November 1, 2012 Morning

November 1, 2012

KOREA

Morning

Company News & Analysis Major Indices Close Chg Chg (%) GS Home Shopping (Trading Buy/TP: W156,000) Raise TP KOSPI 1,912.06 12.48 0.66 3Q review: Margins soared from improved product mix KOSPI 200 250.18 1.66 0.67 KOSDAQ 508.31 6.00 1.19 Shinhan Financial Group (Buy/TP: W49,700) Leader of the pack Turnover ('000 shares, Wbn) Volume Value Samsung F&M (Buy/TP: W303,000) KOSPI 392,656 3,752 Free of negative issues KOSPI 200 56,849 2,745 KOSDAQ 459,938 1,742

Hyundai M&F (Buy/TP: W47,000) Raise TP Market Cap (Wbn) Solid earnings stability; Smooth sales of new contracts Value KOSPI 1,103,467 Dongbu Insurance (Buy/TP: W69,000) KOSDAQ 111,835 Likely to stand out amongst second-tier peers KOSPI Turnover (Wbn) Buy Sell Net S-Oil (Buy/TP: W130,000) Foreign 812 854 -43 Delayed earnings improvement at LS Cable & System Institutional 1,091 879 212 Retail 1,833 2,000 -167 LS (Buy/TP: W107,000) Lower TP Delayed earnings improvement at LSCS KOSDAQ Turnover (Wbn) Buy Sell Net CJ CGV (Buy/TP: W42,000) Raise TP Foreign 73 63 10 Strong popularity of Masquerade likely to drive 4Q earnings Institutional 88 71 17 Retail 1,580 1,604 -24

Economy & Strategy Update Program Buy / Sell (Wbn) Buy Sell Net Fixed Income Monthly (Issue) KOSPI 584 481 103 Haste makes waste KOSDAQ 10 12 -1 Advances & Declines Advances Declines Unchanged KOSPI 564 258 73 KOSDAQ 673 245 71

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,310,000 12,000 266 KODEX LEVERAGE 11,580 150 169 Hynix 24,850 550 142 Samsung SDI 137,000 -7,000 123 Samsung Corp. 59,300 -2,300 113

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Openbase 2,760 360 66 YG Entertainment 74,000 -2,900 35 ydonline 6,600 0 27 OSSTEM IMPLANT 31,600 1,700 25 Dragonfly 16,350 2,100 25 Note: As of October 31, 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 November 1, 2012

Retail GS Home Shopping (028150 KQ) Daewoo Securities Co., Ltd. Mina Kim 3Q review: Margins soared from improved product mix +822-768-4163 [email protected] Raise TP to W156,000; Maintain Trading Buy Jieun Lee +822-768-3265 We maintain our Trading Buy call on GS Home Shopping (GSHS), but raise our target [email protected] price by 38% to W156,000 (from W113,000). Our sharp upward revision to our

target price is based on the following: 1) We changed our base year for valuation from 2012 to 2013.

2) We raised our target P/E from 9x to 10x (the P/E level of its competitors). Trading Buy (Maintain) Although GSHSÊ margins have been weaker than those competitors, GSHS is likely Target Price (12M, W) 156,000 to continue to improve margins by reducing costs. Share Price (10/31/12, W) 139,100 Expected Return (%) 12.1 3) We revised up our 2012 and 2013 EPS estimates by 7.7% and 9.8%, respectively. EPS Growth (12F, %) -53.9 Market EPS Growth (12F, %) 9.0 3Q review: Margins surged from an improved product mix P/E (12F, x) 10.3 Market P/E (12F, x) 10.2 For 3Q, GSHS posted gross merchandise sales (GMS) of W703.2bn (up 22.8% YoY), KOSDAQ 508.31 and net revenues of W241.6bn (up 15.8% YoY) under non-consolidated K-IFRS. Market Cap (Wbn) 913 GMS at the TV home-shopping, internet-shopping, and catalog-shopping divisions Shares Outstanding (mn) 7 came in at W440.4bn (up 27.3% YoY), W209.8bn (up 11% YoY), and W26.6bn (up Avg Trading Volume (60D, '000) 17 1.1% YoY), respectively. The companyÊs 3Q top-line growth was largely aided by Avg Trading Value (60D, Wbn) 2 robust sales of physical products. Dividend Yield (12F, %) 2.2 Free Float (%) 66.0 GSHSÊ 3Q operating profit jumped 29.6% YoY to W30.1bn. OP margin (based on 52-Week Low (W) 88,600 GMS) improved 0.2%p YoY to 4.3%. Despite an increase in SO commission 52-Week High (W) 140,700 expenses, the companyÊs gross profit margins climbed on the back of an Beta (12M, Daily Rate of Return) 0.30 Price Return Volatility (12M Daily, %, SD) 2.0 improvement in product mix. In particular, the company reduced the proportion of Foreign Ownership (%) 28.6 low-margin home electronics sales (out of overall sales) to boost the margins of its Major Shareholder(s) internet shopping division. 3Q pretax profit leaped 25.9% YoY to W35.4bn, and net GS (30%) profit jumped 28.6% YoY to W27.2bn. Truston Asset Mngt. (9.18%) Matthews International Capital Needs to offset an increase in SO commissions Management (7.35%) Price Performance Driven by expectations of a 3Q earnings improvement, GSHSÊ shares have risen by (%) 1M 6M 12M 25.9% over the last month, outperforming the KOSPI by 30.1%. Going forward, the Absolute 25.9 25.2 29.4 companyÊs shares will likely hinge on the potential for additional increases in SO Relative 30.1 28.7 29.2 commissions paid to channel operators, as well as the acquisition of new growth Key Business engines. Given that GSHS has no stake in channel operators (unlike CJ O Shopping GS Home Shopping operates CATV, and internet and catalog home-shopping and Hyundai Home Shopping), the company is highly exposed to the risk of businesses in Korea and overseas. commission hikes. SO commissions have been raised by more than 20% YoY thus far this year, and they are likely to increase 15% YoY in 2013, given that IPTV and satellite TV operators are also demanding increases. In order to offset these

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) 130 KOSDAQ 120 12/10 792 117 14.7 97 14,816 127 -97 24.6 7.4 1.7 5.4 110 12/11 906 106 11.7 192 29,322 116 244 37.1 4.0 1.3 1.3 100 12/12F 1,001 113 11.2 89 13,526 117 -192 13.8 10.3 1.4 4.9 90 80 12/13F 1,124 127 11.3 103 15,644 132 83 14.3 8.9 1.2 4.0 70 12/14F 1,263 144 11.4 118 17,988 149 93 14.6 7.7 1.0 3.2 60 Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests 10/11 2/12 6/12 10/12 Sources: 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 November 1, 2012

commission expenses, GSHS is expected to need to further improve margins by revamping its product mix.

Table 1. 3Q earnings (Wbn) 3Q12P Growth rate (%) 3Q11 2Q12 Actual KDB Daewoo Consensus QoQ YoY GMS 572.7 747.1 703.2 622.3 658.7 -5.9 22.8 CATV 346.0 430.3 440.4 - - 2.3 27.3 Internet 189.0 254.1 209.8 - - -17.4 11.0 Catalog/Others 37.7 62.7 53.0 - - -15.5 40.6 Net sales 208.6 244.5 241.6 220.2 233.5 -1.2 15.8 Operating profit 23.2 22.4 30.1 23.9 24.0 34.3 29.6 Pretax profit 28.1 28.5 35.4 29.1 30.8 24.2 25.9 Net profit 21.2 21.0 27.2 22.2 22.8 29.8 28.6 OP margin (%) 4.1 3.0 4.3 3.8 3.6 1.3%p 0.2%p Pretax margin (%) 4.9 3.8 5.0 4.7 4.7 1.2%p 0.1%p Net margin (%) 3.7 2.8 3.9 3.6 3.5 1.1%p 0.2%p Note: Margins are based on GMS Sources: Company data, KDB Daewoo Securities Research

Table 2. Quarterly earnings forecasts (Wbn) 2011 2012F 4Q12F Growth (%) 2011 2012F 2013F 1Q 2Q 3Q 4Q 1Q 2Q 3QP 4QF QoQ YoY GMS 611.2 622.2 572.7 736.8 752.4 747.1 703.2 625.7 -11.0 -15.1 2,542.9 2,828.4 3,148.6 Net sales 214.7 219.5 208.6 263.4 264.3 244.5 241.6 250.7 3.8 -4.8 906.1 1,001.0 1,124.4 Operating profit 28.6 27.4 23.2 26.9 27.6 22.4 30.1 32.4 7.6 20.2 106.1 112.5 127.1 Pretax profit 201.6 33.0 28.1 -0.5 33.6 28.5 35.4 20.9 -40.9 TTB 262.2 118.4 136.9 Net profit 153.6 28.3 21.2 -10.6 24.5 21.0 27.2 16.1 -41.0 TTB 192.4 88.8 102.7 OP margin (%) 4.7 4.4 4.1 3.7 3.7 3.0 4.3 5.2 0.9%p 1.5%p 4.2 4.0 4.0 Pretax margin (%) 33.0 5.3 4.9 -0.1 4.5 3.8 5.0 3.3 -1.7%p 3.4%p 10.3 4.2 4.3 Net margin (%) 25.1 4.5 3.7 -1.4 3.3 2.8 3.9 2.6 -1.3%p 4.0%p 7.6 3.1 3.3 Notes: 1) Margins are based on GMS; 2) TTB refers to „turn to black‰ Sources: Company data, KDB Daewoo Securities Research estimates

2 Company November 1, 2012

Banks Shinhan Financial Group (055550 KS) Daewoo Securities Co., Ltd. Taye Shim Leader of the pack +822-768-4178 [email protected] Outstanding asset quality; Reiterate Buy recommendation Yong-uk Ku +822-768-4494 Shinhan Financial Group (SFG) reported a net profit of W485.0bn (down 23% QoQ; [email protected] down 31% YoY), in-line with our expectations but short of the consensus estimate

(W580.8bn). In our view, overall earnings were distorted by several extraordinary items (see Table.1), but the underlying quality of operations remained sound, which reinforces our Buy recommendation on SFG.

Buy (Maintain) Underlying operations were not hampered Target Price (12M, W) 49,700 SFG picked up its stagnating lending volume in 3Q (up 3.4% QoQ) by extending Share Price (10/31/12,W) 37,450 collective personal loans to police officers (household loan growth was up 3.5% Expected Return (%) 32.7 EPS Growth (12F, %) -12.1 QoQ). Moreover, despite challenges to the companyÊs margins, NIM slipped only Market EPS Growth (12F, %) 9.0 2bps from a quarter earlier. That growth, combined with these well-defended P/E(12F, x) 7.3 margins, led to net interest income inching up 3% QoQ. SG&A expenses were Market P/E(12F, x) 10.2 inflated because of provisions against employee retirement benefits (W90.6bn), but KOSPI 1,912.06 we believe this should even out with the expense burden scheduled in 4Q. Overall Market Cap (Wbn) 17,759 asset quality remained healthy despite Woongjin GroupÊs court receivership. SFGÊs Shares Outstanding (mn) 474 credit cost ratio inched up 8bps from a quarter earlier to 68bps. But stripping out the Avg Trading Volume (60D, '000) 1,177 Avg Trading Value (60D, Wbn) 44 extraordinary provisions against Woongjin Group (W80.9bn), workout builders Dividend Yield (12F, %) 2.0 (Byucksan E&C and Nam Kwang E&C; W34.5bn), and ailing SMEs (W7.4bn), we Free Float (%) 92.7 believe SFGÊs credit cost ratio remained flat QoQ. In addition, given that the NPL 52-Week Low 33,100 ratio has remained well-tamed year-to-date, meeting regulatory NPL guidelines by 52-Week High 47,500 the end of the year should be reasonably manageable. Beta (12M, Daily Rate of Return) 1.19 Price Return Volatility (12M Daily, %,SD) 1.9 Fine-tuning our 2012 and 2013 earnings estimates Foreign Ownership (%) 63.6 Major Shareholder(s) Reflecting 3Q earnings results, and a weak operating outlook, we are fine-tuning our NPS (7.34%) 2012 and 2013 earnings estimates by 0.3% and 0.2%, respectively. BNP Paribas (6.35%) Well-positioned, despite challenges to the company’s credit card business Price Performance (%) 1M 6M 12M We expect SFG to deliver stable earnings heading into 2013 given the companyÊs Absolute -1.3 -5.2 -16.1 strong management team, its balanced business mix, and the healthy quality of its Relative 2.9 -1.7 -16.3 assets. We believe these factors justify the companyÊs valuation premium, and Key Business support the downside to its shares. Merchant fee cuts (scheduled to be reflected Shinhan Financial Group (SFG) provides a starting in 2013) are likely to be a source of headwinds, but considering the full range of consumer and business banking services. With its diversified companyÊs strong market share, we expect SFG to gain the upper hand in the business mix, SFG is KoreaÊs top credit merchant-fee negotiating process. We also expect the bank to prudently reduce card services provider. expenses to offset this bottom-line earnings squeeze.

Share price FY Total OP PPOP Net OP Pretax NP NP EPS BPS P/E P/B ROE ROA 115 KOSPI (Wbn) (Wbn) (Wbn) (Wbn) (Wbn) (W) (W) (x) (x) (%) (%)

105 12/10 8,561 4,343 3,235 3,089 2,384 4,876 40,276 10.8 1.3 13.3 0.9 12/11 9,196 5,061 4,135 4,193 3,100 5,860 47,106 6.8 0.8 12.6 1.1 95 12/12F 8,897 4,709 3,384 3,413 2,500 5,152 55,603 7.3 0.7 9.9 0.8 85 12/13F 9,226 4,829 3,334 3,364 2,546 5,246 59,898 7.1 0.6 9.3 0.8 75 12/14F 9,846 5,228 3,745 3,775 2,877 5,927 65,964 6.3 0.6 9.6 0.9 10/11 2/12 6/12 10/12 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Sources: Company data, KDB Daewoo Securities Research estimates

Table 1. List of extraordinary items Item Amount Comment Provisions against Woongjin Group -W80.9bn Provisions against Byucksan E&C -W22.2bn Provisions against Nam Kwang E&C -W12.3bn Provisions against SMEs -W7.4bn Impairment losses on Kumho Industrial -W2.9bn Provisions against employee retirement benefits -W90.6bn Contribution to employee welfare funds -W34.0bnBank (-W30bn); Life Insurance (-W4bn) Gains from sales of bonds W40.9bn Total -W209.4bn Note: Pretax consolidated basis, Sources: Company data, KDB Daewoo Securities Research

Table 2. SFG 3Q earnings review (Wbn, %) 3Q11 2Q12 3Q12 Change Reported KDB Daewoo estimates Consensus YoY QoQ Net interest income 1,802.2 1,742.0 1,787.2 1,741.5 N/A -0.8 2.6 Non-interest income 276.4 435.0 383.1 397.4 N/A 38.6 -11.9 Total operating profit 2,078.5 2,177.0 2,170.3 2,138.8 N/A 4.4 -0.3 SG&A expenses 900.5 985.9 1,105.9 1,056.3 N/A 22.8 12.2 PPOP 1,178.0 1,191.1 1,064.3 1,082.5 N/A -9.6 -10.6 Associates and others 11.2 3.7 8.4 3.7 N/A -25.0 125.4 Pre-provisioning profit 1,189.2 1,194.8 1,072.7 1,086.2 N/A -9.8 -10.2 Net provisions 208.6 326.2 417.5 398.5 N/A 100.2 28.0 Net operating profit 969.4 864.9 646.8 683.9 809.3 -33.3 -25.2 Pretax profit 980.6 868.6 655.2 687.7 N/A -33.2 -24.6 Corporate tax 233.1 194.6 128.6 154.0 N/A -44.8 -33.9 Net profit 704.2 631.4 485.0 491.0 580.8 -31.1 -23.2 Sources: Company data, FnGuide, KDB Daewoo Securities Research

Table 2. Earnings and 4Q estimates (Wbn, %) 2011 2012 4QF change 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QF YoY QoQ 2011 2012F 2013F Net interest income 1,714.1 1,779.8 1,802.2 1,783.9 1,763.0 1,742.0 1,787.2 1,794.7 0.6 0.4 7,080.0 7,086.9 7,407.1 Non-interest income 624.6 776.6 276.4 438.3 608.8 435.0 383.1 383.3 -12.6 0.0 2,115.9 1,810.2 1,819.2 Total operating profit 2,338.6 2,556.5 2,078.5 2,222.2 2,371.9 2,177.0 2,170.3 2,177.9 -2.0 0.4 9,195.9 8,897.0 9,226.3 SG&A expenses 903.9 996.4 900.5 1,334.4 977.5 985.9 1,105.9 1,118.7 -16.2 1.2 4,135.4 4,188.1 4,397.5 PPOP 1,434.7 1,560.0 1,178.0 887.8 1,394.4 1,191.1 1,064.3 1,059.2 19.3 -0.5 5,060.5 4,709.0 4,828.9 Associates and others 12.8 8.9 11.2 24.9 9.3 3.7 8.4 8.4 -66.4 0.2 57.8 29.8 30.1 Pre-provisioning profit 1,447.5 1,568.9 1,189.2 912.7 1,403.7 1,194.8 1,072.7 1,067.6 17.0 -0.5 5,118.3 4,738.7 4,858.9 Net provisions 177.5 287.5 208.6 252.3 257.1 326.2 417.5 324.5 28.6 -22.3 925.7 1,325.4 1,494.8 Net operating profit 1,257.2 1,272.6 969.4 635.6 1,137.3 864.9 646.8 734.7 15.6 13.6 4,134.8 3,383.6 3,334.1 Pretax profit 1,270.1 1,281.4 980.6 660.5 1,146.5 868.6 655.2 743.1 12.5 13.4 4,192.6 3,413.4 3,364.2 Corporate tax 301.7 275.5 233.1 109.7 277.8 194.6 128.6 145.9 33.0 13.4 919.9 746.8 660.5 Net profit 924.3 964.8 704.2 506.7 826.3 631.4 485.0 557.8 10.1 15.0 3,100.0 2,500.4 2,546.0 Note: NM refers to „not meaningful‰ Sources: Company data, KDB Daewoo Securities Research Table 3. Earnings forecast revisions (Wbn, W, %) 2012F 2013F Reason for change Previous Revised Change Previous Revised Change PPOP 4,736 4,709 -0.6 4,775 4,829 1.1 *reflects 3Q12 earnings Net operating profit 3,454 3,384 -2.0 3,471 3,334 -4.0 *expect increase in LLP 2013 Pretax profit 3,474 3,413 -1.7 3,492 3,364 -3.7 Net profit 2,508 2,500 -0.3 2,552 2,546 -0.2 EPS 5,168 5,152 -0.3 5,259 5,246 -0.2 BPS 55,125 55,603 0.9 59,430 59,898 0.8 Sources: Company data, KDB Daewoo Securities Research

2 Company November 1, 2012

Insurance Samsung F&M (000810 KS) Daewoo Securities Co., Ltd. Gil-won Jeong Free of negative issues +822-768-3256 [email protected] 2QFY12 review: Net profit W184.9bn (down 26.4% QoQ) Hae-deun Kim +822-768-4180 For 2QFY12 (the fiscal year ends in March), Samsung F&MÊs net profit came in at [email protected] W184.9bn (down 29.4% QoQ). This fell short of our estimate (W247.5bn) by 25%,

and also missed the consensus (W225.7bn). Despite a corporate tax refund, the companyÊs net profit was weak this quarter

because the underwriting division incurred significant losses. Loss ratios rose across Buy (Maintain) the board because of weak seasonality. Additionally, the commercial insurance unit Target Price (12M, W) 303,000 incurred one-off losses related to multiple high-cost accidents. Target Price (12M, W) 303,000 Samsung F&MÊs September net profit came in at a mere W38.8bn, the weakest Share Price (10/31/12, W) 238,500 monthly performance of the year. This lackluster result was from: 1) increased Expected Return (%) 27.0 EPS Growth (12F, %) 16.9 provisions for retirement plans (W22bn) caused by a fall in interest rates; and 2) Market EPS Growth (12F, %) 9.0 additional losses related to a typhoon (W10bn). Still, it should be noted that the P/E (12F, x) 37.2 companyÊs risk-loss ratio plummeted 9.0%p MoM to 70.3% in September. Stripping Market P/E (12F, x) 10.2 away one-off losses, the companyÊs overall efficiency indicators would have been KOSPI 1,912.06 solid. Market Cap (Wbn) 11,299 Shares Outstanding (mn) 51 Capable of protecting itself against a fall in interest rates Avg Trading Volume (60D, '000) 91 Avg Trading Value (60D, 21 With declining interest rates, the yield spread between Samsung F&MÊs assets and Dividend Yield (12F, %) 2.1 liabilities has fallen. However, it seems to be a positive that the companyÊs duration Free Float (%) 75.3 gap has narrowed (as of the end of September, the companyÊs duration gap came in 52-Week Low (W) 195,500 at -0.14 years). Given that the companyÊs asset-liability matching rate has improved 52-Week High (W) 247, to 97% in 2QFY12 (vs. 76% in 2QFY11), the company should be capable of Beta (12M, Daily Rate of Return) 0.58 Price Return Volatility (12M 1.7 boosting yield on assets. And the company could also keep the asset-liability yield Foreign Ownership (%) spread from falling by cutting its crediting rates. Considering Samsung F&MÊs risk- Samsung Life Insurance et al. (14.41%) based capital ratio stands at a whopping 440% despite the completion of its share First State Investment Mgt. (UK) et al. (8.52%) buyback program, the company could efficiently defend its profits by purchasing Treasury shares (7.66%) corporate bonds or special bonds. Price Performance (%) 1M 6M 12M Maintain Buy call with TP of W303,000 Absolute -0.2 10.4 0.2 Relative 4.0 14.0 0.1 Upon reflection of the companyÊs 2QFY12 results, we are lowering our FY12 net Key Business profit estimate by 6.9%. However, our estimates for FY13 and beyond remain The largest non-life insurance company in unchanged. We maintain our Buy call, with a target price of W303,000. Samsung Korea, Samsung F&M is diversifying its F&M remains one of our top picks for the insurance sector. business areas to include long-term protection-type insurance and annuity products.

Earned Gross Dividend Stockholder FY Net profit EPS BPS P/E P/B ROE premiums operating profit yield equity Share price (Wbn) (Wbn) (Wbn) (W) (W) (x) (x) (%) (%) (Wbn) 120 KOSPI 03/11 11,861 922 720 1,424 15,020 17.0 1.6 11.0 1.5 6,993 110 03/12 13,679 1,101 785 1,551 16,499 13.8 1.3 10.7 1.8 7,695 100 03/13F 15,591 1,239 918 1,814 19,552 13.1 1.2 11.1 2.1 8,828

90 03/14F 17,321 1,489 1,093 2,162 21,916 11.0 1.1 11.1 2.5 9,895 03/15F 19,000 1,700 1,251 2,162 21,916 11.0 1.1 11.7 2.5 9,895 80 10/11 2/12 6/12 10/12 Note: Post-FY11 figures are under non-consolidated K-IFRS Sources: Company data, KDB Daewoo Securities Research estimates

Samsung F&MÊs shares have been sluggish relative to second-tier firmsÊ shares, affected by: weak supply and demand conditions following the completion of the companyÊs share buyback program; expectations of weak 2QFY12 results; and tepid sales of new contracts. However, given that second-tier firmsÊ shares have surpassed those of Samsung F&M, these negatives have already been priced in, in our view.

It should be noted that Samsung F&M is relatively invulnerable to potential issues facing non-life insurers (e.g., the potential for additional auto-premium cuts, RBC- ratio restrictions). The companyÊs tight management of its loss ratio should enable it to properly respond to premium cuts, and increases in its loss ratio. Furthermore, Samsung F&MÊs capital base is incomparably strong. Indeed, in light of this strong capital base, we expect there to be additional shareholder-friendly policies, such as dividend payouts and more share buybacks. We do not expect the valuation gap between Samsung F&M and second-tier firms to widen further.

Table 1. Samsung F&M quarterly and annual earnings (Wbn, %, %p) FY11 FY12 2Q FY12 FY11 FY12F FY13F 1Q 2Q 3Q 4Q 1Q 2QP 3QF 4QF QoQ YoY Direct Premium Written 3,527.5 3,629.3 3,651.0 3,776.7 4,064.2 4,229.0 4,160.2 4,150.8 4.1 16.5 14,584.6 16,604.2 18,457.8 Earned Premium 3,251.2 3,356.6 3,457.9 3,613.6 3,833.9 3,925.7 3,921.3 3,910.3 2.4 17.0 13,679.4 15,591.1 17,320.7 Underwriting Profit 15.5 -29.3 -179.5 -67.1 -19.3 -134.1 -47.5 -83.8 TR RR -260.4 -284.7 -293.1 Investment Profit 349.1 310.3 344.0 357.8 362.0 369.5 382.2 410.3 2.1 19.1 1,361.1 1,524.1 1,782.4 OP 364.6 281.0 164.4 290.6 342.7 235.5 334.6 326.5 -31.3 -16.2 1,100.7 1,239.3 1,489.3 Pre-tax profit 356.0 276.8 144.2 281.0 332.4 225.9 319.6 315.5 -32.0 -18.4 1,058.0 1,193.4 1,442.3 Net profit 272.5 210.2 85.8 216.0 251.2 184.9 242.3 239.2 -26.4 -12.1 784.5 917.5 1,093.3 Loss ratio 81.8 83.1 87.5 83.9 83.5 86.1 84.2 84.6 2.6 3.0 84.1 84.6 84.6 Auto 76.4 79.2 83.6 77.8 75.7 80.1 79.7 80.0 4.4 0.9 79.3 78.9 80.9 Long-term 85.9 86.0 87.0 88.0 87.9 88.8 87.5 88.0 0.8 2.7 86.8 88.1 87.7 General 58.0 67.2 110.3 59.0 59.6 75.7 61.0 61.0 16.0 8.5 73.8 64.3 61.0 Expense ratio 17.7 17.8 17.6 17.9 17.0 17.3 17.0 17.5 0.3 -0.4 17.8 17.2 17.1 Combined ratio 99.5 100.9 105.2 101.9 100.5 103.4 101.2 102.1 2.9 2.5 101.9 101.8 101.7 Investment yields 5.1 4.4 4.6 4.5 4.4 4.3 4.2 4.4 -0.1 -0.1 4.7 4.4 4.4 Sources: Company data, KDB Daewoo Securities Research

2 Company November 1, 2012

Insurance Hyundai M&F (001450 KS) Daewoo Securities Co., Ltd. Gil-won Jeong Solid earnings stability; Smooth sales of new contracts +822-768-3256 [email protected] 2QFY12 review: Taking away seasonality, net profit in line with expectations Hae-deun Kim +822-768-4180 For 2QFY12 (the fiscal year ends in March), Hyundai M&FÊs net profit came in at [email protected] W92.3bn (down 21.7% QoQ), shy of our estimate (W108.9bn) and the consensus

(W98.8bn). Stripping away negative seasonal effects, the companyÊs 2QFY12 results would have been in line with expectations.

Hyundai M&FÊs underwriting division fared poorly this quarter. Loss ratios at the Buy (Maintain) auto and commercial insurance divisions rose because of typhoon-related losses. Target Price (12M, W) 47,000 And the long-term insurance divisionÊs risk-loss ratio also deteriorated because of a Share Price (10/31/12, W) 35,250 temporary rise in insurance claims. The companyÊs investment yield remained flat Expected Return (%) 33.3 QoQ on the back of its conservative asset management. EPS Growth (12F, %) 1.4 Market EPS Growth (12F, %) 9.0 In September, the companyÊs net profit reached W35bn, picking up from W20.2bn P/E (12F, x) 7.2 in August. The underwriting divisionÊs operating profit normalized from a drop in risk- Market P/E (12F, x) 10.2 loss ratio (down 8.8%p MoM). And the company generated gains from the sale of KOSPI 1,912.06 securities (W6.3bn). The companyÊs new contract sales have been progressing Market Cap (Wbn) 3,151 smoothly. The companyÊs 1HFY12 new personal insurance sales met 103.4% of its Shares Outstanding (mn) 89 FY12 target. Avg Trading Volume (60D, '000) 328 Avg Trading Value (60D, Wbn) 11 Solid earnings stability; Smooth sales of new contracts Dividend Yield (12F, %) 4.0 Free Float (%) 68.0 For 3QFY12, we anticipate Hyundai M&FÊs net profit to improve to W100bn. 52-Week Low (W) 25,100 Although personnel expenses are likely to increase slightly, the companyÊs loss 52-Week High (W) 37,850 ratios should normalize thanks to favorable seasonality. Considering the companyÊs Beta (12M, Daily Rate of Return) 0.27 low exposure to risky assets, as well as its focus on fixed-income assets, we Price Return Volatility (12M Daily, %, SD) 2.0 Foreign Ownership (%) 33.3 believe investment income is likely to stay at 2QFY12 levels. Major Shareholder(s) Although Hyundai M&FÊs 2QFY12 results were sluggish, we believe its overall Mong yoon Chung (22%) earnings stability improved based on the following: 1) risk premiums have expanded Treasury shares (10.05%) NPS (8.71%) from the steady growth of protection-type insurance sales; 2) fixed debt with high Price Performance rates of interest has steadily decreased; 3) the volatility of the companyÊs auto-loss (%) 1M 6M 12M ratio has declined; and 4) the company has maintained stable asset management. Absolute 1.9 21.6 8.3 Since all of these factors are structural, we believe the companyÊs earnings are likely Relative 6.1 25.1 8.1 to be solid, unless one-off losses are incurred. Key Business A second-tier non-life insurer Raise TP to W17,000; Maintain Buy call Upon reflection of the companyÊs 2QFY12 results, we adjusted down our FY12 net profit estimate by 7.4%. However, our estimates for FY13 and beyond remain

Earned Gross Dividend StockholdersÊ FY Net profit EPS BPS P/E P/B ROE premiums operating profit yield equity Share price 120 (Wbn) (Wbn) (Wbn) (W) (W) (x) (x) (%) (%) (Wbn) KOSPI 03/11 6,634 236 205 2,298 19,365 8.0 0.9 13.8 3.8 1,557 110 03/12 8,358 560 399 4,462 21,688 6.9 1.4 24.2 4.4 1,744 100 03/13F 9,174 557 404 4,522 27,396 7.8 1.3 20.5 4.0 2,203

90 03/14F 9,873 698 509 5,697 32,329 6.2 1.1 21.2 4.5 2,600 03/15F 10,505 838 613 6,855 38,350 5.1 0.9 21.6 5.1 3,084 80 10/11 2/12 6/12 10/12 Note: Post-FY11 figures are under non-consolidated K-IFRS Sources: Company data, KDB Daewoo Securities Research estimates

unchanged.

We maintain our Buy call, and raise our target price to W47,000 (from W42,000) to reflect the companyÊs expanded book value. Hyundai M&F and other second-tier firms are showing stable growth in book value by efficiently managing their small capital. Given this low-risk profit structure and the resulting growth in book value, the companyÊs shares are likely to rise as well. Considering the company boasts the highest sustainable ROE of 21.1% among second-tier firms, its shares, which are currently trading at P/B of 1.2x, appear deeply undervalued.

Table 1. Hyundai M&F quarterly and annual earnings (Wbn, %, %p) FY11 FY12 2Q FY12 FY11 FY12F FY13F 1Q 2Q 3Q 4Q 1Q 2QP 3QF 4QF QoQ YoY Direct Premium Written 2,100.7 2,169.4 2,352.2 2,694.3 2,512.1 2,518.5 2,587.6 2,544.1 0.3 16.1 9,316.7 10,162.2 10,922.9 Earned Premium 1,852.1 1,952.5 2,081.3 2,472.0 2,233.1 2,304.0 2,332.6 2,304.4 3.2 18.0 8,357.9 9,174.1 9,873.1 Underwriting Profit 35.3 5.2 -0.7 -9.5 8.4 -25.7 -18.7 -58.9 TR TR 30.2 -94.9 -64.9 Investment Profit 125.6 131.0 130.9 142.4 153.0 154.9 166.8 177.5 1.3 18.3 529.8 652.2 762.8 OP 160.9 136.2 130.1 132.9 161.4 129.2 148.1 118.7 -19.9 -5.1 560.0 557.4 697.9 Pre-tax profit 159.3 125.9 123.4 127.4 155.7 121.8 142.6 113.2 -21.8 -3.3 536.0 533.2 671.9 Net profit 121.1 95.1 85.0 97.7 118.0 92.3 108.2 85.8 -21.7 -2.9 398.9 404.3 509.3 Loss ratio 79.9 81.4 82.7 84.3 81.9 83.3 82.1 83.3 1.4 1.8 82.2 82.7 83.4 Auto 77.9 80.6 83.5 81.0 76.8 81.4 80.5 81.2 4.6 0.8 80.8 80.0 83.1 Long-term 81.6 81.9 82.9 85.8 83.9 84.4 83.7 85.0 0.5 2.5 83.3 84.3 84.4 General 59.2 78.3 73.9 65.3 71.1 72.2 61.0 63.0 1.1 -6.1 69.3 66.7 66.0 Expense ratio 18.0 18.3 17.3 16.3 17.7 17.8 18.7 19.2 0.1 -0.5 17.4 20.3 17.3 Combined ratio 97.9 99.7 100.0 100.6 99.6 101.1 100.8 102.6 1.5 1.4 99.7 103.0 100.7 Investment yields 4.8 4.7 4.4 4.5 4.4 4.3 4.4 4.4 -0.2 -0.5 4.6 4.4 4.3 Sources: Company data, KDB Daewoo Securities Research

2 Company November 1, 2012

Insurance Dongbu Insurance (005830 KS) Daewoo Securities Co., Ltd. Gil-won Jeong Likely to stand out amongst second-tier peers +822-768-3256 [email protected] 2QFY12 review: Net profit (W130.3bn) hit a new quarterly high Hae-deun Kim +822-768-4180 For 2QFY12 (the fiscal year ends in March), Dongbu InsuranceÊs net profit reached [email protected] W130.3bn (up 15.9% QoQ), in line with our estimate of W135bn. This result marks

the first quarterly high since 1QFY11, when net profit reached W122.4bn on an abnormally low auto loss ratio.

During the quarter, Dongbu Insurance incurred impairment losses related to Buy (Maintain) corporate bonds and funds, as well as an increase in provisions for retirement plans. Target Price (12M, W) 69,000 However, these losses were offset by its aggressive disposal of securities during Share Price (10/31/12, W) 49,450 August~September. Despite negative seasonal effects, the insurer managed to Expected Return (%) 39.5 tightly control loss ratios and expense ratios during the quarter. EPS Growth (12F, %) 21.4 Market EPS Growth (12F, %) 9.0 The firmÊs September net profit was a mere W36.1bn. However, stripping away P/E (12F, x) 7.1 one-off losses (W34bn), this would have been a solid profit. Market P/E (12F, x) 10.2 KOSPI 1,912.06 Strong earnings power expected to outweigh Dongbu Group risks Market Cap (Wbn) 3,501 Dongbu Insurance shares have performed poorly since May, affected by: 1) the Shares Outstanding (mn) 71 Avg Trading Volume (60D, '000) 140 reemergence of risks related to the Dongbu Group, including the potential need to Avg Trading Value (60D, Wbn) 6 provide financial support to its manufacturing affiliate; and 2) weak 1QFY12 results. Dividend Yield (12F, %) 3.0 However, we expect Dongbu InsuranceÊs earnings power to remain the strongest Free Float (%) 58.1 52-Week Low (W) 38,550 amongst second-tier non-life insurers in 3QFY12, unless any one-off costs emerge. 52-Week High (W) 54,000 Because the companyÊs loss ratio has traditionally been low in 3QFY, we even Beta (12M, Daily Rate of Return) 0.53 expect its net profit to set a new monthly high during the quarter. Price Return Volatility (12M Daily, %, SD) 2.1 Foreign Ownership (%) 36.6 As stressed in our previous reports, risks related to the Dongbu Group are unlikely Major Shareholder(s) to materialize, given: 1) strict restrictions on direct, intra-organizational financial N.H.Kim et al. (31.33%) support; and 2) any financial support could have severe consequences (most of the Treasury shares (10.6%) stakes owned by the companyÊs majority shareholders have already been NPS (6.02%) collateralized for loans). Even though these risks emerge from time to time, Price Performance DongbuÊs shares have shown the strongest long-term performance in the non-life (%) 1M 6M 12M Absolute 2.2 9.4 4.9 insurance sector. We believe earnings are more important to DongbuÊs shares than Relative 6.4 12.9 4.7 any group-related risks. Key Business KoreaÊs second-largest non-life insurance Maintain Buy call with TP of W69,000 company; Dongbu Insurance is diversifying its business areas to include protection- Upon reflection of the companyÊs 2Q results, we are revising down our FY12 type long-term insurance and annuities. earnings estimates by 1.3%. However, our estimates for FY13 and beyond remain unchanged. We maintain our Buy call with a target price of W69,000. Dongbu Insurance remains one of our top picks for the insurance sector.

Earned Gross Dividend StockholdersÊ Share price FY Net profit EPS BPS P/E P/B ROE 120 KOSPI premiums operating profit yield equity (Wbn) (Wbn) (Wbn) (W) (W) (x) (x) (%) (%) (Wbn) 110 03/11 6,422 388 328 4,639 28,926 10.8 1.7 19.2 1.8 1,831 100 03/12 8,368 562 404 5,699 34,830 8.6 1.4 20.0 2.7 2,205 90 03/13F 8,773 682 496 7,008 41,385 7.1 1.2 20.6 3.0 2,620

80 03/14F 9,425 755 554 7,826 48,638 6.4 1.0 19.4 3.4 3,079 10/11 2/12 6/12 10/12 03/15F 10,032 875 646 9,118 57,138 5.5 0.9 19.3 4.0 3,617

Note: Post-FY11 figures are under non-consolidated K-IFRS Sources: 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 November 1, 2012

After a period of being relatively weak, the companyÊs earnings have begun to surpass that of its second-tier peers; additionally, the companyÊs group-related risks are nothing new. We expect DongbuÊs shares to stand out among second-tier non- life insurers on the back of strong earnings power and robust sales of new contracts.

Despite a recent increase, Dongbu InsuranceÊs shares are still trading at a P/B of only 1.2x (based on a 12-month forward BPS). Although the companyÊs current quarterly earnings are equivalent to annual figures recorded six years ago, its current market cap is not four times that level. Thus, this stock still appears undervalued.

Table 1. Dongbu Insurance quarterly and annual earnings (Wbn, %, %p) FY11 FY12 2Q FY12 FY11 FY12F FY13F 1Q 2Q 3Q 4Q 1Q 2QP 3QF 4QF QoQ YoY Direct Premium Written 1,961.7 2,144.3 2,410.1 2,553.3 2,399.7 2,401.7 2,466.5 2,524.3 0.1 12.0 9,069.4 9,792.3 10,454.3 Earned Premium 1,789.7 1,974.5 2,206.2 2,397.8 2,227.3 2,242.5 2,275.4 2,333.8 0.7 13.6 8,368.3 9,079.0 9,685.0 Underwriting Profit 22.6 -13.6 17.2 -48.8 7.2 -11.8 -1.7 -14.8 TR RR -22.4 -39.6 -56.7 Investment Profit 141.5 146.7 135.3 161.2 149.2 188.9 185.2 190.5 26.6 28.7 584.7 713.0 814.7 OP 164.2 133.2 152.5 112.4 156.4 177.1 183.6 175.7 13.2 32.9 562.3 673.4 758.0 Pre-tax profit 161.3 130.8 147.5 105.6 153.5 170.9 178.5 168.2 11.3 30.7 545.4 650.4 734.4 Net profit 122.4 98.8 101.1 81.0 112.4 130.3 135.3 127.5 15.9 31.8 403.5 489.7 556.7 Loss ratio 80.4 84.0 83.9 84.8 83.3 83.4 82.5 83.6 0.1 -0.6 83.4 83.2 83.6 Auto 76.3 82.0 82.2 80.2 77.4 78.1 80.5 81.0 0.7 -3.9 80.2 79.3 82.0 Long-term 83.0 84.7 85.4 86.9 86.2 85.2 84.0 85.5 -0.9 0.5 83.9 85.2 84.9 General 55.9 80.9 58.9 60.8 60.5 74.7 61.0 60.0 14.2 -6.2 62.8 64.0 64.0 Expense ratio 18.4 16.7 15.4 17.3 16.4 17.1 17.6 17.0 0.8 0.4 16.9 17.0 16.8 Combined ratio 98.7 100.7 99.2 102.0 99.7 100.5 100.1 100.6 0.8 -0.2 100.3 100.2 100.4 Investment yields 5.2 5.0 4.3 4.7 4.1 4.9 4.5 4.4 0.8 -0.1 4.8 4.6 4.3 Sources: Company data, KDB Daewoo Securities Research

2 Company November 1, 2012

Oil refining S-Oil (010950 KS) Daewoo Securities Co., Ltd. Yeon-ju Park Earnings proved the company’s competitiveness +822-768-3061 [email protected] 3Q review: Better than consensus; 4Q earnings likely to stay solid S-OilÊs 3Q operating profit reached W518.4bn, exceeding the market consensus. Operating profit at the oil refining division surged QoQ to W239.8bn. The chemicals

divisionÊs operating profit also improved on the back of expanded margins of paraxylene (PX) and benzene. However, operating profit at the lubricant division deteriorated QoQ, affected by slowing demand and inventory valuation losses.

On the conference call, a company official projected that any net increase in global Buy (Maintain) oil refining capacity will be only minimal in 2013 (700,000 bbl/day). As for the Target Price (12M, W) 130,000 potential of acquiring Hankook Silicon, the representative mentioned that although Share Price (10/30/12, W) 96,800 the matter has not yet been decided, the company believes Hankook Silicon is Expected Return (%) 34.3 competitive, and has strong long-term growth potential. EPS Growth (12F, %) -20.0 Market EPS Growth (12F, %) 9.0 For 4Q, we project S-OilÊs operating profit to remain solid at W412.1bn. Margins for P/E (12F, x) 11.8 diesel and kerosene have stayed robust. PX margins are also likely to remain high Market P/E (12F, x) 10.2 given the absence of any major plans to expand capacity. KOSPI 1,899.58 Market Cap (Wbn) 10,898 Margins of diesel and kerosene likely to stay robust Shares Outstanding (mn) 117 Avg Trading Volume (60D, '000) 361 Recently, refining margins have weakened, especially for gasoline and fuel oil. But Avg Trading Value (60D, Wbn) 38 diesel and kerosene margins (50~60% of S-OilÊs revenues) have remained healthy. Dividend Yield (12F, %) 4.1 Inventory of diesel and kerosene is low, while supply and demand in Europe are Free Float (%) 36.5 tight because of a decline in capacity utilization at European facilities. With a strong 52-Week Low (W) 86,400 season approaching, we anticipate margins are likely to stay solid going forward. 52-Week High (W) 145,000 Beta (12M, Daily Rate of Return) 1.38 Despite the global economic slowdown, global oil refining supply has remained tight Price Return Volatility (12M Daily, %, SD) 2.3 because of the shutdown of facilities in Europe. We believe this trend will continue Foreign Ownership (%) 46.4 through 2013, given that many European facilities are aging, struggling with Major Shareholder(s) unbalanced supply and demand conditions for products, and are incurring significant Aramco Overseas et al. (63.49%) operating expenses. NPS (5.01%) Maintain Buy call with TP of W130,000 Price Performance (%) 1M 6M 12M We maintain our Buy call on S-Oil, with a target price of W130,000. We derived our Absolute -8.7 -1.1 -18.7 target price by applying a P/B of 2.3x (based on a 2013F ROE of 23%) to a 2013 BPS Relative -3.8 3.0 -17.1 estimate. After peaking in mid-September, the companyÊs shares have fallen, Key Business affected by increased global uncertainty, and a weakening of refining margins. Oil refinery and PX manufacturer. Even if refining margins slightly weaken, we estimate S-Oil is likely to generate a quarterly operating profit of W400bn with a ROE of 23%. As such, we believe that the current share price (2013F P/B of 1.8x) is attractive. As for the acquisition of Hankook Silicon, we believe the investment burden for S-Oil is unlikely to be significant.

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 20,511 859 4.2 711 6,094 1,099 -115 16.9 15.2 2.4 11.3

100 12/11 31,914 1,634 5.1 1,191 10,214 2,073 -85 24.5 9.8 2.3 6.8 12/12F 34,848 1,155 3.3 953 8,174 1,395 538 17.9 11.8 2.1 9.8 80 12/13F 33,768 1,729 5.1 1,357 11,637 1,995 1,259 23.0 8.3 1.8 6.5 60 12/14F 37,099 1,755 4.7 1,405 12,046 2,043 791 20.7 8.0 1.6 6.2 10/11 2/12 6/12 10/12 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Sources: 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 November 1, 2012

Telecom equipment LS (006260 KS) Daewoo Securities Co., Ltd. Wonjae Park Delayed earnings improvement at LS Cable & System +822-768-3372 [email protected] Lower TP by 8.5% to W107,000; Maintain Buy call

We maintain our Buy call on LS, but lower our 12-month target price by 8.5%, from W117,000 to W107,000. We derived our target price by applying a P/E of 12.2x

(unchanged; 30% discount to the companyÊs 2009~2011 average P/E of 17.5x) to our consolidated K-IFRS-based 2013F EPS of W8,796 (down from W8,917). Our target price implies a potential upside of 20% from the current price.

Buy (Maintain) 3Q review: OP of W99bn missed both our estimate and the consensus Target Price (12M, W) 107,000 For 3Q, LS posted revenues of W2.88tr, down 5.0% YoY and down 9.5% QoQ. Share Price (10/31/12, W) 89,200 These lukewarm results were affected by weak seasonality, a drop in copper prices Expected Return (%) 20.0 EPS Growth (12F, %) 104.2 (down 14.2% YoY from US$8,992/tonne to US$7,717/tonne), and the slowdown of Market EPS Growth (12F, %) 9.0 the European economy. The company swung to an operating profit of W99bn YoY in P/E (12F, x) 12.0 3Q, but this still represents a 39.4% QoQ decline. LSÊ 3Q operating profit fell short Market P/E (12F, x) 10.2 of our estimate (W140.6bn) and the consensus (W147bn). KOSPI 1,912.06 Market Cap (Wbn) 2,872 Most of the companyÊs subsidiaries posted healthy results for 3Q. LS Industrial Shares Outstanding (mn) 32 Systems (LSIS) posted an operating profit of W50.9bn (down 2.3% QoQ; up Avg Trading Volume (60D, '000) 111 204.8% YoY), and LS-Nikko Copper recorded an operating profit of W69.6bn (down Avg Trading Value (60D, Wbn) 10 27.5% QoQ; swung to positive YoY). LS MtronÊs operating profit came in at Dividend Yield (12F, %) 1.5 W12.3bn (up 24.5% QoQ; up 12.4% YoY). Free Float (%) 52.8 52-Week Low (W) 69,600 However, LS Cable & System (LSCS) fared poorly. LSCS swung to a profit YoY. But 52-Week High (W) 100,500 its operating profit (W5.8bn) deteriorated 99.1% QoQ because of additional Beta (12M, Daily Rate of Return) 1.07 expenses related to a submarine cable project (W16.2bn), as well as the Price Return Volatility (12M Daily, %, SD) 1.9 Foreign Ownership (%) 13.1 sluggishness of SPSXÊs European operations. In particular, it is disappointing this Major Shareholder(s) submarine cable project seems to be continuously incurring expenses, which Zayul Koo et al.(33.43%) increases uncertainty for the company. Treasury stock(13.77%) NPS(9.28%) For 4Q, we project LS to generate revenues of W3.33tr and an operating profit of Price Performance W153.7bn. We expect LSCS to recover in the quarter. And LS-Nikko Copper is likely (%) 1M 6M 12M to recognize additional F/X-related gains of W20bn. Absolute -8.0 17.8 11.4 Relative -3.7 21.4 11.2 Delay in the recovery of LSCS likely to hurt LS shares Key Business A holding company of the LS Group. In light of the solid earnings at most of the companyÊs subsidiaries (e.g., LSIS, LS Mtron, and LS-Nikko Copper), we anticipate LSÊ quarterly operating profit to remain at W150bn. It should be kept in mind, however, that the recovery of LSCSÊ earnings, which have been a driving force of the companyÊs shares, appears to have been delayed. We advise investors to take a conservative approach by keeping close tabs on LSCSÊ earnings, as well as the possibility of a stock market listing.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 130 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 120 12/10 10,360 571 5.5 245 7,618 698 730 13.1 14.0 2.5 10.6 110 12/11 12,352 338 2.7 118 3,653 538 -563 5.4 20.8 1.7 13.6 100 12/12F 12,361 561 4.5 240 7,460 763 37 10.2 12.0 1.7 10.5

90 12/13F 13,730 644 4.7 283 8,796 895 -19 11.1 10.1 1.5 9.3

80 12/14F 14,675 711 4.8 300 9,318 981 158 10.7 9.6 1.4 8.7 10/11 2/12 6/12 10/12 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Sources: Company data, KDB Daewoo Securities Research estimates

Table 1. 3Q12 earnings and consensus (Wbn, %) 3Q12P Growth 3Q11 2Q12 Actual KDB Daewoo Consensus YoY QoQ Revenues 3,034 3,184 2,881 3,339 3,157 -5.0 -9.5 Operating profit -68 163 99 141 147 TTB -39.4 OP margin -2.3 5.1 3.4 4.2 4.7 5.7 -1.7 Pretax profit -123 100 46 110 98 TTB -54.0 Net profit -109 75 42 75 64 TTB -44.1 Notes: Figures are based on consolidated K-IFRS; „TTB‰ means „Turned To Black‰ Sources: Company data, FN Guide, KDB Daewoo Securities Research

Table 2. Revisions to earnings forecasts (Wbn, W, %) Previous Revised % Change Reason for change 2012F 2013F 2014F 2012F 2013F 2014F 2012F 2013F 2014F Revenue 12,820 13,730 14,676 12,361 13,730 14,675 -3.6 0.0 0.0 Operating profit 606 641 708 561 644 711 -7.4 0.4 0.4 Reflects one-off expenses in 3Q12 Pretax profit 431 526 588 365 469 530 -15.3 -10.7 -9.9 Conservatively reflects non-operating losses Net profit 276 325 351 240 283 300 -13.0 -12.9 -14.6 EPS (W) 8,571 10,103 10,916 7,460 8,796 9,318 -13.0 -12.9 -14.6 OP margin 4.7 4.7 4.8 4.5 4.7 4.8 -0.2 0.0 0.0 Pretax margin 3.4 3.8 4.0 3.0 3.4 3.6 -0.4 -0.4 -0.4 Net margin 2.2 2.4 2.4 1.9 2.1 2.0 -0.2 -0.3 -0.4 Note: Figures are based on consolidated K-IFRS Sources: Company data, KDB Daewoo Securities Research estimates

Table 3. Quarterly earnings (Wbn, W, %p) 2011 2012F 3Q12P

1Q 2Q 3Q 4Q Annual 1Q 2Q 3QP 4QF Annual YoY QoQ Previous chg Revenue 3,117 3,280 3,034 2,955 12,385 2,970 3,184 2,881 3,326 12,361 -5.0 -9.5 3,339 -14 Operating profit 157 90 -68 160 338 145 163 99 154 561 TTB -39.4 141 -30 Pretax 94 29 -123 107 107 100 100 46 119 365 TTB -54.0 110 -58 Net profit 64 76 -95 73 118 63 60 29 89 240 TTB -51.8 75 -62 EPS 1,980 2,353 -2,956 2,275 3,652 1,947 1,850 892 2,770 7,459 TTB -51.8 2,320 -62 OP margin 5.0 2.7 -2.3 5.4 2.7 4.9 5.1 3.4 4.6 4.5 5.7 -1.7 4.2 -0.8 Pretax margin 3.0 0.9 -4.0 3.6 0.9 3.4 3.1 1.6 3.6 3.0 5.6 -1.5 3.3 -1.7 Net margin 2.0 2.3 -3.1 2.5 0.9 2.1 1.9 1.0 2.7 1.9 4.1 -0.9 2.2 -1.2 Notes: Figures are based on consolidated K-IFRS; „TTB‰ means „Turned To Black‰ Sources: Company data, KDB Daewoo Securities Research estimates

2 Company November 1, 2012

Entertainment CJ CGV (079160 KS) Daewoo Securities Co., Ltd. Chang-kwean Kim Strong popularity of Masquerade likely to drive 4Q earnings +822-768-4321 [email protected] Chinese and Vietnamese movie markets expected to grow rapidly

According to the market researcher PwC, the Chinese movie market is likely to show a CAGR of 26.6% until end-2015. The Vietnamese market is likely to show the

second-strongest growth in Asia, with a CAGR of 23.2% during that period. And the Korean movie market is projected to display a CAGR of 6.7% until end-2015. PwC anticipates the Chinese market will be three times larger than the Korean market by 2015. We project CJ CGV, which is running 11 multiplexes in China, to incur an Buy (Maintain) operating loss of W15bn in China this year. But the company is likely to post a net Target Price (12M, W) 42,000 profit of W6bn from nine multiplexes in Vietnam in 2012. Share Price (10/31/12, W) 33,800 Expected Return (%) 24.3 CJ CGV plans to open three to five new multiplexes in China and Vietnam each in EPS Growth (12F, %) 93.6 2013. In addition, the company is likely to expand into the rest of Asia (e.g., Market EPS Growth (12F, %) 9.0 Indonesia, Malaysia, and Laos). We believe the companyÊs overseas expansion will P/E (12F, x) 9.3 bear fruit at full-swing in 2013. Market P/E (12F, x) 10.2 KOSPI 1,912.06 3Q review: Better than expected; 4Q earnings likely to stay robust Market Cap (Wbn) 697 Shares Outstanding (mn) 21 CJ CGVÊs 3Q results significantly exceeded our estimates and the consensus. In 3Q, Avg Trading Volume (60D, '000) 95 the number of moviegoers in Korea expanded 15.5% YoY on the back of the Avg Trading Value (60D, Wbn) 3 popularity of Korean movies, such as The Thieves, Masquerade, and Deranged. The Dividend Yield (12F, %) 1.0 Korean movie market has displayed strong growth for six consecutive quarters. Free Float (%) 60.0 52-Week Low (W) 24,200 CJ CGVÊs 3Q average ticket price (ATP) decreased to W7,154 (from W7,476 in 52-Week High (W) 34,050 3Q11) due to the diminishing popularity of 3D movies. And the companyÊs Beta (12M, Daily Rate of Return) 0.33 concession sales per person decreased to W1,931 (from W1,942 in 3Q11) because Price Return Volatility (12M Daily, %, SD) 1.6 Foreign Ownership (%) 17.7 customers are now allowed to bring food into theaters. However, the companyÊs 3Q Major Shareholder(s) revenues expanded 17.8% YoY. CJ Corporation (40.05%) Despite one-off marketing expenses of more than W9bn, CJ CGVÊs 3Q operating NPS (8.53%) Korea Investment Management (7.86%) profit jumped 63.2% YoY to W55.1bn thanks to gains from the disposal of assets Price Performance (W26bn). Furthermore, the movie Masquerade attracted audiences of more than (%) 1M 6M 12M 6mn in October alone. In large part because of the strong popularity of Masquerade, Absolute 17.6 27.3 31.0 we project the companyÊs 4Q revenues and operating profit to jump 16.2% YoY and Relative 21.8 30.8 30.9 91.1% YoY, respectively. Key Business Multiplex cinema Raise TP to W42,000; Maintain Buy call Taking into account the better-than-expected 3Q results, we are revising up our 2012, 2013, and 2014 EPS estimates by 32.7%, 9.3%, and 7.5%, respectively. As such, we are raising our target price from W38,000 to W42,000. We are optimistic about the company, as: 1) the Korean movie market is expected to stay strong; and

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 150 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 140 130 12/10 500 60 11.9 41 1,965 92 20 15.4 14.3 2.1 8.8 120 12/11 548 71 12.9 39 1,873 105 34 12.5 14.2 1.9 8.4 110 12/12F 648 107 16.5 75 3,625 136 61 20.9 9.3 1.9 8.4 100 90 12/13F 680 96 14.1 71 3,465 123 93 16.9 9.8 1.6 10.1 80 12/14F 728 111 15.2 79 3,819 135 99 16.0 8.9 1.4 10.0 10/11 2/12 6/12 10/12 Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests Sources: Company data, KDB Daewoo Securities Research estimates

2) the companyÊs expansion into Asian markets is picking up speed.

Table 1. 3Q earnings vs. estimates (Wbn, %) 3Q12P Growth 3Q11 2Q12 Actual KDB Daewoo Consensus YoY QoQ Revenues 169 154 199 191 192 17.8 29.2 Operating profit 34 24 55 33 36 63.2 128.9 OP margin 20.0 15.6 27.7 17.4 18.9 7.7 12.1 Pretax profit 29 21 53 30 33 81.4 150.4 Net profit 22 16 40 22 26 82.8 150.3 Note: Figures are based on non-consolidated K-IFRS. Sources: Company data, FN Guide, KDB Daewoo Securities Research

Table 2. Earnings forecast revisions (Wbn, W, %) Previous Revised % Change Reason for change 2012F 2013F 2014F 2012F 2013F 2014F 2012F 2013F 2014F Revenue 635 676 728 648 680 728 2.2 0.6 0.0 - In 3Q, audiences increased 15.5% Operating profit 85 92 109 107 96 111 26.5 3.7 1.3 - In 3Q, W26bn in one-time gains from the Pretax profit 73 87 98 98 95 105 33.0 9.2 7.5 disposal of assets Net profit 56 65 73 75 71 79 32.7 9.2 7.4 EPS (W) 2,733 3,171 3,553 3,625 3,465 3,819 32.7 9.3 7.5 OP margin 13.3 13.7 15.0 16.5 14.1 15.2 3.2 0.4 0.2 Net margin 8.9 9.7 10.1 11.5 10.5 10.8 2.6 0.8 0.7 Note: Based on non-consolidated K-IFRS Sources: Company data, KDB Daewoo Securities Research

Table 3. Quarterly earnings forecasts (Wbn, %, %p) 2011 2012F 3Q12 Growth 2011 2012F 2013F 1Q 2Q 3Q 4Q 1Q 2Q 3QP 4QF QoQ YoY Revenues 116 128 169 134 139 154 199 156 29.2 17.8 548 648 680 Operating profit 14 18 34 5 19 24 55 9 128.9 63.2 71 107 96 Pretax profit 12 16 29 -2 15 21 53 78 150.4 81.4 55 98 95 Net profit 9 9 22 -1 12 16 40 6 150.3 82.8 39 75 71 OP margin 11.9 14.2 20.0 3.6 13.4 15.6 27.7 5.9 12.1 7.7 12.9 16.5 14.1 NP margin 7.9 6.8 13.0 -1.0 8.7 10.5 20.3 3.9 9.8 7.3 7.0 11.5 10.5 Note: Based on non-consolidated K-IFRS Sources: KDB Daewoo Securities Research

2 Fixed Income October 31, 2012

Daewoo Securities Co., Ltd. Yeo-sam Yoon Fixed Income Monthly Sr. Fixed Income Strategist Haste makes waste +82-2-768-4124 [email protected]

Too early to sell bonds

The 3-year KTB yield has broken above 2.8% following a rate cut in October. This

rise in yields is attributable to the growing perception that the economy bottomed in

3Q, which would suggest that further rate cuts are unlikely. But we believe that the 3-year KTB yield will not reach 3% anytime soon because KoreaÊs economy still

lacks momentum despite some signs of improvement. Moreover, contrary to the forecasts of some market participants, we think that the current FRA interest rate implies that there will be another rate cut within six months. Thus, in our view, it is

not a good idea to unwind bond holdings now betting yields will trend up.

There are still many potential events that could dim the outlook for the global economy. Until we have more clarity over the direction of SpainÊs bailout plans and the fiscal cliff in the US, investors may be well advised to refrain from hastily unloading bonds.

It is different this time

Historically, bond yields have risen sharply following the end of a monetary easing cycle. But now, yields are unlikely to jump simply because the Bank of KoreaÊs (BoK) easing cycle is over. This is because economic momentum remains fundamentally weak, compared with when the central bank weaned the economy off monetary easing in the past. It is hard to expect yields to show a structural upside even if the BoK quits its easing cycle unless the change in monetary policy is followed by a strong economic recovery.

Start to unload in 1Q13

The upside of yields should be limited until the outlook for the economy brightens again, in around 1Q13. Until year-end, we expect the 3-year KTB yield to move between 2.70% and 2.95%. We advise investors to sell bonds if the 3-year KTB yield falls below the base rate in 4Q, or to buy if the yield rises above 2.85%.

Market Data November 1, 2012

※All data as of close October 31, 2012, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 395.03 3.17 0.81 10.28 USD/KRW 1,094.10 1,095.90 1,118.60 1,104.50 KOSPI 1,912.06 12.48 0.66 4.69 JPY100/KRW 1,374.50 1,373.91 1,441.12 1,457.99 KOSDAQ 508.31 6.00 1.19 0.30 EUR/KRW 1,418.34 1,413.98 1,444.28 1,562.65 Dow Jones* 13,107.21 0.00 0.00 7.28 3Y Treasury 2.77 2.78 2.79 3.51 S&P 500* 1,411.94 -1.03 -0.07 10.56 3Y Corporate 3.29 3.30 3.30 4.35 NASDAQ* 2,987.95 1.83 0.06 12.81 DDR2 1Gb* 1.21 1.21 1.19 1.11 Philadelphia Semicon(Oct.26) 367.28 1.80 0.49 -0.36 NAND 16Gb* 1.97 1.97 1.86 2.98 FTSE 100* 5,849.90 54.80 0.95 2.63 Oil (Dubai)* 106.84 107.71 110.84 107.79 Nikkei 225 8,928.29 86.31 0.98 4.30 Gold* 1,712.10 1,707.70 1,771.10 1,747.20 Hang Seng* 21,428.58 -82.47 -0.38 13.51 Customer deposits (Wbn)* 17,636 18,324 18,735 20,358 Taiwan (Weighted) 7,166.05 -16.54 -0.23 3.08 Equity type BC (Wbn)(Oct. 29) 95,490 95,456 96,323 104,121 Note: * as of October 30, 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 LG Chem 25.57 Samsung Electronics 37.88 Samsung Electronics 74.37 Samsung Corp. 51.31 Hyundai Motor 21.50 Binggrae 10.42 Hynix 30.42 Samsung SDI 21.55 S-Oil 12.32 Hana Financial Group 8.65 LG Electronics 24.08 Hyundai Motor 18.71 Kia Motors 8.22 KEPCO 7.41 LG Corp. 18.90 Kia Motors 13.20 LG Electronics 8.20 NHN 7.34 Hana Financial Group 15.64 Hyundai Mipo Dockyard 7.10 Cheil Industries 5.44 KT 6.68 KODEX LEVERAGE 14.82 GS Construction 6.54 Samsung Corp. 5.09 KODEX 200 6.00 NHN 12.25 Woori Finance Group 5.35 Samsung SDI 5.02 SK Corp. 5.99 LG Display 11.56 IS DONGSEO 3.96 Hyundai Mipo Dockyard 4.45 SK Telecom 5.94 KT 10.50 S-Oil 3.53 Hyundai Eng. & Cosnt. 4.04 LG Corp. 5.71 Hyundai Eng. & Cosnt. 10.09 LG Chem 3.46 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 Daum Communications 5.15 YG Entertainment 1.67 CJ E&M 4.10 SM 3.39 CTC Bio 3.03 Sung Woo HiTech 1.37 Com2us 3.69 Dragonfly 2.68 OSSTEM IMPLANT 2.12 Partrion 1.22 Gamevil 3.60 Seoul Semiconductor 2.38 Celltrion 1.72 HTP 1.21 HY-LOK Corp. 1.71 Medy-tox 1.41 SM 1.20 Openbase 1.08 ELK 1.61 Paradise 1.11 S Connect 0.92 Com2us 0.83 SEEGENE 1.55 BHI 0.92 Digital Innovation Display 0.84 Megastudy 0.72 NEPES 1.50 Wemade 0.91 Intops 0.73 Sung Kwang Bend 0.71 Sung Kwang Bend 1.37 KCP 0.73 ATLASBX 0.59 ELK 0.69 Interpark 1.25 TERA SEMICON 0.71 Melfas 0.44 Interpark 0.64 Bioland 1.16 WINNOVA 0.68 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 1,310,000 12,000 192,962 Celltrion 26,850 600 4,689 Hyundai Motor 224,500 -500 49,452 Paradise 18,250 -350 1,660 POSCO 343,500 1,000 29,949 CJ O Shopping 243,200 1,500 1,509 Hyundai Mobis 278,000 4,500 27,062 Daum Communications 93,700 1,800 1,265 Kia Motors 60,600 -600 24,565 SM 61,800 -1,200 1,262 LG Chem 306,000 12,000 20,279 Seoul Semiconductor 20,650 -150 1,204 Samsung Life Insurance 94,000 100 18,800 SK Broadband 3,990 25 1,181 KEPCO 28,300 -200 18,168 CJ E&M 29,350 1,950 1,113 Samsung Electronics (P) 792,000 -4,000 18,084 SEEGENE 78,200 1,700 1,024 Shinhan Financial Group 37,450 300 17,759 Dongsuh 33,150 -350 988 Source: Korea Exchange