November 12, 2020 -Asia Morning Focus

Today’s reports Emart (139480 KS/Buy/TP: W225,000) Raise TP – Positive changes beginning to take shape Seegene (096530 KQ/Trading Buy/TP: W275,800) Lower TP – A new chapter in the history of in-vitro diagnostics Hanwha Aerospace (012450 KS/Buy/TP: W39,000) – Still undervalued Netmarble (251270 KS/Buy/TP: W170,000) Lower TP – Solid earnings and promising new lineup YG Entertainment (122870 KQ/Trading Buy/TP: W51,000) – Returning to normalcy Global performance monitor: Two-day change (%) Asia xJPN World EM World DM Korea Japan HK India Indonesia Thailand Index -0.11 0.31 1.52 1.93 2.71 -2.89 0.63 4.33 1.31 5.15 3.45 8.60 Growth -1.59 -2.95 -3.16 0.03 0.78 -6.25 -0.36 4.21 2.13 4.03 1.29 9.15 Value 2.64 2.34 5.35 4.03 4.89 1.81 1.93 4.48 0.59 6.17 5.59 8.08 Semicon. & equip. -0.22 -0.22 -3.49 1.48 -0.75 -6.37 -0.80 -0.09 - - - - Tech hardware & equip. 0.78 0.81 -0.89 1.84 3.26 -4.25 -0.26 6.86 1.43 - -7.70 - Comm. & prof. services -1.56 -1.56 1.83 1.76 2.16 0.16 1.48 - -2.29 6.77 - - Software & services -2.32 -2.63 -3.29 -0.25 -2.33 -3.81 -0.16 -2.39 -1.98 - -2.16 - Media & entertainment -3.15 -3.05 -2.00 -4.66 -6.21 -3.81 -9.52 2.85 -0.87 - - - Consumer goods 1.03 1.41 1.38 1.69 -1.09 -1.54 2.19 - -1.14 0.13 - 3.79 Consumer services 2.93 0.88 4.58 9.41 7.42 1.32 6.92 10.87 1.70 6.49 6.99 25.03 F&B & tobacco 2.61 4.01 4.03 1.02 2.63 0.04 2.75 7.25 1.04 1.03 -2.06 -0.81 Food & staples retailing 4.21 3.61 -0.03 8.06 3.65 -1.05 4.02 13.24 2.81 - -6.65 6.27 Retailing -9.85 -9.12 -5.83 6.28 0.26 -5.77 3.66 1.68 0.00 5.05 1.62 8.49 HH & personal products 0.61 0.31 -0.08 4.01 2.99 -1.89 -5.05 - -0.76 -2.67 - - Pharma & life sciences -1.62 -1.37 -0.66 0.20 3.06 -3.76 -0.54 -3.73 -0.74 -0.83 - - Autos & parts 0.58 0.59 2.36 5.08 5.36 -7.63 3.59 0.99 2.37 6.97 - - Transportation 6.41 6.38 3.03 6.13 10.16 -1.10 0.41 1.75 4.23 - 14.01 14.58 Capital goods 2.55 3.60 5.33 6.37 3.38 -0.96 5.60 -1.46 5.43 - 2.89 0.09 Materials 2.01 1.12 1.69 -2.57 3.34 -0.05 6.21 - 1.59 5.06 - 3.64 Real estate 3.60 2.98 3.59 0.24 7.98 1.12 3.83 6.02 5.53 - 1.95 14.25 Energy 6.44 8.50 14.70 4.07 5.90 1.05 12.54 - -1.94 3.82 1.80 11.63 Banks 4.92 5.96 9.78 8.22 7.10 1.69 3.61 4.89 6.45 6.34 5.19 12.52 Diversified financials 2.12 4.08 4.96 6.00 6.70 -3.73 4.15 -0.13 6.95 - -2.06 3.72 Telecom services 1.51 2.39 3.14 2.24 -2.32 -0.07 -0.18 0.39 0.92 6.93 3.48 3.07 Utilities 1.90 2.91 2.86 4.33 3.95 0.83 1.93 0.67 4.07 6.94 - 4.61

Key thematic ETFs: Change (%) Market movers Mkt cap US dollar total returns (%) Robotics & AI (Global X) Name Ctry Sector (US$mn) 1D 1M 3M 6M 1Y 3Y Cloud Computing (Global X) Top seven performers Lithium & Battery (Global X) Celltrion KR Healthcare 36,061 7.7 17.6 0.9 54.9 75.9 84.9 Internet of Things (Global X) Hanon Systems KR Consumer disc. 6,468 7.7 10.0 32.6 63.4 27.0 11.8 Digitalisation (iShares) Telekomunikasi ID Commun. services 21,662 7.4 17.7 9.5 6.4 -21.2 -17.8 FinTech (Global X) Formosa Petrochemical TW Energy 30,805 7.2 14.0 13.6 12.0 4.8 4.5 Genomics & Biotech (Global X) Tata Steel IN Materials 7,311 7.1 26.2 14.6 79.3 16.4 -33.4 Health & Wellness (Global X) Motors KR Consumer disc. 21,219 7.1 18.6 31.5 109.1 45.9 81.6 Ageing Population (iShares) SK Holdings KR Industrials 13,122 6.6 2.9 -8.1 27.6 -17.9 -23.5 EM Consum Growth (iShares) Bottom seven performers Clean Energy (iShares) Seegene KR Healthcare 5,455 -7.4 -19.3 -17.8 173.2 996.3 694.0 Water Resources (Invesco) PT Hanjaya Mandala ID Consumer staples 11,809 -5.2 -3.7 -12.6 -2.9 -25.5 -61.2 Agribusiness (iShares) Ascendas Real Est Invt SG Real estate 8,122 -5.1 -5.1 -10.0 8.2 10.1 36.4 Global Infrastructure (iShares) Hanwha Solutions KR Materials 7,157 -4.7 4.5 63.8 261.5 210.8 66.4 ESG US Leaders (iShares) Misc MY Industrials 7,448 -4.6 -2.8 -8.9 -6.8 -12.7 9.4 2D 10D SM Investments PH Industrials 26,187 -4.6 16.8 24.0 36.0 4.0 16.3 (3) 0 3 6 9 12 15

Reliance Industries IN Energy 181,56 -4.4 -12.1 -5.9 30.7 36.2 102.9

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

November 12, 2020 One-Asia Morning Focus

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

17 12M forward P/E (x) 22 2.0 12M trailing P/B (x) 2.8 21 16 20 2.6 1.8 15 19 2.4 14 18 1.6 17 13 2.2 16 1.4 12 15 2.0 11 14 1.2 13 1.8 10 12 9 11 1.0 1.6 Nov-19 Feb-20 May-20 Aug-20 Nov-19 Feb-20 May-20 Aug-20 MSCI Asia ex-JP (L) MSCI World EM (L) MSCI World DM (R) MSCI Asia ex-JP (L) MSCI World EM (L) MSCI World DM (R)

MSCI 12M forward P/E (x) Currencies (vs. USD) Value Change(%) Korea Vietnam 1D 3M YTD

13 19 KRW 1,110.0 -0.46 -6.38 -4.02 CNY 6.6 0.24 -4.77 -4.96 11 16 JPY 105.6 0.40 -0.78 -2.80 IDR 14,085.0 0.25 -4.02 1.46 9 13 HKD 7.8 -0.01 0.04 -0.50 TWD 28.5 -0.02 -3.04 -4.89 7 10 Nov-19 Feb-20 May-20 Aug-20 Nov-19 Feb-20 May-20 Aug-20 SGD 1.4 0.12 -1.56 0.44 THB 30.3 -0.44 -2.50 1.11 Indonesia India 19 24 INR 74.4 0.24 -0.54 4.19 22 PHP 48.3 -0.04 -1.42 -4.72 17 20 MYR 4.1 0.22 -1.50 0.95 15 18 VND 23,175.5 0.00 0.00 0.01 13 16 Commodities 11 14 Latest Change (%) 9 12 Nov-19 Feb-20 May-20 Aug-20 Nov-19 Feb-20 May-20 Aug-20 close 1D 3M YTD Crude oil (US$/bbl) 43.6 2.9 2.1 -35.6 Hong Kong China Thermal coal (US$/tonne) 58.4 0.0 11.9 -12.8 19 16 Iron ore (US$/tonne) 120.3 0.4 18.5 31.4 15 17 Copper (US$/tonne) 6,865.5 -2.4 12.3 11.5 14 Nickel (US$/tonne) 15,700.0 -1.0 18.6 12.1 15 13 Tin (US$/tonne) 18,240.0 -1.2 6.4 8.2 12 Gold (US$/ozt) 1,875.4 1.2 4.9 23.4 13 11 Palm oil (INR/tonne) 950.8 0.2 25.1 9.2

11 10 Soybean oil (c/lb) 37.1 2.3 34.0 8.0 Nov-19 Feb-20 May-20 Aug-20 Nov-19 Feb-20 May-20 Aug-20 Corn (US$/bu) 4.3 4.0 23.5 7.2 Wheat (US$/bu) 6.1 1.8 24.3 8.9 Source: FactSet, Mirae Asset Daewoo Research (updated on 11/11/20 at 23:00 KST)

[Korea] Retail November 12, 2020

Emart Buy (139480 KS) (Maintain)

Positive changes beginning to take shape TP: W225,000 ▲ Upside: 38.9%

Mirae Asset Daewoo Co., Ltd. Myoungjoo Kim [email protected] Minjeong Kyeong [email protected]

3Q20 review Earnings beat consensus on hypermarket turnaround and smaller loss at SSG.com  For 3Q20, Emart delivered consolidated revenue of W5.91tr (+16.7% YoY) and operating profit of W151.2bn (+30.1% YoY).  The solid results were driven by: 1) a turnaround in hypermarkets; and 2) a smaller loss at SSG.com.  SSG.com’s operating loss narrowed to W3.1bn, which we attribute to: 1) revenue growth and resulting fixed-cost effects; and 2) efficient execution of variable expenses (e.g., transportation costs, which we estimate accounted for 25% of SG&A expenses in 2019).

No headwinds in 2021 2021 to be a year of positive changes  We do not see any headwinds for 2021. Subsidiaries such as Shinsegae Food should rebound on the back of easy comparisons.  The hypermarket industry has been recovering since 1Q20. We expect Emart to gain market share, supported by: 1) store closures by a rival; and 2) a low base of comparison.  In October, same-store sales (SSS) grew more than 1%, even after adjusting for inflation and SSG Day/holiday effects.  In 2021, we forecast the online grocery market to grow 22.6% YoY and online sales to account for 24.4% of grocery sales.  We think Emart’s daily delivery capacity could expand by more than 30% in 2021 compared to the 2020 average, partly due to the expansion of picking and packing (PP) centers.  We expect SSG.com’s online grocery market share to be 6.4% (+0.1%p) in 2020 and 6.7% (+0.3%p) in 2021.

Recommendation and valuation Retain Buy and raise TP to W225,000 (from W190,000)  We revise up our 2020-21 net profit estimates by 7.3% and 16.1%, respectively.  Emart is currently trading at a 2021F P/E of 13.3x, a premium to the retail sector average.  We believe the valuation premium can be justified by: 1) EPS improvements supported by a pickup in hypermarkets; and 2) the steady growth of SSG.com.  We expect fast deliveries and quick commerce to become widespread in 2021. Against this backdrop, we believe Emart will significantly increase the utilization of its stores, a factor that should drive EPS growth and multiple expansion. Key data Current price (11/11/20, W) 162,000 Market cap (Wbn) 4,516 140 Emart KOSPI OP (20F, Wbn) 236 Shares outstanding (mn) 28 120 Consensus OP (20F, Wbn) 181 Free float (%) 68.2 100 EPS growth (20F, %) 131.9 Foreign ownership (%) 31.9 80 P/E (20F, x) 8.3 Beta (12M) 0.61

60 Market P/E (20F, x) 16.8 52-week low (W) 97,900 11.19 3.20 7.20 11.20 KOSPI 2,485.87 52-week high (W) 162,000

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2016 2017 2018 2019 2020F 2021F Absolute 9.1 45.3 27.6 Revenue (Wbn) 14,615 15,515 17,049 19,063 21,891 23,319 Relative 5.0 13.1 9.0 OP (Wbn) 569 585 463 151 236 410 OP margin (%) 3.9 3.8 2.7 0.8 1.1 1.8 NP (Wbn) 376 616 450 234 542 340 EPS (W) 13,497 22,101 16,150 8,391 19,454 12,203 ROE (%) 5.1 7.7 5.5 2.8 6.1 3.7 P/E (x) 13.6 12.3 11.3 15.2 8.3 13.3 P/B (x) 0.7 0.9 0.6 0.4 0.5 0.5 Div. yield (%) 0.8 0.6 1.1 1.6 1.2 1.2 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent 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 US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. [Korea] Medtech November 11, 2020

Seegene Trading Buy (096530 KQ) (Maintain)

A new chapter in the history of Korea’s in-vitro TP: W275,800 ▼ diagnostics Upside: 19.5%

Mirae Asset Daewoo Co., Ltd. Choong-hyun Kim, CFA [email protected]

3Q20 review Both revenue and operating profit exceed consensus  For 3Q20, Seegene reported a 941% YoY increase in revenue and a 2,968% YoY surge in operating profit (OP margin of 64.2%).  By region, revenue was up 192% in Korea, 1,698% YoY in North America, 1,167% YoY in Europe, and 515% YoY in Asia/the Middle East.  Reagent revenue soared 1,156% YoY. By segment, revenue was up 2,941% YoY for respiratory, 89% YoY for HPV, and 19% YoY for women’s health.  Instruments/other revenue jumped 394% YoY. In 3Q20, 367 machines were installed, bringing the YTD total to 2,630. Order backlog remained robust (demand > supply).

Valuation and investment Maintain Trading Buy and cut TP to W275,800 strategy  Sentiment on in-vitro diagnostics stocks has turned extremely bearish following Pfizer’s release of data on its COVID-19 vaccine candidate.  Given COVID-19 case trends and Seegene’s instrument backlog, we do not see any signs of a sharp drop in demand for diagnostic kits. Major diagnostics firms have highlighted a shortage in supply in their earnings reports.  Also, considering the time required for volume production after final approval of the vaccine, we do not think COVID-19 cases will decline dramatically anytime soon.  That said, we could see increased volatility given that: 1) Seegene’s stock has rallied significantly YTD; and 2) the vaccine data announcement has shifted investor focus to sectors that have lagged.  While we do not see significant downside risks in the near term, we continue to recommend a trading approach (rather than aggressively accumulating the stock) given market sentiment.  We cut our target price on Seegene to W275,800 (from W300,000).  Trading at a 12-month forward P/E of 15.9x, the stock is cheaper than global peers (20.7x).  Upside scenario: 1) A failure by Pfizer to gain FDA approval; 2) a surge in COVID-19 cases after Christmas; and 3) product/business diversification away from COVID-19 test kits  Downside scenario: 1) A decline in COVID-19 cases across Europe; and 2) FDA approval of Pfizer’s vaccine

Key data Current price (11/11/20, W) 230,800 Market cap (Wbn) 6,055 1,550 Seegene KOSDAQ OP (20F, Wbn) 632 Shares outstanding (mn) 26 1,050 Consensus OP (20F, Wbn) 600 Free float (%) 67.3 EPS growth (20F, %) 1,780.6 Foreign ownership (%) 16.0 550 P/E (20F, x) 12.1 Beta (12M) 0.54

50 Market P/E (20F, x) 16.8 52-week low (W) 22,200 11.19 3.20 7.20 11.20 KOSDAQ 839.90 52-week high (W) 312,200

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020F 2021F 2022F Absolute -22.3 148.4 939.6 Revenue (Wbn) 89 102 122 1,029 882 512 Relative -19.4 102.6 718.7 OP (Wbn) 8 11 22 632 456 206 OP margin (%) 9.0 10.8 18.0 61.4 51.7 40.2 NP (Wbn) 3 11 27 502 365 168 EPS (W) 124 409 1,017 19,120 13,914 6,388 ROE (%) 2.5 8.8 19.0 125.6 44.1 15.4 P/E (x) 269.8 39.1 30.1 12.1 16.6 36.1 P/B (x) 6.9 3.0 4.9 9.2 5.9 5.1 Div. yield (%) 0.0 0.0 0.3 0.0 0.0 0.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent 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 US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. [Korea] Technology November 12, 2020

Hanwha Aerospace Buy (012450 KS) (Maintain)

Still undervalued TP: W39,000 Upside: 36.8%

Mirae Asset Daewoo Co., Ltd. Wonjae Park [email protected]

3Q20 review Surprise operating profit of W94.3bn (+65.1% YoY, +34.4% QoQ)  For 3Q20, Hanwha Aerospace announced revenue of W1.38tr (+4.9% YoY, +15.5% QoQ) and operating profit of W94.3bn (+65.1% YoY, +34.4% QoQ).  Revenue and operating profit beat our expectations (W1.33tr and W68bn, respectively).  The market was looking for revenue of W1.34tr and operating profit of W64bn.

Earnings improvements to Record-breaking earnings expected in 2021 continue  Looking to 4Q20, we forecast revenue of W1.69tr (+5.8% YoY, +22.8% QoQ) and operating profit of W70.2bn (+99.9% YoY, -25.6% QoQ).  For 2020 as a whole, we project revenue of W5.26tr (+0.5%) and operating profit of W237.9bn (+44.0%), which would represent a record high for revenue and the company’s first operating profit above W200bn since 2011.  Looking ahead to 2021, we expect the company to deliver record-breaking revenue and operating profit of W5.97tr (+12.9%) and W253.4bn (+6.5%), respectively.

Reaffirm Buy and TP of W39,000 Reaffirm Buy and TP of W39,000  Currently trading at a 2021F P/E of 9.1x and P/B of 0.5x, Hanwha Aerospace’s stock appears excessively undervalued, given steadily improving earnings.

Key data Current price (11/11/20, W) 28,500 Market cap (Wbn) 1,443 130 Hanwha Aerospace KOSPI OP (20F, Wbn) 238 Shares outstanding (mn) 51 110

90 Consensus OP (20F, Wbn) 205 Free float (%) 66.0

70 EPS growth (20F, %) -17.4 Foreign ownership (%) 17.1

50 P/E (20F, x) 13.5 Beta (12M) 1.49

30 Market P/E (20F, x) 16.8 52-week low (W) 15,000 11.19 3.20 7.20 11.20 KOSPI 2,485.87 52-week high (W) 39,800

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020F 2021F 2022F Absolute 7.5 16.6 -21.4 Revenue (Wbn) 4,215 4,453 5,264 5,288 5,970 6,341 Relative 3.5 -9.2 -32.8 OP (Wbn) 83 53 165 238 253 294 OP margin (%) 2.0 1.2 3.1 4.5 4.2 4.6 NP (Wbn) -48 32 132 107 154 180 EPS (W) -913 619 2,555 2,111 3,038 3,552 ROE (%) -2.1 1.4 5.4 4.2 5.8 6.4 P/E (x) - 52.5 13.7 13.5 9.4 8.0 P/B (x) 0.9 0.7 0.7 0.6 0.5 0.5 Div. yield (%) 0.0 0.0 0.0 0.0 0.0 0.4 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent 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 US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. [Korea] Game November 12, 2020

Netmarble Buy (251270 KS) (Maintain)

Solid earnings and promising new lineup TP: W170,000 ▼ Upside: 31.3%

Mirae Asset Daewoo Co., Ltd. Chang-kwean Kim [email protected] HeeSeok Lim [email protected]

3Q20 OP beats expectations Margins improve on robust overseas revenue and lower marketing expenses  For 3Q20, Netmarble reported revenue of W642.3bn (+3.6% YoY) and operating profit of W87.4bn (+3.6% YoY).  The market was looking for revenue of W658.4bn and operating profit of W79.1bn.  Revenue from some existing titles declined, but Seven Deadly Sins and Marvel Contest of Champions generated stable revenue overseas.  Marketing expenses normalized to W85.7bn (vs. W124.9bn in 2Q20).  Net profit gained 9.2% YoY to W92.5bn, boosted by an increase in equity-method gains.

Launch of Seven Knights 2 and Five to six new mobile titles planned for release in 2021 A3: Still Alive (global) in 4Q20  Seven Knights: Time Wanderer (Nintendo Switch) and A3: Still Alive (global) were released on Nov. 5 and Nov. 10, respectively, and the highly anticipated Seven Knights 2 (Korea) will be launched on Nov. 18.  Subsidiary Kabam’s Marvel Realm of Champions (global ex-China) is set to come out on Dec. 17.  Netmarble also confirmed the timelines for several 2021 releases: Blade & Soul Revolution (global ex-Asia; 1Q21), Ni No Kuni (Korea, Japan, and Taiwan; 2Q21), and Seven Knights Revolution (Korea and Japan; 2Q21).

Stock fluctuating on IPO Maintain Buy, but lower TP to W170,000 (from W180,000) expectations for major assets  Reflecting 3Q20 results and the confirmed timeline of new releases, we adjusted up our 2020 operating profit forecast by 1.7% and adjusted down our 2021 operating profit forecast by 2.6%,  Despite marginal changes to our earnings estimates, we lower our target price on Netmarble to W170,000, reflecting: 1) the P/E contraction of global peers; and 2) the market value of the company’s stakes in Big Hit Entertainment and Kakao Games.

Key data Current price (11/11/20, W) 129,500 Market cap (Wbn) 11,117 260 Netmarble KOSPI OP (20F, Wbn) 305 Shares outstanding (mn) 86 210 Consensus OP (20F, Wbn) 273 Free float (%) 24.3 160 EPS growth (20F, %) 93.2 Foreign ownership (%) 22.7 110 P/E (20F, x) 36.8 Beta (12M) 0.50

60 Market P/E (20F, x) 16.8 52-week low (W) 86,500 11.19 3.20 7.20 11.20 KOSPI 2,485.87 52-week high (W) 197,500

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020F 2021F 2022F Absolute -18.0 29.5 42.2 Revenue (Wbn) 2,425 2,021 2,179 2,597 3,006 3,240 Relative -21.1 0.8 21.5 OP (Wbn) 510 242 203 305 403 499 OP margin (%) 21.0 12.0 9.3 11.7 13.4 15.4 NP (Wbn) 310 190 156 302 358 377 EPS (W) 3,898 2,226 1,823 3,522 4,170 4,393 ROE (%) 11.2 4.4 3.5 6.6 7.3 7.1 P/E (x) 48.4 50.1 50.7 36.8 31.1 29.5 P/B (x) 3.7 2.1 1.6 2.2 2.0 1.9 Div. yield (%) 0.2 0.0 0.0 0.0 0.0 0.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent 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 US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. [Korea] Entertainment November 12, 2020

YG Entertainment Trading Buy (122870 KQ) (Maintain)

Returning to normalcy TP: W51,000 Upside: 19.2%

Mirae Asset Daewoo Co., Ltd. Jeong-yeob Park [email protected]

3Q20 review: Better than Consolidated revenue of W66.8bn (+8.5% YoY) and OP of W3.2bn (turn to profit YoY) expected  In 3Q20, YG Entertainment’s margins improved on: 1) the gradual resumption of artist activities from August; and 2) robust physical album/digital platform sales.  Revenue from albums/digital music/goods grew 30.9% YoY. Album sales hit a quarterly high of 820,000 copies (360,000 copies for and 460,000 copies for Treasure).  Around 76% of digital music sales came from overseas (vs. 24% for domestic), underscoring the company’s potential for growth through global expansion.  Revenue from Google jumped from W2bn to over W4bn, fueled by YouTube subscriber growth and the release of BLACKPINK’s hit single.  Despite overall constraints on artist activities, management revenue (-5.1% YoY) held up well thanks to ad/album production.

Expanded global lineup Given expanded lineup, earnings could grow strongly in 2021 on a return to normalcy  Looking to 4Q20, we expect BLACKPINK/Treasure/Song Min Ho (album sales and activities) and AKMU (digital music sales) to drive robust earnings.  We are encouraged by the company’s growing digital music base (YouTube and QQ Music) and expanding advertising income sources.  Meanwhile, the company has successfully expanded BLACKPINK’s global fan base and established Treasure’s presence in Japan by focusing on content offerings in 2020.  In 2021, expected concert attendance levels could sharply increase on the back of G-Dragon’s comeback and the execution of online/offline concerts.

Recommendation and valuation Look toward resumption of offline concerts  We keep our Trading Buy rating and target price of W51,000, which is based on a P/E of 25x (three-year average) our 2021F EPS.  Key achievements in 2020: Global lineup expansion (from one to three groups) and enhanced power of albums/digital music  Key upside risks: Artist activities (G-Dragon, Lisa, etc.) in China and execution of online/offline concerts  We believe the stock has overreacted to external headwinds. We could see sharp gains ahead if concerts and G-Dragon’s activities begin to resume.  We advise taking a more positive stance on the company’s stock, but note that the earnings and stock supply/demand of a major peer could affect share performance in the near term.

Key data Current price (11/11/20, W) 42,800 Market cap (Wbn) 788 250 YG Entertainment KOSDAQ OP (20F, Wbn) 6 Shares outstanding (mn) 18 200 Consensus OP (20F, Wbn) 10 Free float (%) 68.2 150 EPS growth (20F, %) - Foreign ownership (%) 11.9 100 P/E (20F, x) 120.4 Beta (12M) 0.88

50 Market P/E (20F, x) 16.8 52-week low (W) 19,450 11.19 3.20 7.20 11.20 KOSDAQ 839.90 52-week high (W) 58,700

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2016 2017 2018 2019 2020F 2021F Absolute -14.1 42.4 64.3 Revenue (Wbn) 322 350 269 264 240 332 Relative -10.8 16.2 29.4 OP (Wbn) 32 24 20 1 6 40 OP margin (%) 9.9 6.9 7.4 0.4 2.5 12.0 NP (Wbn) 19 18 18 -22 7 37 EPS (W) 1,094 931 911 -1,118 356 2,014 ROE (%) 7.7 5.7 5.1 -6.2 1.9 10.3 P/E (x) 25.9 31.0 52.2 - 120.4 21.3 P/B (x) 1.8 1.6 2.6 1.5 2.3 2.1 Div. yield (%) 0.7 0.5 0.3 0.0 0.0 0.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent 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 US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.