June 10, 2019 Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) Hyundai E&C (000720/Buy/TP: W75,300) KOSPI 2,072.33 3.22 0.16 Company visit note: 1) Watch for profit growth KOSPI 200 268.27 0.28 0.10 KOSDAQ 716.53 8.78 1.24

Sector News & Analysis Turnover ('000 shares, Wbn) Conglomerates (Overweight) Volume Value How major shareholders are navigating inheritance taxes KOSPI 357,533 4,347 KOSPI 200 65,650 2,782 KOSDAQ 709,467 4,016

Market Cap (Wbn) Value KOSPI 1,380,064 KOSDAQ 243,723

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,403 1,437 -33 Institutional 1,033 967 66 Retail 1,888 1,928 -40

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 432 374 58 Institutional 255 182 73 Retail 3,306 3,422 -117

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,134 1,087 47 KOSDAQ 396 311 85

Advances & Declines Advances Declines Unchanged KOSPI 565 260 66 KOSDAQ 915 278 94

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 44,200 300 511 KODEX Leverage 11,790 15 305 KODEX 200 Futures 7,790 -15 219 Inverse 2X Baekkwang Mineral 5,400 1,245 193 Products Hynix 65,400 300 154

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value RSupport 4,430 430 144 Korea Cement 3,460 525 114 S Net 9,600 80 94 FSN 1,675 320 92 SAMCO 21,000 500 83 Note: As of June 07, 2019

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

Hyundai E&C (000720 KS) Company visit note: 1) Watch for profit growth

Construction Overseas order recovery Company Report Expectations on overseas orders are coming to fruition. Hyundai E&C looks set to land June 10, 2019 the Iraqi common seawater supply project (W2.9tr) and the Saudi Marjan 6 & 12 project (W3.3tr) in June. In addition, the company is seeking overseas contracts of more than US$7bn in 2H19, including a combined cycle power plant project in Algeria, a dredging/reclamation project in Kuwait, and a bridge project in India. (Maintain) Buy Hyundai E&C has a 2019 overseas order target of W13.1tr. With 1H19 orders on track to exceed W8tr and additional orders expected in 2H19, we believe the company will Target Price(12M, W) 75,300 easily achieve its target. The recovery in overseas orders should not only boost revenue but also improve profits, as the use of idle labor should lead to lower SG&A expenses. Share Price (06/07/19, W) 52,000 Housing profit growth to continue Expected Return 45% For the housing business, we expect revenue growth and margin improvements to continue. We forecast housing revenue to expand to W4.4tr in 2019 and W5.2tr in 2020. The mix of in-house projects should also increase, accelerating margin OP (19F, Wbn) 1,028 improvements. In particular, profit growth should become more visible as projects Consensus OP (19F, Wbn) 1,004 presold in 2018, such as the Gaepo Jugong Complex 8 (contract value of W1tr), Gimpo Hillstate River City (contract value of W1.5tr), Sejong Master Hills (contract value of EPS Growth (19F, %) 21.0 W0.4tr), and Ilsan Kintex One City (contract value of W0.4tr) projects, pick up pace. Market EPS Growth (19F, %) -20.8 P/E (19F, x) 12.6 Order recovery and profit growth: A good bet during uncertain times Market P/E (19F, x) 11.9 As overseas orders begin to materialize in June and housing presales gather traction in KOSPI 2,072.33 2H19, expectations on 2020 earnings should become more bullish. For construction firms, order growth is critical. In addition to a recovery in orders, we also expect profits Market Cap (Wbn) 5,790 to grow. In particular, we think profit expansion in the more stable housing business Shares Outstanding (mn) 111 will help upgrade non-consolidated earnings. Free Float (%) 65.1 Foreign Ownership (%) 25.2 For 2Q19, we forecast the company to post revenue of W4.1tr and operating profit of Beta (12M) 1.57 W249.3bn, in line with the consensus. Our earnings estimates are even more bullish for 52-Week Low 44,200 2H19. In light of our expectation of a recovery in overseas orders and profit growth, we 52-Week High 72,300 maintain our Buy rating and target price of W75,300 on Hyundai E&C. At a time when uncertainties surrounding earnings estimates are increasing across the broader equity (%) 1M 6M 12M market, we believe Hyundai E&C’s stable profit growth makes it a compelling Absolute 2.8 -8.6 -24.7 alternative. Relative 8.0 -8.5 -10.3

110 Hyundai E&C KOSPI 100 90 80 70 60 50 5.18 9.18 1.19 5.19

Mirae Asset Daewoo Co., Ltd.

[ Construction/Building Materials] FY (12) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 18,825 16,887 16,731 16,709 17,373 20,773 Kwangsoo Lee +822-3774-1457 OP (Wbn) 1,159 986 840 1,028 1,139 1,399 [email protected] OP Margin (%) 6.2 5.8 5.0 6.2 6.6 6.7

NP (Wbn) 572 202 382 462 469 530 EPS (W) 5,133 1,810 3,424 4,143 4,209 4,755 ROE (%) 9.5 3.2 6.0 7.3 7.0 7.5

P/E (x) 8.3 20.1 15.9 12.6 12.4 10.9 P/B (x) 0.8 0.6 1.0 0.9 0.8 0.8 Dividend Yield (%) 1.2 1.4 0.9 1.0 1.0 1.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests 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 U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

June 10, 2019 Hyundai E&C

Table 1. Hyundai E&C’s major overseas projects (parent) (US$bn) Project Type Expected value Notes Iraq common seawater supply project Plant 2.6 Likely to win contract in June Saudi Arabia Marjan 6 & 12 Plant 2.8 Likely to win contract in June Bidding in April, contract Panama metro Civil works 2.5 award in June Equity investment completed; Algeria combined cycle power plant Power 0.8 expected in June Kuwait Dredging/reclamation 0.7 Set to bid in 3Q19 Algeria combined cycle power plant 2 Power 0.8 Set to bid in 4Q19 Qatar hospital Building 0.2 2H19 India bridge Civil works 0.1 2H19 Source: Company data, Mirae Asset Daewoo Research

Figure 1. Housing revenue (parent)

(Wtr) Housing revenue to reach 6 W5.2tr in 2020

5

4

3

2

1

0 2014 2015 2016 2017 2018 2019E 2020E Source: Company data, Mirae Asset Daewoo Research

Figure 2. Apartment presale volume (parent)

(units) 30,000

25,000 Stable apartment presales (2019 target: 20,516; 3,032 sold so far)

20,000

15,000

10,000

5,000

0 2013 2014 2015 2016 2017 2018 2019

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research

Conglomerates How major shareholders are navigating inheritance taxes

Overweight (Maintain) I. Inherent tax status of major conglomerate groups 1. OCI Group: Inheritance taxes on former chairman Lee Soo-young’s 10.9% stake in Industry Report OCI are estimated to be W174.5bn. His heirs, including Vice Chairman Lee Woo-hyun, June 10, 2019 have raised the funds to pay the taxes by selling some of their shares in April. 2. LG Group: Inheritance taxes on former chairman Koo Bon-moo’s 11.3% stake in LG Corp. are estimated to be W921.5bn. Of this, Chairman Koo Kwang-mo owes Mirae Asset Daewoo Co., Ltd. W716.2bn. We believe Chairman Koo will sell some of his shares in LG Corp. after taking steps to enhance the company’s value. [Conglomerates/Software] 3. Doosan Group: Inheritance taxes on former chairman Park Yong-gon’s 1.6% stake Dae-ro Jeong in Doosan Corp. are estimated to be W17.9bn. His heirs, including Chairman Park +822-3774-1634 Jeong-won, sold part of their shares in Doosan Corp. in May to pay their tax bill. [email protected]

4. Group: Inheritance taxes on former chairman Cho Yang-ho’s 17.8% stake in Hanjin KAL are estimated to be W279.7bn. The deadline for reporting the inheritance taxes is October. We believe the taxes will be paid through long-term installments using share pledges, as well as through the sale of stakes in non-core subsidiaries.

II. How inheritance taxes are calculated

- Inheritance taxes are calculated by applying a 10-50% tax rate to the tax basis, which is the taxable value of the inherited property, minus deductions. - Inheritance taxes on listed shares are based on the average daily closing price during the two-month period before and after the assessment date. - When a company’s shares are inherited to its largest shareholder, a 10-30% premium is imposed, depending on the shareholder’s equity stake and size of the company. - If certain conditions are met, beneficiaries can apply to pay their inheritance taxes in short-term installments, long-term installments, or in kind.

III. How inheritance taxes are funded - Inheritance taxes can be funded through stake sales or share pledges. This ultimately incentivizes holding and controlling companies to increase dividend payments.

IV. Restrictions on inheritance through the use of public interest corporations - Regulators and lawmakers are currently seeking to limit the voting power of conglomerate-owned public interest corporations in affiliates.

V. Samsung Group’s inheritance taxes - Inheritance taxes on Chairman Lee Kun-hee’s stakes in publicly traded Samsung companies, including a 4.2% stake in (SEC), are estimated to reach around W9tr. - Given the huge tax bill, we believe a sale of SEC shares is inevitable. But even with the sale, the group’s control in the company will remain essentially unchanged.

Mirae Asset Daewoo Research Key Universe Valuations June 10, 2019

※All data as of close June 05, 2019, unless otherwise noted.

19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 Samsung Electronics 263,864 44,200 3.2 -54.2 38.9 -46.7 34.7 13.8 10.2 1.2 1.1 8.8 11.1 000660 SK Hynix 47,611 65,400 2.3 -85.3 94.0 -85.4 87.6 21.0 11.2 0.9 0.9 4.8 8.5 005380 Hyundai Motor 29,914 140,000 2.9 61.8 9.5 143.0 11.5 10.8 9.7 0.5 0.5 5.2 5.6 068270 Celltrion 25,217 196,500 - - - - 0.0 0.0 051910 LG Chem 23,331 330,500 1.8 -13.1 52.7 -15.4 63.6 20.8 12.7 1.4 1.3 7.1 10.9 055550 21,292 44,900 12.5 3.1 10.5 0.7 6.1 6.1 0.5 0.5 9.4 8.8 012330 20,967 220,000 1.6 9.1 10.2 27.0 7.4 8.9 8.3 0.6 0.6 7.5 7.6 017670 SK Telecom 20,590 255,000 3.9 5.8 9.8 -34.9 53.0 10.1 6.6 0.8 0.7 8.8 12.5 005490 POSCO 20,402 234,000 4.7 -16.7 1.8 69.3 2.3 7.1 7.0 0.4 0.4 6.5 6.3 051900 LG H&H 20,226 1,295,000 12.8 9.7 15.7 10.6 25.6 23.1 5.5 4.7 20.0 18.9 105560 KB Financial Group 18,522 44,300 9.7 3.8 10.8 4.0 5.5 5.3 0.5 0.4 9.3 9.0 035420 NAVER 18,294 111,000 0.3 -15.1 26.3 -31.4 68.6 41.1 24.4 2.6 2.4 8.2 12.5 028260 Samsung C&T 17,603 92,800 2.2 5.4 20.1 -4.2 20.7 13.9 11.6 0.6 0.6 5.2 5.9 034730 SK Holdings 16,746 238,000 2.0 13.3 12.9 -32.3 20.1 11.1 9.2 0.9 0.8 8.9 9.8 000270 Motors 16,681 41,150 1.9 20.5 19.7 54.5 16.7 9.3 8.0 0.6 0.5 6.3 7.0 015760 KEPCO 16,498 25,700 ------0.2 0.3 - - 032830 Samsung Life 16,280 81,400 - - - - 0.0 0.0 018260 Samsung SDS 16,017 207,000 1.4 11.6 16.5 12.7 15.4 22.6 19.6 2.4 2.2 11.3 12.0 006400 Samsung SDI 15,816 230,000 0.4 16.8 45.7 -1.0 42.4 23.3 16.4 1.2 1.2 5.6 7.5 096770 SK Innovation 14,841 160,500 5.0 -29.5 18.8 -40.7 27.9 15.4 12.0 0.8 0.7 5.3 6.7 033780 KT&G 13,867 101,000 4.2 12.8 5.6 17.5 5.1 13.1 12.5 1.6 1.5 12.7 12.6 000810 Samsung F&M 12,862 271,500 - - - - 0.0 0.0 003550 LG Corp. 12,821 74,300 3.1 17.2 15.4 5.5 15.6 6.6 5.7 0.7 0.6 10.5 11.1 066570 LG Electronics 12,814 78,300 1.0 7.1 20.0 23.7 39.9 9.2 6.6 0.9 0.8 10.3 12.9 086790 11,259 37,500 8.6 8.1 9.5 8.2 4.6 4.2 0.4 0.4 9.0 9.1 090430 AmorePacific 10,523 180,000 0.7 6.0 20.7 6.9 22.4 29.6 24.2 2.7 2.5 7.8 8.9 251270 10,169 119,000 44.5 59.7 57.2 39.0 34.0 24.5 2.1 1.9 6.6 8.5 036570 NCsoft 10,084 459,500 1.3 32.4 26.4 49.5 17.4 16.1 13.7 3.1 2.6 23.9 23.1 035720 10,008 120,000 0.1 167.0 116.1 127.8 160.4 85.9 33.0 1.9 1.8 2.2 5.6 010950 S-Oil 9,198 81,700 3.1 60.1 77.0 99.7 139.4 18.5 7.7 1.4 1.2 7.7 16.5 011170 Lotte Chemical 8,775 256,000 4.1 -34.3 31.9 -35.0 35.1 8.6 6.3 0.7 0.6 7.8 9.9 010130 Korea Zinc 8,473 449,000 2.4 8.9 6.0 19.1 2.4 13.5 13.2 1.3 1.2 9.7 9.3 009540 HHI 8,245 116,500 - 594.6 - - - 69.2 0.7 0.7 - 1.0 091990 Celltrion Healthcare 8,241 57,300 - 192.4 1119.2 156.4 59.1 23.1 4.4 3.8 8.2 18.6 024110 7,963 13,850 7.5 4.5 5.4 3.6 4.9 4.8 0.4 0.4 8.6 8.3 030200 KT 7,363 28,200 3.9 2.0 3.0 28.2 5.6 8.3 7.9 0.5 0.5 6.5 6.6 009150 Samsung Electro-Mechanics 7,133 95,500 1.2 -19.1 28.9 -17.5 31.2 13.7 10.4 1.4 1.2 10.7 12.6 032640 LG Uplus 6,178 14,150 4.6 -2.9 11.7 2.0 18.2 12.6 10.6 0.9 0.8 7.0 7.9 018880 Hanon Systems 6,165 11,550 - - - - 0.0 0.0 086280 6,038 161,000 2.0 8.8 2.2 20.2 8.7 11.5 10.6 1.3 1.2 11.8 11.7 034220 LG Display 5,958 16,650 - - - - - 18.7 0.4 0.4 - 2.3 000720 Hyundai E&C 5,790 52,000 1.0 22.4 10.8 21.0 1.6 12.6 12.4 0.9 0.8 7.3 7.0 004020 5,351 40,100 1.9 2.5 16.1 42.1 23.3 9.4 7.7 0.3 0.3 3.3 3.8 267250 5,041 309,500 6.0 78.7 2.1 154.0 4.5 7.4 7.1 0.6 0.6 8.6 8.5 Holdings 010140 SamsungHvyInd 4,901 7,780 - - - - - 63.4 0.6 0.6 - 1.2 128940 4,732 407,500 0.1 37.5 -0.2 141.7 -12.3 78.6 89.7 6.1 5.7 8.2 6.8 023530 Lotte Shopping 4,498 159,000 3.3 6.5 3.9 - 10.5 11.2 10.1 0.4 0.4 3.4 3.7 029780 4,322 37,300 -16.3 3.1 2.8 4.1 12.2 11.7 0.6 0.6 1.5 1.5 005830 DB Insurance 4,283 60,500 - - - - 0.0 0.0 097950 CJ CheilJedang 4,215 280,000 1.3 15.4 12.7 -64.8 23.7 14.7 11.9 0.9 0.8 6.3 7.3 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data June 10, 2019

※All data as of close June 07, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 419.26 1.96 0.47 -2.25 USD/KRW 1,179.80 1,181.50 1,169.40 1,069.60 KOSPI 2,072.33 3.22 0.16 3.10 JPY100/KRW 1,087.87 1,091.81 1,055.84 970.91 KOSDAQ 716.53 8.78 1.24 7.05 EUR/KRW 1,330.70 1,329.72 1,309.96 1,260.04 Dow Jones* 25,720.66 181.09 0.71 10.26 3Y Treasury 1.54 1.54 1.72 2.22 S&P 500* 2,843.49 17.34 0.61 13.29 3Y Corporate 2.05 2.05 2.19 2.84 NASDAQ* 7,615.55 40.07 0.53 14.25 DDR2 1Gb* 1.05 1.05 1.06 1.35 Philadelphia Semicon* 1,363.13 18.03 1.34 16.98 NAND MLC 64G* 2.38 2.37 2.59 3.63 FTSE 100* 7,259.85 39.63 0.55 7.81 Oil (Dubai)* 59.37 60.03 69.22 73.75 Nikkei 225 20,884.71 110.67 0.53 6.76 Gold* 1,337.60 1,328.30 1,283.80 1,297.10 Hang Seng* 26,965.28 69.84 0.26 7.30 Customer deposits (Wbn)* 23,553 23,815 26,467 27,971 Taiwan (Weighted) 10,409.20 -52.42 -0.50 8.95 Equity type BC (Wbn)(Jun. 4) 81,261 81,210 82,765 80,440 Note: * as of June 05, 2019 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung Electronics 27.89 POSCO 13.70 Samsung Electronics 27.66 SEMCO 19.77 Samsung Electronics (P) 7.73 SK Telecom 9.31 Samsung SDI 10.84 Honam Petrochemical 12.52 Celltrion 7.31 Samsung C&T 7.88 Hana Financial Group 9.31 Samsung Electronics (P) 6.09 Hyundai Heavy Industries 5.02 SEMCO 7.42 SK Telecom 9.00 Netmarble 5.32 Korea Aerospace Industries 3.96 KODEX KOSDAQ150 INVERSE 7.00 KODEX KOSDAQ150 INVERSE 7.88 Dongbu Insurance 5.19 ORION 3.49 LG Display 6.83 KODEX 200 Futures Inverse 2X 7.37 KODEX KRW CASH 4.95 Douzone Bizon 2.88 6.69 KODEX Kosdaq150 Leverage 7.33 Hynix 4.65 KT&G 2.74 Hyundai Steel 5.69 LG Electronics 7.17 Hyundai Heavy Industries 4.51 Samsung SDI 2.60 4.67 Samsung C&T 6.99 KB Financial Group 4.27 Samsung Engineering 2.51 Netmarble 4.52 Hanjin KAL 5.62 Samsung Engineering 3.55 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Cafe24 Corp. 10.07 Medy-tox 13.03 SM 7.32 DK&D 5.82 Suprema 5.29 Nepes 4.75 Kolen 3.97 Ace Technology 5.32 ANA Pass 4.57 SillaJen 3.66 Medy-tox 3.93 BH,LTD. 2.13 ABL Bio 4.39 Celltrion Healthcare 3.40 Partrion 3.91 Cafe24 Corp. 1.83 Innowireless 4.26 Wonik IPS 3.17 Celltrion Healthcare 3.88 S Net 1.78 PearlAbyss 4.23 HLB 3.10 Seojin System 3.25 Innowireless 1.73 AURORA 2.74 BH,LTD. 2.31 ECOPROBM 2.99 Spigen Korea 1.71 Kaon Media 2.44 TESNA 2.05 SFA Semicon 2.79 Mezzion Pharma 1.55 SFA Semicon 2.37 S Net 2.01 Neo Pharm. 2.76 Wonik IPS 1.53 Ace Technology 2.13 KINX 2.00 SNK 2.55 UniTest 1.36 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 44,200 300 263,864 Celltrion Healthcare 57,300 -200 8,241 Hynix 65,400 300 47,611 CJ ENM 189,000 300 4,145 Hyundai Motor 140,000 -1,000 29,914 SillaJen 54,500 -300 3,841 Samsung Electronics (P) 36,250 200 29,830 ViroMed 190,700 2,800 3,043 Celltrion 196,500 500 25,217 HLB 72,500 -700 2,845 LG Chem 330,500 -1,000 23,331 PearlAbyss 202,300 6,200 2,634 Shinhan Financial Group 44,900 0 21,292 Medy-tox 433,100 -1,900 2,519 Hyundai Mobis 220,000 -500 20,967 73,600 3,900 2,065 SK Telecom 255,000 -2,500 20,590 Celltrion 51,500 -100 1,755 POSCO 234,000 -4,500 20,402 Hugel 389,900 -2,700 1,699 Source: Korea Exchange