Korea Morning Focus

November 15, 2019 Korea Morning Focus

Company News & Analysis Korean Air (003490/Trading Buy/TP: W30,000) Downgrade rating Major Indices Market leadership vs. uncertainties over cargo cycle Close Chg Chg (%) KOSPI 2,139.23 16.78 0.79 Jeju Air (089590/Buy/TP: W30,000) KOSPI 200 283.93 2.65 0.94 The drawbacks of expansion KOSDAQ 663.31 1.46 0.22

Turnover ('000 shares, Wbn) KEPCO KPS (051600/Buy/TP: W41,000) Upgrade rating & raise TP Volume Value Renewed growth momentum KOSPI 515,903 6,080 KOSPI 200 79,373 3,570 Iljin Materials (020150/Buy/TP: W59,000) Lower TP KOSDAQ 1,348,564 5,252 Closer look reveals positive picture Market Cap (Wbn) Emart (139480/Buy/TP: W190,000) Value KOSPI 1,435,960 3Q19 review: Just the beginning KOSDAQ 235,158

NCsoft (036570/Buy/TP: W700,000) KOSPI Turnover (Wbn) Rally is in order Buy Sell Net Foreign 1,108 1,317 -209 SM Entertainment (041510/Buy/TP: W52,000) Raise TP Institutional 1,910 1,684 226 Back on track Retail 2,991 3,053 -62

KOSDAQ Turnover (Wbn) JYP Entertainment (035900/Buy/TP: W31,000) Raise TP Buy Sell Net High profitability confirmed Foreign 475 492 -17 Institutional 238 224 14 Hite Jinro (000080/Trading Buy/TP: W32,000) Raise TP Retail 4,514 4,479 35 New products are reinventing the industry Program Buy / Sell (Wbn) Buy Sell Net Nongshim (004370/Buy/TP: W320,000) KOSPI 1,518 1,468 50 Domestic weakness vs. overseas growth KOSDAQ 444 447 -3

Celltrion Healthcare (091990/Buy/TP: W70,000) Raise TP Advances & Declines 3Q19 earnings driven by US-bound Truxima exports Advances Declines Unchanged KOSPI 414 422 67 Seegene (096530/Buy/TP: W30,000) KOSDAQ 584 653 90

A departure from the past KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung F&M (000810/Trading Buy/TP: W270,000) Downgrade rating & Feelux 10,400 1,990 705 lower TP Samsung Electronics 52,800 300 630 Profit growth cycle not enough for stock to turn around NAVER 180,000 22,000 356 KODEX Leverage 13,100 190 168 Silicon Works (108320/Buy/TP: W44,000) Lower TP Nano Medics 9,790 690 167 Deeply undervalued

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Sector News & Analysis Price (W) Chg (W) Value CMG Pharm. 4,490 45 466 Display (Overweight) Sambon P&E 3,180 285 263 OLED update: Clear strategic direction Kukil Paper 6,280 430 179 HLB 137,300 -1,200 138 ITM Semiconductor 36,100 50 126 Note: As of November 14, 2019

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

Korean Air (003490 KS) Market leadership vs. uncertainties over cargo cycle Airlines 3Q19 review: OP of W96.4bn; Only airline to deliver operating profit For 3Q19, Korean Air posted revenue of W3.38tr (-3.8% YoY). While domestic revenue Results Comment grew 5.9% YoY, international and cargo revenues declined 1.0% and 6.8% YoY, November 15, 2019 respectively. In international, capacity grew 1.6% YoY, and load factor improved to 83.1%, supported by limited exposure to Japan routes (revenue contribution of 8%) and robust demand on long-haul routes (North America/Europe). Operating profit came in at W96.4bn (-76.0% YoY), which was below our estimate (Downgrade) Trading Buy (W174.1bn) and the market consensus (W177.6bn). That said, it is notable that Korean Air was the only domestic airline company to report operating profit. Fuel costs declined 4.9% YoY on the back of lower average fuel prices, but the increase in labor Target Price (12M, W) 30,000 expenses had a larger-than-expected impact on operating profit. Share Price (11/14/19, W) 25,700 Contrary to expectations, the hotel unit’s operating loss did not narrow. On a brighter note, the aerospace unit’s operating profit improved to W21.8bn, as deliveries of Expected Return 17% unmanned aircraft started to gather steam. Net loss attributable to controlling interests was W254bn, weighed down by 1) F/X-translation losses (W335.9bn) due to won depreciation and 2) net interest expenses (W140bn). OP (19F, Wbn) 240 Potential sources of earnings momentum Consensus OP (19F, Wbn) 300 1) Short-term earnings improvement: We look for a QoQ increase in operating profit EPS Growth (19F, %) - in 4Q19 (to W101.3bn), supported by the removal of the one-off labor expense increase Market EPS Growth (19F, %) -32.1 seen in 3Q19. Won depreciation is also moderating. P/E (19F, x) - However, uncertainties remain over the cargo downcycle, which could be protracted Market P/E (19F, x) 14.3 because of US-China trade disputes. Indeed, cargo revenue on North America and KOSPI 2,139.23 Europe routes declined more than 20% YoY in 3Q19. The earnings weakness on major routes may weaken expectations for margin improvement. Market Cap (Wbn) 2,438 Shares Outstanding (mn) 96 2) Robust long-haul/premium demand: Long-haul and premium markets continue to Free Float (%) 64.5 fare well. Indeed, passenger revenue on North America routes expanded 6% in 3Q19, driven by Korean Air’s joint venture with Delta Airlines. The premium segment Foreign Ownership (%) 19.4 continued to see relatively solid demand, which cushioned yields. Beta (12M) 1.09 52-Week Low 21,800 Meanwhile, we expect Korean Air to suffer supply disruptions, as defects were found 52-Week High 37,750 on three more B737NG aircraft (used for short-haul routes), and B737 MAX deliveries have been delayed due to the model’s grounding. We expect Korean Air to engage in (%) 1M 6M 12M legal disputes with Boeing over maintenance expenses and opportunity costs. Absolute 4.9 -22.5 -20.9 However, the airline should be able to reduce the impact of supply disruptions through Relative 1.4 -24.6 -23.6 adjustments to the B777 return schedule.

140 Korean Air KOSPI Downgrade to Trading Buy, but maintain TP of W30,000

120 We maintain our target price of W30,000 on Korean Air. However, we downgrade our rating to Trading Buy, as the upside potential implied in our target price has declined 100 to 17% following recent share price gains. While we believe our target price is within 80 reach, additional share price momentum will likely depend on cargo earnings improvements. 60 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 11,732 12,092 13,020 12,848 13,048 13,250 Jay JH Ryu +822-3774-1738 OP (Wbn) 1,121 940 640 240 557 795 [email protected] OP margin (%) 9.6 7.8 4.9 1.9 4.3 6.0

NP (Wbn) -565 792 -193 -712 -57 153 EPS (W) -7,171 8,631 -2,012 -7,417 -598 1,591 ROE (%) -27.2 29.4 -5.9 -26.8 -2.2 5.0

P/E (x) - 3.9 - - - 16.2 P/B (x) 1.2 0.9 1.1 1.0 0.9 0.7 Dividend yield (%) 0.0 0.7 0.8 1.0 1.0 1.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

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

Jeju Air (089590 KS) The drawbacks of expansion

Airlines 3Q19 review: Japan weakness and higher expenses lead to larger-than- expected operating loss of W17.4bn Results Comment November 15, 2019 For 3Q19, Jeju Air reported consolidated revenue of W368.8bn (+5.3% YoY), exceeding our estimate (W350bn) and the consensus (W357.9bn). We had anticipated capacity growth to slow down, given market weakness. However, international and domestic capacity growth (+30.2% and +9.0% YoY, respectively) actually remained flat or expanded QoQ. Load factor dropped 4.5%p in international and 0.6%p in domestic. (Maintain) Buy International and domestic yields (dollar-based) fell more than expected, declining Target Price (12M, W) 30,000 22.2% and 12.1% YoY, respectively. This was largely because the carrier cut fares significantly to support load factor. As a result of lower yields, the carrier recorded an Share Price (11/14/19, W) 25,000 operating loss of W17.4bn (turn to loss YoY) in the quarter. Earnings were further pressured by an increase in maintenance reserves, which pushed up maintenance Expected Return 20% costs to over 10% of revenue.

Ancillary revenue grew 29.3% YoY to W33.8bn, but it slightly fell QoQ as a percentage of overall revenue to 9.2% (from 9.3% in 2Q19). In addition to the operating loss, F/X OP (19F, Wbn) -34 translation-related losses (W20bn) and interest expenses (W8bn) caused the company Consensus OP (19F, Wbn) -3 to record a net loss of W30.1bn. EPS Growth (19F, %) - Acquisition-related financial risks have eased, but earnings decline could Market EPS Growth (19F, %) -32.1 accelerate P/E (19F, x) - Market P/E (19F, x) 14.3 Jeju Air lost its bid for Asiana Airlines after it was outbid by another company. However, KOSPI 2,139.23 this also means acquisition-related risks, such as equity issues and debt increases, have dissipated. Market Cap (Wbn) 659 Shares Outstanding (mn) 26 That said, the recent acceleration in the carrier’s earnings deterioration is somewhat Free Float (%) 33.0 worrying. In addition to continued weakness on Japan routes, margins on Southeast Foreign Ownership (%) 7.0 Asia routes have been worsening as a result of oversupply. We believe the carrier is Beta (12M) 1.27 currently generating a profit only on domestic and China routes. 52-Week Low 22,800 Jeju Air currently has 46 planes, of which three have been grounded due to the Boeing 52-Week High 42,300 737 issue. And with one leased aircraft set to be returned in 4Q19, capacity growth looks likely to slow from 4Q19. Nevertheless, we expect the decline in yields to (%) 1M 6M 12M continue for some time, causing operating loss to widen to W46.4bn in 4Q19. That said, Absolute 0.4 -34.0 -32.4 the outcome of negotiations with Boeing on potential losses (rental costs, Relative -3.0 -35.8 -34.7 maintenance, etc.) could have a potential impact on earnings.

130 Jeju Air KOSPI Maintain Buy and TP of W30,000 110 We maintain our Buy call and target price of W30,000 on Jeju Air. Our downward 90 estimate revisions have increased our target multiple to 2.3x, which represents a 20%

70 discount to the historical average (2.8x). With uncertainties related to the potential acquisition of Asiana Airlines now removed, we believe the stock will gradually recover 50 11.18 3.19 7.19 11.19 once the weakness in Japan routes begins to ease.

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 748 996 1,259 1,400 1,536 1,729 Jay JH Ryu +822-3774-1738 OP (Wbn) 58 101 101 -34 61 86 [email protected] OP margin (%) 7.8 10.1 8.0 -2.4 4.0 5.0

NP (Wbn) 53 78 71 -51 22 46 EPS (W) 2,038 2,954 2,689 -1,923 845 1,760 ROE (%) 19.5 25.8 19.9 -14.6 6.8 13.0

P/E (x) 12.3 12.0 12.5 - 29.6 14.2 P/B (x) 2.4 2.8 2.3 2.1 1.9 1.7 Dividend yield (%) 2.0 1.7 1.9 0.0 0.6 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

KEPCO KPS (051600 KS) Renewed growth momentum

Utility 3Q19 review: A record third quarter, with OP of W53bn Results Comment For 3Q19, KEPCO KPS posted consolidated revenue of W297.4bn (+11.9% YoY). Revenue November 15, 2019 from the thermal power segment grew 8.4% YoY on stronger routine maintenance revenue (Seo Incheon, Samcheonpo, etc.). Revenue from the nuclear power segment gained 13.0% YoY, boosted by the recognition of previously delayed planned outage maintenance revenue and increased planned outage maintenance work on Kori 2. Overseas revenue climbed 12.4% YoY, with weaker revenue from coal-fired plants (Upgrade) Buy offset by stronger revenue from the pilot run of the UAE power plant. Revenue from independent power producers (IPP) also grew 18.9% YoY, aided by increased work in ▲ Target Price (12M, W) 41,000 Hwaseong and Seo Incheon.

Share Price (11/14/19, W) 33,700 Operating profit soared 227.6% YoY to W53bn, which was well above our expectation (W33.4bn) and the consensus (W25.6bn) and the highest level on record for the third Expected Return 22% quarter. Despite double-digit revenue growth, costs actually declined W5.2bn YoY due to a 7.8% YoY fall in material costs and a 1.8% drop in labor costs caused by lower wages and bonus payouts. We believe costs related to nuclear power plant work were OP (19F, Wbn) 186 previously recorded and therefore did not increase in the quarter. Consensus OP (19F, Wbn) 172 Securing near- and long-term revenue streams EPS Growth (19F, %) -8.2 1) IPP: In September, KEPCO KPS won a W36.9bn contact to improve the steam turbine Market EPS Growth (19F, %) -32.1 generator performance of POSCO’s Gwangyang Steelworks. Revenue recognition is P/E (19F, x) 10.2 likely to begin in 4Q19 and gradually continue through February 2021. The latest Market P/E (19F, x) 14.3 contract follows the IPP performance improvement contract from GS Power in 2018, KOSPI 2,139.23 and it increases the likelihood that the company will continue to expand into Korea’s aged power generator market. Depending on the performance evaluation of the Market Cap (Wbn) 1,517 Gwangyang Steelworks’ two units, the company could see further contract wins. Shares Outstanding (mn) 45 Free Float (%) 48.8 2) Overseas: Overseas earnings are also improving, albeit slowly. We expect the UAE Foreign Ownership (%) 12.3 power plant project to continue to contribute to earnings as all four units enter trial Beta (12M) 0.60 runs. The company should also begin to recognize revenue from the UAE long-term 52-Week Low 26,650 maintenance service agreement (LTMSA) signed in May. We estimate the contract 52-Week High 38,250 could generate annual average revenue of W60bn over a five-year period.

(%) 1M 6M 12M Upgrade to Buy and raise TP to W41,000 Absolute 1.5 -1.0 26.5 We raise our target price on KEPCO KPS from W35,000 to W41,000 and upgrade the Relative -1.9 -3.7 22.2 stock from Trading Buy to Buy. Our RIM-derived target price is based on a target P/E of

140 KEPCO KPS KOSPI 12x, which we view as achievable, as it is line with the low recorded in 2017 when 130 revenue began to stagnate. We expect additional recognition of delayed revenue and 120 profit improvements in IPP in 4Q19 to drive a rebound in share prices. 110 100 90 80 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 1,223 1,237 1,242 1,254 1,256 1,276 Jay JH Ryu +822-3774-1738 OP (Wbn) 106 164 192 186 191 195 [email protected] OP margin (%) 8.7 13.3 15.5 14.8 15.2 15.3

NP (Wbn) 88 136 161 148 154 158 EPS (W) 1,962 3,021 3,585 3,291 3,424 3,518 ROE (%) 11.2 16.0 17.1 14.7 14.3 13.7

P/E (x) 27.6 13.4 9.3 10.2 9.8 9.6 P/B (x) 3.1 2.0 1.5 1.5 1.4 1.3 Dividend yield (%) 1.3 3.6 5.4 4.7 4.7 4.7 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

Iljin Materials (020150 KS) Closer look reveals positive picture

Technology 3Q19 review: Closer look reveals positive picture Results Comment For 3Q19, Iljin Materials announced revenue of W150.2bn (-1.3% QoQ, +15.8% YoY) and November 15, 2019 operating profit of W15.7bn (-9.8% QoQ, -10.2% YoY). Both revenue and operating profit fell short of our expectations, but this was largely due to short-term issues unrelated to the broader picture. The revenue miss was due to: 1) other subsidiaries (-29% QoQ); and 2) the ICS business (Maintain) Buy (-3.5% QoQ). Domestic I2B revenue expanded 12.7% QoQ, despite weakness in the ESS segment. The Malaysia line also recorded a 110.1% QoQ surge in revenue on the back Target Price (12M, W) ▼ 59,000 of a continued rise in utilization. Despite unfavorable market conditions, battery-use elecfoil shipments remained solid. Share Price (11/14/19, W) 39,950 The operating profit miss was attributable to: 1) a sequential decline in operating profit from other subsidiaries (-W2bn); 2) costs related to the maintenance and repair of Expected Return 48% domestic facilities (estimated at W3-4bn); and 3) one-off expenses at the Malaysia line (estimated at W2bn)—issues that are unrelated to medium/long-term fundamentals. Despite very challenging industry conditions, we believe the company delivered robust OP (19F, Wbn) 58 underlying results. Consensus OP (19F, Wbn) 68 Another timely financing move EPS Growth (19F, %) 24.7 Market EPS Growth (19F, %) -32.1 It typically costs around W120bn to build 10,000 tonnes of battery-use elecfoil capacity. P/E (19F, x) 35.7 Given that Iljin Materials’ 2020 EBITDA forecast is around W140bn, the company Market P/E (19F, x) 14.3 inevitably needs to raise capital to add more than 10,000 tonnes of capacity every year. KOSPI 2,139.23 The company raised funds twice back in 2017. A W200bn rights offering in May 2017 Market Cap (Wbn) 1,842 allowed the company to make investments (Malaysia line) ahead of its rivals and thus Shares Outstanding (mn) 46 laid the foundation for its fundamental growth in 2019. Free Float (%) 46.4 Recently, Iljin Materials raised another W600bn by issuing perpetual convertible bonds Foreign Ownership (%) 5.0 (recognized as equity). The proceeds are enough to fund 50,000 tonnes of elecfoil Beta (12M) 1.33 capacity expansion. We believe the company has not only secured funds necessary to 52-Week Low 31,250 drive medium/long-term growth, but also strengthened its ability to: 1) carry out early 52-Week High 49,450 investments; 2) ensure supplies of key equipment (titanium drums); 3) improve line efficiency across products; and 4) invest in other regions. Overall, we believe the (%) 1M 6M 12M company made a smart move. Absolute 8.7 20.7 -18.5 Relative 5.1 17.5 -21.2 Resilient despite challenging market conditions; Bullish on 2020

120 Iljin Materials KOSPI We slightly lower our target price on Iljin Materials to W59,000 (from W64,000), as we 110 reduced our 2019-20 EPS estimates by 15.7% and 6.3%, respectively, to account for 100 weaker-then-anticipated ESS industry conditions. Even during what marked one of the 90 worst quarters for battery cell makers, we note that elecfoil suppliers, including Iljin 80 Materials, have delivered relatively resilient earnings. This indicates that elecfoil 70 supply/demand conditions are still tight compared to other battery materials. We 60 11.18 3.19 7.19 11.19 maintain Iljin Materials as our top pick among battery materials suppliers.

Mirae Asset Daewoo Co., Ltd.

[ Display/Batteries] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 399 454 502 576 668 866 Chuljoong Kim +822-3774-1464 OP (Wbn) 29 50 49 58 91 135 [email protected] OP margin (%) 7.3 11.0 9.8 10.1 13.6 15.6

NP (Wbn) 39 42 41 52 78 112 EPS (W) 971 1,000 897 1,119 1,686 2,419 ROE (%) 15.1 10.3 7.8 9.2 12.3 15.3

P/E (x) 13.9 38.3 45.7 35.7 23.7 16.5 P/B (x) 1.9 3.3 3.6 3.1 2.7 2.4 Dividend yield (%) 0.4 1.7 0.0 0.0 0.0 0.0 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

Emart (139480 KS) 3Q19 review: Just the beginning

Retail 3Q19 review: Weakness widely anticipated; Tailwinds confirmed For 3Q19, Emart announced consolidated revenue of W5.06tr (+7.1% YoY) and Results Comment operating profit of W116.2bn (-40.3% YoY). Operating profit, while in line with our November 15, 2019 expectation, came in slightly below the market consensus as a result of: 1) two fewer holidays; 2) inventory charges (food disposal, etc.) following a weak season; and 3) wider losses from SSG.com caused by advertising. Parent: Operating profit declined 36.4% YoY to W126.1bn. Hypermarket same-store (Maintain) sales (SSS) fell 5.9% YoY. Profit contraction continued, hurt by: 1) the consumer shift to Buy online shopping; 2) fewer holidays; and 3) inventory charges following a weak season. On a positive note, reductions to SG&A expenses (advertising, promotions, etc.) helped Target Price (12M, W) 190,000 offset some of the negative operating leverage effects. SSG.com: Operating loss expanded to W23.5bn, hurt by: 1) marketing spending (W6bn; Share Price (11/14/19, W) 134,500 W1bn to be recognized in 4Q19); and 2) expenses related to next-morning delivery and promotions. However, gross merchandise volume (GMV) grew 21.3% YoY, faster than Expected Return 41% the broader market (+19.4% YoY), leading to a pickup in market share. We expect SSG.com to continue to outperform the market and see market share gains in 4Q19, supported by: 1) increased delivery capacity (opening of the no. 3 NEO distribution center; daily capacity of 30,000 orders); and 2) the “SSG Day” event, which takes place in OP (19F, Wbn) 203 the fourth quarter. Consensus OP (19F, Wbn) 213 More tailwinds lie ahead EPS Growth (19F, %) -58.5 We believe there are still several tailwinds ahead that could lead to Emart’s multiple Market EPS Growth (19F, %) -32.1 expansion and drive share prices higher for some time. P/E (19F, x) 20.1 SSG.com’s market share recovery: We expect SSG.com’s market share to recover on Market P/E (19F, x) 14.3 the back of: 1) increased delivery capacity; and 2) effective promotions. This could bring KOSPI 2,139.23 renewed attention to the value of SSG.com, which was previously valued at W3tr.

Market Cap (Wbn) 3,749 Potential improvement in SSS growth: Coupang looks likely to focus on improving its profitability using its platform rather than expanding direct selling. This should have Shares Outstanding (mn) 28 positive effects on Emart’s SSS growth. Even if Coupang continues its aggressive top- Free Float (%) 68.2 line expansion, we do not think this will have a significant impact on Emart’s SSS Foreign Ownership (%) 34.0 growth, as online penetration has been slowing (except in the services category). Beta (12M) 1.03 Better utilization of offline assets: We also expect Emart to increase the utilization of 52-Week Low 105,500 its offline assets. Home Plus and Lotte Mart have already been actively using their 52-Week High 199,500 offline assets as fulfillment centers. We think the utilization of offline assets will help Emart improve the efficiency of its fixed assets and save fixed costs. (%) 1M 6M 12M Absolute 18.5 -15.1 -29.4 Maintain Buy and TP of W190,000 Relative 14.5 -17.4 -31.7 We maintain our Buy rating and target price of W190,000 on Emart. The 3Q19 earnings report was weak, as expected, but it also confirmed several tailwinds. We believe Emart

120 Emart KOSPI deserves attention in 2020. The potential slowdown in Coupang’s top-line expansion and decelerating online penetration in non-service sectors should provide strong 100 downside support for the stock. 80 The company’s 2020F P/E of 14x is slightly higher than its multiple in 2018 (when offline weakness and expectations for online businesses were not reflected). Still, we see a 60 number of tailwinds that could further boost the stock’s multiple. Any meaningful 40 progress in specialty store profits and parent SG&A expenses (marketing/promotions) 11.18 3.19 7.19 11.19 could also trigger strong share price gains.

Mirae Asset Daewoo Co., Ltd.

[ Retail] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 14,615 15,515 17,049 19,027 19,992 21,111 Myoungjoo Kim +822-3774-1458 OP (Wbn) 569 585 463 203 303 384 [email protected] OP margin (%) 3.9 3.8 2.7 1.1 1.5 1.8

NP (Wbn) 376 616 450 187 258 322 EPS (W) 13,497 22,101 16,150 6,702 9,273 11,562 ROE (%) 5.1 7.7 5.5 2.2 2.8 3.4

P/E (x) 13.6 12.3 11.3 20.1 14.5 11.6 P/B (x) 0.7 0.9 0.6 0.4 0.4 0.4 Dividend yield (%) 0.8 0.6 1.1 1.5 1.5 1.5 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

NCsoft (036570 KS) Rally is in order

Game 3Q19 review: Longevity of Lineage confirmed once again Results Comment For 3Q19, NCsoft reported revenue of W397.8bn (-3% QoQ, -1% YoY) and operating November 15, 2019 profit of W128.9bn. Operating profit held steady QoQ, supported by a decline in labor and marketing expenses, and was better than our expectation (we had estimated revenue and operating profit at W405bn and W111bn, respectively). NCsoft’s key titles fared well. While revenue from mobile games declined 5% QoQ to (Maintain) Buy W213.3bn (due to fewer in-game item promotions ahead of the Lineage M update on November 7th), revenue from five PC titles increased 3% QoQ to W124.7bn, supported Target Price (12M, W) 700,000 by a QoQ increase in domestic revenue. Labor expenses fell 8% QoQ, aided by a decline in one-off and fringe benefit expenses. Share Price (11/14/19, W) 526,000 Meanwhile, marketing expenses decreased 6% QoQ on high base effects (Lineage M made its debut in Japan in 2Q19), bolstering margins. Expected Return 33% With Lineage 2M release imminent, a rally is in order

The highly anticipated title Lineage 2M is set to be released on November 27th. Based OP (19F, Wbn) 652 on media reports, the current consensus on the game’s initial daily average revenue Consensus OP (19F, Wbn) 503 ranges from W1.5bn to W3bn, which implies a 2020 full-year revenue forecast of EPS Growth (19F, %) 33.5 W700bn (based on daily average revenue of W2bn plus global revenue). Market EPS Growth (19F, %) -32.1 The current consensus on Lineage 2M is equivalent to just one-quarter of the P/E (19F, x) 20.7 consensus of previous mobile MMORPG hits like Lineage M and Lineage 2: Revolution, Market P/E (19F, x) 14.3 and close to those of Blade & Soul: Revolution and Rohan M (the latter of which was KOSPI 2,139.23 released in June). Market Cap (Wbn) 11,548 This is not the first instance of the market not fully pricing in new game expectations; Shares Outstanding (mn) 22 blockbuster titles such as Aion (2008) and Lineage 2 (2003) generated share Free Float (%) 81.9 momentum only after open beta releases. Foreign Ownership (%) 49.9 Beta (12M) 0.24 Maintain Buy and TP of W700,000; Focus on expectations for Lineage 2M 52-Week Low 430,500 Once Lineage 2M is released, we expect the market to reflect: 1) the title’s commercial 52-Week High 552,000 potential, as reflected in daily revenue and user indicators; and 2) the quality of the (%) 1M 6M 12M game compared to competitors’ titles, as reflected in user reviews. Absolute 1.5 5.2 14.8 How the market responds to Lineage 2M should affect the game’s chance of success in Relative -1.9 2.4 11.0 the global market in 2020, as well as expectations on upcoming sequels such as Aion 2 and Blade & Soul 2. 130 NCsoft KOSPI 120 We reaffirm our Buy call and target price of W700,000 on NCsoft. Our target price is 110 based on the lower end of the P/E band over the past 20 years. 100

80 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Internet] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 984 1,759 1,715 1,821 2,501 2,882 Chang-kwean Kim +822-3774-1614 OP (Wbn) 329 585 615 652 1,153 1,497 [email protected] OP margin (%) 33.4 33.3 35.9 35.8 46.1 51.9

NP (Wbn) 272 441 418 558 854 1,084 EPS (W) 12,416 20,104 19,061 25,438 38,907 49,398 ROE (%) 14.9 19.1 16.4 21.6 27.0 27.0

P/E (x) 19.9 22.3 24.5 20.7 13.5 10.6 P/B (x) 2.7 3.4 3.7 3.6 2.9 2.3 Dividend yield (%) 1.5 1.6 1.3 1.2 1.2 1.2 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

SM Entertainment (041510 KQ) Back on track

Entertainment 3Q19 review: First earnings surprise in a long time For 3Q19, SM Entertainment delivered consolidated revenue of W173.5bn (+2.8% YoY; Results Comment all growth figures hereafter are YoY) and operating profit of W19.9bn (+64.2%). November 15, 2019 Operating profit exceeded our expectation (W16bn) and the consensus (W15.5bn). We believe 3Q19 was a quarter of normalization, with marked profit improvement from SM C&C, robust growth across core businesses, and no unexpected expense items. 1) Core businesses: Operating profit was stronger than expected (W15.7bn for parent, (Maintain) W3.6bn for SM Japan, and W3.3bn for Dream Maker). Domestic album sales totaled Buy 1.42mn copies (vs. 660,000 copies in 3Q18), supported by new releases from EXO units, NCT DREAM, and Red Velvet. Digital music exports increased significantly (+121.5%), Target Price (12M, W) ▲ 52,000 boosted by stronger demand from global platforms and the contract with China’s Tencent Music Entertainment. Meanwhile, EXO performed 16 shows as part of its global tour in 3Q19, attracting 90,000 attendees in Korea alone. In Japan, around Share Price (11/14/19, W) 39,400 300,000 concert attendees were recognized in 3Q19.

Expected Return 32% 2) SM C&C: Operating profit grew to W2.5bn (from W0.4bn in 3Q18). Advertising margins improved on the back of increased spending by non-affiliate advertisers, including Korean Air and Coway. The improvement is particularly encouraging when considering the typically weak seasonality of the third quarter and the softness of the OP (19F, Wbn) 48 overall advertising market. Profits from non-advertising businesses (overseas licensing Consensus OP (19F, Wbn) 40 sales of variety shows, etc.) also improved.

EPS Growth (19F, %) -38.7 YoY profit growth may be possible if normalization continues in 4Q19 Market EPS Growth (19F, %) -32.1 Core business variables continue to look favorable in 4Q19. These include the kickoff of P/E (19F, x) 47.2 TVXQ’s five-dome tour (570,000 attendees), album releases by Super Junior and Taeyeon, and EXO’s busy album release—full/repackaged/solo (Chen) albums—and Market P/E (19F, x) 14.3 concert schedule. Furthermore, SM C&C is entering the peak advertising season. With KOSDAQ 663.31 margins now turning around on the back of non-affiliate volume, we expect SM C&C to see leverage effects during the peak season. Market Cap (Wbn) 924 Shares Outstanding (mn) 23 Our operating profit forecasts for SM Entertainment are W21.2bn (+39.3%) for 4Q19 and W47.8bn (+0.1%) for 2019. We think YoY profit growth is not unachievable, but it Free Float (%) 80.6 will likely require the continuation of the trends seen in 3Q19, including 1) limited non- Foreign Ownership (%) 15.6 core business expenses and 2) ad profit growth and content efficiency at SM C&C. Beta (12M) 0.89 Maintain Buy and raise TP to W52,000 52-Week Low 27,050 52-Week High 56,100 We maintain our Buy rating on SM Entertainment and raise our target price to W52,000, as we changed our valuation base period to 2020 and revised up our 2020 (%) 1M 6M 12M net profit estimate by 23%. We used a target P/E of 27x, applying a 10% discount to our sector target multiple to reflect the exposure to the advertising business and worries Absolute 5.8 -3.7 -21.0 over the void left by the military enlistment of the company’s artists. Relative 2.3 3.1 -20.1 The 3Q19 results confirm the normalization of the company’s earnings power. In 130 SM Entertainment KOSDAQ addition to favorable core business variables, several events in 4Q19 could define the company’s future growth potential and valuation. 110 1) SuperM will perform five US shows in November, and 2) WayV will become more 90 active in China, starting with a fan meeting on November 23rd. We believe both events

70 will provide insight into the potential monetization of the two groups’ rapidly growing fan bases, which is critical for the company to fill the gap left by EXO’s absence in 2020. 50 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Media] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 350 365 612 668 727 780 Jeong-yeob Park +822-3774-1652 OP (Wbn) 21 11 48 48 60 73 [email protected] OP margin (%) 6.0 3.0 7.8 7.2 8.3 9.4

NP (Wbn) 4 4 31 19 42 54 EPS (W) 169 199 1,361 835 1,808 2,317 ROE (%) 1.2 1.3 8.0 4.4 8.7 10.2

P/E (x) 153.0 174.4 38.4 47.2 21.8 17.0 P/B (x) 1.7 2.2 2.8 2.0 1.8 1.6 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 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

JYP Entertainment (035900 KQ) High profitability confirmed

Entertainment 3Q19 review: Above-consensus OP of W14.8bn Results Comment For 3Q19, JYP Entertainment announced consolidated revenue of W45.6bn (+34.5% November 15, 2019 YoY) and operating profit of W14.8bn (+74.5% YoY). Operating profit hit a quarterly high, surpassing both the market consensus and our estimate (W12bn). Earnings were strong across the board, especially in the content (album/digital; +18% YoY) and concert (+150% YoY) segments. Gross margin and OP margin were 51% and 32%, respectively, boosted by operating leverage effects and the partial recognition of (Maintain) Buy TWICE's dome tour.

Target Price (12M, W) ▲ 31,000 Album/digital music revenue was W16bn (+18% YoY). Album sales included 430,000 copies of TWICE’s new mini album and 120,000 copies of ITZY’s debut album. Global Share Price (11/14/19, W) 22,100 digital music revenue continued to expand to W2.3bn (+28% YoY), driven by growing demand from global platform operators. Meanwhile, other revenues grew to W12.3bn Expected Return 40% (+15% YoY), aided by robust merchandise sales, YouTube revenue (W1.3bn; +49% YoY), and fan club membership fees. Concert revenue surged to W10bn (+150% YoY), buoyed by TWICE's dome tour (partial recognition) and GOT7’s world tour. OP (19F, Wbn) 42 High profitability to raise expectations for 2020 earnings Consensus OP (19F, Wbn) 37 In 2Q19, increased management and content production costs caused gross margin to EPS Growth (19F, %) 37.4 contract 4.6%p QoQ to 43.7%, which had raised concerns over profitability in spite of Market EPS Growth (19F, %) -32.1 new artist debuts and overseas tours. We believe the biggest takeaway of the latest P/E (19F, x) 23.5 results is the removal of such profitability concerns. Market P/E (19F, x) 14.3 KOSDAQ 663.31 Expectations on 2020 earnings are likely to grow, as key artists should be fully active. TWICE’s scheduled activities in Japan have been increasing through the years, while Market Cap (Wbn) 784 DAY6 and GOT7 are scheduled for world tours. We also expect to see new activities Shares Outstanding (mn) 35 from ITZY and Stray Kids. Any concerns over profitability should be limited through Free Float (%) 74.8 end-2021, given top-line growth potential and the absence of changes in artist Foreign Ownership (%) 9.2 contracts. Beta (12M) 0.79 52-Week Low 16,950 Maintain Buy and lift TP to W31,000; Earnings to be driven by global projects 52-Week High 34,450 We reiterate our Buy call on JYP Entertainment and lift our target price to W31,000, as we changed our valuation base period to 2020 while maintaining our earnings (%) 1M 6M 12M estimates. Our target P/E remains unchanged at 27x. Despite uncertainties over the Absolute -2.0 -20.4 -32.2 Korea-Japan row, we remain positive, given TWICE’s extended concert tour, progress in Relative -5.2 -14.7 -31.4 the Nizi project, and the absence of any worrying signs in the Oricon charts.

130 JYP Entertainment KOSDAQ Meanwhile, JYP Entertainment has several projects planned for 2020 that should help 110 transform the company into a global player. These include the Nizi project in Japan

90 (debut targeted for late 2020), Project C in China (debut targeted for 2H20), and a global idol project (likely in the US). We expect the removal of earnings-related 70 concerns to draw attention to the long-term growth potential provided by these global

50 projects. 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Media] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 74 102 125 153 184 200 Jeong-yeob Park +822-3774-1652 OP (Wbn) 14 19 29 42 53 59 [email protected] OP margin (%) 18.9 18.6 23.2 27.5 28.8 29.5

NP (Wbn) 8 16 24 33 40 44 EPS (W) 246 471 685 941 1,127 1,243 ROE (%) 13.4 21.4 22.5 23.2 22.4 20.4

P/E (x) 20.0 29.2 44.2 23.5 19.6 17.8 P/B (x) 2.1 4.8 7.7 4.5 3.8 3.2 Dividend yield (%) 0.0 0.0 0.4 0.6 0.6 0.6 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

Hite Jinro (000080 KS) New products are reinventing the industry

Food & Beverage 3Q19 review: Soju market share surpasses 60% Results Comment For 3Q19, Hite Jinro reported a 5.8% YoY gain in revenue, a 67.9% YoY rise in operating profit (W49.2bn), and a 174.5% YoY surge in net profit, beating market expectations. November 14, 2019 Overall, we believe 3Q19 marked a strong quarter.

For soju (which accounted for 55.1% of 2018 revenue), revenue and operating profit grew 9.2% and 102.7% YoY, respectively, driven by: 1) price increase effects (prices were raised by 6.5% in May); 2) market share gains (from 53% in late 2018 to an (Maintain) Trading Buy estimated 60% in 3Q19), fueled by stronger demand due to the row with Japan; and 3) strong sales of Jinro is Back. Target Price (12M, W) ▲ 32,000 The beer business (37.9% of revenue) recorded a 1.4% YoY revenue gain and an operating loss of W3.9bn. Domestic beer revenue grew 8% YoY, as sales of the new Share Price (11/14/19, W) 29,400 brand Terra (released in March; 3Q19 revenue estimated at W70bn) offset the decline in sales of Hite, Max, and FiLite. Imported beer revenue, on the other hand, slumped Expected Return 9% 40% YoY due to the Japan issue. Beer utilization improved 10%p YoY from 47% in 3Q18 to 57% in 3Q19 on the back of increased volume and reduced capacity. The operating loss was largely due to the sharp decline in imported beer sales, which have higher OP (19F, Wbn) 88 margins. Consensus OP (19F, Wbn) 88 Key issues in 2020 EPS Growth (19F, %) - We believe Hite Jinro will face several important issues in 2020. 1) Liquor tax laws are Market EPS Growth (19F, %) -32.1 likely to be revised next year, leading to a decline in taxes on canned beer P/E (19F, x) - (predominantly consumed in households). This should prove favorable to Hite Jinro by Market P/E (19F, x) 14.3 allowing the company to better compete with imported canned beer on price. 2) The th KOSPI 2,139.23 implementation of new liquor market regulations on November 15 should reduce sales rebates over the long term. Market Cap (Wbn) 2,062 3) We expect Hite Jinro’s beer market share to expand from 30% in 2019 to 33% in Shares Outstanding (mn) 71 2020, spurred by strong sales of Terra. That said, the company’s market share could Free Float (%) 43.6 depend on the strategy of rival Oriental Brewery (OB), which has lowered beer prices Foreign Ownership (%) 9.6 by 4.7% and is likely to further defend its market share through marketing. We Beta (12M) 0.04 estimate Terra’s share of Hite Jinro’s domestic beer revenue will increase from 30% in 52-Week Low 15,800 2019 (40% in 3Q19) to 50% in 2020. 52-Week High 29,600 4) The company’s soju market share, which climbed to 60% in 2H19, is likely to hold (%) 1M 6M 12M steady in 2020, supported by the positive effects of the Japan issue and robust sales of Jinro is Back (a retro-type soju with alcohol content of 16.9% that was launched to Absolute 13.7 44.1 86.1 counter Chumchurum; estimated 12% of soju revenue). Relative 9.9 40.3 79.9 Valuation vs. earnings momentum; Retain Trading Buy, raise TP to W32,000 200 Hite Jinro KOSPI 180 Hite Jinro is currently trading at 2020-21 P/Es of 37.8x and 32.2x, respectively, and a P/B 160 of 1.7x, higher than the overall F&B sector. We expect the company to deliver market 140 share gains and enjoy strong earnings momentum (2020-21F operating profit growth 120 of 59.5% and 8.8%, respectively), driven by Terra and Jinro is Back. We raise our target 100 price on Hite Jinro to W32,000 (from W24,000), applying a 2020-21F P/B of 1.82x (the 80 stock’s average multiple during the earnings growth period of 2009-11). 11.18 3.19 7.19 11.19 That said, we maintain our Trading Buy rating on the stock, as we see little upside room to our target multiple. Mirae Asset Daewoo Co., Ltd.

[ F&B] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 1,890 1,890 1,886 1,986 2,084 2,157 Woon-mok Baek +822-3774-1679 OP (Wbn) 124 87 90 88 140 153 [email protected] OP margin (%) 6.6 4.6 4.8 4.4 6.7 7.1

NP (Wbn) 38 13 22 -5 55 65 EPS (W) 538 178 312 -75 778 914 ROE (%) 2.9 1.0 1.9 -0.5 4.8 5.5

P/E (x) 39.2 135.4 53.2 - 37.8 32.2 P/B (x) 1.1 1.3 1.0 1.7 1.7 1.7 Dividend yield (%) 4.3 3.3 4.8 2.7 2.7 2.7 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

Nongshim (004370 KS) Domestic weakness vs. overseas growth

Food & Beverage 3Q19 review: Growth in the US continues For 3Q19, Nongshim reported a 4.2% YoY increase in revenue and a 14.5% YoY decline Results Comment in operating profit (W18.6bn; OP margin of 3.1%) on a consolidated basis (Korea, US, November 14, 2019 China, Japan, Australia, and Vietnam). Operating profit was dragged down by: 1) increased marketing (advertising) spending due to ongoing competition in the domestic market; and 2) higher expenses related to expansion in China. In Korea, revenue inched up 0.6% YoY, and operating profit contracted 23.9% YoY (OP (Maintain) margin of 2.4%). By category, revenue growth was: 1) -0.6% for instant noodles; 2) Buy +3.7% for snacks; 3) +1.2% for beverages; 4) +10.1% for import brands; and 5) +4.3% for exports. By instant noodle brand, revenue gained 2% for Shin Ramyun, 23% for Target Price (12M, W) 320,000 Chapagetti, and 7% for Yukgaejang, but revenue decreased for Ansungtangmyun and Neoguri due to the impact of promotions by Paldo and Ottogi. Nongshim’s instant noodle market share slipped 0.7%p YoY to 54.4%. In beverages, sales of Baeksansoo Share Price (11/14/19, W) 243,000 grew 8.3% YoY, but sales of Capri Sun and Welch’s declined on unfavorable weather conditions (lower temperatures and frequent rainfall). Expected Return 32% At overseas subsidiaries (US, China, Japan, Australia, and Vietnam), revenue grew 17.3% YoY, but operating profit fell 11.7% YoY (OP margin of 5.8%). In the US, revenue and operating profit grew 23.4% and 57.1% YoY, respectively (OP margin of 4.3%), OP (19F, Wbn) 85 aided by: 1) the expansion of key channels (Walmart, Costco, Kroger, etc.) and heavy Consensus OP (19F, Wbn) 91 promotions in those channels; 2) expansion into the southern region (Dallas, Texas, etc.); and 3) more efficient promotional spending. EPS Growth (19F, %) -10.5 In China, revenue increased 5.3% YoY thanks to a pickup in sales of core products (Shin Market EPS Growth (19F, %) -32.1 Ramyun, Kimchi Ramyun, etc.), but operating profit slumped 41.9% YoY (OP margin of P/E (19F, x) 19.6 5.7%), weighed down by expenses related to the move into the western region and Market P/E (19F, x) 14.3 marketing spending. Elsewhere, revenue grew 16.5% YoY in Japan and 13.6% YoY in Australia. KOSPI 2,139.23 Overseas growth to continue in 2020 Market Cap (Wbn) 1,478 Shares Outstanding (mn) 6 We expect Nongshim’s overseas business to continue growth and margin expansion. In the critical US market, Nongshim is focusing on: 1) broadening its product lineup in Free Float (%) 49.6 modern trade channels (Shin Ramyun Black, non-fried instant noodles, cup instant Foreign Ownership (%) 19.2 noodles, etc.); 2) securing shelf presence in all of the stores operated by Walmart, Beta (12M) 0.20 Costco, and Kroger; 3) expanding vendors in Dallas, Texas; and 4) increasing the 52-Week Low 222,500 number of Hispanic and Caucasian customers. 52-Week High 313,500 Nongshim has the second largest share in the US instant noodle market (worth US$1bn) and has seen its market share gradually increase. The company plans to (%) 1M 6M 12M invest US$200mn to build a second plant in the US to aid its expansion in the country, Absolute -1.6 -11.3 3.4 as well as Mexico and Canada. The company will break ground in 2020, with operation Relative -4.9 -13.7 0.0 targeted for end-2021. The second plant will measure 37.6 acres, three times the size of the first plant. For financing, half of the US$200mn will be capital investments from Nongshim, and the other half will come from the US subsidiary’s cash reserves and 160 Nongshim KOSPI outside loans. The new plant will likely include four production lines: two for fried 140 instant noodles (one packaged and one cup), one for dried noodles, and one for fresh noodles. 120 Maintain Buy and TP of W320,000 100 At a 2019-20F P/B of 0.7x, we believe Nongshim is undervalued, given its growth in 80 overseas markets (US, China, Japan, Australia, and Vietnam) and its rise into a global 11.18 3.19 7.19 11.19 brand.

Mirae Asset Daewoo Co., Ltd.

[ F&B] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 2,217 2,208 2,236 2,345 2,438 2,523 Woon-mok Baek +822-3774-1679 OP (Wbn) 90 96 89 85 96 103 [email protected] OP margin (%) 4.1 4.3 4.0 3.6 3.9 4.1

NP (Wbn) 199 91 84 75 93 94 EPS (W) 32,764 14,905 13,858 12,409 15,214 15,378 ROE (%) 11.6 5.0 4.5 3.9 4.7 4.6

P/E (x) 10.1 23.8 18.4 19.6 16.0 15.8 P/B (x) 1.1 1.1 0.8 0.7 0.7 0.7 Dividend yield (%) 1.2 1.1 1.6 1.6 1.6 1.9 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

Celltrion Healthcare (091990 KQ) 3Q19 earnings driven by US-bound Truxima exports Healthcare 3Q19 review: In-line earnings Results Comment For 3Q19, Celltrion Healthcare announced consolidated revenue of W282bn (+32.6% November 15, 2019 YoY, -1.0% QoQ) and operating profit of W21.3bn (+6.5% YoY, +129.0% QoQ), in line with the consensus. Revenue was supported by US-bound Truxima exports. Truxima accounted for 51% of total revenue, exceeding the contribution of Remsima, and North America accounted for 35% of total revenue, up from 8% in 2Q19. (Maintain) Buy OP margin was 7.6%, higher than the 2Q19 level (3.2%), as Truxima is priced four times higher in the US than in Europe (where Celltrion Healthcare has focused on qualitative Target Price (12M, W) ▲ 70,000 growth to keep prices steady). Pretax profit was W26.4bn (+46.7% YoY), supported by F/X-translation gains due to won depreciation. Share Price (11/14/19, W) 52,500 Status check by product Expected Return 33% 1) Remsima (US brand name Inflectra): Remsima’s European market share has expanded to 59% (+2%p QoQ). Market share growth is particularly encouraging, given that Celltrion scaled back volume to stabilize prices. Once Remsima SC is released, we OP (19F, Wbn) 92 expect it to enhance Remsima’s competitiveness in Europe and lead to margin Consensus OP (19F, Wbn) 79 improvements, given its likely high pricing.

EPS Growth (19F, %) 435.7 2) Truxima: Truxima’s European market share now stands at 38%, which is believed to Market EPS Growth (19F, %) -32.1 be double that of its rival. Truxima is faring particularly well in the UK and France, with th P/E (19F, x) 123.3 respective market shares of 69% and 54%. On November 11 , Truxima was launched in Market P/E (19F, x) 14.3 the US as the first FDA-approved biosimilar to Rituxan; it is priced at a 10% discount to KOSDAQ 663.31 the original drug. Truxima is approved for the same indications as Rituxan with the exception rheumatoid arthritis (which is expected to be included in 1H20). Market Cap (Wbn) 7,556 Shares Outstanding (mn) 144 3) Herzuma: Despite a selective approach to bidding to defend prices, Herzuma has a Free Float (%) 53.4 market share of 15% in Europe, higher than its three competing biosimilars. We expect Foreign Ownership (%) 24.0 Herzuma to drive top-line growth in 2020, supported by the launch in Japan (market Beta (12M) 1.22 size of W400bn) in August 2019 and the scheduled release in the US in 1H20. 52-Week Low 37,700 New product effects to continue 52-Week High 83,500 We maintain our Buy rating on Celltrion Healthcare and lift our target price to W70,000 (%) 1M 6M 12M (from W60,000), as we adjusted up our earnings forecasts slightly to reflect new Absolute -3.5 -22.0 -14.5 product effects (Remsima SC in Europe, Truxima and Herzuma in the US) and the value Relative -6.7 -16.5 -13.5 of the drug development pipeline. Other investment points include a focus on qualitative growth to stabilize prices, solid market share gains, and an increasingly 150 Celltrion Healthcare KOSDAQ favorable biosimilar market environment in the US. 130

110

50 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Biotech/Healthcare] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 758 921 713 1,183 1,821 2,263 Taehee Kim +822-3774-6813 OP (Wbn) 179 154 -25 92 226 341 [email protected] OP margin (%) 23.6 16.7 -3.5 7.8 12.4 15.1

NP (Wbn) 123 157 11 61 166 255 EPS (W) 1,060 1,230 80 426 1,129 1,705 ROE (%) 21.4 13.4 0.7 3.7 9.3 12.8

P/E (x) - 86.6 947.1 123.3 46.5 30.8 P/B (x) - 8.9 6.2 4.2 4.0 3.6 Dividend yield (%) - 0.0 0.0 0.0 0.0 0.0 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

November 15, 2019 Celltrion Healthcare

Table 1. 3Q19 review (Wbn, %) Mirae Asset 3Q18 2Q19 3Q19 YoY QoQ Consensus Daewoo Revenue 212.7 284.8 282.0 32.6 -1.0 291.3 281.0 Operating profit 20.0 9.3 21.3 6.5 129.0 23.8 22.2 OP margin (%) 9.4 3.2 7.6 8.2 7.9 Net profit 6.4 8.5 10.1 57.8 18.8 22.2 20.1 Note: Net profit is attributable to controlling interests Source: Company data, FnGuide, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Seegene (096530 KQ) A departure from the past

Medtech 3Q19 review: Earnings surprise Results Comment For 3Q19, Seegene delivered record-high revenue of W31.4bn (+34.4% YoY), exceeding November 15, 2019 the consensus. Despite weak seasonality, reagents saw robust growth (+35.4% YoY), and equipment revenue was also solid (+32.1% YoY). Operating profit was W6.8bn (+140.1% YoY; OP margin of 21.8%), far above the consensus. OP margin surpassed 20% for the first time since 2013, supported by an increased revenue contribution from (Maintain) Buy high-margin reagents. Reagent volume ramp-ups have begun in 2019 Target Price (12M, W) 30,000 1) Market penetration to accelerate, backed by robust technology: Seegene has Share Price (11/14/19, W) 23,200 developed the world’s only multiplex real-time polymerase chain reaction (PCR) assays (brand name Allplex) on the back of its three core proprietary technologies. Supported Expected Return 29% by its strong technology, the company has more than 1,100 customers as of 3Q19. It typically takes around six to 12 months for volume to meaningfully grow after a new customer is acquired. With Allplex now in the fourth year since its release, we believe OP (19F, Wbn) 19 volume ramp-ups have been gathering traction this year. Since late 2018, the company Consensus OP (19F, Wbn) 19 has also been making progress in tender markets like Israel and France. The company’s progress in these tender markets, where price competition is fierce, EPS Growth (19F, %) 138.7 suggests its technology is gaining increasing recognition. Market EPS Growth (19F, %) -32.1 P/E (19F, x) 25.9 2) Advance into US market: Seegene is working with global company Thermo Fisher Market P/E (19F, x) 14.3 Scientific to seek US FDA clearance for Allplex. The US is the world’s largest molecular KOSDAQ 663.31 diagnostics market and has one of the highest reimbursement rates. Given that Allplex has already been recognized for its performance in the conservative European market, Market Cap (Wbn) 609 we believe Allplex is well-positioned to make its way into the US. We expect Allplex to Shares Outstanding (mn) 26 hit the US market in 2021 or later. Free Float (%) 66.3 Foreign Ownership (%) 18.2 Maintain Buy and TP of W30,000 Beta (12M) 0.92 The latest results show that ramp-up effects are materializing, which is especially 52-Week Low 14,750 meaningful given that the third quarter is an off-peak season. We note that 4Q19-1Q20 52-Week High 29,500 is the peak demand season, as demand for respiratory products (including diagnostic (%) 1M 6M 12M kits) grows during flu season. As long as top-line growth remains on track, we expect operating leverage effects to accelerate margin improvements down the road. Absolute 2.2 -1.9 34.9 Relative -1.2 5.0 36.6 We believe the 3Q19 results also highlight Seegene’s valuation. We apply a P/S multiple, given that Seegene changed its R&D treatment from capitalization to 170 Seegene KOSDAQ expensing, which weighs on margins. Seegene’s 12-month forward P/E now stands at 150 25.5x, the lowest level in years, as a result of a change in accounting standards and the 130 3Q19 earnings improvement. Barring an unexpected rise in expenses, we may change 110 our valuation method to P/E, which is more stable than P/S. The use of P/E valuation 90 would go a long way toward relieving the valuation burden on the stock, which has 70 been its biggest drawback. We maintain our Buy rating and target price of W30,000 on 11.18 3.19 7.19 11.19 Seegene. The stock is currently trading at a 12-month forward P/S of 4.4x, slightly above global peers (4.2x). Mirae Asset Daewoo Co., Ltd.

[ Medtech/Healthcare Solutions] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 74 87 101 116 133 154 Choong-hyun Kim, CFA +822-3774-1740 OP (Wbn) 10 7 9 19 21 25 [email protected] OP margin (%) 13.5 8.0 8.9 16.4 15.8 16.2

NP (Wbn) 7 2 10 23 17 20 EPS (W) 272 76 375 894 651 769 ROE (%) 5.1 1.5 7.5 15.8 10.2 10.9

P/E (x) 128.7 441.9 42.7 25.9 35.7 30.2 P/B (x) 6.1 6.5 2.8 3.6 3.3 2.9 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 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

November 15, 2019 Seegene

Table 1. 3Q19 review (Wbn, %, %p) 3Q19P Growth 3Q18 2Q19 Preliminary Mirae Asset Daewoo Consensus YoY QoQ Revenue 23.4 29.3 31.4 27.1 27.3 34.4 7.2 Operating profit 2.9 4.6 6.8 4.1 3.8 140.1 47.4 OP margin (%) 12.2 15.8 21.8 15.1 13.8 9.6 6.0 Pretax profit 3.2 8.6 7.7 5.7 4.6 145.7 -9.5 Net profit -0.1 9.3 5.9 4.6 2.7 TTB -36.9 Note: Based on K-IFRS Source: Company data, FnGuide, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes

19F 20F 19F 20F 19F 20F

Revenue 116.0 133.3 121.8 141.8 5.0 6.4 Reflected changes in Operating profit 19.2 20.9 24.8 28.9 29.2 38.4 accounting standards Pretax profit 25.1 21.3 30.0 29.4 19.5 37.9 Net profit 23.5 17.1 26.1 23.5 11.1 37.9 EPS (W) 894.4 650.6 993.7 896.9 11.1 37.9 Note: Based on K-IFRS Source: Mirae Asset Daewoo Research estimates

Table 3. Quarterly and annual earnings (Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19P 4Q19F 2018 2019F 2020F

Revenue 23.9 24.8 23.4 30.3 27.5 29.3 31.4 33.7 100.8 121.8 141.8 Products 16.5 16.9 16.7 18.9 20.7 20.6 22.6 24.6 69.0 88.4 105.0 Women’s health 6.2 7.3 7.7 7.9 7.3 7.7 9.2 9.3 29.2 33.6 40.8 Respiratory 7.3 5.7 4.6 6.7 8.5 7.4 7.5 9.0 24.3 32.5 37.2 Other 3.0 3.9 4.3 4.3 4.9 5.4 5.8 6.2 15.5 22.4 27.0 Instruments 7.0 7.3 6.3 10.9 6.3 8.2 8.3 8.7 31.5 31.5 35.1 Other 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.4 1.9 1.9 1.6 Operating profit 1.1 1.7 2.9 5.0 5.8 4.6 6.8 7.5 9.0 24.8 28.9 Pretax profit 1.0 2.5 3.2 4.6 6.6 8.6 7.7 7.1 9.6 30.0 29.4 Net profit 2.5 2.0 -0.1 5.4 5.1 9.3 5.9 5.7 9.8 26.1 23.5 OP margin (%) 4.4 7.0 12.2 16.5 21.1 15.8 21.8 22.3 8.9 20.3 20.4 Pretax margin (%) 4.1 10.0 13.5 15.2 24.0 29.2 24.7 21.1 9.5 24.6 20.7 Net margin (%) 10.3 8.3 -0.5 17.9 18.6 32.0 18.8 16.9 9.7 21.4 16.6 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Samsung F&M (000810 KS) Profit growth cycle not enough for stock to turn around Insurance 3Q19 review: Net profit of W159.8bn (-32.6% YoY); Loss ratio worsens further Results Comment For 3Q19, Samsung F&M reported net profit of W159.8bn, below our estimate of W200.2bn. Underwriting profit was in line with our expectation, but investment yield November 15, 2019 was weaker.

1) Auto loss ratio worsened again, rising to 90.2%. Losses incurred (+7.5% YoY) continued to outpace earned premiums (+3.6% YoY). 2) Risk loss ratio (83.9%) rose for the third straight quarter, and at a faster rate (+4.5%p YoY). 3) Unlike other insurers, (Downgrade) Trading Buy Samsung F&M saw no bond disposal gains, leading to a sluggish investment yield of 2.85%. Target Price (12M, W) ▼ 270,000 Underwriting profit cycle is bottoming out Share Price (11/14/19, W) 224,500 We believe the key factors weighing on earnings across the sector are now finding a cyclical bottom. Expected Return 20% The industry-wide uptrend in risk loss ratio stems from medical reimbursement plans. Guidelines on premium rate increases for medical reimbursement plans will reportedly

be confirmed this month. Previously, regulators had expected the expansion of OP (19F, Wbn) 1,127 national health insurance coverage to benefit medical indemnification policies, and Consensus OP (19F, Wbn) 1,140 they set the 2019 guidelines accordingly. Following the insurance expansion, however, medical reimbursement claims have actually increased significantly (co-pays were up EPS Growth (19F, %) -29.8 29.5% in 1H19, according to the Korea Insurance Research Institute). With the positive Market EPS Growth (19F, %) -32.1 effects on medial reimbursement plans still unclear, we expect premium rate hikes to P/E (19F, x) 12.9 be adjusted to more realistic levels. Market P/E (19F, x) 14.3 Auto insurance premium rates also look set to be increased. Recent trends show loss KOSPI 2,139.23 ratio increases across all coverage types, especially bodily injury liability coverage, where premium hikes have been limited. As such, we think premium rate hikes are Market Cap (Wbn) 10,636 inevitable in early 2020. The effects of the two rate hikes implemented this year are Shares Outstanding (mn) 51 also gradually materializing. In Samsung F&M’s case, this has come in the form of Free Float (%) 65.6 growth in direct premiums written (+12.3% YoY in 3Q19). All in all, we expect loss ratio Foreign Ownership (%) 48.4 to begin to improve in 2020. Beta (12M) 0.70 52-Week Low 213,000 Profit growth cycle not enough for stock to turn around 52-Week High 309,000 During the upcoming profit growth cycle, second-tier insurers, which were hit particularly hard by rising loss ratios, are likely to see greater leverage effects. (%) 1M 6M 12M Absolute 1.1 -20.5 -21.2 Assuming a dividend payout ratio of 50%, we estimate Samsung F&M’s 2019 dividend Relative -2.3 -22.7 -23.8 yield at 4.0%, a level that is far from inspiring when considering the high dividend trends across the broader financial industry and the insurer’s relatively high capital

120 Samsung F&M KOSPI ratio. 110 Overall, Samsung F&M does not look particularly attractive from either a momentum 100 (related to next year’s cyclical upturn) or dividend perspective. There is also a risk that 90 the insurer will have to aggressively respond to sales competition (which could occur at 80 any time) to maintain its market leadership. 70 60 Reflecting our earnings revisions, we lower our target price on Samsung F&M to 11.18 3.19 7.19 11.19 W270,000 (from W310,000) and downgrade the stock to Trading Buy.

Mirae Asset Daewoo Co., Ltd. FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F [ Securities/Insurance] Earned premium (Wbn) 17,406 17,690 17,702 17,853 18,259 18,675 OP (Wbn) 1,120 1,491 1,521 1,127 1,290 1,415 Gil-won Jeong +822-3774-1675 NP (Wbn) 841 1,043 1,057 742 852 944 [email protected] EPS (W) 19,782 24,533 24,866 17,454 20,034 22,198

Minjeong Kyeong BPS (W) 255,966 278,571 289,043 341,836 352,869 365,067 +822-3774-1437 P/E (x) 13.5 10.9 10.8 12.9 11.2 10.1 [email protected] P/B (x) 1.0 1.0 0.9 0.7 0.6 0.6

ROE (%) 8.1 9.2 8.8 5.5 5.8 6.2 Dividend yield (%) 2.3 3.7 4.3 4.0 4.5 4.9

Shareholders’ equity 10,881 11,842 12,287 14,531 15,000 15,519 Note: All figures are based on Non-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.

Silicon Works (108320 KQ ) Deeply undervalued

Technology 3Q19 review: OP falls short of expectations due to one-off expenses Company Report For 3Q19, Silicon Works announced revenue of W250bn (+27.2% QoQ, +16.7% YoY) and November 14, 2019 operating profit of W14bn (+125.4% QoQ, -33.9% YoY). Revenue beat our estimate, but operating profit disappointed due to one-off expenses (inventory valuation losses of W6.2bn). Excluding the one-off item, OP margin climbed QoQ to 8.1%, aided by: 1) a growing (Maintain) Buy sales mix of OLED-use products (estimated at 35% in 3Q); and 2) won depreciation. In 3Q19, LG Display (LGD; 034220 KS/Buy/TP: W20,000/CP: W14,400) started to supply Target Price (12M, W) ▼ 44,000 plastic OLED (POLED) to North American customers , but its LCD TV shipments contracted amid declining utilization. Share Price (11/13/19, W) 33,850 For 4Q19, we expect Silicon Works to post revenue of W246bn (-8.0% QoQ, +4.1% YoY) and operating profit of W20.5bn (+46.2% QoQ, -1.6% YoY). Margins should recover to Expected Return 30% normal levels, absent one-off expenses. Meanwhile, OLED-use products’ revenue contribution should decline slightly, due to: 1) won appreciation; and 2) a QoQ fall in LGD’s shipments to North American customers. OP (19F, Wbn) 43 Consensus OP (19F, Wbn) 53 Uncertainty to lift gradually

EPS Growth (19F, %) -18.6 Silicon Works shares have plunged ove r the past year, due to: 1) a slump in the LCD Market EPS Growth (19F, %) -32.1 industry (falling prices and production cuts at the firm’s major customer); and 2) one- P/E (19F, x) 13.8 off expenses stemming from delays to downstream OLED business normalization. Market P/E (19F, x) 14.3 (LGD’s OLED unit had struggled until 3Q.) KOSDAQ 661.85 Lo oking ahead, we expect uncertainty to ease gradually. We believe that POLED Market Cap (Wbn) 551 shipments to North American customers normalized in 4Q, and expect large-sized Shares Outstanding (mn) 16 OLED sales (the Guangzhou fab) to pick up full swing starting in 1Q20. Moreover, LCD Free Float (%) 66.7 panel prices are projected to rebound from 2Q20. Foreign Ownership (%) 37.4 Undervalued at P/B of 1x; Take a medium/long-term view Beta (12M) 1.25 52-Week Low 31,000 We lower our target price on Silicon Works to W44,000 (down 8.3% from W48,000 ). We 52-Week High 50,800 adjusted down our 2019F and 2020F EPS by 14% and 4%, respectively, to reflect one-off expenses in 3Q and revenue contraction resulting from customers’ LCD line shutdowns. (%) 1M 6M 12M The recent setbacks appear to be a necessary part of business transformation (from LCD Absolute 1.7 -23.5 -10.8 to OLED), and we expect the company to post record-high earnings in 2020 tha nks to Relative -2.8 -18.1 -9.6 strong OLED volume growth.

150 Silicon Works KOSDAQ The stock, currently trading at a 2020F P/E of 9.2x, seems undervalued relative to its

130 global peers (2020F P/E of 14.5x for Novatek [3034 TT/CP: NT$216.00]). The firm’s ex- cash P/E stands at 5.8 x (excluding cash and cash equivalents worth W200bn). While 110 earnings and market conditions have been disappointing, uncertainty should dissipate

90 gradually, and we thus advise investors with a medium/long-term view to buy the stock. 70 11.18 3.19 7.19 11.19

Mirae Asset Daewoo Co., Ltd.

[ Display/Batteries ] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 610 693 792 869 927 1,001 Chuljoong Kim +822 -3774 -1464 OP (Wbn) 51 46 56 43 67 74 [email protected] OP Margin (%) 8.4 6.6 7.1 4.9 7.2 7.4

NP (Wbn) 51 47 49 40 60 67 EPS (W) 3,116 2,894 3,010 2,450 3,687 4,111 ROE (%) 13.9 11.9 11.4 8.7 12.1 12.2

P/E (x) 8.9 18.3 11.2 13.8 9.2 8.2 P/B (x) 1.2 2.1 1.2 1.2 1.1 1.0 Dividend Yield (%) 3.2 1.3 2.5 2.0 3.0 3.0 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

Display OLED update: Clear strategic direction

Overweight (Maintain)

Industry Report Samsung Display to widen its lead over rivals November 14, 2019 In 2020, Samsung Display is likely to step up efforts to widen its lead over rivals by reducing flexible OLED costs. The company is pursuing the full-fledged operation of six Y-OCTA lines (capable of cutting panel production costs by nearly 10%), while minimizing maintenance by streamlining back-end processes and introducing new Mirae Asset Daewoo Co., Ltd. equipment. Furthermore, depreciation of the A3 lines, the first of which commenced

[Display/Batteries ] operation in 2015, should begin to draw to a close in 2020.

Chuljoong Kim We expect Samsung Display to resume capex for its A5 facility (small/mid-sized OLED), +822 -3774 -1464 with building/infrastructure investments likely to kick off in late 2019 or early 2020, [email protected] followed by equipment spending. We estimate that in order to meet foldable demand

in 2022, Samsung Display will need capacity of 60,000 sheets/month (assuming that A5 is dedicated to foldable displays). With depreciation of seven existing A3 lines ( for a North American customer; 105,000 sheets/month) set to completely end in 2022, we

think the company has sufficient room for new capex.

China OLED investments: Faster and greater than expected Chinese panel makers’ OLED investments are progressing more rapidly and on a larger scale than previously expected. Although we initially projected that CSOT (T4) and BOE (000725 CH/CP: RMB3.75; B12) would invest in only one line each (15,000 sheets/month), they appear to be executing investments in two lines each.

For CSOT’s T4 (30,000 sheets/month), Korean makers have steadily won orders since tenders invitations for ion implanters were posted on China Bidding in early October. Given the general time lag between China Bidding posting and actual order placement, Korean equipment makers’ purchase orders (POs) should be concentrated in December.

Although there had been concerns over a potential delay to BOE’s investments for B12, the company started posting tender invitations (for FMM EV systems) on China Bidding on November 13 th . Given the number of evaporators and ion implanters posted, BOE appears to be executing investments for at least two lines (30,000 sheets /month) simultaneously.

OLED equipment/materials suppliers deserve attention The foldables market is taking off, driving up the growth potential of OLED makers and equipment/parts suppliers. In particular, we expect Samsung Display’s OLED unit to continue to deliver solid earnings despite the entry of competitors, thanks to: 1) the end of depreciation for existing lines; and 2) cost-cutting efforts (Y-OCTA lines). Furthermore, A5 capex is likely to be resumed.

We believe the overall OLED supply chain deserves attention. Among OLED equipment makers, we recommend AP Systems (265520 KQ/Buy/TP: W42,000/CP: W30,950 ) and ICD (040910 KQ/Buy/TP: W22,000/CP: W17,600 ), as they have high China exposure and are likely to benefit most from Samsung Display’s A5 investments. In the OLED parts/materials segment, we prefer SKC Kolon PI (178920 KQ/Buy/TP: W51,000/CP: W35,100 ), which should benefit from foldable market expansion and the domestic sourcing of materials. In addition, given that Samsung Display is likely to execute back- end process investments (particularly for foldables) before front-end process investments, back-end process equipment suppliers warrant close attention. .

Mirae Asset Daewoo Research Key Universe Valuations November 15, 2019

※All data as of close November 13, 2019, unless otherwise noted.

19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 Samsung Electronics 315,205 52,800 2.7 -54.3 40.3 -47.7 35.9 16.8 12.3 1.4 1.3 8.6 10.8 000660 SK Hynix 60,715 83,400 1.8 -85.8 150.5 -85.5 140.0 26.9 11.2 1.2 1.1 4.7 10.7 035420 NAVER 29,666 180,000 0.2 -16.6 76.2 -46.2 130.5 85.1 36.9 4.3 3.9 6.5 13.6 005380 Hyundai Motor 26,602 124,500 3.2 45.9 22.7 116.0 32.0 10.8 8.2 0.5 0.5 4.6 5.8 068270 Celltrion 23,935 186,500 - - - - 0.0 0.0 012330 Hyundai Mobis 23,445 246,000 1.6 10.3 7.8 25.4 8.8 10.1 9.3 0.7 0.7 7.4 7.4 051910 LG Chem 22,554 319,500 1.3 -47.5 54.5 -63.7 118.3 46.8 21.5 1.4 1.4 3.1 6.6 055550 Shinhan Financial Group 20,723 43,700 12.3 3.9 10.0 -0.2 6.0 6.0 0.5 0.5 9.1 8.4 017670 SK Telecom 19,540 242,000 4.1 7.3 -3.5 -60.6 68.2 15.9 9.4 0.8 0.7 5.4 8.8 028260 Samsung C&T 19,443 102,500 2.0 -27.7 39.8 -42.8 17.9 20.0 17.0 0.6 0.6 4.0 3.9 051900 LG H&H 19,226 1,231,000 0.9 12.8 9.7 16.5 10.7 24.2 21.8 5.3 4.5 20.3 19.1 005490 POSCO 19,181 220,000 5.0 -23.9 -9.2 37.8 -0.3 8.2 8.3 0.4 0.4 5.3 5.1 034730 SK Holdings 18,786 267,000 1.9 0.6 27.1 -51.4 16.8 17.3 14.8 1.0 1.0 6.3 6.9 105560 KB Financial Group 18,271 43,700 9.3 2.3 12.6 0.5 5.3 5.3 0.5 0.4 9.2 8.5 015760 KEPCO 18,071 28,150 - - - - - 147.4 0.3 0.3 - 0.2 000270 Kia Motors 17,633 43,500 2.1 82.2 7.7 95.5 11.5 7.8 7.0 0.6 0.6 8.0 8.3 006400 Samsung SDI 16,263 236,500 0.4 -33.0 108.9 -38.3 99.8 38.5 19.3 1.3 1.2 3.5 6.7 018260 Samsung SDS 15,243 197,000 1.3 10.4 12.3 10.3 11.8 22.0 19.6 2.3 2.1 11.1 11.3 032830 Samsung Life 15,020 75,100 - - - - 0.0 0.0 096770 SK Innovation 14,702 159,000 5.0 -37.5 28.9 -60.6 85.6 22.9 12.4 0.8 0.7 3.6 6.5 033780 KT&G 13,661 99,500 4.2 12.8 5.6 17.5 5.1 12.9 12.3 1.5 1.4 12.7 12.6 035720 Kakao 12,962 154,500 0.1 184.6 138.3 226.0 114.7 77.3 36.0 2.5 2.4 3.2 6.7 003550 LG Corp. 12,579 72,900 3.4 -28.0 45.0 -18.4 16.8 8.4 7.2 0.7 0.6 8.1 8.9 036570 NCsoft 11,548 526,000 1.2 6.0 76.9 33.5 52.9 20.7 13.5 3.6 2.9 21.6 27.0 066570 LG Electronics 11,292 69,000 1.1 -4.2 15.6 -39.2 107.1 16.6 8.0 0.8 0.8 5.1 9.9 090430 AmorePacific 10,844 185,500 0.6 -15.7 30.9 -9.8 31.4 36.2 27.5 2.8 2.6 6.6 8.1 010950 S-Oil 10,752 95,500 1.4 18.3 161.1 0.4 471.9 43.0 7.5 1.7 1.4 3.9 20.1 086790 Hana Financial Group 10,674 35,550 4.6 2.7 14.8 -6.2 4.1 4.4 0.4 0.3 9.2 8.1 000810 Samsung F&M 10,636 224,500 - - - - 0.0 0.0 009150 Samsung Electro-Mechanics 8,291 111,000 1.0 -32.8 17.4 -5.4 -2.9 13.9 14.3 1.5 1.4 12.1 10.5 009540 KSOE 8,174 115,500 - 88.1 - -39.1 33.3 54.7 0.7 0.7 2.1 1.3 010130 Korea Zinc 8,029 425,500 2.6 12.2 15.7 25.4 9.3 12.1 11.1 1.2 1.1 10.2 10.3 011170 Lotte Chemical 7,729 225,500 4.7 -35.3 21.0 -39.4 30.8 8.1 6.2 0.6 0.5 7.3 9.0 251270 Netmarble 7,622 88,900 1.8 57.7 14.5 36.9 34.9 25.5 1.6 1.5 4.9 6.3 091990 Celltrion Healthcare 7,556 52,500 - 144.5 435.7 165.0 123.3 46.5 4.2 4.0 3.7 9.3 030200 KT 7,115 27,250 4.0 -2.4 -1.1 -7.8 21.0 11.2 9.3 0.5 0.5 4.7 5.5 024110 Industrial Bank of Korea 6,926 12,000 0.6 -0.8 -1.0 -2.3 4.5 4.7 0.4 0.3 8.0 7.3 018880 Hanon Systems 6,085 11,400 - - - - 0.0 0.0 032640 LG Uplus 6,047 13,850 4.7 -11.8 10.9 -16.7 15.0 15.1 13.1 0.9 0.8 5.8 6.4 086280 Hyundai Glovis 5,700 152,000 2.2 22.7 2.0 3.3 34.0 12.6 9.4 1.2 1.1 10.1 12.2 Hyundai Heavy Industries 267250 5,578 342,500 5.4 -1.6 92.1 74.3 199.2 11.9 4.0 0.7 0.6 6.0 16.5 Holdings 034220 LG Display 5,188 14,500 ------0.4 0.4 - - 000720 Hyundai E&C 4,838 43,450 1.2 20.6 14.3 32.0 12.8 9.6 8.5 0.7 0.7 7.8 8.2 010140 Samsung Heavy Industries 4,429 7,030 - - - - - 44.9 0.7 0.7 - 1.7 029780 Samsung Card 4,333 37,400 11.7 -28.6 1.7 6.8 12.3 11.6 0.6 0.6 1.5 1.6 271560 Orion 4,250 107,500 0.6 12.3 7.0 52.7 9.2 19.9 18.2 2.6 2.3 14.1 13.4 004020 Hyundai Steel 4,224 31,650 2.4 -45.2 39.1 -75.8 289.4 43.9 11.3 0.2 0.2 0.6 2.1 071050 Korea Investment Holdings 3,962 71,100 - - - - 0.0 0.0 023530 Lotte Shopping 3,791 134,000 3.9 7.2 0.1 - -4.5 13.7 14.4 0.3 0.3 2.3 2.2 004990 LOTTE Corporation 3,771 35,950 2.2 91.0 11.9 198.2 20.3 6.9 5.7 0.4 0.4 7.5 8.3 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data November 15, 2019

※All data as of close November 14, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 448.27 -6.30 -1.39 4.51 USD/KRW 1,167.60 1,163.50 1,189.30 1,135.70 KOSPI 2,139.23 16.78 0.79 6.43 JPY100/KRW 1,073.41 1,067.68 1,096.13 998.15 KOSDAQ 663.31 1.46 0.22 -0.91 EUR/KRW 1,285.41 1,281.25 1,311.86 1,284.59 Dow Jones* 27,783.59 92.10 0.33 19.10 3Y Treasury 1.52 1.51 1.28 1.92 S&P 500* 3,094.04 2.20 0.07 23.27 3Y Corporate 2.02 2.02 1.79 2.39 NASDAQ* 8,482.10 -3.99 -0.05 27.25 DDR4 8Gb* 2.83 2.83 3.06 6.79 Philadelphia Semicon* 1,732.86 0.43 0.02 48.70 NAND MLC 64G* 2.30 2.30 2.33 3.06 FTSE 100* 7,351.21 -14.23 -0.19 9.16 Oil (Dubai)* 61.48 62.16 60.44 68.48 Nikkei 225 23,141.55 -178.32 -0.76 18.30 Gold* 1,463.30 1,453.70 1,482.70 1,201.40 Hang Seng* 26,571.46 -493.82 -1.82 5.73 Customer deposits (Wbn)* 25,230 25,070 25,009 23,515 Taiwan (Weighted) 11,450.42 -17.41 -0.15 -99.82 Equity type BC (Wbn)(Nov. 12) 81,439 81,220 78,996 81,471 Note: * as of November 13, 2019 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell NAVER 72.72 Samsung Electronics 71.40 Samsung Electronics 79.62 SK C&C 24.09 Feelux 7.78 Samsung Electronics (P) 22.79 KEPCO 32.68 KODEX 200 Futures Inverse 2X 10.15 Fila Korea 5.99 Hynix 20.34 Hynix 26.58 HDC-OP 9.25 F&F 5.56 TIGER200 19.97 KODEX Leverage 23.95 S-Oil 8.85 Hanwha Chemical 5.39 KT&G 15.33 NAVER 19.59 KODEX Inverse 7.77 Kakao 4.27 KODEX 200 14.37 TIGER200 19.38 Hyundai Development E&C 5.32 Woongjin Coway 3.85 POSCO 8.99 KODEX 200 16.98 Hyundai Steel 5.27 H.S Enterprise 3.56 Celltrion 7.96 Samsung Electronics (P) 12.56 F&F 5.18 Macquarie Korea Samsung Biologics 3.14 KODEX 200 Futures Inverse 2X 7.45 Samsung SDI 10.69 4.84 Infrastructure Fund Hwaseung Industries 2.80 Shinhan Financial Group 7.10 KB Financial Group 9.11 Doosan Corp. 4.50 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Mezzion Pharma 11.77 Ray 11.39 Ray 10.29 KMW 10.95 ICD 7.15 CMG Pharm. 10.52 AP Systems 5.95 6.65 ViroMed 4.24 Systems Technology 6.57 Studio Dragon 5.72 Nepes 6.53 Nepes 3.45 KMW 5.07 ITM Semiconductor 5.62 RFHIC 5.73 Seojin System 3.04 AP Systems 4.39 SFA Engineering 4.95 AfteecaTV 5.31 SillaJen 2.55 iNtRON Bio 3.31 Silicon Works 3.08 CJ ENM 4.44 HyVISION 2.31 Telcon RF Pharm. 3.30 Medy-tox 3.06 Seojin System 3.59 JAS Tech 2.27 KH Vatec 2.79 Systems Technology 3.01 WebCash 2.72 Hyundai IT 2.06 CHA Biotech 2.75 SM 2.96 Mezzion Pharma 2.71 RFHIC 1.68 HLB 2.51 SKC Kolon PI 2.66 Cellivery 1.61 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 52,800 300 315,205 Celltrion Healthcare 52,500 1,700 7,556 Hynix 83,400 0 60,715 HLB 137,300 -1,200 5,457 Samsung Electronics (P) 42,350 -350 34,849 CJ ENM 148,800 -2,000 3,263 NAVER 180,000 22,000 29,666 PearlAbyss 199,000 -5,800 2,592 Hyundai Motor 124,500 0 26,602 Studio Dragon 78,900 3,700 2,217 Samsung Biologics 395,500 6,000 26,168 ViroMed 98,100 500 2,101 Celltrion 186,500 5,500 23,935 Hugel 395,000 0 2,022 Hyundai Mobis 246,000 4,500 23,445 Mezzion Pharma 226,400 2,800 1,971 LG Chem 319,500 5,000 22,554 KMW 49,100 -2,200 1,954 Shinhan Financial Group 43,700 400 20,723 SK Materials 177,000 -200 1,867 Source: Korea Exchange