Showbox (086980 KQ) Tentpole strategy bearing fruit; Overseas business taking shape

Media US co-production deal and strong Chuseok performance of The Throne US co-production deal: announced that it has signed a co-production Company Update partnership with the American production company Blumhouse Productions and financing firm Ivanhoe Pictures. Blumhouse is the studio behind the film Whiplash October 1, 2015 (which was distributed in Korea by Showbox this year) and is well known for making low- budget box-office hits. Under the deal, Showbox will team with Blumhouse to produce at least six films in the thriller and horror genre over the next five (Upgrade) Buy years, with the projects fully financed by Ivanhoe. Showbox will be in charge of the domestic distribution of the movies, which could be remade in English by Blumhouse. Target Price (12M, W) 11,000 Chuseok box-office performance: During this year’s Chuseok holiday, the clear box-office winner was Showbox. The Throne , which was released by the company , sold 2.19mn Share Price (09/30/15, W) 8,480 tickets during the four-day long holiday, bringing the cumulative tally to 4.79mn. We believe the company has broken even on the film, closing the third quarter on a high note. Expected Return 30% Upbeat on 3Q; Tentpole and overseas operations are long-term positives Upbeat on 3Q earnings: We estimate Showbox movies sold 18.2mn tickets in 3Q thanks OP (15F, Wbn) 11 to the box-office hits Assassination and The Throne . The quarterly figure is 47% higher Consensus OP (15F, Wbn) 6 than the previous record set in 3Q12 (12.39mn), when the hugely successful film was released. We forecast the company to post record earnings in 3Q, with EPS Growth (15F, %) - revenue of roughly W67bn and operating profit of around W8bn. Market EPS Growth (15F, %) 23.5 Tentpole strategy: What’s noteworthy is that Assassination and The Throne are P/E (15F, x) 67.1 tentpole films the company marketed for a year prior to their release, and that both Market P/E (15F, x) 11.0 films did well during the highly competitive month of August and the Chuseok holiday KOSDAQ 678.48 season. In the movie industry, tentpoles are defined as hit titles that provide a source of steady cash flow. In our view, Showbox’s tentpole strategy is an effective way of making Market Cap (Wbn) 531 a seemingly unpredictable business more predictable. Shares Outstanding (mn) 63 Free Float (%) 42.5 Overseas strategy: We expect the company’s overseas ventures to begin yielding results in 1H16. The overseas business should reinforce the company’s mid/long-term growth Foreign Ownership (%) 3.3 prospects and act as a positive share catalyst. In addition to the Blumh ouse deal, Beta (12M) 1.06 Showbox has an agreement with China’s Huayi Brothers to co-produce a minimum of six 52-Week Low 3,320 Chinese language films over a three-year period. For Showbox, which does not have a 52-Week High 9,770 theater operator as an affiliate, such moves are encouraging, as they provid e additional revenue opportunities based on the quality of its content alone. We also believe the (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M entry of a US studio into the domestic market, which comes amid 20th Century Fox’s Absolute 11.3 64.3 151.3 current production of its fourth Korean language film, underscores the strong Relative 12.8 56.7 112.3 commercial potential of Korean movies.

330 Showbox Corp. KOSDAQ Upgrade to Buy and Lift TP to W11,000 on earnings revisions 280 We upgrade our rating on Showbox to Buy from Trading Buy and lift our target price by 230 10% to W11,000 (from W10,000), as we revise up our 2015-16 earnings estimates in 180 light of the positive developments in 3Q and the company’s overseas business strategy.

130 While near-term expectations on the company’s future lineup could cause swings in the share price, we believe the domestic tentpole strategy and ad ditional revenue stream 80 9.14 1.15 5.15 9.15 from overseas operations will support a valuation premium.

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 88 107 72 125 126 131 [Telecom Service / Media] OP (Wbn) 10 5 2 11 11 12

Jee-hyun Moon OP margin (%) 11.4 4.7 2.8 8.8 8.7 9.2 +822-768-3615 NP (Wbn) -5 2 -2 8 10 10 [email protected] EPS (W) -79 38 -27 126 152 161 ROE (%) -4.7 2.3 -1.6 7.3 8.2 7.9

P/E (x) - 84.3 - 67.1 55.6 52.8 P/B (x) 1.0 1.9 2.8 4.7 4.3 4.0 Notes: All figures are based on non-consolidated K-IFRS 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 t he U.S. PLEASE SEE AANALYSTNALYST CERTIFICATIONS AND IMPORTANT DISCLOSURESDISCLOSURES & DDISCLAIMERSISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

October 1, 2015 Showbox

Earnings forecast and valuation

TableTableTable 111.1. Annual earnings trendtrendtrendstrend sss and forecast (Wbn, %) 201220122012 201320132013 201420142014 2015F2015F2015F 2016F2016F2016F

Revenue 88 107 72 125 126 Domestic – Film screening 77 91 54 108 96 Domestic – IP 8 9 14 12 16 Exports 2 4 3 4 13 Other 1 3 1 1 1 Operating profit 10 5 2 11 11 OP margin 11.0 5.1 2.5 8.7 8.8 Net profit -5 2 -2 8 10 Net margin -5.6 2.2 -2.4 6.3 7.6 YoYYoYYoY Revenue 21.5 -32.6 73.6 0.6 Domestic – Film screening 17.9 -40.7 100.2 -10.6 Domestic – IP 9.4 54.7 -13.1 30.1 Exports 123.2 -29.6 50.0 200.0 Other 283.4 -58.8 -37.9 -0.4 Operating profit -44.1 -66.5 501.8 1.5 Net profit TTB TTR TTB 20.9 Major assumptions Number of admissions 24,739 29,169 16,070 31,366 28,408 (‘000 persons) , The Thieves , Kundo: Age of the A Violent Prosecutor, Mr. Go, Assassination, Major titles Nameless Gangster: Rampant, Co-productions with Secretly, The Throne Rules of the Time The Divine Move China and the US Greatly Notes: All figures are based on non-consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates

Table 222.2. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. NoteNoteNote 20202015F20 15F15F15F 20202016F20 16F16F16F 20202015F20 15F15F15F 20202016F20 16F16F16F 20202015F20 15F15F15F 20202016F20 16F16F16F - Revised up number of admissions Revenue 93 98 125 126 34.7 28.3 and changed export estimates Operating profit 6 6 11 11 80.3 81.9 - Reflects revenue revisions Net profit 4 6 8 10 96.4 67.7 - Revised non-operating profit estimates EPS 64 91 126 152 96.9 67.0 OP margin 6.5 6.2 8.7 8.8 Net margin 4.3 5.8 6.3 7.6 Notes: All figures are based on non-consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates

TableTableTable 333.3. Target price calculation Category Valuation NotesNotesNotes Operating value (Wbn) 613

2015F-16F revenue on average P/S (x)

Film investment and distribution 125 4.9 613 Highest P/S in the past 2 years Investment asset value (Wbn) 29

Listed stock 11 Book value as of end of 2Q15

Unlisted stock 18 Book value as of end of 2Q15

Investment in associated firms 641

Real estate -56

Total asset value (Wbn) 697

Net debt (Wbn) 62,400

Net asset value (Wbn) 11,000 Rounded Notes: In view of the high earnings volatility of the film distribution business, we used the price-to-sales ratio in calculating our target price; Profit growth expected to turn positive this year Source: Company data, KDB Daewoo Securities Research estimates

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October 1, 2015 Showbox

Film lineup

Figure 111.1. Korea: Major uupcomingpcoming films include Sorry,Sorry ,,, I Love You, Thank You and The Insiders (both in 4Q154Q154Q15),4Q15 ),),), as well as A Violent Prosecutor (((in(in 20162016))))

Notes: Sorry, I Love You, Thank You scheduled for Oct. release; The Insiders (remake of web cartoon Misaeng ), A Man and Woman (romance), and In the Mood for Love (romance) scheduled for 4Q15 release Source: Company data, KDB Daewoo Securities Research

Figure 222.2. China: CCContractContract with Huayi Brothers to coco----produceproduce at least sixsixsix Chinese movies over a threethreethree-three ---yearyear period

Notes: Announced in March 2015 Source: Company data, KDB Daewoo Securities Research

Figure 333.3. US: CCContractContract with BlumhBlumhouseouse and Ivanhoe to coco----produceproduce at least sixsixsix thriller/horror Korean movies/remakemovies/remakessss over a fivefive----yearyear period

Notes: Announced on Sep. 30, 2015. Source: Company data, KDB Daewoo Securities Research

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October 1, 2015 Showbox

Showbox (086980 KQ/Buy/TP: W11,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 727272 125125125 126126126 131131131 Current Assets 919191 150150150 209209209 268268268 Cost of Sales 626262 105105105 106106106 110110110 Cash and Cash Equivalents 17 21 79 133 Gross Profit 101010 202020 202020 212121 AR & Other Receivables 8 13 13 14 SG&A Expenses 888 999 999 999 Inventories 0 0 0 0 Operating Profit (Adj) 222 111111 111111 121212 Other Current Assets 66 116 117 121 Operating Profit 222 111111 111111 121212 NonNonNon-Non ---CurrentCurrent Assets 505050 262626 ---22-222222 ---69-696969 NonNonNon-Non ---OperatingOperating Profit ---4 -444 ---2-222 000 000 Investments in Associates 21 37 37 39 Net Financial Income 1 0 0 0 Property, Plant and Equipment 0 0 0 0 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 1 -48 -97 -146 Pretax Profit -2 9 11 12 Total Assets 141141141 177177177 187187187 199199199 Income Tax 0 1 2 2 Current Liabilities 373737 646464 656565 676767 Profit from Continuing Operations -2 8 10 10 AP & Other Payables 6 10 10 11 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit -2 8 10 10 Other Current Liabilities 31 54 55 56 Controlling Interests -2 8 10 10 NonNonNon-Non ---CurrentCurrent Liabilities 000 000 000 000 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit ---1 -111 888 101010 101010 Other Non-Current Liabilities 0 0 0 0 Controlling Interests -1 8 10 10 Total Liabilities 373737 646464 656565 676767 Non-Controlling Interests 0 0 0 0 Controlling Interests 104104104 112112112 122122122 132132132 EBITDA 51 60 60 61 Capital Stock 31 31 31 31 FCF (Free Cash Flow) -45 33 58 57 Capital Surplus 36 36 36 36 EBITDA Margin (%) 70.8 48.0 47.6 46.6 Retained Earnings 37 45 55 65 Operating Profit Margin (%) 2.8 8.8 8.7 9.2 NonNonNon-Non ---ControllingControlling Interests 000 000 000 000 Net Profit Margin (%) -2.8 6.4 7.9 7.6 Stockholders' Equity 104104104 112112112 122122122 132132132

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F Cash Flows from Op Activities -44 33 58 57 P/E (x) - 67.1 55.6 52.8 Net Profit -2 8 10 10 P/CF (x) 5.6 9.1 8.9 8.8 Non-Cash Income and Expense 54 50 50 50 P/B (x) 2.8 4.7 4.3 4.0 Depreciation 0 0 0 0 EV/EBITDA (x) 5.4 8.4 7.4 6.4 Amortization 49 49 49 49 EPS (W) -27 126 152 161 Others 5 1 1 1 CFPS (W) 834 927 958 967 Chg in Working Capital -98 -24 0 -2 BPS (W) 1,672 1,798 1,951 2,112 Chg in AR & Other Receivables 6 -3 0 0 DPS (W) 0 0 0 0 Chg in Inventories 0 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables -17 2 0 0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid 000 ---1-111 ---2-222 ---2-222 Revenue Growth (%) -32.7 73.6 0.8 4.0 Cash Flows from Inv Activities 32 -13 0 -1 EBITDA Growth (%) -17.7 17.6 0.0 1.7 Chg in PP&E 0 0 0 0 Operating Profit Growth (%) -60.0 450.0 0.0 9.1 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) - - 20.6 5.9 Chg in Financial Assets 35 -13 0 -1 Accounts Receivable Turnover (x) 8.2 19.2 15.2 15.5 Others ---3 -333 000 000 000 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Cash Flows from Fin Activities 0 0 0 0 Accounts Payable Turnover (x) 6.3 24.3 19.2 19.4 Chg in Financial Liabilities - - - - ROA (%) -1.1 5.0 5.3 5.2 Chg in Equity 0 0 0 0 ROE (%) -1.6 7.3 8.2 7.9 Dividends Paid 0 0 0 0 ROIC (%) 7.2 26.0 -1,203.6 -21.5 Others ------Liability to Equity Ratio (%) 35.5 57.3 53.2 51.1 Increase (Decrease) in Cash -13 5 58 54 Current Ratio (%) 246.3 234.2 323.1 398.1 Beginning Balance 30 17 21 79 Net Debt to Equity Ratio (%) -21.2 -27.2 -72.4 -108.0 Ending Balance 171717 212121 797979 133133133 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 Source: Company data, KDB Daewoo Securities Research estimates

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October 1, 2015 Showbox

APPENDIX 1

Important Disclosures & Disclaimers 222-2---YearYear Rating and Target Price History

Company (Code) DateDateDate RatingRatingRating Target Price (W) Showbox Corp. Showbox Corp.(086980) 09/30/2015 Buy 11,000 12,000 07/26/2015 Trading Buy 10,000 10,000

8,000

6,000 4,000 2,000

0 Sep 13 Sep 14 Sep 15

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 Daewoo Securities, 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.

Equity Ratings Distribution BuyBuyBuy Trading Buy HoldHoldHold SellSellSell 72.36% 13.57% 14.07% 0.00% * Based on recommendations in the last 12-months (as of June 30, 2015)

Disclosures As of the publication date, Daewoo Securities 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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted 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 Daewoo Securities Co., Ltd. except as otherwise stated herein.

Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the . Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment

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October 1, 2015 Showbox

banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

KDB Daewoo Securities International Network

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