June 21, 2012

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Food & Beverage (Overweight) KOSPI 1,889.15 -14.97 -0.79 Outperformance driven by strong fundamentals KOSPI 200 250.46 -2.46 -0.97 KOSDAQ 485.18 0.63 0.13 Electronic materials (Overweight) Focus on companies with structural growth potential Turnover ('000 shares, Wbn) Volume Value KOSPI 383,877 3,736 KOSPI 200 59,444 2,899 KOSDAQ 614,975 1,903

Market Cap (Wbn) Value KOSPI 1,087,695 KOSDAQ 103,185

KOSPI Turnover (Wbn) Buy Sell Net Foreign 894 894 0 Institutional 753 861 -109 Retail 1,966 1,885 81

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 60 60 0 Institutional 78 53 25 Retail 1,759 1,783 -24

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 807 541 266 KOSDAQ 12 13 -1

Advances & Declines Advances Declines Unchanged KOSPI 415 402 77 KOSDAQ 416 510 69

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 1,227,000 -25,000 314 KODEX LEVERAGE 11,975 -200 204 KODEX INVERSE 7,755 55 139 SK Energy 144,500 -5,000 98 174,000 -7,500 95

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value AHNLAB 107,100 -5,600 63 GMP 1,805 5 53 Sammok Precision & Ind 5,210 505 39 Mohenz 3,410 75 32 Binex 7,020 610 26 Note: As of June 21, 2012

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

Industry June 21, 2012

Overweight Food and Beverage Daewoo Securities Co., Ltd. Woon-mok Baek Outperformance driven by strong fundamentals +822-768-4158 [email protected] 1H12 Review: F&B market, earnings, and share performances were strong

F&B shares significantly outperformed the KOSPI in 1H12 on the back of favorable earnings determinants (e.g., grain prices, F/X rates, consumption, product prices, competition, M&As, and overseas expansion). We attribute the sectorÊs robust

performance to a drop in grain prices, won appreciation, and lighter competition, which lowered raw material costs and SG&A expenses. In 1H12, F&B shares underwent a virtuous cycle: lower costs led to higher margins, which in turn created earnings momentum, boosting shares.

2H12 Outlook: F/X rates to determine earnings and share performance In 2H12, grain prices are expected to remain on the decline, and product prices are anticipated to rise. Competition will likely ease further as companies are putting more focus on profitability than on market share. In addition, companiesÊ efforts to increase their global presence should pay off. However, the eurozone crisis and economic slowdown in could continue to keep the won weak. Furthermore, consumption growth might be slower than expected.

Table 1. Direction of earnings determinants and impact on share price in 1H12 and 2H12 Direction of earnings determinants Impact on share price Earnings determinants 1H12 2H12 1H12 2H12 Domestic consumption   Δ Δ F&B consumption   Δ Δ Grain price   + + F/X rates , , +,- -, Δ Product price   - Δ MS competition   + + M&A   + + Global expansion   + + Note: + positive effects, Δ Neutral effects, - Negative effects, Source: KDB Daewoo Securities Research

F&B shares to outperform the KOSPI in 2H12 Despite concerns over higher F/X rate volatility, we maintain our Overweight rating on the F&B sector in light of the positive outlooks for the industryÊs earnings determinants.

We recommend as our top picks CJ CheilJedang (improvement in foodstuff margins and lysine market share growth), Orion (strong growth in the Chinese market), Lotte Samkang (emerging as the control tower of the Lotte GroupÊs food businesses integration), Daesang (robust food businesses and earnings improvement at subsidiaries), and KT&G (red ginseng market growth and overseas expansion). We also like Dongwon Industries and Ottogi for their dominant market shares, earnings upsides, and low valuations.

This document is a summary of a report prepared by Daewoo Securities Co., Ltd. („Daewoo‰) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. Industry June 21, 2012

Table 2. Changes in profit determinants 1H12 2H12 Robust grain output expected on favorable weather conditions Favorable weather conditions: Absence of La Niña and El NIño Production growth to outpace consumption growth in 2013 Production growth is outpacing consumption growth in 2012 Grain price Grain demand to shrink amid the global economic slowdown Speculative demand declined Speculative demand to decrease on stable commodity prices Input costs turned downward in 2Q on grain price declines Input costs to continue to decrease in line with grain price downtrend Failed to raise product prices until April due to the governmentÊs CPI control and the national election Price hikes are necessary as PPI growth is staying above CPI growth Product price Premium product line-up continued to expand on consumers trading- Companies to make an attempt to raise the prices of soju, beer, ramen, up trend and cigarettes Prices of soju, beer, ramen, and cigarettes remained unchanged Slowdown in consumption to accelerate companiesÊ overseas Consumption Consumption growth is slowing expansion and M&As Active in overseas expansion to break through long-term slump F&B firms to accelerate overseas expansion in order to overcome Overseas expansion Major driver for share performance differentiation stagnant domestic market; Essential for share price differentiation Won to strengthen again once the global economic uncertainties begin Won appreciation in 1Q boosted share prices to dissipate US$/W Won has been weakening since mid-May on eurozone concerns Difficult to predict F/X rates Major determinant of 2Q earnings To have the biggest impact on 2H12 F&B share performance Strength of the market, earnings and share prices Positives: Product price hikes, stable grain prices, accelerating overseas Production cost declines  margin improvement  share price expansion Conclusion growth Negatives: Unpredictable US$/W and stagnating consumption Small- to mid-cap share prices rose more sharply on overseas Conclusion: F&B shares to outperform KOSPI unless US$/W rate rises expansion and earnings improvement above 1,200 F&B shares to outperform the KOSPI Investment strategy and Valuations of companies with overseas and earnings momentum to top picks continue to increase Top Picks: CJCJ, Orion, KT&G, Daesang, and Lotte Samkang Source: KDB Daewoo Securities Research

Table 3. Ratings, target prices and valuations of F&B shares Current price Target price PER PBR EV/EBITDA Company Code Rating (KRW) (KRW) (x) (x) (x) CJ Cheiljedang 097950 Buy 351,000 440,000 13.0 2.8 14.7 Orion 001800 Buy 963,000 1,080,000 35.3 6.0 15.9 KT&G 033780 Buy 79,700 98,000 12.3 2.1 7.8 Lotte Samkang 002270 Buy 565,000 680,000 10.6 1.2 6.6 Daesang 001680 Buy 17,900 22,000 8.8 1.2 7.2 Dongwon Industires 006040 Buy 189,000 230,000 5.8 1.1 4.8 Ottogi 007310 Buy 167,500 200,000 8.6 1.0 4.3 004990 Buy 1,505,000 2,100,000 14.6 0.8 9.6 004370 Buy 206,000 290,000 - 0.9 5.7 Dongwon F&B 049770 Buy 65,500 85,000 7.2 0.6 5.6 Hite Jinro 000080 Buy 22,400 32,000 14.1 1.1 11.3 Binggrae 005180 Trading Buy 74,300 79,000 12.8 1.7 6.9 Note: P/E, P/B, EV/EBITDA = 2012F; Share prices are as of market close June 19th, 2012 Source: KDB Daewoo Securities Research

2 Industry June 21, 2012

Overweight Electronic materials Daewoo Securities Co., Ltd. Will Cho Focus on companies with structural growth potential +822-768-4306 [email protected] When investing in electronic materials shares, investors need to take a selective approach and pay close attention to the outlooks for relevant downstream industries. Indeed, we believe that investors should focus on companies that have the potential to deliver structural growth alongside the secular growth of their downstream industries (e.g., OLED, rechargeable batteries). Companies that are significantly exposed to mature industries (e.g., LCD, semiconductors) tend to be highly vulnerable to economic conditions. Once a company becomes cyclical, it will inevitably see a valuation de-rating (even if it steadily increased market share during an economic slump).

We expect the OLED materials market to grow full swing starting in 2H12. OLED demand is likely to jump, driven by the spread of OLED smartphones and the rollouts of OLED TVs. In light of the strong sales of Samsung ElectronicsÊ (SEC) OLED smartphones as well as other smartphone makersÊ adoption of OLED, we project OLED smartphones to account for 30% of overall smartphones in 2014 (up from the current 20% level). The proliferation of OLED smartphones should continue to accelerate, led by Samsung Mobile DisplayÊs (SMD) thin and lightweight flexible OLEDs (to be produced at Line A3). And the emergence of OLED TVs should be another demand growth driver. As the likelihood of a smart TV launch by Apple is growing, we think that SEC and LG Electronics are likely to switch their marketing focus from market share expansion to the promotion of OLED as a differentiating factor in smart TVs.

We also believe that the rechargeable battery market should provide opportunities for materials producers in light of its strong structural growth potential. Indeed, a growing number of mid- and large-sized applications (e.g., electric vehicles (EV), energy storage systems (ESS)) for rechargeable batteries are emerging. Although the EV market is growing more slowly than expected due to the economic slowdown, we remain optimistic about its secular growth story. We project the markets of four major electronic materials used in the production of rechargeable batteries (more than 50% of overall costs) to show a combined CAGR of 17.2% until 2020.

We maintain our Overweight rating on the electronic materials sector. With uncertainties over macro conditions and IT demand growing, we expect electronic materials companies that show strong earnings stability and respond swiftly to new paradigms to gain traction. We select Duksan Hi-Metal as one of our top picks in light of its focus on the OLED business. And we also recommend , as the company is likely to show structural growth following the expansion of its electronic materials unit.

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

Market Data June 21, 2012

※All data as of close June 21, 2012, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 383.60 4.32 1.14 7.09 USD/KRW 1,152.70 1,158.20 1,173.10 1,083.20 KOSPI 1,889.15 -14.97 -0.79 3.44 JPY100/KRW 1,450.58 1,465.24 1,482.59 1,349.70 KOSDAQ 485.18 0.63 0.13 -4.26 EUR/KRW 1,462.55 1,469.00 1,495.59 1,551.79 Dow Jones* 12,824.39 -12.94 -0.10 4.97 3Y Treasury 3.31 3.31 3.37 3.67 S&P 500* 1,355.69 -2.29 -0.17 6.16 3Y Corporate 3.88 3.88 3.98 4.42 NASDAQ* 2,930.45 0.69 0.02 10.64 DDR2 1Gb* 1.26 1.26 1.28 1.07 Philadelphia Semicon* 388.59 3.65 0.95 5.42 NAND 16Gb* 2.05 2.06 2.12 2.88 FTSE 100* 5,622.29 35.98 0.64 -1.36 Oil (Dubai)* 94.32 93.58 104.43 105.53 Nikkei 225 8,824.07 71.76 0.82 3.08 Gold* 1,614.80 1,622.20 1,591.90 1,541.50 Hang Seng* 19,518.85 102.18 0.53 3.40 Customer deposits (Wbn)* 17,349 17,280 17,570 15,604 Taiwan (Weighted) 7,279.05 -55.58 -0.76 4.70 Equity type BC (Wbn)(June. 19) 98,119 98,107 97,191 100,036 Note: * as of June 20, 2012 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell SK Energy 13.81 36.31 Korean Air Lines 21.95 Samsung Engineering 25.11 11.33 Samsung Engineering 28.08 Hyundai Department Store 14.61 Honam Petrochemical 24.23 KODEX 200 8.82 Hyundai Department Store 15.48 Lotte Shopping 12.91 KODEX LEVERAGE 23.27 Samsung F&M Insurance 8.06 LG Electronics 11.97 KEPCO 8.17 SK Energy 21.56 LG Chem 7.51 LG Display 9.49 Asiana Airlines 7.03 LG Chem 14.47 KT&G 7.32 8.41 Korea Power Engineering Co, Inc. 6.03 Korea Zinc 12.54 Honam Petrochemical 6.92 Hynix 6.73 Mando 5.77 KB Financial Group 12.53 Korea Zinc 6.91 DSME 4.58 LG Display 5.64 12.13 6.35 Amore Pacific 4.48 4.77 KODEX 200 10.77 Hyundai Heavy Industries 6.33 3.53 Amore Pacific 4.63 Himart 10.74 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell AHNLAB 1.31 Gamevil 1.84 Com2us 3.91 TK Corp. 1.64 Daum Communications 1.29 SEEGENE 1.52 Interflex 3.75 Sung Kwang Bend 1.63 Romanson 1.10 Nexen Tech 1.08 CJ O Shopping 3.53 Eugene Technology 1.47 Maeil Dairy Industry 1.01 NEOWIZ Games 0.89 Genic 2.06 TERA SEMICON 1.10 SFA Engineering 0.91 Interflex 0.81 ATTO 1.95 HaanSoft 0.82 Eugene Technology 0.86 Haatz 0.70 STC 1.77 Silicon Works 0.73 Medipost 0.86 AZTECHWB 0.68 Partrion 1.76 STS Semicon&Telecom 0.66 S-MAC 0.86 SM 0.65 Innox 1.40 YG-1 0.65 ITEST 0.66 ELK 0.46 NEPES 1.37 SFA Engineering 0.50 TK Corp. 0.53 Medy-tox 0.31 Neowis Internet 1.18 Viatron 0.38 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,227,000 -25,000 180,736 Celltrion 31,250 0 3,652 Hyundai Motor 250,500 -3,000 55,179 Daum Communications 104,200 -600 1,406 POSCO 379,000 -3,500 33,044 Semiconductor 23,150 -100 1,350 Motors 78,800 -1,200 31,943 Paradise 12,950 -50 1,178 Hyundai Mobis 286,500 1,000 27,889 CJ O Shopping 180,000 7,600 1,117 Hyundai Heavy Industries 273,500 -4,500 20,786 AHNLAB 107,100 -5,600 1,072 Samsung Life Insurance 96,200 100 19,240 CJ E&M 27,200 -200 1,032 LG Chem 288,500 -5,500 19,119 SFA Engineering 55,900 -100 1,004 Shinhan Financial Group 40,150 -500 19,039 POSCO ICT 7,300 -210 1,000 Hynix 24,550 -250 17,041 SM 48,400 -50 989 Source:

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