.

② Trading/other: Revenue and operating profit were W461.4bn (-9.7% YoY) and OP (19F, Wbn) 1,251 W16.9bn (+37.4% YoY), respectively. The YoY decline in revenue was inevitable, given Consensus OP (19F, Wbn) - the weakness in petrochemical product sales. Bad debt expenses of W6bn were EPS Growth (19F, %) -25.2 reversed. Market EPS Growth (19F, %) -26.5 2) Hanwha E&C: Revenue and operating profit were W1.0tr (+6.5% YoY) and W71.7bn P/E (19F, x) 6.2 (-39.9% YoY), respectively. Revenue from domestic housing projects and the profitable Market P/E (19F, x) 12.0 Iraqi housing/infrastructure project remained steady, but operating profit declined due KOSPI 1,938.37 to a high base of comparison (reversal of liquidated damages recognized in 2Q18).

Market Cap (Wbn) 1,657 Hanwha E&C (Iraqi project + new orders) to support earnings improvement Shares Outstanding (mn) 98 Looking ahead to 2020, we forecast Hanwha E&C’s revenue and operating profit to Free Float (%) 56.1 reach W4.1tr (+5.3% YoY) and W331.7bn (+8.3% YoY), respectively, supported by the Foreign Ownership (%) 24.5 Iraqi project’s scaling up, steady progress in mixed-use property projects, and the Beta (12M) 1.24 company’s selective order-taking strategy. Given its good track record, we expect 52-Week Low 21,450 Hanwha E&C to win new projects in Iraq (e.g., highways). It should also benefit from a new double taxation avoidance pact between Korea and Iraq. We forecast revenue 52-Week High 35,150 from Iraqi projects to increase from W498.1bn in 2018 to W685.5bn in 2019 and (%) 1M 6M 12M W731bn in 2020. Absolute -15.2 -34.4 -32.6 We look for Hanwha E&C to secure financial soundness on the back of 1) the Relative -8.7 -24.7 -21.5 completion of overseas plant projects and 2) move-ins for domestic housing projects (Gwonseon, Sanghyeon, and Pungmoo). 110 Hanwha Corp. KOSPI 100 Retain Buy, but cut TP to W34,000; Focus on historically low valuation 90 We maintain our Buy rating on Hanwha Corp. but lower our target price to W34,000 (from 80 W45,000), reflecting downward adjustments to our earnings estimates for in-house businesses 70 and the decline in the value of subsidiary stakes (Hanwha Life, Hanwha Chemical, etc.). The stock 60 is trading at a more than 50% discount to NAV, which looks fairly low by historical standards. We 50 8.18 12.18 4.19 8.19 see minimal risks of further declines in the value of subsidiary stakes and expect in-house business earnings to normalize in 4Q19. In addition, earnings at Hanwha E&C continue to improve. As such, we believe Hanwha Corp. could be re-rated, given its valuation merits. Mirae Asset Daewoo Co., Ltd.

[Conglomerates/Software] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 47,120 50,404 48,740 51,136 53,102 53,328 Dae-ro Jeong +822-3774-1634 OP (Wbn) 1,686 2,159 1,806 1,251 1,669 1,879 [email protected] OP margin (%) 3.6 4.3 3.7 2.4 3.1 3.5 NP (Wbn) 492 405 468 350 539 672 EPS (W) 6,082 4,140 4,784 3,580 5,500 6,866 ROE (%) 11.5 9.1 10.7 8.0 11.3 12.7 P/E (x) 5.8 10.0 6.6 6.2 4.0 3.2 P/B (x) 0.8 0.9 0.7 0.5 0.4 0.4 Dividend yield (%) 1.7 1.4 2.2 3.2 3.2 3.2 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

SK Holdings (034730 KS) Share prices at rock bottom

Conglomerates 2Q19 review: Below-consensus net profit of W117.4bn (-77.9% YoY) Results Comment For 2Q19, SK Holdings reported revenue of W25.1tr (-0.3% YoY), operating profit of W1.2tr (-28.7% YoY), and net profit attributable to controlling interests of W117.4bn August 16, 2019 (-77.9% YoY), missing consensus expectations. The YoY earnings decline was mainly caused by weaker operating earnings at major consolidated subsidiaries, including SK Innovation and SK Telecom. Earnings & business and investment status of major non-listed subsidiaries: (Maintain) Buy 1) SK E&S: Revenue was W1.3tr (+1.4% YoY), and operating profit was W79.3bn (-18.4% YoY). System marginal prices (SMP) slipped 4.0% YoY to W85.9/kWh. Meanwhile, power Target Price (12M, W) ▼ 300,000 plant utilization slightly fell YoY, and city gas sales volume also declined. However, equity-method profits from China Gas Holdings expanded 50.6% on the back of the strong performance of the Chinese city gas business. Share Price (08/14/19, W) 197,500 2) SK Siltron: Revenue was W389.7bn (+20.0% YoY), and operating profit was W89.1bn Expected Return (-2.0% YoY). Sales volume and ASP remained robust, but higher depreciation expenses 52% dragged down operating profit. 3) SK E&C: Non-consolidated revenue was W1.9tr (+5.9% YoY), and operating profit was OP (19F, Wbn) 4,851 W66bn (-33.3% YoY). Profits were hurt by an unfavorable comparison (due to the completion of SK Hynix’s fab last year) and the payment of liquidated damages at an Consensus OP (19F, Wbn) - overseas project. EPS Growth (19F, %) -50.2 4) SK Biopharmaceuticals: 1H19 revenue was W118.6bn. The company is seeking to go Market EPS Growth (19F, %) -26.5 public in 2H19, and it expects to gain US FDA approval for cenobamate in late 2019 and P/E (19F, x) 12.5 release it in the US in 2Q20. In July, the company’s solriamfetol (licensed out to Jazz Pharmaceuticals) was rolled out in the US. Market P/E (19F, x) 12.0 KOSPI 1,938.37 5) SK Biotek: Revenue was W75.5bn (+17.5% YoY), and operating profit was W6.1bn (+0.9% YoY). The company is looking to enhance its operational efficiency by Market Cap (Wbn) 13,896 integrating its CMO capabilities, including Biotek’s and AMPAC’s marketing and R&D Shares Outstanding (mn) 71 functions. The company expects revenue to grow meaningfully in 2H19 due to the production of new orders and guides full-year revenue to more than double YoY. Free Float (%) 49.7 rd Foreign Ownership (%) 28.1 6) Dividend policy: On July 23 , SK Holdings declared an interim dividend of W1,000 Beta (12M) 0.87 per share. The company also plans to pay out special dividends once it recoups its investments through either subsidiary IPOs or stake sales. 52-Week Low 193,500 52-Week High 290,500 Maintain Buy, but cut TP to W300,000; Excessive undervaluation raises potential for rebound (%) 1M 6M 12M We keep our Buy rating on SK Holdings but cut our target price to W300,000 (from Absolute -11.6 -28.8 -23.7 W400,000), as we reflected the decline in the value of subsidiary stakes (SK Innovation, Relative -4.9 -18.3 -11.1 etc.) and applied a steeper discount rate to NAV (from 20% to 30%). SK Holdings’ stock is currently trading at a record discount, as the loss of its market value since 2Q19 has 120 SK Holdings KOSPI been larger than the loss of the value of its listed subsidiary stakes. We thus believe 110 the stock merits close attention at current share prices. 100 In our view, uncertainties surrounding the government’s holding company policy 90 (which have persisted since 2018) have been largely priced in. If SK 80 Biopharmaceuticals’ IPO progresses as planned, we believe SK Holdings could be re- 70 rated higher for its differentiated business portfolio. 60 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Conglomerates/Software] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F

Revenue (Wbn) 82,730 90,613 101,502 101,251 110,278 112,726 Dae-ro Jeong +822-3774-1634 OP (Wbn) 5,281 5,745 4,688 4,851 5,996 6,099 [email protected] OP margin (%) 6.4 6.3 4.6 4.8 5.4 5.4

NP (Wbn) 766 1,677 2,253 1,122 1,280 1,406 EPS (W) 10,794 23,650 31,767 15,820 18,042 19,819 ROE (%) 6.0 12.5 14.9 6.5 6.9 7.2

P/E (x) 21.3 12.0 8.2 12.5 10.9 10.0 P/B (x) 1.2 1.4 1.1 0.7 0.7 0.7 Dividend yield (%) 1.6 1.4 1.9 2.5 2.5 2.5 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

LS (006260 KS) LSCS on the mend; LS Mtron in need of growth engines Technology 2Q19 review: Operating profit of W121.3bn (-24.4% YoY, +22.0% QoQ) Results Comment For 2Q19, LS reported revenue of W2.59tr (-0.2% YoY, +7.6% QoQ) and operating profit August 16, 2019 of W121.3bn (including W31.8bn in equity-method profits; -24.4% YoY, +22.0% QoQ), exceeding our estimates (W2.57tr and W118.2bn, respectively) by 0.8% and 2.7%, respectively. The market was looking for revenue of W2.5tr and operating profit of W119.5bn. (Maintain) Buy LS Cable & System (LSCS) recorded revenue of W1.14tr (+16.1% YoY, +4.7% QoQ) and operating profit of W44.1bn (+27.1% YoY, +2.3% QoQ). Despite a 1.7% QoQ drop in Target Price (12M, W) ▼ 57,300 average copper prices (US$6,114/tonne), earnings remained stable, supported by a rise of 42 in the US$/W rate and the continued operating profitability of submarine cables. Share Price (08/14/19, W) 41,700 Order backlog rose to W1.96tr (from W1.72tr at end-1Q19). Encouragingly, orders for submarine cables increased. Expected Return 37% LS-Nikko Copper recorded revenue of W1.98tr (+6.5% YoY, -4.8% QoQ), operating profit of W97.9bn (+33.0% YoY, +60.2% QoQ), and pretax profit of W87.7bn (+89.8% YoY, +63.0% QoQ). LS I&D posted operating profit of W8.1bn (-59.7% YoY, +39.7% QoQ) amid OP (19F, Wbn) 336 weakness in Superior Essex’s European winding wire business. Consensus OP (19F, Wbn) 425 LS Mtron posted revenue of W244.4bn (-9.5% YoY, +7.7% QoQ) and an operating loss of EPS Growth (19F, %) -47.9 W2.6bn (turning to loss YoY, remaining in the red QoQ). The tractor business was hurt Market EPS Growth (19F, %) -26.5 by tepid domestic sales, while the injection molding machine and electronic P/E (19F, x) 6.4 components businesses remained in the red. Market P/E (19F, x) 12.0 KOSPI 1,938.37 LSCS and LSIS to continue strong earnings; LS Mtron in need of new growth engines Market Cap (Wbn) 1,343 Shares Outstanding (mn) 32 Looking to 3Q19, we forecast revenue of W2.47tr (-0.8% YoY, -4.6% QoQ) and operating Free Float (%) 53.4 profit of W126.9bn (+5.9% YoY, +4.6% QoQ). We look for strong earnings from LSCS’s Foreign Ownership (%) 13.9 submarine cable and extra-high-voltage cable businesses, along with solid earnings Beta (12M) 1.50 from LS Industrial Systems (LSIS). We also expect stable earnings from LS-Nikko 52-Week Low 41,000 Copper. However, we do not see much improvement at LS Mtron. 52-Week High 71,600 Looking ahead, we believe LS’s earnings and growth will largely be determined by LS Mtron. In this respect, it will be important to watch how LS Mtron uses the remaining (%) 1M 6M 12M proceeds (around W330bn) from the sale of its elecfoil business and subsidiary LS Absolute -14.2 -22.6 -40.5 Automotive. Relative -7.6 -11.2 -30.7 Maintain Buy, but lower TP to W57,300 110 LS KOSPI 100 We maintain our Buy rating on LS but lower our target price to W57,300 (from 90 W65,900). Our target price is based on a P/B of 0.52x (30% discount to five-year 80 average; vs. 0.6x previously) our 12-month forward BPS of W110,247. 70 60 50 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 8,508 9,418 10,110 9,971 10,190 10,381

Wonjae Park OP (Wbn) 279 402 354 336 365 395 +822-3774-1426 OP margin (%) 3.3 4.3 3.5 3.4 3.6 3.8 [email protected] NP (Wbn) 168 297 404 211 234 237

EPS (W) 5,223 9,219 12,551 6,539 7,281 7,372

ROE (%) 7.1 11.5 13.7 6.5 6.8 6.5

P/E (x) 11.4 7.9 3.9 6.4 5.7 5.7 P/B (x) 0.8 0.8 0.5 0.4 0.4 0.4

Dividend yield (%) 2.1 1.7 2.5 3.0 3.0 3.0

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

Partron (091700 KQ) Record-high quarterly results

Technology 2Q19 review: OP of W40.7bn (turn to profit YoY, +56.0% QoQ); Record-high quarterly results Results Comment August 16, 2019 For 2Q19, Partron reported revenue of W410.4bn (+141.4% YoY, +39.9% QoQ) and operating profit of W40.7bn (turn to profit YoY, +56.0% QoQ), beating our expectations (W408.3bn and W36.7bn) by 0.5% and 10.9%, respectively. The market was looking for revenue of W390.9bn and operating profit of W36.2bn. (Maintain) Buy Both revenue and operating profit hit record-high levels, supported by Samsung Electronics’ (SEC) smartphone strategies. The smartphone maker has been beefing up Target Price (12M, W) ▼ 20,000 its mid-range models (A series, etc.), which feature advanced camera modules. Patron also benefited from an increasing mix of dual and triple camera modules and the Share Price (08/14/19, W) 13,300 adoption of time-of-flight (TOF) modules. We believe the expanding 5G market further helped earnings by boosting revenue from dielectric filters and isolators. Expected Return 50% 2H19 earnings to be steady; Major customer to benefit from Huawei’s woes We expect Partron to fare well in 2H19 despite seasonally weak demand. For 3Q19, we OP (19F, Wbn) 115 forecast Partron to post revenue of W325.8bn (+76.0% YoY, -20.6% QoQ) and operating Consensus OP (19F, Wbn) 109 profit of W26.8bn (+178.9% YoY, -20.6% QoQ), driven by SEC’s Galaxy Note 10 release. We also think won depreciation and easing fixed-cost pressures provide additional EPS Growth (19F, %) 647.1 upside. Market EPS Growth (19F, %) -26.5 P/E (19F, x) 10.0 Meanwhile, new businesses such as fingerprint recognition and sensors are delivering Market P/E (19F, x) 12.0 positive results. For the full year, we project revenue from new businesses to expand to KOSDAQ 597.15 W213.6bn, up from W54.5bn in 2016, W78.9bn in 2017, and W106.2bn in 2018. In our view, revenue from the healthcare, ADAS, camera module, and antennae segments is Market Cap (Wbn) 720 particularly positive from a revenue/product diversification standpoint. Shares Outstanding (mn) 54 Free Float (%) 69.2 The market is concerned about price cuts and the long-term growth outlook. While Foreign Ownership (%) 42.0 price cuts do look inevitable, given the nature of the parts industry, we believe overall Beta (12M) 0.30 ASP is likely to rise on an increasing mix of dual and triple camera modules. And with SEC likely to continue to expand its mid-range models (A series), we do not think long- 52-Week Low 7,160 term growth potential is a cause for concern. 52-Week High 18,250

(%) 1M 6M 12M Maintain Buy, but lower TP to W20,000 Absolute -8.6 31.0 83.4 In 2Q19, corporate income taxes amounted to W21.7bn (tax rate of 56.2%), due to Relative 4.3 62.9 134.1 additional taxes following an audit. Accordingly, we adjust down our 2019 EPS estimate by 5.3% and lower our 12-month forward target price to W20,000 (from W22,700). 310 Partron KOSDAQ 260 Notably, SEC stands to benefit from Huawei’s troubles in the US. Huawei is now seeing

210 a significant drop in smartphone sales volume, which should begin to have an

160 influence on SEC’s sales volume from end-3Q19. With Partron’s 2Q19 results marking a quarterly record, any correction in share prices would provide an attractive entry point. 110 We maintain our Buy rating on Partron. 60 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 791 791 796 1,326 1,413 1,508

Wonjae Park OP (Wbn) 38 11 31 115 117 125 +822-3774-1426 OP margin (%) 4.8 1.4 3.9 8.7 8.3 8.3 [email protected] NP (Wbn) 22 1 10 72 87 95

EPS (W) 402 23 179 1,334 1,614 1,748

ROE (%) 6.6 0.4 3.2 21.5 21.5 19.7

P/E (x) 25.7 413.9 45.8 10.0 8.2 7.6 P/B (x) 1.6 1.6 1.4 1.8 1.5 1.3

Dividend yield (%) 1.9 1.9 2.4 2.3 2.6 3.0

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

Spigen Korea (192440 KQ) Revenue growth vs. inevitable margin erosion

Technology 2Q19 review: Disappointing OP of W8.6bn (-14.3% YoY, -27.6% QoQ) Results Comment For 2Q19, Spigen Korea posted revenue of W63.9bn (+14.5% YoY, -7.0% QoQ) and August 16, 2019 operating profit of W8.6bn (-14.3% YoY, -27.6% QoQ). Revenue was in line with our expectation (W64bn), but operating profit missed our estimate (W10.2bn) by 15.1%. The market was looking for revenue of W62.7bn and operating profit of W9.8bn. Revenue held up well, despite 2Q being an off-peak season for smartphones and (Maintain) Buy Samsung Electronics’ (SEC) S10 showing a weaker-than-expected performance. Profitability disappointed, however. OP margin fell to 13.5% (-4.5%p YoY, -3.9%p QoQ), Target Price (12M, W) ▼ 76,000 the lowest level since the company’s listing. We attribute the margin contraction to increased spending on new businesses and higher labor and depreciation expenses. Share Price (08/14/19, W) 56,400 Spigen Korea had 282 employees as of end-2Q19, up from 205 at end-1Q18 (based on the company’s business report). As such, labor expenses are growing at a faster rate Expected Return 35% than revenue. We estimate labor expenses as a percentage of revenue increased 1%p (from 8% to 9%), resulting in a 1%p headwind to OP margin. OP (19F, Wbn) 49 3Q19 preview: New smartphone releases to bolster earnings; Short-term Consensus OP (19F, Wbn) 55 margin erosion is inevitable

EPS Growth (19F, %) 0.9 Looking to 3Q19, we estimate Spigen Korea’s revenue and operating profit at W79.1bn Market EPS Growth (19F, %) -26.5 (+18.6% YoY, +23.8% QoQ) and W11.7bn (+1.2% YoY, +35.9% QoQ), respectively. Top- P/E (19F, x) 8.1 line growth is likely to be driven by SEC’s Galaxy Note 10 and Apple’s new product Market P/E (19F, x) 12.0 releases. However, profitability improvement should be limited; we forecast 3Q19 OP KOSDAQ 597.15 margin at 14.8%.

Market Cap (Wbn) 351 Increased spending on new ventures is a headwind to near-term margins. Spigen Shares Outstanding (mn) 6 Korea has been bolstering its organic business while also expanding into related Free Float (%) 56.0 businesses. In an effort to strengthen its smartphone case business, the company has — — Foreign Ownership (%) 21.4 launched two new brands La Manon and Cyrill and also acquired US-based Beta (12M) 0.93 Caseology in June to broaden its product portfolio. 52-Week Low 42,000 Reiterate Buy, but lower TP to W76,000 52-Week High 83,500 We are optimistic on the company’s advance into the cosmetics business, as it has (%) 1M 6M 12M secured a distribution network on Amazon. In the medium and long term, new Absolute -12.6 -16.1 9.7 business investments are positive from a top-line growth and product diversification Relative -0.3 4.3 40.0 standpoint. However, profitability deterioration looks inevitable in the near term.

180 Spigen Korea KOSDAQ We maintain our Buy rating on Spigen Korea but lower our 12-month forward target 160 price to W76,000 (from W79,000), reflecting downward adjustments to our EPS 140 estimates. 120 100 80 60 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 179 225 267 310 337 362

Wonjae Park OP (Wbn) 44 48 49 49 53 57 +822-3774-1426 OP margin (%) 24.6 21.3 18.4 15.8 15.7 15.7 [email protected] NP (Wbn) 39 41 43 43 46 48

EPS (W) 6,202 6,540 6,870 6,928 7,334 7,664

ROE (%) 21.9 19.6 17.7 15.4 14.4 13.5

P/E (x) 9.2 6.9 7.6 8.1 7.7 7.4 P/B (x) 1.8 1.2 1.2 1.1 1.0 0.9

Dividend yield (%) 0.9 1.1 2.2 2.5 3.2 3.5

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

Amotech (052710 KQ) Navigating rough waters

Technology 2Q19 review: Operating loss of W0.9bn (turn to loss YoY, QoQ) Results Comment For 2Q19, Amotech reported revenue of W54.3bn (-7.0% YoY, -26.3% QoQ) and an August 16, 2019 operating loss of W0.9bn (turn to loss YoY, QoQ). Revenue was 5.3% below our estimate (W57.4bn), but the operating loss was smaller than our expectation (loss of W1.4bn). The market was expecting revenue of W60.7bn and operating profit of W1.1bn. (Maintain) Buy Revenue was weaker than anticipated despite a favorable US$/W rate. We believe this was mainly due to the ceramic chips division. Flagship smartphone sales by the Target Price (12M, W) 23,500 company’s largest customer were disappointing, and revenue from electric shock protectors (which have higher margins) also declined, making the operating loss Share Price (08/14/19, W) 18,650 inevitable. Revenue was at the lowest level since 4Q14. Delays in multi-layer ceramic capacitor (MLCC) sales also contributed to margin Expected Return 26% contraction. The MLCC business is incurring expenses but not yet generating revenue. We estimate this caused a W1.5bn drag on quarterly operating profit. OP (19F, Wbn) 9 Earnings to gradually improve from 3Q19; Materials development capabilities Consensus OP (19F, Wbn) 16 and automotive components business deserve attention

EPS Growth (19F, %) 30.9 Looking to 3Q19, we forecast revenue of W66.5bn (+17.8% YoY, +22.4% QoQ) and Market EPS Growth (19F, %) -26.4 operating profit of W3.5bn (+94.8% YoY, turn to profit QoQ). We expect antennae P/E (19F, x) 19.5 revenue to grow with sales of the largest customer’s newest smartphone. While MLCC Market P/E (19F, x) 11.9 expenses are likely to pressure margins, the company should return to an operating KOSDAQ 597.15 profit on the back of top-line growth and increased revenue from automotive components. Market Cap (Wbn) 182 Shares Outstanding (mn) 10 In particular, the continued growth in automotive motor (LED cooling fans, battery Free Float (%) 74.2 cooling fans, in-car sensors, etc.) and antennae revenue is positive from both a top-line Foreign Ownership (%) 2.5 growth and customer/product diversification perspective. We forecast automotive- Beta (12M) 1.75 related revenue to expand to W92.5bn in 2019 (from W25bn in 2015, W40bn in 2016, 52-Week Low 15,800 W60bn in 2017, and W75bn in 2018). 52-Week High 33,500 Maintain Buy and TP of W23,500 (%) 1M 6M 12M Earnings were sluggish in 2Q19, and we anticipate limited improvement in 3Q19. While Absolute -9.7 -14.4 -40.5 the largest customer’s smartphone sales are growing, this is being driven largely by Relative 3.0 6.3 -24.1 mid/low-range models. This is negative to Amotech, which produces smartphone components used in premium models. The new MLCC business is also experiencing 120 Amotech KOSDAQ delays. 100 However, we note that MLCC sales to the telecom equipment sector are expected to 80 begin in 4Q19 and that automotive component revenue is continuing to grow. We also

60 believe Amotech is continuing to improve its competitive position on the back of its materials development capabilities and growth of its automotive business. We 40 8.18 12.18 4.19 8.19 maintain our Buy rating and target price of W23,500.

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 296 315 253 256 305 351

Wonjae Park OP (Wbn) 29 41 11 9 23 29 +822-3774-1426 OP margin (%) 9.8 13.0 4.3 3.5 7.5 8.3 [email protected] NP (Wbn) 16 25 7 9 20 24

EPS (W) 1,677 2,600 730 957 2,021 2,421

ROE (%) 10.4 14.2 3.7 4.6 9.0 9.8

P/E (x) 13.1 19.0 24.6 19.5 9.2 7.7 P/B (x) 1.3 2.5 0.9 0.9 0.8 0.7

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

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

Iljin Materials (020150 KS) Elecfoils in hot demand

Technology Reaffirm TP of W64,000; Elecfoils in hot demand Results Comment We reaffirm our target price of W64,000 on Iljin Materials. Driven by the operation of August 16, 2019 its new Malaysia line, the company posted robust 2Q19 margins that were higher than market expectations. The plant currently has an annual capacity of 10,000 tonnes, but its total capacity can be expanded to 100,000 tonnes. We see strong visibility on medium/long-term profit growth. (Maintain) Buy Elecfoil supply shortages are also ongoing. Despite sluggish market conditions in 1H19, we believe domestic and foreign elecfoil manufacturers maintained high utilization Target Price (12M, W) 64,000 rates. Indeed, most of them have recorded high OP margins. Meanwhile, battery companies are seeking medium- and long-term elecfoil supply contracts that are four Share Price (08/14/19, W) 39,700 to five years long. As elecfoils are a material in short supply within a growing market, we believe the industry justifies a high multiple. Expected Return 61% 2Q19 review: Positive surprise For 2Q19, Iljin Materials reported revenue of W152.2bn (+25.8% QoQ, +27.2% YoY) and OP (19F, Wbn) 71 operating profit of W17.4bn (+46.6% QoQ, +25.1% YoY), with the latter beating our Consensus OP (19F, Wbn) 62 estimate (operating profit of W14.5bn) by 20%.

EPS Growth (19F, %) 47.4 The robust margins were driven by the early profitability of the new Malaysia line. We Market EPS Growth (19F, %) -26.5 believe the Malaysia line has higher margins than the domestic line due to lower P/E (19F, x) 30.0 electricity costs and lower labor costs. The Malaysia line managed to turn a net profit in Market P/E (19F, x) 12.0 2Q19, despite an average utilization rate of around 40%. With the line likely to reach KOSPI 1,938.37 full capacity in late 3Q19, and another 20,000 tonnes of new capacity expected to come online in 2020, operating leverage effects should gradually increase. Market Cap (Wbn) 1,831 Shares Outstanding (mn) 46 Existing client looks stable, while new client faces shortage Free Float (%) 46.4 We expect the mid/large-sized battery revenue growth of Samsung SDI (Iljin Materials’ Foreign Ownership (%) 4.4 existing client) to gather steam in 2H19. We forecast Samsung SDI’s 2H19 ESS and EV Beta (12M) 1.25 battery revenue at W986bn (+156% HoH) and W1.5tr (+67% HoH), respectively. As 52-Week Low 31,250 Samsung SDI’s mid/large-sized battery revenue growth accelerates, demand for Iljin 52-Week High 58,700 Materials’ elecfoil should increase significantly.

(%) 1M 6M 12M LG Chem (the company’s new client) currently faces a shortage in elecfoil materials Absolute -1.7 -9.4 -18.5 because of the slower-than-expected capacity expansions of its key elecfoil supplier Relative 5.8 4.1 -5.0 KCFT. LG Chem’s EV battery revenue is anticipated to grow rapidly in 2H19, but KCFT has no additional capacity coming online in 2019. 130 Iljin Materials KOSPI

110 SK Innovation is also planning to ramp up its mid/large-sized battery capacity from 2021, which is why we believe battery makers will continue to seek medium- and long- 90 term elecfoil contracts. With elecfoils in tight supply, we believe elecfoil manufacturers

70 deserve a re-rating.

50 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Display/Batteries] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 399 454 502 604 718 908 Chuljoong Kim +822-3774-1464 OP (Wbn) 29 50 49 71 102 149 [email protected] OP margin (%) 7.3 11.0 9.8 11.8 14.2 16.4

NP (Wbn) 39 42 41 61 83 119 EPS (W) 971 1,000 897 1,322 1,799 2,578 ROE (%) 15.1 10.3 7.8 10.9 13.2 16.2

P/E (x) 13.9 38.3 45.7 30.0 22.1 15.4 P/B (x) 1.9 3.3 3.6 3.1 2.7 2.3 Dividend yield (%) 0.4 1.7 0.0 0.0 0.0 0.0 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

JYP Entertainment (035900 KQ) Margin recovery in 3Q19 will be key

Entertainment 2Q19 review: OP slightly misses expectations, at W9.4bn For 2Q19, JYP Entertainment announced consolidated revenue of W39.2bn (+24.1% Results Comment YoY; all growth figures hereafter are YoY) and operating profit of W9.4bn (+3.9%). August 16, 2019 Operating profit was slightly below our estimate (W10.3bn) and the consensus. Revenue growth continued to be driven by the content (+40% for album/digital music) and global digital (+52% to W1.3bn for YouTube revenue) segments, and the monetization of new artists also gained traction. That said, margins contracted due to increased artist royalties and management costs (gross margin fell 4.6%p to 43.7%). (Maintain) Buy While the decline was modest, these costs are affected by a number of factors, including the terms of individual artist contracts, leverage effects from album sales, and overseas schedules. We advise keeping a close eye on any structural changes Target Price (12M, W) ▼ 28,000 through 3Q19, when revenue from TWICE’s dome tour is likely to be recognized. Album/digital music revenue grew 40% to W14.7bn. Album sales included 400,000 Share Price (08/14/19, W) 18,800 copies of TWICE’s new album, 300,000 copies of GOT7’s mini album, and 160,000 copies for Stray Kids’ special album. Global digital music revenue grew 54% to W2bn, which Expected Return 49% included sales from the distribution partnership with The Orchard (less than W0.3bn). Concert revenue dipped 34% to W4.7bn, as attendance declined as a result of the absence of TWICE and GOT7 concerts in Japan. OP (19F, Wbn) 39 Confirmation of margin recovery in 2H19 would improve visibility on 2020 Consensus OP (19F, Wbn) 40 We expect quarterly operating profit to grow as we move further into 2H19. We forecast 2H19 operating profit at W24.2bn (vs. W15.2bn in 1H19). Artist activities are EPS Growth (19F, %) 31.8 likely to ramp up in 2H19 as the monetization of new artists kicks into high gear. Market EPS Growth (19F, %) -26.5 Upcoming artist activities include TWICE’s comeback and US tour, GOT7’s world tour P/E (19F, x) 20.8 and Japan arena tour, ITZY’s promotion of its latest album, and DAY6’s comeback and Market P/E (19F, x) 12.0 world tour. All in all, the company will have four fully active groups. KOSDAQ 597.15 Meanwhile, JYP Entertainment has several projects planned in 2020 that are expected to help transform the company into a global player. These include the Nizi project in Market Cap (Wbn) 667 Japan (casting to begin in late 2019 and debut targeted for late 2020), Project C in Shares Outstanding (mn) 35 China (debut targeted for 2H20), and a global idol project (probably in the US). We Free Float (%) 74.8 expect the company to take a multi-faceted approach with regard to promotions (e.g., original programming on OTTs) and income models. This should present another Foreign Ownership (%) 11.5 opportunity for the company to level up. Beta (12M) 1.49 52-Week Low 17,650 Reiterate Buy, but cut TP to W28,000 52-Week High 39,150 We reiterate our Buy call on JYP Entertainment but lower our target price to W28,000, as we reduced our target multiple to a 12-month forward P/E of 27x in light of the (%) 1M 6M 12M Korea-Japan diplomatic row. That said, we have not yet observed any worrying signs in Absolute -16.4 -35.6 -20.8 TWICE concert plans, the Nizi project, or Oricon charts. Relative -4.7 -20.0 1.0 JYP Entertainment has a three-part roadmap that revolves around 1) driving the success of TWICE in 2018, 2) further expanding its next-generation artist lineup in 2019, 180 JYP Entertainment KOSDAQ and 3) transforming into a global entertainment agency in 2020. That said, given the 160 gross margin contraction in 2Q19, which was the first decline since 1Q18, we believe it 140 is critical for margins to recover in 3Q19, especially considering the favorable earnings 120 variables (220,000 attendees for TWICE’s dome tour) and strong visibility of the 100 quarter. If a margin recovery is confirmed, we believe the market will begin to price in the various tailwinds that lie ahead in 2020. 80 60 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Media] FY (Dec.) 12/15 12/16 12/17 12/18 12/19F 12/20F Revenue (Wbn) 51 74 102 125 155 190 Jeong-yeob Park +822-3774-1652 OP (Wbn) 4 14 19 29 39 51 [email protected] OP margin (%) 7.8 18.9 18.6 23.2 25.2 26.8

NP (Wbn) 3 8 16 24 32 40 EPS (W) 94 246 471 685 902 1,134 ROE (%) 5.6 13.4 21.4 22.5 22.5 22.8

P/E (x) 48.9 20.0 29.2 44.2 20.8 16.6 P/B (x) 2.2 2.1 4.8 7.7 3.9 3.2 Dividend yield (%) 0.0 0.0 0.0 0.4 0.6 0.6 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

Vieworks (100120 KQ) Hope remains

MedTech 2Q19 review: Revenue beats consensus Results Comment For 2Q19, Vieworks reported revenue of W35.1bn (+14.6% YoY), beating the consensus. Revenue was sluggish in the core flat-panel digital radiography business (FP-DR; +5.9% August 16, 2019 YoY) and industrial vision system business (-4.9% YoY), but imaging detectors drove overall growth. Operating profit came in at W6.4bn (+45.2% YoY; OP margin of 18.4%), in line with the consensus.

Expansion of new businesses will be key in 2019 (Maintain) Buy 1) New businesses: Vieworks has grown by continuously reinventing itself on the back of its agile R&D capabilities. With the growth of its core businesses now slowing, it is Target Price (12M, W) ▼ 34,000 critical for the company to identify new businesses. We believe the company’s future growth engine will be dental detectors. Vieworks has improved the price Share Price (08/14/19, W) 25,850 competitiveness of its dental detectors by using TFT rather than CMOS. The company’s TFT-based dental detectors are also considered to be on par with CMOS-based Expected Return 32% detectors in terms of resolution. Following their release in late 2018, the company’s dental detectors have quickly grown to account for 9.3% of overall revenue. Given the nature of the B2B business, we believe acquiring additional customers will be key. OP (19F, Wbn) 26 2) Existing businesses: The global FP-DR market’s game of chicken appears to be Consensus OP (19F, Wbn) 27 nearing an end. The OP margin of the market’s no. 1 supplier (which drove ASP lower) has collapsed from 16.8% in 1Q16 to 2.3% in 2Q19, and many low-end Chinese EPS Growth (19F, %) 15.2 suppliers are now being forced out of the market. That said, we believe the medical Market EPS Growth (19F, %) -26.4 detector business will serve as a steady cash cow going forward rather than a major P/E (19F, x) 10.8 source of revenue growth. Market P/E (19F, x) 11.9 KOSDAQ 597.15 As for industrial vision systems, it is difficult to estimate earnings, as revenue tends to be volatile due to the order-based nature of the business. Still, there are some Market Cap (Wbn) 259 expectations related to foldable and rollable displays, as Vieworks is the only domestic Shares Outstanding (mn) 10 manufacturer of inspection-use camera modules. We believe that time delay Free Float (%) 70.1 integration (TDI) line scan cameras, the company’s new growth driver, are also slowly beginning to generate revenue growth. Foreign Ownership (%) 32.8 Beta (12M) 0.54 Cut TP to W34,000, but maintain Buy 52-Week Low 24,450 We cut our target price to W34,000 (from W45,000) due to our earnings revisions. With 52-Week High 38,850 our target price implying 32% upside, we maintain our Buy rating. The stock is currently trading at a 12-month forward P/E of 10.6x, a historical low and discount to (%) 1M 6M 12M global peers (16.6x). Absolute -16.9 -23.2 -18.1 Relative -5.2 -4.5 4.5 Vieworks has grown over the years by continuously expanding into new areas, from charge-coupled device (CCD) cameras to FP-DR in 2012 and industrial cameras in 2016. 120 Vieworks KOSDAQ Looking ahead, we believe dental detectors will serve as the company’s future growth 110 engine. Vieworks’ traditional growth formula has centered on maximizing operating 100 leverage effects from B2B contracts. While it is almost impossible to predict the timing 90 of contracts in a B2B business, we believe Vieworks has ample growth potential in 80 dental detectors, given the company’s competitiveness. As the company’s margin 70 structure has a low exposure to fixed costs, we think OP margin will recover sharply 60 once top-line growth gains momentum. 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ MedTech/Healthcare Solutions] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 117 123 131 141 151 162 Choong-hyun Kim, CFA +822-3774-1740 OP (Wbn) 30 29 23 26 29 32 [email protected] OP margin (%) 25.6 23.6 17.6 18.4 19.2 19.8

NP (Wbn) 27 20 21 24 24 26 EPS (W) 2,697 1,963 2,077 2,392 2,446 2,619 ROE (%) 27.7 16.6 15.6 15.8 14.2 13.4

P/E (x) 22.2 20.8 15.9 10.8 10.6 9.9 P/B (x) 5.4 3.2 2.3 1.5 1.4 1.2 Dividend yield (%) 0.3 0.5 0.9 1.2 1.2 1.2 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

August 16, 2019 Vieworks

Table 1. 2Q19 review (Wbn, %, %p) 2Q19P Growth 2Q18 1Q19 Mirae Asset Preliminary Consensus YoY QoQ Daewoo Revenue 30.7 29.5 35.1 33.6 32.8 14.5 18.9 Operating profit 4.4 5.6 6.4 6.4 6.1 45.2 15.1 OP margin (%) 14.4 18.9 18.4 19.0 18.6 3.9 -0.6 Pretax profit 7.1 6.9 7.4 6.5 6.5 4.6 7.4 Net profit 6.4 5.7 6.2 5.4 5.6 -2.7 9.7 Note: All figures are based on consolidated K-IFRS Source: Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes 19F 20F 19F 20F 19F 20F

Revenue 139.9 156.1 141.0 150.7 0.8 -3.4 Reflected 2Q19 results Operating profit 26.6 32.2 26.5 29.3 -0.6 -8.8 Pretax profit 28.4 33.0 28.9 29.8 1.8 -9.6 Net profit 23.4 27.1 23.9 24.5 2.4 -9.8 EPS (W) 2,337 2,713 2,392 2,446 2.4 -9.8 Note: All figures are based on consolidated K-IFRS Source: Mirae Asset Daewoo Research estimates

Table 3. Quarterly and annual earnings (Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19P 3Q19F 4Q19F 2018 2019F 2020F Revenue 29.4 30.7 33.8 37.6 29.5 35.1 36.4 40.0 131.4 141.0 150.7 FP-DR 16.5 13.7 16.7 19.0 12.2 14.5 14.7 15.7 65.9 57.1 58.2 Industrial cameras 10.3 12.6 14.5 12.7 10.5 12.0 12.7 12.6 50.0 47.7 50.5 Imaging detectors 0.0 0.0 0.0 0.0 2.1 3.3 4.0 5.0 0.0 14.4 15.9 Other 2.6 4.3 2.7 5.8 4.8 5.3 5.1 6.6 15.5 21.9 26.2 Operating profit 4.1 4.4 7.0 7.1 5.6 6.4 6.8 7.6 22.6 26.5 29.3 Pretax profit 3.8 7.1 6.6 7.7 6.9 7.4 6.9 7.7 25.1 28.9 29.8 Net profit 3.2 6.4 5.6 5.5 5.7 6.2 5.7 6.3 20.8 23.9 24.5 OP margin (%) 13.9 14.4 20.6 18.9 18.9 18.4 18.7 19.0 17.2 18.8 19.5 Pretax margin (%) 12.9 23.1 19.5 20.4 23.4 21.1 19.0 19.3 19.1 20.5 19.8 Net margin (%) 10.9 20.8 16.7 14.9 19.3 17.8 15.6 15.8 15.8 17.0 16.2 Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research Medytox (086900 KQ) Earnings shock due to litigation and bad debt expenses Healthcare 2Q19 review: Earnings shock Results Comment For 2Q19, Medytox posted consolidated revenue of W55bn (+0.1% YoY) and operating August 16, 2019 profit of W11.3bn (-49.4% YoY). Revenue came in line with our forecast, but operating profit missed the consensus (W24.2bn) by a wide margin. For botulinum toxin, revenue growth was solid, as: 1) exports to China recovered sharply (+118% QoQ to W19bn; vs. W8.7bn in 1Q19) from the impact of China’s crackdown on unofficial shopping agents known as daigou; and 2) domestic sales also expanded 18.6% YoY. For dermal fillers, (Maintain) Buy revenue remained flattish YoY due to intensifying competition.

Target Price (12M, W) ▼ 500,000 The YoY decline in profits was due to: 1) the recognition of litigation expenses (W4.5bn) related to disputes over the origin of a botulinum toxin strain; 2) a W3.1bn QoQ Share Price (08/14/19, W) 358,200 increase in bad debt expenses for the write-off of accounts receivables; 3) a W2.2bn increase in COGS resulting from the acquisition of cosmetics distributor Highway One; Expected Return 40% and 4) advertising spending and bonus payouts. 2H19 outlook: Revenue to expand, but profitability expectations to be lowered OP (19F, Wbn) 66 Consensus OP (19F, Wbn) 94 Looking to 2H19, we expect revenue to expand 34.0% YoY on the back of: 1) a low base of comparison (China’s crackdown on daigou began in 2H18); and 2) a gradual recovery EPS Growth (19F, %) -21.8 in exports to China. That said, we see significant downside to profitability. OP margin Market EPS Growth (19F, %) -26.4 (which had been high, at 56.4% in 2016 and 48.0% in 2017) was relatively resilient in P/E (19F, x) 38.0 2018 (41.6%) despite China’s daigou regulations, but is likely to contract to 31.7% in Market P/E (19F, x) 11.9 2H19. The costs of protracted litigation in Korea and abroad (US International Trade KOSDAQ 597.15 Commission) are the biggest weight on margins. Increased ad spending on corporate image campaigns and costs associated with the Highway One acquisition should also Market Cap (Wbn) 2,083 hurt profitability. Shares Outstanding (mn) 6 Free Float (%) 71.7 Maintain Buy, but lower TP to W500,000 Foreign Ownership (%) 44.9 We cut our target price on Medytox by 30% to W500,000 (from W720,000), as we Beta (12M) 1.00 adjusted down our 2019-20 EPS estimates by 33.1% and 31.7%, respectively, reflecting 52-Week Low 317,500 the impact of litigation expenses and a higher cost burden. Nevertheless, we maintain 52-Week High 708,689 our Buy rating, as we believe: 1) the stock’s sharp pullback (due to negative publicity (%) 1M 6M 12M triggered by recent news coverage on JTBC and KBS) has resulted in strong upside Absolute -13.6 -33.9 -45.1 potential; and 2) expectations for Neuronox’s approval in China remain valid. Once Relative -1.5 -17.9 -30.0 approval in China is secured, we expect Neuronox to rapidly penetrate the Chinese market, as the company will be able to export the product independent of the daigou 120 Medytox KOSDAQ regulations. Moreover, the product already enjoys a strong brand reputation in China,

100 and synergy can be expected with Medytox’s Chinese partner firm, which is China’s second-largest dermal filler company. 80

40 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ Biotech/Healthcare] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 133 181 205 222 266 300 Taehee Kim +822-3774-6813 OP (Wbn) 75 87 85 66 84 97 [email protected] OP margin (%) 56.4 48.1 41.5 29.7 31.6 32.3 NP (Wbn) 59 70 70 55 69 80 EPS (W) 10,186 12,056 12,031 9,414 11,554 13,018 ROE (%) 45.4 41.3 31.5 19.7 20.8 20.0 P/E (x) 34.1 39.1 48.0 38.0 31.0 27.5 P/B (x) 10.6 11.0 10.9 5.8 5.2 4.6 Dividend yield (%) 0.6 0.5 0.2 0.3 0.4 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

Seegene (096530 KQ) Right on track

MedTech 2Q19 review: Revenue meets consensus Results Comment For 2Q19, Seegene delivered revenue of W28bn (+13.6% YoY), in line with our August 16, 2019 expectation. Reagent revenue continued robust growth (+14.9% YoY), and equipment revenue was also relatively solid (+10.8% YoY). Operating profit came in at W3.4bn (+73.5% YoY; OP margin of 12.1%), far below the consensus. Stripping out one-off expenses (W0.9bn) related to commission payments, operating profit was in line with the consensus. (Maintain) Buy On the non-operating side, the company recorded F/X-valuation gains, a payment Target Price (12M, W) 30,000 return, and a tax return in relation to the Beckman Coulter (BC) ODM contract termination. As a result, net profit grew materially to W9.3bn (+358.1% YoY). Share Price (08/14/19, W) 21,100 Reagent volume ramp-ups to begin in 2019 Expected Return 42% 1) Market penetration to accelerate, backed by robust technology: Seegene has developed the world’s only multiplex real-time polymerase chain reaction (PCR) assays (brand name Allplex) on the back of its three core proprietary technologies. OP (19F, Wbn) 17 Supported by its strong technology, the company has more than 1,000 customers as of Consensus OP (19F, Wbn) 18 1H19. It typically takes around six to 12 months for volume to meaningfully grow after EPS Growth (19F, %) 113.3 a new customer is acquired. With Allplex entering its fourth year since its release, we Market EPS Growth (19F, %) -26.4 believe volume ramp-ups will gather traction this year. Since late 2018, the company P/E (19F, x) 26.4 has also been making progress in tender markets like Israel and France. The Market P/E (19F, x) 11.9 company’s progress in these tender markets, where price competition is fierce, KOSDAQ 597.15 suggests its technology is gaining increasing recognition.

Market Cap (Wbn) 554 2) Advance into US market: Seegene is working with global company Thermo Fisher Shares Outstanding (mn) 26 Scientific to seek US FDA clearance for Allplex. The US is the world’s largest molecular Free Float (%) 66.3 diagnostics market and has one of the highest reimbursement rates. Given that Allplex Foreign Ownership (%) 20.2 has already been recognized for its performance in the conservative European market, Beta (12M) 1.07 we believe Allplex is well-positioned to make its way into the US. We expect the 52-Week Low 14,750 company to gain FDA clearance in 2H20. 52-Week High 29,500 Maintain Buy and TP of W30,000 (%) 1M 6M 12M We maintain our Buy rating and target price of W30,000 on Seegene. The stock is Absolute -19.8 5.2 -15.9 currently trading at a 12-month forward P/S of 4.4x, in line with global peers (4.2x). Relative -8.5 30.8 7.3 As investor sentiment across the biotech sector deteriorates, attention is turning to 130 Seegene KOSDAQ companies with solid earnings. Seegene is one of the few domestic biotech companies

110 with annual revenue of more than W100bn. In 2019, we do not expect any changes in cost structure. As such, we project earnings to improve as volume ramp-ups across 90 individual sites get underway. We also note that valuation pressures have eased (P/S

70 has fallen from 6.2x to 4.4x) due to the recent increase in market volatility.

50 8.18 12.18 4.19 8.19

Mirae Asset Daewoo Co., Ltd.

[ MedTech/Healthcare Solutions] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 74 87 101 115 132 152 Choong-hyun Kim, CFA +822-3774-1740 OP (Wbn) 10 7 9 17 20 23 [email protected] OP margin (%) 13.5 8.0 8.9 14.8 15.2 15.1

NP (Wbn) 7 2 10 21 16 19 EPS (W) 272 76 375 799 617 731 ROE (%) 5.1 1.5 7.5 14.3 9.8 10.5

P/E (x) 128.7 441.9 42.7 26.4 34.2 28.9 P/B (x) 6.1 6.5 2.8 3.3 3.0 2.7 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 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

August 16, 2019 Seegene

Table 1. 2Q19 review (Wbn, %, %p) 2Q19P Growth 2Q18 1Q19 Preliminary Mirae Asset Daewoo Consensus YoY QoQ Revenue 24.6 27.5 28.0 28.3 28.7 13.6 1.7 Operating profit 2.0 5.8 3.4 4.1 4.4 73.5 -41.7 OP margin (%) 7.9 21.1 12.1 14.5 15.2 4.2 -9.0 Pretax profit 2.7 6.6 7.3 5.9 6.6 169.7 10.9 Net profit 2.0 5.1 9.3 4.7 4.8 358.1 82.6 Note: Based on K-IFRS Source: Company data, FnGuide, Mirae Asset Daewoo Research estimates

Table 1. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes

19F 20F 19F 20F 19F 20F

Revenue 113.7 131.3 114.9 132.0 1.1 0.6 Reflected 2Q19 earnings Operating profit 16.4 19.6 17.1 19.8 4.5 0.8 Pretax profit 19.1 19.9 22.0 20.2 15.2 1.2 Net profit 15.1 16.0 21.0 16.2 38.5 1.3 EPS (W) 577.1 609.1 799.3 616.9 38.5 1.3 Note: Based on K-IFRS Source: Mirae Asset Daewoo Research estimates

Table 2. Quarterly and annual earnings (Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F 3Q19F 4Q19F 2018 2019F 2020F

Revenue 24.5 24.6 21.8 29.9 27.5 28.0 26.1 33.4 100.8 114.9 132.0 Products 17.1 16.8 15.1 18.6 20.7 19.3 18.0 24.3 67.5 82.3 96.1 Women’s health 6.6 7.2 6.2 7.8 7.3 6.4 6.6 8.5 27.8 28.9 33.9 Respiratory 6.8 5.7 4.6 7.2 8.5 7.4 7.1 9.7 24.3 32.7 37.9 Other 3.7 3.9 4.3 3.6 4.9 5.4 4.3 6.1 15.5 20.8 24.3 Instruments 7.0 7.3 6.3 10.9 6.3 8.2 7.5 8.7 31.5 30.8 34.2 Other 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.4 1.9 1.8 1.6 Operating profit 2.7 2.0 -0.3 4.7 5.8 3.4 2.5 5.4 9.0 17.1 19.8 Pretax profit 2.6 2.7 0.0 4.3 6.6 7.3 2.6 5.5 9.6 22.0 20.2 Net profit 2.5 2.0 -0.1 5.4 5.1 9.3 2.1 4.4 9.8 21.0 16.2 OP margin (%) 10.8 7.9 -1.2 15.6 21.1 12.1 9.8 16.2 8.9 14.8 15.2 Pretax margin (%) 10.5 11.0 0.2 14.3 24.0 26.2 10.0 16.4 9.5 19.1 15.3 Net margin (%) 10.0 8.3 -0.5 18.1 18.6 33.5 8.0 13.2 9.7 18.2 12.3 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Nongshim (004370 KS) Overseas growth deserves more credit

Food & Beverage 2Q19 review: Domestic weakness vs. overseas growth For 2Q19, Nongshim posted a 6.6% YoY rise in revenue (W568.2bn) and a 26.9% YoY Results Comment gain in operating profit (W8.2bn; OP margin of 1.4%) on a consolidated basis (Korea, August 14, 2019 China, Vietnam, and Russia). We believe the 2Q19 results were sluggish overall. Domestic revenue and operating profit grew 4.1% and 22.9% YoY, respectively (OP margin of 0.8%). By category, revenue growth was: 1) +2.9% for instant noodles (sales volume growth of 6.1%); 2) -4.4% for snacks; 3) +5.5% for beverages; 4) +15.2% for (Maintain) import brands; and 5) +13.3% for exports. By instant noodle brand, revenue increased Buy 7.6% for Shin Ramen (including Shin Ramyun Non-Frying), 20.4% for Chapagetti, and 9.1% for Yukgaejang, remained flat for Ansungtangmyun, and declined for Neoguri. In Target Price(12M, W) ▼ 320,000 2Q19, sales of new seasonal products (jjolmyun, bibim myun, cold ramyun, etc.) were muted due to Paldo’s aggressive marketing (discounts, new rollouts, etc.). Existing products, on the other hand, did well. Nongshim’s instant noodle market share gained Share Price (08/14/19, W) 225,000 0.8%p YoY to 53.7%.

Expected Return 42% In snacks, the domestic market was sluggish overall, and flour snacks and corn snacks (Nongshim’s key areas of focus) were particularly weak. Nongshim’s snack market share slipped 1.0%p YoY to 30.7%. In beverages, sales of Baeksansoo grew 11.7% YoY. In import brands, sales of Mentos and Pringles remained strong, growing more than OP (19F, Wbn) 86 25% YoY each. Consensus OP (19F, Wbn) 99 At overseas subsidiaries (US, China, Japan, Australia, and Vietnam), revenue and operating profit expanded 16.3% and 90.2% YoY, respectively (OP margin of 4.5%). In EPS Growth (19F, %) -7.8 the US, revenue and operating profit grew 17.3% and 49.2% YoY, respectively (OP Market EPS Growth (19F, %) -26.5 margin of 3.5%), supported by: 1) growth in key channels (Walmart, Costco, Kroger, P/E (19F, x) 17.6 etc.); 2) expansion into the southern region; and 3) more efficient promotional Market P/E (19F, x) 12.0 spending. In China, revenue and operating profit grew 8.4% and 188.7% YoY, respectively (OP margin of 7.3%), on the back of a pickup in revenue from core KOSPI 1,938.37 products (Shin Ramyun, Kimchi Ramyun, etc.) and VAT cuts. Elsewhere, revenue gained Market Cap (Wbn) 1,369 22.0% YoY in Japan and 12.3% YoY in Australia. Shares Outstanding (mn) 6 Focus will be on margins for domestic and top-line growth for overseas Free Float (%) 49.6 In 2H19, the domestic instant noodle market is likely to remain steady, as a number of Foreign Ownership (%) 20.1 product renewals and trendy new products are set to hit the market. The key will be Beta (12M) 0.26 pricing, but price hikes look unlikely in 2019, given 1) stabilizing costs, 2) Ottogi’s 52-Week Low 214,000 pricing strategy, and 3) competition among the market’s four major players. We believe Nongshim will need to manage profits through cost savings. 52-Week High 313,500 On the overseas front, we expect growth and margin improvements to continue. In the (%) 1M 6M 12M US, the company is likely to: 1) expand vendors in southern states (including Texas); 2) Absolute -7.8 -19.5 -18.9 broaden its product offerings (Shin Ramyun Black, non-fried instant noodles, cup Relative -0.7 -7.6 -5.5 instant noodles, etc.); and 3) move into large modern trade channels. In China, the company is expected to focus on channel expansion in the western region and sales of core products. In Vietnam (2Q19 revenue of W1.76bn), we believe the company will 110 Nongshim KOSPI also concentrate on expanding its channels. 100

90 Maintain Buy, but cut TP to W320,000

80 Nongshim’s stock has pulled back to a 2019-20F P/B of 0.7x due to sluggish domestic profits in 2Q19. We believe the stock’s decline is overdone, given growth and 70 profitability in overseas markets like the US, China, and Vietnam. That said, we are 60 lowering our target price to W320,000 (from W340,000), as we adjusted down our 8.18 12.18 4.19 8.19 earnings estimates.

Mirae Asset Daewoo Co., Ltd.

[ F&B] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 2,217 2,208 2,236 2,342 2,426 2,511 Woon-mok Baek +822-3774-1679 OP (Wbn) 90 96 89 86 93 99 [email protected] OP margin (%) 4.1 4.3 4.0 3.7 3.8 3.9

NP (Wbn) 199 91 84 78 88 92 EPS (W) 32,764 14,905 13,858 12,771 14,512 15,186 ROE (%) 11.6 5.0 4.5 4.1 4.5 4.5

P/E (x) 10.1 23.8 18.4 17.6 15.5 14.8 P/B (x) 1.1 1.1 0.8 0.7 0.7 0.6 Dividend yield (%) 1.2 1.1 1.6 1.8 1.8 2.0 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

Hite Jinro (000080 KS) Look for a turnaround in 2H19 and 2020

Food & Beverage 2Q19 review: Increase in beer utilization deserves attention Results Comment For 2Q19, Hite Jinro posted a 6.3% YoY gain in revenue (W524.4bn), a 60.5% YoY drop in operating profit (W10.6bn), and a net loss of W29.2bn. For soju (55.1% of 2018 August 14, 2019 revenue), revenue rose 8.7% YoY on the back of price increases (prices were raised by 6.5% in May), but operating profit declined 20.2% YoY, hurt by increased marketing spending. For beer (37.9% of revenue), revenue declined 0.7% YoY. Considering accounting (Maintain) Trading Buy changes at overseas subsidiaries, however, we believe revenue slightly increased. Sales of the new brand Terra mostly offset the decline in sales of regular beers (Hite, Max, Target Price (12M, W) 24,000 etc.), and sales of imported beer expanded 17% YoY. We think it is meaningful that beer revenue stopped declining in the quarter. Beer operating loss amounted to Share Price (08/14/19, W) 22,050 W16.9bn. We believe the biggest highlight of the 2Q19 results is utilization at the beer unit, which Expected Return 9% increased 15%p to 53% (from 38% in 2Q18). This was supported by: 1) an 8% YoY increase in beer production volume and 2) a scaling back of production capacity at the Masan plant (capacity reallocated from beer to soju). OP (19F, Wbn) 70 Despite revenue growth, operating profit fell YoY, as SG&A expenses increased 28.6% Consensus OP (19F, Wbn) 84 due to: 1) advertising and marketing spending on Terra (released in March); 2) EPS Growth (19F, %) - spending to promote Jinro is Back (new product released in April) and expand soju market share in the Seoul metropolitan area; and 3) expenses related to the Market EPS Growth (19F, %) -26.5 introduction of new liquor market regulations in July (actual implementation of the P/E (19F, x) - rebate dual punishment system has been delayed). The net loss was due to an Market P/E (19F, x) 12.0 impairment loss on tangible assets (Masan plant beer line restructuring; W13.3bn) and KOSPI 1,938.37 other expenses (W11.5bn).

Market Cap (Wbn) 1,546 Look for an earnings turnaround in 2H19 and 2020 Shares Outstanding (mn) 71 We expect earnings to turn around in 2H19 and 2020. We forecast operating profit to Free Float (%) 43.6 grow 34.6% YoY in 2H19 and 61.0% YoY in 2020. Beer revenue should expand, Foreign Ownership (%) 9.8 supported by the strong performance of Terra and imported beers (Kronenbourg 1664 Beta (12M) -0.02 Blanc), and beer operating losses should narrow significantly on reduced marketing 52-Week Low 15,300 spending. Notably, Hite Jinro may raise beer prices (including Terra) in 2H19, and beer 52-Week High 22,050 tax rates are set to change in 2020. We expect Hite Jinro’s beer market share to recover, after hitting a bottom (25%) in 2018. (%) 1M 6M 12M Soju profits are also likely to grow. We estimate soju price hikes alone (domestic Absolute 0.0 25.3 26.0 revenue is around W870bn) will boost revenue by roughly W30-40bn. We also expect: Relative 7.7 43.9 46.8 1) sales of Jinro is Back (a retro-type soju with alcohol content of 16.9% that was launched to counter Chumchurum) to grow; and 2) the company’s soju market share 130 Hite Jinro KOSPI 120 (estimated at 53%) to slightly increase. 110 Maintain Trading Buy and TP of W24,000 100 90 We expect 2020 operating profit to surge 61.0% YoY, driven by the positive consumer 80 response to Terra, Jinro is Back, and Kronenbourg 1664 Blanc. Given the company’s 70 earnings momentum, we believe investors should gradually accumulate shares in 8.18 12.18 4.19 8.19 2H19.

Mirae Asset Daewoo Co., Ltd.

[ F&B] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 1,890 1,890 1,886 1,984 2,045 2,090 Woon-mok Baek +822-3774-1679 OP (Wbn) 124 87 90 70 112 121 [email protected] OP margin (%) 6.6 4.6 4.8 3.5 5.5 5.8

NP (Wbn) 38 13 22 -21 42 48 EPS (W) 538 178 312 -294 587 678 ROE (%) 2.9 1.0 1.9 -1.9 3.9 4.5

P/E (x) 39.2 135.4 53.2 - 37.6 32.5 P/B (x) 1.1 1.3 1.0 1.4 1.4 1.4 Dividend yield (%) 4.3 3.3 4.8 3.6 3.6 3.6 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

Mirae Asset Daewoo Research Key Universe Valuations August 16, 2019

※All data as of close August 13, 2019, unless otherwise noted.

19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 Samsung Electronics 260,879 43,700 3.2 -53.4 23.9 -46.6 21.4 13.6 11.2 1.2 1.1 8.8 10.0 000660 SK Hynix 55,983 76,900 2.0 -85.3 102.4 -84.1 94.0 22.7 11.7 1.1 1.0 5.2 9.5 005380 Hyundai Motor 27,243 127,500 3.1 67.7 4.7 142.3 10.8 9.8 8.9 0.5 0.5 5.2 5.5 035420 NAVER 22,909 139,000 0.2 -25.8 110.5 -52.8 148.1 74.8 30.2 3.4 3.1 5.7 13.0 012330 Hyundai Mobis 22,874 240,000 1.7 10.3 7.8 25.4 8.8 9.9 9.1 0.7 0.6 7.4 7.4 051910 LG Chem 22,837 323,500 1.9 -25.3 66.1 -34.1 94.5 26.1 13.4 1.4 1.3 5.6 10.2 068270 Celltrion 19,699 153,500 - - - - 0.0 0.0 017670 SK Telecom 19,298 239,000 4.2 11.4 3.3 -58.6 71.4 14.9 8.7 0.8 0.7 5.7 9.3 055550 Shinhan Financial Group 19,181 40,450 14.3 5.4 11.3 0.9 5.5 5.4 0.5 0.5 9.3 8.6 051900 LG H&H 18,383 1,177,000 0.9 12.8 9.7 16.5 10.7 23.1 20.9 5.0 4.3 20.3 19.1 005490 POSCO 17,960 206,000 4.9 -21.1 -1.8 55.3 -0.7 6.8 6.9 0.4 0.4 5.9 5.7 000270 Kia Motors 17,694 43,650 1.8 20.5 19.7 54.5 16.7 9.9 8.5 0.6 0.6 6.3 7.0 006400 Samsung SDI 17,569 255,500 0.4 22.3 40.8 14.1 34.5 22.5 16.7 1.4 1.3 6.4 8.0 028260 Samsung C&T 16,636 87,700 2.3 -16.8 41.4 -39.5 16.8 16.2 13.9 0.5 0.5 4.2 4.1 105560 KB Financial Group 16,181 38,700 10.3 4.1 12.6 3.2 4.7 4.5 0.4 0.4 9.3 8.9 015760 KEPCO 16,113 25,100 - 305.3 - - - 26.2 0.2 0.2 - 0.9 018260 Samsung SDS 15,359 198,500 1.3 13.6 15.8 13.2 15.8 21.6 18.6 2.3 2.1 11.3 12.0 096770 SK Innovation 14,610 158,000 5.1 -21.3 14.0 -33.2 22.1 13.4 11.0 0.7 0.7 6.0 7.1 034730 SK Holdings 13,896 197,500 2.5 3.5 23.6 -50.2 14.0 12.5 10.9 0.7 0.7 6.5 6.9 033780 KT&G 13,798 100,500 4.2 12.8 5.6 17.5 5.1 13.0 12.4 1.5 1.5 12.7 12.6 032830 Samsung Life 13,140 65,700 - - - - 0.0 0.0 003550 LG Corp. 12,079 70,000 3.3 17.2 15.4 5.5 15.6 6.3 5.4 0.6 0.6 10.5 11.1 036570 NCsoft 11,478 523,000 1.2 4.9 73.6 31.4 51.5 20.9 13.8 3.6 2.9 21.3 26.5 035720 Kakao 10,907 130,500 0.1 184.9 132.6 205.6 127.5 69.7 30.6 2.1 1.9 3.0 6.5 000810 Samsung F&M 10,707 226,000 - - - - 0.0 0.0 010950 S-Oil 9,964 88,500 1.7 34.0 115.3 83.7 191.9 21.8 7.5 1.5 1.3 7.1 18.3 066570 LG Electronics 9,835 60,100 1.2 -11.8 30.9 -20.9 81.5 11.1 6.1 0.7 0.6 6.6 11.1 086790 Hana Financial Group 9,443 31,450 11.5 6.2 9.6 8.5 3.8 3.5 0.3 0.3 9.0 8.9 010130 Korea Zinc 8,274 438,500 2.5 14.2 5.0 25.6 -0.2 12.5 12.5 1.2 1.1 10.2 9.4 251270 Netmarble 7,774 90,700 16.8 50.4 24.2 35.1 32.8 24.3 1.6 1.5 5.3 6.7 011170 Lotte Chemical 7,763 226,500 4.6 -35.8 23.4 -39.4 33.6 8.1 6.1 0.6 0.5 7.3 9.2 090430 AmorePacific 7,366 126,000 0.9 -15.7 30.9 -9.8 31.4 24.6 18.7 1.9 1.7 6.6 8.1 030200 KT 6,998 26,800 4.1 9.5 1.0 18.2 5.3 8.6 8.2 0.5 0.5 6.0 6.0 024110 Industrial Bank of Korea 6,957 12,100 6.0 3.0 3.9 2.0 4.4 4.3 0.4 0.3 8.5 8.1 009150 Samsung Electro-Mechanics 6,857 91,800 1.2 -39.9 36.8 -3.0 -7.6 11.2 12.1 1.3 1.2 12.4 10.3 009540 KSOE 6,759 95,500 - 215.7 - 27.2 165.6 130.2 0.6 0.6 0.3 0.4 018880 Hanon Systems 6,139 11,500 - - - - 0.0 0.0 091990 Celltrion Healthcare 5,865 40,750 - 214.5 745.0 180.7 60.7 21.6 3.2 2.9 5.7 14.8 086280 Hyundai Glovis 5,756 153,500 2.1 13.5 4.6 23.2 21.9 10.7 8.8 1.2 1.1 11.9 13.1 032640 LG Uplus 5,327 12,200 5.3 -12.5 9.5 -18.5 15.2 13.6 11.8 0.8 0.7 5.6 6.3 Hyundai Heavy Industries 267250 4,910 301,500 6.1 78.7 2.1 154.0 4.5 7.2 6.9 0.6 0.5 8.6 8.5 Holdings 004020 Hyundai Steel 4,884 36,600 2.0 6.1 22.5 53.1 31.9 8.0 6.1 0.3 0.3 3.5 4.3 034220 LG Display 4,598 12,850 - - - - - 24.7 0.3 0.3 - 1.4 000720 Hyundai E&C 4,404 39,550 1.3 22.4 10.8 49.0 7.3 7.8 7.2 0.7 0.6 8.9 8.9 010140 Samsung Heavy Industries 4,259 6,760 - - - - - 27.2 0.6 0.6 - 2.4 071050 Korea Investment Holdings 3,923 70,400 - - - - 0.0 0.0 012750 S1 3,914 103,000 2.6 4.9 7.3 52.9 8.6 24.9 22.9 2.6 2.5 12.1 12.4 029780 Samsung Card 3,777 32,600 -16.3 3.1 2.8 4.1 10.6 10.2 0.5 0.5 1.5 1.5 282330 BGF Retail 3,578 207,000 1.3 8.7 10.4 1.0 13.5 23.0 20.2 5.7 4.7 27.0 25.4 036460 KOGAS 3,563 38,600 3.9 10.3 2.5 8.2 25.7 6.5 5.1 0.4 0.4 6.5 7.8 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data August 16, 2019

※All data as of close August 14, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 381.01 -5.95 -1.54 -11.17 USD/KRW 1,218.90 1,215.60 1,173.80 1,133.70 KOSPI 1,938.37 12.54 0.65 -3.56 JPY100/KRW 1,142.84 1,154.91 1,081.99 1,024.30 KOSDAQ 597.15 6.40 1.08 -10.79 EUR/KRW 1,361.94 1,363.36 1,321.29 1,293.04 Dow Jones* 26,279.91 372.54 1.44 12.66 3Y Treasury 1.15 1.15 1.42 2.06 S&P 500* 2,926.32 42.57 1.48 16.59 3Y Corporate 1.68 1.68 1.93 2.72 NASDAQ* 8,016.36 152.95 1.95 20.26 DDR4 8Gb* 3.56 3.58 3.26 7.78 Philadelphia Semicon* 1,489.66 42.68 2.95 27.84 NAND MLC 64G* 2.46 2.46 2.42 3.22 FTSE 100* 7,250.90 24.18 0.33 7.67 Oil (Dubai)* 57.76 56.83 65.88 71.25 Nikkei 225 20,655.13 199.69 0.98 5.59 Gold* 1,502.20 1,505.30 1,412.20 1,191.30 Hang Seng* 25,281.30 -543.42 -2.10 0.60 Customer deposits (Wbn)* 25,219 25,877 24,236 25,975 Taiwan (Weighted) 10,427.73 65.07 0.63 9.14 Equity type BC (Wbn)(Aug. 12) 78,515 78,363 80,317 81,044 Note: * as of August 13, 2019 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung SDI 35.83 Fila Korea 40.91 KODEX Kosdaq150 Leverage 21.65 Douzone Bizon 23.69 SEMCO 28.20 Celltrion 23.52 Hynix 19.19 Samsung Electronics 11.20 Samsung Electronics 16.55 Hyundai Motor 20.45 SEMCO 16.68 SK Telecom 11.06 S-Oil 13.31 NAVER 11.61 Hyundai Motor 15.68 NC Soft 8.58 Samsung Techwin 11.30 LG Uplus 9.50 Fila Korea 14.23 Korea Zinc 6.81 SK Energy 10.73 emart 8.84 LG Innotek 11.20 Hyundai Eng. & Cosnt. 6.63 Hynix 9.44 Kolmar Korea 8.03 Celltrion 7.27 Kolmar Korea 5.80 SK Telecom 8.76 POSCO 6.79 Hite Jinro 6.53 Hotel Shilla 5.76 LG Chem 7.89 Hana Financial Group 6.11 LG Chem 5.63 TIGER S&P500 5.03 NC Soft 7.51 LG Innotek 5.78 KODEX Leverage 5.26 GS Construction 4.98 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell KMW 17.21 Celltrion Healthcare 13.49 Celltrion Healthcare 4.63 SPSystems 7.57 Soulbrain 4.86 ViroMed 8.01 KMW 4.39 OE Solutions 2.95 Paradise 3.18 OSSTEM IMPLANT 6.63 RFHIC 3.93 Chemtros 2.85 HLB 2.83 SFA Semicon 3.16 ViroMed 3.17 Esmo 2.76 AfteecaTV 2.77 SangSangIn 2.59 AP Systems 2.71 Paradise 2.22 RFHIC 2.63 Samjung Packing & Aluminum 2.27 Soulbrain 2.50 YG Entertainment 1.80 SK Materials 2.30 Kolon Life Science 1.91 SK Materials 2.38 OliX 1.79 Cafe24 Corp. 1.26 Chemtros 1.89 S&STECH 2.35 CJ ENM 1.78 The Leadcorp.Inc. 1.22 SillaJen 1.80 HFR 2.11 The Leadcorp.Inc. 1.46 InBody 1.19 L&F 1.75 Dongjin Semichem 2.08 KBH 1.42 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 43,700 700 260,879 Celltrion Healthcare 40,750 350 5,865 Hynix 76,900 2,400 55,983 CJ ENM 156,000 -1,300 3,421 Samsung Electronics (P) 35,850 350 29,500 ViroMed 177,100 28,600 2,826 Hyundai Motor 127,500 -1,500 27,243 PearlAbyss 175,800 200 2,289 NAVER 139,000 -3,500 22,909 KMW 58,100 3,600 2,260 Hyundai Mobis 240,000 5,000 22,874 Medy-tox 358,200 2,100 2,083 LG Chem 323,500 14,500 22,837 SK Materials 183,300 5,200 1,933 Celltrion 153,500 500 19,699 Hugel 353,100 2,100 1,843 SK Telecom 239,000 3,000 19,298 Studio Dragon 59,100 600 1,658 Samsung Biologics 290,000 4,500 19,188 Paradise 15,450 400 1,405 Source: Korea Exchange