December 1, 2015

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Insurance (Overweight) KOSPI 2,023.93 31.96 1.60 2016 Outlook Report KOSPI 200 248.70 4.46 1.83 KOSDAQ 691.95 3.57 0.52 Chemicals/Oil Refining (Overweight/Neutral) 2016 Outlook Report Turnover ('000 shares, Wbn) Volume Value KOSPI 565,138 4,672 Economy & Strategy Update KOSPI 200 59,122 2,934 December Model Portfolio KOSDAQ 659,261 3,103 How to navigate unfavorable supply/demand conditions Market Cap (Wbn) Value KOSPI 1,284,556 KOSDAQ 200,420

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,386 1,279 107 Institutional 733 681 52 Retail 2,483 2,696 -214

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 188 168 20 Institutional 88 117 -29 Retail 2,826 2,813 13

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 976 828 148 KOSDAQ 90 79 11

Advances & Declines Advances Declines Unchanged KOSPI 530 288 55 KOSDAQ 581 454 84

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 1,321,000 37,000 307 KODEX LEVERAGE 10,310 295 211 Hanmi Pharm 764,000 -30,000 207 Maniker 1,520 15 189 KODEX INVERSE 8,085 -130 129

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value BARUN 4,295 835 218 Timo Technology 3,595 -1,365 186 ViroMed 215,300 34,300 155 Daum Communications 119,400 -1,200 75 87,500 1,200 74 Note: As of December 1, 2015

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

Insurance Facing both risks and opportunities

Profitability improvement deserves greater attention than new business growth Overweight (Maintain) We believe non-life insurers’ earnings up cycle will continue through 2016. Despite 2016 Outlook Report stagnant new business growth, loss ratios are expected to decline. As for auto insurance, the hike in premiums for riders in 2015 and premium rationalization for luxury and November 25, 2015 imported cars starting in 2016 should have a positive impact. Medical reimbursement policy loss ratio is anticipated to stabilize steadily thanks to premium adjustments and a

Daewoo Securities CCCo.,Co., Ltd. higher ceiling on premium hikes at contract renewal (20% ‰ 30%). In particular, second- tier insurers should enjoy more pronounced ea rnings bumps, as they have traditionally [Securities/Insurance] had more difficulties in controlling loss ratios than Samsung F&M.

Gil-won Jeong Life insurers achieved better-than-expected new business growth (protection-type in +822-768-3256 [email protected] particular) in 2015 largely on the back of pull-in demand ahead of regulatory changes, including cuts to the assumed rates. However, they will likely see a slowdown in new Ju-hyun Kim business growth in 2016 amid a structural downtrend in demand. +822-768-4149 [email protected] Life insurers’ profit structure improved in 2015 thanks to declines in loss and exp ense

ratios. However, negatives like widening negative spreads and increased minimum guarantee reserve burdens due to the 50bps fall in interest rates offset profitability improvement. In our view, the negative spread situation is unlikely to improve in th e near term in light of the upcoming maturation of high-yield bonds and the wide gap between minimum guaranteed interest rates and bond yields.

Opportunities and risks The insurance industry is expected to face both opportunities and risks in 2016 and beyond.

The implementation of IFRS 4 phase II is expected to pose risks (especially for life insurers). The new standards will provide guidance on the assessment of liabilities based on fair market value, which should lead to higher reserve requirements for insurers. In addition, it remains uncertain whether the Financial Services Commission (FSC) will ban the practice of offsetting a shortfall in reserves for fixed-rate liabilities with a surplus in another area. The authorities’ decision should have a significant impact on insurers’ long- term dividend and shareholder return policies . We expect revisions to current liability adequacy testing (LAT) and the announcement of new dividend payout guidelines in 2016.

Meanwhile, regulatory easing in other areas should present opportunities. The FSC’s new deregulation should help insurers develop new protection-type polices and improve margins. Of note, the removal of the maximum limits on safety margins and risk rate adjustments will likely have the greatest impact on insurers as the measures should significantly ease price controls.

Population aging has increased the demand for living benefits, but the difficulty of reasonably estimating and predicting risk rates has made it hard to keep the loss rat ios of new protection-type policies under control. If companies can better manage risks with safety margins, they would be able to sell a wider range of protection-type and non- renewal policies that appeal to consumers.

In Japan, many insurers offer medical insurance policies while enjoying high mortality margins because they are able to apply sufficient safety margins. As the country experienced population aging ahead of Korea, risk rates have already been adjusted based on accumulated data. As a result, Dai-ichi Life, which was listed in 2010 (around the same time that many domestic life insurers went public), is enjoying stronger growth and margins than Korean peers.

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he U.S.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Chemicals/Oil Refining Starting to heat up

[Chemicals/Overweight] Heating up; Top picks are LG Chem, Lotte Chemical Overweight/Neutral (Maintain) We reiterate our Overweight call on the chemicals sector , keeping LG Chem and Lotte 2016 Outlook Report Chemical as our top picks. November 26, 2015 With regard to LG Chem (Buy/TP: W400,000) , we see significant upside despite the recent share price rally. The EV business holds strong potential and is expected to grow full swing starting in 2017. Furthermore, the stock’s valuation premium could expand Daewoo Securities CCCo.,Co., Ltd. further if earnings improvements exceed expectations. Over the next two to three years ,

[Oil Refining/Chemicals] we expect LG Chem’s EV battery earnings growth to surpass market expectations.

Yeon-ju Park The EV industry is growing full swing, driven by the support of the Chinese government, +822-768-3061 technological innovation, and cost savings resulting from economies of scale. Although [email protected] multiple automakers and non-automakers have entered the EV business, Korean battery

Young-jee Bae companies possess highly competitive production technologies and vast experience. +822-768-4123 [email protected] Amid robust battery demand, supply is tight. LG Chem’s orders are expanding quickly , and, considering the company’s upward revision to its capacity ramp-up target, we expect that revenue growth will be greater than expected. Furthermore , tight supply

should lead to quick margin improvement.

Lotte Chemical (Buy/TP: W400,000) shares pulled back due to concerns that the company’s acquisition of Samsung’s chemicals businesses was overpriced . However, considering still-strong fundamentals , the stock seems deeply undervalued. As for PE (a flagship product), spreads remain wide. In particular, ethylene spreads are widening.

Spreads for other chemicals (e.g., MEG) are narrowing somewhat due to weak seasonality. MEG supply and demand conditions are tight, and if inventory stocking happens in early 2016 (before the Lunar New Year holidays), the MEG market should improve. While Lotte Chemical’s valuation is currently attractive , we should see normalization if the market rebounds early next year. The ethylene supply and demand situation is likely to stay tight through 2017. And non-ethylene products and downstream industries are also likely to pick up gradually.

[Oil refining/Neutral] Refining margins to be robust but volatile In 2016, oil prices are expected to rise heading into 2H after bottoming at US$40/bbl. As US shale oil players tend to scale back investments when oil prices fall to US$40/bbl, we expect to see a production slowdown toward the second half of the year. However, demand is anticipated to increase heading into 2H due to seasonal effects, adding upward pressure to oil prices. If oil prices reach US$60/bbl, however, shale oil producers will resume investments, limiting upside.

In 2015, refining margins have been expanding. While gasoline has been largely responsible for the uptrend, fuel oil and naphtha margins have also been largely on the rise despite high volatility. Notably, petroleum product demand has increased by 1.8mn bbl/day YoY. In 2016 , refining margins are projected at 2015 average levels but will likely display higher volatility depending on refineries’ capacity utilization. Current utilization is around the mid-80% level, and any improvement in margins should push up both utilization and supply. Accordingly, we advise investors to approach refining plays from a trading perspective.

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

December Model Portfolio How to navigate unfavorable supply/demand conditions

December rally unlikely due to foreigners’ net selling

Each December, expectations for a year-end rally mount. From 2000 to 2012, the KOSPI Quant Report rose by an average of 2.0% in December (with the index climbing nine times out of 13). December 1, 2015 For the past two years, however, the KOSPI languished in December (-1.6% in 2013 and -3.3% in 2014). The KOSDAQ was not much different, dipping 3.3% and 0.4% in December 2013 and 2014, respectively. Daewoo Securities Co., Ltd. The year-end rallies of previous years had been driven by foreign investors.

[Quantitative Analysis] shows that the proportion of foreigners’ December net buying in the KOSPI market cap

Sang-ho Kim tends to move in line with the index’s December performance. For example, foreigners +822-768-4122 net bought W3.6tr in December 2010 and W3.5tr in December 2012, and the KOSPI [email protected] advanced 7.7% and 3.3% in those months , respectively. On the other hand, the KOSPI declined in December 2013 and 2014, when foreigners net sold W1.8tr and W2.3 tr, respectively.

In short, the lack of any year-end rally in December 2013 and 2014 is attributable to foreign investors’ net selling in those months.

Figure 111.1. December KOSPI performance by year Figure 222.2. December KOSPI performance & foreign net buying

(%) December KOSPI return December KOSPI return (%) 10 10 '01 '09 '10 '05 '08 5 5 '04 '12 '03 0 0 '07 '06 '00 '13 '11 -5 '14 -5 Climbed9 times out of 13 -10 -10 '02

-15 -15 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Foreignnet buying/market cap. (%)

Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF RREPORT.EPORT.

Key Universe Valuations December 1, 2015

※All data as of close November 30, 2015, unless otherwise noted.

16F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F 005930 194,582 1,321,000 2.1 2.2 5.1 5.3 7.6 10.3 9.5 1.1 1.0 11.7 11.4 005380 Hyundai Motor 33,702 153,000 3.3 15.6 -1.2 12.6 1.1 5.8 5.7 0.6 0.6 11.4 10.5 015760 KEPCO 31,938 49,750 3.0 8.3 0.5 -46.9 -1.5 4.8 4.8 0.4 0.4 9.8 8.9 090430 AmorePacific 24,465 418,500 0.3 33.4 31.0 25.2 31.7 37.3 28.3 7.0 5.7 20.6 22.3 012330 24,044 247,000 1.4 15.0 7.2 22.5 5.8 6.4 6.0 0.8 0.7 13.4 12.6 000660 SK Hynix 22,823 31,350 1.3 -21.9 10.7 -22.9 11.3 6.8 6.1 0.9 0.8 14.1 13.8 000270 Motors 22,619 55,800 2.4 27.7 14.0 25.8 10.9 6.0 5.4 0.8 0.7 14.2 13.9 051910 LG Chem 21,339 322,000 1.2 17.6 33.5 35.9 34.2 13.6 10.2 1.6 1.4 12.6 15.0 035420 NAVER 21,327 647,000 0.2 33.3 22.4 35.7 21.6 28.8 23.7 5.4 4.5 27.7 26.0 032830 Samsung Life 21,100 105,500 - - - - 0.0 0.0 018260 Samsung SDS 20,544 265,500 0.2 12.2 1381.5 8.3 1338.7 42.8 3.0 4.1 1.7 10.1 82.3 055550 19,822 41,800 - - - - 0.0 0.0 034730 SK Holdings 18,997 270,000 0.7 9.0 13.4 4.3 -49.4 22.3 44.0 3.4 3.2 19.8 8.9 017670 SK Telecom 18,894 234,000 4.3 4.8 1.4 0.4 1.8 11.4 11.2 1.0 1.0 10.1 9.7 051900 LG Household & Health Care 16,056 1,028,000 0.5 21.6 16.8 22.7 18.6 30.9 26.0 6.9 5.6 25.7 24.4 005490 POSCO 15,301 175,500 4.6 10.9 11.3 593.2 33.2 10.4 7.8 0.4 0.3 3.5 4.6 033780 KT&G 15,102 110,000 3.3 -4.9 0.7 -9.4 2.0 15.8 15.5 2.1 2.0 14.7 13.9 000810 Samsung F&M 14,734 311,000 - - - - 0.0 0.0 105560 KB Financial Group 13,754 35,600 - - - - 0.0 0.0 003550 LG Corp. 12,994 75,300 1.3 8.3 0.0 5.2 2.1 11.9 11.6 0.9 0.9 8.2 7.8 096770 SK Innovation 11,928 129,000 1.9 -34.7 48.8 -29.1 58.6 15.6 9.8 0.7 0.7 4.7 7.2 066570 LG Electronics 9,001 55,000 1.5 63.8 18.6 153.4 21.4 10.6 8.7 0.8 0.7 7.6 8.5 034220 LG Display 8,963 25,050 2.0 -40.9 85.2 -43.9 110.7 14.5 6.9 0.7 0.6 4.9 9.7 010130 Korea Zinc 8,859 469,500 1.4 22.0 16.2 23.5 17.4 13.3 11.3 1.5 1.4 12.4 13.0 006400 Samsung SDI 8,664 126,000 0.8 468.2 5.0 385.4 -81.4 5.7 30.6 0.7 0.7 12.3 2.2 011170 Lotte Chemical 8,569 250,000 0.4 7.6 12.6 19.0 16.8 6.6 5.7 1.0 0.8 15.8 15.8 010950 S-Oil 8,568 76,100 3.6 -8.9 15.1 0.0 15.1 11.5 10.0 1.4 1.3 13.2 13.8 035250 8,558 40,000 3.2 11.5 5.2 14.7 9.5 16.7 15.2 2.5 2.3 16.4 16.4 047810 Korea Aerospace Industries 8,217 84,300 0.3 27.7 23.5 42.2 26.2 27.2 21.6 5.5 4.4 22.1 22.7 030200 KT 7,859 30,100 2.7 1.1 0.3 -13.4 4.2 10.5 10.1 0.6 0.6 6.5 6.4 128940 7,816 764,000 63.1 28.5 73.0 36.4 123.0 90.2 14.0 12.1 12.1 14.5 086790 7,592 25,650 - - - - 0.0 0.0 024110 7,484 13,450 - - - - 0.0 0.0 023530 Lotte Shopping 7,385 234,500 0.9 12.1 12.9 57.4 14.1 15.1 13.2 0.4 0.4 2.8 3.2 086280 7,219 192,500 1.0 9.5 8.4 57.8 2.4 12.4 12.1 2.0 1.8 17.6 15.6 035720 7,168 119,400 0.1 92.2 38.3 76.3 40.8 45.6 32.4 2.6 2.5 6.0 7.9 004020 6,966 52,200 1.4 6.8 9.9 7.6 31.6 7.9 6.0 0.4 0.4 5.6 6.9 009540 6,939 91,300 - 123.3 - 724.4 127.7 15.5 0.4 0.4 0.4 3.1 088350 Hanwha Life 6,644 7,650 - - - - 0.0 0.0 001800 Orion 6,580 1,101,000 0.6 14.8 8.2 23.0 13.5 31.4 27.7 4.1 3.6 14.1 14.2 021240 Coway 6,556 85,000 4.3 11.8 21.2 9.6 21.3 17.9 14.8 4.3 3.9 28.1 30.2 139480 Emart 5,979 214,500 0.7 21.2 13.5 -24.0 12.3 13.7 12.2 0.8 0.7 6.0 6.3 161390 5,884 47,500 0.9 7.1 14.0 7.7 14.9 8.2 7.2 1.0 0.9 12.8 13.0 009240 Hanssem 5,507 234,000 0.4 44.2 27.9 41.7 32.7 33.5 25.2 8.6 6.6 32.1 31.7 009150 Samsung Electro-Mechanics 5,154 69,000 0.9 25.4 29.0 240.2 32.7 19.8 14.9 1.1 1.0 6.0 7.5 002380 KCC 4,955 471,000 1.9 1.2 5.1 56.3 4.6 21.9 20.9 0.8 0.8 3.7 3.8 097950 CJ CheilJedang 4,849 368,500 0.6 8.6 9.5 28.5 33.2 18.2 13.7 1.5 1.4 8.9 10.8 036570 NCSOFT 4,835 220,500 1.7 29.6 21.8 34.4 24.9 18.6 14.9 2.7 2.4 16.5 18.1 078930 GS Holdings 4,804 51,700 2.6 -8.4 17.6 15.9 28.9 8.6 6.7 0.5 0.5 5.9 7.3 051600 KEPCO KPS 4,680 104,000 - - - - 0.0 0.0 Source: KDB Daewoo Securities Research

Market Data December 1, 2015

※All data as of close December 1, 2015, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 366.40 -9.46 -2.52 -5.25 USD/KRW 1,157.70 1,150.40 1,142.30 1,105.00 KOSPI 2,023.93 31.96 1.60 5.06 JPY100/KRW 939.88 936.73 944.09 930.29 KOSDAQ 691.95 3.57 0.52 24.96 EUR/KRW 1,223.40 1,218.33 1,254.76 1,375.39 Dow Jones* 17,719.92 -78.57 -0.44 -0.63 3Y Treasury 1.77 1.79 1.66 2.07 S&P 500* 2,080.41 -9.70 -0.46 1.08 3Y Corporate 2.16 2.17 2.00 2.39 NASDAQ* 5,108.67 -18.85 -0.37 8.08 DDR2 1Gb* 1.10 1.10 1.12 1.38 Philadelphia Semicon* 677.14 6.63 0.99 -1.40 NAND 16Gb* 1.48 1.48 1.52 2.28 FTSE 100* 6,356.09 -19.06 -0.30 -2.93 Oil (Dubai)* 39.67 40.25 45.61 67.92 Nikkei 225 19,953.85 206.38 1.05 14.62 Gold* 1,065.80 1,056.20 1,141.40 1,175.20 Hang Seng* 21,996.42 -71.90 -0.33 -7.80 Customer deposits (Wbn)* 20,765 20,845 21,064 16,006 Taiwan (Weighted) 8,463.30 142.69 1.71 -8.74 Equity type BC (Wbn)(Nov. 27) 80,515 80,570 81,167 79,387 Note: * as of November 30, 2015 Source: KSDA, Wisefn, 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 SDI 20.03 Hynix 29.73 KODEX LEVERAGE 57.36 KODEX INVERSE 29.15 Kia Motors 14.80 Hyundai Mobis 18.42 Hyundai Motor 20.70 Samsung Electronics 14.62 Hanmi Pharm 10.34 NCsoft 7.90 POSCO 14.62 Samsung Electronics (P) 12.32 Samsung Electronics 10.03 Hyundai Motor 7.66 KODEX 200 13.40 Kolao Holdings 9.68 Hanwha Chemical 8.69 SEMCO 6.73 Kia Motors 10.39 Shinhan Financial Group 7.13 KEPCO 8.59 KODEX 200 5.95 Dongbu Insurance 8.46 BNK Financial Group 6.69 Amore Pacific 8.14 Samsung Securities 5.15 Hyundai Steel 7.99 Hyundai M&F Insurance 6.36 SK C&C 8.00 LG Chem 4.36 Korea Zinc 7.65 Hanmi Science 6.06 Shinhan Financial Group 7.91 AmorePacific 3.99 Hanwha Chemical 6.61 SK C&C 6.04 SAMSUNG C&T 7.78 Dongbu Insurance 3.92 SAMSUNG C&T 6.39 Hyundai Development E&C 5.94 Source: KSDA, Wisefn

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 Medy-tox 11.98 Celltrion 4.52 OCI Materials 4.25 CJ E&M 4.54 ViroMed 7.98 Korea Information Service 3.05 Daum Communications 2.49 KREIT 4.23 CJ E&M 6.83 2.68 GS Home Shopping 2.47 2.76 Com2us 6.38 Kolon Life Science 2.47 Sun Kwang Electronics 1.39 Semiconductor 2.64 Daum Communications 2.94 GS Home Shopping 2.12 iNtRON Bio 1.36 KH Vatec 2.62 OSSTEM IMPLANT 1.72 Crosscert 1.52 KBH 1.31 Celltrion 2.08 Komipharm 1.59 Gamevil 1.04 WAVE ELECTRO 1.28 Huons 2.07 Timo Technology 1.54 Easy Bio System 0.96 DAWONSYS 0.92 HARIM 1.74 Diostech 1.43 Agabang 0.96 ISPLUS 0.92 Dongwon Development 1.45 DUK SAN NEOLUX 1.43 Webzen 0.95 HaanSoft 0.91 Dongwha Holdings 1.19 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,321,000 37,000 194,582 Celltrion 87,500 1,200 9,803 Hyundai Motor 153,000 5,500 33,702 Daum Communications 119,400 -1,200 7,168 KEPCO 49,750 800 31,938 Dongsuh 36,200 -700 3,609 SAMSUNG C&T 150,500 4,500 28,548 CJ E&M 84,800 400 3,284 Samsung Electronics (P) 1,137,000 41,000 25,962 ViroMed 215,300 34,300 3,057 Amore Pacific 418,500 15,000 24,465 Medy-tox 498,100 28,100 2,818 Hyundai Mobis 247,000 -2,500 24,044 Komipharm 50,300 1,350 2,722 Hynix 31,350 -250 22,823 LOEN 77,500 -2,100 1,960 Kia Motors 55,800 3,300 22,619 Paradise 20,100 0 1,828 LG Chem 322,000 4,000 21,339 Kolon Life Science 239,500 -6,500 1,602 Source: