[Korea] Conglomerates

Lotte Corp. Buy (004990 KS) (Maintain)

Key investment points TP: W40,000 ▼ Upside: 27.6%

Mirae Asset Co., Ltd. Dae-ro Jeong [email protected]

Recent developments Acquisition of additional subsidiary stakes; inheritance tax report due by end of July  Lotte Corp. recently acquired additional stakes in Lotte Foods (002270 KS/CP: W333,000; 23.1%  36.4%) and (44.6%  46.0%).  Individual inheritance taxes on the assets of the late honorary chairman Kyuk-ho must be filed by the end of this month.  Regardless of the inheritance outcome, we believe Chairman Shin Dong-bin will maintain stable control over the group; we see limited risks of a battle for control.

Investment points Consolidated earnings to recover in 2021; unlisted subsidiaries may be headed for IPOs  We expect operating earnings of key subsidiaries—including Lotte Shopping (023530 KS/Trading Buy/TP: W105,000/CP: W78,000) and Lotte Chemical (011170 KS/Buy/TP: W240,000/CP: W171,500)—to recover in 2021 after bottoming in 2H20.  We believe Lotte Corp.’s unlisted subsidiaries, such as Lotte Global Logistics and Korea Seven, will pursue IPOs.  Lotte Group is likely to resume its push to list Lotte and subsequently merge the company with Lotte Corp., thereby completing its ownership structure overhaul.

Investment recommendation Maintain Buy, but cut TP to W40,000 and valuation  We cut our target price on Lotte Corp. to W40,000 (from W52,000) due to a drop in the value of the company’s stakes in affiliates (including Lotte Shopping).  The stock is currently trading at a 43.6% discount to its NAV.  The company is likely to gradually retire its treasury shares (32.5% based on common shares). If all of the company’s treasury shares are cancelled, we estimate NAV per share would increase 21.6%.

Key data Current price (7/28/20, W) 31,350 Market cap (Wbn) 3,289 120 KOSPI OP (20F, Wbn) 180 Shares outstanding (mn) 106 100 Consensus OP (20F, Wbn) 151 Free float (%) 24.9 80 EPS growth (20F, %) - Foreign ownership (%) 11.4

60 P/E (20F, x) 17.0 Beta (12M) 1.37

40 Market P/E (20F, x) 15.4 52-week low (W) 20,350 7.19 11.19 3.20 7.20 KOSPI 2,256.99 52-week high (W) 40,100

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020F 2021F 2022F Absolute -3.2 -17.3 -13.9 Revenue (Wbn) 1,869 7,271 8,856 9,028 9,365 9,509 Relative -8.5 -20.2 -21.2 OP (Wbn) -7 98 175 180 220 228 OP margin (%) -0.4 1.3 2.0 2.0 2.3 2.4 NP (Wbn) 469 185 -360 196 486 522 EPS (W) 10,602 1,746 -3,395 1,848 4,591 4,926 ROE (%) 11.0 2.8 -5.2 2.9 6.8 6.9 P/E (x) 6.1 30.2 - 17.0 6.8 6.4 P/B (x) 0.7 0.6 0.5 0.4 0.4 0.3 Dividend yield (%) 0.0 1.5 2.8 2.6 2.6 2.6 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. July 29, 2020 LOTTE Corporation

Figure 1. Lotte Group’s corporate structure

Lotte Holdings Shin Dong-bin & () affiliates

100%

L inv estment 20.7% company

72.7% 2.3%

11.1% Lotte Corp. Hotel Lotte 19.1% [004990 KS]

38.2% 31.1% 42.0% 39.4% 30.0%

Lotte Lotte Property Lotte Lotte Rental Aluminium & Dev elopment Accelerator

24.0% 41.4% 46.0% 65.0% 40.0% 48.4% 26.5% 36.4% 79.7% 54.4% 68.7%

Lotte Daehong Lotte Chemical Lotte Global Lotte Data Lotte Lotte Foods Korea Sev en Lotte GRS Lotte Trading Communication Shopping Confectionery Comm. [011170 KS] Logistics [005300 KS] [002270 KS] [286940 KS] [023530 KS] [280360 KS] Lotte 93.9% 43.8% 31.1% 65.3% 53.0% 86.4% 50.0% Members

Lotte Fine Lotte Himart Woori Home Lotte Culture Lotte REIT Lotte Asset Lotte Station Lotte E&C chemical Lotte AMC [071840 KS] shopping Works [330590 KS] Dev elopment Building 43.1% [004000 KS] 100% 60.5% 44.5%

Source: DART, Mirae Asset Daewoo Research

Figure 2. Lotte Group’s Japanese corporate structure

Shin Dong-bin: 4.0% Shin Dong-joo: 50.0%+1 Seo Mi-ky ung & Shin Yu-mi (Kyung-yu Corp.): 3.2% Shin Dong-bin: 38.8% Shin Young-ja (Clear Sky): 3.0% Shigemitsu Hatsuko: 10.0% Shin Dong-joo: 1.6% Shin Ky uk-ho: 0.8% Shin Ky uk-ho: 0.4% Lotte Green Lotte Foundation: 0.4% Lotte Foundation: 0.2% Serv ice Family Family & Holdings under Kojunsha ESOP Executives foundations other names Midori 28.1% 13.5% 27.8% (31.1%) 6.0% (6.7%) 13.9% (15.6%) (31.5%) (15.1%) Other

47.7% (v oting shares: 53.4%) (Japan) 10.7% (non-v oting shares)

100% 31.0% L2 inv estment Lotte Strategic Company Inv estment 19.8% 100% 100%

L3 inv estment company L1 inv estment company L7 inv estment company

L4 inv estment company L8 inv estment company L9 inv estment company

L5 inv estment company L10 inv estment company L11 inv estment company L6 inv estment company L12 inv estment company

19.1%

25.5% 46.1% Hotel Lotte 5.5%

Source: DART, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2 July 29, 2020 LOTTE Corporation

Table 1. Inheritance of late honorary chairman Shin Kyuk-ho’s holdings (Wbn) Stakes Shin Dong-bin Shin Dong-joo Shin Young-ja Company No. of Stak Share No. of Stake No. of Stake No. of Stake Value Tax (est.) Tax (est.) Tax (est.) shares e (%) price (W) shares (%) shares (%) shares (%) Lotte Corp. 3,245,425 3.1 31,350 101.7 Lotte Corp. (preferred) 139,847 14.2 68,400 9.6 Lotte Shopping 262,438 0.9 78,000 20.5 287,408 4.5 105,500 30.3 Inheritance taxes must be filed by end-July. Lotte Chilsung 104,080 1.3 100,000 10.4 Lotte Chilsung 109,780 14.2 63,900 7.0 (preferred) Lotte Property & 4,085,850 6.9 50,579 206.7 1,021,462 1.7 30.5 1,021,462 1.7 30.5 2,04 2,926 3.4 61.5 Development Total 386.2 Notes: Based on Jul. 28 closing prices Source: DART, Mirae Asset Daewoo Research

Table 2. Lotte Group controlling family’s shareholdings (Wbn, %) Breakdown Title Company No. of shares Stake (%) Value (%) (%) Shin Dong-bin Lotte Corp. 12,330,941 11.8 387 49.3 (1955) Lotte Shopping 2,783,700 9.8 217 27.7 Lotte Chemical 90,705 0.3 16 2.0 Lotte Foods 22,232 2.0 7 0.9 Lotte Chilsung (preferred) 18,120 2.3 1 0.1 Lotte Property & Development 1,026,758 1.7 58 7.4 Korea Seven 3,242,835 8.8 34 4.3 Lotte Group Lotte Station Building 314,400 8.7 27 3.5 chairman Lotte E&C 188,660 0.6 20 2.6 Lotte Capital 284,704 0.9 5 0.6 Lotte Accelerator 1,000,000 20.0 5 0.6 Lotte Trading 16,549 8.0 4 0.6 Fujifilm 2,051 9.8 2 0.3 Lotte Members 6,687 0.3 0 0.0 Total 784 100.0 Shin Dong-joo Lotte Corp. 171,673 0.2 5 9.6 (1954) Lotte Shopping 133,953 0.5 10 18.6 SDJ Lotte Station Building 314,400 8.7 27 49.0 chairman Lotte E&C 120,557 0.4 13 22.8 Lotte Members 1,534 0.1 0 0.0 Total 56 100.0 Shin Young-ja Lotte Corp. 2,352,422 2.2 74 47.0 (1942) Lotte Shopping 210,174 0.7 16 10.5 Lotte Confectionery 106,228 1.7 11 7.1 Lotte Chilsung 212,380 2.7 21 13.5 Lotte Chilsung (preferred) 11,620 1.5 1 0.5 Director of Lotte Foods 12,374 1.1 4 2.6 Lotte Daehong Comm. 261 6.2 10 6.1 Samdong Korea Seven 894,144 2.4 9 6.0 Welfare Foundation Lotte E&C 46,014 0.1 5 3.1 Lotte Capital 177,936 0.5 3 2.0 Fujifilm 736 3.5 1 0.6 Lotte Aluminium 1,315 0.1 1 0.5 Lotte Trading 2,753 1.3 1 0.5 Lotte Members 4,194 0.2 0 0.0 Total 157 100.0 Source: DART, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 3 July 29, 2020 LOTTE Corporation

Table 3. Lotte Corp.’s major shareholders (Wbn) No. of shares Stake (%) Value Voting rights (%) Hotel Lotte 11,644,662 11.1 365.1 16.4 Lotte Aluminium 5,313,478 5.1 166.6 7.5 Lotte Holdings 2,613,965 2.5 81.9 3.7 L2 investment company 1,548,547 1.5 48.5 2.2 Hotel Lotte 989,749 0.9 31.0 1.4 L12 investment company 823,865 0.8 25.8 1.2 Subtotal (1) 22,934,266 21.9 719.0 32.4 Shin Dong-bin 12,330,941 11.8 386.6 17.4 Shin Kyuk-ho 3,245,425 3.1 101.7 4.6 Shin Young-ja 2,352,422 2.2 73.7 3.3 Shin Dong-joo 171,673 0.2 5.4 0.2 Jang Jeong-an 77,037 0.1 2.4 0.1 Shin Yu-mi 42,254 0.0 1.3 0.1 Jang Sun-yoon 801 0.0 0.0 0.0 Lotte Scholarship Foundation 3,394,589 3.2 106.4 4.8 Lotte Foundation for Arts 90,869 0.1 2.8 0.1 Lotte Samdong Welfare Foundation 54,807 0.1 1.7 0.1 Subtotal (2) 21,760,818 20.7 682.2 30.7 (1) + (2) 44,695,084 42.6 1,401.2 63.1 Treasury shares 34,103,935 32.5 1,069.2 - Total 104,909,237 100.0 3,288.9 100.0 Note: Based on Jul. 28 closing prices Source: DART, Mirae Asset Daewoo Research

Figure 3. Lotte Corp.’s share performance

(W) 12/22/17 11/27/18 4/28/20 80,000 Shin Dong-bin sentenced to probation, Sale process for /Lotte Insurance begins Shin Dong-joo submits leading to eased uncertainties (first trial) Merger decision for Lotte Global Logistics and Lotte request for dismissal of 7/23/20 4/27/18 Logistics Lotte Group chairman 70,000 Shin Dong-joo Tender offers for shares of Shin Dong-bin files lawsuit for subsidiaries and rights issue worth 10/17/19 dismissal of 60,000 nearly W311bn 8/6/19 "Boycott Japan" movement The Supreme Court upholds Shin Dong-bin suspended prison sentence from Lotte 2/13/18 begins to gain steam 50,000 for Shin Dong-bin Holdings BOD Shin Dong-bin sentenced to 30 months in prison for charges including bribery 10/5/18 40,000 A court replaces earlier prison sentence with probation (second trial) 30,000 8/29/18 Prosecutors seek 14 years in prison for 9/23/19 1/19/20 3/20/20 Shin Dong-bin purchases 20,000 Shin Dong-bin (second trial) Lotte Corp. divests its 24.6% stake Shin Kyuk-ho in Lotte Capital for roughly W333bn passes away additional 0.05% stake in Lotte Corp. 10,000 12/1/17 3/1/18 6/1/18 9/1/18 12/1/18 3/1/19 6/1/19 9/1/19 12/1/19 3/1/20 6/1/20

Source: WISEfn, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 July 29, 2020 LOTTE Corporation

Table 4. Lotte Corp.’s quarterly and annual earnings (Wbn, %) 2019 2020F 2Q20F growth

1Q 2Q 3Q 4Q Annual 1Q 2QF 3QF 4QF Annual QoQ YoY Revenue Cost of revenue 1,438 1,583 1,631 1,611 6,264 1,423 1,640 1,671 1,663 6,397 15.3 3.6 Gross profit 596 671 682 644 2,592 572 695 698 665 2,631 21.5 3.6 SG&A expenses 581 617 610 611 2,418 563 638 632 618 2,451 13.2 3.5 OP 15 55 72 33 175 9 58 66 46 180 528.8 5.6 Financial income 37 46 27 25 135 52 43 43 43 181 -16.2 -5.8 Financial costs 60 60 67 22 209 92 60 40 40 233 -35.1 -0.2 Other income 16 37 98 62 214 20 27 52 54 154 34.1 -27.8 Other expenses 93 36 91 585 804 20 24 18 21 84 19.2 -33.0 Gains/losses on equity investments in affiliates 153 52 122 -384 -58 -47 45 42 63 104 TTB -12.8 Net profit/loss before taxes 69 94 161 -870 -546 -78 89 145 145 302 TTB -5.0 Income taxes 2 14 -13 -44 -41 -16 -7 43 74 94 RR TTR NP from continuing operations 67 80 174 -826 -505 -62 96 103 71 208 TTB 20.2 NP from discontinued operations 52 59 1 -18 94 0 0 0 0 0 - - NP 119 138 175 -844 -412 -62 96 103 71 208 TTB -30.7 NP attributable to owners of the parent 125 110 165 -759 -360 -57 92 97 64 196 TTB -16.8 Source: DART, Mirae Asset Daewoo Research

Table 5. Quarterly and annual earnings of major subsidiaries (Wbn, %) 2019 2020F 2Q20F growth

1Q 2Q 3Q 4Q Annual 1Q 2QF 3QF 4QF Annual QoQ YoY Lotte Revenue 492 546 540 515 2,093 502 587 581 582 2,252 17.0 7.6 Confectionery (48.4%) OP 15 27 39 16 97 18 31 44 17 110 68.4 13.0 OP margin 3.1 5.0 7.1 3.2 4.7 3.7 5.3 7.5 2.9 4.9 1.6 0.3 NP 8 15 25 -11 38 0 17 29 -3 44 TTB 15.3 Korea Seven Revenue 918 1,021 1,085 1,033 4,058 936 1,046 1,073 1,001 4,055 11.8 2.4 (79.7%) OP 3 20 17 2 42 -9 20 20 16 47 -333.9 3.5 OP margin 0.4 1.9 1.6 0.2 1.0 -0.9 1.9 1.8 1.6 1.2 2.9 0.0 NP 1 11 11 -9 14 -10 12 12 1 15 -219.6 11.0 Lotte Shopping Revenue 4,447 4,456 4,405 4,314 17,622 4,077 4,183 4,356 4,289 16,905 2.6 -6.1 (40.0%) OP 205 92 88 44 428 52 29 115 147 343 -44.6 -68.4 OP margin 4.6 2.1 2.0 1.0 2.4 1.3 0.7 2.6 3.4 2.0 -0.6 -1.4 NP 89 51 -41 -1,008 -910 -68 -30 22 69 -7 RR TTR Lotte Chilsung Revenue 575 677 657 520 2,430 507 632 670 559 2,368 24.6 -6.7 (26.5%) OP 19 46 49 -7 108 6 36 51 3 96 469.1 -23.1 OP margin 3.3 6.8 7.5 -1.3 4.4 1.2 5.6 7.6 0.6 4.0 4.4 -1.2 NP 2 -45 29 -130 -142 -3 19 28 -11 33 TTB TTB Lotte Foods Revenue 425 466 478 419 1,788 409 466 481 423 1,779 14.0 0.0 (36.4%) OP 9 19 21 1 49 10 21 23 2 57 112.3 13.7 OP margin 2.0 4.0 4.4 0.3 2.8 2.4 4.5 4.9 0.6 3.2 2.1 0.5 NP 7 15 15 1 38 7 8 16 1 32 20.1 -43.6 Lotte Chemical Revenue 3,722 4,035 3,940 3,427 15,123 3,276 2,756 3,099 3,172 12,302 -15.9 -31.7 (24.0%) OP 296 346 315 151 1,107 -86 102 184 197 396 TTB -70.6 OP margin 7.9 8.6 8.0 4.4 7.3 -2.6 3.7 5.9 6.2 3.2 6.3 -4.9 NP 217 260 204 33 715 -78 79 138 148 287 TTB -69.8 Lotte Global Revenue 540 734 721 703 2,698 677 773 808 803 3,061 14.2 5.2 Logistics (46.0%) OP 2 11 8 -2 19 6 14 12 12 43 136.3 28.3 OP margin 0.3 1.5 1.1 -0.3 0.7 0.9 1.8 1.4 1.5 1.4 0.9 0.3 NP -4 1 -1 0 -4 0 3 5 4 12 TTB 315.9 Source: DART, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 5 July 29, 2020 LOTTE Corporation

Table 6. Valuation (Wbn, W, %) Value Notes Operating value (1) 1,153 In-house businesses 0 Pure holding company Based on royalty rate of 15bps; applied 10.0x after reflecting Brand royalty income 941 costs Real estate 211 Value of investment assets (2) 4,956 Listed subsidiaries 3,314 Based on market value Unlisted subsidiaries 1,642 Based on book value and fair value Total asset value (3)=(1)+(2) 6,109 Net borrowings (4) 1,246 As of end-1Q 2020 (unconsolidated) Treasury stock (5) 1,088 Common shares 32.5%; preferred shares 28.4% NAV (6)=(3)-(4)+(5) 5,951 Market cap 3,356 As of Jul. 28 Discount to NAV 43.6% No. of shares (‘000 shares) 105,897 Common and preferred NAV per share 56,192 Theoretical target price 39,334 30% discount to per-share NAV Target price 40,000 Current price 31,350 Based on Jul. 28 closing price Upside potential 27.6 Source: Mirae Asset Daewoo Research

Table 7. Value of investment securities (%, Wbn, W) No. of Book Current Stake Value Notes shares value price Listed subsidiaries 3,314 Lotte Shopping 11,315,503 40.0% 2,492 78,000 883 Lotte Confectionery 3,106,984 48.4% 547 105,500 328 Lotte Chilsung 2,121,660 26.5% 347 100,000 212 Lotte Chilsung (preferred) 64,890 8.4% 6 63,900 4 Market value Lotte Foods 411,635 36.4% 201 333,000 137 Lotte Chemical 8,235,201 24.0% 2,228 171,500 1,412 Lotte Data 10,000,000 65.0% 349 33,800 338 Communication Unlisted subsidiaries 1,408 1,642 Based on most recent Korea Seven 29,497,655 79.7% 269 10,486 309 transaction (12/30/19) Based on most recent Lotte Global Logistics 15,731,750 46.0% 278 27,437 432 transaction (6/26/20) Lotte GRS 137,267 54.4% 34 - 73 15x 2020F net profit Other 24,372,719 60.5% 828 - 828 Book value Note: Based on Jul. 28 closing prices Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 July 29, 2020 LOTTE Corporation

Figure 4. Lotte Corp.’s NAV discount trend

(% ) 60

50

40

30

20

10

0 1/18 7/18 1/19 7/19 1/20 7/20

Source: WISEfn, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 7 July 29, 2020 LOTTE Corporation

Lotte Corp. (004990 KS)

Income statement (summarized) Balance sheet (summarized) (Wbn) 2019 2020F 2021F 2022F (Wbn) 2019 2020F 2021F 2022F Revenue 8,856 9,028 9,365 9,509 Current assets 3,127 3,380 3,622 3,817 Cost of revenue 6,264 6,397 6,637 6,738 Cash & equivalents 724 782 931 1,066 Gross profit 2,592 2,631 2,728 2,771 AR & other receivables 934 964 1,004 1,029 SG&A expenses 2,418 2,451 2,508 2,542 Inventory 478 493 513 526 OP (adj.) 175 180 220 228 Other current assets 991 1,141 1,174 1,196 OP 175 180 220 228 Non-current assets 12,479 13,175 13,531 13,856 Non-operating profit -721 122 438 469 Investments in associates 6,701 7,660 7,971 8,175 Net financial income -138 -35 -92 -91 PP&E 2,390 2,065 2,162 2,336 Net income from associates -58 104 396 426 Intangible assets 851 772 690 617 Pretax profit -546 302 658 697 Total assets 15,606 16,555 17,154 17,673 Income tax -41 94 151 152 Current liabilities 3,787 4,242 4,351 4,358 Profit from continuing operations -505 208 507 544 AP & other payables 1,183 1,226 1,275 1,308 Profit from discontinued operations 94 0 0 0 Short-term financial liabilities 1,609 1,893 1,906 1,850 NP -412 208 507 544 Other current liabilities 995 1,123 1,170 1,200 Attributable to owners -360 196 486 522 Non-current liabilities 4,026 4,331 4,370 4,395 Attributable to minority interests -52 12 21 23 Long-term financial liabilities 3,184 3,378 3,378 3,378 Total comprehensive income -409 225 507 544 Other non-current liabilities 842 953 992 1,017 Attributable to owners -343 203 457 491 Total liabilities 7,813 8,573 8,721 8,753 Attributable to minority interests -66 22 50 54 Equity attributable to owners 6,700 6,887 7,317 7,781 EBITDA 785 735 706 727 Capital stock 21 21 21 21 FCF 391 915 289 184 Capital surplus 4,246 4,246 4,246 4,246 EBITDA margin (%) 8.9 8.1 7.5 7.6 Retained earnings 4,907 5,027 5,456 5,921 OP margin (%) 2.0 2.0 2.3 2.4 Minority interests 1,093 1,095 1,116 1,139 Net margin (%) -4.1 2.2 5.2 5.5 Shareholders' equity 7,793 7,982 8,433 8,920

Cash flow statement (summarized) Key valuation metrics/ratios (Wbn) 2019 2020F 2021F 2022F 2019 2020F 2021F 2022F Operating cash flow 654 995 789 784 P/E (x) - 17.0 6.8 6.4 NP -412 208 507 544 P/CF (x) 6.5 4.1 4.0 3.9 Non-cash income/expenses 1,043 610 332 317 P/B (x) 0.5 0.4 0.4 0.3 Depreciation 541 464 404 426 EV/EBITDA (x) 11.0 10.9 11.1 10.5 Amortization 69 92 82 73 EPS (W) -3,395 1,848 4,591 4,926 Other 433 54 -154 -182 CFPS (W) 5,958 7,726 7,926 8,130 Chg. in working capital -579 272 75 49 BPS (W) 81,652 83,417 87,473 91,864 Chg. in AR & other receivables -9 -14 -30 -20 DPS (W) 1,100 800 800 800 Chg. in inventory -89 -26 -20 -13 Dividend payout ratio (%) -18.9 27.3 11.2 10.4 Chg. in AP & other payables -36 8 32 21 Dividend yield (%) 2.8 2.6 2.6 2.6 Income tax -162 -117 -151 -152 Revenue growth (%) 21.8 1.9 3.7 1.5 Cash flow from investing activities 848 -223 -422 -500 EBITDA growth (%) 91.0 -6.4 -3.9 3.0 Chg. in PP&E -257 -67 -500 -600 OP growth (%) 78.6 2.9 22.2 3.6 Chg. in intangible assets -39 -11 0 0 EPS growth (%) - - 148.4 7.3 Chg. in financial assets -199 -270 -64 -42 AR turnover (x) 12.3 12.4 12.4 12.2 Other 1,343 125 142 142 Inventory turnover (x) 19.7 18.6 18.6 18.3 Cash flow from financing activities -2,164 202 -304 -373 AP turnover (x) 8.0 8.3 8.3 8.2 Chg. in financial liabilities -393 477 14 -56 ROA (%) -1.9 1.3 3.0 3.1 Chg. in equity -3 0 0 0 ROE (%) -5.2 2.9 6.8 6.9 Dividends -93 0 -57 -57 ROIC (%) 3.7 6.5 7.0 6.9 Other -1,675 -275 -261 -260 Debt-to-equity ratio (%) 100.3 107.4 103.4 98.1 Chg. in cash 5 59 149 134 Current ratio (%) 82.6 79.7 83.2 87.6 Beginning balance 718 724 782 931 Net debt-to-equity ratio (%) 43.2 44.5 40.1 35.6 Ending balance 724 782 931 1,066 Interest coverage ratio (x) 1.0 1.0 0.8 0.9 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 8 July 29, 2020 LOTTE Corporation

Appendix 1

Important disclosures and disclaimers Two-year rating and TP history

Company Date Rating TP (W) (W) LOTTE Corporation Lotte Corp. (004990) 07/29/20 Buy 40,000 80,000 09/18/19 Buy 52,000 60,000

40,000

20,000

0 Jul 18 Jul 19 Jul 20

Stock ratings Sector ratings Buy Expected 12-month performance: +20% or greater Overweight Expected to outperform the market over 12 months Trading Buy Expected 12-month performance: +10% to +20% Neutral Expected to perform in line with the market over 12 months Hold Expected 12-month performance: -10% to +10% Underweight Expected to underperform the market over 12 months Sell Expected 12-month performance: -10% or worse

Rating and TP history: Share price (─), TP (▬), Not Rated (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆) * Our investment rating is a guide to the expected return of the stock over the next 12 months. * Outside of the official ratings of Mirae Asset Daewoo Co., Ltd., analysts may call trading opportunities should technical or short-term material developments arise. * The TP was determined by the research analyst through valuation methods discussed in this report, in part based on estimates of future earnings. * TP achievement may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Ratings distribution and investment banking services Buy Trading Buy Hold Sell Ratings distribution 76.22% 11.59% 11.59% 0.60% Investment banking services 75.00% 10.00% 15.00% 0% * Based on recommendations in the last 12 months (as of June 30, 2020)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

Analyst certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director, or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading, and private client divisions. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the . Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws, and accounting principles, and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person, and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents

Mirae Asset Daewoo Research 9 July 29, 2020 LOTTE Corporation

do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views, and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making, or other as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. For further information regarding company-specific information as it pertains to the representations and disclosures in this Appendix 1, please contact [email protected] or +1 (212) 407-1000.

Distribution : This report is being distributed by (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All other jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

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Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. () Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. One-Asia Equity Sales Team Units 8501, 8507-8508, 85/F 41st Floor, Tower 42 Mirae Asset Center 1 Building International Commerce Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 1 Austin Road West London EC2N 1HQ Korea Kowloon United Kingdom Hong Kong Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor 555 S. Flower Street, Suite 4410, Rua Funchal, 418, 18th Floor, E-Tower Building New York, NY 10019 Los Angeles, California 90071 Vila Olimpia USA USA Sao Paulo - SP 04551-060 Brazil Tel: 1-212-407-1000 Tel: 1-213-262-3807 Tel: 55-11-2789-2100

PT. Mirae Asset Sekuritas Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities () LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52-53 Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City Jakarta Selatan 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China

Tel: 976-7011-0806 Tel: 86-10-6567-9699 Tel: 86-10-6567-9699 (ext. 3300) Shanghai Representative Office Ho Chi Minh Representative Office 38T31, 38F, Shanghai World Financial Center 7F, Saigon Royal Building 100 Century Avenue, Pudong New Area 91 Pasteur St. Shanghai 200120 District 1, Ben Nghe Ward, Ho Chi Minh City China Vietnam

Tel: 86-21-5013-6392 Tel: 84-8-3910-7715

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