March 19, 2018

KOREA Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) Hanwha Techwin (012450/Buy/TP: W37,400) KOSPI 2,493.97 1.59 0.06 Cheap valuation vs. uncertainties KOSPI 200 322.88 0.14 0.04 KOSDAQ 894.43 4.00 0.45

Turnover ('000 shares, Wbn) Volume Value KOSPI 372,335 6,391 KOSPI 200 74,341 4,746 KOSDAQ 797,854 5,611

Market Cap (Wbn) Value KOSPI 1,656,858 KOSDAQ 287,884

KOSPI Turnover (Wbn) Buy Sell Net Foreign 2,171 2,070 100 Institutional 1,145 1,235 -89 Retail 3,059 3,059 0

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 776 667 109 Institutional 194 265 -70 Retail 4,643 4,666 -23

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,997 1,873 124 KOSDAQ 453 382 71

Advances & Declines Advances Declines Unchanged KOSPI 438 377 72 KOSDAQ 574 581 100

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 2,557,000 -20,000 615 Hynix 89,800 200 443 Celltrion 324,000 1,500 440 KODEX LEVERAGE 17,255 -80 275 KODEX KOSDAQ150 24,760 170 222 LEVERAGE

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value NATURECELL 62,200 8,200 404 Diostech 40,600 2,550 356 SillaJen 119,100 2,200 313 TELCON 14,800 1,800 176 Celltrion Healthcare 109,200 1,000 113 Note: As of March 16, 2018 Mirae Asset Daewoo Research This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose.

Hanwha Techwin

(012450 KS) Cheap valuation vs. uncertainties

Technology Investors taking note of cheap valuation, but also earnings/business structure uncertainties Results Comment March 19, 2018 We recently held foreign investor meetings on Hanwha Techwin. Many investors took note of the company’s low valuation, which currently stands at a 2018F P/B of just 0.8x, in line with the levels seen in 2015, during the ownership transition from Samsung to . But investors also expressed concerns over some uncertainties, including those surrounding earnings. (Maintain) Buy 1) Aircraft engine/parts: In 2015, Hanwha Techwin signed a risk and revenue sharing Target Price(12M, W) 37,400 program (RSP) deal (2.3% stake) with Pratt & Whitney to jointly develop geared turbofan engines (GTF). While the program has promising long-term potential, the Share Price (03/16/18, W) 29,250 problem is that, in the short term, it only incurs costs. RSP expenses ballooned from W7.2bn in 2016 to W48.9bn in 2017 and are expected to grow further to W90bn in Expected Return 28% 2019.

2) Security camera: Revenue from the security camera business grew to W719.3bn in 2013 following the acquisition of ’ (SEC) CCTV business, but it has OP (17F, Wbn) 83 since declined (W580bn in 2017). OP margin, which was once around 20%, has also Consensus OP (17F, Wbn) 84 slipped into negative territory (-6.4% in 2017). What’s more worrying is that all of this EPS Growth (17F, %) - happened despite the company’s restructuring efforts. Market EPS Growth (17F, %) 45.2 The second source of uncertainty is business structure. In April 2017, Hanwha Techwin P/E (17F, x) - spun off its existing businesses into Hanwha Land Systems, Hanwha Power Systems, Market P/E (17F, x) 10.4 Hanwha Precision Machinery, Hanwha Defense, and Hanwha Systems. In February KOSPI 2,493.97 2018, the company announced plans to spin off its security camera business and Market Cap (Wbn) 1,539 instead focus on the aircraft engine/parts business, renaming itself Hanwha Shares Outstanding (mn) 53 Aerospace. While the move will allow for more independent/accountable management (and while an IPO would be good for cash flow), a lot of uncertainties remain over how Free Float (%) 67.1 the situation will unfold. Foreign Ownership (%) 12.8 Beta (12M) 1.14 Limited prospects of earnings recovery; Security camera business will be key 52-Week Low 27,250 For 1Q18, we expect revenue of W822.2bn (+6.2% YoY, -46.5% QoQ) and operating 52-Week High 53,100 profit of W2.8bn (-75.2% YoY, -94.0% QoQ). Earnings should be weighed down by: 1) a (%) 1M 6M 12M decline in defense-related earnings; and 2) continued sluggishness in security cameras Absolute 5.8 -22.2 -36.1 and aircraft engine/parts. We think the company could even record an operating loss Relative 2.7 -25.6 -44.9 due to RSP expenses.

130 Hanwha Techwin KOSPI Maintain Buy and TP of W37,400

110 While valuation is indeed cheap, we do not see any meaningful earnings recovery in

90 the near term. RSP is a promising business from a long-term perspective, but not all investors are in it for the long haul. We believe a recovery in security camera earnings 70 and more clarification on RSP and the subsidiary structure is needed. In light of the

50 stock’s cheap valuation, we maintain our Buy rating and target price of W37,400. 3.17 7.17 11.17 3.18

Mirae Asset Daewoo Co., Ltd.

[ Telecom Equipment/Electronic FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F Components] Revenue (Wbn) 2,616 2,613 3,519 4,215 4,283 4,598

Wonjae Park OP (Wbn) 8 -60 151 83 69 137 +822-3774-1426 OP margin (%) 0.3 -2.3 4.3 2.0 1.6 3.0 [email protected] NP (Wbn) -119 6 345 -48 40 95

SeungHo Yoo EPS (W) -2,236 108 6,498 -913 773 1,824 +822-3774-1832 ROE (%) -7.1 0.3 15.1 -2.1 1.9 4.2 [email protected] P/E (x) - 329.2 6.7 - 37.9 16.0 P/B (x) 0.8 0.8 1.0 0.9 0.7 0.7

Dividend yield (%) 0.0 0.8 0.0 0.0 0.0 0.3

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.

March 19, 2018 Hanwha Techwin

Earnings and forecasts

Table 1. Quarterly and annual earnings (Wbn, %, %p) 2017P 2018F 1Q18F 2016 2017P 2018F 1Q 2Q 3Q 4QP 1QF 2QF 3QF 4QF YoY QoQ Revenue 774.3 1,036.3 868.6 1,536.2 822.2 999.4 1,160.2 1,301.6 3,518.8 4,215.4 4,283.4 6.2 -46.5 CCTV 136.7 168.1 143.5 136.2 123.0 142.9 157.9 147.1 637.8 584.5 570.9 -10.0 -9.7 Engine/energy equip. 221.2 234.6 213.3 271.2 199.1 210.0 266.6 217.0 1,050.7 940.3 892.6 -10.0 -26.6 Hanwha Power Systems 23.5 67.7 36.6 72.0 47.0 47.4 54.9 68.4 197.1 199.8 217.7 100.0 -34.7 Hanwha Precision Machinery 55.9 73.1 56.3 68.1 64.7 71.2 81.8 77.7 169.3 253.4 295.4 15.7 -5.0 Hanwha Systems 134.6 153.0 150.3 385.5 154.2 185.0 203.5 285.0 217.3 823.4 827.7 14.6 -60.0 Hanwha Land Systems 110.5 187.7 149.8 323.4 129.4 168.2 201.8 282.5 714.4 771.4 781.9 17.1 -60.0 Hanwha Defense 92.0 152.1 129.5 296.7 118.7 188.6 207.4 238.5 532.0 670.3 753.2 29.1 -60.0 Operating profit 11.2 23.2 2.2 46.3 2.8 9.8 29.3 27.4 150.7 82.9 69.2 -75.2 -94.0 CCTV -0.1 -3.7 -10.3 -23.2 -12.3 -14.3 -12.6 -7.4 33.7 -37.3 -46.6 RR RR Engine/energy equip. 12.6 5.2 -1.3 -20.5 -2.0 -4.2 7.5 -6.5 58.0 -4.0 -5.2 TTR RR Hanwha Power Systems -7.1 -2.2 -0.7 6.5 1.4 1.4 1.1 3.1 -12.8 -3.5 7.0 TTB -78.3 Hanwha Precision Machinery 3.7 10.0 4.1 3.3 3.3 4.6 5.9 4.4 -15.4 21.2 18.2 -11.9 0.0 Hanwha Systems -1.5 -1.8 2.2 25.4 2.3 2.8 5.1 10.0 13.5 24.3 20.2 TTB -90.9 Hanwha Land Systems 1.3 9.9 2.6 44.9 10.3 14.3 16.1 15.5 38.6 58.7 56.3 709.6 -77.0 Hanwha Defense 2.3 5.8 9.4 14.4 3.9 9.3 10.4 12.5 35.1 31.9 36.1 67.8 -73.2 OP margin 1.4 2.2 0.3 3.0 0.3 1.0 2.5 2.1 4.3 2.0 1.6 -1.1 -2.7 Pretax profit 5.9 19.1 -10.1 3.0 0.4 3.2 24.2 19.7 418.5 17.8 47.5 -92.8 -85.8 Net profit 9.9 17.1 -17.6 -57.7 0.4 2.7 20.6 16.8 345.2 -48.2 40.4 -96.4 TTB Pretax margin 0.8 1.8 -1.2 0.2 0.1 0.3 2.1 1.5 11.9 0.4 1.1 -0.7 -0.1 Net margin 1.3 1.7 -2.0 -3.8 0.0 0.3 1.8 1.3 9.8 -1.1 0.9 -1.3 3.8 Source: Company data, Mirae Asset Daewoo Research estimates

Figure 1. Hanwha Techwin share price

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2

Mirae Asset Daewoo Research Key Universe Valuations March 19, 2018

※All data as of close March 15, 2018, unless otherwise noted.

18F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 068270 Celltrion, Inc. 39,744 324,000 - - - - 0.0 0.0 005380 Hyundai Motor 34,694 157,500 2.5 7.4 21.1 10.6 20.2 10.1 8.4 0.6 0.6 6.3 7.1 005490 POSCO 29,818 342,000 3.0 18.0 2.5 26.0 2.7 8.5 8.3 0.6 0.6 7.7 7.4 207940 29,642 448,000 1031.1 242.1 - 386.7 687.7 141.3 7.4 7.0 1.1 5.1 051910 LG Chem 29,190 413,500 1.5 1.4 20.9 17.0 21.2 14.2 11.7 1.7 1.6 13.2 14.3 035420 NAVER 26,403 801,000 0.2 21.4 22.1 28.9 21.7 26.5 21.8 3.8 3.3 19.0 19.3 105560 KB Financial Group 26,216 62,700 18.2 5.0 3.8 5.0 7.5 7.2 0.7 0.7 9.9 9.6 032830 Samsung Life 23,700 118,500 - - - - 0.0 0.0 012330 22,535 231,500 1.5 5.2 10.9 44.4 9.0 9.8 9.0 0.7 0.7 7.5 7.6 034730 SK Holdings 22,058 313,500 1.2 9.6 -0.7 12.3 7.2 9.9 9.3 1.3 1.1 14.5 13.6 055550 21,363 45,050 16.8 4.6 11.5 4.6 6.6 6.3 0.6 0.5 9.5 9.2 015760 KEPCO 20,575 32,050 3.1 23.4 42.9 120.3 57.4 6.8 4.3 0.3 0.3 4.2 6.3 018260 Samsung SDS 20,080 259,500 1.0 18.2 12.1 19.5 11.0 31.7 28.5 3.3 3.0 10.8 11.0 017670 SK Telecom 19,339 239,500 4.2 0.1 1.7 13.8 -7.2 6.4 6.9 0.9 0.8 15.9 13.2 096770 SK Innovation 19,279 208,500 3.8 1.5 0.7 9.6 0.6 8.2 8.2 1.0 0.9 12.3 11.4 090430 AmorePacific 18,093 309,500 0.6 19.9 18.0 29.1 16.1 42.0 36.2 4.7 4.3 11.7 12.3 066570 LG Electronics 18,083 110,500 0.6 40.7 20.9 29.7 22.2 8.9 7.3 1.3 1.1 15.2 16.0 051900 LG Household & Health Care 17,992 1,152,000 1.0 7.5 9.9 10.2 10.3 30.5 27.7 5.6 4.9 20.4 19.3 003550 LG Corp. 15,599 90,400 1.4 0.8 6.8 -21.5 7.1 8.5 7.9 0.9 0.8 11.1 10.8 091990 Celltrion Healthcare 15,018 109,200 64.5 44.1 29.6 56.9 46.3 29.5 12.5 8.8 31.2 34.9 006400 Samsung SDI 14,819 215,500 0.5 319.7 40.6 39.3 14.8 16.0 14.0 1.2 1.1 8.1 8.7 011170 Lotte Chemical 14,584 425,500 2.5 4.1 8.0 13.8 11.3 5.7 5.1 1.0 0.9 19.8 18.5 086790 13,971 47,200 18.3 7.6 12.6 7.9 6.1 5.6 0.5 0.5 9.2 9.1 033780 KT&G 13,867 101,000 4.8 -5.5 0.5 -8.7 -0.7 13.1 13.1 1.6 1.5 13.2 12.3 010950 S-Oil 13,454 119,500 5.6 15.6 30.2 4.6 30.2 11.0 8.4 1.9 1.7 18.0 21.2 000810 Samsung F&M 13,265 280,000 - - - - 0.0 0.0 000270 Motors 13,195 32,550 3.1 150.6 21.8 110.1 17.0 6.5 5.5 0.5 0.4 7.3 8.0 251270 Games Corporation 12,712 149,500 0.2 0.8 3.1 0.9 3.4 40.5 39.1 2.9 2.7 7.3 7.1 002790 AmoreG 11,585 140,500 0.4 24.5 12.2 30.3 7.7 47.3 43.9 3.7 3.5 8.5 8.5 035720 Corp. 10,754 141,000 0.2 10.4 24.7 2.5 25.0 84.2 67.3 1.9 1.8 2.5 2.7 034220 LG Display 10,090 28,200 1.8 -57.6 100.6 -58.4 104.2 13.4 6.6 0.7 0.6 5.1 9.7 024110 9,156 16,350 12.2 8.8 10.1 9.4 6.4 5.9 0.5 0.5 8.2 8.3 010130 Korea Zinc 9,058 480,000 1.8 7.9 2.9 20.3 2.8 11.8 11.5 1.4 1.2 12.1 11.3 036570 NCSOFT 8,984 409,500 2.4 70.7 3.7 65.4 3.8 12.3 11.9 2.7 2.3 25.5 22.2 009540 8,075 142,500 467.0 402.1 - - - 42.8 1.1 1.3 - 3.1 139480 Emart 8,000 287,000 0.5 29.3 11.3 -19.5 13.9 16.1 14.2 0.9 0.9 5.9 6.3 009150 Samsung Electro-Mechanics 7,283 97,500 0.8 80.5 12.1 87.3 15.5 25.0 21.6 1.6 1.5 6.7 7.3 030200 KT 7,272 27,850 2.9 11.1 1.7 21.0 12.8 9.0 8.0 0.5 0.5 6.6 7.0 161390 6,850 55,300 0.9 38.5 13.1 33.2 13.6 8.2 7.2 0.9 0.8 12.1 12.1 004020 6,766 50,700 1.5 9.4 5.8 9.2 6.9 6.8 6.4 0.4 0.4 5.8 5.9 021240 Coway 6,547 87,500 3.8 11.6 7.3 12.5 6.3 18.0 16.9 5.1 4.7 34.1 33.1 018880 Hanon Systems 6,272 11,750 - - - - 0.0 0.0 078930 GS Holdings 5,863 63,100 2.4 10.4 9.6 11.8 8.9 6.8 6.2 0.7 0.7 11.2 11.1 128940 5,818 511,000 -1.4 100.0 14.7 113.1 105.5 49.5 7.5 6.5 7.5 14.3 086280 5,681 151,500 2.0 1.1 5.3 -13.3 6.0 9.6 9.1 1.3 1.1 13.8 13.1 032640 LG Uplus 5,610 12,850 4.3 4.6 4.2 6.7 4.2 9.8 9.4 1.0 0.9 10.6 10.3 088350 Hanwha Life 5,576 6,420 - - - - 0.0 0.0 097950 CJ CheilJedang 5,117 340,000 0.9 16.7 10.2 -9.9 10.6 14.8 13.4 1.3 1.2 9.1 9.3 009830 Hanwha Chemical 5,068 30,750 1.1 0.7 -2.8 12.0 6.6 5.4 5.0 0.7 0.6 14.5 13.6 047810 Korea Aerospace Industries 4,932 50,600 1.3 - 48.4 - 81.1 91.5 50.5 4.4 4.2 4.7 8.5 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data March 19, 2018

※All data as of close March 16, 2018, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 564.81 0.03 0.01 1.92 USD/KRW 1,065.80 1,065.80 1,082.80 1,146.30 KOSPI 2,493.97 1.59 0.06 0.58 JPY100/KRW 1,002.59 1,002.78 1,004.13 1,010.89 KOSDAQ 894.43 4.00 0.45 10.09 EUR/KRW 1,311.57 1,318.34 1,337.20 1,230.67 Dow Jones* 24,873.66 115.54 0.47 0.20 3Y Treasury 2.28 2.27 2.27 1.70 S&P 500* 2,747.33 -2.15 -0.08 1.91 3Y Corporate 2.84 2.83 2.81 2.20 NASDAQ* 7,481.74 -15.07 -0.20 6.78 DDR2 1Gb* 1.34 1.34 1.34 1.24 Philadelphia Semicon* 1,422.07 -1.43 -0.10 10.43 NAND 16Gb* 3.01 3.01 2.89 2.29 FTSE 100* 7,139.76 7.07 0.10 -6.65 Oil (Dubai)* 61.45 61.23 61.67 50.01 Nikkei 225 21,676.51 -127.44 -0.58 -7.78 Gold* 1,317.80 1,325.60 1,352.10 1,200.70 Hang Seng* 31,541.10 106.09 0.34 3.36 Customer deposits (Wbn)* 28,415 27,343 26,637 22,406 Taiwan (Weighted) 11,027.70 9.25 0.08 2.96 Equity type BC (Wbn)(Mar. 14) 81,131 80,934 80,242 70,702 Note: * as of March 15, 2018 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Hynix 37.40 NHN 35.32 KODEX KOSDAQ150 LEVERAGE 24.20 Samsung Electronics 78.41 Samsung Electronics 31.95 Samsung Electronics (P) 29.64 Samsung Electronics (P) 16.80 Honam Petrochemical 20.17 Daum Communications 23.96 Amore Pacific 11.53 Amore Pacific 11.13 NHN 13.83 Samsung SDI 16.44 SK Telecom 9.59 SK Telecom 10.50 Korea Express 10.19 Celltrion 14.06 SK Energy 9.27 Hyundai Mobis 8.11 Hynix 9.35 NCsoft 13.70 Woori Bank 7.94 emart 7.84 LG Innotek 9.05 SEMCO 10.78 KEPCO 7.50 SK Energy 7.66 Korea Petrochemical Ind. 8.50 POSCO 9.85 5.43 KODEX INVERSE 6.99 Korea Zinc 8.26 LG Corp. 9.21 Doosan Infracore 5.39 Lotte Shopping 6.34 LG Corp. 7.61 SAMSUNG C&T 8.49 Hyundai Mobis 4.78 SAMSUNG C&T 5.97 LG Chem 7.42 Source: KSDA, Wisefn

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell NATURECELL 27.19 Medy-tox 6.05 DoubleUGames 3.60 NATURECELL 11.66 Diostech 16.34 Celltrion Healthcare 4.55 Com2us 2.82 Celltrion Healthcare 5.98 SillaJen 14.16 TissueGene(Reg.S) 4.30 SM 2.78 SillaJen 5.37 TELCON 13.72 Koh Young 3.68 2.44 PearlAbyss 4.97 AHNLAB 10.70 SFA Engineering 3.28 GenoFocus 1.90 SKPI 3.32 PearlAbyss 10.66 Jenexine 2.96 SM C&C 1.85 L&F 3.00 ENZYCHEM LSC 8.64 Posco Chemtech 2.63 ISPLUS 1.83 Wemade 2.97 Cafe24 Corp. 8.08 Value Added Technology 2.59 Jtuen Entertainment 1.69 Dongjin Semichem 2.84 Meerecompany 5.01 KMW 1.88 Diostech 1.63 Cafe24 Corp. 2.75 ViroMed 4.44 Nowcom 1.74 Meerecompany 1.57 Medy-tox 2.74 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 2,557,000 -20,000 328,284 Celltrion Healthcare 109,200 1,000 15,018 Hynix 89,800 200 65,375 SillaJen 119,100 2,200 8,119 Celltrion 324,000 1,500 39,744 ViroMed 241,000 1,000 3,845 Samsung Electronics (P) 2,095,000 -24,000 37,862 Medy-tox 633,400 -15,600 3,583 Hyundai Motor 157,500 0 34,694 CJ E&M 92,500 -200 3,583 POSCO 342,000 4,500 29,818 NATURECELL 62,200 8,200 3,293 SAMSUNG BIOLOGICS 448,000 2,500 29,642 TissueGene(Reg.S) 48,850 -800 2,975 LG Chem 413,500 -5,500 29,190 Celltrion 88,700 700 2,959 NHN 801,000 -19,000 26,403 Posco Chemtech 48,900 -1,200 2,889 KB Financial Group 62,700 1,000 26,216 PearlAbyss 238,000 -1,200 2,872 Source: Korea Exchange