KOREA Morning

May 14, 2012

KOREA

Morning

Company News & Analysis Major Indices Close Chg Chg (%) SK Hynix (Buy/TP: W38,000) KOSPI 1,917.13 -27.80 -1.43 Focus on fundamental improvements KOSPI 200 254.00 -3.89 -1.51 KOSDAQ 493.66 -0.61 -0.12 LG Corp. (Buy/TP: W90,000) Share price to hinge on LG Chem’s performance Turnover ('000 shares, Wbn) Volume Value Kangwon Land (Buy/TP: W30,000) Lower TP KOSPI 529,990 4,335 Starting growth; Rising expectations for capacity expansion KOSPI 200 65,470 3,447 KOSDAQ 490,950 1,845

Daum Communications (Buy/TP: W150,000) Lower TP Market Cap (Wbn) 2Q: Strong seasonality; 2H: Mobile monetization models Value KOSPI 1,103,732 LS (Buy/TP: W118,000) Raise TP KOSDAQ 106,544 Positive 1Q results; LS Cable & System picking up KOSPI Turnover (Wbn) Buy Sell Net Hanjin Shipping (Buy/TP: W25,000) Foreign 897 1,067 -170 Buying opportunity has re-emerged Institutional 936 956 -20 Retail 2,349 2,082 267 SFA Engineering (Buy/TP: W70,000) Resumption of OLED investments to provide boost KOSDAQ Turnover (Wbn) Buy Sell Net GS Holdings (Trading Buy/TP: W65,000) Lower TP Foreign 87 80 7 GS Caltex was sluggish relative to its peers Institutional 85 64 21 Retail 1,666 1,693 -27

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 533 783 -249 KOSDAQ 10 14 -3

Advances & Declines Advances Declines Unchanged KOSPI 198 606 83 KOSDAQ 290 641 62

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,303,000 -24,000 351 KODEX LEVERAGE 12,385 -435 245 Hynix 25,400 -1,200 175 LG Chem 278,000 -10,000 135 Kia Motors 80,600 800 124

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Celltrion 43,500 5,650 256 RFTech 10,450 350 41 WISEPOWER CO.,LTD 1,880 -30 40 Crosscert 2,795 -30 34 AHNLAB 116,600 -100 29 Note: As of May 11, 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.

Company May 14, 2012

Semiconductor SK Hynix (000660 KS) Daewoo Securities Co., Ltd. James Song Focus on fundamental improvements +822-768-3722 [email protected] What’s new: Shares are falling due to non-fundamental issues

SK HynixÊs shares have pulled back since April, affected by: 1) negative effects from the companyÊs bid for Elpida, 2) overhang risks related to the potential sale of

creditorsÊ remaining stake (6.4%), and 3) delays to the companyÊs earnings recovery (due to weak mobile DRAM and NAND prices). We believe that non-fundamental issues (i.e., the first and second points) have had especially large impacts on shares.

Buy (Maintain) Micron Technology was selected as the preferred bidder for Elpida. Over the long Target Price (12M, W) 38,000 term, Micron should be able to enhance its competitiveness via this acquisition. Share Price (05/11/12, W) 25,400 However, since the deal is not an M&A between top-tier firms, Micron is unlikely to Expected Return (%) 49.6 see a near-term boost. Rather, we think that the resulting streamlining of DRAM EPS Growth (12F, %) TTB suppliers should positively affect the overall DRAM market. Market EPS Growth (12F, %) 20.0 P/E (12F, x) 28.1 Catalyst: PC DRAM prices to rise; Mobile DRAM and NAND prices to stabilize Market P/E (12F, x) 9.5 KOSPI 1,917.13 PC DRAM prices have been rising since early to mid-2Q, while mobile DRAM prices Market Cap (Wbn) 17,628 and NAND prices have remained sluggish. Shares Outstanding (mn) 694 Avg Trading Volume (60D, '000) 6,123 The rise of PC DRAM prices has been slower than the market expected. However, Avg Trading Value (60D, Wbn) 176 the PC DRAM business is likely to see positive effects from: 1) limited supply Dividend Yield (12F, %) 0.0 expansion, 2) gradual demand growth (e.g., from Ultrabooks), and 3) the expected Free Float (%) 72.6 restructuring of the Elpida camp in 2H. As such, we forecast PC DRAM prices to 52-Week Low (W) 15,500 exceed US$1.2 in end-2Q and US$1.4 in end-3Q. 52-Week High (W) 35,200 Beta (12M, Daily Rate of Return) 1.3 Mobile DRAM and NAND prices are likely to find boosts from smartphone demand Price Return Volatility (12M Daily, %, SD) 3.5 growth. Still, Samsung ElectronicsÊ (SEC) smartphone shipment expansion should Foreign Ownership (%) 23.5 only have a minimal impact on SK Hynix, as subsequent memory demand growth Major Shareholder(s) should mostly benefit SEC. Since new smartphone sales are growing full swing, SK Telecom (27.43%) mobile DRAM and NAND prices are likely to stabilize gradually. In particular, SECÊs National Pension Service (8.08%) expected NAND capacity cuts (a switch from NAND to system LSI) should positively Price Performance affect the NAND market. (%) 1M 6M 12M Absolute -8.5 17.9 -24.6 Valuation & recommendation: Focus on gradual fundamental improvements Relative -4.6 15.0 -13.1 We reiterate our Buy call on SK Hynix with a target price of W38,000. Although Key Business SK Hynix manufactures semiconductor earnings improvement has been somehow slower than market expectations, we products, including DRAM and NAND flash stay optimistic on the memory market recovery story and the companyÊs memory. fundamental improvement. Since the companyÊs share pullback has been mostly driven by non-fundamental issues, we advise investors to accumulate shares. SK HynixÊs shares have fallen to a 2012F P/B of only 1.7x.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 110 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 100 90 12/10 12,099 3,273 27.1 2,648 4,486 6,100 2,588 38.9 5.4 1.8 3.0 80 12/11 10,396 326 3.1 -57 -96 3,572 -1,101 -0.7 - 1.7 5.2 70 12/12F 11,392 822 7.2 627 903 4,202 -5 6.6 28.1 1.7 5.0 60 50 12/13F 14,757 2,162 14.7 2,022 2,914 5,621 845 16.7 8.7 1.4 3.6 40 12/14F 16,932 2,426 14.3 2,326 3,351 6,006 1,423 16.2 7.6 1.2 3.1 5/11 9/11 1/12 5/12 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

Holding Companies LG Corp. (003550 KS) Daewoo Securities Co., Ltd. Dae-ro Jeong Share price to hinge on LG Chem’s performance +822-768-4160 [email protected] Maintain Buy call with TP of W90,000

We maintain our Buy call on LG Corp. with a target price of W90,000. The companyÊs current market cap (W10tr) is only equivalent to the combined value of its stakes in LG Electronics (LGE) and LG Chem. We believe that LG Corp.Ês shares

are undervalued, trading at a 54% discount to the companyÊs net asset value per share. Since early this year, LG Corp.Ês shares have showed a strong correlation to LG Buy (Maintain) ChemÊs shares. LGE (one of the culprits behind LG Corp.Ês share discount) swung to Target Price (12M, W) 90,000 positive in 4Q and posted solid 1Q results despite lingering concerns over its Share Price (05/11/12, W) 58,100 Expected Return (%) 54.9 smartphone business. On the other hand, LG Chem posted lukewarm 1Q results EPS Growth (12F, %) 4.8 due to high oil prices and tepid Chinese demand. And, with the economy staying Market EPS Growth (12F, %) 20.2 sluggish, it seems difficult to confirm if the company has bottomed. P/E (12F, x) 10.4 Market P/E (12F, x) 9.5 1Q Review: OP was weaker than expected (W320.1bn; down 8.4% YoY) KOSPI 10,026 For 1Q, LG Corp. posted revenues of W2.1tr (down 25.5% QoQ; down 7.5% YoY) Market Cap (Wbn) 10,026 and an operating profit of W320.1bn (up 0.8% QoQ; down 8.4% YoY) under Shares Outstanding (mn) 176 Avg Trading Volume (60D, '000) 499 consolidated K-IFRS. Although LG ChemÊs operating profit plunged over 40% YoY in Avg Trading Value (60D, Wbn) 32 1Q, LG Corp. saw only a slight YoY decline in operating profit (to W231.5bn; up Dividend Yield (12F, %) 1.7 176.5% QoQ; down 4.7% YoY) thanks to LGEÊs turnaround. Still, LG Corp.Ês 1Q Free Float (%) 51.4 results fell short of both our and market expectations due to the overall 52-Week Low 50,100 sluggishness of the companyÊs subsidiaries. 52-Week High 100,500 Beta (12M, Daily Rate of Return) 1.4 Operating profit at ServeOne declined 17.2% YoY to W32.6bn, affected by declines Price Return Volatility (12M Daily,%,SD) 3.0 in orders at the MRO (maintenance, repair, and operation) unit as well as intra- Foreign Ownership (%) 27.1 conglomerate orders. LG SiltronÊs operating profit shrank 45.1% YoY to W17.7bn Major Shareholder(s): due to weak seasonality. LG CNS saw its operating loss expand YoY due to solution Gu Bon-mu et al. (48.59%) development-related expenses.

LG Chem holds the key to the easing of LG Corp.’s share discount Price Performance (%) 1M 6M 12M We believe that LG Corp.Ês shares will appreciate only if LG ChemÊs earnings Absolute -6.0 -2.5 -40.4 improve on the back of market recovery. We project full-swing improvement of Relative -2.1 -5.4 -28.8 chemicals margins to come during end-2Q~early 3Q. If signs of an economic Key Business recovery emerge, margin improvement could come faster than expected, as A holding company of LG Group. chemicals inventory levels are low. Meanwhile, LGEÊs home entertainment unit has been robust on the back of the 3D and OLED TV businesses. And its mobile communications unit is recovering on cost reductions and smartphone sales growth (on new model rollouts). In addition, the companyÊs home electronics and air conditioner businesses are stabilizing.

FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA Share price KOSPI 110 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 100 12/10 9,480 1,859 19.6 1,529 8,693 2,238 5,691 17.7 10.0 1.6 7.2 90 12/11 10,059 1,307 13.0 978 5,563 1,677 604 9.6 11.0 1.0 7.3 80 12/12F 10,302 1,477 14.3 1,025 5,829 1,744 1,365 9.0 10.4 0.9 6.1 70 60 12/13F 11,941 1,662 13.9 1,114 6,333 1,919 1,407 9.1 9.5 0.9 5.0 50 12/14F 12,857 1,826 14.2 1,223 6,955 2,046 1,531 9.3 8.7 0.8 4.2 5/11 9/11 1/12 5/12 Source: Company data, KDB Daewoo Securities Research estimates

Entertainment Kangwon Land (035250 KS) Daewoo Securities Co., Ltd. Chang-kwean Kim Starting growth; Rising expectations for capacity expansion +822-768-4321 [email protected] Trim TP to W30,000; Maintain Buy call

We maintain our Buy call on Kangwon Land but trim our target price to W30,000

(from W33,000). As we now believe that the companyÊs casino capacity expansion will only start boosting earnings in 3Q, we lowered our 2012F EPS and DPS by

12.6% and 9.0%, respectively. We derived our target price by applying a dividend

yield of 3% (the domestic casino industryÊs historical average) to our 2012F DPS. Kangwon LandÊs 1Q earnings were eroded by increased tax burdens. However, this Buy (Maintain) year, we project that these tax burdens will be partially offset by effects from the Target Price (12M, W) 30,000 aforementioned casino capacity expansion (customer growth: 9.2%; revenue Share Price (05/11/12, W) 24,500 growth: 13.8%). In addition, Kangwon Land is attempting to cut overall expenses Expected Return (%) 22.4 (e.g., donations) by 10% to make up for the tax burden increases. EPS Growth (12F, %) -5.5 Market EPS Growth (12F, %) 20.0 1Q Review: Historic-high revenues, but OP fell 14.8% YoY P/E (12F, x) 14.1 Market P/E (12F, x) 9.5 Kangwon LandÊs 1Q revenues grew 4% YoY, recovering from the stagnation seen in KOSPI 1,917.13 2011. VIP customer sales declined 5.8% YoY in 1Q. However, considering that Market Cap (Wbn) 5,242 monthly VIP customer sales climbed 10% YoY in February and 24% YoY in March, Shares Outstanding (mn) 214 we believe that VIP customer sales have turned upward. In 1Q, non-VIP customer Avg Trading Volume (60D, '000) 475 sales and slot machine sales grew 5% YoY and 5.2% YoY, respectively. The Avg Trading Value (60D, Wbn) 12 Dividend Yield (12F, %) 3.7 number of casino customers has increased for the second consecutive quarter, Free Float (%) 58.9 surging 5.8% YoY. Meanwhile, Kangwon LandÊs non-casino revenues jumped 52-Week Low (W) 23,400 22.3% YoY in 1Q on the back of new condominium construction and strong ski 52-Week High (W) 31,850 demand. The proportion of non-casino revenues out of overall revenues rose to Beta (12M, Daily Rate of Return) 0.5 9.2%. Price Return Volatility (12M Daily, %, SD) 2.2 Foreign Ownership (%) 31.3 Kangwon LandÊs 1Q operating profit deteriorated 14.8% YoY. Operating expenses Major Shareholder(s) leaped 18.6% YoY due to tax expenses (special excise tax of W12.5bn; obligatory Mine Reclamation Corp et al. (36.02%) donation of W3.3bn to an abandoned mine land fund). Gangwondo Development Corp. 6.6%) New casino facility to begin operations in 3Q Price Performance Kangwon LandÊs construction of a new casino facility (which will be twice as large (%) 1M 6M 12M as the existing one) is nearing completion. Given that the company plans to beautify Absolute 0.6 -17.7 -3.5 Relative 4.5 -20.5 8.0 the exterior by May, the new facility could commence operations in June. Key Business Kangwon Land is likely to consider three options for improving its non-VIP casino The only domestic casino open to Koreans. business. 1) It could increase the number of gaming tables and slot machines. 2) Non-casino leisure business include a hotel, resort, and ski slopes. Without adding any tables, it could replace some tables with electronic ones (which would allow more gamers to place bets using personal screens). 3) The company could spread out existing tables (without any additions or replacements). If the company chooses the third option, it will be unable to lower its table utilization ratio.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 140 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 120 12/10 1,314 571 43.5 422 1,972 631 233 21.1 14.2 2.9 7.9 100 12/11 1,264 501 39.7 393 1,839 566 223 18.0 14.8 2.6 8.4 80 12/12F 1,441 481 33.4 372 1,737 545 275 15.7 14.1 2.1 7.6 60 12/13F 1,566 522 33.3 408 1,906 592 296 15.9 12.9 2.0 6.8

40 12/14F 1,683 562 33.4 440 2,057 639 330 15.7 11.9 1.8 6.2 5/11 9/11 1/12 5/12 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

Internet Daum Communications (035720 KQ) Daewoo Securities Co., Ltd. Chang-kwean Kim 2Q: Strong seasonality; 2H: Mobile monetization models +822-768-4321 [email protected] Trim TP to W150,000; Maintain Buy call

We maintain our Buy call on Daum Communications but trim our target price to W150,000 (from W160,000). In reflection of the companyÊs 1Q results, we lowered

our 2012 and 2013 EPS estimates by 2.8% and 5.8%, respectively. DaumÊs shares have undergone corrections. Affected by NHNÊs switch to direct

search ad operations in 2011, DaumÊs search ad revenues showed negative growth Buy (Maintain) in 1Q for the second consecutive quarter. And market watchers are seeing DaumÊs Target Price (12M, W) 150,000 focus on low-margin display ads (in its mobile ad strategy) as a negative. Share Price (05/11/12, W) 110,700 Daum has strengthened its efforts to monetize rapidly growing mobile traffic by Expected Return (%) 35.5 launching more mobile games and expanding mobile ad partnerships. According to EPS Growth (12F, %) 2.7 Market EPS Growth (12F, %) 20.0 KoreanClick, unique visitors to DaumÊs mobile site, page views, and time spent P/E (12F, x) 13.3 increased 16.2%, 2.8%, and 28.9% MoM in April. Market P/E (12F, x) 9.5 KOSDAQ 493.66 1Q Review: In-line results; Revenues up 13.3% YoY; OP down 11.3% YoY Market Cap (Wbn) 1,491 For 1Q, Daum posted revenues of W110.2bn (up 13.3% YoY) and an operating Shares Outstanding (mn) 13 Avg Trading Volume (60D, '000) 156 profit of W27.1bn (down 11.3% YoY). These results were in line with our estimates Avg Trading Value (60D, Wbn) 18 (W111bn for revenues; W25.4bn for operating profit). Dividend Yield (12F, %) 1.8 The companyÊs search ad revenues declined 3.5% YoY due to price-per-click falls at Free Float (%) 82.1 52-Week Low (W) 99,300 Overture (DaumÊs search ad agency) as well as an accounting issue. Display ad 52-Week High (W) 152,000 revenues grew 18.5% YoY on the back of the growth of Ad@m (DaumÊs mobile ad Beta (12M, Daily Rate of Return) 0.4 platform) and rate hikes. Game revenues soared 453.1% YoY thanks to the Price Return Volatility (12M Daily, %, SD) 2.7 acquisition of OnNet. Foreign Ownership (%) 36.8 Major Shareholder(s) Daum continued to see expenses related to new businesses (e.g., personnel costs, JW Lee and et al. (17.2%) commission costs, depreciation, and marketing spend) expand. Operating expenses Mirae Asset Mgmt. and et al.. (9.44%) jumped 27.6% YoY in 1Q. OP margin came in at 24.6% (vs. 31.4% in 1Q11 and NPS (8.64%) 22.3% in 4Q11). Price Performance (%) 1M 6M 12M 2Q Earnings to improve on strong seasonality and ad demand increases Absolute -0.8 -22.2 8.4 Relative 3.1 -25.0 19.9 We expect DaumÊs 2Q earnings to improve QoQ, taking into account: 1) limited Key Business expense increases, 2) strong seasonality, 3) event-driven ad demand expansion, and Search ads (43.1%) 4) progress in new business areas (PC, mobile games, and mobile ads). We forecast Display ads (47.0%) 2Q revenues to jump 22.1% YoY, as we project that: 1) display ad revenues (including mobile ad revenues) will increase more than 20% YoY, and 2) search ad revenues will stabilize. Even considering increases in variable expenses (e.g., commission expenses), we project DaumÊs OP margin to improve to 25.5% in 2Q.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 160 KOSDAQ (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 140 12/10 346 98 28.3 112 8,445 122 54 39.8 9.1 3.1 6.8 120 12/11 421 114 27.0 109 8,080 143 47 26.9 14.9 3.8 9.7 100 80 12/12F 514 133 26.0 112 8,297 164 80 23.5 13.3 3.2 7.6 60 12/13F 579 166 28.7 138 10,261 199 113 26.8 10.8 3.0 6.1 40 12/14F 665 197 29.7 163 12,130 233 127 29.1 9.1 2.8 5.0 5/11 9/11 1/12 5/12 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

Telecom equipment LS (006260 KS) Daewoo Securities Co., Ltd. Wonjae Park Positive 1Q results; LS Cable & System picking up +822-768-3372 [email protected] Raise TP by 7.3% to W118,000; Maintain Buy call

We maintain our Buy call on LS and raise our target price by 7.3% to W118,000 (from W110,000). We derived our target price by applying a P/E of 12.1x (down from

12.9x; 30% discount to the companyÊs 2009~2011 P/E average of 17.4x) to our consolidated K-IFRS-based 2012F EPS of W9,763. The average 2012F P/E of global cable companies is 12.6x. Our target price implies an upside of 47.5% from the current price. Buy (Maintain) Target Price (12M, W) 118,000 1Q Review: OP of W144.8bn; LS Cable & System recovering Share Price (05/11/12, W) 80,000 For 1Q, LS posted revenues of W2.97tr (down 4.7% YoY; up 0.5% QoQ) and an Expected Return (%) 47.5 EPS Growth (12F, %) 167.2 operating profit of W144.8bn (down 7.9% YoY; down 9.2% QoQ) under Market EPS Growth (12F, %) 19.9 consolidated K-IFRS. While revenues slightly missed our estimate (W3tr), operating P/E (12F, x) 8.2 profit exceeded our forecast (W135.6bn) by 6.7%. Market P/E (12F, x) 9.5 KOSPI 1,917.13 Most importantly, LS Cable & System (a key subsidiary) has begun to recover. In Market Cap (Wbn) 2,576 2011, the subsidiary was hurt by declines in high-margin orders (in the wake of the Shares Outstanding (mn) 32 political turmoil in the Middle East) and one-off expenses related to a submarine Avg Trading Volume (60D, '000) 160 cable accident. Penalties and losses from the accident added W70.7bn to expenses Avg Trading Value (60D, Wbn) 13 until end-4Q11. LS Cable & SystemÊs earnings deterioration has directly eroded LSÊ Dividend Yield (12F, %) 1.7 earnings stability. However, the subsidiaryÊs 1Q non-consolidated operating profit Free Float (%) 52.8 52-Week Low (W) 66,100 soared 52% YoY to W35.9bn (W39bn on a consolidated basis), driven by: 52-Week High (W) 124,500 normalizing Middle Eastern orders and growing domestic LTE network-related sales. Beta (12M, Daily Rate of Return) 1.0 And optical fiber communication-related sales at US-based SPSX have picked up. Price Return Volatility (12M Daily, %, SD) 2.4 We anticipate LS Cable & System to continue to improve going forward. Foreign Ownership (%) 12.6 Major Shareholder(s) LSÊ subsidiaries remain solid. LS-Nikko Copper is expected to show strong earnings Zayul Koo et al. (33.43%) growth in 2012 thanks to rising by-product prices (e.g., sulfuric acid, gold, silver, and LS treasury share (13.77%) rare metals). In particular, sulfuric acid prices soared 136.4% in 2011. Also, LS NPS (9.28%) MtronÊs machinery sales (e.g., tractors and auto-use injection molding machines) Price Performance remain robust, and connector and copper foil sales are likely to recover. (%) 1M 6M 12M Absolute 7.2 10.3 -27.6 We project LSÊ 2Q revenues and operating profit to improve to W3.22tr and Relative 11.1 7.5 -16.1 W189.1bn, respectively, aided by: LS Cable & SystemÊs continuous improvement as Key Business well as LS-Nikko CopperÊs F/X related gains (W30bn). Nevertheless, it should be Holding company of LS Group. noted that potential delays to the economic recovery might lead to cable demand contraction.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 110 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 100 90 12/10 16,980 600 3.5 251 7,808 988 -874 14.5 13.6 2.7 9.5 80 12/11 12,352 338 2.7 118 3,653 538 1,120 5.7 20.8 1.5 13.6 70 12/12F 12,895 632 4.9 314 9,763 872 501 13.0 8.2 1.3 8.2 60 50 12/13F 14,203 659 4.6 333 10,335 903 258 12.2 7.7 1.1 7.9 40 12/14F 15,926 768 4.8 405 12,590 1,014 263 13.2 6.4 1.0 7.1 5/11 11/11 5/12 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

Transportation Hanjin Shipping (117930 KS) Daewoo Securities Co., Ltd. Jay JH Ryu Buying opportunity has re-emerged +822-768-4175 [email protected] Maintain Buy call with TP of W25,000

We maintain our Buy call on Hanjin Shipping with a target price of W25,000. We derived our target price by applying a P/B of 1.7x to our 2012F BPS of W14,845. We

believe that the companyÊs current share price (P/B of 1.0x) offers a buying opportunity, as: 1) freight rate hikes should boost earnings starting in 2Q, 2) bunker- C oil price falls should relieve cost burdens, and 3) the companyÊs shares tend to trade at a P/B of over 1x during up cycles Also, we believe concerns that freight Buy (Maintain) rates (which are currently at historical peak levels) may fall are overblown, Target Price (12M, W) 25,000 considering that: 1) cutthroat competition among shippers (as in 2011) does not Share Price (05/11/12, W) 14,450 seem likely, 2) the proportion of laid-up vessels (out of total supply) is likely to Expected Return (%) 73.0 decrease less sharply than in the past, and 3) slow steaming should help absorb EPS Growth (12F, %) RR Market EPS Growth (12F, %) 20.0 shipping supply expansion. P/E (12F, x) - Market P/E (12F, x) 9.5 1Q Review: No surprise, no shock KOSPI 1,917.13 For 1Q, Hanjin Shipping posted an operating loss of W218.4bn on consolidated Market Cap (Wbn) 1,806 revenues of W2.26tr, missing both our estimate and the market consensus. Shares Outstanding (mn) 125 However, given that the market estimate for operating loss was W200bn, we do not Avg Trading Volume (60D, '000) 1,989 Avg Trading Value (60D, Wbn) 33 think these results were particularly disappointing. The container shipping unit Dividend Yield (12F, %) 0.0 incurred an operating loss of W237.8bn (OP margin of -13.2%). But the bulk carrier Free Float (%) 62.4 unit generated an operating profit of W10.3bn. Container freight volume expanded 52-Week Low (W) 7,950 7.4% YoY on the back of freight volume expansion in Asia (up 52.1%). With spot 52-Week High (W) 30,750 freight rates rising, the companyÊs freight rates rose 10% YoY to US$1,205/TEU in Beta (12M, Daily Rate of Return) 1.5 March (from US$1,099/TEU). Meanwhile, the company saw an 8.2% increase in Price Return Volatility (12M Daily, %, SD) 4.4 COGS, including fuel costs (up 11.7% YoY) and cargo variable costs (up 11.5% YoY). Foreign Ownership (%) 20.3 Major Shareholder(s) On the non-operating side, Hanjin Shipping reduced its financial losses to W97.3bn Hanjin Holdings et al. (37.54%) in 1Q (vs. W108.3bn in 4Q11) thanks to refinancing (from corporate bonds yielding 8.5% to bonds yielding 5%).

Price Performance Earnings to turn around (%) 1M 6M 12M Absolute -2.0 48.2 -48.6 We anticipate Hanjin ShippingÊs earnings to turn around going forward. The Relative 1.8 45.3 -37.1 companyÊs freight rates exceeded US$1,400/TEU in April and US$1,500/TEU in May. Key Business The company already began to generate an operating profit in the last week of April. A large shipping company that provides We believe that the container shipping unit is generating an operating profit of W7bn container and bulk transportation services. per week. In light of anticipated additional freight rate hikes and freight volume expansion, we raise our 2Q operating profit estimate to W95bn (from W42.4bn). And we revise up our 2012 and 2013 operating profit estimates by 13.5% to W296.2bn and by 4.0% to W676bn, respectively.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 110 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 100 90 12/10 9,896 648 6.6 272 3,092 1,072 -454 12.3 11.6 1.4 7.8 80 12/11 9,523 -493 -5.2 -835 -8,673 -123 -1,349 -37.2 - 0.7 -72.6 70 12/12F 11,277 296 2.6 -107 -855 744 -118 -5.5 - 1.0 13.1 60 50 12/13F 13,076 676 5.2 269 2,155 1,126 441 13.4 6.7 0.9 8.5 40 12/14F 13,949 675 4.8 271 2,170 1,128 548 12.0 6.7 0.8 8.4 5/11 9/11 1/12 5/12 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

Display SFA Engineering (056190 KQ) Daewoo Securities Co., Ltd. Jonathan Hwang Resumption of OLED investments to provide boost +822-768-4140 [email protected] Maintain Buy call with TP of W70,000

We maintain our Buy call on SFA Engineering with a target price of W70,000. The companyÊs shares are picking up, driven by: 1) Samsung ElectronicsÊ (SEC) Galaxy

S3 rollout and 2) growing expectations for a resumption of OLED investments. We anticipate investments in small- to medium-sized flexible OLEDs and TV-use large- sized OLEDs to grow full swing after the merger between Samsung Display (SD) and Samsung Mobile Display (SMD) is completed. Since we expect SFAÊs earnings Buy (Maintain) to be slow in 1H but strong in 2H, the companyÊs shares are likely to begin to rise in Target Price (12M, W) 70,000 2Q. SFAÊs shares are currently trading at a 2012F P/E of 10.9x and a P/B of 2.5x. Share Price (05/11/12, W) 56,900 Expected Return (%) 23.0 1Q Review: Revenues of W100.3bn; OP of W19.7bn EPS Growth (12F, %) 24.2 Market EPS Growth (12F, %) 20.2 For 1Q, SFA Engineering posted revenues of W100.3bn (down 61% QoQ; down P/E (12F, x) 10.9 25% YoY) and an operating profit of W19.7bn (down 40% QoQ; up 14% YoY). Market P/E (12F, x) 9.5 While revenues fell short of our estimate (W131.1bn) and the market consensus KOSDAQ 493.66 (W154.7bn), operating profit beat expectations (our estimate: W15bn; market Market Cap (Wbn) 1,022 consensus: W17.3bn). Stripping away gains on the sale of a Changwon-based Shares Outstanding (mn) 18 business unit (W8.5bn), operating profit would have come in at W11.2bn. 1Q Gross Avg Trading Volume (60D, '000) 88 Avg Trading Value (60D, Wbn) 5 margin reached a five-year high of 23.3% thanks to an increase in the proportion of Dividend Yield (12F, %) 2.6 high-margin equipment sales (out of overall revenues) and cost savings. Given this Free Float (%) 51.7 improvement in earnings quality, the companyÊs order growth in 2H is likely to lead 52-Week Low (W) 45,200 to strong margin expansion. 52-Week High (W) 67,600 Beta (12M, Daily Rate of Return) 1.1 New orders came in at W113.2bn (down 65% QoQ; down 1% YoY) in 1Q. Orders Price Return Volatility (12M Daily, %, SD) 3.0 for OLED equipment, semiconductor equipment, and general distribution equipment Foreign Ownership (%) 8.0 reached W30bn each. We forecast that SFA EngineeringÊs 2012 orders will expand Major Shareholder(s) 10% to W852.7bn, and that 70% (W596bn) of these new orders will come in 2H. DY Asset et al. (46.8%) Korea Investment Trust Management OLED investments to pick up speed after the SD-SMD merger (13.61%) Since we expect the merger between SD and SMD to be finalized on July 1st, we Price Performance project OLED investments to be concentrated in 2H, including investments in: 1) (%) 1M 6M 12M Line A3 (for mid- to small-sized flexible OLED) and 2) Line V1 (for TV-use large-sized Absolute 7.0 -9.7 -4.1 Relative 10.8 -12.6 7.5 OLEDs). Given that SECÊs Galaxy S3 uses the existing PenTile-based OLED panel, Key Business we expect that demand for thinner and lighter flexible OLEDs (as well as laser- Manufacturing semiconductor and display induced thermal imaging technology) will expand. Meanwhile, SEC has recently equipment. unveiled its OLED TV model. Currently, SECÊs OLED TV capacity (48,000 units per month; based on a 100% yield) accounts for only less than 1% of its monthly TV shipments. We project SEC to expand its OLED TV capacity tenfold by end-2013.

FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA Share price (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 120 KOSDAQ 12/10 423 38 8.9 39 2,192 43 73 16.0 22.4 3.3 16.5 100 12/11 753 92 12.2 76 4,212 101 61 24.9 14.5 3.3 8.4

80 12/12F 819 114 14.0 94 5,231 119 86 24.0 10.9 2.5 5.8 12/13F 1,002 127 12.7 103 5,739 132 92 21.7 9.9 2.1 4.7 60 12/14F 1,091 144 13.2 116 6,462 150 112 21.0 8.8 1.8 3.6 40 Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests 5/11 9/11 1/12 5/12 Source: Company data, KDB Daewoo Securities Research estimates 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. Company May 14, 2012

Oil refining GS Holdings (078930 KS) Daewoo Securities Co., Ltd. Yeon-ju Park GS Caltex was sluggish relative to its peers +822-768-3061 [email protected] 1Q Review: GS Caltex was sluggish due to maintenance and weak product mix

For 1Q, GS HoldingsÊ operating profit came in at W233.5bn, slightly missing the market consensus. GS Caltex (the flagship subsidiary of GS Holdings) posted a 1Q

operating profit of W370.9bn (down 5.7% QoQ), underperforming its competitors. The companyÊs oil refining unitÊs operating profit plunged 72.3% QoQ to W40bn despite one-off gains (triggered by oil price rises). We attribute this plunge to: 1) increased fixed costs due to scheduled maintenance works, 2) sales volume Trading Buy (Maintain) declines (down roughly 10% QoQ), and 3) a relatively poor product mix (a low Target Price (12M, W) 65,000 proportion of gasoline sales and a high proportion of naphtha sales). The chemicals Share Price (05/11/12, W) 57,200 unitÊs operating profit climbed QoQ due to improved PX margins and sales volume Expected Return (%) 13.6 growth. However, the lubricant unit saw its operating profit contract due to supply EPS Growth (12F, %) -4.5 Market EPS Growth (12F, %) 20.0 expansion and a demand slowdown. Meanwhile, GS HoldingsÊ other subsidiaries P/E (12F, x) 7.3 (e.g., GS EPS, GS Global) delivered improvements. Market P/E (12F, x) 9.5 We project GS CaltexÊs 2Q operating profit to deteriorate 33% QoQ to W248.9bn. KOSPI 1,917.13 Market Cap (Wbn) 5,315 Given that oil prices have fallen US$12/bbl from end-1Q, oil price falls are likely to Shares Outstanding (mn) 95 cause one-off losses in 2Q. And, as refining margins began to decline in February, Avg Trading Volume (60D, '000) 591 the 2Q average refining margin is likely to contract QoQ. PX margins began Avg Trading Value (60D, Wbn) 38 contracting in March. Meanwhile, the lubricant unit is likely to pick up steadily. And Dividend Yield (12F, %) 2.2 GS Retail has entered a strong season. All in all, we project GS HoldingsÊ 2Q Free Float (%) 54.7 operating profit at W200bn (down 14% QoQ). 52-Week Low (W) 47,850 52-Week High (W) 94,800 Refining margins to improve during end-2Q~early 3Q, but only minimally Beta (12M, Daily Rate of Return) 1.6 Price Return Volatility (12M Daily, %, SD) 3.3 We project refining margins to remain range-bound until end-2Q and improve in end- Foreign Ownership (%) 19.8 2Q~early 3Q on the arrival of a strong season. However, the improvement should Major Shareholder(s) be only minimal in light of the European economic slumps and ChinaÊs slow C.S Huh et.al. (45.26%) industrial activity. Indeed, although we forecast ChinaÊs GDP growth to pick up after NPS (5.03%) bottoming in 1Q~2Q, the extent of the pickup is likely to be minimal. In addition, Price Performance positive effects from power demand growth during summer are likely to be limited. (%) 1M 6M 12M Given that power demand is sluggish on slow industrial activity, demand for high- Absolute -12.0 -10.6 -34.3 cost oil-fueled power is likely to be small. Relative -8.1 -13.5 -22.7 Key Business Lower TP by 8% to W65,000; Maintain Trading Buy call The holding company of GS Caltex; GS Caltex sells oil products such as gasoline We maintain our Trading Buy call and lower our target price by 8% to W65,000 to and diesel as well as petrochemical reflect GS HoldingsÊ weaker-than-expected 1Q results and our downward revision to products such as PX. our 2012 oil price estimate. We derived our target price by applying a P/B of 0.9x to our 2012F BPS. GS HoldingsÊ current share price looks attractive. However, in our view, any uptrend of shares would require a recovery in Chinese demand.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 120 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X)

100 12/10 42,270 1,656 3.9 808 8,533 2,279 -1,076 18.1 7.6 1.3 8.5 12/11 8,493 930 11.0 774 8,170 907 4,010 14.2 6.2 0.8 7.6 80 12/12F 9,843 957 9.7 739 7,801 957 152 11.6 7.3 0.8 7.7 60 12/13F 9,944 1,103 11.1 861 9,092 1,103 333 12.1 6.3 0.8 6.5

40 12/14F 10,221 1,051 10.3 827 8,733 1,051 282 10.6 6.6 0.7 6.6 5/11 9/11 1/12 5/12 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

Market Data May 14, 2012

※All data as of close May 11, 2012, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 394.39 -1.71 -0.43 10.11 USD/KRW 1,142.50 1,140.00 1,137.60 1,079.90 KOSPI 1,917.13 -27.80 -1.43 4.97 JPY100/KRW 1,430.54 1,431.17 1,394.63 1,333.13 KOSDAQ 493.66 -0.61 -0.12 -2.59 EUR/KRW 1,477.48 1,474.93 1,492.02 1,556.68 Dow Jones* 12,855.04 19.98 0.16 5.22 3Y Treasury 3.37 3.40 3.50 3.72 S&P 500* 1,357.99 3.41 0.25 6.34 3Y Corporate 4.00 4.04 4.27 4.50 NASDAQ* 2,933.64 -1.07 -0.04 10.76 DDR2 1Gb* 1.27 1.28 1.30 1.28 Philadelphia Semicon* 391.74 -1.41 -0.36 6.28 NAND 16Gb* 2.14 2.15 2.16 3.38 FTSE 100* 5,543.95 13.90 0.25 -2.74 Oil (Dubai)* 109.36 108.18 118.81 108.32 Nikkei 225 8,953.31 -56.34 -0.63 4.59 Gold* 1,595.50 1,594.20 1,659.50 1,516.90 Hang Seng* 20,227.28 -103.36 -0.51 7.15 Customer deposits (Wbn)* 17,458 17,584 18,188 16,267 Taiwan (Weighted) 7,401.37 -82.64 -1.10 6.46 Equity type BC (Wbn)(May. 9) 97,156 97,124 97,239 98,749 Note: * as of May 10, 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 Kia Motors 37.08 Samsung Electronics 103.95 Samsung Electronics 49.50 KODEX LEVERAGE 71.90 Hyundai Mobis 21.97 KODEX 200 41.64 POSCO 27.78 Hynix 36.62 Honam Petrochemical 18.23 LG Chem 18.66 Samsung F&M Insurance 17.68 Honam Petrochemical 35.60 Samsung SDI 11.00 Hyundai Motor 14.95 KODEX INVERSE 17.01 Hanjin Shipping 17.30 Shinhan Financial Group 9.16 POSCO 11.90 Cheil Industries 14.99 Hyundai Eng. & Cosnt. 16.12 S-Oil 6.12 Samsung F&M Insurance 10.45 Samsung Life Insurance 13.78 Hyundai Mobis 13.09 OCI 5.66 Samsung Heavy Ind. 10.42 Samsung Techwin 9.40 OCI 11.57 Mando 4.56 CJ Cheiljedang 8.45 Hyundai Motor 8.77 Kia Motors 10.63 SK Telecom 4.56 LG Household & Health Care 8.33 Korea Power Engineering Co., Inc. 8.38 Samsung Heavy Ind. 10.41 Samsung Electronics (P) 4.55 Kumho Petrochemical 7.09 SEMCO 8.32 SK Energy 9.14 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 Celltrion 19.93 OCI Materials 3.58 Neowis Internet 3.63 Celltrion 4.18 Daum Communications 4.68 CJ O Shopping 1.97 CJ O Shopping 3.14 Viatron 1.34 Duk San Hi Metal 2.09 Medipost 1.30 CJ E&M 2.33 Daou Data Systems Corp. 1.05 SM 1.64 POSCO ICT 1.21 UBIVELOX 1.87 Interflex 0.93 Viatron 1.39 CrucialTec 0.97 Com2us 1.86 Daum Communications 0.84 Partrion 0.88 NEOWIZ Games 0.91 SM 1.56 Celltrion 0.83 Medy-tox 0.86 Victek 0.60 YG Entertainment 1.44 Eugene Technology 0.81 Kortek 0.65 Wemade 0.55 Gamevil 1.28 Sung Kwang Bend 0.67 HY-LOK Corp. 0.63 ICD 0.51 Sung Woo HiTech 1.21 HY-LOK Corp. 0.64 CJ E&M 0.39 SNET 0.49 SBS Contents Hub 0.88 e-LITECOM 0.53 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 1,303,000 -24,000 191,931 Celltrion 43,500 5,650 5,073 Hyundai Motor 248,000 -2,000 54,629 Daum Communications 110,700 0 1,491 POSCO 384,500 3,000 33,523 Seoul Semiconductor 22,200 -600 1,294 Kia Motors 80,600 800 32,672 CJ O Shopping 189,700 -400 1,177 Hyundai Mobis 282,500 500 27,500 CJ E&M 31,000 -400 1,176 Hyundai Heavy Industries 260,000 -4,000 19,760 AHNLAB 116,600 -100 1,168 Samsung Life Insurance 97,800 1,200 19,560 Paradise 11,500 50 1,046 Shinhan Financial Group 40,400 -750 19,158 POSCO ICT 7,500 -140 1,028 LG Chem 278,000 -10,000 18,423 SFA Engineering 56,900 100 1,022 Hynix 25,400 -1,200 17,628 Dongsuh 32,600 50 971 Source: Korea Exchange