Morning Focus

July 20, 2018

Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) KB Financial Group (105560/Buy/TP: W78,000) KOSPI 2,282.29 -7.82 -0.34 A safe haven stock during times of uncertainties KOSPI 200 295.90 -0.57 -0.19 KOSDAQ 796.49 -13.95 -1.72 Ottogi (007310/Buy/TP: W1,050,000) Raise TP Steady earnings to continue Turnover ('000 shares, Wbn) Volume Value Hanmi Pharmaceutical (128940/Buy/TP: W680,000) KOSPI 458,752 5,347 KOSPI 200 84,065 3,889 Positive clinical data continues KOSDAQ 752,875 4,076

Market Cap (Wbn) Sector News & Analysis Value Securities (Overweight) KOSPI 1,526,048 Earnings, discount rates, and dividend yields all point to valuation bottom KOSDAQ 263,391

KOSPI Turnover (Wbn) MedTech (Overweight) Buy Sell Net Takeaways from latest regulatory reform and industry support measures Foreign 1,445 1,391 54 Institutional 1,145 1,164 -18 Retail 2,739 2,773 -34

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 389 461 -73 Institutional 305 293 12 Retail 3,375 3,319 56

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,139 1,176 -37 KOSDAQ 237 243 -6

Advances & Declines Advances Declines Unchanged KOSPI 182 643 67 KOSDAQ 282 894 61

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 46,900 350 456 SK Securities 1,300 190 213 KODEX KOSDAQ150 16,475 -565 213 LEVERAGE Hynix 90,300 1,000 213 Celltrion 288,500 -1,500 187

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value NATURECELL 8,480 -2,170 252 SillaJen 62,200 -4,900 235 New Pride 3,845 -250 149 JeilSteel 3,100 -800 144 HLB 76,700 -300 109 Note: As of July 19, 2018 Mirae Asset Daewoo Research 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.

KB Financial Group (105560 KS) A safe haven stock during times of uncertainties

Banks 2Q18 review: Demonstrating robust earnings power Results Comment For 2Q18, KB Financial Group (KBFG) reported net profit (attributable to controlling July 20, 2018 interests) of W946.8bn (+9.1% YoY, -2.2% QoQ), slightly above our estimate (W945.7bn) and the consensus (W922.9bn based on Bloomberg; W928bn based on FnGuide). Excluding the 2Q17 bargain purchase gain related to KB Insurance (W121bn) and the 1Q18 profit from the sale of the bank’s Myeongdong office (W115bn), 2Q18 net profit growth was robust, at 17.3% YoY and 7.0% QoQ. (Maintain) Buy Major one-offs in the quarter included: 1) a W33bn massive reversal of loss provisions Target Price (12M, W) 78,000 related to one company; 2) W32bn in donations, including to the KB Foundation; 3) W24bn in gains from KAMCO NPL sales (net of donations); and 4) W20bn in asset- Share Price (07/19/18, W) 53,600 backed commercial paper (ABCP) valuation losses at KB Securities related to China’s CERCG (all of the above items are pretax). With the positives largely offsetting the Expected Return 46% negatives, we estimate underlying net profit was also around W940bn.

Core income growth and cost efficiency stand out NP (18F, Wbn) 3,632 In 2Q18, group net interest income and net commission income were W2.2tr (+12.9% Consensus NP (18F, Wbn) 3,453 YoY, +2.5% QoQ) and W595.8bn (+16.8% YoY, -5.3% QoQ), respectively, resulting in core income growth (net interest and net commission income combined) of 13.7% YoY EPS Growth (18F, %) 8.1 and 0.7% QoQ. Bank won-denominated loans grew 2.1% QoQ (+4.0% from end-2017), Market EPS Growth (18F, %) 10.4 with corporate and household loans up 2.0% and 2.1% QoQ, respectively (+5.1% and P/E (18F, x) 6.2 +3.0% from end-2017, respectively). Bank net interest margin (NIM) stood flat QoQ at Market P/E (18F, x) 9.0 1.71%, while group NIM narrowed 1bp QoQ to 1.99%, affected by lower returns on KOSPI 2,282.29 credit card revolving bonds and cash advance assets. Group SG&A expenses increased YoY to W1.35tr (+2.2% YoY, -2.9% QoQ), but this was mainly due to subsidiary Market Cap (Wbn) 22,411 consolidation (KB Insurance, etc.); cost-to-income ratio actually improved markedly to Shares Outstanding (mn) 418 48.4% (-7.4%p YoY, -1.6%p QoQ). Credit costs were W116.8bn (+121.2% YoY, -29.0% Free Float (%) 84.7 QoQ), leading to a well-managed credit cost ratio of 10bps of total credit (annualized; Foreign Ownership (%) 69.5 +5bps YoY, -4bps QoQ). Beta (12M) 0.96 52-Week Low 51,100 Reaffirm Buy and TP of W78,000 52-Week High 68,600 KBFG is currently trading at a 2018F P/B of 0.62x (2018F ROE of 10.3%) and P/E of 6.2x, (%) 1M 6M 12M based on our estimates. We estimate 2018 dividend yield at 4.1%. We believe the stock Absolute -2.7 -20.1 -5.3 is deeply undervalued, given its superior earnings power, solid profitability (10% ROE), Relative -0.3 -11.8 0.8 and industry-leading capital adequacy (2Q18P CET1 ratio of 14.59%). In particular, we think KBFG’s ability to demonstrate robust earnings power at a time when 130 KB Financial Group KOSPI uncertainties are rising increases its attractiveness as a value play to investors. We 120 continue to recommend KBFG as our top pick alongside Hana Financial Group (HFG). 110

100

80 7.17 11.17 3.18 7.18

Mirae Asset Daewoo Co., Ltd. Fiscal year-end 12/15 12/16 12/17 12/18F 12/19F 12/20F Net interest inc. (Wbn) 6,203 6,403 7,853 8,819 9,198 9,558 [ Banks/Credit card] Net non-interest inc. (Wbn) 1,179 1,042 2,339 2,385 2,468 2,532 Operating profit (Wbn) 1,821 1,677 4,016 4,904 5,150 5,400 Heather Kang +822-3774-1903 Net profit (Wbn) 1,698 2,144 3,312 3,632 3,765 3,955 [email protected] EPS (W) 4,396 5,520 8,036 8,686 9,006 9,458

EPS growth (%) 21.2 25.6 45.6 8.1 3.7 5.0 P/E (x) 12.2 9.7 6.7 6.2 6.0 5.7 P/PPOP (x) 7.8 10.1 4.9 4.0 3.7 3.5

P/B (x) 0.72 0.72 0.66 0.62 0.57 0.52 ROE (%) 6.1 7.2 10.2 10.3 10.0 9.6 Dividend yield (%) 1.8 2.3 3.6 4.1 4.3 4.8 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.

Ottogi (007310 KS) Steady earnings to continue

Food & Beverage 2Q18 preview: Ramen and frozen food drive strength For 2Q18, we expect Ottogi to post a 7.0% YoY increase in revenue and an 18.4% gain Earnings Preview in operating profit. We believe revenue growth was robust, driven by the continuation July 19, 2018 of strong growth (7-9%) in noodles (ramen, vermicelli, etc.), frozen food (dumplings, pizza, rice, home meal replacements, etc.), and seafood (canned tuna, etc.). Following some softness in 1Q18, we estimate revenue from sauces (curry, “three-minute” series), condiments (ketchup, mayonnaise, etc.), rice (cooked rice, pre-washed rice, etc.), and oil (sesame oil, edible oil, etc.) also rose around 3-5% in 2Q18. (Maintain) Buy Particularly worth noting is the growth of ramen, which we attribute to: 1) increased sales of new products; 2) strong sales of existing products (Jin Ramen); and 3) a rise in Target Price (12M, W) ▲ 1,050,000 actual selling prices owing to reduced discounts. We estimate Ottogi’s ramen market share reached a record 26.5% in 2Q18. We believe operating profit growth was supported by: 1) strong revenue growth; 2) stabilizing raw material prices; and 3) price Share Price (07/19/18, W) 820,000 hikes in major products (canned tuna, cooked rice, and soybean oil for restaurants).

Expected Return 28% Three reasons why earnings are likely to remain steady 1) Ottogi’s new products and product extensions have been well received by the market. Targeting the bibim noodle market, the company released new products like Real Jjolmyeon and Chuncheon Makguksu, which we think could bring in monthly sales OP (18F, Wbn) 169 of around W10bn during the summer, given the positive reception so far. Sales of Consensus OP (18F, Wbn) 164 frozen food (cup rice, rice bowls, dumplings, etc.) and frozen pizza (round/square pizzas, pizza cups, etc.) are continuing to grow, while Jin Jjambbong extensions, such as EPS Growth (18F, %) 4.7 stir-fried and oyster-flavored versions, are also doing well. Market EPS Growth (18F, %) 10.4 P/E (18F, x) 20.5 2) We expect raw material prices to stabilize. Ottogi annually purchases around W750bn worth of raw materials, 60% of which are imported (soybean, raw sugar, palm Market P/E (18F, x) 9.0 oil, tuna, etc.) and 40% sourced domestically (eggs, corn syrup, ethanol, etc.). After KOSPI 2,282.29 rising in 2017, both international and domestic prices of the company’s key raw materials are likely to stabilize lower in 2H18-1H19. In particular, international prices Market Cap (Wbn) 2,821 are falling materially amid concerns of a US-China trade war. Further, Ottogi is Shares Outstanding (mn) 3 continuing its efforts to enhance its raw material processing efficiency and sourcing Free Float (%) 35.6 capabilities (bulk purchasing and centralized purchasing). Foreign Ownership (%) 17.1 3) We see potential for price hikes. Unlike its competitors (which hiked prices in late Beta (12M) 0.56 2016 and early 2017), Ottogi has not raised its ramen prices, as sales and market share 52-Week Low 684,000 have been rising on the back of price competitiveness (Jin Ramen) and new releases (higher-priced items like Jin Jjambbong and Jjolmyeon). The company is currently 52-Week High 890,000 raising its actual selling price by reducing discounts. We think Ottogi could increase ramen prices later this year, as it already has raised prices for some of its processed (%) 1M 6M 12M food products (16 items). Absolute -2.1 5.3 10.5 Relative 0.3 16.2 17.7 Maintain Buy and raise TP to W1,050,000 We believe Ottogi’s strong sales and product development capabilities make it well- 120 Ottogi KOSPI positioned to capitalize on the growing HMR market and thus deliver steady growth. In

110 order to preempt related-party transaction risks, the company has announced that it will overhaul its ownership structure by merging with affiliates Sangmi Foods Holdings 100 (food manufacturer; revenue of W59.5bn and net profit of W4.5bn), and Poonglim P&P Holdings (packaging firm; revenue of W32.8bn and net profit of W3.5bn) (to be closed th 90 on September 27 ). Over the long term, we think there is also a chance of Ottogi Ramen eventually becoming a consolidated subsidiary. We maintain our Buy rating on 80 7.17 11.17 3.18 7.18 Ottogi and raise our target price to W1,050,000 (from W1,000,000).

Mirae Asset Daewoo Co., Ltd.

[ F&B/Tobacco] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 1,883 2,011 2,126 2,268 2,379 2,484 Woon-mok Baek +822-3774-1679 OP (Wbn) 133 143 146 169 184 198 [email protected] OP margin (%) 7.1 7.1 6.9 7.5 7.7 8.0

Susie Hong NP (Wbn) 104 138 131 137 150 164 +822-3774-1853 EPS (W) 30,365 39,977 38,161 39,964 43,595 47,689 [email protected] ROE (%) 11.9 13.9 12.3 11.9 11.7 11.6

P/E (x) 40.3 16.6 21.1 20.5 18.8 17.2 P/B (x) 4.4 2.2 2.4 2.2 2.0 1.8 Dividend yield (%) 0.4 1.0 0.9 0.9 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

July 19, 2018 Ottogi

Table 1. 2Q18 preview (Wbn, %) 2Q18F Growth 2Q17 1Q18 Mirae Asset Consensus YoY QoQ Daewoo Revenue 513.4 577.3 549.4 552.0 7.0 -4.8 Operating profit 41.5 38.5 49.1 47.4 18.4 27.5 Pretax profit 45.8 41.6 54.9 52.2 19.9 31.9 Net profit 35.7 30.3 41.3 39.4 15.7 36.1 OP margin 8.1 6.7 8.9 8.6 - - Net margin 7.0 5.3 7.5 7.1 - - Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Quarterly and annual earnings (Wbn, %) 17 18F 17 18F 19F 1Q 2Q 3Q 4Q 1Q 2QF 3QF 4QF Annual Annual Annual Revenue 532 513 564 517 577 549 600 541 2,126 2,268 2,379 Operating profit 30 42 44 30 39 49 52 29 146 169 184 Pretax profit 41 46 63 30 42 55 57 31 180 184 202 Net profit 32 36 47 16 30 41 42 23 131 137 150 OP margin 5.6 8.1 7.9 5.8 6.7 8.9 8.7 5.3 6.9 7.4 7.7 Net margin 6.1 7.0 8.3 3.2 5.3 7.5 7.1 4.3 6.2 6.1 6.3 Revenue growth 3.1 5.2 9.3 5.3 8.5 7.0 6.4 4.8 5.7 6.7 4.9 OP growth -15.7 2.6 -2.1 42.7 28.5 18.4 18.0 -4.4 2.5 15.6 9.0 Pretax profit growth -18.7 2.1 30.6 -23.6 1.0 19.9 -10.0 3.1 -1.7 2.3 9.4 Net profit growth -33.8 38.8 31.2 -39.6 -6.4 15.7 -9.4 42.9 -4.5 4.7 9.1 Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. 2018-19 earnings forecast revisions (Wbn, %) Previous Revised % chg. Notes 18F 19F 18F 19F 18F 19F Revenue 2,245 2,347 2,268 2,379 1.0 1.4 Sales growth of frozen food Sales growth of new ramen Operating profit 161 174 169 184 4.9 5.8 products Pretax profit 179 195 184 202 3.2 3.3 Net profit 133 145 137 150 3.2 3.3 OP margin 7.2 7.4 7.4 7.7 - - Net margin 5.9 6.2 6.1 6.3 - - Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Hanmi Pharmaceutical (128940 KS) Positive clinical data continues

Healthcare 2Q18 preview: Earnings to slightly miss consensus Earnings Preview For 2Q18, we forecast Hanmi Pharmaceutical’s consolidated revenue and operating July 20, 2018 profit to come in at W227bn (+1.9% YoY) and W16.8bn (-22.0% YoY), respectively, slightly below the current consensus. We expect a sharp decline in operating profit, primarily due to a tough comparison stemming from the W7bn milestone related to Athenex’s IPO booked in 2Q17. We believe the only upfront/milestone income in 2Q18 was a W9.1bn upfront for the RAF inhibitor (which is being spread across quarters). (Maintain) Buy For domestic operations, we believe growth was in the single digits due to the absence Target Price (12M, W) 680,000 of major new products. However, we estimate Beijing Hanmi grew a decent 15%, supported by entry into large hospitals and the rollout of new products. Share Price (07/19/18, W) 436,500 Positive data on efpeglenatide and rising expectations on triple agonist Expected Return 56% At the recent American Diabetes Association (ADA) session, Hanmi Pharmaceutical presented results from five preclinical studies of its long-acting diabetes treatment efpeglenatide. One of the biggest highlights was a study comparing efpeglenatide to OP (18F, Wbn) 81 two rival drugs, Novo Nordisk’s Victoza (liraglutide) and Eli Lilly’s Trulicity (dulaglutide). Consensus OP (18F, Wbn) 88 Data showed efpeglenatide was superior on all measures, including reduction of blood glucose, HbA1c, body weight loss, and cholesterol. Victoza and Trulicity are blockbuster EPS Growth (18F, %) -14.0 drugs expected to bring in sales of US$3.66bn and US$2.89bn, respectively, this year. Market EPS Growth (18F, %) 10.4 P/E (18F, x) 95.6 Updates on HM15211, which is currently in a US phase 1 trial, were also unveiled. Market P/E (18F, x) 9.0 HM15211 is a GLP-1/GIP/glucagon triple agonist in development for the treatment of KOSPI 2,282.29 obesity and non-alcoholic steatohepatitis (NASH). Preclinical data showed HM15211 to be effective in treating NASH and liver fibrosis, where there is strong unmet demand Market Cap (Wbn) 4,970 for treatments. Notably, the study also did a comparison with Victoza. Shares Outstanding (mn) 11 Free Float (%) 58.0 Reiterate Buy; Maintain as our top pick in pharmaceuticals Foreign Ownership (%) 12.1 We reiterate our Buy rating and target price of W680,000 on Hanmi Pharmaceutical Beta (12M) 0.93 and continue to recommend the stock as our top pick in pharmaceuticals. Key 52-Week Low 332,515 investment points are: 1) late-stage clinical trials for Rolontis and poziotinib are 52-Week High 620,000 running smoothly; 2) clinical trials for efpeglenatide (licensed to Sanofi) and HM12525A (licensed to Janssen), which were suspended due to manufacturing issues, have (%) 1M 6M 12M resumed; and 3) the company’s pipeline is expanding, with HM15211, HM15136, and Absolute 9.1 -23.4 18.8 HM43239 entering clinical trials. Meanwhile, rumors that Spectrum Pharmaceuticals Relative 11.9 -15.4 26.5 (which owns the US rights to Rolontis and poziotinib) is considering a potential sale

180 Hanmi Pharmaceutical KOSPI sent Hanmi Pharmaceutical’s stock up 14.6% late last month. If Spectrum 160 Pharmaceuticals is indeed snapped up by a major drugmaker as speculated, we believe this would serve as a positive catalyst to Hanmi’s stock, as it would help strengthen 140 marketing capabilities. 120

100

80 7.17 11.17 3.18 7.18

Mirae Asset Daewoo Co., Ltd.

[Pharmaceutical/Biotech] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 1,318 883 917 950 1,123 1,258 Taehee Kim +822-3774-6813 OP (Wbn) 212 27 82 81 168 184 [email protected] OP margin (%) 16.1 3.1 8.9 8.5 15.0 14.6 Seunglok Huh NP (Wbn) 154 23 60 52 119 132 +822-3774-1374 EPS (W) 13,565 2,049 5,308 4,565 10,484 11,621 [email protected] ROE (%) 25.7 3.5 8.8 7.1 14.6 14.1 P/E (x) 49.2 136.8 110.0 95.6 41.6 37.6 P/B (x) 11.2 4.8 9.1 6.4 5.6 4.9 Dividend yield (%) 0.3 0.0 0.1 0.1 0.1 0.1 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

Securities Earnings, discount rates, and dividend yields all point to valuation bottom

Overweight (Maintain) 2Q18: Solid profits to continue for sixth straight quarter We estimate securities firms’ 2Q18 net profit declined around 10% QoQ. However, Industry Report accounting for the large one-off gains (dividend income, etc.) recorded in 1Q18, we believe 2Q18 net profit largely held steady QoQ. Our net profit estimate translates to a July 20, 2018 roughly 9% ROE. We think solid earnings continued for the sixth straight quarter, underscoring how earnings fundamentals are now much stronger than in the past, when good earnings typically did not last for more than two quarters. At the company Mirae Asset Daewoo Co., Ltd. level, we do not expect any significant one-off items and believe underlying profits were similar to the 1Q18 levels. [Securities/Insurance] We highlight three notable trends. 1) The traditional brokerage business is changing, Gil-won Jeong in both quantitative and qualitative terms. 2) Trading margins are rising. Margins on +822-3774-1675 trading income (trading plus interest income) from customer assets and equity capital [email protected] are currently around 36bps per quarter, in line with the levels seen during the fixed-

income trading boom. Steady asset growth, combined with higher margins, is increasing the profit contribution of the trading business. 3) Hybrid securities issuance is continuing to thrive.

Income diversification supports reduced discount rates, while 7% dividend yield provides downside production Brokerage stocks have come under increasing pressure, reflecting worries about 3Q18 earnings and the recent stock market correction. The sector is now trading at a P/B of 0.61x, which we believe marks a bottom from both an empirical and theoretical perspective. The sector’s most recent trough occurred in 4Q16, when earnings were vastly different from where they are today. Sector ROE at the time was just 2.5%.

From a theoretical standpoint, we believe 1) reduced discount rates (due to changes in the profit structure) and 2) high dividend yields support the case for share price appreciation.

As mentioned above, the brokerage sector is set to deliver solid net profits for the sixth straight quarter. Fundamentally, the biggest driver has been diversification. Thanks to more differentiated asset growth and RoA through investment, top-tier brokers’ earnings are becoming less volatile. This means the discount rates applied to valuations can be gradually lowered.

We maintain our Overweight stance on the securities sector. During industry booms, large brokers with extensive customer bases and well-diversified business portfolios are likely to enjoy stronger earnings leverage. In addition, some large brokers offer dividends yields of 7%, the highest level in the entire financial sector.

Figure 1. Securities industry P/B trend

ROE (R) (X) P/B (L) (%) 1.25 15.0

1.00 10.0

0.75 5.0

0.50 0.0

0.25 -5.0 09 10 11 12 13 14 15 16 17 18

Source: Mirae Asset Daewoo Research

MedTech Overweight (Maintain)

Takeaways from latest regulatory reform and industry support measures  Yesterday, the government announced a series of measures aimed at overhauling Issue Comment medical device regulations and providing industry support July 20, 2018  Analyst’s insight: Direction of industry regulations

Mirae Asset Daewoo Co., Government unveils regulatory reform and industry support measures th [MedTech/IT small-cap] on July 19 Here are some key highlights of the government’s latest announcement. Choong-hyun Kim, CFA +822-3774-1740 (1) In vitro diagnostic devices: Shifting to an ex-ante approval/ex-post regulation [email protected] approach (“negative regulation”) - Regulations on in vitro diagnostic devices will gradually transition to an ex-post evaluation framework, which is expected to shorten the time to market entry from up to 390 days to less than 80 days. The new framework will first be adopted in January 2019 for in vitro diagnostic devices related to infectious diseases and then be expanded to all in vitro diagnostic devices in 2H19.

- The government will also simplify the approval process by March 2019 (the industry will be allowed to self-regulate non-material changes). (2) Insurance coverage for devices related to insulin dependent diabetes (mainly type 1 and some type 2 diabetes) - Insulin pump supplies will be covered by the national health insurance scheme from August 2018. Insurance coverage for continuous glucose monitoring (CGM) supplies will be introduced later, after specific criteria are established. For CGM systems and insulin pumps, plans to provide cash benefits from March 2019 are currently under review. (3) Support for market entry of high-tech medical devices - The government will allow the early market entry of medical devices that improve the convenience and productivity of medical professionals, though hospitals will bear the costs. Preliminary insurance codes will be granted to such devices from January 2019 to facilitate entry into overseas markets (the codes will serve as a reference in overseas markets). - Guidelines for a fast-track approval system will be established by August 2018 for Industry 4.0-related items and high-tech medical devices. A separate evaluation pathway for new medical technologies will also be introduced in January 2019. Analyst’s insights: Direction of industry regulations - For the healthcare industry, regulatory reform is slow because of its direct impact on people's health and lives. We think there is a high possibility of legislation for the latest measures taking longer than expected. The healthcare industry also involves a number of different ministries and regulators. Yesterday’s policy unveiling event alone was attended by multiple organizations (including the Ministry of Science and ICT, Ministry of Trade, Industry and Energy, Ministry of Health and Welfare, Ministry of SMEs and Startups, Ministry of Trade, Industry and Energy, Ministry of Food and Drug Safety, the 4th Industrial Revolution Committee, and major university hospitals). Other agencies involved include the Health Insurance Review and Assessment Service and the New Medical Technology Assessment Committee. - That said, we find it encouraging that President Moon Jae-in personally announced the new measures at the event with a focus on regulatory reform. - The overall direction of regulations has important implications for the MedTech industry. Looking ahead, we expect regulations to move in the direction of rationalization, rather than relaxation or removal. The regulatory reforms included in the latest announcement were mainly for in vitro diagnostic devices, chronic disease-related devices, and productivity-enhancing devices, which pose relatively limited safety risks. We believe expectations on deregulation across the industry should be viewed with caution. - Related names: (1) Diabetes devices: i-SENS (099190 KQ/Buy/TP: W30,000/CGM) and EOFlow (insulin pump/unlisted); (2) In vitro diagnostics: Genomictree (228760 KONEX/Not rated), Seegene (096530 KQ/Not rated), and Gencurix (229000 KONEX/Not rated); (3) High- tech medical devices: Curexo (060280 KQ/Not rated), Vuno (unlisted), Lunit (unlisted), and JLK Inspection (unlisted)

Mirae Asset Daewoo Research Key Universe Valuations July 20, 2018

※All data as of close July 18, 2018, unless otherwise noted.

18F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 005930 Samsung Electronics 301,066 46,900 3.0 25.9 2.0 37.2 7.2 6.3 5.9 1.3 1.1 23.6 21.0 000660 SK Hynix 65,739 90,300 1.7 55.3 11.6 49.6 12.6 4.1 3.7 1.3 1.0 38.6 31.3 068270 Celltrion, Inc. 36,177 288,500 - - - - 0.0 0.0 207940 Samsung Biologics 28,021 423,500 4.5 277.0 - 375.1 541.1 113.9 7.0 6.6 1.3 5.9 005490 POSCO 27,420 314,500 2.5 20.8 3.5 31.6 3.3 7.5 7.2 0.6 0.5 8.2 7.9 005380 Hyundai Motor 27,314 124,000 3.2 -19.4 10.5 -16.9 17.9 10.6 9.0 0.5 0.5 4.8 5.3 035420 NAVER 25,216 765,000 0.2 -3.2 45.8 -1.1 44.5 33.0 22.8 3.8 3.3 15.1 18.7 051910 LG Chem 23,719 336,000 1.8 -12.3 11.9 -0.6 12.1 13.6 12.1 1.5 1.4 11.5 11.9 028260 Samsung C&T Corporation 22,858 120,500 1.7 14.5 11.3 66.5 6.1 21.6 20.4 0.9 0.9 4.6 4.7 105560 KB Financial Group 22,411 53,600 20.3 5.9 7.7 3.9 6.2 6.0 0.6 0.6 10.3 10.0 012330 Hyundai Mobis 21,610 222,000 1.6 -2.1 10.7 27.8 12.8 10.8 9.6 0.7 0.7 6.6 7.1 055550 Shinhan Financial Group 21,102 44,500 19.5 4.2 14.8 4.0 6.3 6.1 0.6 0.6 10.0 9.8 051900 LG Household & Health Care 20,054 1,284,000 0.9 9.0 10.1 13.1 10.5 33.2 30.0 6.3 5.4 20.9 19.7 015760 KEPCO 19,805 30,850 -80.1 280.7 - - - 13.3 0.3 0.3 - 2.1 032830 Samsung Life 19,100 95,500 - - - - 0.0 0.0 017670 SK Telecom 19,096 236,500 4.2 -13.7 9.5 8.2 -4.9 6.8 7.1 0.8 0.7 14.4 12.0 034730 SK Holdings 18,892 268,500 1.5 4.6 7.0 26.5 6.1 9.0 8.5 1.2 1.0 14.5 13.6 096770 SK Innovation 17,985 194,500 4.1 -13.7 0.1 -6.0 4.3 9.2 8.8 1.0 0.9 10.7 10.5 006400 Samsung SDI 16,160 235,000 0.4 418.7 36.7 11.6 31.3 22.6 17.2 1.3 1.3 6.3 7.8 090430 AmorePacific 15,959 273,000 0.7 16.7 20.7 23.6 19.5 38.7 32.4 4.1 3.8 11.2 12.2 018260 Samsung SDS 15,862 205,000 1.2 17.9 13.1 22.7 10.7 24.4 22.0 2.6 2.4 11.1 11.2 033780 KT&G 14,828 108,000 4.3 -6.9 16.5 -12.8 13.5 14.6 12.9 1.8 1.7 13.1 14.3 091990 Celltrion Healthcare 13,967 99,400 79.4 45.2 65.7 17.5 47.8 40.7 7.0 6.2 15.7 16.1 066570 LG Electronics 13,468 82,300 0.9 48.8 15.3 19.7 29.6 7.2 5.6 1.0 0.8 14.5 16.2 010950 S-Oil 13,116 116,500 4.9 9.6 38.7 -9.6 39.0 12.1 8.7 2.0 1.8 16.6 21.9 000270 Kia Motors 12,931 31,900 3.1 75.8 15.7 44.0 19.4 9.3 7.8 0.5 0.4 5.1 5.8 086790 Hana Financial Group 12,730 42,400 23.4 10.0 17.5 9.0 5.2 4.8 0.5 0.4 9.6 9.6 003550 LG Corp. 12,700 73,600 1.8 0.8 6.8 -21.5 7.1 6.9 6.4 0.7 0.7 11.1 10.8 000810 Samsung F&M 12,483 263,500 - - - - 0.0 0.0 251270 Netmarble 12,438 146,000 0.2 -19.4 10.7 -7.6 10.4 43.4 39.3 2.7 2.6 6.4 6.7 011170 Lotte Chemical 11,585 338,000 3.1 -14.2 3.4 -7.5 8.2 5.6 5.2 0.9 0.8 16.9 16.1 009150 Samsung Electro-Mechanics 11,503 154,000 0.5 142.3 16.9 193.3 14.5 25.2 22.0 2.5 2.2 10.6 11.0 035720 Kakao Corp. 8,697 114,000 0.1 -39.5 76.0 -19.1 46.6 87.9 60.0 2.1 2.0 2.4 3.5 024110 Industrial Bank of Korea 8,652 15,450 22.7 7.2 19.3 7.0 5.7 5.3 0.5 0.5 8.9 9.0 002790 AmoreG 8,493 103,000 0.5 24.5 12.2 30.3 7.7 34.6 32.2 2.7 2.5 8.5 8.5 036570 NCSOFT 8,172 372,500 2.2 19.0 70.1 14.5 70.3 16.2 9.5 2.5 2.1 17.2 24.6 034220 LG Display 7,657 21,400 2.3 ------0.6 0.6 - - 030200 KT 7,168 27,450 3.6 -10.3 -0.3 30.1 18.3 11.6 9.8 0.6 0.5 5.2 5.9 010130 Korea Zinc 7,029 372,500 2.7 -2.6 2.9 7.8 4.8 10.4 9.9 1.1 1.0 10.9 10.5 021240 Coway 6,561 88,900 4.6 10.9 5.4 13.2 4.2 18.1 17.4 5.4 5.1 35.6 34.8 032640 LG Uplus 6,331 14,500 3.8 -2.2 1.9 -7.7 0.9 12.5 12.4 0.9 0.9 8.5 7.4 004020 Hyundai Steel 6,325 47,400 1.6 -0.9 3.7 10.9 3.4 8.0 7.7 0.4 0.3 4.7 4.7 139480 Emart 6,133 220,000 0.8 5.2 12.7 -28.1 18.6 13.8 11.7 0.7 0.7 5.3 6.0 018880 Hanon Systems 5,818 10,900 - - - - 0.0 0.0 000720 Hyundai E&C 5,724 51,400 1.0 9.7 2.9 146.5 3.0 11.5 11.2 0.9 0.8 7.7 7.8 023530 Lotte Shopping 5,624 200,000 2.6 36.3 16.2 - 123.4 25.4 11.4 0.4 0.4 1.7 3.8 271560 Orion 5,357 135,500 0.5 172.8 13.3 54.9 16.9 26.8 23.0 3.6 3.2 14.3 14.6 036460 KOGAS 5,308 57,500 1.7 29.8 4.9 - 6.8 7.6 7.1 0.6 0.6 8.6 8.4 128940 Hanmi Pharmaceutical 4,970 436,500 0.1 -1.8 108.0 -14.0 129.7 95.6 41.6 6.4 5.6 7.1 14.6 097950 CJ CheilJedang 4,862 323,000 0.9 5.8 11.8 109.9 -60.3 6.0 15.2 1.1 1.0 21.2 7.0 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data July 20, 2018

※All data as of close July 19, 2018, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 484.66 -3.27 -0.67 -12.54 USD/KRW 1,128.90 1,125.20 1,104.40 1,126.30 KOSPI 2,282.29 -7.82 -0.34 -7.96 JPY100/KRW 1,000.31 995.84 999.23 1,005.09 KOSDAQ 796.49 -13.95 -1.72 -1.96 EUR/KRW 1,314.38 1,311.31 1,283.64 1,300.82 Dow Jones* 25,199.29 79.40 0.32 1.51 3Y Treasury 2.09 2.09 2.16 1.75 S&P 500* 2,815.62 6.07 0.22 4.44 3Y Corporate 2.74 2.74 2.80 2.29 NASDAQ* 7,854.44 -0.68 -0.01 12.10 DDR2 1Gb* 1.34 1.34 1.35 1.23 Philadelphia Semicon* 1,369.46 10.47 0.77 6.35 NAND 16Gb* 2.83 2.83 2.85 2.96 FTSE 100* 7,676.28 49.95 0.65 0.37 Oil (Dubai)* 69.68 70.36 70.97 47.20 Nikkei 225 22,764.68 -29.51 -0.13 -3.16 Gold* 1,227.90 1,227.30 1,276.20 1,241.90 Hang Seng* 28,117.42 -64.26 -0.23 -7.86 Customer deposits (Wbn)* 26,366 25,765 27,926 23,849 Taiwan (Weighted) 10,835.38 -7.08 -0.07 1.16 Equity type BC (Wbn)(Jul. 17) 81,603 81,760 80,865 69,063 Note: * as of July 18, 2018 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 BIOLOGICS 39.43 LG Chem 20.95 Samsung Electronics 39.03 KODEX KOSDAQ150 LEVERAGE 44.28 Samsung Electronics 34.32 KODEX 200 17.84 LG Chem 32.22 Hotel Shilla 42.08 Hynix 26.58 LG Electronics 14.08 Hynix 28.86 Celltrion 27.90 Celltrion 16.91 KB Financial Group 12.42 LG Electronics 22.22 KOREA AEROSPACE 19.92 Samsung SDI 11.24 HYOSUNG TNC 8.40 KODEX 200 19.12 AEKYUNG INDUSTRIAL 16.00 KOREA AEROSPACE 10.60 LG Corp. 7.22 LG Display 14.45 LG Household & Health Care 14.72 AEKYUNG INDUSTRIAL 6.88 NCsoft 6.71 Samsung SDI 10.12 Shinsegae 7.76 Hyundai Steel 5.92 Hana Financial Group 6.29 KODEX LEVERAGE 9.81 Amore Pacific 7.06 AmorePacific 4.92 HYOSUNG ADVANCED 6.10 HYOSUNG CHEM 7.61 CJ Cheiljedang 6.16 LG Display 4.78 SEMCO 5.87 HYOSUNG ADVANCED 7.23 Korea Express 5.93 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 HLB 10.32 SillaJen 28.63 ECOPRO 16.04 Studio Dragon 12.74 Posco Chemtech 5.86 CJ O Shopping 17.54 L&F 6.72 SM 5.23 Celltrion Healthcare 3.35 Medy-tox 7.82 Posco Chemtech 5.12 Cafe24 Corp. 5.18 Cafe24 Corp. 2.73 ViroMed 5.78 ViroMed 4.07 Celltrion Healthcare 4.72 Daea TI 2.12 SM 4.05 WONIK IPS 3.93 Jtuen Entertainment 3.65 Daejoo Electronic Materials 1.84 Hugel 2.57 Daejoo Electronic Materials 3.90 ISPLUS 3.51 AHNLAB 1.60 WONIK IPS 2.52 BH,LTD. 3.52 BARREL 2.40 Nexen Tech 1.59 Digital Aria 2.44 HLB 3.34 Nowcom 1.96 Robostar 1.42 Jusung Engineering 1.96 PearlAbyss 3.06 Com2us 1.83 Gabia 1.07 Wemade 1.68 OliX 3.03 CJ O Shopping 1.82 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 46,900 350 301,066 Celltrion Healthcare 99,400 -600 13,967 Hynix 90,300 1,000 65,739 CJ O Shopping 230,000 -29,600 5,043 Celltrion 288,500 -1,500 36,177 SillaJen 62,200 -4,900 4,323 Samsung Electronics (P) 38,050 150 34,383 Medy-tox 760,000 -39,800 4,299 SAMSUNG BIOLOGICS 423,500 9,000 28,021 NANOS 8,130 -570 3,991 POSCO 314,500 -4,500 27,420 ViroMed 231,700 -6,000 3,697 Hyundai Motor 124,000 0 27,314 Studio Dragon 106,000 -5,500 2,972 NHN 765,000 1,000 25,216 PearlAbyss 232,700 4,200 2,971 LG Chem 336,000 5,000 23,719 HLB 76,700 -300 2,822 SAMSUNG C&T 120,500 1,000 22,858 Posco Chemtech 47,700 1,900 2,818 Source: Korea Exchange