Cj E&M (130960)

Earnings Review November 9, 2017

Above CJ E&M (130960) In line Below

12M rating BUY (Maintain) Upside and hurdles both apparent 12M TP W108,000 Up/downside +21% What's new: OP up 316% YoY, but still below consensus Stock Data 3Q17 earnings missed consensus on disappointing broadcasting results. Sales

KOSPI (Nov 8, pt) 2,552 climbed 16.2% YoY to W440.1bn and OP surged 316.3% YoY to W12.7bn. OPM Stock price (Nov 8, KRW) 89,400 firmed 2.5%p YoY to 2.9%, but fell 2.7%p QoQ. Specifically, the broadcasting Market cap (USD mn) 3,104 division posted OP of W9.2bn (+5.2% YoY) and music W6.8bn (+179.6% YoY), Shares outstanding (mn) 39 while movies posted an operating loss of W1.7bn (narrower loss YoY) and 52-Week high/low (KRW) 89,400/53,800 6M avg. daily turnover (USD mn) 16.3 performances W1.5bn (wider loss YoY). To reflect the poor operating conditions, Free float / Foreign ownership (%) 56.7/28.5 management lowered its full-year 2017 sales guidance to W1.7-1.9tn (from W1.8- Major shareholders (%) 2tn) and OP to W80-100bn (from W90-110bn). In addition, management reduced CJ Corp and 5 others 42.9 its 2018 target for TV ad sales growth by 15% and digital ad sales growth by 30%. Wellington Management Hong Kong 5.1 Limited and 1 others Pros: Music and media divisions continue to grow Valuation 2016A 2017F 2018F Sales continued to grow on solid results at the broadcasting and music divisions. PE (x) 44.0 7.1 20.8 At the music business, earnings have improved sharply on higher sales of in- PB (x) 1.8 1.7 1.6 house music and sound recordings fueled by Wanna One and Show Me the ROE (%) 4.0 27.3 8.0 Money season 6. Going forward, margins should improve further on synergies with DY (%) 0.3 0.3 0.3 the broadcasting division and reinforced proprietary IP. At the broadcasting division, EV/EBITDA (x) 7.4 7.1 6.5 EPS (KRW) 1,611 12,507 4,308 ad sales improved 5.7% YoY on better ratings at the major channels, while digital BPS (KRW) 40,052 51,608 55,600 ads continued to grow rapidly, increasing 50.2% YoY. Despite the top-line growth, CJ Blue, which was launched after acquiring the Blue Group – a content Performance production and ad agency in Vietnam in 4Q16 – posted a loss of W2.6bn amid the 1M 6M 12M Absolute (%) 15.8 5.4 34.0 post-merger integration process. Relative to KOSPI (%p) 9.2 (5.9) 6.6 Cons: Movie losses 12MF PER trend Plagued by poor results from The Battleship Island, the movie division posted an (X) 12MF PER (LHS) (KRW) 200,000 60 operating loss of W1.7bn. Specifically, sales fell 15.4% YoY as box office sales price (RHS) 180,000 50 160,000 plunged 40.1% but ancillary sales jumped 51.4% YoY. Operating losses narrowed 140,000 YoY (W7.4bn in 3Q16) as results last year were aggravated by the recognition of 40 120,000 accrued expenses related to the settlement of movie funds. Of note, the division 30 100,000 80,000 also post losses of W1.6bn in 2Q17. Going forward, CJ E&M plans to bolster its 20 60,000 portfolio, acquire a movie production company and establish an overseas JV, but 40,000 10 bolstering margins will be a critical hurdle. 20,000 0 0 Dec-14 Dec-15 Dec-16 Source: WISEfn consensus

(W bn, %, %p) 3Q17P Change 2017F KIS est. Actual Diff. Consensus QoQ YoY KIS Consensus Sales 438 440 0.5 427 3.5 16.2 1,798 1,764 OP 17 13 (25.1) 17 (46.1) 316.3 82 91 OP margin 3.9 2.9 (1.0) 4.0 (2.7) 2.1 4.6 5.2 EBT 26 24 (8.5) 30 (95.6) 152.7 644 654

Minha Choi NP 20 13 (32.8) 23 (96.7) 570.1 482 495 [email protected]

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 AT THE END OF THIS REPORT. CJ E&M (130960)

Conclusion: Bolstering in-house content production studio and overseas growth potential We maintain BUY with an SotP-derived TP of W108,000. Synergies with the broadcasting division and the growth of in-house album sales should stabilize music earnings. In fact, synergies among the different divisions are firming, and TV and digital ad sales should continue to grow steadily as CJ E&M bolsters competitiveness by reinforcing its content production studio model. In addition, the overseas growth strategy should accelerate, lifting sales and earnings.

Table 1. 3Q17 earnings review (W bn, %, %p) 3Q16 2Q17 3Q17 QoQ YoY KIS Diff. Consensus Diff. Sales 378.8 425.3 440.0 3.4% 16.2% 437.9 0.5% 427.2 3.0% OP 3.1 23.6 12.7 (46.1%) 316.3% 17.0 (25.1%) 17.3 (25.1%) OPM 0.8 5.6 2.9 (2.7%p) 2.1%p 3.9 (1.0%p) 4.0 (1.1%p) EBT 9.4 537.2 23.9 (95.6%) 152.7% 26.1 (8.5%) 29.5 (20.4%) Controlling NP 2.0 404.9 13.3 (96.7%) 570.1% 19.7 (32.5%) 22.4 (42.0%)

Source: Company data, FnGuide, Korea Investment and Securities

Figure 1. Quarterly sales and OP

(W bn) (%) 600 Sales (L) OPM (R) 7 6 500 5 4 400 3 2 300 1 0 200 (1) 100 (2) (3) 0 (4) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Source: Company data, Korea Investment and Securities

Figure 2. Media sales and OP Figure 3. Movies sales and OP

(W bn) (%) (W bn) (%) 450 12 100 15 Sales (L) OPM (R) Sales (L) OPM (R)

400 10 90 10

8 80 5 350 6 70 0 300 4 60 (5) 250 2 50 (10) 200 0 40 (15) (2) 150 30 (20) (4) 100 (6) 20 (25)

50 (8) 10 (30)

0 (10) 0 (35) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Source: Company data, Korea Investment and Securities Source: Company data, Korea Investment and Securities

2 CJ E&M (130960)

Figure 4. Music sales and OP Figure 5. Performance sales and OP

(W bn) (%) (W bn) (%) 70 12 12 50 Sales (L) OPM (R) Sales (L) OPM (R)

10 60 10 0 8 50 6 8 (50)

40 4 6 (100) 30 2

0 4 (150) 20 (2) 2 (200) 10 (4)

0 (6) 0 (250) 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Source: Company data, Korea Investment and Securities Source: Company data, Korea Investment and Securities

Table 2. Earnings forecast (W bn) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17F 3Q17F 4Q17F 2016 2017F 2018F Sales 313.5 357.3 378.8 488.8 394.3 425.3 440.0 538.8 1,538.4 1,798.5 1,982.0 Media 225.4 268.4 268.6 366.1 285.7 332.1 317.2 406.9 1,128.4 1,341.9 1,501.9 Film 40.3 40.6 56.2 52.4 56.6 44.5 47.5 54.3 189.5 202.9 215.7 Music 44.6 47.2 46.2 61.4 47.4 47.1 66.3 68.0 199.4 228.9 238.8 Performance 3.3 1.1 7.8 8.9 4.6 1.6 8.9 9.7 21.0 24.8 25.5 COGS 236.7 269.8 290.8 392.2 287.2 312.2 337.8 419.3 1,189.5 1,356.5 1,513.8 COGS/sales (%) 75.5 75.5 76.8 80.2 72.8 73.4 76.8 77.8 77.3 75.4 76.4 Gross profit 76.8 87.4 88.0 96.6 107.1 113.1 102.2 119.5 348.8 441.9 468.2 Gross margin (%) 24.5 24.5 23.2 19.8 27.2 26.6 23.2 22.2 22.7 24.6 23.6 SG&A 67.9 73.3 85.0 94.7 83.7 89.5 89.4 97.2 320.9 359.9 358.4 SG&A/sales (%) 21.7 20.5 22.4 19.4 21.2 21.1 20.3 18.0 20.9 20.0 18.1 OP 8.9 14.1 3.1 1.9 23.4 23.6 12.7 22.3 28.0 82.0 109.7 OPM (%) 2.8 4.0 0.8 0.4 5.9 5.6 2.9 4.1 1.8 4.6 5.5 Media 5.1 20.5 8.7 12.1 20.1 24.0 9.2 19.9 46.5 73.1 98.4 Film 3.8 (6.6) (7.4) (13.6) 1.9 (1.6) (1.7) (2.7) (23.9) (4.1) (2.4) Music (0.1) 1.3 2.4 3.6 2.4 2.0 6.8 5.2 7.2 16.4 16.7 Performance 0.1 (1.0) (0.8) (0.2) (1.0) (0.7) (1.5) (0.2) (1.8) (3.4) (3.0) EBT 14.6 47.6 9.4 (4.2) 45.2 537.2 23.9 37.8 67.5 644.1 211.2 Controlling-int. NP 13.2 43.2 2.0 3.8 33.2 404.9 13.3 31.1 62.2 482.4 166.2 (% YoY) Sales 7.0 19.4 2.4 27.0 25.8 19.1 16.2 10.2 14.2 16.9 10.2 Media 26.7 20.1 18.0 30.5 26.8 23.7 18.1 11.2 24.1 18.9 11.9 Film (38.9) 28.8 (39.6) 9.7 40.4 9.6 (15.5) 3.6 (20.5) 7.1 6.3 Music 6.3 9.4 (4.8) 21.6 6.4 (0.2) 43.5 10.7 8.3 14.8 4.3 Performance (55.7) 3.0 935.9 44.0 39.8 50.7 15.0 8.2 36.8 17.8 3.0 COGS 4.2 23.3 1.5 36.7 21.3 15.7 16.2 6.9 16.7 14.0 11.6 COGS/sales (%p) (2.0) 2.4 (0.7) 5.7 (2.7) (2.1) 0.0 (2.4) 1.7 (1.9) 1.0 Gross profit 16.5 8.7 5.4 (1.6) 39.5 29.4 16.1 23.7 6.4 26.7 5.9 Gross margin (%p) 2.0 (2.4) 0.7 (5.7) 2.7 2.1 (0.0) 2.4 (1.7) 1.9 (1.0) SG&A 19.7 17.1 21.6 10.1 23.3 22.1 5.2 2.7 16.6 12.2 (0.4) SG&A/sales (%p) 2.3 (0.4) 3.6 (3.0) (0.4) 0.5 (2.1) (1.3) 0.4 (0.8) (1.9) OP (2.9) (20.8) (77.5) (84.4) 162.2 67.2 316.3 1,081.7 (46.9) 193.0 33.9 OPM (%p) (0.3) (2.0) (2.9) (2.8) 3.1 1.6 2.1 3.7 (2.1) 2.7 1.0 Media 105.6 4.4 24.0 (29.0) 290.0 17.0 5.2 64.7 0.5 57.4 34.5 Film (41.8) na na na (48.7) na na na na na na Music na (37.5) na na na 50.7 179.6 45.7 980.3 127.5 2.1 Performance 109.0 na na na na na na na na na na EBT (86.1) 126.2 (71.5) na 208.6 1,027.9 152.7 na 13.8 853.9 (67.2) Controlling-int. NP (85.6) 225.2 (92.8) na 152.0 837.5 570.1 712.9 14.4 676.2 (65.5) Note: excluding advertising sponsorship Source: Company data, Korea Investment and Securities

3 CJ E&M (130960)

Figure 6. OP by division

(W bn) Media Movie Music Performance 40

30 9.7 23.4 23.6 22.3 17.8 14.1 12.1 20 13.6 1.9 12.7 3.1 9.2 8.9 10

(10) (3.3) (8.5)

(20) (10.5)

(30) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Source: Company data, Korea Investment and Securities

Table 3. CJ E&M 2H17 drama & entertainment line -up

Program Channel Genre Schedule Starting date Producer/Actors Duel OCN Drama Sat/Sun 22:20 2017.6.3~ Jung Jae-young, Kim Jung-eun Stranger tvN Drama Sat/Sun 21:00 2017.6.10~ Jo Seung-woo, Bae Doona The Bride of Habaek tvN Drama Mon/Tue 22:50 2017.7.3~ Shin Se-kyung, Nam Joo-hyuk Criminal Minds tvN Drama Wed/Thu 22:50 2017.7.26~ Son Hyun-joo, Lee Joon-gi, Moon Chae-won Save me OCN Drama Sat/Sun 22:20 2017.8.5~ Ok Taecyeon, Woo Do-hwan, Seo Ye-ji Live Up to Your Name tvN Drama Sat/Sun 21:00 2017.8.12~ Kim Nam-gil, Kim Ah-joong Director: Lee Yoon-jung (Cheese in the Trap) Argon tvN Drama Mon/Tue 22:50 2017.9.4~ Cast: Kim Joo-hyuk, Chun Woo-Hee Revenge Social Club tvN Drama Wed/Thu 22:50 2017.10.11~ Director: Kwon Suk-jang (Golden Time) Black OCN Drama Sat/Sun 22:20 2017.10.9~ Song Seung-heon, Go Ara Revolution tvN Drama Sat/Sun 21:00 2017.10.14~ Choi Siwon, Kang Sora, Gong Myeong Wise prison Life tvN Drama Wed/Thu 21:30 2017.10.14~ Park Haesu, Jeong Kyungho, Lee Kyuhyeong Rude Miss Young Ae tvN Drama Mon/Tue 21:30 2017.11.22~ Kim Hyunsook, La Miran, Lee Kyuhan Bad Guys (Season 2) OCN Drama Sat/Sun 22:20 2017.12.4~ Park Joong-hoon, Joo Jin-mo, Kim Mu-yeol Hwayugi tvN Drama Sat/Sun 22:20 2017.12.16 Lee Seungki, Cha Seungwon, Oh Yeonseo Director: Na Young-seok, Yang Jung-woo Trivia tvN Variety show Fri 21:50 2017.6.2~ Cast: You Hee-yeol, Rhyu Si-min, Kim Young-ha Director: Na Young-seok, Shin Hyo-jung New Journey to the West (Season 4) tvN Variety show Tue 21:30 2017.6.13~ Cast: Kang Ho-dong, Lee Soo-geun Show Me the Money (Season 6) Mnet Variety show Fri 23:00 2017.6.30~ Jay Park, Dok2, Tiger JK, Dynamic Duo Idol School Mnet, tvN Variety show Thu 21:30 2017.7.13~ Kim Tae-eun CP (Chief Producer, Superstar K) Director: Min Cheol-gi (King of Mask Singer) Shadow Singer tvN Variety show Fri 20:00 2017.7.14~ Cast: Kang Ho-dong, Ha Hyun-woo Director: Kim Yu-gon (Dad! Where Are We Going?) Leaving the Nest tvN Variety show Sat 19:40 2017.7.15~ Cast: Park Sang-won, Choi Min-soo Three Meals A Day: Director: Na Young-seok tvN Variety show Fri 21:50 2017.8.4~ Sea Ranch Cast: Lee Seo-jin, Eric Mun, Yoon Kyun-sang Director: Na Young-seok, Yang Jung-woo Korean butlers Olive, tvN Variety show Fri 21:50 2017.8.7~ Cast: You Hee-yeol, Rhyu Si-min, Kim Young-ha Albatross tvN Variety show Wed 21:30 2017.9.13~ Ahn Jeonghwan, Choo Sunghoon, Byeongjae Yoo Dear my human tvN Variety show Fri 20:20 2017.9.15~ Kim gura

Source: Media, CJ E&M, Korea Investment and Securities

Table 4. Earnings revisions (W bn) 2017F 2018F Previous Revised % Previous Revised % Sales 1,824.0 1,798.5 (1.4%) 2,030.8 1,982.0 (2.4%) OP 94.0 82.0 (12.8%) 120.0 109.7 (8.6%) OPM 5.2 4.6 (0.6%p) 5.9 5.5 (0.4%p) EBT 655.4 644.1 (1.7%) 219.0 211.2 (3.5%) NP 495.1 482.4 (2.6%) 163.9 166.2 1.4% Source: Korea Investment and Securities

4 CJ E&M (130960)

Table 5. TP calculation (W bn ) NOPLAT Multiple Value Notes Operating value (a) 2,245 Media 73.8 27 1,956 Applies 12MF NOPLAT Film 225 Value as a platform, applies 1x 2017 PS Music/Performance 6.4 10 64 Applies 2017 NOPLAT Game (b) 2,021 22.1% stake in Netmarble Games (20% discount) Business value 4,266 Net debt (c) 306 Fair value 3,959 =(a)+(b)-(c) Shares outstanding 38,575 Excl. treasury shares (‘000) TP (KRW) 102,635

Source: Korea Investment and Securities

Company overview & Glossary

CJ E&M was formed in March 2011 through a merger among CJ Group’s five media/entertainment affiliates: On Media, CJ Media, CJ Internet, M-net Media and CJ Entertainment. In March 2014, CJ E&M signed a deal to attract investment from Tencent to strengthen the game business Netmarble that was later split off from the company as CJ Netmarble. And then in October, CJ Netmarble and CJ Games merged to become Netmarble Games. With this, the game business was excluded from CJ E&M’s consolidated accounting. As of now, CJ E&M owns 27.6% of Netmarble Games. CJ E&M is a comprehensive content provider in the broadcast, film, music and performance businesses and CJ Corp. is the largest shareholder with 39.4%.

ò PPL(Product Placement): One of indirect advertising, exposes brands, images, etc which appear as small items in movie and drama scene.

ò Killer Contents: Broadcasting, animation, movies, music that have significant market impact

ò PIP(Platform in Platform): Earned revenue by selling ads through short clips of the internet portal platform

ò MCN(Multi-Channel Network): Media that helps distribution, sales, copyright management, advertisement attraction and etc. Sharing the profit with creator from video site such as Youtube

5 CJ E&M (130960)

Balance sheet Income statement

FY-ending Dec. (W bn) 2015A 2016A 2017F 2018F 2019F FY-ending Dec. (W bn) 2015A 2016A 2017F 2018F 2019F Current assets 940 996 1,150 1,262 1,381 Sales 1,347 1,538 1,798 1,982 2,142 Cash & cash equivalent 47 81 85 90 95 COGS 1,019 1,190 1,357 1,514 1,628 Accounts & other receivables 434 553 648 716 796 Gross profit 328 349 442 468 515 Inventory 4 5 5 6 7 Non-current assets 1,425 1,797 1,975 2,064 2,128 SG&A expense 275 321 360 358 379

Investment assets 603 659 750 807 851 Operating profit 53 28 82 110 136 Tangible assets 77 275 276 274 255 Financial income 19 19 16 18 19 Intangible assets 653 724 790 813 845 Total assets 2,365 2,793 3,125 3,326 3,509 Interest income 9 4 3 3 3 Current liabilities 642 937 810 877 878 Financial expense 21 37 30 30 33 Accounts & other payables 418 480 526 563 594 Interest expense 14 12 16 15 14 ST debt & bond 55 268 253 229 211 Other non-operating profit (120) (24) (22) (22) (24) Current portion of LT debt 121 101 111 133 105 Gains (Losses) in associates, 129 81 598 136 151 Non-current liabilities 162 240 255 242 248 subsidiaries and JV Debentures 100 140 140 115 115 Earnings before tax 59 68 644 211 249 LT debt & financial liabilities 32 34 35 35 32 Income taxes 6 7 166 52 61 Total liabilities 805 1,177 1,065 1,119 1,125 Controlling interest 1,552 1,546 1,994 2,148 2,333 Net profit 53 61 478 159 188 Capital stock 194 194 194 194 194 Net profit of controlling interest 54 62 482 166 196 Capital surplus 973 973 973 973 973 Other comprehensive profit (1) (103) (25) 0 0 Other Reserves 16 60 60 60 60 Total comprehensive profit 52 (42) 453 159 188 Retained earnings 370 420 892 1,047 1,231 Total comprehensive profit of Minority interest 9 69 65 59 51 54 (41) 457 166 196 controlling interest Shareholders' equity 1,560 1,616 2,059 2,207 2,384 EBITDA 373 428 546 587 629

Cash flow Key financial data

FY-ending Dec. (W bn) 2015A 2016A 2017F 2018F 2019F FY-ending Dec. 2015A 2016A 2017F 2018F 2019F

C/F from operating 295 259 80 471 468 per share data (KRW) EPS 1,409 1,611 12,507 4,308 5,080 Net profit 53 61 478 159 188 BPS 40,188 40,052 51,608 55,600 60,361 Depreciation 14 16 23 23 22 DPS 200 200 250 300 300 Amortization 306 384 441 453 471 Growth (%) Sales growth 9.3 14.2 16.9 10.2 8.1 Net incr. in W/C (42) (168) (269) (30) (57) OP growth NM (46.9) 193.3 33.8 23.5 Others (36) (34) (593) (134) (156) NP growth (75.8) 14.4 676.3 (65.6) 17.9 C/F from investing (189) (534) (67) (434) (413) EPS growth (75.8) 14.3 676.3 (65.6) 17.9 EBITDA growth 28.6 14.7 27.6 7.5 7.2 CAPEX (8) (212) (24) (22) (4) Profitability (%) Decr. in fixed assets 0 0 0 0 0 OP margin 3.9 1.8 4.6 5.5 6.3 Incr. in investment 162 137 481 80 107 NP margin 4.0 4.0 26.8 8.4 9.1 EBITDA margin 27.7 27.8 30.3 29.6 29.4 Net incr. in intangible assets (331) (358) (507) (477) (502) ROA 2.2 2.4 16.2 4.9 5.5 Others (12) (101) (17) (15) (14) ROE 3.6 4.0 27.3 8.0 8.7 C/F from financing (94) 306 (9) (32) (51) Dividend yield 0.2 0.3 0.3 0.3 0.3 Dividend payout ratio 14.2 12.4 2.0 7.0 5.9 Incr. in equity 3 95 0 0 0 Stability Incr. in debts (96) 218 (4) (27) (47) Net debt (W bn) (52) 372 345 297 227 Dividends 0 (8) (8) (10) (12) Int.-bearing debt/equity (%) 19.8 33.7 25.8 22.7 18.8

Others (1) 1 3 5 8 Valuation (X) PE 57.2 44.0 7.1 20.8 17.6 C/F from others 2 3 0 0 0 PB 2.0 1.8 1.7 1.6 1.5 Increase in cash 14 34 3 6 4 EV/EBITDA 8.2 7.4 7.1 6.5 5.9

Note: Based on K-IFRS (consolidated)

6 CJ E&M (130960)

Changes to recommendation and price target

% vs. avg. % vs. high Company (Code) Date Recommendation Price target price (low) CJ E&M(130960) 12-05-15 BUY W84,000 -6.9 13.1 12-05-16 1YR later -11.3 -9.4 31-05-16 BUY W110,000 -35.3 -28.7 10-08-16 BUY W95,000 -24.2 -6.6 30-03-17 BUY W108,000 - -

120,000

100,000

80,000

60,000

40,000

20,000

0 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17

7 CJ E&M (130960)

■ Guide to Korea Investment & Securities Co., Ltd. stock ratings based on 12-month forward share price performance relative to the market index ò BUY: Expected to outperform the market index by 15%p or more ò Hold: Expected to underperform or outperform the market index by less than 15%p ò Underweight: Expected to underperform the market index by 15%p or more ò Korea Investment & Securities does not offer target prices for stocks with Hold or Underweight ratings.

■ Guide to Korea Investment & Securities Co., Ltd. stock rating allocation (as of Sep 30, 2017)

BUY Hold Underweight (Sell) 78.6% 20.4% 1.0% Note: % of companies under coverage with this rating

■ Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months ò Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. ò Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. ò Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization.

■ Analyst Certification I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report.

■ Important compliance notice As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does not own 1% or more of any class of common equity securities of CJ E&M.

There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of the research report or at the time of the public appearance.

Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for CJ E&M in the past 12 months;

Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from CJ E&M in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intend to seek compensation for investment banking services from CJ E&M in the next 3 months.

Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in CJ E&M’s securities at the time that the research report was published.

Korea Investment & Securities Co., Ltd. does not own over 1% of shares of the companies mentioned in this report as of November 9, 2017. Korea Investment & Securities Co., Ltd. has not provided this report to various third parties. Neither the analyst/analysts who prepared this report nor their associates own any shares of the company/companies mentioned in this report as of November 9, 2017. Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of CJ E&M and is the liquidity provider.

Prepared by: Minha Choi

8 CJ E&M (130960)

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