LG Electronics (066570 KS) Emerging as the no. 3 global player

Technology 1Q13 review: OP of W349.5bn; Smartphone recovery in full swing LG Electronics (LGE) reported preliminary 1Q revenue of W14.1tr and an operating Result Comment profit of W349.5bn (excluding LG Innotek earnings: W12.9tr and W333bn, respectively; April 25, 2013 LG Innotek’s earnings are consolidated into LGE’s beginning 1Q). 1Q results beat our expectations (revenue of W12.24tr and operating profit of W251.4bn), boosted by robust smartphone sales.

(Maintain) Buy LGE sold 10.3mn in 1Q, breaking the 10mn mark for the first time in any quarter. This was largely driven by: 1) the wider geographic availability of the Optimus G, Target Price (12M, W) 114,000 2) strong sales of the , and 3) the release of the Optimus G Pro (follow-up to the Optimus G). As a result, the mobile communications (MC) unit delivered a solid OP Share Price (04/24/13, W) 90,000 margin of 4.1% (vs. our estimate of 2%), the highest level after 3Q09 (8.8%).

Expected Return 27% On the other hand, the home entertainment (HE) division still has not made any visible margin improvement. After peaking at 5.7% in 2Q12, the division’s OP margin plunged

to 0.8% in 3Q12 and 0.3% in 4Q12 due to increased marketing spend (in order to gain OP (13F, Wbn) 1,741 market share amid sagging TV demand). In 1Q13, OP margin slightly edged up to 0.6%, Consensus OP (13F, Wbn) 1,465 but is still down 2.4%p YoY. One silver lining is the new product releases in March, which EPS Growth (13F, %) 1,100.2 we expect to support improved earnings in 2Q. Market EPS Growth (13F, %) 20.0 For 2Q, we project revenue of W15.08tr and an operating profit of W500.3bn (W13.83tr P/E (13F, x) 20.3 and W454.7bn, respectively, excluding LG Innotek), reflecting increased smartphone Market P/E (13F, x) 9.2 sales and strong seasonal demand for air conditioners. KOSPI 1,935.31

Market Cap (Wbn) 14,728 Shares hinge on smartphones; Emerging as the no. 3 global smartphone player Shares Outstanding (mn) 181 In 2012, LGE shares slipped 1.1% even though the firm saw its operating profit soar Free Float (%) 65.9 200.8%. This mismatch was largely caused by the disappointing earnings of its Foreign Ownership (%) 18.0 smartphone business and market doubts over its recovery. The MC unit is now fully back Beta (12M) 0.99 on track following a 2Q12 trough in both sales and volume, thanks to robust sales of the 52-Week Low (W) 55,800 Optimus G. 52-Week High (W) 91,300 We see more meaningful growth ahead for smartphones in 2013, underpinned by a (%) 1M 6M 12M diversified lineup that includes the Optimus G and the 5-inch Optimus Vu in the premium Absolute 11.3 21.6 14.4 segment, and the Optimus F (LTE) and L series () in the lower-priced segment. We Relative 11.9 20.5 15.8 thus adjusted up our 2013 smartphone sales volume estimate by 15.1% to 47mn units Share price (from 40.9mn units). We believe LGE deserves a re-rating, as the company is now closer 130 KOSPI 120 than ever to becoming the third-largest global smartphone maker. 110 100 Maintain Buy and Lift TP by 3.6% to W114,000 90 80 70 We reiterate our Buy rating on LGE and lift our target price by 3.6% to W114,000 (from 60 W110,000). We derived our target price by applying a P/B of 1.73x (six-year historical 4/12 8/12 12/12 4/13 average; 1.65x previously) to our 2013F BPS of W66,114. Our target price represents upside potential of 26.7% from the current level. Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Telecom equipment/ Revenue (Wbn) 55,754 54,257 50,960 59,746 63,955 70,091 Electronic components OP (Wbn) 177 379 1,136 1,741 2,180 2,836 Wonjae Park OP Margin (%) 0.3 0.7 2.2 2.9 3.4 4.1 +822-768-3372 NP (Wbn) 1,227 -470 67 801 1,190 1,631 [email protected] EPS (W) 7,345 -2,809 369 4,432 6,578 9,020

Young Ryu ROE (%) 10.0 -3.7 0.5 6.3 8.9 11.3 +822-768-4138 P/E (x) 15.7 - 199.3 20.3 13.7 10.0 [email protected] P/B (x) 1.6 1.1 1.2 1.4 1.3 1.2 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

April 25, 2013 LG Electronics

Company Snapshot

LG Electronics (066570 KS/CP: W90,000/TP: W114,000)

Investment thesis Target price assumptions

 Top-tier home electronics producer: One Operating assumptions: Smartphone shipments are forecast to grow of the top global producers of TVs, from 10.3mn units in 1Q, to 11.0mn units in 2Q, 12.7mn in 3Q, and washing machines, and refrigerators. LGE 13.1mn units in 4Q. We forecast the mobile communications division’s has established production bases around OP to surge to W647bn in 2013 (from W59bn). This should offset the the world, and has steadily enhanced YoY OP decline in the home entertainment division in 2013 (from competitiveness. W522bn to W312bn).

 Stellar technology: LGE’s technologies for Target price assumptions: Applied a P/B of 1.73x (6-year historical FPR 3D TVs and OLED TVs have global average) to our 2013 BPS estimate of W66,114. Target price represents reputations. The company holds upside potential of 27% from current levels. numerous LTE-related patents.

 Strong supply chain: Competitiveness of Key variables IT firms hinges on the procurement of 2011 2012 2013F 2014F steady supply of differentiating hardware. Handset sales (‘000 units) 88,020 56,501 69,698 80,818 LGE’s strong supply chain with affiliates Smartphone sales (‘000 units) 20,200 26,200 47,050 64,998 (parts from LG Innotek and LG Display; TV sales (‘000 units) 38,308 35,790 35,002 35,976 key electronic materials from LG Chem) LCD TV sales (‘000 units) 24,725 26,717 29,925 32,986 helps the company maintain a stable and

competitive supply of finished goods.

Catalysts Peer valuations  HA (home appliance) and AE (air P/E P/B ROE conditioner & energy solution) units, 2012 2013F 2012 2013F 2012 2013F which stagnated due to a surge in raw material prices in 2011, have stabilized. LGE 199.4 20.3 1.2 1.4 0.56.3 Electronics 11.2 8.4 2.2 1.7 21.7 23.4  Steady release of a series of new - - 1.2 1.2 -26.3-4.2 smartphones (including premium to low- Apple 8.5 7.8 2.8 2.7 33.3 29.9 end models, and “”) from 1Q13 should stimulate recovery of LGE’s HTC 13.8 19.4 2.9 2.8 18.5 15.9

smartphone unit.

 Strong relationships with telecom carriers, competitive supply chain, and M/S breakdown for leading handset makers

broad business experience should help (%) LGE secure global smartphone market 50 Nokia SEC Apple share, and stay atop the 2nd tier. ZTE LGE 40 Risks

 Upside: (i) Market share expansion in 1H 30 on the back of new model releases, (ii)

healthy sales of mid- to low-end models, 20 (iii) margin recovery of TV business.

 Downside: (i) Delay in margin recovery of 10 TV business, (ii) poor market response to new smartphone models, (iii) sharp 0 1Q08 1Q09 1Q10 1Q11 1Q12 increase in raw material prices

Source: Gartner

KDB Daewoo Securities Research 2 April 25, 2013 LG Electronics

Earnings results and forecasts

Table 1. 1Q13 review (Wbn, %, %p) 1Q13P % chg. 1Q12 4Q12 Actual KDB Daewoo Consensus YoY QoQ Revenue 13204.7 14801.1 14100.6 12242.3 12709.4 6.8 -4.7 OP 401.7 116.9 349.5 251.4 288.6 -13.0 199.0 OP margin 3.0 0.8 2.5 2.1 2.3 -0.6 1.7 Pretax profit 458.1 -330.6 176.7 177.5 266.3 -61.4 TTB Net profit 235.7 -476.9 24.2 119.6 227.5 -89.7 흑전 Source: WISEfn, Company data, KDB Daewoo Securities Research estimates

Table 2. Quarterly and annual earnings breakdown (Wbn, W, %, %p,’000 units) 2012 2013F 1Q13P

1Q 2Q 3Q 4Q FY 1QP 2QF 3QF 4QF FY YoY QoQ Previous % chg Mobile Revenue 2,497.2 2,321.2 2,447.6 2,811.6 10,077.6 3,209.7 3,393.5 3,476.4 3,580.2 13,659.8 28.5 14.2 2,560.3 25.4 communications OP 34.5 -27.9 -3.8 56.5 59.3 132.8 162.7 190.9 161.0 647.4 284.9 135.0 51.7 156.7 OPM (%) 1.4 -1.2 -0.2 2.0 0.6 4.1 4.8 5.5 4.5 4.7 2.8 2.1 2.0 2.1 - Handsets Revenue 2,452.0 2,286.2 2,423.1 2,779.3 9,940.6 3,202.3 3,358.5 3,451.9 3,547.9 13,560.6 30.6 15.2 2,515.1 27.3 OP 31.0 -30.4 -4.7 55.5 51.4 132.5 161.2 189.9 159.7 643.2 327.4 138.7 50.3 163.4 OPM (%) 1.3 -1.3 -0.2 2.0 0.5 4.1 4.8 5.5 4.5 4.7 2.9 2.1 2.0 2.1 Home Revenue 5,423.2 5,556.8 5,561.6 6,521.6 23,063.2 5,172.4 5,287.5 5,382.6 6,738.8 22,581.3 -4.6 -20.7 5,206.0 -0.6 entertainment OP 163.9 305.5 39.8 13.1 522.3 29.8 74.0 107.7 101.1 312.6 -81.8 127.5 5.2 472.4 OPM (%) 3.0 5.5 0.7 0.2 2.3 0.6 1.4 2.0 1.5 1.4 -2.4 0.4 0.1 0.5 Home appliances Revenue 2,535.7 2,875.3 2,867.5 2,942.3 11,220.8 2,806.7 3,090.4 3,071.3 3,141.0 12,109.4 10.7 -4.6 2,656.1 5.7 OP 143.3 183.7 122.0 80.2 529.2 101.7 135.6 121.5 95.0 453.8 -29.0 26.8 152.7 -33.4 OPM (%) 5.7 6.4 4.3 2.7 4.7 3.6 4.4 4.0 3.0 3.7 -2.0 0.9 5.7 -2.1 AC & Revenue 1,217.9 1,474.9 974.3 682.5 4,349.6 1,230.7 1,511.7 1,012.0 717.9 4,472.3 1.1 80.3 1,192.3 3.2 energy solutions OP 71.3 82.8 13.5 -11.0 156.6 72.8 87.9 15.0 -8.0 167.7 2.1 TTB 69.8 4.3 OPM (%) 5.9 5.6 1.4 -1.6 3.6 5.9 5.8 1.5 -1.1 3.8 0.1 7.5 5.9 0.1 Internal & other Revenue 553.9 630.8 524.8 539.3 2,248.8 481.8 548.7 456.5 469.1 1,956.1 -13.0 -10.7 627.5 -23.2 OP -36.8 -35.8 -24.5 -30.7 -127.8 -4.1 -5.5 -4.6 -4.7 -18.8 RR RR -28.0 -85.4 OPM (%) -6.6 -5.7 -4.7 -5.7 -5.7 -0.9 -1.0 -1.0 -1.0 -1.0 5.8 4.8 -4.5 3.6 Revenue 12,227.9 12,859.0 12,375.8 13,497.3 50,960.0 14,100.6 15,086.1 14,688.2 15,870.6 59,745.5 15.3 4.5 12,242.3 15.2 Operating profit 376.2 508.3 147.0 108.1 1,139.6 349.5 500.3 500.2 391.4 1,741.3 -7.1 223.3 251.4 39.0 OP margin (%) 3.1 4.0 1.2 0.8 2.2 2.5 3.3 3.4 2.5 2.9 -0.6 1.7 2.1 0.4 Pretax profit 449.8 236.1 178.7 -340.5 524.1 176.7 423.2 469.9 295.1 1,364.8 -60.7 TTB 177.5 -0.5 Pretax margin (%) 3.7 1.8 1.4 -2.5 1.0 1.3 2.8 3.2 1.9 2.3 -2.4 3.8 1.4 -0.2 Net profit 235.7 156.5 151.4 -476.9 66.8 24.2 276.8 307.4 193.0 801.4 -89.7 TTB 119.6 -79.8 Net margin (%) 1.9 1.2 1.2 -3.5 0.1 0.2 1.8 2.1 1.2 1.3 -1.8 3.7 1.0 -0.8 Handset sales volume 13,722 12,998 14,361 15,420 56,501 16,200 16,990 17,819 18,689 69,698 18.1 5.1 15,195 6.6 (Smartphones) 4,900 5,700 7,000 8,600 26,200 10,300 11,021 12,674 13,054 47,050 110.2 19.8 9,030 14.1 TV sales volume 8,375 8,409 8,649 10,357 35,790 8,000 8,142 8,375 10,485 35,002 -4.5 -22.8 8,252 -3.1 LCD TV sales volume 5,819 5,990 6,493 8,415 26,717 6,600 6,794 7,165 9,366 29,925 13.4 -21.6 6,570 0.5 Note: Excluding LG Innotek’s earnings (annual revenue: W54.8tr, W58. 3tr, W64.5tr; annual OP: W1.6tr, W1.9tr, W2. 4tr) Source: Company data, KDB Daewoo Securities Research estimates

Table 3. Revisions to earnings forecasts (Wbn, W, %, %p) Previous Revised % change Comments 13F 14F 15F 13F 14F 15F 13F 14F 15F Revenue 52,969 58,273 66,923 59,745 63,955 70,091 12.8 9.8 4.7 - Increasing sales of smartphones Operating profit 1,316 1,825 2,446 1,741 2,180 2,836 32.3 19.5 15.9 - Improvement of margin at MC division Pretax profit 1,166 1,697 2,344 1,365 1,810 2,483 17.1 6.7 5.9 Net profit 785 1,112 1,536 801 1,189 1,631 2.0 7.0 6.2 - Increasing tax rate EPS (W) 2.5 3.1 3.7 2.9 3.4 4.0 0.4 0.3 0.4 OP margin 2.2 2.9 3.5 2.3 2.8 3.5 0.1 -0.1 0.0 Pretax margin 1.5 1.9 2.3 1.3 1.9 2.3 -0.1 0.0 0.0 Net margin 1,035 1,050 1,384 1,070 1,080 1,384 3.4 2.9 0.0 Note: Excluding LG Innotek’s earnings (annual revenue: W54.8tr, W58. 3tr, W64.5tr; annual OP: W1.6tr, W1.9tr, W2. 4tr) Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 3 April 25, 2013 LG Electronics

Key charts

Figure 1. Quarterly earnings (Wbn) (%) 20,000 Revenue (L) 9 OPM (R)

15,000 6

10,000 3

5,000 0

0 -3 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13P 1Q14F

Source: Company data, KDB Daewoo Securities Research

Figure 2. P/B chart Figure 3. Quarterly handset earnings (W) (Wbn) (%) 180,000 2.3x 6,000 Revenue (L) 14 OPM (R) 2.0x

4,500 7 1.7x 120,000 1.3x 3,000 0 1.0x 60,000 1,500 -7

0 0 -14 08 09 10 11 12 13F 14F 15F 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13P 1Q14F

Source: KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research

Figure 4. Annual earnings Figure 5. Handset shipments and OPM (Wbn) OP (L) (%) (mn units) (%) 2,800 OPM (R) 2,681 6 150 Handset shipments (L) 16 OPM (R) 2,133 2,180 2,100 4 1,741 100 8

1,400 1,234 2 1,140 844 50 0 700 0 379 176

0 -2 0 -8 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F

Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 4 April 25, 2013 LG Electronics

Figure 6. LGE’s smartphone lineup Model LG Optimus G Pro LG Optimus F5 LG Optimus F7

Dimensions: 139 x 70 x 10 mm Dimensions: 131.7 x 68.2 x 9.6 mm Weight: 160 g Dimensions: 126 x 64.5 x 9.3 mm Weight: - g Display: 1080 x 1920 pixels, 5.5 inches (~401ppi) Weight: - g Display: 720 x 1280 pixels, 4.7 inches (~312 ppi) (True HD-IPS + LCD capacitive touchscreen, 16M Display: 540 x 960 pixels, 4.3 inches (~256 ppi) (True HD-IPS + LCD capacitive touchscreen, 16M colors) (IPS LCD capacitive touchscreen, 16M colors) colors) Specification Camera: 13 MP, Secondary CM not confirm Camera: 5 MP, 1.3 MP Camera: 8 MP, 1.3 MP OS: Android OS, v4.1 (Jelly Bean) OS: Android OS, v4.1.2 (Jelly Bean) OS: Android OS, v4.1 (Jelly Bean) CPU: Quad-core 1.7 GHz Krait CPU: Dual-core 1.2 GHz CPU: Dual-core 1.5 GHz GPU: Adreno 320 Memory: 8 GB storage, 1 GB RAM Memory: 8 GB storage, 2 GB RAM Memory: 32 GB storage, 2 GB RAM batteryy: Li-Ion 2150 mAh battery batteryy: Li-Ion 2540 mAh battery batteryy: Li-Ion 3000 mAh battery

Release date Feb. 2013 Expect 2Q, 2013 Expect 2Q, 2013

Model LG Optimus L7 II (Dual) LG Optimus L5 II (Dual) LG Optimus L3 II (Dual)

Dimensions: 121.5 x 66.6 x 9.7 mm Dimensions: 102.6 x 61.1 x 11.9 mm Dimensions: 118.4 x 62.2 x 9.2 mm Weight: 118g (115.5 g) Weight: 107g (110g) Weight: 100 g Display: 480 x 800 pixels, 4.3 inches (~217ppi) Display: 240 x 320 pixels, 3.2 inches (~125 ppi) Display: 480 x 800 pixels, 4.0 inches (~233ppi) (IPS LCD, capacitive touchscreen, 16M colors) (IPS LCD capacitive touchscreen) (IPS LCD, capacitive touchscreen, 16M colors) Camera: 8 MP, VGA Camera: 3.15 MP Camera: 5 MP OS: Android OS, v4.1.2 (Jelly Bean) OS: Android OS, v4.1 (Jelly Bean) Specification OS: Android OS, v4.1.2 (Jelly Bean) CPU: Dual-core 1 GHz CPU: 1 GHz CPU: 1 GHz GPU: Adreno 203 GPU: Adreno 203 Memory: 4 GB storage, 512 MB RAM Memory: 4 GB storage, 768 MB RAM Memory: 4 GB storage, 512 MB RAM batteryy: Li-Ion 1700 mAh battery batteryy: Li-Ion 2460 mAh battery batteryy: Li-Ion 1540 mAh battery * Dual SIM model avaiable * Dual SIM model avaiable * Dual SIM model avaiable

Release date March, 2013 April, 2013 April, 2013

Source: Company data, GSMarena

KDB Daewoo Securities Research 5 April 25, 2013 LG Electronics

LG Electronics (066570 KS/Buy/TP: W114,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue 50,960 59,746 63,955 70,091 Current Assets 14,554 16,555 17,727 19,847 Cost of Sales 38,653 44,901 47,745 51,879 Cash and Cash Equivalents 1,832 2,168 2,266 3,100 Gross Profit 12,307 14,844 16,209 18,213 AR & Other Receivables 6,824 7,640 8,314 9,031 SG&A Expenses 11,171 13,103 14,029 15,377 Inventories 4,599 5,246 5,541 5,953 Operating Profit (Adj) 1,136 1,741 2,180 2,836 Other Current Assets 1,170 1,373 1,478 1,635 Operating Profit 1,136 1,741 2,180 2,836 Non-Current Assets 16,903 18,010 19,067 20,134 Non-Operating Profit -612 -377 -370 -353 Investments in Associates 5,477 5,546 5,616 5,685 Net Financial Income 228 254 248 231 Property, Plant and Equipment 7,518 8,323 9,188 10,012 Net Gain from Inv in Associates 183 69 69 69 Intangible Assets 1,077 1,097 1,110 1,119 Pretax Profit 524 1,365 1,810 2,483 Total Assets 31,457 34,565 36,795 39,981 Income Tax 433 511 543 745 Current Liabilities 12,816 14,509 15,315 16,620 Profit from Continuing Operations 91 854 1,267 1,738 AP & Other Payables 6,846 8,049 8,676 9,608 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 2,045 1,845 1,665 1,503 Net Profit 91 854 1,267 1,738 Other Current Liabilities 3,925 4,615 4,974 5,508 Controlling Interests 67 801 1,190 1,631 Non-Current Liabilities 5,937 6,756 7,262 7,810 Non-Controlling Interests 24 52 78 107 Long-Term Financial Liabilities 4,442 4,576 4,476 4,376 Total Comprehensive Profit -394 632 1,046 1,516 Other Non-Current Liabilities 966 1,545 2,045 2,586 Controlling Interests -403 595 983 1,425 Total Liabilities 18,753 21,266 22,577 24,430 Non-Controlling Interests 9 37 62 91 Controlling Interests 12,454 13,013 13,868 15,111 EBITDA 2,448 2,808 3,369 4,141 Capital Stock 904 904 904 904 FCF (Free Cash Flow) 678 374 536 1,296 Capital Surplus 2,862 2,862 2,862 2,862 EBITDA Margin (%) 4.8 4.7 5.3 5.9 Retained Earnings 9,408 10,172 11,234 12,683 Operating Profit Margin (%) 2.2 2.9 3.4 4.1 Non-Controlling Interests 250 287 349 441 Net Profit Margin (%) 0.1 1.3 1.9 2.3 Stockholders' Equity 12,704 13,299 14,217 15,552

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities 1,966 2,586 2,821 3,649 P/E (x) 199.3 20.3 13.7 10.0 Net Profit 91 854 1,267 1,738 P/CF (x) 9.7 8.7 6.8 5.5 Non-Cash Income and Expense 3,863 1,954 2,102 2,403 P/B (x) 1.2 1.4 1.3 1.2 Depreciation 951 746 862 974 EV/EBITDA (x) 7.2 7.2 6.0 4.6 Amortization 361 321 327 331 EPS (W) 369 4,432 6,578 9,020 Others -2,125 -199 -199 -199 CFPS (W) 7,623 10,332 13,151 16,238 Chg in Working Capital -1,494 289 -5 252 BPS (W) 63,162 66,144 70,801 77,625 Chg in AR & Other Receivables -318 -817 -673 -718 DPS (W) 200 700 1,000 1,200 Chg in Inventories -35 -647 -295 -411 Payout ratio (%) 55.2 15.9 15.3 13.4 Chg in AP & Other Payables 113 1,204 627 932 Dividend Yield (%) 0.3 0.8 1.1 1.3 Income Tax Paid -494 -511 -543 -745 Revenue Growth (%) -6.1 17.2 7.1 9.6 Cash Flows from Inv Activities -1,242 -1,846 -2,020 -2,088 EBITDA Growth (%) 54.8 14.7 20.0 22.9 Chg in PP&E -1,330 -1,552 -1,726 -1,799 Operating Profit Growth (%) 199.7 53.3 25.2 30.1 Chg in Intangible Assets -340 -340 -340 -340 EPS Growth (%) TTB 1,100.2 48.4 37.1 Chg in Financial Assets 113 0 0 0 Accounts Receivable Turnover (x) 7.7 8.7 8.4 8.5 Others 315 46 47 50 Inventory Turnover (x) 10.7 12.1 11.9 12.2 Cash Flows from Fin Activities -1,179 -405 -703 -726 Accounts Payable Turnover (x) 9.5 10.6 10.1 10.1 Chg in Financial Liabilities -806 -200 -280 -262 ROA (%) 0.3 2.6 3.6 4.5 Chg in Equity 9 0 0 0 ROE (%) 0.5 6.3 8.9 11.3 Dividends Paid -59 -37 -128 -182 ROIC (%) 1.8 9.3 12.9 15.7 Others -322 -301 -295 -283 Liability to Equity Ratio (%) 147.6 159.9 158.8 157.1 Increase (Decrease) in Cash -513 336 98 834 Current Ratio (%) 113.6 114.1 115.8 119.4 Beginning Balance 2,346 1,832 2,168 2,266 Net Debt to Equity Ratio (%) 35.6 31.0 26.4 17.1 Ending Balance 1,832 2,168 2,266 3,100 Interest Coverage Ratio (x) 3.5 5.8 7.4 10.1 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 6 April 25, 2013 LG Electronics

Important Disclosures & Disclaimers Disclosures (W) LG Electronics As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked 160,000 warrants backed by shares of LG Electronics as an underlying asset, and other than this, Daewoo 140,000 Securities has no other special interests in the covered companies. 120,000 As of the publication date, Daewoo Securities Co., Ltd. has interest in LG Electronics in accordance with a 100,000 subscription agreement, etc. 80,000 As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with LG Electronics 60,000 as an underlying asset, and other than this, Daewoo Securities has no other special interests in the 40,000 covered companies. 20,000 0

4/11 10/11 4/12 10/12 4/13

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.

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 Korea Exchange. 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 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.

KDB Daewoo Securities Research 7 April 25, 2013 LG Electronics

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 Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 Suite 301 Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022

Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 7th Floor, Yusen Building Suite 2602, Twin Towers (East) 25 Old Broad Street 2-3-2 Marunouchi, Chiyoda-ku B-12 Jianguomenwai Avenue London EC2N 1HQ Tokyo 100-0005 Chaoyang District, Beijing 100022 United Kingdom Japan China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699

Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28th Floor, Hang Seng Bank Tower Centec Tower 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

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