December 26, 2013

KOREA

Company News & Analysis Major Indices Close Chg Chg (%) KB Financial Group (105560/Buy/TP: W50,700) KOSPI 1,999.30 -2.29 -0.11 Earnings momentum and attractive valuation KOSPI 200 263.15 -0.43 -0.16 KOSDAQ 488.87 -2.21 -0.45

Economy & Strategy Update Turnover ('000 shares, Wbn) Spin-off/merger event of KOSPI 200 Volume Value KOSPI 215,248 3,164 Rebalancing of Hyundai Hysco and Hyundai Steel by KOSPI 200 index funds KOSPI 200 51,564 2,574 to be minimal KOSDAQ 270,439 1,042

Market Cap (Wbn) Value KOSPI 1,179,612 KOSDAQ 116,853

KOSPI Turnover (Wbn) Buy Sell Net Foreign 494 514 -19 Institutional 1,340 706 635 Retail 1,298 1,911 -613

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 45 50 -5 Institutional 55 54 1 Retail 937 932 5

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,094 410 684 KOSDAQ 7 11 -4

Advances & Declines Advances Declines Unchanged KOSPI 405 394 83 KOSDAQ 407 494 96

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,408,000 -7,000 347 KODEX LEVERAGE 12,160 -55 246 KODEX 200 26,355 -40 208 Hynix 36,000 -750 135 NHN 714,000 -20,000 121

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Media Flex 3,235 225 26 Soribada 3,670 -50 22 TPC 6,700 -1,180 20 WAVE ELECTRO 15,950 1,600 20 Celltrion 38,050 -600 19 Note: As of December 26, 2013

This document is a summary of a report prepared by Daewoo Securities Co., Ltd. (“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. 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. 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.

KB Financial Group (105560 KS) Earnings momentum and attractive valuation

4Q net profit to reach W340.6bn (-20.2% QoQ; +139.6% YoY) For 4Q, we project KB Financial Group (KBFG) to post a net profit of W340.6bn (-20.2% Banks QoQ; +139.6% YoY), slightly lower than levels expected under normal conditions. However, stripping away one-off items, we project 4Q net profit to be relatively decent. Although lending growth typically slows modestly in the final quarter of each year, the Company Report pace of growth is estimated to have remained steady QoQ this time around. As such, December 26, 2013 KBFG is likely to surpass its annual lending growth target of 2-3%. We project net interest margin (NIM) to show a slight dip QoQ. However, the pace of decline should be slower than in the previous quarter, given that NIM dropped by 10bps QoQ during 3Q. (Maintain) Buy Despite continued lending growth, we project net interest income (NII) to decline marginally QoQ due to the aforementioned continued (albeit slowing) fall in NIM. In 4Q, Target Price (12M, W) 50,700 we believe that provisioning was spurred by KBFG’s efforts to tame its year-end NPL ratio level and the ongoing process of assessing risks related to SME loans. However, we Share Price (12/24/13, W) 40,950 think that these provisions have been largely offset by a provisioning write-back owing to Taihan Electric Wire’s debt/equity swap. As such, in light of KBFG’s high burden in 3Q, Expected Return 24% we estimate that provisions have fallen QoQ in 4Q.

Earnings to normalize in 2014 OP (13F, Wbn) 2,020 In 2014, KBFG’s lending growth is expected to outpace Korea’s GDP growth. NIM is Consensus OP (13F, Wbn) 2,024 anticipated to stay at the 4Q13 level. Full-year NII is projected to decline YoY, but EPS Growth (13F, %) -21.2 quarterly figures are expected to improve steadily on a QoQ basis. SG&A expenses and Market EPS Growth (13F, %) 13.5 loan loss provisions are unlikely to increase significantly, leading to higher earnings P/E (13F, x) 11.8 stability. On the back of normalizing earnings, the bank’s net profit is forecast to jump Market P/E (13F, x) 11.1 30% YoY. KOSPI 2,001.59 Higher operating leverage to boost top-line growth Market Cap (Wbn) 15,821 We reiterate our Buy call on KBFG and target price of W50,700, which was derived by Shares Outstanding (mn) 386 applying a target P/B of 0.7x 2014F earnings. Our valuation is based on a 2014F ROE of Free Float (%) 90.8 6.7%, a 2015F ROE of 7.3%, and cost of equity (COE) of 9.6%. Our Buy recommendation Foreign Ownership (%) 63.8 is premised on the following: Beta (12M) 0.95 52-Week Low (W) 31,100 1) NIM contraction is decelerating, which will likely allow KBFG to increase its operating 52-Week High (W) 44,250 leverage. Given its robust interest-earning assets and high NIM (relative to the levels of other financial holding companies), the company should enjoy rapid top-line (%) 1M 6M 12M improvement next year. Absolute 2.5 20.4 8.3 Relative 2.7 9.2 7.3 2) The company’s earnings volatility seems relatively low, given its modest exposure to ailing large corporations. Share price 125 KOSPI 120 3) The stock remains undervalued, trading at an end-2014F P/B of 0.6x. In light of our 115 positive outlooks for the company’s 2014 earnings and the economy at large, we believe 110 105 the stock’s P/B could comfortably rise to 0.7-0.8x. 100

95 90 12/12 4/13 8/13 12/13 FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F

Total OP (Wbn) 7,664 8,843 7,904 7,523 7,643 8,008

PPOP (Wbn) 3,334 4,911 4,019 3,550 3,648 3,873 Daewoo Securities Co., Ltd. Net OP (Wbn) 193 3,398 2,411 2,020 2,315 2,645 Banks Pretax NP (Wbn) 19 3,261 2,261 1,896 2,308 2,638 NP (Wbn) 88 2,373 1,703 1,342 1,750 2,000 Yong-uk Ku EPS (W) 518 6,142 4,408 3,474 4,529 5,176 +822-768-4494 BPS (W) 52,316 59,319 63,624 66,464 68,697 72,767 [email protected] P/E (x) 115.7 5.9 8.6 11.8 9.0 7.9 Joong-han Kim P/B (x) 1.1 0.6 0.6 0.6 0.6 0.6 +822-768-4152 ROE (%) 1.1 11.5 7.2 5.3 6.7 7.3 [email protected] ROA (%) 0.1 0.9 0.6 0.5 0.6 0.7 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates 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.

Spin-off/merger event of KOSPI 200

Rebalancing of Hyundai Hysco and Hyundai Steel by KOSPI 200 index funds to be minimal AI Analysis  Hyundai Hysco to enter lock-up starting Dec. 27, ahead of the spin-off of CRC unit December 26, 2013  Related rebalancing of equity baskets for KOSPI 200 index funds likely to be minimal  Post merger, the weight of Hyundai Steel (within KOSPI 200) will increase by 0.052%p to lift the stock’s rank to 23rd based on free float market cap Daewoo Securities Co., Ltd.  By contrast, Hyundai Hysco’s free float ratio could be adjusted down by KRX to 40%, following the exercise of appraisal rights of dissenting shareholders  Hyundai Hysco’s rank likely to fall to 130th from 71st Young-Sung Kim +822-768-4120 [email protected] Hyundai Hysco shares to enter lock-up on December 27th

On October 17th, Hyundai Hysco and Hyundai Steel announced that Hyundai Hysco would

spin off the cold-rolled coil (CRC) unit, and merge it with Hyundai Steel. As this proposal was approved by both companies’ shareholders, shares of Hyundai Hysco will enter lock-up starting December 27th, ahead of the spin-off, and resume trading on January 24th, 2014.

Table 1. Spin-off schedule of Hyundai Hysco’s CRC unit, which will merge with Hyundai Steel Spin-off by Hyundai Hysco Merger with Hyundai Steel Hyundai Hysco to spin off CRC unit Entity to be spun off and merged CRC unit to merge with Hyundai Steel

Lock-up period Dec. 27, 2013 ~ Jan. 23, 2014 - Spin-off/merger ratio 0.2843884 : 0.7156116 0.5442446 : 1 Resumption of trading Jan. 24, 2014 Jan. 24, 2014 Source: Dart, KDB Daewoo Securities Research

Table 2. Details of spin-off ratio and merger ratio Hyundai Hysco Before spin-off/merger Hyundai Steel The surviving entity Hyundai Hysco’s CRC unit Spin-off ratio 0.2843884 0.7156116 (A) Merger ratio 0.5442446 (B) 1 Final ratio 0.2843884 0.3894677 (A x B) 1 0.2843884 1.3894677 Post spin-off/merger Hyundai Hysco Hyundai Steel Source: Dart, KDB Daewoo Securities Research

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.

Key Universe Valuations December 26, 2013

※All data as of close December 24, 2013, unless otherwise noted.

13F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 005930 Samsung Electronics 208,429 1,415,000 1.0 33.1 10.4 38.3 8.4 7.5 6.9 1.6 1.3 24.3 21.3 005380 Hyundai Motor 49,782 226,000 0.8 2.8 8.5 3.4 3.7 7.3 7.0 1.3 1.1 18.3 16.3 005490 POSCO 28,990 332,500 2.4 -17.0 50.6 -26.7 62.9 15.8 9.7 0.7 0.6 4.5 6.8 012330 Hyundai Mobis 27,938 287,000 0.7 -3.9 18.5 -3.6 13.2 8.1 7.2 1.5 1.2 18.6 17.8 000660 SK Hynix 26,100 36,750 0.5 - 29.1 - 46.8 9.8 6.7 2.2 1.7 23.7 26.9 035420 NAVER 24,195 734,000 0.1 -25.2 89.8 4.9 80.2 61.7 34.2 12.5 9.7 23.1 41.2 055550 Shinhan Financial Group 22,524 47,500 0.2 -10.3 14.2 -10.1 13.7 12.0 10.5 0.8 0.8 7.1 7.6 000270 Kia Motors 22,457 55,400 1.1 -2.3 12.1 -0.1 10.4 5.8 5.3 1.2 1.0 20.7 19.1 015760 KEPCO 22,019 34,300 - 365.1 - - - 7.9 0.4 0.4 - 5.5 032830 Samsung Life 20,900 104,500 2.0 0.0 9.3 4.2 4.3 18.1 17.4 1.1 1.0 6.0 5.8 051910 LG Chem 19,517 294,500 1.4 -4.6 20.3 -6.6 23.4 15.6 12.6 1.9 1.7 12.5 13.9 009540 Hyundai Heavy 19,418 255,500 0.4 -41.7 8.3 -49.3 73.8 38.9 22.4 1.2 1.1 2.9 4.8 017670 SK Telecom 19,258 238,500 4.1 16.7 14.6 45.1 8.9 11.5 10.6 1.7 1.6 13.2 13.0 105560 KB Financial Group 15,821 40,950 -3.3 11.4 3.8 11.4 9.0 8.1 0.6 0.6 6.9 7.4 096770 SK Innovation 12,945 140,000 2.1 -4.1 45.6 -16.7 67.9 13.3 7.9 0.9 0.8 6.3 9.9 086790 Hana Financial Group 12,161 41,950 -8.7 10.0 -22.8 12.7 8.8 7.8 0.6 0.6 8.8 7.3 000810 Samsung F&M 12,033 254,000 2.8 20.2 14.1 19.2 14.4 11.1 9.7 1.2 1.1 11.7 11.9 066570 LG Electronics 11,030 67,400 0.4 11.1 51.7 500.5 142.5 30.4 12.5 1.1 1.0 3.2 7.6 003550 LG Corp. 10,871 63,000 1.5 -11.3 19.9 -1.4 11.5 12.0 10.7 1.0 0.9 8.0 8.5 033780 KT&G 10,626 77,400 4.1 -5.6 6.6 -10.0 16.6 16.0 13.7 2.0 1.8 12.7 14.0 000830 Samsung C&T 9,248 59,200 0.8 -3.2 43.3 -15.3 37.5 24.9 18.1 0.9 1.0 3.4 4.7 034220 LG Display 9,017 25,200 2.1 16.1 -46.6 89.9 -8.7 20.4 22.3 0.9 0.9 4.3 3.8 003600 SK Holdings 8,899 189,500 1.5 -3.5 34.8 -1.3 22.4 8.7 7.1 2.1 1.7 8.9 10.2 010140 Samsung Heavy 8,681 37,600 -1.6 -5.0 12.6 -1.4 9.7 9.8 1.3 1.1 15.7 13.5 030200 KT 8,382 32,100 2.6 -7.9 10.5 -60.5 31.2 20.1 15.3 0.9 0.9 3.4 4.4 086280 Hyundai Glovis 8,363 223,000 1.0 4.1 12.7 1.8 16.7 16.5 14.2 3.6 2.9 23.6 22.4 010950 S-Oil 8,354 74,200 3.0 -29.1 121.6 -30.4 135.6 21.2 9.0 1.6 1.4 7.5 16.5 051900 LG Household & Health Care 8,309 532,000 0.7 15.7 12.3 16.0 14.5 26.7 23.4 6.1 4.8 26.2 24.4 011170 Lotte Chemical 7,746 226,000 0.9 36.5 77.8 18.0 78.6 19.4 10.9 1.2 1.1 6.4 10.7 161390 Hankook Tire 7,556 61,000 0.9 238.5 10.9 244.1 9.3 9.5 8.7 1.9 1.6 21.9 19.3 006400 Samsung SDI 7,335 161,000 0.9 -70.5 253.7 -70.1 46.5 17.3 11.8 1.0 1.0 5.9 8.5 004020 Hyundai Steel 7,149 83,800 0.6 -12.7 63.8 -23.5 20.4 11.7 9.7 0.7 0.7 6.0 6.9 035250 Kangwon Land 6,696 31,300 2.9 10.5 13.8 18.4 12.5 19.1 17.0 2.4 2.3 14.2 14.7 000720 Hyundai E&C 6,692 60,100 1.1 9.4 12.5 9.7 10.0 12.0 10.9 1.4 1.2 11.7 11.7 024110 Industrial Bank of Korea 6,685 12,150 0.3 -26.5 16.3 -19.6 16.1 8.4 7.2 0.5 0.5 6.6 7.3 042660 DSME 6,651 34,750 0.9 -14.7 60.0 -11.0 131.5 33.7 14.6 1.4 1.3 4.2 9.1 034730 SK C&C 6,650 133,000 1.2 11.6 5.0 31.9 1.8 14.2 13.9 2.3 2.1 19.7 17.8 088350 Hanwha Life 6,514 7,500 3.5 - - 3.5 1.6 9.8 9.6 0.8 0.8 8.6 8.3 036460 KOGAS 6,194 67,100 -4.4 26.3 - - - 15.5 1.0 1.0 - 4.4 010130 Korea Zinc 5,765 305,500 1.6 -17.4 26.3 -15.1 29.7 12.1 9.4 1.4 1.2 11.7 13.5 090430 Amorepacific 5,752 984,000 0.7 -4.1 10.2 -2.1 14.9 25.7 22.4 2.8 2.5 10.8 11.3 001800 Orion 5,499 921,000 0.3 -2.6 4.1 -3.0 11.8 37.4 33.4 5.3 4.6 14.0 13.8 009150 Samsung Electro-Mechanics 5,438 72,800 1.3 4.1 7.9 -1.3 9.4 13.0 11.9 1.4 1.3 10.7 10.8 036570 NCsoft 5,336 243,500 0.5 41.5 81.8 19.5 100.1 28.6 14.3 4.6 3.5 17.2 27.7 078930 GS 5,240 56,400 2.4 11.2 26.9 2.7 21.3 10.5 8.7 0.9 0.8 7.8 8.9 021240 COWAY 5,059 65,600 3.5 42.7 8.6 117.9 -0.2 19.4 19.4 6.0 5.0 30.5 26.0 011210 Hyundai Wia 4,786 186,000 0.3 2.6 16.9 4.6 19.7 10.9 9.1 2.2 1.8 21.2 20.5 032640 LG Uplus 4,628 10,600 2.0 341.1 28.8 - 54.5 15.5 10.0 1.4 1.2 7.7 10.9 001300 Cheil Industries 4,594 87,600 0.8 -6.8 26.5 81.6 -18.1 12.1 14.8 1.6 1.7 11.6 9.5 047050 Daewoo International 4,589 40,300 0.8 4.8 105.7 13.0 33.6 19.2 14.4 5.9 5.7 10.5 12.8 Source: KDB Daewoo Securities Research

Market Data December 26, 2013

※All data as of close December 26, 2013, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 439.99 0.00 0.00 2.51 USD/KRW 1,060.40 1,061.00 1,060.60 1,074.80 KOSPI 1,999.30 -2.29 -0.11 -1.57 JPY100/KRW 1,015.27 1,018.53 1,044.57 1,265.59 KOSDAQ 488.87 -2.21 -0.45 -2.54 EUR/KRW 1,450.57 1,453.09 1,434.25 1,416.69 Dow Jones* 16357.55 62.94 0.39 21.96 3Y Treasury 2.88 2.89 2.96 2.88 S&P 500* 1833.32 5.33 0.29 25.36 3Y Corporate 3.31 3.31 3.38 3.33 NASDAQ* 4155.42 6.52 0.16 33.52 DDR2 1Gb* 1.60 1.60 1.49 1.20 Philadelphia Semicon* 528.35 1.7 0.32 32.18 NAND 16Gb* 3.42 3.42 3.52 1.88 FTSE 100* 6694.17 15.56 0.23 11.06 Oil (Dubai)* 108.44 108.30 107.29 105.26 Nikkei 225 16,174.44 164.45 1.03 51.33 Gold* 1,205.10 1,198.40 1,241.20 1,658.60 Hang Seng* 23179.55 257.99 1.13 -0.57 Customer deposits (Wbn)* 13,721 13,618 14,361 18,303 Taiwan (Weighted) 8,485.89 18.13 0.21 9.08 Equity type BC (Wbn)(Dec. 23) 84,924 84,775 83,699 94,509 Note: * as of December 24, 2013 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell KODEX 200 32.38 Hyundai Motor 15.05 Samsung Electronics 108.83 KODEX 200 55.04 Samsung Electronics 28.54 NHN 13.99 KODEX LEVERAGE 90.26 KODEX INVERSE 13.33 Samsung Heavy Ind. 15.21 POSCO 13.72 Hyundai Motor 37.98 Macquarie Korea Infrastructure Fund 6.69 Hynix 11.69 Hyundai Mobis 8.91 POSCO 23.91 Samsung Heavy Ind. 3.90 Hana Financial Group 7.46 SK Energy 6.85 KB Financial Group 20.68 Hana Tour 3.58 Samsung SDI 5.54 DSME 6.43 Hyundai Mobis 20.53 HYUNDAI ROTEM 3.05 Samsung Electronics (P) 4.66 KT 5.37 LG Chem 19.91 TIGER200 2.83 Samsung Corp. 4.53 Hyundai Hysco 5.04 KEPCO 18.02 Samsung SDI 2.76 Samsung Engineering 3.47 S-Oil 4.79 OCI 16.07 Korea Power Engineering Company, Inc. 2.43 Honam Petrochemical 2.87 Hyundai Eng. & Cosnt. 4.24 Shinhan Financial Group 14.99 Daewoong Pharm. 1.31 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 Paradise 1.76 INICIS 2.34 INICIS 2.44 Paradise 3.31 NCB Networks 0.64 AHNLAB 1.20 Maeil Dairy Industry 1.58 MIDONG E&T 2.18 Eugene Technology 0.62 Hyundai Digital Technology 0.94 NICEI&T 1.27 Interpark 1.93 Halim 0.62 CJ E&M 0.93 ViroMed 1.24 Seoul Semiconductor 1.88 Com2us 0.60 SK Coms 0.70 Bixolon 1.13 NaturalendoTech 1.80 POSCO ICT 0.60 SM 0.68 GS Home Shopping 0.96 GOLFZON 1.47 EO Technics 0.59 Daum Communications 0.66 SFA Engineering 0.95 Finetec 0.83 Interpark 0.52 Sung Kwang Bend 0.64 HaanSoft 0.67 Seobu T&D 0.67 Kolon Life Science 0.50 Duk San Hi Metal 0.64 Joymax 0.59 POSCO ICT 0.66 Seobu T&D 0.48 Megastudy 0.49 Megastudy 0.58 Simmtech 0.57 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,408,000 -7,000 207,397 Celltrion 38,050 -600 3,824 Hyundai Motor 225,500 -500 49,672 CJ O Shopping 392,500 -2,800 2,435 POSCO 335,500 3,000 29,251 Paradise 25,800 -550 2,346 Hyundai Mobis 288,500 1,500 28,084 Seoul Semiconductor 38,500 -750 2,245 Hynix 36,000 -750 25,567 Ssangyong E&C 136,800 0 1,999 Samsung Electronics (P) 1,037,000 -4,000 23,678 GS Home Shopping 295,000 2,500 1,936 NHN 714,000 -20,000 23,535 Dongsuh 17,050 -50 1,700 Shinhan Financial Group 47,500 0 22,524 SK Broadband 4,425 0 1,310 Kia Motors 55,300 -100 22,417 Daum Communications 85,600 -1,900 1,161 KEPCO 33,950 -350 21,795 CJ E&M 29,500 -450 1,143 Source: Korea Exchange