2019 Outlook

Transportation New market environment taking shape: P.R.I.C.E.

Jay JH Ryu +822-3774-1738 [email protected]

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. Contents

[Summary] 3

I. Price 4

II. Regulations 8

III. Innovation 12

IV. Cost & Consolidation 20

V. Environment 24

[Conclusion] 30

VI. Top picks 36 CJ Logistics [Summary] Earnings to steadily trend upward

Share prices to rebound based on steady earnings

(Wbn) (x) OP (L) P/B (R) 1,500 High oil prices; Oil price decline; Air cargo Minimum 2.5 Global Global shipping greater Oil rebound; wage hike; Slowdown in Chinese housing financial Inventory market logistics price LCC growth; oil price stimulus bubble crisis restocking restructuring momentum rebound M&As growth

1,000 2.0

500

1.5

0

1.0 -500

-1,000 0.5 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 Source: Mirae Asset Daewoo Research

3| 2019 Outlook [Transportation] Mirae Asset Daewoo Research I. Price: Price hikes materializing

Parcel delivery value • Government policies aimed at improving working conditions for parcel delivery workers should weigh on chain margins. • The delivery fee registration system should depress parcel delivery firms’ back margins, which should eventually squeeze margins of online retailers.

B2C parcel delivery value chain: From consumers to delivery personnel

W2,500 Delivery fee registration system Back margins down by W770 Consumer

W1,730 Conditions for price hikes Online retailers

Back margins, including packaging fees, etc. Parcel delivery W800-1,000 Government target Government announces firm ban on back margins in 2017 Fixed costs (trucks, labor, depreciation, etc.) Delivery Insufficient room for personnel commission hikes for delivery workers Monthly revenue of W5mn (based on 300 boxes) Margins below 2% Source: Mirae Asset Daewoo Research

4| 2019 Outlook [Transportation] Mirae Asset Daewoo Research I. Price: Price hikes materializing

Weakening competition • The consolidation of the parcel delivery market is accelerating. and industry • Dream Logistics (M/S of 5%) discontinued operations in August, further increasing market concentration. consolidation • Parcel delivery firms began to raise prices in 2H18.

Parcel delivery market share trends Parcel delivery fee trends

(%) (W) CJ Logistics Hanjin Lotte (Hyundai) 60 3,800 Top 5 average Overall average Logen Korea Post Other 3,600 50 3,400 Pickup in online shopping

40 3,200 Smaller firms to 3,000 increasingly suffer 30 from higher labor 2,800 costs Global economic recovery; inventory restocking 20 2,600 Market 2,400 consolidation 10 2,200

0 2,000 2015 2016 2017 2018F 2019F 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18F 19F

Source: Korea Logistics Business Directory, Mirae Asset Daewoo Research Source: Korea Logistics Business Directory, Mirae Asset Daewoo Research

5| 2019 Outlook [Transportation] Mirae Asset Daewoo Research I. Price: Price hikes materializing

Growing cost pressures • Parcel delivery firms’ earnings are increasingly diverging amid minimum wage hikes. • CJ Logistics: Margins declined recently due to large-scale investments. • Hanjin (002320 KS/CP: W39,900): Earnings are expected to improve, driven by stevedoring and parcel delivery. • Lotte Global Logistics: Losses expanded due to higher overseas labor costs.

Parcel delivery firms’ OP margins: Differentiation even Minimum wage trend among leading players (W) (%) (%) 15,000 Minimum wage (L) 20 6 CJ Logistics Hanjin Lotte Global Logistics Growth (R) 18 16.4% 5 12,000 16 4 10.9% 14 3 9,000 12 8,350 7,530 10 2 6,470 6,030 6,000 5,580 8 5,210 1

6 0 3,000 4 -1 Lotte weighed down 2 by multiple factors

0 0 -2 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Press reports, Mirae Asset Daewoo Research Note: 2018 data for CJ Logistics and Lotte Global Logistics are based on 1Q-3Q results; 2018 data for Hanjin are based on 1-2Q results. Source: Company data, Mirae Asset Daewoo Research

6| 2019 Outlook [Transportation] Mirae Asset Daewoo Research I. Price: Market slowdown and price increases

Airlines: Earnings • Passenger demand remains largely robust, but downward pressure continues to linger. slowdown accelerating • Ticket prices have risen sharply on the back of higher fuel surcharges. • Amid a market slowdown, price hikes driven by cost-push factors are unlikely to take place. • Actual ticket prices are anticipated to remain flat for a while.

Outbound passenger demand vs. income growth Average yield by

(%) (%) (W/km) 40 Korea outbound travel growth (L) 4.5 180 Asiana Real disposable income growth (R) Jeju Air 4 30 160 3.5 Supply/demand Fuel surcharge improvement increases 20 3 140 2.5 10 2 120 0 1.5 100 -10 1

0.5 80 -20 0

-30 -0.5 60 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Source: Bloomberg, KTO, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

7| 2019 Outlook [Transportation] Mirae Asset Daewoo Research II. Regulations: Lower market barriers

New market entrants • Four new airline companies have applied for business licenses.  Aero K, Fly Gangwon, , and • New market entrants are expected to increase as license requirements are eased.

New airlines entering the market

Commencement of operations Model Capital Hub Major shareholders Notes Cheongju Hanwha Airbus A320 Atinum Investment (22%), Aero K 1H19 W45bn International withdrew (8 aircraft) Bubang (10%) Airport capital

Yangyang TonyMoly (W1.5bn), B737-800 Fly Gangwon Feb. 2019 W40bn International Shinsegae DF (10) Airport (W1bn)

B787-9 or Incheon Air Premia 1H20 A330-NEO W37bn International (7) Airport

B737-900 Daegu International Chairman of Coway Holdings Air Daegu 2H19 W60bn (5) Airport W30bn

Donghwa Electronics CRJ200 W10bn Air Pohang Feb. 2018 W12bn Pohang Airport (2) North Gyeongsang Province and Pohang (W2bn)

Gwangju Airport, ERJ-145 Air Philip Jun. 2018 W7bn Muan (3) International Airport

Prime Air TBD CJR200 Uncertain Ulsan Airport

Source: Company data, press releases, Mirae Asset Daewoo Research

8| 2019 Outlook [Transportation] Mirae Asset Daewoo Research II. Regulations: Supply growth to continue

LCC supply could • Supply from existing LCCs is expected to increase by 11~17% (if Jin Air continues operations). increase by up to 30% • If new players commence operations, supply could grow by 16-30% in 2019.

LCC fleet growth outlook

End- 2018 2019 Airline Aircraft 2017 New End New End Jeju Air B737-800 31 8 39 8 47 B737-800 21 1 22 0 (5) 22 (27) Jin Air B777-200ER 4 0 4 0 (4) 4 (8) Jin Air total 25 5 (1) 30 (26) 5 (9) 35 B737-800 19 5 24 1 25 Tway Air B737-MAX 8 4 4 Tway Air total 19 5 24 5 29 Air A321-200 6 1 7 7 A320-200 8 8 LCCs A321-200 17 17 A321LR 2 2

A321neo Air Busan total 23 25 2 27 B737-700 3 -2 1 1 B737-800 14 2 16 16 B737-900ER 2 0 2 2 B737-MAX 8 2 2 2 Eastar Jet total 19 2 21 21 LCC total Total 157/166 (11%/17% YoY) (factoring out/in Jin Air)

Aero K A320 Mid-sized aircraft 8 increase: 5-13% Expected new Air Premia B787-9 or A330neo 10 LCCs

Fly Gangwon B737-800 7

Source: Company data, Mirae Asset Daewoo Research 9| 2019 Outlook [Transportation] Mirae Asset Daewoo Research II. Regulations: New funding for Coupang

Coupang raised an • Amid the introduction of the 52-hour work week, Coupang adopted a crowd delivery system, Coupang Flex. additional US$2bn in • Aiming to expand capacity via on-foot/vehicle deliveries: Higher costs vs. lighter workload for in-house personnel. funding from SoftBank • Coupang recently received a US$2bn investment from SoftBank (9984 JP/CP: JPY8,902), which valued the company at W9tr. • With daily delivery volume of 1mn parcels and 2018 annual revenue of W5tr, Coupang accounts for 10% of the domestic parcel delivery market (in terms of volume). • Restructuring at small-sized parcel delivery firms is likely to accelerate. Coupang Flex is a new crowd delivery service  Coupang to turn around over the long term Lighter workload for in-house delivery personnel (Wbn) (%) Revenue (L) 6,000 0 Apply for Coupang Flex OP (L) OP margin (R) 5,000 -10

Opportunities to earn 4,000 ? over W25,000 per hour! -20

3,000 -30 2,000 Flex -40 1,000

-50 0

-1,000 -60 2013 2014 2015 2016 2017 2018F

Source: Coupang, Mirae Asset Daewoo Research Source: Coupang, Mirae Asset Daewoo Research

10| 2019 Outlook [Transportation] Mirae Asset Daewoo Research II. Regulations: Coupang’s logistics business launch

Third-party logistics vs. Coupang established a logistics subsidiary Coupang Logistics Service (third-party logistics). high costs • 1) The company is expected to register delivery trucks as commercial vehicles; high costs are a concern. • 2) The company is in need of a commercial truck transportation business license to build a logistics center in an industrial complex in Daegu. • 3) If the company directly hires delivery personnel, cost pressures could increase further due to the 52-hour work week regulation. • Risks: Issues related to the registration of trucks as commercial vehicles, limitations of EV trucks, initial demand limited to North and South Gyeongsang Province

Coupang delivery personnel’s working conditions have worsened Coupang to deploy EV trucks for logistics services

Source: Press materials, Mirae Asset Daewoo Research Source: Coupang, Mirae Asset Daewoo Research

11| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

Major investors/ Category Definition Country Company Service area parent Germany Car2go Daimler 8 countries including Germany

• Short-term car rentals by companies Germany DriveNow BMW 9 countries including Germany B2C car • Smartphone app=based services; US Zipcar Avis-Budget 9 countries including the US sharing rentals for extremely short periods of time (less than one hour) Korea Socar SK Holdings Korea

Korea Green Car Lotte Rental Korea

US Getaround SoftBank, Toyota US

P2P car • Car owners rent their vehicles out VC firms, including US Turo 4 countries including the US sharing for short periods of time Google Ventures

US Maven (GM) GM US

SoftBank, Toyota, US Uber 83 countries, 674 cities Goldman Sachs

SoftBank, Alphabet, US Lyft 300 cities in the US GM, DiDi Chuxing

SoftBank, • Platforms connect passengers with China DiDi Chuxing Volkswagen, 400 cities in China local drivers using non-commercial Mirae Asset Daewoo Ride hailing vehicles SoftBank, SK • On-demand ride sharing Holdings, DiDi Singapore Grab 168 cities in 8 countries Chuxing, Hyundai Motor

SoftBank, Tencent, India OLA 106 cities in India/Australia, DiDi Chuxing

Korea TADA Socar Korea

US Zimride Volkswagen Germany Ride sharing • A type of carpooling Korea Kakao T Carpool Kakao Mobility Korea

Source: Press materials, company data, Mirae Asset Daewoo Research

12| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

Skyrocketing growth of • The global car sharing market is projected to expand at a CAGR of 25% through 2022. car sharing market • Asia and Europe are expected to drive growth.

Global car sharing market trend Car sharing service users and vehicles by region

('000 persons) ('000 units) Users Vehicles 70,000 800 Region No. of members/users (L) No. of No. of % % No. of vehicles (R) users vehicles 60,000 700 Asia 8,722,138 58 67,329 43 600 50,000 Europe 4,371,151 29 57,857 37 500 40,000 North 1,837,854 12 26,691 17 400 America

30,000 South 7,350 0 120 0 300 America 20,000 200 Oceania 96,600 1 5,040 3

10,000 100 Africa 15,100 0 379 0

0 0 Total 15,050,193 100 157,416 100 2006 2008 2010 2012 2014 2016 2017 2022

Source: UC Berkeley Transportation Sustainability Research Center, Mirae Asset Daewoo Research Source: UC Berkeley Transportation Sustainability Research Center, KTSA, Mirae Asset Daewoo Research

13| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

SK Group’s new mobility • SK Group is aggressively expanding into the new mobility business, acquiring stakes in Socar, Poolus, TADA, and business structure AJ Rent-a-Car.

SK Group’s new mobility businesses

Investment in Socar Investment in Poolus - Acquired 20% of common shares - Acquired 20% of common shares (worth W59.8bn) in 2015 (W8mn based on par value) in February 2017 - Bought convertible bonds worth W15bn in May 2017 SK Holdings - Bought convertible bonds worth W15bn in May 2017 (convertible on May 7, 2020) (convertible on May 7, 2020) 27.9%

20% 39.1% Soqri 30.9% Poolus SK Networks Lee Jae-woong

(CEO of Socar) 42.2% Sopoong 14.9% Investment in AJ Rent-a-Car AJ Rent-a-Car (with the car sharing brand Billy Car) Other 26.3% - Acquired a 42.2% stake for W300bn

Socar Acquisition of VCNC in July 2018 - Estimated acquisition value of W50bn 40% 100% - Launched TADA in Oct. 2018

Socar Mobility VCNC Malaysia

Source: Company data, Mirae Asset Daewoo Research

14| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

Diversification of new • In Korea, Socar and Green Car are leading the car sharing market (combined revenue of W200bn). mobility businesses in • The ride sharing/hailing market is also taking shape, led by TADA (VCNC) and Kakao T Carpool. Korea: Car sharing  Ride sharing/hailing

Comparison of new mobility businesses in Korea Korean car sharing market

('000 persons) B2C car sharing (Ride hailing/sharing) ('000 units) 6,000 No. of members (L) 14 Green Delivery Kakao T Socar WiBLE TADA Poolus Car Car Carpool No. of vehicles (R) 12 5,000 No. of depots (R) HMC; Socar Hyundai Poolus Ope- (SK Lotte Kakao (Wbn) Annual revenue Capital; Kia Motors VCNC (SK owns 10 rator owns a Rental Mobility car rental a stake) 4,000 150 stake) Socar companies 100 Green Car 8 50 3,000 Delivery Short- 0 Green Car 6 Socar Apts/large term 2013 2014 2015 2016 2017 Me- Car provides zones residential rentals Carpool Carpool thod zones delivery 2,000 (depots) areas + driver- (depots) and return for-hire 4 services

1,000 2

Ve- Unspe- Unspe- Unspe- Unspe- HMC Kia Motors Vans hicles cified cified cified cified 0 0 2011 2012 2013 2014 2015 2016 2017

Source: Company data, Mirae Asset Daewoo Research Source: KIRI, Mirae Asset Daewoo Research

15| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

New mobility, another • Kakao (035720 KS/Buy/TP: W130,000/CP: W107,000) established an independent taxi-hailing and parking services battleground for subsidiary, Kakao Mobility (W270bn in assets; 2017 revenue of W16.7bn). • NAVER (035420 KS/Buy/TP: W141,000/CP: W112,500) and Kakao are now competing in the new mobility space. internet giants • Hyundai Motor (005380 KS/CP: W103,000) is also expected to make inroads into the new mobility market.

Naver, Kakao, and SK Group going all out to take the lead in the new market

Kakao Taxi NAVER’s partnerships with Socar and VCNC launch NAVER Socar, VCNC (NAVER Labs)

Acquisition Kakao T Kakao launch, of Luxi acquisition Car sharing service Socar Level 4 autonomous driving Kim Gisa (10,000 vehicles; technology Mobility Kakao T Kakao Kakao 4mn subscribers) (SAE International) Platform/ technology Mobile mobility platform Mobile map application TADA NAVER Map Kakao (100,000 downloads within (over 8mn monthly avg. active Driver one month of launch) users) launch

TADA to use NAVER Map Big data collection via Socar and Acquisition TADA vehicles Expected of Car infotainment platforms effects Park Here could be installed in Socar Testing of autonomous driving vehicles technology

Mar. May Feb. May Aug. Oct. Feb. 2015 2015 2016 2016 2017 2017 2018

Source: Company materials, press releases, Mirae Asset Daewoo Research Source: Company data, press releases, Mirae Asset Daewoo Research

16| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

Autonomous driving • Waymo's fleet of autonomous cars commenced testing in 2009; in October 2018, the fleet crossed the 10mn mile technology to facilitate mark. • Waymo is scheduled to launch a driverless ride-hailing program on a pilot basis in December 2018. spread of new mobility • Autonomous driving technology is expected to be applied to both taxi and trucking services. • The technology should reduce labor costs and improve safety going forward, giving rise to a new reasonable and convenient form of transportation.

Waymo to launch commercial services in 2020 Waymo’s test-driving distance

(mn miles)

12 Test driving distance 10mn

10 October 9mn Tests on First tests in 2009 8 August freeways/downtown 8mn roads in 2012 (300,000 July miles) 7mn 6 June 6mn April 5mn 4 February 4mn November 3mn 2 May 2mn 1mn October June 0 Service tests in 2018 Firefly tests on public roads 6/15 1/16 10/16 5/17 11/17 2/18 6/18 8/18 Commercial services in 2020 in 2015 Launch of Waymo in 2016 Source: Company data, Mirae Asset Daewoo Research Source: Company materials, Mirae Asset Daewoo Research

17| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

Autonomous cars to • Autonomous driving technology should reduce labor costs and drive safety improvements going forward. reduce costs • In Korea, COGS-to-revenue ratios at bus and taxi companies exceed 90%, with labor expenses accounting for 40- 50% of their costs. • Autonomous driving technology should markedly reduce costs.  To be adopted by both passenger and freight transportation systems

Autonomous driving technology to reduce costs Waymo’s autonomous driving car tests and improve safety

(%) Region Partners Notes 120 Adoption of City bus Taxi autonomous Valley Metro Decline in Decline in driving (public Bridging last mile between public transportation casualties accidents Phoenix technology transportation stop and destination (US in 2013) 100 company) 10% 1,100 210,000 Autonomous driving semi-trailer truck pilot Atlanta programs for deliveries to Google's data center 90% 21,700 4.2mn Extensive public tests: 80 Phoenix Autonomous cars for commuting, shopping, etc. San Jaguar Land Testing of ride-hailing services using self-driving Francisco, Rover/ cars (20,000 Jaguar I-Pace SUVs and 62,000 Chrysler 60 etc. Fiat Chrysler Pacifica minivans)

40

20

0 Cost ratio Labor expense ratio Depreciation ratio

Source: Industry data, Mirae Asset Daewoo Research Source: Company materials, Mirae Asset Daewoo Research

18| 2019 Outlook [Transportation] Mirae Asset Daewoo Research III. Innovation: New mobility and smart logistics

From new mobility to • Various new mobility and smart technologies could be applied to logistics. smart logistics • Smart delivery has greater potential in B2B (vs. B2C). • Autonomous trucks, smart warehouses, and drones (B2B) to reduce labor costs and improve consumer convenience • In Korea, Hyundai Glovis is testing level 3 autonomous truck technology; the company aims to develop autonomous platooning technology by 2020.

Various types of smart logistics

Viability/ Type Benefits Cases Field Limitations potential Inefficiency (in need of large Smart Yamato, On-demand delivery B2C ★/★★★ warehouses); delivery Dru, Walmart inconvenience for customers

Amazon, Technological limitations; Drones Time reduction JD.com, B2B2C ★/★★★ regulations Japan Post

Uber, Autonomous Lower labor costs; improved Technological limitations; Waymo, B2B ★★★/★★★★ trucks safety regulations Vera

Lower labor costs; Smart Kiva, In need of large-scale enhanced inventory B2B ★★★★★/★★★ warehouses GoCart investments management

Improvement in the Smart Amazon logistics environment and B2B2C ★★★/★★ Initial cost burden packaging Drive sales/distribution processes

Lower labor costs and Amazon Go, ★★★★/★★★ Smart stores improved customer Alibaba, B2C Security issues convenience BingoBox

Source: Press reports, company materials, Mirae Asset Daewoo Research

19| 2019 Outlook [Transportation] Mirae Asset Daewoo Research IV. Cost & Consolidation: Differentiation driven by external factors

IFRS revisions • Under revised IFRS, some LCCs with high operating lease expenses and shipping companies will see their debt ratios rise to above 100%. • Operating profit and interest expenses should increase at the same time, but the impact on net profit and cash flow will likely be limited. • Leading players’ financial lease and direct investments are expected to grow sharply.  Competiveness gap between companies should widen.

Expected impact from IFRS revisions: Debt ratios to rise; Impact on cash flow to be limited

(Wbn, %)

Korean Air Jeju Air Jin Air T’way Air Pan Ocean Korea Line

Liabilities 21,933 7,019 537 273 188 1,511 2,095

Liabilities (operating leases 23,932 7,362 955 667 474 2,042 2,461 included)

Operating leases 1,999 343 418 393 286 531 365

Under 1 year 272 78 105 94 63 526 251

1-5 years 969 202 293 251 224 5 114

Over 5 years 758 63 20 48 - - -

Equity 3,351 1,174 373 268 270 2,594 757

Debt ratio 654% 598% 144% 102% 70% 58% 227%

Revised debt ratio 714% 627% 256% 248% 176% 79% 325%

Source: Company data, Mirae Asset Daewoo Research

20| 2019 Outlook [Transportation] Mirae Asset Daewoo Research IV. Cost & Consolidation: Differentiation driven by external factors

Interest rate uptrend • Short-term interest rates have risen by over 200bps over the past two years. continues • The sharp increase in interest rates should lead to higher interest cost burden for airline companies with large debts. • However, airline companies’ robust operating profits are expected to significantly buffer against a potential shock from the interest rate uptrend.

Korean Air’s and Asiana Airlines’ EBITDA (excluding Sensitivity to interest rate changes interest expenses): Cash flow is more stable than in the past (Wbn) (%) Korean Air (L) (Based on 3Q18 data) Korean Air Asiana Airlines 3,500 Asiana Airlines (L) 9 US$ LIBOR (R) 3,000 Debt (Wbn) 21,899 6,746 8 2,500 7 Interest-bearing debt (Wbn) 14,400 3,434 2,000 6 Fixed interest rate (Wbn) 5,800 1,718 1,500

1,000 5 Variable interest rate (Wbn) 8,600 1,717

500 4

0 Exposure to variable rates (%) 60% 50% 3 -500 2 Interest expense increase from 100bp -1,000 interest rate rise (Wbn) 86 17 1 -1,500 Interest expense increase from 100bp -2,000 0 interest rate rise (%) 21% 14% 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Source: Company data, Bloomberg, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

21| 2019 Outlook [Transportation] Mirae Asset Daewoo Research IV. Cost & Consolidation: Differentiation driven by external factors

Shortage of pilots • Airline companies are suffering from a shortage of pilots worldwide; in Asia alone, the airline industry faces a shortage of over 10,000 pilots annually. • The severe pilot shortage was triggered by the sharp increase in LCCs; in Korea, the number of pilots marked record-high growth in 2018. • While the current demand for highly experienced (captain-level) pilots is estimated at 700, the number of trainees is estimated at just 350.

ICAO’s pilot shortage forecasts Pilot head count trend in Korea

Pilots needed (Persons)FSC (L) (%) Annual training Region (annually Shortage 4,500 LCC (L) 9 capacity through 2030) Total growth (R) 4,000 8 Africa 4,710 1,010 -3,691 3,500 7

Asia-Pacific 18,257 4,935 -13,322 3,000 6

Europe 20,127 7,955 -12,172 2,500 5

2,000 4 Latin America 7,849 1,945 -5,904 1,500 3 Middle East 3,233 860 -2,373 1,000 2

North America 15,169 27,655 12,468 500 1

Total 69,338 44,360 -24,978 0 0 2011 2012 2013 2014 2015 2016 2017 2018

Note: 2010-30 Source: AirPortal, MOLIT, Mirae Asset Daewoo Research Source: ICAO, Bloomberg, Mirae Asset Daewoo Research

22| 2019 Outlook [Transportation] Mirae Asset Daewoo Research IV. Cost & Consolidation: Differentiation driven by external factors

Widening gaps among • In 2018, the market share gaps among domestic LCCs have widened further, with leaders achieving LCCs record-high market shares. • Most LCCs largely enjoyed operating profit growth until 2015. • Differentiation has been accelerating recently in line with cost increases (labor, fuel, etc.) and a demand slowdown.

Market shares of major domestic LCCs OP gap between top- and bottom-three LCCs

(%) (Wbn) 12 Air Busan 300 Top 3 LCCs Eastar Jet Bottom 3 LCCs 250 10 Jeju Air Jin Air T'way Air 200 8

150 6 100

4 50

2 0

0 -50 11 12 13 14 15 16 17 18 10 11 12 13 14 15 16 17

Source: IIA, KAC, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

23| 2019 Outlook [Transportation] Mirae Asset Daewoo Research V. Environment: Strengthening IMO regulations

Stricter marine fuel • The IMO Tier III NOx limits are applied to ships built from 2016.  Steady emission cuts through 2050 regulations  Changes • The IMO MEPC 70 decided to lower the cap on sulfur oxide (SOx) content in heavy fuel oil from the current level of 3.5% to 0.5% starting in 2020, and to reduce the shipping industry's CO2 emissions by at least 50% (vs. 2008 in medium/long-term levels) by 2050. paradigm • The IMO also introduced mandatory ballast water treatment system (BWTS) installation from October 2019 (five- year grace period; for vessels scheduled to be retired).

SOx content limits in emission control areas (ECAs)

1.50% m/m 1.00% m/m 0.10% m/m

SOx SOx content limits in non-ECAs

4.50% m/m 3.5% m/m 0.5% m/m

~2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026~

IMO’s approval process Mandatory BWTS installation Grace period Preparatory period (only IMO-approved BWTS) BWTS Installation process Mandatory BWTS BWTS installation not required Grace period + inspection (five years) installation

Tier Ⅰ Tier Ⅱ Tier Ⅲ NOx

•17.0/kWh •14.4g/kWh •3.4/kWh

Source: IMO, USCG, Mirae Asset Daewoo Research

24| 2019 Outlook [Transportation] Mirae Asset Daewoo Research V. Environment: Strengthening IMO regulations

GHG reduction measures • [Short term] 1) Scrubber installation; 2) high-priced low-sulfur marine gas oil (LS-MGO) 1. Scrubber installation • [Long term] 3) Environmentally-friendly engines (LNG, etc.); 4) ship weight reduction (ballast-free 2. Low-sulfur fuel vessels, etc.) 3. LNG-fueled ships • Secondhand ships aged 15 years and older are likely to be demolished in light of the high costs associated with installation of selective catalytic reduction (SCR) scrubbers (current average demolition age: 23.5 years).

Secondhand ship prices (15 years old) and SCR scrubber MGO and bunker price trends installation costs (US$/tonne) (%) (US$mn) (%) 1,000 Bunker price vs. MGO (R) 75 25 Secondhand ship prices by type (L) 70 380 CST bunker price (L) Scrubber price ratio (R) MGO price (L) 60 800 60 20

50 600 45 15 38.2 40 35.2 33.3 400 30 10 30.7 30

20.8 200 15 5 20

0 0 0 10 91 94 97 00 03 06 09 12 15 18 Handysize Panamax Aframax Suezmax VLCC

Source: Clarkson, Mirae Asset Daewoo Research Source: Clarkson, Mirae Asset Daewoo Research

25| 2019 Outlook [Transportation] Mirae Asset Daewoo Research V. Environment: Strengthening IMO regulations

Scrubber payback period • Shipowners: The use of low-sulfur oil will likely start to expand in 2022; spreads could fall due to fuel blending. estimated at two years • Based on the current oil spreads, the scrubber payback period is estimated at around two years • For open-type scrubbers, technological barriers are low, and supply could be more smooth than expected. • In the short term, scrubber installations will likely be concentrated on large-sized vessels.

Scrubber payback analysis: Medium/large-sized vessels Scrubber payback analysis: Small-sized vessels (50,000 tonnes) (140,000 tonnes) (Mos.) (Mos.) 40 Open-type Hybrid-type 50 Open-type Hybrid-type

45 35 40 30 35

25 30

20 25

20 15 15 10 Current spread Current spread 10 5 5

0 0 US$150 US$200 US$250 US$300 US$150 US$200 US$250 US$300

Source: Clarkson, Mirae Asset Daewoo Research Source: Clarkson, Mirae Asset Daewoo Research

26| 2019 Outlook [Transportation] Mirae Asset Daewoo Research V. Environment: Strengthening IMO regulations

Scrubber installations to • The number of scrubber-equipped vessels has been increasing by 300 per month, with monthly orders for such accelerate ships increasing at a similar pace. • After strengthened IMO regulations fully kick in (2020), supply shortages of low-sulfur oil will likely reach 950,000 tonnes. • Despite the increase in scrubber-equipped vessels, the potential for a rise in low-sulfur oil prices remains intact due to supply shortages.

Low-sulfur oil supply/demand outlook based No. of scrubber-equipped vessels on IMO regulations (No.) (%) MGO Non-compliance Scrubbers Upgrading facility completion 1,600 No. of scrubber-equipped ships (L) 8 Additional requirements (shortage) Blending Proportion (no. of ships, R) New low-sulfur Proportion (tonnes, R) oil demand

1,200 6 Expected shortage of 950,000 tonnes Daily bunker C 800 4 consumption: 4.5mn tonnes

400 2 Faster-than-expected scrubber installations

High-sulfur oil 0 0 18.9 18.10 18.10 18.11 18.11

Source: Clarkson, Mirae Asset Daewoo Research Source: Clarkson, Mirae Asset Daewoo Research

27| 2019 Outlook [Transportation] Mirae Asset Daewoo Research V. Environment: Strengthening IMO regulations

Dry cargo market is • The dry cargo market has fallen to the levels seen during past market slumps. correcting • After picking up unexpectedly during the summer, the market has been correcting due to US-China trade friction and iron ore supply disruptions stemming from a train derailment in Australia. • The effects of IMO regulations should start to play out in 2019.

BDI has fallen sharply since it exceeded its 2016 high BDI has returned to its average levels

(Index) (Index) (Index) 5,000 BDI BCI BPI BSI 3,000 Post-2000 avg. (L) 2017 (R) 2018 (R) 2,000

4,000 2,800

1,500 3,000 2,600

2,000 2,400 1,000 Lower soybean imports/exports; 1,000 2,200 iron ore supply disruptions in Australia

0 2,000 500 6/15 12/15 6/16 12/16 6/17 12/17 6/18 123456789101112

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

28| 2019 Outlook [Transportation] Mirae Asset Daewoo Research V. Environment: Strengthening IMO regulations

Dry cargo • Growth of both supply and demand will likely slow. supply/demand: • Demand growth is likely to weaken to around 1-2%. • Key points: Trade friction (demand), IMO regulations (supply), tonne-mile supply/demand (oil prices) Low-growth era

Dry cargo supply/demand table

2012 2013 2014 2015 2016 2017 2018f 2019F 2020F 2021F 2022F

Fleet (year-end basis) mn DWT 685.1 725.0 756.8 777.9 793.4 816.7 835.7 848.6 864.2 881.2 901.2

Deliveries mn DWT 100.3 62.9 48.1 49.2 47.2 38.4 27.5 30.0 33.0 34.7 38.1

Demolitions mn DWT 33.4 23.1 16.3 30.6 29.3 14.7 8.2 16.7 17.0 17.3 17.6

Demolition rate % 5.4 3.4 2.3 4.0 3.8 1.8 1.0 2.0 2.0 2.0 2.0

Real fleet increase mn DWT 70.7 39.9 31.8 21.1 15.4 23.4 18.9 12.9 15.6 17.0 20.1

Supply growth % 11.5 5.8 4.4 2.8 2.0 2.9 2.3 1.5 1.8 2.0 2.3

Demand mn tonnes 6534.0 6899.0 7281.0 7340.0 7505.0 7805.0 8032.0 8163.0 8279.4 8401.9 8525.8

Demand growth % 5.2 5.6 5.5 0.8 2.2 4.0 2.9 1.6 1.4 1.5 1.5

Supply/demand growth balance %p 6.3 0.2 -1.2 2.0 -0.3 -1.1 -0.6 -0.1 0.4 0.5 0.8

Tonne-miles bn tonne-miles 23518.0 24759.0 26352.0 26562.0 27192.0 28545.0 29432.0 30206.3 31029.7 31656.4 32123.4

Tonne-mile growth % 5.9 5.3 6.4 0.8 2.4 5.0 3.1 2.6 2.7 2.0 1.5

Supply/demand growth balance %p 5.6 0.6 -2.1 2.0 -0.4 -2.0 -0.8 -1.1 -0.9 -0.1 0.8

BDI 919.3 1219.3 1101.3 1102.3 673.0 1145.0 1425.2 1728.4 1721.2 1712.9 1699.2

(YoY, %) -40.6 32.6 -9.7 0.1 -38.9 70.1 24.5 21.3 -0.4 -0.5 -0.8

BDI (factoring in tonne-mile) 919.3 1219.3 1101.3 1102.3 673.0 1145.0 1307.5 1517.9 1742.6 1909.2 1893.9

(YoY, %) -40.6 32.6 -9.7 0.1 -38.9 70.1 14.2 16.1 14.8 9.6 -0.8

Source: Clarkson, Mirae Asset Daewoo Research

29| 2019 Outlook [Transportation] Mirae Asset Daewoo Research [Conclusion] Shifting market conditions: Pay attention to P.R.I.C.E.

Potential for a price hike amid market slowdown?

Regulations Consolidation Environment Innovation Conclusion & costs

★★★ Logistics Parcel delivery market Electric cargo Smart logistics vehicles; culling Differentiation Steady growth restructuring; of aged diesel vs. slowdown among firms minimum wage hike cars; intelligent New mobility growth packaging market Differentiation Price: ★★★★ and M/S expansion?

★★ Entry of new players; Airlines Carbon permit; oil price hike; Widening M/S gaps Introduction of Slowdown in fuel efficiency interest rate hike among firms new aircraft passenger demand improvement

Price: ★★ Top picks

★★ CJ Logistics Alliance of Use of low-sulfur Shipping Introduction of IMO regulations containership oil; scrubber Era of low demand new fuel (LNG) companies installations Jeju Air and supply

Price: ★★★

Source: Mirae Asset Daewoo Research

30| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Global peer group valuation

Logistics players (Wbn %, x)

Market Revenue OP NP ROE P/E P/B EV/EBITDA Country Company Ticker Rating CP TP cap 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Korea CJ Logistics 000120 KS Buy W149,500 W200,000 3,410 8,997 10,285 225 311 62 106 2.6 4.1 50.3 29.6 1.2 1.2 15.7 12.4 Hyundai Glovis 086280 KS Buy W120,500 W190,000 4,519 16,618 17,340 698 756 462 556 11.2 12.3 9.7 8.1 1.1 1.0 5.7 5.3 Hanjin Transportation 002320 KS W39,900 478 1,933 2,091 46 66 60 8 8.1 1.1 8.0 57.9 0.6 0.6 10.7 8.6

Japan Yamato Holdings 9064 JP JPY2,856 11,670 16,206 16,935 678 843 399 499 7.1 8.4 28.3 22.5 2.0 1.9 9.4 8.0 Nippon Express 9062 JP JPY7,260 7,197 21,146 21,664 768 806 466 492 8.5 8.5 14.9 14.2 1.2 1.1 7.5 7.2 Mitsubishi Logistics 9301 JP JPY2,754 2,406 2,277 2,351 130 139 111 113 3.8 3.8 21.8 21.0 0.8 0.8 10.7 10.2 Kintetsu World Express 9375 JP JPY1,824 1,304 5,984 6,267 202 222 102 115 8.3 8.9 12.8 11.4 1.0 0.9 7.2 6.8 Sankyu 9065 JP JPY5,460 3,537 5,581 5,701 357 367 239 244 12.8 12.0 13.8 13.5 1.7 1.5 7.3 7.0 Kamigumi 9364 JP JPY2,442 3,260 2,665 2,727 231 238 178 182 5.6 5.5 16.3 15.9 0.9 0.9 7.6 7.3 Seino Holdings 9076 JP JPY1,648 3,400 6,117 6,272 308 331 215 243 5.3 5.9 15.3 13.5 0.8 0.8 5.1 4.8 Hitachi Transport System 9086 JP JPY3,115 3,459 7,291 7,507 324 343 232 250 10.2 10.2 15.3 14.2 1.5 1.4 8.9 8.5 Fukuyama Transporting 9075 JP JPY4,815 2,668 2,822 2,906 187 195 136 139 5.6 5.5 17.8 17.4 1.0 0.9 9.8 9.4 China Xiamen Xiangyu 600057 CH RMB4.91 1,712 39,820 51,149 - - 171 215 - - 9.0 7.3 - - - -

Hong Sinotrans 598 HK HK$3.16 2,737 12,696 13,845 549 597 372 429 10.4 10.7 7.3 6.5 0.8 0.7 5.5 5.0 Kong Kerry Logistics 636 HK HK$12.4 3,022 5,297 5,866 334 343 220 244 7.2 7.4 13.1 11.9 1.1 1.0 9.6 8.9 Singapore Singapore Post SPOST SP SG$0.97 1,779 1,244 1,328 123 131 84 93 6.3 7.1 21.4 18.9 1.3 1.3 13.1 12.2 Vietnam Gemadept GMD VN VND28,750 411 134 141 - - 58 26 22.4 8.1 10.1 16.6 1.4 1.4 11.9 10.1 Malaysia Pos Malaysia POSM MK MYR3.24 676 704 738 17 22 17 22 3.6 4.2 39.4 31.7 1.3 1.3 9.8 7.7 Tasco TASCO MK MYR1.23 66 205 217 11 14 7 8 6.9 8.0 10.2 7.8 6.2 6.2 8.8 7.1 India Container Corp. of India CCRI IN INR671.75 5,112 1,145 1,322 215 235 187 223 12.6 13.9 25.5 21.3 3.3 3.0 17.4 15.0 Asia average 3,141 7,936 8,824 300 329 188 212 8.3 7.7 17.7 17.7 1.5 1.4 9.5 8.5 US UPS UPS US US$110.09 106,040 81,550 86,496 8,356 9,304 7,089 7,648 284.2 136.4 15.2 14.1 22.2 12.7 11.7 10.6 FedEx FDX US US$226.69 66,966 80,911 84,238 6,831 8,030 5,196 6,002 22.2 22.2 13.0 11.3 2.8 2.3 8.1 7.0 Germany Deutsche Post DPW GR EUR28.44 44,988 78,459 82,404 4,092 5,449 2,805 3,582 17.9 20.1 15.8 12.5 2.6 2.4 7.6 6.5 Australia Qube Holdings QUB AU AU$2.57 3,392 1,430 1,530 147 171 101 118 4.6 5.3 32.9 28.6 1.5 1.5 16.8 14.8 Global avg. 11,842 16,712 17,964 1,129 1,313 789 900 21.2 14.4 17.9 17.5 2.5 2.0 9.8 8.7

Source: Bloomberg, Mirae Asset Daewoo Research

31| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Global peer group valuation

Full-service airlines (Wbn, %, x)

Market Revenue OP NP ROE P/E P/B EV/EBITDA Country Company Ticker Rating CP TP cap 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Korea Korean Air 003490 KS Buy W33,400 W39,000 3,168 12,985 13,463 834 959 -36 349 -1.1 9.4 - 9.2 0.9 0.8 6.5 6.2

Asiana Airlines 020560 KS Buy W4,190 W5,200 860 6,848 7,136 270 281 22 94 1.5 7.5 27.9 9.0 0.7 0.7 6.5 5.3

Japan Japan Airlines 9201 JP JPY4,204 14,576 14,632 15,148 1,732 1,787 1,201 1,181 6.8 8.1 10.1 8.0 0.6 0.6 10.5 10.7

ANA Holdings 9202 JP JPY4,058 14,048 20,547 21,869 1,669 1,783 1,070 1,155 7.5 7.1 27.9 28.3 2.0 2.0 11.0 9.4

Thailand Bangkok Airways BA TB THB12.0 853 909 979 12 13 17 22 3.3 3.8 24.8 21.8 0.8 0.8 11.7 10.7 Thai Airways THAI TB THB13.2 984 6,952 7,306 251 319 69 101 8.0 8.3 13.8 12.8 1.1 1.0 8.0 7.2

Singapore Singapore Airlines SIA SP SG$9.39 9,081 13,488 14,161 872 971 614 681 5.2 5.6 17.5 16.3 0.9 0.9 - 7.6

Indonesia Garuda Indonesia GIAA IJ IDR222.0 444 4,826 5,313 9 68 -85 11 5.4 5.3 15.1 15.3 0.8 0.8 5.3 5.1 India Jet Airways JETIN IN INR346.5 615 4,243 4,866 - - -375 -57 9.3 10.2 17.5 15.3 1.6 1.5 9.6 8.9 Philippines Cebu Air CEB PM PHP65.25 840 1,605 1,831 165 198 123 153 5.9 5.6 17.2 17.8 1.0 1.0 9.4 9.8 China China Southern 1055 HK RMB7.11 12,651 23,601 26,531 1,340 1,698 632 877 11.9 - 10.0 9.0 1.1 - - - China Eastern 670 HK RMB5.5 11,904 18,853 21,020 1,673 2,088 726 967 13.6 10.4 7.2 7.3 0.8 0.8 5.7 5.5 Taiwan China Airlines 2610 TT NT$10.2 2,032 6,208 6,372 142 157 57 64 30.8 22.4 4.6 10.1 1.5 1.4 11.9 11.9 EVA Airways 2618 TT NT$14.75 2,354 6,386 6,779 - - 156 165 3.1 3.6 41.9 39.4 1.3 1.3 12.3 9.8 Hong Kong Cathay Pacific 293 HK HK$10.9 6,139 15,652 16,316 267 747 155 512 5.9 6.9 11.7 10.2 0.7 6.2 8.3 8.8 Asia average 5,370 10,516 11,273 1,386 1,560 772 904 6.4 7.0 21.9 15.2 0.9 0.9 6.9 6.7

US Delta Air Lines DAL US US$55.9 42,964 50,285 53,008 5,975 6,600 4,322 4,816 27.7 27.2 10.1 8.7 2.6 2.1 5.9 5.5 United Continental UAL US US$92.26 28,194 46,476 49,289 3,954 4,495 2,652 3,007 24.9 25.7 10.8 9.3 2.5 2.0 5.9 5.4 France Air France-KLM AF FP EUR9.65 5,291 33,923 35,380 1,592 1,521 732 719 20.4 16.9 7.1 6.9 1.3 1.1 2.7 2.8 Russia Aeroflot AFLT RM RUB101.05 1,909 10,469 11,678 422 793 231 373 20.5 38.3 7.8 5.1 1.7 1.6 2.8 1.4 Germany Deutsche Lufthansa LHA GR EUR20.15 12,226 46,419 48,112 3,620 3,645 2,542 2,416 18.5 16.0 4.7 5.0 0.8 0.7 2.6 2.6 Australia Qantas QAN AU AU$5.69 7,704 14,494 14,820 1,282 1,345 780 813 24.5 23.4 9.4 8.7 2.3 2.0 3.8 3.8 Ireland Ryanair RYA EUR11.88 20,326 9,805 11,217 1,642 1,730 1,378 1,477 23.1 22.7 14.7 13.4 3.3 2.7 8.9 8.3 Global avg. 9,053 16,800 17,845 710 851 290 418 11.6 12.5 17.2 12.8 1.3 1.2 6.1 5.9

Source: Bloomberg, Mirae Asset Daewoo Research

32| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Global peer group valuation

LCC players (Wbn, %, x)

Revenue OP NP ROE P/E P/B EV/EBITDA Market Country Company Ticker Rating CP TP cap 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Korea Jeju Air 089590 KS Buy W37,350 W50,000 984 1,252 1,471 114 135 96 108 26.0 23.5 10.2 9.2 2.4 2.0 4.5 3.7

Jin Air 272450 KS Buy W21,800 W25,000 654 ------

T’way Air 091810 KS W8,180 384 720 850 80 76 62 60 44.6 22.1 6.2 6.4 1.6 1.3 1.1 0.9

Thailand Asia Aviation AAV TB THB4.06 673 1,432 1,620 105 111 28 40 4.4 5.7 22.4 15.9 0.9 0.8 10.1 8.6

Malaysia AirAsia X AAX MK MYR0.25 277 1,340 1,514 20 31 3 18 0.4 3.9 50.0 14.7 1.1 1.0 10.8 6.5

AirAsia Group AAGB MK MYR3.12 2,788 2,771 2,970 478 307 365 338 19.8 12.3 7.8 8.5 1.1 1.0 4.4 5.5

UAE Air Arabia AIRARABI UH AED1.02 1,453 1,208 1,285 154 155 161 163 8.3 8.0 8.6 9.1 0.8 0.8 6.1 6.1

China Spring Airlines 601021 CH RMB35.38 5,242 2,183 2,633 246 331 246 319 13.4 14.3 20.9 16.6 2.7 2.3 13.2 11.1

Juneyao Airlines 603885 CH RMB14.18 4,117 2,397 2,877 288 371 239 298 15.3 16.6 17.3 13.9 2.6 2.3 9.6 8.5

Asia avg. 1,841 1,663 1,903 186 190 150 168 16.5 13.3 17.9 11.8 1.7 1.4 7.5 6.4

US Southwest Airlines LUV US US$52.58 33,144 24,770 26,723 3,557 3,858 2,680 2,915 22.9 23.1 12.7 11.2 2.7 2.3 6.8 6.3

JetBlue Airways JBLU US US$18.03 6,160 8,636 9,436 708 869 513 580 12.3 9.2 12.4 10.6 1.1 1.0 5.3 4.7

SkyWest SKYW US US$54.74 3,185 3,624 3,737 517 555 301 323 14.2 13.8 10.7 10.0 1.4 1.3 6.6 6.2

Alaska Air Group ALK US US$67.99 9,398 9,288 9,958 822 1,133 581 806 13.3 15.5 16.3 11.8 2.0 1.7 8.0 6.2

Allegiant Travel ALGT US US$120.12 2,177 1,876 2,055 265 337 172 209 25.3 28.3 12.6 10.5 3.0 2.5 7.9 6.6

Spirit Airlines SAVE US US$52.44 4,013 3,693 4,259 412 530 286 343 13.7 14.5 14.2 11.5 1.8 1.6 7.9 6.6

Canada WestJet Airlines WJA CN CA$18.34 1,782 4,045 4,441 111 197 62 130 3.8 6.5 29.3 14.6 0.9 0.9 4.8 3.9

England EasyJet EZJ LN GBX1,162 6,633 8,421 9,507 897 908 667 677 15.6 15.7 9.9 9.6 1.5 1.4 4.8 4.6

Ireland Ryanair RYA ID EUR11.88 17,189 9,805 11,217 1,642 1,730 1,378 1,477 23.1 22.7 12.4 11.4 2.8 2.3 7.6 7.1

Global avg. 5,570 5,145 5,680 613 684 461 518 16.3 15.0 16.1 11.5 1.8 1.6 7.0 6.1

Source: Bloomberg, Mirae Asset Daewoo Research

33| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Global peer group valuation

Global bulk shippers (Wbn, %, x)

Revenue OP NP ROE P/E P/B EV/EBITDA Market Country Company Ticker Rating CP TP cap 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F

Korea Korea Line 005880 KS W22,300 545 545 545 144 166 92 102 12.2 11.8 5.9 5.3 0.7 0.6 9.4 8.6

Pan Ocean 028670 KS W4,460 2,384 2,384 2,384 206 238 152 179 6.1 6.7 15.6 13.3 0.9 0.9 9.0 8.2

China COSCO Shipping Holdings 1919 HK RMB4.08 6,178 17,212 21,039 428 863 133 241 0.6 4.5 47.4 17.2 1.3 1.2 27.0 17.6

COSCO Shipping Energy 1138 HK RMB4.89 2,959 1,700 1,983 167 337 13 151 1.0 4.2 97.7 14.6 0.5 0.5 16.2 11.2

Hong Kong Sinotrans Shipping 368 HK HK$2.6 1,486 1,187 1,300 102 143 100 139 4.9 6.5 15.8 10.7 0.7 0.7 4.6 3.4

Pacific Basin Shipping 2343 HK HK$1.74 1,129 1,932 2,095 117 189 82 146 6.6 10.7 12.3 7.2 0.8 0.7 7.5 5.9

Taiwan U-Ming Marine Transport 2606 TT NT$30.15 928 386 429 54 97 66 96 7.8 10.5 14.1 9.7 1.0 1.0 9.2 6.7

Thailand Precious Shipping PSL TB THB10.7 570 166 194 43 49 18 37 4.1 8.4 33.1 15.6 1.3 1.3 11.7 9.3

Thoresen Thai TTA TB THB5.9 367 500 552 24 28 20 28 2.7 3.7 19.2 13.5 0.5 0.5 8.6 7.4

Global avg. 1,839 3,012 3,550 143 234 123 75 5.1 7.4 29.0 11.9 0.9 0.8 11.5 8.7

Source: Bloomberg, Mirae Asset Daewoo Research

34| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Major indicators

Korea outbound/inbound travel growth SCFI trends

(%) Inbond travel growth (L) (Index) (Index) SCFI index (L) SCFI Europe (L) 50 Outbound travel growth (R) 2,400 SCFI USWC (R) SCFI USEC (R) 5,000 40 2,000 4,000 30 20 1,600 3,000 10 1,200 0 2,000 -10 800 -20 400 1,000 -30 -40 0 0 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 10 11 12 13 14 15 16 17 18

Source: KTO, Mirae Asset Daewoo Research Source: SSE, Mirae Asset Daewoo Research

Parcel delivery market volume trend BDI trends

(mn parcels) (%) (Index) (US$/tonne) 700 Parcel market volume (L) 20 14,000 BDI (L) Coal (R) Iron ore (R) 220 18 600 YoY rate (R) 12,000 200 16 180 500 14 10,000 160 12 400 8,000 140 10 120 300 8 6,000 100 200 6 4,000 4 80 100 2 2,000 60 0 0 0 40 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 09 10 11 12 13 14 15 16 17 18

Source: Industry data, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

35| 2019 Outlook [Transportation] Mirae Asset Daewoo Research CJ Logistics (000120 KS)

Upbeat outlook for 2019

Investment points (Maintain) Buy • The completion of the Mega Hub Terminal and the automation of sub-terminals are expected to come into play in 2019. Target Price (12M, W) 200,000 • Market share expansion and parcel delivery rate hikes are anticipated to take off in 2019. • M&A deals with global companies should boost margins. Share Price (11/16/18, W) 149,500 • The expected decrease in SG&A expenses should ease cost pressures. Risk factors Expected Return 34% • If one-off items continue to weigh on net profit, valuation should remain demanding. • Additional minimum wage hikes should add to cost pressure. OP (18F, Wbn) 231 • The launch of the operation of the Daejeon Terminal could be delayed. Consensus OP (18F, Wbn) 224

EPS Growth (18F, %) 118.8 Market EPS Growth (18F, %) 10.6

P/E (18F, x) 49.5 Market P/E (18F, x) 8.5

KOSPI 2,092.40 3,410 130 Market Cap (Wbn) CJ Logistics FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F

Shares Outstanding (mn) 23 120 KOSPI Revenue (Wbn) 5,056 6,082 7,110 9,098 10,781 12,222 Free Float (%) 39.4 OP (Wbn) 187 228 236 231 304 374 110 Foreign Ownership (%) 13.8 OP margin (%) 3.7 3.7 3.3 2.5 2.8 3.1

Beta (12M) 0.72 100 NP (Wbn)46563169131146

52-Week Low 122,000 EPS (W) 2,014 2,446 1,380 3,019 5,722 6,398 90 52-Week High 175,000 ROE (%)2.02.41.32.85.05.3

(%) 1M 6M 12M80 P/E (x) 94.8 73.2 101.4 49.5 26.1 23.4

Absolute -0.3 -9.1 -1.6 P/B (x) 1.5 1.4 1.1 1.1 1.1 1.0 70 Relative 2.2 6.8 19.217.11 18.3 18.7 18.11 Div. 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: CJ Logistics, Mirae Asset Daewoo Research estimates

36| 2019 Outlook [Transportation] Mirae Asset Daewoo Research CJ Logistics (000120 KS)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/17 12/18F 12/19F 12/20F (Wbn) 12/17 12/18F 12/19F 12/20F 12/17 12/18F 12/19F 12/20F Revenue 7,110 9,098 10,781 12,222 Current Assets 1,804 2,234 2,501 2,822 P/E (x) 101.4 49.5 26.1 23.4 Cost of Sales 6,354 8,266 9,666 10,934 Cash and Cash Equivalents 154 194 205 214 P/CF (x) 8.5 8.7 6.8 6.1 Gross Profit 756 832 1,115 1,288 AR & Other Receivables 1,408 1,742 1,960 2,226 P/B (x) 1.1 1.1 1.1 1.0

SG&A Expenses 521 601 810 914 Inventories 16 19 22 25 EV/EBITDA (x) 14.2 14.8 12.4 10.8 Operating Profit (Adj) 236 231 304 374 Other Current Assets 226 279 314 357 EPS (W) 1,380 3,019 5,722 6,398 Operating Profit 236 231 304 374 Non-Current Assets 4,505 5,290 5,309 5,332 CFPS (W) 16,407 17,181 21,938 24,666 Non-Operating Profit -163 -102 -76 -110 Investments in Associates 97 120 135 153 BPS (W) 126,264 132,322 138,044 144,442 Net Financial Income -51 -43 -81 -105 Property, Plant and Equipment 2,430 3,095 3,139 3,181 DPS (W) 0 0 0 0 Net Gain from Inv in Associates -20 -1 7 7 Intangible Assets 1,468 1,535 1,490 1,447 Payout ratio (%) 0.0 0.0 0.0 0.0

Pretax Profit 73 129 228 264 Total Assets 6,309 7,524 7,810 8,154 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax 34 45 74 92 Current Liabilities 1,890 2,355 2,733 3,147 Revenue Growth (%) 16.9 28.0 18.5 13.4 Profit from Continuing Operations 39 84 154 172 AP & Other Payables 1,020 1,261 1,420 1,612 EBITDA Growth (%) 6.4 7.6 18.3 13.9 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 743 936 1,135 1,333 Operating Profit Growth (%) 3.5 -2.1 31.6 23.0 Net Profit 39 84 154 172 Other Current Liabilities 127 158 178 202 EPS Growth (%) -43.6 118.8 89.5 11.8

Controlling Interests 31 69 131 146 Non-Current Liabilities 1,636 2,117 1,872 1,630 Accounts Receivable Turnover (x) 6.0 6.2 6.3 6.3 Non-Controlling Interests 7 15 23 26 Long-Term Financial Liabilities 1,499 1,700 1,440 1,180 Inventory Turnover (x) 460.1 519.4 523.6 525.0 Total Comprehensive Profit -11 117 154 172 Other Non-Current Liabilities 137 417 432 450 Accounts Payable Turnover (x) 9.9 10.5 10.5 10.5 Controlling Interests 26 68 73 81 Total Liabilities 3,526 4,472 4,605 4,777 ROA (%) 0.7 1.2 2.0 2.2 Non-Controlling Interests -37 49 81 91 Controlling Interests 2,372 2,562 2,692 2,838 ROE (%) 1.3 2.8 5.0 5.3 EBITDA 397 427 505 575 Capital Stock 114 114 114 114 ROIC (%) 2.8 3.0 3.7 4.3

FCF (Free Cash Flow) -238 -159 97 104 Capital Surplus 2,248 2,260 2,260 2,260 Liability to Equity Ratio (%) 126.7 146.5 143.7 141.5 EBITDA Margin (%) 5.6 4.7 4.7 4.7 Retained Earnings 574 642 772 918 Current Ratio (%) 95.4 94.8 91.5 89.7 Operating Profit Margin (%) 3.3 2.5 2.8 3.1 Non-Controlling Interests 411 490 513 539 Net Debt to Equity Ratio (%) 73.6 78.4 72.2 66.2 Net Profit Margin (%) 0.4 0.8 1.2 1.2 Stockholders' Equity 2,783 3,052 3,205 3,377 Interest Coverage Ratio (x) 4.3 5.0 3.5 3.3

Source: CJ Logistics, Mirae Asset Daewoo Research estimates

37| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Jeju Air (089590 KS)

Massive investment to further widen market lead

Investment points (Maintain) Buy • Jeju Air is expected to maintain cost competitiveness on the back of a steady decline in CASK; market share is likely to expand. Target Price (12M, W) 50,000 • Gradual Boeing 737-MAX 8 deployment should reduce costs and help the company enter new markets. • The stock is attractively valued compared to Asian peers. Share Price (11/16/18, W) 37,350 Risk factors • Outbound travel growth could slow down amid economic headwinds. Expected Return 34% • Competition could intensify with the market entries of new LCCs. • If the deployment of long-haul aircraft is pushed back, market share growth could be weaker than expected.

OP (18F, Wbn) 114

Consensus OP (18F, Wbn) 113 EPS Growth (18F, %) 27.7

Market EPS Growth (18F, %) 10.6 P/E (18F, x) 9.9

Market P/E (18F, x) 8.5 KOSPI 2,092.40

Market Cap (Wbn) 984 150 FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Jeju Air KOSPI Shares Outstanding (mn) 26 140 Revenue (Wbn) - 748 996 1,251 1,477 1,679

Free Float (%) 32.3 130 OP (Wbn) - 58 101 114 136 156 Foreign Ownership (%) OP margin (%) - 7.8 10.1 9.1 9.2 9.3 9.5 120 Beta (12M) 0.77 NP (Wbn) - 53 78 99 115 125 110 52-Week Low 28,800 EPS (W) - 2,038 2,954 3,773 4,362 4,756 100 52-Week High 51,000 ROE (%) - 19.5 25.8 27.0 25.4 22.8 90 (%) 1M 6M 12M P/E (x) - 12.3 12.0 9.9 8.6 7.9 80 Absolute 19.1 -23.6 10.5 P/B (x) - 2.4 2.8 2.4 2.0 1.6 Relative 22.1 -10.2 33.970 Div. yield (%) - 2.0 1.7 2.1 2.4 2.7 17.11 18.3 18.7 18.11 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Jeju Air, Mirae Asset Daewoo Research estimates

38| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Jeju Air (089590 KS)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/17 12/18F 12/19F 12/20F (Wbn) 12/17 12/18F 12/19F 12/20F 12/17 12/18F 12/19F 12/20F

Revenue 996 1,251 1,477 1,679 Current Assets 450 515 647 782 P/E (x) 12.0 9.9 8.6 7.9 Cost of Sales 775 999 1,175 1,331 Cash and Cash Equivalents 104 105 159 229 P/CF (x) 6.7 6.3 5.4 4.6 Gross Profit 221 252 302 348 AR & Other Receivables 45 53 63 72 P/B (x) 2.8 2.4 2.0 1.6 SG&A Expenses 120 138 166 192 Inventories 9 11 13 15 EV/EBITDA (x) 5.1 4.5 3.0 2.1 Operating Profit (Adj) 101 114 136 156 Other Current Assets 292 346 412 466 EPS (W) 2,954 3,773 4,362 4,756 Operating Profit 101 114 136 156 Non-Current Assets 350 451 507 551 CFPS (W) 5,284 5,897 6,927 8,111

Non-Operating Profit 0 16 14 7 Investments in Associates 0000BPS (W) 12,76115,44319,00722,866 Net Financial Income 3 4 5 6 Property, Plant and Equipment 171 247 306 353 DPS (W) 600 800 900 1,000 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 19 20 15 12 Payout ratio (%) 20.2 21.2 20.6 21.0 Pretax Profit 101 130 150 163 Total Assets 800 966 1,154 1,333 Dividend Yield (%) 1.7 2.1 2.4 2.7 Income Tax 23 30 35 38 Current Liabilities 368 442 513 571 Revenue Growth (%) 33.2 25.6 18.1 13.7 Profit from Continuing Operations 78 99 115 125 AP & Other Payables 71 85 101 114 EBITDA Growth (%) 76.4 15.7 23.8 17.0

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 58 75 76 76 Operating Profit Growth (%) 74.1 12.9 19.3 14.7 Net Profit 78 99 115 125 Other Current Liabilities 239 282 336 381 EPS Growth (%) 44.9 27.7 15.6 9.0 Controlling Interests 78 99 115 125 Non-Current Liabilities 101 119 142 161 Accounts Receivable Turnover (x) 34.9 35.4 35.2 34.5 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0000Inventory Turnover (x)112.7122.2 121.5 119.1 Total Comprehensive Profit 77 99 115 125 Other Non-Current Liabilities 101 119 142 161 Accounts Payable Turnover (x) 32,464.7 27,364.1 27,106.0 26,480.0

Controlling Interests 77 99 115 125 Total Liabilities 469 561 655 732 ROA (%) 11.1 11.3 10.8 10.1 Non-Controlling Interests 0 0 0 0 Controlling Interests 331 405 499 601 ROE (%) 25.8 27.0 25.4 22.8 EBITDA 127 147 182 213 Capital Stock 132 132 132 132 ROIC (%) 114.0 52.7 55.7 62.3 FCF (Free Cash Flow) 11 37 123 140 Capital Surplus 90 90 90 90 Liability to Equity Ratio (%) 141.5 138.6 131.2 121.9 EBITDA Margin (%) 12.8 11.8 12.3 12.7 Retained Earnings 115 185 279 381 Current Ratio (%) 122.2 116.6 126.2 136.9 Operating Profit Margin (%)10.19.19.29.3Non-Controlling Interests0000Net Debt to Equity Ratio (%)-88.1-79.5-86.3-91.0

Net Profit Margin (%) 7.8 7.9 7.8 7.4 Stockholders' Equity 331 405 499 601 Interest Coverage Ratio (x) 223.5 550.5 680.5 776.5

Source: Jeju Air, Mirae Asset Daewoo Research estimates

39| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Coverage overview

Target Price Current Price Company Ticker Rating (12M, W) (11/16/18, W)

CJ Logistics 000120 KS Buy 200,00 149,500

Jeju Air 089590 KS Buy 50,000 37,350

Korean Air 003490 KS Buy 39,000 33,400

Asiana Airlines 024110 KS Buy 5,200 4,190

Jin Air 138930 KS Buy 25,000 21,800

Hyundai Glovis 139130 KS Buy 190,000 120,500

Source: Company data, Mirae Asset Daewoo Research

40| 2019 Outlook [Transportation] Mirae Asset Daewoo Research APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price CJ Logistics (000120) 04/20/2018 Buy 200,000 06/21/2018 Buy 62,000 12/19/2017 Buy 180,000 05/08/2018 Buy 65,000 11/08/2017 Buy 200,000 04/06/2018 Buy 60,000 04/13/2017 Buy 230,000 02/06/2018 Buy 52,000 01/22/2017 Buy 240,000 06/20/2017 Buy 50,000 12/02/2016 Buy 260,000 04/26/2017 Buy 42,000 02/05/2016 Buy 270,000 04/07/2017 Buy 40,000 Jeju Air (089590) 11/06/2018 Buy 50,000 12/02/2016 Buy 36,000 08/07/2018 Buy 60,000 11/15/2016 Buy 42,000

(W) CJ Logistics (W) Jeju Air

300,000 80,000

250,000 60,000 200,000

150,000 40,000

100,000 20,000 50,000

0 0 Nov 16 Nov 17Nov Nov 16 18 Nov 17 Nov 18

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10%

Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

41| 2019 Outlook [Transportation] Mirae Asset Daewoo Research APPENDIX 1

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 73.71% 13.92% 12.37% 0.00% Investment Banking Services 82.61% 4.35% 13.04% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2018)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

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42| 2019 Outlook [Transportation] Mirae Asset Daewoo Research APPENDIX 1

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43| 2019 Outlook [Transportation] Mirae Asset Daewoo Research Mirae Asset Daewoo International Network

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44| 2019 Outlook [Transportation] Mirae Asset Daewoo Research