July 16, 2018

Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) CJ CheilJedang (097950/Buy/TP: W460,000) KOSPI 2,310.90 25.84 1.13 Business overhauls and profitability enhancements continue KOSPI 200 298.65 4.24 1.44 KOSDAQ 827.89 8.60 1.05

Turnover ('000 shares, Wbn) Volume Value KOSPI 286,351 6,388 KOSPI 200 87,214 4,569 KOSDAQ 572,114 3,136

Market Cap (Wbn) Value KOSPI 1,543,892 KOSDAQ 272,433

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,725 1,501 224 Institutional 1,364 1,458 -94 Retail 3,265 3,402 -137

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 360 345 15 Institutional 170 160 10 Retail 2,602 2,628 -26

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,351 1,144 207 KOSDAQ 154 133 21

Advances & Declines Advances Declines Unchanged KOSPI 574 256 62 KOSDAQ 829 301 103

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 46,500 1,000 507 Hynix 88,800 3,200 401 Corp. 56,500 -22,800 352 402,000 -27,000 322 KODEX LEVERAGE 14,725 290 240

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Daea TI 6,760 550 89 UST 9,440 1,120 81 NATURECELL 15,550 350 61 Healthcare 99,800 1,600 54 Icure Pharm. Inc. 59,200 -1,400 49 Note: As of July 13, 2018

Mirae Asset Daewoo Research 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.

CJ CheilJedang (097950 KS) Business overhauls and profitability enhancements continue Food & Beverage 2Q18 preview: Turnaround in foodstuff and feed/livestock For 2Q18, we forecast CJ CheilJedang (CJCJ) to deliver a 10.6% YoY gain in revenue and a Earnings Preview 11.2% YoY increase in operating profit. For the company’s mainstay businesses July 13, 2018 (processed food, foodstuff, bio, and feed/livestock; excluding CJ Korea Express and the recently sold CJ HealthCare), we expect a 7.0% YoY rise in revenue and a 47.9% YoY increase in operating profit. We expect a benign performance from the core processed food and bio segments but see a rebound in profits from the foodstuff and feed/livestock segments, where the company has been carrying out business overhauls (Maintain) Buy and profitability enhancements. In processed food (34% of revenue), we estimate revenue and operating profit grew Target Price (12M, W) 460,000 only 5.9% and 4.2% YoY, respectively, affected by 1) price resistance for items whose prices were raised in early March (6-9% for Hetbahn, Spam, frozen dumplings, fish cakes, etc.), and 2) increased promotional spending. On a positive note, we believe Share Price (07/13/18, W) 342,000 growth remained robust for home meal replacements (HMR; +30% YoY) and overseas processed food (+20% YoY). In bio (25.6% of revenue), we estimate revenue and Expected Return 35% operating profit grew 32.4% and 87.5% YoY, respectively, driven by 1) volume growth and cost savings, which likely offset the impact of 5-18% declines in the spot prices of key products (lysine, methionine, tryptophan, and threonine), and 2) the consolidation of Selecta’s earnings (since September 2017). OP (18F, Wbn) 821 Consensus OP (18F, Wbn) 836 In foodstuff (18.3% of revenue), we estimate revenue slipped 8.7% YoY on the reduction of low-margin businesses (as part of the business overhaul), but operating EPS Growth (18F, %) 109.9 profit likely grew 91.7% YoY thanks to 1) lower raw material prices (raw sugar), and 2) a recovery in the actual selling price of flour (due to reduced discounts). In feed/livestock Market EPS Growth (18F, %) 10.7 (20.9% of revenue), where the company has been focusing on enhancing profitability P/E (18F, x) 6.4 due to continued losses since 1Q17, we expect a small profit, supported by higher hog Market P/E (18F, x) 9.0 prices in Vietnam and cost declines in Indonesia. KOSPI 2,310.90 Overseas processed food, domestic HMR, and overseas food M&As will be key Market Cap (Wbn) 5,148 Looking at the 2018-19 outlook for overseas processed food, we expect CJCJ to 1) grow Shares Outstanding (mn) 16 more than 15% in the US on the back of channel expansion and broader product Free Float (%) 51.8 offerings (more Bibigo products), 2) focus on expanding B2B and online channels in China, 3) build an integrated manufacturing base and tap into the channels of its Foreign Ownership (%) 21.4 acquisitions in Vietnam, and 4) invest in establishing a production/distribution base in Beta (12M) 0.97 Russia. 52-Week Low 319,500 For domestic HMR, we see revenue expanding from W240bn in 2017 to W350bn in 52-Week High 416,000 2018. We think it may take longer than expected for the HMR business to turn a profit, as the company’s focus is on product development and capex, rather than margins. (%) 1M 6M 12M Absolute -10.4 -11.5 -3.7 We believe overseas M&As in the food space could alter CJCJ’s enterprise value. If CJCJ th th Relative -4.2 -4.4 0.4 decides to acquire US food processor Schwan’s (see June 7 and July 6 regulatory filings), the company will gain access to distribution networks (logistics, factories, and retail channels) in the US Midwest and Southern regions. Schwan’s could also see 120 CJ CheilJedang KOSPI synergies related to manufacturing efficiency (facility replacements), cost-saving 110 expertise, and sales of CJCJ’s products.

100 Retain Buy and TP of W460,000 90 We believe CJCJ has the potential to deliver sustainable growth, on the back of 1) the growth of overseas processed food and domestic HMR, 2) profitability enhancements 80 7.17 11.17 3.18 7.18 in bio and feed/livestock, 3) business overhaul in foodstuff, and 4) overseas food M&As. At a 2019F P/E of 16x, valuation also looks inexpensive.

Mirae Asset Daewoo Co., Ltd.

[ F&B/Tobacco] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 12,924 14,563 16,477 17,883 19,421 21,130 Woon-mok Baek +822-3774-1679 OP (Wbn) 751 844 777 821 918 996 [email protected] OP margin (%) 5.8 5.8 4.7 4.6 4.7 4.7

Susie Hong NP (Wbn) 189 276 370 866 348 371 +822-3774-1853 EPS (W) 13,073 19,044 25,536 53,599 21,265 22,626 [email protected] ROE (%) 6.2 8.4 10.9 21.2 7.0 7.1

P/E (x) 28.9 18.8 14.3 6.4 16.1 15.1 P/B (x) 1.7 1.5 1.5 1.1 1.1 1.0 Dividend yield (%) 0.7 0.7 0.8 0.9 1.0 1.0 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

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.

July 13, 2018 CJ CheilJedang

Table 1. 2Q18 preview (Wbn, %) 2Q18F Growth 2Q17 1Q18 Mirae Asset Consensus YoY QoQ Daewoo Revenue 3,909 4,349 4,323 4,310 10.6 -0.6 Operating profit 164 210 183 185 11.2 -13.1 Pretax profit 70 112 1,062 1,032 - - Net profit 21 63 646 699 - - OP margin 4.2 4.8 4.2 4.3 - - Net margin 0.5 1.4 14.9 16.2 - - Notes: Due to the sale of the healthcare business (closed on April 18, 2018), healthcare earnings are not included from 2Q18 onwards; in 2017, the healthcare business generated revenue of W520.8bn, operating profit of W81.4bn, and net profit of W46.9bn; gains on the sale of the healthcare business (sale price of W1.31tr vs. book value of W300bn) are expected to be around W1tr (one-time non-operating profit) and are reflected in our 2Q18 pretax profit and net profit estimates Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Quarterly and annual earnings (Wbn, %) 17 18F 17 18F 19F

1Q 2Q 3Q 4Q 1Q 2QF 3QF 4QF Annual Annual Annual Revenue 3,867 3,909 4,411 4,291 4,349 4,323 4,671 4,540 16,477 17,883 19,421 Operating profit 192 164 269 150 210 183 260 168 777 821 918 Pretax profit 125 70 364 24 112 1,062 155 106 584 1,436 581 Net profit 82 21 256 11 63 646 102 55 370 866 348 OP margin 5.0 4.2 6.1 3.5 4.8 4.2 5.6 3.7 4.7 4.6 4.7 Net margin 2.1 0.5 5.8 0.2 1.4 14.9 2.2 1.2 2.2 4.8 1.8 Revenue growth 9.4 8.3 19.9 14.7 12.5 10.6 5.9 5.8 13.1 8.5 8.6 OP growth -17.3 -21.9 10.7 -4.2 9.2 11.2 -3.3 11.7 -7.9 5.8 11.8 Pretax profit growth -38.6 -47.0 120.4 -8.1 -10.4 - -57.3 335.0 10.6 145.8 -59.6 Net profit growth -33.1 -50.0 130.9 TTB -23.8 - -60.1 418.2 34.2 133.9 -59.8 Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. 2018-19 earnings forecast revisions (Wbn, %) Previous Revised % chg. Notes 18F 19F 18F 19F 18F 19F Revenue 17,905 19,445 17,883 19,421 -0.1 -0.1 Operating profit 826 935 821 918 -0.6 -1.8 Pretax profit 1,449 592 1,436 581 -0.9 -1.9 Net profit 877 357 866 348 -1.3 -2.4 OP margin 4.6 4.8 4.6 4.7 - - Net margin 4.9 1.8 4.8 1.8 - - Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 2

Mirae Asset Daewoo Research Key Universe Valuations July 16, 2018

※All data as of close July 12, 2018, unless otherwise noted.

18F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 005930 298,499 46,500 3.0 25.9 2.0 37.2 7.2 6.3 5.8 1.3 1.1 23.6 21.0 000660 SK Hynix 64,647 88,800 1.7 55.3 11.6 49.6 12.6 4.1 3.6 1.3 1.0 38.6 31.3 068270 Celltrion, Inc. 36,114 288,000 - - - - 0.0 0.0 005490 POSCO 27,595 316,500 2.5 20.8 3.5 31.6 3.3 7.5 7.3 0.6 0.5 8.2 7.9 005380 Hyundai Motor 26,984 122,500 3.3 -19.4 10.5 -16.9 17.9 10.4 8.8 0.5 0.5 4.8 5.3 207940 Samsung Biologics 26,598 402,000 4.5 277.0 - 375.1 513.7 108.1 6.6 6.2 1.3 5.9 035420 NAVER 25,414 771,000 0.2 -3.2 45.8 -1.1 44.5 33.2 23.0 3.8 3.3 15.1 18.7 051910 LG Chem 23,648 335,000 1.8 -3.0 17.1 10.1 18.1 12.2 10.4 1.5 1.3 12.7 13.6 105560 KB Financial Group 23,122 55,300 20.3 5.9 7.7 3.9 6.4 6.2 0.6 0.6 10.3 10.0 028260 Samsung C&T Corporation 22,004 116,000 1.7 14.5 11.3 66.5 6.1 20.8 19.6 0.9 0.8 4.6 4.7 051900 LG Household & Health Care 21,662 1,387,000 0.8 9.0 10.1 13.1 10.5 35.8 32.4 6.8 5.8 20.9 19.7 055550 21,434 45,200 19.5 4.2 14.8 4.0 6.4 6.2 0.6 0.6 10.0 9.8 012330 20,978 215,500 1.6 -2.1 10.7 27.8 12.8 10.5 9.3 0.7 0.6 6.6 7.1 015760 KEPCO 20,029 31,200 -80.1 280.7 - - - 13.4 0.3 0.3 - 2.1 017670 SK Telecom 19,419 240,500 4.2 -13.7 9.5 8.2 -4.9 6.9 7.3 0.8 0.8 14.4 12.0 034730 SK Holdings 19,244 273,500 1.5 4.6 7.0 26.5 6.1 9.1 8.6 1.2 1.0 14.5 13.6 032830 Samsung Life 19,180 95,900 - - - - 0.0 0.0 096770 SK Innovation 17,753 192,000 4.2 -13.7 0.1 -6.0 4.3 9.1 8.7 0.9 0.9 10.7 10.5 090430 AmorePacific 17,158 293,500 0.6 16.7 20.7 23.6 19.5 41.6 34.8 4.4 4.0 11.2 12.2 006400 Samsung SDI 16,297 237,000 0.4 392.9 52.5 6.7 42.0 23.8 16.7 1.4 1.3 6.1 8.1 018260 Samsung SDS 15,669 202,500 1.2 17.9 13.1 22.7 10.7 24.1 21.8 2.5 2.3 11.1 11.2 033780 KT&G 14,896 108,500 4.2 -6.9 16.5 -12.8 13.5 14.7 12.9 1.8 1.7 13.1 14.3 091990 Celltrion Healthcare 14,024 99,800 79.4 45.2 65.7 17.5 48.0 40.9 7.0 6.2 15.7 16.1 251270 13,546 159,000 0.2 -18.2 7.0 -6.3 6.7 46.6 43.6 2.9 2.8 6.5 6.6 086790 13,196 43,950 23.4 10.0 17.5 9.0 5.4 5.0 0.5 0.5 9.6 9.6 000270 Motors 12,749 31,450 3.2 75.8 15.7 44.0 19.4 9.1 7.7 0.5 0.4 5.1 5.8 066570 LG Electronics 12,699 77,600 0.9 48.8 15.3 19.7 29.6 6.8 5.2 0.9 0.8 14.5 16.2 000810 Samsung F&M 12,602 266,000 - - - - 0.0 0.0 003550 LG Corp. 12,545 72,700 1.8 0.8 6.8 -21.5 7.1 6.8 6.3 0.7 0.7 11.1 10.8 010950 S-Oil 12,328 109,500 5.2 9.6 38.7 -9.6 39.0 11.3 8.2 1.9 1.7 16.6 21.9 009150 Samsung Electro-Mechanics 12,138 162,500 0.5 142.3 16.9 193.3 14.5 26.6 23.2 2.6 2.4 10.6 11.0 011170 Lotte Chemical 11,791 344,000 3.1 -7.1 7.6 -0.7 11.8 5.3 4.7 0.9 0.8 18.1 17.5 002790 AmoreG 9,070 110,000 0.5 24.5 12.2 30.3 7.7 37.0 34.3 2.9 2.7 8.5 8.5 035720 Corp. 9,002 118,000 0.1 -39.5 76.0 -19.1 46.6 91.0 62.1 2.2 2.1 2.4 3.5 024110 8,960 16,000 22.7 7.2 19.3 7.0 5.9 5.5 0.5 0.5 8.9 9.0 036570 NCSOFT 8,666 395,000 2.1 19.0 70.1 14.5 70.3 17.2 10.1 2.6 2.2 17.2 24.6 010130 Korea Zinc 7,237 383,500 2.6 -2.6 2.9 7.8 4.8 10.7 10.2 1.1 1.0 10.9 10.5 030200 KT 7,233 27,700 3.6 -10.3 -0.3 30.1 18.3 11.7 9.9 0.6 0.5 5.2 5.9 034220 LG Display 7,013 19,600 2.6 ------0.5 0.5 - - 021240 Coway 6,701 90,800 4.5 10.9 5.4 13.2 4.2 18.5 17.8 5.5 5.2 35.6 34.8 004020 6,532 48,950 1.5 -0.9 3.7 10.9 3.4 8.2 8.0 0.4 0.4 4.7 4.7 032640 LG Uplus 6,375 14,600 3.8 -2.2 1.9 -7.7 0.9 12.6 12.5 0.9 0.9 8.5 7.4 139480 Emart 6,147 220,500 0.8 5.2 12.7 -28.1 18.6 13.9 11.7 0.7 0.7 5.3 6.0 000720 Hyundai E&C 6,091 54,700 0.9 9.7 2.9 146.5 3.0 12.3 11.9 0.9 0.9 7.7 7.8 018880 Hanon Systems 5,818 10,900 - - - - 0.0 0.0 271560 Orion 5,811 147,000 0.5 172.8 13.3 54.9 16.9 29.1 24.9 3.9 3.4 14.3 14.6 023530 Lotte Shopping 5,723 203,500 2.6 36.3 16.2 - 123.4 25.9 11.6 0.5 0.4 1.7 3.8 036460 KOGAS 5,659 61,300 1.6 29.8 4.9 - 6.8 8.1 7.6 0.7 0.6 8.6 8.4 097950 CJ CheilJedang 5,148 342,000 0.9 5.8 11.8 109.9 -60.3 6.4 16.1 1.1 1.1 21.2 7.0 128940 5,135 451,000 0.1 0.1 100.0 -7.3 112.4 91.7 43.2 6.6 5.8 7.6 14.5 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data July 16, 2018

※All data as of close July 13, 2018, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 482.78 -2.96 -0.61 -12.88 USD/KRW 1,127.80 1,120.80 1,073.50 1,145.60 KOSPI 2,310.90 25.84 1.13 -6.81 JPY100/KRW 1,001.55 1,001.16 974.18 1,011.17 KOSDAQ 827.89 8.60 1.05 1.90 EUR/KRW 1,314.96 1,308.20 1,264.31 1,307.65 Dow Jones* 24,924.89 224.44 0.91 0.41 3Y Treasury 2.11 2.09 2.22 1.75 S&P 500* 2,798.29 24.27 0.87 3.80 3Y Corporate 2.76 2.74 2.83 2.28 NASDAQ* 7,823.92 107.31 1.39 11.66 DDR2 1Gb* 1.34 1.34 1.35 1.22 Philadelphia Semicon* 1,346.20 9.49 0.71 4.54 NAND 16Gb* 2.84 2.84 2.87 2.96 FTSE 100* 7,651.33 59.37 0.78 0.04 Oil (Dubai)* 72.56 74.75 74.75 46.82 Nikkei 225 22,597.35 409.39 1.85 -3.87 Gold* 1,246.60 1,244.40 1,295.10 1,219.10 Hang Seng* 28,480.83 169.14 0.60 -6.67 Customer deposits (Wbn)* 26,375 25,916 27,774 23,583 Taiwan (Weighted) 10,864.54 126.16 1.17 1.44 Equity type BC (Wbn)(Jul. 11) 81,375 81,346 81,252 68,796 Note: * as of July 12, 2018 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Hynix 108.29 KOREA AEROSPACE 19.92 LG Chem 42.29 Hyosung Corp. 43.10 SEMCO 48.73 Hyosung Corp. 19.66 Hynix 36.59 KOREA AEROSPACE 29.98 SK Telecom 20.14 HYOSUNG TNC 19.63 Samsung Electronics 23.07 SK Energy 27.90 Celltrion 19.97 LG Chem 18.91 KODEX KOSDAQ150 LEVERAGE 22.79 HYOSUNG ADVANCED 23.13 Samsung Electronics 14.57 SAMSUNG C&T 14.87 KODEX LEVERAGE 19.92 Netmarble 14.30 NCsoft 12.17 HYOSUNG CHEM 13.01 SK C&C 15.23 SK Telecom 10.15 LG Household & Health Care 11.64 HYOSUNG ADVANCED 12.11 KODEX 200 12.99 SAMSUNG C&T 8.93 Shinhan Financial Group 11.46 KEPCO 11.07 Hyundai Mobis 8.41 Celltrion 8.13 Samsung Electronics (P) 10.94 SK C&C 10.19 KODEX KOSDAQ150 INVERSE 7.97 NHN 6.99 KB Financial Group 10.85 HYOSUNG HEAVY 9.77 Samsung SDI 7.03 Hyundai Department Store 6.52 Source: KSDA, Wisefn

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Jtuen Entertainment 8.44 SKPI 7.61 YG Entertainment 5.38 Posco Chemtech 6.83 Celltrion Healthcare 5.44 Posco Chemtech 3.83 Medy-tox 4.60 Dexter studios 2.63 SM 4.86 S-MAC 2.49 SM 4.36 L&F 2.47 Daea TI 2.95 ECOPRO 2.39 ANP 3.94 Nowcom 2.06 Medy-tox 2.45 HLB 2.38 Icure Pharm. Inc. 2.59 HENG SHENG GROUP 1.89 Koh Young 2.32 Kolon TissueGene(Reg.S) 2.37 BH,LTD. 2.45 BARREL 1.48 Nexen Tech 2.24 ANP 1.99 DoubleUGames 2.18 SKPI 1.43 Com2us 2.21 CJ O Shopping 1.92 Jtuen Entertainment 2.08 Gentro 1.30 Cafe24 Corp. 2.16 Tes 1.74 ISPLUS 1.94 UniTest 1.27 Winix 1.85 TESNA 1.60 SillaJen 1.86 Kolon TissueGene(Reg.S) 1.22 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 46,500 1,000 298,499 Celltrion Healthcare 99,800 1,600 14,024 Hynix 88,800 3,200 64,647 SillaJen 70,400 -100 4,893 Celltrion 288,000 0 36,114 Medy-tox 822,000 20,800 4,650 Samsung Electronics (P) 37,350 950 33,751 NANOS 9,380 180 4,604 POSCO 316,500 5,500 27,595 CJ E&M 98,900 0 3,831 Hyundai Motor 122,500 -500 26,984 ViroMed 235,500 7,300 3,758 SAMSUNG BIOLOGICS 402,000 -27,000 26,598 119,800 0 3,359 NHN 771,000 -11,000 25,414 HLB 89,500 -300 3,293 LG Chem 335,000 11,500 23,648 PearlAbyss 234,000 700 2,980 KB Financial Group 55,300 2,400 23,122 Celltrion 84,000 1,200 2,860 Source: