08 October 2015 Asia Pacific/ Equity Research Strategy

Korea Market Strategy Research Analysts STRATEGY

Gil Kim 82 2 3707 3763 [email protected] Takeaways from Corp Day Jennifer Yu 82 2 3707 3738 Figure 1: Average number of meetings per company by sector [email protected] 14 Korea Analysts Keon Han (Technology) 12 82 2 3707 9740 [email protected] 10

Minseok Sinn (Construction/Steel) 8 82 2 3707 8898 [email protected] 6

Kenneth Whee (Oil Refining/Petrochemicals) 4 852 2101 7319 [email protected] 2

Michael Sohn (Auto/Auto Parts/Tires) 82 2 3707 3739 0 Cons. Cons. Disc. Auto & auto Health Care Industrials IT Financials Energy Materials [email protected] Staples parts

A-Hyung Cho (Retail/Consumer/Utilities) Source: Credit Suisse 82 2 3707 3735 [email protected] ■ Busan corporate day. Credit Suisse hosted Busan Corporate Day on 5-6

Eric Yoo October, 2015. 168 meetings were scheduled, presented by 25 companies. 82 2 3707 3761 Credit Suisse also held group lunch with key speakers from KRX and [email protected] Showbox and side tours to Hyundai Motor’s Ulsan Plant and shopping

Ray Kim complex by /Hansem in Busan City. Among the companies 82 2 3707 3776 presented, Consumer Staples and Discretionary sectors saw the most [email protected] demand for investor meetings. Among those sectors, CJ CGV, Shinsegae,

Jung Il Lee and Orion held the most of number of meetings. We believe the growth 82 2 3707 3796 opportunity from China exposures and domestic consumption remain as a [email protected] key area of interest by investors. ■ Evolving Korean movie content industry. Busan International Film Festival, one of the major events in the movie industry, was also taking place. We learn that Korea’s movie industry offers upside potential. The CEO of Showbox, Mr. You Junghoon, as a keynote speaker for the group luncheon, expressed that recent success of the Korean movie industry was driven by the business model shift to quality based on greater variety of themes. The CEO also shared the news that recent agreements with its US and Chinese partners would support the overseas success of Korean movie players. ■ The largest shopping complex in the world. We invited investors to visit the Shinsegae’s Centum City, the largest shopping complex located in Busan City. The number of visitors and ticket price at the Centum City mall could have more upside, according to the company, thanks to strong VIP loyalty and aggressive store expansion plans in the affluent Haeundae area. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

08 October 2015 Focus table

Figure 2: Valuation comparison of companies attended Company Ticker Sector Rating Market Cap Price (KRW) Upside EPS (KRW) EPS Growth (%) P/E (x) ROE (%) P/B (x) As of 7 October 2015 (KRW bn) Local Target to TP (%) 15E 16E 15E 16E 15E 16E 15E 15E SK Innovation 096770.KS Energy O 10,541 114,000 141,000 23.7 14,219 11,694 n.m -17.8 8.0 9.7 8.4 0.6 S-Oil 010950.KS Energy O 7,926 70,400 100,000 42.0 8,506 6,588 n.m -22.6 8.3 10.7 17.9 1.4 Fine Chemicals 004000.KS Materials Not Rated 970 37,600 N/A N/A 2,588 2,098 9.2 -18.9 14.5 17.9 5.6 0.79 Huchems Fine Chemical 069260.KS Materials Not Rated 805 19,700 N/A N/A 1,217 1,375 22.6 13.0 16.2 14.3 10.3 1.55 Songwon Industrial 004430.KS Materials Not Rated 272 11,350 N/A N/A 1,071 1,621 n.m 51.4 10.6 7.0 8.6 0.88 Hyundai Development 012630.KS Industrials O 4,440 58,900 87,000 47.7 3,218 4,538 244.0 41.0 18.3 13.0 10.3 1.9 S-1 012750.KS Industrials N 3,618 95,200 84,000 -11.8 3,770 4,436 20.8 17.7 25.3 21.5 14.7 3.5 Doosan Infracore 042670.KS Industrials Not Rated 1,380 6,650 N/A N/A 89 669 -55.9 651.7 74.7 9.9 0.7 0.49 Hyundai Motor 005380.KS Cons. Disc. N 35,354 160,500 150,000 -6.5 23,372 24,155 -9.2 3.3 6.9 6.6 11.0 0.7 Motors 000270.KS Cons. Disc. O 20,876 51,500 61,000 18.4 6,981 7,912 -5.5 13.3 7.4 6.5 12.0 0.8 002350.KS Cons. Disc. O 1,359 14,100 16,300 15.6 1,337 1,401 6.5 4.8 10.5 10.1 13.9 1.4 Mando 204320.KS Cons. Disc. N 1,296 138,000 122,000 -11.6 15,041 19,021 -70.5 26.5 9.2 7.3 12.5 1.1 COSON 069110.KQ Cons. Disc. Not Rated 479 28,650 N/A N/A 584 1,000 n.m. 71.2 49.0 28.6 29.4 11.4 Grand Korea Leisure 114090.KS Cons. Disc. Not Rated 2,106 34,050 N/A N/A 1,724 2,197 -8.5 27.4 19.8 15.5 23.5 4.41 Paradise 034230.KQ Cons. Disc. Not Rated 2,069 22,750 N/A N/A 933 1,147 -12.0 22.9 24.4 19.8 8.2 1.83 CJ CGV 079160.KS Cons. Disc. O 2,359 111,500 164,000 47.1 2,888 5,009 267.3 73.4 38.6 22.3 14.3 5.0 Showbox 086980.KQ Cons. Disc. Not Rated 499 7,970 N/A N/A 140 188 n.m 34.3 56.7 42.4 8.0 4.38 Shinsegae 004170.KS Cons. Disc. Not Rated 2,304 234,000 N/A N/A 36,114 18,855 127.0 -47.8 6.5 12.4 13.0 0.8 CJ O Shopping 035760.KQ Cons. Disc. O 1,142 184,000 270,000 46.7 17,310 21,903 13.4 26.5 10.6 8.4 11.9 1.2 Orion 001800.KS Cons. Staples O 6,000 1,004,000 1,340,000 33.5 34,815 42,131 4.3 21.0 28.8 23.8 15.5 4.2 Binex 053030.KQ Health Care Not Rated 511 16,550 N/A N/A 97 155 -75.9 59.8 170.2 106.5 2.4 3.78 I-Sens 099190.KQ Health Care Not Rated 486 35,600 N/A N/A 1,333 1,734 25.4 30.1 26.7 20.5 14.4 3.57 BNK Financial Group 138930.KS Financials O 3,532 13,800 20,000 44.9 2,074 2,537 -39.4 22.3 6.7 5.4 11.7 0.6 SEMCO 009150.KS IT N 4,624 61,900 58,000 -6.3 2,773 4,110 -59.3 48.2 22.3 15.1 4.4 1.0 Suprema 094840.KQ IT O 327 22,200 27,000 21.6 1,095 1,501 13.3 37.1 20.3 14.8 10.4 2.0 Source: WISEfn Consensus (for Not Rated), Credit Suisse estimates for covered companies

Korea Market Strategy 2 08 October 2015 Busan conference Key findings from key note speaker and site tours Korean Film Contents Industry and the vision of Showbox During lunch time on 5 October, Credit Suisse hosted the CEO of Showbox, Mr. You Junghoon, as a keynote speaker. The CEO overviewed the past, present and future of Korean movie contents industry. He expressed that the recent success of Korean movies was driven by the business model shift to quality among domestic movie players, which went for selective projects with lesser production. Investors were interested in finding the strong performance of Korean movies and reading industry trends. We believe the audience largely agreed on improved earnings visibility of movie contents players through the session. The CEO also shared the news about the recent agreements that the company has entered with its US and Chinese partners. Since it sees both US and China markets as facing shortages of some types of movie contents, with the US market dominated by hero series and China having certain limitations in film genres, Showbox would partner with local movie players in each region as a contents supplier. Investors paid great attention on its expansion strategy given that enlarged viewership would offer sequential growth opportunity for Showbox. The CEO was confident of its overseas success given that Korean movie players, including Showbox, hold competitive edge in terms of content depth. Past and present of domestic movie industry. Through recent years, the domestic movie industry has been consistently witnessing an annual rate of 8% CAGR since 2011 thanks to the success of Korean movies. National movie admission jumped by 22% YoY in 2012, which was largely driven by Korean movies. This success stems from improved capability of Korean film distributors. For instance, Showbox has extended its role as a selective contents filter and an executive film producer. This naturally led Showbox to focus on qualitative projects with reduced number of movie productions per annum. Previously, most of the players were focusing on quantity in terms of movie productions, which raised concerns on poor profitability due to lack of efficiency. Despite the recent success, however, the company views that domestic market growth is maturing and competition within film production is becoming tough. National admission growth is stagnant since it reached 200 mn admission in 2013, implying four times viewership per capita which is one of the highest ratios globally. The future of domestic movie industry and leap into China. Showbox suggests Korean movie players should enlarge their target markets in order to overcome the fragmented environments. China could be an example given that it is the No.2 movie market. It would be an opportunity for Korean players to enter the rapidly growing market, since both countries share similar cultural backgrounds. The cultural similarity increases the likelihood of success in its film contents in China. Showbox believes entering the Chinese market is a must for Korean players given the abundant market demand as well as the cultural similarity. The company has been preparing for the China market since late 2000s and has already built strong relationship with a local player, i.e., Huayi Brothers. They have already gone for joint production and aim to release a local movie in China within 1H16. Globalisation of Korean contents and implications to Showbox. Showbox has set its vision beyond the China market. The company will look for the US market on the back of its potential success in China. In fact, Showbox has recently reached an agreement with US film distributors and investors, i.e., Blumhouse and Ivanhoe Pictures. The contract includes investment support for Showbox movies by its US partners, in order to source qualitative film contents from Showbox. The CEO expressed that Hollywood movies lack content other than signature hero series represented by "the Avengers". Under the

Korea Market Strategy 3 08 October 2015 contract, Showbox would participate as a main contents supplier. Once the joint production succeeds in the Korean market, the parties will convert the content into western style and target it for the US mainland. This should expand Showbox’s target markets in the US and anticipate for a worldwide release of its movies in the longer term. Shinsegae Centum City Tour We invited investors to visit the Shinsegae’s Centum City complex shopping mall. The number of visitors and ticket price at the Centum City mall could have more upside, according to the company, thanks to strong VIP loyalty and aggressive store expansion plans in the affluent Haeundae area. We hosted a tour to Shinsegae’s Centum City UEC (Urban Entertainment Center) in Busan. UEC (Urban Entertainment Center) in Busan. Centum City is registered as the largest shopping complex in the world in the Guinness Book of World Records, with a store space of 187,000m2. The store is located in the affluent neighbourhood of Haeundae-gu, where population is growing the fastest within the Busan area, and a favourable outlook in foot traffic thanks to the active development of commercial property and cultural centers. Key facilities include department store, shopping mall, movie theater, spa, ice rink, etc. During the tour, we were able to confirm on the company’s VIP customer management strategy and a more detailed store expansion schedule which is expected to be completed by Feb 2016. The number of visitors and ticket price are expected to continue growing, according to the company, thanks to strong VIP loyalty and store expansion plans. As seen in the past, the company was able to keep all its VIPs even when its competitor companies had opened new stores around that area. Shinsegae’s VIP Trinity members’ Sports Club & Spa facilities including fitness club, swimming pool, etc., are exclusively open only to the countrywide top 999 VIPs at Shinsegae. This is Shinsegae’s largest facility for VIPs in Korea. According to the company’s classification, VIPs revenue contribution is around 25% of total revenue, and the number of VIP customers is around low single digit of total number of customers. Post the expansion, store space is expected to increase by 49% YoY and this new site (Site B) is likely to include a duty free shop (relocating from the existing Paradise hotel site, increasing store space by more than 50% YoY). The company believes that synergies could be created between the existing department store and the DFS, if and when approved by the regulators. Store expansion is likely to drive stronger growth ahead, given Centum City is already the second biggest revenue contributor for Shinsegae, next to the Gangnam store. Site C is also available for additional development, although details of the plan are not confirmed yet. Korea’s Auto Industry In the auto sector, Hyundai Motor, Kia, Mando, and Nexen Tire attended our Busan Corp Day. Key highlights include 3Q preview—where Kia sounded much more positive than Hyundai Motor (HMC conservative due to weaker EM currency including RUB, and high US incentives). In the aftermath of VW scandal, both HMC and Kia said they have not yet seen abrupt sales trend changes yet, but plans to increase eco-friendly models to 22 models by 2020 from 7 in 2014. Both OEMs have guided that China sales bottomed out and expect the sales to improve in 4Q15 driven by the stimulus plan the new product launches. Mando also gained interest with improved shareholder return policy (a committed 25% payout policy with DPS of W4,800), and product mix improvement with ADAS (advance drivers assistance system) supply contract to HMC's 'Equus', in addition to 'Genesis'. As over 50% of Mando's OP comes from China, its share price recently has begun to rally with China auto stimulus plan as well. For Nexen Tire, the company has guided resilient 3Q15E earnings outlook, driven by solid North America sales while the cheap raw material input costs continue to lead steady OPM trend. Nexen is our most preferred pick among Korea tire makers.

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Summary of takeaways from corporate meetings

■ Binex (053030.KQ, Not Rated) Speaker: Peter Kim (Director of Planning Team) / Tone: Positive (1). Background. Binex is a Contract Manufacturing Organization (CMO), specialising in selling chemical drugs and manufacturing biosimilar drugs. Unlike chemical/generic drugs which the end products can be 100% identical, end products of biologics/biosimilar drugs can never be identical due to the involvement of living cell cultures. Also regulatory approval is provided to the whole production development & manufacturing chain, hence switching costs are higher for customers because they may require 1.5 – 2 additional years to switch producers. The company currently has five production lines (4,500 L) in Songdo facility and two production lines in Osong facility (acquired on 1 Sep 2015 with 7,000 L). Current utilisation rate is around 40%-50%. (2). Biosimilar market in perspective. With more than 50% of global investment focused on biosimilar drugs pipeline, Binex believes biosimilar will be the new phenomenon in pharma market in near future. Due to the capital-intensive nature (require at least US$100 mn), it is important to achieve high utilisation rate and realise high yield at the same time. (3). Future guidance. Binex is initially guiding to US$70 mn in revenue and US$5 mn in OP for 2015E, but says the profit to be achieved is likely to be less after acquisition of Hanwha Chemical’s Osong Facility (acquisition price of US$60 mn, which is half of the investment amount that Hanwha Chemical invested a few years ago, other fixed costs include depreciation & amortization of US$5 mn/year and extra employee costs of US$1-2 mn). The Osong Facility is expected to start operations in 2Q16, and may require another US$10 mn to reconfigure the plant to allow more flexibility. The company also guided for an utilisation rate of around 60%-70% for Songdo facility in 2016E, whereas Osong facility may only start ramping up in 2Q to around 30%-40%. (4). Update on Remicade Biosimilar. Binex has just completed phase III trial for the drug in and the drug is expected to commercialise by summer 2016. Through the alliance with Aprogen (upstream development) and Nichi-Iko (clinical development, approval, marketing and commercialization), the alliance is targeting the US$1 bn market in Japan and possibly US as well. Binex believes its competitive advantage in the product lies with their cheaper production costs and good network with doctors (who are the main reasons in successfully selling the drugs to end customers).

■ BNK Financial Group (138930.KS, OUTPERFORM, TP: W20,000) Speaker: Sangjin Kim (IR Team Leader) / Tone: Positive (1). More focus on profitability than growth. Demand is expected to remain resilient on the back of a benign regional economy, in particular in the property market. However, BNK guides that loan growth is likely to normalise with the target rate of 7% YoY (vs. 5.7% YTD at Busan Bank and 2.3% YTD at Kyungnam Bank as of 1H15). This is in order to be conservative with capital consumption as the current common equity tier I ratio of the group was 7.2% as of 2Q15. Amidst slower loan growth, BNK focuses on profitability. NIM of Kyungnam Bank continues to recover as BNK attempts to normalise pricing of loans after acquiring Kyungnam Bank from Korea Depository Insurance Corporation. In addition, the NIM of Busan Bank is also stabilising on the back of falling funding costs and deposit rates.

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(2). Capital raising not currently in the pipeline. With the currently low CET I ratio, many investors asked about the possibility of capital raising. According to BNK’s internal simulation, conservatively assuming 7% YoY asset growth and an ROA of 0.65%, the CET I ratio could reach 8.7% by 2019. Given that the countercyclical buffer could range between 0% and 2.5%, the total CET I ratio required would also be from 7% to 9.5%. The regulation has not been decided yet. While the group is focusing on improving ROA, it does not guide for a capital increase for the time being. (3). Overseas expansion. As a long-term growth strategy, BNK is seeking to expand overseas, mainly spearheaded by BNK Capital. Currently, it has subsidiaries in Cambodia, Myanmar, and Laos, largely focusing on micro-financing. The major differentiation of BNK is localisation of employment. Currently, operations are funded from the headquarters in Korea. In the long term, a more diversified funding structure could also be considered.

■ CJ CGV (079160.KS, OUTPERFORM, TP: W164,000) Speaker: Hyemi Joo (IR Manager) / Tone: Positive (1). Resilient Chinese market growth and CGV’s expansion schemes. Chinese national Box Office is expected to have grown by ~50% YoY in 3Q15 thanks to strong Chinese movies during the summer season. This is remarkable given that import movies were restricted during the season. Market growth is now driven by both Chinese domestic movies and imported Hollywood movies. Recent Chinese domestic movie "Monster Hunt" has topped the No.1 rank in Chinese Box Office history (previously "Fast & Furious 7", which was from the Hollywood’s). CGV has opened 5 new sites in 3Q15, expanding to 39 sites in total (the subsidiary sites) and 52 if to include the JV sites. Its Box Office M/S has improved to 2.7% and it is ranked at No.7 player nation-wide. CGV maintains aggressive expansion scheme and expects more than 10 site openings planned for 4Q15. The company has made total of 196 site contracts as backlog in the cumulative base. CGV differentiates itself among the peers with premium screens, such as IMAX screens (No.2 partner with IMAX) and 4Dx (CGV's own screen technology). (2). Cost control efforts and concession revenue growth in Korea. Net openings in 3Q15 remained at minimum level of (2 sites). CGV views domestic market is matured in terms of admissions. But the occupancy rate remains decent at around 30%-ish, although lower than its historical peak level of 40%-ish. Labor cost is the biggest cost item, of which its growth is related with new site openings. Given the slower expansion plans, CGV guides 8~9% YoY p.a. labor cost growth for following years. CGV views current concession revenue has room for growth and expects the mix to improve to over 20% (within Korea business) from current high- teen digits. (3). On track operations in other emerging regions. Vietnam business is on track and have delivered net openings of three sites in 3Q15, totalling 26. CGV expects to run total of 30 sites by 2015-end and plans to launch five sites every year. Separately, CGV is running a theatre business with the local player in Indonesia under the brand name of CGV Blitz. CGV currently holds 15% stake of the entity. They run 15 sites and are the number two player in the nation. (4). Updates on 4Dx facility business. The division is dedicated to installing 4Dx screens for theatres (including CGV and other competitors) and share the surcharge from the 4Dx ticket revenue. 4Dx division is currently under operating loss, given that the ticket revenue falls short of covering the installation costs. CGV believes economies of scale are required to generate profit under this segment, given the initial cost involved. The company expects to reach BEP once

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the total number of screens reach 260. CGV has currently installed around 170 screens globally and targets 300 by FY16E end.

■ CJ O Shopping Co Ltd. (035760.KQ, OUTPERFORM, TP: W270,000) Speaker: Kyungmin Lee (IR Manager) / Tone: Neutral (1). 2H15 business update. 3Q is the low season for homeshopping companies and a low season for the apparel category as well. However, the company is looking for stronger growth in 4Q15 by adjusting its strategy in the apparel category from 4Q15. The company plans to introduce some high-end foreign brand that is exclusively sold through CJ O Shopping. Recently interior goods and household goods categories are selling better, partly offsetting the weak apparel sales. Weak baeksuoh sales is offset by red ginseng. Direct sourcing of products that the company can handle inventory risks, could raise overall blended margin of the company. (2). Mobile channel strategy. The company believes mobile should continue to be the growth driver given the convenience of payment, and given the mobile channel does not have any additional cost burden such as the SO commission for the TV channel. The company is more selective in mobile channel investments, through target marketing. This is because of the margin difference (in case of TV aired products); 4-5% OPM with promotions vs more than 10% without promotions. Mobile application download grew from 7 mn in 4Q14-end to 11 mn 2Q15-end on cumulative basis. It is expected to reach 12.3mn by end of this year, beyond which, it will be normalising marketing expenses. (3). SO Commission. The company had allocated 7% growth in SO commission in 1H15, but believes it could be lower than that in 2H15. Hence CJOS is expecting some adjustments in 4Q15. The company is cautiously optimistic on the outlook of SO commission, which is in line with the recent comments made by the regulators that there may be additional guidelines on SO commission payment where competition among homeshopping companies has been intensifying with the launch of the 7th homeshopping channel. (4). Overseas operations. With the exception of India, turnaround in other markets are well on track. In India, homeshopping industry growth is strong, however, competition in India is increasing at the same time. With new players in the market, the company believes additional losses from the India operations. In China, Dong Feng CJ's GMV grew by 7% YoY in 1H15. 2H15 trend is likely to be similar as well. The Philippines and operations are strong on robust market growth and CJOS’ operational competitiveness. The company believes its recently entered Mexican market could be promising in the long-term, although initial investments could weigh on this year’s earnings. (5). Higher Capex. The company increases investments in the logistics center. As a result, the company may not increase dividends since it has raised to W2,500/share (from previous W2,000/share) last year.

■ Huchems Fine Chem (096770.KS, Not Rated) Speaker: Wonsuk Ryu (IR Manager) / Tone: Positive (1). Background. Huchem possesses monopolistic market share in its key operational domain (nitric acid, CNT, MNB, ammonium nitrate) and enjoys cost plus formula in its pricing with great concentration in customer base (usually 2-3). a. Nitric acid: The single-largest producer in Asia with annual production capacity of ~1.3mn tonne/year, most of which goes to TDI, MDI, ammonium nitrate, adipic acid, semiconductor cleaning, etc. Long-term contract signed with BASF, Solvay, Bayer which ranges 5-15 years.

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b. DNT: Monopolistic supplier in domestic market with 260,000 tonne/year capacity with key usage as intermediates for TDI which, in turn, is used for interior furniture, car seats, insulation, shoes, etc. Long-term contract signed with Hanwha Fine Chem and OCI. c. MNB: Monopolistic supplier in domestic market with 320,000 tonne/year capacity with key usage as intermediates for MDI which, in turn, is used for automotive interior/exterior, refrigerator insulation, building insulation, etc. Long-term contract signed with Mitsui. d. Ammonium nitrate: Key supplier with 100,000 tonne/year capacity, serving the need from industrial explosive material, fertilizer, anaesthetics, semiconductor cleaning, etc. Long-term contract signed with Koryo Nobel, Hanwha Corp, etc. (2). Future growth strategies. With long-term IRR of 12%+, Huchems intends to enhance backward integration (gas) with some scope of forward integration outside of Korea (Southeast Asia) while it already enjoys steady stable margin at the operation level given cost-plus pricing mechanism. It has recently entered into contract with Malaysia for the Sarawak Gas Project (gas deal) from which the company expects ~30% EBIT margin on the back of attractively-priced long-term gas supply scheme (~US$6/mmbtu). The project is schedule to be finished around 2019 with capex budget of ~W900 bn (W250 bn internally sourced with the balance met by external borrowing). Additionally, Huchems intends to enter the fertilizer market in Vietnam with 360,000 tonne/year capacity, from which the company expects revenue of ~W150 bn with ~10% EBIT margin based on the current spot price. (3). Earnings trend in 2015 / 2016. Huchems expects generally steady operational cash flow/profit thanks to its defensive pricing scheme as well as its uniquely solid domestic leadership with notable exception of DNT market where cyclicality is increasingly severe for excess capacities in its key customers (Hanwha Chem and OCI). The company expects potential upside in DNT market given the supply excess is being addressed with growing demand (utilization rate in its customers are currently 70-80%).

■ Hyundai Development (012630.KS, OUTPERFORM, TP: W87,000) Speaker: Yangso Lee (Head of Finance) / Tone: Positive (1). Better earnings for 2H15 than 1H15 and for 2016/17 than 2015. Double-up of new housing starts from 12K units in 2014 to 24K units in 2015, even though the company would be more selective in new starts in 2016 given negative implication of the surge of the industry's new starts in 2015 on the domestic property market. Presale ratio strong at >90% for YTD new starts of c12K units. Recently acquired a new landbank at about W300 bn. Expects revenues of c.W1.2 tn from the new landbank. Management expects sequential improvement in its housing GPM from current 20-25%/10-15% for in-house/ contract projects given management's active risk-taking stance for the in-house business and its superior position over external developers thanks to its strong know-how/brand power in the housing business and healthy balance sheet. (2). The latest on HDC-Shilla DFS. Business to start January 2016, as originally planned. Capex of c.W100 bn in total for renovation, which is currently underway. Management expects sales of >W1.0 tn/>W2.0 tn in 2016/17, respectively. Eventually to be Korea's no.1 DFS. Current biggest DFS is Lotte W1.9 tn in 2014, OPM at low 10%(12%), Hyundai Development will be 3x the size, so guidance is not too aggressive. Management anticipates the DFS JV, which occupies only a fraction of the iParkMall (floor space of 27K sqm) to improve the value of the entire iParkMall property (floor space of c.300K sqm). For the 50:50 JV, equity is

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W80 bn and debt is cW120 bn. 4 floors in total: one for K-cosmetics, two for luxury brands and the remaining one for foods/souvenirs. (3). Management expects recovery in the domestic property market to continue for the time being. More people expect additional rebound of the property price. Government policy remains supportive (deregulation, tax, mortgage measures, etc.), and rent is likely to keep rising.

■ (005380.KS, NEUTRAL, TP: W150,000) Speaker: Zayoung Koo (Vice President) / Tone: Neutral to Positive (1). 3Q15 earnings preview. The company guides that positive effects from KRW depreciation against the USD and EUR could be mostly diluted by weaker-than- expected emerging market currencies (especially RUB and BRL). We expect HMC’s 3Q15 earnings to come in mostly in line with our estimates (W1.6tr OP, down 3% YoY). (2). China sales bottoming out. HMC’s inventory destocking, which has been ongoing since 2Q15, is almost complete. With China’s high demand season drawing near and the recent stimulus plan (auto purchase tax cut), China sales are expected to recover further. We therefore believe China sales have bottomed out and a sales recovery will take place. The company also notes that localized models will be produced in HMC’s new 4th and 5th plants in China. (3). New product momentum kicks in. In 4Q15, new Tucsan (SUV) sales will be fully factored in with the recent model launch in Europe and China. On the domestic side, new Elantra model will be fully accounted for in 4Q15 as well. The company also notes that new model sales will fully be accounted for in 2016 with new Tucsan, Elantra, Equus , Santa Fe (face-lift) and hybrid AE models. (4). Comments on eco-friendly launching schedule. The company has not seen any abrupt sales trend changes from the recent Volkswagen scandal. Hyundai Motor Group (HMC + Kia) plans to increase eco-friendly models (hybrid, plug-in hybrid, EV, and fuel-cell) to 22 models from 7 models in 2014. As such, the sales portion of eco-friendly vehicles could reach 7% by 2020E from 1% in 2014, in our view.

■ I-Sens (099190.KQ, Not Rated) Speaker: Jongwoo Youn (Director of Admin & Accounting) / Tone: Positive (1). Company. Korea’s leading BGMS maker for diabetic patients. BGMS (Blood Glucose Monitoring System) products account for 95% of the company's total sales currently (85% are strip). Major customers: AgaMatrix (US), Arkray (Japan, #5 in global M/S, also #2 shareholder if I-Sens with 10% stakes). Lately penetrated into poc product market for hospitals (began supplying the products to severance hospital lately). Management guides sales of W105 bn and OP of W23 bn for 2015 (vs W92 bn and W19 bn in 2014), thanks to increased sales to Arkray and economies of scale with increased capacity utilization. (2). Global BGMS market. BGMS global market: W12 tn (85% strip) - China drives overall demand growth in the global market. Top 4 companies (Roche, J&J, Bayer and Abbott) have c85% share in the global market in aggregate. Increasing medical insurance applications on BGMS in major countries (US, UK, Korea, China, etc.), which could eventually help significantly reducing overall cost for diabetic patients, drive demand growth for BGMS products. (3). China business. Lately completed construction work for production capacity in China (but the production in China to begin only in 1Q17 due to approval process). According to management, the new China capacity has much lower cost structure than the company’s current Korea capacity. I-Sens is currently the only company

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that has BGMS capacity in China (300m units/year  can be increased to 900m units/year later up on demand growth vs current Korea capacity of 1.2bn units; management targets to increase China sales from W6 bn in 2015E to >W50 bn in 2020E). For information, China BGMS market is only about W500 bn currently vs Korea BGMS market of c.W80 bn, implying a higher growth potential of the market going forward.

■ Kia Motors (000270.KS, OUTPERFORM, TP: W61,000) Speaker: Helen Lee (IR Manager) / Tone: Positive (1). Strong domestic sales to continue (Carnival, K5, Sportage). The company guides 2015E annual domestic sales volume of 520K (our current estimate is 500K), which is higher than the original 2015E guidance of 480K. The product mix will also improve thanks to rising high ASP SUV portion. (2). China sales bottoms out. The company highlighted that its China utilization rate recovered to 76% in September versus 54% in August. With China auto stimulus plan (purchase tax cut) and the recent price adjustments for SUVs (old Sportage models), the company expects its China sales volume to reach 64.5K (flat YoY). Also, the company noted that its original capacity expansion of 150K in China by 2016 (within the third plant) is likely to be delayed given current conditions in the market. (3). Rising earnings momentum. The company guides that YoY OP would turn around, which is the first time in five quarters (Credit Suisse 3Q15E OP of W600 bn, +6% YoY), on the back of favourable forex movement. Also, weaker equity income from China will be partially offset by a one-off gain from Hysco stake sales (W60 bn-70 bn). (4). Expecting double digit YoY OP growth in 4Q15. As the company enters the high-demand season with new product momentum and forex tailwind, 4Q15E OP is likely to comfortably grow with double-digit YoY growth, according to the company (our current estimate is +20% YoY growth). The company expects that there will potentially be strikes in 4Q15, which will partially impact the volume, although the degree of the impact is to be seen.

■ Mando Corp (204320.KS, NEUTRAL, TP: W122,000) Speaker: Hyunjung Lee (IR Director) / Tone: Positive (1). Improved corporate governance. The company has guided for improved corporate governance going forward with an enhanced shareholder return policy (DPS W4,800, 25% payout ratio). Notably, after the official guidance on the improved shareholder return policy from the company, foreign ownership increased from 8.8% on Sep-1 to 10.4% on Oct-6. (2). Product mix change. The company’s ADAS (Advanced Drivers Assistance System) sales portion is expected by management to rise from 2% in 2015 to 5% by 2020. The company currently provides ADAS systems (blind spot detection, forward collision warning, land keeping assistance etc) for the Genesis (HMC) luxury sedan and will begin to supply the ADAS system to flagship Equus sedan model. (3). Recent share price movement. The stock price has recently rebounded by 18% since August on the back of diminishing China concerns. As more than 50% of the company’s OP comes from China (and it currently supplies breaking systems to Geely Motor and Great Wall Motor), the recent auto purchase tax cut in China has possibly increased positive sentiment among investors. (4). 2015 annual earnings guidance. The company currently targets 2015 annual OP of W250 bn, which is slightly higher than our estimate of W237 bn. We also note

Korea Market Strategy 10 08 October 2015

that the company guides for an annual backlog order of W10.2 tn in 2015 (of which W7 tn has been achieved already).

■ Orion (001800.KS, OUTPERFORM, TP: W1,340,000) Speaker: Jinwoo Ju (IR Manager) / Tone: Positive (1). Growth in China operations in 1H15. Orion had delivered 7.5% YoY top line growth in 1H15 (12.5% in 1Q15 and 1.5% in 2Q15). The market showed concerns about the 1.5% growth (RMB based) in 2Q15. The company thinks weak consumption, hypermarket channel restructuring, and inventory burden due to mismatch to have resulted in the weak top line growth in China. By category, sales trend were mixed; its key category potato chips and pie grew by 9.4% and 10.5% YoY, respectively, thanks to product renewal. Chewing gum and biscuits sales were negative due to increasing competition. (2). Growth in China operations in 2H15. Despite higher base, the company is seeing stronger trend in 3Q15, with the newly launched honey series potato chips, which is posting stronger growth while the negative growth in chewing gum category is decelerating with the newly launched flavors. 4Q15 top line growth could accelerate further given the base difference (in RMB terms, 3Q14 and 4Q14 grew by 12% and 6% YoY, respectively). The company is not considering any price hike in the foreseeable future as it focus more on increasing market presence through sales volume growth. Orion thinks they could outperform the peers in China, despite the sluggish industry growth in China thanks to unique and competitive brands/products. As such, they have seen market share gains in chips and pie category, each increasing the shares by 0.9 pp and 3.8 pp, respectively. (3). OPM recovery in China. OP margin improvement in China should be on-going, by around 100 bps YoY (vs. 14% in last year), thanks to (i) better economies of scale at manufacturing plants and A&P costs; (ii) integrated business model (with some directly run potato farms); and (iii) channel mix improvement (adding more traditional channels) etc. (4). Domestic operations. The operations have been weak since 2013 on hypermarket channel regulations, and most recently, the company lost market share against its competitors’ hit products. The company has undergone some management change who heads the domestic operations, and the sales team in Korea. Hence, the company is reviewing the launch of a new product category. On the non-operating line, the company expects some additional loss from write-offs of construction projects (as seen in the 2Q15 results). (5). Additional growth. The company is looking for new opportunities through M&A and overseas market expansion in China (extending regional distribution) countries including Indonesia. Proceeds through the sale of Sports Toto will be used for the inorganic growth of the company, according to the company.

■ S-1 Corp (012750.KS, NEUTRAL, TP: W84,000) Speaker: Sangbong Park (Head of IR) / Tone: Neutral (1). SECUi stake sales to Samsung SDS. S-1 decided to sell all its stake in SECUi to Samsung SDS as it believed synergies were low and company couldn't fully support SECUi in terms of R&D, etc. On a side-note S-1 also pointed out SECUi's earnings have been deteriorating lately as business was skewed to Korea only. Following the stake sales, company will book around W50 bn gain below the OP line this quarter. On the balance sheet, S-1 will also turn net cash and this is 6 months ahead of what the company was expecting. (2). Possibilities of increased shareholder returns. Given the company turned net cash (earlier than expected) following the stake sales of SECUi, it acknowledged

Korea Market Strategy 11 08 October 2015

a growing interest in possibilities for increased shareholder returns. Whereas past trend was to increase DPS on a YoY basis, future decisions will more likely focus on payout ratio itself. Although it is too early to come out with a definite % term, S- 1 hinted there is more upside to payout ratio increasing versus previous years. (3). ARPU and margin trends. S-1 acknowledged blended ARPU decline in the long run will continue. Nevertheless short term it expects blended ARPU to defend the W120,000 levels. In terms of subscriber mix, residential increase is slightly slower than what they were expecting and recent MOU with SK Telecom is a movement to give some boost. The company also hinted they are working with and expects more information to be released near the end of October. As for BMS, S-1 introduced a new brand called Blue Asset. The company stated this can be interpreted as an effort to focus on delivering a total solution covering FM (facility management), PM (property management) and brokerage/consulting. Given its low exposure in the PM space, S-1 seeks to hire more experienced personnel. The company did express some concerns on next year's BMS contract renewal with Samsung affiliates (currently 90% of total business) as the whole group focuses on cutting costs. Past trends upon renewal of contract was around +5% YoY level but this year it came down to 2% on blended basis. S-1 thinks it will be tougher to get favourable renewals going ahead, which could put some pressure on margins. Overall S-1 thinks consolidated OPM should be around 10% in 2015 while reaching over 15% levels like in the past seems too optimistic.

■ Samsung Electro-Mechanics (009150.KS, NEUTRAL, TP: W58,000) Speaker: Jungmin Jang (Senior Manager) / Tone: Neutral (1). 2Q15 results overview. Revenues declined 4% QoQ due to HDD Motor asset disposal while OP increased 32% QoQ and YoY. SEMCO stated proceeds from disposal of stake in Samsung Gen Chemical is expected to be around W100 bn. (2). Digital Module. Camera module (CM) revenues were up QoQ in 2Q15 on strength of sales to SEC and sales to Chinese customers. Revenues will be down in 3Q15 QoQ due to total volume and ASP declining QoQ. Galaxy Note 5 (GN5) ASP will be similar QoQ but Galaxy S6 Plus will decline QoQ, as it is now an older product. Also, volumes will decline QoQ given that GS6 sales peaked in 2Q15. Mix improvement is expected through OIS on GN5 launch but no change in general specs vs. GS6. CM volume will increase in 2016 while high resolution front camera is to become a new business. Meanwhile, dual camera module development will be done by end of this year. SEMCO will offer total solution including hardware, software and algorithm. Total solution is more attractive for 2nd tier customers according to company. Wireless Power Transfer (WPT) sales grew 2x in 2Q compared to 1Q. WPT revenue expectation is at W100 bn in 2015. Wi-Fi sales to China is to increase in 3Q15. (3). LCR. MLCC revenues declined due to SEC procurement decline (-8% QoQ). Company will expand M/S on Galaxy Edge Plus and power inductor sales during 2H15 at SEC. 2Q15 LCR OPM was 15% which were good results despite unfavorable F/X. SEMCO expanded solution MLCC, which has a richer mix and higher ASP so saw good blended ASP strength. Solution MLCC customized to VLC (Vertical Laminated Capacitor) types can replace 6 commodity MLCCs with 1 MLCC of much smaller size. Meanwhile China customer pick-up on solution MLCC is expected in 2H15. SEMCO did not expect this in 1H15, but China demand is rising despite higher prices. Product ASP is 3x to 10x higher compared to commodity MLCC according to company. Company is currently working with Apple now for acoustic type MLCCs. While Apple is already using SEMCO’s high capacity MLCC (M/S in Apple 20%) SEMCO believes 20% to 25% M/S in Apple is a sustainable range.

Korea Market Strategy 12 08 October 2015

(4). 2015 LCR revenue is US$2 bn. Targeting to double the revenue by 2019. SEMCO started supplying Automotive MLCC to Bosch, Continental, Delphi (portion is very low as of now). Company thinks 60% to 70% of global auto companies are already using SEMCO’s MLCC through these distributors. Company believes current automotive MLCC market is controlled by Murata and TDK. SEMCO is now just starting but targeting to reach 20% M/S in automotive market. Company stated first time qualifications are done and passed. It is looking for a supplier tier to rise quickly. Automotive MLCC in general can achieve about 30% OPM due to less competition, thus the attraction. SEMCO will build another MLCC facility in Philippines for high capacity and solutions MLCC. SEMCO expects auto market to show the strongest growth for MLCCs and believes it can take M/S from very low base in this space. Company pointed out its experience gaining market share in other segments as a late joiner in the past. (5). Inductor business: W260 bn revenue and can grow 35% CAGR. OPM is similar to MLCC. Company believes total market size is US$7 bn similar to MLCC s and targets US$1 bn revenue by 2019. Meanwhile the Application Processor (A/P) space is a premium market according to company’s comments. SEMCO acknowledged its power inductor business is very small with 100% M/S at Samsung. Meanwhile SEMCO said it is using substrate technology which competitors don't have and finished development of coil type inductors. Upon these completions company is expected to have full product line to compete.

■ Shinsegae Inc (004170.KS,Not Rated) Speaker: Yeonji Kim (Assistant Manager) / Tone: Positive (1). 2015 operations. Same store sales growth in 1H15 was -2% YoY, mostly due to the outbreak of MERS. With the negative impact from MERS behind us, top line recovery should be more meaningful in 4Q15 given 2014 was a low base, according to the company. The government’s promotion on the Korean version of ‘Black Friday’ is positive; although it may be too early to say, daily sales have spiked in the first few days. (2). Store expansion. Capex is expected to peak in 2016-17E. Major store expansion is planned in Gangnam () and Centum City (Busan) which are both expected to be completed by Feb 2016, as well as 3 new store openings in Gimhae (Jun 2016, tenant), Hanam (Sep 2016, tenant), and East Daegu (Dec 2016). Shinsegae expects sales to grow by +20% next year. The Centum City expansion is likely to be a shopping mall concept that includes the DFS which is currently operating at Paradise Hotel in Busan by the affiliate company, Westin Chosun Hotel. Gimhae and East Daegu are stores with relative newer concepts for the company. Gimhae is expected to be a low operating cost store by relocating the existing labor force etc and brands are likely to be more customized to this mid-size city in Korea. Depending on the success of Gimhae store, the company is expected to further expand in the mid-size cities where it has smaller exposure. The East Daegu CTC store concept is similar to Centum City ‒ large, with full line-up of stores and entertainment tenants. Traffic is likely to be busy given it is located next to Daegu station. The company thinks large complex shopping malls will be the trend in the long term. (3). DFS. Shinsegae DF is bidding for one of the licenses that expire at the end of this year. At the same time it is seeking approval to extend the license (+50% vs previous stores) and relocate its DFS to Centum City from the existing site, Paradise Hotel. If approved, company is optimistic about the potential synergies with the department store operations. Current revenue contribution from foreign travelers is 6% at its main store in Seoul, which could have more upside. The company also commented that, although there are uncertainties, it was optimistic on media comments (source: MoneyToday) that the law makers/regulators are

Korea Market Strategy 13 08 October 2015

suggesting additional licenses for operation in Seoul or the Seoul metropolitan area.

■ Showbox (086980.KQ,Not Rated) Speaker: Sanghyeok Jeon (IR Manager) / Tone: Positive (1). Business model and strategy. In the early stages competition was purely quantitative (rather than qualitative) where by each companies took in charge of 30 movies every year. Business model was to offset the losses from one big hit. However, Showbox no longer seeks to focus on distributing more films, attaining more audience and go after competition. The company seeks to achieve the best rate of return and become a partner for projects. Whereas in the past Showbox was responsible for 30 movies/yr, now they have lowered the total number to max 11 to focus on profitability. Separately, Showbox's director channel system is unique in the sense that it keeps under contract of the most promising directors. Whereas other firms need 100% approval from investment board to invest in a movie, Showbox only requires 70% approval from all its employees and this adheres more the general audience's perspective. (2). Korean movies performance and recent updates on Showbox. In 2014, sum of Korean movies' admission was lower than that of foreign movies'. However, aggregate admission still managed to go over 200 mn which is sizeable considering the population base. Coming into 2015, Korean movie admission is lower than that of foreign, given that Korean movies have failed in gaining public interest due to lack in diversity of film genres (not enough SF, action, time-killer contents). For Showbox, 1H15 operations fell short of expectations with moderate admissions. In addition, one-off item occurred below OP line due to China subsidiary write-off (loss of W10 bn) which will not re-occur, according to the company. However, the company has positive outlook on 3Q15 which delivered strong pipeline including "Assassination" and "The Throne", which are already above BEP. (3). Overseas business overview. Showbox signed a contract with Huayi Brothers in China for 6 movie release in 3 years, targeting Chinese mainland. Since the China government does not give out production or distribution rights to foreign firms, the company would benefit from the strong relationship with Huayi. Showbox is also under production pact with the US Blumhouse to make 6 thriller/horror in 5 years. Showbox will focus on pre-production in China and is expecting to release a movie (finished development) in 1H16.

■ SK Innovation (096770.KS, OUTPERFORM, TP: W141,000) Speaker: Hyunjung Ko (IR Senior Manager) / Tone: Positive (1). Earnings turnaround in 2015. Having incurred negative profit for the first time in 2014 (mainly due to inventory losses of W1 tn), SK Innovation have seen earnings turnaround in 1H15 at the back of stabilized oil price and strong refining margins. Net debt has reduced significantly from W7.9 tn as at Dec 2014 to W6.3 tn as at Jun 2015. (2). Update on Refining. Management’s outlook on refining turned more positive and expected the refining margin to remain steady as (i) there will be no major capacity additions in next few months; (ii) oil price is likely remain to hover at lower range; (iii) 4Q usually sees seasonally stronger demand, further supported by resilient gasoline demand. Hence despite moderation correction of Singapore GRM in July (went down to US$5/bbl), it has since rebounded to US$7.5/bbl and management expects the margin to continue to hover around this level. (3). Update on Petrochemical. Management expects current olefin and aromatics margin to stay at similar level. Postponement/cancellation of MTO/CTO projects in

Korea Market Strategy 14 08 October 2015

China (~4 million tonnes/year) will provide further support to ethylene margin as China will need to import ethylene. Management also expects PX market to see gradual improvement as China PX self-sufficiency rate is expected to reduce from current level of 50% to 44% by 2020 and downstream PTA/polyester demand will remain resilient. (4). Update on E&P and Lubricant. For E&P, SK Innovation acquired first unconventional oil-field asset in Plymouth back in 2014 when oil price peaked (acquisition price of W420 bn), hence they incurred impairment losses when oil price plunged. Production volumes for the company are mainly distributed in Peru, Vietnam and Yemen (all conventional). For lubricants, the company expects group III base oil to record 3% CAGR from 2015 to 2018, mainly driven by adoption of higher emission standard in Europe. The latest Volkswagen scandal can also be seen as a trigger for companies to switch from Group II oil to Group III oil (higher quality). (5). 2015 financial target and dividend guidance. SK Innovation has set out the following financial targets for 2015: (i) net debt below W6 tn; (ii) Debt/EBITDA < 3x; (iii) positive FCF and (iv) Capex to remain under W1 tn. SK Innovation is confident that these targets can be reached by end of 2015. The company also seeks to resume dividend payment in 2015 after suspension last year due to loss making status, although the final amount has yet been decided.

■ S-Oil Corp (010950.KS, OUTPERFORM, TP: W100,000) Speaker: Gwangcheol Ko (Head of IR) / Tone: Positive (1). Update on new petrochemical project. The project will be funded 50% by debt and 50% internally and project economics depends on product margin (IHS forecast). Technology licenses are obtained from Axens (for RFCC) and Sumitomo Chemical (for PO/PP unit), which part of the licensing costs will be charged based on actual production volume. Main objective of the project is to diversify S-Oil’s revenue stream to petrochemical segment (less volatile than refining). PP/PO is chosen due to tight supply/demand market in future. Company is aiming to export PP to international markets, while targeting domestic markets for PO (Korea is currently net importer with high growth rate as it is raw material to polyurethane, having diverse range of uses). Dividend payout ratio will be lowered during the construction period, however it will not be reduced to zero (no exact amount was provided). (2). Positive relationship with Saudi Aramco. S-Oil is maintaining healthy relationship with Saudi Aramco (~63% ownership stake) as their business interests are aligned (Saudi Aramco wanted to diversify to downstream market). (3). Guidance on margin and refining. S-Oil expects higher GP margin in 2016E as they see more disciplined supply growth in refining and resilient oil demand and do not expect any upside risk to margins despite seeing historical peak levels in 2Q15. Management believes this is the beginning of up-cycle for Asian refiners, as observed by increased utilization rate from high-70% before to 83%/84% now and favourable crude market for Asian markets (as illustrated with narrowing WTI-Brent gap). Operating costs/utilities cost have also being cut drastically due to huge drop in oil prices.

■ Suprema (094840.KQ, OUTPERFORM, TP: W27,000) Speaker: Minyoung Kim (Head of IR) / Tone: Positive (1). Mobile business on track. Suprema stated its mobile business development is going as planned. Company will submit the module in cooperation with sensor and packaging partners within year-end to handset manufacturer(s). Beginning early next year, Suprema's plan is to start marketing activities and said it is open

Korea Market Strategy 15 08 October 2015

to talk with any Android handset manufacturer in the future. Aggressive hiring in preparation for the new business has toned down and company expects total number of employees to be around 200. As a result, unexpected hike in labor costs or R&D should not re-occur near term. (2). Share buy-back and spin-off. Company declared it has thus far completed 40% of announced volume. Suprema needs to complete the buy-back process by November. Spin-off related filings to controlling authorities have been completed and is now subject to general shareholders' approval. Suprema revealed there was no meaningful opposition from major shareholders in terms of the company's decision while the biggest pushback was that its market cap post spin-off would become too small. Nevertheless all major shareholders understood the company's intention behind the spin-off decision. (3). Slight recovery in ID solution business (government business). ID Solutions, which has repeatedly come in below expectations, is expected to show recovery as Suprema stated it has a high probability of signing a mid-size project from the Middle-East in 4Q. Year-to-date lack of government projects from the Middle-East was the biggest concern for company's ID Solution business. Meanwhile, the company also added new customers from the Middle East on the commercial side thanks to its latest products released in 2Q of this year.

Korea Market Strategy 16 08 October 2015

Companies Mentioned (Price as of 07-Oct-2015) BNK Financial Group (138930.KS, W13,800) Binex (053030.KQ, W16,550) CJ CGV (079160.KS, W111,500) CJ O Shopping Co Ltd (035760.KQ, W184,000) Huayi Brothers Media Corp (300027.SZ, Rmb39.58) Hyundai Development (012630.KS, W58,900) Hyundai Motor Company (005380.KS, W160,500) I Sens (099190.KQ, W35,600) Kia Motors (000270.KS, W51,500) Mando Corp (204320.KS, W138,000) Orion Corp. (001800.KS, W1,004,000) S-1 Corporation (012750.KS, W95,200) S-Oil Corp (010950.KS, W70,400) SK Innovation (096770.KS, W114,000) Samsung Electro-Mechanics (009150.KS, W61,900) Shinsegae Inc (004170.KS, W234,000) Showbox (086980.KQ, W7,970) Suprema Inc. (094840.KQ, W22,200)

Disclosure Appendix Important Global Disclosures Gil Kim and Keon Han, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for BNK Financial Group (138930.KS)

138930.KS Closing Price Target Price Date (W) (W) Rating 06-Feb-13 13,791 11,972 N 08-Jul-13 14,701 14,366 05-Aug-13 15,132 16,473 23-Sep-13 15,802 R 28-Apr-15 16,250 19,500 O 29-May-15 15,700 20,000 * Asterisk signifies initiation or assumption of coverage.

NEUTRAL REST RICT ED OUTPERFORM

3-Year Price and Rating History for CJ CGV (079160.KS)

079160.KS Closing Price Target Price Date (W) (W) Rating 23-Sep-14 53,200 70,000 O 05-Feb-15 62,900 73,000 21-Apr-15 73,200 95,000 16-Jul-15 119,000 164,000 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

Korea Market Strategy 17 08 October 2015

3-Year Price and Rating History for CJ O Shopping Co Ltd (035760.KQ)

035760.KQ Closing Price Target Price Date (W) (W) Rating 30-Oct-12 241,700 300,000 O 02-Apr-13 300,000 400,000 16-Oct-13 339,000 * 15-May-14 369,000 400,000 N 31-Oct-14 262,600 350,000 O 02-Feb-15 222,800 310,000 04-Aug-15 203,700 270,000 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL

3-Year Price and Rating History for Hyundai Development (012630.KS)

012630.KS Closing Price Target Price Date (W) (W) Rating 07-Nov-12 19,500 20,000 N 05-Feb-13 22,250 22,000 29-Apr-13 22,600 26,000 08-Jul-13 23,800 29,000 O 26-Jul-13 22,450 27,000 30-Sep-13 24,050 30,000 23-Apr-14 30,500 35,000 25-Jul-14 37,100 45,000 23-Sep-14 45,400 52,000 09-Apr-15 56,900 70,000 NEUTRAL OUTPERFORM 10-Jul-15 70,200 87,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Hyundai Motor Company (005380.KS)

005380.KS Closing Price Target Price Date (W) (W) Rating 26-Oct-12 226,500 287,000 O 24-Jan-13 208,000 254,500 05-Sep-13 244,000 303,000 24-Oct-13 253,500 299,000 23-Jan-14 232,000 294,000 24-Jul-14 229,000 287,000 23-Oct-14 171,000 252,000 03-Mar-15 166,500 NR 21-Apr-15 171,000 170,000 N *

10-Jun-15 134,500 150,000 OUTPERFORM 14-Jul-15 125,500 137,000 N O T RA T ED NEUTRAL 08-Sep-15 156,500 150,000 * Asterisk signifies initiation or assumption of coverage.

Korea Market Strategy 18 08 October 2015

3-Year Price and Rating History for Kia Motors (000270.KS)

000270.KS Closing Price Target Price Date (W) (W) Rating 29-Oct-12 59,800 70,000 N 25-Jan-13 49,750 64,900 O 26-Jul-13 61,200 73,000 28-Oct-13 63,500 71,000 N 24-Jan-14 52,700 60,000 22-May-14 60,100 72,000 O 18-Sep-14 54,400 88,500 24-Oct-14 54,400 98,900 26-Jan-15 46,450 70,400

03-Mar-15 46,700 NR NEUTRAL 21-Apr-15 47,900 42,000 U * OUTPERFORM N O T RA T ED 10-Jun-15 44,250 48,000 N UNDERPERFORM 08-Sep-15 50,600 61,000 O * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Mando Corp (204320.KS)

204320.KS Closing Price Target Price Date (W) (W) Rating 01-Nov-12 146,000 N 04-Feb-13 135,000 15-Apr-13 99,000 26-Jul-13 132,000 28-Oct-13 136,000 06-Feb-14 135,000 24-Oct-14 182,000 221,000 O 05-Feb-15 151,000 185,000 03-Mar-15 161,500 NR

21-Apr-15 159,000 149,000 N * NEUTRAL 16-Jun-15 128,500 134,000 OUTPERFORM N O T RAT ED 27-Jul-15 118,000 122,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Orion Corp. (001800.KS)

001800.KS Closing Price Target Price Date (W) (W) Rating 09-Sep-13 956,000 1,220,000 O * 13-Mar-14 881,000 1,140,000 18-May-15 1,311,000 1,650,000 18-Aug-15 917,000 1,340,000 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

Korea Market Strategy 19 08 October 2015

3-Year Price and Rating History for S-1 Corporation (012750.KS)

012750.KS Closing Price Target Price Date (W) (W) Rating 01-Sep-14 76,500 98,000 O * 17-Dec-14 74,100 81,000 N 26-Jan-15 76,500 83,000 23-Apr-15 88,100 81,000 23-Jul-15 81,900 84,000 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL

3-Year Price and Rating History for S-Oil Corp (010950.KS)

010950.KS Closing Price Target Price Date (W) (W) Rating 30-Oct-12 96,800 130,000 O 31-Jan-13 97,900 124,000 30-Apr-13 88,500 116,000 04-Oct-13 76,300 100,000 * 27-Jan-14 68,600 90,000 11-Mar-14 65,100 80,000 24-Apr-14 60,900 76,000 24-Jul-14 55,000 77,000 20-Aug-14 47,350 60,000 06-Oct-14 41,050 57,000 OUTPERFORM 27-Oct-14 42,100 54,000 27-Jan-15 58,200 66,000 02-Feb-15 60,200 70,000 23-Apr-15 78,100 98,000 23-Jul-15 59,600 100,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for SK Innovation (096770.KS)

096770.KS Closing Price Target Price Date (W) (W) Rating 15-Oct-12 151,000 210,000 O 01-Feb-13 168,500 206,000 04-Oct-13 144,000 170,000 * 04-Feb-14 126,000 165,000 28-Apr-14 120,000 150,000 25-Jul-14 104,000 140,000 21-Aug-14 93,900 130,000 06-Oct-14 77,800 120,000 04-May-15 119,000 144,000 24-Jul-15 97,700 141,000

* Asterisk signifies initiation or assumption of coverage.

Korea Market Strategy 20 08 October 2015

3-Year Price and Rating History for Samsung Electro-Mechanics (009150.KS)

009150.KS Closing Price Target Price Date (W) (W) Rating 07-Nov-12 93,200 124,000 O * 09-Jan-13 99,300 119,000 31-Jan-13 91,700 114,000 28-Oct-13 79,900 100,000 28-Jan-14 66,900 83,000 28-Apr-14 69,000 72,000 N 02-Jul-14 58,700 44,000 U 30-Oct-14 47,000 44,000 N 02-Dec-14 59,700 53,000

30-Jan-15 67,000 58,000 OUTPERFORM 27-Apr-15 67,900 60,000 NEUTRAL UNDERPERFORM 10-Jun-15 57,300 58,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Shinsegae Inc (004170.KS)

004170.KS Closing Price Target Price Date (W) (W) Rating 17-Oct-12 200,500 240,000 N 16-Oct-13 253,500 * 04-Nov-13 254,000 270,000 N 26-Feb-15 173,000 R 09-Mar-15 175,000 270,000 N 13-May-15 230,000 270,000 O 14-May-15 251,500 R 15-May-15 251,500 270,000 O 22-Jul-15 209,000 R * Asterisk signifies initiation or assumption of coverage. NEUTRAL REST RICT ED OUTPERFORM

3-Year Price and Rating History for Suprema Inc. (094840.KQ)

094840.KQ Closing Price Target Price Date (W) (W) Rating 09-Jan-15 27,500 35,000 O 12-Feb-15 26,550 32,500 23-Apr-15 24,500 30,500 04-May-15 22,800 28,000 02-Jul-15 22,050 27,000 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total

Korea Market Strategy 21 08 October 2015 return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 56% (32% banking clients) Neutral/Hold* 29% (41% banking clients) Underperform/Sell* 13% (31% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names The subject company (000270.KS, 001800.KS, 005380.KS, 009150.KS, 012630.KS, 035760.KQ, 096770.KS, 204320.KS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (005380.KS, 009150.KS, 012630.KS) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (000270.KS, 001800.KS, 005380.KS, 204320.KS) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (005380.KS, 012630.KS) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (005380.KS, 009150.KS, 012630.KS) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (000270.KS, 005380.KS, 009150.KS, 010950.KS, 012630.KS, 035760.KQ, 079160.KS, 096770.KS, 138930.KS, 300027.SZ) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (000270.KS, 001800.KS, 005380.KS, 204320.KS) within the past 12 months

Korea Market Strategy 22 08 October 2015

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (005380.KS, 012630.KS) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited ...... Kenneth Whee Credit Suisse Securities (Europe) Limited, Seoul Branch Gil Kim ; Jennifer Yu ; Keon Han ; Minseok Sinn ; Michael Sohn ; A-Hyung Cho ; Eric Yoo ; Ray Kim ; Jung Il Lee

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Korea Market Strategy 23 08 October 2015

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KA0070 Korea Market Strategy 24