Strategy / Korea 24 August 2012
Seoul Searching Mainland Chinese tourists riding the 'Korean wave'
• Chinese tourists are making a real splash in Korea • The mix is changing but Chinese visitors are shopping at all price points, with a particular focus on Korea cosmetics • AmorePacific, LGH&H and Hyundai Department Store stand to benefit, as do aviation, hotel, gaming and other retail players
business hotel, a sign of the current shopping lists, followed by apparel shortage of rooms in Seoul. and then packaged food.
Our on-the-ground experience is Changing mix of visitors from
backed by Korea Tourism Mainland China Chang H. Lee Organization statistics showing a Tourists accounted for 57.1% of (82) 2 787 9177 [email protected] sustained increase in the number of visitors from Mainland China in 2011, visitors from Mainland China as a up from 37.1% in 2003. Within that proportion of total visitors to Korea. group, the number of tourists
Summary travelling independently, rather than Overseas visitors to Korea in a tour group, is on the rise, while Continuing Daiwa’s series on the 50% rising impact regionally of outbound females now outnumber male visitors. 40% tourism from Mainland China, we Last but not least, average spending take an on-the-ground look at the 30% by tourists from Mainland China spending habits of Chinese tourists 20% continues to rise, notably on shopping. in Korea and highlight likely 10% Stocks to watch beneficiaries at the company level. 0% Inside, we highlight several 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Japan China ASEAN On-the-ground experience potential beneficiaries of this Source: Korea Tourism Organization, Daiwa emerging theme, including ODM As part of our research for this edition of Seoul Searching, we headed for and OEM cosmetics producers, hotel Indeed, with visa requirements on chains, gaming companies, airlines, Myungdong and Dongdaemun, the tourists from Mainland China having most popular destinations for people and department store operators. been relaxed recently, and growth in looking to buy low-end to medium- the number of tourists from China last range Korean-made cosmetics and Given that Mainland Chinese tourists year far exceeding the figure for cite shopping as a major reason for fashion items. visitors from Japan (18.4% vs 8.8% visiting Korea, with cosmetics a big YoY), it is likely to be just a matter of draw, we think the following stocks in On our visits to two duty-free time before the proportion of tourists shopping (DFS) stores in downtown Daiwa’s Korea coverage universe offer from Mainland China overtakes that front-line exposure to the spending Seoul over the weekend, we were from Japan. surprised at the sheer number of power of tourists from Mainland China: AmorePacific (090430 KS, tourists, particularly in Myungdong. Why, where, what and how? Most were from China, with visitors W1,128,000, Outperform [2]) What is bringing Mainland tourists and LGH&H (051900 KS, from Japan accounting for a much to Korea? A survey conducted by smaller proportion. Still, both groups W604,000, Hold [3]). We also flag Korea’s Ministry of Culture, Sports, Hyundai Department Store far outnumbered local residents. and Tourism suggests that visitors (069960 KS, W138,500, Buy [1]), from China come for, in order of which has a strong presence in the We saw many group tour buses their preference: 1) shopping, 2) parked in the vicinity of the DSFs, Gangnam district, to which an food, and 3) sightseeing. Their increasing number of tourists head for and most had in their front windows preferred shopping venues are: 1) signs featuring Chinese characters. cosmetic surgery. Airport DSF, 2) Myungdong, and 3) In Dongdaemun, meanwhile, we Dongdaemun. The survey results visited the construction site for a See pages 7-9 for our full list of suggest that cosmetics top their potential beneficiaries.
Important disclosures, including any required research certifications, are provided on the last three pages of this report. Seoul Searching 24 August 2012
other overseas tourists at the recent London Olympics. It went on to say that the British had been surprised to see Chinese shoppers clearing the shelves of luxury stores in London, and that shops had added separate payment counters solely for Chinese customers.
The power of Mainland In Hong Kong, Christie Chien noted in her report that 36.3% of 2011 Hong Kong retail sales by value came tourists, Korea style from Mainland Chinese tourists. Assuming the amount of per-capita spending by Mainland tourists remains at Korea is one of the beneficiaries of the the level for 2011, of US$842.2, she estimates that by 2015 the total retail sales value generated by Mainland increasing number of outbound tours Chinese tourists will be equivalent to 80% of Hong from China. Kong’s total retail sales for 2011.
Travel: something every Korea is benefitting South Korea is also benefitting from the boom in Mainland Chinese dreams of overseas travel by Mainland Chinese, due to its proximity, the high-quality shopping experience, and More recently, a survey by China Central Television Hanryu – the so-called Korean Wave. (CCTV) in 2011 revealed this had changed to: 1) a computer, 2) to travel, and 3) a car. The number of Mainland Chinese inbound visitors to Korea has increased at a CAGR of 15.8% over the past According to China’s National Bureau of Statistics, the 11 years. The rise was accelerated by the Korea number of Mainland Chinese travelling overseas Government easing visa restrictions for Mainland increased at a CAGR of 18.8% between 2000 and 2011. Chinese progressively. The Korea Tourism The total number of outbound tourists rose from 57.4m Organization (KTO), a government entity, expecting for 2010 to about 70m for 2011, an increase 22% YoY the double-digit growth in the number of visitors from increase despite the ongoing global economic crisis. China to continue for 2012. Among the 70m travelling in 2011, 85% visited places in Asia. Christie Chien, a member of Daiwa’s economics Foreign inbound visitors from Japan, China, and ASEAN team, believes the current boom in outbound travel is (m) only just starting in China – a country with a rapidly 4.0 growing middle and upper class (see The power of 3.5 Mainland tourists, published on 16 July 2012). 3.0 2.5 Although the annual number of outbound trips in 2.0 China is the highest of any country, the departure-to- 1.5 population (DTP) ratio is lower than elsewhere, at 4.1% 1.0 and 5.2% for 2010 and 2011 (US: 18.7%, Japan: 13.4%, 0.5 Korea 26.2%, and South Africa: 10.8%). This alone 0.0 suggests that the current boom is just the start. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Japan China ASEAN
Mainland Chinese tourists have changed Source: Korea Tourism Organization, Daiwa the world tourism industry The rise in overseas travel by Mainland Chinese has accelerated over the past few years on the back of the easing of travel restrictions by the PRC Government. This, combined with the consumption power of tourists from China, has changed the world tourism industry. It is already well-known that Mainland Chinese are the biggest spenders (in terms of average per traveller) in the US and Europe. In Australia, they have surpassed the British as the country’s most valuable tourists in terms of what they spend. A recent China Daily report claimed that Mainland Chinese tourists outspent all - 2 - Seoul Searching 24 August 2012
Proportion of visitors from Japan, China, and ASEAN
50% Characteristics of Mainland Chinese tourists 40% According to the Internationale Tourismus-Börse 30% Berlin’s (ITB) World Travel Trends Report 2011/12
20% published during ITB Berlin, the world’s largest tourism trade fair, the profile of Mainland Chinese 10% tourists has been getting younger with an increasing number of young professionals with high income levels. 0% In addition, it claimed that more Mainland Chinese 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 tourists were starting to prefer the experience of Japan China ASEAN travelling as an individual rather than with a group – a Source: Korea Tourism Organization, Daiwa move away from price to an experience-based trip. The report noted that these travellers sought a ‘China- In 2000, the number of Mainland Chinese visitors was ready’ service at their destinations and were willing to only about 443,000 (8.3% of total inbound visitors) spend a lot on shopping. The study also found that and the number of Japanese inbound visitors was these people travelled frequently and preferred to about 2.5m (46.5%). For 2011, the number of Mainland travel to short-haul rather than long-haul destinations. Chinese visitors increased by 18.4% YoY to 2.2m (22.3% of the total) with the number of Japanese rising As a result, there is a rapidly increasing number of by 8.8% YoY to 3.3m visitors (33.6%). If the current foreign independent travellers (FIT) among outbound pace were to be maintained, which seems highly likely Mainland China tourists, seeking short trips for to us at this point, the number of Mainland Chinese shopping or weekend getaways. As the trips are brief, tourists would overtake the number of Japanese within FIT tend to visit places within 2-3 hours’ flying time, a year or two, as Korea recently relaxed the visa such as Hong Kong, Macau, Taiwan, Japan, and South requirements for Mainland Chinese further (see the Korea. There is also a growing number of individual appendix for details). high-net-worth travellers, mostly aged between 30 and 50. They tend to travel more frequently than the average traveller and take both short- and long-haul What attracts Mainland Chinese flights. tourists to Korea? Among all Mainland Chinese visitors to Korea, 57.1% A survey by The Ministry of Culture, Sports, and were tourists in 2011, which compares with 37.1% in Tourism of Korea revealed that Mainland Chinese 2003. To some extent this explains the reason for the tourists chose Korea over other countries mainly for number of female Mainland Chinese visitors the following reasons: 1) shopping, 2) food, and 3) surpassing the number of male visitors since 2010, as sightseeing. Among the respondents, about 67% cited women typically account for majority in Mainland shopping as the primary reason in 2011, whereas only Chinese tourist groups. 42% said that was the main reason in 2007. Food, entertainment, holidays, and fashion/trend-related Profile of Mainland Chinese inbound visitors Korean culture were among the other main factors 80% 75% cited. 70% 65% Reasons why Mainland Chinese tourists choose Korea as 60% their travelling destination 55% Determinant factor (%) 2007 2008 2009 2010 2011 50% Shopping 41.5 44.4 56.5 59.8 66.6 45% 40% Food 41.7 41.5 42.1 40.2 44.2 35% Nature 25.2 23.4 22.0 25.6 23.9 30% Historic site visit 22.9 26.1 20.8 21.8 19.1 2003 2004 2005 2006 2007 2008 2009 2010 Sep-2011 Travel 45.4 40.1 37.6 30.1 19.0 Entertainment 12.5 11.0 11.2 12.5 18.9 Tourists/total number of Mainland Chinese visitors Holidays 12.8 14.9 14.3 16.6 16.5 Male Cheaper travel relative to other countries 24.9 27.2 38.4 25.4 14.9 Female Fashion/trend-related Korean culture 10.6 10.3 11.2 15.0 14.5 Source: Ministry of Culture, Sports, and Tourism, Daiwa Filming location visits/Hanryu 11.8 10.6 8.6 10.1 8.2 Source: The Ministry of Culture, Sports, and Tourism, Daiwa Note: Multiple responses were allowed in the survey
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This supports the findings in the ITB’s report, which CAGR since 2007). In addition, the percentage of reported a recent sharp rise in the number of female Mainland Chinese tourists spending more than Mainland Chinese travelling overseas. Furthermore, as US$1,500 has risen whereas the percentage spending the following chart shows, the number of Mainland less than US$1,500 has declined compared with the Chinese FITs is on the rise, accounting for 61.8% of all spending amount between 2007 and 2011. The highest- visitors from Mainland China to Korea in 2011, with the spending bracket (greater than US$3,000) saw the proportion of group tourists at a much more modest biggest increase between 2007 and 2011, a CAGR of 36.1%. 18.3%, indicating that a growing number of rich travellers are coming to Korea. Type of Mainland Chinese inbound tourists Breakdown of total expenditure per Mainland Chinese package group traveller 60% Growth CAGR (US$, %) 2007 2008 2009 2010 2011 (%) 40% Total expenses 1,587.0 1,505.0 1,791.4 1,708.8 1,991.1 5.8 Transportation 6.0 5.0 4.3 8.0 10.8 15.8 Other expenses 38.0 7.0 13.2 10.9 54.2 9.3 20% Culture related 6.0 3.0 2.5 5.8 0.4 (49.2) Payments to Chinese travel agencies 795.0 782.0 664.9 642.7 599.1 (6.8) Shopping 620.0 618.0 1,003.7 944.0 1,272.4 19.7 0% Accommodation plus food 55.0 34.0 55.4 65.7 41.0 (7.1) 2003 2004 2005 2006 2007 2008 2009 2010 2011 Entertainment 39.0 18.0 40.7 14.5 9.1 (30.5) Airtel FIT Package-group Tour Extracurricular activities 9.0 3.0 0.0 0.5 0.0 (100.0) Payments to Korean travel agencies 16.0 9.0 6.7 17.8 1.2 (47.7) Source: Ministry of Culture, Sports, and Tourism, Daiwa Source: Ministry of Culture, Sports, and Tourism, Daiwa Note: Airtel denotes a package deal which includes an air ticket plus hotel. Note: Expenditure amounts are average amounts
Breakdown of total expenditure per Mainland Chinese FIT Growth Consumption power and patterns CAGR (US$, %) 2007 2008 2009 2010 2011 (%) of Mainland Chinese tourists Total expenses 1,363.0 1,132.0 1,418.8 1,604.9 1,928.1 9.1 Transportation 77.0 63.0 53.9 68.9 96.7 5.9 The Chinese Travel Academy (CTA) disclosed estimates Other expenses 57.0 30.0 30.7 24.6 39.5 (8.8) Culture related 9.0 9.0 18.8 16.0 23.9 27.7 that Mainland Chinese spent US$69bn globally in total Shopping 714.0 588.0 778.1 839.0 1,051.4 10.2 on travel in 2011, making them the third-largest Accommodation 273.0 215.0 270.0 340.7 314.6 3.6 spenders behind Germans and Americans. The Food 166.0 168.0 188.5 222.4 287.7 14.7 consumption power of Mainland Chinese travellers to Entertainment 49.0 55.0 73.2 69.7 110.7 22.6 Payments to Korean travel agencies 17.0 3.0 6.3 24.9 11.7 (8.9) Korea has also been apparent, with each visitor Source: Ministry of Culture, Sports, and Tourism, Daiwa spending an average of US$1,939.60 for 2011, almost Note: Expenditure amounts are average amounts twice the level of Japanese tourists. The preceding tables clearly show the different Korea: average spending per traveller spending patterns of Mainland Chinese FITs and US$ 2007 2011 CAGR group-tour travellers. Total expenditure per FIT Japan China Japan China Japan China increased at a CAGR of 9.1% from 2007-11 and the rest < 500 28.3% 20.4% 18.9% 11.8% -9.6% -12.8% 501-1,000 38.1% 27.1% 37.2% 20.1% -0.6% -7.2% indicates that spending by the FIT group is more 1,001-1,500 17.4% 22.2% 28.1% 16.8% 12.7% -6.7% diverse than that of package-tour travellers, ie, they 1,501-2,000 7.8% 8.5% 7.7% 15.4% -0.3% 16.0% spend on a broader range of items and activities. 2,001-3,000 5.3% 10.6% 4.9% 14.0% -1.9% 7.2% Meanwhile, total expenditure by those on group > 3,000 3.2% 11.2% 3.3% 21.9% 0.8% 18.3% Average expenditure per traveller 962.0 1,441.0 1,081.0 1,939.6 3.0% 7.7% package tours increased at a slower pace, a CAGR of Source: Ministry of Culture, Sports, and Tourism, Daiwa 5.8%, with the biggest rises in transportation and shopping spending. Although the total number of Mainland Chinese tourists to Korea is lower than the number of Japanese, The increase in transportation costs could be explained the former have outspent the latter in terms of average by a shortage of accommodation in Korea for travellers travel expenditure per traveller. For 2011, the average on Mainland Chinese group tours, according to data amount spent by Mainland Chinese travellers was from the International Visitor Survey conducted by The US$1,939.60 (a 7.7% CAGR since 2007), whereas the Ministry of Culture, Sports, and Tourism of Korea. Due average for Japanese tourists was US$1,081 (a 3.0% to a shortage in lodging, most Mainland Chinese
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tourists visiting the Seoul area (which accounted for Most popular shopping venues for foreign inbound travellers about 70% of the total inbound Mainland visitors for 2007 1 2 3 4 5 2011) have to stay on the outskirts of the Seoul Overall Airport DFS Department Store Mom&Pop Store Myungdong Dongdaemun Japan Airport DFS Myungdong Department Store Mom&Pop Stores Downtown DFS metropolitan area. As the major shopping districts are China Airport DFS Department Store Dongdaemun Myungdong Mom&Pop stores in the middle of Seoul, they have to spend more on 2011 1 2 3 4 5 transportation. Overall Myungdong Airport DFS Mom&Pop Store Dongdaemun Department Store Japan Myungdong Mom&Pop Store Airport DFS Department Store Downtown DFS Another point to note is that from 2007-11, China Airport DFS Myungdong Dongdaemun Downtown DFS Department Store Source: Ministry of Culture, Sports, and Tourism, Daiwa accommodation-related expenditure saw the slowest Note: Multiple responses allowed in the survey growth rate of 3.6% for FIT and a decline of 7.1% for package group-tour travellers. We think this is in line In a recent survey conducted by The Ministry of with the increasing number of Chinese tourists Culture, Sports, and Tourism, Chinese inbound tourists spending less on accommodation and more on picked Myungdong as their favourite place in Seoul to shopping. This clearly was not the case for Chinese visit, while Dongdaemun was their second choice. inbound travellers in the beginning. When they first Myungdong and Dongdaemun are popular shopping started to visit Korea in large numbers, Chinese districts for low- to medium-range Korean-made tourists were regarded as the highest spenders in every fashion and cosmetics products. The survey also noted area, including lodging and food. Also, payments to that visitors from Mainland China enjoy shopping in Korean travel agencies for both types of visitors have Korea, especially in Myungdong and Dongdaemun declined over the past couple of years, which could because of an attractive price/quality proposition, indicate an ongoing price war as a result of rising along with the ease of shopping. We think these factors competition among agencies. There also appears to explain why some Chinese tourists are choosing Korea have been rising competition in package tours to Korea over other destinations within Asia. among agencies in China, as payments to Mainland travel agencies saw a compound rate of decline of 6.8% DFS business growth – Seoul region for 2007-11. 2,500 (US$m) DFS sales boosted by Chinese 40% tourists Based on the data, our key findings are as follows. 2,000 30% 20% 1) Mainland Chinese visitors are now more likely to 1,500 10% travel independently than with a tour group, and young 1,000 and female make up the majority of Mainland tourists 0% to Korea. 500 (10%)
2) More Mainland Chinese are paying less in 0 (20%) accommodation-related expenses in order to be able to 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 spend more on shopping. Sales YoY Growth Source: Hotel Shilla, Daiwa 3) There is a growing proportion of high spenders Note: Sales figures are estimates from Hotel Shilla among Mainland Chinese visitors to Korea. Note that Chinese inbound tourists were originally known as big spenders on foreign-branded luxury Popular sights, shopping venues, products. Hence, sales of foreign luxury goods from duty-free shops and department stores surged, showing and things to buy double-digit YoY growth since 2009 as the prices of foreign luxury products in Korea were generally Most popular destinations within Seoul for foreign inbound cheaper than in Mainland China due to higher luxury travellers tax in China. Although duty-free shops are still the 2007 1 2 3 4 5 Overall Myungdong Dongdaemun Namdaemun Palaces Insadong preferred places for Chinese inbound travellers to shop, Japan Namdaemun Myungdong Dongdaemun Palaces Itaewon sales of foreign luxury items at department stores China Dongdaemun Palace Namdaemun Museum Lotteworld started to increase marginally from the end of 2011. 2011 1 2 3 4 5 Overall Myungdong Dongdaemun Namdaemun Palaces Namsan/N Tower Japan Myungdong Dongdaemun Namdaemun Insadong Namsan/N Tower China Myungdong Dongdaemun Lotteworld Namdaemun Palaces Source: Ministry of Culture, Sports, and Tourism, Daiwa Note: Multiple responses allowed in the survey
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Myungdong: the most popular shopping destination in Seoul As Korean-branded products are getting more of the spotlight in Mainland China due mainly to the Korean Wave, Chinese consumers are beginning to view Korea- brands as luxury items. Hence, they tend to purchase Korean-made products, cosmetics being the top items and apparel being the second, more than foreign luxury goods during their visits.
Although Chinese tourists preferred ginseng and medical herb products in 2001, as shown below, it turns out Korean-branded cosmetic products and apparel were the must-buy items in 2011. In our view, this has more to do with the Korean Wave, as the Korean standard of beauty/fashion is quickly replacing the Chinese standard of beauty/fashion. The shift in travel-type has also contributed to this change in
purchasing pattern. Source: Daiwa List of manufacturers of top three items bought by Chinese Dongdaemun: the second-most popular shopping area tourists in DFS (1Q12) Cosmetics Fashion/Accessories Food
Lotte DFS Korea Red Ginseng by 1 AmorePacific(KOSPI) MCM by Sungjoo D&D(UL) Korea Ginseng Corp(UL): Subsidiary of KT&G(KOSPI) Northface by GoldwinKorea(UL): 2 LG H&H(KOSPI) Korombang - Chocolate(UL) Subsidiary of Youngone Corp(KOSPI) Misha(UL): 3 Subsidiary of Ajin Trading(UL) Royal CnC - Chocolate(UL) Able C&C(KOSPI) La Coste by Dong-Il Devanley(UL): 4 Hans Skin(UL) Elgar Chocolate(UL) Subsidiary of Dong-Il Corp(KOSPI) Etude(UL) : Dried Seaweed by Daesang Subsidiary of FnF(UL): 5 Lee Geon Maan AnF(UL) AmorePacific Subsidiary of Group(KOSPI) Daesang Holdings(KOSPI) Shilla DFS Korea Red Ginseng by Source: Daiwa 1 AmorePacific(KOSPI) MCM by Sungjoo D&D(UL) Korea Ginseng Corp(UL): Subsidiary of KT&G(KOSPI) Preferred items purchased by different tourist groups 2 LG H&H(KOSPI) Louisquatorze(UL) Ilhwa - Ginseng(UL) 2001 2011 3 Charmzone(UL) Metrocity(UL) Nonghyup(UL) Japan China Japan China Su_M37: 4 Subsidiary of Kolon(KOSPI) Royal CnC - Chocolate(UL) Ginseng, Medical Packaged 1 Kimchi 57.3% 45.1% 1 58.3% Cosmetics 68.9% LG H&H(KOSPI) Herbs Food KTO DFS Packaged 2 54.1% Apparel 43.0% 2 Cosmetics 47.0% Apparel 43.7% Food Korea Red Ginseng by 1 MCM by Sungjoo D&D(UL) Korea Ginseng Corp(UL): Packaged 3 Apparel 35.2% Packaged Food 41.2% 3 Apparel 26.2% 32.4% Subsidiary of KT&G(KOSPI) Food 2 Daeho Golf(UL) Nonghyup(UL) Ginseng, 4 Cosmetics 30.7% Cosmetics 32.5% 4 Kimchi 13.7% 26.8% 3 KH Ameth(UL) Korombang - Chocolate(UL) Medical Herbs Leather Bean Pole by 5 Leather Good 27.8% Accessories 24.5% 5 11.4% Kimchi 15.8% 4 Korea Ginseng(UL) good Cheil Industries(KOSPI) 5 BEST JJ(UL) Ilukjo Food - Kimchi(UL) Source: Ministry of Culture, Sports, and Tourism; Daiwa Source: ICN Airport AirStar Avenue Survey (1Q2012), Daiwa
The following list of purchased items from department The list of manufacturers of the top-3 items purchased stores and duty-free shops also supports the notion of a by Chinese tourists at duty-free shops in 1Q12 shows shift in the shopping patterns of average Chinese which listed companies are experiencing firsthand tourists in Korea. Sales of medium- to high-end Chinese tourists’ consumption power. Korean-made products have become more popular than foreign luxury items among Chinese.
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of the leading brands in the low-end cosmetics brand- Biggest direct beneficiaries: shop category. Able C&C’s Missha brand, meanwhile, is Korea cosmetics companies another low-end cosmetics brand favoured by Chinese consumers. Considering that cosmetics made it on to the shopping list of nearly 70% of the Chinese tourists surveyed, we We think low-end cosmetics stores stand to benefit highlight the following Korea cosmetics players as from a shift in shopping patterns as Chinese tourists possible beneficiaries of this emerging theme: are becoming more price conscious and prefer to shop AmorePacific (090430 KS, W1,128,000, Outperform around the Myundong/ Dongdaemun areas, where [2]), LG H&H (051900 KS, W604,000, Hold [3]), Able there are large numbers of cosmetics brand shops. C&C (078520 KS, W70,500, Not rated), and AmorePacific Group (002790 KS, W432,000, Not In our view, original design manufacturing (ODM) and rated). original equipment manufacturing(OEM) cosmetics producers such as Cosmax (044820 KS, W34,800, Not We believe AmorePacific and AmorePacific Group rated) and Korea Kolmar (024720 KS, , W12,500, Not (Amore G, a holding company) have the best brand rated) are also potential beneficiaries of the increase in portfolio, encompassing low- to high-end offerings that the number of tourists from Mainland China. Fast- are popular with Chinese consumers. Sulwhasoo, growing low-end cosmetics companies tend to rely AmorePacific’s premium brand that features herbal heavily on outsourcing production, as many do not medicine as a key ingredient, is the number-one have manufacturing facilities and have only modest purchase by Chinese tourists. Backed by a successful R&D capabilities. Cosmax and Korea Kolmar together marketing campaign, Sulwhasoo seems to be regarded account for more than 50% of the domestic market, as a premium-brand offering among Chinese and they have been actively penetrating the consumers. Meanwhile, Amore G owns Etude House OEM/ODM market in Mainland China. Among their and Innisfree, low-end cosmetics brand shops that major customers are AmorePacific, LG H&H, and appear popular with Chinese tourists. AbleC&C, together with global players such as L’Oreal and Maybelline NewYork. In China, domestic LG H&H has a similar brand portfolio to that of companies outsource products to Cosmax and Korea AmorePacific Group, ranging from low- to high-end Kolmar, likely on account of the perception that Korea cosmetic brands. LG H&H owns THEFACESHOP, one cosmetics makers offer quality products and are skilled in R&D.
Korea Cosmetics Sector: valuation summary Mkt cap PER (x) PBR (x) EV/EBITDA (x) ROAE (%) EPS growth (%) Company Code (Wbn) Price (W) Rating FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E AmorePacific Corp 090430 KS 6,594 1,128,000 Outperform 20.1 20.5 17.5 3.1 2.7 2.4 13.5 12.0 10.7 17.8 14.2 14.7 15.0 -1.6 16.7 LG Household & Health Care 051900 KS 9,433 604,000 Hold 34.7 27.3 23.6 9.5 7.4 5.9 20.2 16.8 14.7 30.4 30.4 27.9 14.6 27.2 15.7 Able C&C * 078520 KS 729 70,500 25.8 15.2 12.0 6.2 4.6 3.4 16.5 9.6 7.7 27.8 34.6 32.5 -5.0 72.2 26.3 AmorePacific Group * 002790 KS 3,447 432,000 23.5 25.8 21.5 2.1 2.7 2.1 5.9 6.1 5.2 8.1 10.4 11.3 34.4 -8.9 19.9 Cosmax * 044820 KS 473 34,800 40.7 24.6 20.1 8.3 6.2 4.9 20.9 14.4 11.7 21.1 27.7 26.7 25.7 65.4 22.3 Korea Kolmar * 024720 KS 361 12,500 31.1 22.6 18.1 3.2 2.9 2.5 19.7 16.9 14.4 10.7 12.5 14.7 -8.0 -12.0 24.5 Source: Bloomberg (*), Daiwa forecasts Note: Prices are as at 24 August 2012
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Crowed DFS outlet at Hotel Shilla Other potential beneficiaries
Transition in shopping patterns for Mainland Chinese tourists The final stop on most Mainland Chinese package tours is a duty free shop (DFS). On any given day at a DFS one can see lines of tour buses snaking around the parking lot and Mainland Chinese tourists enthusiastically alighting from limo buses in large numbers. These tourists appear to make up the biggest group of customers at DFS outlets and, judging by our visit, they largely seem to be impulse shoppers, buying appreciably more items than other groups.
Tour buses at a parking lot near a DFS outlet Source: Daiwa
All things considered, we think it fair to argue that Mainland Chinese tourists are becoming more price- sensitive.
Still, judging from the KTO survey, we should not overlook the increasing number of high-income independent Mainland Chinese travellers with an appetite for luxury goods. This group of travellers typically stays at high-end hotels and purchases foreign luxury items in large amounts.
Hotel Shilla (008770 KS, W51,100, Not rated), one of the leading players in the high-end hotel and DFS business segment, stands to benefit from such spending, in our view. Hotel Shilla operates several Source: Daiwa DFS outlets throughout the country, and DFS stores
contributed 84% to its total revenue for 2011. At the Still, as Mainland Chinese tourists are increasingly same time, we note the company is looking to expand choosing to travel independently (FIT) rather than join in the business-hotel segment with a view to tapping a group tour, we are likely to a gradual decline in this growing demand among Mainland Chinese visitors for phenomenon of group shopping. The FIT segment low-to-medium end accommodation in Seoul. typically stays at medium-priced business hotels and chooses to shop at department stores, DFS outlets and wholesale stores in the Myungdong and Dongdaemun areas.
Rather than being impulse buyers, FIT shoppers tend to take the time to compare prices and products, prefer Korean products over foreign luxury goods, and favour low- to medium-priced items rather than high-end offerings.
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JW Marriott business hotel construction site at Dongdaemun located), and remain for longer durations than the average Chinese tourist in order to recover fully from surgery. The interesting thing is that these wealthy medical tourists tend to spend most of their free time post surgery shopping and indulging in entertainment like casinos. Hyundai Department Store (069960 KS) has a strong presence in the Gangnam district.
While we believe the lion’s share of the earnings contribution for foreigner-only casinos, such as Paradise (034230 KS, W14,950, Not rated) and GKL (114090 KS, W26,850, Not rated), comes from high rollers, whose main purpose for visiting Korea is to gamble, the increase in high-net-worth Chinese travellers could have a marginally positive impact on the two companies. Also, Paradise and GKL
are making efforts to take advantage of the growing Source: Daiwa number of inbound Chinese tourists, such as Paradise’s plan to create a multiplex resort close to Incheon A concierge service introduced by luxury department International Airport by 2016 and GKL’s plan to stores in the Gangnam area, such as Hyundai advance into the duty-free shopping business. While Department Store (069960 KS), is a prime the revenue contribution from mass visitors remains example of retailers trying to meet the needs of affluent low, there could be upside for revenue if these new Mainland Chinese customers. Upon spending the sums businesses materialise in the long term. needed to become VVIP customers, Mainland Chinese shoppers are assigned a Mandarin-speaking concierge Passenger traffic at Incheon International airport for to assist them, not just in-store but over the course of July 2012 reached a record high of 3.47mn (up 9.1% their stay in Korea. YoY). Passenger traffic on China routes and US routes increased by 7.3% YoY and 4.3% to 1mn and 0.44mn, The KTO survey also revealed that, as well as the respectively, and also reached record levels. According relatively cheap prices on offer, Mainland Chinese to the Korea Tourism Organization, inbound enjoy shopping in Korea because of the quality of passengers from China led the way in absolute service they receive from store staff. We believe that, numbers and in growth. For January to July 2012, the relative to some other markets in Asia, Korea has a number of inbound passengers from China increased more customer-centric approach to service that could by 30% YoY to 1.16mm. ultimately encourage more impulse purchasing. Another interesting fact is that the total medical Passenger traffic for August is typically higher than for expenditure from foreign tourists in Korea last year July. Korean Air Lines (003490 KS, W48,150, surpassed US$100m, of which 20% of the patients Not rated) plans to expand its service on China routes were Chinese undergoing cosmetic surgeries in the from 35,000 seats per week in 1H12 to 40,000 seats Gangnam area (1,073 visas for medical tourism were per week in 3Q12. Asiana Airlines’ (020560 KS, issued from last year alone by the Korean Embassy in W7,730, Not rated) , meanwhile, has a large China, an increase of 386% YoY). proportion of Asian routes (59%).
Finally, Hanryu, the Korean Wave, has led to ‘Brand We note that the Korea government expanded the Korea’ being promoted as a luxury offering for issuance of multiple visas and visa waivers for Chinese Mainland Chinese, encouraging Chinese travellers to visitors to Korea and streamlined the visit Korea more and buy Korean-made products. application/approval process, with effect from 1 August. We believe the domestic airline companies stand to The increasing number of wealthy Chinese travellers benefit from the increasing number of Chinese visitors heading to Korea for cosmetic surgery tend to stay in to Korea. the Gangnam area (where most cosmetic surgeons are
- 9 - Seoul Searching 24 August 2012
Korea Casino & Hotel Sector: valuation summary Mkt Cap Price PER (x) PBR (x) EV/EBITDA (x) ROAE (%) EPS growth (%) Company Code (Wbn) (W) Rating FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E Hotel Shilla * 008770 KS 2,006 51,100 n.a. 35.9 16.7 13.5 3.3 2.9 2.4 17.4 11.2 9.3 9.1 18.4 19.1 12.2 134.9 23.4 Kangwon Land 035250 KS 4,974 23,250 Outperform 13.0 12.2 10.7 2.2 2.0 1.8 7.3 6.7 5.8 17.5 17.2 17.8 -9.4 6.6 13.8 GKL * 114090 KS 1,661 26,850 n.a. 26.2 13.1 11.6 7.5 5.8 4.6 8.9 7.7 7.0 29.7 50.0 45.2 -11.5 74.1 12.9 Paradise * 034230 KS 1,360 14,950 n.a. 49.7 16.2 13.2 2.1 2.1 1.9 20.1 11.1 9.1 4.7 13.9 15.3 -41.9 136.5 22.3 Source: Bloomberg (*), Daiwa forecasts Note: Prices are as at 24 August 2012
Korea Retail Sector: valuation summary Mkt Cap Price PER (x) PBR (x) EV/EBITDA (x) ROAE (%) EPS growth (%) Company Code (Wbn) (W) Rating FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E Hyundai Dept Store 069960 KS 3,241 138,500 Buy 8.0 8.2 7.6 1.1 1.0 0.9 7.2 6.8 6.2 11.7 12.5 12.0 -23.0 -2.7 8.4 Lotte Shopping 023530 KS 9,221 317,500 Buy 9.9 9.2 7.8 0.7 0.6 0.6 7.1 7.7 7.0 6.9 6.9 7.6 -7.4 7.5 18.0 E-Market 139480 KS 6,830 245,000 Hold 12.6 13.1 12.2 1.2 1.1 1.0 9.1 8.7 8.0 0.0 8.9 8.8 0.0 -3.7 6.9 Shinsegae 004170 KS 2,181 221,500 Hold 13.0 12.1 10.9 1.0 0.9 0.8 9.6 9.3 9.0 3.5 7.9 8.1 -40.2 7.6 11.0 GS Retail 007070 KS 2,144 27,850 Outperform 23.0 17.1 14.3 1.5 1.4 1.3 10.4 7.9 6.7 6.6 8.5 9.4 30.6 33.9 19.7 Hyundai Home Shopping 057050 KS 1,350 112,500 Buy 9.5 8.4 7.4 1.6 1.4 1.2 2.8 1.9 0.9 18.4 17.6 17.1 -7.0 12.3 13.8 CJ O Shopping 035760 KS 1,337 215,500 Outperform 11.1 10.4 9.1 3.8 2.9 2.2 10.6 9.6 8.7 34.4 31.7 27.6 25.8 7.3 13.9 GS Home Shopping 028150 KS 722 110,000 Hold 11.6 8.6 8.2 1.2 1.1 1.0 3.4 3.7 3.4 12.1 13.1 12.6 -16.4 33.9 5.5 Source: Bloomberg (tickers and share prices), Daiwa forecasts Note: Prices are as at 24 August 2012
Korea Airline Sector: valuation summary Mkt Cap Price PER (x) PBR (x) EV/EBITDA (x) ROAE (%) EPS growth (%) Company Code (Wbn) (W) Rating FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E
Korean Air * 003490 KS 3,465 48,150 n.a. NA 13.2 6.8 1.5 1.3 1.1 9.0 8.4 7.3 NA 9.2 17.8 NA NA 95.1 Asiana Airlines * 020560 KS 1,508 7,730 n.a NA 10.9 6.9 1.7 1.5 1.3 6.7 7.8 6.6 NA 14.7 18.8 NA NA 57.5 Source: Bloomberg Note: Prices are as at 24 August 2012
Korea Apparel Sector: valuation summary Mkt Cap Price PER (x) PBR (x) EV/EBITDA (x) ROAE (%) EPS growth (%) FY13 Company Code (Wbn) (W) Rating FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E E
Youngone Corp* 111770 KS 1,302 31,900 n.a. 11.1 9.2 8.4 2.7 1.9 1.6 6.9 6.3 5.8 23.2 23.1 19.9 61.0 20.4 10.1 Dong-Il Corp 001530 KS 97 43,850 n.a 61.1 NA NA 0.2 NA NA 28.5 NA NA 0.3 NA NA -92.8 NA NA Kolon 002020 KS 276 22,850 n.a. 39.9 NA NA 0.5 NA NA 22.9 NA NA 1.1 NA NA -87.8 NA NA Cheil Industries* 001300 KS 5,118 97,600 n.a 18.5 16.9 13.1 1.6 1.5 1.3 15.6 9.9 8.5 8.7 8.9 10.3 -9.2 9.8 29.0 Source: Bloomberg Note: Prices are as at 24 August 2012
- 10 - Seoul Searching 24 August 2012
Click to read more:
Regional Economy: Regional Economy: The power of Mainland tourists Attracting Mainland tourists 16 July 2012 13 August 2012 Christie Chien (852) 2848 4482 ([email protected]) Christie Chien (852) 2848 4482 ([email protected]) Mingchun Sun (852) 2773 8751 ([email protected]) Mingchun Sun (852) 2773 8751 ([email protected]) Kevin Lai (852) 2848 4926 ([email protected]) Kevin Lai (852) 2848 4926 ([email protected])
- 11 - Seoul Searching 24 August 2012
AmorePacific Corp: share price and Daiwa recommendation trend Date 08/05/2012 27/03/2012 02/02/2012 21/07/2011 13/05/2011 07/09/2010 Target price (W) 1,250,000 1,220,000 1,220,000 1,420,000 1,260,000 1,240,000 Rating 2 2 1 1 1 1
1,600,000 1,420,000 1,400,000 1,240,000 1,260,000 1,220,000 1,250,000 1,200,000
1,000,000
800,000
600,000
400,000
200,000
0 Jul-11 Jul-12 Oct-10 Apr-11 Oct-11 Apr-12 Jan-11 Jun-11 Jan-12 Jun-12 Mar-11 Mar-12 Feb-11 Feb-12 Aug-10 Sep-10 Nov-10 Dec-10 Aug-11 Sep-11 Nov-11 Dec-11 Aug-12 May-11 May-12
Target price (W) Closing price (W)
Source: Daiwa
Hyundai Department Store: share price and Daiwa recommendation trend Date 23/07/12 26/04/12 25/07/11 28/04/11 31/03/11 20/01/11 Target price 190,000 210,000 220,000 190,000 170,000 110,000 Rating 1 1 1 1 1 4
250,000 220,000 210,000 190,000 190,000 200,000 170,000
150,000 110,000
100,000
50,000
0 Jul-11 Jul-12 Oct-10 Apr-11 Oct-11 Apr-12 Jan-11 Jun-11 Jan-12 Jun-12 Mar-11 Mar-12 Feb-11 Feb-12 Aug-10 Sep-10 Nov-10 Dec-10 Aug-11 Sep-11 Nov-11 Dec-11 Aug-12 May-11 May-12
Target price (W) Closing price (W)
Source: Daiwa
- 12 - Seoul Searching 24 August 2012
LG H&H: share price and Daiwa recommendation trend Date 25/07/2012 27/03/2012 26/01/2012 5/01/2012 27/10/2011 25/07/2011 26/04/2011 Target price 600,000 560,000 560,000 570,000 590,000 560,000 467,000 Rating 3 3 2 2 2 2 2
Date 07/10/2010 Target price 440,000 Rating 2 700,000 590,000 600,000 570,000 600,000 560,000 560,000 560,000
467,000 500,000 440,000
400,000
300,000
200,000
100,000
0 Jul-11 Jul-12 Apr-11 Apr-12 Oct-10 Oct-11 Jan-11 Jun-11 Jan-12 Jun-12 Feb-11 Mar-11 Feb-12 Mar-12 Aug-10 Sep-10 Nov-10 Dec-10 Aug-11 Sep-11 Nov-11 Dec-11 Aug-12 May-11 May-12
Target price (W) Closing price (W) Source: Daiwa
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Daiwa’s Asia Pacific Research Directory
HONG KONG SOUTH KOREA Nagahisa MIYABE (852) 2848 4971 [email protected] Chang H LEE (82) 2 787 9177 [email protected] Regional Research Head Head of Korea Research; Strategy; Banking/Finance Christopher LOBELLO (852) 2848 4916 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Co-head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; John HETHERINGTON (852) 2773 8787 [email protected] Shipbuilding; Steel Head of Product Management Anderson CHA (82) 2 787 9185 [email protected] Tathagata Guha ROY (852) 2773 8731 [email protected] Banking/Finance Head of Thematic Research; Product Management Mike OH (82) 2 787 9179 [email protected] Mingchun SUN (852) 2773 8751 [email protected] Capital Goods (Construction and Machinery) Head of China Research; Chief Economist (Regional) Sang Hee PARK (82) 2 787 9165 [email protected] Dave DAI (852) 2848 4068 [email protected] Consumer/Retail Deputy Head of Hong Kong and China Research; Pan-Asia/Regional Head of Clean Jae H LEE (82) 2 787 9173 [email protected] Energy and Utilities; Utilities; Power Equipment; Renewables (Hong Kong, China) IT/Electronics (Tech Hardware and Memory Chips) Kevin LAI (852) 2848 4926 [email protected] Jihye CHOI (82) 2 787 9121 [email protected] Deputy Head of Regional Economics; Macro Economics (Regional) Materials (Chemicals); Oil and Gas Chi SUN (852) 2848 4427 [email protected] Thomas Y KWON (82) 2 787 9181 [email protected] Macro Economics (China) Pan-Asia Head of Internet & Telecommunications; Software (Korea) – Internet/On-line Game Jonas KAN (852) 2848 4439 [email protected] Shannen PARK (82) 2 787 9184 [email protected] Head of Hong Kong Research; Head of Hong Kong and China Property; Regional Custom Products Group Property Coordinator; Property Developers (Hong Kong) Jeff CHUNG (852) 2773 8783 [email protected] TAIWAN Automobiles and Components (China) Yoshihiko KAWASHIMA (886) 2 8758 6247 [email protected] Grace WU (852) 2532 4383 [email protected] Consumer/Retail Head of Greater China FIG; Banking (Hong Kong, China) Christine WANG (886) 2 8758 6249 [email protected] Jerry YANG (852) 2773 8842 [email protected] IT/Technology Hardware (PC Hardware) Banking/Diversified Financials (Taiwan) Alex CHANG (886) 2 8758 6248 [email protected] Joseph HO (852) 2848 4443 [email protected] IT/Technology Hardware (Handsets and Components) Capital Goods –Electronics Equipments and Machinery (Hong Kong, China) Chris LIN (886) 2 8758 6251 [email protected] Bing ZHOU (852) 2773 8782 [email protected] IT/Technology Hardware (Panels) Consumer/Retail (Hong Kong, China)
Hongxia ZHU (852) 2848 4460 [email protected] INDIA Consumer, Pharmaceuticals and Healthcare (China) Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Eric CHEN (852) 2773 8702 [email protected] Head of Research; Strategy; Banking/Finance Pan-Asia/Regional Head of IT/Electronics; Semiconductor/IC Design (Regional) Saurabh MEHTA (91) 22 6622 1009 [email protected] Alexander LATZER (852) 2848 4463 [email protected] Capital Goods; Utilities Pan-Asia/Regional Head of Materials; Materials/Energy (Regional) Mihir SHAH (91) 22 6622 1020 [email protected] Felix LAM (852) 2532 4341 [email protected] FMCG/Consumer Materials – Cement and Building Materials (China and Taiwan) Deepak PODDAR (91) 22 6622 1016 [email protected] Mark CHANG (852) 2773 8729 [email protected] Regional Head of Small/Medium Cap; Small/Medium Cap (Regional) Materials John CHOI (852) 2773 8730 [email protected] Nirmal RAGHAVAN (91) 22 6622 1018 [email protected] Small/Medium Cap (Regional) Oil and Gas; Utilities Cris XU (852) 2773 8736 [email protected] Small/Medium Cap (Regional) SINGAPORE Tony DARWELL (65) 6321 3050 [email protected] Pranab Kumar SARMAH (852) 2848 4441 [email protected] Head of Solar Head of Singapore Research, Pan-Asia Head of Property Kelvin LAU (852) 2848 4467 [email protected] Srikanth VADLAMANI (65) 6499 6570 [email protected] Transportation – Aviation, Land and Transportation Infrastructure (Regional) Banking (ASEAN) Justin LAU (852) 2773 8741 [email protected] Adrian LOH (65) 6499 6548 [email protected] Head of Custom Products Group; Custom Products Group Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore) Philip LO (852) 2773 8714 [email protected] David LUM (65) 6329 2102 [email protected] Custom Products Group Property and REITs Jibo MA (852) 2848 4489 [email protected] Ramakrishna MARUVADA (65) 6499 6543 [email protected] Custom Products Group Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India)
PHILIPPINES Alvin AROGO (63) 2 813 7344 [email protected] ext 301 Economy; Consumer; Power and Utilities; Transportation – Aviation Danielo PICACHE (63) 2 813 7344 [email protected] ext 293 Property; Banking; Transportation – Port
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Disclaimer This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc. Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Investment Banking Relationship Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: SBI Holdings Inc. (6488 HK); Shunfeng Photovoltaic International Ltd. (1165 HK); Rexlot Holdings Limited (555 HK); China Outfitters Holdings Limited (1146 HK); Beijing Jingneng Clean Energy Co. Limited (579 HK); Infraware Inc. (041020 KS) *Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited, Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research. Korea The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party.
Name of Analyst : Chang H. Lee
Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to:
1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets.
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1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity.
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The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report.
"1": the security could outperform the KOSPI by more than 15% over the next six months. "2": the security is expected to outperform the KOSPI by 5-15% over the next six months. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next six months. "4": the security is expected to underperform the KOSPI by 5-15% over the next six months. "5": the security could underperform the KOSPI by more than 15% over the next six months.
“Positive” means that the analyst expects the sector to outperform the KOSPI over the next six months. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next six months “Negative” means that the analyst expects the sector to underperform the KOSPI over the next six months
Additional information may be available upon request. Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.
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Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. 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The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. 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DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Securities Capital Markets Co., Ltd and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Services Authority (“FSA”) and is a member of the London Stock Exchange, Chi-X, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FSA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain This research material is issued/compiled by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113 This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent. United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).
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Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months.
Additional information may be available upon request.
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
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Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
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