EQUITYEQUITY RESEARCH RESEARCH 5 Mar 2008 CJ (001040 KS) 

CJ Corporation (001040 KS) BUY (Upgrade)

Waiting for positive signals as it converts to a holding company Patrick Kim (82-2-769-3809) [email protected] Upgrade to BUY, and boost TP to W120,000 We have a BUY rating on CJ Corporation (CJ), setting our target price at W120,000. Based Share price (Mar 5) W73,300 on our sum-of-parts valuation we derived our target price by adding the per share stake value Six-month TP W120,000 of W131,650 to the per share tangible asset value of W5,080, and then deducting W16,260 Par value W5,000 per share in borrowings. KOSPI 1,676.18 52 week high/low W147,968/W64,000 It has been half a year since it converted to a holding company structure Capital stock In Sep 2007, CJ began to convert to a holding company with a subsidiary spin-off. Then in W137.7bn (Common stock) Dec 2007, as it completed a tender offer for shares of CJ CheilJedang, CJ emerged as an Market cap W2,062.6bn undisputed holding company. As such, the company is comprised of a total of 15 subsidiaries, Foreign ownership 15.5% including three food production and food service companies, five E&M (Entertainment & Performance (%) Absolute Relative Media) companies, three new retail businesses, and three companies working in either the 1 m 0.4 1.3 financial industry or the infrastructure industry. Meanwhile, it has six listed subsidiaries and 6 m -11.5 1.3 nine unlisted ones. 12 m -32.3 -42.9 The share catalyst will be its improved earnings from non-listed subsidiaries The company’s business portfolio highlights its stable business diversification, which might

Share price help offset the risks from each individual business. However, as it posts continued losses (‘000W) Outperformance(RHS)(%) 160 0 from some of its E&M and construction companies this is adversely impacting CJ’s stake

140 -10 value. Nonetheless, CJ Investment Securities has recently moved into the black after having 120 -20 continuously recorded losses. This subsidiary has also launched a moderate restructuring in 100 -30 a bid to enhance profitability in its loss-making divisions. This will provide a lift to the value of 80 -40 CJ’s subsidiary stakes going forward. 60 -50 40 The shares look cheap - BUY -60 20 It appears that CJ’s current market value reflects uncertainties surrounding the future -70 07.02 07.05 07.08 07.11 08.02 operating results of its subsidiaries. However, its current market value has dropped below the value of its stakes in listed subsidiaries and does not price in the value of its unlisted subsidiaries’ shares nor the value of other assets including its available-for-sale securities. Therefore, we find the shares undervalued and have a BUY rating on the stock with a target price of W120,000.

Forecasts and Valuations FY Sales OP Pre-tax profit NP EPS Chg P/E P/B EV/EBITDA ROE Net D/E (Wbn) (Wbn) (Wbn) (Wbn) (W) (% yoy) (x) (x) (x) (%) (%) 2006A 2,650 192 216 140 4,895 -7.7 24.4 2.2 18.1 9.1 74.9 2007A 1,973 163 82 38 1,418 -71.0 58.2 1.3 9.4 2.3 20.1 2008F 217 172 154 112 4,055 185.9 0.0 0.0 1.9 6.3 18.1 2009F 235 195 182 132 4,793 18.2 0.0 0.0 1.5 7.0 15.5 2010F 258 213 201 146 5,293 10.4 0.0 0.0 1.3 7.2 13.1 Source: Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

5 . Summary

. Valuation 6 1. Valuation 8 2. Sum-of-Parts valuation applying a discount

. Determinants of CJ’s corporate value 9 1. The value of its subsidiary stakes 11 2. CJ’s tangible assets 12 3. Another important value – brand value

. SWOT analysis 14 1. Strengths 16 2.Weaknesses 19 3.Opportunities 20 4.Threats

22 . Conclusion – CJ’s value is swayed by its subsidiaries EQUITY RESEARCH CJ (001040 KS)

ʐ. Summary

Even in light of its Some of the CJ Corporations’ (CJ) subsidiaries will likely continue posting losses for the time being and this will subsidiaries deteriorating undermine the holding company’s equity method gains going forward. CJ’s current stock price has factored in the profitability, shares in CJ are uncertainties regarding the performance of its subsidiaries. Nevertheless, even if we take a conservative stance significantly undervalued towards its subsidiaries’ earnings we still believe CJ is undervalued. The rationale behind this stance is as follows: 1. We applied a 40% discount to the net asset values of four of its subsidiaries (CJ Development, CJ Entertainment, CJ Media and CJ Oliveyoung), which are continuing to record net losses. 2. CJ decided to impose brand usage fees on its subsidiaries, but since 2008 is the first year that these will take effect, and as it is impossible to estimate the size of the cash inflows generated by these fees, we have chosen to not yet reflect them in our valuation.

Fair per share value Using our DCF metric, we estimated CJ’s stake value at W131,650 per share and its tangible assets at W5,080 estimated at W120,000 per share, and then summed up both figures before subtracting its per share borrowings of W16,260. We then arrived at a fair per share value of W120,000. As such, we think the stock is presently undervalued.

A key factor determining CJ Entertainment, CJ Development and CJ Media are reporting massive net losses with the booking of sizeable CJ’s long term value is bad debt expenses. These have were incurred as the companies respectively faced problems regarding pre- whether its subsidiaries can funded movie production, unsold housing and copyrights. Moreover, equity method losses from subsidiaries are secure profitability increasingly impacting CJ’s performance. We think these losses demonstrate a side effect of CJ’s policy to turn to M&A’s in order to boost its growth potential. Nevertheless, the company’s holdings in CJ CheilJedang, which make up the greatest portion of its subsidiary holdings, are generating stable earnings. However, as the food & beverage industry enters a mature phase there will only be limited profit growth from this business. Furthermore, despite CJ’s dominant market share in the entertainment & media business, this business unit’s profitability also falls short of expectations. Meanwhile, after having continued to report massive losses that have adversely impacted CJ’s corporate value, CJ Investment & Securities (CJIS) has moved into the black. We also have a positive view on the possibility that CJIS will go public on the stock exchange this year.

CJ’s stake value is a key Ironically, the pricing-in of the sluggish performance of the company’s subsidiaries’ will provide a boost to its stake factor in determining its value in the long run. Given its current profit structure, CJ will inevitably pursue efforts to reinvent itself. One of the corporate value major advantages of a holding company is to create a business environment where corporate restructuring can be made in the most appropriate way. This may provide momentum for boosting CJ’s shares. Obviously, some of its business units are recording lower margins, but their M/S’s remain steady in their respective industries and they are still taking leading roles in determining market prices as well. Consequently, assuming all of the following: a positive corporate restructuring, including a business portfolio reshuffle; a conservative investment approach, and a profit-oriented management policy in judging feasibility (for example setting an ROI target at a specific level during the restructuring), CJ’s stake value will rapidly get closer to its fair value. EQUITY RESEARCH CJ (001040 KS)

ʑ. Valuation

1. Valuation

Rating: BUY, TP of W120,000

Valuation We have a BUY rating on CJ, setting our target price at W120,000. Based on our sum-of-parts valuation we derived our target price by adding its per share stake value at W131,650, to the per share market value of its headquarters building at W5,080, and then subtracted W16,260 per share in borrowings.

Available-for-sale securities CJ’s stake value includes both the value of its holdings in subsidiaries and the value of its available-for-sale may finance the company’s (AFS) securities. Since it has a limited capacity to generate cash as a holding company, CJ may dispose of its future investments AFS securities if additional investment money is needed. Its major securities under this classification include: 58,823 shares in Everland (a 2.35% stake) and 639,434 shares in (a 3.20% stake). Also, its shares in DreamWorks Animation (worth approx. W84.0bn as of Mar 3, 2008) may now be classified as AFS securities.

CJ is trading at a 33.1% As of Mar 3, CJ is trading at a 33.1% discount to its NAV (net asset value). In other words, the holding discount to its NAV company’s current market value is about 66.9% of the total sum of its stakes (both those listed and non-listed) and its tangible assets, after subtracting its total borrowings. As such, theoretically CJ’s stock price holds more than a 33.1% upside potential.

Therefore, we believe the shares are currently undervalued and we have a bullish outlook that the discount to its NAV will be reduced as the company sees a gradual improvement in its equity method gains from subsidiaries. In the long run we think CJ’s shares will receive a boost considering the fair value of its subsidiary stakes, the value of its tangible assets, and the value of its brand recognition.

CJ’s value chain The value of a holding company is comprised of: 1) the securities under equity method, or its subsidiary stakes; 2) its brand revenues; and 3) its tangible assets. The book value of CJ’s subsidiary stakes is estimated to be about 91% of its total assets as of end-Sep 2007, well above the 50% prescribed in order to be a holding company. All in all, as in other holding companies, the key driver determining CJ’s corporate value is the value of its subsidiary stakes. That is to say, CJ’s corporate value corresponds to a portfolio comprised of its respective stakes in subsidiaries. EQUITY RESEARCH CJ (001040 KS)

[Table 1] CJ’s securities breakdown (shrs, %, Wmn) Dec 2007 Listing Name of company Stake (%) Number of shares Acquisition costs Net asset value Book value Sajo O&F 12.61 903,000 3,760 7,707 7,070 Samsung Everland 2.35 58,823 5,180 43,949 5,180 Available-for- Samsung Life Insurance 3.20 639,434 518 286,714 518 sale securities Others 105,500 1,721 2,350 2,350 Sub-total 11,179 340,720 15,118 CJ CheilJedang (*1) 39.14 4,413,707 812,086 276,808 816,593 CJ Food System 52.00 5,592,220 43,039 36,527 34,922 CJ Food Ville 95.81 12,273,236 61,060 77,488 60,111 CJ Development 99.90 6,915,707 87,774 58,262 42,910 CJ Systems 62.12 621,333 5,617 15,948 11,323 CJ Entertainment 100.00 3,000,000 160,603 112,777 112,777 CJ Media 50.17 9,374,499 87,469 73,025 72,954 CJ Homeshopping 40.00 4,400,901 370,886 191,212 315,581 CJ Invest. & Securities 59.69 64,168,033 149,542 117,540 117,542 Securities under equity CJ Venture Investment 90.00 1,800,000 18,000 7,168 7,168 method CJ GLS 37.05 2,098,342 64,497 54,649 62,275 CJ Olive Young 50.00 2,610,000 13,050 6,865 6,865 CJ Internet 25.09 5,709,500 97,732 48,918 95,100 CJ CGV 36.73 7,571,631 59,999 65,933 65,945 MNet Media 33.25 16,106,084 51,177 30,268 33,638 CJ Sports 100.00 372,400 1,862 555 555 LEE Entertainment 99.36 - 74,317 90,171 90,171 Other foreign 100.00 47,222,275 35,678 14,060 20,874 subsidiaries Sub-total 2,194,389 1,299,613 2.003,964 Total 2,205,568 1,640,333 2,019,082 Note: (*1) CJ CheilJedang’s value is based on our forecasts right after the tender offer. Source: CJ, Daishin Securities Research Center

[Table 2] CJ’s valuation using the sum-of-parts valuation (Wbn) Company name Individual value Total value Note (1)Listed subsidiaries 2,052 CJ CheilJedang 1,346 Our target market value CJ Food System 51 Current market value CJ Homeshopping 328 Our target market value CJ Internet 131 Our target market value CJ CGV 115 Current market value MNet Media 81 Current market value . Stake values (2)Non-listed subsidiaries 587 CJ Inv. & Securities 182 Applying a P/B of 1.55x, the securities sector’s average P/B at end-Dec 2007 Lee Entertainment 84 Forex rate of W948/$ Others 321 Based on NAV (i.e., a 40% discount to the NAV’s of these subsidiaries) Samsung Life Insurance is based on its over-the-counter market price, while (3) Available-for-sale 501 Sajo O&F is based on its Mar 3, 2008 closing price, while others are based on securities their NAV’s. Sub-total 3,139 . Tangible asset value 121 Estimated rental income using a DCF metric . Total asset value ( + ) 3,260 . Net borrowings 386 Interest-bearing liabilities as of end-Dec 2007 . Shareholders’ stake value ( - ) 2,874 . Outstanding shares 23,854,273 Deducting treasury stocks (3,678,376 shrs) . Per share value W120,472 . Upside potential 63.7% Based on the Mar 5, 2008 closing price: W73,300 Source: Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

2. Sum-of-parts valuation, applying a discount

We arrived at W120,000 as CJ’s fair per share value. However, major domestic holding companies are currently trading at discounts of 20~30% to their fair values. In Nov 2007 when the KOSPI made strong gains the market applied only a minimum discount to holding companies (less than 10% for LG), however amid the current bearish market they now are trading at higher discounts.

Essentially, the discount applied to CJ’s shares at a given time varies depending on stock price swings for both the holding company and its subsidiaries. Consequently, we are not sure whether a corporate value implying a discount to the stake value would be a truly fair value, because the corporate value may be the current market value.

We think the corporate value may differ depending on the extent of available information and the valuation metrics used. As such, we present a discount rate band to calculate the stake value, in addition to our target price valuation.

[Table 3] Sum-of-parts valuation scenario by discount rate (Wmn, shrs) Applying a discount Target Price 10% 20% 30% 40%

Stake value 3,140,510 2,826,460 2,512,409 2,198,358 1,884,306 Tangible assets 121,212 121,212 121,212 121,212 121,212 To tal a sse ts 3,261,772 2,947,672 2,633,621 2,319,570 2,005,518 Net debt 387,946 387,946 387,946 387,946 387,946 Equity 2,873,777 2,559,726 2,245,675 1,931,624 1,617,572 No. of floating shares 23,854,273 23,854,273 23,854,273 23,854,273 23,854,273 Est. per share value (W) 120,472 107,300 94,141 80,970 67,810 Source: Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

ʒ. Determining factors for CJ’s corporate value

1. The value of its subsidiary stakes: a key driver for determining its corporate value

The value of subsidiary stakes has the largest impact on the value of a holding company. This is explained by the fact that the value of a holding company is the total sum of its stakes in the subsidiaries comprising its business portfolio. Therefore, like other holding companies CJ’s value relies primarily on the value of its subsidiaries.

[Chart 1] Subsidiary breakdown The portion of subsidiaries for each sector among the total Individual subsidiaries’ portions among the total securities held securities held under equity method under equity method

Others Financials & Infrastructure

Others

Food & Retail CJ CheilJedang Food services

CJ Entertainment 6%

CJIS CJ Homeshopping

Source: CJ, Daishin Securities Research Center Source: CJ, Daishin Securities Research Center

With stable profitability and a In assessing CJ’s value, it is crucial to make an accurate prediction of its subsidiaries’ earnings. high market share CJ 1) CJ CheilJedang – as it passes higher raw material costs on to its products this company holds a dominant CheilJedang is a core position in the market and experiences strong sustained top-line growth even amid intensifying competition. subsidiary Also, with the growth rates of its processed food and pharmaceuticals divisions close to 30%, we have a favorable view of the company’s future growth potential. We assumed that increased PL (private label) goods from mega discount stores, along with increasingly stiff competition in the food & beverage sector would drag down the company’s sales growth. However, thanks to its efforts to improve its cost structure, we think the company will keep its profitability at the current level for 2008 and beyond. EQUITY RESEARCH CJ (001040 KS)

CJ Home Shopping will However, unlike the positive forecast for its sales and profitability, the poor earnings of CheilJedang’s overseas increase contributions to subsidiaries (major overseas subsidiaries posting losses as of end-Dec 2007: PT CJI -11.3bn, CJ Odriver - 7.2bn), are gaining more significance as the turnaround needed to improve the company’s overall value. CJ corporate value on the back CheilJedang is part of an industry that is stable, but has limitations in expanding profits. As such, we now of a positive forecast believe that its future profit results will be determined by the improved performance of its overseas subsidiaries, which up until now have not contributed in a significant manner to its corporate value.

2) CJ Home Shopping – the growth of the home shopping industry in Korea is currently flat. However, CJ Home Shopping is expected to improve its operating profit on the back of a smaller increase in SO fees and reduced advertising costs. CJ Home Shopping is also projected to reduce the equity valuation losses stemming from its non-operating division.

[Table 4] CJ’s earnings forecast 06 (A) 07 (A) 08 (E) 09 (E) Sales 2,650 2,876 3,040 3,127 OP 192 260 266 270 NP 182 216 184 192 Source: CJ, Daishin Securities Research Center

[Table 5] Earnings forecast for CJ Home Shopping 06 (A) 07 (P) 08 (E) 09 (E) Sales 1,545 1,523 1,569 1,616 OP 85 70 75 79 NP 48 28 38 48 Source: CJ, Daishin Securities Research Center

The persistent losses of 3) CJ Entertainment – CJ Entertainment is a very important subsidiary in terms of securing profitability as it subsidiaries in the makes up 30% of CJ’s subsidiary holdings in the E&M sector (which make up 19.0% of CJ’s total subsidiary entertainment and media holdings). CJ Entertainment posted a net loss of W22.8bn in 2007, and its 2006 net losses stood at around W25bn. As for CJ Media, which makes up 19% of CJ’s subsidiary holdings in the E&M sector (and about sector should be 3.7% of CJ’s total subsidiary holdings), the company posted W7bn in net losses in 2006, followed by a improved as soon as cumulative net loss of W15.1bn in 2007. As can be seen, poor performance in the E&M sector has a negative possible impact on CJ’s overall corporate value. Therefore, we believe that improved earnings for these losing subsidiaries are a prerequisite to raising CJ’s subsidiary stake value. In addition, strategic activities including the restructuring and reshuffling of its business portfolio is significantly important for CJ.

4) Other important subsidiaries besides those mentioned above include: CJ Investment and Securities (CJIS) and CJ Development, which are both subsidiaries that have a significant influence on CJ. Reportedly, CJIS is planning a stock split and a capital reduction with the objective of minimizing capital erosion and in order to prepare for the listing of its stock. In 2006, CJIS reported an annual net loss of W82bn, but made a turnaround and reported an annual net profit worth W72.7bn. We believe that this upward momentum will be maintained on the back of the bullish stock market. EQUITY RESEARCH CJ (001040 KS)

Stock split, capital The stock split and capital reduction are seen as measures to protect CJIS’s shareholder equity which is reduction, and listing of currently suffering from capital erosion due to accumulated losses. However, CJIS’s value has increased thanks to improved earnings, and the increased number of buyers for both new and established securities CJIS will significantly help to companies. Therefore, it is very likely that CJ will sell its 59.69% stake in CJIS in order to meet the holding improve CJ’s corporate company requirements that prohibit holding companies from owning shares in a financial affiliate. value

Whether it separates CJIS from the CJ Group or sells it altogether, the listing of CJIS will be a very positive factor for CJ’s cash flow.

Reducing CJ CJ Development is another important subsidiary in the group. This company, which faces an adverse Development’s bad debt construction environment, has reported annual net losses of roughly W11bn in 2006, and W14.2bn in 2007. Due to increased non-performing assets stemming from its unsold stores, CJ Development had to write off write-offs is W45bn worth of bad debt it incurred up to 3Q07, which was the main reason behind the net loss for the year. important To make matters worse, as of Sep 2007, potential non-performing assets totaled close to W133.1bn, which could lead to even more write-offs. As conditions in the construction market are unlikely to improve in the short-term, we believe additional losses are inevitable.

2. CJ’s tangible assets

The value of CJ’s Currently CJ is receiving rent from its headquarters building, the CJ Home Shopping Building and other tangible assets equals the tangible assets. CJ’s sources for cash revenue are the dividend profits of its securities holdings, its brand usage fees, and rent from these tangible assets. As CJ does not operate any profit-earning businesses itself, present value of its future its cash flow is very limited. However, as profits from brand usage and rental income guarantee a safe source rental profit we do not foresee any abrupt changes in its cash flow.

The value of CJ’s tangible The company’s total rental profit in FY08 is expected to come in around W8bn. We calculated the present assets using the DCF value of its future estimated rental profits as the value of CJ’s tangible assets. We implemented a rental profit growth rate of 3%. model came in at W121.2bn

[Table 6] Rental profits [2008 figures are estimates] (Wbn) Fiscal year 06 (A) 07 (F) 08 (E) 09 (E) 10 (E) Amount 18.1 14.6 8 8.2 8.5 Source: CJ, Daishin Securities Research Center [Table 7] Tangible asset value derived by using the DCF valuation model (Wbn) Category Rental profit estimate Value Note CF (08E) 8 2008 estimates WACC 9.6% Assumed growth rate at Value 121.2 3% Source: CJ, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

3. Another important value: brand value

Brand usage fees are CJ receives fees from its subsidiaries for allowing them to use the “CJ” logo on their products and services. one of CJ’s major revenue This accounts for around 0.3% of sales for the whole CJ group. Recently CJ announced that it expects brand usage fees to total approximately W22bn in 2008. However, we did not reflect this in our valuation of the sources likely create a stable company as this year was the first year that CJ started to receive these fees, and as such, we do not yet have source of cash flow a reliable estimate for the figure.

The brand value of CJ is Initial cash inflow from these fees is projected at W22bn. If the sales for CJ’s subsidiaries increase in 2008, roughly W333bn when these fees will rise proportionately. If we assume the annual growth rate for the brand usage fee is 3%, sales for the group would total about W330bn. using the DCF model If we reflected this in estimating CJ’s fair market value, we would have added an additional W14,000 per share.

[Table 8] Estimated income from brand usage (Wbn) Fiscal year 08 (F) 09 (F) 10 (F) 11 (F) 12 (F) Amount 22 23 24 25 26 Source: Daishin Securities Research Center

[Table 9] Brand value derived by using the DCF model (Wbn)

Category Key factors Value CF(08F) 22 WACC 9.6% Growth Rate 3% Assumed growth rate at 3% Value 333 Source: Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

ʕ. SWOT analysis

[Table 10] SWOT analysis Strengths Weaknesses 1. Strong corporate governance through its transition into 1. Flat growth in the food & food service industry a holding company 2. Persistent deficits for CJ Entertainment, CJ Media and 2. High brand awareness CJ Development 3. Limited initial dividends for the holding company due to 3. Diversified business structure its subsidiaries’ low earnings 4. Strong market position and the business stability in its major subsidiaries

Opportunities Threats 1. Easy to raise cash on the back of a stable financial 1. Weakened negotiating power for its food service structure and ample AFS security holdings businesses compared to the strength of discount stores 2. Extensive M&A experience 2. The increased competition for its major subsidiaries 3. Holds tangible assets and securities that can be easily 3. Increased need for investments in order to stabilize its used elsewhere subsidiaries EQUITY RESEARCH CJ (001040 KS)

1. Strengths

1. Strong corporate governance from its transition into a holding company

Prompt decision-making CJ recently spun off its operating branch, CJ CheilJedang and then formed the CJ holding company. Since expected from a more stable that time CJ CheilJedang became a subsidiary of the CJ holding company through a rights offering, and in structure in addition to the process CEO Jay Hyun Lee’s stake increased from 19.7% to 43.7%. As such, we believe the likelihood policies that increase of a change in managerial rights due to external changes is very low. shareholder value

[Table 11] Shareholder composition after the take-over bid

After the take- CJ CJ CheilJedang over bid No. of shares Stake (%) No. of shares Stake (%) (estimated) CJ - - 4,377,654 38.8 CEO Jay Hyun 11,979,881 43.7 - 0.0 Lee etc. Treasury stock 3,680,802 13.4 11,120 0.1 Others 11,735,391 42.8 6,887,914 61.1 Total 27,396,074 100.0 11,276,688 100.0

2. Diversified business structure

A wide-range of business Business risk generally refers to how much a company is exposed to the ups and downs of the industry it areas could offset business belongs to. Therefore, this risks can be more efficiently dispersed as a company’s subsidiaries represent a greater number of industries, and as they possess greater price determining power in those industries. In risks this regard, considering the number of industries that CJ’s subsidiaries belong to, and the market share and price determining power they each have, we expect to see a healthy dispersion of risk.

3. The high market share and stability of its main subsidiaries is directly related to its brand awareness

The M/S of its main CJ’s main subsidiaries are CJ CheilJedang (40.7%), CJ Home Shopping (15.7%), CJ Entertainment (5.6%) subsidiaries ensures ample and CJIS (5.9%). As these four subsidiaries account for 67.9% of CJ’s subsidiary stake value, their forecasts are indeed very important. pricing power CJ CheilJedang is recognized as a promising subsidiary in terms of competitiveness, stability and profitability. It is maintaining a leading market position in most of its business segments, and through its diversified business structure it is reducing its sensitivity to the business cycle. In addition, it has vertically integrated its food services by providing even the food materials themselves. Furthermore, we expect it to maintain stable business prospects moving forward, since the business is relatively inelastic in terms of demand relative to prices. EQUITY RESEARCH CJ (001040 KS)

CJ Home Shopping dominates the market along with GS Home Shopping. We expect CJ Home Shopping to improve its operating profit by reducing its SO fees and advertising costs, which comprise most of its expenses. Reduced equity valuation losses from the closing of the open market, “Mple Online” is also a positive factor.

CJ Entertainment and its subsidiary CJ CGV are vertically integrated. That is, both specialize in different areas creating synergy for both companies. Namely, CJ Entertainment specializes in investment and distribution, while CJ CGV specializes in screening. Although CJ Entertainment is posting persistent deficits due to a falling audience M/S and domestic movies’ sluggish performance, its standing in the domestic cinema industry is still very strong. As the growth of the industry translates into growth for CJ Entertainment, and since the company has ample pricing power, we believe the domestic movie market’s strong performance could lead to positive earnings.

The market standing of each subsidiary is directly reflected in the “CJ” brand. Although it is true that royalties are an intangible asset, and therefore difficult to gauge, it is evident that CJ’s brand royalties increase in proportion to its subsidiaries’ sales expansion. As such, we can say that increased sales for these subsidiaries, brought about by maintaining their M/S, directly impacts CJ’s brand awareness.

[Table 12] CJ CheilJedang’s market position by business segment Business segment Market position Competition level Main competitor Market structure Spices and condiments First Stable Daesang Duopoly Ham processing First Aggravated Lotte, Daesang and others Competitive Sugars and syrups First Stable Samyang, TS Corporation Oligopoly Flour and flour mix First Stable Samyang, TS Corporation Oligopoly Oils First Stable Sajo O&F Oligopoly Animal feed Second Aggravated NACF, Purina Competitive Medicine N/A Aggravated Green Cross and others Competitive Source: CJ, NICE EQUITY RESEARCH CJ (001040 KS)

[Table 13] The market position of CJ Home Shopping & its rivals based on volume sold (%) Home shopping co.’s 2005 2006 2007.1Q 2007.2Q 2007.3Q CJ 26.5 28 27.8 27.9 27.6 GS 35.8 34.7 35.1 32.8 33 Hyundai 18.7 19.9 19.3 19.6 19.8 Lotte 11.9 10.5 10.5 12.6 12.6 NS Home Shopping 7 6.8 7.4 7.1 7.1 Source: CJ Home Shopping, Daishin Securities Research Center

[Table 14] audience and M/S by distributor (‘000 persons, %) Total audience in Total audience for hit Distributor No. of movies Seoul M/S No. of hit movies Seoul movies CJ Entertainment 41.5 14,636 29.7 3 4,011 /Mediaplex 23 6,085 12.3 - - Warner Brothers Korea 14 5,557 11.3 3 2,971 Sony Pictures Korea 25 4,838 9.8 2 2,925 26 4,242 8.6 - - 15.5 3,571 7.2 - - 20th Century Fox Korea 18 2,778 5.6 1 990 UIP Korea 17 1,722 3.5 1 762 Prime Entertainment 19 1,691 3.4 - - Others 218 4,215 8.5 - - Note: No. of hit movies is based on the top 10 hit movies among those screened in 2007 Source: Korean Council, Daishin Securities Research Center

2. Weaknesses

1. The food & food service industry is entering a mature stage, with slowed growth

Major subsidiaries reaching CJ’s food & food service subsidiaries comprise roughly 41% of its total subsidiaries’ business, which is a mature stage suggests sufficient to say that they make up CJ’s core subsidiary group. CJ’s subsidiaries in this industry, include CJ there is a limit to increased CheilJedang, CJ Foodville and CJ Food Systems. profitability Demand in the food service industry is considerably inelastic relative to price changes, which is this industry’s key strength. However, once the industry matures, its growth and profits become flat, which is the industry’s main weakness.

What is noteworthy is that the sales of CJ’s food service business are surging compared to its past performance. The business’ increased sales and OP growth are coupled with an increased number of stores and the good performance of its bakery division. Though this growth is positive, CJ’s food service business needs to find new growth engines through the acquisition of similar businesses or by pursuing business integration. EQUITY RESEARCH CJ (001040 KS)

[Table 15] Earnings for CJ’s food & food service businesses (Wbn)

Sales 2005A 2006A 2007E 2008E 2009E CJ CheilJedang 2,460 2,650 2,876 3,040 3,127 CJ Foodville 161 286 410 531 687 CJ Food System 618 613 590 620 650 Total 3,239 3,549 3,876 4,191 4,464

OP 2005A 2006A 2007E 2008E 2009E CJ CheilJedang 192 192 260 266 270 CJ Foodville 3 10 14 19 24 CJ Food System 10 -13 -4 1 2 Total 205 189 270 286 296 Source: CJ Corp. annual report, Daishin Securities Research Center

2. CJ Entertainment and CJ Development continue to incur losses

CJ Entertainment’s earnings CJ’s recent share price drop was brought on by investors’ disappointment with the poor operating results of are deteriorating due to a its subsidiaries. The uncertainty related to these results is one of the biggest stumbling blocks that could downturn in the overall hinder CJ’s stake value in its subsidiaries from rising. industry In particular, CJ Entertainment and CJ Development may fail to make an earnings turnaround within the next one or two years.

Despite its strong market presence, CJ Entertainment (CJE) is incurring large losses because it pre-funded movie production projects as the overall movie industry suffered from stalled growth. Due to equity valuation losses (for example, from Cinema Service) CJE incurred W9.4bn in losses during the first three quarters of 2006, while during the same period in 2007 its losses further rose to W17.1bn. Furthermore, its total 2007 losses are forecast to further increase to W24.1bn. As of end-3Q07, CJE had pre-funded W50.4bn in movie production, which it could have some difficulty recovering through any earnings related to this expense. As such, it may recognize this as an additional loss.

Nevertheless, CJE’s competitiveness lies in its strong negotiating power and high market share. While the total number of movie goers climbed only 0.3% yoy in 2007, CJE’s sales expanded by as much as 23.7% yoy. This indicates that the company could achieve high profitability going forward if it makes conservative investments based on appropriate feasibility analyses. In addition, an appropriate restructuring of its poorly performing business divisions and/or subsidiaries will also help the company to turnaround its earnings. EQUITY RESEARCH CJ (001040 KS)

CJ Development’s CJ Development incurred losses mainly due to receivables related to apartment construction projects. The receivables should continue new apartment market slowed its growth under the previous national government, due to strong anti-real deteriorating for the time estate speculation measures, but the market is likely to rebound with the new government. CJ being due to the real estate Development posted W5.1bn in NP in 2005, with bad debt expenses totaling W71.0bn. In 2006, its market’s slump performance reversed and it had only W11.0bn in net losses, as the result of increased receivables related to apartment construction (bad debt expenses were W45.6bn). As of end-3Q07, CJ Development has recognized an additional bad debt expense of W45.0bn (an accumulated bad debt expense of W33.3bn). Meanwhile, CJ Development is likely to recognize an additional bad debt expense as the company says its potential bad assets total about W133.1bn.

The construction industry’s downturn is taking its toll on CJ Development’s sales, which are gradually decreasing. CJ Development significantly affects CJ’s overall equity valuation gains because it owns 99.9% of CJ Development. Recently, CJ made additional investments in CJ Development by purchasing W20bn in convertible bonds, while also participating in a W20bn rights offering. These investments indicate CJ’s positive view on CJ Development’s future earnings, however the subsidiaries future does not really look very promising after 2008, given that it could incur additional losses.

3. CJ is not yet receiving significant dividend income

A subsidiaries’ poor earnings When a subsidiary performs poorly, the amount of dividend income its holding company receives decreases the holding decreases. CJ CheilJedang, which is expected to account for a large portion of CJ’s dividend income, is not company’s dividend income paying out dividends after having spun-off because there are no earnings available for dividends (using the definition in commercial law to calculate what is available). Meanwhile, its other subsidiaries are not paying out significant dividends either. Considering these results we can see that subsidiaries’ earnings are an important factor to consider in valuing CJ, because they can increase the value of its subsidiary stakes and also affect the amount of dividend income available to the holding company. EQUITY RESEARCH CJ (001040 KS)

3. Opportunities

1. Having a stable financial structure and AFS securities makes it easy for CJ to raise cash

Strong financial soundness According to current laws and regulations, a holding company is required to maintain its debt ratio at less and AFS securities make it than 200%. Since as of end-2007 CJ’s debt ratio stands at 25.77%, it is not likely to have difficulty in easy for CJ to raise any cash financing additional funds. In addition, CJ can sell off its stakes in Samsung Everland and Samsung Life needed for investments Insurance, which it classifies as AFS securities. Doing so would result in more than W44.0bn in cash from Samsung Everland (W44.0bn is its net asset value) and W450.0bn in pretax cash from Samsung Life Insurance (assuming a share price of W700,750, which is the 52-week average price in the OTC market). Thus these AFS securities can be used as additional investment resources if needed later on.

2. CJ has abundant M&A experience

Abundant M&A experience is CJ’s growth has been driven by M&A activities for some time. Only five companies CheilJedang, a major intangible asset for a CheilJedang Construction, Cheil C&C, Cheil Frozen Foods, and Cheil Futures, were separated from the holding company charged Samsung Group in 1993. However, they have now grown into a corporate group totaling 66 companies and with adjusting the group’s ranking 25th in Korea as of Feb 1, 2008. business portfolio CJ’s growth is the result of its aggressive growth strategy through M&A’s since 2000. Its major M&A activity is listed in the table below.

[Table 16] Major M&A’s since 2000

Time M&A target Time M&A target Feb 2000 Haechandle (50% stake) Apr 2004 Plenus (currently, CJ Internet) May 2000 39 Shopping (currently, CJ Shopping) Dec 2005 Haechandle (50% stake) Dec 2002 Samyang Oil Mar 2006 Youngnam Broadcasting Jan 2004 Shindongbang (starch sugar) Apr 2006 DreamCity Source: CJ’s annual report

In addition to the activities listed above, CJ also expressed its intention to take over Korea Express although it later withdrew its interest in such an attempt. All in all, CJ has been aggressively seeking M&A’s in efforts to enter new businesses and secure new growth drivers. In addition, the company has also been very active in establishing subsidiaries and building factories in China, Southeast Asia, and Turkey.

These M&A experiences are likely to help CJ better serve as a holding company in adjusting the business portfolio of the group. EQUITY RESEARCH CJ (001040 KS)

4. Threats

1. The negotiating power CJ’s food & food service business has is weakening against that of discount stores

The weakened negotiating Discount stores have rapidly expanded since 1990, emerging as a threat to CJ’s negotiation power. power of CJ CheilJedang and Discount stores now have enormous negotiation power in the food distribution market as the total number of CJ Home Shopping against these stores and their sales have rapidly increased from 163 units and W10.5tn, respectively, in 2000 to 342 discount stores is a threat units and W25.4tn in 2006. Food and beverages are the items accounting for the largest portion of discount store sales. As such, these stores could pressure CJ CheilJedang to lower its supply prices, share indirect SG&A expenses, and increase its marketing expenses thereby hurting the company’s overall profitability.

CJ CheilJedang’s sales However, CJ CheilJedang’s penetration into the discount store market is not likely to decrease given that its should expand along with the products are profitable and the company is already enjoying a strong presence in the food and beverage discount stores’ sales growth market. Instead, we view that the company’s sales will increase along with the discount stores’ sales growth since its customers exhibit strong brand loyalty and the demand for food and beverages is relatively stable.

[Chart 2] The total number of discount stores and their sales growth (Wtn)

(Units) (Wtn)

Source: Korea Chain Stores Association, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

2. Additional investments are increasingly needed to stabilize subsidiaries’ operations

While adjusting the group’s Recently, CJ acquired W20bn of CJ Development’s convertible bonds and also participated in this business portfolio, CJ will subsidiary’s rights offering, purchasing 2mn shares of its stock for W20bn. make additional financial investments in select Aside from this, CJ is likely to make a financial investment in CJ Investment & Securities, whose capital was subsidiaries partially eroded as of end-Dec 2007. In order to resolve the erosion problem, CJIS will reduce its capital by 80%.

Reportedly, CJIS is planning to resolve its capital erosion problem and become listed on the stock market in late 2008 or early 2009. Once its capital is reduced the company will be recapitalized during which CJ, as a parent company, is expected to make a financial investment by purchasing bonds, rather than acquiring an equity stake. As a holding company, CJ cannot own a financial company as a subsidiary. Thus it should dispose of its stake in CJIS by 2009, and as such it is unlikely to acquire any additional stakes.

[Table 17] CJIS’ capital erosion (As of end-Dec 2007; Wbn) Accounting title 3Q07 Following the capital reduction and loss disposition Capital stock 538 108 Capital surplus (232) 89 Discount on capital stock (1) (1) Other capital adjustments (231) (231) Gain on retirement of capital stock - 321 Deficit (109) - Total shareholders’ equity 197 197 Note 1: Total shareholders’ equity remains unchanged, whereas only the shareholders are changed. Note 2: The gain on retirement of capital stock is produced. Source: Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

ʔ. Conclusion – CJ’s value is swayed by its subsidiaries

The determining factor of About six months have passed since CJ became a holding company, and it is currently in the middle of CJ’s value is the stability of meeting all of the requirements of this transition. In 2008, the company is expected to focus more on creating subsidiaries’ operating an environment where it can fill the appropriate roles of a holding company. results

It is important for CJ to establish a holding company system. However, to enhance the value of its subsidiary stakes, the company should help these subsidiaries improve their operating results. It is positive that: 1) CJ’s subsidiaries boast high market share and profitability; 2) they belong to an industry where demand is relatively insensitive to price changes; and 3) its business portfolio is diversified. Nevertheless, the fact that its subsidiaries are incurring equity valuation losses from their own subsidiaries (ie, sub-subsidiaries), while some of them also have potentially bad assets, is indeed negative.

The coming year will be a very important one for CJ to take advantage of its holding company status, to make appropriate investments in its subsidiaries and restructure them to boost its equity valuation gains. This will be the first year that CJ builds itself to better serve as a holding company for the group. EQUITY RESEARCH CJ (001040 KS)

Balance Sheet (Wbn) 2006A 2007A 2008F 2009F 2010F Current Assets 502 48 80 116 99 Quick Assets 188 48 80 116 99 Cash & Cash Equivalents 33 42 51 87 70 Financial Goods 40000 St. Investment Assets 00000 St. Loans 50000 Account Receivables 760000 Other Current Assets 706292929 Inventories 3140000 Non-Current Assets 2,807 2,111 2,186 2,287 2,406 Investment Assets 1,656 2,020 2,101 2,204 2,325 Tangible Assets 1,08683817977 Intangible Assets 191000 Other Non-Current Assets 468444 Total Assets 3,308 2,159 2,267 2,404 2,505 Current Liabilities 849 43 91 129 92 Account Payables 1280000 St.Debt 267 0 69 105 60 CPLD 1760000 Other Current Liabilities 278 43 22 24 32 Non-Current Liabilities 849 399 347 314 314 Bonds 399 187 187 187 187 Lt.Debt 401 200 127 99 99 Other Non-Current Liabilities 48 12 33 28 28 Total Liabilities 1,697 442 438 443 406 Paid-in-Capital 182 157 157 157 157 Capital Surplus 1,107 1,555 1,556 1,556 1,556 Capital Adjustment -357 -719 -720 -720 -720 Other Accumulated Comprehensive Income -72 -11 -11 -11 -11 Retained Earnings 750 735 847 979 1,118 Total Shareholder's Equity 1,611 1,717 1,829 1,961 2,099 Total Liabilities & SHE 3,308 2,159 2,267 2,404 2,505 Debt 1,243 387 383 391 346 Net Debt 1,206 345 332 304 276

Return on Capital (%) ROA 4.61.45.05.75.9 ROIC 11.2 12.6 186.0 164.4 195.5 ROE 9.12.36.37.07.2

Financial Leverage ( %, X) Total Debt/Equity 105.4 25.8 24.0 22.6 19.3 St. Debt/Equity 16.5 0.0 3.8 5.4 2.9 Debt/Equity 77.1 22.5 20.9 19.9 16.5 Net Debt/Equity 74.9 20.1 18.1 15.5 13.1 EBIT/Interest Expenses 3.1 2.9 9.1 13.9 17.8 Debt/Total Market Cap. 32.4 21.9 0.0 0.0 0.0 Debt/Sales 46.9 19.6 176.5 166.4 134.1 Debt/EBITDA 446.5 172.4 221.4 199.5 162.4

Turnover (%) Sales/Account Receivables 40.6 52.2 0.0 0.0 0.0 Sales/Account Payables 21.0 30.9 0.0 0.0 0.0 Sales/Inventory 8.8 12.6 0.0 0.0 0.0 Sales/Tangible Assets 2.4 23.8 2.7 3.0 3.4 Sales/Total Assets 0.90.70.10.10.1 Source: CJ Corp, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

Balance Sheet (Wbn) 08/1QF 08/2QF 08/3QF 08/4QF 2008F Current Assets 61 66 67 80 80 Quick Assets 61 66 67 80 80 Cash & Cash Equivalents 49 49 44 51 51 Financial Goods 00000 St. Investment Assets 00000 St. Loans 00000 Account Receivables 00000 Other Current Assets 12 17 23 29 29 Inventories 00000 Non-Current Assets 2,125 2,146 2,166 2,186 2,186 Investment Assets 2,040 2,060 2,081 2,101 2,101 Tangible Assets 81 81 81 81 81 Intangible Assets 00000 Other Non-Current Assets 44444 Total Assets 2,186 2,212 2,233 2,267 2,267 Current Liabilities 55 66 72 91 91 Account Payables 00000 St.Debt 18 34 51 69 69 CPLD 00000 Other Current Liabilities 37 32 21 22 22 Non-Current Liabilities 386 373 360 347 347 Bonds 187 187 187 187 187 Lt.Debt 182 164 145 127 127 Other Non-Current Liabilities 17 23 28 33 33 Total Liabilities 441 439 432 438 438 Paid-in-Capital 157 157 157 157 157 Capital Surplus 1,555 1,555 1,555 1,556 1,556 Capital Adjustment -719 -720 -720 -720 -720 Other Accumulated Comprehensive Income -11 -11 -11 -11 -11 Retained Earnings 763 791 819 847 847 Total Shareholder's Equity 1,745 1,773 1,801 1,829 1,829 Total Liabilities & SHE 2,186 2,212 2,233 2,267 2,267 Debt 387 385 383 383 383 Net Debt 338 335 339 332 332

Return on Capital (%) ROA 1.4 1.1 1.4 1.2 5.0 ROIC 59.4 41.9 40.1 35.4 186.0 ROE 1.8 1.4 1.7 1.4 6.3

Financial Leverage ( %, X) Total Debt/Equity 25.3 24.8 24.0 24.0 24.0 St. Debt/Equity 1.0 1.9 2.8 3.8 32.0 Debt/Equity 22.2 21.7 21.3 20.9 20.9 Net Debt/Equity 19.4 18.9 18.9 18.1 18.1 EBIT/Interest Expenses 9.5 9.8 9.5 9.1 9.1 Debt/Total Market Cap. 11.9 10.0 25.5 21.7 0.0 Debt/Sales 678.5 784.7 696.8 683.9 176.5 Debt/EBITDA 854.7 979.6 847.0 885.5 221.4

Turnover (%) Sales/Account Receivables 0.0 0.0 0.0 0.0 0.0 Sales/Account Payables 0.0 0.0 0.0 0.0 0.0 Sales/Inventory 0.0 0.0 0.0 0.0 0.0 Sales/Tangible Assets 0.7 0.6 0.7 0.7 2.7 Sales/Total Assets 0.0 0.0 0.0 0.0 0.1 Source: CJ Corp, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

Income Statement (Wbn) 2006A 2007A 2008F 2009F 2010F Sales 2,650 1,973 217 235 258 Sales of Goods Manufactured 0 0 0 0 0 Sales of Merchandise etc. 2,650 1,973 217 235 258 Export Sales Ratio 0.1 0.0 0.0 0.0 0.0 Cost of Sales 1,756 1,298 33 28 30 Gross Profit 894 675 184 207 228 SG&A 703 512 12 12 15 Labor Cost 155 121 13 14 15 Selling Expenses 226 155 3 4 4 Other Expenses 322 236 -4 -6 -4 Operating Profit 192 163 172 195 213 Non-operating Income 295 65 7 8 7 Interest Income 3 3 2 2 1 Gain on Equity Method 96 0 0 0 0 Gain on Related FC 36 6 3 4 3 Others 160 56 2 2 3 Non-operating Expenses 271 147 25 21 19 Interest Expenses 62 56 19 14 12 Loss on Equity Method 108 0 0 0 0 Loss on Related FC 16 14 3 4 2 Others 8577335 Pre-tax Profit from Continuing Operations 216 82 154 182 201 Income Taxes 7644425055 Profit from Continuing Operations 140 38 112 132 146 Profit from Discontinued Operations 0 0 0 0 0 Net Profit 140 38 112 132 146 Adj. Net Profit 113 50 112 132 144 EBITDA 278 224 173 196 213 282 Growth Rate (%) Sales Growth 7.7 -25.5 -89.0 8.3 9.8 Operating Profit Growth -0.4 -14.9 5.5 13.4 9.2 Pre-tax Profit Growth 18.4 -62.0 87.9 18.2 10.4 Net Profit Growth 5.6 -72.8 193.4 18.2 10.4 EBITDA Growth -1.3 -19.4 -22.9 13.3 8.7 EPS Growth 3.8 -65.4 145.6 18.2 10.4 Adj. Net Profit Growth -14.4 -53.9 128.7 18.2 9.5

Profitability (%) Gross Margin 33.7 34.2 84.8 88.1 88.4 Operating Profit/Sales 7.2 8.3 79.3 83.0 82.6 Net Profit/Sales 5.3 1.9 51.5 56.1 56.5 Adj. Net Profit/Sales 4.3 2.5 51.5 56.1 56.0 EBITDA Margin 10.5 11.4 79.7 83.4 82.6 Source: CJ Corp, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

Income Statement (Wbn) 08/1QF 08/2QF 08/3QF 08/4QF 2008F Sales 57495556217 Sales of Goods Manufactured 0 0 0 0 0 Sales of Merchandise etc. 57 49 55 56 217 Export Sales Ratio 0.7 0.8 0.7 0.8 0.0 Cost of Sales 9 8 8 8 33 Gross Profit 48 41 47 48 184 SG&A 3 2 2 5 12 Labor Cost 1 1 1 1 13 Selling Expenses 1 1 0 1 3 Other Expenses 1 0 1 3 -4 Operating Profit 45 39 45 43 172 Non-operating Income 2 0 2 3 7 Interest Income 0 0 0 2 2 Gain on Equity Method 0 0 0 0 0 Gain on Related FC 1 0 1 1 3 Others 10102 Non-operating Expenses 6 4 6 10 25 Interest Expenses 5 4 5 5 19 Loss on Equity Method 0 0 0 0 0 Loss on Related FC 1 0 1 2 3 Others 00033 Pre-tax Profit from Continuing Operations 42 35 41 36 154 Income Taxes 1110111042 Profit from Continuing Operations 31 25 30 26 112 Profit from Discontinued Operations 0 0 0 0 0 Net Profit 31 25 30 26 112 Adj. Net Profit 31 25 30 27 112 EBITDA 45394543173 17 Growth Rate (%) Sales Growth -91.8 -90.1 -90.3 94.9 -89.0 Operating Profit Growth -26.9 -29.1 49.5 163.0 5.5 Pre-tax Profit Growth -16.5 474.7 183.2 208.8 87.9 Net Profit Growth 16.1 -633.3 921.5 100.6 193.4 EBITDA Growth 163.6 -13.3 15.3 -4.4 -22.9 EPS Growth 80.8 -931.0 1,322.4 100.6 145.6 Adj. Net Profit Growth 50.9 -18.9 21.3 -10.8 128.7

Profitability (%) Gross Margin 84.2 83.7 85.5 85.7 84.8 Operating Profit/Sales 3.5 0.0 2.7 5.4 79.3 Net Profit/Sales 54.2 50.5 55.3 46.9 51.5 Adj. Net Profit/Sales 53.9 50.9 55.0 48.2 51.5 EBITDA Margin 79.4 80.1 82.3 77.2 79.7 Source: CJ Corp, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

Cash Flow Statement (Wbn) 2006A 2007A 2008F 2009F 2010F Operating Cash Flow 191 -32 99 165 183 Net Income 140 38 112 132 146 Additions to Net Profit -1 97 31 31 29 Depr / Amor 87 61 1 1 0 FC Gains/Losses -9 4 0 0 -1 Gain/Loss on Equity Method 12 5 0 0 0 Others -9127303030 Changes in Assets/Liab. 52 -167 -44 2 8 Account Receivables 2 -61 0 0 0 Inventory -14 -3 0 0 0 Account Payables -8 -5 0 0 0 Others 73 -98 -44 2 8 Investing Cash Flow -338 -152 -86 -137 -155 Incr. in Inv. Securities (Decr) -201 -77 -82 -103 -121 Tangible Assets -130 -67 -70 -70 -70 Others -7-8663636 Financing Cash Flow 153 214 -3 8 -45 St.Debt -18 96 69 36 -45 Bonds 3 184 0 0 0 CPLD 406 100 -73 -28 0 Right Issue 0 0 1 0 0 Dividend -42 -46 0 0 0 Others -196 -120 0 0 0 Incr./Decr. In Cash 9 9 9 36 -17 Cash at the Beginning 2433425187 Cash at the End 3342518770 NOPLAT 124 76 125 141 154 FCF 127 -100 11 74 92

Cash Flow Statement (Wbn) 08/1QF 08/2QF 08/3QF 08/4QF 2008F Operating Cash Flow 0 0 0 0 99 Net Income 0 0 0 0 112 Additions to Net Profit 0 0 0 0 31 Depr / Amor 0 0 0 0 1 FC Gains/Losses 0 0 0 0 0 Gain/Loss on Equity Method 0 0 0 0 0 Others 0 0 0 0 30 Changes in Assets/Liab. 0 0 0 0 -44 Account Receivables 0 0 0 0 0 Inventory 00000 Account Payables 00000 Others 0 0 0 0 -44 Investing Cash Flow 0 0 0 0 -86 Incr. in Inv. Securities (Decr) 0 0 0 0 -82 Tangible Assets 0 0 0 0 -70 Others 0 0 0 0 66 Financing Cash Flow 0 0 0 0 -3 St.Debt 0 0 0 0 69 Bonds 0 0 0 0 0 CPLD 0000-73 Right Issue 0 0 0 0 1 Dividend 00000 Others 0 0 0 0 0 Incr./Decr. In Cash 0 0 0 0 9 Cash at the Beginning 0 0 0 0 42 Cash at the End 0 0 0 0 51 NOPLAT 0000125 FCF 5528391611 Source: CJ Corp, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

RIM 2006A 2007A 2008F 2009F 2010F FROE (Forecasted ROE) 17.4 2.3 6.3 7.0 7.2 Risk Free Rate (Rf) 8.7 6.2 5.0 Risk Premium (Rm-Rf) 6.0 Beta 1.0 COE (Cost of Equity) 14.9 12.4 11.2 11.2 11.2 Terminal growth (%) 3.0 Continuing Value -221 Appraised Company Value PV of Forecast Period RI -56 PV of Continuing Value -133 Beginning Shareholder's Equity 1,664 Equity Value for Residual Income 1,475 No. of Shares (Thou.) 27,533 Equity Value per Share (Won) 53,579 Current Price (Won) 69,400 Potential (%) -22.8

DCF 2006A 2007A 2008F 2009F 2010F NOPLAT 124 76 125 141 154 Depreciation 8458110 Amortization 2 3 0 0 0 Gross Cash Inflow 211 137 126 142 154 Gross Investment -83 -237 -114 -68 -62 Free Cash Flow 127 -100 11 74 92 IC 0 866 49 51 53 61 Working Capital 0 4606292929 Operating Fixed Assets 0 406 43 22 24 32 NOPLAT 124 76 125 141 154 ROIC (%) 28.7 16.6 249.2 271.9 270.9 WACC (%) 8.1 7.8 7.4 6.9 6.8 Continuing Value 124.0 76.0 125 141.0 154.0

EVA 2006A 2007A 2008F 2009F 2010F NOPLAT 124 76 125 141 154 IC (Year end) 866 49 51 53 61 Working Capital 460 6 29 29 29 Operating Fixed Asset 406 43 22 24 32 ROIC (%) 11.2 12.6 186.0 164.4 195.5 WACC (%) 8.1 7.8 7.4 6.9 6.8 Economic Profit (Economic Value Adde 27 2 91 83 115 PV of Continuing Value 708 Beginning IC 50 Operating Value of EVA 1,149

Multiple 1. PER EPS 4,895 1,418 4,055 4,793 5,293 PER 24.4 58.2 0.0 0.0 0.0 2. PEG EPS 4,895 1,418 4,055 4,793 5,293 EPS CAGR(%) -11.8 -48.3 -9.0 83.8 14.2 PEG -2.1 -1.2 0.0 0.0 0.0 3. PBR BPS 53,072 62,362 66,413 71,207 76,246 PBR 2.2 1.3 0.0 0.0 0.0 4. PCR CPS 8,253 3,706 4,092 4,829 5,293 PCR 14.4 22.3 0.0 0.0 0.0 6. EV/EBITDA EBITDA 278 224 173 196 213 EBITDA CAGR(%) 4.6 -10.8 -21.2 -6.5 11.0 EV/EBITDA 18.1 9.4 1.9 1.5 1.3 7. Dividend Payout Ratio (%) 30.3 0.0 0.0 0.0 0.0 Dividend Yield (%) 1.3 0.0 0.0 0.0 0.0 Source: CJ Corp, Daishin Securities Research Center EQUITY RESEARCH CJ (001040 KS)

Compliance Notice

This report has been prepared without any undue external influence or interference, and accurately reflects [CJ Corp. (001040 KS)] Rating and Target price the personal views of the analyst who is responsible for this report. Date 08.03.06 07.09.28 07.08.17 07.07.27 07.06.27 07.06.22 07.06.13 07.04.27 07.02.12 06.12.01 06.11.24 Rating Buy Under Perf BuyBuyBuyBuyBuyBuyBuyBuyBuy In accordance with clause 4-16 of the supervisory regulation for the securities industry, we inform: TP 120,000 75,000 146,000 146,000 146,000 146,000 146,000 132,000 118,000 135,000 135,000 - No information or content in this report has been shared before it is released on Daishin’s website. Date 06.10.31 06.07.28 06.07.27 06.07.26 06.06.26 06.06.12 06.04.28 RatingBuyBuyBuyBuyBuyBuyBuy - The analyst has not received and will not receive direct or indirect compensation in exchange for expressing TP 135,000 155,000 155,000 155,000 170,000 170,000 170,000 specific recommendations. No part of this report is provided in advance to institutional investors or a third party. Sector ratings [ CJ Corp. (001040 KS)] Target price and Actual price - Overweight: industry indicators are expected to outperform the market over the next 6m Share price Target price - Neutral: industry indicators are expected to be in line with the market over the next 6m - Underweight: industry indicators are expected to underperform the market over the next 6m Company ratings - Buy: the stock is expected to outperform the market by at least 10% over the next 6m - Marketperform: the stock is expected to either outperform or underperform the market by less than 10%p over the next 6m - Underperform: the stock is expected to underperform the market at least 10%p over the next 6m This report is distributed only to the customers of Daishin Securities Co., Ltd. for informational purposes, and none of the contents presented in this report may be copied or transmitted to any other party. While we have taken all reasonable care to ensure that the report is reliable, we do not guarantee that it is accurate or complete. Therefore, Daishin Securities Co., Ltd. shall not be liable for any loss arising from any use of this report.